Finance Bill

Stewart Hosie Excerpts

Tuesday 12th September 2017 Commons Chamber

[Mel Stride]

I thank my hon. Friend for those observations, which I am sure the House has duly noted.

Let me now deal with termination payments, an issue on which the Opposition divided the House last week. The current rules are unclear and complicated. Some payments are taxed as earnings, some are only taxed above £30,000, and others are completely exempt from tax and national insurance contributions. Although most employers use the current rules as intended, the present system allows some to ignore those rules and deliberately manipulate their payments to minimise their tax by exploiting the differential tax treatment. That is clearly not fair. The Bill makes the rules simpler and fairer by recommending that we exempt the first £30,000 of termination payments from tax, while tightening the rules in respect of what is rightly included within such payments.

In last week’s debate, some Members raised concerns that the Government would be taxing compensation that is paid to employees when it is proved that they have been discriminated against—for example, after an employment tribunal. I am happy to reassure them. All compensation awards caused by proven discrimination against someone in employment will remain completely exempt from tax. All that the Bill does in the way of change is close the obvious loophole that enables an employer to treat part of a termination payment, as opposed to a tribunal award, as an “injury to feelings” in order to benefit from the tax exemption. It is HMRC’s longstanding position that if an employee claims a tax exemption for injury, it must have actually impaired that employee’s ability to work, and the Bill simply reconfirms that position.

Members also raised concerns that the Government intended to reduce the tax-free amount from £30,000. The Bill makes no such provision. If there were ever any desire to reduce the tax-free amount, it would be subject to a statutory instrument and the affirmative procedure, so the House would have to expressly approve any such proposal.

We also need to ensure that the taxation of different ways of working is sustainable, so that we have the funds to invest in the public services on which we all rely. It is therefore important that this tax treatment is fair between different individuals. The Office for Budget Responsibility has highlighted the fiscal risks arising from the growing number of people working through companies. Such individuals can pay themselves in dividends, and, in so doing, can pay significantly less tax than employees and the self-employed, although in many cases their economic activities are broadly the same. Part of the reason for that difference is the entitlement to a £5,000 dividend allowance, which is available in addition to the income tax personal allowance that the Government introduced at £11,500 in April.

Reducing this allowance to £2,000 will help to reduce the differential in tax treatment and help remove some of the working distortions to which I have referred. It will also ensure that support for investors is more effectively targeted: a £2,000 dividend allowance will ensure that around 80% of general investors continue to receive dividend income tax-free. The less well-off will be protected, with those general investors who are affected having investment portfolios worth around £100,000 on average, putting them in the top 10% of wealthiest households in the country. So the Bill will make our tax system fairer in a number of ways.

[Stewart Hosie (Dundee East) (SNP)]

The Financial Secretary uses the example of someone who works through a company, and compares that with a wealthy investor with a large portfolio. The concern many of us have is for the small businessperson—the owner-proprietor—with a start-up business earning a very modest wage who relies on the £5,000 tax-free dividend in order to make ends meet. What consideration has he given in that regard?

[Mel Stride]

There are other considerations that the hon. Gentleman should focus on when he looks at individuals setting up in business, and there are many successful entrepreneurs throughout our country. We are the party and Government who have reduced taxation on business. It used to be 28% under the last Government and we have brought it down now to 19% and it will be further reduced to 17% over time. So the hon. Gentleman should look at this in the round, and I persist in my point that we need to look at the different tax consequences of the different models—an individual going into business on their own, whether as a sole trader or partner, or in an incorporated structure—to make sure we do not have people effectively just using one model for no other reason than the tax advantages thereof.

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[Mel Stride]

My hon. Friend is entirely right. The amount of onshore corporation tax that we took in the last financial year is close to £50 billion—50% more than in 2010. As we have brought taxes down, the tax revenue take has increased. We can draw only one corollary from all this: if the Labour party gets its way and starts to put those rates up again, some of that tax take might be damaged.

[Stewart Hosie]

The Minister just prayed in aid the new penalties for the enablers of tax avoidance, which I welcome. This Bill is riddled with retrospective legislation, which I hope he will say more about later, but will the Minister explain to the House why those new penalties do not kick in until after the Bill receives Royal Assent when there is retrospectivity all over the place in the rest of the legislation?

[Mel Stride]

I believe that that is due to an element of convention, but I am happy to speak to the hon. Gentleman after the debate. We have already clamped down on those who generate such schemes, and we are clearly clamping down on those who use and seek to benefit from them. The third thing is that we will now be actively clamping down on those who enable those schemes through their advice along the way, and they will face penalties of up to the entire amount that they have charged for their services. That is just another example of this Government’s determination to leave absolutely no stone unturned when it comes to clamping down on tax avoidance, evasion and non-compliance.

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[Kirsty Blackman]

It frankly does not matter what the inflation figures there were. What matters is that people here are feeling the squeeze, that people here are finding that things are more expensive, and that people here are finding that their wages have not gone up. That is the concern; that is what we are discussing here.

On the subject of investing, our programme for government in Scotland involves creating a national investment bank to support economic growth and to invest in business research and development. We hope to channel finance where it can do the most good. The Government here have the national productivity investment fund. We are still not entirely clear where all that money will be spent and how it will be spent, and I look forward to seeing what will happen. I hope that the UK Government can look at similar measures to the ones the Scottish Government are looking at in relation to the Scottish national investment bank, which will ensure that investment and economic growth are in the right places.

[Stewart Hosie]

Would it not be better for this Government, instead of allocating spending into the next Parliament, to spend that money now and invest in something like a national investment bank so that they and other bodies will have the ability to mitigate the damage a hard Brexit will cause?

[Kirsty Blackman]

I agree with my colleague. Given the uncertainty that businesses are facing and their concerns, now is the time to make those decisions and to try to raise the confidence of businesses. This is a real issue, and one that the Government have dodged.

When we debated the Ways and Means resolutions, I mentioned the proposals on museums and galleries, which are in clause 21. I raised the fact that the Value Added Tax (Refund of Tax to Museums and Galleries) (Amendment) Order 2017 has not, as far as I am aware, been laid yet. On 17 July, in response to a written question from my hon. Friend the Member for Glasgow Central (Alison Thewliss), the Government said that that would happen as soon as possible, but as far as I am aware the motion has not yet been tabled. If the Minister gets the chance later, I would very much appreciate it if he said when he does plan to lay the order, because that would be very useful for museums and galleries.

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[Mr Mark Harper (Forest of Dean) (Con)]

I am very grateful to be called to speak by you, Madam Deputy Speaker, particularly since we worked so well together in a previous incarnation. I am pleased to be speaking in this debate with you in the Chair.

It is a great pleasure to follow the hon. Member for Aberdeen North (Kirsty Blackman), who speaks for the SNP. She referred to the recent general election. I completely agree that while it did not go as well as we would have hoped, it did not go terribly well for her own party. I, for one, am very pleased to be joined on these Benches by a number of excellent Scottish Conservative colleagues. It might surprise her to know that I am equally pleased to be joined in this House by some Labour colleagues who are of a Unionist nature. The one very important thing that came out of the general election was that we strengthen the United Kingdom and the bonds that bring us together, whichever political party people are from, and weaken the forces of nationalism trying to break our country apart.

[Stewart Hosie]

Obviously this has very little to do with the Finance Bill, but for the sake of completeness, the right hon. Gentleman might want to remind the House that the Scottish National party won the election in Scotland with a majority, which is something that the Tories do not have. As for nationalism, I think he should perhaps look in the mirror and reflect on his British nationalism before he casts aspersions on anybody else.

[Mr Harper]

I was not casting aspersions. I was simply reminding everybody that the Scottish nationalists—that is what they are; they are a nationalist party—want to break up the United Kingdom, and I was simply congratulating my colleagues from Scottish constituencies on helping to strengthen our United Kingdom.

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[Stewart Hosie (Dundee East) (SNP)]

It is a pleasure to follow the hon. Member for Braintree (James Cleverly), with whom I agree entirely on the support that small, digitally enabled microbusinesses need to compete with the large, global, mention-no-names fulfilment operations. I hope he is right that the Bill delivers the support that smaller businesses need.

It is also a pleasure to follow the hon. Member for Liverpool, Walton (Dan Carden). It is appropriate that he made his maiden speech in such an important debate. Having known him for some years before he was elected, I very much hope and expect that he will use his undoubted talents to change Labour policy so that it no longer supports 70% of the Tories’ cuts and instead backs a genuine alternative to austerity. I am sure that in future debates he will be happy to intervene on me, as I will on him.

I agree with my hon. Friend the Member for Aberdeen North (Kirsty Blackman) that we cannot support the Finance Bill tonight as it is derived from the last Tory Budget. She made it clear that, as many will remember, the Budget confirmed austerity and, in our opinion, woefully failed to mitigate the likely impact of the hard Tory Brexit that now lies before us—a hard Tory Brexit that at its heart, as we have heard confirmed this week, also represents a power grab on Scottish powers and the powers of other devolved nations.

My hon. Friend is also right to raise the issues of prices rising faster than wages, the impact of the continuing public sector pay cap and, most shockingly, the 10-year real-terms fall in the incomes of people who actually work, which speaks volumes for the lack of priority the UK Government are giving to those who put in a shift, 9 to 5, five days a week or more. Those people are substantially less well off now than they were prior to the downturn.

Like all Finance Bills, this one contains particular measures that would be very welcome if they stood alone—I will say a little about some of those measures today—and some that are less welcome. I will mainly concentrate on inconsistencies in the commencement of certain measures, the absence of guidance from HMRC in certain circumstances and an apparent increase in the amount of retrospective legislation. Let me give some examples to demonstrate all those things.

The provision of tax relief for pensions advice in clause 3 is welcome, as is the mirroring provision in clause 4 of tax relief for other necessary legal advice. I, like the rest of the SNP, certainly welcome the extension of the existing reliefs in those areas, but I see from the explanatory notes that the commencement of both clauses is retrospective, being from 6 April 2017. I have no issue with that on those provisions, except that I am not sure retrospective legislation is a good thing in principle.

It is equally sensible, as part of the process of tax simplification, to make changes, in clause 6, to the process of PAYE settlement agreements. They will not have effect until next year, and I have no problem with that. The explanatory notes state that the new regime will be “a largely automated process” and, again, that is probably sensible, but the commencement date for that largely automated process does not fit well with the recent changes announced for the implementation of a fully digital tax system, which has been put back until 2019. Indeed, the explanatory notes for clause 62 state:

“Regulations providing for digital record keeping cannot come into force before 1 April 2019.”

I hope that the people who undertake to go digital quickly do not suddenly find that they fall foul of regulation and guidance issued the following year. Given that this measure is expected to be in place in six months’ time, will the Minister tell us whether the promised strengthened HMRC guidelines will be available to businesses? When will that happen?

As has been mentioned in earlier speeches, a deal of attention has been paid to clause 15, which deals with business investment relief, and, in particular, the ability of partnerships, previously excluded from BIR, to now be eligible if they carry out commercial trades in their own right. I just wonder what the scale of those commercial trades will have to be for an application to be able to be made for BIR. Will it be one, two or 10 trades? Will it be half of the turnover? A little clarity on that would be very helpful. The Minister might want to explain further why those changes have been proposed, given that I was not aware of any particular demand from partnerships to have BIR associated with them in the first place. The clause is also retrospective, having effect for investments made after April this year.

Clause 26, dealing with the elections in relation to assets appropriated to trading stock, applies for appropriations made since 8 March this year. Clause 38, dealing with the first-year allowance for expenditure on electric vehicle plug-in points, has been in effect since 23 November 2016. Clause 19, relating to losses and the counteraction of avoidance arrangements, applies to all losses on or after 1 April this year, whereas changes to reference property losses, in certain circumstances, came into effect on 13 July this year.

I have given a handful of examples, some to be welcomed and others the subject of debate, where we have in one Bill retrospective commencement dates of 23 November 2016, 8 March 2017, 6 April 2017 and 13 July 2017. That demonstrates the serious issue of the level of retrospective tax law in the UK. The Bill also contains future implementation dates for 2018-19, which is inconsistent with other measures the legislation is supposed to complement and support. That quick glance allows us to understand perfectly well the criticism that the tax code is not only too long but far, far too complex.

I alluded earlier to the fact that one measure is not being implemented retrospectively: clause 65 and schedule 16, dealing with penalties for enablers of defeated tax avoidance. Of all the measures that any reasonable person might have assumed could—indeed, should—have been made retrospective, surely it should be the penalties for those the legislation says design, market or facilitate abusive tax avoidance. But no: lo and behold, the new penalties will not come into effect until after the Bill receives Royal Assent. The Minister prayed in aid HMRC’s efforts to clamp down and raise more money by tackling tax avoidance and abusive tax evasion. I very much welcome that, so I find it odd that given the measures in the Bill that are subject to retrospectivity, the penalties for the enablers of defeated tax avoidance are not.

I wish to raise three other small matters. First, the explanatory notes for clause 62, on digital reporting and record keeping for VAT, say that for those who are unable to use digital tools because of, for example, their geographical location—I assume that that means the absence of sufficiently fast broadband—alternatives will be provided. Will the Government guarantee that that means we will keep the current manual system and that there will be no unnecessary change and complexity?

The second matter relates to the Government’s failure to explain what Brexit really means—other than Brexit, as the soundbite goes. Clause 21 and schedule 6 cover relief for the production of museum and gallery exhibitions, as mentioned by my hon. Friend the Member for Glasgow Central (Alison Thewliss). The explanatory notes tell us that at least 25% of the qualifying expenditure must come from the European economic area. I know that the EEA is different from the EU, but as the UK withdraws from the EU will the Minister clarify whether, if all the qualifying expenditure is spent in the UK, that will apply as it would had it been spent elsewhere in the EEA?

Finally, I make no apologies for returning to clause 8 and the change to the income charged at the dividend nil rate, from £5,000 to £2,000 in 2018. To some extent this relates to the point made by the hon. Member for Braintree about small and microbusinesses, which start up and begin to just about make a profit, but from which the owner-proprietor earns barely the minimum wage, let alone the living wage, while their company grows. Many such people use that £5,000 tax-free dividend to make ends meet. I understood what the Minister said earlier about those who actually work for a third party but are nominally self-employed, and indeed about those with substantial share portfolios, for whom some extra tax-free money is simply a bonus, but surely to goodness the legislation can be drafted in such a way that it does not penalise or appear to act as a disincentive for those who wish to start a business, by taxing what might be the first modest dividend that that business might ever have had. I hope that, even at this late stage, the Government will look again and table some sensible amendments to ensure that the change captures the tax revenue from those from whom the Minister wants to see it captured but does not act as a disincentive to those who wish to start a business.

That was a gentle canter through some technical matters; I am happy to leave the broad-brush stuff to my hon. Friend the Member for Aberdeen North.