Finance Bill

Baroness Winterton of Doncaster Excerpts

Committee of the whole House
Wednesday 10th January 2024 Commons Chamber

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

[The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)]

With this it will be convenient to discuss the following:

Schedule 12.

Clauses 31 and 32 stand part.

Schedule 13.

Clauses 33 and 34 stand part.

New clause 2—Review of measures to tackle evasion and avoidance—

“(1) The Chancellor of the Exchequer must, within three months of this Act being passed, publish a review of the measures in sections 31 to 33 to tackle evasion and avoidance.

(2) The review under subsection (1) must include details of—

(a) the average sentence handed down in each of the last five years for the offences listed in section 31;

(b) the range of sentences handed down in each of the last five years for the offences listed in section 31;

(c) the number of stop notices issued in each of the last five years to which the measures in section 33 would apply; and

(d) the estimated impact on revenue collected in each of the next five financial years resulting from the introduction of the measures in sections 31 to 33.”

This new clause would require the Chancellor to publish details of the sentences given and stop notices issued in each of the last five years to tackle evasion and avoidance, as well as the revenue expected to be generated from the measures to tackle evasion and avoidance in this Act in each of the next five years.

New clause 4—Assessment of impact of Act on multinational profit shifting and tax competition between jurisdictions—

“(1) Within six months of the passage of this Act, the Chancellor of the Exchequer must carry out an assessment of the impact of section 21 and Schedule 12 of this Act on multinational profit shifting and tax competition between jurisdictions, and lay a report of that assessment before both Houses of Parliament.

(2) The report must consider the efficacy of the measures contained in section 21 and Schedule 12 in achieving the policy objective of combatting base erosion and profit shifting.”

This new clause would require the government to produce an assessment of the impact of the Bill’s “Pillar Two” measures, in order to ascertain whether these measures have been successful in achieving their policy aims.

New clause 5—Tax compliance reporting—

“(1) Within six months of the passage of this Act, the Chancellor of the Exchequer must carry out an assessment of the impact of sections 31 to 34 and Schedule 13 of this Act.

(2) The report must consider the capacity and ability of HMRC to enforce compliance with the measures contained in sections 31 to 34 and Schedule 13 of this Act, including setting out staffing arrangements within HMRC's Customer Compliance Group for undertaking enforcement work relating to sections 31 to 34 and Schedule 13 of this Act.”

This new clause would require the government to produce an assessment of the impact of the Bill’s tax evasion and avoidance measures. The assessment would need to examine whether the capacity and ability of HMRC was sufficient to properly enforce those measures.

New clause 7—Review of effectiveness of section 31 measures in preventing fraud involving taxpayers’ money—

“(1) The Chancellor of the Exchequer must, within three months of this Act being passed, conduct a review of the effectiveness of the provisions of section 31 in preventing fraud involving taxpayers’ money.

(2) The review must evaluate the effectiveness of the provisions of section 31 in preventing fraud involving taxpayers’ money through comparison with the effectiveness of—

(a) other measures that seek to prevent fraud involving taxpayers’ money, and

(b) the approach taken in other countries.”

This new clause would require the Chancellor to review the effectiveness of measures in this Act to prevent fraud involving taxpayers’ money, and to compare them with other measures that seek to prevent fraud involving taxpayers’ money and the approach taken in other countries.

[The Exchequer Secretary to the Treasury (Gareth Davies)]

Clauses 21 and 31 to 34 and schedules 12 and 13 cover technical changes to pillar 2 of the international tax agreement—doubling the maximum sentence for the most egregious forms of tax fraud—the introduction of new powers to tackle the promotion of tax avoidance, and action against fraud in the construction industry scheme.

The UK’s tax gap is currently at an all-time low, at 4.8% of total tax liabilities. That is due to strong Government action to tackle all forms of non-compliance in the tax system, but we are never complacent. That is why we have introduced more than 200 measures since 2010, including 40 since 2021, to reduce the tax gap even further. The Government are taking action to ensure that individuals and companies pay the taxes that are due in the UK. We want to deter individuals from committing fraud in the first place. That is why we are doubling the maximum sentence for tax fraud.

The Government are also taking action against tax avoidance by introducing a new criminal offence of the promotion of tax avoidance and by expediting the disqualification of directors of companies that promote tax avoidance. The measures are designed to protect tax revenues, which are important for funding our vital public services.

It is also important to protect tax revenues from companies shifting profits offshore. That is why the UK implemented pillar 2 on 31 December 2023. We are updating existing legislation with technical amendments today to ensure that UK legislation is consistent with newly agreed guidance, to address further stakeholder comments to clarify terms, and to avoid unintended consequences.

Clause 31 strengthens our enforcement powers when it comes to tax offences. It doubles the maximum prison term, from seven years to 14 years, for individuals convicted of the most egregious cases of tax fraud. This applies to all taxes and duties administered by HMRC. It also increases the maximum penalty for counterfeiting from 10 years to 14 years. These measures demonstrate, I hope, the Government’s intent to crack down on tax fraud and to deter criminal actions that damage the public purse.

Clauses 32 and 33 and schedule 13 seek to target the promotion of tax avoidance, in order to protect taxpayers and reduce the damage inflicted on the public finances. Recent powers such as HMRC’s power to name promoters and their schemes, and its power to issue stop notices, are effectively disrupting promoters’ activities. None the less, a small number of promoters persist in attempting to sidestep the rules, so clause 32 and schedule 13 enable HMRC to act swiftly to seek the disqualification of directors and other individuals who control or exercise influence over companies involved in the promotion of tax avoidance. They enable the removal of those individuals from the avoidance market and will deter others from becoming directors of companies that promote avoidance.

In the Finance Act 2021, the Government introduced rules that allow HMRC to issue stop notices that require promoters to stop promoting specified tax avoidance schemes. Stop notices are an important deterrent tool, as failing to comply with a stop notice can lead to a substantial civil penalty. Clause 33 increases the consequences of failing to comply by introducing a new criminal offence, which will apply to promoters who continue to promote an avoidance scheme after receiving a stop notice. Creating a criminal offence signals the severity of this issue and reinforces the importance of complying with a stop notice.

Finally, clause 34 tackles serious non-compliance in the construction industry. The construction industry scheme requires contractors to withhold tax unless a subcontractor holds gross payment status. Most gross payment status holders are legitimate and compliant construction businesses but, in recent years, gross payment status has been used by organised crime organisations to facilitate fraud. This allows unscrupulous actors to compete unfairly against legitimate businesses. Clause 34 therefore strengthens the tests for gross payment status by adding VAT to the taxes with which subcontractors must demonstrate compliance. This measure is predicted to raise around £300 million over the next five years.

Each of these clauses helps to protect vital tax revenue used to fund our public services. They seek to deter taxpayers from knowingly defrauding the Government and encourage them to act against the promotion of tax avoidance. I therefore ask that clause 21, clauses 31 to 34 and schedules 12 and 13 stand part of the Bill.

[The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)]

I call the shadow Minister.

[James Murray]

I rise to speak to the new clauses in my name and that my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq).

Clause 21 and schedule 12 relate to the implementation of pillar 2 of the OECD/G20 inclusive framework on base erosion and profit shifting. Labour supports this clause and schedule as they are intended to modify the existing multinational and domestic top-up taxes introduced in the Finance (No. 2) Act 2023, to make sure these new taxes work as intended. We have long supported the global deal on the taxation of large multinationals, as we want to see it working as effectively as possible.

We know that the OECD guidance on implementing the deal is coming out in tranches, so it is important that UK legislation is updated to reflect that. We recognise that, as with any global deal of this scale, its details are complicated and its implementation will take time, yet we have been clear throughout its development that we support the principle of a global agreement as a crucial step in making the tax system fairer, thereby helping to make sure that British businesses that pay their fair share of taxes are not undermined.

Indeed, nearly three years ago, in April 2021, I first set out in the Commons our support for a global deal to make that tax system fairer, to make sure that a level playing field is there for British businesses and to stop the international race to the bottom on tax for large multinationals. The Treasury Ministers at the time appeared at first lukewarm in backing plans emerging from the United States for a global deal. Eventually, however, the then Chancellor, now the Prime Minister, began to support the deal in public. We were glad that the current Prime Minister seemed to have come round, but I am not sure all his Back Benchers have. For instance, I wonder whether the hon. Member for North East Bedfordshire (Richard Fuller) would agree with the Prime Minister when he said:

“We now have a clear path to a fairer tax system, where large global players pay their fair share wherever they do business.”

We agree with the Prime Minister on that point, but I just wonder whether everyone on the Conservative Benches does. I am reading some of their faces and I think the answer is clear. Could it be that the Prime Minister lacks support from prominent Back Benchers within his own party on a policy he is now championing? Surely not. But Treasury Ministers should rest assured that if their Back Benchers pull any tricks on clause 21, they will have our support for it to pass.

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

[The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)]

With this it will be convenient to discuss clause 27 stand part.

[Nigel Huddleston]

I will take clause 27 first. The changes that it makes clarify how VAT and excise legislation should be interpreted in the light of changes made by the Retained EU (Revocation and Reform) Act 2023, which came into effect on 1 January. The Act ends the supremacy and special status afforded to retained EU law in the UK. As we made clear when it was introduced, the Government are taking a bespoke approach to UK VAT and excise law. In line with the 2023 Act, clause 27 confirms that, for VAT and excise, it will no longer be possible for any part of any UK Act of Parliament or domestic subordinate legislation to be quashed or disapplied on the basis that it is incompatible with EU law. In other words, it will no longer be possible for businesses to rely on EU law where it is in conflict with domestic law. The measure also provides that UK VAT and excise law continues to be interpreted as Parliament intended, drawing on rights and principles that currently apply in interpreting UK law.

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These changes are necessary to provide legal certainty for business and to ensure that the relevant regimes operate as intended. I therefore commend clauses 25 and 27 to the Committee.

[The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)]

I call the shadow Minister.