Finance Bill

Wes Streeting Excerpts

Report stage & Report stage: House of Commons & Report: 1st sitting & Report: 1st sitting: House of Commons
Wednesday 1st July 2020 Commons Chamber

[The Financial Secretary to the Treasury (Jesse Norman)]

It has been a fascinating and lively debate, and I am grateful to all Members who have taken part. As Members will be aware, this Finance Bill introduces legislation to enact the digital services tax and to set the scope of the tax.

I will talk about the various clauses and amendments in front of us, and then will turn to the contributions Members have made. I start with something that I think I caught the hon. Member for Houghton and Sunderland South (Bridget Phillipson), the shadow Chief Secretary to the Treasury, say: “We support any proposals to combat tax avoidance.” I thought that was an important statement of principle, and I look forward to her exemplifying that view when we get to the loan charge. It bore out what the hon. Member for Ilford North (Wes Streeting) said in Committee:

“the Labour party takes a dim view of tax avoidance. We believe that tax is the price we pay for a civilised society…and that when people contrive to avoid their tax, they rob and short-change all of us of the revenues needed for the state to do the essential things it needs to do”.––[Official Report, Finance Public Bill Committee, 4 June 2020; c. 33.]

[Wes Streeting]

Hear, hear! Well said!

[Jesse Norman]

The hon. Gentleman is congratulating himself heartily from a sedentary position. I wish I had his self-confidence. I noted those comments because they help to shape this conversation, but it is important to be clear that the digital services tax is not an anti-avoidance measure, although there is a tendency to think of it in those terms. It is a new tax aimed at a new revenue base. It will levy a 2% charge on revenues that groups receive from providing specific digital services to UK users.

The services that are in scope of the charge are search engines, social media and online marketplaces. DST will apply only to groups with annual global revenues from these services of over £500 million, and it will be charged only on those revenues attributable to UK users, and only on amounts above £25 million. Additionally, online financial services marketplaces will be excluded from the definition of an online marketplace.

By seeking to tax UK user contributions, the charge breaks new ground in what a tax is. I very much share the views uttered by many of my colleagues, notably my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who described it as a pioneering tax. The same was rightly said by others, including my hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones).

The digital services tax was announced in Budget 2018 as a response to changes brought about by the rapid development of our digital economy, the many strengths and weaknesses of which have been noted in this debate. That digital economy brings many benefits, some of which we have seen on display during the covid crisis, but it has posed a significant challenge for international corporate tax rules. The hon. Member for Islwyn (Chris Evans) brought this out very well when he spoke about the contrast between the international bodies that we are seeking to tax through DST and what might be called the ordinary shopkeeper in his constituency.

Under current rules, digital businesses can derive significant value from UK users but pay little UK tax. That is because international corporate tax rules do not recognise this user-generated value when allocating the right to tax profits between jurisdictions. That undermines the fairness and sustainability of our tax system, and it is therefore widely accepted, certainly across this House, that the rules need to be updated.

As I have mentioned, the Government remain at the forefront of international efforts to secure a comprehensive, long-term solution to this issue, and we are absolutely serious about continued, detailed engagement with OECD and G20 partners, and of course the EU nations among them, on long-term solutions.

The hon. Member for Glasgow Central (Alison Thewliss) talked about the importance of international co-operation. She is absolutely right about that. As has been mentioned, we have been a leader on base erosion and profit shifting work. The same is true of diverted profits tax, and tax of intangible assets; it is important to recognise that, in the spirit of fairness that Members have shown in this debate. That is the basis for our saying that while we welcome recent progress towards global solutions, there are still a number of difficult and important issues that we need to resolve. That is what we are trying to do on UK user-generated value, but we are trying to do it in a fair and proportionate manner. We are introducing a new tax but we expect it to be only temporary, until appropriate global reform is in place.

Clause 71 already requires the Government to review the DST in 2025 and submit the review to Parliament. It is important to note that the review is intended to be broader than the narrow construction that would be placed on it by the proposed new clause. Should the DST remain in place in 2025, the review will consider whether it continues to meet all its objectives and whether international reform means that it is no longer required. Importantly, it will look not only at the net amount of cash brought in by the tax—although that is of course important—but at whether the tax continues to be necessary to ensure fairness across the UK tax system, in so far as it bears on that. As I have said, it is a Government priority to try to secure a global solution, but we do so not merely for the receipt of revenue but in the spirit of fairness. Once that solution is in place, the DST will be removed.

Amendment 18 would require the Government to produce a review of the DST annually rather than in 2025, and amendment 19 would require the review to include an assessment of the effect of the DST on tax revenues. A review in 2025 will ensure that, if the DST remains in place at that point, its continuing relevance will be given a full and proper consideration against the relevant circumstances at that time. It thereby underlines the fact that it is the Government’s strong preference to agree and implement an appropriate global solution—indeed, it places some impetus behind such an agreement—and, once that agreement is secured, to remove the DST as soon as possible, and certainly ideally before 2025.

As regards the need for amendment 19, it is important to note that Her Majesty’s Revenue and Customs already reports regularly on the taxes which it is responsible for collecting and the revenue they generate. The DST will be no exception to that. It goes without saying that, as with all taxes, the Government will keep the DST under review through the annual Budget processes and at other times. I suggest that the amendments are therefore not necessary.

New clause 5 would require the Government to report to the House, within six months of the Act’s passing, on the effect of the DST on tax revenues, and particularly on the effect on the tax payable by the owners and employees of Scottish limited partnerships. However—I think I am right in saying that my hon. Friend the Member for Penistone and Stocksbridge (Miriam Cates) picked this up very well—the report suggested by the new clause would not provide useful information, for several reasons. The first is that the DST is a tax on groups, not on individuals, whether those are individual employees or individual owners. Secondly, DST payments will not be required until after the end of the relevant accounting period of each liable group. For that reason, payments will not be required until 2021. Finally, the reporting deadlines in the legislation mean that very few groups will have needed to register, and no groups will have been required to send in their return, within six months, so such a report would not give useful information about DST receipts during the period.

I now come to the clause with which the House has been most preoccupied: new clause 33, tabled by the right hon. Member for Barking (Dame Margaret Hodge) and my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell). It would require all groups subject to the digital services tax to publish an annual group tax strategy and, alongside that, their country-by-country report.

As I have said, the DST is not an anti-avoidance measure; it is intended as a temporary response to concerns that the international corporate tax system has not adequately responded to digitisation. In other ways, as the House will be aware, the Government have already championed tax transparency, both at home and abroad. Some of those ways were highlighted by my right hon. Friend in his speech and have been previously by the right hon. Member for Barking in many other contexts. They are illustrated by the requirement, introduced in 2016, for large businesses to publish their annual tax strategy, containing detail on the business’s approach to tax and on how it works with Her Majesty’s Revenue and Customs. That requirement applies to UK companies with a turnover of more than £200 million or a balance sheet of more than £2 billion, and it is not limited to automated digital services businesses or to groups with a UK headquarters. UK subsidiaries of foreign headquartered groups can also be required to produce such a report if that group has revenues exceeding €750 million and reports under the OECD country-by-country reporting framework.

The effect is that many large businesses subject to the digital services tax will already be compliant with the UK requirement to publish an annual tax strategy. Therefore, this new requirement would in practice have little or no impact on them, at least. While thresholds may mean that some are not required to publish a strategy, that is an existing easement and it is unaffected by the digital services tax.

Currently, as has been highlighted by many hon. Members across the Chamber, we do not require large businesses to publish their country-by-country report alongside their tax strategy, but of course they can provide additional information, such as country-by-country reports, alongside that strategy on a voluntary basis. Nothing prevents them from doing that, and some have chosen to do so. It is notable that in this country, UK headquartered groups such as Shell and Vodafone have taken an important lead in this area.

I always pay very careful attention to what my right hon. Friend the Member for Sutton Coldfield says and I always pay careful attention to what the right hon. Member for Barking says. I have a great deal of respect for the principles that he and she have outlined through this new clause, but regarding the voluntary strategy, at least, I am actively exploring ways in which the Government can encourage other businesses, over and above Shell, Vodafone and the like to follow suit.

--- Later in debate ---

Brought up, and read the First time.

[Wes Streeting (Ilford North) (Lab)]

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

[Madam Deputy Speaker (Dame Rosie Winterton)]

With this it will be convenient to discuss the following:

New clause 13—Review of impact of Act on UK meeting UN Sustainable Development Goals—

The Chancellor of the Exchequer must conduct an assessment of the impact of this Act on the UK meeting the UN Sustainable Development Goals, and lay this before the House of Commons within six months of Royal Assent.”

This new clause would require the Chancellor of the Exchequer to review the impact of the Bill on the UK meeting the UN Sustainable Development Goals.

New clause 14—Review of impact of Act on UK meeting Paris climate change commitments—

The Chancellor of the Exchequer must conduct an assessment of the impact of this Act on the UK meeting its Paris climate change commitments, and lay this before the House of Commons within six months of Royal Assent.”

This new clause would require the Chancellor of the Exchequer to review the impact of the Bill on the UK meeting its Paris climate change commitments.

New clause 34—Impact of Act on human and ecological wellbeing—

The Chancellor of the Exchequer must review the impact of the provisions of this Act on human and ecological wellbeing, including the wellbeing of future generations, and lay a report of that review before both Houses of Parliament within six months of the passing of this Act.”

This new clause would require the Chancellor of the Exchequer to review the impact of the Bill on human and ecological wellbeing, including the wellbeing of future generations.

[Wes Streeting]

The new clause stands in my name and those of my hon. Friend the shadow Chancellor and other right hon. and hon. Members.

We are living through an emergency, and we have seen a response to that emergency that reflects the scale of the challenge—big changes in public policy agreed at rapid speed and with cross-party co-operation; every Government Department tasked with playing its part in the crisis response; the state, the private sector and civil society pulling together in an attempt to avert needless loss of life. The coronavirus pandemic is a public health emergency, and although mistakes have been made that could have been avoided, we now know what an emergency response looks like. More than a year has passed since this House declared a climate emergency, and I do not believe that, hand on heart, we can tell our country that we have seen a response to that emergency that matches the scale of the challenge of preventing catastrophic climate breakdown.

The planet is burning. The last 22 years have produced 20 of the warmest years on record. Prolonged summer heatwaves are crippling infrastructure and causing public health crises. Last year, the Met Office declared the UK’s hottest day on record, with a temperature of 38.7º Celsius. Across Europe, people are needlessly dying of heat-related illnesses. The World Meteorological Organisation is seeking to verify reports of a new record temperature in the Arctic circle. The melting rate of Greenland’s ice has risen to three Olympic-sized swimming pools every second. Sea levels are predicted to rise, with serious consequences for our own country. Across the UK, the Met Office forecasts that flash flooding caused by intense rainfall, which has already devastated homes and businesses across our country in recent years, could become five times as frequent by the end of the century if urgent steps are not taken now.

Across the world, some of the poorest communities are already experiencing the devastation caused by man-made climate change, and the people of the global south and east will be disproportionately affected by the unfolding climate emergency, with 95% of the cities at extreme climate risk situated in Asia and Africa. It is causing death and despair and displacement for climate refugees.

The impact of climate change is already clear. The consequences of our failure to act for future generations are already known, and yet here we are this afternoon presented with a Finance Bill that stands as a symbol of the complacency of our Government, fiddling while the planet burns.

[Peter Kyle (Hove) (Lab)]

The issue of electric car targets illustrates my hon. Friend’s point about complacency. The Government’s target was to convert by 2040. They have brought it forward by five years to 2035, but Scotland’s target is 2032. The ambition of this Government does not even match that of one of the constituent parts of the United Kingdom. How on earth can it be called world leading?

[Wes Streeting]

I strongly agree with my hon. Friend. We will not have to wait for the Minister to respond to hear the Government’s case, because I can tell the House what he is likely to say. He will tell us that tackling climate change is a top priority for the Government, and that this is demonstrated by the UK becoming the first major economy to pass legislation committing us to reach net zero emissions by 2050. He will tell us that the UK reduced its greenhouse gas emissions faster than any other G20 nation between 2008 and 2018. He will cite measures taken in this Bill as further evidence of the Government’s commitment, including tax support for zero-emissions vehicles; reforms to vehicle excise duty and company car tax; preparations for the introduction of the plastic packaging tax; and the establishment of a UK emissions trading system outside of the European Union. I suspect he will also point to previous announcements made by the Government, such as the £800 million fund for carbon capture and storage.

Taken individually, these steps are welcome, but collectively they do not provide the momentum we need to accelerate progress towards net zero. The Opposition do not believe that the 2050 target is ambitious enough, and neither does the science, so it is all the more worrying that, on current projections, we will not even achieve that deadline.

In its 2020 report to Parliament, the Committee on Climate Change underlines the charge that I am laying at the door of the Government this afternoon. It acknowledges, as do we, that in the time that has passed since the UK legislated for net zero by 2050, initial steps towards a net zero policy package have been taken. However, as the Committee says,

“this was not the year of policy progress that the Committee called for in 2019.”

[Caroline Lucas (Brighton, Pavilion) (Green)]

The hon. Gentleman is making a really strong case. Does he agree that the problem with the Government’s actions to date is not just what they have not done but what they are promising to do, including a £27 billion road-building scheme and boasting of 4,000 miles of new strategic roads in Britain? That would be an absolute disaster as far as the climate is concerned.

[Wes Streeting]

I am grateful to the parliamentary leader of the Green party for that intervention. There is a really important issue here around infrastructure. Our current infrastructure contributes enormously to the carbon output of our country. If we make the right infrastructure decisions now and get our priorities right, which is the point the hon. Lady is making, the Government can accelerate our progress towards net zero.

The Committee on Climate Change recognises the policies announced by the Government on transport, buildings, industry, energy supply, agriculture and land use. However, taking all of that into account, the Committee states that

“these steps do not yet measure up to meet the size of the Net Zero challenge and we are not making adequate progress in preparing for climate change.”

The charge sheet is serious. The Committee tells us:

“Announcements for manufacturing and other industry have been piecemeal and slow…There is still no strategic approach to drive change at the required scale and pace.”

It also says:

“Buildings and heating policy continues to lag behind what is needed”,

and that nearly 2 million homes built since the Climate Change Act 2008 was passed

“are likely to require expensive zero-carbon retrofits and have missed out on lower energy bills.”

At the general election, the Conservative party promised in its manifesto to invest £9 billion in energy efficiency over the next decade. The Committee says that that

“is welcome but not enough to match the size of the challenge and has been delayed while awaiting the National Infrastructure Strategy.”

The Committee also welcomed plans for reform of the renewable heat incentive and plans to introduce a green gas levy, but warned that

“the current plans are far too limited to drive the transformation required to decarbonise the UK’s existing buildings”.

On agriculture and land use, land-use change and forestry, it noted that

“the current voluntary approach has failed to cut agricultural emissions, there has been no coherent policy to improve the resilience of the agriculture sector, and tree planting policy has failed outside of Scotland.”

There is no room for complacency, which brings me to new clause 28. It asks the Chancellor to

“conduct an assessment of the impact of this Act on the environment…within six months of Royal Assent”,

including the impact on

“the United Kingdom’s ability to achieve the 2050 target for net zero carbon emissions…the United Kingdom’s ability to comply with its third, fourth and fifth carbon budgets…air quality standards, and…biodiversity.”

At present, the UK is set to miss its legally binding fourth and fifth carbon budgets, having only achieved its second carbon budget thanks to accounting revisions to the UK’s share of the EU emissions trading scheme and the impact of the global financial crisis. I am sure many Members of the House will agree that we should not rely on fiddling the figures or economic crisis to help us to achieve our carbon budgets, though I have to say, looking at the current state of the aviation industry and the Government’s unwillingness to act to save jobs, perhaps it is their intention simply to allow jobs to go and businesses to pull out or even go bust, rather than take the action needed to ensure a just transition.

Too many of our citizens are breathing in toxic air, with the serious health consequences that follow. The UK is one of the most nature-depleted developed countries in the world. Despite our being a signatory to the convention on biological diversity, 41% of species in the UK have decreased in abundance over the past 50 years, and 15% of species are threatened with extinction. As Sir Robert Watson wrote in relation to climate change and biodiversity loss,

“We either solve both or we solve neither.”

The risk is that as it stands we are going to solve neither.

We had hoped that the Prime Minister’s speech this week would provide more than warm words to tackle global warming. It had been billed as a new deal in the spirit of President Roosevelt’s response to the great depression, but moving some infrastructure spending forward is not a new deal and planting a few new trees certainly is not the green new deal our country needs. State action alone will be insufficient to meet the challenge, but national and international leadership from the Government is essential if we are to succeed. The public recognise that. They are looking to the Government to provide that leadership, but according to a YouGov poll published by the Institution of Civil Engineers today, less than a third of the public thought the Government had a plan to achieve net zero. They are not wrong, and there is no shortage of ideas available to the Government.

The Committee on Climate Change has provided a series of recommendations for every Government Department, including Her Majesty’s Treasury. Today, the Institution of Civil Engineers has dedicated its annual “State of the Nation” report to infrastructure and net zero, with a range of practical proposals that I hope Ministers will look seriously at adopting. This week, the Climate Coalition organised a fantastic lobby of Parliament around its green recovery plan, with citizens from all over the country Zooming in to meet their MPs virtually and underline the importance they attach to getting it right.

In the aftermath of the covid-19 pandemic and the economic crisis it has brought about, there can be no return to business as usual. Climate justice and social justice go hand in hand. If we take the right decisions now on industrial strategy, infrastructure, housing, energy, transport, agriculture, research and development and our natural environment, we will not only accelerate progress towards net zero, but will create new jobs—good jobs—new industry and better opportunities in communities blighted by deindustrialisation. In doing so, we will build a better, fairer Britain. We will improve the nation’s health and happiness, and we will safeguard our natural environment and our planet for future generations.

That is why we ask the Chancellor to come before the House next week not just with an economic update, but with a back-to-work Budget that has a laser-like focus on protecting people’s jobs and livelihoods and safeguarding their lives through the pandemic. Our approach, our ambition and our determination to achieve net zero should absolutely be at the heart of that Budget.

[Matt Western (Warwick and Leamington) (Lab)]

My hon. Friend is making a powerful speech. One of the most important things that could propel us out of this crisis and the economic challenges that we will face is to reduce our energy costs significantly. The best way of doing that would be to allow and encourage more onshore wind. One of the factors against manufacturing industry in the UK is very high energy costs compared with those of Europe. Would he welcome more fiscal stimulus behind that sector?

[Wes Streeting]

I am grateful for that intervention because we have seen what the right policy framework can do in terms of offshore wind and the success that that has brought. There is an imbalance in the priorities of the Government and the policy framework that they have created that actively prevents the kind of progress we could be making on onshore wind. It may not always be popular, but as people worry about what might happen to some of the vistas that they currently enjoy as a result of onshore wind farms, they should consider what the landscape will look like if we allow catastrophic climate breakdown to occur.

As I look across the Dispatch Box to the Treasury Bench this afternoon, it is not only with envy that the Conservative party has been given the opportunity to govern, but with exasperation that they are squandering it. If they are serious about preventing irreversible and catastrophic climate breakdown, leadership from the Treasury will be crucial. Every Finance Bill, every fiscal event, every major policy announcement has to shift the dial seriously and substantially towards achieving net zero. What is measured is what counts, so let us measure the worth of our Government’s words by their deeds. Let us seize the opportunity that the present crisis affords us by resolving to build back better and build back greener, and let us make sure that, when future generations look back on this moment, they do so with a sense of pride that, when it mattered, we got it right.

[Andrea Leadsom (South Northamptonshire) (Con)]

I honestly believe that global climate change is the existential threat of our time, but, unlike the shadow Minister, who just criticises the Government, I believe that with a great threat comes a great opportunity. I am absolutely certain that a focus on green growth offers us the way out of the inevitable coronavirus recession.

It is a fact that, since 1990, the UK has outperformed the G7 in cutting our greenhouse gas emissions by 43%, while growing our economy by more than two thirds. Today, there are around 450,000 green collar jobs and I truly believe that, if we play our cards right, the UK’s clean growth sector could be even bigger than our world-leading financial services in years to come. Even on our current trajectory, the UK is forecast to have 2 million green collar jobs by 2030, but we can do so much better—from electrification of our transport sector to industrial decarbonisation, from nuclear fusion to battery technology, and from low-carbon home heating to our world-leading environmental standards. We are not just leading the world in science and innovation, but creating an ideal platform for millions of new jobs.

--- Later in debate ---

[Jesse Norman]

I spent a lot of time looking at it when I was a Minister at the Department for Business, Energy and Industrial Strategy, and the right hon. Gentleman, who is chuntering from a sedentary position, is quite wrong about that. It would provide terrible value for money.

It is also fascinating that the project is not an environmentally wise idea. The hon. Member for Cardiff North may not be aware that the Wildlife Trust of South and West Wales specifically highlighted the major impact on biodiversity, the loss of intertidal habitat and the impact on local ecology, and National Resources Wales talked of a “major adverse impact”. I agree with the hon. Lady that actions matter, not words, and that leadership matters, not rhetoric, and we are seeing that by turning down this very bad project.

The Government are committed to tackling climate change and to being the first generation to leave the environment in a better condition than we inherited it. These measures go towards making that happen.

[Wes Streeting]

We have had an excellent debate, particularly Opposition Members’ contributions. May I congratulate, on behalf of all of us, the hon. Member for Strangford (Jim Shannon) on the birth of his latest grandchild? He will be a proud grandfather. My proud father wrote to me during the debate to say two things: first, that my hon. Friend the Member for Hove (Peter Kyle) needs a haircut, and secondly, that it is good to see the Government Benches full, taking social distancing to the nth degree. However, what they lacked in quantity they made up for with quality, although I must take up a point with the right hon. Member for South Northamptonshire (Andrea Leadsom), who said that all I did was criticise the Government. That is not true. As the Minister acknowledged, I listed all of their achievements. It is not my fault that the Committee on Climate Change has said that those achievements do not go far enough to help the country achieve its net zero ambition. They are going to have to do better.

I must say that it was a shame for the Minister to end what has otherwise been a rather consensual debate on the importance of tackling climate change with his outburst on the Swansea Bay tidal lagoon. That is a great missed opportunity and another reason why so many campaigners are right to say that the Green Book ought to be reformed so that when the Treasury makes spending decisions on major projects, it properly takes into account the net zero benefits; otherwise, we end up being penny-wise but, ultimately, planet-foolish.

[Jesse Norman]

The challenge for the hon. Gentleman is to explain how the money saved might not be better deployed on greener projects with better carbon performance. That is the question.

[Wes Streeting]

The Minister would be far more persuasive if the Government made any announcements about how they are investing more. In fact, what we got from the Prime Minister this week was a damp squib. I genuinely hoped and expected that the Prime Minister would announce major programmes. For example, retrofitting homes across the country would deliver environmental benefits and job creation, including jobs that would compensate those who will imminently find themselves out of work.

[Sir Edward Davey]

Will the hon. Gentleman give way?

[Wes Streeting]

I probably do not have time, I am afraid.

Those are the sorts of initiatives that we expect the Government to come forward with. I am disappointed by the lack of ambition, which only underpins why our new clause is so important, so I wish to press it to a Division.

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

Finance Bill (Ninth sitting)

Wes Streeting Excerpts

Committee stage & Committee Debate: 9th sitting: House of Commons
Thursday 18th June 2020 Public Bill Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

It is a delight to see you in the Chair, Ms McDonagh. Welcome to day six of our deliberations—or is it day five? It feels like many more. At the start of the Committee, I said that we were like pilgrims in “The Pilgrim’s Progress”, and that hopefully we would get through the slough of despond. I venture to say that we have made it over the hill of difficulty, but perhaps not quite reached Calvary or the place of deliverance.

Clause 99 and schedule 14 exempt payments made under the Windrush compensation scheme and the troubles permanent disablement payment scheme from income tax, capital gains tax and inheritance tax. The Government deeply regret what happened to many members of the Windrush generation. The Windrush compensation scheme was launched in April 2019 and is a key part of the Government’s righting those wrongs. It compensates individuals who have suffered loss by being unable to demonstrate their lawful status in the United Kingdom. The compensation covers a number of areas, including loss of income, denial of access to social security benefits and incorrect detention. Similarly, the troubles permanent disablement payment scheme makes payments in acknowledgment that, during the troubles, many individuals suffered permanent injury through no fault of their own. It also aims to address the adverse financial impact that troubles-related disablement can have on individuals and families.

Payments made under schemes such as these are often made entirely free of income tax without the need for legislation, but there are circumstances where income tax may apply. Payments could be taxable if they were made to reinstate taxable social security benefits or in respect of a terminated employment. All types of payments could be subject to inheritance tax or capital gains tax if they exceed the relevant thresholds. Clause 99 and schedule 14 will ensure that payments made under the Windrush compensation scheme and the troubles permanent disablement payment scheme are exempt from income tax, capital gains tax and inheritance tax.

The changes reaffirm the Government’s commitment to the Windrush generation and to those who suffered as a result of the troubles, and give certainty about compensation to claimants. The clause also introduces a new power to allow the Government to extend the definition of “qualifying payment” to other compensation schemes, allowing the Government to act more quickly to clarify the tax treatment of any necessary future compensation schemes, including those set up by foreign Governments. As we have seen, payments from such schemes can begin before it is possible to pass legislation in a Finance Act to exempt them from those taxes. Exempting such payments from tax in the past has not been controversial, and I hope it will not be so today and in the future.

The clause provides tax exemptions and gives clarity to those eligible for payments under the Windrush compensation scheme and the troubles permanent disablement payment scheme. I therefore commend the clause and the schedule to the Committee.

[Wes Streeting (Ilford North) (Lab)]

It is a pleasure to be here for what is likely to be our final day of line-by-line scrutiny of the Bill. It is important to remember that the reason why we are discussing clause 99 is in no small part, as the Minister alluded to, due to the Windrush compensation scheme, which is the culmination and inevitable consequence of the appalling circumstances of the aggressive and deeply destructive hostile environment pursued by the Government over the course of the past 10 years. As Wendy Williams said in her review, the Windrush scandal, which saw so many people’s lives completely disrupted, and in many cases ruined, was the result of “foreseeable and avoidable” systematic operational failings, so it is right that the Windrush compensation scheme was established. The House has considered those issues many times.

It is a source of deep regret, to put it mildly, that fewer than one in 20 people who have made claims under the Windrush compensation scheme have been paid so far. I want to take the opportunity, as we are discussing clause 99, to restate again our view that the Government must act much more quickly. People are owed that compensation, although the financial compensation will never fully compensate for the emotional and mental trauma that British citizens suffered as a result of the Windrush scandal.

It is appalling that we have added insult to injury by moving so slowly on compensation claims, even where they have been made. Of course, as the Minister outlined, the clause improves conditions for people accessing such schemes, whether the Windrush compensation scheme or the troubles permanent disablement payment scheme, so we have no objection to the clause.

[Alison Thewliss (Glasgow Central) (SNP)]

It is regrettable that so many people are still waiting for their money through the Windrush compensation scheme. I urge the Minister to do everything he can to make sure that the money gets out the door.

It is useful that the clause allows for future schemes so that there will, hopefully, be fewer delays and less confusion for people in future about the impact of those schemes. We want to make sure that, where wrongs have been done, people can get the money that they are entitled to in compensation as swiftly as possible.

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[Jesse Norman]

My hon. Friend makes an acute comment. The response to covid has undoubtedly highlighted the need for greater investment in digitisation within the tax system, and specifically put a greater emphasis on the ability to reach taxpayers quickly to respond to a national emergency and to improve resilience.

As my hon. Friend will be aware, we are introducing making tax digital for VAT, but it is widely thought that there is a case for taking it further. We have it under close consideration. As her question highlights, taxpayers—and people more generally—expect nothing less than to have a tax system that is digital, effective and integrated, and not one where the lack of digitisation can be exploited for the purposes of legal suit.

To avoid any doubt, the clause clarifies the legal basis for the existing policy, which has been in place for many years, allowing for the use of automated processes. It puts beyond doubt that the law operates in the way Parliament intend it to and as it has been widely understood to work to date. It does not introduce new or additional obligations, and will help to ensure the tax system applies fairly to all, while preventing loopholes opening up in tax law that could be exploited by people who do not wish to pay their proper share of taxes.

The changes made by the clause will clarify that tasks being done by an individual officer of HMRC may be carried out by HMRC using a computer or other means. The legislation is treated as always having been in force. The effect of that is to protect over £100 billion in tax revenue, already collected. Failure to legislate would result in enormous disruption and uncertainty for taxpayers and HMRC alike. For these reasons, I commend the clause to the Committee.

[Wes Streeting]

The Government have brought forward clause 100 for obvious reasons. As we have heard from the Minister, it is patently absurd that we would be in position where HMRC was dragged through legal processes simply because section 8 notices were issued used automated processes, for example.

There is obviously a good case to be made for applying ever-changing technology to improve the efficiency of processes within HMRC’s systems, to try to improve the customer experience of HMRC customers, which, as we know as constituency MPs, can sometimes be very good and sometimes be absolutely abysmal. Where HMRC can automate processes to free up people time, the focus should be on redeploying those people to try to give people and the state overall a better service. There is nothing to quibble about there.

It is important to lay down a cautionary note about how automated processes and algorithms are used, particularly when it comes to decision making that can have substantial impact on citizens, organisations and businesses. Writing in Tax Journal, Catherine Robins and Steven Porter of Pinsent Masons were critical of the Government’s announcements, arguing that:

“Some of HMRC’s powers can have very serious consequences for taxpayers and the fact that a human being has to decide to exercise them is an important safeguard, which should not be eroded.”

I share their concern, up to a point. I think it is important that there are safeguards, checks and balances and, ultimately, opportunities for people to appeal to human judgment, to account for technical error and to appeal technical error. As the capacity and scope of technological change continues to widen, it is even more important that Ministers and civil servants think very carefully about the application of technology and whether it is indeed right and proper for a decision to be made by an automated process rather than a human being.

Those are much bigger, wider principled and ethical considerations. For the reasons that the Minister has outlined, clause 100 is a perfectly reasonable and sensible provision, and it is one that we are happy to support.

--- Later in debate ---

[Jesse Norman]

Again, this is a technical measure. Clause 101 makes changes to put beyond doubt that where an LLP is found not to trade for profit, HMRC can continue to amend LLP members’ tax returns using income tax rules as it has always done, in the same way that it does for general partnerships. It ensures that, as with the previous clause, the intention of Parliament is appropriately reflected in the legislation, and it confirms that the rules work in the way they are widely understood to work, and as they have been applied since they were introduced in 2001. To ensure that this is plainly and unequivocally understood, the measure is introduced with prospective and retrospective effect back to that date—2001—with the result that the changes simply clarify and support the legislation and continue to meet taxpayers’ expectations. Again, they do not result in any new charges or obligations for taxpayers.

By way of context, limited liability partnerships are a legitimate means of structuring business activity. They are used successfully by the vast majority of partnerships: for example, by many large law and accountancy firms that operate for profit. Since the LLP rules were introduced in 2001, HMRC has always treated LLPs and their members’ tax returns under income tax rules on the same basis as any other partnership. That is widely understood and accepted by the vast majority of taxpayers, but it has been challenged in the courts on the basis that where an LLP is found not to trade for profit in line with its partnership tax return, the law does not support its treatment under income tax rules. The upper tax tribunal recently confirmed that HMRC’s long-held tax treatment of LLPs is correct. This decision overturned an earlier decision of the first-tier tribunal that had judged it incorrect. However, as the matter is still in litigation, putting the matter beyond doubt in legislation will provide certainty for LLP taxpayers.

Such legal challenges come from a small minority who are intent on avoiding paying their tax and looking for technical loopholes to do so. They seek to use limited liability partnerships to create losses and to share and then offset them unfairly against their members’ personal income in their own tax returns. That is not fair either to the Exchequer or to the vast majority of honest limited liability partnerships. The Government are legislating to prevent such practice.

The measure introduces three conditions that clarify the position and apply where an LLP delivers a partnership return; where the basis of that return is trading with a view to profit; and where it is found that the LLP was not trading with a view to profit. This clarifies the legal basis relating to LLPs that submit partnership returns where they are subsequently found not to be trading for profit, allowing HMRC to amend LLP members’ tax returns in such circumstances, as it has always done, to remove any unfair tax advantage. The clarification does not introduce any new or additional obligations or liabilities for taxpayers and it prevents loopholes from opening up in tax law that could be exploited in future by those seeking to avoid paying their fair share.

The changes made by the clause clarify the treatment of LLP partnership returns where the LLP is found to be operating without a view to profit. It permits HMRC to amend such returns using income tax rules, as it has always done. The legislation is introduced with retrospective effect, treating it as always having been in force. This is necessary in order to maintain the status quo, provide certainty for taxpayers, and protect about £2 billion of tax revenue that has already been collected. It also ensures that people seeking to avoid tax do not secure unfair and advantageous treatment due to the exploitation of perceived loopholes in legislation.

The policy is not new and nothing will change for taxpayers. No new or additional liabilities will be created and HMRC’s policy and processes will continue to operate in the way that they have for many years. It provides clarity for taxpayers and ensures that there is a fair and level playing field for all. I therefore commend the clause to the Committee.

[Wes Streeting]

Limited liability partnerships are a legitimate way of structuring business activity that is used successfully by the vast majority of LLPs that operate for profit. There is no doubt about any of that, but as we heard from the Minister this morning, there have been too many examples of LLPs being used for the purposes of minimising people’s tax liabilities, effectively to avoid tax. Of course, Opposition Members take a very dim view of that.

Clause 101 seems to be a sensible provision, intended to help HMRC to close down tax-avoiding structures that use LLPs to generate and spread losses that the partners use to offset against their other personal income. Let the message go out that people ought to act within not just the letter but the spirit of the law, and if they cannot find in themselves the moral scruples to do that, this House will have no hesitation whatsoever in changing the letter of the law to make sure that people do the right thing and pay their fair share.

[Jesse Norman]

The hon. Gentleman has made the point extremely well, and with his support I hope the Committee will agree to the clause.

Question put and agreed to.

Clause 101 accordingly ordered to stand part of the Bill.

Clause 102

Preparing for a new tax in respect of certain plastic packaging

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

--- Later in debate ---

[Wes Streeting]

For very obvious reasons, it is quite right to move ahead and use the tax system to incentivise good behaviour, to reduce our reliance on plastics, particularly products using new plastics, and to improve the take-up and use of recycled plastics.

That is why this proposal received such widespread support in response to the Government’s consultation, and I recognise and welcome the fact that the Government responded favourably when the majority of respondents made representations about wanting the tax to be extended to imported filled plastic packaging.

In his remarks, the Minister addressed some of the questions I had about the timetable for introducing draft legislation, and when we can expect it to be implemented. Next year’s finance Bill feels a long way away, and, because of the events we are living through, finance legislation and a finance Bill might be introduced sooner. On the basis of the merits of this policy and the impact it is likely to have on the use of plastics in our country—we certainly hope it will have such an impact—we would support the Government if they were presented with the opportunity to move further and faster. I urge the Minister to consider doing so.

--- Later in debate ---

[Jesse Norman]

That is a very helpful question. I cannot update the Committee at the moment, because, as my hon. Friend will know, that is a matter for consideration within the Treasury. However, she has usefully put the issue on the record, and I thank her for doing so.

[Wes Streeting]

Clause 103 gives me an opportunity to speak to some of the challenges facing local authorities and the role that the Public Works Loan Board can play. I also want to knock on the head some of the assertions that have been made about local government finances and the sensible use of borrowing by local authorities across the country to invest in local infrastructure and works that benefit their residents. I speak not just as my party’s shadow Treasury spokesperson, but as a former deputy leader of the London Borough of Redbridge and a current vice-president of the Local Government Association.

Local authorities have done a remarkable job managing their finances sensibly and effectively during a very difficult decade. Not only was the public sector broadly hit by cuts, but local authorities felt the brunt because those cuts were both deep and front-loaded. The local authority response to those challenges over the course of the past decade has, to be frank, been remarkable. The same can be said for the ingenuity of many local authorities in making sensible and wise investments that not only improve the lives of their residents but generate income that can then be ploughed back into frontline services and mitigate the impact of central Government cuts. I think I speak for people right across the Local Government Association, regardless of their party, in saying that, as well as devolving power without resources, the Government have too often devolved blame. I hope that Ministers will consider that. I will address the issue this afternoon, when debate the new clauses.

There have been some rather unhelpful and misleading headlines about local authorities borrowing to invest in local projects. Of course, as with central Government, we will always be able to point to decisions that, though made with the best of intentions, do not work and incur a liability for the public purse. If public funds are not used widely, it is absolutely right that there should be scrutiny, lessons learned and accountability. It is fair to say, however, that in the vast majority of cases where local authorities have drawn on the Public Works Loan Board, their approach has been sensible, effective and well deployed. It is important that the facility continues to be made available to local authorities in the same way.

When Ministers consider not just this Bill but impending decisions by the Treasury, I urge them to recognise the awful impact of covid-19 on local authorities. In responding to the Secretary of State’s plea to do whatever it takes to get their communities through the crisis, not only have their costs risen; their income has also fallen significantly. I urge Ministers to think carefully about the demands they place on local authorities, particularly in terms of loan repayments during this period, and to consider whether more could be done.

[Stephen Flynn (Aberdeen South) (SNP)]

I have had a look at the figures. Scottish local authorities are due to repay £793 million of PWLB interest and principal debt over the financial year 2020-21. Given the extreme challenges facing local authorities, does the hon. Gentleman agree that it would be sensible if the Treasury considered mitigating those debt repayments?

[Wes Streeting]

I am grateful to the hon. Gentleman for his intervention. The Government have to look very carefully at the liabilities facing local authorities and how they are having to balance them against other demands and challenges. As I have said, in addition to creating cost pressures, the pandemic has had an impact on local authority income, too. In that respect, local authorities really are all in this together, whether they are Labour, Conservative or SNP. There are challenges for local authorities right across the United Kingdom. As we will discuss when we come to the new clauses, some communities have been affected more than others. None the less, the challenges are universal.

I hope that Ministers will take that on board and that they will listen very carefully to the representations from the Local Government Association, which is cross-party but Conservative controlled. We will do our best to remedy that in next May’s local elections. I hope that the representations Ministers receive from Conservative LGA leaders—and not just Opposition party representatives —will help them understand the challenges that local authorities are facing, particularly as they have been unable to collect around £1 billion in combined business rates and council tax income during the crisis so far.

I also impress upon Ministers the importance of Government keeping their word to local government. When local authorities were asked to do whatever it takes—and whatever it took—to get communities through the covid-19 pandemic, they took the Secretary of State for Housing, Communities and Local Government at his word and they delivered. Now, they expect to be reimbursed, as was promised. The Government have given some additional funding to local authorities, but it is a drop in the ocean when compared with the cost pressures they face and the fall in income.

With that, I am content to support the clause, and I hope that the wider points that it has enabled me to make have been heard and well understood by the Treasury, and not just the Ministry of Housing, Communities and Local Government.

[Jesse Norman]

I will just move the clause, if I may.

Question put and agreed to.

Clause 103 accordingly ordered to stand part of the Bill.

Clauses 104 and 105 ordered to stand part of the Bill.

New Clause 1

Workers’ services provided through intermediaries

“Schedule (Workers’ services provided through intermediaries) makes provision about workers’ services provided through intermediaries.”—(Jesse Norman.)

This new clause introduces the new Schedule inserted by NS1.

Brought up, and read the First time.

--- Later in debate ---

[Jesse Norman]

I am winding up, so perhaps I could let the hon. Lady introduce her point in her speech.

When their engagement meets the tests of an employment relationship, contractors should not pay less tax than those who are directly employed. I therefore move that new clause 1 and new schedule 1 stand part of the Bill.

[Wes Streeting]

Our position on IR35 has been well rehearsed in previous and recent debates on the Floor of the House, but let me revisit some of those points, because this debate is closely followed outside Parliament and matters to people across the country. Self-employment is a vital part of the UK economy. People who are genuinely self-employed deserve to be properly supported while also ensuring that everyone pays the right amount of tax. Historically, the tax arrangements for self-employed people have differed from those for people on payroll, reflecting the fact that self-employed people have lower levels of protection in areas such as holiday pay, sick pay and other rights and benefits that people would enjoy if they were employed on payroll. Clearly the system has also been subject to abuse, and it is right that we tackle that abuse.

Some of the anxiety arises from concerns that the Treasury, and the Government more broadly, sometimes have a tendency to think of the self-employed as if they fell into only two categories of people. The first is the very wealthy, who use self-employment status to avoid paying their fair share of tax, which should obviously be clamped down on. The second is the very low paid, who work in parts of the economy that are deemed unproductive—even to the extent that some people would think it desirable that such workers were not engaged in those forms of employment, as if that were the best way to tackle the UK’s poor productivity statistics. The true picture of self-employment in the country is a lot more complicated than that, and huge numbers of self-employed people make an enormous contribution to the economy and who provide a whole range of services that benefit citizens across the country and businesses more generally.

It is right that the Government have taken the decision to delay the implementation of the roll-out until April 2021 due to coronavirus. The Opposition would again impress on the Government the need to use the additional time ahead of implementation to provide an additional review and to learn from the mistakes of the public sector roll-out and the continuing anxieties about the planned private sector roll-out. Those concerns were expressed in the House of Lords report entitled, “Off-payroll working: treating people fairly”, which concluded that the Government must address IR35’s inherent flaws and unfairness, a point that was supported by the ICAEW.

The Opposition urge the Government to use this time wisely. We believe it is necessary for the Government to take a broader approach in order to modernise the law on employment status and to look at how it interrelates with tax status, so that we have a genuinely joined-up approach that brings together the issues of tax and employment law. Notwithstanding the planned roll-out of IR35, the Chancellor made it very clear, when he announced the self-employment income support scheme, that there will be consequences for future Treasury policy and future tax arrangements for Britain’s self-employed. That message was heard loud and clear by the self-employed, but if we are asking them to pay a greater contribution, we also have to address the inherent challenge and, in many cases, the injustice around their employment protections and the levels of social protection and social insurance that people enjoy if they are employed, as opposed to self-employed.

As the shadow Chancellor has said, having addressed this issue many times both in her current role and in her previous role:

“We really need a joined-up approach to the issues that brings together the consideration of tax and employment law and levels up protections for the self-employed, as well as dealing with the current implications of the tax system that boost bogus self-employment.”—[Official Report, 4 April 2019; Vol. 657, c. 489WH.]

She made those remarks back in April 2019; it is now June 2020. I am not sure that, in the year that has passed since she made those comments, the situation has changed particularly and that things have improved. The delayed roll-out is something that has been widely welcomed, but it is crucial that the Government use this time wisely. It is not clear from the year that has just passed that the Government will use the next year any better.

[Stephen Flynn]

Before I get into the substantive detail of this issue, I want to touch on the process and where we find ourselves at this moment in time with the new clause that has been tabled by the Minister. It is simply not acceptable that such a contentious tax matter was first introduced through a 45-minute money resolution debate in the House, instead of being subject to the full scrutiny of the Budget process.

The money resolution debate took place after the Finance Bill was published, meaning that the Government were able to introduce the detailed IR35 tax law as a Finance Bill amendment. The result of what can only be described as a procedural whizz is that Opposition parties cannot do what they were elected to do and amend the proposals as the Bill goes through its line-by-line scrutiny. Frankly, that is not good enough. I certainly thought better—perhaps wrongly—of the Government in that regard. Of course, that entire process missed out those MPs who have been disenfranchised from taking part in the House as a result of the Government’s shocking processes in recent weeks.

        On the substantive issue at the heart of this, let us be clear that IR35 is creating a new group of zero-hours employees paying full taxation but without receiving the associated employment rights. What is just and fair about that? Speaking as a Member with a constituency that is dominated by the oil and gas sector, I have been inundated—inundated—with correspondence from contractors outraged by the decisions that the Government are seeking to take, particularly so given that we are in the middle of a global pandemic. I hope that the huge concern that I and others have about the long and, frankly, short-term sustainability of the oil and gas sector, and the impact that that has on employees, has not escaped the Government’s notice. To then add a further layer of complexity into their employment status is simply unforgivable.

        In the north-east of Scotland, we are witnessing job losses hand over fist. Barely a day goes by when companies are not shedding staff. That is applicable to most sectors at the moment, be it hospitality, tourism or aviation, but it is very rare for a sector of such scale to be so dominant in one city, as is the case in Aberdeen. What the Government are seeking to do in relation to IR35 is a slap in the face to those workers who are having to deal with the most difficult of challenges.

Not only are the Government hitting those contractors—many of whom went down that path in good faith—with IR35, but they are failing to deliver any sectoral support to the oil and gas industry. Not a single penny of sector-specific support has been provided by the UK Government for the oil and gas sector, irrespective of the fact that the Treasury has lined its pockets with North sea oil and gas revenue for decades. It is time to give back, not time to double down on the damage, so I urge the Government to reconsider what they are putting forward.

--- Later in debate ---

[Alison Thewliss]

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

My understanding was that we were breaking after the previous clause, so I will scramble to find my notes. We think it is important to look at the geographical impact of the Bill. I support the new clause tabled by Plaid Cymru, which has suggested that we have a report assessing the

“differential geographical effects, broken down by nation and NUTS 1 statistical region, of the changes made by sections…of this Act.”

What is lacking in this House—I have said this before and I have no hesitation in returning to it—are real mechanisms to explore how effective the measures in the Finance Bill are in reality. My colleagues and I have supported work on a Budget Committee, which has been before the Procedure Committee to look at it as well. We do not understand the effectiveness of the policies and the ideas that the Government have, so we end up with things being proposed in Bills that turn out to be completely ineffective or we find out that they have differential effects from what the Government expected, so they have to come back later to amend things and try to fix their mistakes.

We feel that requiring the Government to consider the geographical effects of the changes to the reliefs, including research and development expenditure credit, would give a better understanding of how effective they are across the different regions and nations and of whether those incentives actually contribute to the continuing inequalities that we see across the UK. We think this is an issue of real importance to Scotland and to Wales for the measures where we do not necessarily have particular control ourselves and where the devolved nations do not have competence. It is important to understand what the Government are about with the legislation they are proposing as well as its impact, and whether the measures are truly seen to be effective.

[Wes Streeting]

The hon. Member for Glasgow Central makes a reasonable case—that will be a running theme throughout a number of new clauses, not least when we turn to new clause 3 in the afternoon session. I will make the points I want to make about the importance of reviewing the geographical impact of measures in the Finance Bill at that point, but I concur with her remarks.

[Jesse Norman]

I thank colleagues who have spoken. New clause 2 would require the Government to assess and report on the geographical effects of changes to business tax reliefs made by clauses 27 to 30 within 12 months. That relates specifically to the research and development expenditure credit, the structures and buildings allowance, and the treatment of intangible fixed assets.

Her Majesty’s Revenue and Customs does not routinely require businesses to provide geographical information about where expenditure is incurred as part of their claims for RDEC, SBA or intangible fixed assets treatment. In order to do so, changes would need to be made to the CT600 form, which would create a burden for businesses. In addition, those claiming the reliefs would only provide information after the year-end. For that reason, it does not make sense. It is not possible for Her Majesty’s Revenue and Customs to have that information within the 12 months stipulated in the amendment. HMRC does in fact already publish annual statistics on many tax reliefs, including a detailed breakdown of R&D tax relief claims, which analyses, by region and sector, the number of claims and the amount of relief received. However, the regional analysis is based on the company’s registered office, not necessarily where expenditure is incurred.

Although the next set of annual R&D tax relief statistics will be published by HMRC in the autumn, companies can claim R&D tax relief up to two years after the end of their accounting period. For that reason, the 2020 statistical release will include claims only until 2018-19, and will therefore not include claims for the increased 13% RDEC rate. The Government do, of course, remain committed to levelling up every region and nation of the UK to spread opportunity and to ensure that everyone benefits from growth. For example, the spring Budget provided a £1.14 billion increase to block grants for devolved Administrations to spend on their own priorities. That is in addition to the £2.7 billion that the Government are investing in city deals across Scotland, Wales and Northern Ireland, with £800 million of funding being provided to support four deals in Wales alone, and a further £1.4 billion being provided across 10 deals in Scotland.

As we look to our economic recovery from the impact of covid-19, that levelling-up agenda will be more important than ever. Given that the Government already publish detailed analyses and that regional information is collected and held as part of HMRC’s tax returns, asking business to record further information would represent a significant additional business burden. I ask the Committee to reject the new clause.

Finance Bill (Tenth sitting)

Wes Streeting Excerpts

Committee stage & Committee Debate: 10th sitting: House of Commons
Thursday 18th June 2020 Public Bill Committees

[The Chair]

Good afternoon. As Members are aware, social distancing guidelines are in place, so I remind them to sit only in marked seats. Tea and coffee are not permitted in Committee Rooms. Please will all Members ensure that mobile phones are turned off or switched to silent mode during the sitting? As Members are also aware, the Hansard reporters would be most grateful if speaking notes were sent to [e-mail].

New Clause 3

Review of impact of Act on nations and regions of the UK

“(1) The Chancellor of the Exchequer must conduct an impact assessment of this Act on the different parts of the United Kingdom and regions of England, and lay this before the House of Commons within six months of Royal Assent.

(2) This assessment must consider the impact on:

(a) Household incomes in each part of the United Kingdom and region of England; and

(b) GDP in each part of the United Kingdom and region of England;

(3) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and ‘regions of England’ has the same meaning as that used by the Office of National Statistics.”—(Wes Streeting.)

This new clause would require the Chancellor of the Exchequer to review the impact of this Bill on the nations and regions of the UK.

Brought up, and read the First time.

[Wes Streeting (Ilford North) (Lab)]

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

[The Chair]

With this it will be convenient to discuss the following:

New clause 18—Assessment of impact of provisions of this Act—

“(1) The Chancellor of the Exchequer must review in parts of the United Kingdom and regions of England the impact of the provisions of this Act and lay a report of that review before the House of Commons within one month of the passing of this Act

(2) A review under this section must consider the effects of the provisions on—

(a) GDP

(b) business investment,

(c) employment,

(d) productivity,

(e) company solvency,

(f) public revenues

(g) poverty, and

(h) public health.

(3) A review under this section must consider the following scenarios:

(a) the Job Retention Scheme, Coronavirus Business Interruption Loan Scheme, Bounceback Loan Scheme and Self-employed Income Support Scheme are continued for the next year; and

(b) the Job Retention Scheme, Coronavirus Business Interruption Loan Scheme, Bounceback Loan Scheme and Self-employed Income Support Scheme are ended or changed in any ways by a Minister of the Crown.

(4) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

‘regions of England’ has the same meaning as that used by the Office for National Statistics.”

This new clause would require a review of the impact of the Bill in different possible scenarios with respect to the continuation of the coronavirus support schemes.

New clause 21—Sectoral review of impact of Act—

“(1) The Chancellor of the Exchequer must make an assessment of the impact of this Act on the sectors listed in (2) below and lay a report of that assessment before the House of Commons within six months of Royal Assent.

(2) The sectors to be assessed under (1) are—

(a) leisure,

(b) retail,

(c) hospitality,

(d) tourism,

(e) financial services,

(f) business services,

(g) health/life/medical services,

(h) haulage/logistics,

(i) aviation,

(j) transport,

(k) professional sport,

(l) oil and gas,

(m) universities, and

(n) fairs.”

This new clause would require the Government to report on the effect of the Bill on a number of business sectors.

[Wes Streeting]

It is a pleasure to move new clause 3, in my name and those of my hon. Friends, and to speak to new clauses 18 and 21, which will be put forward by the hon. Member for Glasgow Central.

As this is likely to be the last sitting for line-by-line scrutiny, I would like to take the opportunity to thank you, Mr Rosindell, and Ms McDonagh for so effectively chairing our proceedings in the course of that scrutiny. I thank the staff in the Public Bill Office for all their assistance in putting together various amendments and new clauses. I thank my own team in Westminster—in fact, not in Westminster but working from home—for the efforts that they have made in supporting me and other hon. Members throughout this process, and I thank staff working in the offices, or not in the offices, of other members of the shadow Treasury team. They have done a sterling job—it should be borne in mind that we do not have the resources of the civil service to support us through all this—and it is much appreciated.

Ours is a great country, full of promise and opportunity. One of the richest countries in the world, we are home to world-class universities, entrepreneurs, captains of industry, groundbreaking scientists and inventors, globally renowned artists and a vibrant civil society. However, as we will consider across a number of our debates this afternoon, this is also a country of staggering inequality, intolerable poverty and wasted potential—and that is before we consider the impact of coronavirus on our country’s economic prospects.

I am starting with new clause 3. The economic divisions in our country are not merely reflected through class inequality, but reflected and represented in our geography. Britain is home to nine of the 10 poorest regions in western Europe, but also the richest, in inner London. A child on free school meals in Hackney is still three times more likely to attend university than an equally poor child in Hartlepool. The gap in productivity between English regions is worth about £40 billion a year, with productivity in London and the south-east standing at 50% above the national average.

The past 40 years have seen a significant decline in our country’s manufacturing base, with serious social consequences in former industrial towns and profound consequences for people’s lives and livelihoods—and our politics. People have seen their jobs disappear as a result of one of the largest deindustrialisations of any major nation, with production exported to countries with cheaper labour costs through outsourcing, or being lost altogether to labour-saving technology.

That is why the so-called levelling-up agenda is so important, and it is made all the more pressing by the covid-19 pandemic. We know from the evidence emerging all the time that without an effective regional response from the Government, the economic crisis brought about by covid-19 risks entrenching existing inequalities in our country and creating new ones that, unchecked, might persist for decades.

According to the RSA, the Royal Society for the encouragement of Arts, Manufactures and Commerce, rural areas and coastal towns in the north and south-west of England are most at risk of covid-19’s impact on unemployment. This involves many coastal towns, national parks and tourist hotspots, with economies dependent on hospitality, retail and tourism. The RSA identified the district council of Richmondshire in North Yorkshire, which forms part of the Chancellor’s constituency, as the most at-risk area.

Meanwhile, KPMG’s chief economist in the UK believes that the west midlands could face the biggest impact. My right hon. Friend the Member for Birmingham, Hodge Hill (Liam Byrne) has been banging the drum for the west midlands economy, highlighting in particular the risks to manufacturing in the region. The weighting of the average sectoral impact, measured by the Office for Budget Responsibility against the distribution of each local authority’s gross value added by sector, concluded that the decline in economic output in parts of the midlands and the north-west could be as much as 50% and that nine out of the 10 worst affected local authorities will be located in those regions.

That is not to say that we should not be concerned about our major cities either. Edinburgh, in particular, has the highest level of exposure to the reduction in international tourist spending, with consequences for the city and surrounding regions. Indeed, I hope we can move away from the narrative of London versus the rest of the country. Our capital city is a truly global city, and its success is inseparable from our national success, but London’s political leaders and our business leaders recognise the need for a more balanced regional economic settlement and the benefits that that would bring to all of us, wherever we live and work.

As we think about the crisis that we are living through and the recovery that we hope will follow, let us take heed of the warning from the New Local Government Network and so many others that recovery cannot be a synonym for the resurrection of business as usual. It cannot be a coincidence that our country has one of the most imbalanced economies in the developed world and also one of the most centralised systems of government.

As TheCityUK has argued,

“the crisis should prompt policymakers to consider anew some long-standing potential solutions to the problem of regional inequality, such as devolution of political and potentially fiscal powers.”

It is important that, at every Budget, Finance Bill and fiscal event, the Treasury looks carefully at whether we are moving the dial in the right direction when it comes to tackling the gross regional inequality in our country. I think it is fair to say that, under successive Governments, the Treasury has had a much more centralising tendency and cultural mindset than other Departments. Of course, it is easy to understand why that is and the appeal of being able to make big decisions and pull big policy levers that have an impact across Government and the country. But the way in which decisions are taken in Whitehall has a direct effect on not just town halls but communities right across our country.

[Stephen Flynn (Aberdeen South) (SNP)]

The hon. Member is making a number of excellent points. He could perhaps go further, because what he is referring to could also be an emboldened and more powerful Scottish Parliament with further devolution to Scotland.

[Wes Streeting]

I am grateful for that intervention. I was very encouraged by the recent policy position published by the leader of the Scottish Labour party and excitedly relayed to the rest of us by the shadow Secretary of State for Scotland, my hon. Friend the Member for Edinburgh South (Ian Murray). Scottish Labour has come out with some really bold proposals for how devolution could go even further, extending to home rule in Scotland. I know that that is not a position shared by the separatists in the Scottish National party. We could spend the rest of the afternoon discussing the merits or otherwise of Scottish independence, but, to allow SNP Committee members to get back home at the end of the day, perhaps we should not dwell on that this afternoon.

[The Financial Secretary to the Treasury (Jesse Norman)]

It is too tempting for me not to ask the hon. Member to share a few of his views on Unionism in Scotland and whether he thinks that is a good idea.

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[Wes Streeting]

I think that the economic benefits of the Union are so obvious and well rehearsed from the debate on Scottish independence and the referendum campaign, but for me this is not just a question of economics or a statistical debate about the merits of Unionism; it is also about the shared history, shared benefits, shared prosperity and shared identity of the United Kingdom.

I have a great affection for Scotland as a country, and indeed for its history, its separate identity and its separate strength where policy there is different. For example, thinking back to my experience before entering this House, I have always greatly admired the Scottish higher education system, and the way in which issues such as quality enhancement are approached in Scotland. I just think that we are stronger together.

I will now pick some wounds in the other direction, because just as I have never understood how the SNP can be pro-union at a European level but hostile to it at a UK level, so too have I never understood the Conservative party’s anti-unionism in relation to the EU and its pro-Unionism in a UK context. In fact, returning to the economic matters addressed by the Bill, I have as much belief in the merits of the single market of the United Kingdom as I have in the merits of the single market of the European Union. Unfortunately, these questions have already been settled—in one case favourably; and in the other unfavourably, in my opinion. But I shall dry my remainer tears and return to our consideration of new clause 3—[Hon. Members: “Hear, hear!”] Government Members are cheering in all the wrong places.

Finance Bills, Budgets and other fiscal events are not simply number-crunching exercises, or processes of bureaucratic tidying up, as much of the Bill is concerned with, important though those often are; they also reflect the political priorities of the Government of the day and send a message to the country about the things that the Government value and want to achieve. Every one of them should move the dial on the big challenges facing our country in the right direction. That is why new clauses 18 and 21, tabled by the hon. Member for Glasgow Central, are also so important.

The economic impact of covid-19 has been felt right across our economy but, as the ONS figures show, some sectors have been hit harder than others, and we know that some sectors will be hit harder for longer. If we take the gross value added figures and look at the percentage change from March to April, we see a fall of 5% in the financial sector, for example, or 6% in agriculture, forestry and fishing. Compare that with a fall of 88% in hospitality, 40% in construction, 40% in arts, entertainment and recreation, and 24% in manufacturing. Those figures are extraordinary.

What makes the country’s experience of this crisis so different from that of 10 years ago, in the aftermath of the global financial crisis, is that we are seeing that really significant variation. If we look at the GVA figures for the impact of the financial crisis sector by sector, and then we look at the OBR’s projected output figures, as the Resolution Foundation has done, we see such a stark contrast, sector by sector, between the standard deviation 10 years ago and the one projected now.

That is why a one-size-fits-all approach to our economic response to coronavirus simply will not cut it. We of course recognise the steps that the Chancellor has already taken, and my hon. Friend the shadow Chancellor has been keen to work constructively with the Government on the economic response, as indeed have we all, but we are concerned about what lies ahead and about how the Chancellor is proposing to handle the economic response and the long-tail effects. That is why this week we have called on the Chancellor to come forward with a full Budget in March—a back-to-work Budget focused on jobs.

What gets measured is what counts. The Treasury will make better decisions and Parliament will be able to scrutinise more effectively if we look more closely at the impact of Treasury decisions on the issues that matter most to our country. That is why is it so important to consider the impact of the Bill on regional inequality, so I commend to the Committee new clause 3. I also indicate the official Opposition’s support for new clauses 18 and 21, which would look at the impact sector by sector and across a range of other important economic factors.

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to see you in the Chair, Mr Rosindell.

I will reflect on some of the issues raised by the hon. Member for Ilford North. The Government down in Westminster are doing such a cracking job of selling the Union that a new Panelbase poll at the start of the month put support for independence at 52%; it had 20% of no voters in 2014 now having swapped to be in favour of independence; and most people wanting to see a vote in the next five years. A great commendation of the UK Government on the job that they are doing is that people in Scotland are regretting at a greater rate than ever before how they voted in 2014.

[Wes Streeting]

Perhaps when the hon. Lady returns to her constituency, she might reassure her constituents who worry about policy making at a UK Government level that, hopefully, we will have a Labour Government again before too long.

[Alison Thewliss]

People can promise things in the never-never—perhaps that will happen, but we do not quite know. But how Scotland ends up getting governed should not be down to whether votes in England sway one way or the other. We would do a far better job of governing ourselves, as many small independent countries around the world do. Many small independent countries are also making a much better fist of dealing with the coronavirus crisis than the UK is—in fact, most countries in the world are, never mind small ones. Look at how well New Zealand has managed the crisis, and how well it has been able to come out of it, under the brilliant leadership of Jacinda Ardern. We have a lot to learn from other countries about how to do things better in so many ways.

We are very supportive of Labour’s new clause 3 and of the complementary new clauses 18 and 21, which I tabled. New clause 18 seeks assessments of the impact of the Bill within a month on various economic variables, comparing situations in which the Treasury ceases or continues its covid-19 support schemes for the next year.

The likely reality is that when the schemes are discontinued, as planned, the economy and people’s living standards will be sent reeling. We know that from the many studies that have been done of people who have taken up the coronavirus job retention scheme—the majority of uptake of the scheme in the hospitality and tourism industries is significant. YouGov polling out yesterday suggested that a huge number of people would lay off their staff if the schemes were withdrawn. The Government need to listen carefully to the experience of people in those sectors on the impact of withdrawing too early.

We feel it is important that that is looked at in the context of the Finance Bill. As everyone has seen, as the Finance Bill progressed from the Budget to where we are now, the world in which we are living changed—changed dramatically—for so many people and their living standards. For the Government to have such a review seems wise.

The schemes covered by new clause 18 are the job retention scheme, the business interruption loan scheme, the bounce-back loan scheme and the self-employed support scheme. We know that the Chancellor has said that he will do “whatever it takes” to protect jobs, but we also know—I am a member of the Treasury Committee, and we have found that from the evidence received from many—that more than 1 million people have fallen through the gaps in the schemes. We need to understand what impact that and the measures in the Finance Bill will have on those groups.

Earlier, the Office for National Statistics revealed that in April the UK’s economy suffered its biggest monthly slump in GDP on record—20.4%—due to the pandemic. We therefore think that it would be wise for the Government to expand the support schemes, rather than winding them down. That is also critical for the devolved nations, which are moving at a slightly different pace, due to the circumstances in which we find ourselves, hence why we want to look at the different nations as well.

In new clause 21, we ask the Government to report on the effects of the Bill in a number of different business sectors. Different sectors will be differently affected. The sectors mentioned in the new clause include leisure, retail, hospitality and tourism, all of which we know from our constituency experiences have been severely hit, with retailers having real problems and many in the leisure sector perhaps falling outwith some of the schemes and finding it very difficult to get started up again. As I mentioned earlier, some businesses in my constituency were unable to access the support for various technical reasons. Financial services, business services, health life/medical services, haulage and logistics and aviation have also been severely impacted. Many bus firms and tour firms are struggling to keep going, which will impact on schools as they return. Many are rural schools and so rely on the transport sector to move pupils around. Those factors need to be considered as well.

My hon. Friend the Member for Paisley and Renfrewshire South (Mhairi Black) has spoken a great deal about the impact on the aviation sector, which, in turn, will have a huge impact on the behaviour of BA. The way it is currently treating its staff is absolutely appalling.

We also want to talk about professional sport and oil and gas, which my hon. Friend the Member for Aberdeen South covered so well earlier. Universities will be hugely impacted by the number and ability of foreign students to come here to work, study and live. Those universities have been in contact with me—indeed, several are based in my constituency and several neighbour my constituency —saying that they are very concerned about their future, which the Government have not really talked about to any great extent. Fairs, too, face problems. I have many show people based in my constituency, and they are also very concerned about the loss of their season and their ability to continue trading, because they do rely on that public-facing role—opening up the funfair to people, taking money and exchanging cash. Without that, they have no income at all. They have very few alternatives. Many may operate things such as snack bar vans, which, again, have not been operating to the same extent as previously.

We are keen to press the Government on these things and to understand the impact of what has been proposed here and to see what schemes are running. I am very happy to move these new clauses in my name and the names of my hon. Friends.

[The Chair]

Does the hon. Gentleman intend to press the new clause to a vote?

[Wes Streeting]

Yes, Mr Rosindell.

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

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Brought up, and read the First time.

[Wes Streeting]

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

[The Chair]

With this it will be convenient to discuss the following:

New clause 19—Review of impact of Act on UK meeting UN Sustainable Development Goals—

“The Chancellor of the Exchequer must conduct an assessment of the impact of this Act on the UK meeting the UN Sustainable Development Goals, and lay this before the House of Commons within six months of Royal Assent.”

New clause 20—Review of impact of Act on UK meeting Paris climate change commitments—

“The Chancellor of the Exchequer must conduct an assessment of the impact of this Act on the UK meeting its Paris climate change commitments, and lay this before the House of Commons within six months of Royal Assent.”

[Wes Streeting]

It is a pleasure to rise to move new clause 4, which asks that the Government review the impact of this Bill on the environment. As I said earlier in our discussions on the Bill,  this is where the Government’s stated ambitions on tackling climate change are not yet matched by action.

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[The Exchequer Secretary to the Treasury (Kemi Badenoch)]

New clauses 4, 19 and 20 would require the Chancellor to review the environmental impact of the Finance Bill and its impact on the UK’s meeting the UN sustainable development goals and UN Paris climate change commitments. The new clauses are not necessary and should not stand part of the Bill. Tackling climate change is a top priority for the Government, as demonstrated by the UK becoming the first major economy to pass legislation committing to reach net-zero emissions by 2050. The Bill builds on the UK’s existing strong environmental record and commitments by delivering new policies to reduce carbon emissions and enhance the environment, and it provides significant incentives to support the continued decarbonisation of transport.

Clause 83 establishes tax support for zero-emissions vehicles, exempting them from the vehicle excise duty expensive car supplement. From April 2020, vehicle excise duty and company car tax will also be based on a new, improved laboratory test known as the worldwide harmonised light vehicle test procedure, or WLTP, which aims to help reduce the 40% gap between the previous lab tests and real-world carbon dioxide emissions.

The Bill will ensure that HMRC can make preparations for the introduction of the plastic packaging tax, which will incentivise businesses to use 30% recycled plastic instead of new material in plastic packaging from April 2022, stimulating increased recycling. The Government are also reopening and extending the climate change agreement scheme to support energy-intensive businesses to operate in a more environmentally friendly way.

Clause 93, which establishes a UK emissions trading system, and clause 92, which updates legislation relating to the carbon emissions tax, ensure that polluters will continue to pay a price for their emissions once our membership of the EU and the emissions trading system ends following the transition period.

New clause 4 would require an impact assessment of the Bill on the environment to be laid before Parliament within six months of Royal Assent. Where tax policies have a particular environmental impact, the Government will take that into account during the tax policy making process and, where appropriate, publish a summary of the impact in the relevant tax information and impact note, or TIIN, as it is otherwise known. The Bill’s clauses demonstrate our progress towards tackling climate change as well as towards international deals and agreements, without the need for an additional environmental impact review.

The hon. Member for Ilford North made several comments about our spending more money on coronavirus than on climate change and about our not being on track to meet our net zero targets. All I can say to him is that many of the actions that we need to take to deliver our climate targets also help the UK’s economy to recover from the impacts of covid-19. We do not look at those issues separately. He must remember that between 1990 and 2017 the UK reduced its emissions by 42% while growing the economy by more than two thirds. It is simply wrong to say that we are not doing enough on climate change.

Building on our ambitious announcements in the Budget, such as the £800 million fund for carbon capture and storage, we are developing ideas for how we can go further using clean, sustainable and resilient growth as a guiding principle for our strategy to recover from the impact of the virus.

New clauses 19 and 20 would require a review of the impact of the Bill on the UK’s meeting the UN sustainable development goals and Paris climate change agreements. The UK published a voluntary national review setting out in detail our progress towards the sustainable development goals and identifying areas of further work in June 2019. We remain committed to supporting implementation of the sustainable development goals, including to help us build back better from the covid-19 crisis. By working to achieve the sustainable development goals, we will also be better placed to withstand future crises.

Under the Paris agreement, the Government must maintain and report on their emissions reduction commitments in the form of a nationally determined contribution. The UK’s legally binding commitment to reduce emissions to net zero by 2050 is among the most stringent in the world, and the system of governance implementing the commitment under the Climate Change Act 2008 is world leading.

The Committee on Climate Change, established under the CCA 2008, provides independent evidence-based advice to the UK Government on how to achieve the targets. It reports to Parliament annually on progress made in reducing greenhouse gas emissions and on preparing for and adapting to the impacts of climate change. The Government are committed to tackling climate change. The measures in the Bill already demonstrate that, as well as highlighting our progress towards achieving net zero emissions by 2050, which is one of the most ambitious climate change commitments in the world. In this context, a separate review of the environmental impact of the Bill and how it meets international agreement is unnecessary. I therefore ask the Committee to reject the amendments.

[Wes Streeting]

I am concerned by the complacency of the speech that we have just heard from the Exchequer Secretary. I do not think it is sufficient to say that the UK is doing enough to tackle climate change and to meet our net zero ambition when all of the evidence suggests that that is not the case. That reinforces even further the case to run a proper impact assessment on the Bill.

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

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[The Chair]

With this it will be convenient to discuss:

New clause 17—Assessment of equality impact of measures in Act—

(1) The Chancellor of the Exchequer must lay before the House of Commons a report assessing the effects on equalities of the provisions of this Act within 12 months of the passing of this Act.

(2) The review must make a separate assessment with respect to each of the protected characteristics set out in section 4 of the Equality Act 2010.

(3) Each assessment under (2) must report separately on the effects in in each part of the United Kingdom and each region of England.

(4) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

‘regions of England’

has the same meaning as that used by the Office for National Statistics.”

This new clause would require the Chancellor of the Exchequer to review the impact of the Bill on equalities.

[Wes Streeting]

New clause 5 requires the Chancellor of the Exchequer to review the impact of the Bill on individuals or groups with protected characteristics defined under the Equality Act 2010. The Equality Act, passed by the last Labour Government, was one of the most important pieces of legislation that we passed. It aimed to accelerate the advance this country has made over successive decades in trying to eliminate the discrimination, prejudices and inequalities experienced by people on the grounds of race, ethnicity, gender, sexual orientation, gender identity, religious beliefs and so on.

Throughout my life, I have felt an almost certain sense of inevitability that Martin Luther King was right when he said that

“the arc of the moral universe is long but it bends towards justice.”

It implies the onward march of social progress. We have seen that in this country. On discrimination against people based on their race, the indicators have improved. Action has been taken to tackle gender equality and the role of women in our society. The Labour Government delivered historic changes in terms of the treatment of LGBT people and established such a consensus that the coalition Government built on that record with legislation on equal marriage. The Disability Discrimination Act 2005 improved the treatment of disabled people.

However, inequality is still present in our society and injustice is still too frequent. I am not sure we can say with the same sense of certainty I used to feel that the onward march of social progress is inevitable. Progress has to be defended otherwise it gets rolled back. Unless there is a relentless and genuine commitment to tackling inequalities, they continue to persist. It is not just that people are victims of deliberate and conscious bias and discrimination. Often they are victims of unconscious bias and discrimination, and that is why the evidence and the data are so important. It is not enough just to reassure ourselves that we are nice people and we like treating one another fairly. We have to look at, and be guided by, the evidence. Even those of us with deep personal convictions when it comes to tackling inequality and injustice can make mistakes. We are all affected by biases and preconceptions, and we have to remain constantly alive to them.

I do not think the picture painted in our country today is one we ought to be satisfied with. Women make up 69% of low-paid earners and the majority of people living in poverty, including 90% of lone parents, almost half of whom are living in poverty. Many of those women are disabled or face racial inequality, a reminder that although we understandably and rightly set out in legislation those protected characteristics one by one, the discrimination, prejudices and biases that people are subjected to are often intersectional. Sometimes people face discrimination, whether deliberate or otherwise, twofold, threefold or fourfold. Women are disproportion- ately likely to work in sectors that have been hardest hit by the lockdown we are experiencing as a result of coronavirus. Figures from the Institute for Fiscal Studies show that 36% of young women work in sectors that have been closed down, including restaurants, tourism and retail.

Almost half of people living in poverty today in the UK are disabled or live with someone who is. The Runnymede Trust has found that black African and Bangladeshi households have 10 times less wealth than white British households, and black Caribbean households have about 20p of wealth for every £1 of white British wealth. Around 18% of Bangladeshi workers are paid below the minimum wage, compared with 3% of their white counterparts. That is a reminder and recognition of the fact that although we use the term “black and minority ethnic” as a catch-all, there are many different experiences among people of different races and ethnicities. We have to pay attention to the different variables and factors that have an impact on people.

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[Kemi Badenoch]

No, I am not giving way; Opposition Members have had their time. I ask the hon. Lady, instead of trying to give me lectures, to take some time to learn a little more about what is going on. Even the phrase she talks about—“people with protected characteristics”—is wrong; we all have protected characteristics. The Equality Act is for everybody and not for specific groups of people.

On that note, neither of the new clauses would be useful in finding out more about the impact on equality, because the Government regularly publish in summary form the equality impact assessments for the legislation that we introduce. The reports required by the new clauses would not add any genuine value, so I ask the Committee to reject them.

[Wes Streeting]

That speech was really quite extraordinary and incendiary itself in response to what has been said. We are giving voice to the statistics and the data. Speaking for myself—I imagine this is also true for the SNP spokesperson—I am particularly giving voice to the concerns of my constituents. I represent one of the most ethnically and religiously diverse constituencies in the country. People who have written to me in recent weeks have not done so simply out of anger or emotion, and certainly not because they have read something that I have said in Hansard—that would be a novelty—but because of their own lived experiences. That is the frustration for me.

It would be one thing had the Government said this afternoon, “This is what we have done, but we recognise that there are big challenges, so this is what we still plan to do,” but their response to the protests of recent weeks has been tone deaf, for the most part, and actively irresponsible in other respects. It is regrettable that we do not seem to be seizing the moment, either in Government or as a Parliament, to reassure people throughout the country that we will leap on this moment. If we look throughout history, we see that sometimes events occur and there are big moments that can positively shift the dial in the most remarkable way. That is what we should be seeking to do here. I have actually seen a better response in that respect from the private sector than from our own Government. The private sector does not have a democratic accountability to the people—it has a commercial one and a profit motive; if companies are doing these things out of a sense of corporate social responsibility, that is good for them—but the Government have democratic accountability.

The Government’s efforts on equalities do not match the rhetoric we heard from the Minister. The Treasury has a particular leadership role to play, particularly on tackling economic inequalities that have an impact on people from a range of characteristics, for a range of reasons, and in different ways. With that in mind, I want to press new clause 5 to a vote.

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

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[Stephen Flynn]

New clauses 14 and 15 together provide for a review of the effects of measures in the Bill on migration. Has there ever been a more apt time to assess the impact of the Finance Bill on migration, as the UK steams ahead with dragging Scotland out of the European Union against its will and, in doing so, removes the ability for us to move freely across the continent of Europe and for Europeans to move freely into Scotland to take on the jobs that we so desperately need them to take, as well as providing the cultural and economic support that our society needs and deserves?

The debate about migration has been had on many occasions in the Chamber and in many Committees in Parliament, but it is particularly important in relation to the Finance Bill, given the fact that migration is unequivocally a positive thing for our economy, in particular in Scotland. I will reflect briefly on an example from my constituency. A company called John Ross Jr makes smoked salmon so good—the kilns are good—that even the Queen enjoys it. It is a world-renowned company. When the company had sight of the UK Government’s plans for immigration, it wrote to me describing as “catastrophic” the impact of removing free movement of people into Scotland.

That company’s labour force has been heavily dominated by people from fellow European nations. They have driven that organisation forward, which is a positive thing that we should welcome and encourage. It is good for Scottish business, it is good for the Scottish economy and therefore it is good for the wider UK economy.

However, for some reason, the UK Government seem intent on dragging Scotland away from that situation, which is deeply disappointing, because Scotland faces a wider demographic challenge—a demographic time bomb, so to speak. Our working-age population continues to decrease and migration is one of the easiest solutions to that problem.

The Scottish Government have sought to be pragmatic in that regard. They came forward to the UK Government in good faith, with proposals for a Scottish visa that would not be different from what is being put in place by the UK Government, but with an additional element that which would allow us to attract the workforce that we need. It would perhaps replicate what is in place in Canada and Australia, but it was rejected out of hand— in fact, I think that it was rejected out of hand within 20 minutes—despite the fact that it is in Scotland’s best interests.

Earlier, we heard—I think it was from the Minister—how the UK Government do not have control over all aspects of life in Scotland. However, where they do have control on immigration, they are doing severe damage, which will not be forgotten by Scottish business nor by the Scottish people, and when the time comes for us to make our own decisions once again and we go to that vote on whether Scotland should be an independent nation, it is the likes of the UK Government’s immigration policies that will weigh heavily on the minds of Scottish voters.

I will just conclude, because I am conscious of time, given the desire for everyone to be able to get home, by saying that the reality—the big question, as I have said before—is: why not? Why would someone not support this proposal? Why would they not want to know what the impact of the Bill will be, because ultimately we will have a situation where UK tax policies fail to boost immigration and falling immigration hits the Treasury. This proposal is a sensible one, which would hopefully protect the interests of Scotland.

[Wes Streeting]

Based on how the pattern of voting is going this afternoon, we can guess how the discussion of this proposal will turn out, unless the Government Members have a Damascene conversion and decide to swing behind it.

I am conscious of the clock, but we have had plenty of opportunity recently to debate Government immigration policy; I think the Opposition’s views are very well known. The economic debate about immigration is an important one, and it is important to remind people not just in the House but across the country that it remains a positively good thing for this country that the UK remains a destination to attract talent from around the world to come and work and study on these shores. That is a national strength. Of course, it is also important that we have immigration rules that are widely understood and fairly applied, and enforced where necessary.

[Jesse Norman]

I will keep my remarks brief, in keeping with the spirit of Opposition Members’ comments. These clauses would require the Chancellor to review the effect of measures in the Finance Bill relating to changes in migration under several different EU exit scenarios.

I must emphasise that those scenarios are entirely hypothetical; that in itself is a highly questionable aspect of these new clauses. However, in any case, these new clauses are not necessary. I agree entirely with the hon. Member for Ilford North that immigration policy should be fair and seen to be fair. It is absolutely right that the Government have committed to ending free movement by January 2021; that will not change. The Immigration Bill delivers on that commitment but, in the spirit that the hon. Gentleman identified, it also lays the foundations for a firmer and fairer immigration system that welcomes people—the best and the brightest, to use the phrase in vogue—wherever they come from, and that is a good thing.

The Government commissioned the independent Migration Advisory Committee to advise on the role of the future immigration system and the appropriate salary thresholds for the policy, and the Migration Advisory Committee recommended against regional variation across the UK. As I have said, and given that recommendation, it would be disproportionately burdensome to create additional reporting requirements focused specifically on the migration impacts of policies in the Bill.

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[Alison Thewliss]

We had the debate on child poverty earlier in this debate, and it is important that the Government are held to account for the measures in the Bill and their impact on child poverty. They affect many of my constituents and, as others have said, it should not take a footballer to tell the Government that their child poverty measures are inadequate. Public sector reporting duties on sustainable development goals and the importance of action to tackle poverty were mentioned earlier, and the Government have an obligation to deal with that. They are failing so many of our constituents all the time when it comes to child poverty, so it is important that we use all the measures that we can possibly can. I appreciate that the measures to amend the Finance Bill are limited by the way in which the Bill is put through the House, but it is incredibly important that the Government are held to account. They could match the Scottish Government’s tackling child poverty delivery plan 2018-22, which has at its heart the Scottish child payment for low-income families for children under six. We are prioritising child poverty in Scotland because we know how important it is for the life chances of every young person in Scotland.

Without the measures to hold the UK Government to account on child poverty, we fail in the measures that we do not have control of in Scotland. The vast majority of the social security budget and measures are controlled from Westminster, as is the vast majority of tax and spend. We will do everything that we can within our power to mitigate that. The UK Government deserve to be held to account for their record, which is in many respects appalling.

[Wes Streeting]

I rise to speak to new clause 23 that I tabled with my hon. Friends and to support new clause 16. I do not want to disrupt the cross-party consensus among Opposition parties on this particular issue, but I will point out that almost one in four—230,000—of Scotland’s children are officially recognised as living in poverty. That figure is from the Child Poverty Action Group, who used Scottish Government data. It observed:

“In the absence of significant policy change, this figure is likely to increase in the coming years, with Scottish Government forecasts indicating that it will reach 38% by 2030/31. Analysis by the Resolution Foundation suggests the Scottish child poverty rate will be 29% by 2023-24—the highest rate in over twenty years.”

Let us hope that the Scottish Government’s child poverty strategy is a success—children are counting on it. Of course, the Scottish Government—here represented by the Scottish National party—are right to point to some of the impacts of UK Government policy on poverty in Scotland, and we would support them in that, but we also urge them to use their powers under the existing devolution settlement, taking responsibility for the fact that significant numbers of children in Scotland live in poverty. That is on the watch of an SNP Government who have been in power for a significant period now. I hope that next years’ Scottish parliamentary elections shake out some of the complacency that we see in Nicola Sturgeon’s Government.

[Alison Thewliss]

I disagree with what the hon. Gentleman has said. Also, bodies such as Sheffield Hallam University have pointed to the fact that Scotland mitigated the bedroom tax. Child poverty in Scotland has been mitigated because of such actions—where we can take action, we have taken action—while children in his constituency still have to face the bedroom tax.

[Wes Streeting]

Children in my constituency suffer under a Conservative Government—the hon. Lady will get no disagreement from me on that. Of course, where the Scottish Government take steps to mitigate the impact of Westminster Government decisions, I have no doubt at all that they will receive cross-party support from my Scottish Labour colleagues, but the point about the Scottish Government accepting responsibility for what happens to people in Scotland has to be a feature of the debate. One of the reasons why I admire Nicola Sturgeon as a politician and political leader is the skilful way in which she always manages so eloquently to pass the buck down to London.

[Stephen Flynn]

Does the hon. Gentleman not agree that that money, rather than having to be spent by the Scottish Government to mitigate the actions of the Conservatives, would be better spent on addressing some of his concerns? Is that not the way a Parliament should function? It should not be for a Scottish Parliament or Government to mitigate these things.

[Wes Streeting]

I am grateful for that intervention because, having had our knockabout between the Labour party and the SNP, we can now unite in common cause against this terrible Tory Government in Westminster.

Turning briefly to the facts, we know that wealth and income inequalities in the UK are stark: the richest 10% of households own 45% of the nation’s wealth, while the poorest 50% own less than 10%. The average FTSE 100 chief executive is paid 145 times more than the average worker, and Britain’s top 1% have seen their share of household income triple in the past four years, while ordinary people have struggled. Over the past decade, when Governments have been led by the Conservatives, we have seen the slowest growth in living standards since the second world war.

Shockingly, hard work does not necessarily guarantee even a basic standard of living. Wages have failed to keep up with living costs, and 14 million people live on incomes below the poverty line, including 4 million children. It should never be the case that where people are going out to work, doing the right thing and earning money for themselves and their families, they should still find themselves living in conditions of poverty, and yet that is the situation we find in our country today.

Inequality and the poverty it creates have led to an increasing number of what economist Sir Angus Deaton called “Deaths of Despair”, caused by drug and alcohol abuse due to financial hardship and hopelessness. The rate of such deaths among men has more than doubled since the early 1990s, so the human consequences of economic inequality are clear in Government statistics. People are dying needlessly as a result of the inequality that blights our nation.

Earlier this week, I was struck by the exchange at Prime Minister’s Question Time between my right hon. and learned Friend the Leader of the Opposition and the man who tries to the give the impression that he is our Prime Minister. Extraordinarily, the Prime Minister did not seem to recognise the description offered to him of child poverty in our country. I do not expect the Prime Minister of the country to have instant recall of every piece of data held by his Government, but on something as fundamental as the number of children living in poverty—or the trends of those numbers, at least—I would have expected that the Prime Minister might have some understanding of what is going on.

When my right hon. and learned Friend described poverty in Britain, he was not talking about forecasts or future expectations of growth in child poverty; he was talking about the situation today, and he was citing the Government’s own Social Mobility Commission. On page 17 of its June 2020 report “Monitoring social mobility 2013 to 2020: Is the government delivering on our recommendations?”— a question that lends itself to quoting the title of John Rentoul’s book, “Questions to which the answer is ‘No!”—it says very clearly:

“In the UK today, 8.4 million working age adults live in relative poverty; an increase of 500,000 since 2011/12. Things are no better for children. Whilst relative child poverty rates have remained stable over recent years, there are now 4.2 million children living in poverty—600,000 more than in 2011/12. Child poverty rates are projected to increase to 5.2 million by 2022. This anticipated rise is not driven by

forces beyond our control”.

That is the significant point: this is not about population changes or even, until very recently, the conditions in the economy, but is a direct result of Government policy. The commission notes on page 8 of the report:

“There is now mounting evidence that welfare changes over the past ten years have put many more children into poverty.”

Of the many great achievements of the last Labour Government, the thing I am most proud of is the number of children they lifted out of poverty. That was the result of a deliberate political choice—of public policy pulling in the right direction—and it is a stain on the conscience and character of this Government that their own Social Mobility Commission says:

“There is now mounting evidence that welfare changes over the past ten years have put many more children into poverty.”

On the same page, the commission says:

“Too often also there is little transparency concerning the impact spending decisions have on poverty. The Treasury has made some efforts in this direction, but has so far declined to give the Office for Budget Responsibility…a proper role to monitor this. There should be more independent scrutiny to help ensure policy interventions across Whitehall genuinely support the most disadvantaged groups.”

Because of the limitations on what we are able to do to amend the Finance Bill, new clause 23 does not go so far as to give the OBR formal responsibility for measuring the impact of fiscal events and policies on poverty and child poverty across the board, but at least it makes a start by asking the OBR to look at the impact of the Finance Bill. Regrettably, that is wholly necessary. When the Government’s own independent Social Mobility Commission point to the need for this, Government Members should take that seriously. When their own Prime Minister does not seem to have a clue about what is going on in terms of child poverty, it might be good to produce at least a fresh and independent set of numbers to wake him up.

Just in case Government Members are not alive to the challenges of child poverty in our country, let us look at the latest statistics from HMRC and DWP, via Stat-Xplore. In Saffron Walden, the number of children aged from zero to 15 who are in poverty is 2,261, which means the child poverty rate is 10%; in West Worcestershire, the figure is 2,176, which means a child poverty rate of 14%; in South Cambridgeshire, the figure is 2,051, which means a child poverty rate of 9%; in Kensington, the figure is 1,731, which means a child poverty rate of 9%—those children are not going to Harrods. In Penistone and Stocksbridge, 2,010 children live in poverty, which means a child poverty rate of 13%. In Harrogate and Knaresborough, 1,699 children live in poverty, which means a child poverty rate of 9%.

[Jesse Norman]

Could the hon. Gentleman tell the Committee what the rate is in Ilford, North?

[Wes Streeting]

The Minister asks a very good question; I do not have instant recall of that—[Laughter.] I will hold my hands up and say that he has got me there. However, I will tell him that in Aberconwy, the figure is 1,469, which means a child poverty rate of 16%. In Hereford and South Herefordshire, the figure is 3,054, which means a child poverty rate of 17%. In Macclesfield, it is 1,749, which means a child poverty rate of 11%. And in Montgomeryshire, it is 2,046, which means a child poverty rate of 20%.

I do not really need persuading of the need to act on child poverty in my constituency. It has been a campaigning issue that I have taken up since I was first elected to this House. However, it is a deep source of regret that, even when the Government’s own Social Mobility Commission highlights the impact of Government policies on child poverty, the Government still refuse to act.

Finance Bill (Seventh sitting)

Wes Streeting Excerpts

Committee stage & Committee Debate: 7th sitting: House of Commons
Tuesday 16th June 2020 Public Bill Committees

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to see you in the Chair, Mr Rosindell. I take what the Minister says about the measure affecting relatively few businesses at the moment, but as this develops, that might not remain the case. There is a certain irony in the EU providing mechanisms for simplifying and harmonising these rules and trading across the EU—people moving their goods around the place—when the UK stands to come out of the EU and lose some of those benefits for businesses in all our constituencies.

There is an irony as well that the Government have decided to adopt these new rules. I am sure the Brexiteers in the room are no less keen on being rule takers, but that seems to be what the Government are doing in this case. We want to see as much harmonisation and simplification for businesses, because that is to their benefit. That is why we think it is important to stay in the EU in the first place.

Figures from the Scottish Government suggest that Scottish GDP could be 1.1% lower after two years, on the current cumulative loss of economic activity from leaving the EU, and up to £3 billion over those two years, on top of the devastating effects of the coronavirus outbreak. There will be an impact without having a free trade deal or an extension, at least for Scotland’s agriculture, fisheries and manufacturing sectors.

We want to see a comprehensive assessment of how all the sectors listed in the amendment will be affected—leisure, retail, hospitality, tourism, financial services, business services, health, life and medical services, logistics, aviation, transport, professional sport, oil and gas, universities—because they could all be affected by this clause. It would be wise for the Government to look at the impact of what they are proposing. It is always wise for the Government to look at the impact of their proposals on anything, I suppose, and we encourage them to do that.

Because the measure is retrospective, will the Minister say what notifications have gone out to business that may be affected and what guidance has been given? He said that companies can opt to use these rules or not. How does that work, and how does the guidance ensure that people know what they have to carry out, whether they decide to use the rules or not? It sounds quite confusing from what the Minister said. Finally, because he did not make it clear, will he say what happens to these measures after the transition period?

[Wes Streeting (Ilford North) (Lab)]

Let me begin by picking up on a point made by the Member for Glasgow Central about the provenance of clause 78. As we heard from the Financial Secretary, the clause transposes into UK law an EU directive that provides for simplified VAT treatment of call-off stock.

To begin, it is tempting to make the same point, and I know that repetition is not a novelty. Let me put it this way: it is very welcome to hear from the Treasury that divergence from EU rules and regulations is not considered by the Government to be an end in and of itself. I was curious last night, as I walked past the Annunciator in the Tea Room, to see the right hon. Member for Wokingham (John Redwood) making a lengthy speech on a fairly straightforward statutory instrument on electricity. I reviewed his speech this morning in Hansard, because it piqued my curiosity, and I received in passing from my hon. Friend the Member for Hove (Peter Kyle) a precis of the thrust of the right hon. Gentleman’s argument. It seems that a number of Conservative Members consider divergence from EU rules and regulations to be an aim in and of itself. Regardless of the merits of the case and the merits of continued co-operation, it is clear that, for a section of the House, there is a virtue in divergence.

I am glad that the Treasury does not share that view, although of course the Treasury looks at the numbers. We may not have had an impassioned exposition from the Financial Secretary of the arguments in favour of this particular alignment with EU rules and regulations, but what we did hear was a very clear argument from Her Majesty’s Treasury that, even having left the European Union, there are still benefits to be found for UK businesses from continued alignment, co-operation, simplification, axing bureaucracy and making things simpler.

I hope that that common-sense approach to our future relationship with the European Union prevails. As much as those of us who campaigned in a different direction in the referendum accept the result and the outcome, and accept that this is a settled political question, it is in all our interests and in our national interest that we maintain a future relationship with the European Union that is based on co-operation, where that is in the interest of our own country.

I turn to the specifics of clause 78. The Financial Secretary’s speech seemed to me to address some of the concerns expressed by businesses and chartered tax advisers, but I will raise them for the sake of clarity. Writing in Taxation, Angela Lang-Horgan, a German and British chartered tax adviser and lawyer, said:

“If businesses have continued to operate under the old simplification rule after 31 December 2019, VAT returns must be corrected once the new legislation is in place. This will add additional confusion to the situation. So far, HMRC has not indicated whether it would apply a soft-landing period. There is no transition period either because under EU law the UK was obliged to introduce the changes from the beginning of this year.”

Could I get some clarity from the Financial Secretary on those points? Will HMRC provide a soft landing period for the implementation of the new rules, or is a soft landing period not even necessary? If I understood him correctly—I may have misunderstood, in which case he will clarify—it seems that there is a degree of flexibility and choice on the part of businesses over whether to adopt this approach. Some clarity in direct response to the concern expressed by Angela Lang-Horgan would be welcome.

What efforts have the UK Government made to communicate with affected businesses in anticipation of the rules, which are effectively already in place? It is worth saying, although it is a mild digression from clause 78, that concern has been expressed—particularly by colleagues in the shadow Business team—that the Government are not communicating with businesses in a timely way with respect to changes in Government policy and their impact on businesses. I think that for some time there has been a cultural problem in government of not giving businesses long enough to anticipate and adjust to new rules; I wonder whether in this case that communication has been a bit more proactive.

The explanatory notes state that

“businesses could structure transactions to remain outside the scope of the new rules if businesses found them onerous.”

What proportion of businesses are expected to exercise that discretionary power?

[Jesse Norman]

I am grateful to hon. Members for their comments. The hon. Member for Glasgow Central regards it as an irony that the Government are bringing forward this rule. I would not describe it as an irony; it is a simplification for those companies that wish to use it, and it is optional. Some companies will prefer the current arrangements as more settled and simpler, while others may not—I do not think that there is anything more to it than that. So far, 200 companies have already taken it up; of course, we cannot say in advance how many may have chosen to do so by the end of the transition period, but it is a relatively small number of companies, as I have indicated.

--- Later in debate ---

[Stephen Flynn]

Absolutely. My hon. Friend makes an excellent point. We did not have to walk far to find a shop in Scotland that sold ciders. White Lightning is incredibly strong. Often, individuals would buy it early in the morning, and by the afternoon the remnants were across our city. We were able to stop that, and that was important because it was having an impact on every single person who lived and worked there. This amendment gives the Government the opportunity to make sensible strides in recognition of the fact that public health and alcohol are inextricably linked.

[Wes Streeting]

I shall begin by addressing the SNP’s amendment 10. It is important to look carefully at the relationship between alcohol taxation and public health. We have seen in other areas of taxation, notably the sugar tax, the huge impact that decisions taken by the Treasury can have on public health and public health outcomes. It is long past time for us to look seriously and sensibly at whether more can be done to reduce the impact of alcohol and alcoholism on people’s lives and communities.

Turning to clause 79, I have had the opportunity to do a much deeper dive into some of the issues, not least because of the determined efforts of my hon. Friend the Member for Chesterfield (Mr Perkins). Anyone who has ever been lobbied by him will know that when it comes to standing up for his constituents and for businesses in his constituency, there is no more determined, stubborn and irrefutable representation than that which he provides. He has raised serious concerns about the impact of the clause on businesses in his constituency. I shall outline some of those concerns, in the hope that Ministers will consider their bearing on Government policy.

We understand perfectly what the Government are trying to achieve with clause 79. The clause amends the Alcoholic Liquor Duties Act 1979, to introduce sanctions for post duty point dilution of wine or made-wine, which, if carried out before the duty point, would have resulted in a higher amount of duty being payable. That change has, in effect, already come into force and we are legislating for it this morning. The change is perfectly understandable. It is designed to bring more revenue into the Treasury that would otherwise be, and is being, lost. I understand the Government’s position that post duty point dilution carries significant legal and revenue risk for the Exchequer.

The Wine and Spirit Trade Association is against the legislation, claiming it would put hundreds of jobs at risk and place more pressure on the industry. Recently, thanks to the initiative of my hon. Friend the Member for Chesterfield, I had the opportunity to speak to Global Brands, a business based in his constituency that makes VK and Hooch, among other products. We know that covid-19 is having a huge impact on the licensed trade industry and on alcohol sales in particular, affecting not only pubs but the producers of wines, spirits and other beverages. Global Brands is concerned that, because of the financial burden placed on its business by the clause, combined with the impact of covid-19, it expects to make 50% of its workforce redundant, putting 200 jobs at risk as a result of this change. If I can characterise our discussions in this way, it would be accurate to say that Global Brands accepts that this change is inevitable, and that the Treasury has a settled view on it, but it hopes that the Treasury might consider a 12-month delay in implementation—from April 2020 to April 2021—arguing that this would give it time to recover from the covid-19 shock, leaving it better able to absorb the change.

Global Brands makes other arguments that the Treasury may want to take into account. In particular, Global Brands sells what were commonly known as alcopops, a low alcohol by volume product—typically around 4% ABV. It is concerned that the impact of the change will be that, ironically, its low alcohol product would be taxed higher per unit of alcohol than much higher strength products, which flies in the face of the Government’s stated policy of discouraging high-strength alcohol and its impact on public health.

It is also worth highlighting that the Government have already announced their intention to conduct a wider review of alcohol taxation. I wonder whether it makes sense, from the point of view of business resilience and of giving companies such as Global Brands more time to cope with the covid-19 shock before absorbing this change, for the Treasury to consider this delay alongside the range of other issues that it will consider as part of its wider review of alcohol taxation. We might have been minded to table an amendment to probe the 12-month delay, but we were advised that such an amendment would not be in scope because the foundation resolution is clear about the date on which this change takes effect.

That is another reason why—I gently make this point again to Ministers—we feel strongly about the way in which the Treasury has restricted the scope of amendments and the debate by not introducing an amendment of the law resolution, as has been the case historically. As well as denying Opposition Members the opportunity to table broad, sweeping, political amendments to the Finance Bill, that also has practical implications. I impress on Ministers and the usual channels the need to reconsider that for future Finance Bills.

Finally, when my hon. Friend the Member for Chesterfield and I spoke to Global Brands just the other week, I was particularly impressed not just by the jobs and economic activity it provides in Chesterfield, but at the fact that its wider supply chain is virtually entirely British. Its ingredients, packaging and labelling are all derived from a British supply chain. I do wonder whether the Treasury has really thought through the timing of the change, the impact that it will have on businesses such as Global Brands, and where it might position such businesses in relation to their international competitors that are not providing jobs in this country and do not have a supply chain rooted here.

Given the unemployment statistics out today, we know that structural unemployment will become one of the biggest political issues and economic challenges in our country. Structural unemployment in Britain will become a feature of our life in a way that, frankly, it was not 10 years ago, in the wake of the financial crisis, and has not been for decades. The Government must do everything they can to protect jobs, which is why we have called today for them to come forward not just with fiscal measures in July, but a full-on, jobs-first Budget—because we are worried about the impact of covid-19 on unemployment.

The representations on clause 79 from Global Brands and from my hon. Friend the Member for Chesterfield remind us of the risk of the unintended consequences of Government policy. Given the impact on jobs and the supply chain and the fact that the Treasury is in any case preparing to undertake a review of alcohol taxation, I wonder whether the call for the Government to delay the measure by 12 months is not eminently reasonable—and whether they might come forward with their own change to the Bill on Report.

[The Exchequer Secretary to the Treasury (Kemi Badenoch)]

Clause 79 makes changes to alcohol duty legislation to introduce prohibitive sanctions for anyone who dilutes wine or made-wine once that product has passed a duty point. It will ensure fairness by providing equity of treatment across the drinks industry and will tackle future revenue risks for the Exchequer.

Post duty point dilution is a practice that enables wine and made-wine producers to reduce the excise duty that they pay by diluting the product after duty has been paid. Because the dilution increases the volume of wine and made-wine for sale, with no additional duty being paid, less duty is paid than would otherwise be due. UK legislation does not expressly prevent post duty point dilution for wine and made-wine, although it is prohibited for all other alcohol products. The practice gives certain wine or made-wine producers a tax advantage over those who produce other categories of alcohol, of which dilution is not permitted, and over others in their own sector who cannot make use of the practice.

Clause 79 will introduce new prohibitive sanctions for anyone who dilutes wine or made-wine once that product has passed a duty point on or after 1 April 2020. Introducing new sanctions to prevent the practice will maintain the principle that excise duty is calculated only on a finished product when it is released from production premises or on import. It will ensure fairness by providing equity of treatment across the drinks industry and will tackle future revenue risks for the Exchequer.

A review of the practice was launched at autumn Budget 2017, during which HMRC engaged extensively with industry and gathered a large amount of evidence to inform a decision. At Budget 2018, the Government announced the findings of the review and their intention to stop the practice being used for wine and made-wine, as is already the case for other types of alcohol. However, the Government also announced that that would not take effect until April 2020. That has given those businesses affected almost three years to prepare for the change, allowing them time to reformulate or diversify into the production of new lines.

Amendment 10 would require the Chancellor to review the public health effects of the post duty point dilution sanctions. When making changes to the alcohol duty system, the Government take into account a wide range of factors, including economic inequalities and health impacts. The new sanctions follow an extensive review by HMRC in 2017. Draft legislation was published in July 2019, alongside which a tax information and impact note was published on the gov.uk website, detailing the various factors that the Government have considered. The amendment is therefore unnecessary, as the Government have already published our assessment of the effect on public health. For the convenience of the Committee, I will reiterate that assessment. The Government expect that

“wine or made-wine may become slightly more expensive…there may be a positive health impact with less wine being consumed. However, this benefit may be offset if any increase in price leads to consumers switching to higher strength products.”

--- Later in debate ---

[Kemi Badenoch]

I thank the hon. Lady for her intervention. I am not quite sure which chart she is referring to, and I do not accept her comments. We must remember that the purpose of the clause is primarily to close a tax loophole.

[Wes Streeting]

I understand what the Minister says about closing a loophole and about the time that businesses have been given to prepare for the change, but does she not think that the impact of covid-19 has a bearing here? Given the representations that are being made about the impact of the double whammy, would she at least go away and consider the merits of a 12-month delay, and write to me and my hon. Friend the Member for Chesterfield to set out her thinking once she has had a chance to do that?

[Kemi Badenoch]

I thank the hon. Gentleman for that question. That is something that I have considered. I have had representations from the hon. Member for Chesterfield, Global Brands and other Members of Parliament, and I will take into account the points made by the hon. Member for Ilford North made in his speech.

On job losses, the announcement was made with enough time for people to prepare. We may not have been aware of covid, but postponing implementation any further would mean that the companies that adapted to the announcement about prohibiting post duty point dilution would be disadvantaged compared with companies that have not prepared since the announcement. We do not believe that that is fair.

On the point about the low alcohol value and moving the measure to stronger products, that is something that we have factored in. We will have a wider alcohol duty review—the hon. Gentleman referenced that. The Treasury has considered all those things, and we still do not feel that they are appropriate.

[Wes Streeting]

I am grateful to the Minister for being generous in giving way again. She will be pleased to hear that I will not labour the previous point.

As part of the Treasury’s review, will the Minister take into account the case for minimum unit pricing for alcohol? We have already heard the positive case from Scotland, and there is an active campaign for it. It would be useful for all of us involved in policy making if the Treasury review looked at the merits and the arguments against so that Parliament can make informed decisions.

[Kemi Badenoch]

The Government are monitoring the emerging evidence from the introduction of minimum unit pricing in Scotland and, recently, Wales, and we have addressed public health concerns in the duty system. For example, in February 2019, duty rates on white ciders were increased to tackle consumption. We must remember that the UK operates a single excise regime, so it is not possible to devolve duty rates. It is worth noting that many of the problems that have been raised are actually caused by EU rules, according to officials. I can write to the hon. Gentleman and other Members who want further clarification on that point.

--- Later in debate ---

[Stephen Flynn]

I beg to move amendment 11, in clause 80, page 68, line 5, at end insert—

“(3) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the TPDA 1979 by this Section and lay a report of that review before the House of Commons within one year of the passing of this Act.”

This amendment would require the Government to review the expected impact of the revised rates of duty on tobacco products on public health.

This amendment is in part very similar to the previous amendment, but it addresses tobacco duty, not alcohol duty. We want to review the impact of tobacco rates on public health. I take exception to the suggestions made in the previous debate that taxation and public health are not inextricably linked. The hon. Member for Ilford North said that we need a joined-up approach in the Treasury and across all sectors so that we can see the impact of taxation on other aspects of life. That certainly applies to tobacco as much as it does to alcohol duty.

Much like alcohol duty, tobacco duty is reserved to the UK Government. Again, that is deeply frustrating to those of us in Scotland, because it is the desire of the Scottish Government and the SNP to have a tobacco-free generation in Scotland by 2034. Obviously, tobacco rates will play a role in that, but that is not necessarily stopping us entirely and we are still making positive efforts to get there. The raft of different measures put in place by the Scottish Government include the 2020 ban on smoking near hospitals. There is also the regulation of electronic cigarettes and MVP devices, which will be an interesting and hot topic of debate in the coming years. A new national brand, Quit Your Way, was launched in 2018 and is being promoted on behalf of the stop smoking service. A Scottish ministerial working group on tobacco control is helping develop policy to reduce the impact of tobacco on Scotland’s health and to manage the register of tobacco and nicotine vapour product retailers.

That is all in addition to the Scottish Government’s previous efforts, including making prisons smoke free in November 2018, banning tobacco advertising in 2002, and banning smoking in enclosed public spaces in 2006, which is something that we all remember only too well. There are certainly many establishments in Scotland—I am sure the same is true in England—where one can still get the waft of the cigarettes that used to be smoked on those premises. A great deal of good has been and will be done, but ultimately the key lever of power lies, again, with the UK Government. That being the case, it is vital that consideration is once again given to public health and to the impact on it of decisions taken by the UK Government. I therefore suggest that the Government agree to the amendment, because it will be in their interests and in the interests of people across the United Kingdom.

[Wes Streeting]

If the hon. Member for Kensington does not think that there should be a relationship between public health and taxation, I am afraid she is really going to hate what I have to say on clause 80 and the Scottish National party amendment. For the same reason as before, I think there is a real case for looking at these issues in a joined-up way, and ensuring that our public health objectives are reinforced by the Treasury.

In its January 2020 Budget submission, the UK Centre for Tobacco and Alcohol Studies, in partnership with Action on Smoking and Health, recommended that the minimum excise tax should be updated annually to ensure that the minimum tax for tobacco products is the rate due for products sold at the weighted average price. In the light of those representations, I wonder whether the Government will consider the advice of public health experts, and what consideration they have given to committing to updating the MET on an annual basis from the date of the passing of this legislation.

As the all-party parliamentary group on smoking and health has noted, the covid-19 crisis means that reducing tobacco-related health inequalities should be a priority, now and in the longer term, to improve population health and resilience to any future disease outbreaks. Differences in smoking prevalence and smoking-related diseases are an important factor in the differences in morbidity and mortality from covid-19. If we are not going to think seriously about some of these public health challenges in the middle of a public health crisis, when will we, frankly?

There has also been a rise during lockdown in people’s exposure to second-hand smoke in the home. Households with children are twice as likely to report second-hand smoke in the home. We have already heard about the Scottish Government’s determination in that respect, but the Government’s prevention Green Paper set the target of the UK being smoke-free by 2030, which is defined as a prevalence of 5% or less. If we are going to do that, we really have to commit to doing it and make changes across the board to support that important goal, which we across the House share.

The argument that public health and taxation are not intertwined does not hold water. It is not fashionable to be nice about George Osborne in today’s Conservative party—it is even less fashionable in the Labour party, but I already have a cross to bear in my own party—and his sugar tax was hugely controversial when it was introduced. I do not mind saying that as I sat watching the announcement in the Budget I was a big cynic, not least because I am generally in favour, as a point of principle, of progressive taxation. I worry about any new charges or levies that have flat implications for people and households with different levels of income.

Taxation by its nature ought to be progressive wherever possible, but the sugar tax has been shown, over the fullness of time, to have had a really positive impact on sugar consumption in this country. The evidence shows that a public health epidemic, which I think is what obesity is, particularly affects those from the poorest backgrounds. The same is probably true of smoking and its health consequences not just for smokers, but for the people—particularly children—who breathe the smoke around them.

The all-party parliamentary group on smoking and health, ASH, the British Heart Foundation, Cancer Research UK, the Royal College of Physicians and many others are calling on the Government to adopt their road map to a smoke-free 2030. That would include the creation of a smoke-free 2030 fund, into which tobacco manufacturers would be legally required to give funds to finance the action needed to achieve the smoke-free 2030 goal.

What consideration have the Government given to the road map to a smoke-free 2030 and, in particular, the proposal that there should be some kind of levy on tobacco manufacturers? In the same way as the sugar tax was hypothecated to tackle obesity, what consideration have the Government given to introducing a hypothecated levy to take action to eliminate smoking?

--- Later in debate ---

[Kemi Badenoch]

I thank my hon. Friend for her intervention, and I agree with her.

[Wes Streeting]

Following a previous theme, we support this approach to incentivising the use of greener and more environmentally friendly vehicles. It shows how decisions taken at the Treasury can support the public policy aims of other Departments and promote positive consumer change. Clearly, we have to do a lot more to ensure that people are using environmentally friendly vehicles, which produce fewer emissions and have a less detrimental impact on air quality and the wider environment than other vehicles do. I, in common with many stakeholders, welcome the reduced rate applied to alternatively fuelled light passenger vehicles, including hybrids and those powered by bioethanol and liquid petroleum gas.

[Kemi Badenoch]

I think that is a point we can all agree on. The Government are doing a lot to encourage the uptake of low emission and zero emission vehicles. As I mentioned earlier, the reformed VED system was introduced in 2017 for new cars. To elaborate, on first registration the owners of zero emission models pay nothing, while those of the most polluting pay more than £2,000. In subsequent years, most cars move to a standard rate, which is currently set at £145. The exceptions are electric cars, which attract a zero rate, and hybrids, which receive a £10 discount.

In the Budget, the Government announced a number of further steps to reduce zero emission vehicle costs, including exempting zero emission cars from the vehicle excise duty expensive car supplement; extending low company car tax rates for 2024-25, as we discussed earlier; and extending the plug-in grant scheme for zero emission cars and ultra-low emission vans, taxis and motorcycles until 2022-22.

Question put and agreed to.

Clause 81 accordingly ordered to stand part of the Bill.

Clause 82

Applicable CO2 emissions figure determined using WLTP values

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

[Kemi Badenoch]

Clause 82 makes changes that ensure that CO₂ emissions figures for vehicle excise duty will be based on the world harmonized light-duty vehicles test procedure—WLTP—for all new cars registered from 1 April 2020. Until 1 April 2020, the owners of new cars were liable to pay VED based on CO₂ emissions figures provided under the new European driving cycle test procedure, which is otherwise known as the NEDC. That test underestimates real-world driving emissions by up to 40%. In the 2018 Budget, it was announced that from April 2020, VED would be based on WLTP, which closely reflects real-world driving emissions. Consequently, vehicle excise duty liabilities for new cars purchased from April 2020 may change.

In the 2018 Budget, the Government announced a review of the impacts of WLTP on vehicle taxes. In July 2019, the Government announced that as mitigation to help the industry manage the transition to WLTP, company car tax rates would be temporarily reduced, and that the Government would publish a call for evidence on vehicle excise duty. Draft legislation for the Finance Bill was published on L day 2019 to switch on WLTP from April 2020 and to implement the new CCT rates.

Clause 82 confirms that CO₂ emissions figures for vehicle excise duty will be based on WLTP for all new cars registered from 1 April 2020, and that all cars registered before 1 April 2020 will continue to use existing NEDC CO₂ values for VED purposes. As WLTP is more representative of real-world driving conditions, this measure ensures that VED is based on a more robust regime for measuring CO₂ emissions. It will also allow motorists to make more informed purchasing decisions when considering the CO₂ impact of their new car.

[Wes Streeting]

I do not think that we need to dwell too long on this, but it is worth exploring a few points that were made during the Government’s consultation and to test some stakeholders’ arguments. Assertions are sometimes made, but it is important to revisit the arguments and see whether they stand up to the scrutiny of evidence. It will be interesting to hear the Treasury’s view on that.

There was a concern that the WLTP charging rates could lead to distortion ahead of April 2020, because consumers might bring forward purchasing decisions to avoid potential tax increases on new cars. Given that April 2020 has passed, it would be interesting to know whether such distortion has actually occurred. What assessment has the Treasury made of that?

On the environmental impact, some respondents stressed that company cars were more environmentally friendly than private cars. The argument goes that it is important to keep people in that market by adjusting company car taxation to reflect the lower impact. What analysis has the Treasury done of that claim? Does the Treasury think that that is a valid argument, or simply an assertion?

Finally, some concern was raised that under WLTP values, there could be an above-average increase in the reported CO₂ emissions of cars with smaller engines, whereas cars with higher CO₂ emissions would not be affected by the change to the same extent. How much does that argument hold water with the Minister?

[Kemi Badenoch]

On the question of why we are treating cars registered before 6 April 2020 differently and whether that would create a distortion, the WLTP testing standards were introduced in 2017 and EU legislation required manufacturers to record the CO₂ emissions for both regimes. We have not sought to change the tax treatment of existing cars; we aim to encourage people who purchase new cars to choose low-CO₂-emitting models.

On the analysis that the hon. Gentleman asks for, it is probably too soon to tell. The impact is linear, and we published some findings in July 2019 when we set rates. I can have that information provided to him, and I can write to him on that point. I do not have the full answers for the analyses that he is asking for.

Question put and agreed to.

Clause 82 accordingly ordered to stand part of the Bill.

Clause 83

Electric vehicles: extension of exemption

--- Later in debate ---

[Kemi Badenoch]

Clause 83 makes changes to exempt all zero-emission cars from the vehicle excise duty supplement that applies to cars with a list price exceeding £40,000 from 1 April 2020. The background is that the Government use vehicle taxes, including vehicle excise duty, to encourage the take-up of cars with low carbon dioxide emissions to help to meet our legally binding climate change targets. Vehicle excise duty incentives help to reduce the cost of zero-emission cars, which is one of the most significant barriers to uptake. From April 2017, on first registration, zero-emission cars paid no vehicle excise duty, while the most polluting cars paid more than £2,000. In subsequent years, while most cars move to a standard rate—£150 in 2020-21—electric vehicles attract a zero rate. Previously, however, all vehicles with a list price exceeding £40,000, including electric vehicles, paid a vehicle excise duty supplement of £325 in 2020-21 from years two to six following registration.

Under the changes made by clause 83, from 1 April 2020, all zero-emission light passenger vehicles registered from 1 April 2017 until 31 March 2025 will be exempt from the vehicle excise duty expensive car supplement. That will reduce vehicle excise duty liability for almost a third of zero-emission cars by an estimated £1,625. This demonstrates that the Government will continue to incentivise the uptake of zero-emission cars through the 2020s. The measure will incentivise uptake by reducing tax liabilities and aid the Government in achieving net zero. I therefore commend the clause to the Committee.

[Wes Streeting]

Clause 83 is obviously a welcome measure; we have heard from industry representatives that removing the VED surcharge for electric vehicles will encourage uptake. The RAC’s head of policy, Nicholas Lyes, states:

“Our research suggests that cost is one of the biggest barriers for drivers who want to switch to an electric vehicle and the steps taken”

by the Government

“will provide clarity and certainty for both consumers and manufacturers.”

I wonder whether the Government are looking at what more they can do to reduce the cost burden for people switching to electric vehicles. People make choices all the time about the purchase of new vehicles, and price sensitivity is one of the biggest aspects of that. If someone uses their car every day for regular journeys—to commute to and from work, for example—and has access to charging points at home, at work or in the vicinity, switching to an electric vehicle will make a real difference. It can be cost-effective as well as an environmentally friendly choice, particularly in the light of the clause.

However, for lots of people who do not commute regularly but have a family car for use at weekends and perhaps over the summer holidays, the financial choice is not always as straightforward. Although the environmental factors may be compelling and people might want to switch to an electric vehicle, the financial barrier is still too high. I wonder what more the Government can do, through industry support or other means, to further incentivise the switch to electric vehicles, as it would make a real difference.

On infrastructure, it is important that more is done to ensure that electric vehicle charging points are readily available for use—that is really an issue for the Department for Transport and local authorities, but at some point they will come knocking at the Treasury’s door. The Minister is smiling; I am sure that she is very familiar with that experience. I wonder how favourably she is looking on those arguments, because although progress is being made to expand electric charging points—the Mayor of London cares strongly about the issue, and I discussed it recently with the Mayor of Greater Manchester, Andy Burnham—much more progress can still be made in all parts of the country, so Treasury support would be very welcome.

[Kemi Badenoch]

The hon. Gentleman makes a point that we hear again and again about the cost of low emission vehicles. These changes are part of a wider package of tax and spend incentives—I have mentioned company car tax rates and the plug-in car grant.

On the question of what more we can do, the best mechanism is the call for evidence that the Government published at the Budget, which includes how vehicle excise duty can further incentivise the uptake of zero-emission cars. That is probably the best way for the industry and Parliament to suggest what more we can do to make low emission vehicles more affordable.

The hon. Gentleman is right that we get asked a lot about infrastructure and what more we can do to provide charge points. We understand that access to high-quality, convenient charging infrastructure is critical if drivers are to make the switch to electric vehicles confidently. That was why, at the Budget, we announced £500 million over the next five years to support the roll-out of a fast charging network for electric vehicles, ensuring that drivers will never be more than 30 miles from a rapid charging station.

Question put and agreed to.

Clause 83 accordingly ordered to stand part of the Bill.

Clause 84

Motor caravans

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

[Kemi Badenoch]

Clause 84 reduces vehicle excise duty liability for new motorhomes to support British motorhome manufacturers and UK holidaymakers. From 12 March 2020, most new motorhomes pay a flat rate of VED at £270 annually. To ensure that, in the future, motorhome vehicle excise duty liabilities reflect environmental impact and to incentivise the development and uptake of lower emission motorhomes, from 1 April 2021, motorhome VED liabilities will be aligned with graduated van vehicle excise duty.

From September 2019, EU regulatory changes have required motorhomes to record carbon dioxide emissions on the vehicle type approval document. Previously, the majority of motorhomes attracted a flat rate of £265, but from September 2019, due to their high emissions, new motorhomes saw a significant increase in their first-year vehicle excise duty liabilities. Motorhome dealerships and the main industry body, the National Caravan Council, expressed concern about the changes. The sector argued that, as motorhomes are generally derived from vans, their VED liability should be aligned with vans, rather than passenger vehicles.

The changes made by clause 84 mean that, from 12 March 2020, new motorhomes are more closely aligned with vans for VED purposes. Manufacturers are no longer required to provide a CO₂ emissions figure when they register the vehicle with the Driver and Vehicle Licensing Agency. As a result, all new motorhomes will move to a flat rate of vehicle excise duty. Most new motorhome vehicles will be included in the private light goods vehicle tax class, with the minority that weigh more than 3,500 kg included in the private heavy goods class. As a result, new motorhomes’ first-year VED liabilities will be reduced by up to £1,905. The change will affect owners of motorhomes first registered from 12 March 2020. There are typically about 15,000 motorhomes registered in the UK annually.

The change will reduce new motorhome vehicle excise duty liabilities, and better align them with vans, rather than passenger vehicles. It will support British motorhome manufacturers and holidaymakers using motorhomes throughout the UK. I therefore commend the clause to the Committee.

[Wes Streeting]

This debate is particularly timely, given last night’s Adjournment debate, which was led by my hon. Friend the Member for Kingston upon Hull West and Hessle (Emma Hardy), who told the House that Hull is the capital of caravan manufacturing. Along with my hon. Friends the Members for Kingston upon Hull North (Dame Diana Johnson) and for Kingston upon Hull East (Karl Turner), she has been a doughty champion of the industry. That industry has been particularly hard hit by covid-19 because it relies so much on the leisure and tourism industry, which is still effectively shut down. Industry bodies and users were looking for this change, so I am happy to indicate that we support the clause.

[Miriam Cates (Penistone and Stocksbridge) (Con)]

I welcome the measure. The Moto-Trek manufacturer in my constituency makes exclusive hand-built motorhomes, so I know that the clause is very much welcomed by the industry. It certainly makes sense to tax motorhomes as vans, since they are mostly built on van chassis and do not do many miles, although they do, of course, emit carbon dioxide. It is right that we incentivise the manufacture of low emission vehicles, but motorhome users are very much committed to UK holidays and do not fly as a result, which is very positive for the environment. As we come out of covid, it is really important that we do everything that we can for UK manufacturers, for UK motorhome vehicle sales and, of course, for tourism. I therefore very much welcome the clause.

Question put and agreed to.

Clause 84 accordingly ordered to stand part of the Bill.

Clause 85

Exemption in respect of medical courier vehicles

Finance Bill (Eighth sitting)

Wes Streeting Excerpts

Committee stage & Committee Debate: 8th sitting: House of Commons
Tuesday 16th June 2020 Public Bill Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

It is lovely to see you in the Chair, Ms McDonagh. I apologise to hon. Members who have had the pain of seeing me do the urgent question in between our two Public Bill Committee sittings; I can only admire their strength and resilience.

Clause 86 introduces schedule 10, which enables changes to be made to the Hydrocarbon Oil Duties Act 1979 to require white diesel to be used for filling private pleasure craft such as yachts and canal barges, to meet our international obligations under the EU withdrawal agreement. It is an enabling power, and it follows consultation with private pleasure craft users and fuel suppliers in 2019.

There is no current timetable for commencement of these changes. Details of implementation via future secondary legislation will be set out in due course, after the consultation that the Government are planning this summer on wider changes to red diesel that were announced at Budget 2020. Once commenced, the changes will affect only the type of fuel that private pleasure craft can use and not the amount of fuel duty users pay. They already pay the standard white diesel rate for propelling their craft, and they are entitled to use rebated red diesel for other, non-propulsion purposes, such as heating and cooking. The changes will not affect that. Where craft have a shared tank for propulsion and non-propulsion purposes, such as heating, the Government will explore options that prevent users from paying more duty for their non-propulsion use than they would otherwise have to pay.

In 2018, the Court of Justice of the European Union ruled that the use of red diesel to propel private pleasure craft breached the fuel marker directive, which is designed to ensure, given the variation in duty treatment in member states, that any misuse of diesel crossing EU internal borders can be detected. Over the summer of 2019, the Government consulted on how they intended to implement the Court judgment by requiring private pleasure craft to use white diesel for propulsion. More than 1,600 replies were received. At the present time, private pleasure craft use the lower-duty red diesel for both propulsion and non-propulsion, but pay a top-up to the white diesel rate on the proportion of fuel that they use to propel their craft.

Last year’s consultation saw evidence on the impact that requiring private pleasure craft to use white diesel propulsion would have on users of diesel-propelled craft operating in UK inland waterways and along the coast, and on the companies that supply diesel to them. The responses are informing implementation issues for suppliers, known as registered dealers in controlled oils, or RDCOs, and users of diesel fuel.

The changes made by schedule 10, once commenced by secondary legislation, will amend sections 12 and 14E of the Hydrocarbon Oil Duties Act 1979, to disallow the rebates that apply to diesel, biodiesel and bioblend not used for road vehicles on the fuel used for propelling private pleasure craft. In practice, such craft have not been benefiting from the rebated rate on fuel use for propulsion, as they have been paying the additional duty to ensure that they pay the full rate as required while we are in the transition period.

Schedule 10 creates new penalties for using marked fuel for propelling a private pleasure craft, similar to those that exist when marked fuel is used in road vehicles, and also gives Her Majesty’s Revenue and Customs powers to take samples. It also provides for secondary legislation to mitigate the impact of the measure on houseboats and permanently moored residential craft; as they do not use fuel to propel their houseboat, they should be entitled to continue to use red diesel.

Finally, the schedule amends schedule 7A to the Value Added Tax Act 1994, to provide for the removal, if necessary, of the reference to marked fuel used in private pleasure craft in respect of which a declaration has been received. It provides that the changes will be brought into force on the days and in the areas appointed in secondary legislation at a future date.

This clause and schedule will ensure that we respect our international commitments, by enabling us to make changes to legislation covering fuel use by a private pleasure craft to the extent required to meet those commitments. I therefore commend the clause and the schedule to the Committee.

[Wes Streeting (Ilford North) (Lab)]

I should have said this morning that, although those on the Government Front Bench are doing a joint effort today to give each other a break, this is my penance for the shadow Chief Secretary, my hon. Friend the Member for Houghton and Sunderland South, handling the digital service tax single-handedly last week, so I am afraid that Members will be getting even more tired of my voice than the Financial Secretary’s voice.

I want to raise a few points on clause 86. First, as the Minister said, this clause and schedule are intended to enact the judgment of the European Court of Justice and to make sure we abide by our obligations under the withdrawal agreement. The challenge for various industry bodies is that this proposal effectively means that we are going to have to go through a number of changes, unless the Government intend this to be a permanent change in approach.

It is a significant disruption for the industry. British Marine, the main leisure boating industry body, said the change would present

“severe problems for boat users and the industry”,

and that was the position of all representative bodies. Given the issues raised by industry bodies and the strength of objections, why has the Minister sought to implement the judgment of the Court of Justice of the European Union when we will have left the European Union and, at some point in the not too distant future, these sorts of judgments will not have to be abided by?

Suppliers and industry bodies have deemed the switch as not viable due to its being uneconomical and impractical to change waterside fuelling locations from red to white diesel. What will the Minister do to support suppliers in this transition and to ensure that commercial users, such as fishing boats, are not negatively impacted by the switch?

[Jesse Norman]

I thank the hon. Gentleman for his questions. We fully appreciate the degree of concern that has been shown by the industry. As he will be aware, we are under an obligation to abide by EU judgments while we remain under the withdrawal agreement. The proposal underlines how seriously we take legal obligations that have been incurred in the EU withdrawal agreement, and that includes implementing the result of the European Court of Justice judgment.

It should be made clear that, during the transition period, if the Commission were not convinced that necessary steps had been taken to implement the judgement, it could, in principle, refer the case back to the European Court and ask it to levy fines for non-compliance. Those fines can be pretty substantial—up to €792,000 a day plus a potential one-off fine of at least €10 million—so we are very focused on communicating the seriousness of our intent in passing this enabling legislation. We do not believe that paying fines to the EU, especially as we have now left the EU, would be an effective or good use of taxpayers’ money, not least when we are making broader changes to reduce the entitlement to use red diesel more widely.

It is worth pointing out one other thing: we have not set an implementation date. The reason is that we recognise that it is important for Government to continue to work with users of private pleasure craft and with fuel suppliers to understand how they can implement the changes, precisely to make sure that those changes are as little onerous and as easy to enact as they can be. It is only once we have seen that consultation, gone through that process, reflected further on it and had a chance to consider how the legislation could be framed that we will be able to return to this issue.

Question put and agreed to.

Clause 86 accordingly ordered to stand part of the Bill.

Schedule 10 agreed to.

Clause 87

Rates of air passenger duty from 1 April 2021

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

[The Exchequer Secretary to the Treasury (Kemi Badenoch)]

Clause 87 makes changes to ensure that the long-haul rates of air passenger duty for the tax year 2021-22 increase in line with the retail price index. The change will make sure that the aviation sector continues to play its part in contributing towards funding our vital public services.

Aviation plays a crucial role in keeping Britain open for business, and the UK Government are keen to support its long-term success. Indeed, the UK has one of the highest direct connectivity scores in Europe, according to the latest Airports Council International Europe report. The Government appreciate the difficulties that the airline industry currently faces as a result of coronavirus. That is why the Chancellor provided a comprehensive package for all businesses affected by the virus on 20 March. However, as air passenger duty is paid on a per passenger basis, the recent decline in passenger demand will have resulted in a reduction in air passenger duty liabilities for airlines. As the industry returns to health, it is right that the revenue raised from air passenger duty should continue to remain in line.

The clause increases the long-haul reduced rate for economy class nominally by only £2 and the standard rate for all classes above economy by £4—a real-terms freeze. The rounding of air passenger duty raised to the nearest £1 means that short-haul rates will remain frozen in nominal terms for the eighth year in a row, which benefits about 80% of all airline passengers. More broadly, the Government will consult on aviation tax reform. As part of the consultation, we will consider the case for changing the air passenger duty treatment of domestic flights, such as reintroducing the return leg exemption, and for increasing the number of international distance bands.

The changes made by the clause will increase the long-haul APD rates for the tax year 2021-22 by the RPI. Air passenger duty is a fair and efficient tax, where the amount paid corresponds to the distance and class of travel of the passenger and is due only when airlines are flying passengers. The changes ensure that the aviation sector will continue to play its part in contributing towards funding our vital public services. I therefore commend the clause to the Committee.

[Wes Streeting]

The industry has stated that the proposed changes do not support it and its net zero plans. The news that the airline industry does not like air passenger duty will come as a surprise to no one. As we are debating air passenger duty under clause 87, and as Treasury Ministers declined to come to the House in response to an urgent question from the Chair of the Transport Committee, this is an opportunity for me to raise concerns directly with Treasury Ministers about support for the airline industry in the light of the challenges it faces because of covid-19.

The Minister said that the airline industry has benefited from Government support. In so far as any industry and employer has benefited from the general schemes made available—the job retention scheme, the self-employment income support scheme, the various business grants and loans that are available—that is true. However, back in March, the Chancellor referred to specific support for the aviation industry. It is now June and that support has not yet materialised. In fact, we do not even have any outline of what that support could entail or whether it will materialise at all.

Let us bear in mind that the industry contributes £22 billion a year to the British economy. It supports 230,000 jobs in aviation and throughout the manufacturing supply chain. If we take into account the broader sweep of jobs based around the supply chain, airports and travel, we are probably looking at something closer to 500,000 jobs.

Ministers, whether in the Treasury or the Department for Transport, ought to be embarrassed by the fact that, only a matter of weeks ago, a leading figure in the airline industry told the Transport Committee that the Government have been “asleep at the wheel”. That is not the way that the Treasury should approach a major industry. Of course, the airline industry has a lot to change in order to meet our country’s net zero ambitions, but I am sure we would all agree that we would prefer it if the aviation industry got to that point through research, innovation, sensible application of technology, change of consumer behaviour and a just transition to support the workforce as the industry changes, rather than because airlines go bust and people lose their jobs.

--- Later in debate ---

[Kemi Badenoch]

Clause 88 increases the thresholds for the gross gaming yield bands for gaming duty in line with inflation. This is a very small change, which is assumed by public finances.

Gaming duty is a banded tax paid by casinos in the UK, with marginal tax rates varying between 15% and 50%. Public finances assume that the bands are uprated with inflation each year to prevent fiscal drag. Without an annual uprating, over time, casinos would pay gaming duty at higher rates, so the change made by clause 88 uprates the bands of gaming duty in line with inflation. That is expected by the industry and assumed in public finances. Rates of gaming duty will remain unchanged. The change will take effect for accounting periods starting on or after 1 April 2020. I therefore commend the clause to the Committee.

[Wes Streeting]

We have heard representations from the chief executive of the Betting and Gaming Council, Michael Dugher, who will be known to many hon. Members across the House. The council is calling for reform of business rates and casino taxation. In the light of its representation, which, unsurprisingly, makes the industry case, and reflecting on some of our earlier conversations about alcohol duties, tobacco and smoking, what plans does the Treasury have, if any, to look at reform of gambling taxation generally and at the specific reforms Mr Dugher is calling for of business rates and casino taxation?

We have also heard strong representations from hon. Members across the House, such as my hon. Friend the Member for Swansea East (Carolyn Harris) and the right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith), about their work to highlight the impact that gambling has on people’s lives. Irresponsible gambling blights people’s lives. In the light of our conversation this morning about the positive role that Treasury decisions can play in promoting good public health outcomes, is the Treasury minded to look at those issues in the round as part of a wider review of the gaming duty and gambling taxation more generally?

--- Later in debate ---

[Kemi Badenoch]

Clauses 89 and 90 ensure that the climate change levy main and reduced rates are updated for the years 2020-21 and 2021-22 to reflect the rates announced at Budget 2018. The climate change levy came into effect in April 2001. It is a UK-wide tax on the non-domestic use of energy from gas, electricity, liquefied petroleum gas and solid fuels. It promotes the efficient use of energy to help to meet the UK’s international and domestic targets for cutting emissions of greenhouse gases. Energy-intensive businesses that participate in the climate change agreements scheme run by the Department for Business, Energy and Industrial Strategy qualify for reduced rates in return for meeting energy efficiency or carbon reduction targets.

Budget 2016 announced that electricity and gas rates would be equalised by 2025, because electricity is becoming a much cleaner source of energy than gas as we reduce our reliance on coal and use more renewable resources instead. These changes give effect to rate changes announced in 2018 and reaffirm the commitment to equalise the main rates for gas and electricity. The reduced rates will be subject to increases in line with inflation, as in previous years. In order to ensure better consistency in the tax treatment of portable fuels and the off-gas grid market, it was announced in the 2017 Budget that the climate change levy rate for liquefied petroleum gas would be frozen at the 2019-20 level in the years 2020-21 and 2021-22. For that reason, the reduced rate for liquefied petroleum gas that applies to CCA participants will remain set at 23% for the years 2020-21 and 2021-22.

Clauses 89 and 90 will update the climate change levy’s main and reduced rates for 2020-21 and 2021-22, as announced in the 2018 Budget, to reflect that electricity is now a cleaner energy source than gas. The electricity main rate will be lowered, whereas the gas main rate will increase so that it reaches 60% of the electricity rate in 2021-22. The rates were announced over two years ago, to give businesses plenty of notice to prepare for the rate changes. To limit the impact on the CCA scheme, participants will see their climate change levy liability increase by retail price index inflation only. That protects the competitiveness of over 9,000 facilities in energy-intensive industries across 50 sectors. I therefore commend the clause to the Committee.

[Wes Streeting]

The Chancellor suggested that pollution taxes would increase as a result of his Budget, but Jayne Harrold, PwC’s UK environmental tax leader, said that under the 2020 Budget:

“There was not really an increase in pollution taxes as the Chancellor suggested with the climate change levy (CCL) changes announced. In fact, freezing CCL rates on electricity to level up the gas rate faster based on carbon emissions will reduce the amount of pollution tax applied. Extending climate change agreements for two years is equally minor good news for energy intensive businesses who get significant CCL reliefs.”

Can the Minister give us a sense of what more the Treasury will do to ensure that taxes from polluting behaviour increase?

I also want to probe on the green gas levy. The 2020 Budget promised the introduction of a green gas levy to help fund the use of greener fuels, to work in conjunction with the rise in the climate change levy. When and how do the Government plan to introduce the levy?

[Kemi Badenoch]

I missed the hon. Member’s last question, but I can write to him on this issue, if he is happy with that. I go back to the question whether we are doing enough to achieve net zero. The answer is that we are going as far as we can, but we must also ensure that we protect the competitiveness of businesses throughout the UK. As announced in 2016, the changes to the climate change levy rates will see electricity and gas main rates equalised. That is being done incrementally—not because we do not want to go far enough, but in order to protect the tax liability of businesses. The Treasury review on the cost of transitioning to net zero will consider the role of tax in the transition. Does that answer the question?

[Wes Streeting]

My question was specifically about the changes that the Government plan to make in relation to the green gas levy, which had been announced in the Budget. When and how do the Government plan to introduce the green gas levy?

[Kemi Badenoch]

I cannot give the hon. Member an answer to that, but I will definitely write to him. I think officials will be able to brief him on the green gas levy. I cannot talk about it in the context of the climate change levy, which is what we are discussing, but I take his point. It is a good question. It is a Department for Business, Energy and Industrial Strategy competency, which is why I do not have an answer from a Treasury perspective, but I can speak to my counterparts in that Department and get back to him.

[Wes Streeting]

Thank you.

Question put and agreed to.

Clause 89 accordingly ordered to stand part of the Bill.

Clause 90 ordered to stand part of the Bill.

Clause 91

Rates of landfill tax

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

[Kemi Badenoch]

The clause increases both the standard and lower rates of landfill tax in line with inflation from 1 April 2020, as announced at Budget 2018.

Landfill tax has been immensely successful in reducing the amount of waste sent to landfill. Landfill tax provides a disincentive to use landfill and has made it the most expensive waste treatment method in terms of average gate fees. The success of the tax has contributed to a 70% decrease in waste sent to landfill since 2000. Household recycling has increased to 45%, from 18%, over the same period. The benefits of this reduction are twofold: first, there are economic benefits as valuable resources are used better, rather than being simply tipped into a hole in the ground, and secondly, there are environmental benefits, not only from the increased efficiency in the use of our precious resources, but through a reduction in greenhouse gas emissions from decomposing waste.

When waste is diverted from landfill we promote more sustainable waste treatment practice, such as recycling. The Government want to move towards a more circular economy and we are working together with business, industry, civil society and the public to achieve that aim. Landfill tax is one of the Government’s primary levers in achieving this.

When disposed at a landfill site, each tonne of standard-rated material is currently taxed at £91.35 and lower-rate material draws a tax of £2.90 per tonne. These changes will see rates per tonne increase to £94.15 and £3 respectively from 1 April 2020. By increasing rates in line with RPI we maintain the crucial incentive for the industry to use alternative waste treatment methods and continue the move towards a more circular economy. The increase in landfill tax will affect businesses and local authorities that send waste to landfill, but by continuing the positive trend of managing waste more sustainably businesses and local authorities will be able to reduce their landfill tax liabilities.

In conclusion, clause 91 increases the two rates of landfill tax in line with inflation from 1 April 2020, as announced in the autumn Budget in 2018. The clause maintains the incentives in the landfill tax for businesses and local authorities to divert waste treatment away from landfill and to continue to invest in sustainable methods of waste disposal, helping the Government meet their environmental objectives. I therefore commend the clause to the Committee.

[Wes Streeting]

Aside from paying tribute to my own local authority, the London Borough of Redbridge, and other local authorities for the efforts they have made to reduce the amount of waste going into landfill, there is only so much that can be said about an inflationary increase in landfill tax. I am happy for us to support the clause.

Question put and agreed to.

Clause 91 accordingly ordered to stand part of the Bill.

Clause 92

Carbon emissions tax

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

--- Later in debate ---

[Kemi Badenoch]

At Budget 2020 the Government announced that they would make the necessary legislative changes to the carbon emissions tax in Finance Bill 2020 to ensure that this policy remained a viable option to maintain carbon pricing in the UK after the transition period, in the event that a trading system proves undesirable. If the Government decide to use the tax as their carbon pricing policy after the transition period, the tax would be commenced, by secondary legislation laid in late 2020, from 1 January 2021.

The clause and schedule strengthen the effectiveness of the carbon emissions tax by ensuring that penalties can be issued for non-compliance and late payment and the legislation is updated to reflect developments since the tax was established in the Finance Act 2019. In line with the withdrawal agreement, the UK will remain in the EU emissions trading system, known as the EU ETS, until the end of the transition period on 31 December 2020. The UK will continue to have legally binding carbon reduction targets after leaving the EU.

As set out in the UK’s approach to the negotiation, the UK would be open to considering a link between any future UK emissions trading system and the EU ETS, if it suited both the UK’s and the EU’s interests. If a linked trading system between the UK and the EU is not agreed, the UK would introduce an alternative carbon pricing policy. The Government are therefore preparing both a UK standalone emissions trading system and a carbon emissions tax.

Budget 2020 announced that legislation would be included in this Finance Bill to provide a charging power to establish a UK ETS linked to the EU ETS or a standalone UK ETS, and update the existing legislation relating to carbon emissions tax. This schedule amends the Finance Act 2019 to ensure that the tax will be ready to be operational from the end of the transition period, if needed. The clause and schedule deal with the latter.

Clause 92 introduces schedule 11, which makes amendments to part 3 of the Finance Act 2019, which established the carbon emissions tax. Schedule 11 will amend the Finance Act 2019 so that the carbon emissions tax is ready to commence from 1 January 2021 if needed.

I will briefly highlight the most significant changes in what is a fairly technical schedule. Paragraphs 9 and 10 add provisions to the tax for a penalty for failure to make payments of tax to HMRC on time. That would be achieved by adopting the existing provisions on late payment penalties in schedule 56 to the Finance Act 2009. The penalty would be commenced by appointed day regulations if the tax were introduced.

Similarly, paragraph 4 allows for provisions to be made for the imposition of civil penalties for failure to comply with a requirement of the regulations; the review of, and a right of appeal against, a specified decision relating to the tax; and the modification of domestic and EU regulations relating to the monitoring and regulation of emissions.

Paragraph 8 amends the commencement and transitional provisions to ensure that the regulations needed to operate the tax may be made before the tax has commenced. It also removes provisions that were needed when we were planning to commence the tax partway through an emissions reporting period. Those are no longer needed, as we would now start the tax on 1 January, the first day of an emissions reporting period.

Paragraph 3 allows the Treasury, by regulations, to exclude regulated installations of a specified description from the charge to tax. That enables the Government, for example, to exclude Northern Ireland power generators from the tax, were they to continue to participate in the EU ETS as provided for in the Northern Ireland protocol. Paragraph 6 ensures that regulators will be able to recover costs incurred in doing work connected with carbon emissions tax, even if that work is done before regulations are made.

In conclusion, the clause and schedule ensure that the carbon emissions tax is ready to commence from 1 January 2021 if needed. It would provide a stable carbon price and help the UK to meet its carbon reduction commitments. I therefore commend the clause and schedule to the Committee.

[Wes Streeting]

The clause and schedule that we are discussing make perfect sense in light of the impact of our exiting the European Union. I just have a few questions for the Minister.

This clause gives the Government the power to introduce a UK emissions trading scheme or carbon tax via a statutory instrument. As we have already heard from the Minister, and as we have heard from public statements on both sides of the channel this week, we will leave the EU emissions trading scheme on December 31 2020, when we leave the transition period.

I think the Minister alluded to the fact that so many of the questions that stakeholders have remain unanswered. I accept that this is just an enabling clause in anticipation of the further detail, and I appreciate that some of these questions may relate to responsibilities in the Department for Business, Energy and Industrial Strategy, so I will accept it if she sends me in that direction, but does she know when the Government plan to respond to chapters 1 to 3 of the consultation on the future of UK carbon pricing? Can she give assurances that there will be time to scrutinise Government proposals and implement a new scheme by the end of the year, bearing in mind that the proposals will have an impact on a wide range of organisations?

Touching on a theme I raised this morning about support for businesses as they undertake a transition to new frameworks, how do the Government intend to support UK companies during the transition, bearing in mind that, just as we are feeling the impact on Government business of disruption caused by the pandemic, many businesses are feeling exactly the same disruption? Is it realistic or desirable for companies across the country to be adapting to a new scheme that is not yet known and that may need to take force by the end of this year?

[Kemi Badenoch]

We published a consultation response on 1 June, and the carbon emissions tax consultation is due to be published shortly. I will say to the hon. Gentleman, “Watch this space.”

In terms of the impact on businesses, the carbon emissions tax would have an impact on around 1,000 installations that currently participate in the EU emissions trading system, most of which are operated by large businesses. Businesses whose emissions exceeded their allowance would need to familiarise themselves with the tax and pay a bill once a year, in lieu of surrendering trading allowances under the EU emissions trading system. It must be said, however, that the administrative burdens of complying with this tax are not expected to be more than what they would have been under the EU emissions trading system.

Question put and agreed to.

Clause 92 accordingly ordered to stand part of the Bill.

Schedule 11 agreed to.

Clause 93

Charge for allocating allowances under emissions reduction trading scheme

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

[Kemi Badenoch]

The clause provides the power to auction carbon emissions allowances, to establish a UK emissions trading system, which could be linked to the EU’s or operate independently. Alongside clause 92, to update the carbon emissions tax, this clause ensures that a strong carbon price remains in all scenarios, while supporting the ongoing negotiations.

The UK’s membership of the EU emissions trading system will end following the transition period. As mentioned in the previous clause, the EU ETS covers around a third of UK emissions, including the power sector, heavy industry and aviation. It has been an important tool, alongside other taxes and regulations, in helping to reduce emissions.

Following the UK’s exit from the EU, we have choices about how best to put a price on carbon, tailoring our approach to the UK economy. Carbon pricing will continue to play an important role to help meet the UK’s legally binding carbon budgets and net zero. The Government are preparing an independent UK emissions trading scheme, which could be linked to the EU ETS. As set out in the UK’s approach to negotiations, we are open to considering a link if it suited both sides’ interests.

Clause 93 is essential to the establishment of a UK ETS, as it provides the power for Government to auction emissions allowances and intervene in the market to deal with any price volatility. As I mentioned earlier, the Government are also preparing a carbon emissions tax and a possible alternative in clause 92. Introducing legislation to support potential negotiated options, as well as legislating for alternative approaches to carbon pricing after the transition period, will provide certainty that we maintain an effective carbon price in all scenarios, continuing to drive reductions in emissions on our journey to net zero.

The changes made by clause 93 introduce a charging power. This means that through regulations, emissions allowances can be auctioned by the Government in any future UK ETS, ensuring that participants pay a price for their pollution. The clause will also enable regulations to be made for additional market stability mechanisms, to operate in an independent UK emissions trading scheme. That will ensure a smooth transition for businesses. First, a price rule, known as the auction reserve price, will maintain a carbon signal when allowance prices are low. Secondly, a cost containment mechanism will respond to in-year price fights, protecting the competitiveness of UK business when allowance prices are high. Further detail on these measures has been set out in the Government’s recent response to our consultation on the future of UK carbon pricing.

This clause is a prudent and sensible one to legislate for. It will pave the way for an emissions trading scheme, which could be linked to the EU ETS, if that is in our interests. It also ensures that a stand-alone emissions trading scheme could be implemented as an alternative policy, should a link not be agreed. Alongside that, legislation will be updated related to the carbon emissions tax, so we are keeping all options on the table for maintaining a carbon price signal from 1 January 2021.

[Wes Streeting]

The Minister asked us to watch this space. We will certainly do that and wait to see how discussions progress. We look forward to seeing the details of future arrangements in the not-too-distant future.

Question put and agreed to.

Clause 93 accordingly ordered to stand part of the Bill.

Clause 94

International trade disputes

[Alison Thewliss (Glasgow Central) (SNP)]

I beg to move amendment 14, in clause 94, page 76, line 33, at end insert—

“(2) The Government must lay before the House of Commons by 9 September 2020 a statement of the conditions under which it would consider it appropriate to vary rates of import duty under this Section.”

This amendment would require the Government to state the conditions under which it would consider it appropriate to vary rates of import duty in an international trade dispute.

--- Later in debate ---

[Alison Thewliss]

The amendments seek to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy being applied retrospectively, and by limiting that preference only to taxes that became due in the 12 months before the relevant date as given in the Bill, which is 1 December 2020. In the current context, that is particularly important. With firms increasingly running the risk of insolvency, it really is unfair to give HMRC a queue jump to recoup lost funds, when other businesses and individuals in the real economy may be well out of pocket.

The plan is to grant HMRC preferential status in insolvency proceedings from December 2020, and measures will make directors personally liable for a company’s tax liabilities where HMRC considers that avoidance or evasion is taking place or where there is evidence of phoenixes in the tax abuse using company insolvencies. I understand that the insolvency and restructuring trade body R3 is very concerned about the prospect of the policy. It feels very strongly that introducing such a policy would damage business lending and impede business rescue. UK Finance has suggested that the measure could hit lending to small firms by over £1 billion.

When I made representations in the Chamber on Second Reading, I explained that the policy is incredibly problematic. On the issue of phoenixism, R3 has suggested that the policy could lead to blameless shareholders, lenders, businesses and rescue professionals being made liable for the tax avoidance activities of rogue directors. What do Ministers intend to do to protect those who are innocent in the system from becoming liable under the proposals?

As well as having a detrimental impact on business and economic growth, restricted lending will make it harder to rescue businesses, increasing the knock-on effect of one business’s insolvency on other businesses and individuals further down the line. Business investment, returns to creditors and confidence in the UK’s corporate framework all stand to be damaged as a result. Ministers really need to give us a bit more detail about why they feel the policy is necessary.

Although the measure on tax abuse using company insolvencies can be mitigated through accurate legislative drafting and detailed guidance from HMRC, the SNP feels strongly that the policy to grant HMRC preferential creditor status should be withdrawn in its entirety. It is an introduction that could well prove a hammer blow to business rescue money across the UK, at exactly the same time as the Government are seeking to level up the economy and support businesses as they try to make their way through these difficult days. We all know of businesses in our constituencies that are really struggling and might not make it further than a couple of months ahead. Knowing that the policy is being introduced could have a detrimental effect on those who are supporting such businesses and on lenders.

In addition to scrapping the clause, the SNP believes that the UK Government must urgently introduce a comprehensive financial package to ensure a strong economic recovery, protect jobs and prevent new businesses from going under. With dire warnings emerging that up to half the loans issued under the bounce-back loan scheme are at risk of not being paid back, and with businesses defaulting on payments due to financial difficulties, it is vital that the Government introduce strengthened and tailored financial support urgently. The Treasury must heed the calls and turn its bounce-back loan scheme into grants for those who require them. It should write off debts for businesses that are facing increased hardship to ensure that they can survive in the long term and that jobs are protected wherever possible.

Many businesses are struggling to stay afloat during these challenging times, and despite the extensive financial support that has been provided by the Government, which we do not dispute, loans will not be the answer for every business. For many businesses, it is not income deferred, but income lost completely. For example, hospitality and tourism businesses will not be able to recoup that money, and loans will just put them further into debt.

It is important that the Government look at this matter very carefully and take on board the very substantial concerns that R3 has raised about the proposed policy, hence why we have tabled so many amendments. I would be grateful if the ministerial team could tell us exactly why this change is required and why it has been brought about.

[Wes Streeting]

I must confess that I come to this clause with a slightly different set of questions for Ministers to respond to. There is no doubt that in the current climate, the risk of insolvency to businesses is much greater, and it is right that the Government do all they can to stop preventable collapses, to safeguard jobs and to ensure that the UK is well positioned for the economic recovery that we hope will follow in short order, with the aim of making this recession as short and shallow as possible.

That is why my right hon. Friend the shadow Secretary of State for Business, Energy and Industrial Strategy and the shadow Minister for business and consumers, my hon. Friend the Member for Manchester Central (Lucy Powell), were prepared to work closely with their opposite numbers in the Department for Business, Energy and Industrial Strategy to expedite through the House of Commons the recent Corporate Insolvency and Governance Bill.

Turning to clause 95, the question I wish to pose to Ministers is why HMRC is only a secondary preferential creditor. HMRC will remain an unsecured creditor for the taxes that the bankrupt businesses owed, and we have had strong representations for HMRC to be a preferred creditor across the board, to ensure certainty and to recognise the fact that HMRC contributes, through tax collection and maintenance of general rules, to the general operating environment from which all businesses benefit.

Although we have heard that the risk exists that businesses may lose out as a result of HMRC having greater preferential status in the process of recovering money, it does not necessarily follow that the businesses that would lose out are those that most of us would have in mind as being of greatest concern, such as small to medium-sized enterprises. When a business becomes insolvent, bank loans need to be paid off first; unpaid bills to SMEs would have a much lower priority and be less likely to be paid off anyway.

I recognise the concerns expressed by UK Finance. They are concerns I heard in my previous life on the Treasury Committee, and I am always open to talking to colleagues at UK Finance and across the across the banking industry. However, they have to go somewhat further to make a more convincing case than they have outlined. It would be interesting to hear from the Minister why HMRC is only a secondary preferential creditor and why, on this occasion, the Treasury has not gone further.

To respond to the lobbying from the financial services industry, I would say that it was ever thus—when measures like are brought forward, it says that the sky will fall in and business lending will stop. There are challenges with business lending in this country, but it is stretching the imagination somewhat to say that such challenges will be presented by this modest clause.

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The insolvency process is an important part of our commercial life and an important part of the process of encouraging investment in British business. A small but persistent minority take advantage of the rules to sidestep their tax responsibilities, seeking to keep the benefits of their avoidance or evasion while denying funds needed for public services. That is bad for the Exchequer, bad for business, bad for consumers and bad for other creditors. It is bad for society. Limited liability is an important part of our legal system, but that protection, intended to benefit honest businesses, should not extend to those who misuse the system to avoid their tax obligations. The Government are clear that everyone must pay the tax that is legally due, no matter who they are. It is therefore only right that we tackle such misuse. For that reason, I commend the clause and schedule to the Committee.

[Wes Streeting]

It is always the case that when a new measure is introduced, criticism can be made of it simply because it had not existed previously. In this case, it really is a reflection of the Treasury’s failure to clamp down effectively on the abuse of the system and the people trying to avoid and evade their taxes. Despite the Government’s previous efforts to impose greater accountability for tax avoidance and evasion, there are still too many holes in the system, but I welcome the fact that clause 97 and the schedule will go some way to addressing that.

What is the threshold of responsibility for the conduct? When will HMRC consider the serious possibility that the tax liability might not be paid? At what stage will HMRC conclude that there is likely to be a tax liability arising from the avoidance? Might the Treasury go further, for example, by asking HMRC to report on how much money is lost by companies participating in or promoting tax avoidance schemes and then becoming insolvent before HMRC can counter the schemes and collect the money owed? Following on from that, how much money would be collected if those companies’ directors, participators and associated persons were made jointly and severally liable?

[Alison Thewliss]

I want to comment briefly on the huge gap that exists within Companies House as part of this process. If we go after companies and directors that are involved in phoenixing, why can that not be stopped at source when those companies are registered at Companies House? Why is there no link to the Government’s Verify scheme for those who wish to register companies there? Companies House is obliged only to register the information, not to check whether any of the information is accurate, correct or related to any other kind of activity. It is not involved in anti-money laundering obligations, but it really should be. Will the Minister look carefully at the question of Companies House? That could be a key part of preventing phoenixing in the first place. For example, I have a friend who employed a builder to do work on his house for his disabled son. The builder went bust and phoenixed, as he has done on several occasions. My friend is out of pocket, and that company continues to trade. It is employing sub-contractors who lost out last time because there is nobody else to hire them in that small community. There needs to be a stop on those types of people and behaviours, and I urge the Minister to consider ensuring that Companies House is a big part of that.

--- Later in debate ---

[Wes Streeting]

As the Financial Secretary outlined, this clause is designed to tweak the system. Therein lies my criticism and my concern. The challenges we face when it comes to tax avoidance and abuse have been well documented during this Committee in relation to the loan charge. Even where Government have sought to clamp down on avoidance and HMRC has put in place controversial but rigorous arrangements, there continue to be, to this day, companies and promoters that tout schemes that are patently against the spirit and letter of the law. HMRC has made it clear that such schemes do not work, but those companies and promoters are still at it.

The most recent examples I have seen are of umbrella companies targeting public sector workers in the NHS. Rather than just tweaking, Ministers should be trying to give the general anti-abuse rule more bite. For example, they could extend the general anti-abuse penalty rules to apply a 100% penalty for any tax avoidance scheme that fails the GAAR or, more likely, fails for some other reason, but would have failed the GAAR as well. They could prevent operators of avoidance schemes simply running away from their liabilities and victims, making directors, shareholders and other associated persons jointly liable for the new GAAR penalty, as I alluded to in the previous discussion.

Umbrella companies create a unique opportunity to flog tax avoidance schemes to low-paid workers. We see that exploitation taking place. We could counter that by making umbrella company directors and associated persons jointly liable for unpaid PAYE, national insurance and VAT. We should make the promoters, scheme designers and independent financial advisers jointly liable for unpaid tax and penalties from a failed scheme, with a safe harbour designed to protect people acting in good faith. For example that could be where a promoter followed specific tax advice from a regulated adviser, where factual assumptions in advice were reasonable or where advice was shared with scheme participants; the list goes on. There are reasonable exemptions, or reasonable assessments could be made, where people are acting in good faith, but we still see far too many examples of people designing or promoting schemes in the full knowledge that they will make a quick buck but will not pay the consequences.

As we have seen, the Government and HMRC are trying to clamp down. When they catch up with people who have followed advice, often in ignorance of tax rules and in the belief that they were following good, independent financial advice, the bite really hurts. Why are we not going after the scheme promoters much more aggressively? Despite all the controversy—the headlines generated off the back of the loan charge, the debates in Parliament, inquiries and grillings before the Treasury Committee—we still have not got to the heart of the issue.

In my opinion, and that of many people following our proceedings, the people who design, contrive and promote such schemes are still not paying the price for giving bad advice to their customers, who believe they are following good advice and the law. We are not going to quibble about clause 98 and the tidy up it is doing, but I am disappointed by the lack of aambition. The Treasury has to be much more aggressive with the promoters than it is currently.

[Alison Thewliss]

In new clause 12, we mention the issue of Scottish limited partnerships. I make no apology for doing so, as they are still a problem. We only need to look at the ongoing campaign journalism by Richard Smith and David Leask on this issue to know that Scottish limited partnerships are being used in nefarious ways to move money and goods around the world. They have been involved in war crimes and all kinds of things. The loopholes existing in Scottish limited partnerships and Companies House must be closed by the Government. They are harming not only individuals who suffer the effects of these crimes, but Scotland’s reputation. They are called Scottish limited partnerships, but Scotland really has no part in it; they are an historic arrangement, but they are governed here.

There are still people not doing the simplest things such as registering persons of significant control. The answer to my recent parliamentary question suggested that 948 companies have still not registered a person of significant control. That is dramatically down from where it was, but it tells me that people are using other means to hide their money, rather than going through Scottish limited partnerships, and that no Government fines have been levied on the 948 companies that have not registered a person of significant control. That is money that the Government could have in their pocket. They are deciding that they do not want to pursue that for their own reasons. It really does stick in my craw that this is a continual issue: I have to raise it on the Finance Bill and the Scottish National party has to raise it in this House.

We are also concerned about the tax gap. The tweaks being made here are not really going to change that significant gap. In June 2019, HMRC published revised estimates, which put the tax gap at £35 billion for 2017-18, representing 5.6% of total tax liabilities. The Minister, no doubt, will say that the tax gap has fallen—it has—but that does not disguise the fact that it still exists, and that tax is money that could be coming into the revenues. It could be supporting businesses and individuals across the country and we could be abolishing policies such as the two-child limit, because the money would be there in the Government’s bank account. The Government could use that money rather than not collecting it. I could go into great detail, which I have here, about all the anti-avoidance mechanisms that have happened. I am sure other hon. Members are as warm as I am and would like to get some fresh air, so I will skip that in the interest of the patience of all colleagues.

We do need workable general anti-avoidance rules. They must tackle tax avoidance in all its forms. They must not exempt existing established abuse from action being taken. They must include international tax abuse within their scope. They must give the right to the tax authority to take action against tax avoidance, defined in an objective fashion capable of being numerically assessed, without the consent of the unelected authority. They must increase the burden of proof on this issue on to the taxpayer.

In 2014, the coalition Government announced the introduction of a system of follower notices and accelerated payment notices. In cases where someone is in dispute over their assessment, HMRC may issue a follower notice if this arises from the use of an avoidance scheme that is the same or similar to arrangements that HMRC has successfully challenged in court. In July 2017, HMRC reported that it issued over 75,000 such notices worth in excess of £7 billion and managed to collect nearly £4 billion. That is still a significant gap of £3 billion. HMRC must be able to collect the taxes it is due in real time instead of waiting for those judicial decisions.

With Scottish limited partnerships, the extent of the abuse of the current system is laid bare in the Global Witness report “Getting the UK’s house in order”, which highlights the deficiencies at Companies House that have been going on for many years. This needs to be dealt with soon. Reviews have been carried out, things have been talked about, but there has not really been any action. It makes no sense to me that we have such a system but do not allow it to catch the people it should be catching.

I sat on the pre-legislative Joint Committee for the Registration of Overseas Entities Bill in the last Parliament. That Bill seems to have disappeared completely. It would help to tackle some of the money laundering that goes on with property registered in the UK. People across the country, particularly in many London boroughs, see blocks of flats with nobody living in them. People could live in those flats. They are being used for money laundering and moving money about. We need to bring that Bill back and ensure those people are held to account. We should close these loopholes in the system and ensure that the tax that is due is collected for the benefit of all of us.

Finance Bill (Third sitting)

Wes Streeting Excerpts

Committee stage & Committee Debate: 3rd sitting: House of Commons
Tuesday 9th June 2020 Public Bill Committees

[Jesse Norman]

We are 50 minutes in and making very good progress, so thank you for your leadership from the Chair, Mr Rosindell.

Clauses 24 and 25 and schedule 3 make changes to UK corporation tax loss relief rules to introduce the corporate capital loss restriction that was announced at Budget 2018. At that Budget, the Government announced changes to the treatment of capital losses for corporation tax purposes. Currently, if an asset is sold at a loss, that capital loss can be carried forward and offset against up to 100% of the capital gains in future periods. In order to ensure that large companies pay corporation tax when they make significant capital gains, the Government will restrict the use of companies’ historical capital losses to 50% of the amount of annual capital gains from 1 April 2020. This policy builds on previous reforms to corporation tax loss relief, and brings the treatment of capital losses into line with the treatment of income losses.

The changes made by clause 24 will apply a 50% reduction to the amount of carried-forward capital losses that a company can set against chargeable gains that arise in a later accounting period. Various other changes that are required to deliver or support that loss restriction are also included. They include provisions to ensure that the restriction is proportionate for companies entering into liquidation, and that it operates effectively for companies in sectors that are subject to unique tax regimes, such as oil and gas, life insurance and real estate investment trusts.

This loss restriction will raise approximately £765 million in additional revenue over the next five years. An annual allowance of £5 million will apply across both income and capital losses to ensure that small and medium-sized companies are not affected. We estimate that less than 1% of companies will have to pay additional tax as a result of these changes. The change made by clause 25 is to amend the quarterly instalment payment treatment for certain companies with no source of chargeable income, which have a short accounting period resulting from a chargeable gain accruing.

New clause 9, tabled by the SNP, requires a review of the effect of the change to chargeable gains introduced by clause 24 and schedule 3 within two months of the Bill’s receiving Royal Assent. The review would focus on the effects of changes on business investment, employment and productivity across different regions of the UK, as well as the effects of various scenarios following the end of the EU transition period, and under circumstances in which the UK signs a free trade agreement with the United States.

The Government’s view is that such a review is not necessary. We set out detailed information on the Exchequer macroeconomic and business impacts in 2018, when this policy was first announced, and provided a further update at Budget 2020. Those estimates, which have been certified by the independent Office for Budget Responsibility, confirm that the changes made by the clause are not expected to have any significant macroeconomic impacts. The changes will affect very few companies—about 200 every year, which are likely to be dispersed across the UK. That estimate is not expected to change in any of the EU transitional free trade agreement scenarios set out in the amendment. A further review of the clause would not provide any additional useful information.

This restriction is a proportionate way of ensuring that large companies pay some tax when making substantial capital gains. The review that the new clause would legislate is unnecessary. I therefore urge the Committee to reject new clause 9, and I commend the clauses and the schedule to the Committee.

[Wes Streeting (Ilford North) (Lab)]

It is a pleasure to be here again on such a fine day in the Committee Room, going through some of the more technical elements of the Finance Bill.

We have heard from the Financial Secretary why clause 24 and schedule 3 appear in the Bill. As Members can see for themselves, part 1 of schedule 3—paragraphs 1 to 38—deals with changes required to introduce the corporate capital loss restriction; part 2—paragraphs 39 to 41—introduces changes in the treatment of allowable losses for companies without a source of chargeable income and makes other required minor amendments; and part 3—paragraphs 42 to 46—contains commencement and anti-forestalling provisions for the CCLR.

All in all, schedule 3 comes to 18 pages. I am sure that the Treasury deems them essential, or they would not be in the Bill, but it does seem to run somewhat contrary to the Government’s stated aim of simplifying the tax system. In case anyone wanted to reach for the explanatory notes for some salvation and solace, even they extend to 10 pages. I do wonder whether it was really necessary, with such a lengthy schedule and explanatory notes, to go into such detail; I guess my question to the Financial Secretary is whether anything can be done to simplify it. As I said, the Government’s stated aim is to simplify taxes—they even created the Office of Tax Simplification —but the OTS’s job is made much more difficult if, while it is trying to simplify the existing tax code, we are adding reams and reams of clauses to it.

The measure set out in clause 24 and schedule 3 is expected to raise significant revenues in corporation tax from large corporations. That is not something that I will complain about too much—in fact, I am not complaining at all—but a common concern among respondents to the Government consultation was about the timing in relation to our exit from the European Union and in the context of concerns about the impact on UK competitiveness. Although we do not oppose what the Government seek to do, it is important that they address those concerns up front—not least so that when people reply to Government consultations, they know that someone is reading and listening, and that the Government will at least address their concerns even if they do not share them.

Turning to clause 25, I am sure the Financial Secretary will recall that the London Society of Chartered Accountants wrote to the Chancellor on 19 April, copying him in, to raise issues about several clauses of the Bill. Paragraph 13 of that letter states:

“We note that this proposes that a company that would otherwise be ‘very large’ would be ‘large’ in the context of the regulations requiring payment of corporation tax in instalments if it is chargeable only because of a chargeable gain on disposal of an asset, but only for APs beginning on or after 11 March 2020. It is obviously aimed at non-resident companies that only come within corporation tax as a result of their new exposure to corporation tax on disposals of UK land and interests in entities that are ‘UK land-rich’. A single such disposal would result in the due date being on that one day that the company disposed of the property, so this is a welcome change for any but the largest organisations. However, it is unfortunate that this is not to apply to events before 11 March 2020, where companies have had to rely on a concession by HMRC. In such circumstances, HMRC propose that tax should be paid within 3 months and 14 days after contracts are exchanged unconditionally.”

It would be good if the Financial Secretary addressed those concerns in his reply.

We have already heard the Financial Secretary’s account of why he thinks the review required by new clause 9—tabled by our colleagues in the SNP, led here by the hon. Member for Glasgow Central—is not necessary. The proposed review of changes to capital allowances

“must consider the effects of the changes on…business investment…employment, and…productivity…The review must also estimate the effects on the changes in the event of each of the following…the UK leaves the EU withdrawal transition period without a negotiated comprehensive free trade agreement…the UK leaves the EU withdrawal transition period with a negotiated agreement and remains in the single market or customs union”—

I will not hold my breath on that one—

“or…the UK leaves the EU withdrawal transition period with a negotiated comprehensive free trade agreement, and does not remain in the single market and customs union.”

I understand why the Financial Secretary may not consider such a review necessary in the context of changes to capital allowances, but I would say two things in response. First, clear, widely available and readily understood analysis of the wider context and the wider pressures on the economy, covering issues such as business investment, employment and productivity is absolutely essential. Secondly, the headlines are obviously dominated by the coronavirus and, more recently, by events in the United States, with the murder of George Floyd, and the Black Lives Matter movement protests we have seen on the streets of the UK. However, in the background, as we know, there is the ongoing issue of Brexit, which has almost been forgotten in the national conversation, but which remains one of the single biggest challenges facing our country. The Committee on the Future Relationship with the European Union is hearing from Michel Barnier this week.

Whether Brexit is viewed by Members of the House as an opportunity or a threat, or perhaps a combination of the two, I do not think anyone would dispute that unravelling ourselves from the most sophisticated political and economic alliance in the history of the world is simple or straightforward, or without consequences. We have reached a settled position—to be clear, the official Opposition recognise that settled position—with a referendum and two general elections that have given the Government a mandate to implement the referendum. The question of whether Brexit takes place has been settled by those three democratic events; the question now is how it happens. At the same time, we are in the middle of a global pandemic that, as well as being a public health crisis, threatens to be an economic crisis. We are already in a recession, and the choices the Government make in the coming days, weeks and months, along with the choices they have already made, will shape and determine whether the recession is as short and shallow as we would hope.

I do have a concern when I listen to statements made by Ministers—not so much Treasury Ministers, but certainly Ministers in other parts of the Government, including the Prime Minister and the people around him—that the economic issues and priorities of the country are playing second order to political considerations. That is a terrible mistake. I hope that the Government will take a more stable and orderly approach—if I may borrow a phrase from our former Prime Minister—to some of these choices and issues, and that the Treasury flexes its muscles at all points in conversations with other Departments about the considerations that must be made about our future relationship with the European Union and, indeed, about free trade agreements with other countries, including the United States.

The Financial Secretary may not have a great deal of sympathy for the case made for a review in the context of changes to capital allowances, but I am glad we are having this conversation, because debate in this place is moving too often away from some of the really serious economic challenges that are presenting themselves. We cannot wish those challenges away; we need to make active, sensible and wise choices to ensure that our country emerges from this period of our history with a stronger economy and with greater and more widely shared prosperity than we have today. I hope that that cause is shared by Members right across the House.

Finally on new clause 9, the reason why we table such amendments and new clauses calling for reviews is that that is one of the few ways in which Opposition parties can debate issues on the Finance Bill. In recent years, it seems Ministers—to their shame, actually—have been too frightened and cowardly to allow Finance Bills to be subject to amendments in the way they were traditionally. We no longer have the same freedom and flexibility to propose practical, concrete changes that we might like to see, which strengthen democratic and political debate in Parliament, with Oppositions not just criticising Government, but laying down alternatives so that we can debate their merits versus the Government’s approach. So, instead, we call for reviews.

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[Jesse Norman]

This is a very small and technical measure that widens the scope of capital gains tax relief in respect of loans to traders, so that from 24 January 2019 it applies to loans made to traders located anywhere in the world and not just in the United Kingdom.

Relief for loans to traders is available where a loan is made to a UK company, sole trader or partnership, for the purposes of a continuing trade, profession or vocation, or for the setting up of trade, but then the loan subsequently becomes irrecoverable. The relief allows a person to write off the loss against chargeable gains.

The UK has now left the EU and has agreed to follow its rules for the duration of the transition period. On 24 January 2019, the European Commission issued a reasoned opinion, arguing that the existing legislation for relief of loans to traders contravened the free movement of capital principle. The Government accepted that the legislation, as drafted, was too narrow, and agreed to introduce legislation to expand the rules and to comply with that principle.

The change made by clause 26 widens the relief, so that it applies to qualifying loans made to businesses worldwide and not just in the UK. The proposed changes are not expected to have any significant impact on the Exchequer, due to the small number of people making these loans. Loans of the type covered by this relief are often risky, making them unattractive to many investors. Widening the geographical scope of the relief will not make such loans less risky, but it will give UK-based investors a remedy should an overseas investment be lost. Draft legislation setting out this change was published during the summer and no comments were received.

The Government consider that this legislation is appropriate for supporting overseas investment opportunities for UK-based investors and for meeting our residual obligations to the European Union. I therefore commend the clause to the Committee.

[Wes Streeting]

Earlier, the Financial Secretary described our proceedings as “a grind for some”. How could it possibly be a grind when we were treated to such a fascinating history lesson as the one he gave at the end of the debate on the last group? However, I am not sure that invoking the economic lessons of Adam Smith will be enough to persuade the hon. Member for Aberdeen South of the case for the Union. Indeed, I am not sure that it would persuade me of the case for the Union. I will return to reading the books by our esteemed former Prime Minister, Gordon Brown, and I will leave it to my hon. Friend the Member for Edinburgh South (Ian Murray) to lead the charge in making the case for the Union. That might be more persuasive to the people of Scotland than the history lesson given to us by the Financial Secretary.

We are all learning new things this morning. In fact, the hon. Member for Aberdeen South has learned that, in this place, the words “and finally” are generally a statement of intent rather than a binding commitment. I am sure that on many occasions I have used the words “and finally” more often than once.

The Financial Secretary described clause 26 as very small and technical, and I suppose that is true to an extent. As we have heard, relief for loans to traders is a capital gains tax relief; it gives relief where a loan is made to a UK company, sole trader or partnership for the purposes of an ongoing trade, profession or vocation or the setting up of trade, and the loan subsequently becomes irrecoverable. To qualify for the relief, the loan must be to a borrower who is resident in the UK and who uses the money wholly for the purposes of a trade, profession or vocation or to set up trade, as long as they start trading. Relief is due only if there is no reasonable prospect of the loan ever being repaid.

Who can argue with any of that? The clause is technical and straightforward, and the Financial Secretary has made the case for it. Only towards the end of his speech did we hear that the purpose of the clause—please shut your ears, Mr Rosindell—is to extend the relief to borrowers outside the UK, which will ensure that the relief complies with article 63 of the treaty on the functioning of the European Union, and with the rules on the free movement of capital.

I thought we might have a bit of fun dwelling on that for a moment, because we are locked in negotiations on our exit from the European Union. I am sure it was not meant to be sneaky—Ministers would never be sneaky—but at the end of the Financial Secretary’s speech on the clause, he briefly mentioned that it was about bringing ourselves into alignment with European Union law. It is curious that we are trying to negotiate our exit from the European Union at the same time that we are passing domestic law to bring ourselves into alignment. The Government have begun their fourth round of trade negotiations with the European Union; the process is far from complete. With the Government’s self-imposed December deadline looming, it appears there is nothing that the Government are not willing to sacrifice for their ambition to get Brexit done.

In the light of that, I am curious about whether the Government intend for the alignment to be permanent, or whether it will be a measure from which they wish to diverge in the future. I wonder what other rules we are planning to align with at the same time as we are planning divergence, and I wonder how the Government are weighing up the case for alignment and the case for divergence. The clause is designed to align the UK with EU trade regulations and EU laws, which reveals an uncomfortable reality at the heart of the Government’s strategy: no matter how much they might claim that Brexit means Brexit and that we can shirk our obligations, we know that the continuing harmonisation of laws and rules will continue within the European Union, and that, over the course of our future relationship with the European Union and with any future trade agreement with any third party, there will always be compromise, choices, trade-offs, harmonisation, agreement to abide by the same rules, and a mechanism for dispute regulation.

I certainly do not wish to re-fight the battles of the past. As I have already said, we accept that this question is settled. We have left the European Union. The only question now is about our future relationship. However, in the same way that the Government have recognised, through the clause, that we have obligations to meet, and that doing so is in the interests of businesses here in the UK—as a principle, it does not apply only to businesses, but in this case we are talking about the capital gains tax relief that will benefit different types of businesses—it is important that we acknowledge that, in our future relationship, there may well be instances in which it is in our national interest to align with the European Union, or to persuade the European Union to align with us.

Going back to my previous remarks, it seems to me that there has been far too much dogma in the debate, and far too much emphasis on demonstrating, in a robust and visible way, that we have left, almost as though divergence is a point of principle and a good in and of itself. There may be opportunities and occasions on which my Opposition colleagues and I might see divergence from a particular approach taken by the European Union as an opportunity presented by Brexit, and there may be occasions, particularly in the context of debating our domestic tax affairs and economic policies, in which opportunities might present themselves, and we might propose courses of action that otherwise might not have been possible as members of the European Union. However, there will be occasions when alignment with the European Union and its approach is in our national interest, and the Government should be brave enough to say so.

I think that most people in this country, whether they voted leave or remain, would accept that there are lots of occasions when a deep partnership with the European Union would be in our interest. Indeed, reflecting on the conversations that we had during the referendum and since, it seems to me that one of the least concerns that people had about the European Union was the notion that we had an economic partnership. My constituency split pretty much down the middle on Brexit, so I have the opportunity to speak to people who voted leave and remain all the time, which I find insightful, instructive and enriching. I find that, when people reflect back on our membership of the European Union, one of their least concerns was about the economic relationship and the notion that it was a free-trade bloc and a trading partnership. In fact, one complaint that I got from lots of leave voters who were voting leave because of concerns about sovereignty is that it had become too much of a political project and not so much an economic one.

I hope that, as the Government scope out their policies, and as the Treasury seeks to influence other Departments and to restore some sense of reality and grounding in some of the economic considerations of our future relationship, people right across Government bear that in mind, and that we do not end up cutting off our nose to spite our face. This country already had a number of underlying structural problems with our economy that we needed to address—slow growth over the last decade, weak productivity and the extent to which our country is divided, not only in the economic gap between the wealthiest and poorest but in the regional, place-based economic inequalities across our country.

There are lots of issues for us to deal with, but I fear that our job is being made even harder by the covid-19 crisis and its obvious impact, and I fear that the job of tackling those problems will be made harder still if we make unwise decisions about our future relationship based on political and ideological dogma, rather than on the economic considerations. I hope that message will be taken back to the Treasury.

[Jesse Norman]

I am keenly aware of the 11 o’clock minute’s silence, and I wish to respect that, so I will keep my remarks short. The hon. Gentleman will be aware that my consideration of the EU in my speech was probably 40% to 45%, rather than a concluding thought. I am glad he recognises that opportunities will emerge after we have left the EU, and I am sure he is right that there will be cases in which we should wish to align with it on a sovereign basis.

Finance Bill (Fourth sitting)

Wes Streeting Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Tuesday 9th June 2020 Public Bill Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

It is a delight to see you in the Chair this afternoon, Ms McDonagh.

Clause 27 increases the rate of relief for businesses investing in research in development and supports the Government’s ambition to drive up R&D investment across the economy to 2.4% of GDP. R&D tax credits are a key element of that support for innovation and growth. To assist businesses further, the Government will increase the rate of the R&D expenditure credit from 12% to 13%. In the interests of disclosure, I should mention that my wife, Kate Bingham, is the chair of the vaccines taskforce and is engaged in the R&D sector.

Investment in R&D is vital for increasing productivity and promoting growth. There are two schemes for claiming R&D task credits: the research and development expenditure credit—RDEC—and the small and medium-sized enterprise scheme. Businesses can benefit from R&D tax relief regardless of whether they make a profit in that year. As R&D is often risky or pays back years after the investment, this is a well-targeted and much-valued incentive. In 2016-17, the Government provided over £2.2 billion to businesses through RDEC, supporting almost £25 billion-worth of R&D activity.

The changes made by clause 27 will provide an additional £1 billion of support over the next five years. Increasing the RDEC rate will make the UK even more competitive for R&D investment and drive growth across all the UK’s regions. I believe that the changes made by the Bill will give innovative businesses additional support and encourage further investment in R&D. I commend the clause to the Committee.

[Wes Streeting (Ilford North) (Lab)]

Welcome back to the Chair, Ms McDonagh.

The Financial Secretary has outlined the impact that clause 27 will have on the generosity of RDEC by increasing it from 12% to 13%. The Opposition certainly have no qualms about that; it is estimated to benefit approximately 7,000 businesses, which is to be welcomed, and the incentives that he outlined are laudable. If I may, however, I will raise a couple of concerns.

The Financial Secretary mentioned the RDEC provision and the SME R&D scheme. As other stakeholders have said, it is disappointing that while the RDEC rate of credit is being increased from 12% to 13%, we are not seeing an increase in the generosity of the SME R&D scheme. Will the Minister address that in his reply? I think it is a big missed opportunity: SMEs are an important part of our economy, and their R&D potential should not be overlooked. That is why there is a provision specifically for them, after all, so it is disappointing that they seem to have been overlooked.

While we are debating clause 27, I will make a few points about research and innovation more generally. The UK is a global centre of excellence in R&I, but we should be even more ambitious, and the Treasury ought to be driving ambition in that respect. The latest figures from the Library put the UK’s research and development spending at 1.7% of GDP—behind the USA, France and Germany. While I absolutely acknowledge that the Government intend to be more ambitious and increase the percentage of GDP spend on R&D, I do not think that there is any room for complacency, so it is disappointing that they have overlooked the SME dimension.

We have to ensure that any uplift in innovation investment also ensures value for money, and that we are more ruthless about returns for the taxpayer and our economy. It is the research that costs money and the development that brings in the financial and, crucially, industrial payback.

As I said only on Monday to a group of university leaders, we have world-class universities in this country. I am very proud of the UK’s higher education sector and the contribution it makes. I hope that the plight of our universities is well understood by the Treasury and that, as the Chancellor is considering what more needs to be done to support different sectors of our economy through the crisis, he will look very carefully at what is happening in our higher education sector. It is the result not just of luck but of strong leadership from our universities that we have a world-class higher education sector in the UK, and we want it to go on being world-class. That applies not only to the teaching and the reputation of universities as a destination for students and academics, but to the world-class research output of our universities.

We still need to do much more as a country to bridge the so-called valley of death—to take academic ideas on to commercial success. It is a constant source of frustration to me, and I think more broadly, that our universities are places of outstanding research and innovation that is then capitalised on elsewhere. We end up paying double: we pay for the research up front and then we pay to buy back the benefits of that research, which has often been applied and commercialised by others.

Industrial researchers know that the cost of scale-up and commercialisation is an order of magnitude more than the cost of fundamental research, and they allocate their resources accordingly. The public sector in the UK has that ratio almost entirely reversed, spending 10 times more on research than on scale-up and development. While I absolutely celebrate and champion the research base of our universities and the importance of research and scientific discovery, and the arts and humanities as public goods in and of themselves, it is disappointing that the UK taxpayer often find themselves a benevolent funder of research for the world, hamstrung by a funding regime that has insufficient capacity to absorb and commercialise UK-funded research in the UK. I believe there is an opportunity for the Government to think about what more they can do to ensure that future growth in the science and innovation budget is targeted on development as well as research, ensuring that research carried out in the UK is commercialised in the UK, and that the economic benefits are captured in the UK.

We can also do much more around our research and technology organisations, which are an under-utilised and undervalued part of our science and innovation base. Funding development rather than research, using RTOs, would also support the Government’s objectives, which I believe are shared cross-party, of levelling up and investing in those parts of the UK that too often in the past have felt overlooked or left behind. By ensuring that funding is targeted at development as well as research, we can ensure that a greater proportion of funding goes towards some of our industrial heartlands, particularly in the north of England, where many RTOs are located, rather than continuing to concentrate funding in the so-called golden triangle of universities in the south of England.

I hope that the Financial Secretary will take those points on board, and that when he has the opportunity to do so, with the Treasury, he will focus R&D investment appropriately. It would be particularly helpful if, this afternoon, he enabled us to understand why the Government have overlooked the importance of SMEs when thinking about our research and development tax incentives.

[Jesse Norman]

I thank the hon. Gentleman for his thoughtful comments and questions. Let me discuss the SME scheme first. It is worth reminding the Committee that the SME scheme is extremely generous as it stands. It has a 230%—2.3 times—corporation tax deduction on R&D spend and a 14.5% payable credit where losses are made; some £2.2 billion of support was claimed through the SME scheme in 2016-17. It is also true that some SMEs claim RDEC, and will therefore benefit from the increase of the expenditure credit we are discussing. In 2016-17, just under 3,500 small and medium-sized enterprises claimed a little over £200 million in support through RDEC.

I understand why the hon. Gentleman says we need more ambition, but it is important to realise that the increase now under way represents the largest increase in support for R&D for 40 years across all Governments, Labour, Conservative and coalition. It is an enormous investment that increases public investment in science, innovation and technology to £22 billion by 2024-5, so there is no absence of ambition from the present plans. Of course, it is always important to balance that ambition against cost-effectiveness and value for money.

The hon. Gentleman mentioned the situation of universities in the context of covid-19. I understand that point: I used to teach at University College London and at Birkbeck, and have been associated with several universities in my life. It is also true that an enormous body of work remains to be done within universities, which may in turn be stimulated by the present situation to address the third point he made, which is the importance of the “D” in R&D—improving commercialisation and development. That is often the part of the picture that is missing, and it is hard for Government to create the development side on their own; we need active, vigorous, energetic partners. When one looks at other countries that have been highly effective at the development side of R&D, one finds in many cases that it has been not just corporate-led, but led and supported by universities as well. The hon. Gentleman’s points are therefore well made.

I remind the Committee that the ambition of this measure has been recognised by the Confederation of British Industry, which noted that these were

“powerful incentives to get businesses investing”.

It has also been specifically supported by the Association of the British Pharmaceutical Industry, which has recognised that despite the difficult circumstances in which the Budget was delivered, there is a commitment to this sector and this kind of investment. With that in mind, I recommend that the clause stand part of the Bill.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

Clause 28

Structures and buildings allowances: rate of relief

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

--- Later in debate ---

Increasing the SBA rate and making these technical amendments will ensure that the SBA functions as intended—as an important relief for businesses up and down the country that wish to invest. I therefore commend both these clauses and schedule 4 to the Committee.

[Wes Streeting]

In the case of clauses 28 and 29, I think we have to ask some questions about what the Government are trying to achieve, and some questions about the frequency with which they change the rules.

As the Chartered Institute of Taxation has said, taxpayers generally welcome any increase in a rate of relief, but as the institute has noted on many previous occasions, regular tinkering with rules and rates of capital allowances brings additional complexity and uncertainty; it also undermines investor understanding of and confidence in what is on offer at any one time. Most businesses cite certainty as one of the most important factors in their business planning, and as the institute has also said, it is perhaps more important than the precise amount of relief available.

When the SBA was introduced in 2018, it took an approach of introducing another type of asset classification required only for tax purposes—something that was previously identified by the Office of Tax Simplification in its review of capital allowances as a source of compliance costs. For most property investors, as there is a clawback on disposal of a structural building, the main benefit of the SBA is one of cash flow. As financial accounts will have to provide for a deferred tax liability, it is questionable how much this tax measure will act as a significant incentive to invest or will result in a significant impact on the UK’s competitive advantage. The Financial Secretary ought to address that criticism.

One of the other issues I wanted to raise is something that the Chartered Institute of Taxation has mentioned. Broadly, the changes—particularly in clause 29 and schedule 4—can be described as making the SBA work as it was intended to. It is a relatively new relief, having been introduced in October 2018, and the need for these corrections may reflect the fact that the relief was introduced as a done deal for immediate implementation, with no prior consultation. I am sure the Financial Secretary will say in defence—he can correct me if I am wrong—that the Treasury considers this important to deter businesses that were planning expenditure immediately after the 2018 Budget from deferring it until a later date of introduction, to avoid people taking full advantage too soon. It prompts the questions of why we have a system that apparently requires constant fine tuning, and of whether this is really working to the extent that Ministers intend and to the advantage of the businesses that are supposed to benefit from the relief, if they face additional compliance costs as a result.

I move on to new clause 10. I am in danger of repetition, which I appreciate is not a novelty in this place, but it is repetition that could easily have been avoided, were it not for the same issues that I raised this morning in relation to the “amendments to the law resolution” that successful Governments of different political stripes would have tabled to enable a more wide-ranging political debate in the interests of Parliament and, most importantly, of the wider public.

Ms McDonagh, as you were not chairing this morning’s proceedings, I think it is fair to say that the debate surrounding this Finance Bill, and the clauses that we are considering this afternoon and will consider into next week, is a little more dry and technical than perhaps any of us would have liked. There is a reason for that: it comes down to the fact that the Government are trying to restrict the ability of the Opposition, minor parties and dissenting Back Benchers to cause trouble. That would have been a little more understandable, if not noble, in previous Parliaments, when Governments operated under much tighter majorities or with no working majority at all. That is not to say that it was justified—the Opposition strongly argued against it in the past and would argue against Governments behaving in such a way in the future—but this Government have a significant majority. They do not need to worry about Back-Bench rebellions to the same extent as they once did, and none of us is well served by the Government failing to table the “amendments to the law resolution” alongside the Finance Bill, in order to allow the more wide-ranging political debate that our constituents would expect us to have.

Here we are with new clause 10, just as we were this morning, with an SNP amendment using the structures and buildings allowances review—I hope the hon. Member for Aberdeen South will not resent my characterising the new clause in this way—to shoehorn in some important wider considerations around what is happening to the UK economy on business investment, employment, productivity and energy efficiency, as outlined in the new clause, in a way that would not be necessary if Opposition parties or any hon. Members of the House were able to table amendments in the way we would have liked and our constituents would have expected. The Government would be richer for the scrutiny and would be forced to raise their game, and the Opposition parties would be encouraged to think more carefully about the changes that we propose to Government policy and would be under greater scrutiny to ensure that, where we oppose Government, we also suggest alternatives. Previously, we would have been able to demonstrate those alternatives more plainly by tabling amendments, but we are curtailed by the way the Government have gone about the process and procedure for amending this Bill. As a result, here we are, locked in Committee Room 14 on a moderately sunny afternoon, debating rather dry and technical details of the Bill, when our constituents, the Government and the process of government would have been better served by a more wide-ranging debate.

[Stephen Flynn (Aberdeen South) (SNP)]

I look forward to serving under your chairmanship, Ms McDonagh. Before I start, I want to touch quickly on the remarks that the hon. Member for Ilford North made about why the new clause was tabled. This is the only opportunity available to us to highlight the issues that we seek to promote. Of course, that is not a criticism, and I would certainly welcome seeing a few more new clauses from Labour Members. Indeed, there is opportunity for all of us to discuss what we seek to discuss, but the key thing is that we need to move something first.

On the matter at hand, amending the tax system in order to incentivise capital investment is a good thing—it is something that we should all want—but when we take such actions we also need to ensure that good governance is put in place. We must also look at the effectiveness of those actions, particularly when we are dealing with the potential impact on business investment, employment, productivity and energy efficiency.

I want to focus on energy efficiency, because it is so important in combatting the climate crisis that we all face. Words mean only so much, so we need action too. We all want to understand how Government measures incentivise energy efficiency, and we want to see further detail behind that, but we also want to see how the Government could go further. For instance, I wrote to the Government—I am not sure whether I got a response—about VAT on building repairs. I appreciate that in the south-east of England, the need for energy efficiency in properties is perhaps not as urgent as it is in the Baltic north-east of Scotland, where I hail from, but that is not to say that it is not a hugely significant issue.

Although we would like VAT to be reduced to encourage home owners, property developers and the like to improve the energy efficiency of older properties, that is not something that the Scottish Parliament can legislate on; the Scottish Government’s hands are tied by the UK Government in that regard. I hope the Minister will take the opportunity to clarify why there has been no move on that issue. We want properties to be more energy-efficient, and reducing VAT on the essential repairs that they require would be a logical, practical and easy step. It is deeply frustrating that such matters are not within the Scottish Parliament’s competence, and that we need to rely on a UK Government we did not vote for and do not support. So much good is happening in Scotland at the moment and the Scottish Government are doing incredible work, but their hands are tied. For instance, in December 2019, the Scottish Government’s Housing Minister, Kevin Stewart, highlighted that, by the end of 2021, we will have allocated more than £1 billion since 2009 to tackle fuel poverty and improve energy efficiency to make homes warmer and cheaper to heat.

In my former life as an elected councillor in Aberdeen, I saw at first hand the good work that housing associations and local authorities have done to improve insulation, use newer windows to stop energy leakage and put better heating systems into homes. Moves are afoot to increase our energy efficiency, and they are all positive.

In Scotland, we are blessed that we will have legally binding standards for home energy efficiency from 2024 onwards, which will make things even better. However, we should not have to rely on the UK Government’s approval to put in further measures. I again ask the Minister to clarify why the Government have been unable or unwilling to reduce VAT to date.

As I say, so much good is being done in Scotland to improve energy efficiency. It is only right that the UK Government agree to the new clause, in order to then assess their own actions and determine what more can be done to improve the situation, not only for those in Scotland but for those across the United Kingdom.

--- Later in debate ---

[Jesse Norman]

Almost as if it had been perfectly choreographed to illustrate the underlying nature of a Public Bill Committee on a Finance Bill, clause 30 concerns corporation tax intangible fixed assets relief for pre-Finance Act 2002 assets, thereby supporting UK investment in intangible assets.

Intangible assets include intellectual property rights such as trademarks, patents and design rights. The intangible fixed assets regime provides tax relief to companies for the cost of acquiring intangible assets. Relief is given either as the cost is written off in a company’s accounts or at a fixed rate. Not all intangible fixed assets are in the regime; there is a restriction, known as the pre-FA 2002 rule, that excludes certain older assets so that relief for the cost of such pre-FA 2002 assets is usually deferred until they are sold and the capital gains rules apply. This deferral, along with the administrative cost to companies in identifying whether an asset is within the regime, reduces the UK’s attractiveness, compared with other jurisdictions, as a location in which to hold intangible assets.

The changes made by clause 30 will make it more attractive for businesses to develop, manage and exploit intellectual property in the UK. They will simplify the taxation of such assets by bringing all intangible assets into the single regime where they are acquired on or after 1 July 2020. The clause will amend the commencement rules in part 8 of the Corporation Tax Act 2009, which prior to 1 July 2020 would have prevented pre-FA 2002 assets acquired by a company from a related party from coming into the regime. Intangible assets held by a company that is not within the charge to corporation tax as at 1 July 2020 will all be brought within the intangibles regime without distinction, should that company subsequently come into charge. The tax treatment for pre-FA 2002 assets already within the charge to corporation tax prior to 1 July 2020 will be preserved to protect those companies that already benefit from the existing rules.

There are further rules to apply the restriction to transactions that stop short of an outright acquisition of a pre-FA 2002 asset, but that nevertheless transfer its substance and value to a related party, such as in the form of a licence or some other new asset. The costs that can initially be relieved on such an acquisition will be restricted by reference to the market value of the asset; the company will not obtain full relief for the cost until it disposes of the asset. There are further rules to prevent arrangements between related parties that are intended to sidestep this restriction by creating or transferring what are notionally new assets instead of pre-FA 2002 assets.

The most immediate impact of this measure is likely to be on international businesses importing valuable intangible assets to the UK from overseas. These businesses will no longer have to perform the complex task of identifying excluded pre-FA 2002 assets, and will instead receive tax relief on all the assets that they acquire. Domestic companies, however, will also stand to benefit over the longer term from the reduced administrative burdens brought about by this measure. An estimated 1,000 companies a year acquire pre-FA 2002 assets. There will now be less need to distinguish between these pre-FA 2002 intangible assets and new intangible assets when companies enter into transactions involving such assets.

The clause enhances the availability of UK tax relief for the costs of acquiring intangible assets. It brings those acquired assets into a single tax code. That reduces the effects of an arbitrary distinction between older and newer intangible assets, and in so doing increases the attractiveness of the UK to innovative, IP-intensive businesses. I commend the clause to the Committee.

[Wes Streeting]

The Financial Secretary said that Finance Bills cannot be exciting and fun, but I am riveted by this particular clause—I have been looking forward to it all afternoon. I rise not to take umbrage at what the Financial Secretary said but to give voice to the concerns expressed by the London Society of Chartered Accountants and to ask the Minister to address those concerns.

As the society has acknowledged, this change will benefit many taxpayers. However, there will also be taxpayers who have capital losses or non-trading deficits and would have anticipated using them against any gain on pre-2002 intangible assets. There will be taxpayers who, having been through the transition to the new rules in 2002, are now quite happily running the two regimes side by side. For them, a compulsory change to the system would be more disruptive than maintaining the status quo, and as a result they might be disadvantaged. I wondered whether the Minister, speaking directly to that point, could clarify how those taxpayers will be impacted.

By way of slight digression, Ms McDonagh, and in response to the point that the Financial Secretary made during our discussion of the previous clause, I should say that I do not remember the Labour Government doing a great deal of tinkering between 1997 and 2007.

[The Chair]

Me neither!

--- Later in debate ---

[Wes Streeting]

The word that the Financial Secretary was looking for was “transformation”.

[Jesse Norman]

That was an unexpected intervention from the Chair, Ms McDonagh, but no less welcome for that. I thank the hon. Member for Ilford North for his question. He slightly galloped through the particular concern, and I am afraid I did not fully catch it.

[Wes Streeting]

Sorry!

[Jesse Norman]

That is absolutely fine. What I will do is ask the hon. Gentleman to give me the letter; I will write to him separately with a response that addresses the detail of the concern.

I can say to the hon. Gentleman that we do not believe that companies will be worse off because of these changes, which will not affect IP already held by any company. If a company does dispose of its IP, it will be taxed on the same basis as it would have been before the changes. The company will still be able to make use of reliefs that they may have been expecting to use. Any tax change can have an impact in some particular cases, of course, but overall we do not expect companies to be worse off. I am very happy to take up and respond to the specific question that the hon. Gentleman raised, but I will do that outside this Committee Room, if I may.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clause 31

Non-UK resident companies carrying on UK property businesses etc

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

--- Later in debate ---

[Jesse Norman]

This is another kaleidoscopically exciting measure alongside some of those that have already got the hon. Member for Ilford North so excited. I am happy to be able to titillate him further by discussing further changes to the non-UK-resident companies that carry on UK property businesses. Clause 31 and schedule five make amendments to legislation that provides that non-UK-resident companies carrying on a UK property business will be charged corporation tax from 6 April 2020.

In the Finance Act 2019, the Government legislated to bring non-resident companies that carry on a UK property business or who received other income from UK land within the charge to corporation tax from 6 April 2020. Until then, they are within the charge to income tax.

These changes make four minor amendments to the legislation that took effect in April 2020. They maintain the treatment of non-trading interest income of non-resident companies. They provide relief for interest expenses paid prior to the commencement of the non-resident companies’ UK property business—a UK resident company can already obtain relief for this type of expense. The time limits for making certain elections in respect of derivative contracts will only start to run for a non-resident company from 6 April 2020. Finally, for all companies, there is an exception from the obligation to notify chargeability to corporation tax if the taxable incomes have an amount on account of tax withheld from it. The changes clarify that the amount withheld on account of tax must meet the tax due on that income before the exception can apply.

These changes will ensure that there is a smooth transition for non-UK-resident company landlords from the income tax regime into the corporation tax regime. I therefore commend the clause and schedule to the Committee.

[Wes Streeting]

As the Financial Secretary has outlined, the clause and schedule make minor amendments that have arisen as a consequence of the provision made by schedules 1 and 5 to the Finance Act 2019. There is not much for me to add, as it is very much a consequential and technical adjustment.

Question put and agreed to.

Clause 31 accordingly ordered to stand part of the Bill.

Schedule 5 agreed to.

Clause 32

Surcharge on banking companies: transferred-in losses

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

[Jesse Norman]

We now enter the lush hinterlands of the banking surcharge regime. Clause 32 makes changes to the regime that ensures that the surcharge operates as intended when it was introduced.

The Government believe that even as reliefs are provided to support the economy in response to the coronavirus, the tax rules should continue to operate fairly and consistently for all businesses within their scope. Previously, the Government have legislated so that banks make a fair tax contribution, which reflects the risks they pose to the UK economy. That is why the Government introduced the bank levy in 2011—a tax on banks and building societies’ balance sheet equity and liabilities. It is also why banks have been subject to additional taxes above and beyond general business taxation ever since then.

In 2015, the Government made changes to the bank tax regime to ensure the sustainability of the tax base. They introduced the new bank levy rate, but offset that with the introduction of a new 8% surcharge on banks’ profits over £25 million, on top of corporation tax. The surcharge applies to corporation tax profits of banking companies within a banking group.

For corporation tax purposes, companies are able to make a number of adjustments when arriving at their profits. That might include transferring losses from one group company to another or carrying forward losses to the next accounting period. However, to ensure that banks are paying tax on all their banking profits, some of these are disallowed when arriving at the profits subject to the surcharge.

One such disallowed adjustment is for capital losses that are transferred from a non-banking company to a banking company and set against the capital gains of that banking company. That transfer should be disregarded when calculating the surcharge profit for the banking company. Currently, where these capital losses are carried forward to a future accounting period, that transfer is disregarded.

However, under the legislation as it stands, such transferred-in capital losses are not disregarded when they are set against the capital gains of the banking company in the same accounting period. That could, counter to the original intention, mean banks using losses from non-banking companies in their group to reduce their surcharge profits. That cannot be right, and the changes that we are making in the Finance Bill will ensure that it cannot happen. The changes made by clause 32 will stop surcharge profits being reduced by all capital losses transferred in from non-banking companies, whenever they are utilised against capital gains.

The changes made by clause 32 will ensure that the surcharge operates in the way that was intended when it was introduced. They will ensure that banks cannot reduce their profits subject to surcharge by using losses from non-banking companies in their groups. Above all, they will ensure that banks pay the additional tax on all their banking profits.

[Wes Streeting]

We welcome clause 32 and the Financial Secretary’s explanation of why the measure is necessary. It is important to emphasise, particularly for those in the banks who pay close attention to proceedings in Parliament, a couple of points that they should bear in mind, even a decade on from the financial crisis.

Across the House, we recognise and welcome—certainly this is true of Her Majesty’s official Opposition—the fact that the UK is a global financial centre and that the financial services industry is an asset to our country. It generates jobs and employment, and provides the oil to grease the wheels of the economy. We can see now, in response to the present crisis, the importance of getting finance to where it is needed.

Whether we are talking about business or personal customers, business loans and lending, mortgages, pensions, savings or bank accounts, people in their day-to-day lives understand the importance of a strong financial services industry. Across the House we recognise the importance of the financial services industry to the economy as a whole. As we saw, painfully, back in the midst of the global financial crisis, when the financial services industry fails and suffers, the whole economy suffers, too. It is important to acknowledge the value that we place on it.

However, it is also important that the banks should continue to reflect on the fact that the financial crisis—which came about as the result of irresponsible and reckless actions, and greed—demanded a significant price that fell on the heads of taxpayers and citizens of this country and around the world, who had no part in the making of that crisis. For the past decade of cuts to public services and pain that has been felt by businesses and households across the country—although part of the blame rests with Government for policy decisions that were taken, which we have rehearsed many times in those 10 years—it is a fact that the decisions and choices faced by successive Governments were made all the more difficult because of the irresponsibility of the spivs and speculators in financial centres, who did not understand their responsibility to society as much as they understood their own reckless greed.

In that context it is right that over the past 10 years Governments have asked banks, through the bank levy and other provisions, to pay back the debt they owe to society, so it is disappointing when new ways are found to try to lessen their tax liabilities. It is important that when the Government identify gaps and loopholes in legislation that have unintended consequences, they act to close them.

I hope that my remarks will achieve two things, the first of which is to reassure the financial services industry that we value its contribution and see it as an important part of our economic success and national life. However, I also want to remind financial services of the responsibilities that they have to the society they serve. The clause goes some way to ensuring that the debt they owe to society is properly repaid.

[Jesse Norman]

I thank the hon. Gentleman for his remarks. I share his view: it is of enormous value to the UK to have a global financial sector between the City of London, Birmingham, Leeds and Edinburgh. The UK is a country with astonishing heft in global markets, which is a very good thing in many ways. As he said, however, it is also important that those institutions pay the full burden of taxation that is due. There is very little concern that they have not done so in this case, and the concern has now been addressed because a potential loophole has been removed.

If I have understood him correctly, the hon. Gentleman attributes the crash of 2007-08 to spivs and speculators in the financial markets. There was a lot of that, but it is important to recognise that it was also a function of incentives, law and culture. Those things were all, in some respects, out of control before 2007-08. We talked banteringly about the level to which the Government have attempted to tinker with the legislation. In that case, however, it is perfectly clear that there was a failure not of regulation, but of supervision. It was a failure that was extraordinarily costly to this country.

In the spirit of putting things on the record, it is important to remember that, as the Vickers report found, the level of aggregate bank leverage in the financial sector in this country remained roughly steady for 40 years between 1960 and 2000 at 20 times capital. Between 2000 and 2007, it increased to 50 times capital. The effect of that was that, when the financial crisis hit, the UK banking sector was vastly over-leveraged. I am thrilled that this Government, as I suspect other Governments would have done if they were in place, have taken steps to extract a proper level of taxation from the banking sector and thereby set incentives that restrain the tendencies to growth and periodic explosion in the banking sector, because such tendencies are often absolutely ruinous for the wider economy.

[Wes Streeting]

It is, of course, right to say, especially with the benefit of hindsight, that the supervisory arrangements governing financial services in this country and other countries were insufficient. That is why we have a much more robust supervisory regime in place, which has been implemented to a large degree with cross-party consensus over the course of the past 10 years. I would gently point out two things. The first is the global context, and the second is that, although the Financial Secretary may point to the apparent failure of the last Labour Government to put in place a greater degree of regulation, I would challenge him—he can write to me if he cannot answer immediately—to cite a single example of a Conservative shadow Chancellor or shadow Treasury Minister calling for greater financial regulation by the last Labour Government. In fact, I remember the charge against the Government being that we were too prone to regulation rather than too hands-off, but I stand to be corrected.

[Jesse Norman]

I do not think there is any doubt at all that MPs and politicians across the political spectrum were taken by surprise and were not as alert as they should have been to the expansion in bank leverage that took place. I was merely putting those facts on the record. Inevitably, the responsibility lies with the Government in power at the time, as it would do in other crises, and it is for posterity to decide how it wishes to judge. I just mean that this is a proper response to a crisis that is much worse than it should have been; if those in charge at the time had taken the measures and spotted the crisis in advance, it would not have happened, notwithstanding all the ameliorative points that the hon. Gentleman has made in opposition to that.

Having said that, let me move on to points of greater overlap and agreement, and recommend to the Committee that the clause stand part of the Bill.

Question put and agreed to.

Clause 32 accordingly ordered to stand part of the Bill.

Clause 33

CT payment plans for tax on certain transactions with EEA residents

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

--- Later in debate ---

[Jesse Norman]

Clause 33 and schedule 6 would make changes to UK corporation tax payment plan rules so as to provide a deferred payment option for tax on certain transactions with EEA residents. Again, this is a small and technical matter.

A recent decision of the tax tribunal found that the requirement for a taxpayer to pay tax immediately following certain transfers of assets from a UK company to an EEA company within the same group did not conform with EU law. UK rules provide for tax-neutral transfers of assets between two group companies within the charge to UK tax, meaning that there is no immediate tax charge. If assets are sold or transferred otherwise, tax is payable immediately based on a disposal of the assets at market value.

The risk to the Exchequer arises from the fact that the tax tribunal decided that these rules could only be justified if transfers to group companies in the EU did not give rise to an immediate tax charge. In the absence of any mechanism for deferral, the tribunal decided that tax-neutral treatment must be applied to such transfers. Effectively, that would mean that the UK would completely lose its right to tax any profits on such assets. The case is under appeal, but resolution could be some years away. In response to that decision, the Government are acting to provide taxpayers with the option to pay tax on such transfers in instalments, which the judgment says would ensure compatibility with EU law. The effect of this is to remove the uncertainty caused by the decision and provide protection to the Exchequer.

This new facility to defer payment of part of a company’s corporation tax bill for an accounting period is modelled on an existing scheme for so-called exit taxes. Schedule 6 provides that corporation tax due on transfers of assets from a company in the UK to an EU company in the same group can be paid in instalments over five years, subject to interest at the usual rate for late-paid tax. We are making this change not to comply with European law, but to provide certainty to UK businesses and ensure that there is no risk to the Exchequer while the case before the UK courts remains unresolved. Once the risks and the uncertainty are resolved, this deferred tax payment facility will no longer be required.

Certainty could come either through a successful conclusion to the litigation in favour of Her Majesty’s Revenue and Customs, or at such time as the EU treaty freedom of establishment rules no longer apply to the UK. To that end, schedule 6 includes a power for the Treasury to repeal this facility by regulation; the Government intend that this power should be used once there is no need for the facility. These changes will provide greater flexibility for UK businesses, remove uncertainty and protect Exchequer revenues. I therefore commend both the clause and the schedule to the Committee.

[Wes Streeting]

Clause 33 and schedule 6 represent a welcome and sensible response to the decision taken by the first-tier tribunal in the case of Gallaher v. HMRC. The only question I have for the Financial Secretary is about the fact that the Treasury can withdraw the facility to enter into CT payment plans by statutory instrument, as he alluded to at the end of his remarks. The explanatory notes to the Bill state that the power of repeal

“is intended to be used if the Government determines that CT payment plans are no longer required.”

Could the Financial Secretary give us some sense of the circumstances in which the Government may determine that CT payment plans are no longer required?

[Jesse Norman]

I am grateful for the question. If we get certainty in the legislation, the effect would be that the provision was no longer required. Certainty could come, as I said, at the successful conclusion to litigation in favour of Revenue and Customs, or when the EU treaty freedom of establishment rules no longer apply to the UK. Those are the circumstances under which we would expect the Treasury to repeal the facility. It is done by regulation simply because it is completely uncontroversial and would be much better handled that way, rather than through the primary legislative process.

Question put and agreed to.

Clause 33 accordingly ordered to stand part of the Bill.

Schedule 6 agreed to.

Clause 34

Changes to accounting standards affecting leases

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

Finance Bill (Second sitting)

Wes Streeting Excerpts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Thursday 4th June 2020 Public Bill Committees

[Wes Streeting (Ilford North) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Rosindell, not least as a parliamentary neighbour.

As the Financial Secretary has outlined, this is the first of a number of clauses related to one of the most politically contentious issues—certainly across the House—in the Bill. By way of introduction, it would be helpful if I set out the Labour party’s position on the loan charge overall and on how we intend to approach the clauses and amendments this afternoon.

It will come as no surprise to any Member of this House that the Labour party takes a dim view of tax avoidance. We believe that tax is the price we pay for a civilised society, that it is important that all of us—individuals, organisations and businesses—pay our fair share of tax, and that when people contrive to avoid their tax, they rob and short-change all of us of the revenues needed for the state to do the essential things it needs to do, whether that is keeping our country and our borders safe or providing the public services on which all of us rely.

Turning to the loan charge specifically, we have not opposed the Government’s changes, as we recognise their general approach to clamping down on tax avoidance schemes in this way. What I want to do with this clause and those we will discuss later this afternoon is to give an airing to many of the detailed and contentious issues that have been raised by Members of all parties right across the House.

The all-party loan charge group has more than 200 members, drawn from parties right across the Chamber. When we come to the later stages of the Bill on Floor of the House, Members will no doubt want to put forward amendments and push the Government to go further in some respects. It is therefore important in our proceedings here in Committee that we delve as deeply as possible into these issues, so that all Members can understand the Government’s thinking and the way in which policy evolved and then consider whether it would be appropriate to bring forward further changes and what those changes might be.

Let me turn now to clause 14. As we have heard from the Financial Secretary, these changes are made in response to Sir Amyas Morse’s independent review into the design and implementation of the loan charge. It was commissioned by the Government, but it is fair to say on behalf of Members across the House not only that the Government appreciate the work Sir Amyas Morse did—it is a thorough piece of work—but that we thank him too. He has done a great service to Parliament and to the wider public debate.

The Financial Secretary mentioned that the Government have accepted all but one of the recommendations from the review and, at some point this afternoon, he should elaborate further on the particular recommendation that the Government have chosen not to accept and implement and explain why.

Here, of course, we are looking specifically at the amendment to the date from which disguised remuneration loans are taxed under the loan charge from 6 April 1999 to 9 December 2010. The 2019 loan charge justified looking back to 1999 by saying that the Government and HMRC had always said that the schemes did not work, but Sir Amyas found that this was not the case before the 2011 legislation. Approximately 40% of the pre-2011 tax years in scope of the loan charge did not even have an investigation into them opened up by HMRC. Even if HMRC had made its position clearer, taxpayers are entitled to rely on the law as interpreted by the courts, and, clearly, legal proceedings have had a bearing on the Government’s considerations.

We will return to HMRC across the afternoon, but this is probably an appropriate time to say two things in relation to it. First, I place on record my thanks and the thanks of the official Opposition to all the staff and leadership at HMRC for the difficult work that they are doing overall at the moment on all our behalves, in the extraordinary circumstances we are all living through. Secondly, let us not forget that HMRC also has a slightly technical and complicated piece of work going on in the background, by which I mean the implementation of Brexit. In normal times, the demands placed on the Revenue are significant, but these are extraordinary times with unique challenges. I want to make that really clear up front, not least because I am about to criticise HMRC.

I must say, having served on the Treasury Committee in the previous Parliament and in the 2015 Parliament, that my discussions with HMRC in relation to the loan charge did not fill me with a great deal of confidence about the way in which it approached this issue over a great many years.

On the controversy generated around the issue of retrospection, where charges are being applied retrospectively, and why that is a really difficult principle and challenge for Members to accept, we in this House, whichever party we represent, do not like the idea of retrospective legislation. We do not like the idea that decisions—certainly levies or charges—apply retrospectively.

HMRC would have given the Government a much easier ride if it had done its job more thoroughly in terms of looking closely at individuals’ tax affairs over many years. One of the things that shocked me most, both as a constituency MP looking at my loan charge casework and as a member of the Treasury Committee, was that those individuals were filing their tax returns over many years. HMRC has said for a great many years that it has considered disguised remuneration schemes such as those covered by the loan charge, and specifically those covered by the loan charge, to be unlawful and contrived schemes, yet, in so many cases, no enforcement action was taken. People were happily sending in their tax return at the end of the tax year, not hearing anything further and assuming that that was good news: “If HMRC has looked at it and considered the tax return, then it must be fine.” Clearly, that is not the case.

I really hope that Ministers have properly dragged officials over the coals—not literally, of course, but metaphorically. In terms of the political controversy, the pain of a lot of victims—in a lot of cases there are victims of the loan charge, as well as people who sought to ruthlessly exploit it, not least the promoters, and there are a lot of people in our constituency casework who I would consider to be victims of the loan charge—would not have taken place if the tax inspectors had done their job more thoroughly and picked up on this activity earlier.

Constituents at my advice surgeries on Friday afternoons, many of whom have been in serious financial distress, have told a story familiar to Members across the House: “My circumstances were unusual. I am not a tax expert, but I took professional tax advice and made arrangements thinking that they were within the law.” The point is that, had HMRC picked up on some of these issues earlier, some of those constituents would have corrected their tax affairs much earlier, they would not have been in this position, and this debate on clause 14—on when the loan charge should take effect—would have been rather more redundant. None the less, we are in the position this afternoon where the date has been settled on as a result of the work not just of the courts, but of Sir Amyas himself in the report. We therefore support these clauses.

I would like the Minister, when he replies on this clause, to touch on a few issues. First, I would like him to say something about the discrepancy between the action being taken on taxpayers and on enablers of tax avoidance. That has been another significant controversy. It is not just the case that people have been scouring the internet in search of ways to minimise their tax liabilities. A number of promoters have been engaged in the promotion of aggressive tax avoidance schemes and have put their clients in an invidious position. I am sure I speak for people across the House in saying that we need tougher action against those promoters, who do a real disservice to the wider profession of financial service advisers. I do not believe, despite the reassurances we have been given by Ministers during successive rounds of parliamentary debate on this issue, or by HMRC in hearings of the Treasury Committee, that the action matches the rhetoric.

I would like the Minister to say more about what action is being taken against the promoters of these schemes.

As the Minister will be aware, the all-party parliamentary group is dissatisfied with the date set out in the Bill. Its report on Sir Amyas’s report picked up on some of the expert views that Sir Amyas drew on in setting out his conclusions. As set out on page 28 of the APPG’s “Report on the Morse Review into the Loan Charge” of March 2020, a number of experts were consulted during the review and asked the simple question of whether they agreed or disagreed with the statement that

“schemes entered into on or after 9th December 2010 would clearly generate an income tax consequence.”

Of the 14 or so experts listed on page 30 of the APPG report, a number did not comment, but—as the Minister and his officials will see when they review this, if they have not already done so—a number of those tax advisers disagreed with the statement.

The APPG cites that point in support of its view that the retrospective application of the loan charge is still going back too far. Given we are likely to return to this issue at later stages of the Bill, it would be helpful for all Members of the House—those who are APPG members and those who are not, but who may at some point be asked to express their view in a Division of the House—if the Minister responded to the point about how the date was arrived at, and whether there was a clear and consistent view or whether some of the arguments about retrospection are either highly relevant or redundant.

As the Minister explained in his introductory remarks, clause 14 enacts a recommendation of Sir Amyas’s report that rights a wrong. The Opposition will certainly not oppose the Government doing the right thing after a thorough review of the evidence and the judgments of the courts.

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to see you in the Chair, Mr Rosindell. I agree with much of what has been said by the hon. Member for Ilford North. The SNP believe, fundamentally, that people should pay the tax that they owe, but it is clear from the evidence put to the all-party parliamentary group and in various reports that HMRC’s implementation has not involved appropriate communication with affected individuals. We believe that a review is in order to ensure that nobody is made homeless or bankrupt as a result of the loan charge.

I would also ask what consideration the Government have given to people’s ability to pay due to coronavirus, which may change people’s circumstances and their ability to repay. What consideration has HMRC given to those circumstances and how they might affect somebody’s ability to pay? It certainly will be beneficial to HMRC to get the money at some point, but if there is a strict time limit, within which people just cannot pay because they do not have the money and need to put food on the table, that needs to be taken into consideration.

It is something of a scandal that tax professionals advised clients to use these loopholes. There needs to be a further review into the advice given by those professionals and some comeback on the promoters of the schemes, who have clearly encouraged people to take them up. Individuals may have gone into them with their eyes open or their eyes closed, but the promoters of the schemes almost certainly knew what they were doing, what they were advising and what their intention was. We should go after those people aggressively, to ensure that they are not only held accountable for what they have done in the past, but prevented and disincentivised from coming up with similar loophole schemes in future. The very nature of our complex tax system means that the people out there who can benefit from those loopholes will always seek to find them. If we can send a clear message that that is unacceptable and there are consequences for doing so, that is worth considering.

My hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) tabled early-day motion 296 welcoming the publication of Sir Amyas Morse’s loan charge review, the UK Government’s amendments to the relevant legislation through the Finance Bill such that loans made before 2010 will no longer be subject to the loan charge, and delaying the self-assessment deadline until 30 September 2020. The initial analysis suggests that more than 30,000 individuals will benefit from these and related measures, but we still believe that a pause in the policy is necessary before continuing to provide a report, assuring Members that HMRC is working constructively with those seeking a reasonable repayment plan—one that recoups the unpaid tax while avoiding the unacceptable risks of bankruptcy and homelessness. If HMRC is not in a position to deliver that, an independent arbitration mechanism should be used to achieve it.

--- Later in debate ---

Schedule 1 makes the changes to prior legislation necessary to give effect to clauses 14 and 15 and ensures that the loan charge does not apply if a person died before 15 April 2019. In addition, Government amendments 1, 2 and 3 enable HMRC to respond positively to challenges that may be faced by some loan charge taxpayers, to ensure that they are not prejudiced due to factors beyond their control. For those reasons, I commend clause 15, schedule 1 and Government amendments 1, 2 and 3 to the Committee.

[Wes Streeting]

As the Financial Secretary has outlined, these relatively straightforward Government amendments allow for flexibility in making the election to spread the loan charge possible. I have some questions for the Minister about that, but I also want to raise several issues about his earlier remarks, which are relevant to this clause and the Government’s amendments, as well as some of the other issues that we will consider this afternoon.

First, in relation to the all-party parliamentary loan charge group, of course we are aware that the secretariat is the Loan Charge Action Group and that it contains lots of people who are subject to action by HMRC and have a direct personal interest in changing the law and affecting the course of Government policy. The Minister has done a real disservice to Members on both sides of the House, however, by suggesting that the all-party parliamentary group is not independent and does not exercise independent judgment.

It is common practice in this place for external organisations to provide the secretariat for all-party parliamentary groups, but if it were the case that any of those secretariats, whose work is funded to support the work of parliamentarians, were in any way directing the work of Parliament or of Members, that would be an issue for the Committee on Standards. No Member should be exercising their voice or their vote because of outside financial pressure or well-funded lobby groups. We are always expected to exercise our independent judgment.

The co-chairs of the all-party parliamentary group are the right hon. Member for Kingston and Surbiton (Sir Edward Davey), with whom the Minister previously served in Government, albeit he was a yellow Tory, rather than a blue one; my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury), who I would never suggest was anything other than independent, otherwise I would feel the physical force of her independence around the back of my ear; and the right hon. Member for Hemel Hempstead (Sir Mike Penning), who is widely respected on the Conservative Benches and was respected across the House as a Minister. The group also has widespread support from more than 200 MPs on both sides of the House, including the former leader of the Conservative party, the right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith). It is important to distinguish between that and the lobby group, which is perfectly entitled to its views, and is not always wrong, by the way.

That brings me to my second point. The Minister would have more of a leg to stand on in robustly criticising the all-party parliamentary group or the Loan Charge Action Group if they had not found the Government banged to rights. I did not labour the point during our previous exchange, but it is embarrassing for the Government and HMRC to have been landed with a report such as the report by Sir Amyas. We were told several times by Ministers at the Dispatch Box, and by HMRC in Select Committee hearings, that, “There is nothing to see here. There is no problem. HMRC is exercising its functions and discharging its responsibilities appropriately.” Yet, through Sir Amyas’s report, we have found that that was not the case.

We are now having to legislate for changes, and the Government are making changes that do not require changes to primary legislation, because the Government and HMRC were found not to have their affairs properly in order in relation to the application of the loan charge and the way the policy has panned out. The Government ought to be a bit more humble about some of those issues.

On the Government amendments, the Chartered Institute of Taxation thinks that the 30 September 2020 deadline for making an election to spread the loan charge should be amended. It considers that an extended deadline of 31 January 2021, which is the normal deadline for amending 2019 self-assessment tax returns, should apply. We are all aware of the impact of the current covid-19 pandemic, and the chartered institute recently pointed out that some taxpayers will require additional time in some cases because the records and documents that taxpayers need to access are not currently or readily available to them. With businesses in lockdown, it might not even be possible for them to access offices, particularly shared offices, even if they wish to do so. Will the Minister address that point, and might the Government consider a change along the lines requested by the chartered institute at a later stage? Also, why is it not possible to revoke an election to spread the loan charge or to be able to amend the election up until 30 September 2020 by submitting an amended return? Will the Minister address that point, too?

[Jesse Norman]

I thank the hon. Member for Ilford North for his remarks. To be clear, I am not suggesting for a second that the APPG’s members are in any sense dependent. Let me put that on the record. There is no impeachment or attempt of any such kind from me in relation to individual Members of Parliament. I was making a different point, which is that the APPG itself has come under an enormous body of concentrated and often extremely forceful pressure from people affected by the measure. There is therefore a contrast between their position and the position of Sir Amyas Morse, who is able to take a view that is independent in the sense that it is not aggressively constrained by one side or the other, but with the capacity to make a decision based on expert guidance and advice.

On whether the Government are always right, I would not suggest that for a second. We commissioned the review because the Government recognised that there was widespread public concern. Far from seeking to ignore that or brush it under the carpet, they retained a very high quality person and fully supported an independent process, thoroughly influenced and infused with both consultation and expert advice, to address the concerns. They were also suitably humble in accepting all but one of the recommendations, with the exception that I have indicated. It is absolutely not the case that it has been the view of the Government that any party to the dispute has a monopoly on correctness or rightness, and certainly the Government do not see themselves in those terms.

On the core thrust of the policy, Sir Amyas was clear. He accepted the principle of the policy and the validity of the loan charge as an approach to the concern about disguised remuneration, which takes enormous amounts of money out of the potential support of our public services. It is important to recognise that that was his position.

The hon. Member for Ilford North mentioned the Chartered Institute of Taxation and its call for an extended deadline. The deadline at the moment is the end of September and there is a period still to run before that. We understand the concern and of course we continue to reflect on the position, but that is the deadline and there is no overwhelming case at the moment for moving it. Therefore, it is important to give certainty to people who are in this position that that is the deadline for the submission of information and settlement of the loan charge. There can be no movement on that front, and it is important to be clear about what the status is at the moment. With that said, I commend the clause to the Committee.

Amendment 1 agreed to.

Amendment made: 2, in clause 15, page 10, line 14, at end insert—

‘(3F) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that sub-paragraph (3B)(a) applies to a specified class of persons as if the reference to 1 October 2020 were to such later date as is specified.

(3G) In sub-paragraph (3F) “specified” means specified in the regulations.’ —(Jesse Norman.)

This amendment will allow HMRC to extend the deadline for making an election to split the loan charge over three years for particular classes of person liable to the loan charge by virtue of Schedule 12 to the Finance (No.2) Act 2017.

Clause 15, as amended, ordered to stand part of the Bill.

Schedule 1 agreed to.

Clause 16

Loan charge reduced where underlying liability disclosed but unenforceable

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

[Jesse Norman]

The clause implements recommendations 3, 4 and 5 of Sir Amyas Morse’s independent review. It sets out that the loan charge will not apply to loans outstanding at 5 April 2019 and made in the tax year 2015-16 or earlier, whwwen the avoidance scheme was disclosed to HM Revenue and Customs, and HMRC had not taken action by 6 April 2019 to protect the year, for example, by opening an inquiry. The clause sets out how a reasonable disclosure is made, when a loan charge reduction applies and how that reduction is calculated. It also sets out what is meant by a qualifying tax year and a qualifying tax return.

Reasonable disclosure is defined as a disclosure made in either an income tax self-assessment return or a corporation tax self-assessment return, where a person is chargeable to tax on employment income, or an income tax self-assessment return where a person is chargeable to tax on trading income. The term “return” includes any accompanying accounts, statements or documents. Reasonable disclosure may be made in one or more returns of the same type relating to qualifying tax years either by an individual or, in the case of employment income, an employer. That builds on HMRC’s existing compliance approach.

A qualifying tax year is the tax year 2015-16 or earlier, or for corporation tax accounting periods commencing before 6 April 2016. Information must be included to identify the loan, the person the loan was made to, if not the taxpayer, the arrangements the loan was made under and other information to make it clear that the loan should be chargeable to income tax. In the case of employment income, this does not include the declaration that a loan was taxed as a benefit of a “cheap loan” where the benefit declared is the loan paid at a reduced interest rate, or indeed a zero interest rate.

The clause does not apply where there was no reasonable disclosure made for years 2015-16 and earlier, nor does it apply for 2016-17 onwards, regardless of whether a reasonable disclosure has been made or HMRC has taken steps to recover the tax. The clause thus ensures that the Government can implement three of Sir Amyas Morse’s recommendations from his independent review of the loan charge. I commend it to the Committee.

[Wes Streeting]

There is not much for me to add to what the Financial Secretary set out. Will he confirm that HMRC will be able to adopt a practical approach to interpreting what is a reasonable disclosure? For example, in some cases a taxpayer will not have had to file a self-assessment tax return for a tax year, but their employer or their business will have disclosed the loans and so on in a return of their own, in which case we consider that that would be an adequate disclosure by the taxpayer. Is that the Minister’s understanding? It was pointed out to us by the Chartered Institute of Taxation that

“amendments to paragraphs 1B…of Schedule 11 to F(No.2)A 2017 included in the Finance Bill legislation, as compared to the original draft legislation, appears to permit disclosures in tax returns other than the taxpayer’s to be taken into account.”

I would be grateful if the Minister confirmed whether that is indeed the case.

--- Later in debate ---

[Jesse Norman]

Clause 17 makes a technical amendment to remove the charge of late payment interest for customers and taxpayers who are liable to the loan charge for the period 1 February 2020 to 30 September 2020 on any self-assessment liability. The effect of that is that taxpayers will not be disadvantaged by the extension to the deadline given to them to submit their 2018-19 self-assessment return and to pay the tax due. Late payment interest will accrue from 1 February 2020, if this revised deadline of 30 September 2020 is not met.

The clause also provides that no late payment interest will be due on payments on account for 2019-20, where the payments are made by 31 January 2021 or are included in a payment arrangement by that date. Again, if the payment deadline of 31 January 2021 is not met or there is no payment arrangement in place by that date, the changes will not apply. Interest would then accrue from the statutory due dates for the relevant payments on account, which are 1 February 2020 and 1 August 2020.

While the clause will operate prospectively for the vast majority of affected payments, it will have limited but, I should emphasise, wholly positive retrospective application. There are cases where the Government are minded or have to act retrospectively, in part to do justice, and this is one of those. Any affected payments made before the date this Bill receives Royal Assent will be included, so that taxpayers who made their returns and payments before Royal Assent are no worse off than others who make their returns and payments later, but before the extended deadline.

[Wes Streeting]

As the Minister outlined, the measure is a technical one, so I do not have much to say about it, except to say as I did on clause 15 that I wonder whether he could outline, particularly for people who follow our proceedings closely, the reason for setting the deadline for filing the 2019 self-assessment return as 19 September 2021. The same issues that I raised previously may present themselves to taxpayers in the light of the lockdown measures that are currently in effect.

[Jesse Norman]

I must say that I am not quite sure I understand the question, but what has happened so far is that the loan charge deadline has been extended to 30 September this year. The clause allows relief from interest payable by those who are subject to the loan charge in that context; but if the hon. Gentleman would like to clarify his question I will try to answer it.

[Wes Streeting]

It is simply the case that some people who may need to access relevant documentation to provide to the tax authorities might struggle to do so in light of the lockdown measures that are in place. So, just as I raised in the previous discussion on clause 15, I am asking what flexibility can be made available. That is what I am getting at.

[Jesse Norman]

I understand. I think the hon. Gentleman said the date is 19 September 2021, and that is what threw me, because I do not think that that date applies to the issue that he has raised. As I have described, Revenue and Customs is, in the middle of the covid pandemic, exercising an extraordinarily careful sensitivity to personal circumstances. If there are personal circumstances that, because of the coronavirus, may have made it impossible to make a payment of the kind in question, I have no doubt that Revenue and Customs will take account of that in its consideration, before reaching a judgment.

Question put and agreed to.

Clause 17, as amended, accordingly ordered to stand part of the Bill.

Clause 18

Minor amendments relating to the loan charge

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

[Jesse Norman]

Again, this is a minor and technical measure that makes minor legislative adjustments to implement changes to the loan charge, including changing the date by which loan charge information must be provided to HMRC from 1 October 2019 to 1 October 2020.

When the loan charge was introduced in the Finance (No. 2) Act 2017 there was a legal requirement that those who had an outstanding disguised remuneration liability on 5 April 2019 would be required to submit information on their disguised remuneration loans before 1 October 2019 through an e-form. When the Government accepted Sir Amyas’s recommendation that there should be an option to spread the loan charge balance over three tax years, through an election, it was decided that the best way to do this was via an online form. The Government also used this opportunity to encourage those who had not already submitted information on their disguised remuneration loans to do so, by changing the statutory date from 1 October 2019 to 1 October 2020. I should say that clause 18 also corrects a minor drafting error in the original legislation.

[Wes Streeting]

It would take a wit beyond my imagination to find something interesting to say about this provision, so I shall resume my place.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Clause 19

Repaying sums paid to HMRC under agreements relating to certain loans etc

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

[The Chair]

With this it will be convenient to discuss the following:

Clause 20 stand part.

New clause 7—Loan charge: report on effect of the scheme—

‘(1) The Chancellor of the Exchequer must commission a review, to be carried out by an independent panel, of the impact in parts of the United Kingdom and regions of England of the scheme established under sections 19 and 20 and lay the report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) business investment,

(b) employment,

(c) productivity, and

(d) company solvency.

(3) A review under this section must consider the fairness with which HMRC has implemented the policy, including whether HMRC has provided reasonable flexibility around repayment plans with the aim of avoiding business failures and individual bankruptcies.

In this section “parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and “regions of England” has the same meaning as that used by the Office for National Statistics.’

This new clause would require a review of the impact of the scheme to be established under Clauses 19 and 20.

--- Later in debate ---

[Alison Thewliss]

I thank the Minister for his remarks. He recognises the importance of the schemes, but I think it is also important to recognise whether the effect of the policy is sound. We need to review and keep under review how this is actually working, and we need to understand the impact of the scheme.

This is why we have asked for a review to consider the effects of the provisions on business investment, employment, productivity and company solvency. We want to look at parts of the United Kingdom—Scotland, Wales, England and Northern Ireland—to see if there is any differential impact as well. It may be the case that some aspects impact on different sectors in different areas more so than others. I know that colleagues in the north-east of Scotland may want to highlight the impact on the oil and gas industry, whose employees have been in touch as part of their constituency business.

It is important to understand what the impact has been, and I think we are guilty, and the Government are certainly guilty—all Governments are guilty—of bringing things forward in the Finance Bill and making proposals, then not really following up and not really understanding the impact. That is often how we arrive at difficult situations such as the ones we are seeing today. I would certainly encourage the Government to consider this again. It is important that what they do is correct, and if it is not correct, it is important to understand that as it rolls out. On the refund scheme, I just want to ask how exactly it will work, when people can expect to obtain any refunds and, indeed, if there is any timescale in place for that.

[Wes Streeting]

I will come on to address new clause 7, proposed by the hon. Member for Glasgow Central, shortly because that opens up a broader range of issues worthy of review, such as the scrutiny of HMRC’s implementation of all this.

Clauses 19 and 20 legislate for the proposed disguised remuneration repayment scheme 2020—in broad terms—only. The clauses provide HMRC with considerable discretion as to how to operate the scheme. For example, while there is a right to a review of a repayment decision refusing repayment, that is only by way of representations to HMRC within two months of the decision. There is no independent review of the process. Given what I saw on the Treasury Committee of HMRC’s conduct on the loan charge, that is a serious oversight and mistake. People should have recourse to an independent process, and I am concerned that that is not the case as proposed.

Finance Bill (First sitting)

Wes Streeting Excerpts

Committee stage & Committee Debate: 1st sitting: House of Commons
Thursday 4th June 2020 Public Bill Committees

[Wes Streeting (Ilford North) (Lab)]

I beg to move amendment 6, in clause 5, page 2, line 18, at end insert—

“(3) The Government must lay before Parliament within six months of Royal Assent a review of current corporation tax rates which must contain an assessment of the following—

(a) the effect on taxation revenue of maintaining the level of corporation tax rates for 2020-2021; and

(b) the impact of the corporation tax rate structure on businesses of different sizes.”

This amendment would require the Government to assess the impact of the corporation tax rates in the Bill on businesses of different sizes and on tax revenues.

[The Chair]

With this it will be convenient to discuss clauses 5 and 6 stand part.

[Wes Streeting]

It is a pleasure to serve under your chairmanship, Ms McDonagh. These clauses, which maintain the corporation tax rate at 19%, represent the culmination of a five-year U-turn, painfully drawn out over three successive Conservative Governments and, by my count, at least four Conservative Chancellors.

Over the last decade, successive Conservative-led Governments have cut the headline rate of corporation tax from 28% to 19%, giving the UK the lowest headline rate in the G20. In the 2015 Budget, the Government announced a reduction in the corporation tax rate, from 20% to 19%, for the financial years beginning 1 April 2017, 1 April 2018 and 1 April 2019, with a further reduction, from 19% to 18%, for the financial year beginning 1 April 2020. In the 2016 Budget, the Government announced an additional 1% reduction to 17% for the financial year beginning 1 April 2020. By November of last year, the Prime Minister had backtracked on that reduction, claiming that doing so would provide another £6 billion for our NHS. Here we are, debating clauses 5 and 6 to give effect to the Prime Minister’s commitment.

Circumstances have obviously changed significantly since the Prime Minister made that commitment to freezing corporation tax to make sure that funding was available for the NHS. What impact does the Minister believe that maintaining the corporation tax rate at 19% will have on Treasury revenues, in the light of the immediate impact of covid-19? We know that many businesses are already struggling to pay their taxes and that the tax burden they face is one of many considerations, which may include the viability of jobs, of commercial activity or even of the businesses themselves. Will the Financial Secretary tell us whether the Government plan to produce corporation tax revenue forecasts that factor in this new reality and that subsequently re-evaluate the projected tax revenues for the period covered by the Bill?

The anxiety is that, without sufficient forecasts and projections in the light of the circumstances through which we are living, revenues generated by those decisions will not necessarily deliver the funding that the Prime Minster intended for the national health service. Given that he has drawn a clear link between that policy decision on corporation tax and funding for the NHS, we want to ensure that he stays good to his word and commits to funding the NHS to the extent that was promised. All of us living through this miserable period in our history and our national life are particularly grateful to the national health service for the support it provides to all our constituents in the best of times, let alone the worst. I am sure that the Financial Secretary will agree that it is absolutely necessary to maintain NHS funding at the level required to see us through the pandemic and into brighter times, and that he would like to give us a commitment to ensuring that the forecast evidence base is made available.

In any event, building a stronger evidence base for corporation taxation rates is long overdue. We do not believe that the 19% tax rate goes far enough to ensure that corporations in this country pay their fair share of tax, particularly as the responsibilities on us all will increase throughout this crisis. Although there are significant pressures on the Treasury as a result of the immediate response to covid-19, we know that the long-tail effect—the recession that we are in and will be living through —will have a significant impact on decisions taken in the Treasury.

We have just endured a decade of cuts to our public services and, as we heard from my hon. Friend the Member for Houghton and Sunderland South, we know that the broader shoulders have not borne the greatest burden. Poverty in our country, particularly child poverty, has increased, and those who have felt the pain in their pockets have noticed the significant reduction in the provision of the public services upon which we all rely. Therefore, as we think about how to balance the books and take the country forward beyond this crisis, it is important that we get back to the principle that those with the broadest shoulders should bear the greatest burden, and business, which has benefited enormously from Government support during the crisis, should pay its fair share.

The Association of Accounting Technicians notes that while a 19% rate may put us slightly ahead of the likes of Albania, Andorra, Bermuda and Kyrgyzstan, those nations are not our international competitors. Will the Financial Secretary tell us why the Government insist on maintaining a corporation tax rate that, as the Resolution Foundation highlights, sits well below the European average and that of our equivalent advanced economies? Does that show the Government’s lack of faith in the UK’s ability to attract business to this country while maintaining a robust and fair tax system?

We all value the contribution that business makes to our society. As this is a fairly early opportunity for me to speak to this issue since my appointment to the shadow Treasury team, let me say on behalf of me and my colleagues that we think business has a contribution to make to our country beyond that which it makes to the ability of Labour Governments to raise revenues for spending on public services—important though that is. During the lockdown we have seen how people are missing not just their friends and family, but many of the businesses that are currently shut down. Businesses provide not just tax receipts for Labour Governments to spend, or even jobs and opportunities, which are really important; they innovate, create and provide products and services that enhance everyone’s quality of life. I am proud that this country remains an attractive destination for businesses to locate themselves and have their global operations, and that many people feel able to take the plunge and start up their own businesses.

Businesses are the lifeblood of our communities and high streets, and we value them and their contribution. That is not in doubt. However, the Government could easily increase the rate of corporation tax and raise additional revenues from those corporations without making us uncompetitive. Ministers ought to bear that in mind not just as they make unenviable decisions throughout the current crisis but as they look ahead to future fiscal events.

There is also the issue of equity. The Institute for Public Policy Research noted in its excellent work through its commission on economic justice that cuts in the principal rate of corporation tax over the last decade have occurred alongside an increase in national insurance contribution rates. That has resulted in a system whereby the burden of taxation is placed on businesses with lower profits that happen to have more staff, while more profitable businesses that employ fewer staff pay less. The Government’s policy of maintaining the present rates is therefore fundamentally a commitment to inaction and does not address some of the disparities in how the business taxation burden falls. That is the point that our amendment fundamentally seeks to address, and I hope the Financial Secretary will address it.

The Opposition want to establish a stronger evidence base not just for the Treasury but for Parliament, looking at corporation tax rates and the impact of decisions taken in the Bill on the revenues generated. I hope that would prompt a more wide-ranging review of corporation tax and business taxation, looking at how the burden is felt by businesses of different sizes and types, and with different levels of profitability. I look forward to hearing the Minister’s reply.

--- Later in debate ---

[Jesse Norman]

May I respond briefly, Ms McDonagh? The hon. Lady talks about the Government recognising the error of their ways, but there is a misunderstanding encoded in that view. The Government’s goal had always been to set out a direction of travel because forward guidance has economic value in guiding private investment decisions, but of course all tax rates are constantly kept under review by the Treasury. As has been recognised and discussed in Committee, many considerations go into the decisions on what rate to charge, so I do not think it is fair to describe it as she has done.

[Wes Streeting]

We may well return to this issue in later stages of the Bill, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 ordered to stand part of the Bill.

Clause 6 ordered to stand part of the Bill.

Clause 7

Determining the appropriate percentage for a car: tax year 2020-21 onwards

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

[The Chair]

With this it will be convenient to discuss clauses 8 and 9 stand part.

[The Exchequer Secretary to the Treasury (Kemi Badenoch)]

It is a pleasure to serve under your chairmanship, Ms McDonagh. Clauses 7 to 9 make changes to set company car tax—CCT—appropriate percentages that favour zero and ultra-low emission cars until April 2023. As confirmed at Budget, these rates will be extended until April 2025. The clause also confirms that that the CO₂ emissions figure for the purposes of the CCT will be based on the worldwide harmonised light vehicle test procedure—WLTP—for all new cars first registered on or after 6 April 2020.

CCT is a benefit in kind for employer-provided cars that are available for private use. Although part of the income system, the appropriate percentages that determine the rate of tax paid by individuals are based on CO₂ emissions. There are currently around 900,000 company car drivers in the UK, and the benefit raises approximately £2.3 billion per annum. In July 2019, the Government announced that, for CCT, new cars first registered on or after 6 April 2020 will report CO₂ emissions using the WLTP, which is an improved emissions testing regime that aims to reduce the 40% gap that exists between current emissions reporting and real world driving. The Government announced that to smooth the transition to the WLTP, for cars first registered on or after 6 April 2020, CCT rates will be reduced by 2 percentage points in 2020-21 before returning to planned rates over the following two years.

To support decarbonisation, the Government also announced that all zero-emission company cars would attract a reduced CCT rate of 0% in 2020-21 and 1% in 2021-22, before returning to the planned 2% rate in 2022-23. To give certainty to company car drivers, leasing companies and manufacturers, the recent Budget announced the extension of 2022-23 rates for an additional two years until April 2025.

The changes made by clauses 7 to 9 will confirm that all new cars provided to employees and available for private use that are first registered on or after 6 April 2020 will be taxed according to the CO₂ emissions figure measured under the WLTP. It is also clarified that cars first registered before 6 April 2020 will continue to be taxed on the basis of the CO₂ emissions figure measured under the new European driving cycle—NEDC—procedure.

The clauses also introduce reductions in the appropriate percentages for 2020-21 and 2021-22 for zero-emission cars and all cars registered on or after 6 April 2020. In addition, they make a number of minor technical amendments—for example, by clarifying that where the electric range figure is converted from kilometres to miles, the value should be rounded up to the nearest whole mile.

I urge that the clauses stand part of the Bill. The changes they introduce will aid decarbonisation by confirming the introduction of the WLTP and beneficial CCT rates for ultra-low and zero-emission cars. They will also provide welcome certainty to company car drivers, leasing companies and manufacturers on the future taxation of company cars until April 2025.

[Wes Streeting]

As this is our first exchange across a chamber, may I say how much I look forward to working with the Exchequer Secretary—and occasionally giving her the runaround—during our time together in these roles?

Let me begin with an overall observation, which is that this Parliament has declared a climate emergency. The country understands the extent to which irreversible, catastrophic climate breakdown is an existential threat to life on Earth and means serious disruption to our way of life. Actually, given the disruption that the pandemic is inflicting on all of us at the moment, lots of people are reflecting on the serious longer term disruption were we to allow such a catastrophic climate breakdown to take place. But here we are with this Finance Bill, dealing with one of the few areas in which the Bill tries to make any progress at all towards tackling the climate emergency by talking about car tax percentages. This is entirely reasonable and entirely straightforward, but it falls way short of meeting the challenge facing our country.

When Greta Thunberg addressed parliamentarians here in our own Parliament, she said:

“Avoiding climate breakdown will require cathedral thinking. We must lay the foundation while we may not know exactly how to build the ceiling.”

I am pretty sure that when Greta Thunberg talked about foundational measures, she did not have car tax at the forefront of her mind. Yet here we are with a Bill that, as we have already heard from the hon. Member for Glasgow Central, falls way short of meeting the challenge.

It is disappointing because the Treasury has a crucial role to play in promoting efforts to tackle destructive climate change. This ought to be a national mission for our country. As one of the largest financial centres in the world economy, the UK has a clear responsibility to provide international leadership through the greening of our financial system. But we also know that the tentacles of the Treasury reach into every Department and can compel all sorts of behavioural change, can incentivise and disincentivise all sorts of policy change, right across the breadth of Government. I would like to see Her Majesty’s Treasury showing far stronger leadership in that regard.

It is also the case that through taxation, either tax incentives or disincentives, created through punitive tax measures, we can effect behavioural change across the country. I therefore hope that the scope and ambit and the ambition of future Finance Bills live up to the challenge.

If Ministers are not persuaded by the exhortations of Greta Thunberg, perhaps they will tune in to the interview given by His Royal Highness the Prince of Wales just this morning. As someone who has been committed for decades to tackling climate change and to supporting biodiversity and the natural environment, he too makes a compelling case. I hope Ministers will take that on board.

--- Later in debate ---

[Jesse Norman]

Clause 10 exempts care leavers’ apprenticeship bursary payments from income tax. This Bill contains areas on which there will be disagreements across the Committee, and areas that the Opposition Front-Bench team has noted that it wants to prioritise in scrutinising the Government, but there are other clauses that are essentially technical in nature on which I doubt there is any serious disagreement about their importance or intent. This, I suggest, is one of those clauses.

Young people who are in care or have left care who choose to start an apprenticeship receive a £1,000 bursary to help them to make the transition to the workplace for their practical studies. The extra financial support is for those aged 16 to 24 and living in England. Payments such as the care leavers’ apprenticeship bursary would normally be subject to income tax, as such payments relate to employment. Changes made by clause 10 mean that bursary payments made to care leavers who start an apprenticeship are exempt from income tax.

The changes affirm the Government’s commitment to support care leavers and ensure that those in receipt of the bursary can benefit by the full amount. The clause ensures that care leavers starting an apprenticeship will benefit from 100% of the bursary value. It is the right thing to do and I commend the clause to the Committee.

[Wes Streeting]

The Financial Secretary is right that he will not get much by way of argument from us. The bursary is obviously a laudable policy designed to support people in our society who lived in care as children and who far too often face serious disadvantages in terms of educational outcomes, employment opportunities and life chances.

It is a source of deep regret to me, as the son of a parent who spent time in care—care leavers are a big part of my family—that we have not done more as a country to narrow the attainment and opportunity gap for care leavers. Of course it is right that individuals who are in or have left local authority care who subsequently join an apprenticeship scheme should not be subject to income tax and national insurance contributions. We will certainly not oppose a clause designed to give effect to that.

I have some questions for the Financial Secretary about how the Bill deals with that, as much out of curiosity as anything else. There is an existing exemption in section 776 of the Income Tax (Trading and Other Income) Act 2005 for income from scholarships, which includes bursaries held by an individual in full-time education. Section 776 could have been amended to include the bursary payment, instead of introducing a new section to the Income Tax (Earnings and Pensions) Act 2003. I would be grateful if he could clarify why the Government have chosen to enact the provision by amending legislation in that way, rather than using section 776 of the 2005 Act.

I understand that it is the Government’s view that the bursary is employment income rather than other income, but other bursaries are classed as other income, and care leavers could be entitled to bursaries outside an apprenticeship. I would be grateful if the Minister explained why the Government consider this bursary to be employment income. If it is employment income, legislation will be required to exempt the payment from national insurance contributions; if it is not, additional legislation might not be needed. Some understanding of that, for our interest and the interest of all those who follow proceedings such as these closely, would be welcome.

[Alison Thewliss]

Again, I am not looking to oppose the clause. The aim is laudable, but I want to highlight a couple of things about apprenticeships. Coronavirus could significantly affect the number of apprenticeships that will be available to young people this year and perhaps even into next year as well. What do the Government intend to do to make sure that those opportunities are not lost to a generation of young people who are leaving school as well as leaving care?

As you will appreciate, Ms McDonagh, if those young people do not have the opportunities that they should, the impact on them will be devastating—as it will be on society as a whole if their skills and talents do not go into the workplace. I implore Ministers to look carefully at that, to make sure that they do not miss those young people, and that those concerns are high on their agenda. Apprenticeships can be transformational for young people. They can give them new opportunities and a chance to do something that they would never have anticipated through their family background or their ambitions growing up. It is vital to protect them in the months ahead.

I would also highlight the fact that the minimum wage rate for apprenticeships remains staggeringly low. The Government should look carefully at apprentices more generally. The bursary in the clause is fine and laudable, but apprenticeships for all young people need to be properly remunerated. Some of those young people will have families themselves and will be unable to take up those opportunities if they cannot afford to put food on the table because the apprenticeship rate is so low.

Not all young people live with their families, as the bursary recognises; but all young people who want them should have access to apprenticeships. I urge the Government to reconsider minimum wage rates more generally. There should be a living wage for everyone, but apprenticeship rates in particular are incredibly low in this country and they need to be addressed urgently so that all young people who want to can take up those places.

The Government could also look at the work done in the care review in Scotland. We appreciate that not all the things that could have been done to help young people have been done. The care review took an in-depth look at that. I urge the Minister to look at that and at what more can be done to support young carers in society.

Social Security

Wes Streeting Excerpts

Tuesday 5th May 2020 Commons Chamber

[Wes Streeting (Ilford North) (Lab)]

It is a privilege to reply on behalf of the Opposition, and you will be relieved to know that I hope to speak for nowhere near as long as 15 minutes. My party has resolved to work constructively with the Government through the extraordinary and unprecedented challenges presented by the coronavirus. It is in that spirit that I address today’s motion to approve the proposed increase in the employment allowance.

There is an air of unreality to our proceedings that extends beyond this empty Chamber and virtual Parliament to the substance of this afternoon’s business. On Second Reading of the Finance Bill, my hon. Friend the shadow Chancellor observed that it felt as though the Bill had been written for a different age. I feel the same way when I look at today’s motion on the employment allowance. This measure, which was announced in the Budget, increases the maximum amount of employment allowance from £3,000 to £4,000 for the new tax year, benefiting small and medium-sized businesses, charities and amateur sports clubs. It is expected to reduce the national insurance contribution bill to zero for around 65,000 businesses.

We recognise that the intention behind the measure is actively to enable small, growing enterprises to take on staff without incurring national insurance contribution liabilities, recognising that small businesses may need assistance to meet the costs of the welcome increase in the national minimum wage—it is described as a living wage, but it is perhaps almost a living wage. In ordinary times, we would welcome that, but for the businesses, charities and sports clubs that stand to benefit, these are the most extraordinary circumstances, just as they are for the whole country. For many of those organisations, this crisis is an existential one. Despite their best efforts, some of the businesses and charities that the Government intend to help will simply not exist by the end of the year. Of course, any measure that reduces their outgoings will be of some help, but, taken alone—or even as part of the package of support already announced by the Chancellor—this will not be enough to stop many businesses and charities going bust, so I urge the Financial Secretary and his colleagues in the Treasury to go further.

I turn first to the SMEs that stand to benefit from the proposed increase in the employment allowance. Small businesses form the backbone of the economy in communities such as mine across the country, and their survival through this crisis will form a crucial part of the recovery that we hope will follow. As we have heard, the Federation of Small Businesses has, as ever, done a sterling job of making sure that the pressures facing those businesses are well understood by Parliament. I take this opportunity to thank the FSB for all that it is doing while grappling with the challenges that coronavirus poses to its own operations and ways of working. Just last week, the FSB’s Martin McTague told the Business, Energy and Industrial Strategy Committee:

“Most small businesses have gone into this crisis with very little in the way of cash reserves. The latest evidence is that about 30% operate with only two weeks of cash, so they are in a very vulnerable position trying to cope with this crisis.”

That is why my right hon. Friend the shadow Business Secretary has called on the Government to introduce a second wave of business support, including an extension of the furlough scheme where necessary and greater flexibility to enable part-time working. The Chancellor has indicated that the Government will not allow a cliff-edge to form, so some clarity on how he plans to avoid that risk would be both timely and welcome for businesses that are already facing make-or-break decisions.

According to the Office for National Statistics, two thirds of companies have made use of the Government’s furlough scheme, many of which are small businesses. Since the Chancellor is already considering how to unwind the scheme, can I ask the Financial Secretary what consideration the Treasury is giving to calls from the FSB and others to introduce some flexibility in the scheme to allow for part-time working? Many small businesses cannot afford to bring staff back full time to quote for work, generate new business, fulfil orders or keep back-office functions ticking along. A small business might want to furlough its staff for 80% of the time, but under the current rules that is not possible if it has just two or three staff.

A more flexible approach to furlough rules would give SMEs the flexibility they need, which the FSB has described as absolutely critical for survival and recovery. That is why my right hon. and learned Friend the Leader of the Opposition called for that flexibility as part of his attempt to build national consensus on the next phase of the coronavirus response. It would be reassuring to businesses if the Financial Secretary could give us some hope today that consensus on this issue can be achieved.

As the Financial Secretary will be aware, the sorts of businesses that the employment allowance is designed to benefit will benefit from the opening of the bounce back loan scheme. That is welcome, but some serious issues remain around the working of the CBIL scheme for SMEs. Many SMEs are reluctant to take on loans because of the concern that they will not be able to repay them on the terms on offer. What more will the Government do to ensure that cash is reaching the businesses that need it?

I shall turn now to the charities that stand to benefit from the proposed increase in the employer’s allowance. For small charities, this will come as some relief. According to the survey conducted by the National Council for Voluntary Organisations, the Institute of Fundraising and the Charity Finance Group, charities are reporting a projected loss of 48% on their voluntary income and a third being wiped off their total income, with 91% of those surveyed expecting to have their cash flow disrupted. Although the vast majority felt that they could play a role in responding to the coronavirus outbreak, 62% were anticipating reducing their charitable activity. So for the smaller charities that the employment allowance increase is designed to benefit, the financial challenge will be even more acute.

We recognise that the Government committed £750 million in support for the voluntary sector and that they provided match funding to “The Big Night In”, but this support has failed to match the scale of the challenge facing our charities. The NCVO has calculated that a three-month lockdown would cost the sector £4.3 billion, which is six times the £750 million of support announced, so will the Financial Secretary tell us what more the Government plan to do to ensure that the charities eligible for the increase in the employment allowance still exist by the end of the year?

Since I have the Financial Secretary’s ear this afternoon, and given that the opportunities to raise issues with the Government had become more limited by the constraints that are understandably in place as a result of the coronavirus, may I take this opportunity, with the brief indulgence of the Chair, to lay down a marker about the future of the social investment tax relief? SITR is the only tax break for investors in social enterprises and charities, and it would be damaging to lose it in the current climate, so may I ask the Financial Secretary if he will give serious consideration to calls for a time-limited two-year extension to the relief, so that the organisations that benefit from SITR can continue to leverage in philanthropy to benefit a wide range of good causes?

Returning to the issue of employment allowance, this measure is estimated to cost the Government £455 million in lost revenue for the current tax year, which makes it all the more important to ensure that the benefit of this increase is enjoyed by those who are genuinely eligible and for whom the increase is designed. The Financial Secretary will know that there have been concerns in the past that the employment allowance has been exploited by tax avoidance schemes using umbrella companies to avoid national insurance contribution liabilities. We know that Her Majesty’s Revenue and Customs included anti-avoidance measures in the allowance from launch, and made it clear through Spotlight 24 that attempted avoidance arrangements such as these, which seek to use artificial and contrived arrangements to gain an unintended advantage, do not work. However, these measures require enforcement. Given the significant cuts in resources that we have seen, including job losses and tax office closures under successive Conservative-led Governments in the past decade, can the Financial Secretary reassure the House that any such avoidance is being identified and that tax inspectors are taking appropriate action?

In conclusion, the increase in employment allowance may not have quite the impact that was intended when the policy was first announced, but in so far as it will provide a bit of extra help to small businesses and charities, we welcome it and will not be opposing the Government’s motion. Our charities, small businesses and enterprises often represent the best of Britain and the beating heart of our local communities, and I hope that this measure will provide some assistance to those going through tough times. Where the Government take the right action, they will find our support and co-operation, as they do this afternoon. Lives and livelihoods are at stake, and the Government must go further and faster to give small businesses and charities the backing they need to weather this crisis and play their part in building a better country in its aftermath.