Digital Taxation

Debate between Stewart Hosie and Chris Philp

Tuesday 27th March 2018 Westminster Hall

[Stewart Hosie (Dundee East) (SNP)]

It is a pleasure to serve under your chairmanship, Dame Cheryl, and I congratulate the hon. Member for Harborough (Neil O'Brien) on securing this genuinely important debate. I agree with much of what he said at the start of his contribution, particularly about tax base erosion. That is why I welcome what the Government have said previously about the focus being on economic activity rather than simply profit. We must begin to tackle the rather vexed and long-standing issue of profit shifting.

However, I am not sure whether the hon. Gentleman’s interim solution would work. In essence it would be a turnover tax, and although there might be some superficial merit in that, it could potentially be damaging for high-volume, low-margin businesses. It would also, I suspect, immediately increase the risk viewed by those who provide capital for large digital start-ups—perhaps those with a large turnover and a business plan that will not see profit for some time. One can see how the funders of capital for such start-ups might be tempted to put their money into similar businesses located elsewhere.

[Chris Philp]

Google and Facebook can be described as many things, but “low-margin” is not one of them. I suggested a threshold of £100 million for UK sales or €750 million for EU-wide sales—such businesses are certainly not the start-ups referred to by the hon. Gentleman.

[Stewart Hosie]

Indeed they are not, but I was referring specifically to an increased risk for start-ups that perhaps have a similar model. That is important if we are to tackle the monopoly argument that was raised earlier.

This debate is not only about taxing digital companies; it is also about the UK Government policy of making tax digital. The SNP fully supports the principles behind that and the move to a phased introduction of digital reporting, not least because we called for it previously. However, we have concerns about the implications that digital reporting might have for small businesses with limited connectivity or in rural areas. We are also concerned about the closure of HMRC offices in Scotland and the rest of the UK, because that will limit the Revenue’s ability to provide the help and guidance that small businesses and individuals need.

Let me briefly take those three issues in turn. Following the consultation, on 13 July the Minister outlined the new timetable, which we welcomed, and said that only businesses with a turnover above the VAT threshold would have to keep digital records, and only for VAT purposes. That will happen in 2019, and businesses will not be asked to keep digital records or to update the Revenue quarterly for other taxes until at least 2020. We welcome those measures, but they will still require businesses to face challenges. Those challenges include changes to record keeping, because businesses will no longer be able to rely solely on manual records. There will also be changes to VAT returns, which must be submitted through the functional compatible software and not the normal HMRC portal, and all that is supposed to take place at around the same time as the UK leaves the EU. We all know that in a period of flux when there are changes to systems, there is more opportunity for fraud. What action will be taken so that we are observant and ensure that people do not try to fiddle the system at a time of a number of simultaneous changes, which include leaving the EU and the introduction of the online digital report?

As I said, the SNP is concerned about the effect that digital reporting could have on small businesses with limited connectivity or in rural areas. In particular, we are concerned about the impact on small businesses with limited technology for connectivity—or those that do not make much use of the internet—if they have to report online. Such measures will also affect smallish businesses in rural areas, where connectivity may not be as good as is required. I know there is a fall-back position, which I welcome, but will the Minister confirm that if digital capacity is not there, the fall-back position will be the current manual system, and that we will not create a new manual system to replicate the online system as it goes live?

The closure of HMRC offices could limit the Revenue’s ability to help businesses and individuals. That is important because as we know, a large part of the tax gap is due to error by both those paying and the Revenue. With the introduction of a new system, combined with the closure of local tax offices, may we have an assurance that there will be a good degree of forbearance for anything identified as an honest mistake during that period? I am also aware, as other hon. Members will be, of how specific local knowledge has uncovered fraudulent activity that would have gone undiscovered in a more general, generic system. Will the Minister confirm what checks and balances will be introduced with the new digital reporting, particularly on VAT, to ensure that some of the rather more obvious scams that we all know and have seen are detected, and the fraudsters punished?

My final point is slightly tangential, but it is important: we must not let technology drive the policy. If the digital tax roll-out is a huge success, one can see the temptation for the Government to say that we should lower the VAT threshold—after all, it is only a change to a number in the computer system. However, if the VAT threshold is lowered—it was rumoured that that would happen at the last Budget—businesses that turn over £60,000, £70,000 or £80,000, and make a good living for someone, or even two livings, will suddenly have to take 20% off their bottom line because their raw costs are low and they can claim little back. If the digital tax roll-out works, the Minister must not allow that to drive the policy and drive down the VAT threshold. I believe that would be a mistake, because it would crush entrepreneurialism and start-ups if people thought that with that additional VAT burden, it would be a struggle to make even one living out of a business that turns over £60,000 or £70,000.

Scotland Bill

Debate between Stewart Hosie and Chris Philp

Monday 15th June 2015 Commons Chamber

[Stewart Hosie]

I can almost hear Professor Adam Tomkins, the Tory adviser to this Tory Minister, coming up with that daft question. I say this to the Minister: our amendment 89 would deliver full fiscal autonomy in a way that makes sense.

Our opponents argue that full fiscal autonomy would lead to more cuts to the Scottish budget, which is ridiculous when one considers that between 2009-10 and 2013-14, at a time when the North sea was generating £32 billion in oil revenues, the Scottish Government’s budget was cut by about 9%. According to the Institute for Fiscal Studies, prayed in aid by Tories and Labour alike, the cuts of more than 5% implied in 2016-17 and 2017-18—in this Parliament—will be twice the size of any cuts over the last Parliament. The UK Budget showed that implied cumulative cuts to day-to-day spending on public services in Scotland over this Parliament could amount to £12 billion in real terms compared with 2014-15. In the absence of full fiscal autonomy, therefore, we are not protected from cuts. Rather, we suffer a double blow: continued austerity and an inability to grow the economy and increase tax yields in the way that Scotland requires.

[Chris Philp (Croydon South) (Con)]

The hon. Gentleman mentioned that tax receipts in Scotland are on average 3% higher per head than in the rest of the UK. Public spending in Scotland, however, is more than 10% higher. The reason, of course, is the Barnett formula. Will he confirm that under his proposals the Barnett formula would be done away with, and will he explain where the extra money would be found? Would it be tax increases or spending cuts? If so, where from?

[Stewart Hosie]

It is extraordinary! UK debt is £1.5 trillion and the Government are borrowing £75 billion more this year than UK tax revenue would allow, and they have the audacity to question whether the Scottish Government, who have balanced the books every year, could do so in the future. If we have the right tools and levers, of course we can do the job. The hon. Gentleman’s argument is fundamentally that there would be a cost to Scotland of full fiscal autonomy. As we have seen, our opponents tend to quote figures for this financial year, whereas we would move to full fiscal autonomy only over the medium term.

The second key issue, as the IFS has said on many occasions, is that our opponents fail to take account of the potential positive impact on Scotland’s economy of full fiscal responsibility. The entire point of FFA is to empower our Parliament to take decisions for the benefit of Scotland’s economy to deliver full tax and investment powers and to enable Holyrood to make better spending decisions.