Finance (No. 2) Bill

Rob Marris Excerpts

3rd reading: House of Commons
Tuesday 25th April 2017 Commons Chamber

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

During the coalition Government, fiscal policy was unnecessarily tight and our constituents paid the price. After seven years, we have moved to a position where, despite the Prime Minister in her election campaign saying that taxes will be lower under a Conservative Government—she has not actually said lower than what—this year, on projections which of course may or may not come to pass, taxation as a percentage of national income is likely to be at its highest ever level in peacetime. That is not exactly a low-tax Government.

For the Government to try to pretend that they are a low-tax Government is unfortunate during a general election. It also leads to an unfortunate trend on both sides of the House to talk about taxation as if it were an evil in and of itself. Taxation pays for public services, which all our constituents enjoy. I have no problem with taxation that is fair and sustainable—the Minister talked about that—and if we clamp down on tax avoidance. I only wish that the outgoing Government and the incoming Government, whoever they are, were more forceful on the public register of beneficial ownership of offshore-held accounts and funds, particularly since about half the amount around the world, as far as we can tell, is held in British overseas territories. The UK therefore has a huge role to play. I salute the role the Conservative Government have thus far played, but there is further to go. I hope that an incoming Labour Government on 9 June will take it a lot further.

I have done seven or eight Finance Bills in my time in this House. As some right hon. and hon. Members know, this will be my final speech to the House, as I am retiring at the general election. I will be putting my feet up in the garden and watching the rest of you work. One has to try, as the right hon. Member for Chichester (Mr Tyrie) always tried—he has rightly been praised in this debate—to be realistic about what is going on. What is going on is that, under the coalition Government and the Conservative Government of the past two years, inequality of income has fallen—that is true on the Gini coefficient—and unemployment has fallen fantastically. In round terms, employment is up by 2.75 million. That is a fantastic achievement. About one in five of those new jobs is a zero-hours contract and not all zero-hours contracts are decried by those who have them. The proportion of workers who are working part time has hardly changed in seven years. There will be some who are working part time who would prefer to work full time, but many of those who are working part time, including within that 2.75 million, choose to do so and they should have the flexibility to do so.

The achievement on falling unemployment has, however, been bought on a sea of debt. The national debt in the past seven years has gone up by almost 70%. That is an enormous amount in peace time in seven years. The deficit, I have to say to this outgoing Government, is a bit like Gordon Brown’s golden rule—another can that kept getting kicked down the road—that Government borrowing should, on the economic cycle, be balanced. Gordon Brown, as Chancellor and Prime Minister, kept redefining what the economic cycle was to try to make his figures work out.

With this Government and the previous Government, the annual deficit, which is still enormous, is always going to be sorted out in five years’ time. I am not sure how many of my constituents believe that any more, particularly in a year when, I think I am right in saying, the Government of Greece, through measures that every Labour Member and many Government Member would find far too painful, socially disruptive and unacceptable—measures forced on them by the troika and the International Monetary Fund—are due to record a surplus on their current account.

Here we are, in the wealthy United Kingdom, with a Government who are saying, as did their predecessor Government over the preceding five years, “We want to get the deficit down, and we will get it down in five years”—it is always mañana, always another five years—but who, on that measure, are doing far, far worse than the Government of Greece. It is an indictment of seven years of Conservative-led Government. My constituents have had the pain but not the gain. Inequality of wealth, in contradistinction to inequality of income, has increased very markedly in the past seven years. Not only do I find that distasteful as a socialist; as a citizen of the UK, I find it worrying, because if a society becomes too unequal, it carries a severe risk of social fracture.

We see that in the housing market. On current trends, many people will never have affordable housing. Those in the next generation who have it often have it because their parents or grandparents did as well and they have inherited a deposit or house from earlier generations in their family who owned property. That trend will lock in inequality into our society. Both sides of the House profess to decry and wish to address such inequality, but it will be locked in through the housing market because in the past 10 years, in particular, we have not built or created nearly enough housing units in the UK. It will have huge social implications when that trend creates rigid inequality that cannot be overcome, regardless of what we do on schooling, because it is locked in. Does someone inherit or not inherit a down payment on a house? That is very sad for a society in which average earnings—average incomes have risen because pensioner incomes have risen thanks to the triple lock—are still below what they were nine years ago before the crash.

That is not all the fault of the Government, who have taken some good steps, but they have not gone far enough on what they now call the national living wage. They are converts—the Conservative party opposed the minimum wage on principle when we introduced the legislation in 1998—and with the zeal of converts, they have gone a lot further than I and many Labour Members expected in terms of a statutory minimum wage and national living wage, but they still have not gone far enough. That is bad for social cohesion and poverty in this country and bad for economic growth, because in a capitalist society, one way to drive productivity is through higher wages and a substitution of capital for labour. When we substitute capital for labour, very often—not in every case, but overall and very often—we get higher productivity.

We need to do more. The Government have taken some steps, but we on the Labour Benches do not think they have gone nearly far enough, on productivity as it relates to technical training and upskilling the workforce. The Conservatives have come late to that party. We now have the target of 3 million apprentices, which might or might not be met, but if it is met, one fears it will be through redefining as “apprenticeships” courses and training schemes that many of us would not regard as such, to make the figures work—that is always a danger with targets. It is laudable, however, that the Government want to take policies from Labour and increase training, particularly technical training, in our economy, and the Bill will help in that regard.

Over the past seven years—this is not addressed in the Bill—infrastructure spending has been insufficient, but we have also had, and are having, inappropriate infrastructure spending. Unless there is a change of course, as I hope there will be, we will be spending about £60 billion or more on the HS2 railway line, which is a very bad allocation of capital for transport spending. We are also on course to spend—indirect spending through much higher electricity prices, not direct spending by the Government—upwards of £18 billion on the Hinkley Point C nuclear reactor, which is to be built by a bankrupt French company, EDF, which is only still going because it is being bailed out by its state owners, the French Government, and using a design that has never worked anywhere in the world. It is being tried in Finland and Normandy, but those projects are years overdue and massively over-budget, yet it is part of the Government’s approach to infrastructure spending. We on the Labour Benches recognise that the Government have again started to borrow some of our policies, such as the possible cap on domestic energy prices, but they have not gone far enough on infrastructure spending and have lost their way on some of these big projects.

The final issue, mentioned by the hon. Member for Aberdeen North (Kirsty Blackman), is Brexit, which looms over us all and all our constituents but, surprisingly, not over the Bill. Before the referendum last summer, the Treasury was keen to put out projections of what its officials thought would be the consequences of a Brexit vote. It was an entirely appropriate use of its resources by a Government whose official policy was to support the United Kingdom remaining in the EU. We had all those projections, but since 23 June things have gone quiet. I appreciate that the UK, in round terms, is still 100 weeks away from leaving the EU, which makes it more difficult to come up with projections of what is likely to happen with our economy—partly because we do not know what the Brexit package will be—but there are some signs of concern in the markets about Brexit that I do not think are adequately reflected in the financial measures proposed by the outgoing Government, including the measures in the Bill. If the Government are re-elected—in my view, that would be unfortunate—they will have to get their act together and be a bit more public about where they see the economy going with Brexit.

As I said, I appreciate that that cannot easily be done given that we do not know what the final package will look like or whether it will be a hard Brexit with no package at all, but to reassure the markets and—just as importantly—our constituents, whichever side of referendum they might have been on, the Government of the day, from 9 June, will have to be rather more open about the direction of travel and what they are doing to be proactive, rather than reactive, to the process of Brexit and its effect on the economy. That will be the case whatever the Government’s colour, because without that greater clarity the markets will be more concerned and more spooked, and our constituents will be more concerned and more worried, than they need to be. Of course nobody has a crystal ball, but it would help us all to have a few more projections than we hitherto have had.

Question put and agreed to.

Bill accordingly read the Third time and passed.

Oral Answers to Questions

Rob Marris Excerpts

Tuesday 18th April 2017 Commons Chamber

[Mr Hammond]

I am not going to take any lectures from the hon. Gentleman on regional awareness, but perhaps he should speak to the Mayor of London, who has a view on infrastructure investment and what should drive it. The Government are clear that we need to spread infrastructure investment around the country in a way that will tackle the productivity challenge. One of the ways we will tackle it is by harvesting the benefits of our city regions in the west midlands, in the northern powerhouse and elsewhere, which evidence across the developed world has shown can be major drivers of productivity improvement. That is what we have to focus on.

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

5. What representations he has received on the Government’s proposals to increase probate registry fees.

[The Financial Secretary to the Treasury (Jane Ellison)]

As the hon. Gentleman may be aware, the Ministry of Justice recently ran a consultation on this issue and received 853 responses in total. The Government response to the consultation was published on 17 March and is on gov.uk. They have since laid the statutory instrument to implement the changes set out in that response.

[Rob Marris]

The majority of the responses to the consultation were against the proposals because, in a civilised democracy, access to justice should not depend on being rich. Unfortunately, this Government do not agree; they are intent on lessening access to justice by greatly increasing court fees. The increase in probate fees is another stealth tax and one that will affect almost half the estates in England and Wales. It is an attempt by the Government to hide the massive cut in inheritance tax for their rich friends. Will this dying, cut-and-run Government abandon their tax on access to justice?

[Jane Ellison]

I certainly do not recognise that characterisation of the fee structure. These fees are about helping to sustain an effective justice system that supports some of the country’s most vulnerable people and victims. It is fair to ask those who can afford to do so to support it. In fact, more than half the estates in England and Wales will pay no probate fees at all.

Oral Answers to Questions

Rob Marris Excerpts

Tuesday 28th February 2017 Commons Chamber

[Mr Hammond]

I agree that when a man is tired of London he should visit Somerset. Although tourism growth across the UK is indeed very welcome, and the Government will look at all opportunities to support it, reducing VAT would cost up to £10 billion, which is money that is needed to underpin our public services and to help to deal with our deficit.

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

I am glad that the Chancellor is in listening mode on the mess created by the Government on business rates. Can I urge him similarly to be in listening mode on the potential mess that will be created by the provisions of the Local Government Finance Bill on funding local authorities?

[Mr Hammond]

I will take the hon. Gentleman’s comments as a Budget submission, and I will pass them on to my right hon. Friend the Secretary of State for Communities and Local Government.

Finance Bill

Rob Marris Excerpts

Tuesday 6th September 2016 Commons Chamber

[Mark Field]

I will speak briefly in favour of amendment 151 on carried interest. In my time as a Member of Parliament, I have sometimes been critical of elements of the tax regime that applies in the private equity and venture capital world. It seems to me that the generous tax regime, although it has been justified to support entrepreneurs, has often been misused by those in the industry—inadvertently; I am not suggesting that anything untoward or nefarious has taken place. I believe that many in the private equity field have, particularly in good times, in effect been financiers rather than risk takers. As such, it would surely be more equitable for their rewards to be treated more like income than capital gains. That has been at the heart of the whole debate about carried interest.

The Government have been aware of this issue. Let us give them some credit for that. To some extent, we are trying to play catch-up on it. Inevitably, there has been controversy about the treatment of private equity firms’ carried interest, which is levied as a capital gain, rather than as income. There was a time—pre-2010—when the difference between those two things was rather greater than it is today. That may be because capital gains tax has been raised, but the starkness of the problem is to some extent less pronounced now than it was during the time of the last Labour Administration in the noughties.

It is clear that the Treasury is doing the right thing in trying to provide a more favourable regime that is intended to reward genuine entrepreneurs. In principle, that must mean that where carried interest looks like income, it should be treated as such for taxation purposes. That is what we are slowly doing with amendment 151.

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

Has the OECD not recommended that all carried interest should be treated as income?

[Mark Field]

It has, but there is a distinction between different elements of carried interest, and we are trying to get to the bottom of that. To be brutally honest, in the longer term I would be much happier to have a regime in which we treated capital gains and income identically. There would not then be any sense in trying to arbitrage one way or the other. In many ways, perhaps inadvertently, the coalition began to move in that direction.

I am sorry that I was not in the Chamber to hear the whole speech of my hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), but he is absolutely right. Private equity has had a bad rap because of certain high-profile concerns—partly because of the misuse of tax to allow huge amounts of debt on to balance sheets—but a large number of businesses in each and every one of our 650 constituencies in the UK benefit from having private equity investors. Many jobs now exist because of the private equity investment that has come into play, particularly in growing businesses that will make a real difference in the future. The Government have broadly got this right, although I am sure we will have to come back and look at it again.

I would make one point to the hon. Member for Aberdeen North (Kirsty Blackman). It is not about inheritance tax—we have had our joust on that—but on a more fundamental point, on which I think she is absolutely right: the more complicated a tax code, the more the door is open to tax avoidance of all descriptions. We very urgently need to begin to simplify our tax code. We will add yet more pages to it today. A lot of them are to apply Elastoplast in ways that we can all support for individual reasons, but we need to get back to the principles of a much simpler tax system.

I believe that one of the impacts of leaving the European Union will be not a race to the bottom in lowering tax, but a much simpler tax system. This is a wake-up call for all of us in the House—obviously, particularly for those in the Treasury—to have a much simpler tax code. Such a code will be readily understandable and supported by all our constituents, which is one of the issues we face. It will also say to those bringing in much of the inward investment that will come to the UK from across the globe that we have a simple tax code, which will not be tinkered with in successive Finance Bills because it is very straightforward, and they will be able to work on that basis. I know that may be wishful thinking—going back many years, most Chancellors have talked about having a simpler tax code—but this now needs to be looked at urgently. Urgent attention must be paid to getting simplicity. If we do not do so, we will all very much pay the price.

[Rob Marris]

I entirely echo the right hon. Gentleman’s comments about simplification. I may attempt to catch your eye, Madam Deputy Speaker, to address the House on that issue later. However, I caution him against linking that to Brexit, because almost all the complications, of which there are many in what we now call the tax code, are due to domestic legislation and are nothing to do with the European Union. Brexit may afford us an opportunity to start at the bottom on various areas of Government policy and endeavour, but leaving the EU will not provide such an opportunity in this case.

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[Seema Malhotra]

I am grateful for the opportunity to speak in this debate, which was opened by my hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey), on the new clause and amendments relating to capital gains tax. I will speak particularly about new clause 14, on “Entrepreneur’s Relief: value for money”, amendment 174, which would remove the capital gains tax cut, and amendments 175 and 176 on the investors’ relief sunset clause. Labour’s main issue of contention with the Government is the reduction of capital gains tax, the reasons for which have been well outlined. I want to highlight the very serious issue of value for money in public finances, and to continue to make our call for the Government to look at the way in which we scrutinise and review tax reliefs.

As we have argued since the Budget, the Finance Bill is inadequate if we are to rise to the challenges we face and to work towards a very strong economy in which we can all feel and believe that prosperity is shared by all. At a very tough time for the public finances, the Government have chosen to prioritise a corporation tax cut and a capital gains tax cut. Certainly while working on the Finance Bill, including as shadow Chief Secretary, I have had several conversations with business figures who quite openly said that they did not necessarily expect a corporation tax cut while other issues that are so important for their business success—investment in skills, housing, infrastructure and superfast broadband, and ensuring that we get the productivity shifts this country so desperately needs—require great attention. To purport that there is a simplistic link between a capital gains tax cut and a strong enterprise and investment culture is therefore not very honest, because it has not been proven that the cut is either necessary or sufficient to achieve that outcome, which we do indeed want.

Let us not forget that at the last Budget, the OBR took all the Chancellor’s measures into account and still downgraded the business investment forecasts. The latest figures from the Office for National Statistics estimate that business investment decreased by 0.8% between the second quarter of 2015 and the second quarter of 2016. Therefore, it continues to be a concern that the Government’s economic strategy does not take into account the wider needs of businesses beyond tax cuts.

It is the context of squeezed public services and lack of investment that leads me to raise the issue of tax reliefs, particularly those pertaining to capital gains tax, and the way in which we understand the needs of businesses. Tax reliefs are an important part of our tax system and have been needed for a variety of reasons, many of them extremely valid. However, after six years of this Government’s failure on the economy, in so many ways, with many people feeling the brunt of the cuts and with our public services under considerable strain, every penny of public spending should be going on much needed investment in our schools and hospitals and on supporting the most vulnerable. The figures got even worse this summer, with more than a third of children leaving school without the equivalent of five good GCSEs, and schools in my constituency tell me that they are giving out money every day to help parents buy school uniforms and shoes. We therefore need to justify every penny that is spent by the Exchequer.

That also has to apply to every penny that is not collected. Tax reliefs are effectively tax forgone. I firmly believe that we need to apply just as much scrutiny to relief as we do to expenditure. That is not to say that I am opposed to tax reliefs to incentivise good and positive business behaviours—far from it. For me, providing behavioural incentives to achieve economic and social goals is a central part of the role of Government, but they must use effective judgment that is based on the interests of fairness and prosperity. A Government who are working in strategic partnership with business and industry in the interests of the economy and society will actively consider such measures.

However, there is a serious paucity of scrutiny of whether and to what extent various tax reliefs are achieving those goals and whether they remain value for money for the taxpayer. The HMRC website lists 405 tax reliefs in the UK, but in reality there are many more. The Office of Tax Simplification has identified 1,140 tax reliefs. Of the 405 tax reliefs listed by HMRC, 102 cost more than £50 million, 84 cost under £50 million and there are 219 for which HMRC does not provide cost data.

[Rob Marris]

Does my hon. Friend agree that of all those reliefs, the biggest scandal is tax relief on pension contributions, which costs more than £30 billion a year in forgone revenue and principally goes to the most well-off? For years, the Department for Work and Pensions has had no evidence that that tax relief produces a change in behaviour that results in more people making pension contributions. We are, in effect, handing out a lot of money mostly, but not entirely, to a lot of rich people to get them to do something, when there is no evidence that it does so.

[Seema Malhotra]

My hon. Friend makes an important point. The conundrum of how we fund, finance and incentivise pension savings needs to be thought about much more holistically. He highlights an example of incentives that reach not the majority, but a minority. We must keep that under review.

The Public Accounts Committee took forward the work of the National Audit Office on these issues and took evidence. Its report found that some reliefs

“costing some £100 billion a year, are designed to deliver a policy objective that could be met instead through spending programmes”,

which would be more rigorous and more auditable. The report states that

“HM Treasury and…HMRC do not keep track of those tax reliefs intended to influence behaviour. They do not adequately report to Parliament or the public on whether reliefs are working as intended and what they cost and whether they represent good value for money.”

Nothing has really changed since the report was published last year. That is why Labour continues to raise this issue during the passage of the Finance Bill.

We need to question the efficacy of tax reliefs such as capital gains tax relief and entrepreneurs’ qualifying business disposals, or entrepreneurs’ relief. There are clear reasons for entrepreneurs’ relief and it can be argued that it incentivises investment, but does it make a great enough difference to be worth £3 billion a year to the Exchequer? I do not claim to have all the answers, but we do need evidence to prove that it makes that difference and the Government need to be challenged to justify this and other reliefs.

In Committee of the whole House, the then Financial Secretary to the Treasury defended entrepreneurs’ relief and, as usual, did so without evidence, saying:

“of course, as with all tax reliefs, it is entirely appropriate that the Government keep it under review to ensure that it is well targeted and not open to abuse”.—[Official Report, 28 June 2016; Vol. 612, c. 245.]

I challenge the Government to say when they will do that. New clause 14 would make the Government and all of us turn those warm words into action.

Furthermore, the Finance Bill introduces a new relief, investors’ relief, which extends the low rate of capital gains tax to investors in an unlimited trading company for at least three years. In principle, I support the idea of a relief that is intended to incentivise investment and to support access to capital for businesses, particularly at an early stage in a business’s life cycle, if we can provide evidence that it will help turn those with initial ideas into the successful job creators and innovators of the future. That is extremely important in creating the economy of the future, with all the opportunities that new technology and other initiatives can bring.

However, it concerns me that this could end up being yet another tax relief that is introduced for a good reason, but then left to mushroom into a relief that is extremely expensive and difficult to remove. We need a mechanism to ensure that there is time to review whether it is achieving the desired effect, whether the costs are aligned to those that are forecast and whether it constitutes value for money. For that reason, I support the sunset clause for the relief in Labour’s amendment 176, which would ensure that after a number of years, when we have the evidence on which to base our conclusions, those questions will not go unanswered.

I call on the House and the new Treasury Ministers to take seriously our scrutiny of tax reliefs and to support the Opposition amendments, which would put in place proper mechanisms for reviewing the reliefs and ensure that they remain targeted at supporting businesses, while showing evidence of value for money.

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Labour’s amendment 174 would delete clause 82 in its entirety. The lower rates of capital gains tax introduced by the clause make it more attractive for people to invest in companies, helping those companies access the capital they need to grow and create jobs. The changes are part of this Government’s efforts to ensure that our tax system is competitive—never more important than now, as we head into a new future outside the EU—and encourages investment, which will help drive our economy forward into that new future. At 28%, our higher rate of capital gains tax was among the highest in the developed world. We do not want high tax rates to deter investment.

[Rob Marris]

The Minister says that the measures will drive investment. What evidence is there for that?

[Jane Ellison]

That point has been made repeatedly. Contributions from those critical of the policy often miss the way in which measures interact. We are trying to create a climate that encourages investment. A number of international studies have indicated that low rates of CGT support equity investment in firms and promote higher-quality investment in start-ups. That is an important source of innovation and growth. The evidence is there. The measures are part of a package that is trying to create a climate that makes our country attractive to invest in and enables domestic investors to invest in company growth. At the same time, as we have stressed and as other measures in the Bill stress, taxes must be fair and must be paid; the hon. Gentleman took part in a good debate last night about some of those measures.

A number of external bodies have expressed support for clause 82—that also goes to the hon. Gentleman’s point. The CBI and the Institute of Economic Affairs have both welcomed the cuts as a means of encouraging entrepreneurship and growth, and, as I have said, there is a body of evidence, not least internationally, to indicate that lower rates support equity investment in firms and promote higher-quality investment in start-ups. Again, I welcome the support of and international perspective given by my hon. Friend the Member for Richmond (Yorks) on this subject.

The changes made by clause 82 are about encouraging investment where we want businesses to expand. As I have said, they are very much a part of a general pro-business agenda, but we have also been clear that we want fair and competitive taxes and that taxes must be paid. We addressed that in a good debate last night, when there was a good degree of cross-party consensus.

The hon. Member for Salford and Eccles (Rebecca Long Bailey) mentioned the geographical distribution of the CGT cut. HMRC publishes national statistics on CGT each year that include a breakdown of its payers by geographical distribution, so there is transparency on that. It is also worth saying that it has been estimated that up to 130,000 individuals will pay lower taxes as a direct result of these changes to CGT, including 50,000 basic rate taxpayers.

The hon. Member for Feltham and Heston (Seema Malhotra) made a typically thoughtful speech, not just on CGT but on her general thoughts on tax reliefs and how we review them, as well as on tax simplification. Again, I felt that she did not perhaps entirely address the interaction between the various measures—they cannot be seen in isolation. The other issues she mentioned are hugely important; for example, the investment in skills, but I did not think she was fair about what the Government have done on that agenda, which has resulted in record levels of apprenticeships. She is right to say that there are other issues such as that one, but these measures are part of a general package and are not the whole picture.

Amendments 175 and 176 were also tabled by the Opposition. In the 2016 Budget we announced the introduction of investors’ relief, benefiting long-term investors in unlisted companies. As has been explained, the amendments seek to end that new relief after a period of six years, with the option of an additional 12-month extension if agreed by both Houses, and ask the Chancellor to lay a review of the operation of the relief before both Houses.

The amendments are unnecessary as the Government keep all tax policy under review in line with normal tax policy making practice. The hon. Member for Aberdeen North (Kirsty Blackman) again, I thought, did not really give credit to the interaction of different measures nor to the wider point that, given that the Government are bringing the measures forward to stimulate economic growth, there is absolutely no incentive for us not to keep a very close eye on them and review them at regular intervals. We do so all the time because we want measures to work—we want our measures to stimulate economic activity, and we do not in any way want them not to work. Indeed, there are a number of measures in the Bill to correct things that have been done in the past, where we feel that an improvement could make something work better.

We feel that there would be limited merit in conducting a review within six years as the first data on the uptake of the relief in its first year of operation will not be available to HMRC until 2021. Amendments 175 and 176 are neither needed nor useful, and we ask the Opposition not to press them to a vote.

New clause 14, again tabled by the Opposition, proposes that the Chancellor publish, within six months of the passing of the Bill, a report of the Treasury’s assessment of the value for money provided by entrepreneurs’ relief. As I have just said, the Government keep all tax policy under review because we want it to do what we have set out as the intention behind it, namely to stimulate economic activity and to make investment in business attractive to people. That review includes entrepreneurs’ relief, as demonstrated by recent action taken to ensure that the relief is effective, well targeted and not open to abuse. We will continue to act, where appropriate.

My predecessor as Financial Secretary has already informed the House of this, but it is worth reiterating, as it is germane to this point, that HMRC officials have commissioned an in-depth survey of taxpayers’ reasons for using entrepreneurs’ relief and its effects on behaviour. We expect the results of that survey, which will be published at some point in 2017, to inform future changes to the relief. I hope that that gives Members some comfort that the relief is being looked at very closely.

In our wider debate, some general points were made about the Budget being tilted towards the south-east of England. A number of points could be made in rebuttal, not least the debate we had last night, which touched on support for the oil and gas sector in Scotland. More generally, some interesting points were made about having a simpler tax system. In the next part of our debate on the Bill, there will be an opportunity to discuss the Office of Tax Simplification, but as this point came up during the current debate it is worth noting that the Bill puts the OTS on a statutory footing. Around half of the OTS’s 400 or so recommendations to date have already been taken on board. I again take on board the point made by my right hon. Friend the Member for Cities of London and Westminster (Mark Field). I feel sure that this a topic that we will return to over the coming months and years.

I thank all Members who have spoken in the debate.

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[Jane Ellison]

As I have said, the date will be confirmed in due course, but I think it reasonable to assume that the window of opportunity to which the hon. Gentleman has referred is broadly correct.

I shall speak briefly—as, again, there is no Liberal Democrat presence in the Chamber—about amendment 179, which deals with the apprenticeship levy. This would exclude qualifying bonus payments to employees of employee-owned businesses from being considered as part of the employer’s pay bill when calculating the levy. To ensure the levy is as simple and fair as possible, the Government have decided to use the existing definition of earnings—those used for employers national insurance contributions. This avoids unnecessary complication. This point about avoiding complication was made repeatedly to us during the consultation. We feel the amendment would add complication and therefore we urge the House to reject it.

Lastly, Labour amendment 141 on employee share schemes proposes a tax exemption for residual cash amounts remaining in share incentive plans when they are donated to charity. While we appreciate the proposal is made with the best of intentions, we are concerned the change would, again, add complexity and the amendment lacks details. We would need further development and evidence of this idea before giving it further consideration.

I will end there, but I may look to respond briefly at the end if there are any further points I can add that would assist the House. I look forward to the debate.

[Rob Marris]

I am disappointed by the Minister’s concluding remarks on amendment 141, which is in my name and those of my hon. Friends. She says the amendment lacks detail. We are talking about simplification today and I will go on to address the House on that issue, but this amendment covers more than an A4 page, so there is quite a lot of it. It might be the wrong detail—I freely accept that I am not an accountant—but I cannot get my head around the concept that it lacks detail. So I am disappointed and urge her to reconsider.

I am pleased at the movement from the Government on amendment 180. It will not surprise SNP Members to know that I want to touch briefly, as the Minister did, on new clause 6. Frankly, they have made their bed and they should lie in it. They were warned that this would be the financial effect, and having an inquiry into the financial effect of something they knew was going to happen and has happened—it may be an adverse financial effect—is what you get with devolution; you make your decisions and you live with them. They should not be looking indirectly through this mechanism for yet another bung from the English taxpayer when they are already getting shed loads of money under the Barnett formula. I support the Barnett formula and the Union, but sometimes people can push their luck a bit and I think that is what is happening here since they knew in advance what would happen.

I want to make some brief remarks on the question of evidence-based decision making and the difficulties we have in that regard as policymakers and legislators in this House. That applies particularly to financial matters. Although the House of Lords scrutinises Finance Bills, it does not vote upon them for good historical reasons. It cannot, therefore, amend the Finance Bill and we have to get it right here.

Oppositions cannot table amendments to put up taxes and it has become commonplace in recent years to table amendments to express concern and call for a review. That has been the mechanism used by those who take issue with a particular course of action, or lack of a course of action rather than moving amendments to abolish something, as the Liberal Democrats extraordinarily did yesterday with their amendment to abolish corporation tax, which, as the Minister said, would cost £43 billion a year. In this group, new clauses 3, 6, 8, 16, 17, 18 and 19 all call for a review, as did new clause 14 and amendment 176 which were debated previously. It is the flavour of the day.

This highlights a problem that the Minister addressed in her concluding remarks in the previous debate. We have at the moment an economy with extraordinarily good unemployment figures, and I praise the Government for that. That figure has come down, and we have had 2.5 million more jobs in the past six years. That is great, but it has been bought on a sea of debt, with the deficit going up 60% under a Government who said that they were imposing austerity in order to bring public finances under control. They are still not under control.

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[Kirsty Blackman]

In the absence of the Government showing any willingness to take the bull by the horns on tax simplification, how can we get them to part with the information that they say they have on the continual review on tax reliefs? I have not been an MP for very long, but it strikes me that there is a failure in the system if we are not seeing the transparency that we need. If the Government are actually doing these reviews but not providing their working to the Committees or to Opposition MPs, that strikes me as a failure in the system. How can we get them to part with that information?

[Rob Marris]

I quite agree with the hon. Lady. Sadly, I am unlikely ever to be a Minister, but I am hoping that the Minister will stand up this afternoon and say, “The hon. Member for Aberdeen North has made a jolly good point.” She has said that the Government keep all policies under review all the time, so let us have the transparency. I salute what the Government did for transparency yesterday in accepting amendment 145, tabled by my right hon. Friend the Member for Don Valley (Caroline Flint). I urge them to go that bit further today by publishing the evidence that they have and by marshalling more evidence and disclosing it. They must have the courage to seriously go for simplification, which would be better for business and employment in this country, even though there would be a cost to be borne by society in the form of less nuanced decision making and systems becoming more monochromatic and rough and ready. Some of that would of course rebound on Members of the House, because we would get constituents writing to us saying, “I have a particularly nuanced situation here, and you guys have made all these laws that are a bit monochromatic and do not help me.” We have to have the guts to say that that is a price worth paying, and as legislators we should be prepared to do so.

[John Redwood]

I had hoped to clear up my point in an earlier intervention on the Minister, but I fear that I was not happy with her answer so I shall try again and extend my case a little on the important matter of VAT on energy-saving materials. That is the principal issue at stake in new clause 15. As I was trying to explain to the Minister, many of us feel that it would be quite wrong to increase VAT on energy-saving materials, given that the House decided to choose the lowest rate that we are allowed to impose under European Union law. A case was then lost in the European Court, and the Government have wisely been undertaking a very long consultation into how they might implement this ill-conceived and unwanted judgment. The longer they consider it, the better, and the sooner we get out of the European Union, the sooner we can bring the whole charade to a happy end.

To many of us, this illustrates exactly what was wrong with our membership of the European Union, and this is something that we can offer to our constituents as we come out. They voted to leave and to take back control of their laws. That includes their laws over taxes. During the campaign, we on the leave side made a great deal of how we wanted to scrap VAT on energy-saving materials. Like many people in this House, we believe that we could do much more to save and conserve energy and to raise fuel efficiency, and if we did not tax those materials, perhaps they would be a bit cheaper for people. That would send a clear message that this was something that we believed in.

I urge the Minister to go as far as she can in saying that this Government have absolutely no wish to put up VAT on energy-saving materials, and that they would not do so if they were completely free to make their own tax decisions. I would love her to go a bit further—this might be asking quite a lot—and say that once we are free of the European Union requirements, we will be scrapping VAT on energy-saving materials altogether. It is not a huge money-spinner for the Government, and its abolition would send a very good message. It would particularly help people struggling in fuel poverty, who find energy-saving materials expensive. The extra VAT on them is far from helpful.

The Minister suggested to me that the Brexit Secretary was dealing with this matter, but I can assure her that he is not. He made a clear statement on these matters in the House yesterday and wisely told us—I repeat this for the benefit of those who did not hear him—that it is his role to advise and work with the Prime Minister to get our powers back. His job is to ensure that this House and all of us can once again settle the United Kingdom’s taxes without having to accept the European Union’s judgments and overrides. However, it will be for Treasury Ministers and the wider Cabinet to recommend how we use those wider and new powers and to bring to the House their proposals once they are free to do so.

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[Mr David Burrowes (Enfield, Southgate) (Con)]

It is a pleasure to take part in this stage of our consideration of the Finance Bill. I was interested to hear the carefully constructed arguments of the hon. Member for Ilford North (Wes Streeting). Let me pick up on the point he made about wanting to see social justice from this and future Budgets, and to see it at the heart of the Government’s agenda, as was made clear on the steps of No. 10 by the new Prime Minister. He also talked about the impact on the poorest households, which is the focus of new clauses 2 and 3 and the reviews that they propose. As ever, it was also interesting to hear from the hon. Member for Wolverhampton South West (Rob Marris), and to listen to his thesis on post-factual analysis, be it on the Labour leadership contest or on this Bill. He mentioned roads, so perhaps he should come down to Enfield and give us a post-factual analysis of the cycle lanes that are planned in my borough to see whether we should continue with that expensive proposal, given the need for best value.

Let me return to the matters at hand. First, I wish to speak to new clause 2, which stands in my name and those of my hon. Friends the Members for Congleton (Fiona Bruce) and for Totnes (Dr Wollaston). Sadly, the latter cannot be here as she is leading her Health Committee on a visit, although she would want to be here to support this new clause. I hope and expect that across the House there is support for the principles of wanting to carry out a proper review of the impact of the duty regime, particularly in relation to high-strength cider, although I very much welcome the Minister’s comments. She will know all too clearly from her previous role in public health of the impact of alcohol and high-strength alcohol in particular, including cider, on the poorest and those most in need of our attention. I welcome the hint that a wider, more coherent view of the relationship between alcohol duties and harm could be taken, which was mooted by the previous Prime Minister but seemed to get kicked into the long grass—it has never returned. The Minister will be well aware of the permutations and the different interests across Government in relation to that review and its final outcome. The previous Prime Minister was talking about minimum alcohol pricing in terms of when not if, but this has now gone back to an if. I look forward in future Budgets and future consideration to a wider review and factual analysis of the relationships to harm and the impact on behaviour, particularly among the poorest.

New clause 2 hones in on an area that is about not just health harms, although that is the core of the argument, but an anomaly in our treatment of cider and of beer.

[Rob Marris]

I was a “remainer”, so at the risk of sounding like the right hon. Member for Wokingham (John Redwood), may I ask the hon. Gentleman whether he agrees that this is one area where, as a small silver lining, leaving the European Union may assist, because the rates of excise duties, the definitions and so on are related to our membership of the EU? For example, I am thinking of the way in which wine is treated, because of the Italian, Spanish and French wine industries. If and when we leave the EU, we will have more flexibility in this regard.

[Mr Burrowes]

I welcome reluctant converts to the cause of Brexit, whenever they come. That is a silver lining among many. I see this very much as sunshine, rather than silver linings. At the heart of it all, this is about our taking back control over a duty that has an impact on the most vulnerable, and we have already had arguments about VAT. I look forward to hearing the Scottish Members’ support for the same silver lining, because they have been battling to ensure that their proposal for minimum unit pricing is not subject to court and European Court interference. They, too, would perhaps welcome that silver lining; I look forward to their joining the hon. Gentleman in what he has just said.

As much as anything else, new clause 2 is about dealing with an anomaly to do with high-strength ciders. In the recess, hon. Members may have enjoyed ciders of all varieties. They may have popped their corks and had some sparkling cider, which is a substitute, perhaps a poor one, for champagne. They need have no fear about this, because the essence of my proposed review is very much about the nasty stuff. I doubt many hon. Members will have partaken in it, although they may have done. I am talking about people going down to their local office licence to get a large bottle or can of white cider, which is not particularly sparkling or pleasant. However, it attracts under-age drinkers and, in particular, dependent drinkers—

[Rob Marris]

It has never seen an apple!

[Mr Burrowes]

It has never seen an apple. The Minister intimated that the same is true of pears. We need to look at the fact that white cider attracts the lowest duty per unit of alcohol of any product while representing the cheapest way to consume alcohol and get drunk, and to enable addicts to continue their dependency. Three-litre bottles of high-strength ciders are available for just £3.50; people can get completely wasted on £3.50, but they would struggle to buy a bottle of some mainstream ciders for that. As a result, these products are causing disproportionate levels of harm, which is closely associated with dependent, street and under-age drinking. The Government are rightly emphasising and prioritising tackling street homelessness and putting funds into preventing homelessness. My hon. Friend the Member for Harrow East (Bob Blackman) has introduced the very helpful Homelessness Reduction Bill. We hope that, with cross-party support, he will be navigating its safe passage through this House on 28 October and all hon. Friends will attend to that.

Let me make a wider point about future Budgets, as connected to that is the need to examine the impact of duty and the evidence that price has a particular impact on behaviour.

Finance Bill

Rob Marris Excerpts

Monday 5th September 2016 Commons Chamber

[Kirsty Blackman]

Indeed. Brexit compounds the issues that we have seen in the oil and gas industry, particularly in the North sea, and affects investment. This year we are expecting less than £1 billion-worth of new capital projects to be agreed. In each of the past five years we have seen an average spend of £8 billion. There has been a massive drop-off. Much of that is linked to the global oil price, but the Government have not done enough to increase investor confidence, especially in the light of Brexit. New projects are not being sanctioned because of companies’ negative cash flow. Jobs are consequently being lost all the way along the supply chain. We are losing contracts, expertise and people working in the industry in and around Aberdeen, Scotland and the UK.

Exploration and development activity is at an all-time low. Oil and Gas UK produced a report in February this year which predicted that if the current trajectory of low investment and new projects not being approved continues, we will see a fall in production in 2020. We are not ready for that. Our strategy has been to maximise income and recovery, and the Oil and Gas Authority’s main aim is to ensure that we get as much out of the North sea as we can. Because of the lack of investor confidence and the inability to sanction new capital projects, that is becoming increasingly difficult.

I have asked various Ministers about the Government’s intentions. We are not seeing investor confidence. We are seeing a major drop-off in investment, as the figures show. I welcome some of the changes that the Oil and Gas Authority has made. It is working on making it easier to transfer assets that have reached the end of their life. We do not want decommissioning to take place now. I understand entirely that if there is sufficient UK spend, there will be a financial benefit to UK companies from decommissioning, as long as we can ensure that the supply chain for decommissioning is based in the UK.

However, some of the assets that have been in the North sea for 30 years are at the end of their useful life and need to be decommissioned. I welcome the OGA’s push to ensure that as much of that spend as possible is in the UK, and I welcome its efforts to ensure that assets can be transferred so that as much oil as possible can be recovered from each of those fields. The OGA has been focusing on enhanced oil recovery, but the Government have not done enough in that respect. Changes are necessary to the tax regime to encourage companies to undertake enhanced oil recovery.

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

I hear the hon. Lady standing up doughtily for her constituency and for the oil and gas industry in Scotland. What bemuses me is that if the independence vote had gone through, in spring 2016, Scotland would have had income of £100 billion and expenditure of £120 billion— a structural deficit of 20%. Now the hon. Lady is advocating increasing that black hole. How would she bridge that gap?

[Kirsty Blackman]

We are under a Westminster Government; we do not have full control of our own economy. That is a damning indictment of the way that the Westminster Government are running the economy of Scotland. It is incredibly important that we get independence and that we are therefore able to make decisions, particularly in the oil and gas industry, where the Government have not moved quickly enough or been flexible enough in the changes they have made. It is important that we make the decisions and grow our economy, because the Westminster Government are failing to do so.

On the future for energy and for the North sea, Statoil produced a report entitled “Energy Perspectives”. It is important to consider the future for the North sea and the UK continental shelf in that context. Statoil predicts that up to 2040, total primary energy demand will grow between 5% and 35%. That is a wide range because a number of different scenarios have been analysed. In all scenarios there is an increase in total energy demand. Statoil predicts that energy demand in 2040 will be between 78 million barrels a day and 116 million barrels a day. We currently use over 90 million barrels a day. It is important to note that as we think about the move towards renewables and different forms of energy generation, but by 2040, even if we have a huge number of renewables, we will still see a massive demand for oil and gas across the world. Oil and gas will still need to be produced in order to support the economies of the world. It is vital that we ensure that the UK continues to be involved in that and to benefit financially from it.

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[Rob Marris]

Is the hon. Lady saying to the House, then, that the Scottish National party’s position is to export the expertise of the Scottish hydrocarbon industry so that we can have more and more carbon dioxide going into the environment from fossil fuels because, for example, the Gulf of Mexico is producing more with Scottish expertise? If so, she is running counter to the direction of the world in the Paris talks.

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[Rob Marris]

Thank you for your indulgence, Madam Deputy Speaker. I will seek to be brief. On new clause 10, I am in favour of evidence-based policy making. The right hon. Member for Cities of London and Westminster (Mark Field) says that the patent box legislation and tax break have been helpful. That may be true, but we do not know. What we do know is that the National Audit Office looked at something like 1,200 tax reliefs and found that the Treasury was only monitoring the efficaciousness of fewer than 300 of them. I do not think that the patent box was part of that, so I support new clause 10 because it might tease out the evidence.

[Mark Field]

I think there has been some misunderstanding about exactly what the patent box was designed to do. It was not designed solely to promote research and development, as many similar incentives that come through, year on year, in Budgets are designed to do. It was very much an attempt to incentivise companies at the second stage—in other words, companies that already had some intellectual property that was difficult to quantify—as opposed to directly at the research and development side. I think it is slightly unfair to suggest that there is no evidence that that has worked, and I think that the patent box is being looked at in a different light to that which was intended by those who put it into play.

[Rob Marris]

I agree that it is designed to help some companies in their early stages, but with the effluxion of time, those companies should pass through the pipeline and we should see the fruit of their endeavours, helped indirectly by taxpayer support. The evidence should be coming through now. We could not have looked after one year to see whether it had been effective, but now that it has been around for a few years, we can.

I move on to amendment 177. I was amazed to hear the right hon. Gentleman say that he would be prepared to examine the question of having a turnover tax instead of corporation tax. The hon. Member for Leeds North West (Greg Mulholland) said the same thing. I absolutely agree, and I have long advocated looking at that, precisely because of tax avoidance. If it turns out to be the case that Apple has been avoiding tax in the United Kingdom, it would not have been able to do that so successfully if we had had a turnover tax rather than a corporation tax.

I have to say to the hon. Member for Leeds North West that I am a bit bemused. He said tonight that the leader of his party had set up a review of corporation tax, but the leader of his party has also tabled amendment 177 —supported, as far as I can tell, by the hon. Gentleman—which would abolish corporation tax completely for the financial year 2017, without bringing in a turnover tax instead. It seems a very strange amendment to table.

[Greg Mulholland]

As I think I made clear, amendment 177 is a probing amendment, which is designed entirely to make that point. We share the view that the reduction of corporation tax is flawed, but through this amendment we are saying that it needs to be done in a better way. It is a probing amendment and we will not be voting on it, but it is time that we had that debate and put something better in place.

[Rob Marris]

It is a strange way to do a probing amendment. I am not saying that it is wrong; that is not for me to say. However, it is common for the Opposition to table new clauses or amendments—as with those that we are considering tonight, such as new clause 10—that are designed to produce evidence. Presumably, the hon. Gentleman’s party will be looking at such evidence in its review. If the House could produce that evidence, it would speed up the process and help all of us towards evidence-based policy making.

On new clause 5, interestingly, I think that the Scottish National party reveals its hand; it is not much concerned about greenhouse gas emissions from oil production, let alone from burning oil. We saw the same thing last year in the debate on air passenger duty, when the SNP was all in favour of loads more people flying, despite what it does to the environment. The tenor of the remarks made by the hon. Member for Aberdeen North (Kirsty Blackman) was that she wants the taxation of oil and gas cut. Essentially, she is advocating indirectly, yet again, for another bung for Scotland from English taxpayers. The SNP Government have the power to put up taxes in Scotland and fail to do so, but they want English taxpayers to give them a bigger bung.

[Kirsty Blackman]

The hon. Gentleman may have heard my hon. Friend the Member for East Lothian (George Kerevan) say that 50% of the supply chain companies that would be affected are actually based south of the border. This would benefit companies across the UK. The Scottish Government have been incredibly good at reaching their climate change targets. They have worked very hard on renewable electricity. The only problem is that the Conservative Government are getting in our way.

[Rob Marris]

I did hear the hon. Gentleman say that, and I also heard the hon. Lady say, when she was moving new clause 5, that she did not even realise that that was the case. Paradoxically for them, I support the new clause and I hope it is agreed to. It looks attractive to me because such a review could lead to a situation in which taxation on oil and gas is increased appropriately. We will not know until we have the evidence, so let us have the review.

[The Financial Secretary to the Treasury (Jane Ellison)]

I will start by responding to the Opposition’s amendments and new clauses, before I turn briefly to those tabled by the Government.

Amendment 162 would require the Government to remove clause 45 from the Bill. That would stop the cut in corporation tax going ahead, because the clause will cut the rate of corporation tax to 17% with effect from 1 April 2020. Lower corporation tax rates enable businesses to increase investment. We cannot agree with the hon. Member for Salford and Eccles (Rebecca Long Bailey), who speaks for the Opposition on this matter. Lower rates enable businesses to take on new staff, increase wages or reduce prices. That is borne out by receipts data. The House may be interested to know that onshore corporation tax receipts have risen by more than 20% since 2010, despite the lowering of corporation tax rates. The Treasury and HMRC have modelled the economic impact of the corporation tax cuts delivered since 2010 and those announced at Budget 2016. The modelling suggests that the cuts could increase long-run GDP by more than 1%, or almost £24 billion in today’s prices.

The hon. Lady asked whether business investment has grown. It has increased by 30% since 2010. She mentioned foreign direct investment. In fact, only last week, the Department for International Trade reported a record number of inward investment projects in 2015-16, with over 80,000 new jobs created by more than 2,000 FDI projects. Again, we cannot agree with her criticism.

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[Roger Mullin]

To those with little knowledge of Scottish limited partnerships, it may seem strange that I rise in this House to move new clause 7 in my name and those of my colleagues, but, despite what the name suggests, Scottish limited partnerships have limited connection to Scotland, and none to the Scottish Parliament. They were introduced in 1907 by the Chancellor of day, Herbert Asquith; despite rumours to the contrary, I was not present at the debates at the time, but the regulation, operation and dissolution of SLPs remain the exclusive preserve of Westminster, hence our moving this new clause.

Scottish limited partnerships have their own distinct legal personality. As a result, SLPs can, for example, hold assets, borrow money and enter into contracts. However, Asquith could never have foreseen that they would become a financial vehicle abused by international criminals and tax dodgers.

Great credit must go to the journalists of The Herald newspaper, particularly David Leask, for doggedly uncovering the truth about SLPs—and isn’t it good that for once we can praise journalism of the highest order delving into important matters, rather than merely dealing in tittle-tattle? Although some users of SLPs no doubt operate appropriately and responsibly, it is claimed that up to 95% of SLPs are mere tax evasion vehicles, including for criminal assets.

While SLPs may be registered in Scotland, they are often owned by partners based in the Caribbean or other jurisdictions that ensure ownership secrecy and low, or no, tax regimes. People operating outside the UK are exploiting opaque ownership structures to hide their true ownership. As Oxfam, too, has recently pointed out, brokers in countries such as Ukraine and Belarus are specifically marketing SLPs as “Scottish zero per cent. tax firms.”

The number of SLPs is growing apace. Data from Companies House revealed by The Herald show 25,000 were in place by the autumn of 2015 and new registrations have been increasing by 40% year-on-year since 2008.

To give an example of what can happen, in 2014 allegations emerged that SLPs had been used to funnel $1 billion out of banks in the former Soviet Republic of Moldova. The use of an SLP and a bank account in an EU country allows dodgy groups, for example from the ex-Soviet Union, to move their ill-gotten gains to tax havens under the cloak of respectability.

I am aware that the Scottish Government’s Finance Secretary, Derek Mackay, has recently written to the UK Government about SLPs. He sensibly pointed out in his letter that

“it is critical that due diligence checks are able to be made when SLPs are initially registered and when there are changes in partners, and that penalties are imposed on partners where the SLP does not comply with the relevant legislation”.

He went on to point out:

“The threat of serious organised crime does not respect borders and with the significant increase in cyber crime, it is essential that we take every step open to us to reduce this threat as much as possible”.

To that end, our new clause seeks an urgent review of SLPs that would, importantly, include taking evidence from the Scottish Government, from HMRC and from interested charities. We have crafted the new clause in the hope it will attract cross-party support, and I see no reason why anyone, other than those interested in encouraging criminality and tax evasion, would wish to oppose a review of this nature. I therefore urge the Minster to accept our new clause.

[Rob Marris]

I hope that the hon. Gentleman will forgive me if I missed him saying this, but I do not think I did. Subsection (2) of his new clause states:

“The review must take into account the views of the Scottish Government, HMRC and interested charities.”

Is it because of the nature of SLPs that the new clause does not make reference to the Government of Wales and the Government of Northern Ireland?

[Roger Mullin]

I thank the hon. Gentleman for his intervention. Technically, the SLPs are registered in Scotland, but they have ownership in tax havens all over the world and will therefore operate differently, given the way in which they were set up in 1907. As far as I am aware, the arrangements have not been reviewed in any significant detail since then.

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[Caroline Flint]

My hon. friend is right about that. As the Parliament that represents the people of this country, we have a duty not to allow markets to be unfettered, but to provide a framework in which they should operate, work, be successful and do the right thing. I must say that there are companies doing the right thing. Increasingly, companies are volunteering to do the right thing by publishing the sort of information that I am asking to be made more public today.

[Rob Marris]

Will my right hon. Friend give way?

[Caroline Flint]

I will give way once more, but I am conscious that other people wish to speak.

[Rob Marris]

Can my right hon. Friend confirm my understanding, or correct me if I am wrong, that what she is seeking in this amendment would not cause any burden to business because the information is already being gathered and reported but is not then being published? Her amendment seeks merely to get that which is already gathered and reported to be published.

[Caroline Flint]

That is correct.

I was hopeful for my June amendment, because since the 2015 general election, the Government had, on a number of occasions indicated their support for public country-by-country reporting, and I welcome that. I am grateful to the former Financial Secretary, now Chief Secretary to the Treasury, as his approach was always constructive as we sought the best way to proceed.

At the debate in June, four days after the EU referendum, the Minister and others were concerned that introducing my amendment at that time might put UK multinationals at a competitive disadvantage for reputational reasons. I have no doubt that a number of the businesses to which my amendment would apply have already suffered reputational damage and more transparency could actually enhance their standing. To the Government’s credit, the UK was the first to introduce public registers of beneficial ownership, and others followed. Backing public country-by country reporting is an opportunity to show leadership again. Indeed, it is a pro-business measure. This kind of reporting already exists within the extractive sector and in financial services. Some companies are ahead of the curve and have started to publish this information. I am talking about companies such as SSE, the energy supplier, and the cosmetics retailer Lush, which operates in 49 different countries. The Government also said that, although they supported the principle, they would prefer to move ahead with others rather than alone.

As the Government make plans to leave the European Union, which may not be all smooth sailing, I do appreciate Ministers’ caution. I am grateful to the new Financial Secretary, the hon. Member for Battersea (Jane Ellison), for the constructive dialogue that we have had over the past two months. I am grateful, too, to my colleagues from the Public Accounts Committee—my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), and the hon. Members for Berwick-upon-Tweed (Mrs Trevelyan), and for Amber Valley (Nigel Mills)— for their advice and support during the recess, and I thank all those who have signed amendment 145.

I hope that the Government will regard this amendment as a friendly proposal. If it is passed today, the Commons will enshrine in law support for the principle of public country-by-country reporting with the power for the Government to introduce when the time is most appropriate. That sends a very powerful message, confirming the UK’s leading role in addressing tax evasion and avoidance and providing the Government with the tools to move quickly, when the time is right, without the need for primary legislation.

Last week, the European Commission served a €13 billion tax bill on tech giant Apple. Although the rate of corporation tax in Ireland is low at 12.5%, the Commission concluded that Apple had, in effect, paid 1% corporation tax from 2003 and a tiny 0.005% in corporation tax since 2014. I am afraid that that implies that even low corporation tax rates are no guarantee that a country will collect its rightful share. In this case, €13 billion is equivalent to paying £50 of tax on every £1 million of profits. Apple is entitled to defend its position, but the case highlights the need for more transparency in multinational business affairs.

Finally, having listened to the Government’s concerns and shared with them my arguments for today’s amendment, I hope that the House can come together and make UK public country-by-country reporting a matter not of if, but when.

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[Mike Wood (Dudley South) (Con)]

As a Conservative, I believe that taxes, whether direct or indirect, need to be kept as low as possible, consistent with the need to raise finances for our vital public services and for our national security. Unnecessarily high taxation not only strangles growth and development but means Government taking from those who have earned money, whether through labour, innovation, or capital.

However, the flipside of keeping tax levels low is that everybody must pay their fair share. Aggressive tax avoidance, bending the rules of the tax system to gain an advantage that Parliament never intended, means that a heavier burden falls on others, who are able to keep less of the money that they have earned. This Government are rightly committed to supporting businesses through low taxes—that is why corporation tax is being cut again to 17%—but those taxes do have to be paid.

This Bill therefore addresses many of the ways that companies use to avoid paying their fair level of tax. That includes the amendments that we are debating, tabled by the Government, to reform hybrid mismatches. The amendments will reduce aggressive tax planning, typically involving a multinational group. The introduction of these rules will, in essence, remove the tax advantage arising from the use of hybrid entities and instruments, and ought to encourage more businesses to adopt less complicated, more transparent cross-border investment structures. I look forward to similar rules being introduced by other jurisdictions. However, in line with OECD regulations, the Bill contains provisions for counteraction in the UK where the other country does not counteract the mismatch within its own hybrid mismatch rules. The Bill introduces the new penalty of 60% of tax due that was announced in the Budget, to be charged in all cases successfully tackled by the general anti-avoidance rule.

Government amendments 136 and 137 help to ensure that the changes announced in the Budget work as intended, cracking down further on unscrupulous and aggressive tax avoidance. I agree with the comments made by my hon. Friend the Member for Dover (Charlie Elphicke) on country-by-country reporting, as well as those raised so regularly by the right hon. Member for Don Valley (Caroline Flint). There is widespread and growing agreement that there is a need to move to country-by-country reporting so that the information is out there and available both to national tax authorities and to the wider public. That brings us back to the question of whether the best way to achieve that is for individual countries to act unilaterally or for the UK to move in partnership with our international allies and through a range of international organisations both within and beyond Europe.

[Rob Marris]

Of course, the Opposition want international action, we want international co-operation and we want our international friends to copy the amendment tabled by my right hon. Friend the Member for Don Valley (Caroline Flint), which we hope will be successful tonight. However, we also need to bear it in mind that half the tax havens in the world are British overseas territories. We have a particular responsibility in this regard worldwide. It is not about some sort of moral responsibility—to use the old-fashioned phrase, the white man’s burden—or any of that nonsense. It is to do with the fact that British overseas territories are responsible for half of these shenanigans.

[Mike Wood]

The hon. Gentleman makes a valid point, but we should also recognise, as I am sure he will, the progress that has been made in recent years to insist on those overseas territories moving into the 21st century so that their tax arrangements comply with what we would expect for international standards. In a globalised world, we must be clear that concerted international effort is needed to stop continued cross-border tax avoidance, evasion or plain old-fashioned aggressive but unscrupulous planning.

The UK Government have done more than any previous Government and more than most of our international allies and competitors to eradicate these practices, and they continue to do so, but of course more must be done and I welcome the reassurances we have heard from the Government that this remains a priority. I am pleased that the Government are now pursuing country-by-country reporting and that it will be discussed at the forthcoming G20 Finance Ministers meeting. This measure will by itself help to increase transparency across multinationals, supporting not only our tax authorities but, perhaps more importantly, those of the developing countries of which we have heard, which are almost literally being robbed of vital sources of income.

In conclusion, the Finance Bill and the amendments tabled to it include both pioneering and bold measures. It will ensure that taxes are paid and that everybody pays their fair share, and I look forward to supporting it this evening.

Charter for Budget Responsibility

Rob Marris Excerpts

Wednesday 20th July 2016 Commons Chamber

[Mr Gauke]

I understand the point that the hon. Gentleman is making about gilt yields, but none the less the Government’s credibility because of our determination to address the public finances—with a degree of pragmatism on timing that I fully acknowledge—has helped to ensure that the UK has not been drawn into a sovereign debt crisis or indeed anything like one. That is a significant achievement for this country.

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

I congratulate the right hon. Gentleman on his well-deserved promotion. The employment figures are fantastic and what the Government have done on tax avoidance is very laudable, but before he gets too self-congratulatory I caution him to bear in mind that we have had six years of falling living standards, with a bubble of household debt and a house price bubble; and in those six years the national debt has gone up by 60%. As my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) said, we need capital stimulation through the state spending money, on house building in particular. That is politically acceptable to the vast majority of the population of the United Kingdom, because we would have council houses owned by the state—the state would be borrowing money to invest in bricks and mortar, just as everyone else in this country does if they can buy their own house. The national debt is up 60% and we do not have a lot to show for that; let us put it up a bit higher while interest rates are low and have some houses to show for it.

[Mr Gauke]

There are those who will argue, in the light of Brexit, that we should not worry about borrowing and debt. They are usually—not always, and I certainly exclude the hon. Gentleman from this—the same people who have argued consistently for the past 10 years that we should not worry about borrowing and debt; it is the reasons that have tended to change. First, they argued that we need not worry about borrowing because the business cycle had been abolished and there would be no downturn, so that was all right. Then their argument was that we should borrow because we needed a fiscal stimulus, and then because gilt rates were so low. But with debt last year at almost 84% of our GDP, maintaining fiscal credibility must absolutely remain our priority. If we had not taken the measures we have on public finance over the past few years, we would be in a far worse position still. Analysis shows that from 2010 to 2020, if the structural deficit had remained the same we would have borrowed an additional £930 billion. That is a huge sum to add to our current debt total.

We have already set out our plans for finding departmental savings and in my new role I will be working closely with my fellow Ministers to make sure we stick to those plans. We have a strong record on delivering such commitments—we have done so every single year we have been in government, and we are not going to let up in our efforts now.

I am also determined to look at what further scope there is for delivering the value for money that the taxpayer deserves. I have spent the past six years working hard to make sure we get the tax revenues in, so am not about to see those revenues spent without delivering as much for our money as possible. I will therefore also take forward our work on finding further efficiencies across the public sector. That work was announced at the last Budget and I will be taking it forward straightaway, to explore all avenues for making innovations, finding reforms and saving time and money across the public sector.

This is without doubt a time of considerable uncertainty. That has its own implications for the current stability of our economy. We anticipated short-term turbulence in the event of a decision to leave the European Union, and that has been reflected in the economic developments that have unfolded. It is clear that we must pursue policies that help us grow in the future. That means pursuing pro-business tax policies, improving our skills and our infrastructure, and looking out to the world, enabling us to trade and benefit from globalisation, as there are real signs of opportunities ahead from such an outward-facing approach.

Finance Bill (Second sitting)

Rob Marris Excerpts

Thursday 30th June 2016 Public Bill Committees

[Mr Gauke]

The clause makes changes to ensure that the historic pension flexibility measures that we introduced last April are working as intended for everyone. As the Committee will be aware, from April 2015 individuals with defined contribution pension savings have been able to access their entire pension flexibly, subject to their marginal rate of tax. The Government introduced that historic reform because they believe that individuals who have worked hard and saved responsibly throughout their lives should be trusted to make their own decisions with their pension savings. In general, the flexibilities have been working well, and so far more than 230,000 people have benefited from pension flexibility in the first year of operation. However, there are a few minor points in the legislation that have not been working as intended. The Government therefore propose a series of small changes to ensure the new pension flexibility works for everyone.

The first change being introduced by the clause relates to serious ill health lump sums. Serious ill health lump sums are paid when an individual can produce medical evidence that they are expected to have fewer than 12 months to live. Before the introduction of pension flexibility, those lump sums were paid tax-free if the individual was under 75 and taxed at 45% if they were aged 75 or over. That was in line with the taxation of certain lump sum death benefits and was intended to ensure that tax considerations did not drive whether pension lump sums were taken before or after an individual dies.

From 6 April this year, the rules around death benefits have changed. Now, when someone dies having reached age 75, the lump sum death benefit is taxable at the marginal rate of the individual who receives it, not 45%. Under the clause, where someone takes a serious ill health lump sum having reached age 75, it will be taxed at the recipient’s marginal rate instead of 45%. The clause will therefore realign the tax treatment of serious ill health lump sums with that of the lump sum death benefits.

In addition, the clause makes changes to help people with a pension who have become seriously ill. Under the current rules, serious ill health lump sums can only be paid from the pension savings that have not been accessed at all. The current legislation was appropriate for a world in which people could either access the whole of their pension or not access it at all, but it now means that people could be disqualified from taking a serious ill health lump sum if they take a small lump sum from their pension and then become seriously ill later in life. The clause will remove the rule that prevents serious ill health lump sums being paid from the unaccessed portion of partially accessed funds. The changes bring the taxation of such lump sums into line with the treatment of comparable lump sum death benefits, while ensuring that there is flexibility in the system.

The second change relates to charity lump sum death benefits. Under current rules, when a pension scheme member dies leaving certain unused pension savings and uncrystallised funds, a lump sum death benefit can be paid to any beneficiaries, including a charity. That is tax-free if the member is under 75 at death, but the payment needs to be made within a two-year period, or it is taxed at a separate rate of 45% if paid to a charity. The changes being made by the clause will ensure that unused funds at the member’s death can be used to pay a charity lump sum death benefit completely tax-free, whatever the age of the member or length of time taken to pay.

The third change relates to dependants’ flexi-access drawdown funds. Before pension flexibility was introduced, children of a deceased member who wanted to claim funds from a drawdown account had to use all of this fund by the age of 23. Any remaining funds paid to them after reaching that age would be taxed at rates of up to 70%. The reforms last year enabled any nominated beneficiary, including a member’s child aged 23 or over at their parent’s death, or a member’s step-child of any age, to inherit their parent’s pension and receive drawdown pension payments at any age. However, the current legislation still means that children aged under 23 at their parent’s death have to draw all of their funds before they turn 23 in order to avoid paying 70% tax on those funds. Schedule 5 will amend legislation to allow dependants with drawdown accounts to access their funds as they wish without incurring a 70% tax charge from their 23rd birthday.

The fourth change relates to trivial commutation lump sums. Before pension flexibility, the option of trivial commutation existed for both defined-contribution and defined-benefit pensions. That allows individuals aged 60 or over with total pension savings of £30,000 or less to withdraw all of their savings as a lump sum, with the first 25% of any previously untouched savings paid tax-free. Since April 2015, pension flexibility changes allow anyone aged 55 or over to withdraw some or all of their funds that they have yet to access as a lump sum, 25% of which is tax-free. Trivial commutation was therefore removed for defined-contribution pensions and limited to defined-benefit arrangements, which were not affected by the introduction of pension flexibility.

Under the defined-benefit arrangement, the only kind of pension possible is a scheme pension, although some people have scheme pensions that come from a defined-contribution fund. As such, under current rules, if a defined-contribution scheme pension is already in payment, it cannot be taken as a trivially commuted lump sum. Schedule 5 will allow defined-contribution scheme pensions that are already in payment to be paid as a lump sum, if they satisfy all the other requirements of trivial commutation.

The fifth change brought about by this legislation relates to the top-up of dependants’ death benefits. Some pension schemes specify a minimum amount that dependants are entitled to receive when the member dies. If there is not enough money in the member’s pension pot when they die, their employer will top it up to ensure that it reaches the minimum amount. Under current rules, certain lump sum death benefits funded by an employer top-up will count as an unauthorised payment and be taxed at rates of up to 70%. Schedule 5 will address that issue by allowing employer top-ups to fund certain dependants’ death benefits to be paid out as authorised payments and therefore not be taxed at those rates.

The sixth and final change introduced by the clause relates to inheritance tax in respect of alternatives to annuities for dependants. At present, some schemes can pay an annuity to a deceased member’s surviving spouse, civil partner or dependant if the deceased had the option for a lump sum to be paid to personal representatives instead. The lump sum is not included in the estate of the deceased member for inheritance tax purposes. Pension flexibility changes mean that, after an individual’s death, an annuity may be paid to someone other than a spouse or partner or dependant, such as a nominee. However, nominees are currently not included in the inheritance tax exclusion, so if an annuity is payable to a nominee, any alternative lump sum payment could be subject to inheritance tax. The changes made by the clause will provide for the same treatment as in April 2015 and keep annuities for nominees out of inheritance tax.

Government amendment 134 to schedule 5 clarifies that the sums or assets available to fund a lump sum death benefit are valued immediately after the member’s death. The change is a minor, technical one to provide clarity and to ensure that the legislation works.

To conclude, the Government introduced pension flexibility because we believe that individuals who have worked and saved responsibly throughout their life should be trusted to make their own decisions about their pension savings. The changes made in the clause will help to ensure that the flexibilities work for everyone. I hope that it may stand part of the Bill.

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

It is a pleasure to appear before you again, Mr Howarth.

The Labour party supports clause 22, schedule 5 and the amendment, which will come as no surprise. Pension flexibility was in the manifesto on which you and I got elected, Mr Howarth, and we support it. I have a few technical questions that the Minister may wish to write to me about, or not. As ever, I was helped by the Chartered Institute of Taxation briefing, which, in reference to paragraph 6(3) of schedule 5, on page 297 of the latest print edition of the Bill, states: “This is complicated, although we agree that it achieves the stated aim. However, it is not clear to us what exactly paragraph 6(3) is trying to do, and it is unclear whether the ‘person’ is the dependant or the original member.” Perhaps the Minister will clarify that.

More importantly, the CIOT goes on to state: “It will be very complicated in future to determine who might be a dependant for various legislative purposes.” Thirdly, it said that it contacted Her Majesty’s Revenue and Customs about various typographical errors. Perhaps the Minister will reassure the Committee about that, or look into it to ensure that any of the errors CIOT discovered have been tidied up, or will be on Report, if necessary. Notwithstanding all that, we welcome the five small changes to which the Minister referred.

[Mr Gauke]

I thank the hon. Gentleman for his support for pension flexibility, which I debated with some of his colleagues and predecessors over many months in the previous Parliament. Inevitably, when a fundamental change is undertaken in how we address these matters, there will be areas that require refinement and correction, and that is what we are doing.

--- Later in debate ---

As for paragraph 6(3), I will be—

[Rob Marris]

Sometimes it is helpful to sort this out in Committee, because it goes on the record in Hansard. However, if the Minister is unable immediately to bring the answer to mind, I appreciate that he might clarify later the contents of paragraph 6(3).

[Mr Gauke]

For paragraph 6(3), guidance will be produced dealing specifically with that point. I hope that is helpful and that the clause will be accepted by the Committee.

Question put and agreed to.

Clause 22 accordingly ordered to stand part of the Bill.

Schedule 5

Pension flexibility

Amendment made: 134, in schedule 5, page 299, line 9, after “immediately”, insert “after”.—(Mr Gauke.)

Schedule 5, as amended, agreed to.

Clause 23 ordered to stand part of the Bill.

Clause 24

Fixed-rate deductions for use of home for business purposes

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

--- Later in debate ---

[Mr Gauke]

Clause 24 makes changes to ensure that businesses that operate through a partnership have clarity on how they should apply the simplified expenses regime. The Finance Act 2013 introduced a new simplified expenses regime for small unincorporated businesses. Two of the simplifications relate to the expenses of premises used for both personal and business use. As originally enacted, it could be difficult to interpret how a partnership business should apply the provisions. The changes made by clause 24 will enable unincorporated partnerships to apply these rules with clarity and in line with the original policy objective.

The changes will achieve two things. First, where partners occasionally work from home, they can also apply the fixed-rate deductions, subject to the partnership applying the provision consistently and ensuring that any hour worked at the home is counted only once, no matter how many people work at the home at the same time. Secondly, if only some members of the partnership live on the business premises—for example, a pub, restaurant or B and B—the partnership can apply the fixed-rate adjustments for the non-business costs based on the number of occupants in the same way as for individual traders.

The clause will clarify the rules and ensure that partnerships can apply the simplification as intended. Overall, the clause will put partnerships on the same footing as businesses operated by individuals and I hope it stands part of the Bill.

[Rob Marris]

I have one or two minor technical issues to raise, the first of which has been brought to my attention by the ever helpful Association of Taxation Technicians. It tells me, and I quote, “The current wording of section 94H(4)”—this is set out on page 32 of the Bill —“is silent on how any overlap of hours worked should be treated,” so there may be a technical issue when more than one person is working in the premises under consideration.

The Chartered Institute of Taxation says: “It would appear that clause 24 is actually restricting the claim that can be made for use of a home by an individual, compared to what is in existing 94H.” Proposed new section 94H(4B) of the Income Tax (Trading and Other Income) Act 2005 states:

“Where more than one person does qualifying work in the same home at the same time, any hour spent wholly and exclusively on that work is to be taken into account only once”.

The CIOT continues: “There was no similar restriction in existing section 94H, which defined number of hours worked.” Will the Minister look at those two technical points, if he does not have the answer immediately to hand? Will he also give us an indication of what take-up there has been of these deductions and so on, since they were introduced in 2013?

[Mr Gauke]

Let me turn first to section 94H(4). The simplified expenses option is designed to cover all the expenses of the home. Many of those are not affected by the number of people working in the home at any one time. Some other expenses, such as telephone and broadband costs, can be claimed separately. In line with the desire to provide simplicity, any hour is counted only once, no matter how many people are working in the home at the time. It is also worth bearing in mind, in the context of these provisions, that this regime is optional. Nobody needs to make use of it if they do not want to or if they find themselves disadvantaged by it.

It was also asked whether the need to record the actual hours worked in the home would make things more complicated, especially where individuals work in the home at different times. Ensuring that any overlap hours are counted only once does require some element of calculation, but we still believe that simplified expenses is an easier calculation for businesses to make than measuring the actual expenses incurred and then correctly apportioning these between business and private use. In any case, where a home is used extensively for business, it is likely that simplified expenses will not be appropriate. It is also worth drawing the Committee’s attention to the fact that the gov.uk website has a straightforward, simplified expense checker, which allows a business to quickly see whether using the fixed-rate amounts would be to their benefit.

As for whether we should backdate this change to the start date of the simplified expenses regime in 2013-14, it is three years since the option to use simplified expenses became available. This measure is a clarification, and Her Majesty’s Revenue and Customs will accept partnerships applying the pre-existing legislation in the same way when making tax returns covering a period before the legislation has effect. I hope that is helpful.

On wider issue of take-up, I am not sure how much information I can provide at this point—[Interruption]—although if I think long and hard about it, my recollection is that we have no analytical data available to answer that question. The self-assessment returns used by unincorporated businesses do not require businesses to separately identify if they have used the simplified expenses or not. Information from HMRC’s customer call handlers is that some callers found the simplified expense approach useful, in particular the fixed-rate deductions for working from home. I am not sure I can provide any more information than that. I hope that provides useful clarification for the Committee and that the clause will stand part of the Bill.

Question put and agreed to.

Clause 24 accordingly ordered to stand part of the Bill.

Clause 25

Averaging profits of farmers etc

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

[Rob Marris]

I have a couple of technical points and an opening comment. Clause 25 is about averaging profits of farmers. I am a great believer in averaging income. I first filled in an income tax form many years ago—I think it was called a T4 then; it might still be called that in Canada—in the days of automatic income tax averaging. As a fairly impecunious student, I benefited from that as my income rose over the years. I do not know whether it was done by computers in those days, but income tax averaging makes a lot of sense and the clause will extend it from two to five years. I gather there was a consultation on it, which closed on 27 September last year, but that there were only 26 respondents, 17 of whom thought the two-year option should be retained.

The Chartered Institute of Taxation has raised a technical issue. It likes the idea of retaining both the two-year system and the five-year system. That was its suggestion, and fair enough: the CIOT is not always right, but it is very helpful to all parts of the House. The CIOT cross-references clause 25 with HMRC’s “Making tax digital” approach, with its quarterly reporting or quarterly records being lodged, or whatever term we used to use—I realise they are technically not quarterly returns. The CIOT says: “We wonder how something like farmers’ averaging is going to work, given that taxable profits will depend on averaging calculations over a number of years, so rendering quarterly figures pretty much meaningless.” Perhaps they are meaningless; perhaps they are not. Will the Minister say a little about that?

[Mr Gauke]

Clause 25 will give self-employed farmers the option to average their profits over five years as well as the existing option to average over two years. Farmers typically have volatile profits, often due to uncontrollable factors such as the weather, disease or fluctuating product prices. Farming is a highly capital-intensive sector, the volatility of which makes it difficult for farmers to plan and invest for the future. It is a long-standing feature of our income tax system to allow farmers to average their profits over two consecutive years for income tax purposes, smoothing their tax bills over consecutive good and bad years, which prevents them from having to pay significantly higher amounts of tax in the good years. The clause will give farmers additional flexibility and protection from volatile profits by allowing them to choose to average their profits over a two-year or five-year period. More than 29,000 self-employed farmers could benefit from the additional option, with an average saving of around £950 on their income tax bill each year.

As for online digital accounts, it is expected that annual claims such as the averaging of profits will be incorporated into the design of the “Making tax digital” programme as it develops. However, I stress that quarterly reporting is not a quarterly calculation or a quarterly return. It is not about being taxed on the basis of what is earned in the quarter; it is about the provision of information. HMRC is well aware that issues such as seasonal work mean that one quarter may be very different from the next—it is certainly alive to that. As more information on HMRC’s thinking is put into the public domain, people will be reassured that the “Making tax digital” programme should not in any way undermine the policy objectives set out in clause 25.

Question put and agreed to.

Clause 25 accordingly ordered to stand part of the Bill.

Clause 26 ordered to stand part of the Bill.

Clause 27

Individual investment plans of deceased investors

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

[Rob Marris]

I would like to make a general comment, which is partly related to clause 26, which we have just covered. With all the changes to inheritance tax—this is tangentially related to that, of course, and I referred to it this morning when I spoke about inheritable individual savings accounts—it is time to look at the whole issue of taxes related to death, if I can put it that way. Because of the huge changes to inheritance tax there is now effectively a £1 million threshold for those who own an expensive house. It is time to look again at the whole panoply of death-related taxes, to which the clause relates.

[Mr Gauke]

I shall not run through all the aspects of the clause. The change it contains builds on earlier individual savings account changes we have made. It will allow us to remove unfair tax charges and simplify the tax-advantaged transfer of ISA savings after death. I note the hon. Gentleman’s remarks about the tax treatment of death and look forward to Opposition Front Benchers putting forward their policy proposals, which we will no doubt scrutinise closely.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

Clause 28

EIS, SEIS and VCTs: exclusion of energy generation

[Rob Marris]

I beg to move amendment 135, in clause 28, page 2, line 42, at end add—

‘(7) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report giving the Treasury’s assessment of the effect of excluding energy generation from EIS/SEIS/VCT schemes on—

(a) the renewable energy sector,

(b) community energy projects, and

(c) the energy sector”.

[The Chair]

With this it will be convenient to consider clause stand part.

[Rob Marris]

I hope the amendment is fairly clear. It is a standard amendment of the sort we are all used to, requiring the Chancellor of the Exchequer to publish a report. There is concern that the leverage afforded by the three types of tax advantage scheme referred to in the clause will be completely removed if all energy-generation schemes are removed from those fiscal schemes. I appreciate that the risk factor of several types of energy-generation schemes has dropped so much that the use of such tax measures is no longer efficacious, because they are giving people a tax break for doing something that used to be very risky but no longer is—namely, the development of technology—but it seems a little strange to remove tax breaks for energy generation completely. Will the Minister say something about that?

[Mr Gauke]

The clause makes changes to exclude all remaining energy-generation activities from the tax advantage venture capital schemes, thereby ensuring that the schemes continue to be well targeted towards high-risk companies and that the tax reliefs are in keeping with the original policy intent.

The venture capital schemes offer generous tax reliefs to encourage investment in small and growing higher- risk companies that cannot otherwise access finance. In recent years, there has been a significant increase in tax-advantaged investment in energy-generation companies. Such activities are generally lower risk, with predictable, reliable and regular income streams. The Government have previously made changes to exclude from the schemes those companies that have benefited from guaranteed income streams for the generation of energy. However, those exclusions have resulted in investment shifting to other forms of energy generation, rather than to the higher-risk investment that the schemes are intended to support. The changes made by this clause will ensure that the Government remain consistent in their approach by keeping the venture capital schemes targeted at higher-risk companies.

The clause will exclude all forms of energy generation from qualifying for the venture capital schemes, including the seed enterprise scheme, the enterprise investment scheme and venture capital trusts. The Government also intend to apply the exclusions to the social investment tax relief once it is enlarged. The measure is expected to yield £95 million annually from 2016-17 onwards, helping the Government to deliver on their commitment to tackle the budget deficit.

Amendment 135 would require a report to be published on the impact of the exclusion of energy generation from the venture capital schemes on the renewable energy sector, community energy projects and the energy sector. Such a report would need to be published within one year of the Bill becoming an Act. The Government provide a range of support for renewable energy, and that support will double over this Parliament, reaching more than £10 billion in 2020-21. That represents a sixfold increase in spend since 2011-12. The relief schemes I have mentioned serve a different purpose: to help smaller, higher-risk companies across a range of sectors to access the investment they need to grow and create jobs.

Energy generation is typically a lower-risk activity for which investment can be secured without tax relief. Allowing it to qualify for tax relief diverts investment away from the companies that need it most. In addition, from a practical perspective, companies that raised investment for the purpose of energy generation before its exclusion have up to two years to spend the money. A report in just one year’s time would therefore serve little purpose.

A report as suggested by the amendment would have little value from a practical point of view. The exclusion of energy from the venture capital schemes is a principled decision based on the lower risk profile of the activity. The Government therefore believe the amendment is unnecessary, and I hope it will be withdrawn.

[Mr Gauke]

Where I agree with the hon. Lady is that these things should be looked at in the round. The Government are committed to supporting the investment and innovation needed to achieve a cost-effective transition to a low-carbon economy while ensuring security of energy supply and avoiding unnecessary burdens on businesses and households. We are making great strides towards our commitments, with emissions down 30% since 1990. Support for renewables from taxpayers and bill payers will double over this Parliament, reaching more than £10 billion in 2020-21, as I mentioned. That is a sixfold increase in spend since 2011-12. We have more than trebled our renewable electricity capacity since 2010. In the round, the Government’s record is strong.

We are committed to supporting small and growing businesses. The presence of low-risk, asset-backed investments such as those described today crowds out investment in higher-risk propositions. It is right that the Government act to exclude such investors.

[Rob Marris]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 28 ordered to stand part of the Bill.

Clauses 29 to 32 ordered to stand part of the Bill.

Clause 33

Transactions in securities: company distributions

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

[The Chair]

With this it will be convenient to discuss the following:

Clause 34 stand part.

Amendment 7, in clause 35, page 57, line 2, at end add—

‘(4) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report on the impact of this section on deterring tax avoidance during the procedure of distributions during a winding up.”

Clause 35 stand part.

[Rob Marris]

I will refer first to amendments 7 and 8, which I think we are dealing with in this group.

[The Chair]

Order. Amendment 8 is not in this group.

[Rob Marris]

I beg your pardon, Sir—I am shuffling a lot of papers—and I am grateful to you for your guidance.

Amendment 7 is the usual amendment—no doubt the Minister will say the timeframe is too premature—to have a report from the Chancellor of the Exchequer within one year, on how efficient or otherwise the provisions in clause 35 are at deterring tax avoidance during wind-ups.

Clause 33 relates to transactions and securities. We welcome the tax avoidance measures introduced by the Government. I understand from a response from HMRC that guidance is due to be published on these sorts of issues. Can the Minister say when that is likely to be?

[Mr Gauke]

Clauses 33 and 34 will amend the transactions in securities legislation, which focuses on transactions where one of the main purposes is to obtain a tax advantage. Clause 35 will introduce a new targeted anti-avoidance rule aimed at preventing an unjustified tax advantage being obtained from distributions in the winding up of a company. Together, these changes will raise £80 million by the end of this Parliament. As well as helping to reduce the deficit, they will protect revenue raised from the reform of dividend taxation by ensuring that those who should pay income tax on dividends cannot convert their income into capital, which is chargeable at lower capital gains tax rates.

Companies usually distribute profits to shareholders by way of dividends, which are subject to income tax when received by individuals. There is an incentive for some people, particularly those running owner-managed companies, to convert this income into a capital receipt, which would attract lower capital gains tax rates. This incentive will be increased by the proposed reform to dividend taxation.

Clauses 33 and 34 deal with the changes to the transactions in securities legislation, strengthening and modernising those rules. They will apply where there is a transaction in securities, such as a disposal of shares, and where one of the main purposes of the transaction is to obtain a tax advantage by manipulating the border between income and capital. They will ensure that people who should pay income tax on distributions do so.

Clause 35 addresses the phenomenon of “phoenixism”, whereby a person carries on the same trade or activity through a succession of companies, extracting the profits as capital by winding the companies up rather than paying dividends. The new rule is carefully targeted and will not affect the vast majority of companies that are being wound up—for example, where a shareholder sells the trade or is retiring—but it will spell the end of companies being wound up by people seeking to obtain an unfair tax advantage.

The changes will introduce additional safeguards, including a connected parties rule, and modernise the way in which the rules are applied. They remove some of the archaic mechanisms that applied to the compliance process. Like the new “phoenixism” rule, the changes will not affect transactions that are undertaken for normal commercial reasons and they will only apply to transactions that have as one of their main purposes the aim of obtaining a tax advantage. Without these changes, the owners of some companies would be able unfairly to reduce their income tax liability simply by changing the form in which they take money out of a company, which would put at risk revenue from the dividend tax reform.

The Opposition’s amendment to clause 35 seeks to explore how the Government will determine the effectiveness of the measures to deter tax avoidance that it contains. I quite understand the hon. Gentleman’s interest in this issue; it is an interest that I share. The Government expect that the clause will be effective in closing off the great majority of tax avoidance in this area, as it involves very specific arrangements that the legislation has been carefully designed to address.

In practice, determining the clause’s deterrent effect will require information from the self-assessment process that would not be available until 2018 at the earliest. [Laughter.] Again, the hon. Gentleman anticipates the point that I was going to make. For that reason, we will be unable to report within a year on its effectiveness as the amendment proposes we should, so I hope that he will understand if we are not minded to accept the amendment. HMRC will publish guidance on the new rules as soon as possible and before the end of the year, when any tax that is due under the new rules will first become due.

In summary, this reform strengthens and modernises the rules that prevent tax advantages from being unfairly obtained by a minority of shareholders who artificially convert income into capital. It also protects revenue accruing from the dividends tax reform and makes the UK a fairer place to do business. Therefore, I hope the clause will stand part of the Bill.

Question put and agreed to.

Clause 33 accordingly ordered to stand part of the Bill.

Clauses 34 and 35 ordered to stand part of the Bill.

Clause 36

Disguised investment management fees

--- Later in debate ---

[Mr Gauke]

With your permission, Mr Howarth, my remarks will cover clauses 36, 37 and 38, and amendments 43 to 49. I will also touch on amendment 8.

These clauses introduce a test to limit the circumstances in which performance-based rewards paid to asset managers will be taxed as chargeable gains. The main test will be introduced by clause 37. Clause 36 will change some related definitions in the disguised investment management fees rules. Clause 38 sets out how the rules will work with regard to individuals coming to the UK. Taken together, these clauses will ensure that only fund managers engaging in long-term investment activity pay capital gains tax on their performance-related reward or carried interest; otherwise, that form of remuneration will be fully charged to income tax.

In 2015, we legislated to ensure management fees are always subject to income tax. Where carried interest is taxable as a chargeable gain, the full amount will be taxable without reduction through arrangements such as base cost shift. These clauses build on the previous legislation. They will ensure that capital gains treatment for carried interest is reserved only for those managing funds that are genuinely long-term investments. Treating carried interest as a capital gain rather than an income is the right approach and keeps the UK in step with other countries. It is also the approach that has been adopted consistently by previous Governments in this country over a long period. However, to ensure the regime is fair and not open to abuse, these changes limit capital gains tax treatment to those managers who can demonstrate long-term investment activity by the fund they manage.

Clauses 37 and 38 will insert a test that applies to all payments of carried interest. On receipt of carried interest, asset managers will be required to calculate the average holding period of the investments in the fund. If the average holding period is less than 36 months, the payment will be subject to income tax. If the period is more than 40 months, the payment will be subject to capital gains tax. There is a taper in between those two time limits, and targeted anti-avoidance rules to ensure that the rules cannot be exploited. The rule is slightly different for managers of debt funds, turnaround funds or venture capital funds, reflecting the specific investment strategies of those kinds of funds.

Clause 38 specifically sets out how individuals who move to the UK will be taxed in certain situations. It will apply in the first five years after an individual moves to the UK when he or she receives a reward that is taxable to income under the time held test, which I referred to earlier. Where the reward relates to services performed outside the UK, before they were resident in the UK, it will be charged to UK tax only when it is remitted to the UK. That reflects the fact that the reward relates to work done before the individual lived in this country, and it will help to ensure these rules do not make it harder for UK asset managers to attract the best talent in the global labour market.

Clause 36 will amend definitions in the disguised investment management fees rules to ensure the rules introduced by clauses 37 and 38 work as intended, especially in relation to more complicated investment fund structures.

The Government tabled seven amendments to clause 37. They are technical changes to ensure the provisions operate as intended. Amendments 43, 46 and 48 make the same technical change in three of the specialised rules we have included in clause 37. Each rule will apply a targeted calculation rule to a particular type of fund investment strategy—for example, a fund that invests in real estate or provides venture capital—thus ensuring that the average investment holding test accurately captures a fund’s underlying activity.

A fundamental concept in all these rules is that of a relevant disposal. A relevant disposal is, in effect, a disposal that is taken into account when calculating a fund’s average holding period. These changes will ensure that the legislation uses a consistent definition throughout the various specialised regimes that is clear and understood by industry and its advisers.

Amendments 44, 45 and 47 will correct a technical error that would have prevented the relevant provisions from working in practice.

Amendment 49 will expand the definition of a secondary fund to include the acquisition of investment portfolios from unconnected investment schemes. Stakeholders have informed us that many secondary funds undertake that type of activity, and that amendment is necessary to ensure that the relevant rules still apply to those funds.

The Opposition’s amendment 8 would remove the taper rule that I have described. The decision to introduce a taper rule followed extensive engagement with interested parties to examine the impact of such a measure on the market. Removing that rule would create a cliff edge—a concern that the Opposition raised in another context—so that marginal differences in the average time for which a fund held its assets could lead to radically different tax treatment for its managers. That cliff edge would lead to a market-distorting incentive for fund managers to dispose of assets earlier than was optimal, to the detriment of investors and with no policy benefits. For those reasons, I urge that that amendment is not pursued.

Clauses 36 to 38 will ensure that only those managers engaged in genuinely long-term investment activity pay capital gains tax on their performance-related rewards, and I therefore hope that those clauses stand part of the Bill and amendments 43 to 49 are made.

[Rob Marris]

This series of clauses is an interesting mixture of the technical, the conceptual and the political. Technically, the clauses are complex and lengthy, and the Government have been forced to table several amendments because of the complexity of these issues and the way that they have gone about dealing with them.

The conceptual point is about whether we go for a simpler and more rough and ready approach or a lengthy one. Professor Sol Picciotto at Lancaster University said about these clauses that instead of going for a broad provision to allow carried interest to be treated as income, the Treasury and HMRC had, typically for them, preferred long and complex statutory provisions that would keep tax lawyers happy and spawn more avoidance. These provisions are very lengthy.

The political point is highlighted by amendment 8. Our wording of that amendment may well be deficient, but it is not designed to create a cliff edge; it is designed to remove the table on page 58 completely, so that there is no taper and all carried interest is treated at 100%—that is, taxed as if it were income. As I understand it, that is in line with the OECD recommendations. Ministers properly say that when we engage in double taxation agreements, which the Minister and I have discussed on several occasions in different Committees, Her Majesty’s Government’s starting point is the OECD model, and I quite understand that, but suddenly we are not going along with an OECD suggestion when it comes to carried interest. That is obviously guidance and has no direct statutory relevance, but it is issued by the OECD, which is made up of our sister advanced countries. Instead of going for a simpler approach in which carried interest is straight income—that is what amendment 8 is designed to introduce—we have ended up with 21 pages of complex provisions in the Bill, which necessitate 10 pages of explanatory notes.

I hope that the Minister will say a little more about that conceptual point and why we do not just follow the OECD guideline. To those of us who are politicians and not tax experts, it appears quite just for carried interest, which has on occasions been used for legitimate tax avoidance, to be knocked on the head simply by being treated and taxed as income, as the OECD suggests.

As far as my excellent researcher Imogen Watson could find, there is no tax information and impact note. If that is the case, I hope that the Minister will outline—or perhaps write to members of the Committee to outline—what the Government think the impact on the Exchequer will be, and the number of taxpayers the Government expect to be affected by the provisions.

--- Later in debate ---

[The Chair]

With this it will be convenient to discuss the following:

Amendment 9, in schedule 7, page 305, line 3, leave out

“the preceding provisions of this section”

and insert

“Part 4 of TIOPA 2010”.

Amendment 10, in schedule 7, page 305, line 9, leave out

“the preceding provisions of this section”

and insert

“Part 4 of TIOPA 2010”.

That schedule 7 be the Seventh schedule to the Bill.

[Rob Marris]

I rise to address amendments 9 and 10, which are technical amendments. Schedule 7 is a technical area about which I know little.

[The Chair]

I have never known that to stop the hon. Gentleman.

[Rob Marris]

That is indeed the case. I will now proceed to address the Committee at some length—well, appropriate length.

The amendments have been suggested by our old friends at the Chartered Institute of Taxation. The schedule is designed to address three particular scenarios in which I understand previous legislation has had unintended consequences in relation to notional finance costs, credits arising on reversal of debits—of course, you are intimately familiar with that part of the financial world, Mr Howarth—and, finally, amounts excluded from taxation under our old friends, the transfer pricing rules. On the first two issues—non-market loans and transfer pricing—the world has changed since the legislation was introduced. The UK accounting standards have changed and the Bill, in a sense, is matching up the standards with what will be in statute.

On the third area—exchange gains and losses—the explanatory notes helpfully state:

“A particular concern has been identified with those provisions, as a result of which they can introduce a foreign currency exposure for corporation tax purposes even though none exists commercially or in the accounts.”

It seems a strange state of affairs that a company can suddenly have notional foreign currency transactions that do not really exist. Such things can happen in the wonderful and weird world of finance, but it is not a good idea and the Bill will helpfully sort that out.

The amendments were suggested by the CIOT, and the Minister, with his excellent knowledge and information, will no doubt say whether they will work as intended—they might not. That is not to doubt the CIOT, as I may have mixed things up in translation when tabling the amendments. I have a whole page of technical information, Mr Howarth, but you will be pleased to know that I do not propose to read it out unless members of the Committee wish me to do so.

The excellent research by Imogen Watson shows that the amendments would make it clear that, in each case, the references in paragraphs 3 and 4 of schedule 7 are to debits that have been left out of accounts for the purposes of sections 446, on loan relationships, and 693—as all hon. Members will recall, section 693 is on derivative contracts—of the Corporation Tax Act 2009 as a result of the application of part 4 of the Taxation (International and Other Provisions) Act 2010. I am told that the amendments are not controversial, although the Minister may tell me otherwise, and they are intended merely to refer to the provisions that have resulted in debits not being brought into account as debits.

It is unusual for the Government to accept Opposition amendments. It may be that I get a result today because of the technicalities, but after looking at the Minister’s face I am not optimistic. No doubt he will explain, with his usual patience and helpfulness, either why he thinks they should not be made, or that what I am seeking to do does not need doing or would not, in fact, be done by the amendments.

[Mr Gauke]

Clause 45 introduces schedule 7, which deals with three different issues that can arise from interactions between accounting rules and tax rules. These changes will prevent some unintended and unfair outcomes. I welcome the opportunity to debate amendments 9 and 10, tabled by the hon. Member for Wolverhampton South West, which are linked to the clause and which I will turn to later.

All three of the issues being addressed arise when loans made by companies are interest-free or otherwise involve financial instruments on non-market terms. Typically, those will happen in the context of commercially driven funding arrangements where loans are between companies that have some connection. Some of the issues have come about because of recent changes to accounting standards. The changes will support the Government’s policy of simplifying taxation, ensuring businesses pay the right tax at the right time.

Accounting standards can now require an interest-free loan, or other loan taken out on non-market terms, to be recognised in accounts at a lower value than the actual amount of the loan. That can lead to an interest cost being shown in the accounts of the borrower, even when no interest has actually been paid. This cost can lead to a tax deduction for the borrower, but no matching tax liability for the lender. That is an unfair outcome. The changes made by schedule 7 address this unfair situation by putting the borrower back in the position that applied before the changes to accountancy rules, to make sure that they do not benefit unfairly from the new rules.

The second issue also involves adjustments that apply when a loan or financial derivative is not made at arm’s length. Tax law means that an adjustment is made to the amount brought into account for tax on the loan. The adjustments can have the effect of restricting the deductions that can be claimed by the company for tax purposes. However, under the current rules a corresponding amount can be taxed in full later. The changes made by schedule 7 ensure that in these circumstances the company will not be taxed on amounts if it has not been given a tax deduction for corresponding amounts previously. Again, this restores the position before the accounting changes were made.

The final issue addressed by schedule 7 concerns the application of the transfer pricing divisions to exchange gains and losses. In some circumstances these provisions can give companies a tax charge or benefit from foreign exchange movements, even when there is no commercial exposure to foreign exchange. Schedule 7 will make minor technical changes so that the transfer pricing will not create an overall foreign exchange exposure for tax purposes in cases where the company is commercially hedged.

The changes made by schedule 7 ensure that the rules operate as intended. The impact on the Exchequer will be negligible. Only companies or other corporate bodies will be affected by the changes, and the impacts will be negligible as companies learn the new rules. Moving forward, we expect companies’ costs to be reduced as the legislation will be simpler to use in practice.

Let me take the opportunity to discuss amendments 9 and 10, which concern paragraphs 3 and 4 of schedule 7 respectively. They propose that the new legislation dictating the tax treatment of loan relationships and derivative contracts be linked directly to the transfer pricing rules. The Government have looked closely at that suggestion but concluded that the amendments are unnecessary.

Transfer pricing adjustments in respect of loans and derivatives are already given effect by sections 446 and 693 of the Corporation Tax Act 2009 respectively. That includes a situation in which deductions are decreased. This point was considered and confirmed by the tax tribunal last year, in the case of Abbey National Treasury Services plc v. Her Majesty’s Revenue and Customs. It is therefore right that the changes introduced by clause 45 do not refer directly to the transfer pricing rules but instead refer to sections 446 and 693, which apply them to loans and derivatives. To be clear, the exclusion of credits as a result of paragraphs 3 and 4 of schedule 7 applies to cases where deductions have been reduced as a result of the transfer pricing rules operating through sections 446 and 693 respectively. The rules therefore work as currently drafted.

The amendments could give rise to problems. In particular, they could have the effect of the exclusions applying more widely than intended. In addition, the amendments would go against the decision in the Abbey National case. For those reasons, it is important that the limitations link through sections 446 and 693.

Schedule 7 addresses three situations in which the interaction of accounting and tax rules may lead to unintended and unfair outcomes. It supports the Government’s policy of simplifying taxation by giving certainty to the rules and making them easier to comply with, and I therefore invite the hon. Gentleman to withdraw the amendment. I am grateful for the opportunity to provide some clarity to the Committee on the technical concerns that have been expressed. I hope that clause 45 and schedule 7 will stand part of the Bill.

[Rob Marris]

I had forgotten about the legal case to which the Minister referred. I will not press either of my amendments.

Question put and agreed to.

Clause 45 accordingly ordered to stand part of the Bill.

Schedule 7 agreed to.

Clauses 46 to 49 ordered to stand part of the Bill.

[Rob Marris]

On a point of order, Mr Howarth. I want to put on record my thanks to the Chartered Institute of Taxation, the Association of Tax Technicians, members of the Committee and my researcher, Imogen Watson. I thank the Minister for the patience he has shown and the excellent support and help he has given me. I thank you, Mr Howarth, and Sir Roger Gale, because I am resigning as the shadow Financial Secretary to the Treasury forthwith, and I will not be before this Committee unless there is a change of leadership in the Labour party.

Finance Bill (First sitting)

Rob Marris Excerpts

Thursday 30th June 2016 Public Bill Committees

[The Chair]

Good morning, ladies and gentlemen. I have a few housekeeping announcements before we start the formal business of the day. Members may remove their jackets, if they wish to do so; normally we wait until the Chair has given permission. I remind Members that the only liquid allowed in the Committee Room is water. Please do not try to smuggle in—

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

Gin.

[The Chair]

—coffee, because the Treasury will tax it. Please ensure that mobile phones are switched to silent mode or, preferably, off. I also remind all hon. Members that electronic devices are to be used for the purposes of Committee work, not for general communication with the outside world, however tempting that might be.

Mr Howarth and I will not, as a rule, call starred amendments—that means amendments that have been tabled without adequate notice. The notice period for Public Bill Committees is three working days. Any Member, whether a Front Bencher or a Back Bencher, who wishes to table an amendment should do so by the rise of the House on Monday for consideration on Thursday, and by the rise of the House on Thursday for consideration on Tuesday.

Not everyone is familiar with the procedures in Public Bill Committees, and even those who think they are sometimes find that they are not. I hesitate to say this, but that includes the occupants of the Chair, which is why we have the service of excellent Clerks to guide us through this stuff.

Yesterday, the Programming Sub-Committee met and agreed a programme for consideration of the Bill. It must be approved by the whole Committee, so the first thing that we will do is consider the programme motion, as on the amendment paper. The debate on that is limited to half an hour. Do not feel obliged to speak; the programme has been agreed by the usual channels, but if anyone wishes to make any opening remarks, that is fine.

The selection list for today’s sittings is available and shows how the amendments have been selected for debate. This is quite an arcane process. Amendments are grouped for discussion by content, and are not considered in sequence. In a group, you will therefore find amendments that relate to a clause much further on in the Bill but that are to be debated much earlier, because of the subject matter. You will find that the Chair—particularly if it is me—rattles through stuff, and you will want to say, “Hang on, I’ve missed this”, or “I wanted to vote on that.” Do not worry about it; we will ensure that you are told exactly. Some amendments will be debated early in the proceedings, but the votes on them—if there are any—will be taken much later, when we reach that part of the Bill.

We will call the leading name on any amendment, followed by anyone else who wishes to speak. If any Member wishes to catch my eye, or that of Mr Howarth, please try to indicate that; we do not have second sight. Given the timescale we are working to, we have to move quite fast. Once we have moved on, we cannot go back, so if you want to speak, please make sure that we know.

I am working on the assumption that the Government wish the Committee to reach a decision on all Government amendments. Where the selection list states “stand part”—that is, that that clause or whatever should stand part of the Bill—that permits a general debate, as well as debate on the individual amendments in the group. Mr Howarth may have his own views, but my view is that where there are only amendments in a group, we do not necessarily have to have a stand part debate. I much prefer people to get what they have to say off their chest early on, rather than to have a stand part debate, which tends to mean a rerun of what has been debated for the past two hours. We will try to avoid that.

There is one other thing, which is absolutely vital—almost more important than anything else—and that is these boxes behind me. You will find that you accumulate paper over the course of these sittings; that is why there are no rainforests left. These boxes are for you to store your papers in. They are named. They used to be red for the Finance Bill Committee—that was the only opportunity that some of us ever got to get our hands on a red box—but apparently we have run out, so I am afraid that they have to be green. Completely seriously, these boxes are for your use. Any papers left in them will be put in the cupboard and locked, so you do not have to lug them around the building with you. We aim to serve.

Finally, if anyone has any queries, do not be frightened; the Chair is not going to eat you, and neither are the Clerks. None of us has a monopoly on wisdom. If there is something that you do not understand, for goodness’ sake please ask, and we will try to take you through it. I, at least, will probably make mistakes.

Without further ado, I call the Minister to move the programme motion in the terms agreed by the Programming Sub-Committee.

Ordered,

That—

(1) the Committee shall (in addition to its first meeting at 11.30am on Thursday 30 June) meet—

(a) at 2.00 pm on Thursday 30 June;

(b) at 9.25 am and 2.00 pm on Tuesday 5 July;

(c) at 11.30 am and 2.00 pm on Thursday 7 July;

(d) at 9.25 am and 2.00 pm on Tuesday 12 July;

(e) at 11.30 am and 2.00 pm on Thursday 14 July;

(2) the proceedings shall be taken in the following order: Clauses 1 to 5, Schedule 1, Clause 6, Clause 19, Schedule 4, Clauses 20 to 22, Schedule 5, Clauses 23 to 39, Schedule 6, Clause 40, Clause 45, Schedule 7, Clauses 46 to 50, Schedule 8, Clauses 51 to 60, Schedule 9, Clauses 61 and 62, Schedule 10, Clauses 63 and 64, Clause 82, Schedule 15, Clauses 83 to 122, Schedule 16, Clauses 123 to 128, Clauses 130 and 131, Clauses 137 to 141, Schedule 17, Clauses 142 and 143, Clause 155, Schedule 23, Clauses 156 to 168, Schedule 24, Clauses 169 to 172, Schedule 25, Clauses 173 to 179, new Clauses, new Schedules, remaining proceedings on the Bill;

(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 14 July. —(Mr Gauke.)

Resolved,

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Mr Gauke.)

[The Chair]

Copies of any written evidence that the Committee receives will be made available to Committee members. We now commence line-by-line consideration of the Bill.

Clause 1

Income tax charge and rates for 2016-17

[Rob Marris]

I beg to move amendment 6, in clause 1, page 1, line 9, at end insert—

“(3) The Chancellor of the Exchequer shall, within three months of the passing of this Act, publish a report on the impact of setting the additional rate of income tax at 45% and at 50%.

(4) The report must estimate the impact of setting the additional rate for 2016-17 at 45% on the amount of income tax currently paid by someone with a taxable income of—

(a) £150,000 per year;

(b) £500,000 per year; and

(c) £1,000,000 per year.

(5) The report must estimate the impact of setting the additional rate for 2016-17 at 50% on the amount of income tax currently paid by someone with a taxable income of—

(a) £150,000 per year;

(b) £500,000 per year; and

(c) £1,000,000 per year.”

[The Chair]

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

[Rob Marris]

On your opening remarks, Sir Roger, I wish that when I entered the House in 2001—I look around with some shock; I think that I entered the House before any other Committee member—someone had given me that explanation. That is not to say that I know it all, but it would have been helpful to have had that explanation when I started as a Member.

The amendment relates to the Chancellor publishing reports. To Committee members who are not familiar with the procedure—as ever, I stand to be corrected by the Chair on this—I say that the Opposition cannot table amendments that would put up taxes. It is therefore quite a common device for the Opposition to express disquiet about a particular course of action being proposed by a Government by means of an amendment asking the Government—often in the person of the Chancellor of the Exchequer, obviously—to prepare a report on a given subject some months or years down the line, so that there might be some evidence of the efficacy or otherwise of the disputed measure. That is, of course, what we seek to do through amendment 6.

It will not surprise Committee members that we on the Labour Benches—I cannot speak for the Scottish National party, of course—think that the highest rate of income tax should be 50%, as it used to be. We do not accept the overall medium-term accuracy of the figures propounded by the Government that suggest that the drop in the top rate from 50% to 45% was subject to a Laffer curve, whereby a greater sum was brought in even though the rate was lower. We do not accept that because, due to the change in rate, there was tax shifting, such that there was a bulge in receipts in one year, which was offset by lowered receipts in later years.

In our view, the Government have on occasion mistakenly cited the bulge year as evidence that a lower top rate of tax brought in a higher amount than a higher top rate of tax would have. They do that simply by quoting one year rather than a sequence of years, which is unfortunate in terms of getting clarity when discussing taxes. I could produce all kinds of evidence of that, but I do not wish to detain the Committee. However, we think that the top rate should be 50%, and amendment 6 seeks to pursue that point using the mechanism available to us as the official Opposition. [Interruption.]

[The Chair]

That is my phone. I am so sorry. It can happen to all of us.

--- Later in debate ---

[Rob Marris]

I have nothing more to say on the clause, but I wish to press amendment 6 to a vote.

Question put, That the amendment be made.

--- Later in debate ---

[Roger Mullin]

I beg to ask leave to withdraw the amendment.

[Rob Marris]

I wanted to speak on stand part, not to the amendment.

[The Chair]

They are being taken together. We are on a learning curve.

[Rob Marris]

I did say at the beginning, Sir Roger, that there are always things to learn. I appreciate your understanding.

The Labour party welcomes clause 2 because there has been considerable fiscal drag under this Government. The Minister said that, without the clause correcting things, one in six taxpayers would pay the higher rate. When the previous Government, of which the Minister was a prominent part and in which he played a prominent role, took over, the proportion was around one in 12. Fiscal drag meant that the number of people paying higher rate tax doubled. Clause 2 will correct that, or at least move things in the right direction, so we support it.

[The Chair]

Now let us go back one pace, which we should not do but will.

[Mr Gauke]

Clause 3 sets the income tax personal allowances for 2017-18. The change will help working people to keep more of what they earn, and it is a big step towards keeping our manifesto commitment to a £12,500 tax-free personal allowance by the end of the Parliament. The Government’s record on personal allowances is already strong. Over the previous Parliament, the personal allowance increased by more than 60%, from £6,475 in 2010-11 to £10,600 in 2015-16. Our reforms have already taken 4 million people out of paying income tax altogether.

The Government want to go further by increasing the personal allowance to £12,500 by the end of the Parliament and by ensuring that no one working 30 hours a week on the national minimum wage pays any income tax at all. Clause 3 marks another significant step towards our meeting those commitments by raising the personal allowance from £11,000 in 2016-17 to £11,500 in 2017-18 —an increase of £500. The change made by the clause will ensure that 30 million people pay less tax in 2017-18 than at the start of this Parliament, with 1.3 million taken out of paying income tax altogether. Therefore, by April 2017, a typical basic rate taxpayer will pay over £1,000 less income tax than when we took office six years ago.

Clause 3 builds on the Government’s determination to support those in work by ensuring that people can keep even more of the money they earn. It takes a significant step towards meeting our commitment to raise the personal allowance to £12,500 and means that more of the lowest-paid are taken out of paying income tax altogether. I commend the clause to the Committee.

[Rob Marris]

We support the clause, but I caution the Government that, in terms of the benefits it will produce for lower-income families, there is a law of diminishing returns, particularly for those who are in part-time paid employment. They will already be below the income tax threshold of £11,200, which the clause will raise to £11,500. That rise will not benefit such families at all.

I urge the Minister to look at reviewing national insurance contribution thresholds, so that there is greater alignment. I am not suggesting complete alignment, because it is a national insurance scheme and people receive certain benefits or prospective benefits in the comfort of knowing that, having paid national insurance contributions, they have a health service, unemployment benefits and disability benefits, were they to be injured at work and so on. They benefit from that insurance, even if they do not need to draw upon it, as they would hope not to—who wants to be unemployed or in hospital, or whatever?

The Government need to review the thresholds, because there is a growing discrepancy for low-income families between the relatively benign nature of the income tax regime and how national insurance contributions bite at much lower levels of income.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

--- Later in debate ---

[Mr Gauke]

Clause 4 will introduce a personal savings allowance that means basic rate taxpayers can receive up to £1,000 of interest or other savings income without any tax being due. Higher rate taxpayers can receive up to £500. Because the vast majority of taxpayers will have no tax to pay on any of their savings income, clause 39 will remove the requirement for banks and building societies to deduct tax from the account interest they pay.

As the Committee will be aware, over recent years low interest rates have helped households and businesses through difficult economic times by keeping mortgage payments down, but at the same time, low rates have made it difficult for people’s savings to grow. Economists, including Nobel prize-winning economist James Meade and Sir James Mirrlees, have long pointed out that ordinary savings are over-taxed compared with other types of investment. The Government believe that in such circumstances it is right to reward and support savers by cutting the tax they pay on their savings. In addition, customer research has shown that individuals do not understand how their savings are taxed. As a result, many low-income savers were paying too much tax by not registering bank accounts for gross interest, even though they were eligible to do so. Simplification of the system is therefore long overdue.

The changes will benefit 18 million savers. From this year, 95% of taxpayers will no longer need to pay tax on their savings. With the personal allowance, dividends tax allowance and 0% starting rate for savings, it is now possible for a taxpayer to receive up to £22,000 of income without paying any tax at all, and that is on top of any income from ISAs. As well as providing a tax cut for millions of savers, the change also simplifies the rules. The vast majority of savers will have no tax deducted from their savings income and will have no tax to pay or reclaim. Most will therefore have no need to contact HMRC about their savings. Crucially, the change removes the possibility that lower-income savers will pay too much on their account interest.

For the minority who do still have tax to pay, most will declare their savings income by completing a tax return, as they currently do. In other cases, where a taxpayer does not complete a return, HMRC will collect tax through pay-as-you-earn, where possible. That will involve changing tax codes based on the information that customers or banks and building societies provide about account interest received or paid.

Clause 4 will introduce a new nil rate of tax for savings income within an individual’s savings allowance. Each individual will have an annual savings allowance of £1,000, unless they have any higher rate income for the year, in which case their allowance will be £500, or any additional rate income, in which case their allowance will be nil. The allowance can be used for any of the individual’s savings income. It also includes income from alternative finance arrangements, income equivalent to interest, purchased life annuity payments and gains from certain contracts for life insurance.

Clause 39 will remove the requirement for banks and building societies to deduct tax from the account interest they pay. The clause will add bonds offered by National Savings and Investments, including its highly successful 65-plus guaranteed growth bonds, to the list of products that pay interest without tax being deducted.

The changes made by those clauses will provide the most significant reform to the taxation of savings for a generation. That will reward and support millions of savers by reducing the tax they pay and provide a long-overdue simplification of tax rules that have been poorly understood in the past. I therefore hope that the clauses will have the support of both sides of the Committee.

[Rob Marris]

I thank the Minister for that lucid explanation. I fear that this measure may not be the simplification that he prays in aid. Taken in reverse order, clause 39 is, in a welcome sense, rough and ready, with a £1,000 allowance or nil rate for basic rate taxpayers—call it what one will, but that is important for the accountants and I concede that I do not entirely understand the difference. For a higher rate taxpayer, that figure drops from £1,000 to £500. My understanding from a press release issued in February by the Low Incomes Tax Reform Group, to which I am indebted, is that the drop is a cliff edge, so someone who moves into the higher rate tax band finds their allowance suddenly drops from £1,000 to £500 on the tax at source proposals under clause 39.

If there is a cliff edge, I urge the Government to look at that again, though I appreciate that that is difficult when going for the rough and ready simplification that we broadly support. However, taking these sorts of measures together, it is not clear that there will be the simplification that the Opposition and the Government would wish for. There is often a balancing act when various measures interact, and we will come on to that.

On simplification, the Low Incomes Tax Reform Group fears—I understand this fear—that a number of taxpayers will find it difficult to disaggregate, work out and understand the interconnection between the tax-free savings allowance, the starting rate for savings and the tax-free £5,000 dividend allowance, which is all to do with what we used to call unearned income. That is a problem.

The cliff edge is a problem, though it may be one we have to accept for simplification. However, in terms of the interaction, I start to get quite questioning when the Minister helpfully gives us an example—he will correct me if I have got it wrong—where, in a certain confluence of circumstances, someone could have an income of £22,000 plus ISA income on top and be paying no income tax at all. In particular, later in the Bill—I cannot remember the clause but the Minister will—we will get on to heritable ISAs, which allow surviving spouses to take over ISAs and therefore have the benefit of the tax advantage of the deceased’s ISAs.

We would all like those at the lower end of the income scale to get a better deal on income tax. That is what progressive tax is about. We might interpret how progressive it should be, as we did in clause 1, and so on, but as an overall concept, I think there is broad support for the progressive nature of income tax in our society as a measure of those with the broadest shoulders and so on. However, we have that example of someone who could have an income well above £22,000: because ISAs have been around for so long, there are people with £1 million in ISAs and all the income on that is tax free. That is quite legitimate and not immoral at all as any of us would see it; they just built it up year on year, using the ISA allowance for however many years ISAs have existed, which is perhaps 25 years. Because of the interaction of various measures, people can now have quite a substantial income and pay no income tax at all on it. I get a little bit uneasy about that, but overall we support clause 4 and clause 39.

--- Later in debate ---

[The Chair]

The withdrawal will come at the appropriate moment. [Interruption.] He really cannot have it all ways. For the moment, the question is that the amendment be made. It is even possible that another Member might wish to move it.

[Rob Marris]

If we are debating clause stand part, I have some remarks to make. As the hon. Member for Kirkcaldy and Cowdenbeath said, clause 5 will have potential effects on microbusinesses, which are referred to in the soon-to-be-withdrawn amendment. I have had a meeting with Jason Kitcat, who is a microbusiness ambassador for Crunch. I think the Minister is aware of that gentleman. My hon. Friend the Member for Hove (Peter Kyle) has met him, as has the hon. Member for Brighton, Pavilion (Caroline Lucas), because his business is in Brighton. He is a very persuasive individual. He is concerned about the effects of this measure on microbusinesses. People who are running a successful microbusiness and who have an income of that kind of level would see a much greater drop than those who are further up the income scale. I am not an accountant, but Mr Kitcat’s analysis is that the proposals in clause 5 and schedule 1 are regressive. If that is the case, it is worrying.

As I understand it, that is also the position of the Federation of Small Businesses. Its submission to the Economic Affairs Finance Bill Sub-Committee in the other place stated that these measures had

“caused substantial disquiet amongst FSB members. This is especially acute from members on modest incomes who, unlike their employed counterparts, will now see a rise in their tax liabilities. Despite these impacts, FSB is yet to see the distributional analysis work and we understand that unlike with previous Budgets, this information will not be released.”

There is a broader point here, to which the Library research helpfully draws attention, about changes in the way the Government release information about the distributional analysis of impacts of Budgets. For this Chancellor’s first Budget in June 2010, the coalition Government published the distribution analysis of its projected impact. That approach from the Treasury has changed. There is a new analytical framework that uses different metrics, which is troubling because it discloses less information than the old methodology.

I hope that, in response, the Minister will comment on the possible effects on microbusinesses, particularly the apparently regressive nature of this measure, and will allay the concerns of the Federation of Small Businesses.

--- Later in debate ---

[Mr Gauke]

Clause 6 separates the rates of income tax that apply to savings income from the main rates of income tax. These changes ensure that the Government meet their commitment to guaranteeing that MPs representing constituencies in England, Wales and Northern Ireland are given the decisive say on any income tax rates that affect only their constituents. As hon. and right hon. Members are aware, earlier this year the Scotland Act 2016 received Royal Assent. It provides the Scottish Parliament with unprecedented powers over income tax, including the ability to determine the rates of income tax on earned income at the points at which those apply to Scottish taxpayers.

The fiscal framework agreed by the UK and Scottish Governments confirms that the powers will take effect in 2017-18. This means that from April 2017 Members of the Scottish Parliament will have the final say on Scottish income tax. As a matter of fairness, it is only right that, once these powers come into force, MPs in England, Wales and Northern Ireland are given the decisive say over rates of income tax that affect only their constituents.

The clause separates out the main rates of income tax into three distinct groups in order to meet this objective. The main rates will continue to apply to non-savings, non-dividends income, such as employment, pensions and property income, for taxpayers in England, Wales and Northern Ireland. The savings rates will apply to savings income of all UK taxpayers. The default rates will apply to a limited category of income tax payers who will not fall into either of these two categories; the category is made up primarily of non-residents and some trustee income. This will mean that, from April 2017, changes to the main rates of income tax will no longer affect Scottish taxpayers. Changes to the savings rates or default rates will continue to remain a reserved matter for the UK Government, in line with the recommendations of the Smith commission.

The clause will meet the Government’s commitment to ensuring that English votes for English laws applies to income tax. As a result, following the Finance Bill 2017, MPs representing constituencies in England, Wales and Northern Ireland will have a decisive say on the main rates of income tax that affect only their constituents.

[Rob Marris]

I appreciate the recommendation of the Smith commission, but the clause simply introduces a further layer of complication to the overall tax regime in the United Kingdom—we are still the United Kingdom, of course. As I understand it, we are now almost back to how it was in my youth—and, I suspect, yours as well, Sir Roger—with the differential rates on earned and unearned income and all that sort of stuff, because EVEL is now bleeding into the income tax regime, depending on whether a certain source of income is a reserved or a devolved matter.

I tend to agree with my hon. Friend the Member for Rhondda (Chris Bryant), the former shadow Leader of the House, who called the current EVEL procedure an “incomprehensible mess”. I also tend to agree with the Chair of the Procedure Committee, the hon. Member for Broxbourne (Mr Walker), who described the proposals as “over-engineered”. It will get incredibly messy unless there is full fiscal devolution—another debate we may or may not get on to today.

On a technical matter, I am indebted to the Chartered Institute of Taxation, as I suspect many hon. Members are, for its helpful suggestions, and this is an arena in which we get to put forward some of its suggestions. One of its technical suggestions is about the table in clause 6. It wonders whether including a table of rates in the statute, which is introduced as having a general effect, might as a matter of statutory interpretation cause issues if the general effect conflicts with a specific effect of other provisions. I hope the Minister can come up with a short piece on that, as regards statutory interpretation.

[Kirsty Blackman (Aberdeen North) (SNP)]

We argued against English votes for English laws all the way through. It was a dreadful initiative. The Government intend to reassess English votes for English laws at the end of this year and look at how it has worked, so I think we might be jumping the gun on some of the income tax measures. I will not move against them, but this is possibly doing things a bit too soon. Obviously, we will have our own Scottish rate of income tax, which we can set; it is fabulous that the devolved Administration will be able to do that. However, Scottish MPs will be excluded from discussions on income tax—a major, serious part of the Finance Bill—and that further compounds the difference between Scottish MPs and English and Welsh MPs in this House. The impression given to the general public by the change in the law to enable that to happen will be even worse, and that will hasten the break-up of the United Kingdom.

--- Later in debate ---

In conclusion, the Government believe that this approach is a fair and balanced way to reduce the cost of pensions, tax-free; indeed, it is estimated that the measure will save almost £2 billion by the end of this Parliament. In addition, it limits the benefit that the wealthiest pension savers can receive, while maintaining fairness between people retiring now and people retiring in the future.

[Rob Marris]

Oh, I do wish I could declare an interest in this clause.

We welcome the transitional protections—the fixed protection and the individual protection—and, indeed, the clause’s overall architecture. Schedule 4, though—not many of us are that technical about this stuff, but schedule 4 runs to 17 pages. Talk about complexity in the tax regime!

On the overall approach, I am delighted that the Government are moving in a direction that I urged on the Labour Government back in 2002, when the forgone revenue was £18 billion a year, from memory—it was £17.6 billion in 2001, as the Minister said—first because the pension tax regime is very regressive, and secondly because there was no evidence then that that tax relief encouraged people to save for pensions. Earlier this year I checked with the Library for an update on the situation, and it could find hardly any evidence that the forgone tax revenue, which is now £34 billion per year, encourages the very behaviour it is intended to encourage. It is probably the biggest single tax relief in the whole tax regime; it is regressive; and it does not do what it is intended to do. This pottiness continues, though clause 19 and schedule 4 make some welcome steps in the right direction.

I have a more minor point, connected to HMRC’s cuts in staff numbers—although those have increased a bit—and its unfortunate proposal to close a whole load of offices. The tax information and impact note published on 9 December 2015 estimated that the additional cost to HMRC of administering and monitoring the protection regimes would be £2.4 million for IT and—get this—£500,000 for staff resources over a five-year period. On average, that is £100,000 a year in extra staffing costs due to the protection regime.

Perhaps the Minister can assure me that I am misinterpreting the situation. If not, HMRC is living in a different world. As he pointed out, 4% of individuals might be caught by having a pension pot approaching or exceeding £1 million, and therefore might face the protection regime, whether fixed or individual. That 4% of pensioners is not just a whole lot of people, but people with around £1 million in their pension pot. They are likely to be some of the most educated and articulate pensioners, or prospective pensioners, and are certainly some of the most prosperous. I may be misinterpreting this, but does HMRC really think that an average of £100,000 a year in additional staffing costs will deal with the protection regime, the queries arising from it and so on? How will that 4% of pensioners or prospective pensioners who are likely to raise queries, quite properly, with HMRC be dealt with on £100,000 a year?

[Mr Gauke]

This is an area where HMRC has some experience, from making changes to the lifetime allowance. It is therefore in a position to assess how many customer contacts it will receive and is well placed to assess the various demands likely to result from the transitional arrangements. It is also worth pointing out that HMRC is moving to digital processes, allowing the organisation to reduce numbers and making processes simpler and easier to use, so that individuals can self-serve. I argue that the assessment was made in good faith, based on previous experience.

[Rob Marris]

I will enable the Minister to gather his thoughts. The figure that I have devolved upon—I appreciate that it is an average; £500,000 over five years is £100,000 a year—is, very roughly, three members of staff, depending on their seniority and so on. That is three members of staff dealing with, potentially, thousands of prospective pensioners of the sort who will, quite properly, get in contact. It does not seem enough. Am I missing something in the equation? Technology alone will not solve it.

Finance Bill

Rob Marris Excerpts

Tuesday 28th June 2016 Commons Chamber

[Mr Gauke]

My point would be about the sheer scale of the information provided to HMRC. I quoted the 125,000 pieces of information from the public, but by no means are all of those whistleblowers. HMRC certainly does receive a substantial amount of information from whistleblowers, which is helpful. As for how that works and its contribution to HMRC’s activities, I am not aware of worries that that is not working or that the existing provisions with regards to whistleblowers are ineffective. Of course these matters are always kept under review. If I thought that there was a strong case for returning to this issue, I would certainly be interested in doing so, but I am not hearing that at present.

The right hon. Member for Barking (Dame Margaret Hodge) has been waiting very patiently for me to turn to new clause 9, which would require the Government to estimate the impact on the tax gap of expanding our forthcoming register of persons with significant control to companies in the Crown dependencies and overseas territories. I do not believe that the clause would be effective in achieving its aims. It would cast the net too narrowly by focusing on companies with significant levels of trading activity in the UK. As the Prime Minister announced at the recent anti-corruption summit last month, the Crown dependencies and overseas territories have agreed to hold beneficial ownership information on all companies incorporated in their jurisdictions. Importantly, they will share that information with Her Majesty’s Revenue and Customs and UK law enforcement agencies, which means that our authorities will be able to see exactly who owns and controls companies incorporated there.

Although I understand the aims of the new clause, it would be less effective than the steps that we have already taken to improve transparency and tackle tax evasion. I do have some sympathy with the argument that, no doubt, we will hear from the right hon. Lady, but I am not persuaded by it, and I hope that she will not press her new clause to a vote.

I will not take up any more time of the Committee. I have tried to cover as much ground as I can and to anticipate the arguments that we will hear for the rest of this debate. I hope that the Government clauses, schedules and amendments can stand part of the Bill.

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

I will try to be relatively brief, but, as the Minister has said, there is an awful lot to get through. I know that many Members wish to speak—indeed, today we have a profligacy of right hon. Members with us, particularly on the Opposition Benches, which is very good—so, perforce, I will have to be brief on various issues.

Labour does not oppose clause 144. On clause 145, which is to do with the general anti-abuse rule, I would like some assurance from the Minister that there are enough staff to deal with this work. I realise that the Government have gone into reverse gear on this, which I welcome, and the number of full-time equivalents has gone up from 57,000 to 60,000 this calendar year. That is a good step, but HMRC was significantly underperforming because it was very understaffed, and clause 145 proposes an additional amount of work for staff to do, so I should like some reassurance on that.

Clause 146 proposes penalties for the general anti-abuse rule. The Chartered Institute of Taxation, which has been extremely helpful to all Members, especially those on the Opposition Front Bench, is concerned that someone might be punished in a rather draconian manner for an innocent error of judgment. However, when my excellent researcher, Imogen Watson, looked at the case to which CIOT referred, she found that it was one to do with customs and excise rather than corporation tax and income tax. Perhaps the Minister can provide some clarification on that.

Amendment 4 on clause 146, which is tabled by me and my hon. and right hon. Friends, deals with raising the penalty from 60% to 100%. I heard what the Minister said about that, but I am concerned that the penalties would not be sufficient to change behaviour and encourage socially acceptable law compliant behaviour, which is what we all want to see.

Clause 147 deals with serial tax avoidance. The Chartered Institute of Taxation has expressed concern, and I understand its point, that this clause might introduce what would be a double penalty for an individual. Generally, we try to avoid double penalties for wrongdoing. Perhaps the Minister could have another think about the clause, or clarify for the Committee today that the CIOT has misunderstood things and there is no such double penalty being introduced. Could the Minister give us an indication—I know that these things are difficult—of how many non-taxpayers will mend their ways as a result of this measure and become taxpayers? Again, there is an issue of funding for HMRC.

Clause 148, which relates to the promoters of tax avoidance schemes, is supported by the Labour Front-Bench team. Although we support clause 149, which deals with special measures and so on, we have put forward amendments 5 to 18 on it—the Minister referred to them earlier. Those amendments deal with increasing the penalty to £25,000 from £7,500 and for holding a director or directors “jointly and severally liable”. Rather strangely, the Minister said that the Government were in the business of “encouraging behavioural change”. Well, so are we. Having higher penalties could encourage behavioural change, by which I mean somebody not indulging in bad behaviour, and filing their reports and so on. That is why we came up with the idea of joint and several liability rather than leaving it to one person. That means that all directors would be aware of what was going on. Furthermore, if the penalties were levied, they would not be reimbursable, as is too often the case. Too often, companies simply reimburse their staff when the staff have engaged in non-criminal wrongdoing. That is not an incentive for them to avoid wrongdoing in future—quite the reverse if anything.

With clause 149 comes amendment 1. I will be brief on that amendment, because my right hon. Friend the Member for Don Valley (Caroline Flint) will no doubt be speaking to it. It is an excellent amendment, which is fully supported by the Labour Front-Bench team. I will say a couple of things very briefly in response to what the Minister said on it. He said that the amendment is technically flawed. That may be the case, but this is the first of almost 200 amendments. If the Government supported it, they could have corrected any technical flaws they saw in it. I also think that they are being a bit timid here, because I do not see how the provisions under amendment 1 will lead to disadvantage to UK headquartered companies or to reputational damage—quite the reverse. Whether the Minister likes it or not, the reputation of Google was adversely affected in the United Kingdom because its tax deal with the UK authorities was not transparent and because people thought that Google was getting away with it. If there had been more transparency, Google’s reputation might not have been adversely affected.

Similarly, provisions in amendment 1 could lead not to reputational damage for UK headquartered companies, but reputational enhancement. I have to say to the Minister—I cannot resist it because he is such a good Minister—that, in our society, talking the talk is seen as hot air, but Gauking the Gauke is seen as being polite and helpful. May I urge him to walk the walk and support amendment 1? If it needs tidying up, he should do it and sort out the technicalities.

Let me talk now about clause 150 and schedule 20—I know that I am going at a bit of a gallop, but there are others who wish to speak. I heard what the Minister said about amendments 19 and 20, which are putative amendments to schedule 20. I defer to his superior knowledge, as this is a very technical area, and I am not an accountant. I think that I understood him to say that what was proposed in amendment 19 was already covered in schedule 20. In relation to amendment 20, he referred to “blind-eye knowledge”, which is a new one on me. I, like him, am a lawyer, and it seems that schedule 20 is introducing civil penalties and not criminal ones, so I accept what he says and will not be pursuing amendments 19 and 20.

Labour supports clause 151, which is to do with penalties in connection with offshore matters and offshore transfers. Clause 152 relates to offshore tax errors and publishing details of deliberate tax defaulters. Helpfully, the explanatory notes say that the clause will amend the Finance Act 2009 to allow HMRC

“the power to publish the details of an individual who controls a body corporate or a partnership”—

when it has been—

“charged a penalty for a deliberate failure to notify HMRC of a tax charge or deliberate inaccuracy in a return, and”—

when that individual—

“would have obtained a tax advantage”—

from it—

“had it not been corrected.”

This must involve an offshore matter or transfer.

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[Mr Gauke]

I assure the right hon. Lady that I have asked civil servants about this particular issue—she will not be entirely surprised to learn that there have been fairly extensive conversations with civil servants about it. We believe that the amendment as drafted would not apply to foreign multinational entities. The challenge is that the information is, essentially, held in the UK and relating to UK-headquartered companies, so only UK-headquartered companies are well placed to provide it. She has highlighted one of the problems with a unilateral approach.

I have a huge amount of sympathy with the right hon. Lady’s argument, as she knows. We have discussed this before. I am pleased that the United Kingdom is leading the way in making progress on this at a number of international forums. I urge the House to consider that we do not need to go it alone at this point. We can work with other countries, given the progress that is being made, quite often at the UK’s instigation.

Another important point was touched on by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) as well as the right hon. Lady, namely developing countries. I have a lot of sympathy with that point. It is worth noting that 39 countries, including the United Kingdom and developing countries such as Nigeria and Senegal, have signed the OECD mechanism for country-by-country reporting. That means that the information produced by companies and provided to tax authorities—not published, but already produced and provided to authorities—is shared with every one of the 39 signatories. I want to encourage other developing countries to sign that agreement, so that they have access to the information. The right hon. Lady made the point earlier that the EU proposals could go further on ensuring more information. I agree. That is the UK position and we have been arguing that case at EU level.

I never want to miss the opportunity to highlight what we do as a country to help developing countries’ tax authorities build up their tax capacity. That work does not get the coverage it deserves. The previous Labour Government also did such work, but we have built on that. The Department for International Development and HMRC do considerable work on helping developing countries ensure that they have the information they need and the capacity to do something with it.

[Rob Marris]

May I make this offer on amendment 1? My right hon. Friend the Member for Don Valley (Caroline Flint) and I are quite happy to meet the Minister and Treasury officials to iron out any technical deficiencies there may be. I make that offer today so that we can do so before Report. Secondly, I urge the Minister to think a little more broadly, in terms of the world that we live in now after the Brexit vote. If the United Kingdom, having left the European Union, chose to make it a condition of trading in the UK for multinational enterprises not headquartered here that they disclose that information, we could do so.

[Mr Gauke]

I am not sure about the practicality of that. I will also make the point that we remain members of the European Union. There does not seem to be any likelihood of our leaving the EU within two years. Given the progress currently being made on public country-by-country reporting, I hope that the process will conclude while our membership continues.

As I have said, there are some technical issues that could be ironed out in amendment 1, but the fundamental issue of not being able to access information from foreign multinational entities that are not headquartered in the UK would remain a problem. Even with the best will in the world—and the best lawyers and parliamentary counsel—we will not be able to solve that problem.

--- Later in debate ---

[Rob Marris]

Will the Minister meet us?

[Mr Gauke]

I am always happy to discuss this issue with the hon. Gentleman, but that underlying problem still exists.

In the light of all that, I will say that, yes, we want to make progress on public country-by-country reporting, but that needs to be on a multilateral basis. Amendment 1, despite some considerable ingenuity to get it in order to be debated today, does not do what is needed. I therefore urge hon. Members not to support it, in the knowledge that this Government want to make progress on this matter and expect to make considerable progress over the next few months.

Amendment 114 agreed to.

Clause 144, as amended, ordered to stand part of the Bill.

Clause 145

General anti-abuse rule: binding of tax arrangements to lead arrangements

Amendments made: 115, page 198, line 8, leave out “Condition 1 or 2” and insert—

“the condition in sub-paragraph (2)”.

Amendment 116, page 198, line 9, leave out “Condition 1” and insert “The condition”.

Amendment 117, page 198, line 10, at end insert—

“but no notice under paragraph 12 of Schedule 43 or paragraph 9 of Schedule 43B has yet been given in respect of the matter.”

Amendment 118, page 198, leave out lines 11 and 12.

Amendment 119, page 198, line 20, leave out from first “notice” to end of line 21 and insert—

“(a “pooling notice”) which places R’s arrangements in a pool with the lead arrangements.”

Amendment 120, page 198, line 21, at end insert—

“( ) There is one pool for any lead arrangements, so all tax arrangements placed in a pool with the lead arrangements (as well as the lead arrangements themselves) are in one and the same pool.

( )Tax arrangements which have been placed in a pool do not cease to be in the pool except where that is expressly provided for by this Schedule (regardless of whether or not the lead arrangements or any other tax arrangements remain in the pool).”

Amendment 121, page 198, line 22, leave out “notice of binding” and insert “pooling notice”.

Amendment 122, page 198, line 23, leave out

“(which has not been withdrawn)”.

Amendment 123, page 198, line 25, leave out from “43” to end of line 26.

Amendment 124, page 198, line 26, at end insert—

“Notice of proposal to bind arrangements to counteracted arrangements

1A (1) This paragraph applies where a counteraction notice has been given to a person in relation to any tax arrangements (the “counteracted arrangements”) which are in a pool created under paragraph 1.

(2) If a designated HMRC officer considers—

(a) that a tax advantage has arisen to another person (“R”) from tax arrangements that are abusive,

(b) that those tax arrangements (“R’s arrangements”) are equivalent to the counteracted arrangements, and

(c) that the advantage ought to be counteracted under section 209,

the officer may give R a notice (a “notice of binding”) in relation to R’s arrangements.

(3) The officer may not give R a notice of binding if R has been given in respect of R’s arrangements a notice under—

(a) paragraph 1, or

(b) paragraph 3 of Schedule 43.

(4) In this paragraph “counteraction notice” means a notice such as is mentioned in sub-paragraph (2) of paragraph 12 of Schedule 43 or sub-paragraph (3) of paragraph 9 of Schedule 43B (notice of final decision to counteract).

1B”.

Amendment 125, page 198, line 27, after “a” insert “pooling notice or”.

Amendment 126, page 198, line 30, after “A” insert “pooling notice or”.

Amendment 127, page 198, line 34, after “arrangements” insert

“or the counteracted arrangements (as the case may be)”.

Amendment 128, page 199, line 1, after “A” insert “pooling notice or”.

Amendment 129, page 199, leave out lines 4 to 10.

Amendment 130, page 199, line 12, after “a” insert “pooling notice or”.

Amendment 131, page 199, line 16, after “6” insert

“and Schedule 43B (generic referral of tax arrangements)”.

Amendment 132, page 199, line 17, leave out “of binding” and insert

“in question (and accordingly the tax arrangements in question are no longer in the pool)”.

Amendment 133, page 199, line 23, leave out “notice under paragraph 1” and insert “pooling notice or notice of binding”.

Amendment 134, page 199, line 26, leave out

“notice under paragraph 1”

and insert—

“pooling notice or notice of binding”.

Amendment 135, page 199, line 34, at end insert—

“( ) Where a person takes the first step described in sub-paragraph (3)(b), HMRC may proceed as if the person had not taken the relevant corrective action if the person fails to enter into the written agreement.”

Amendment 136, page 200, line 6, at end insert—

“Corrective action by lead taxpayer

2A If the person mentioned in paragraph 1(1) takes the relevant corrective action (as defined in paragraph 4A of Schedule 43) before the end of the period of 75 days beginning with the day on which the notice mentioned in paragraph 1(1) was given to that person, the lead arrangements are treated as ceasing to be in the pool.”

Amendment 137, page 200, line 9, leave out “notice of binding” and insert “pooling notice”.

Amendment 138, page 200, line 10, leave out from first “arrangements” to “and” in line 11.

Amendment 139, page 200, line 13, leave out from “about” to “is” in line 14 and insert

“another set of tax arrangements in the pool (“the referred arrangements”)”.

Amendment 140, page 200, line 16, leave out “bound” and insert “pooled”.

Amendment 141, page 200, line 17, at end insert—

“( ) No more than one pooled arrangements opinion notice may be given to a person in respect of the same tax arrangements.”

Amendment 142, page 200, line 19, leave out

“by virtue of Condition 2 in paragraph 1”.

Amendment 143, page 200, line 21, leave out “notice of binding” and insert “pooling notice”.

Amendment 144, page 200, line 22, leave out “bound” and insert “pooled”.

Amendment 145, page 200, line 25, leave out “lead” and insert “referred”.

Amendment 146, page 200, line 29, at end insert—

“( ) In relation to a person who is given a notice of binding “bound arrangements opinion notice” means a written notice which—

(a) sets out a report prepared by HMRC of any opinion of the GAAR Advisory Panel about the counteracted arrangements (see paragraph 1A(1)),

(b) explains the person’s right to make representations falling within sub-paragraph (2), and

(c) sets out the period in which those representations may be made.”

Amendment 147, page 200, line 30, after “given” and insert

“a pooled arrangements opinion notice or”.

Amendment 148, page 200, leave out lines 35 to 38.

Amendment 149, page 200, line 40, leave out “the lead arrangements” and insert

“(i) the referred arrangements (in the case of a pooled arrangements opinion notice), or

(ii) the counteracted arrangements (in the case of a bound arrangements opinion notice).”

Amendment 150, page 201, line 3, leave out from beginning to “paragraph” in line 4 and insert

“any tax arrangements have been placed in a pool by a notice given to a person under”.

Amendment 151, page 201, line 7, leave out “the lead arrangements” and insert

“any other arrangements in the pool (the “referred arrangements”)”.

Amendment 152, page 201, line 10, leave out “lead” and insert “referred”.

Amendment 153, page 201, line 17, leave out

“by virtue of Condition 2 in paragraph 1”

and insert “under paragraph 1A”.

Amendment 154, page 201, line 22, leave out “lead” and insert “counteracted”.

Amendment 155, page 202, line 25, leave out from “applies” to end of line 38 and insert

“if—

(a) pooling notices given under paragraph 1 of Schedule 43A have placed one or more sets of tax arrangements in a pool with the lead arrangements,

(b) the lead arrangements (see paragraph 1(1) of Schedule 43A) have ceased to be in the pool, and

(c) no referral under paragraph 5 or 6 of Schedule 43 has been made in respect of any arrangements in the pool.

(2) A designated HMRC officer may determine that, in respect of each of the tax arrangements that are in the pool, there is to be given (to the person to whom the pooling notice in question was given) a written notice of a proposal to make a generic referral to the GAAR Advisory Panel in respect of the arrangements in the pool.

(3) Only one determination under sub-paragraph (2) may be made in relation to any one pool.

(3A) The persons to whom those notices are given are “the notified taxpayers”.”

Amendment 156, page 203, leave out lines 1 to 4.

Amendment 157, page 203, line 6, leave out “representations, and” and insert “a proposal.”.

Amendment 158, page 203, leave out lines 7 to 16.

Amendment 159, page 203, line 18, leave out from “given” to end of line 20 and insert

“to propose to HMRC that it—

(a) should give T a notice under paragraph 3 of Schedule 43 in respect of the arrangements to which the notice under paragraph 1 relates, and

(b) should not proceed with the proposal to make a generic referral to the GAAR Advisory Panel in respect of those arrangements.”

Amendment 160, page 203, leave out lines 21 to 25.

Amendment 161, page 203, line 26, leave out

“representations are made in accordance with sub-paragraph (2)”

and insert

“a proposal is made in accordance with sub-paragraph (1)”.

Amendment 162, page 203, line 27, leave out “them” and insert “it”.

Amendment 163,  page 203, line 28, leave out from beginning to end of line 22 on page 204.

Amendment 164,  page 204, line 26, leave out “given a notice” and insert “made a proposal”,

Amendment 165, page 204, line 31, leave out “gives a notice” and insert “makes a proposal”.

Amendment 166, page 204, line 32, after “must” insert

“, after the end of that 30 day period,”.

Amendment 167, page 204, leave out lines 34 and 35 and insert

“( ) give a notice under paragraph 3 of Schedule 43 in respect of one set of tax arrangements in the relevant pool, or”.

Amendment 168, page 204, leave out lines 37 and 38 and insert

“tax arrangements in the relevant pool”.

Amendment 169, page 205, line 18, after “which” insert “the designated officer considers”.

Amendment 170, page 207, line 35, at end insert—

“( ) In section 210 (consequential relieving adjustments), in subsection (1)(b), after “Schedule 43,” insert “paragraph 5 or 6 of Schedule 43A or paragraph 9 of Schedule 43B,”.”

Amendment 171, page 207, line 40, after “1” insert “or 1A”.

Amendment 172, page 207, line 41, leave out “lead” and insert

“referred or (as the case may be) counteracted”.

Amendment 173, page 208, line 7, leave out “1(4)” and insert “1A(2)”.

Amendment 174, page 208, line 8, at end insert—

““pooling notice” has the meaning given by paragraph 1(4) of Schedule 43A;”.

Amendment 178, page 208, line 24, at end insert—

“(10A) Section 10 of the National Insurance Contributions Act 2014 (GAAR to apply to national insurance contributions) is amended in accordance with subsections (10B) to (10E).

(10B) In subsection (4), at the end insert “, paragraph 5 or 6 of Schedule 43A to that Act (pooling of tax arrangements: notice of final decision) or paragraph 9 of Schedule 43B to that Act (generic referral of arrangements: notice of final decision)”.

(10C) After subsection (6) insert—

“(6A) Where, by virtue of this section, a case falls within paragraph 4A of Schedule 43 to the Finance Act 2013 (referrals of single schemes: relevant corrective action) or paragraph 2 of Schedule 43A to that Act (pooled schemes: relevant corrective action)—

(a) the person (“P”) mentioned in sub-paragraph (1) of that paragraph takes the “relevant corrective action” for the purposes of that paragraph if (and only if)—

(i) in a case in which the tax advantage in question can be counteracted by making a payment to HMRC, P makes that payment and notifies HMRC that P has done so, or

(ii) in any case, P takes all necessary action to enter into an agreement in writing with HMRC for the purpose of relinquishing the tax advantage, and

(b) accordingly, sub-paragraphs (2) to (8) of that paragraph do not apply.”

(10D) In subsection (11)—

(a) for “and HMRC” substitute “, “HMRC” and “tax advantage””;

(b) after “2013” insert “(as modified by this section)”.

(10E) After subsection (11) insert—

“(12) See section 10A for further modifications of Part 5 of the Finance Act 2013.”

(10F) After section 10 of the National Insurance Contributions Act 2014 insert—

“10A Application of GAAR in relation to penalties

(1) For the purposes of this section a penalty under section 212A of the Finance Act 2013 is a “relevant NICs-related penalty” so far as the penalty relates to a tax advantage in respect of relevant contributions.

(2) A relevant NICs-related penalty may be recovered as if it were an amount of relevant contributions which is due and payable.

(3) Section 117A of the Social Security Administration Act 1992 or (as the case may be) section 111A of the Social Security Administration (Northern Ireland) Act 1992 (issues arising in proceedings: contributions etc) has effect in relation to proceedings before a court for recovery of a relevant NICs-related penalty as if the assessment of the penalty were a NICs decision as to whether the person is liable for the penalty.

(4) Accordingly, paragraph 5(4)(b) of Schedule 43C to the Finance Act 2013 (assessment of penalty to be enforced as if it were an assessment to tax) does not apply in relation to a relevant NICs-related penalty.

(5) In the application of Schedule 43C to the Finance Act 2013 in relation to a relevant NICs-related penalty, paragraph 9(5) has effect as if the reference to an appeal against an assessment to the tax concerned were to an appeal against a NICs decision.

(6) In paragraph 8 of that Schedule (aggregate penalties), references to a “relevant penalty provision” include—

(a) any provision mentioned in sub-paragraph (5) of that paragraph, as applied in relation to any class of national insurance contributions by regulations (whenever made);

(b) section 98A of the Taxes Management Act 1970, as applied in relation to any class of national insurance contributions by regulations (whenever made);

(c) any provision in regulations made by the Treasury under which a penalty can be imposed in respect of any class of national insurance contributions.

(7) The Treasury may by regulations—

(a) disapply, or modify the effect of, subsection (6)(a) or (b);

(b) modify paragraph 8 of Schedule 43C to the Finance Act 2013 as it has effect in relation to a relevant penalty provision by virtue of subsection (6)(b) or (c).

(8) Section 175(3) to (5) of SSCBA 1992 (various supplementary powers) applies to a power to make regulations conferred by subsection (7).

(9) Regulations under subsection (7) must be made by statutory instrument.

(10) A statutory instrument containing regulations under subsection (7) is subject to annulment in pursuance of a resolution of either House of Parliament.

(11) In this section “NICs decision” means a decision under section 8 of the Social Security Contributions (Transfer of Functions, etc) Act 1999 or Article 7 of the Social Security Contributions (Transfer of Functions, etc) (Northern Ireland) Order 1999 (SI 1999/671).

(12) In this section “relevant contributions” means the following contributions under Part 1 of SSCBA 1992 or Part 1 of SSCB(NI)A 1992—

(a) Class 1 contributions;

(b) Class 1A contributions;

(c) Class 1B contributions;

(d) Class 2 contributions which must be paid but in relation to which section 11A of the Act in question (application of certain provisions of the Income Tax Acts in relation to Class 2 contributions under section 11(2) of that Act) does not apply.””

Amendment 175, page 208, line 28, leave out from “notice” to “in” in line 30 and insert

“has been given under paragraph 5(2) or 6(2) of Schedule 43A to FA 2013 (notice of final decision after considering Panel’s opinion about referred or counteracted arrangements)”.

Amendment 176, page 208, line 34, leave out from “Panel” to end of line 36 and insert

“about the other arrangements (see subsection (8)) was as set out in paragraph 11(3)(b) of Schedule 43 to FA 2013.”

Amendment 177, page 209, line 2, leave out from “(4)(d)” to end of line 6 and insert

“other arrangements” means—

(a) in relation to a notice under paragraph 5(2) of Schedule 43A to FA 2013, the referred arrangements (as defined in that paragraph);

(b) in relation to a notice under paragraph 6(2) of that Schedule, the counteracted arrangements (as defined in paragraph 1A of that Schedule).”

Amendment 179, page 209, line 6, at end insert—

“(13A) In section 220 of FA 2014 (content of notice given while a tax enquiry is in progress)—

(a) in subsection (4)(c), after “219(4)(c)” insert “, (d) or (e)”;

(b) in subsection (5)(c), after “219(4)(c)” insert “, (d) or (e)”;

(c) in subsection (7), for the words from “under” to the end substitute “under—

(a) paragraph 12 of Schedule 43 to FA 2013,

(b) paragraph 5 or 6 of Schedule 43A to that Act, or

(c) paragraph 9 of Schedule 43B to that Act,

as the case may be.”

(13B) Section 287 of FA 2014 (Code of Practice on Taxation for Banks) is amended in accordance with subsections (13C) to (13E).

(13C) In subsection (4), after “(5)” insert “or (5A)”.

(13D) In subsection (5)(b), after “Schedule” insert “or paragraph 5 or 6 of Schedule 43A to that Act”.

(13E) After subsection (5) insert—

“(5A) This subsection applies to any conduct—

(a) in relation to which there has been given—

(i) an opinion notice under paragraph 7(4)(b) of Schedule 43B to FA 2013 (GAAR advisory panel: opinion that such conduct unreasonable) stating the joint opinion of all the members of a sub-panel arranged under that paragraph, or

(ii) one or more such notices stating the opinions of at least two members of such a sub-panel, and

(b) in relation to which there has been given a notice under paragraph 9 of that Schedule (HMRC final decision on tax advantage) stating that a tax advantage is to be counteracted.

(5B) For the purposes of subsection (5), any opinions of members of the GAAR advisory panel which must be considered before a notice is given under paragraph 5 or 6 of Schedule 43A to FA 2013 (opinions about the lead arrangements) are taken to relate to the conduct to which the notice relates.”

(13F) In Schedule 32 to FA 2014 (accelerated payments and partnerships), paragraph 3 is amended in accordance with subsections (13G) and (13H).

(13G) In sub-paragraph (5), after paragraph (c) insert—

(d) the relevant partner in question has been given a notice under paragraph 5(2) or 6(2) of Schedule 43A to FA 2013 (notice of final decision after considering Panel’s opinion about referred or counteracted arrangements) in respect of any tax advantage resulting from the asserted advantage or part of it and the chosen arrangements (or is given such a notice at the same time as the partner payment notice) in a case where the stated opinion of at least two of the members of the sub-panel of the GAAR Advisory Panel about the other arrangements (see sub-paragraph (7)) was as set out in paragraph 11(3)(b) of Schedule 43 to FA 2013;

(e) the relevant partner in question has been given a notice under paragraph 9(2) of Schedule 43B to FA 2013 (GAAR: generic referral of arrangements) in respect of any tax advantage resulting from the asserted advantage or part of it and the chosen arrangements (or is given such a notice at the same time as the partner payment notice) in a case where the stated opinion of at least two of the members of the sub-panel of the GAAR Advisory Panel which considered the generic referral in respect of those arrangements was as set out in paragraph 7(4)(b) of that Schedule.”

(13H) After sub-paragraph (6) insert—

“(7) “Other arrangements” means—

(a) in relation to a notice under paragraph 5(2) of Schedule 43A to FA 2013, the referred arrangements (as defined in that paragraph);

(b) in relation to a notice under paragraph 6(2) of that Schedule, the counteracted arrangements (as defined in paragraph 1A of that Schedule).”

(13I) In Schedule 34 to FA 2014 (promoters of tax avoidance schemes: threshold conditions), in paragraph 7—

(a) in paragraph (a), at the end insert “(referrals of single schemes) or are in a pool in respect of which a referral has been made to that Panel under Schedule 43B to that Act (generic referrals),”;

(b) in paragraph (b)—

(i) for “in relation to the arrangements” substitute “in respect of the referral”;

(ii) after “11(3)(b)” insert “or (as the case may be) 7(4)(b)”;

(c) in paragraph (c)(i) omit “paragraph 10 of”.”—(Mr Gauke.)

Clause 145, as amended, ordered to stand part of the Bill.

Clause 146

General Anti-Abuse Rule: Penalty

Amendments made: 82, page 209, line 14, after “person” insert “(P)”.

Amendment 83, page 209, leave out lines 15 and 16.

Amendment 84, page 209, line 17, leave out “the person” and insert “(P)”.

Amendment 85, page 209, line 21, leave out “the” and insert “particular”.

Amendment 86, page 209, line 22, at end insert—

“(ba) a tax document has been given to HMRC on the basis that the tax advantage arises to P from those arrangements,

(bb) that document was given to HMRC—

(i) by P, or

(ii) by another person in circumstances where P knew, or ought to have known, that the other person gave the document on the basis mentioned in paragraph (ba), and”

Amendment 87, page 209, line 33, at end insert—

‘( ) In this section the reference to giving a tax document to HMRC is to be interpreted in accordance with paragraph 11(g) and (h) of Schedule 43C.”

Amendment 88, page 210, line 16, at end insert—

‘( ) For the purposes of this paragraph consequential adjustments under section 210 are regarded as part of the counteraction in question.

( ) If the counteraction affects the person’s liability to two or more taxes, the taxes concerned are to be considered together for the purpose of determining the value of the counteracted advantage.”

Amendment 89, page 214, line 33, after “tax” insert

“(including any amount chargeable as if it were corporation tax or treated as corporation tax)”

Amendment 90, page 214, line 34, at end insert

“and (v) diverted profits tax;”.

Amendment 91, page 215, line 34, after “given” insert “a pooling notice or”.

Amendment 92, page 215, line 34, leave out “paragraph 1 of”.

Amendment 93, page 215, line 41, at beginning insert

“in the case of a pooling notice,”.

Amendment 94, page 215, line 47, leave out from beginning to “with” in line 48 and insert

“in the case of a notice of binding,”.

Amendment 95, page 215, line 49, leave out “of binding”.

Amendment 96, page 216, line 6, leave out “binding” and insert

“pooling or binding (as the case may be)”.

Amendment 97, page 216, line 43, at end insert—

(ja) an appeal under section 103 of FA 2016 (apprenticeship levy: appeal against an assessment), or”.

Amendment 98, page 216, line 45, leave out “(j)” and insert “(ja)”.

Amendment 99, page 217, line 23, at end insert—

‘( ) Where the taxpayer takes the first step described in sub-paragraph (3)(b), HMRC may proceed as if the taxpayer had not taken the relevant corrective action if the taxpayer fails to enter into the written agreement.”—(Mr Gauke.)

Clause 146, as amended, ordered to stand part of the Bill.

Clause 147 ordered to stand part of the Bill.

Schedule 18

Serial Tax Avoidance

Amendments made: 100, page 480, line 19, at end insert “, associated persons and partnerships”

Amendment 101, page 480, line 32, at end insert—

‘( ) A warning notice given by virtue of paragraph 46C must also explain the effect of paragraph 46E (information in certain cases involving partnerships).”

Amendment 102, page 484, line 10, after “decision)” insert—

“, paragraph 5 or 6 of Schedule 43A to that Act (pooled arrangements: notice of final decision) or paragraph 9 of Schedule 43B to that Act (generic referrals: notice of final decision)”.

Amendment 103, page 484, leave out lines 23 and 24 and insert—

“the necessary corrective action for the purposes of section 208 of FA 2014 has been taken”.

Amendment 104, page 484, line 28, at end insert—

“(1A) In sub-paragraph (1) the reference to giving a follower notice to P includes a reference to giving a partnership follower notice in respect of a partnership return in relation to which P is a relevant partner (as defined in paragraph 2(5) of Schedule 31 to FA 2014).”

Amendment 105, page 484, line 35, leave out from “advantage”” to end of line 36 and insert—

“has the same meaning as in Chapter 2 of Part 4 of FA 2014 (see section 208(3) of and paragraph 4(3) of Schedule 31 to that Act).”

Amendment 106, page 484, line 42, at end insert—

“(6) For the purposes of this paragraph a partnership follower notice is given “in respect of” the partnership return mentioned in paragraph (a) or (b) of paragraph 2(2) of Schedule 31 to FA 2014.”

Amendment 107, page 485, line 8, after “election” insert—

“, or a partnership return is made,”

Amendment 108, page 490, line 22, at end insert—

“( ) If the person mentioned in sub-paragraph (1) is a person carrying on a trade or business in partnership, the information which may be published also includes—

(a) any trading name of the partnership, and

(b) information about other members of the partnership of the kind described in sub-paragraph (4)(a) or (b).”

Amendment 109, page 494, line 31, at end insert—

“( ) In this paragraph “relevant failure”, in relation to a relevant defeat, is to be interpreted in accordance with sub-paragraphs (2) to (7) of paragraph 43.”

Amendment 110, page 504, line 43, at end insert—

“Associated persons treated as incurring relevant defeats

46A (1) Sub-paragraph (2) applies if a person (“P”) incurs a relevant defeat in relation to any arrangements (otherwise than by virtue of this paragraph).

(2) Any person (“S”) who is associated with P at the relevant time is also treated for the purposes of paragraphs 2 (duty to give warning notice) and 3(2) (warning period) as having incurred that relevant defeat in relation to those arrangements (but see sub-paragraph (3)).

For the meaning of “associated” see paragraph 46B.

(3) Sub-paragraph (2) does not apply if P and S are members of the same group of companies (as defined in paragraph 46(9)).

(4) In relation to a warning notice given to S by virtue of sub-paragraph (2), paragraph 2(4)(c) (certain information to be included in warning notice) is to be read as referring only to paragraphs 3, 17 and 18.

(5) A warning notice which is given to a person by virtue of sub-paragraph (2) is treated for the purposes of paragraphs 19(1) (duty to give relief restriction notice) and 30 (penalty) as not having been given to that person.

(6) In sub-paragraph (2) “the relevant time” means the time when P is given a warning notice in respect of the relevant defeat.

Meaning of “associated”

46B (1) For the purposes of paragraph 46A two persons are associated with one another if—

(a) one of them is a body corporate which is controlled by the other, or

(b) they are bodies corporate under common control.

(2) Two bodies corporate are under common control if both are controlled—

(a) by one person,

(b) by two or more, but fewer than six, individuals, or

(c) by any number of individuals carrying on business in partnership.

(3) For the purposes of this section a body corporate (“H”) is taken to control another body corporate (“B”) if—

(a) H is empowered by statute to control B’s activities, or

(b) H is B’s holding company within the meaning of section 1159 of and Schedule 6 to the Companies Act 2006.

(4) For the purposes of this section an individual or individuals are taken to control a body corporate (“B”) if the individual or individuals, were they a body corporate, would be B’s holding company within the meaning of those provisions.

Partners treated as incurring relevant defeats

46C (1) Where paragraph 46D applies in relation to a partnership return, each relevant partner is treated for the purposes of this Part of this Act as having incurred the relevant defeat mentioned in paragraph 46D(1)(b), (2) or (3)(b) (as the case may be).

(2) In this paragraph “relevant partner” means any person who was a partner in the partnership at any time during the relevant reporting period (but see sub-paragraph (3)).

(3) The “relevant partners” do not include—

(a) the person mentioned in sub-paragraph (1)(b), (2) or (3)(b) (as the case may be) of paragraph 46D, or

(b) any other person who would, apart from this paragraph, incur a relevant defeat in connection with the subject matter of the partnership return mentioned in sub-paragraph (1).

(4) In this paragraph the “relevant reporting period” means the period in respect of which the partnership return mentioned in sub-paragraph (1), (2) or (3) of paragraph 46D was required.

Partnership returns to which this paragraph applies

46D (1) This paragraph applies in relation to a partnership return if—

(a) that return has been made on the basis that a tax advantage arises to a partner from any arrangements, and

(b) that person has incurred, in relation to that tax advantage and those arrangements, a relevant defeat by virtue of Condition A (final counteraction of tax advantage under general anti-abuse rule).

(2) Where a person has incurred a relevant defeat by virtue of sub-paragraph (1A) of paragraph 13 (Condition B: case involving partnership follower notice) this paragraph applies in relation to the partnership return mentioned in that sub-paragraph.

(3) This paragraph applies in relation to a partnership return if—

(a) that return has been made on the basis that a tax advantage arises to a partner from any arrangements, and

(b) that person has incurred, in relation to that tax advantage and those arrangements, a relevant defeat by virtue of Condition C (return, claim or election made in reliance on DOTAS arrangements).

(4) The references in this paragraph to a relevant defeat do not include a relevant defeat incurred by virtue of paragraph 46A(2).

Partnerships: information

46E (1) If paragraph 46D applies in relation to a partnership return, the appropriate partner must give HMRC a written notice (a “partnership information notice”) in respect of each sub-period in the information period.

(2) The “information period” is the period of 5 years beginning with the day after the day of the relevant defeat mentioned in paragraph 46D.

(3) If, in the case of a partnership, a new information period (relating to another partnership return) begins during an existing information period, those periods are treated for the purposes of this paragraph as a single period (which includes all times that would otherwise fall within either period).

(4) An information period under this paragraph ends if the partnership ceases.

(5) A partnership information notice must be given not later than the 30th day after the end of the sub-period to which it relates.

(6) A partnership information notice must state—

(a) whether or not any relevant partnership return which was, or was required to be, delivered in the sub-period has been made on the basis that a relevant tax advantage arises, and

(b) whether or not there has been a failure to deliver a relevant partnership return in the sub-period.

(7) In this paragraph—

(a) “relevant partnership return” means a partnership return in respect of the partnership’s trade, profession or business;

(b) “relevant tax advantage” means a tax advantage which particular DOTAS arrangements enable, or might be expected to enable, a person who is or has been a partner in the partnership to obtain.

(8) If a partnership information notice states that a relevant partnership return has been made on the basis mentioned in sub-paragraph (6)(a) the notice must—

(a) explain (on the assumptions made for the purposes of the return) how the DOTAS arrangements enable the tax advantage concerned to be obtained, and

(b) describe any variation in the amounts required to be stated in the return under section 12AB(1) of TMA 1970 which results from those arrangements.

(9) HMRC may require the appropriate partner to give HMRC a notice (a “supplementary information notice”) setting out further information in relation to a partnership information notice.

In relation to a partnership information notice “further information” means information which would have been required to be set out in the notice by virtue of sub-paragraph (6)(a) or (8) had there not been a failure to deliver a relevant partnership return.

(10) A requirement under sub-paragraph (9) must be made by a written notice and the notice must state the period within which the notice must be complied with.

(11) If a person fails to comply with a requirement of (or imposed under) this paragraph, HMRC may by written notice extend the information period concerned to the end of the period of 5 years beginning with—

(a) the day by which the partnership information notice or supplementary information notice was required to be given to HMRC or, as the case requires,

(b) the day on which the person gave the defective notice to HMRC,

or, if earlier, the time when the information period would have expired but for the extension.

(12) For the purposes of this paragraph—

(a) the first sub-period in an information period begins with the first day of the information period and ends with a day specified by HMRC,

(b) the remainder of the information period is divided into further sub-periods each of which begins immediately after the end of the preceding sub-period and is twelve months long or (if that would be shorter) ends at the end of the information period.

(13) In this paragraph “the appropriate partner” means the partner in the partnership who is for the time being nominated by HMRC for the purposes of this paragraph.

Partnerships: special provision about taxpayer emendations

46F (1) Sub-paragraph (2) applies if a partnership return is amended at any time under section 12ABA of TMA 1970 (amendment of partnership return by representative partner etc) on a basis that—

(a) results in an increase or decrease in, or

(b) otherwise affects the calculation of,

any amount stated under subsection (1)(b) of section 12AB of that Act (partnership statement) as a partner’s share of any income, loss, consideration, tax or credit for any period.

(2) For the purposes of paragraph 14 (Condition C: counteraction of DOTAS arrangements), the partner is treated as having at that time amended—

(a) the partner’s return under section 8 or 8A of TMA 1970, or

(b) the partner’s company tax return,

so as to give effect to the amendments of the partnership return.

(3) Sub-paragraph (4) applies if a partnership return is amended at any time by HMRC as a result of a disclosure made by the representative partner or that person’s successor on a basis that—

(a) results in an increase or decrease in, or

(b) otherwise affects the calculation of,

any amount stated under subsection (1)(b) of section 12AB (partnership statement) as the share of a particular partner (P) of any income, loss, consideration, tax or credit for any period.

(4) If the conditions in sub-paragraph (5) are met, P is treated for the purposes of paragraph 14 as having at that time amended—

(a) P’s return under section 8 or 8A of TMA 1970, or

(b) P’s company tax return,

so as to give effect to the amendments of the partnership return.

(5) The conditions are that the disclosure—

(a) is a full and explicit disclosure of an inaccuracy in the partnership return, and

(b) was made at a time when neither the person making the disclosure nor P had reason to believe that HMRC was about to begin enquiries into the partnership return.

Supplementary provision relating to partnerships

46G (1) In paragraphs 46C to 46F and this paragraph—

“partnership” is to be interpreted in accordance with section 12AA of TMA 1970 (and includes a limited liability partnership);

“the representative partner”, in relation to a partnership return, means the person who was required by a notice served under or for the purposes of section 12AA(2) or (3) of TMA 1970 to deliver the return;

“successor”, in relation to a person who is the representative partner in the case of a partnership return, has the same meaning as in TMA 1970 (see section 118(1) of that Act).

(2) For the purposes of this Part of this Act a partnership is treated as the same partnership notwithstanding a change in membership if any person who was a member before the change remains a member after the change.”

Amendment 112, page 507, leave out lines 15 to 20.

Amendment 111, page 507, line 38, at end insert—

““partnership follower notice” has the meaning given by paragraph 2(2) of Schedule 31 to FA 2014;

“partnership return” means a return under section 12AA of TMA 1970;”

Amendment 113, page 508, line 13, at end insert—

‘( ) For the purposes of this Schedule a partnership return is regarded as made on the basis that a particular tax advantage arises to a person from particular arrangements if—

(a) it is made on the basis that an increase or reduction in one or more of the amounts mentioned in section 12AB(1) of TMA 1970 (amounts in the partnership statement in a partnership return) results from those arrangements, and

(b) that increase or reduction results in that tax advantage for the person.”—(Mr Gauke.)

Schedule 18, as amended, agreed to.

Clause 148

Promoters of tax avoidance schemes

Amendments made: 69, page 219, line 15, at end insert—

‘(1A) An authorised officer must make the determination set out in subsection (1B) if the officer becomes aware at any time (“the relevant Part 2B time”) that—

(a) a person meets a condition in subsection (6), (7) or (8), and

(b) at the relevant Part 2B time another person (“P”), who is carrying on a business as a promoter, meets that condition by virtue of Part 2B of Schedule 34A (meeting the section 237A conditions: bodies corporate and partnerships).

(1B) The authorised officer must determine whether or not—

(a) the meeting of the condition by the person as mentioned in subsection (1A)(a), and

(b) P’s meeting of the condition as mentioned in subsection (1A)(b),

should be regarded as significant in view of the purposes of this Part.”

Amendment 70, page 219, line 16, leave out “Subsection (1) does” and insert “Subsections (1) and (1A) do”.

Amendment 71, page 219, leave out lines 21 to 25.

Amendment 72, page 219, line 25, at end insert—

‘(3A) Subsection (1A) does not apply if, at the relevant Part 2B time, an authorised officer is under a duty to make a determination under section 237(5) in relation to P.

(3B) But in a case where subsection (1) does not apply because of subsection (3), or subsection (1A) does not apply because of subsection (3A), subsection (5) of section 237 has effect as if—

(a) the references in paragraph (a) of that subsection to “subsection (1)”, and “subsection (1)(a)” included subsection (1) of this section, and

(b) in paragraph (b) of that subsection the reference to “subsection (1A)(a)” included a reference to subsection (1A)(a) of this section and the reference to subsection (1A)(b) included a reference to subsection (1A)(b) of this section.”

Amendment 73, page 219, line 28, at end insert—

‘( ) If the authorised officer determines under subsection (1B) that—

(a) the meeting of the condition by the person as mentioned in subsection (1A)(a), and

(b) P’s meeting of the condition as mentioned in subsection (1A)(b),

should be regarded as significant in view of the purposes of this Part, the officer must give P a conduct notice, unless subsection (5) applies.”

Amendment 74, page 225, line 7, at end insert—

( ) Part 2A contains provision about when a relevant defeat is treated as occurring in relation to a person;

( ) Part 2B contains provision about when a person is treated as meeting a condition in subsection (6), (7) or (8) of section 237A;”

Amendment 75, page 226, line 9, leave out from “person” to end of line 11 and insert

“is carrying on a business as a promoter and—the person is or has been a promoter in relation to the arrangements, or that would be the case if the condition in sub-paragraph (2) were met.”

(i) the person is or has been a promoter in relation to the arrangements, or

(ii) that would be the case if the condition in sub-paragraph (2) were met.”

Amendment 76, page 228, line 26, after first “to” insert

“, paragraph 5(2) or 6(2) of Schedule 43A to or paragraph 9(2) of Schedule 43B to”.

Amendment 77, page 230, line 9, at end insert—

Part 2A

Relevant defeats: associated persons

Attribution of relevant defeats

16A (1) Sub-paragraph (2) applies if—

(a) there is (or has been) a person (“Q”),

(b) arrangements (“the defeated arrangements”) have been entered into,

(c) an event occurs such that either—

(i) there is a relevant defeat in relation to Q and the defeated arrangements, or

(ii) the condition in sub-paragraph (i) would be met if Q had not ceased to exist,

(d) at the time of that event a person (“P”) is carrying on a business as a promoter (or is carrying on what would be such a business under the condition in paragraph 3(2)), and

(e) Condition 1 or 2 is met in relation to Q and P.

(2) The event is treated for all purposes of this Part of this Act as a relevant defeat in relation to P and the defeated arrangements (whether or not it is also a relevant defeat in relation to Q, and regardless of whether or not P existed at any time when those arrangements were promoted arrangements in relation to Q).

(3) Condition 1 is that—

(a) P is not an individual,

(b) at a time when the defeated arrangements were promoted arrangements in relation to Q—

(i) P was a relevant body controlled by Q, or

(ii) Q was a relevant body controlled by P, and

(c) at the time of the event mentioned in sub-paragraph (1)(c)—

(i) Q is a relevant body controlled by P,

(ii) P is a relevant body controlled by Q, or

(iii) P and Q are relevant bodies controlled by a third person.

(4) Condition 2 is that—

(a) P and Q are relevant bodies,

(b) at a time when the defeated arrangements were promoted arrangements in relation to Q, a third person (“C”) controlled Q, and

(c) C controls P at the time of the event mentioned in sub-paragraph (1)(c).

(5) For the purposes of sub-paragraphs (3)(b) and (4)(b), the question whether arrangements are promoted arrangements in relation to Q at any time is to be determined on the assumption that the reference to “design” in paragraph (b) of section 235(3) (definition of “promoter” in relation to relevant arrangements) is omitted.

Deemed defeat notices

16B (1) This paragraph applies if—

(a) an authorised officer becomes aware at any time (“the relevant time”) that a relevant defeat has occurred in relation to a person (“P”) who is carrying on a business as a promoter,

(b) there have occurred, more than 3 years before the relevant time—

(i) one third party defeat, or

(ii) two third party defeats, and

(c) conditions A1 and B1 (in a case within paragraph (b)(i)), or conditions A2 and B2 (in a case within paragraph (b)(ii)), are met.

(2) Where this paragraph applies by virtue of sub-paragraph (1)(b)(i), this Part of this Act has effect as if an authorised officer had (with due authority), at the time of the time of the third party defeat, given P a single defeat notice under section 241A(2) in respect of it.

(3) Where this paragraph applies by virtue of sub-paragraph (1)(b)(ii), this Part of this Act has effect as if an authorised officer had (with due authority), at the time of the second of the two third party defeats, given P a double defeat notice under section 241A(3) in respect of the two third party defeats.

(4) Section 241A(8) has no effect in relation to a notice treated as given as mentioned in subsection (2) or (3).

(5) Condition A1 is that—

(a) a conduct notice or a single or double defeat notice has been given to the other person (see sub-paragraph (9)) in respect of the third party defeat,

(b) at the time of the third party defeat an authorised officer would have had power by virtue of paragraph 16A to give P a defeat notice in respect of the third party defeat, had the officer been aware that it was a relevant defeat in relation to P, and

(c) so far as the authorised officer mentioned in sub-paragraph (1)(a) is aware, the conditions for giving P a defeat notice in respect of the third party defeat have never been met (ignoring this paragraph).

(6) Condition A2 is that—

(a) a conduct notice or a single or double defeat notice has been given to the other person (see sub-paragraph (9)) in respect of each, or both, of the third party defeats,

(b) at the time of the second third party defeat an authorised officer would have had power by virtue of paragraph 16A to give P a double defeat notice in respect of the third party defeats, had the officer been aware that either of the third party defeats was a relevant defeat in relation to P, and

(c) so far as the authorised officer mentioned in sub-paragraph (1)(a) is aware, the conditions for giving P a defeat notice in respect of those third party defeats (or either of them) have never been met (ignoring this paragraph).

(7) Condition B1 is that, had an authorised officer given P a defeat notice in respect of the third party defeat at the time of that relevant defeat, that defeat notice would still have effect at the relevant time (see sub-paragraph (1)).

(8) Condition B2 is that, had an authorised officer given P a defeat notice in respect of the two third party defeats at the time of the second of those relevant defeats, that defeat notice would still have effect at the relevant time.

(9) In this paragraph “third party defeat” means a relevant defeat which has occurred in relation to a person other than P.

Meaning of “relevant body” and “control”

16C (1) In this Part of this Schedule “relevant body” means—

(a) a body corporate, or

(b) a partnership.

(2) For the purposes of this Part of this Schedule a person controls a body corporate if the person has power to secure that the affairs of the body corporate are conducted in accordance with the person’s wishes—

(a) by means of the holding of shares or the possession of voting power in relation to the body corporate or any other relevant body,

(b) as a result of any powers conferred by the articles of association or other document regulating the body corporate or any other relevant body, or

(c) by means of controlling a partnership.

(3) For the purposes of this Part of this Schedule a person controls a partnership if the person is a controlling member or the managing partner of the partnership.

(4) In this paragraph “controlling member” has the same meaning as in Schedule 36 (partnerships).

(5) In this section “managing partner”, in relation to a partnership, means the member of the partnership who directs, or is on a day-to-day level in control of, the management of the business of the partnership.

Part 2B

Meeting section 237A conditions: bodies corporate and partnerships

Treating persons under another’s control as meeting section 237A condition

16D (1) A relevant body (“RB”) is treated as meeting a section 237A condition at the relevant Part 2B time if—

(a) that condition was met by a person (“C”) at a time when—

(i) C was carrying on a business as a promoter, or

(ii) RB was carrying on a business as a promoter and C controlled RB, and

(b) RB is controlled by C at the relevant Part 2B time.

(2) Sub-paragraph (1) does not apply if C is an individual.

(3) For the purposes of determining whether the requirements of sub-paragraph (1) are met by reason of meeting the requirement in sub-paragraph (1)(a)(i), it does not matter whether RB existed at the time when C met the section 237A condition.

Treating persons in control of others as meeting section 237A condition

16E (1) A person other than an individual is treated as meeting a section 237A condition at the relevant Part 2B time if—

(a) a relevant body (“A”) met the condition at a time when A was controlled by the person, and

(b) at the time mentioned in paragraph (a) A, or another relevant body (“B”) which was also at that time controlled by the person, carried on a business as a promoter.

(2) For the purposes of determining whether the requirements of sub-paragraph (1) are met it does not matter whether A or B (or neither) exists at the relevant Part 2B time.

Treating persons controlled by the same person as meeting section 237A condition

16F (1) A relevant body (“RB”) is treated as meeting a section 237A condition at the relevant Part 2B time if—

(a) another relevant body met that condition at a time (“time T”) when it was controlled by a person (“C”),

(b) at time T, there was a relevant body controlled by C which carried on a business as a promoter, and

(c) RB is controlled by C at the relevant Part 2B time.

(2) For the purposes of determining whether the requirements of sub-paragraph (1) are met it does not matter whether—

(a) RB existed at time T, or

(b) any relevant body (other than RB) by reason of which the requirements of sub-paragraph (1) are met exists at the relevant Part 2B time.

Interpretation

16G (1) In this Part of this Schedule—

“control” has the same meaning as in Part 2A of this Schedule;

“relevant body” has the same meaning as in Part 2A of this Schedule;

“relevant Part 2B time” means the time referred to in section 237A(1A);

“section 237A condition” means any of the conditions in section 237A(6), (7) and (8).

(2) For the purposes of paragraphs 16D(1)(a), 16E(1)(a) and 16F(1)(a), the condition in section 237A(6) (occurrence of 3 relevant defeats in the 3 years ending with the relevant time) is taken to have been met by a person at any time if at least 3 relevant defeats have occurred in relation to the person in the period of 3 years ending with that time.”

Amendment 78, page 234, line 27, at end insert—

‘(9A) Schedule 36 (promoters of tax avoidance schemes: partnerships) is amended in accordance with subsections (9B) to (9G).

(9B) In Part 2, before paragraph 5 insert—

“Defeat notices

4A A defeat notice that is given to a partnership must state that it is a partnership defeat notice.”.

(9C) In paragraph 7(1)(b) after “a” insert “defeat notice,”.

(9D) In paragraph 7(2) after “the” insert “defeat notice,”.

(9E) After paragraph 7 insert—

“Persons leaving partnership: defeat notices

7A (1) Sub-paragraphs (2) and (3) apply where—

(a) a person (“P”) who was a controlling member of a partnership at the time when a defeat notice (“the original notice”) was given to the partnership has ceased to be a member of the partnership,

(b) the defeat notice had effect in relation to the partnership at the time of that cessation, and

(c) P is carrying on a business as a promoter.

(2) An authorised officer may give P a defeat notice.

(3) If P is carrying on a business as a promoter in partnership with one or more other persons and is a controlling member of that partnership (“the new partnership”), an authorised officer may give a defeat notice to the new partnership.

(4) A defeat notice given under sub-paragraph (3) ceases to have effect if P ceases to be a member of the new partnership.

(5) A notice under sub-paragraph (2) or (3) may not be given after the original notice has ceased to have effect.

(6) A defeat notice given under sub-paragraph (2) or (3) is given in respect of the relevant defeat or relevant defeats to which the original notice relates.”

(9F) In paragraph 10—

(a) in sub-paragraph (1)(b) for “conduct notice or a” substitute “, defeat notice, conduct notice or”;

(b) in sub-paragraph (3), after “partner—” insert—

“(za) a defeat notice (if the original notice is a defeat notice);”.

(c) in sub-paragraph (4), after “(“the new partnership”)—” insert—

“(za) a defeat notice (if the original notice is a defeat notice);”

(d) after sub-paragraph (5) insert—

“(5A) A notice under sub-paragraph (3)(za) or (4)(za) may not be given after the end of the look-forward period of the original notice.”

(9G) After paragraph 11 insert—

11A The look-forward period for a notice under paragraph 7A(2) or (3) or 10(3)(za) or (4)(za)—

(a) begins on the day after the day on which the notice is given, and

(b) continues to the end of the look-forward period for the original notice (as defined in paragraph 7A(1)(a) or 10(2), as the case may be).”

Amendment 79, page 234, line 27, at end insert—

‘(9A) Part 2 of Schedule 2 to the National Insurance Contributions Act 2015 (application of Part 5 of FA 2014 to national insurance contributions) is amended in accordance with subsections (9B) and (9C).

(9B) After paragraph 30 insert—

“Threshold conditions

30A (1) In paragraph 5 of Schedule 34 (non-compliance with Part 7 of FA 2004), in sub-paragraph (4)—

(a) paragraph (a) includes a reference to a decision having been made for corresponding NICs purposes that P is to be deemed not to have failed to comply with the provision concerned as P had a reasonable excuse for not doing the thing required to be done, and

(b) the reference in paragraph (c) to a determination is to be read accordingly.

(2) In this paragraph “corresponding NICs purposes” means the purposes of any provision of regulations under section 132A of SSAA 1992.

Relevant defeats

30B (1) Schedule 34A (promoters of tax avoidance schemes: defeated arrangements) has effect with the following modifications.

(2) References to an assessment (or an assessment to tax) include a NICs decision relating to a person’s liability for relevant contributions.

(3) References to adjustments include a payment in respect of a liability to pay relevant contributions (and the definition of “adjustments” in paragraph 17 accordingly has effect as if such payments were included in it).

(4) In paragraph 9(3) the reference to an enquiry into a return includes a relevant contributions dispute (as defined in paragraph 6 of this Schedule).

(5) In paragraph 21(3)—

(a) paragraph (a) includes a reference to a decision having been made for corresponding NICs purposes that the person is to be deemed not to have failed to comply with the provision concerned as the person had a reasonable excuse for not doing the thing required to be done, and

(b) the reference in paragraph (c) to a determination is to be read accordingly.

“Corresponding NICs purposes” means the purposes of any provision of regulations under section 132A of SSAA 1992.”

(9C) In paragraph 31 (interpretation)—

(a) before paragraph (a) insert—

(za) “NICs decision” means a decision under section 8 of SSC(TF)A 1999 or Article 7 of the Social Security Contributions (Transfer of Functions, etc) (Northern Ireland) Order 1999 (SI 1999/671);”

(b) in paragraph (b), for “are to sections of” substitute “or Schedules are to sections of, or Schedules to”.”

Amendment 80, page 234, line 39, after “person” insert “or an associated person”.

Amendment 81, page 235, line 2, at end insert—

‘(12A) For the purposes of subsection (11) a person (“Q”) is an “associated person” in relation to another person (“P”) at any time when any of the following conditions is met—

(a) P is a relevant body which is controlled by Q;

(b) Q is a relevant body, P is not an individual and Q is controlled by P;

(c) P and Q are relevant bodies and a third person controls P and Q.

(12B) In subsection (12A) “relevant body” and “control” are to be interpreted in accordance with paragraph 16C of Schedule 34A to FA 2014.”—(Mr Gauke.)

Clause 148, as amended, ordered to stand part of the Bill.

Clause 149 ordered to stand part of the Bill.

Schedule 19

Large businesses: tax strategies and sanctions

Amendment proposed: 1, page 516, line 21, at end insert—

‘(2A) A group tax strategy of a qualifying group which is a MNE group must also include a country-by-country report.

(2B) In paragraph (2A) “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations 2016.”—(Caroline Flint.)

Question put, That the amendment be made.

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[Rob Marris]

The Labour party supports all these grouped clauses except clause 42. I will not press amendment 21 to a Division because it has not been selected, but I will be inviting all Members, particularly those in the Opposition, to vote against clause 42 on corporation tax.

Clause 41 is effectively a technical change. I appreciate that it is on corporation tax and it goes with clause 42, but I think it need not detain the House now. On the abolition of vaccine research relief, paragraph 15 of the explanatory notes on clause 43 helpfully says:

“The low level of take-up of the relief suggests it does not have a significant impact on a company’s research decisions. The government believes that direct spending programmes like the recently announced Ross Fund offer a more effective and flexible approach to the production of medicines and vaccines.”

The Ross Fund is £1 billion and was announced by the Chancellor of the Exchequer in November 2015.

I appreciate this is not directly the Minister’s departmental responsibility, but if we are looking at things such as the Ross Fund, where the Government are directly funding rather than encouraging research through fiscal levers, I would like him to indicate whether that Ross Fund money will count as part of the 0.7% of GDP commitment for overseas aid. I again salute the Government for reaching that 0.7% target. The Labour Government of whom I was a Back Bencher for many years moved significantly towards that target, but it was the coalition Government who reached it, and it is this Government who have maintained that in spite of some pressure on occasions from what might be called their natural supporters, who have reservations about that 0.7%. I do salute the Government for reaching that, and they have the complete support of Opposition Members on maintaining that commitment, but there are always potential difficulties in how one measures what goes into that 0.7%. Whether this would come under the Department for International Development or the Department of Health in terms of vaccine research and the Ross Fund I know not, but I hope the Minister will, as a Treasury Minister, be able to give some indication as to whether this kind of thing counts towards the 0.7%, because were it to do so, some of us would raise an eyebrow, and I think one ought to know.

It also appears that the Government have decided that direct spending programmes are more effective and flexible for research than funding through fiscal measures. For us socialists, it is a welcome conversion on the part of the Government that they agree that they have a role in direct funding, but in terms of clause 43 and the abolition of vaccine research relief, this must form part of a wider canvas. I found it a bit shocking when the National Audit Office said a few months ago that there were about 1,200 tax reliefs. From memory, it found about six different sorts of measures that are often commonly called tax reliefs, and that only about 300 of them were being monitored by the Government as to their efficacy or otherwise.

It appears that the Government have monitored the efficacy of vaccine research relief and decided that it is not very efficacious. As I understand it, fewer than 10 companies were claiming the relief. I can understand that if that is the case the Government might wish to remove it, although of course in terms of pharmaceutical research, they could be 10 extremely large companies. The Government monitored that, however, and I salute them for doing so and for coming up with some results from their monitoring.

Clause 44 updates aspects of the cap on research and development aid. Broadly, we on the Opposition Benches—Labour, certainly—support this, because it was a Labour Government who introduced R and D relief for small and medium-sized companies in the Finance Act 2000, and the large companies scheme was introduced in the Finance Act 2002—I believe I sat on the Committee of that Bill as well, Sir Roger. At that time there was cross-party consensus, as there was when we were in opposition in 2013 regarding the introduction of R and D expenditure credits and their gradual replacement of the large companies scheme; we supported those measures in 2013. However, R and D tax credits have in very round terms led to £1 billion a year being claimed between the tax years of 2000-01 and 2013-14. That sounds very good and I have all kinds of figures here—helpfully supplied by the indefatigable researcher Imogen Watson, with whom the Minister will be familiar by now. I will not detain the House by reading them all out, but 33,800 different companies were claiming under the SME scheme and 7,800 were claiming under the large companies scheme.

Those figures are impressive: an average claim of £1 billion sounds impressive. However, since 2008 productivity has of course stalled in this country. One reason why successive Governments have given R and D tax reliefs of various different orders of magnitude and types is to encourage R and D, which will lead to newer products, goods and services and also to more efficient ways of doing things. Unfortunately, that has not been reflected in the productivity situation in the UK for many years, and I urge the Minister to reflect on that. In terms of the previous clause, he looked at the efficacy of the vaccine relief and decided to go in-house rather than carry on with the relief. I am not saying that the Government should take R and D in-house—I do not want to be misunderstood on that—but they should be looking at the efficacy, or otherwise, of it.

Clause 65 extends the capital allowances to designated assisted areas within enterprise zones for up to eight years. Of course the Labour party supports that. It is designed to encourage the purchase of energy-saving technologies. Again, I have a long list of qualifying technologies, which I will not read out.

I do want to ask a technical question, however, which I hope the Minister, with his usual omniscience, will be able to reply to. Pipework insulation is a qualifying technology, as are things such as high-speed hand air dryers and solar thermal systems, but I do not see on the list—it may be a lacuna on the list, or my fault—other forms of insulation other than pipework insulation. This is all part of the programme, which broadly has cross-party support from, I think, all parties in this House, that the UK should cut its CO₂ emissions and greenhouse gas emissions, and one way to do that is by using fiscal levers. It would appear on the face of it that it would be good to have on that list insulation generally, in contradistinction to just pipework insulation. If it is not on the list, no doubt the Minister can explain why in his reply.

The second point that I want to make on the extension of capital allowances, the eight-year period and so on was raised by my hon. Friend the Member for Leeds West (Rachel Reeves) in a written question on 26 April this year to which the Minister helpfully replied on 5 May 2016 when he said:

“The government has carefully considered the case for exempting plant and machinery from business rates. However, there would also be fundamental operational challenges to delivering an exemption on account of the way in which the plant and machinery is embedded in the premises concerned”.

I ask the Minister to look at that again. It is a long time since I practised property law—I do not know whether the Minister ever did; that may have been a good few years ago as well—but there used to be things called fixtures and fittings, and indeed I believe that they still exist. They are often set out in commercial, rather than residential, leases. I am not sure why the issue of the embedded plant and machinery to which the Minister referred in his written answer is so difficult. I may be missing something, but I should have thought that if commercial lawyers can do it for fixtures and fittings in commercial leases, HMRC could do it for plant and machinery, embedded or otherwise, and that it would be worth the Government’s looking again at the issue raised by my hon. Friend.

Clause 66 is entitled “Capital allowances: anti-avoidance relating to disposals”. I wonder whether the Minister might be able to supply figures showing how much has been lost to the Exchequer through such avoidance schemes, but of course we support a clampdown on them.

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[Sammy Wilson (East Antrim) (DUP)]

While there may have been a drop from 11.7% of total receipts to 8.3%, will the hon. Gentleman accept that other new forms of taxation, such as climate change levies and other climate taxes, have been imposed on businesses and have increased total tax revenues? The cake is bigger, so the slice of corporation tax is smaller, but the total amount is larger.

[Rob Marris]

The hon. Gentleman is quite right about the climate change levy. Changes in this Finance Bill effectively make the climate change levy just another tax, because it will no longer be used by the Government as a lever to change behaviour, which is why Labour dislikes the proposal. Business tax has probably gone up a bit overall, but what has happened in the economy, which the Minister described as fundamentally strong, is that employment is up by almost 2.5 million, and we salute that as a considerable achievement.

However, it has been bought on a sea of debt, on the drip, on the never-never. The national debt has gone up 60% in six years. We still have a huge annual deficit. Pay has stagnated for six years, and public sector pay will remain stagnant for another two or three years. Overall capital investment is markedly down. We have the biggest trade deficit in our history. Productivity is completely stalled. It is welcome that 2 million more people have jobs, which is good and the best route out of poverty, but almost every other economic indicator is poor and the Government propose to cut corporation tax.

[Mr Jim Cunningham (Coventry South) (Lab)]

My hon. Friend mentioned borrowing. Given the economic situation over the last few days, it seems that the Chancellor might have to borrow more money to add to the national debt, and he is now talking about increasing taxes and cutting public services as well.

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[Rob Marris]

I will not go too far down that route, but this Chancellor—in this sense and this sense only—has been saved by the Brexit vote. He was never going to meet his forecasts for getting the deficit down in the lifetime of this Parliament. He also completely failed when he forecast in the previous Parliament that the deficit would be down to zero by 2015. He then forecast that it would be down to zero by 2020. That was never going to happen. We predicted that and I am sad that it was the case.

Now, with the Brexit vote, as my hon. Friend the Member for Coventry South (Mr Cunningham) says, the forecast will be nowhere near right, but no doubt the Chancellor will then use the vote as an excuse. The Brexit vote has revealed some of the underlying problems in the British economy that just about every serious economist has been pointing out for the last five years. Cutting corporation tax in this circumstance is a bad idea, and I urge all hon. and right hon. Members to vote against clause 42.

[Nigel Mills]

It is a pleasure to follow the hon. Member for Wolverhampton South West (Rob Marris). I want to say a few words about clause 42, because although I clearly welcome the planned reduction in corporation tax by 2020, following the welcome vote last week, it may now need to be part of the picture of how we change our business tax regime over that period. Unlike earlier, there are now a few more of us present who thought the vote was welcome.

For us to capitalise on the opportunities of leaving the European Union, we will have to make our country even more attractive to outside investment to stimulate growth, a key part of which is our corporation tax system. As the Minister is planning ahead that far and as we now have the special group in the Cabinet Office under the Chancellor of the Duchy of Lancaster, I urge careful thought about what our tax system should look like by the time we leave the European Union, what signals we are giving and how we can further improve it and make it more attractive. Perhaps we could look at an even lower rate to send out a signal that we are positive about business activity and that we want more investment and will reward it further.

Perhaps we could look again at how we do capital allowances, especially for infrastructure investment and manufacturing items, for example. Perhaps we could re-examine how we give tax relief for the building of new factories. This country is not actually that generous and does not give tax relief for any industrial building, which is not a clever way of encouraging manufacturing. In fact, we are one of the least attractive tax regimes for various infrastructure investment activity because of our lack of relief for structures. Perhaps now that we have the need and the time to review that, we should ask whether it is clever to structure our tax system in a way that is not as attractive as possible for industrial building and infrastructure activity, especially as we will need a lot of investment as we go forward.

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[Sammy Wilson]

I want to show our support for clause 42. In fact, I think it would be a bit strange for someone from Northern Ireland to take a different stance, especially given the fact that the Northern Ireland Government have put the reduction and devolution of corporation tax at the centre of their policy for attracting investment into Northern Ireland over the next 10 to 15 years.

There are two things. First, we must ask ourselves whether we believe that a reduction in taxation on businesses acts as an incentive. As I listened to the Opposition spokesman’s opposition to this measure, it raised a query in my mind: is the reduction of other business taxes regarded as acceptable and indeed desirable by the Labour party as a means of incentivising and helping small business? For the Opposition, it seems as though the reduction in business rates, which are a form of taxation, is desirable because it helps small businesses, but that the reduction of corporation tax seems to have no effect, or the opposite effect. If we are going to have some consistency, we must ask ourselves whether the principle of reducing taxes on businesses and their profits, and the impact that that has on the amount of money they retain for investment, is an effective means of stimulating business. If it is true of one form of tax, it is true of another. That is one of the reasons why I believe that the reduction in corporation tax is an important decision.

Secondly, during my former role as a Member of the Northern Ireland Assembly and as a Minister there, one of the things that came up consistently when we spoke to investors was corporation tax. We had an especially big problem, because we were living next door to a country—we have a land border with it—that had emphasised the reduction in corporation tax. Time and again, though not exclusively—there is no point in over-egging this pudding—investors mentioned the level of corporation tax: 12.5% in the Irish Republic and 22% then in Northern Ireland. When companies looked at the headline level of taxation, they viewed the Irish Republic as a much more desirable place to invest. Of course they looked at other things—the skills base, the availability of office and factory space, the infrastructure and so on—but corporation tax was an important factor.

[Rob Marris]

May I caution the hon. Gentleman? For some of those companies—not all of them—this is a classic sob story. Corporation tax in America is roughly twice the rate that it is here. People still invest in companies in America. Corporation tax is part of an overall picture, as he says. Yes, companies should pay tax. If we followed the logic of some of the things that he has said this afternoon, we would not tax companies. That may be his position; it is not the position of Labour party.

[Sammy Wilson]

It is not the position of the Democratic Unionist party either, because there are other ways in which companies can be held responsible for their infrastructure requirements. For example, one of the forms of taxation that the Government have introduced recently is the apprenticeship levy, where companies will be held responsible. They need trained workers, and they have to make a contribution from their profits to train those workers. There are ways to target the contribution that we require companies to make. I am not saying that companies should not pay for the infrastructure from which they benefit, but we must address one of the issues that they raise when they are considering whether we are a competitive place to invest.

--- Later in debate ---

[Mr Gauke]

I thank hon. Members for their contributions to the debate. I will perhaps turn to corporation tax rates and clause 42 at the end of my speech—I think we will save the most exciting element to the end. Let me first pick up some of the other points that have been raised.

Vaccine research relief is currently available only to large firms; it was removed for small and medium-sized enterprises in 2011, at the same time as the general SME R and D relief was increased. It is also worth pointing out that all vaccine producers can claim normal R and D relief on qualifying expenditure. Incentivising vaccine production remains a priority for the Government, but we believe that spending programmes such as the Ross fund are more effective at doing that. The amount claimed through VRR is less than £5 million a year, despite a generous raise.

The Ross fund was announced by my right hon. Friend the Chancellor in November 2015. It will target infectious diseases, including malaria, diseases with epidemic potential, neglected tropical diseases, which affect more than 1 billion people globally, and antimicrobial resistance, which poses a substantial and growing threat to global health. In January 2016 the Chancellor built on the announcement of the Ross fund by confirming that the Government will invest £500 million a year over the next five years in the fight to end deaths from malaria. That formed part of the £3 billion commitment between the Government and Bill Gates. The UK continues to contribute to the Global Fund to Fight AIDS, Tuberculosis and Malaria, an internationally supported organisation designed to accelerate the end of AIDS, tuberculosis and malaria as epidemics. I wanted specifically to come back on the very good point raised by the hon. Member for Aberdeen North (Kirsty Blackman).

The Ross fund does constitute official development assistance. It is worth pointing out that all UK ODA is administered with the promotion of the economic development and welfare of developing countries as its main objective, and it is in line with internationally agreed rules on ODA, so it is perfectly reasonable that we include the fund in the 0.7%, and it can clearly make a huge difference to large numbers of people.

The hon. Member for Wolverhampton South West (Rob Marris) asked how much is lost to the Exchequer through some of the schemes we seek to address in clause 66. Over the scorecard period, which takes us to 2020-21, it is expected that the changes will yield about £20 million of tax that would otherwise have been avoided and that they will potentially protect much more. This is not the largest measure by any means, but it is, none the less, a contribution. By way of background, the relevant case law is the 1948 House of Lords decision, Gold Coast Selection Trust Ltd v. Humphrey—no doubt familiar to the hon. Member for Wolverhampton South West. It has been suggested that this is no longer good law as it predates generally accepted accounting practice and the enactment of current legislation setting out the rules for the calculation of trading income. Let me be very clear that HMRC does not accept this proposition. [Interruption.] As the hon. Member for Wolverhampton South West mutters, it is a case of belt and braces. HMRC’s view, and the Government’s view, is that we should change the law now as a response to the potential risk, which is in the region of £125 million in one case alone. The challenge we have seen seeks to suggest that the current case law that dictates the tax treatment is outdated. I hope that clause 67 helps to address this risk.

[Rob Marris]

I asked the Minister for reassurance that this would not affect the barter economy. He might wish to write to me later.

[Mr Gauke]

I think I can provide that reassurance, but perhaps it would be best if I wrote to the hon. Gentleman—again, on a belt and braces basis.

The hon. Gentleman raised the concern that had been put to him that clause 68 might force businesses to claim capital allowances and that that might complicate the system. He gave the example of a saw, with a carpenter potentially encountering complications in his or her tax affairs . The answer is that that is very unlikely. Most small businesses will find that their capital spending on equipment is fully relieved by the £200,000 annual investment allowance, which is now at a record permanent level. Accordingly, they would receive a full deduction for their expenditure in the year and would not usually have to calculate annual writing-down allowances. The changes will ensure that tax relief for expenditure incurred by business on replacement and alteration of tools means that all capital expenditure on equipment is dealt with in a fair and proportionate way.

I was asked whether clauses 69 and 70 will cause some complication in the old 10% wear-and-tear deduction, which was simple. Of course, Labour Members highlighted the wear-and-tear allowance as a potential saving within the tax system. It is interesting that, despite its simplicity, a significant number of interested parties agreed with the Government that the wear-and-tear allowance was not fair. It applies only to landlords of fully furnished properties, and provides relief even where landlords have not had to meet any actual expense. We have carefully considered the different ways in which a relief based on actual expenditure could be designed and implemented, and we have legislated for the simplest possible basis.

Turning to clause 42 and the wider issues, I am grateful for the supportive contributions by my hon. Friends the Members for Amber Valley (Nigel Mills) and for Macclesfield (David Rutley), and by the hon. Member for East Antrim (Sammy Wilson). If the hon. Gentleman had argued a different case, I might have pointed to the many conversations that we have had over very many years in the context of devolution of corporation tax to Northern Ireland. I was struck by his point about how, when talking to international businesses, people often note the headline rate of corporation tax; international investors are aware of that. It is certainly my experience, having met many international businesses over a number of years when promoting the UK as a place in which to do business, that our low corporation tax rate, and our destination towards an even lower rate, attracts attention and a fair degree of admiration, and ultimately attracts jobs and investment to the UK. That is why we have taken steps to reduce the corporation tax rate, and I think that that has played a significant role in the fact that business investment is up significantly; that employment numbers are as high as they are; and that foreign direct investment in this country has been so strong. Of course, that is not the only factor; there are others. This country also faces particular challenges in the light of recent events, but, as my hon. Friends the Members for Amber Valley and for Macclesfield have said, it is absolutely right that we have a competitive corporation tax rate.

--- Later in debate ---

[Roger Mullin]

I welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to her new post. If I recall correctly, one of the first debates that we took part in together was about that very important topic of whisky. It is appropriate that I mention that given the Minister’s condition.

[Rob Marris]

It was not from drinking whisky.

[Roger Mullin]

No, I know, but perhaps the Minister could take a few drams to relieve the pain. I certainly think that he deserves it given what he has put himself through over the past couple of days.

May I also say to the hon. Lady that we on the SNP Benches agree with everything that she has argued? I am delighted to say that we will be supporting her opposition to clause 72.

[Rob Marris]

That was a short speech.

[Roger Mullin]

It is not quite as short as that.

I want to speak to new clause 2, which is in my name, and I will begin with a quote that I have used before in this House:

“I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax. And I don’t think that’s right.”

I entirely agreed with the Chancellor of the Exchequer when he said that in April 2012. That is precisely why we are bringing this new clause to the Floor of the House today. Many people in remunerated employment, working hard every day of the week, will be surprised to learn that the managing director of an average European firm can expect to receive around £8 million in remuneration. Private equity fund managers are able to shrink their bills by paying, as we have heard, only 28% in capital gains, rather than 45% in income tax simply because it is classified as carried interest. In effect, they are getting a remuneration for managing other people’s money, and therefore they should be taxed in the same way that other people are taxed—through income tax.

A fund manager’s ability to pay capital gains instead of income tax allows them to avoid paying national insurance on part of their income. I am well aware of the Minister’s technical explanations about why we are dealing with a different form of gain. However, that does not wash with people in society who are undertaking their work in most other occupations in life. The Government yesterday indicated that they were content to squeeze yet more money out of the contractor sector, affecting teachers, nurses, people in rural communities and the like. These are not the people who are aggressively avoiding tax. The people who are aggressively avoiding tax are people working in the City of London. They are avoiding paying the income tax that the rest of the people in society are quite happy to comply with.

The loopholes that continue are simply an example of the over-complication of our tax system, a matter that has been referred to by hon. Members on both sides of the House. As we look at the thousands upon thousands of pieces of paper in the tax code, it is clear that the bigger we make it the more we create the possibility of loopholes. Surely the time has come for a more fundamental review of all forms of business taxation, a matter that I know the hon. Member for East Antrim (Sammy Wilson) has raised in the past.

Indeed, some of the people gaining considerable sums of money have great sympathy with this. I would like to quote not some of the campaigners but one of the highest-paid people in the country, the head of the private equity firm Cerberus, Stephen Feinberg. He said in 2011, tellingly:

“In general, I think that all of us are way overpaid in this business. It is almost embarrassing.”

I do not think that we should allow this gentleman, the head of an investment fund, and others to be embarrassed any more. I think we should end their embarrassment by making sure that in the future they pay appropriate levels of income tax.

We also find ourselves in agreement with the OECD, which in May 2014 recommended in its position on tax

“taxing as ordinary income all remuneration, including fringe benefits, carried interest arrangements, and stock options”,

and that this should be paid as income tax.

We have evidence not just from campaigners but from people in the City who admit that this is an anomaly that needs closing, so I ask the Minister to give further consideration to this important move. I would also say in general that we welcome quite a lot of the technical changes that have been made on investment, entrepreneurs relief and the like. We want to encourage an entrepreneurial economy, but not at the cost of heightening income inequality and of further division in society.

Finance Bill

Rob Marris Excerpts

Monday 27th June 2016 Commons Chamber

[Mr Gauke]

No, I do not think the Government will be persuaded by that. Were that to be the case, it would suggest that the use of tax relief in these circumstances was even more widespread than we had anticipated. The problem we face is one of fundamental unfairness. I make no criticism of those making use of intermediaries in these circumstances—they are making use of the law as it stands—but it is an unfair outcome. Essentially, where two people are performing identical roles, one is able to gain the benefit of tax relief and the other is not simply because of the way in which they have structured their arrangements. I believe the approach we have taken in this clause is the right one.

Clause 15 makes changes to allow for the extension of voluntary payrolling to include non-cash vouchers and credit tokens. The change will enable businesses to benefit from reduced reporting obligations to HMRC and provide a simplified system for employers. Clauses 16 and 17 and schedule 3 make a number of changes to simplify and clarify the rules for employment-related securities and options. Employment-related securities and securities options are commonly used by companies to reward, retain or provide incentives to their employees. Remuneration in the form of shares would generally be liable to income tax and national insurance contributions. However, if they are rewarded under one of the four types of tax advantage share schemes, the shares acquired are exempt from income tax and national insurance contributions.

Share-based reward programmes are greatly valued by both companies and employees. The Government want to make sure the relevant legislation is as simple and clear as possible. To that end, clause 16 introduces schedule 3, which builds on the Government’s response to the OTS report on employee share schemes by simplifying and clarifying this area of tax legislation. In addition, clause 17 puts beyond doubt the tax treatment of non-tax advantaged securities options, given some uncertainty in the current legislation.

The Government are introducing amendment 28 to schedule 3 to ensure that the trading activities requirements to receive the tax advantages of an enterprise management incentive scheme will continue to apply where a company is controlled by an employee-ownership trust.

If I may anticipate what we are likely to hear, and before I move on to clause 18, I will briefly address amendment 180 and new clause 10, which relate to clause 16. Amendment 180 proposes a review of the impact of the withdrawal by HMRC of its valuation check service for small and medium-sized enterprises, including associated impacts on employee share ownership schemes. This is unnecessary. HMRC continues to operate a service for employee shareholder status and the tax advantage schemes most relevant to SMEs. HMRC has only withdrawn valuation checks for income tax and PAYE that are not part of these recognised employee ownership schemes. HMRC was considering valuations for less than 0.05% of the relevant SME population. As these taxpayers were using professional firms, the vast majority of cases submitted were acceptable. As such, the service added little value and was seen as providing poor value for money for the taxpayer. I therefore hope the House will reject amendment 180.

New clause 10 proposes that within six months of the passing of the Act the Chancellor should publish a report giving an assessment of the value for money provided by each type of employee share scheme. An HMRC-commissioned report conducted by Oxera considered the effect of tax advantage employee share schemes on productivity. This is publicly available. Owing to the difficulty of drawing conclusive outcomes from such studies, in 2012 the Office of Tax Simplification recommended that it would not be a good use of taxpayer money to produce further reports on the links between share ownership and productivity. As with all reliefs, however, the Government will continue to keep these schemes under review and will continue to publish regular statistics on the estimated take-up and costs of each scheme. For these reasons, I urge Members to reject new clause 10.

Let me conclude my opening remarks by addressing clause 18. The Government want to ensure that companies and individuals who have used, or continue to use, artificial arrangements to disguise their income, pay their fair share. These avoidance schemes involve income being funnelled through a third party, with the money often then given to the individual in the form of a loan that is never repaid. In 2011, the coalition Government successfully introduced new legislation to tackle the schemes in use at that time. Many of those who used the schemes before 2011 have still not settled. In addition, the tax avoidance industry has been selling new schemes that are even more artificial and contrived. At Budget 2016, the Government announced changes to address these issues. Clause 18 is the first part of that package.

Clause 18 addresses one type of these schemes by disallowing a relief in the current rules that the schemes exploit where there is a tax avoidance motive. It also withdraws a transitional relief and makes three minor technical clarifications to the current rules to ensure they work as Parliament intended. The reforms make it clear that everyone must pay their fair share. I will not take up any more time for the moment.

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

It is a pleasure to serve under your chairmanship, Sir Roger.

I will follow what the Minister helpfully did by giving a preview of where I am going, as I think that might help the Government, but I will do it seriatim numerically. I want to probe clause 7 a little. We broadly support clauses 8 to 11, which relate to vehicles, although we have tabled two amendments to them. The Minister helpfully—in terms of procedure, if not policy—indicated that the Government were not minded to accept amendments 2 and 3. If the Government, in spite of my silver tongue, maintain that position, I will in due course seek to press amendment 2 to a Division. We broadly support clauses 12 and 13. We also broadly support clause 14, on travel expenses for workers, but I wish to probe the Government on it and ventilate some issues. We broadly support clause 15. I want to run clause 16, on employee share schemes, around the block. There are a number of share option schemes under various guises and the situation is arguably getting a little out of control. The Opposition broadly support clauses 17 and 18.

Clause 7 relates to taxable benefits. It seeks to amend 2003 legislation to clarify the concept of a fair bargain. This is, as I understand it—I am not an accountant—where an employer provides some kind of benefit in kind, which is in some circumstances provided at a cost to the employee and in some circumstances is not. Where benefits of goods or services are provided at a cost, HMRC wishes to know whether the cost of the benefits provided is below market rate. Clause 7 goes to that issue, but it appears to cover vans and cars as well as other things and of course we will be dealing with vans and cars in other clauses. As the Minister has a bad back, I will try to avoid putting him in a situation where he feels that he has to intervene. I have every sympathy with him as I have suffered from a bad back for decades. If he catches your eye, Sir Roger, when we come to closing this part of the Committee proceedings, I hope that he will be able to explain and differentiate for those of us who are not accountants how vans and cars come into the benefit-in-kind provisions under clause 7. Having had a company car for many years with two different employers, I understand how they come in under subsequent clauses—that is not to say that I know the whole regime, but I am broadly familiar with that territory—but not under clause 7. Will the Minister tell us, therefore, to what extent the Treasury has found that there has been a misuse of the original rules, thereby necessitating the clarifications under clause 7—Government amendments 22 to 26? The explanatory notes, which the Minister will know are my lodestar in these matters, refer to “uncertainty”. I hope the Minister can explain from whence that uncertainty comes, so that we can be a little clearer on that.

I will now come on to meatier matters on cars and vehicles. We are all aware that the use of the tax regime to encourage certain behaviours and discourage others is well known to have an effect when it comes to the purchase and use of vehicles, unlike in some other areas where the efficacy or otherwise of tax reliefs is not so clear. As I look around the Chamber, I can see that there are not many Members present who will remember the campaign for lead-free petrol, but I remember it and supported it. In the bad old days, lead was added to petrol as a mechanism for increasing its octane rating and therefore its power output. Initially, when the excise regime was the same for leaded and unleaded petrol, unleaded cost more. The then Conservative Government, under some pressure from the campaign for lead-free petrol and others, wisely changed the excise regime so that unleaded petrol at the pump, with a lower excise duty than leaded petrol, cost less, which meant that many motorists made the switch within a period of about two years. That was achieved by using excise levers to change behaviour in the use of vehicles.

In recent years, we have also seen the explosion in the United Kingdom of the purchase and use of diesel vehicles. That was started under a Labour Government who were trying to cut CO₂ emissions, because, mile for mile, diesel engines generally emit lower CO₂ per mile driven. That policy succeeded, but it was always contradictory, because there was also a 3% loading—in other words more tax payable—for those who had a diesel-powered company car in contradistinction to a petrol-powered company car.

Clause 8 increases quite markedly the percentage of the purchase price, which is then counted as taxable income for somebody who is provided with a company car. For low-emission vehicles, or those with 76 to 94 grams of CO₂ per kilometre—I hope that, when we leave the European Union, we will not revert to imperial—the appropriate percentage goes from 19% to 22%. Under clause 8, the range goes up 3% each time, with a delay, as the Government have announced, for two years. Broadly, that looks to us like a tax-raising measure—there is nothing wrong with that as Her Majesty’s Revenue and Customs is about levying taxes so that the Government have sufficient income to provide the service that our constituents want.

--- Later in debate ---

[Roger Mullin]

I entirely agree with the hon. Gentleman, but the smallest enterprises—those employing perhaps their first or second employee and engaging in some kind of share ownership—are not in a position to pay a professional company £1,000 or £2,000 for the necessary valuation service, which was provided at no cost by HMRC. Organisations such as ProShare, which I think is based at University College London, have said that they are aware of a number of small businesses being discouraged from engaging in small-scale share ownership schemes precisely because the assistance that they were once afforded has been removed. If the demand for such services was so low, only a few people would have been needed to deliver them. The cost to the Government cannot therefore have been very great, so it seems somewhat perverse to abandon the service at a time when people are seeking to expand the number of share ownership schemes in society.

The hon. Member for Wolverhampton South West, for reasons that defy all understanding, did not think that our new clause 1 was dramatically superior to his new clause 3. No doubt he will attempt to convince the Committee of that argument later. New clause 1 proposes a review of the income tax treatment of workers providing services through intermediaries. We believe that this is particularly relevant in Scotland. The hon. Gentleman suggested earlier that the average return journey to and from work was 16.7 miles. Well, try telling that to people who live on the Isle of Skye and have to commute to places such as Fort William and Inverness. Try telling it to people who have to hop from island to island, such as the health workers who travel on ferries to service the islands and often need to stay overnight. Their situation is not remotely close to the average of 16 miles to travel to work.

A recent article in The Times Educational Supplement pointed out the proposal’s likely negative impact on the many aspects of the education sector that rely on people on particular types of contracts who do not enjoy the benefits of full-time employment. The Minister argued calmly, as he always does, that the change is a simply a matter of ensuring a level playing field. If he wanted a level playing field, he would be ensuring that workers employed through intermediaries benefit from sickness pay, holiday pay and many of the other advantages of full-time employment. They do not get those same benefits and cannot be compared with people in traditional forms of employment.

Indeed, I suspect that part of the problem is that the Government have misunderstood the needs of the modern labour market. People are no longer employed either in traditional ways or entirely self-employed in the way it is traditionally understood. Flexibilities in the labour market have developed in many ways over the past 10 or 20 years. Many such flexibilities play to and enable local economies, such as rural areas in Scotland or Northern Ireland, and specialist sectors, such as oil and gas, which need to import specialist services. These people might be based not in Scotland, but down here near London and may have to fly to provide their services. The proposal might have impacts that have not been thought through by the Government.

[Rob Marris]

Does the hon. Gentleman agree with UCATT, which says that such workers should be directly employed if possible? For example, UCATT has obtained agreements on behalf of workers to get employment rights in workplaces such as the Olympics or Hinkley Point. While there is a place, as the hon. Gentleman says, for employing specialist workers on oil rigs, for example, not permanently but through an intermediary, the starter for 10 or opening position should be to try to have direct employment so that people get the full panoply of rights.

[Roger Mullin]

I agree with the hon. Gentleman that it would be better for some in this community to achieve traditional forms of employment, but that is not the situation for the in excess of 1 million people in the UK who fall into this category.

Despite the Minister’s warm words, we intend to press new clause 1. It relates to a matter of some real import for the communities and the economy of Scotland. I have indicated that we are simply speaking to amendment 180, which we will not press, and we will support the Opposition’s amendment 2.

[Kelvin Hopkins (Luton North) (Lab)]

I rise to speak briefly on these amendments and new clauses. The hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) was absolutely right to mention HMRC. Successive Governments have consistently understaffed HMRC, consistently arguing that they would make it more efficient or whatever. When I was first elected to this House 19 years ago, I remember going to my local VAT office and being told that every member of staff collects five times their salary. Being a logical sort of person, I wrote to the then Chancellor of the Exchequer and suggested that it was a good idea to employ more staff to collect more revenue for the Government. I received a letter back not from the Chancellor and not even from a junior Minister but from a civil servant, suggesting that HMRC was to save money by cutting staff. It was so irrational that it was just nonsense. That kind of nonsense has continued ever since—reducing the number of offices, making things more remote and so on. I was also not terribly impressed by the idea of having a benefits-distributing service—tax credits—going through HMRC rather than through the Department for Work and Pensions. I was not the only Opposition Member who was uneasy about that change.

I want to discuss new clause 3 and the tax treatment of workers employed through intermediaries and support my hon. Friend the Member for Wolverhampton South West (Rob Marris) on the Front Bench. It has long occurred to me that intermediaries and private agencies make lots of money out of both the public purse and the people they employ. That could be overcome if we instituted a substantial public ownership programme for agencies, particularly when the public sector is involved. If there was a local authority or NHS agency for nurses, the money would either go into the pockets of the staff employed through the agency or would be saved in public spending by the health service—everyone would benefit. However, the people who would lose would be in the private sector, which could not make profits out of employing people in this way. In that way, staffing and taxation could be properly regulated. There would be no cheating, irregularities or tax fiddles, because it would all be within the publicly accountable public sector.

[Rob Marris]

I have considerable sympathy with my hon. Friend on organisations such as agencies that deal with supply teachers. As he will remember from his background in education, that function was commonly done by the local education authority before, sadly, a Labour Government started changing things. LEAs were then gutted by the current Government and their predecessor. Will my hon. Friend concede that in certain areas, such as construction or oil rigs, there is a role for specialist agencies and that it would be rather Stalinist to look at nationalising them or having them run by national Government bodies, as he appeared to suggest?

[Kelvin Hopkins]

In the public sector, not everything that was in the past was bad. Some people say that we cannot go back to the past, but a succession of Governments have gone back to the 19th century in the way they run the economy, and neoliberalism was invented then. Since then, we have had social democracies and managed economies that worked well, but that has all been thrown away and we have gone back to the 19th century. Some things from the past that we can return to might actually improve things. I suggest that public agencies for temporary staff would be a good thing.

I might even debate with my hon. Friend that such a proposal could be employed in the private sector as well, because the staff involved would at least be properly protected, the companies would know that they are not being ripped off, and the Treasury would know that it is getting a fair deal through collecting its proper taxes. We could even have them properly organised with the trade unions, ensuring that they are properly paid and so on. We could go back to a splendid world of active social democracy. My hon. Friend’s new clause does not go quite that far, but I support it.

[Rob Marris]

I must say to my hon. Friend that I am quite in favour of a world of active social democracy. I am unsure whether my definition is quite the same as his if he seriously suggests that construction agencies should be run by some kind of state body—that is a step too far for me. I also caution my hon. Friend that, having got his way last Thursday, he is pushing his luck somewhat on this somewhat Stalinist approach.

[Kelvin Hopkins]

My hon. Friend suggests that my proposal is Stalinist, but we are talking about a world in which we had several splendid democratically elected Labour Governments after the second world war that did wonderful things. Nobody would call them Stalinist. They submitted themselves to the electorate every five years and were sometimes defeated—sometimes even in this House—so I do not think “Stalinist” is the right word.

I do think, however, that there should be a bigger role for the public sector in regulating employment, making sure that people are properly paid and securely employed, even if they are temporary staff, that taxes are fully paid and that private sector agencies do not rip off both the public purse and employees. I will leave that suggestion with my hon. Friend. I hope that he will bring forward even more radical proposals along the lines that I have suggested.

--- Later in debate ---

The last thing I want to say is that the reduction in net income has a disproportionate effect on those on lower incomes, so this is a regressive measure. I wonder whether that could be looked at in any review to see whether contractors doing lower-paid jobs are less likely to choose to go to rural communities on that basis.

[Rob Marris]

Some of those lower-paid workers may be working for umbrella companies, and a difference between the wording in new clause 3 and in new clause 1 is that Labour’s new clause 3 mentions umbrella companies. New clause 1 refers to “different types of worker”. Does the hon. Lady envisage that concept as including those who are engaged through intermediary or umbrella companies?

[Kirsty Blackman]

Absolutely we do. When we talk about “intermediaries” and “different types of worker”, we mean all those who will be impacted by this change in the taxation measures.

[Mr Gauke]

I am grateful for the various points made in this debate. I will not repeat everything I said in my opening remarks, but I will try to address the questions raised, and we have had plenty of those. Perhaps I should begin by saying how pleased I was to see the hon. Member for Wolverhampton South West (Rob Marris) join us, as one never knows these days who will be on the Labour Front Bench. Given the considerable work that he clearly put into his speech—not forgetting the considerable work put in by Imogen Watson—it would have been a great pity were he not to have been on the Front Bench to ask those questions, so I am delighted to see him.

[Rob Marris]

I would not have missed it for the world.

[Mr Gauke]

The lengths people will go to in order to avoid attending a parliamentary Labour party meeting are clearly considerable.

Let me address the lengths the hon. Gentleman went to. I will also try to address the other points raised in the debate, and I will run through this in clause order—at least I will attempt to do so. Let me start by discussing clause 7, as he asked about the extent to which there have been problems and uncertainty with the tax law it addresses. There has been some uncertainty about the application of the current tax law in respect of fair bargain from a number of employers and advisers. This clause has been introduced to put the matter beyond doubt. It will give employers certainty about when fair bargain should not be applied to benefits in kind, and these issues have been recently rehearsed by the Court of Appeal. He raised a particular issue as to why there was special provision for cars and vans. Company cars and vans are a particularly valuable benefit, so the codes specify how to calculate the value to apply so that a fair and equitable tax treatment results. We have these provisions because this benefit is particularly valuable.

[Rob Marris]

There may be a bit of to-ing and fro-ing on this for clarification, and this may well be due to my ignorance, but is this to do with the sale, possibly at an undervalue, of a van or a car, in contradistinction to one that is supplied as a benefit in kind—the classic sales rep’s company car? Is clause 7 talking about a different scenario, such as a potential sale with it undervalued—or how does it overlap?

[Mr Gauke]

No, it is not talking about that. I hope that provides some clarity.

On clause 8, we were asked why the Government were imposing tax increases on drivers of low-emission cars. The company car tax system encourages people to choose the most fuel-efficient cars while ensuring that the benefit is fairly taxed. It is fair that all company car users, including those in zero-carbon and low-carbon cars, make a fair contribution to the public finances. The tax differential between ultra-low emission and conventionally fuelled cars will be widened in 2019-20 compared with previous plans announced at Budget 2013. If Members so wish, I could provide examples of that.

The question put is, “Why are the Government increasing rates on conventionally fuelled cars by three percentage points after years of two-percentage-point increases?” People also ask about the impact on the type of cars purchased. These increases ensure that the taxation of company cars continues to reflect changes in emissions technology. The rate increase, together with the extra incentive of ultra-low-emission vehicles, promotes the continued move to the cleanest cars. In 2013, there were 1,900 company ultra-low-emission vehicles, which was about 0.1% of the company car fleet, whereas in 2015 there were more than 8,000. That supports the Government’s approach. Over the course of this Parliament, increases in company car tax rates have broadly maintained revenues in real terms, in the face of continued improvements in new car fuel efficiencies, and this will support the move to cleaner, zero-emission and ultra-low-emission cars.

[Rob Marris]

I think I have asked this before, and the Minister may not have the figure to hand, but can he give us an estimate of how much he thinks the changes introduced by clause 8 will raise, given that for each of the four bands the percentages are going up by 3%?

[Mr Gauke]

If I may, I will write to the hon. Gentleman and provide him with those details.

On clause 11, the Government will review the van benefit charge support for zero-emission vans, again in the light of market developments, at Budget 2018. This clause is keeping the level at 20%—it is not increasing it as planned—and the review occurs before any further increase beyond 20%. I hope that reply is helpful to the hon. Gentleman. As for what the impact will be on the sales of zero-emission vans, extending the van benefit charge support for zero-emission vans will continue to reduce barriers to the uptake of new vehicle technologies. The Government’s enhanced capital allowances scheme for zero-emission vans and the plug-in van grant that helps with the up-front cost of buying a new ultra-low-emission van will also help to reduce barriers to the uptake of these new technologies. Together these incentives will help sales of zero-emission vans. This in turn will help the development and manufacture of clean vehicle technologies in the UK, consistent with the Government’s wider plans to promote economic growth. However, it is not possible to estimate precisely the impact on sales at this stage.

The hon. Gentleman made a point about EU air quality requirements and whether we should be doing more. The Government are committed to improving air quality, reducing health impacts and complying with legal obligations. Last December, DEFRA published the Government’s plan to achieve these aims. Under this plan, by 2020 the most polluting diesel vehicles will be discouraged from entering the centres of Birmingham, Leeds, Southampton, Nottingham and Derby. The Mayor of London has responsibility for London and his own plans for reductions. I accept that the hon. Gentleman’s amendment is well intentioned, but no vehicles would currently be caught by it and we are instead pursuing these aims more effectively elsewhere.

[Rob Marris]

Maybe I missed it, and I apologise in advance if I did, but when the Minister referred to stuff going through DEFRA and so on, I understood the milepost to be 2020, but 2020 seems an awfully long way away given that we should have been complying with this air quality stuff in about 2011 or 2012. It seems to be a case of kicking the can down the road while literally tens of thousands of people are dying prematurely. That is worrying.

[Mr Gauke]

I understand why the hon. Gentleman raises that point, but no vehicles would currently be caught by the amendment. It is a question of finding the most effective means by which to do this. As I have said, last December DEFRA published the Government’s plans to achieve these aims and I accept that further work needs to be done, but we have set out a realistic and achievable target, and by 2020 the most polluting diesel vehicles will be discouraged from entering a number of cities.

[Rob Marris]

rose—

[Mr Gauke]

I will give way, although I am keen to make progress as a number of points have been made.

[Rob Marris]

The Minister says that no vehicles would be caught. My understanding of what he means by that is that no vehicles that are currently manufactured would be able to take advantage of the measure set out in amendments 2 and 3. The Minister is, I think, nodding, which is helpful. That is precisely the point of the amendments; it is to drive the market.