Stamp Duty Land Tax

Shabana Mahmood Excerpts

Thursday 4th December 2014 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I am, frankly, stunned. I am not entirely sure what is meant to happen in the House of Commons when a Minister is not present. However, I am sure that the Minister would have spoken in favour of the proposals that were introduced in yesterday’s autumn statement—

[Thomas Docherty (Dunfermline and West Fife) (Lab)]

On a point of order, Mr Speaker. As far as I can see, no Minister is present. [Interruption.] I mean that no Treasury Minister is present. Is this normal practice? How can my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) proceed with her speech when there is no Treasury Minister here to respond?

--- Later in debate ---

[Mr Speaker]

I am very grateful to the Secretary of State. We will see whether the Treasury Minister turns up, but the willingness to help of the Secretary of State for Work and Pensions is noted and appreciated, and I thank him for his typical courtesy in what he has just said. Let us now proceed in a pragmatic way and listen to Shabana Mahmood.

[Shabana Mahmood]

Thank you, Mr Speaker. I am not sure that I can respond to an opening speech that I have not heard. [Interruption.] Well, the case has not been made by the Government—the motion has only been made formally—so may I take some guidance from you, Mr Speaker, on how best to proceed?

[Mr Speaker]

Yes, the hon. Lady is welcome to take guidance from me, and it is this: the hon. Lady’s responsibility is to speak to the motion on the Order Paper rather than to any particular speech that might be made, so while I understand that this is an unusual state of affairs, the responsibility is to speak to the motion. The hon. Lady knows what the purport of the motion is, so she should not unduly trouble herself by trying to anticipate what the Minister might say if he were here—because he can’t, because he isn’t.

[Mr Speaker]

It would be. It would be perfectly orderly, and it is good of the hon. and learned Gentleman to offer to help, but I think we can get by without his assistance for now.

I hope my guidance to the hon. Lady is clear. I realise this is an unusual situation for her to face, but if I remember rightly she is a product of Lincoln college, Oxford, so she is what they call prodigiously bright, and I am sure she can cope with the situation.

[Shabana Mahmood]

Thank you, Mr Speaker, and forgive me for seeking clarification on just one further point: I wonder whether it might be more helpful and conducive to bringing the debate along if I come in later, once the Minister has been able to present himself in the Chamber.

[Mr Speaker]

The answer is that the hon. Lady would need the leave of the House to proceed in that way, but my strong sense is that the leave of the House would be forthcoming. [Interruption.] I am in receipt of intelligence on this matter—[Interruption.] The Minister is here! I was just about to say he was a minute away. The Minister is with us and we are grateful to the Minister. [Interruption.] Order.

--- Later in debate ---

[Shabana Mahmood]

With the leave of the House, I wish to respond to the Minister’s speech. I thank him for eventually making it to the Chamber to move his motion and introduce the debate—just when I thought I had this place sussed out, something else happens to remind me of the many different ways of interpreting parliamentary procedure and rules. I have learned something new today, for which I am grateful.

As we indicated yesterday, once the Chancellor had made the autumn statement, we will support the measures today and the Bill next week. I have seen the draft clauses and explanatory notes—there are only two clauses and one schedule—and we will consider the technical detail ahead of the debate next week, but in the meantime I have a few questions for the Minister. If he cannot answer them today, I hope he will give us further details in time to inform our debate next week.

The reforms to SDLT apply only to residential properties; the previous stamp duty system—the so-called slab system—remains in place for commercial properties. Beyond mere electioneering, what is the Government’s reason for focusing the proposals on the residential market? As he knows, in Scotland, where the Scottish Government will take control of stamp duty next April, the land and buildings transactions tax will apply to both commercial and residential properties, meaning that Scotland will have the system for both types of property, whereas we will retain two different systems. It would be helpful to understand the Government’s thinking and any assessments the Treasury has done on having two different systems.

In the context of corporation tax possibly being devolved to Northern Ireland, where different circumstances apply, have the Government done any modelling on the potential for unhealthy tax competition if we have this differential in the way in which stamp duty operates on commercial property in Scotland and England? It would be helpful to know how much work the Government have done on that point and whether they plan to introduce further proposals.

What assumptions have the Government made regarding house price increases as a result of the stamp duty changes? It looks like we are seeing a 1.4% increase in prices against a 1% reduction in stamp duty at the lower end, and it seems also that the tax take from stamp duty will rely on a 5% annual increase in property prices. Have the Government assessed whether that might price more people out of the property market? As the Minister will be aware, the OBR’s assessment accompanying the autumn statement states that house prices will continue to rise faster than incomes, which will risk pushing home ownership further out of reach for many people. Will he share with us the Treasury’s assessment and modelling in relation to the stamp duty changes and the impact on home ownership and prices?

The last time the Minister and I debated stamp duty—in a debate introduced by the hon. Member for St Albans (Mrs Main) in Westminster Hall—it was one of the only debates the House has had on stamp duty in recent times. It was a good opportunity for Members to raise issues of concern, and we discussed at length the difficulties with the system of stamp duty that the Government have now changed—the slab structure and so-called cliff edges, which no doubt created significant price distortions around the thresholds.

Many Members from all parties, housing specialists and commentators have long complained about the structure of stamp duty. The Institute for Fiscal Studies, the Mirrlees reviews and others all agreed that the tax was badly designed. Furthermore, it has undoubtedly been an increasing burden on buyers. From 1997 to 2005, house price inflation averaged more than 10% a year, and the proportion of property transactions attracting stamp duty rose from about half to more than three quarters over roughly the same period.

Measures to alleviate the burden focused primarily on thresholds and stamp duty holidays: the threshold was doubled in 2005; temporarily increased by £50,000 for one year in 2008; and doubled again for first-time buyers for three years from March 2010. Stamp duty has continued to be a significant burden, however. It has increased by 30% between 2009-10 and 2013-14. We have seen continued growth in the housing market and more people have been brought within the higher tax bracket, all of which have increased the burden significantly. This is therefore a sensible measure, and we will support it.

Measures to alleviate the burden on buyers are welcome, but we are experiencing the worst housing crisis for a generation, and we need much more action on housing supply if we are to get our housing market into better shape and help more young people and families to realise their dream of home ownership. I made this point to the Minister in the Westminster Hall debate as well. I am sure the Government will say that they are taking action on supply through the measures in the autumn statement and in their national infrastructure plan, but most of the announcements made in the flurry of activity over the past couple of days were in fact reannouncements of existing schemes and money, and many of the projects are already in the planning system.

The truth is that this Government have presided over the lowest levels of house building in peacetime since the 1920s. We are not even building half the homes we need to keep up with demand. We also know that home ownership is at its lowest level for 30 years and that, in the next few years, the average deposit is going to rise to £72,000, a sum that is far beyond the reach of many of our constituents, and certainly of my constituents in Birmingham, Ladywood. We needed to see much more action from the Government yesterday on getting homes built as well as on dealing with the issues on the demand side. We have set out our proposals, including a policy of getting 200,000 homes a year built by 2020. It would have been good if the Government could have taken a similarly ambitious approach to house building in their autumn statement yesterday. We also need to deal with the underlying causes of the housing crisis.

[Sir Oliver Heald]

The hon. Lady seems to have forgotten about the great recession that her party visited on this country. It is not surprising that, in those circumstances, fewer houses were built during that period.

[Shabana Mahmood]

I find it interesting that Government Members are happy to plead global circumstances to explain their failures in Government yet conveniently forget that we had a global financial crisis in 2008. I think the hon. and learned Gentleman made that point in a slightly petty way.

[Steve McCabe]

If we are supposed to have recovered from the recession, why is house building now at its lowest level since the 1920s? To me, that sounds like a failure rather than a success.

[Shabana Mahmood]

My hon. Friend is absolutely right. The Government said in their autumn statement that everything was on course. If the finances are in such a good state, why will they not adopt an ambitious programme of house building? Until we have action on the supply side, we will not be able to get to grips with this lop-sided housing market.

We need to get more homes built, and we also need to deal with the underlying causes of the crisis. For example, we know that too much land is being held as a speculative investment even though local people need homes, and that the trickle of new developments that are being built are snapped up long before people from the area can benefit from them. We also know that our country’s capacity to build homes has shrunk drastically. Fifty years ago, the public and private sectors between them built more than 300,000 homes a year; now we rely on a small number of volume house builders and, as a result, we build far fewer homes.

A number of measures are needed to deal with the underlying causes of the housing crisis and to get the number of homes built that this country needs. We have proposed new powers for local authorities, as well as a help to build scheme to run alongside the Government’s Help to Buy scheme, which we support. We particularly want to see an increase in the role of small and medium-sized construction firms, because the resulting diversity in the market would help to get more homes built and deal with the underlying causes of the crisis. As I have said, we need to see supply-side measures in conjunction with the proposals on stamp duty and the Help to Buy scheme. That would help us to get to grips with the crisis and arrive at a position where the dream of home ownership was not so far out of the reach of our constituents across the country.

I also want to mention our proposal for a tax on high-value properties—the so-called mansion tax. We believe that that is a necessary measure to get an annual sum of money into our national health service, which is in crisis and in desperate need of further, stable funding. It is interesting that the Chancellor has accepted, in his stamp duty proposals, the principle that very high-value properties in this country are under-taxed. Earlier in this Parliament, he introduced the annual tax on envelope dwellings—the ATED—which is described as a kind of mansion tax for high-value properties held by companies in a corporate envelope. Now, the Government are characterising the new stamp duty changes as their version of a mansion tax. I wonder why, as they creep towards an actual mansion tax, they will not make that final leap and simply adopt our proposal, thereby guaranteeing an annual sum for our national health service.

The Prime Minister is reported to have remarked some time ago that the Government could never introduce a mansion tax because the Conservative party’s donors would not accept it. I wonder whether that is the only thing holding the Government back. The truth is that they should go further and adopt our proposal. There is a difference between what they are doing today and our proposal. Stamp duty is a transaction tax, but our tax on high-value properties would be an annual charge that would provide a stable source of revenue for the national health service.

One of the Government’s regular criticisms of our proposal is that it would hit those who were asset rich but income poor. However, we have already set out how that could be dealt with through a system of deferral for anyone with an income of less than £42,000 a year—in other words, a basic rate taxpayer. That would be a perfectly sensible and adequate way of helping those people. We could then fairly and progressively introduce a tax that would help to get the national health service’s finances back on track.

[Mr Gauke]

I should like to ask the hon. Lady a practical question about her policy of excluding from the mansion tax those with an income below £42,000. She will be aware that some of the richest people in this country live off their capital rather than their income. Does she acknowledge that such people could conceivably fall within the proposed exemption?

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We need to be a bit careful here. We should not really be discussing the policies of the Opposition. The debate is about stamp duty. We have already had a difficult start, and I do not want things to get any more difficult.

[Shabana Mahmood]

Thank you, Mr Deputy Speaker. I would be happy to discuss those technical details with the Minister on another occasion when we would not fall out of order.

I reiterate that we expect our policy to raise the £1.2 billion that, according to the Chief Secretary to the Treasury, internal Treasury modelling has shown it could raise. We have seen nothing to change our assessment of those figures. As I was saying, the NHS is in dire straits. There is a crisis in accident and emergency, and it is getting harder to see a GP. This Government have made things worse with their £3 billion top-down reorganisation of the NHS. If that money was available at the beginning of this Parliament, it should have gone into front-line services. We therefore need an annual source of revenue to help to deal with those issues, and a tax on the highest-value homes—the so-called mansion tax—will help the next Labour Government to do that. As I said at the outset, we believe that the proposed changes to stamp duty represent a sensible measure, and they will have our support today and next week when the proposed legislation is formally brought forward.

National Insurance Contributions Bill

Shabana Mahmood Excerpts

Tuesday 11th November 2014 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I would like to think that the Minister and I are always vociferous and meticulous in our deliberations on finance and taxation matters, and that we have both been efficient in our deliberations on the Bill. That is because, as the Minister explained, this is a short Bill which aims to simplify the administrative process of paying class 2 national insurance contributions for the self-employed. It applies measures from this year’s Finance Bill, now the Finance Act 2014, to NICs, and introduces a targeted anti-avoidance rule, a so-called TAAR, to tackle disguised self-employment made possible through employment intermediaries and offshore employers. We have supported the Bill throughout its previous stages in the House and will do so today.

Until now, as the Minister explained, payments of class 2 and class 4 NICs by the self-employed have had to be made separately. When the Office of Tax Simplification looked at these matters in 2012, it proposed bringing class 2 NICs within self-assessment, and suggested that this change would bring administrative benefits to self-employed persons and businesses. In July 2013, HMRC published a consultation document in which it noted that the present system places significant burdens on small businesses, and that although class 2 NICs accounted for less than 0.3% of the £102 billion or so of NICs collected by HMRC in 2012-13, they accounted for more than 40% of national insurance-related telephone calls to HMRC and the resulting processing work. The Bill therefore changes the liability for class 2 NICs so that it arises at the end of the tax year and not weekly, as now, and moves class 2 NICs into self-assessment, so that self-employed people can deal with their class 2 NICs together with their income tax and class 4 NICs.

We support the aim of making the system easier for self-employed people and reducing the administrative burden caused by the current separate systems for the collection of class 4 and class 2 NICs. Almost one person in six is self-employed, so this is a significant issue affecting a large number of people. Making the system easier to navigate is therefore welcome and of genuine practical benefit for the self-employed.

A number of specific issues were raised by stakeholder groups regarding eligibility for maternity allowance and the impact of this simplification on people claiming universal credit. Those are issues that we raised on Second Reading, which the Minister dealt with in Committee. We were also able to take evidence from expert witnesses who gave evidence to the Committee. We had some useful clarification and reassurance from the Minister on those points, which has dealt with the concerns raised. We are grateful for that.

We noted in Committee that communication of these changes to the people affected by them will be very important, a point which the Minister acknowledged. We were concerned particularly about people who might be described as digitally excluded. It is of course easier for the Government, and it is a responsible time and expense-saving mechanism, to put lots of advice on the internet, but there are groups, perhaps especially those who are self-employed and who may ultimately be reliant on universal credit, who might be described as digitally excluded, and it is important that they can access information about how the changes may impact on them. The Minister gave assurances to the Committee that those matters were in hand. We will continue to scrutinise this aspect as the Bill progresses and becomes law.

As the Minister explained, the Bill also extends provisions relating to follower notices, accelerated payment notices and measures to tackle high-risk promoters of tax avoidance schemes that were passed in the Finance Act 2014 in relation to income tax. It applies those rules to NICs as well. As the Minister noted, we have had extensive debate on these measures, primarily during the passage of the Finance Bill 2014. In Committee the Minister provided a helpful update on how the measures relating to income tax are bedding in.

We heard encouraging evidence from expert witnesses that these measures were already having a positive behavioural impact on the way in which individuals approached their taxation affairs, and that the measures were preventing people from getting involved in schemes that they might previously have taken a chance on. We welcome that. We will continue to scrutinise the impact of these measures, and in particular the effectiveness of HMRC’s internal governance mechanisms in relation to follower notices. These are important changes and they continue to have our support.

Clause 5 introduces a new TAAR to cover the payment of national insurance contributions, which sits alongside the provisions in this year’s Finance Act aimed at tackling employment intermediaries who falsely label workers as self-employed to reduce their tax liabilities. For workers who are falsely badged as self-employed, particularly for those who do not know that that is the case, which has happened on an alarmingly regular basis, the effect is that they are not eligible for many of the benefits available to employed earners, such as holiday and sickness pay.

This year’s Finance Act amended legislation directly to address the issue in relation to the payment of income tax. A worker will now be designated as an employee if they are under the supervision, direction or control of someone else, and in that case they must be paid through PAYE, rather than as a self-employed worker. That is a change from the previous designation, under which a worker is deemed to be an employee if they provide their services personally. It was found by HMRC that many intermediaries were able to exploit that test by claiming that there was no obligation for the worker to provide their services personally. To get around that, a clause was often inserted into a worker’s contract stating that they could send somebody else to do their work, even though in reality the employer wanted that specific worker.

[Bob Stewart (Beckenham) (Con)]

I seek clarification from the Minister or the hon. Lady, who understand these things well. A part-time worker has to pay national insurance contributions, and so does the employer. I was a little puzzled that that might not be the case, but it is, is it not?

[Shabana Mahmood]

I am grateful for the question. If workers are above the threshold which is in place for the paying of national insurance contributions, the usual rules apply. I am sorry if I confused the hon. Gentleman; I was talking about self-employed people, which is a particular case in the context of the Bill. Clause 5, as I said, introduces a targeted anti-avoidance rule to prevent a type of abuse that has been occurring through employment intermediaries.

The role of the TAAR envisaged in the Bill is to prevent the circumventing of the rules so that workers who would be employed earners if it were not for the intermediary arrangements are treated as employed earners. That will allow HMRC to consider both the motive for setting up such an arrangement, including whether it was set up to avoid NICs, and what was achieved, including whether it resulted in less NICs being paid. As I said, the problem of bogus self-employment is widespread and complex. We heard evidence on that, particularly in Committee where one witness said that there were ways in which companies were trying to avoid paying national insurance contributions. The Minister helpfully told the Committee that he and his officials were already looking into that.

Taking action in this area is difficult. If often feels as if the Government of the day are playing catch-up with companies intent on trying to find ways of getting around the rules, but tackling bogus self-employment is necessary for parties of all political persuasions to protect revenues to the Exchequer. The Minister and I may occasionally disagree on the emphasis and priorities for action in dealing with false self-employment, but the TAAR introduced by clause 5 is a useful addition to the Government’s armoury for tackling this type of tax avoidance, and we support that measure.

Question put and agreed to.

Bill accordingly read the Third time and passed.

Income Tax

Shabana Mahmood Excerpts

Wednesday 5th November 2014 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

We have had a good debate today with some excellent contributions, including those from my hon. Friends the Members for Stretford and Urmston (Kate Green), for Swansea West (Geraint Davies), for Bethnal Green and Bow (Rushanara Ali), for Inverclyde (Mr McKenzie), and for Heywood and Middleton (Liz McInnes) and my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson). We have seen the real divide that exists between Opposition Members and those on the Government Benches about the choices that have to be made at a time when the deficit is still high and rising. Tough times are set to last well into the next Parliament.

We are clear that the difficult choices that have to be made while we get the deficit down must be made fairly, but under this Government, while millions of people have seen their taxes go up, millionaires have been given a huge tax cut. That tax cut is worth an average of £100,000 for those earning over £1 million, and this at a time when households will be on average £974 a year worse off as a result of tax and benefit changes made since 2010. At the top end of the income scale people are a hundred grand a year better off, but at the other end people are nearly a grand a year worse off.

What does that £100,000 look like in the real world? In my constituency, the median income of the tax-paying self-employed person based on the 2011-12 census figures was £8,410, so a tax break of £100,000 for the wealthiest is troubling to me. That £100,000 tax break reflects more than 11 years’ worth of work by the self-employed worker of Birmingham, Ladywood. To put that another way, based on average rents in inner-city Birmingham, £100,000 equates to about 15 years’ worth of rent, so when we throw these figures around, we would do well to remind ourselves what that money means in the real world, and to ask ourselves which policy—the restoration of the 50p rate or the retention of the status quo—most people in my constituency and across the country would find fair.

This Government have totally failed on tax fairness. Sure, they said the words, and they said some very strong words, with clear and unambiguous meanings. The Chancellor told the Tory party conference in 2012 that his famous line “We’re all in this together” was more than a slogan. He said that it

“spoke of our values and of our intent”.

“We’re all in this together”—a sign of Tory values and intent. Who does he think he is kidding? That was just six months before the decision to cut the 50p top rate to 45p took effect. He can say the words as many times as he likes, but it is his actions that he will be judged on, and the Chancellor’s actions show clearly that we are definitely not all in this together.

How do the Government try to get away with making such an unfair choice? Well, their main argument—we heard this today—is that the 50p rate did not raise very much money. The static costing of the cut to 45p is £3 billion, but after behavioural effects are taken into account, they say that the cost of the measure falls to £100 million. But the 2012 HMRC report “The Exchequer effect of the 50 per cent additional rate of income tax”, which the Government relied on to cut the top rate, acknowledges that the scale and value of the behavioural change is highly uncertain.

The scale of the behavioural change is calculated by doing an assessment of taxable income elasticity, and the rate of taxable income elasticity to apply when calculating the scale of behavioural change is ultimately decided by Ministers themselves. Given how desperate they were to get to the pre-determined outcome that the measure raised no money, scepticism about the calculation that they relied on is justified. The IFS and the OBR both say, as I have said, that the figures are highly uncertain. In January this year the IFS said:

“The uncertainty around HMRC’s estimates mean it is also possible that the 50p rate would be somewhat more effective at raising revenue than their initial analysis suggests. HMRC made their calculations at great speed on the basis of one year’s data that had only just become available. Indeed only around 95% of the data was available at the time they made the calculation. By now they have data for 2011-12 too, and soon they will have data for 2012-13 as well. Given this there is certainly a case for HMRC looking again.”

Yet each time we have tabled amendments to Finance Bills since the 2012 Budget asking the Government to produce reviews that would effectively carry out that analysis again, but with more comprehensive datasets, they have refused to accept them. Why? Is it possible that they are afraid that further and deeper analysis might remove their central justification for cutting the tax rate in the first place?

It is not as if the Government do not know that the announcement that the 50p top rate of tax would be cut prompted large amounts of income shifting by higher earners. The OBR has confirmed that money was deferred from the end of 2012-13 to the early part of 2013-14 so that it could be taxed at 45p, rather than 50p. We know that bonuses in the financial services sector jumped by 76%—a staggering sum—in April 2013 as bankers waited until the top rate was cut before paying themselves their bonuses.

The Government’s claim that the cut would cost only £100 million did not take into account the impact of forestalling. They recognised that point themselves when they published the 2012 HMRC report—it was in the small print beneath one of the graphs—and the Minister kindly acknowledged it again today. In its 2013 forecast evaluation, the OBR estimated that £1.7 billion of tax was deferred from 2012-13 as a result of the cut, and the difference between all that money being taxed at 50p in 2012-13 and at 45p in 2013-14 is between £150 million and £200 million. The Government like to say that top earners are paying more as a result of the cut, conveniently ignoring the income shifting that they know, and everyone else has confirmed, took place.

What is more baffling is that tax revenue from the 50p rate has been ceded at a time when the Chancellor and his team are singularly failing to bring the deficit down at the speed they said they would. They said that they would balance the books by the end of this Parliament, but clearly they will not; the deficit is actually rising. They said that they would tackle the problem of uncollected tax, but the tax gap has grown by £3 billion on their watch. We know that people will be worse off in 2015 than they were in 2010—a fact that no Minister likes to confirm at the Dispatch Box.

Furthermore, the Government have just made £7 billion-worth of uncosted pre-election give-away promises, described by the Financial Times as “neither sober nor realistic”. The Minister today ducked the opportunity to give some specific details about where that £7 billion would be found. That is clear evidence that their priorities, which have been wrong to date, will continue to be wrong if they form the next Government.

It was clearly a mistake to reduce the top rate of income tax. It is neither fair, at a time when working people are on average £1,600 a year worse off since 2010, nor economically sensible, when the deficit remains high and is rising on this Government’s watch. I urge hon. Members to vote with us in the Lobby today.

Oral Answers to Questions

Shabana Mahmood Excerpts

Tuesday 4th November 2014 Commons Chamber

[Mr Gauke]

Let us be clear: the tax gap is lower than it was under the previous Government and yield is higher. By international standards, the UK has one of the lowest tax gaps in the world. We have a good record, but we always seek to do more, which is why at the Budget and autumn statement we have always been able to bring forward measures to deal with tax avoidance and tax evasion, and that is a record with which we will continue.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

The Minister has failed to acknowledge that families struggling to make ends meet expect the Government to ensure that everyone pays their fair share, and yet the amount of uncollected tax has risen by £3 billion since he came to office. Is it not the truth that that is both deeply unfair to hard-working families and further evidence that this Government have totally failed to tackle tax avoidance?

[Mr Gauke]

No; we have brought forward 40 measures to reduce tax avoidance, reduced the tax gap as a proportion of tax receipts, and increased by £7 billion the yield brought in by HMRC. The truth is that it is this Government who have acted in this area, and the record of the previous Government does not bear comparison.

Taxation of Pensions Bill

Shabana Mahmood Excerpts

Wednesday 29th October 2014 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

It is a pleasure to close this debate for the Opposition.

There have been only a few Back-Bench speeches, but they have all been insightful and valuable. The hon. Member for Reigate (Crispin Blunt) was spot on when he spoke about a deficit of consumer awareness and said that the FCA will have to be alert to the needs of all consumers across the spectrum.

My hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) sits on the Pension Schemes Public Bill Committee. He spoke at length about the evidence that was given by Mr Greenwood. I am not on that Committee, but I found the points he made about that evidence telling and concerning. I hope that the Exchequer Secretary will respond to those issues.

In particular, my hon. Friend highlighted the potential opportunities for tax avoidance. I am sure that Members across the House will want to interrogate the measures in this Bill and the Pension Schemes Bill in detail to ensure that revenues to the Exchequer are protected. I hope that the Exchequer Secretary will say more about the Government’s view of the number of employers—my hon. Friend gave the figure of 192 from the evidence that was given to the Pension Schemes Public Bill Committee—who are looking at mechanisms to exploit the changes to the pension taxation rules as a ruse to reduce employer’s national insurance contributions.

The hon. Member for Amber Valley (Nigel Mills) was right to say that we want to avoid the two extremes that he highlighted. He was also right to speak about the importance of getting the guidance to work properly. He raised an important point in asking what will be the default setting for people who have been auto-enrolled and have a pot of money, but who simply do not engage with the process. It is important to get into the nitty-gritty of what will happen in practice in such scenarios. Again, I hope that the Exchequer Secretary will respond to those issues.

The hon. Member for Redcar (Ian Swales) was right to begin his speech by reminding us of previous scandals and the lengths to which unscrupulous individuals have gone, and he concentrated our minds on ensuring that such issues do not arise again. He was right to say that we must get the guidance right first time because it only happens once for each person. That should concentrate the minds of all Members on ensuring that we get the guidance absolutely right.

The shadow Financial Secretary, my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), made it clear that we support the principle of increased flexibility for people in retirement and the reform of the pensions market so that people get a better deal. We are therefore not against the principle that people should be allowed to exercise choice. However, this is a big Bill that contains big changes that will affect tens of thousands of people, if not more, immediately. Just this week, research published by Ipsos MORI suggested that 200,000 people may choose to take their entire pension in one go next April, creating a potential tax windfall for the Treasury of £1.6 billion.

It is fair to say that some issues that are debated in this place appear to be removed from the outside world. This is not one of those occasions, as the figures show. We therefore have a bigger immediate responsibility on this occasion to get the Bill absolutely right. Although I reiterate our support for increased flexibility, I do so with a word of caution, because that flexibility will be exercised by people who have a deeply variable understanding of the marketplace in which they are operating.

The Ipsos MORI poll also showed that only a third of those planning to take out their pension pot were aware of the tax that they would pay should they take out their entire sum in one go. The 2012 Department for Work and Pensions attitude to pensions survey noted that half the respondents had no prior knowledge of annuities before being asked the questions in the survey. The Financial Services Consumer Panel also published a report, in December 2013, which said that the

“market does not work well for the majority of consumers.”

One of its key findings was that consumers were poorly placed to drive effective competition among providers and distributers of annuities. It said:

“There are many barriers inhibiting consumers’ full engagement when they decide to annuitise: low financial capability; fear of product complexity and of making an irreversible, high-cost mistake; general distrust of professional advisers, and inability to find appropriate advice at acceptable cost.”

The Bill will operate in that context, not in some fantasy world in which the majority of the electorate has an in-depth understanding of the pension marketplace. That is not to say that a greater understanding cannot be fostered, because, as we know, the same DWP survey shows an increase in the awareness of annuities between 2012 and the previous survey in 2009. However, in some cases we start from a very low base.

We also have a social responsibility to get this right. This policy needs to be fair. Successive Governments have invested in pension relief to support people in retirement. As the Government have said, it is an annual investment of £22.8 billion, and it is important that we ensure that the taxpayer gets good value for money for that. It is money that belongs to all taxpayers, even those for whom a private pension or a workplace pension are out of reach. We must ensure that the relief given generates the consequences intended, the main one of which is income in retirement, not income for other things.

[Ian Swales]

The shadow Minister raises a good point about the relief, but pensions are taxable when they are paid out, so it is important not to suggest that £22.8 billion is the net cost of the pension system. The money may be taxed at a different rate, but it will be taxed when it comes out.

[Shabana Mahmood]

I was simply making the point that the reliefs are there for a reason and we have to ensure that they work for the benefit of all taxpayers, but the hon. Gentleman is right.

There is also the hard-nosed political test of making sure it is not the Government who are picking up the pieces if this all goes wrong. I reiterate our support for increased flexibility, but we have to acknowledge that this particular system has built-in risks. Under the new arrangements, a pension pot of £100,000 could be used to secure an annuity of about £6,500 that, added to the state pension, would yield the recipient a little over the UK’s national pension income, according to HMRC’s 2013 figures. Of course, it could be drawn out in one lump sum to buy the proverbial Lamborghini—it would probably have to be a second-hand one because they cost closer to £250,000 than £100,000. But what would happen then? If the recipient in question has not made the necessary contributions to receive the single-tier pension, when it comes in, will their pension be topped up to the accepted minimum level? That is not yet clear. This potentially leaves us in a dubious ethical position as well as a financially precarious one.

Our responsibilities to get this right are clear. It will affect many people, and we have both a social and financial responsibility to make sure that the changes work properly. Given that those changes are so significant, I would have expected extensive consultation by the Government before the announcements were made, but unfortunately that was not the case. As my hon. Friend the Member for Kilmarnock and Loudoun said, despite beginning well, with work on the single-tier pension and auto-enrolment—policies based on evidence, consultation and consensus, which built on the work of the previous Government—these reforms have been rushed and somewhat erratic. The Government did not consult before making the announcements, either with consumers or with the industry. Nor have the Government allowed sufficient time for the changes to be executed.

Despite the enormity of the change and the change of emphasis from the importance of accumulation to the ease of access, we are left in a situation in which outside experts are lamenting the lack of time to get this right. Regarding the need for proper guidance for consumers, the ABI’s director general said:

“The guidance guarantee is a crucial part of the Government’s pension reform, and the industry fully supports the Government’s intention to provide free, impartial guidance to savers on their options as from next April. But time is not on our side. No one should under-estimate the work that needs to be done to make this a reality, which is why the Government have some urgent decisions to make.”

We have to ask why the Government are in such a hurry to push through reforms when some of the essential underpinning to make them work seems to be missing. I have to say I am glad that I will not be in the first tranche of retirees to experience these reforms, unlike the hon. Member for Redcar.

That brings us to the issue of good guidance, or lack thereof. We know that changes of this magnitude will bring a significant number of new products to the market. That is not in itself a bad thing, as some products will be better than others; that is the nature of the marketplace. It is also well recognised that on the whole there is a requirement to ensure that consumers are far better informed—I have already outlined the evidence provided by the Financial Services Consumer Panel. However, in addition to extensive consultation, we would expect the Government to have done significant work on the guidance mechanisms before making the announcement in the Budget, but unfortunately that was not the case. From the start, a significant level of confusion has surrounded what the Government meant when they said that reforms would be accompanied by “advice”. It later transpired that it was not “advice” that would be provided, but rather “guidance”. That is an important distinction, as we have heard, since guidance carries none of the same legal protections as advice, which is regulated and therefore considerably more expensive to provide.

When the Government have been pushed on the matter, I am afraid their language has been far from reassuring, to the extent that the measure looks like a mere add-on to the whole pension reform programme. In my opinion, that suggests a slightly cavalier attitude, which may prove to be short-sighted. The Financial Conduct Authority’s consultation, “Retirement reforms and the Guidance Guarantee”, stated that,

“to be effective the guidance will need to be tailored, providing consumers with sufficient personalised information, so that they can understand their options and make confident, informed decisions about their retirement choices.”

We appear to be getting something far less useful. In evidence to the Work and Pensions Committee in April, the Pensions Minister suggested that guidance will be more general in nature:

“The thing we are talking about is free to the customer. There is no charge for it. It is what we call ‘guidance’, rather than independent financial advice, so it is not formal, detailed or product-specific; you can go and buy that if you want to, but this is familiarising people with the options they have, and some of the concepts, even. Most people do not know what an annuity is.”

There is much that we do not know. We do not know the detail of what will be funded, the level of levy used to pay for it, what the guidance will be expected to cover, or what it is expected to achieve. Even at the end of the debate, we appear to have more questions than answers—questions that go to the heart of issues that will be central to ensuring that the programme works. We will be picking up on those issues of detail, fairness and guidance when the Bill reaches Committee.

[Michael Fabricant (Lichfield) (Con)]

On a point of order, Madam Deputy Speaker. This is nothing to do with the debate—I apologise to my hon. Friend the Minister for interrupting it—but I was due to attend an event this evening at which I was, I believe, to receive an award. I understand at very short notice that I have been banned, along with a number of national journalists. The person who banned me was Mr Speaker, and I was wondering whether that is normal behaviour for a Speaker.

National Insurance Contributions Bill

Shabana Mahmood Excerpts

Monday 8th September 2014 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I thank the Minister for his introduction to this short Bill, which, as he said, aims to simplify the administrative process of paying class 2 NICs for the self-employed; apply measures from this year’s Finance Bill, now the Finance Act 2014, to NICs; and introduce a targeted anti-avoidance rule, TAAR, to tackle disguised self-employment made possible through employment intermediaries and offshore employers. We support the measures and so will support Second Reading, but we will examine in detail some of the expected practical impacts of the measures in Committee.

As the House will know, national insurance benefits are funded by a system of compulsory contributions on earnings paid by employees, employers and the self-employed. Most of the income from NICs goes into the national insurance fund to pay for contributory benefits, including the state pension, contributions-based jobseeker’s allowance and bereavement benefits. Some NICs money goes directly into the national health service. NICs are the second largest tax after income tax, raising £108 billion in 2013-14.

The self-employed make two types of national insurance contribution. Class 2 NICs are paid by the self-employed at a flat weekly rate of £2.75. A self-employed person can apply to be exempted from liability if their annual profits are under a certain threshold—the so-called small earnings exemption—which is currently set at £5,885. Class 4 NICs are paid annually by self-employed persons on profits immediately derived from a trade, profession or vocation that are chargeable to income tax. Class 4 NICs are payable at a rate of 9% on profits between £7,956 and £41,865 and 2% on profits above £41,865.

Until now, payments of class 2 and class 4 NICs have had to be made separately. Individuals may pay class 2 NICs by direct debit either twice a year, in January and July, or monthly, paid four months in arrears. Alternatively, HMRC will issue two payment requests a year. In contrast, self-employed persons pay class 4 NICs with income tax on completion of their self-assessment tax return. From 2011, the dates on which payment of class 2 NICs is due have been aligned with the dates for tax and self-assessment—31 January and 31 July each year—but payment of both has continued to be made separately.

As the Minister said, when the Office of Tax Simplification looked at these matters in 2012, it suggested bringing class 2 NICs within self-assessment, and that this would bring administrative benefits to self-employed persons and businesses. In July 2013, HMRC published a consultation document in which it noted that the present system places significant burdens on small business, and that while class 2 NICs accounted for less than 0.3% of the £102 billion-worth of NICs collected by HMRC in 2012-13, they accounted for more than 40% of national insurance-related telephone calls to HMRC and the associated processing work that resulted. The Bill therefore changes the liability for class 2 NICs so that it arises at the end of the tax year and not weekly, as now, and moves class 2 NICs into self-assessment, so that self-employed people can deal with their class 2 NICs together with their income tax and class 4 NICs.

We support the aim of making the system easier for self-employed people and reducing the administrative burden caused by the current arrangement of having two separate systems for collection of class 4 and class 2 NICs. Almost one person in six is self-employed, so this is a significant issue affecting a large number of people. Making the system easier to navigate is therefore welcome and of genuine practical benefit for the self-employed.

A number of specific issues arise as a result of this change on which we will seek greater clarification from Ministers in Committee. However, it would also be helpful if the Exchequer Secretary offered some further comments on the points I am about to raise, as that could help to clarify the issues ahead of Committee. The first relates to the maternity allowance. At present, 25,000 self-employed women claim maternity allowance each year. Entitlement to maternity allowance is not assessed on self-employment and class 2 NICs paid in a particular benefit year. Instead, it is assessed over a test period of 66 weeks up to and including the week before the baby is due. Collecting class 2 NICs at the end of the tax year means that some women may find that it appears as though they have not been paying class 2 NICs during the period needed to make them eligible for the maternity allowance.

In order to address this problem, the Government have proposed measures in the Bill that would enable women who have not had the opportunity to file a self-assessment return and pay class 2 NICs to pay them early in order to secure maternity entitlement at the standard weekly rate. However, there is a danger that these proposals may be impractical. Women would have to make voluntary contributions before they filed their self-assessment returns, and this demands a very high level of forward planning on their part. The provisions may therefore require some additional clarification. If the Exchequer Secretary or the Financial Secretary have had any additional representations on these points—I know that some stakeholders have been raising such concerns—it would be helpful if they set out their thinking. The Minister will be aware that the Chartered Institute of Taxation has suggested that the Government should review these changes at the earliest opportunity—in two years, I think—to ensure that they have not resulted in a reduction in the number of claims for the standard rate of maternity allowance. Again, it would be helpful to have an indication of the Minister’s current thinking on this point.

For the 650,000 self-employed households that claim universal credit, these proposals will have a different impact. Universal credit regulations require the individual to report their income, net of certain expenses, on a monthly basis. That net income is then used to establish their entitlement to universal credit. Certain safeguards are built in so that if income from self-employment for an assessment period falls below a certain level, the claimant’s income is treated as being a higher amount called the minimum income floor. Because universal credit is assessed on a monthly basis, if a claimant has to pay all their class 2 NICs in one month, this could push their earnings under the minimum income floor, thereby reducing their universal credit for that month. Simplification should not come at the cost of hardship, We will press the Government for assurances that they have fully considered the potential impacts of this change along with the introduction of universal credit, and the interplay between both policies.

The tax information and impact note suggests that the option of monthly payments will still be made available to self-employed persons and businesses. However, there is no provision for that in the Bill. A number of stakeholder groups have suggested that the retention of a monthly payment system would be of particular value to those on very low incomes who may struggle with one lump sum payment. Even accepting that for many people the total amount does not seem large or too onerous, of course that is not necessarily the case for those on extremely low incomes, and retaining the monthly payment option would therefore be helpful. It is not clear why the note suggests something that the Bill does not touch on. I would be grateful for some further clarification on that.

The Chartered Institute of Taxation points out that there will be a gap of 22 months between the collection of class 2 payments for 2014-15 and the collection of payments for 2015-16 as liability moves from a weekly basis to arising at the end of the tax year. Thereafter, the payment of class 2 will be in arrears on 31 January following the end of the tax year. This could affect entitlements to benefits. Under the current system, the entitlement to many contributory benefits is based on the claimant having paid contributions and operating on a pay-as-you-go basis. Have the Government considered the cash-flow implications of class 2 NICs coming in up to 10 months after the end of the tax year, rather than being paid in-year as they are at the moment? Are they able to give us some more information on that today?

We will also seek reassurance and confirmation that moving class 2 into self-assessment will not adversely affect entitlement to contributory benefits. These are significant changes and the Government will need to ensure that they are properly advertised and that taxpayers are educated about them. We do not want a situation to arise whereby people have gaps in their payments. As I have said, NICs relate to eligibility for important benefits that people rely on. We need greater reassurance from the Government that they will have a full programme of education and information about the changes. It is also fair to say that we will need a relatively widespread publicity programme ahead of April 2015, as existing direct debits will need to be stopped. It would be helpful if the Exchequer Secretary could tell us what the Government have planned in relation to educating taxpayers who will be affected by the changes.

As the Financial Secretary said, the Bill also extends measures introduced in the Finance Act 2014 to cover NICs, particularly in relation to follower notices, accelerated payment notices and measures to tackle high-risk promoters of tax avoidance schemes. During the passage of the Finance Bill we had an extensive debate on the issues raised by the new provisions, which are the same as those contained in this Bill, and we will continue to press Ministers in Committee on the practical arrangements for the measures.

On follower notices, we welcomed the amendment made on Report of the Finance Bill, which brought in a right of appeal on three grounds where a follower notice has been issued. Outside of those three grounds, however, the only other option will be for taxpayers to seek a judicial review. What further reassurances can Ministers give that follower notices will be issued only in cases that are on all fours, as it were, with the precedent or lead case, so that occasions where a taxpayer may have to resort to a judicial review are kept to a minimum?

It is important that the internal systems operated by Her Majesty’s Revenue and Customs in deciding whether to issue a follower notice allow for the points of difference in a case to be considered, rather than the process amounting to a more straightforward box-ticking exercise to determine eligibility for a notice. Now that the Finance Act is law, I would be grateful if the Government could set out what further work has been done on the approach and methodology that will be adopted by HMRC staff and officials as they make important decisions about whether to apply a follower notice to a particular case.

As the Financial Secretary has noted, there has been considerable controversy and heated debate about whether accelerated payment notices amount to retrospection, as we discussed in Committee. Although we have put to him the concerns of stakeholders and constituents from all over the country, I agree with him that, from a legal perspective, they are not retrospective per se. The issue is more one of tax liability that has already been disputed and of where that liability sits. We have, therefore, supported the measures relating to accelerated payment notices. The Government have assured the House that decisions about whether to issue an APN will be made only by HMRC staff with sufficient seniority who are at a high grade. The Financial Secretary and I have had a number of discussions about HMRC staffing and resources, so he will not be surprised to hear that I will be taking up those issues again.

The Association of Revenue and Customs believes that HMRC faces a demographic time bomb, with more than half its work force aged over 45 and 18% over 55. That proportion is even higher at senior level, where about 30% of grade 6 employees are over 55. It is important to know how that will affect the implementation of APNs. We will need to be satisfied that there will be enough sufficiently experienced staff and that those who are due to retire are being replaced at the correct rate.

We have pressed Ministers on the resourcing of HMRC, and I note the Financial Secretary’s comments in our previous debates about the expansion of the counter-avoidance team at HMRC. Again, we will pick that up in greater detail in Committee. Now that the Finance Act is law, we must keep a close eye on implementation and resourcing. Especially given the high level of interest in such matters, the first decisions made about follower notices and accelerated payment notices must be robust and stand up to scrutiny if they are to inspire confidence within the population of taxpayers.

The Bill will introduce a new targeted anti-avoidance rule to cover the payment of national insurance contributions, which sits alongside the provisions in this year’s Finance Act aimed at tackling the issue of employment intermediaries who falsely label workers as self-employed to reduce their tax liabilities. The problem is widespread, and a Government review found that at least 100,000 individuals working in this country were employed through an intermediary company that had no presence, residence or place of business in the UK. In many cases, the employee was unaware that their payroll was located offshore and that tax was avoided on their earnings.

For workers falsely badged as self-employed, particularly those who do not know that that is the case, the impact is that they are not eligible for many of the benefits available for employed earners, such as holiday and sickness pay. This year’s Finance Act amended legislation directly to address the issue in relation to the payment of income tax. A worker will now be designated as an employee if they are under the supervision, direction or control of someone else, and in that case they must be paid through PAYE, rather than as self-employed people. That is a change from the previous designation, under which a worker was deemed to be an employee if they provided their services personally. It was found that many intermediaries could exploit the test by claiming that there was no obligation for the worker to provide their services personally, and to get around that, a clause was often inserted into a worker’s contract stating that they could send someone else to do their work, even though the employee in reality wanted that specific worker.

The role of the TAAR in this Bill is to ensure that the new measures cannot be circumvented, and that workers who would be employed earners if it were not for the intermediary arrangements are treated as employed earners. The TAAR will allow HMRC to consider both the motive for setting up such an arrangement, including whether it was set up with the motive of avoiding NICs, and what was achieved, including whether it resulted in less NICs being paid.

During debates on the Finance Bill, we supported the new measures and the corresponding TAAR for income tax, but we stressed the importance of considering the resource that HMRC would need both to implement the changes and to ensure that sufficient guidance was provided to those affected. The same applies to this Bill. In addition, we will continue to press, as we did on the Finance Bill, for further examination of the case for having deeming criteria to combat disguised employment in the construction industry, particularly where such practices are a significant problem, with self-employment levels at 40% compared with an average of 14% across all industries. However, the TAAR envisaged in this Bill takes us forward in dealing with the problem, and we will support it.

With those points, I hope that I have given Ministers sufficient notice of the debates that we will have as the Bill progresses, and I look forward to picking up those issues in greater detail in Committee.

Stamp Duty (Housing Market)

Shabana Mahmood Excerpts

Thursday 4th September 2014 Westminster Hall

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Betts. I congratulate the hon. Member for St Albans (Mrs Main) on securing this important debate. She was right that the matter of stamp duty has not been debated very much from a principled position; we have had a number of debates in proceedings on Finance Bills about technical changes that the Government have introduced to stamp duty, particularly on the annual tax on enveloped dwellings, but we have only rarely discussed the issue in the manner that we have today. Her securing of this debate has allowed some important issues to be raised.

The hon. Lady said that she hoped that we could move away from politics. I am not sure about that, as taxation and tax issues are perhaps politics in its purest form, but I accept her point about partisanship in our approach to this debate. People across the country, in constituencies of Conservative, Labour and Liberal Democrat Members alike, are all affected in various ways by stamp duty and the rising cost of housing. Her argument about the impact in London and the south-east on people on more modest incomes was particularly well made.

The hon. Member for Esher and Walton (Mr Raab) and other Members discussed the slab structure that is a particularly problematic feature of this tax. Many commentators have called for reform of that structure. He also raised our mansion tax policy, so I hope you will forgive me, Mr Betts, if I take a moment to clarify the details of our proposals.

I make no apology for our policy to levy a mansion tax on properties worth £2 million or more. Let me be clear: only properties worth over £2 million would be affected by our proposals and that limit would be raised each year, either in line with the overall rate of inflation or—and there is a strong case for this—in line with the rise in house prices, to make sure that more modest properties were not brought into the scope of the tax.

[Mr Raab]

I thank the hon. Lady for that clarification, although there are serious questions about the amount of revenue that a Labour Government would be able to raise. Will the indexation be linked to local house prices or overall house prices? Although the threshold for the tax would rise superficially, there would still be a real risk of the arbitrary geographical unevenness that hon. Members have talked about.

[Shabana Mahmood]

I am grateful to the hon. Gentleman for his intervention. I have received submissions from various experts on the matter and we are looking at it very closely. We are clear about our start position. We do not want more modest properties to be brought into the mansion tax regime, and we are looking carefully at the details of our ultimate policy to ensure that that does not happen. I have had conversations with people about the issue, but I cannot tell him today what we will ultimately be able to take forward.

[Mrs Main]

For clarification, before the hon. Lady moved on to her mansion tax, she mentioned the slab structure, which was introduced by a Labour Government. Do the Opposition have any plans in their manifesto to tackle the slab structure at the same time as introducing the mansion tax? I am sure that she has received representations on that.

[Shabana Mahmood]

I am grateful to the hon. Lady for her intervention. She is right. I have received representations about the slab structure, as, I am sure, has the Minister. It is one feature of stamp duty that causes particular consternation, as we have heard from all hon. Members who have spoken in the debate today. I cannot make a manifesto commitment today, but I will make it clear later in my speech that we are alive to the issues raised today and that we are looking at them carefully.

I was pleased that the right hon. Member for Wokingham (Mr Redwood) made a customary reference to the Laffer curve. I feel that these debates are not quite what they should be if there is not at least one reference to the Laffer curve. I was pleased that he was able to make that point.

I acknowledge the passionate views of hon. Members in this debate. There has been a vigorous campaign on the issue. I suspect that many hon. Members are less concerned about what I have to say about Labour policy and more concerned about what the Minister might do ahead of the autumn statement on 3 December. We saw a similar vigorous campaign ahead of the Budget earlier this year. In the lead up to that Budget, the expectation was that there might be a doubling of the threshold to £250,000 and the introduction of a stamp duty tax credit system, but the Government did not ultimately go down that path. I suspect we are seeing a similar build-up of lobbying for the Government to do something in the autumn statement.

[Mr Raab]

Does the hon. Lady agree with the comments by the deputy Labour leader that the middle classes should pay more tax, and is that something that will feed into Labour policies on the mansion tax and stamp duty?

[Shabana Mahmood]

I am grateful to the hon. Gentleman for his intervention. I think the point that the deputy leader was making was about progressive taxation and the argument that those who are wealthier should pay more. That is the thinking behind our mansion tax policy. His Government have presided over more people being brought into the 40p tax band, for example, and he could ask his Minister about that today.

Stamp duty is a matter of growing concern to the public and a significant burden on people wanting to buy a new home, particularly first-time buyers. I acknowledge the strength of feeling among hon. Members and throughout the country, but I am not in a position to make a spending commitment via this debate. Stamp duty brings in a large and growing amount of revenue, and any policy change in this area would have to be fully funded. Our start point as an incoming Labour Government in 2015 would be the current Government’s spending plans for 2015-16 and any change to that spending round would have to be fully funded. That has been the thinking behind the policies we have unveiled. They are all fully funded and primarily involve switching from one area of spend to another to deal with some of our child care priorities and other measures.

The difficult financial position that an incoming Labour Government in 2015 would inherit means that we would have to make some difficult choices. Given that, our focus has been wider reform of the housing market and how it might stimulate greater home ownership. In particular, the problem of housing supply has become acute in the past few years and is causing many problems, such as people having to rely on the bank of mum and dad and home ownership occurring much later in life. The hon. Member for St Albans made a point about that, and it is true.

We are seeing the biggest housing crisis in a generation and we are not building even half the homes we need to keep up with demand. The shortage of decent homes has much wider social and economic costs and we heard about some of those relating to inflexibility in the labour market, as well as the impact on people in overcrowded homes and the impact on children’s health and educational outcomes.

What can we do to build more homes? That must be the centre point of getting more sense and fairness into our housing market. We supported the Help to Buy scheme, but we would have preferred a scheme that focused more on first-time buyers. Our policy shows that the Government have simply not understood that boosting demand without boosting supply risks putting prices out of reach of the very families and young people we particularly want to help to get on the housing ladder. That is why we have committed ourselves to building 200,000 homes a year by 2020. That is probably not enough, and we should build many more than that, but it is an ambitious start point. We currently have a housing commission, led by Sir Michael Lyons, which is looking at a detailed road map, so that we may be able to deliver our vision.

[Mrs Main]

Does the hon. Lady share my concern about the Help to Buy scheme? It has proved to be a good scheme in the north by helping people, but has not worked in the south because people must save the stamp duty as well as being helped with the mortgage deposit. We cannot get past that with the current Help to Buy scheme. Stamp duty is the barrier, especially in the south, no matter how many houses are built.

[Shabana Mahmood]

I take on board the hon. Lady’s point. She is certainly right about the interplay between the Help to Buy policy and the burden that remains with stamp duty. As I have said, in constrained financial circumstances, difficult choices must be made and we have preferred at this stage to look at how we might do the one central thing that we know can reform the housing market and get more homes within the reach of more people: build more homes. That must be the start point, and that is the key issue with the Help to Buy scheme. It is not a bad policy and we should be helping people to buy homes, but we must boost supply, and we are failing to do that at the moment.

[Zac Goldsmith]

Every Government whom I have heard discussing this issue and every party in opposition have promised to build endless new homes, but how will the hon. Lady’s party, if it achieves government, deliver those new homes? What will make her future Government different from previous ones?

[Shabana Mahmood]

I am grateful to the hon. Gentleman for his intervention. We have made it clear that that is a central commitment of our party. We acknowledge that we simply did not build enough homes when we were in government. No Government for 20-odd years have built enough homes. We recognise that without boosting supply we will simply not have fairness and sense in our housing market. That is why we set up the Lyons commission. We want to ensure that we have a detailed road map. We will unveil it in our manifesto ahead of the general election and it will show exactly how we will realise our ambition in government.

[Mrs Main]

I fail to see how, in a high land value area, any Government can promise to build at expensive house prices. It is simply impossible without making the whole market collapse around it. Perhaps the hon. Lady will explain.

[Shabana Mahmood]

I disagree with the hon. Lady. I think that it is right to set targets and ambitions, and it is right that we look to such experts to help us to get to that position. We are looking partly at the expense of land and the housing market in different parts of the country. We will discuss those issues in greater detail as we get closer to producing our manifesto.

[Mr Raab]

I understand the shadow Minister’s caution, but she slated the coalition’s record even though if we compare the average number of affordable homes built each year, we see that it was some 31,000 under Labour and it jumped to 48,000 under the coalition. She slated that record, despite its being so much better than Labour’s, yet when asked a number of times what a Labour Government would do to spur the supply of housing, there is absolutely nothing that can be said within a year of an election. Does she understand that that totally undermines her criticism of the current Government’s supply-side record, but also any confidence that anyone could have that a Labour Government would make any difference in this area?

[Shabana Mahmood]

I make this point about the last Labour Government as well as the current Government. No Government have built anywhere near enough homes to ensure that supply keeps up with demand. That is why we are in this position with the housing market. I cannot pre-empt some of the proposals under discussion in the Lyons commission, but I am sure that we will return to the debate when we unveil what our road map towards the pledge of 200,000 homes a year looks like.

As I have said, given the very constrained financial circumstances and the difficult choices that have to be made, we have focused our energies on measures to increase supply. We did also put forward to the Government back in 2012—I am sure that the Minister remembers—a proposal for the Government to implement immediately. It was about using the sums raised by the sale of the 4G spectrum towards getting more homes built and towards a stamp duty holiday of two years for first-time buyers. That measure could have been taken forward by the Government. It might not have helped the constituency of the hon. Member for St Albans, but it would have helped first-time buyers looking at properties below the £250,000 threshold.

Changing the thresholds and providing holidays was something that we looked at and implemented towards the end of our term in office as we sought to stimulate the market post the financial crash. These are issues that we have considered, in the context of a stamp duty holiday for first-time buyers, in this Parliament. They are issues that we continue to receive representations on and continue to look at very closely. As I have said, I am not in a position to make any commitments today, but I suspect that the commitment that Government Members are looking for is from the Minister, who may or may not indulge them when he responds.

--- Later in debate ---

[Mr Gauke]

I recognise that that is not a third of transactions in Hertfordshire, which I suspect is the point that my hon. Friend is itching to make. In 2013, a further 42% paid the 1% rate, which meant that 75% of all residential property transactions resulted in the payment of less than £2,500. Even the proportion of residential transactions involving the 3% rate has remained broadly stable. In 2007, 18% of transactions were affected by the 3% rate; in 2013, the figure was 19%. I argue that SDLT is progressive, because those who purchase higher-value property pay a higher share of tax.

We must also consider who ultimately bears the burden of SDLT. The hon. Member for Birmingham, Ladywood referred to the Labour party’s policy announcement of an SDLT holiday for first-time buyers. We implemented such a policy for properties worth up to £250,000 from March 2010 until March 2012. HMRC analysis of the impact of that relief indicated that the majority of the saving was incorporated into higher property prices, which made the relief largely ineffective and poor value for money; what buyers did not pay in stamp duty, they paid in higher property prices.

My hon. Friend the Member for Nuneaton made the point that the situation can be complicated by the fact that it is easier to get a mortgage that covers the purchase price rather than one that covers the purchase price and the SDLT, but we must bear in mind that the impact of changes in SDLT can result in benefits to the seller, rather than to the buyer.

[Shabana Mahmood]

On a point of clarification, I should say that my point about a stamp duty holiday concerned a proposal that we made in 2012 about the sale of the 4G spectrum. I acknowledge that the Government proceeded with our proposal in March 2010 for a stamp duty holiday.

[Mr Gauke]

I am grateful for that clarification. If I maligned the hon. Lady, I will certainly withdraw those remarks.

Nearly everybody who contributed to the debate mentioned the fact that SDLT has a slab structure rather than a slice structure. I will make two points in response to that. If we wanted to raise the same level of revenue under a different structure, it would be necessary to increase the applicable rates. That would not mean that people would pay more, but it would mean that rates would increase. We would need to think about that.

My hon. Friend the Member for Nuneaton spoke from his experience of life before he entered the House about difficulties that arose in terms of reforms to stamp duty and their impact on the housing market. Before changing the slab system, which predates 2003—in fact, it goes back to the 17th century—we would have to think carefully about the potential impact on the housing market.

Oral Answers to Questions

Shabana Mahmood Excerpts

Tuesday 2nd September 2014 Commons Chamber

[Danny Alexander]

I am grateful to my hon. Friend for drawing attention to that study, which I have discussed with the FairFuelUK campaign, although I was slightly discomforted when it said it thought that the only two politicians it had met who understood the issue were myself and Nigel Farage—that was probably a surprise to both of us. The Treasury has published its own analysis on fuel duty reductions, which shows the economic benefits that they can bring.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

Given the importance of accurately calculating the tax yield from households and businesses, and that of ensuring that both pay their fair share of tax, will the Chief Secretary tell us when, following the letter from the head of the UK Statistics Authority, the Chancellor will correct the record and apologise for giving the House incorrect figures that inflated the success of his tax avoidance programme?

[Danny Alexander]

The hon. Lady should celebrate our tax avoidance programme because it ensures that people who avoided paying tax under the previous Labour Government now pay tax under this coalition Government. She should welcome the fact that the programme is bringing in £7 billion more than was the case under the previous Government, not criticise it.

Finance Bill

Shabana Mahmood Excerpts

Tuesday 1st July 2014 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

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

It is a pleasure to start the Report stage of the Finance Bill, Mr Speaker. We had many good and long debates in the Bill Committee, and I am sure we will continue that trend over the next couple of days.

The new clause, which stands in my name and those of my right hon. and hon. Friends, would require the Chancellor of the Exchequer to publish within three months of the passing of this legislation a report on the additional rate of income tax—the top rate, which was 50p until last year, when it was cut by this Government to 45p. The report we envisage would set out the impact on Exchequer receipts of an additional rate, set at 50p, in the first year of the next Parliament. The Chancellor would also be required to set out the impact of reducing the additional rate for last year, 2013-14, and the amount of income tax paid by all additional rate payers, those with incomes over £250,000 a year and those with incomes over £1 million a year. Finally, the report would set out the impact of the reduction in the additional rate in 2013-14 on the level of bonuses awarded in April 2013 to employees in the financial sector.

Since the coalition Budget of 2012, we have had a number of debates on the Floor of the House and in Public Bill Committee on the Government’s decision to cut the additional rate from 50p to 45p. Indeed, the Minister has referred to such debates being an annual event during the passage of the Finance Bill. Why is it so important that we continue to press the Government on this one decision, made in 2012, after they have refused to listen to all and any attempts to get them to change course? It is because if there is one decision taken by the Government that tells us all we need to know about their priorities and who they stand for, this is it.

The Government who said, “We’re all in it together,” and the Chancellor who promised that he would not balance the books on the backs of the poor, saw fit to give, at a time when ordinary working people were seeing their living standards fall and when the combined impact of tax and benefits changes has left households on average more than £974 a year worse off, an absolutely huge tax cut to the wealthiest in our country. For millionaires, this tax cut is worth an average of £100,000—a vast sum, far out of reach for the majority of working people. So although this may appear to be simply an annual event and part of the House’s debates on the Finance Bill, it is much more than that. This Government made a bad choice—the wrong choice—when they prioritised a tax cut for millionaires while ordinary working people continued to struggle as a result of their decisions, and we will not let them forget it.

[Mr John Redwood (Wokingham) (Con)]

How does the hon. Lady explain the fact that income inequality rose under Labour and has fallen under the coalition?

[Shabana Mahmood]

I am pleased that the right hon. Gentleman is here. I recall in the debate in Committee of the whole House that he argued for a further cut in the rate to 40p, citing in evidence the increase in revenues resulting from the cut, but as he should know—I am sure he does—that is a result of bonuses being deferred. I shall return to that point, but I think it tells us all we know about where the Government stand on fairness.

[Ian Murray (Edinburgh South) (Lab)]

My hon. Friend talks about the amount that may be raised, but rather than having a regular debate across this Chamber about the 50p tax cut and the massive tax cut for millionaires, perhaps the Government could just accept the new clause and bring all the facts before the House?

[Shabana Mahmood]

My hon. Friend makes an excellent point. We do indeed have a regular debate about the facts and figures—I will come to the detailed data on the yield from the 50p rate later—but if the Government accepted our new clause, much of that debate could be put to bed, especially as Her Majesty’s Revenue and Customs now has much more data with which to produce an analysis that is less flawed than the one in 2012.

[David Wright (Telford) (Lab)]

Our hon. Friend the Member for Edinburgh South (Ian Murray) makes a good point. When the Government abolished the 50p rate, they made great play of studies they said they had done on the revenue raised. Would it not be perfectly acceptable for them to accept the amendment, so that we could see exactly the impact of their unfair tax changes, because they are clearly showing their colours in terms of supporting the wealthiest in our country?

[Shabana Mahmood]

I am grateful to my hon. Friend for that powerful point. As I said, I will explore the details in relation to data and the argument over the yield from the 50p rate, but he is right: we cannot continue to rely on a report produced when the rate had been in place for only one year. The Government should accept the new clause and produce a much more comprehensive analysis.

It was the Labour Government who introduced the 50p rate, which came into effect in 2010-11, a decision made after the financial crisis, as we sought to get the deficit down. When this Government came to power they did not say anything in the coalition agreement about abolishing the 50p rate, but in 2011 the Chancellor said that he would ask HMRC to look at the yields from the 50p rate, which was the warning signal that he was looking to cut it. In 2012, with HMRC’s report “The Exchequer effect of the 50 per cent additional rate of income tax” to back him up, the Chancellor cut the rate to 45p.

Why go through the process of looking at yield and getting HMRC to produce a report? Everyone knew that there were not enough data to come to an accurate view about yield because the rate had not been in place for long enough—a point about which I shall say more later. Well, the Chancellor knew that he needed cover for that deeply ideological decision so he was desperate to claim that a 50p rate raised very little money. If he could stand before the House and say that it raised hardly any money at all, never mind the uncertainty and the incompleteness of the data, he calculated that he could justify giving a tax cut to the richest in our country, knowing that on his watch ordinary people—those on middle and lower incomes—would pay the price for his economic plan, which has failed on the terms that he set for himself when he came to power in 2010.

[Bill Esterson (Sefton Central) (Lab)]

There are 15,300 people in work in my constituency who earn less than the living wage. They have lost out, as have many others, by £1,600 a year since this Government came to power. To them, accepting the new clause would indicate that the Government recognise that tax changes should be to the benefit of everybody in our society, not just a few. Does my hon. Friend think the Government appreciate that, or can she think of another reason why they will not accept it?

[Shabana Mahmood]

I fear that on previous form the Government will not listen today and accept our new clause. Nothing that has been said in previous debates gives me any confidence that they understand the message that they have sent to my hon. Friend’s constituents, mine and those of Members across the House that a tax cut for the wealthiest is prioritised, while ordinary working people at the lower end of the income scale are worse off.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

Does my hon. Friend share my worry that people will think the Government have something to hide, as they are unwilling both to let us see what a 50p rate would raise and to audit party manifestos? Rather than “We’re all in it together,” does it not sound like they are all at it together?

[Shabana Mahmood]

My hon. Friend makes a powerful point. What do the Government have to hide? The data that we seek would not be difficult for HMRC to provide. It has already conducted one analysis and it is not unfeasible for it to conduct a further analysis, this time based on more comprehensive data, which would clear up some of the issues once and for all.

[Mr Iain McKenzie (Inverclyde) (Lab)]

Does my hon. Friend agree that by accepting the new clause, the Government would give weight to their often recited argument that the broadest shoulders should bear the greatest burden? The new clause would put the burden on the shoulders best able to bear it.

[Shabana Mahmood]

My hon. Friend makes a good contribution, which I agree with.

[Mr Redwood]

The Government have published all the figures and they show that after the tax cut the better-off are paying more, not less.

[Shabana Mahmood]

The right hon. Gentleman is wrong. The Government have published one set of figures from only one year’s data. Much more data are now available for a further, more comprehensive review to be carried out, and the Government should do so. If they have nothing to hide, and if they are confident that they have made the right decision, they should submit that to scrutiny.

Returning to data and yield from the 50p rate, we know from the Government’s own assessment that the cost of cutting the rate from 50p to 45p was more than £3 billion, excluding all behavioural changes. In Treasury terms, £3 billion is a big deal, so how could the tax cut be justified? Well, the Government say that most of that potential £3 billion revenue would effectively be lost as a result of tax avoidance, the so-called behavioural change effect. Having assessed revenue lost as a result of tax avoidance and other behavioural change, the Government go on to say that the cost to the Exchequer of cutting the rate to 45p is only £100 million. So, on the Government’s figures, an additional rate of tax set at 50p would raise only £100 million.

--- Later in debate ---

[Frank Dobson (Holborn and St Pancras) (Lab)]

Is it not the case that the very well paid people who got the benefit are a collection of tax swindlers swindling the rest of the taxpayers, and should not everybody in the House be attending to changing the law so that such tax swindling cannot happen in the future?

[Shabana Mahmood]

I am grateful to my right hon. Friend for his intervention. I was about to come to the topic of tax avoidance, which I hope will answer his question.

Another weakness in the Government’s argument is the proposition that behavioural change, or tax avoidance, means it is not worth while maintaining the rate at 50p. This must be the only example of tax avoidance resulting in a huge tax cut, rather than in Government crackdowns to tackle and fight tax avoidance, which they are normally so quick to say they are doing. The Chancellor is on record as saying that he considers tax avoidance to be “morally repugnant”, but in the case of the 50p rate he rewarded a particular form of avoidance with a tax cut. I wonder if that has ever happened for people on middle and lower incomes. I think not.

The message that this Government have sent out is that if people are sufficiently well off to pay for advisers who can tell them how to avoid paying the 50p rate, and are organised enough and can lobby the Government, they are up for a tax cut, but everyone else, sorry, is simply worse off.

[Bill Esterson]

Does my hon. Friend agree that the Government also send the message that a tax cut incentivises the wealthy to work harder, but that if everybody else is given benefits that does not work?

[Shabana Mahmood]

My hon. Friend is right.

The Government always tell us how proud they are of their record on tax avoidance, but how much effort did they put into thinking of ways in which they could protect revenue from the 50p rate? The Government have introduced the general anti-abuse rule, the so-called GAAR, which may have helped. They could have thought about a targeted anti-avoidance rule, a so-called TAAR. They could also have looked to HMRC to do more. I understand that no specific resources are allocated within HMRC to protect revenue from the 50p rate. A range of measures could have been taken to protect revenue. Before rushing to abolish the rate, the Government could and should have looked at protecting that revenue first. They were quick enough to publish an analysis saying that on their evidence it was not raising much money because of behavioural change, but their instinct was not to say, “Let’s look at how we might see off that behavioural change.” They did not commission a report or publish anything on that; they jumped straight to cutting it at the earliest opportunity: more evidence that this is an ideological and political choice made because they wanted to prioritise the tax cuts for the richest, while ordinary working people are worse off.

[Steve McCabe]

Far from trying to curb tax avoidance, is not the problem that the Govt constantly open up fresh opportunities, such as the shares for rights, which the Institute for Fiscal Studies has called another billion-pound lollipop on the table?

[Shabana Mahmood]

My hon. Friend is absolutely right. We will debate later the issues in relation to tax avoidance and shares for rights.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The hon. Lady accuses the Government of being ideological here. For the avoidance of doubt, were there to be yet another study that showed that the 50p rate failed to raise any substantial sums of money, would the Labour party still go ahead with an increase in the additional rate of income tax from 45p to 50p?

[Shabana Mahmood]

Let us see the report. The Minister has had many opportunities in Finance Bill debates where the Opposition have tabled amendments and new clauses calling for such a report. He has not produced one. I have no confidence that he will go away today and ask his officials at HMRC suddenly to produce a report. If he has such a report in mind, he should accept our new clause, and we can then have that debate. We have said that we will increase the rate to 50p. We believe that that can raise money and will be a good part of a much fairer deficit reduction policy.

The truth is that there was no justification for giving a huge tax cut to the richest in our country. We now know that bonuses are up by 83% for those in the financial sector, while ordinary working people are worse off now and will be worse off in 2015 compared with 2010. Wages will be 5.6% down at the end of this Parliament from what they were at the beginning.

The Government have not ruled out cutting the additional rate back down to 40p. We know that this is the ardent desire of many of their Back Benchers. Perhaps when the Minister replies he could tell the House whether the Government are planning any further cuts. They have ducked the opportunity on previous occasions to confirm that they will not go down from 45p to 40p. It will be good to hear from the Minister whether that is the case. The Government’s priorities are all wrong. Ordinary working people continue to struggle with their finances, and the link between the wealth of the nation and the money in people’s pockets and in their household budgets is broken. This Finance Bill does nothing to change the reality of the lives of millions in our country, yet Government Members want to cut taxes for the richest.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The Labour party now proposes a 50p rate for the additional rate. Is that a permanent measure or a temporary measure to deal with the deficit?

[Shabana Mahmood]

The hon. Gentleman has made that point in previous debates, and I repeat the answer that I gave then. We have said that we would increase the rate to 50p in the next Parliament as we get the deficit down. I could not be clearer than that.

It is the richest in our country who are benefiting the most from the recovery delivered by the Government. The return of economic growth has overwhelmingly benefited the top 1%, as shown by analysis of HMRC figures by the House of Commons Library, which covered the year when GDP growth returned and the top rate of income tax on earnings over £150,000 was reduced. The share of post-tax income of the top 1% of taxpayers—300,000 people—rose from 8.2% in 2012-13 to 9.8% in 2013-14. Yet during the same period, the bottom 90%— 27 million taxpayers—have seen their share of post-tax income fall.

This cut to the 50p rate cannot be justified when the deficit is high and will not be eliminated towards the end of the next Parliament. Labour in government will increase the rate back to 50p to help us to get the deficit down in a fairer way. Just as we have said that we want the Office for Budget Responsibility to have powers to audit manifestos ahead of the next general election, because we believe that that scrutiny will add to public understanding about the choices that are being made—a call the Government only last week rejected—so too we think that a report as envisaged by the new clause would help the public to understand the impact of the top rate of tax so that they can make up their own minds about who is standing up for them and other working people like them.

[Mr Redwood]

Let me deal first with an old canard from the Labour Benches that is simply untrue and unfair: the idea that Conservatives welcome tax cuts for the rich, but do not think that tax cuts are appropriate for anybody else. Government Members believe strongly that tax cuts work for everybody, and that is why the Government have given back a lot of tax revenue to people on low pay by taking them out of tax altogether. We have supported and welcomed that, and that is where the missing revenue that Labour worries about is concentrated.

--- Later in debate ---

[Mr Gauke]

The important point here is that the HMRC analysis explicitly dealt with that issue. Yes, there will be instances in which sums are shifted from one year to another, just as happened when the previous Government announced the introduction of the 50p rate. People brought forward income at that point. The analysis took those behavioural changes into account and excluded them, and still concluded that the 50p rate was ineffective in raising money. Given that HMRC has already carried out that analysis and reached that conclusion, which is consistent with the academic research in this area, and given that the IFS has said that no substantial sums were involved, would the Opposition be determined to go ahead with a 50p rate even though the evidence suggested that it would not raise money? That seems to be their ideological position. It would be illogical and unfair to reintroduce a tax rate that was ineffective at raising revenue from high earners, that made ordinary taxpayers pay more and that risked damaging growth.

[Shabana Mahmood]

The Minister will acknowledge that the IFS has said that this whole area would benefit from greater research. Now that HMRC has more data, that research would perhaps produce more accurate results. Will he take that point on board and support our new clause?

[Mr Gauke]

There is no evidence that HMRC’s original analysis was wrong. When the Opposition announced earlier this year that Labour would introduce a 50p rate, they claimed that a new £10 billion had emerged that had previously not been taken into account. That turned out not to be the case, however; they got that completely wrong. The data still point in the direction that HMRC’s conclusions are as I have suggested, and there is no reason to believe that the analysis was wrong. The fact is that the 50p rate is an ineffective way of raising money from the wealthiest.

--- Later in debate ---

[Shabana Mahmood]

We have had a good debate on our new clause. As I expected, the tone of the Minister’s remarks suggests that he will not take the opportunity to support it, despite accepting the fact that the Institute for Fiscal Studies has joined us in saying that more research, data and analysis are necessary if we are to get a complete answer on the issues of data and yield relating to a 50p top rate of tax. I note that he did not answer my earlier question about that. If he wants to say to the country that his Government have cut the 50p rate with justification, he should not have shown himself to be afraid of such data. The Government should have agreed to the new clause, as its proposals would have settled the matter once and for all. I ask again, what does the Minister have to be afraid of? We will be pressing the new clause to a vote.

[John McDonnell]

Let us get the figures clear. On the percentage of gross income that goes on taxes, for the bottom quintile it is 37.4% and for the top quintile it is 35%. The poorest pay more.

[Shabana Mahmood]

I am glad that my hon. Friend has put that point on the record—

--- Later in debate ---

[Shabana Mahmood]

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

We now come to the last of our debates on the Finance Bill today. New clause 12 would require a report by the Chancellor within six months of Royal Assent, setting out further proposals to reduce the tax advantages arising from tax arrangements that are abusive. It makes particular reference to the quoted eurobonds exemption, disguised employment in the construction sector, and the use of dormant companies as a means of tax avoidance. The new clause would require an assessment of the impact of all three on total receipts paid to the Exchequer.

[Charlie Elphicke (Dover) (Con)]

In relation to eurobonds, I read a report that the shadow Chancellor has suggested that there is £500 million at stake. Will the hon. Lady confirm her understanding of the costings?

[Shabana Mahmood]

I will turn at length to costings of the abuse of the quoted eurobonds exemption, but it is certainly true that many of the estimates of how much it might be costing the Exchequer have placed the figure at around £500 million.

Let me start with the context and explain the thinking behind our new clause. Public concern about tax avoidance is high, and this is a problem not only for the Government but for parties across the House. The setting of tax rates, decisions about tax reliefs, and the collection of tax are among the most important functions of government. If the system is not working as well as it could be, that needs to be addressed. Over the past couple of years, there have been a number of high-profile media stories focused on the tax arrangements of particular companies and individuals, as a result of which, it is fair to say, public trust in the tax system has been eroded.

The deficit, as we know, is high and will not now be cleared by 2015, as the Government promised when they came to office in 2010. It will not, in fact, be eliminated until well into the next Parliament.

[Sir Gerald Howarth (Aldershot) (Con)]

As the hon. Lady has mentioned the deficit, would she now like to apologise on behalf of the Labour party for the catastrophic destruction of the public finances in the last Parliament?

[Shabana Mahmood]

I think the hon. Gentleman and other Government Members should apologise for the fact that their Government have delivered a huge tax cut for millionaires while households are on average £974 a year worse off. That is a deplorable record and the Government should apologise for it.

We have already discussed at length today the fact that ordinary working people in our country are worse off as a result of this Government’s economic plan. As I have said, households are £974 a year worse off as a result of tax and benefit changes, and wages will be 5.6% lower in 2015 than they were in 2010. We also know that it is the richest 1% of the country who have benefited most from the recovery. With working people facing a cost of living crisis, it is vital that everyone pays their fair share and that we restore public trust. When ordinary people are struggling with their household budgets, which are stretched ever thinner, it is understandable that there will be increasing anger if they feel that others are successfully avoiding tax and the Government are failing to do enough about it.

The same goes for businesses, too. We know that small and medium-sized enterprises are struggling with business rates, for example, which have gone up since 2010. Many businesses are now paying more in rates than they do in rent. Businesses that do the right thing when it comes to tax are understandably frustrated and angry when they see others that do not play by the rules, and they are right to think that there should be a level playing field, so that those who do the right thing are not penalised because others get away with not paying their fair share. High-profile cases of tax avoidances have therefore undermined public trust in company taxation and hit businesses that play by the rules.

Our best measure of how well the system is working is the tax gap—which is effectively the amount of uncollected tax in the economy—which has risen under this Government by £1 billion to a total of £35 billion.

[Mr Gauke]

rose—

[Shabana Mahmood]

I know the Minister will say that it has gone down in percentage terms, but only by 0.1%. I assume that that was the intention behind the intervention he was about to make.

[Mr Gauke]

indicated assent.

[Shabana Mahmood]

Focusing on the actual figure is important. It concentrates the mind when assessing the scale of the task both for this Government and the successor Government in 2015. By anyone’s analysis, £35 billion is a huge sum, which, if collected, would make a very significant difference to the nation’s finances.

[Kelvin Hopkins (Luton North) (Lab)]

My hon. Friend is making an excellent speech and she is right that this is a large sum of money. It is equivalent to 9p on the standard rate of income tax.

[Shabana Mahmood]

My hon. Friend makes an excellent point. He is of course right that this is a huge sum of money and that people are rightly concerned that £35 billion-worth of tax is potentially going uncollected in our country.

[Ian Swales]

I am certainly no defender of the tax gap, and I am on record as having challenged the whole system of tax avoidance many times. However, does the hon. Lady know what the tax gap was in 2010 when the previous Government left office?

[Shabana Mahmood]

The truth is that any tax gap, however big or small, is unacceptable to the public, and strong action should always be taken to tackle it. I was about to say that I am grateful to the hon. Gentleman and that it was £32 billion. As I say, that is too high, and it has gone up to £35 billion under this Government. These large sums of money shake the public’s confidence when it comes to believing that the Government are doing everything they can to tackle tax avoidance.

[James Duddridge]

rose—

[Shabana Mahmood]

I will take further interventions later, but I want to make some progress.

What else has been happening on this Government’s watch? The Government have raised expectations in respect of some aspects of their tax avoidance policy, but they have not been met. In particular—we have put this point to the Minister on many occasions—the Swiss deal, which was supposed to bring in £3.12 billion, a sum that would have gone some way towards making a dent in the tax gap, has in fact brought in only £818 million. I know the Minister will say that the figures were okayed by the independent Office for Budget Responsibility when the costings were put in the Red Book, but that does not mean that the Minister can simply get away with it. At the end of the day, there is an unexplained and substantial difference between what was meant to happen as a result of that deal and what did in fact happen, raising questions about the substance of the deal.

Another feature of public debate as the issue of tax avoidance has shot up the public agenda relates to Her Majesty’s Revenue and Customs. If we are to close the tax gap, we need HMRC to be as effective as possible. Last year’s Public Accounts Committee report “Tax avoidance: tackling marketed avoidance schemes” found that HMRC did not know how much it spent on its anti-avoidance work and had not evaluated the effectiveness of its efforts. It calls for HMRC to improve its recording and monitoring of the cost of its anti-avoidance work and to set out clearly how it will evaluate its anti-avoidance strategy. This is a substantial gap in knowledge; again, it has a direct impact on the Government’s ability to tackle tax avoidance effectively and thereby close the tax gap.

[Charlie Elphicke]

It is worth noting that last year tax inspectors collected a record £23.9 billion, about £4 billion of which was from criminals and tax avoiders, so HMRC has been quite effective in collecting that record amount.

[Shabana Mahmood]

I am grateful to the hon. Gentleman for his intervention, but as I just said, the tax gap has widened: despite those efforts, it has gone up by £1 billion or more.

The Public Accounts Committee also raised concerns about the monitoring of tax relief at HMRC and the Treasury. In 2013, there were 1,128 tax reliefs in the UK taxation system—a number that continues to grow. Tax reliefs can range from fundamental components of the tax system, such as the level of the personal allowance, to tax expenditures with more specific objectives to change behaviour, such as film tax relief. They play an important role in the tax system, but can be abused. Indeed, even in this Finance Bill the Government have had to take steps to close down the abuse of tax reliefs. It is therefore very worrying that the Public Accounts Committee has concluded:

“There is a lack of transparency and accountability for tax reliefs and no adequate system of control, following their introduction. HMRC and HM Treasury share responsibility for tax reliefs, but there is no accounting officer with responsibility for the stewardship of tax reliefs, as there would be for”

other elements of

“public spending. In 2010, HM Treasury committed to developing a framework for the introduction of new reliefs”.

However, no measures have been implemented so far.

In December 2013—this is relevant to what the hon. Member for Dover (Charlie Elphicke) said a moment ago—there were just four full-time officers in the fugitive unit, trying to catch 124 HMRC fugitives. The Government launched a “most wanted” campaign in August 2012, but earlier this year it was found that just four fugitives had been caught since the publication of the list. Moreover, it was admitted that of the 32 “most wanted”, 11 could not be located. If the Government are to support their claim that they are succeeding in the fight against tax avoidance and evasion, they must be able to demonstrate that they will catch those who break and abuse the rules, and will prosecute them to the full extent of the law.

[Kelvin Hopkins]

Does not what my hon. Friend is saying suggest that there is a cosy relationship between the Conservative party and the very rich? The Conservatives do not want to chase those people, because they do not want to upset their friends.

[Shabana Mahmood]

My hon. Friend has made his point powerfully, and in his characteristic way.

As we can see, despite the Government’s claims, their record of tackling tax avoidance is simply not good enough in a number of areas. They will say that the avoidance measures in this Bill are radical and bold, and are evidence of a commitment to tackling avoidance. We have supported the measures relating to follower notices, accelerated payment notices and the need to tackle promoters of tax avoidance schemes, although we have questioned the Minister about some of the deeply felt concerns of those who will be affected by the follower notices regime and by accelerated payment notices, which have caused a great deal of debate outside the House. However, although those measures have received the Opposition’s support, the fact is that they are not revenue raisers. They will simply bring in money that the Government were expecting to collect, but which had been clogging up the various back channels and alleyways of the legal system.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The hon. Lady has mentioned a number of measures, and has made some good points. Should not the Government be pursuing large multinationals such as Microsoft and Google, which are not paying a penny in corporation tax?

[Shabana Mahmood]

I think the Government should adopt an across-the-board strategy. I think they should deal with companies of all sizes, as well as individuals who engage in the various types of tax avoidance and evasion. I have mentioned a number of areas where there is concern about the Government’s action to date, and about their record of being able to narrow the tax gap.

The Government’s other flagship policy, introduced last year, is the general anti-abuse rule. Of course, it will take some time for the GAAR to settle in, as it is a new measure, and it is not yet clear how it will operate in practice, because it has not yet been the subject of a court case. It is, however, striking that no penalties regime associated with abuse falls within its remit. One would have thought that such a regime was a deterrent, and that the Government would want to make it clear that the type of abuse caught by the GAAR—abuse of the most egregious nature—would not be tolerated. However, it seems that an individual who fell foul of the GAAR, having engaged in the most egregious form of tax abuse, would incur no penalty but would merely be required to pay the amount that had been disputed. That strikes me as an interesting omission from the GAAR and the Government’s arsenal of measures to tackle tax avoidance.

[Nigel Mills (Amber Valley) (Con)]

I think we went through this in the Finance Bill Committee last year. It would be somewhat iniquitous to have a higher penalty for a scheme that complied with the letter of the law but was subsequently ruled out of order by the GAAR than for one that was blatantly outside the law in the first place. I think we should stick to the standard penalties that apply for under-declaring tax on a tax return.

[Shabana Mahmood]

That may be the hon. Gentleman’s view, but I am simply pointing out that in order to fall foul of the GAAR someone has to have engaged in the most egregious form of abuse. It seems odd to me that falling foul of the GAAR will not therefore attract any additional penalty on top of the tax that is in dispute.

[Charlie Elphicke]

Will the hon. Lady give way?

[Shabana Mahmood]

No, I am going to make some more progress.

Tax avoidance and how to tackle it effectively and thereby close the tax gap remains a real problem for this Government, hence our new clause. We need more action from this Government, and where they fail the next Labour Government will step in. We are pushing the Government for greater action in three specific areas. Let me take each in turn.

[Ian Swales]

The hon. Lady talks about the next Labour Government. Does she wish to apologise for the slashing of the number of compliance and investigation staff by the previous Labour Government, to the point where this Government have had to add large numbers of people to carry out the work she so much wants?

[Shabana Mahmood]

Given the cuts at HMRC, this Government’s record on HMRC resources, which is a topic I regularly debate with the Minister, is not one for Members on the Government Benches to show off about.

First, let me take the issue of the quoted eurobonds exemption. That was originally implemented to make it easier for companies to obtain finance from the international bond markets by excluding corporate debt listed on recognised stock exchanges from UK withholding tax. Making it easier for companies to obtain finance on the international bond markets is a legitimate objective that we support. However, as covered in a spate of high-profile media stories last year, the exemption can also be used for tax avoidance purposes, allowing companies to shift profits out of the UK in the form of interest payments, without making any tax payment. As HMRC has noted:

“In recent years a number of groups have issued Eurobonds between companies in the same group, and listed them on stock exchanges in territories such as the Channel Islands and Cayman Islands, where they are not actually traded. In effect, the conversion of existing inter-company debt into quoted Eurobonds enables a company to make gross payments of interest out of the UK to a fellow group company, where otherwise deduction of tax would be required.”

The Government consulted on the issue in 2012, with HMRC proposing to amend the eurobond exemption so it would not apply where the eurobond is issued to a fellow group company and listed on a stock exchange on which there is no substantial or regular trading in the eurobond. HMRC stated:

“The effect of the amended rule would be to leave untouched the quoted Eurobond exemption for the overwhelming majority of Eurobond issues. It would deny the exemption only in the case of intra-group Eurobond issues that appear to be undertaken for the purpose of circumventing the requirement to deduct tax at source rather than being directed at the raising of third party finance.”

Despite HMRC estimating that the proposed restriction could have an extra impact of £200 million a year, in their response, the Government stated that they did not intend to proceed with it. Why not? Well, the Government said they made that decision in the “light of the responses” they received around a number of technical issues and after respondents questioned the positive Exchequer effect set out in the impact assessment.

That is simply not good enough. We say that abuse of the exemption can be shut down and must be shut down. Our proposals will explore removing the exemption where bonds are issued to connected persons, such as where a subsidiary issues a bond to a corporate parent or its private equity fund owners. To minimise disruption to private equity funds using the mechanism to simplify investor rebate claims under double taxation treaties, we would explore either offering an exemption for private equity partnerships where all, or the vast majority of, the ultimate beneficiaries would qualify for double taxation relief, or streamlining the withholding tax rebate process in consultation with the industry. So there is a mechanism to shut down the abuse of the exemption. It could and should have been taken up by the Government.

The estimates of the Exchequer impact of closing the loophole range from £1 billion to the Government’s estimate of about £200 million, with many more commentators saying that they would place it at about £500 million. In a letter to me dated 4 March 2014, the Minister said:

“Some newspapers quoted a figure of £500m for the tax at risk. This appears to be based on the unrealistic assumption that the interest paid out of the UK had not been restricted for tax purposes and that the beneficial recipient would not be entitled to gross payment. You will appreciate that I cannot discuss individual cases, but HMRC has confirmed to me that computational adjustments are frequently made. Consequently, the £500m sum is very wide of the mark. Any change here will not raise any significant yield.”

I was interested in that response, for which I was grateful and which I received after I had tabled a number of questions about the quoted eurobond exemption, because it displayed a concerning lack of clarity. The Minister says that the numbers quoted are “wide of the mark” but he does not say where the mark actually is. That is surprising, given that HRMC and the Minister have examined this in detail and have consulted on it, and given that they tell us that “computational adjustments” are regularly made for it. Despite that, still no figure has been given.

[Mr Gauke]

In my letter, I also offered the hon. Lady a meeting, attended by officials, to discuss the matter and explain some of these points to her further. I will try not to be personally slighted, but she has not responded to that offer. Why has she not done so? Is it because of the fear that when confronted with some of the challenges in this area she might find that this is all slightly more complicated than she has been led to believe by one or two newspaper articles?

[Shabana Mahmood]

I am grateful to the Minister for his intervention and I hope he does not take it as a personal slight that I did not, on that occasion, take him up on the offer of a meeting. I will try not to be patronised by the suggestion that these matters are far too complicated for me to understand and that I am getting my information only from newspaper articles.

[Mr Gauke]

It is quite the opposite: I have absolute confidence that the hon. Lady would have the capacity to understand that this matter is somewhat difficult, but it is often advantageous to speak to the officials who deal with it on a day-to-day basis in order to have a better understanding of it. It would be of benefit to her, and to the House as a whole, to ensure that this debate could take place on the basis of as good an understanding of the matter as possible. By the way, the invitation still stands.

[Shabana Mahmood]

I may yet take the Minister up on it. But it would be a mistake for him to think that our proposal has been made without consulting experts who are very much engaged on the issue of eurobonds. I am confident that the information we have put out as a result of our business taxation paper, launched yesterday, is accurate and that we have considered the different legal and other ramifications of limiting the abuse of the exemption as it currently stands.

[Charlie Elphicke]

Will the hon. Lady give way?

[Shabana Mahmood]

I am going to make a bit more progress.

Let us say for the sake of argument that the figure is close to the £200 million or so set out in the original HMRC consultation. I was surprised that the Minister did not think that sum would merit action. The tone of his comments to me suggested that he considered that to be a small sum and so it was not worth going ahead with the attempt to close down the abuse of the exemption. I am afraid that, as an argument, that is not something that I am prepared to buy. Why? Well, in this year’s Finance Bill Committee, we have debated and supported a measure in clause 61 on business premises renovation allowances.

[Mr Gauke]

I would hate it if the hon. Lady inadvertently gave the impression that it was my view that the £200 million was not something that we would seek to address; we certainly would. In my letter to her of 4 March, I said:

“In the small number of cases in which a restriction might be considered appropriate, it was also clear from the consultation responses that the proposal would not be effective in addressing the concerns.”

In other words, the proposal that was consulted on would not have got the £200 million. That is why we did not proceed with it. I want to make that clear, and I am sure that she would not want to give a misleading impression.

--- Later in debate ---

[Shabana Mahmood]

I am grateful to the Minister for that intervention. I was talking about the overall yield. On the difference between the Government and the Opposition in relation to the technical way in which to seek to close down the exemption, the Government consultation looked at situations in which the bonds are not being actively traded. We agreed that that was not an appropriate way in which to close the exemption but, as I have said, we would explore removing the exemption where the bonds are issued to connected persons and, in doing so, we would look at mechanisms to simplify rebate claims under the double taxation treaties and consider, in consultation with industry, streamlining the withholding tax rebate process.

[Charlie Elphicke]

On these particular provisions, the hon. Lady said that she consulted experts. Will she confirm which particular experts she consulted?

[Shabana Mahmood]

I would be happy to have a long conversation with the hon. Gentleman about all the different experts, but let me just say that our experts were drawn from across the business and legal worlds. They gave advice and assisted us in thinking through many of the issues related to the abuse of the quoted eurobonds exemption. I will not take this opportunity to put that advice on the record, because I have not sought the permission of those experts to make public some of the assistance and advice that they have given to us. However, our paper is thorough on the issue of how we would seek to close down abuse of the exemption. That tells the House that we have considered these issues deeply, and have thought through all of the problems that might arise from the different attempts to close down the exemption.

I was talking about yield, and how far a potential yield should dictate the Government’s policy in deciding whether to close down an abuse of the system. I referred to the business premises renovation allowance in clause 61. The Government have taken action to close down some of the abuse associated with that allowance, but the impact on the Exchequer was, we were told, negligible. So we see the Government proactively closing down a loophole in which the Exchequer impact is expected to be minimal, but where a loophole exists that is estimated to cost the Exchequer upwards of £200 million a year, they do nothing. How can they justify their decision not to take action to prevent the abusive use of the eurobonds exemption when there are hundreds of millions of pounds at stake?

The potential complexity of the change that would be required is no justification for the failure to act. It has not stopped this Government on other measures, including on the business premises renovation allowance. There seems to be no reason—not money, complexity or anything else—that could stop the Government from acting other than intense lobbying from the affected parties seeking to protect their own interests.

The Government have failed to act, but our new clause gives them the opportunity to do so. If they do not act, the next Labour Government will.

[Ian Swales]

rose—

[Shabana Mahmood]

I want to make some more progress.

Secondly, we want to push the Government to take action on disguised employment in the construction industry. Employers falsely declaring their workers to be self-employed is a long-standing and well-documented issue in the sector. Although there is of course some necessary and genuine self-employment in the sector, employers are currently able to declare someone to be self-employed when they exhibit all of the characteristics of an employee.

That results in three problems. The first is a cost to the Exchequer. The Treasury has estimated that that entailed a static cost of £350 million in 2009 and the House of Commons Library recently produced an estimate of about £500 million. The second problem is that those falsely classified as self-employed are denied their employment rights. That means that workers might work for the same company for several years, effectively as an employee, while not receiving any of the resulting employment rights, such as sick pay, holiday pay and maternity and paternity leave.

[Mike Kane]

A recent report by Felix Behling and Mark Harvey, “The Evasion Economy,” estimates that in the construction industry alone, 400,000 people are bogusly self-employed.

[Shabana Mahmood]

My hon. Friend is absolutely right about the findings of that report and we know that this is a real problem, particularly for people in the construction industry.

[Kelvin Hopkins]

My hon. Friend is making a very fine speech and I agree with what she is saying. In 1970, I serviced on the TUC construction committee, and a major item on the agenda at the time was bogus self-employment and the loss to the taxpayer. Another point is important, too. They do not pay their national insurance, so they will suffer when their pensions come to be paid.

[Shabana Mahmood]

I am grateful to my hon. Friend, who is right that this is a long-standing problem for Governments of all colours and persuasions who have for too long been unable to deal with these very serious issues which result in people not being entitled to sick pay, holiday pay, maternity and paternity leave and other employee rights.

The third problem associated with disguised self-employment is that the unhealthy level of self-employment in the construction industry—40% compared with an average of 14% across all other industries—does not offer a sustainable skill supply for emerging growth opportunities or a change in the economic weather. Employers who want to invest in their staff and employ directly are losing out to companies that use payroll companies which, because they are paying less tax, can sometimes offer slightly higher pay to poach skilled staff.

In July 2009, we published proposals to tackle the problems of false self-employment in the construction industry, but it was not until last year’s Budget that the Government took an interest in the problem when they announced that they would consult on proposals to tackle tax avoidance by intermediaries based offshore who provided labour services to UK companies. We are still waiting for the Government’s response to their consultation on onshore intermediaries, which closed, I think, in March.

Last year, the shadow Secretary of State for Work and Pensions, my hon. Friend the Member for Leeds West (Rachel Reeves), reviewed the issue and, based on an investigation of the available evidence and widespread consultation with the industry, we have proposed that workers should automatically be deemed to be treated as employees for tax purposes if they meet criteria that most people would regard as obvious signs that they were employees rather than self-employed subcontractors. It is important to note that the measure would not only close a costly tax loophole but remove a perverse financial incentive for those workers whom most would regard as being in an employment relationship to be classified as self-employed. Such a shift would be good for the construction sector and its work force, too. We want the Government to take further action today to consider the issue and prepare the report envisaged in our new clause.

The third area in which we seek greater action is that of dormant companies. It has been estimated that 30% of all UK companies are not asked to submit tax returns. One explanation that has been given is that those companies are either dormant or are not liable to pay tax in the UK as they trade exclusively overseas. Once companies have declared themselves dormant, they are exempted from filing a corporation tax return for five years. For some companies, that window could be used as an opportunity to trade with tax impunity and yesterday we set out our proposals whereby we will require annual confirmation of dormancy and will further explore the possibility of banks’ automatically informing HMRC when there is activity in supposedly dormant accounts. That would deal with an issue of tax evasion, rather than tax avoidance, but it is important that the tax lost as a result of weaknesses in the rules of dormancy is firmly on the Government’s radar and it has not been to date.

As I have set out, tackling tax avoidance and closing the tax gap effectively remains a top priority for the public. This Government’s record is not good enough. Our new clause pushes for greater action on three important issues and practical measures that can help to close the tax gap. We hope that it will have the support of the House this evening.

[Sir Gerald Howarth]

I am pleased to take part in this debate—it is the first time I have participated in a Finance Bill debate for quite a long time. I rise to take issue with the hon. Member for Birmingham, Ladywood (Shabana Mahmood), who made a long and interesting speech, about her definition of tax abuse. Indeed, there was no definition of what is considered to be abusive tax arrangements. I think that we have all become lax in our use of language in a matter which is of huge concern to our fellow citizens, for the powers of the Inland Revenue—HMRC—to take money earned by our fellow citizens is an important power and one that should be used very carefully indeed. This House has a responsibility to ensure that these matters are properly debated.

I have to tell my hon. Friends that I am increasingly alarmed by the Government’s rhetoric on what they refer to as “aggressive tax avoidance”. I was brought up to understand that tax avoidance is not only legitimate but, indeed, the duty of the head of every household. It is not their duty to maximise their tax; it is their duty to minimise it. It is our money, which is taken from us by the Government.

--- Later in debate ---

[Mr Gauke]

We have had a lively debate, and I will try to address as many of the points raised as possible in the time available.

New clause 12 seeks to have the Government produce a report on how to reduce the tax advantages arising from tax arrangements that are abusive. I agree that tax avoidance is a key issue, and the Government have made it abundantly clear that we will not stand for a minority of taxpayers continuing to seek unacceptable ways to reduce the amount of tax they pay through contrived and artificial means. That increases the tax burden on the rest of society and creates an unfair playing field for businesses.

Let me explain why I do not think that a report would be beneficial. The Government have taken strong and robust action to tackle avoidance. Since 2010 we have introduced 42 changes to tax law to close avoidance loopholes and make strategic changes to prevent and deter tax avoidance. Those measures include the introduction of a general anti-abuse rule, strengthening the disclosure of tax avoidance schemes regime, clamping down on stamp duty land tax avoidance with a new range of measures —including an annual tax on envelope dwellings—and numerous changes to business tax rules and reliefs to tackle bad behaviour, including misuse of the partnership structure and corporate loss buying.

We are going further. In the Finance Bill we are introducing new measures to put in place tougher monitoring regimes and penalties for high-risk promoters of tax avoidance schemes, and we are introducing accelerated payments and follower notice measures that will give HMRC the power to collect disputed tax bills up front, putting those who try to avoid tax on the same footing as the vast majority who pay all their tax up front.

Let me address the concerns raised by my hon. Friend the Member for Aldershot (Sir Gerald Howarth) and the hon. Member for Linlithgow and East Falkirk (Michael Connarty). The vast majority of people pay their tax up front, but it is possible for people working through self-assessment to make use of a tax avoidance scheme and hold on to the money during the—often lengthy—period where there is a dispute. The law is the law, however, and it is the law that existed when the arrangements were made that continues to apply. We are making a change, however, to say that while there is a dispute, the money should be held by the Exchequer and not the taxpayer, just as happens in many other circumstances where there is a dispute in our tax system. This is money that the individual would have already paid if they had not entered into an avoidance scheme. When completing their self-assessment return, they would have notified HMRC that they were taking part in a tax avoidance scheme under the disclosure of tax avoidance schemes regime, and as I said, the taxpayer can continue to dispute the case and will be paid interest should they win. The rights of the individual are therefore not being restricted. Prudent taxpayers should recognise that tax avoidance carries a significant risk of not working and the tax becoming payable, and they should make plans for such an outcome.

In addition to changes in law, we have invested £1 billion in increasing HMRC’s compliance resource, which has reaped huge benefits. HMRC is ever more successful at tackling the avoidance it sees, and it has an excellent record in litigating the avoidance schemes that taxpayers choose to take to tribunal. It wins about 80% of cases, and persuades many more taxpayers to settle before the case gets that far. Between April 2010 and March 2014, it won 94 avoidances cases in tribunals and courts, and in 2013-14 alone, its 30 wins protected £2.7 billion of tax.

The Government will continue to close loopholes in tax law and introduce strategic responses to tax avoidance across the tax system. We will act robustly to respond to abuses that we see. We consult on those measures where we can, although hon. Members will understand that in certain circumstances we must act quickly to close down abuse, so consultation is not possible. A report will add nothing to the progress that we have made and continue to make. Action is more important. We have proved we are taking action to tackle tax avoidance across the board, and we will continue to do so.

In the time available I do not think I can do justice to the fairly lengthy speech on eurobonds by the hon. Member for Birmingham, Ladywood (Shabana Mahmood), but the £500 million figure that she quoted, which is somehow supposed to be at risk, seems to be based on an article in a newspaper. It is not a figure we recognise. It wrongly assumes that the recipient of the interest would not be entitled to gross payment of interest and fails to take into account the fact that under the UK’s double tax treaties the tax would often be repaid anyway.

I extend again the offer that I made in March to the hon. Lady. I have been a shadow Treasury Minister and I recognise the challenges in developing policy in these areas without access to officials. I would be more than happy to meet her, with officials, to talk through some of the practical points of this issue. I think she will find that that £500 million is something of an illusion. In terms of the practical points that she raised about changing the withholding tax system, I ask her to bear in mind the double taxation treaties. Her proposals might not be as easy as she believes.

The alleged abuse of disguised employment in the construction sector is an important point. Some labour providers have created structures specifically designed to avoid tax and national insurance and gain a commercial advantage over those who play by the rules. The Government aim to put a stop to those practices in the construction sector and elsewhere through the new measures introduced in this Bill to tackle false self-employment intermediaries. They will provide a level playing field for compliant labour providers who help to facilitate the UK’s flexible labour market.

The new measures that we are introducing target structures set up to present workers as self-employed when they are really employees. This has been a growing problem in recent years and has spread from the construction industry to other sectors. That is not acceptable. Workers lose out on their rights, it creates competitive disadvantages for compliant businesses, and ultimately the taxpayer foots the bill. That is why we are acting now to stop the abuse. Intermediaries are the biggest mechanism for delivering false self-employment within the construction industry, and as I have said, the practice is spreading. Tackling employment intermediaries used to facilitate false self-employment will not only more effectively target a sizeable section of the false self-employment in construction—a point raised by the hon. Member for Wythenshawe and Sale East (Mike Kane)—but will stop the spread of the problem to the wider economy.

We believe our proposals are the best way to tackle avoidance in that area. The previous Government consulted on proposals to tackle false self-employment in construction in 2009, which deemed all construction workers to be employed unless they fulfilled one of three criteria. In practice, that would have meant that bricklayers would need to provide their own bricks and roofers would have had to supply their own tiles to be categorised as self-employed. As set out in the consultation response document, analysis suggested that the proposals could undermine legitimate commercial practice and run the risk of capturing genuinely self-employed individuals.

A dormant company is one that is not within the charge to corporation tax at all, whereas the new clause appears to relate to companies that are within the charge but fail to file returns. That is not avoidance but evasion. HMRC uses risk-based procedures and extensive data-matching analysis to identify companies that should have filed returns but have not done so. All such companies are risk-assessed to establish whether they come within the charge to tax. Research suggests that the risk of tax loss is small. HMRC’s activity is carefully targeted, ensuring administrative burdens for compliant customers are minimised while focusing on the non-compliant.

I draw the House’s attention once more to the Government’s strong response to the threat of tax avoidance, including our unprecedented action to close loopholes and provide new tools for HMRC to tackle avoidance. The report proposed by the Opposition is unnecessary and would distract HMRC from delivering on its important work tackling avoidance. I call on the hon. Lady to withdraw the new clause.

[Shabana Mahmood]

I am disappointed that the Minister will not engage with the practical measures envisaged in the new clause. We have had an interesting debate, but I wish to press the new clause to a Division.

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

Oral Answers to Questions

Shabana Mahmood Excerpts

Tuesday 24th June 2014 Commons Chamber

[Mr Gauke]

As the Chancellor made clear a moment ago, it is right that we address these issues, and that we do so at an international level. The Organisation for Economic Co-operation and Development’s important work on base erosion and profit shifting is a consequence of the leadership shown by the Prime Minister and the Chancellor, and we hope that we will see the fruits of that progress beginning this autumn.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

With the amount of uncollected tax rising, the Swiss deal raising less than a third of what the Chancellor predicted and Ministers refusing to close the eurobonds loophole, is not the truth that the Government are totally failing to tackle tax avoidance and to close the tax gap?

[Mr Gauke]

No, it is not the truth. The truth is that there are record levels of compliance yield, as I mentioned: £23.9 billion as a consequence of HMRC’s activity. The UK is leading the way in international reform. There has never been a Government so committed to, nor a revenue authority so successful in, closing loopholes, getting the tax in and making sure that people pay what is required under the law.

[Shabana Mahmood]

While the Minister fails to tackle tax avoidance, overseas buyers are snapping up property in London but not making a proper tax contribution in this country. Is it not time that the Government introduced a fair tax on properties worth more than £2 million, and used the money to cut taxes for 24 million working people, with a lower 10p starting rate of income tax?

[Mr Gauke]

If the hon. Lady wants to cut taxes for 24 million people, she might want to consider increasing a personal allowance to £10,500, which is exactly what the Government have done, rather than doubling the 10p rate of income tax as the previous Government did. As for taxes on property, it was this Government who introduced the annual tax on envelope dwellings, ensuring that there is a contribution to the Revenue from owners and occupiers of properties held in a corporate envelope. Again, I really do not think that on this issue the Labour party has a leg to stand on.