Finance Bill

Stephen Timms Excerpts

Thursday 15th July 2010 Commons Chamber

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

[Stephen Timms (East Ham) (Lab)]

Schedule 4 provides for the exemption from income tax of expenses paid or reimbursed to MPs, following the introduction under the Parliamentary Standards Act 2009 of the popular new scheme for paying the expenses of MPs administered by the Independent Parliamentary Standards Authority. I understand that that will broadly have the effect of maintaining—[Interruption.]

[The First Deputy Chairman]

Order. Far too many conversations are taking place in the Chamber. Will those who are leaving please do so quietly?

[Stephen Timms]

I appreciate that the arrangements will broadly have the effect of maintaining the tax treatment that applied to similar expenses paid under the previous arrangements. Tax treatment of MPs’ expenses used to be dealt with by specific legislation or long-standing extra-statutory concessions. As hon. Members will know, a long-term project has been undertaken following the judgment in the Wilkinson case of 2006 to place all the statutory concessions on a proper legislative basis. Can the Minister confirm that the previous concession, which I think is numbered A.54—Members of Parliament: accommodation, allowances and expenses—has, with this legislation, been withdrawn, and whether any of the other extra-statutory concessions outstanding are affected by the Bill?

[Robert Flello]

My right hon. Friend said that schedule 4 was broadly neutral in terms of income tax. Has he noted paragraph 1(4) on loans for deposits payable on rented accommodation—perhaps our constituency offices or flats that we need in London because of the ridiculous IPSA rules on staying in hotels? It is common practice for landlords to charge a deposit on flats, something that we have to pay only because we are here representing our constituents. Has my right hon. Friend noticed that there is a tax implication for us in that?

[Stephen Timms]

I confess that when I read the legislation that point did not strike me, but it has been raised and I am grateful to my hon. Friend for putting it on the record.

[Stephen Williams (Bristol West) (LD)]

To be helpful, a loan is not subject to income tax whereas if the loan was interest free the difference between the interest rate that someone might be charged and what they are not charged would be.

[Stephen Timms]

I know that the hon. Gentleman is a chartered tax specialist, as was acknowledged at a reception last night, so I defer to his understanding of these matters.

The Bill is different from the IPSA scheme on a couple of points. The IPSA rules say that when Members are required to be at the House of Commons after 11 pm, non-London areas MPs who claim the London area living payment may claim for the cost of an overnight stay in a hotel, subject to an upper limit. Any MP, including London MPs like me and the Minister, may claim for the cost of an overnight stay in a hotel if it would not be reasonable to return to any residence, where they are required to be at the House of Commons because the House is sitting beyond 1 am. I do not understand the different tax treatment of those two situations. Under new section 292, liability for income tax is avoided only if the House sits beyond 1 am. That is fine for London MPs like me. If I made a claim for a hotel stay under the IPSA rules, the new section would exempt me from income tax on that payment. However, it seems a bit unfair to non-London MPs, in that the IPSA scheme allows them to claim for the cost of an overnight stay if the House sits after 11 pm, but the new section gives them an income tax liability on that claim unless the House sits after 1 am. I wonder why the rules have been drawn up in that way.

A second area where I am puzzled relates to travel expenses for children. I have no children, so I hasten to say that this has nothing to do with my personal arrangements. The IPSA scheme provides for travel and subsistence expenses in respect of travel for dependent children aged under 16, limited to 30 single journeys per child between the Member’s London area residence and the constituency residence in each year. The new section would exempt from income tax the cost of journeys by spouses or partners but not—as far as I can see—the cost of journeys by children. Why is tax payable on those expenses but not on the others?

[Justine Greening]

I shall briefly talk about what we seek to achieve with clause 7 and schedule 4, and then try to answer the specific issues raised by the right hon. Gentleman.

Clause 7 introduces schedule 4, which provides for the income tax treatment of certain expenses paid or reimbursed to Members of Parliament under the new MP expenses scheme introduced and administered by the Independent Parliamentary Standards Authority. For the main part, the changes introduced by the provisions are necessary to reflect the fact that expenses are no longer paid under a resolution of the House but instead are paid by IPSA under the authority of the Parliamentary Standards Act 2009.

As we are all aware, expenses paid to Members have come under close scrutiny over the past year, not just by the media and the public, but also by IPSA. In developing its new scheme, IPSA has taken account of the requirement of MPs to perform their duties both in their constituencies and in Westminster. It has decided that the expenses covered by the exemptions introduced by the schedule are necessary for the performance of an MP’s parliamentary functions.

The key provisions will broadly maintain the long-standing statutory exemptions for overnight accommodation and EU travel expenses that were introduced in recognition of the particular role of MPs. The provisions will codify elements of concessionary tax treatments that, because MPs are required to carry out their duties both in their constituencies and in the House, have applied for many years to certain UK travel expenses paid to MPs. Additionally, they will reflect IPSA’s decision to continue to reimburse some UK travel for MPs’ spouses and partners, albeit in more restricted circumstances. The schedule therefore puts the previous concessionary treatment on a statutory footing to allow those payments to continue to be made without tax being due. Finally, the provisions reflect IPSA’s decision to deal with payments for evening meals separately from general expenditure connected to overnight accommodation, and the schedule now introduces a specific exemption for the costs of meals reimbursed under IPSA’s scheme. Again, that maintains the previous tax treatment.

The right hon. Gentleman raised two issues—about late-night sittings and accommodation. He is right: there is indeed a difference. The IPSA and tax treatment is different for sittings that end after 1 am and for sittings that end between 11 pm and 1 am. For sittings that run after 11 o’clock, there is tax exemption for expenses incurred for overnight accommodation, because that is deemed by IPSA a necessary expense incurred in the MP role.

Non-London MPs who decide to take the London allowance—the London expense regime—are able to charge overnight accommodation if the House sits after 11 pm, as the right hon. Gentleman pointed out. However, that charge is not tax-exempt; it is deemed subject to normal tax treatment for any employee. A normal employee would not be able to claim a tax exemption if they chose to stay in a hotel because they had been working late. The rules for the House sitting past 1 o’clock are agreed with IPSA as necessary for the fulfilment of the MP role, so are tax-exempt. Before that, although MPs from outside the London area can get reimbursement for overnight costs, they are not tax-exempt. I hope that I have clarified the situation, even though some people might not agree that the tax treatment set out in the clause and schedule 4 is fair.

Children’s travel was not tax exempt under the previous scheme, and clause 7 and schedule 4 merely maintain the same tax treatment of children. However, the right hon. Gentleman was right to point out that the tax exemption for spouses will continue, albeit with some more restrictive conditions. Again, I hope that I have clarified the position.

As IPSA continues to develop its expenses regime over the coming months and perhaps years, we will obviously have to keep an eye on any changes and ensure that we determine whether we need to reflect them in tax law.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Schedule 4 agreed to.

Clause 8

Amounts not fully recognised for accounting purposes

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

[Stephen Timms]

Clause 8 and schedule 5 amend the corporation tax rules on loan relationships and derivative contracts that apply to amounts not fully recognised for accounting purposes. This is a good example of the way in which the obligations that the previous Government introduced in 2004 on the disclosure of tax avoidance schemes are bearing fruit by revealing forms of avoidance that represent loopholes that need to be closed, which is what the clause does. The intention behind the clause was announced by the previous Government at the time of the March Budget. The provision is tightly targeted. I am not aware of any adverse reaction, and I certainly support the clause, but will the Exchequer Secretary give us his assessment of how much tax avoidance will be prevented by blocking the loophole?

I was pleased that the coalition agreement included the commitment:

“We will make every effort to tackle tax avoidance”.

Clauses 8 and 9 are the first concrete signs of that commitment being delivered. However, will the Exchequer Secretary tell us a little more about how those efforts will be pursued and what is meant in the coalition agreement by the commitment to

“detailed development of Liberal Democrat proposals”?

If I understand correctly, Liberal Democrat proposals in this area include: changing the taxation of benefits in kind; increasing the proportion of HMRC time spent on income tax evasion; a new general anti-avoidance provision for corporation tax, with companies paying a commercial rate for HMRC pre-clearance—I imagine that that is being subsumed in the wider discussion about a general anti-avoidance rule; and legislating to establish the beneficial ownership of property that is sold to prevent the avoidance of stamp duty land tax. Will the Exchequer Secretary confirm what the coalition agreement meant? Are all those initiatives—

[The First Deputy Chairman]

Order. I think that the right hon. Gentleman is going much wider than the provision before us. Will he confine his remarks to what is contained in clause 8?

[Stephen Timms]

Of course I will, Mr Evans.

I accept that there will always be areas in which there is legitimate uncertainty among business and their representatives about how the law applies. However, I am pleased that clause 8 and schedule 5 are being brought forward to block one more unwanted loophole.