Diverted Profits Tax

Debate between Shabana Mahmood and David Mowat

Wednesday 7th January 2015 Westminster Hall

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

It is a pleasure to serve under your chairmanship, Mr Turner. I congratulate the hon. Member for Amber Valley (Nigel Mills) on securing the debate, and on his speech. He raised many points on which I, too, want to press the Minister. He was right to say that the issue has not received a huge amount of attention, and that there will not be a great deal of parliamentary time for detailed scrutiny of the Government’s proposals, given where we are in the parliamentary cycle.

The announcement of the proposals was of course rather trumped by the changes in stamp duty, which led the media coverage and debate. However, there has been a lot of coverage in the specialist taxation media, and that has helped to bring out some of the issues raised by the proposed diverted profits tax. I am grateful for this opportunity to press the Government further on their proposals. I will seek answers about technical detail— bearing in mind that there is currently a technical consultation, which will report on 4 February—as well as about practical elements and the Government’s emerging thinking about the impact on the OECD BEPS process. All three hon. Members who spoke mentioned that.

Our general approach is not dissimilar to the Government’s, and we recognise that there is a significant issue. All those who have spoken have referred to the public examples of large companies, with significant businesses that are doing very well, effectively gaming international tax rules to minimise their tax liabilities in this country. That significantly undermines public trust and confidence in the taxation system, particularly at a time of economic difficulty and stress. It is a real issue, and it is legitimate for all political parties to look for practical answers to alleviate such concerns.

As a general principle, economic activity should be taxed where it takes place. The question for all politicians to grapple with is finding an effective way to get to that point. For the Opposition—and for the Government, going by what they have said throughout this Parliament—the starting point is to try to work with international partners, notwithstanding the concerns raised by the hon. Member for Amber Valley about whether the US and other jurisdictions would be willing to play ball on co-ordinated international action to deal with gaming of the international tax rules. It is the right place to start, and that is why we have supported the OECD’s BEPS process. It is the right forum for seeking an international agreement on tax rules.

The Government have of course been much closer than the Opposition to that process, and we rely on publicly available information about its progress, and expert commentary from, and conversations with, some of the participants. From what the Government were saying up to the time of the autumn statement, we anticipated that their preferred way of proceeding on all the issues that form BEPS action points would be to await the final reporting in September before thinking how to go further. They have of course moved a little more quickly with the diverted profits tax, and I, like other hon. Members, would like to hear more about how that affects our role in the BEPS process.

We agree that a solution is needed and are keen for the issue to be dealt with, so we broadly welcome the Government’s proposed action. We will approach the diverted profits tax proposal in the Finance Bill in a supportive and constructive spirit, because we want a workable solution to reach the statute book; but I want to press the Minister further, particularly about the BEPS process. It would be helpful if she could tell us how those in the process have reacted to the DPT proposals, and why the Government felt it necessary to take unilateral action at this point, notwithstanding what many commentators have said about the looming general election. Was there a feeling that BEPS would not produce much of a result in relation to the relevant element of the international tax rules? Does the decision mean that BEPS will effectively be a failure? Is that the kind of world that we are looking at?

Some commentators have, as I am sure the Minister is aware, expressed cynicism about the motive for a unilateral move by the UK, and some have even suggested that it will torpedo the whole BEPS process, so that we get nowhere. I am interested to understand the conversations that the Government have had with people in the OECD and in the tax specialist community about where BEPS now stands.

[David Mowat]

I have been listening carefully to the hon. Lady’s points about international co-ordination. In the event of a Labour victory in the May election, what would its position be on UK tax havens such as Jersey, Guernsey and the Isle of Man? I thought that the hon. Member for Redcar (Ian Swales) made a powerful point about the 50% of schools in his constituency that are financed from Jersey. I would expect the Opposition to have developed some policy on that.

[Shabana Mahmood]

I am grateful to the hon. Gentleman for giving me the opportunity to highlight Labour policy in this debate. A few months ago, we published a paper on corporate taxation that included a section on the Crown dependencies and overseas territories. We have made the commitment that, if we win the general election, we will require the Crown dependencies and overseas territories to publish a public register of beneficial ownership. That is the key demand of all in the wider tax justice and fairness community, and it would shine a light on the true owners of businesses based in the Crown dependencies and overseas territories. The Government have spoken a great deal about doing something similar, but I think it is fair to say, without being party political, that progress has stalled. We have gone further by saying that we will ensure that that process happens. I have already taken the conversation forward with Ministers and other officials from the Crown dependencies and overseas territories.

National Insurance Contributions Bill

Debate between Shabana Mahmood and David Mowat

Monday 4th November 2013 Commons Chamber

[Shabana Mahmood]

We have been speaking a great deal about rebalancing the economy and our proposals on regional banking, for example, are proof that we take the issue seriously. The hon. Gentleman described this Government’s policy as a statement of intent, but it was an absolute failure, and that is the subject of the debate today.

The national insurance holiday was a flagship policy of the Government’s first Budget, which is why they are so desperate to forget that it happened. They created a scheme that ran from 6 September 2010 until 5 September 2013 and applied to new businesses only. They were eligible only if they were created after 22 June 2010. Under that scheme, new businesses would not have to pay the first £5,000 in national insurance for each of their first 10 employees during the first year of the business. Greater London, the south-east and the eastern region were all excluded from the scheme. The Government said that 400,000 businesses and some 800,000 employees would benefit from the national insurance holiday, at a cost of £940 million over the three years of the scheme. In their impact assessment, the Government confidently predicted that the average benefit per business would be about £2,000, but by the end of the three years of the national insurance holiday in September this year, the scheme was shown to have been a comprehensive failure.

In the end, only 25,000 businesses received NICS relief—that is 375,000 fewer businesses being helped than the Government originally claimed. It was always highly unlikely to have ever been worth the maximum £50,000 to a new start-up business. To get the maximum relief available, the new businesses would have had to take on 10 people with salaries of up to £40,000, which does not exactly fit the pattern of how new start-ups behave and the sorts of choices that they make in their first year of business.

Of the £940 million set aside to pay for the scheme, only £60 million was ultimately paid out, a paltry 6% of the amount originally intended. To put that in context, the Government spent £12 million on the administration of the scheme. We repeatedly warned that the scheme was not working, that it was not helping businesses as intended and that the Government should reform it, expand it, review it or bring forward a new one, but they refused to listen.

It is not as though the Minister could not see the failure unfolding before his eyes. Take-up of the national insurance holiday was never anything other than dismal. In the first year of the scheme, there was not one month in which HMRC received more than 850 applications. In 2012, there was only one month when the total number of successful applications was more than 1,000—that was in May 2012, when there were 1,130 successful applications. For the Government’s scheme to succeed, they would have needed to hit that number every month for three years, and they got nowhere near that.

When the Treasury Committee conducted its inquiry into the June 2010 Budget, the Chair of the Committee said:

“For those of us who have been on the circuit a while it sounds like another case of the triumph of hope over experience.”

How right he was.

[David Mowat (Warrington South) (Con)]

A few moments ago, the shadow Minister was asked a question on regional focus. She has also said that one of the problems with the last scheme was that it did not include the south-east. Is it Labour’s position that the scheme should have applied in the south-east as well?

Social Mobility

Debate between Shabana Mahmood and David Mowat

Thursday 28th June 2012 Westminster Hall

[Shabana Mahmood]

My hon. Friend is right. There is the drop-off, and then the difficult decision to get back in is really important.

We have seen the Government axe the Aimhigher scheme that was designed to widen participation in higher education. I am concerned that the national scholarship programme will not be an adequate replacement for it in money terms and that it also disadvantages universities that recruit a large number of students from backgrounds in which we want to widen participation. The programme is also based only on data in relation to free school meals, which misses out those who come from further education colleges and also mature students

Finally, let me turn to the changes in the provision of information, advice and guidance. High-quality and accessible information, advice and guidance is crucial for ensuring that all young people know of the opportunities that are open to them. Providing the right support can make the difference to young people in determining their future pathway. Proper information, advice and guidance should not be exclusively available to young people from better-off backgrounds. The Government must ask themselves whether the changes that they have introduced will ensure that proper advice and guidance is there for the many and not just the few. There will be a gap in provision this summer as the funding for Connexions has finished, but the replacement for schools will not be coming online until September.

[David Mowat (Warrington South) (Con)]

I was listening very carefully to the hon. Lady’s comments and to the catalogue of emerging policy. One of the elephants in the room on social mobility in our country is that we have a two-tier education system, with quite a high proportion of children going to independent schools and boarding schools. Much of that is allowed through tax subsidy or tax allowances. What is the Labour party’s position on the efficacy of that tax allowance in terms of social mobility?

[Shabana Mahmood]

I am not going to make tax policy on the hoof, but I would like to get to a position where independent and private schools are redundant because the same sort of education and quality of education is available in the state sector.

To finish my point about information, advice and guidance, there is real concern that good advice will not go to the most disadvantaged and those who need it most. Much of the work will now be done online, but we must recognise the importance not just of innovative high-quality and low-cost solutions, but the face-to-face element in the provision of advice and guidance. I endorse what my right hon. Friend the Member for Salford and Eccles said about the Government being able to learn more from organisations such as Future First, and schools throughout the country that are drawing on alumni to inspire and raise their pupils’ aspirations.

As I said at the beginning of my speech, I will not focus only on the brief that I shadow, because the debate is much wider. Social mobility is not just about changing the odds of young people from poor backgrounds making it to university. We must improve opportunities for those who do not make it to university. We must get away from the thinking that there is only one kind of success or only one pathway to success, and that everything else is a failure of some kind.

One of the biggest problems in our society is our collective and automatic assumption that if something is different it must be either better or worse. That holds us back, and the way in which we perpetuate class in our country is unnecessary baggage and very depressing. I would like to get rid of that, and two things jump out at me in relation to it: the value that we give to vocational education, and entrepreneurship.

First, vocational study should never be treated as a second-class option. The Government have a role to play in bringing that about, but the attitude of society as a whole is as important. I cannot help but be jealous of the position in Germany where middle-class parents boast about their kids doing great apprenticeships. We should do more to get to a place where vocational education is just as much a gold standard as academic education. We must make sure that there are good opportunities to switch between the two.

Secondly, entrepreneurship has an important role to play in increasing and improving social mobility. My boss, the shadow Secretary of State for Business, Innovation and Skills, recently made a speech about the link between entrepreneurship and social mobility. He told a powerful story of his father, who came to this country from Nigeria in the 1960s, and set up his own business. That gave his father opportunities that were denied to him elsewhere. It is clear that entrepreneurship has more of a role to play. I am pleased to see an increasing number of universities focusing on enterprise opportunities for their graduates and undergraduates, but we should guard against the “graduatisation” of entrepreneurship. It should remain an opportunity that is open to all in our society.

I want to pick up on the importance of the points made by my right hon. Friend the Member for Salford and Eccles about skills around confidence, emotional well-being and personal resilience—the so-called public school confidence skills—by reflecting on my experience. As hon. Members can see, I am an Asian woman. I am also a practising and observant Muslim. That is an important part of my identity and how I choose to live my life. I was born and raised in Small Heath in Birmingham, which is a very diverse city where many people who look like me live. In Small Heath particularly, many people are like me and believe in the same God as I do. The local school I went to had lots of people like me. I went to a different school to do A-levels, and it was more mixed, but there were still plenty of people like me. Nothing in my previous life experience had prepared me for my first night as a law undergraduate at Oxford, where I was the only non-white face in the junior common room. I was certainly the only Muslim woman in the whole college, which had an undergraduate body of 300. For someone to enter a room and find that they are the only one of their kind is a weird experience, even if they are self-confident, as I am. Apart from being weird, I also found it intimidating. It took me a solid month before I could enter any room in my college, such as the JCR or the hall for meals, without taking a deep breath and saying a silent prayer,

When I was qualifying to be a barrister, I experienced the same thing on my first day as a pupil barrister in chambers, although this time it did not take me a month to normalise to being the only one of my kind. It took me only a couple of weeks, which was a good downward trajectory because, by the time I got to Parliament, it meant that I was not afraid. In fact, it had become a depressingly normal part of my existence.

I raise that point because, while I was at university, I was involved in the Oxford access scheme. When I graduated, I taught as a volunteer at a supplementary school. I have done lots of mentoring of young people from my kind of background—my race background, my religious background and my socio-economic background—and the one thing that I always try to focus them on is not how to do the interview or the application, but a sense of self-confidence, by which I mean not just innate confidence in themselves, which they might have anyway, but the skill of faking confidence when they do not feel it. That is incredibly important. The techniques include taking a deep breath before entering a room and looking people in the eye. They also need to be physically robust in order to make their presence felt and to not be intimidated. What we call soft skills are not soft at all—if people do not have them, they are hard. It is difficult for people to take such things on board if they have not been a part of their previous experience. I would like us to think more deeply about what more we can do to bring those things about.

In conclusion, it is clear that we have to intensify and broaden our approach to social mobility in the future, not just because social justice demands it, but because our capacity for economic growth requires it.