Finance Bill
Monday 27th April 2020
(3 years, 12 months ago)
Commons ChamberRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Jesse Norman)
I beg to move, That the Bill be now read a Second time.
I congratulate the new shadow Chancellor and her shadow Treasury team on their appointments. Six weeks ago, on 11 March, this House assembled to hear my right hon. Friend the Chancellor deliver his Budget speech. How long ago that seems now when every day feels like a decade. A Budget statement is a central part of our democracy; indeed, it is at the very heart of a parliamentary tradition of accountability for taxation that goes back to the 13th century. It is deeply sobering to reflect that that 11 March moment might be the last great parliamentary occasion we have in this Chamber for some time to come.
Truly, we know better now. We live in a disenchanted world, a world of self-isolation, of social distancing, of shielding, of lockdown. In the Treasury and across Government as a whole we have worked around the clock since then to respond to the extraordinary challenges posed by the coronavirus to people’s lives and livelihoods. The same has been true in this Palace of Westminster. I know that I speak for all my colleagues in saying that I have the greatest respect for the work that you, Mr Speaker, and so many others, including parliamentarians across this House, have done to prevent covid-19 from becoming a threat to our democracy itself. I pay special tribute to all the Clerks and staff of this House of Commons and of the Palace of Westminster for working so quickly and creatively to adapt to this new reality and for their skill in drawing on the flexibility and resilience of our uncodified constitution to create a virtual Parliament.
When this Chamber was bombed and destroyed on the night of Saturday 10 May 1941, with the fires raging, the roof fallen in and the Lobbies and corridors gutted, it was decided that the Commons should sit immediately in Church House. Extraordinary measures were undertaken at great speed to transfer proceedings to the new location. The Commons rarely sat on Mondays, so it duly reconvened in the normal way on Tuesday 13 May, but it did so in Church House. There were oral questions to the Secretary of State for War, including on officers’ outfits and the collection of swill and vegetable waste from military units, followed by a full Order Paper of business and, at the end, a short statement from the Prime Minister in which he reported that the old Chamber was damaged beyond immediate repair and that preparations were already under way for a move to a further location, if that should be necessary. Thus the biggest and the worst raid of the blitz resulted in the loss of not one single day—indeed, not one single minute—of sitting time for Parliament. It is a moment of which this country can be intensely proud.
Why so much determination and so much speed? It was so that, as Churchill said:
“hon. Members may be reassured that the work of our Parliamentary institutions will not be interrupted by enemy action”.—[Official Report, 13 May 1941; Vol. 371, c. 1086.]
It was so British democracy should not be thought to have been destroyed amid the burning ruins of the Commons Chamber, and so that the great thread of public scrutiny and parliamentary accountability that gives legitimacy and authority to our Government should not be broken. So it is again today, Mr Speaker. For that, we are, and we will always be, profoundly grateful. I hope that we shall soon return to the close combat of political business, whether that be the intimate interrogation of the Chamber, the camaraderie of the Lobbies or the noise and clamour of a full House packed to the rafters with MPs, press and public looking on, all fully intent on our national political business; the House of Commons as the cockpit of the nation.
Here again, history can be our guide. When the Chamber was rebuilt, special care was taken to make it, as it had been, too small for the number of Members. That was at the specific insistence of Churchill. In his words, the essence of good House of Commons speaking is the “conversational style”. This requires a
“fairly small space, and there should be on great occasions a sense of crowd and urgency…a sense that great matters are being decided, there and then, by the House”.
Not for Churchill the vast, empty hall of Deputies, the amphitheatre, or what he called “Harangues from a rostrum”. Without that collective sense of crowd and urgency and the ever-shifting energy of the House in action, we lose something vital.
Mr Speaker, I ask you this: can we not also gain from this great virtual experiment? Through new forms of questioning and calmer, more dispassionate cross-examination of Government, may we not find glimmers of new possibility amid the present gloom? I believe that we can. The significance of today’s debate lies not just in this Finance Bill, important though it is; it marks a new legislative beginning for Parliament. As we go forward together, I hope that we in this House can restore not merely our old ways, but what was best in them, and use this moment to add, to develop, to reform and to make them better still.
When my right hon. Friend the Chancellor addressed the House on 11 March, he announced a Budget focused on delivering the Government’s manifesto commitments from the general election last year. He did not only that; he also set out and carefully explained the reasons for a very ambitious and wide-ranging set of measures designed to tackle the coronavirus head-on, to buttress our frontline services and to support people, families and businesses affected by the pandemic.
Since then the Government have gone much further still. Indeed, we have announced what we believe to be the most comprehensive and far-reaching economic response to covid-19 in the developed world, and Ministers and public servants across Government have worked to deliver it. Among its many different packages, that response includes a job retention scheme, which guarantees 80% of the wages of furloughed workers, and which has been conceived, developed and launched by Her Majesty’s Revenue and Customs in just a few weeks.
Alongside the job retention scheme is a similarly generous scheme aimed at supporting the self-employed for 80% of taxable trading profits up to £50,000. This covers some 95% of those who are mainly self-employed, including cleaners, taxi drivers, plumbers, musicians, journalists, electricians, childminders and many others. Businesses can also benefit from more than £300 billion-worth of Government-backed loans, numerous tax cuts and grants, with a business rates holiday for the worst-affected sectors of the economy. There has also been a further package of measures aimed at the charitable sector.
These are unprecedented measures for unprecedented times. The impact of the coronavirus falls not only on businesses, but directly on the well-being of some of the most vulnerable people in our society, whom the Government are determined to protect. For that reason, the Government have raised by £1,000 the universal credit standard allowance and working tax credit basic element for a year. Almost a billion pounds has been allocated so that the local housing allowance can cover at least 30% of market rent, and the Government have offered vouchers or meals at home for children who would otherwise be eligible for free school meals.
This Bill goes beyond the immediate response to covid-19 by delivering the Government’s manifesto commitment to make the tax system fairer and more proportionate. For example, care leavers who start apprenticeships will pay no income tax on bursary payments that they receive. I am delighted to say to recipients of payments under the Windrush compensation scheme and the troubles permanent disablement payment scheme that those payments will be exempt from income, inheritance and capital gains tax, and inheritance tax will not be collected on Kindertransport fund payments.
Taxes are rarely popular or straightforward, but they are necessary to support our public services. Now, more than ever, the Government have a duty to ensure that the rules are applied correctly. Last month, my right hon. Friend the Chief Secretary to the Treasury announced that, in the light of covid-19, the Government will delay the introduction of reforms to the off-payroll working rules in order to give businesses more time to adapt. However, he was clear that the Government remain fully committed to introducing these reforms to ensure that people working like employees but through their own limited companies pay broadly the same tax as individuals who are employed directly. That has not changed, and the Government will introduce an amendment to the Bill in due course to legislate for a new commencement date of 6 April 2021. The Government will use the additional time to commission further external research into the long-term effects of the reforms in the public sector, with the intention that that research will be available before the reforms come into effect in the private sector in April 2021.
Meanwhile, this Bill implements the recommendations of Sir Amyas Morse’s independent review of the loan charge. It will mean that the loan charge no longer applies to loans entered into before 9 December 2010, which is the point at which Sir Amyas found that the law put beyond doubt the fact that disguised remuneration schemes were a form of tax avoidance. The Bill also brings forward legislation to repay taxpayers who voluntarily settled for years that are no longer in scope, while those still able to pay will be able to spread their loan balance over three tax years to suit their finances.
The Budget also included changes to help businesses to prosper for years to come. This Bill will implement the Government’s manifesto commitment to increase the research and development expenditure credit rates from 12% to 13% in order to help drive growth and productivity across the UK, and to continue to support this country’s proud history of innovation. It also raises the structures and buildings allowance rate from 2% to 3%, which should help to stimulate long-term capital investment in the United Kingdom by strengthening the business case for investment in shops, factories and agricultural buildings. Those changes apply nationwide, underlining the fact that, even in these times of uncertainty, the Government are seeking to level up investment and opportunity right across the whole United Kingdom.
The Government have made successive cuts to the rate of corporation tax since 2010 and we now have the lowest headline rate in the G20. That has helped to create a corporate tax system that supports British businesses, boosts economic growth and strengthens the UK’s pull for inward investment.
However, the extra benefits of lowering corporation tax rates still further must be balanced against other objectives, such as funding the NHS and the public services on which we all rely. That is why the Chancellor announced that the Government will not cut the corporation tax rate further this year, but instead will maintain it at 19%, in line with their manifesto commitment.
Likewise, while the Government are committed to encouraging entrepreneurial activity, the evidence indicates that entrepreneurs’ relief in its current form is neither effective in stimulating new business growth nor good value for money. By reducing the lifetime limit from £10 million to £1 million, we are returning the relief to its original purpose while continuing to promote and reward enterprise.
Finally, following an extensive period of consultation, the Bill will implement the digital services tax. Digital businesses providing search engines, social media platforms and online marketplaces derive significant value from their UK users, but current international corporate tax rules mean that that value is not reflected in the level of UK tax they pay. Setting a tax on revenues from those digital services at a rate of 2% will make the system fairer and should raise up to £2 billion over the next five years, but the Government’s ultimate goal is to secure a long-term global solution. We are working with international partners through the Organisation for Economic Co-operation and Development to agree a way forward.
Covid-19 is the most pressing challenge for the country—and, indeed, the world—at the moment, but it is by no means the only one. Notwithstanding our intense focus on tackling the pandemic, the Government have not lost sight of longer-term public concerns, notably the need for the UK to move to a greener and more sustainable economy in the years ahead. Now that we have left the European Union and as we prepare to leave the EU emissions trading system, this Bill introduces legislation for both a charging power to create a UK emissions trading system, and a carbon emissions tax.
This twin-track approach is designed to ensure that, whatever the circumstances, the UK will have an effective carbon pricing regime in place. In the Budget, the Chancellor also revealed key elements of the plastic packaging tax, which should significantly increase the use of recycled materials in packaging. This Bill allows preparatory spending ahead of its introduction.
The Bill will also encourage the uptake of zero-emission vehicles by removing them from the vehicle excise duty expensive car supplement, which will mean that employers and employees pay no tax on zero-emission company cars in 2020-21. The United Kingdom has led the world in introducing legally binding carbon emissions reduction targets; these measures underline once again how serious the Government are about meeting those targets.
My right hon. Friend the Prime Minister has made it quite clear that we will do what it takes to support our public services and key workers as they respond to this pandemic, and to safeguard jobs and businesses so that our economy can bounce back as quickly as possible. Yet we must also look to the future. The advent of a virtual Parliament is a chance to chart new territory, and this Bill is a first step on that journey.
The Bill also redeems the manifesto promises of the last election. It points the way to a fairer tax system and a greener and more sustainable future. With the support of Members from across the House, and as we look beyond lockdown, it gives us all an opportunity to cement the United Kingdom’s place as one of the most innovative, exciting and enterprising nations in the world. For all those reasons, I commend this Bill to the House.
Mr Speaker
I call Anneliese Dodds, who is asked to speak for no more than 15 minutes.
Anneliese Dodds (Oxford East) (Lab/Co-op)
Thank you, Mr Speaker. May I echo the Financial Secretary’s comments about the hard work that you and the parliamentary authorities have gone to, to ensure that these proceedings could go ahead? Of course, as the Opposition we are well aware of the need for Government to have a legal basis to continue levying taxes, and we approach this Bill very much in that spirit.
Many of the clauses in this Finance Bill were written many months ago, with a large number of them involving relatively minor fixes to existing tax legislation—not exactly the vegetable waste and pig swill that the Financial Secretary referred to in his colourful and wide-ranging perorations, but none the less in large part delivering technical aspects of already announced policies. In fact, overall, this Bill presents a picture of continuing the business as usual of the last 10 years.
However, it is unthinkable that we will go many months before additional fiscal measures will need to be brought in by this Government. There will be an urgent need to stimulate the economy as and when we move out of the lockdown, and when boosting consumption will not threaten to damage disease containment. Other measures may well be needed to help alleviate some of the numerous supply-side problems caused by the current dislocation.
Finally, of course, we will need to deal with the considerable burden created by the costs necessarily incurred in fighting coronavirus. Subsequent Finance Bills will need to be very different from this one, and I want to use the time I have available to spell out why. We will need new approaches to taxation generally, the social contract with business, funding public services, the climate crisis and tax reliefs. I will deal with each area briefly in turn.
First, we of course need a different and fairer approach to tax. The Bill largely continues the previous framework, with its reductions in the tax paid by the very best-off people, while support for the worst-off has been reduced. The Financial Secretary will, I am sure, be aware of the Institute for Fiscal Studies analysis of the distributional consequences of successive Budgets since 2010. As of 2019, for example, due to changes in tax and social security, the poorest 10% of households have seen losses of 11% of their income, on average, as a direct result of reforms. Among those with children, the losses amount to 20%: that is £1 out of every £5 being removed from low-income families with kids. Large numbers of frontline careworkers fall into that category. We know from recent research by the Resolution Foundation that half of careworkers are not paid the real living wage, and tens of thousands appear to be paid even below the national minimum wage. They deserve better. In contrast, the best off 10% of people have seen losses of only 2% in their incomes due to tax and social security changes since 2010.
As all in this House will remember, George Osborne maintained that, in his recovery, 80% of the reduction in debt should come from cuts to spending and only 20% from tax changes, yet the latter went alongside cuts in income tax, inheritance tax and capital gains tax for the very best-off people.
There is already a lively debate about how we should deal with the costs incurred by the coronavirus. The academic consensus is that decisions taken to load the cost of debt on to spending cuts in the 2010s made our recovery slower than it would have been otherwise, so it was the slowest not only in a generation but in eight generations, and slower than in many other countries. I am not saying that to castigate the Government; I am saying it because we will need to adopt a radically different approach to future Finance Bills from that seen over the last 10 years.
We are currently feeling the impact of that decade’s fiscal approach very keenly, especially when it comes to UK households’ resilience. A quarter of UK families entered this crisis with less than £100 in savings—making it impossible for them, for example, to buy a new cooker or get their car fixed—and almost 2 million households did not even have a cooker in their home in the first place. As and when we return to what will be a very different normality, we must have building up financial resilience at the core of future Finance Bills. That will mean instituting a more progressive tax system, with those with the broadest shoulders contributing to services that benefit us all.
Secondly, we will need a new social contract with business. As discussed at length during the statement, huge numbers of businesses are currently struggling like never before. We have already discussed the Government’s economic package today, and I must emphasise again that there is a very strong expectation from the public that public support must translate into protecting jobs, not the extraction of value into already deep private pockets.
We have called for the Government to consider the examples of other nations, such as France and Denmark, as well as that of the Labour Government in Wales, when approaching the bail-out of different large firms. Jobs must be retained, workforces must be supported, and we should expect and require good corporate behaviour going forward. That means a ban on public funds being passed into tax havens or doled out immediately in dividends, no share buy-backs on bailed out companies, and a commitment to improvements in environmental performance in future.
We also need a renewed focus on dealing with the enablers of tax avoidance and evasion. I regret that we still do not see that when it comes to those who facilitated disguised remuneration loan arrangements, while those who received such arrangements continue to be affected by the loan charge.
The Bill rightly rows back on the Government’s previous ill-advised commitment to cut corporation tax further to 17%, by maintaining it at 19%. The OBR estimated that a cut to the latter rate would reduce receipts by £5.4 billion a year in three years. Recent reductions in corporation tax have not boosted investment in the UK. It was clear that such a reduction simply could not be afforded in current circumstances, and we therefore welcome that element of the Bill. When we talk to businesses, as I am sure Government Members do regularly, rates of corporation tax are not the headline reason for locating in the UK. Other factors are far more important, such as workforce development and training, logistical factors such as transport, and—critically—business rates, which are a key issue for many companies in our nation.
There is, of course, an imbalance in the taxation of those businesses based in fiscal property compared with internet-based businesses—the division between bricks and clicks. The Bill details the digital services tax—a new 2% tax on the revenues of search engines, social media platforms and online marketplaces that derive value from UK users. We welcome that tax to the extent that it recognises the comparative under-taxation of many digitally provided services, but we are concerned about the restricted scope of the measure. It means, for example, that Amazon will continue to pay a lower rate of tax in relation to revenue than many high street bookstores and other retailers. In addition, it fails to fill the gulf in unpaid corporation tax from many of the largest technology firms. TaxWatch UK has suggested that the UK is losing £1.3 billion in corporation tax from just five of those firms, and the digital services tax would make up less than half of that.
The current crisis suggests that digitally based businesses will amount to an even larger part of our economy in the years to come, so we need to get this right. Above all, our Government need to be more explicit about their discussions with international partners about the move to a formula-based corporation tax system. Given the ability of those firms to shift profits between countries, we must work with other countries to apportion taxing rights better.
The OECD’s anti-base erosion and profit shifting project was a good start, but it failed sufficiently to inform countries in the global south. I hope Ministers will be more forthcoming in future about what they are doing to seek that international consensus, not least given current hostility from the US towards multilateral approaches in a number of areas. This topic is controversial, and we need to hear more than just that our nation is engaged in those discussions.
I hope Ministers will be more forthcoming in their approach when it comes to local government finance, which is crucial in providing public services—from social care, to helping the homeless, to providing areas for leisure and play. Local authorities will be crucial in helping to rebuild the economy after this period, through their work on economic development.
My third point concerns the need for the Government to commit to a proper, deep and wide review of local government finance that takes account of the full impact of the crisis in terms of extra expenditure and forgone income, and which considers business rates and council tax in the round. We still only have a commitment to yet another restricted review of business rates. Surely we can be more ambitious in that area, as the need for a deeper review is now very strong. The goal must be to provide certainty and stability about the provision of local public services.
An additional area where action is needed is tackling the climate crisis. Survey evidence, albeit tentative at this stage, suggests a renewed appetite from the public to grasp the challenges posed by the need to decarbonise. The Bill makes small moves in the right direction. It incrementally increases vehicle excise duty, using emissions as a benchmark—the Chief Secretary to the Treasury mentioned that—and it introduces the world- wide harmonised light-duty vehicles test procedure, a UN-established vehicle testing procedure, in an attempt to prevent the gaming of emissions standards by vehicle manufacturers. We encourage the Government to adopt a steady replacement of all testing procedures within that framework. More broadly, we need a far stronger shift in taxation to disincentivise carbon production. The previous Finance Bill continued implicitly to support fossil fuels in a number of areas, and this one only sets the scene for some elements of the promised new plastics tax and the new emissions controls that will be necessary. Given that we have declared a national climate emergency in this very House, we need far stronger action in subsequent Finance Bills.
Finally, we fail to see in the Bill any substantive change in the Government’s approach to tax reliefs. This is essential. Public funding will be under pressure, so we must choose very carefully what we subsidise through these reliefs.
The incidence of tax reliefs has increased over recent years, yet there is little thorough oversight of their impact. Labour has called repeatedly for a thorough review of tax reliefs, but this Bill does not deliver one. As public finances come under substantial pressure, that position is no longer sustainable.
The National Audit Office’s recent report on tax expenditure showed that the Government are not reporting costs of over two thirds of reliefs; that must change. Alterations are made in this legislation to entrepreneurs relief—that was right to state—but the Institute for Fiscal Studies has suggested that the £1 million limit is still too generous. Furthermore, it does not achieve its principal aim of boosting investment, with the IFS stating:
“If one of the aims of reduced capital gains tax rates on business assets is to incentivise individuals to invest more in their businesses, this evidence suggests they are not working.”
We must ensure that corporate tax reliefs are focused on employment retention and promotion, and the provision of public goods. That is as essential for entrepreneurs relief as for the hundreds of others that continue to receive little public scrutiny.
There are many measures in the Bill that are sensible, that tidy up anomalies and that make life easier for taxpayers and HMRC, and we welcome them. But, as I have said, in many ways this feels like a Finance Bill for a different age. Subsequent Budgets and Bills will need to recognise the need for a much more resilient household financial situation and much more resilient public services, and will need to move away from the demand-sapping, confidence-stripping approach that has characterised the response to the last crisis. We stand ready to work with the Government where we can to achieve that new approach.
Madam Deputy Speaker (Dame Eleanor Laing)
We now have to introduce a formal time limit of five minutes. Members in the Chamber will be able to observe the clock, but I strongly advise Members who are participating virtually to have a timing device nearby that they can see, because, due to necessity, the five-minute time limit will be very thoroughly enforced.
Mel Stride (Central Devon) (Con) [V]
The economic backdrop to this Finance Bill is among the most challenging that this country has ever faced. The Office for Budget Responsibility, for example, in the scenario that it put forward, suggested a 35% contraction in the economy followed by a rapid bounce back—the so-called V-shaped recovery. Whether that is realistic or not remains to be seen, but it is the case that the Government have some significant control over two areas of policy that will determine whether we come back with a V-shaped recovery or not: the timing and nature of our exit from the lockdown.
On timing, as the House will be aware, the Government have put forward five tests, one of the most important of which is the fifth test, which is that we should extract ourselves from lockdown but in a manner that does not cause a second flare-up of the virus, which happened with the flu pandemic of 1918. This is critical; if the Government get it wrong and we do have that second surge in the virus, it will be a catastrophe for our economy and we will have not a V-shaped recovery, but at best a double-dip recession of some magnitude. It is therefore very important that the Government be allowed the time and space to take those decisions, and that we are patient with them.
Secondly, on the nature of our withdrawal, it is important that we have transparency. As the Chair of the Treasury Committee, I urge the Government to engage with businesses on the broader elements of the plan, so that they can both input and adjust accordingly. The element of which the Government have control, of course, is the support they are providing to the economy, at considerable scale and pace. The Chancellor is to be congratulated on that, but with scale and pace come hard edges to policy and challenges in delivery. Examples of both that the Government should focus on are, first, making sure that, for the self-employed who work through their own companies, dividends that result from self-employment can count when it comes to assessing the furlough amount that they can qualify for. Secondly, on delivery, we heard from the Chancellor earlier about bounce-back loans. I welcome those a great deal, but we also need to ensure that the banks are on notice that we expect them to deliver on the coronavirus business interruption loans and the other loans concerned. Through the Treasury Committee, I have had conversations with the British Business Bank and also written to the banks on its lending panel to urge them to come forward transparently and provide us with data on how much money is going out the door relative to the number of applications on a daily basis. I call on the Financial Secretary to the Treasury and the Government to row in behind us and ensure that transparency, because what gets measured tends to get done.
Let me turn to two specific points in the Finance Bill. The first is the changes that the Financial Secretary to the Treasury has just outlined in respect of entrepreneurs relief. He is right to make those changes; it is a relief that is not fit for purpose. However, there are £24 billion-worth of reliefs every year relating to businesses, and at a time when we need economic growth encouraged at every single turn, it is imperative that the Treasury examines all £24 billion-worth of those reliefs and makes sure that they are all fit for purpose.
Secondly, I was particularly pleased to see such a large number of clauses relating to the digital services tax. It is not right that search engines, online marketplaces and social media platforms should not be paying a fair level of tax in our country. It is not a case of evading tax; it is a case of the taxation system not being adequate for the 21st century. We cannot assess national taxation rights on property, on where people are, on where the management are or on where the intellectual property resides; we must do it on where value is created. These measures are a big step in the right direction. I urge the Financial Secretary to stick to his guns. He will face great pressure from the United States in particular, but in the absence of an international approach to this matter, it is vital that we take action.
I think my five minutes are now up, and I am very aware of your exhortation, Madam Deputy Speaker, so I will conclude, except to say that I will be supporting the Second Reading of this Bill.
Madam Deputy Speaker (Dame Eleanor Laing)
Exactly five minutes; I commend the right hon. Gentleman. I call Alison Thewliss, who, as her party spokesperson, is asked to speak for no more than 10 minutes.
Alison Thewliss (Glasgow Central) (SNP) [V]
I welcome the shadow Chancellor to her role. She is the first woman ever to do the job. I wish her all the best and look forward to working with her.
Time is tight, so my remarks will not cover all my thoughts on this 186-page Finance Bill. It seems to me that each Finance Bill tries to fix the errors of those that preceded it, and this is no different. It would be useful to have the opportunity to take public evidence on the Finance Bill, because if ever there was a time to ensure that the measures and reliefs proposed by the UK Government are appropriate, it is now. If we are to believe that austerity is over, this Finance Bill must be followed by a recovery package that grows our economy in an inclusive way and protects the most vulnerable.
The UK Government continue to short-change Scotland. We are seeing the limitations of the Barnett formula writ large. The UK promised £242 million for regional deals in the Budget, but we have not yet made up for the £400 million shortfall relative to the money that the Scottish Government are putting in. Scotland is still waiting for Scotland’s £5.8 billion of the DUP’s Brexit bungs and the £175 million of VAT owed to Police Scotland the Scottish Fire and Rescue Service.
Clause 12 gives Ministers the power by regulation to exempt certain social security benefits from income tax, which is fair enough, but far more extensive measures are required to address the flaws in the social security system. The welfare cap set out in the Budget is surely now set to be breached, and instead of setting a new cap, as he is required to do, the Chancellor may want to consider whether it is a useful tool in the first place.
People who have never had to rely on benefits to put food on the table and meet their rent are suddenly finding out just how pitiful the UK social security system is. A letter from 50 campaigners led by the Child Poverty Action Group and the Bishop of Durham has highlighted the fact that tens of thousands of the 1.5 million households that have applied for universal credit will lose out due to the size of their family. I have been saying, ever since the two-child limit was proposed in 2015, that no one can predict their circumstances. The letter states:
“Even in normal times, no parent can be sure that their financial security will withstand unpredictable events such as illness, bereavement or redundancy. Certainly no parent could have had foresight of Covid-19, and so planned their family size accordingly.”
I urge the Chancellor and the Financial Secretary to the Treasury to bring forward measures to remove the two-child limit and end the unfairness being meted out to families in need.
This UK Government have failed to go far enough for workers. The cut to employers’ national insurance goes only a third of the way that we demanded towards the £2,500 in the Tories’ own manifesto commitment. Younger workers will continue to suffer state-sanctioned age discrimination, and this is really a missed opportunity to introduce a real living wage for all. The Chancellor previously claimed that he would do whatever it takes to help people affected by the coronavirus crisis, and the UK Government must follow through on that commitment and strengthen welfare provision so that people get the help they need now. They must scrap the five-week wait, turn the loans already given into emergency grants and ensure that all new claimants are given automatic grants to prevent millions being plunged into debt and poverty. If the UK Government had listened to our calls to introduce a universal basic income at the start of this crisis, the huge difficulties people are now facing could have been avoided.
I also support the calls from the Low Incomes Tax Reform Group, Age UK and the TUC for action on the net pay pensions issue. Due to a flaw in the tax system, around 1.7 million lower-income workers, mostly women, are being unfairly charged 25% more for their pensions as a result of the way in which their employer pension scheme operates. I ask the Government to look at this.
Firms are already finding it difficult to access cash, not least because of the limitations of the UK Government’s coronavirus business interruption loan scheme. Part 4 of the Finance Bill lays out plans to grant HRMC preferential status in insolvency procedures from December this year, and measures to make directors personally liable for a company’s tax liabilities where HMRC considers avoidance is taking place or where there is evidence of phoenixism or tax abuse via insolvency. I very much want to see companies and their directors take their responsibilities seriously and to avoid phoenixism wherever possible, but I am not alone in questioning whether this is the correct approach. R3, the Association of Business Recovery Professionals, wrote to the Chancellor last September:
“While extra money for HMRC in insolvency procedures may appear positive, it means less will be going back to trade creditors, pension schemes, and consumers. This will hurt the economy in the long run. Poor returns from insolvency procedures can jeopardise the health of other businesses, can make creditors more likely to vote down rescue proposals, and can trigger further insolvency. The government’s policy increases the chances of this happening.”
Coronavirus has brought this issue into sharp focus. UK Finance estimates that this policy could hit lending by at least £1 billion per annum. Furthermore, if HMRC gobbles up the largest amount first, there will be very little left for unsecured creditors such as small and medium-sized enterprises. Examples include the contractors and clients of a building company, food suppliers and parents who have paid upfront for a nursery that has gone bust. Why should creditors—real people in the real economy—lose out on much-needed pay-outs because of the vague notion of giving value to the taxpayer? The City of London Law Society also highlighted, in a letter in September last year, that this proposal erodes protections and would put the UK at a competitive disadvantage, so I urge the Chancellor and the Financial Secretary to the Treasury to give further thought to this measure. What would help to prevent phoenixing would be to tackle this matter at Companies House, giving it the full powers under anti-money-laundering legislation to carry out due diligence, rather than simply nodding companies through. This would protect consumers and other businesses that end up losing out.
The Scottish National party welcomes the Bill’s attempts to counteract tax avoidance laid out in clause 64 on anti-avoidance. The UK Government must urgently introduce a robust and transparent system of company registration in order to combat money launderers’ attempts to register entities for illicit and avoidance purposes. The UK Government must act to tackle the ongoing improper use of Scottish limited partnerships through a proper reform of Companies House. In reference to clause 72 of the Finance Bill, relating to properties and trusts, will the Chancellor also update the House on what has happened to the Registration of Overseas Entities Bill, which seems to have disappeared?
The SNP will support a fit-for-purpose digital services tax. We agree that it is unfair that huge multinational online firms pay less in tax than small high street businesses, but the devil will be in the detail, as the shadow Chancellor laid out. Firms may seek to get around measures, which is where good evidence comes in. The UK Government must be a step ahead of, rather than several steps behind, those companies that seek to evade paying their fair share. It is regrettable that the UK has failed to implement the measure alongside international partners, despite countries such as France, Spain and Italy seeking to introduce similar measures.
The Finance Bill is another example of the Tories yet again failing to support the oil and gas sector when it needs support to transition to a greener future. The oil and gas sector has generated £334 billion in net tax revenues to the Government since 1970-71, but the Tories have failed again to support it in its time of need. Promising a sector deal within the term of this UK Parliament is just not good enough; the sector needs fiscal support, and it needs it right now. OGUK chief executive Deirdre Michie has said:
“OGUK will be pressing the case for a COVID-19 resilience package to governments in the coming days which will focus on protecting the supply chain, jobs and our ability to continue to reposition ourselves for the future.”
I urge Government Front Benchers to listen carefully to that plea.
I also encourage UK Government Ministers to do all they can to finally deliver justice for the former Roadchef workers who have been waiting for decades for their employee benefit money. My hon. Friend the Member for Airdrie and Shotts (Neil Gray) has offered one solution via early-day motion 268; the other solution would be for HMRC to act reasonably in recognising that the employee benefit trust was non-taxed at its establishment and negotiating positively with the trust to allow payments to happen quickly.
Our economy does not need Ministers to be given trade war powers. To protect jobs, we believe that the Brexit transition should be extended by two years. Clause 94, “International trade disputes”, will amend the Taxation (Cross-border Trade) Act 2018 as follows:
“In section 15(1)(b)…(import duty: international disputes etc), for ‘is authorised under international law’ substitute ‘considers that (having regard to the matters set out in section 28 and any other relevant matters) it is appropriate’”.
What that amendment means, in short, is giving the UK Government the right to abrogate from international agreements and engage in trade wars at the whims of a Brexiteer Government, which is really not what we need right now. The Government need to decipher whether that is really what they mean by the clause.
The UK Government should ask the EU today for the maximum two-year extension to the transition period. An extended transition will keep the UK as close as possible to the EU and provide an opportunity to rethink the future relationship. The Scottish economy just cannot afford the double hit of covid-19 and the growing likelihood of no deal, or at the very best a hard Brexit deal, in eight months’ time.
The SNP seeks to work constructively with all parties on the Finance Bill. We know that voting will be a challenge and that proceedings will be very different this year. The UK Government have a majority, but they do not have a monopoly on wisdom. They should listen carefully to ideas from every part of this House and from people across the country.
Sir Charles Walker (Broxbourne) (Con)
The chief medical officer has said that we will have to learn to live with covid-19 for perhaps the next 18 months. I have received scores of emails from constituents who are fearful of losing their business, their employees and ultimately their homes because of the current crisis, so living with covid-19 also has to mean working with covid-19.
This is not a lives versus the economy argument, as some have disgracefully suggested. Most hon. Members know that the economy is lives and that the two march hand in hand. As each day passes, fractures in supply chains and the onward routes to market grow deeper and will therefore take longer to repair. If producers do not have the raw materials to produce, they do not produce. That is a real problem, so it is no good suggesting or thinking that in two or three weeks, in two or three months or in six months we will be back to work and everything will be fine. It will not; supply lines will take time to gear up again, and I hope that the Finance Bill will take that into account. Without cement and without plaster, it is very difficult to build homes.
I hope that the Bill will address the following concerns. Will it look again at the business interruption loan scheme? It is just not sensible for banks to ask desperate businesses, “Can you give us a cash forecast for the next nine months?” Of course they cannot; nobody can. The Government cannot give a cash forecast for the next nine months, let alone a business.
Can we look again at extending the £25,000 grant scheme to all businesses that have rates assessed at £51,000 or less? There are many good businesses not directly involved in leisure, tourism or hospitality, for example, who are nevertheless feeling the pain of this crisis and fear for their futures and that of their colleagues.
Can we also look at dividends? In my constituency, PB plumbing has been in business for 30 years. It is a great little family business that supports the pub trade in the constituency and surrounding constituencies. The founder/owner of that business pays himself with dividends, mostly—he is not a greedy man. This is the way that he structured his business but he is really not now eligible for any form of support, and I think that that needs to be addressed.
We heard this afternoon—the hon. Member for Oxford East (Anneliese Dodds) mentioned this during the statement earlier—that there needs to be some flexibility in furloughing. It would be really useful for many businesses to be able to have a member of staff in for one or two days a week, just to keep things ticking over and going during busy periods. I know the Government say that this is a very difficult thing to achieve, but lots of things are very difficult to achieve and this Government are the Government to achieve them. I say this very generously: the Government are getting things right. They just have to get things even more right, if that is possible.
We have a fantastic Treasury Minister here today, and we need a dedicated Treasury Minister responsible for filling in the gaps. I sometimes think that the media have better access to Ministers not only than I do, but, more worryingly, than my constituents do, so let us have a consultation with all colleagues. How can these schemes be made better? There are these Downing Street statements every evening, where the media get to ask questions. I think there are some fabulous people in the media. There are a few moderate ones, but there are some very good ones. However, let us allow small businesses—they are the engine of our economy—to ask questions.
In my remaining minute, I will focus on one constituency business, called Kupros Dairy. It makes fabulous, award-winning cheeses, which it was selling to 200 great restaurants in London and a few specialist food shops. All of these restaurants are no longer open, so its market has entirely disappeared. Supermarkets will not take specialist cheeses in the main, because they cannot stock them from Land’s End to John O’Groats—by the way, the supermarkets have done a simply fabulous job in rising to this challenge. Could the Minister get in touch with Dave Lewis of Tesco and others and ask them to have a dedicated aisle, or part of an aisle, for local produce? That would save Kupros Dairy and allow it to start making cheese again, stay in business and employ people and pay mortgages.
Rushanara Ali (Bethnal Green and Bow) (Lab)
We are humbled daily by the efforts of the NHS workers and all the other key workers in our country. They are making unimaginable sacrifices to treat the sick and care for the vulnerable, and to provide supplies of medicine and food. We owe them everything and it is right that we should continue the pressure to ensure that PPE, testing and equipment is provided, as we continue to enforce the lockdown.
This is a national struggle but it is being fought hardest at the local level in communities. My constituents in Bethnal Green and Bow are resilient people. Some still recall surviving the blitz, and today, there are many who survive a daily struggle of poor housing, low wages, a lack of opportunities and antisocial behaviour, but no matter how resilient and tough they are, they need the Government on their side. They need targeted interventions to help them in these difficult times. They need protection against the vagaries of a global economy, to protect their jobs, incomes and businesses.
The economic projections are chilling. The latest International Monetary Fund analysis suggests that the global recession is going to be far worse than the 2007 global crash. The World Trade Organisation says that global trade could collapse by 31% this year, just as post-Brexit Britain is desperate to strike deals.
A terrible economic storm is coming, and we are just not ready. The UK is ill prepared after a decade of under-investment, imbalances between the nations and regions and the deep scars of inequality and poverty caused by a decade of austerity characterised by stagnant wages and cuts to our public services.
Young people are once again likely to be the lost generation unless our Government take immediate steps to ensure that they have the training and support—virtually, while we are in distancing mode—and other provisions they need to get into the labour market. We need to use the hundreds of thousands of people who volunteered to help the NHS to support young people by mentoring and backing them, as we find a way through this crisis.
This Finance Bill does little to strengthen our economy or make us more resilient. Even before the covid crisis, it was inadequate. It does not deal with the challenges of climate change and the climate emergency, and it does not go far enough to reverse the challenges posed by the deep-seated inequalities in health, education and other spheres over the last decade.
The Office for Budget Responsibility predicts that there will be a 35% reduction in GDP in the second quarter of the year and that unemployment will rise by more than 2 million. Already, the deficit hawks are circling over the Treasury Bench, calling for huge cuts in public spending. Another decade of austerity as the answer to Government debt is absolutely not acceptable. Surely we have learned from the financial crisis in recent weeks that we have to ensure that our public services are resilient and strong in order to face the threats of global pandemics and economic downturns.
We need to ensure that we protect those on the frontline, who have often been the low-paid and have not been treated well—the teachers, nurses, carers, delivery workers and shop workers. They do not run the country, but they make the country run, as we have seen in recent weeks. We need a modern-day Marshall plan, rebuilding and reconstructing our NHS, social care, police, schools and other vital public services, rather than leaving them vulnerable and fragile as we face crises like the current pandemic.
We need to ensure that local authorities on the frontline get the support they need. Tower Hamlets Council in my constituency is having to spend around £25 million and is losing £35 million of income—that is a significant amount of money. I call on the Minister to ensure that local authorities get support. The job retention scheme is welcome, but hundreds of thousands of people in hospitality and other sectors are still being excluded, and they need help urgently.
Finally, I want to highlight the impact in the global south. In countries like Bangladesh, the failure of companies such as Asda, New Look, Edinburgh Woollen Mill, Peacock and Urban Outfitters to pay up for contracted work is leaving millions of people vulnerable to unemployment and starvation. It is important to ensure that our companies are responsible and that people’s lives are protected. We have a duty to work together domestically and internationally.
John Penrose (Weston-super-Mare) (Con) [V]
We have already heard how the coronavirus crisis has fundamentally changed our economy and is in the process of changing our society too. We have also heard how the Bill makes changes to important items such as entrepreneurs’ relief. As someone who co-founded and ran two software start-ups before being elected to Parliament, I am a huge advocate of encouraging wealth creators, particularly the ones who are at the technological leading edge and may be creating the fourth industrial revolution jobs in Britain in companies and industries that have hardly been invented yet.
But we have to be fair in the process, and the coronavirus lockdown has revealed an uncomfortable truth. It has turned Britain into a two-nation society, where better-paid, white-collar professionals work from home, while often less well-off key workers keep travelling to work, often on crowded public transport, in riskier jobs where they have to wear PPE. Of course, the lockdown is temporary, but it has shone a spotlight on a more long-term structural problem. Those less well-off key workers are paying a much higher overall tax rate—the marginal effective tax rate, or METR—than the safer, better-off white-collar professionals, because tax rates on investment income are lower than on wages and salaries, and because benefits withdrawal rates only apply to low-income households. The combined effect often means that low-income key workers pay an effective marginal tax rate of up to 75%, while better-off people pay dramatically lower rates. The haves are being subsidised by the have-nots. If we are all in this together, and if we are to go down in history as acting in the Conservative party’s best and finest traditions, how can we ignore that? How can we not act? It cannot be right.
The changes to entrepreneurs’ relief are a small but extremely welcome step in the right direction, but I hope the Chancellor will use the clarity and the challenge of the coronavirus process to make it the first step in a much longer journey. We need to encourage wealth creators, but they should not pay lower tax rates than the people who clean their offices or drive the trucks that deliver their goods. If we believe—as I and many others do very strongly—that rates of tax much above 40% will undermine an incentive to work for high earners, why is the same thing not also true for someone on the national living wage? The last time Britain taxed earned income and investment income equally was under a Conservative Government, when Nigel Lawson was Chancellor.
If we can go back to taxing all income the same, whether from benefits, work or wealth, it will be transformational. It will show that we are serious about helping the people who voted Conservative in their tens and hundreds of thousands, some for the first time ever, in the general election last year. It will create clear and stronger work incentives for everybody, not just the rich. It will make our economy work better by allowing investment to flow to wherever it can be used best without distortions in the tax system, and it will make taxes simpler and harder to dodge. It will reduce in-work poverty, because less well-off families will keep more of any extra money they earn, and, as we come out of the coronavirus crisis, it will prove beyond a shadow of a doubt that Conservatives really mean it when we say we are all in this together.
Changing entrepreneurs’ relief is a good sensible Conservative idea, but it is only a start. The Chancellor has taken the first step. I hope we will all go with him on a much longer and more important journey.
John Spellar (Warley) (Lab)
Thank you, Madam Deputy Speaker. You missed the historical perspective given by the Minister, but I will, if I may, focus on the economics and the politics—the politics being about decision making.
Before I came into Parliament, I was a national officer in the electricians’ and plumbers’ union. I used to have to explain to people that the reason a problem got on to the general secretary’s desk was because it was insoluble. Otherwise, someone else would have made the decision and claimed the credit. In government, it is the same. The reason decisions are at No. 10 is that there are no easy answers. It is dealing with ambiguity and it is dealing with possibilities and probabilities, but nevertheless decisions still have to be made. There will be some that go wrong. It is the Eisenhower doctrine—all plans break down on first contact with the enemy. He also added, as people forget, that it is nevertheless still necessary to plan. That is where the military mindset of making decisions rapidly and moving rapidly towards implementation comes in. Frankly, the Treasury, while it is talking to other Departments and giving them money, has to insist on a change in practices. The old dither, delay and process-driven mechanisms are no longer acceptable. They have to either change their ways or move out of the way.
The other message I would like to get across is that we have to get our country moving again by opening up our economy and, at the same time, ensuring the safety of workers and customers alike. I am sure the Minister will join me in welcoming the positive message from the Trades Union Congress and the negotiations that are taking place right across the country between unions and companies about how they can safely restart work. It must be the frontline that Government support goes to. Denmark and Poland have, very helpfully, led the way in seeming to be declining subsidies to companies based in tax havens or paying dividends or lavish bonuses or using share buy-back schemes. We should be following that and supporting real engineers, rather than financial engineers. The same goes for public procurement. If we look, for example, at the production and distribution of PPE equipment, I have to say that I am slightly concerned that the Government seem to have, as always, gone straight to the big consulting companies, rather than real industrial and commercial companies that actually have that experience and know how to join it up.
This crisis has also revealed a neglect of our manufacturing base by Whitehall. We must hope that the lessons have been fully learned, and our national recovery must be focused on rebuilding industry. That requires Government to act as not only legislator and administrator, but customer. We may well be facing a deficiency of demand that will mean that the restarting of the economy is in fits and starts, and Government needs to look at what role it can play. It can order buses, cars, vans and trucks to get the auto industry going; it can have a programme of council housing and of road repairs, in order to get construction and building materials moving; and it can give orders to British firms for health service equipment, protective clothing, chemicals and a reconstruction of our vaccine production capacity. There are many more things it can do, but time does not permit me to mention them all. Equally, time does not permit me to raise the issue of the difficult situation supply teachers have got themselves into with umbrella companies, which puts them in a grey zone. I have been warning about this for a number of years, since as far back as five years ago, but I will write to the Minister about it.
In conclusion, I wish to echo the words of the new Leader of the Opposition—colleagues will understand what great pleasure it gives me to be able to say that after five years. He told the Prime Minister:
“This is a national crisis and therefore needs a national response. Will you therefore commit to publishing an exit strategy as soon as possible?”
The country desperately needs that strategy, a way forward and, most importantly, hope. We do not want to be told that everyone is focusing on the coronavirus epidemic; during the second world war they were in an existential world war and we had a command economy, yet they were still able to produce the Beveridge report and a host of other measures planning for the future. That report identified five giants—want, squalor, idleness, ignorance and disease. We are focusing on disease, but those other giants are still killing people, here and around the world, which is why we need an urgent strategy from the Government and why we need Britain back to work safely.
David Mundell (Dumfriesshire, Clydesdale and Tweeddale) (Con) [V]
It is a real pleasure to be able to connect to you and to the House of Commons today, Madam Deputy Speaker, and to take part in the Second Reading debate on the Finance Bill. I wish to begin by echoing comments made by the Chair of the Treasury Committee in relation, first, to those who receive a significant part of their income through dividends. I believe that there must be the possibility for the furlough scheme to accommodate a calculation of income that is based on those dividend receipts—that is used for many other income calculations. The second point is that we need to ensure that the banks are playing their part. I receive a lot of emails from the banks telling me what a great job they are doing, but I receive even more emails from constituents about the bureaucracy and difficulty that the banks are putting their way in respect of securing not just the loan guarantees, but wider loans.
I wish to raise two specific points, one of which is access to cash. I raised that in my contribution to the Budget debate on 16 March, which seems like a lifetime ago. The second relates to the Roadchef employee benefits scheme, which the hon. Member for Glasgow Central (Alison Thewliss) mentioned and which is particularly relevant in my constituency. We are seeing during this crisis that access to cash is even more important than it would be in so-called “normal” times. People need cash, often to get others to buy their weekly shop or to get them to do other tasks, or simply to have the reassurance of having cash at home in order to meet unforeseen circumstances. That is why this remains such an important issue.
As I highlighted when I spoke previously, the average cash transaction is £10 or £20. When someone is paying £3 to get £10, that creates a huge distortion in the ability to have cash. It impacts on the most vulnerable in our communities, and that is why I welcomed the fact that the Chancellor has said that he will legislate to ensure access to cash, but that has to be on a fair basis. It has to be on the basis that there are not disproportionate charges and that cash is accessible across the whole of the United Kingdom, particularly in rural areas.
I represent one of the largest rural constituencies in the UK, so I welcome the fact that LINK has made some announcements on how it might approach the issue. I also welcome the fact that NoteMachine, the second largest provider of cash machines—it does so on a charge basis—has indicated that it would go back to free charging if the significant change of a return to the previous interchange rate was put in place. I therefore urge the Chancellor and Treasury Ministers to actively consider making that change, which would make a real and significant difference to people’s ability to access cash machines and to do so on a free basis. The crisis has shown more than ever the need for people to be able to access cash.
I will move on to the issue of the Roadchef employee benefits trust. I will not give a detailed outline of the issue, because it has a long history. I know that the Financial Secretary was able to meet the chairman of the trustees and the hon. Member for Airdrie and Shotts (Neil Gray), who has done so much to pursue the issue. I have a service station in my constituency that you may have used yourself, Madam Deputy Speaker. It is now called Annandale Water, but it was previously under the branding of Roadchef. Roadchef set up the first tax-exempt, all-employee share ownership scheme of its kind, but unfortunately the former chief executive of Roadchef plundered that trust, causing all sorts of difficulties, not least that it was not registered in—
Madam Deputy Speaker (Dame Eleanor Laing)
Order. I hope that the right hon. Gentleman is drawing to a close.
David Mundell
I am coming to a close. The trust was not registered. The funds cannot currently be distributed on a tax-free basis. I hope, either by an amendment to the Finance Bill or through the Financial Secretary’s good offices with HMRC, that issue can be satisfactorily resolved.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op) [V]
What a pleasure it is to contribute to this debate while in my isolation that I am still under, which meant that I could not accept the invitation to be in the Chamber today. I have one very quick point to make on the background of this debate. The Finance Bill, more or less like the Queen’s Speech, was redundant almost before the print had dried, because we are in a situation we could not have imagined when either was first framed.
I want to make a pitch in particular for an unrepresented group in our society: children and young people. I believe that young people—school leavers, children in school and children in pre-school—have had a pretty tough time during this coronavirus epidemic, and they are still having a tough time. Looking forward, we are going to see real problems. If we have the recession that every authority is predicting, we will have a very serious problem of youth unemployment, and young people will have to accept jobs that they would not otherwise have dreamed of accepting. We have to concentrate and modify at every level to prepare for that great demand, and we must amend the Finance Bill, because we have a responsibility to look after young people well.
When I first came into Parliament all those years ago in 1981, everyone was surprised when Margaret Thatcher, the new Conservative Prime Minister, introduced a windfall profit tax on the banks, because they had made money while doing very little about it. I want this Bill to be amended very soon to include a windfall profit tax on those who have done rather well, even though they did not plot or plan it. I am thinking of Amazon, Google, Netflix and the gambling sector, all of which are ripe for a windfall tax that could be distributed to look after young people.
One way to do that would be to learn from the Americans—from the Kennedys and the peace corps—and give young people at 18, at 21 or at any stage of their lives the chance to go and serve the community abroad or at home. I would like us to take a bit of that, and perhaps a bit of the green apprenticeship in Germany, and create a new green national service. It would give every young person in our country an opportunity—at the age of 16, 18, 21 or whenever they chose—to spend a year working on climate change and the environment. We need the money to do that, and I think a windfall profit tax would be the way.
I believe that that would go some small way to addressing the unfairness of the taxation system, which other colleagues have spoken about eloquently. In Huddersfield, the typical town of Britain, we know that very well. We know that universities, which are the heartbeat of many communities such as mine, will be under threat in the coming months and years. We need to focus on young people, education and higher education, and we need a windfall tax to give us the resources and the opportunity to do something substantial rapidly in the coming months and years.
Sir Graham Brady (Altrincham and Sale West) (Con)
We meet for this debate about 10 days before the end of the extended period of lockdown, and we want this process to continue to succeed. The number of new cases has started to fall, the number of hospital admissions is coming down and, while the tragic death toll remains too high, it looks as though that is falling, too. We want that to carry on, but if we want the public to continue to engage in this battle, as they have done magnificently, we need to offer them hope and a light at the end of the tunnel.
We need to look ahead to the point where more people return to work and more businesses operate. An extraordinarily difficult political judgment faces the Government: the need to balance the recovery of the economy and the protection of jobs with the need for common-sense measures for hygiene and distancing, which might continue as people get back to work and business gets moving again.
The only thing from the 11 March Budget that I want to mention is the one-year extension to the IR35 changes. The Minister said that that time would be used well, and that research would be conducted into the impact on the public sector before the change was extended to the private sector. I hope that Ministers will also take the opportunity to look at whether more could be done to achieve proper clarity of definition between contractors and employees, and at the ill-defined status of worker, which causes considerable confusion.
Moving to more recent financial measures, I warmly congratulate the Chancellor on the bounce-back loan. It is a sensible compromise between protecting against potential high levels of fraud—by introducing the limit of £50,000, or 25% of turnover—and meeting the need to get money out quickly. I commend the Government for listening to calls for changes to achieve that. All measures should be focused on getting the economy moving again once it is judged that the acute phase of the crisis has passed.
I have a couple of specific points to mention. A number of Members have made the point that although the job retention scheme has been hugely successful, it is inflexible. As we look towards the phase during which people will gradually return to work, it would be immensely helpful if it was possible to furlough an employee for part of the week, rather than the whole of it, to assist a gradual return to work.
The small business and hospitality grants are extremely beneficial to small businesses, but some have found themselves excluded. I refer particularly to those that operate in shared premises, paying rent and not paying their business rates directly. It is manifestly and especially unfair for small cafés and restaurants that have been required to cease trading yet find themselves specifically excluded by the technical terms of the grant regime.
Finally, I turn to the aviation sector. My constituency is adjacent to Manchester airport, which is directly or indirectly the source of the greater number of jobs in my constituency. We all know that the aviation sector is facing perhaps the greatest problems of any in the current crisis, and they look like going on for longer, so will the Minister ensure that he and his colleagues do everything possible to look ahead at how the aviation sector can be supported through recovery? In my remaining half minute, I leave with him the suggestion that it might be a good time to consider a holiday, as it were, for air passenger duty, by cancelling it for a 12-month period.
Richard Burgon (Leeds East) (Lab) [V]
The coronavirus pandemic is the greatest crisis that most of us have ever lived through, so the values of solidarity, co-operation and support for—[Inaudible.]—are more important than ever at this critical time. In his March Budget speech, the Chancellor said that we were entering this crisis from a position of economic strength; for millions of people, that could not be further from the truth, and nor was it the case for our public services. A decade of austerity and a 40-year period dominated—[Inaudible.]
Madam Deputy Speaker (Dame Eleanor Laing)
Order. I hesitate to interrupt the hon. Gentleman—I do not know whether he can hear me—but the sound quality is very bad. Let us try again to see whether it improves; if not, I will have to move on to the next speaker and come back to the hon. Gentleman.
Richard Burgon
A decade of austerity and a 40-year period dominated by marketisation, deregulation and privatisation has left us less prepared to deal with this crisis—[Inaudible.]
Madam Deputy Speaker
Order. To be fair to the hon. Gentleman, I am going to interrupt him, because the House cannot properly hear what he is saying. I judge it would be better if we could come back to him later in the proceedings.
John Redwood (Wokingham) (Con) [V]
I have declared my interests in the Register of Members’ Financial Interests.
At the time of the Budget it was a very different world. The Government were forecasting a little bit of growth and recommended a modest stimulus. I remember that I was able to welcome that stimulus in the Budget debate—I thought it was right that we boosted public spending a bit and borrowed a bit more—but with masterly understatement I said that I was a bit surprised by the magnitude of the stimulus: I thought that perhaps something more was needed. In the six weeks that have elapsed since then, we have seen a blizzard of announcements that have made it clear that the Government recognise the magnitude of the downturn that now besets us and the world economy and are rightly moving swiftly to try to provide some compensation to the many businesses that cannot trade and the many people whose jobs are under threat or whose income is disappearing because of the lack of work. The response is correct, so the Government should look again at the Finance Bill in the light of the fact that the events that led to its formation have been completely overtaken by the magnitude of this crisis, and because we will need quite soon a Finance Act that does everything in its power to promote recovery.
Tax rises are not a good idea at all. The Government, in this period of response to the crisis, have offered tax holidays, tax reductions and tax deferrals, which is the right response as the private sector and individuals cannot afford those taxes at the moment with their incomes so rudely interrupted. The Government must also look at the groups of people they are targeting. I urge the Minister to think again about changing the rules on IR35. There are about 5 million self-employed people in this country who have been doing a magnificent job for us. They provide flexibility, service and products that we need and they are very competitive. A number of them have been living under the shadow of those tax changes; some have lost contracts and work to overseas companies and competitors simply from that threat. I therefore urge the Minister to think again and recognise that we need to reward and encourage those people, not threaten them with a new tax. Above all they will offer a lot of the flexibility, hard work and energy that the recovery will need.
The Government are right to provide as much compensation as they can and the Bank of England is right to buy a lot of bonds and create money, but we all know that that is not a sustainable model for the economy in the medium to longer term. I echo the comments of colleagues who rightly said that we need a way back to safe working as quickly as possible. The only way we can afford to pay for the NHS is to have more people at work paying taxes and earning decent incomes, and more companies generating turnover who can then afford company taxation.
Through the Finance Bill and all the other measures the Government can undertake, we must together ensure that we have as early a return to work, and as safe a return to work, as possible, and that means working away with business on better safety so that people have the clothing and equipment they need, automating where necessary and allowing proper social segregation while people are working in warehouses, offices and shops. We need to develop those new business models, and the Government can provide a lead by showing how they can continue to administer their great services while looking after the safety of their employees to the best possible effect. That requires reshaping the Finance Bill. I am delighted that the Minister is thinking of making amendments to the Bill during its passage through the House. I ask him above all to look at measures that could reward companies that go in for a new model, and reward employees and the self-employed who go that extra mile to work safely and create some restoration of service and activity in our economy.
No one in this House has seen anything on this scale or magnitude before. Never have we got to the point where a quarter or more of the companies in the country are not allowed to trade and millions of people are banned from doing their job because of public health and safety considerations. In this situation, we need to offer them a Finance Bill with hope, a Finance Bill that will help them finance the recovery and a Finance Bill that will make it worthwhile for them to lead that recovery as soon as the time comes.
Shabana Mahmood (Birmingham, Ladywood) (Lab) [V]
When the Minister introduced the Bill’s Second Reading, he spoke for everyone in the country when he said that every day feels like a decade. There is an air of slight unreality about the debate. As other Members have remarked, the Budget was out of date almost immediately from the moment the Chancellor sat down after delivering it, because of the scale of the crisis, the fast-changing situation that we are living in and the difficulties that businesses and people are facing all over the country. It is vital that we do everything we can in a national effort to keep people in work and to get cash to struggling businesses.
In that context, I welcome the Chancellor’s announcement today that the bounce-back loans are now 100% Government backed, but I must say we are far behind other countries—in particular the US, China, Germany and Switzerland—on measures to get money through to small and medium-sized enterprises. So often we describe SMEs as the lifeblood or the engine of our economy, yet we are failing to get the right level of support to them quickly enough in this crisis.
That is why we have seen multiple announcements made to correct defects in previous announcements. That approach is simply not good enough. In my view, the Government need to go much further than the current schemes, because they are not equal to the task that we face. In particular, they must as a matter of urgency streamline the application process and remove the high barriers that are in place at the moment for businesses to prove their viability.
I understand the argument about placing too high a burden on future generations, but if we fail to take adequate action now, that burden will be high in any event. We must try to limit the long-term damage to our economy, and that means supporting small and medium-sized enterprises much more than we are doing at the moment.
This crisis highlights more than ever the need to deal with fundamental weaknesses in our economy. I think in particular of my constituency, the challenge that we have with long-term unemployment and the plight of the working poor. We cannot allow such structural weaknesses in our economy to continue after the crisis, which has exposed the dangers that we see as a result of those fundamental weaknesses.
The shadow Chancellor said, and I agree with her, that after the crisis we will need a new economic settlement. We will need a new economic settlement not only in our domestic politics and economy, but in the international sphere as well, so I will speak a little about the digital services tax. I welcome the new 2% tax on revenues of search engines, social media platforms and online marketplaces that derive their value from UK users. As we all know, this measure will not deal with the differential tax treatment between brick businesses and click business, and it will certainly not deal with Amazon, which continues to grow exponentially, but it is a step in the right direction. I appreciate that there is a debate to be had about whether to take multilateral or unilateral action in this space, but as far as I am concerned the status quo needs breaking apart, and that can happen only through Governments taking unilateral action. In this case, I urge the Government to go further. We cannot keep standing by, watching this ridiculous situation where hugely wealthy companies pay little or no tax in countries such as ours where they have a huge presence.
The current crisis means that, once we emerge from covid and all its related difficulties for our economy, it will not simply be a case of playing populist politics; I simply do not think the public will accept a situation in which such huge multinational enterprises do not pay a fair share of tax in countries such as ours where they create a huge amount of their value. Something needs to break open the logjam on this in the international sphere. We know that the US will react, but we must be bold and we must be brave—we must grasp the nettle on this, because we need well resourced Governments if we are going to deal with the challenges that we face as a result of the covid crisis.
Dr Liam Fox (North Somerset) (Con)
It has often been said in this debate that this is the most difficult and unusual backdrop to a Finance Bill that any of us can remember, but at the time of the Budget, the global economy was already slowing. Growth in trade across the globe last year was downgraded from 2.8% to 1.8% to 1.2%, and actually came in at about 0.7%, and global trading growth went negative in the last quarter of 2019. That is unlikely to be reversed, because all of that was pre-covid. It was partly due to US-China trade tensions and partly due to greater protectionism since the global financial crisis, which saw an increase in the number of non-tariff barriers to trade operated by the G20 from 300 in 2010 to 1,200 by 2015. Dependence on global supply chains is not a bad thing, but one of the first lessons that we will have learned in this crisis is that over-dependence on just-in-time supply chains has tilted the pendulum too much towards efficiency rather than towards resilience. I predict that one of the changes that will come in the post-covid economic environment will be a move towards greater stockholding and warehousing.
I have never been a big believer in the big state. David Cameron once asked me what type of Conservative I thought I was, and I told him that I was an unreconstructed free-market Thatcherite, Unionist, Eurosceptic Atlanticist. I do not believe that we are seeing the re-emergence of the big state that many of my colleagues on the right of politics so fear and that those on the left would love to see, but what we are seeing from this Government is a sensible suspension of the norms so that we can go back to free-market economics. If we had not supported jobs and businesses, we would be seeing not the sort of evolution that we get in a free-market economy, but millions of jobs lost. We would have seen the well-being of families and communities destroyed, the loss of viable businesses, the loss of valuable jobs and a huge burden of the costs of unemployment falling on the taxpayers for absolutely no economic benefit.
I never imagined that I would be in the House of Commons calling for an increase in Government spending, even a temporary one, but as I used to tell my patients, there is no point in complaining about the air when there is nothing else to breathe. We are in a situation that demands unusual measures, but it is also fair for us to point out to taxpayers that the longer that we have to keep the economy in so-called sleep mode, the higher the cost will be for future taxpayers to bear over a longer period.
We need to see both domestic and global demand increasing, because there is a link between trade and prosperity and security. Oil demand is 30% below what it was at this time last year. That is great for the countries that import oil, but very bad for the economies of the producers. It is not in our interests globally to see destabilisation in states such as Saudi Arabia, which is what some of this lack of demand will ultimately lead to. We need to support demand, encourage confidence on which that demand rests and promote our own entrepreneurial creativity and talent. I echo the comments of my right hon. Friend the Member for Wokingham (John Redwood) that we need to do everything to promote recovery, which leads me to two brief practical points and one question for my right hon. Friend the Financial Secretary to the Treasury.
The first is a comment on bank lending. The problem is not that the money is not there and being underwritten by the Government; the problem is the lending criteria being operated by many of the banks, which applies more to some sectors than to others. In the tech sector, for example, the value lies in internet protocol and not in physical assets. That makes it very much more difficult for the sector to borrow against standard bank lending criteria. That needs to be looked at.
Secondly, I reiterate the points that have already made by some of my colleagues about IR35. Some of our most flexible and resilient workers in our economy are in that grouping, and what we must not do in trying to right a wrong is put them in a position where they are disadvantaged, without sick pay in line with other workers in the economy, for example.
This is a global pandemic that requires global co-operation. Are we, in the long term, to paralyse the global economy for the emergence of every new virus? Will we be governed in fact by the smallest pathogen on the planet, and if not, how will we develop the protocols that we will need to manage the situation? Globally, we need to find solutions. We will need them to be adhered to, to be transparent and to be verifiable. We cannot deal with these matters as single nation states. We have to find new ways to co-operate in an interdependent global economy. The risks will affect us all. Contagion in one bit of the global economy will affect us all whatever our political beliefs. That is one of the greatest tasks, and I urge my right hon. Friend to take a lead for Britain in that global debate.
Tonia Antoniazzi (Gower) (Lab)
I would like to take this opportunity to congratulate the shadow Chancellor, my hon. Friend the Member for Oxford East (Anneliese Dodds), on taking her place on the Front Bench.
I highlight my hon. Friend’s striking words that this Finance Bill is really a Finance Bill for a different age, because so much has happened and our economic backdrop is now frighteningly challenging. We have therefore reached a point where the public want to know and understand the proposed exit strategy. There are a number of reasons for that. People do not like to feel helpless. They want to see and plan their future during this covid-19 crisis and pandemic. For many of my constituents, that is about protecting the long-term future of their businesses and their employees. There must be a mechanism of support for businesses, many of which may not currently be in profit but which are crucial to the future of our economy in Gower, including those in the hospitality business. For many who rely on seasonal trade to stay open, debt is really not a solution. I have been contacted by a number of iconic and well respected family businesses such as Castellemare in Mumbles and the King’s Head in Llangennith, all with grave concerns about their future viability. Will this Bill and this Government provide large seasonal businesses with the certainty and flexibility to continue to employ locally and provide a warm welcome to the community and to tourists all year round?
UK business organisations and the UK Government would do well to look at the decision-making powers we have in the Welsh Government, as quite a few of the gaps in the different grants and loans that we are calling on the UK Government to fill have been filled in Wales; additional grants to businesses are available to fill in the gaps in the programmes of Her Majesty’s Treasury. There are obviously limits to what we can do with the block grants, but many companies in Wales will have a safety net that is not available elsewhere.
I thank the Government for the support they are providing to furloughed workers, and commend the unselfish dedication of all our key workers at this time of national crisis. However, there are many people working on the frontline in the fight against coronavirus who should not be there because of the severe danger that the virus causes to them and their families. I am talking about key workers who are deemed clinically extremely vulnerable or those who have family members who have been put in the same category by the Government. These people should be shielded and furloughed right now, but many cannot be because the Government’s guidelines on furloughing do not give them that right.
The Government have placed our key workers in a financial and public health trap. Many are finding themselves in an agonising situation where they have no choice but to work through the dangers caused by the coronavirus so that they and their families are not faced with financial ruin. For example, I have a constituent who works in a care home who had his spleen removed just before the outbreak. Working from home or maintaining social distancing at all times is not possible, but his employer will not furlough him because that has not been mandated. That leaves my constituent with two choices: to take unpaid leave or to take statutory sick pay, placing a heavy income penalty on him and leaving him not protected at all.
We are seeing that where employers are not compelled to act, they are not acting. We therefore need the Government to clarify the guidelines on furloughing key workers who are clinically extremely vulnerable or who are carers to family members who are in that category. How is it right that the Government expect these key workers to choose to stay in work at immense personal risk, potentially putting themselves and their families in jeopardy? We needed clarification to be written into the Government’s furlough scheme. We know that key workers’ hourly wages are 8% lower, on average, than those of other employees. If vulnerable key workers cannot be furloughed, the Government have a duty to increase the level of statutory sick pay to ensure that no key worker is left behind as a result of this Bill. I would hope that the Bill can be amended to provide such support to our key workers.
Lilian Greenwood (Nottingham South) (Lab)
Next week is the 10th anniversary of my election to this House. There have been some memorable moments in that time, but none as discombobulating as making a speech sitting in my own kitchen.
However, if the surroundings are very unusual, some of the concerns we are debating today are not. For too long, the UK economy has not been working for many of my constituents, particularly the lowest paid. While they are working hard but struggling to make ends meet, there are others who simply have not played by the rules, whether they are multinational tech giants avoiding billions of pounds of tax or wealthy individuals and companies failing to pay their fair share.
In recent weeks, we have seen more clearly than ever how much we rely on our key workers, whether the staff in our NHS, careworkers, teachers, bus drivers, shopworkers and so many more. They deserve our thanks, of course, but they also deserve a new social contract: a recognition that the economy has to change so that they are fairly rewarded for the work that they do and that our public services receive the investment they need. For too long, real wages have been depressed and services decimated in the name of austerity, while there have been tax cuts for people and organisations that could afford to pay more.
Some of the measures in the Bill represent a step in the right direction, but they do not go far or fast enough to match the scale of the challenge. No one could have anticipated the immense shock to our economy from the measures needed to fight the coronavirus, and it places a great responsibility on the Government. As my hon. Friend the shadow Chancellor has said, it is absolutely critical that the Government now do all they can to minimise the depth and length of the economic impact.
The measures that the Government have introduced to protect businesses and individuals are welcome, but, as all Members must know, the schemes announced leave gaps—as things stand, there is a real risk that some workers and businesses will miss out on the support they need. This will lead to unnecessary damage to the economy and hardship to individuals. I hope the Minister can give us some reassurance this evening that he is listening and that he will act swiftly to close those gaps—to keep people in work, to keep businesses afloat and to keep families out of poverty.
I do not have time to speak about all the issues of concern, but it is clear that the business interruption loan scheme is not getting help to those who need it. The East Midlands chamber of commerce has told local MPs that businesses describe accessing the scheme as
“a complex and lengthy process with no consistent approach between lenders”.
Certainly, the number of loans agreed does not reflect the level of need. The chamber has called on the Government and lenders to work together to address these issues and improve the way the scheme works; I can only echo its call. I have heard from very many self-employed constituents who cannot access the Government’s support scheme, perhaps because they have a new start-up or because they run a limited company and take their income through dividends. Will the Minister address their concerns this evening?
Our social security system needs urgent change. My hon. Friend the Member for Stalybridge and Hyde (Jonathan Reynolds) has made five very straightforward proposals to the Government, and I hope they will adopt those to prevent more individuals and families from falling into poverty.
I would particularly like to highlight one gap that the Government must address in their support for small businesses. I know that local councils around the country have worked incredibly hard to distribute the small business grants as quickly as possible. I pay tribute to the staff at Nottingham City Council, who have ensured that over £33 million of grant funding was paid out by last Friday, processing every application they had received.
However, there is a problem. Many small businesses rent space in a multi-occupancy building—an office, a shopping centre or a small business incubator—and they pay their landlord a fee that includes rent and rates. The landlord does not qualify for small business rate relief, which means that neither the landlord nor the small business tenants can access the £10,000 small business grant. Both I and the council have written to the Chancellor on this point, and I hope the Minister can tell me that he intends to address this anomaly, which is preventing dozens, if not hundreds, of Nottingham small businesses from receiving much-needed support.
These are unprecedented times, and it is more essential than ever that we have an economic system in which those with the broadest shoulders bear the heaviest burden. I hope the Government recognise that we need a new approach to tax and spending decisions that learns from this crisis and produces a better and fairer system for the future.
Mr Steve Baker (Wycombe) (Con)
“Unprecedented measures for unprecedented times”—that is how my right hon. Friend the Financial Secretary introduced the Bill at the Dispatch Box, and of course he was absolutely right. I believe that, across this House and the country, there is overwhelming support for the necessity of these measures.
I wish to make a speech that will touch on some subjects that I think would otherwise not be touched on in the debate. I apologise in advance to my constituents. This is in no way to neglect the cracks through which many people have fallen, but we will simply pick those up through the Treasury Committee in future, as we have been doing over the past few weeks.
I will make three points in the short time available. First, I will say a little more about the context of the Bill. The threat of disease and death on a mass scale has dramatically rolled forward the state in a way that I never thought I would see in this country, let alone under a Conservative Government. It has been necessary for all the reasons that are common territory, but it fills me with a little horror. It is not the consummation of all my worst fears because, of course, my right hon. and hon. Friends on the Front Bench do not wish to nationalise the means of production. They are not dramatically hiking taxes, so things could have been worse had we lost in December. [Interruption.] I hope that Opposition Members will forgive me, but we cannot take interventions.
Taxes are not being dramatically driven up by the Finance Bill, and thank goodness for that, because I believe that the economy is already at or near its taxable capacity. I am working with economists to set that out shortly. I am not surprised that the Bill has to fiddle around at the edges with such things as IR35, because we are at or beyond the taxable capacity of the British economy. The Government are having to go where in other times they might not; they might simply raise other rates. Who, though, could imagine going up from 20% VAT? The very idea is an absurdity, as that tax hits the poorest hardest.
I wish, of course, to turn to borrowing and monetary policy, because the Debt Management Office has announced that it will borrow—that the Government will borrow—an extra £180 billion, which is an absolutely extraordinary sum. Still more extraordinary is the reality that the Bank of England is going to buy bonds faster than the Debt Management Office is selling them. We are in the most extraordinary situation. Quantitative easing will go up to a total of £645 billion. I should say, in passing, that I am going to guard my remarks, because I wish to have regard to the need for monetary stability.
QE is going up by an extra £200 billion. If that were not enough, the countercyclical capital buffer is being released, which releases £190 billion of extra lending capacity for the banks. Many Members may not know this, but I recommend that they Google “Money creation in the modern economy” by the Bank of England. They will see that that £190 billion will be loaned into existence. That is where most of our money is created.
We have the borrowing of the DMO, bought through QE, and the countercyclical capital buffer. Though it is a technical point, the Treasury Committee has just had it put on the record that an accounting change in relation to loan loss provisioning is as important as the countercyclical capital buffer, because it would undo the benefits—the additional lending—that one gets by releasing that capital buffer.
These are enormous times. We are talking about loan loss provisioning being changed in order to massively add to the stock of money through new lending. In the past, I have talked about the covid corporate financing facility, which I think I heard the Minister say is adding £13 billion—it is in the order of teens of billions of pounds—to the money stock. Then, of course, there is the ways and means facility of the Bank of England: a kind of overdraft facility.
I put those things on the record in this place not because I want things to go wrong, but because I want to highlight the sheer scale of the extraordinary measures and the extraordinary times through which we are living. Were all that to go wrong, and I pray to God that it does not, we need to have understood what was being done at the time. When the spending, interventions, borrowing and monetary policy is all unwound, it will be really important to have some ideological keel to get us through difficult times.
No one could say that this is an ideological Government, but times will be difficult and we will need to aim very firmly at a free market economy. As we do so, we will need to understand monetary policy as well as other factors. That is why I have put it on the table today. Far too often—I hope that the Minister will forgive me for saying so—Ministers say, “That’s a matter for the Bank of England.” The Bank of England is not above the law. It operates within a framework of law that this House sets, and I believe that we shall need to revisit that.
Sir Edward Davey (Kingston and Surbiton) (LD) [V]
Today’s economic crisis is the worst and most alarming of our lifetimes. Never since the second world war has Britain’s economy faced such damage and uncertainty. I recognise just how difficult it is for Treasury Ministers, the Bank of England and other policy makers trying to tackle this crisis, but the Liberal Democrats agree with the Leader of the Opposition that we need a public debate about how the lockdown can be phased out in due course. I would add to that that we need a really mature debate about how economic policy will help in the economic recovery. Indeed, whether it is in the immediate solutions, the emergency packages or the preparations for that recovery, Liberal Democrats believe that economic policy must be guided by three key objectives: producing a fairer society; building a more sustainable economy; and restoring our reputation as a country that is outward-looking and internationalist.
Economic policy must tackle Britain’s unequal society, so exposed in this crisis, including the poor pay of people in the care sector, the problems with the universal credit system and the low levels of statutory sick pay. All these problems show that we must do far more to increase social justice in our country, and I believe that they show that we should look more seriously at proposals for a universal basic income.
Alongside greater fairness, we must move our economy much faster towards net zero so that we address the climate emergency in the recovery. I am pleased that the Government are talking about this, but we need urgently to debate specific policy proposals to make sure that the new economy that we must build is genuinely low carbon. We are seeing how fast the Government can move in a crisis; well, there is a climate crisis and we need to move just as fast to tackle that, too.
We must also work with other countries to ensure that the recovery is as strong as possible, and deepen international co-operation, especially with our closest allies. We cannot allow this crisis to move us back from support for free and fair trade, even where we adapt trade to secure an improvement in our biosecurity. We must remember how the recovery from the second world war was driven so much by agreements such as Bretton Woods and by growth in international trade.
I have already commented widely elsewhere on the Chancellor’s emergency packages. The business loan scheme has just been too slow and although today’s micro-business loan scheme is welcome, it is very late. I urge the Chancellor to go further and look at the Liberal Democrat plan for new online marketplaces for these Government-backed business loans. Using existing platforms such as Funding Xchange, Funding Options and Alternative Business Funding, businesses could fill in just one form and those applications would be sent immediately to lenders whose lending policies show that they are much more likely to say yes, so the businesses could get the cash more quickly. If we do not see businesses getting the cash quickly, we will see more businesses fail.
The element of the Government’s emergency package that I would most like to talk about today is the challenge facing local authorities. The Government’s help so far just is not sufficient to help councils on the frontline of this crisis, which are so crucial to helping vulnerable people and businesses. Councils are having to increase spending dramatically just at the time when their income is also being slashed—from a huge loss in income from parking and services such as leisure centres, to real concerns that council tax income will fall significantly too.
May I ask the Treasury today to commit to the principle that for councils across the country it will not just fund extra crisis-related spending in full but provide grant funding to cover these dramatic losses in revenue? Just as the Chancellor wrote off the debts of NHS trusts as part of his emergency assistance, will he now look at reducing or writing off councils’ debts? Writing off housing debts could help stimulate a council house building boom in the recovery. Writing off debts linked to spending on special educational needs and disabilities would help our schools recover, too.
When it comes to planning the recovery, may I ask Treasury Ministers to consider three key issues? The first is how the furlough scheme is wound down to make sure that we protect jobs. We must prevent staff who are furloughed today from becoming staff who are laid off tomorrow. The second is that in the recovery we must achieve a historic and dramatic rise in both private and public investment in green technology and climate-friendly infrastructure. After solving the current international crisis, let us solve the next global crisis—the climate crisis—that we all know is facing us.
Finally, over the thorny issue of Brexit and the transition period, I once again urge the Minister to recognise that this crisis and its immediate aftermath is exactly the wrong time to add to the uncertainty, the cost and the loss of markets that businesses are already facing. Surely suspending the Brexit talks and seeking an extension to the transition period is just economic common sense.
This Finance Bill will pass its Second Reading, but the Chancellor must do far more to ensure that Britain’s economy after this crisis is fairer, greener and more outward-looking to the world.
Madam Deputy Speaker (Dame Eleanor Laing)
The hon. Member for Leeds East (Richard Burgon) is still having some technical difficulties. Although we are not able to see him in action, we have his photograph and are able to hear him.
Richard Burgon (Leeds East) (Lab) [V]
The coronavirus pandemic is the greatest crisis that most of us have ever lived through, and the values of solidarity, co-operation and support for public services are more important than ever at this critical time. In his March Budget speech, the Chancellor said that we enter this crisis from the position of economic strength. But for millions of people, that could not have been further from the truth, nor was it the case for our public services.
A decade of austerity and a 40-year period dominated by marketisation, deregulation and privatisation left us less than prepared to deal with this crisis. The crisis has brought the failings of all that into sharp focus: weak public services, a broken social care system, a woeful lack of workers’ rights, a hollowed-out social security system, and a housing market that treats housing as an asset rather than a human right. The priority of the Government must, of course, be saving lives, but we must also do all we can to stop this public health crisis from becoming a social and economic crisis.
The Chancellor, since his Budget, has provided additional support. That is welcome, but it falls far short of what is needed. It is rightly said that this virus does not discriminate, but our society and economy do: that is clear from how many people are suffering in this crisis. Families in my constituency were struggling to get by before this pandemic. Many are now in crisis. The bills have not stopped, even if their ability to pay them has. Many were on poverty pay before the crisis. Now some are receiving just 80% of the minimum wage on furlough. The Government must act immediately so that no one is left on less than the minimum wage during this crisis.
We urgently need to see action over the shockingly low level of sick pay. It should be increased to real living wage levels, and we must ensure that millions of low-paid—mainly women—workers can access it too. We also still need to see much more support for renters, starting with rent suspensions, as well as social security set at levels that families can live on, not levels designed to punish them.
The Chancellor recently said that the financial support for those affected by the coronavirus crisis will need to be paid back at some point. When we draw up the list of who should pay, at the top must be the super-rich, who have profited from a decade of tax giveaways from the Conservative party. There must be no question of us repeating the injustice of the past decade while working-class people have paid with their wages frozen and their services cut. This crisis has underlined who we really rely on: workers deemed unskilled or undeserving of proper pay rises just a few weeks ago. When this is over, we have to build a country that treats those workers and working-class families across the country with the respect that they deserve, and which they have not been shown for far too long.
Mr Marcus Fysh (Yeovil) (Con) [V]
It is a pleasure to reopen proceedings. I welcome this Finance Bill and I support the Government in dealing with this most difficult challenge of covid-19 and the lockdown that has been required. It is right that we protect the NHS and increase its capacity; I am proud of the part that Somerset has played in that, with firms such as Numatic, Oscar Mayer and others doing a brilliant job, helping to manufacture PPE, get meals out and get involved with ventilator production and with looking for vaccines and treatments.
Test and trace is clearly the way to go, and it is right that we stay locked down for a few more weeks, because we absolutely need to avoid a second lockdown, which would be a proper catastrophe for the economy. It is worth buying time now to be able to control the virus’s spread, so that we can spring back with confidence about our health, our travel and our interactions with others.
However, the scale of the downturn that we are in globally even now makes lifting the lockdown as soon as possible of critical importance. At that time, a new Budget and a new Bill will be needed, for incentive for research and development, for investment and reinvention. I believe that the multi-year scope and huge scale of this downturn mean that it will not be V shaped.
The scale of the destruction of consumption and supply that is going on and the crisis in real demand, which is seen in things such as unemployment—for example, in the United States they are now expecting 30% unemployment by the summer—mean that it is a massive challenge. Just expanding the money supply does not conjure up that demand. We are seeing major problems in the oil markets; money is being printed to support them, but nevertheless, large swathes of oil production around the world will be taken out and there will be major debt crises in emerging markets coming down the road.
The other problem we have seen with massive monetary easing is that it destroys the mechanism of the markets for discovery of prices of different types of assets. We have a massive challenge coming down the line. However, as I said, I support these measures to keep the economy from its heart attack; even if those immense problems are being stored up for the future, there is really nothing else to be done about it.
It is right that we support those who genuinely cannot work through this crisis, but the furlough is creating some of its own issues and it cannot be afforded forever. We need to incentivise people to get back to work and companies to get back into operation as soon as we can.
The other thing to understand is that it is massively important that we maintain confidence in markets in our public finances. At 100% borrowing as a percentage of GDP, it really makes a difference whether we are paying 1% or 5% on the debt service: 5% would give us a very big problem and would see 25% to 30% of Government spending going on debt service. It is an unpalatable choice that we and nations around the world will face about how to deal with that—whether to go for some element of inflation, whether more monetisation is the order of day, whether there might even have to be debt forgiveness, such as happened in the 1930s, or whether we have extra taxation. The point is that all those things are massively challenging and are, in one way or another, an assault on the value of money. Maintaining confidence in money itself will be one of our key tasks.
We need our economy here to be ready to spring out, powered by research and development and reinvention. We need to be open to trade and innovation. We must not be seduced by the sirens of protectionism that led us into a terrible place a century ago. We must, as a nation, pursue a US trade deal. We must pursue deals with all nations around the world, and we must not be scared into thinking that we need to be protectionist at all costs. I want to say to people in Somerset: you are doing a brilliant job—keep going. We need to come out of this in the right way, and everything you do now is going towards that.
Debbie Abrahams (Oldham East and Saddleworth) (Lab) [V]
As so many of us speak virtually for the first time in a House of Commons debate, it is clear that the impact that—[Inaudible.] The early response to the pandemic was to provide some relief to businesses. The array of support, added to as the gaps in it were revealed, is not only inadequate but has too many hoops for businesses to jump through and is too slow to get to them. That is particularly the case for small businesses.
I wrote to the Chancellor five weeks ago about the gaps in the various business support schemes he announced. Among the questions I asked him were whether he would ensure that all Government Departments had paid their suppliers and that those suppliers had in turn paid their supply chain. I also asked him why he chose the small business rate relief option instead of an HMRC delivery mechanism. An HMRC route would have supported 7,000 small businesses in Oldham, instead of only 3,900 that have received rate relief. I have yet to hear from the Chancellor on those points, and I would be grateful for a response tonight. Fundamentally, his package of measures does not do what it is meant to do: keep businesses afloat until we are able to come out of total lockdown. I heard from a local business last night which has had to close after nearly 30 years of trading and another that is close behind.
Similarly, the Government’s response to the hundreds of thousands of individuals who do not qualify for, or whose employers are refusing to use, the job retention scheme has been found wanting. Ministers at last week’s Work and Pensions Committee were not able to answer how many people will have been pushed into debt after having to rely on social security support for the first time or about estimates of the increase in poverty. The £20 a week extra in universal credit and the increase in local housing allowance will be completely wiped out for some claimants, given that the benefit cap is still in place. Again, I would be grateful for a response on that tonight.
Disabled people are disproportionately represented in the self-employed workforce. Although I am pleased that the minimum income floor has been lifted from universal credit, why has disability social security support not been uprated, given the additional costs that disabled people are facing on top of the average pre-pandemic costs of over £530 a month?
This health emergency will be followed by an economic and potentially social one as well. Many have predicted that the economic effects from the pandemic could last for most of this decade, and in that regard, it is a reminder of the 2008 global financial crash. As we prepare for a partial lifting of the lockdown, we need to learn from other countries on how to do that safely and effectively—something I fear we did not do when planning our covid strategy.
We also need to recognise the impact that austerity has had on too many of our citizens over the last 10 years. Nearly six in 10 people living in poverty come from working households, compared with less than four in 10 20 years ago. Two thirds of the 4 million children living in poverty live in working families. Sick and disabled people are being isolated and excluded from society, with over 4 million living in poverty. There are increasing inequalities in income, wealth and power. The richest 1,000 people in the UK have significantly more wealth than the poorest 40%—that wealth increased by nearly £48 billion in 2019 and by £253 billion over the last five years. After decades of growth, we are now seeing our life expectancy flatlining, and for women and people in deprived areas it is actually going down. We have the worst child mortality rates in western Europe; four babies in 1,000 will not reach their first birthday.
Another round of austerity must not be allowed, and it certainly cannot be endured. Globally, it is estimated that the covid pandemic could cost as much as $10 trillion, and for each percentage point drop in the economy, 10 million more people typically fall into poverty. We must make sure that the poor, who are predicted to suffer disproportionately in this crisis, do not also suffer in its aftermath through widened socioeconomic and health inequalities.
We are at war with this virus. Out of this health emergency, and the tragedy and heartbreak that so many will endure, we must ask ourselves, “What type of society do we want?” It is my sincere hope that the Government’s long-term economic response will be to provide adequate support for all, as Labour did when we created the welfare state after the second world war.
Mr Peter Bone (Wellingborough) (Con) [V]
It is a great pleasure to follow the hon. Member for Oldham East and Saddleworth (Debbie Abrahams). She made a wide-ranging speech, and I would not want to comment on one aspect of it.
I very much welcome the Finance Bill and the efforts that the Government have made during the pandemic to support the economy and businesses, but the same cannot be said for the major banks. They have failed to act in the national interest. Their response to the national emergency has been marked by indifference, greed and self-interest. I have had many complaints from my constituents about the attitude of the banks. Let us look at just one example.
A director of a small business contacted me last week. He has built his business up over a decade and he directly employs a handful of people, as well as using a number of subcontractors. He said, “Of course we are feeling the impact of a covid-19 lockdown, and without financial help we will have to make redundancies. Should furlough payments come through, we will be able to make salary payments, which is life-saving for our business. However, cashflow has dried up, with outstanding debtors holding back funds, so I applied to my bank for a CBIL. It took three weeks, with three telephone calls, before I was given the application details. I have since applied and chased up for a response after a further seven days. I had applied for £30,000 on the understanding that I could pay off the loan early, as I am optimistic that our turnover will return, putting us back in profit. The £30,000 will help us ride out the uncertainty and keep our suppliers paid and their businesses stable. Without it, we will not survive. These funds are needed now.
The response from my bank has been far from dynamic, and even if my loan is approved, it may be too late. If the Government are paying 12 months’ interest and securing 80% of the loan, why are the banks taking such a long time to get the funds out to businesses?”
My constituent poses a very good question. Why has it taken the banks so long to provide support to small and medium-sized businesses when the Government are guaranteeing 80% of loans and paying all the fees and interest in the first year? Nationally, the banks have lent £2.8 billion through the scheme to 16,600 firms, yet more than 36,000 firms have applied for loans—an acceptance rate of just 48%—whereas in Germany, £7.4 billion has been lent and the approval rate has been 98%.
Businesses do not go bust because they make a loss; they go bust because they run out of cash. The business interruption loan scheme has been running for seven weeks, yet the banks are failing to get the money to businesses. Today’s announcement by the Chancellor of a bounce-back loan will help my constituent, but I hope he will consider making all the loans 100% guaranteed.
Some people may ask, “Should the banks act in the national interest?” Of course, there is a moral reason why they should do so, but the banks do not seem to have any morals. Yet during the banking crisis, the taxpayer injected £137 billion in loans and capital into the banking system, plus hundreds of billions of pounds of guarantees. The banks still owe the taxpayer £27 billion. Taxpayers saved the banks, now the banks have a duty to help save the country.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op) [V]
Like my hon. Friends and many across the House, my primary aim today is to highlight the reality on the ground in our economy in constituencies such as Cardiff South and Penarth. It is clear that this unprecedented crisis has shown up the historic strengths and weaknesses of our economy and society, the fragility of our global trade and supply links, and the fact that we have for far too long undervalued many of those who are the lifeblood of our economy and society, including our incredible NHS, care and key workers and our small and microbusinesses.
This Finance Bill provides opportunities to address those challenges, and it is absolutely right, as the shadow Chancellor and others have done, to set out the challenges that apply equally at home and globally, whether that is keeping people in jobs and incomes, getting cash to, and ensuring liquidity for, struggling businesses to enable them to keep jobs now and recover quicker later, or preventing a slide into devasting poverty and deeper inequality by providing the right safety nets.
I praise the work of our Welsh Labour Government here in Wales and my local councils in Cardiff and the Vale of Glamorgan for the speed and effort they have shown in responding to the crisis, getting cash out of the door and into the hands of those who need it. The Welsh Government’s £500 million economic resilience fund, part of over £1.7 billion of support, has been intended to fill as many gaps as possible in the financial support for businesses. Since it opened to applications, it has received almost 9,000 requests for support, which is evidence of the scale of demand. The Development Bank of Wales is also making real money available to businesses and processing applications faster and more efficiently than many of the high street banks—a point that I will come to, and which the hon. Member for Wellingborough (Mr Bone) exposed.
For microbusinesses, although I welcome the Chancellor’s announcements today on smaller loans, I note that the Welsh Government have already stepped in with grants for microbusinesses, including start-ups. The Welsh and UK Governments must also work together to support major anchor industries, including the steel and creative industries, which are crucial in my constituency, whether it is Celsa Steel or our world-beating film and TV production companies. Immediate support is needed, but beyond that it is also important to ensure support for the UK Steel Charter, for example, and its procurement principles.
I heard today from the internationally renowned Wales Millennium Centre—which is currently displaying in its window a huge “Diolch yn fawr NHS” sign to say thank you—which has an annual economic impact of over £70 million locally and sustains over 1,000 jobs. The Wales Millennium Centre has benefited from the furlough scheme, but it seems likely that restrictions on theatre and mass gatherings will be among the last to be lifted, so will the job retention scheme be extended to cover the whole closure period?
The hon. Member for Wellingborough, who spoke before me, was absolutely right to highlight the reality of the CBILS scheme. I am finding very similar issues, with banks making themselves inaccessible even to phone calls, let alone giving the loans that businesses have needed. I have had businesses refused on viability grounds, which in one case was apparently based on poorer than expected performance for the last two years during the Brexit uncertainty. Despite a significant upturn since last year, that business has had a loan refused. It is simply not good enough, and I hope the Chancellor will crack down on UK Finance and its members.
A particular concern that I have encountered is the issues facing the creative industries, particularly pay-as-you-earn freelancers. A Musicians’ Union survey of over 1,000 musicians shows that 38% of respondents do not qualify for the Government’s assistance schemes, with one in five saying the problems caused by coronavirus may force them to abandon their career as a musician in the long term. One of the issues appears to be whether people were on the RTI—realtime information—submissions scheme to HMRC in time. I would argue that we should use the end of March RTI, to include freelancers on contracts who started before 19 March.
There is also an issue facing those who did not have an employer from 28 February onwards, who therefore do not have an employer to furlough them, and who are ineligible for the self-employment income support scheme as they pay their tax by PAYE. The Chancellor needs to take steps to support those individuals. There are also major issues affecting the newly self-employed, who do not have access to the support systems because the system does not allow for 2019-20 tax returns, and who have no employer to furlough them. What can the Government do to support those in that group, who seem to be falling through the gaps?
I have also heard from many in the taxi and private hire industry, which is facing particular structures, who also need support. I urge the Chancellor to listen closely to the trade unions and others who are exposing the issues that they are facing. The issue of those who pay themselves through a small number of dividends has also been highlighted. I have been contacted by local companies affected by that; indeed, I was approached by one business of that type just today. Many such firms are weeks away from folding after burning through their cash reserves and finding little support.
Insurance companies have been mentioned. The Association of British Insurers and others need to start acting in the interests of the economy and in the spirit of these difficult times. One of my excellent local pubs in Grangetown in Cardiff has paid substantial sums for insurance but is now facing difficulties making a claim with the firm RSA, which made more than £7 billion of revenue in 2018.
Internationally, it is clear that we face a massive crisis—it is not just in this country—and the only way to approach it is multilaterally. That is in our national interest as well. We must maintain such levels and ambitions for co-ordinated action as the former Prime Minister Gordon Brown and others have argued for, lest we see economic and financial contagion rebound on us and the ability of our economy to come out of this. We need support through liquidity injections, debt relief and the maintenance of aid and investment flows. That will be in the interests of us all in the future.
Sally-Ann Hart (Hastings and Rye) (Con) [V]
I endorse the comments on the gaps in the financial support but, at the request of several of my constituents in Hasting and Rye, I wish to highlight the measures on the loan charge in clause 16.
There is no doubt that the loan charge is an anti-avoidance measure: it was introduced in the Finance Act 2016 to address the tax lost to the Treasury through a variety of disguised remuneration schemes. In the 2016 Budget, the Government announced a package of changes to tackle the existing disguised remuneration avoidance schemes and prevent their further use. The loan charge was introduced as a new charge on disguised remuneration loan balances outstanding at 5 April 2019. It is absolutely right that the Government take action to ensure that everybody pays the taxes that they owe and contributes towards the publicly funded services from which they benefit.
In September 2019, the Government commissioned Sir Amyas Morse to lead an independent review of the design and implementation of the loan charge. Sir Amyas was asked to consider whether the policy was an appropriate response to the tax avoidance behaviour in question, and whether changes that the Government had previously announced addressed any legitimate concerns raised. The review was published in December, alongside the Government’s response, which welcomed Sir Amyas’s acknowledgement that disguised remuneration schemes are a form of tax avoidance, but recognised the concerns raised by the review about the impact of some aspects of the loan charge. The Government have, in this Bill, accepted all but one of the review’s recommendations.
The review found that legislation announced in 2010 removed any doubt that tax was due. However, it is argued that the law was not clear on tax after 2010, as explained by Members in this House on 19 March this year. I will not revisit those arguments. The all-party group on the loan charge formally disputes the review’s finding that the law on the use of loan schemes became clear from December 2010.
It has also been argued that some of those caught by the loan charge were misled and, in some cases, coerced into entering schemes as the only way of securing a job. Although the loan charge was intended to shut down loan schemes, the Morse review found that the use of some schemes continues to be extensive in the 2019-20 tax year, with more than 8,000 individuals having entered into schemes between April and October 2019. Some promoters and professional advisers are still selling schemes, in spite of the law becoming clear from November 2017. That needs to stop.
My concern centres around the retrospective aspect of the loan charge. The loan charge does not change past liabilities, because it is a new tax on loans outstanding as at 5 April 2019. It changes the current tax effect of previous events and therefore brings past tax years back into charge. It is structured to correct past avoidance. In common law there is a presumption that a statute does not have retrospective effect, largely because of the serious injustice that that could engender. However, retrospective legislation is not necessarily unconstitutional, and legal argument and case law is available to support that view.
Retrospective legislation can right a wrong when law is an ass, but when it is used to penalise retrospectively, it undermines public confidence in the rule of law. A person must know in advance whether their conduct is or is not legal. There is no punishment without law. The rule of law is fundamental to our democracy. It ensures accountability and trust in our institutions. The principles of the rule of law, including legal certainty and open government, are the processes by which the laws are enacted, administered and enforced. They are accessible, fair and efficient and must be respected and not undermined.
I am speaking on behalf of my constituents in Hastings and Rye and providing them with a voice. They have ended up as victims of the loan charge. I am asking for a just decision to be made that the loan charge takes effect from the date of Royal Assent of the 2017 Finance Act. That would avoid the retrospective element, and would give certainty from that point onwards regarding loan arrangements.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
It really is a pleasure to be back in this place today. I welcome the bold steps that have been taken by the Government since the Budget, which seems like aeons ago, and the subsequent support in the Coronavirus Act 2020 and in the Chancellor’s settlement. I particularly welcome the support for start-ups, of which my constituency has many, especially in the Shoreditch part of Hackney South and Shoreditch. They will be the engines of the future economy, so the move is very welcome. None the less, some very big issues obviously exist, so while those bold steps were necessary—I pay tribute to the Chancellor, to the TUC and to so many others who have contributed to this thinking—we do need to have some answers to some very important questions. I want to rattle through some of them before touching on a couple of other very important issues around the Budget.
Will the Minister today confirm that the coronavirus business interruption loan scheme does not require a personal guarantee by businesses? Only today, I spoke to a business in my constituency, which has been hampered in trying to get this loan because the bank has asked for a raft of personal information about the financial arrangements of every director of that company. This is a company that has praised the Government for the furloughing scheme, but that is struggling on this point. We have heard that that personal guarantee is not necessary, but really clear guidance is needed from the Government to make sure that those banks that were bailed out in 2008, as the hon. Member for Wellingborough (Mr Bone) highlighted, are going to support the economy now.
One of the big issues in my constituency relates to other forms of work. There are those who are self-employed, those who freelance and the many people on repeated short-term contracts who fall outside the employment support schemes. The self-employed and, in fact, most of those workers will often have an accountant or will have very clear financial records, so just as the PAYE scheme has been reverse-engineered to support furloughing, there must be a way that HMRC and the Government can work together with those people to make sure that there is a scheme in place to support them.
Many people are really scared. The emails in my inbox are not from people I normally hear from. They are from people who are about to lose their jobs. They are people who never thought that they would be in a position to have to consider claiming from the state, but they actually cannot even do that—they cannot even qualify for universal credit.
Another group caught up in this is sole directors, including those of personal service companies. I can relate an ironic example that really highlights this matter. An occupational therapist working in the national health service was told by the NHS that, for liability reasons, she had to set up personal service company. She is a frontline health worker supporting our NHS and yet does not qualify for any of the business and employment support schemes. That surely shows this up as a nonsense. The chickens are coming home to roost in this crisis: the economy has split in a different way, which means that people are working in different ways and that businesses are setting up in different ways. They are now being penalised because of a system that grew up like Topsy, with little thought for the consequences.
I want to touch on the huge demand on the hardship fund, which is the responsibility of local authorities. Those local authorities are already overspending on this. Everything that is not quite fitting has to come from the hardship fund, which is a huge problem. The overall cost to local government is enormous, with many councils now effectively bankrupt. Although the extra injection of cash the other week was welcome, it will not be enough. We may have to be very careful post-cv-19 to ensure that those very councils, which were going to be the engines driving the support that people will continue to need, are well resourced to do that.
I want to highlight an issue around housing. In 1992 and in 2008, under Governments of different political colours, money was given to housing associations to buy up unsold properties. In 1992, a housing market package was in place to buy up properties on the street, and in 2008, unsold properties from private developers were bought up. That money was there to buy those houses to create homes for homeless families. Many people in my constituency are living in severely overcrowded conditions, including a woman with a seven-year-old daughter who has had four years in a single hostel room with shared facilities, and a mother and daughter living with grand- mother—one family in one room and one in another. I have many other examples like that. Such a move would keep the housing market going and, crucially, give a fillip to the social housing market and give people a chance, in the long-term future we want to see, to support themselves.
The £1 billion announced in the Budget for cladding is about a tenth of what is needed, but will the Minister tell me when we will get the detail on how that £1 billion will be bid for? If not, perhaps the Treasury will write to me. It was supposed to come in June, but with coronavirus it is likely to be delayed. When we reach the day of reckoning on the pounds that we are spending now that will have to be paid back, that is just one of many issues that will need to be sorted. Many of my constituents are paying over the odds to support things such as waking watch while they wait for that money to come and, because of coronavirus, those who were already hit hard are being hit harder still.
Saqib Bhatti (Meriden) (Con) [V]
The First Reading of the Finance Bill back in March seems an age away; the country has been through so much since then. The world is now a very different place, and I fear that that change is not yet complete, nor has it been fully comprehended. In line with the medical advice and scientific data, entering into a lockdown was the only option available to protect the most vulnerable in our society and limit the spread of the silent and invisible enemy that is covid-19. That was possible only with the co-operation of the British public and, over the past few weeks, they have been nothing short of heroic.
There is a significant economic cost to covid-19, which has been much documented over the past few weeks. Indeed, the Office for Budget Responsibility’s analysis made for harrowing reading, with its published scenario predicting that the UK economy could fall by 35% by June, and recent analysis by KPMG predicted that the west midlands will be the hardest hit region of the United Kingdom. Given that Meriden is an economic hub in the west midlands, that concerns me deeply. I was, however, reassured by the OBR’s prediction that by the end of 2020 we would return to our pre-crisis growth trend, with an economic recovery under way in the three months to September.
As the Chancellor of the Exchequer said in this House on 11 March,
“this virus is the key challenge facing our country today, but it is not the only challenge.”—[Official Report, 11 March 2020; Vol. 673, c. 278.]
He recognised that there will be a temporary disruption. Beyond that, the Bill secures our financial security and sets the foundation for our future recovery. If we are to embark on the route to recovery, the Bill will be central to achieving that.
When we read statistics, review economic analyses and read the headlines, it is easy to forget the real, hard-working individuals—the business owners, the wealth creators and the employees—who ensure our economic success and, in turn, drive our society forward. A number of measures in the Bill will help those who need our support and give us the tools to do exactly that. I commend in particular the Chancellor of the Exchequer’s measures to increase the national living wage by the end of the Parliament, and the increase in the minimum threshold for national insurance that will mean more money in the pockets of those who need it. I also endorse the increase in the research and development tax credit from 12% to 13%. That is an invaluable tool for many businesses and, as we look beyond the coronavirus, we must do absolutely everything we can to reward those who undertake research and development and innovate. If ever there was a time to reward those who undertake R&D and innovate, it is now.
I was also pleased to see the delay in the implementation of IR35 reforms to 2021. Our flexible workforce have seen serious strains in recent weeks and continue to experience significant difficulties, yet they remain an essential part of our economy. We do not yet know what the world will look like in 2021 or what the landscape for our flexible workforce will be, so it is sensible that we continue to monitor this area, ensuring that our flexible workforce is not left behind.
In the past few weeks there have been countless stories about our businesses and entrepreneurs stepping up in various ways to support the demands of the nation and our national health service. That reaffirms that the only way to succeed as a nation is by ensuring that we continue to encourage and nourish the entrepreneurial spirit that is the foundation of our society. In that vein, I commend the Chancellor for the announcements he made earlier today to make sure that our smallest businesses, the backbone of our economy, can get the funds they need to survive and thrive. In the coming months, the road ahead will be difficult; a lot of people will be worried about their uncertain future. I believe that this Bill sets the foundation to help grow the economy and give the people the security they need, and I am pleased to support it.
Chris Evans (Islwyn) (Lab/Co-op) [V]
Let me begin by thanking you Madam Deputy Speaker, Mr Speaker and all the staff for all the work you are doing, in difficult times, to keep our Parliament running. When the Chancellor stood before the House to make his Budget speech, no one would ever have thought that some two months later the entire country, and indeed our way of life, would come to a complete standstill. There is no historical precedent for the crisis we face. The works of Adam Smith, John Maynard Keynes or Milton Friedman make no reference to the crisis we face; we have lost not only supply, but demand. Therefore, this Government should look again at this Finance Bill, and once the lockdown is at an end they should present a new Budget, one that puts people, and small and medium-sized businesses, at its heart.
Through no one’s fault, the Bill before us is out of date and belongs to another age. Not since the financial crash has the local economy felt fear and panic like this; many look to the future with dread. As many Members will know, my constituency has a proud industrial past, but in the past few years we have seen a revolution; I have witnessed a burgeoning tourism industry, with many people coming to south Wales to enjoy the mountains, the greenery and the healthy lifestyle. We have seen eco pods, cider producers and biking all contributing to a growth in our tourism industry. However, many constituents have been in touch about issues relating to accessing the grant and loan schemes, especially the coronavirus business interruption loan scheme—CBILS. These businesses cover a wide range of sectors, including agriculture, dairy and food suppliers, pubs and clubs—even dental practices have got in touch with their concerns about the access to financial support. Recently, a rugby club has been in touch about the struggles it is having in accessing business rate grants. Many of these businesses are micro-businesses that cannot access anything at all. In addition, many still find themselves excluded from the Government’s self-employment and furlough schemes. For example, the dairy industry cannot furlough staff or switch off production.
In this new world, where the Government are getting it right the Opposition must be supportive. Therefore, today’s announcement of bounce-back loans with a 100% Government-backed guarantee for lenders is most welcome. Labour has been calling for that, and it is positive to see that, for once, the Government have listened and acted. However, applications for those loans will not open until next Monday, and for some companies these measures have already been introduced far too late. The main issue has been that money has been delayed in getting to them.
Under the bounce-back loan scheme, businesses will be able to apply for loans of between £2,000 and £50,000. However, we need to consider what this means for SMEs that require more than £50,000. The Chancellor has said that small businesses are the backbone of the economy and of communities, and that is very true in my constituency, but I have heard too many reports of businesses being denied financial support. The CBILS, which most businesses are relying on, is having enormous problems. The scheme is designed to help SMEs with an annual turnover of up to £45 million, and they can access up to £5 million. However, there have been countless complaints from constituents about the application process. The Government must simplify it if businesses are to be able to access support quickly. Switzerland introduced a straightforward one-page form for businesses to fill in, and it is encouraging to hear that the Government have adapted something similar for the bounce-back application scheme. However, the Government are still not approving enough loans and they are not being supplied quickly enough. As of 23 April, just over 16,000 had been approved, with only 9,000 being provided, whereas in France 170,000 loans have been provided and in Switzerland the figure is 100,000, and Germany has an approval rate of 98%, as we have heard. Although we have to factor in some risk——that is what business works on—those people were, only a few weeks ago, running perfectly viable businesses. Action has to be taken now. Small businesses need help, and it should not be found wanting.
Many of the Government measures are welcome, but the present situation is not sustainable. There is now a compelling case for an exit strategy. Business owners and companies need to be assured that business will continue to be financially supported during the pandemic and beyond. Nobody is expecting social distancing measures to be lifted, which is why there needs to be a roadmap out of the present lockdown. Business needs it but, most importantly as humans, families are desperate for it.
Suzanne Webb (Stourbridge) (Con) [V]
The Finance Bill is presented at a time when the UK is fighting a destructive, invisible force, which is, of course, covid-19. The Government are operating and developing policy in unparalleled times and at unprecedented speed. Co-operation and collaboration are key to overcoming covid-19, and to making, and keeping, people safe.
That co-operation and collaboration are evident nowhere more than between the Government, the Treasury and the Bank of England in their financial response to tackle the consequences of covid-19. The Chancellor acted swiftly and decisively, with a profound level of financial support for individuals and businesses, to cushion them from the economic impact of policy to tackle covid-19, with a keen eye to preserving employment and productive capacity. Our Prime Minister is orchestrating the limbs of Government, demanding that they stretch every sinew to ensure that the engine rooms of our great economy have the support that they need to recharge our return to economic normality.
Of course, given their heroic efforts, it is those on the frontline and operating in the care community to whom we owe a debt of gratitude. They are our life-support system at this time of extraordinary need. It seems that we are a country with a deeper and perhaps more visceral understanding of the vital role of the NHS in our lives—a sense of rekindled communion. It is with that same sense of communion that we must, as a nation, seize new opportunities and new ways of doing things as we emerge from this immense time of uncertainty.
The economy is a vital component of that. One of the biggest discussion points has been how far policy should go in constraining the economy in order to beat covid-19. Just as the NHS and other key workers have been instrumental in safeguarding us through lockdown, we must now look to unleashing the entrepreneurial endeavour and innovation of businesses that will, with the support of the Government, be the next stage of delivering us out of these astonishing times. I therefore welcome the Government’s clear plan of investment in research and development, which will stimulate growth, drive technological change and attract foreign direct investment.
The Bill provides companies with the ability to push ahead and invest in world-leading research due to the increase in public investment in the area to £22 billion per year by 2025. It is a landmark investment, doubling the amount previously spent supporting world-leading research and infrastructure, investing in experimental research and supercharging public investment in science. It encourages innovation, with research and development tax credits set to rise, creating an environment where private companies will have the fiscal confidence to invest in new products, people and new ways of working, which will be vital during this national crisis.
Investment is essential if we are to maintain international competitiveness and deliver economic sustainability, wellbeing and prosperity to constituencies such as mine in Stourbridge. Advancement in research and development has never been more crucial than now, in combating covid-19. However, we can do more. The Government should consult on widening the definition of research and development tax credits, qualifying expenditure to include data cloud computing. As we enter a world of augmented reality, the next technological revolution is paramount to making a success of post-covid-19 Britain.
We do not need to be experts to understand that the economy is contracting. Less trade is being shipped, productivity is down, and there has been severe disruption to global supply chains. It is, of course, a simple consequence of people not working. People want to be responsible and to contribute to the foundations of society. The welfare state is a safety net that has caught so many people who are in need at this time, but it should never be a long-term solution. We must look at getting people back to work. After all, we have some pretty big bills that will have to be paid.
We must orchestrate our way out of covid-19 together. This is a Finance Bill by a Government taking decisive action towards long-term opportunities using the great evangelism of entrepreneurialism—opportunities that will bring real benefits not just to businesses, but to people in my constituency. I urge the businesses of Stourbridge to take note of the measures outlined in the Bill. It is imperative to have one eye on our collective recovery, as well as navigating through the immediate challenges in these difficult times. The jewel in the crown of this Government is that they put people first. The Bill puts people first. At its heart, it is about getting people back to work, but lifting lockdown only when it is safe to do so.
Kate Osborne (Jarrow) (Lab) [V]
I am sure that all Members agree that the covid-19 crisis is unlike anything we have experienced in our lifetimes, and life will possibly never be the same again. This Government, however, have a duty to ensure that people’s jobs and incomes are protected. The crisis, as we know, has caused serious financial suffering for businesses, for people and for their families. Although everyone’s lives have been affected by the efforts to contain covid-19, so many people are struggling to cope with the financial and practical repercussions of tackling the spread of the virus.
According to the Centre for Economics and Business Research, households across the UK face a fall in disposable income of £515 a month due to the pandemic. Well over 1 million new claimants have signed on for benefits since the start of the coronavirus crisis, and there are genuine fears that unemployment is heading towards levels not seen since the 1980s. The Government’s emergency measures are welcome, but, along with the measures set out in the Finance Bill, they simply do not go far enough.
My constituency of Jarrow has already been hit hard by a decade of austerity and remains an area of high unemployment. The north-east has the highest unemployment rate in the country, which is extremely worrying, but equally concerning is that many of the tens of thousands of people employed across our region are in low-paid, part-time or insecure jobs or on zero-hours contracts. If the coronavirus crisis leaves 2 million more people unemployed, as suggested by the Office for Budget Responsibility, it will be crucial that the Government do everything in their power to minimise the depth and length of the economic impact.
My two local authorities, South Tyneside Council and Gateshead Council, have lost more than half of their funding during the past decade, leaving services stripped to the bone. That cannot continue, and they cannot be expected to pay for the crisis. In the South Tyneside and Gateshead local authority area, one in three children are already living in poverty and thousands more families are living on the edge of the poverty line.
Nationally, people have lost their jobs or seen their income fall during the pandemic and the lockdown, and there have been more than five times as many claims for universal credit in the space of a month. I am regularly contacted by constituents who receive universal credit and have been left with no choice but to turn to a food bank, left unable to pay for heating and struggling to pay their rent. This Government say that universal credit is working, but from the people of Jarrow and the whole of the country I tell the House that it is not.
We know that businesses have been hit hard, but the coronavirus business interruption loan scheme, though welcome, is going only a small way to helping those firms that are now struggling to stay afloat. Providing 16,000 loans in four weeks in a country of 6 million small and medium-sized enterprises is simply not good enough. Those 16,000 loans amount to £2.8 billion of lending to SMEs. In comparison, the French scheme has provided 174,000 loans worth €24 billion.
So many workers are falling through the cracks. I have written to the Chancellor about the cut-off date for employees to receive support through the coronavirus job retention scheme. Although the extension from 28 February to 19 March will allow more employees to be furloughed, a lot more new workers will still miss out because they are paid towards the end of each month. Some have contacted their previous employer and asked to be re-employed on furlough, but I am informed that some companies are either unwilling or unable to help. The Government must consider further extending the cut-off date for the coronavirus job retention scheme to include the large proportion of workers who are paid monthly and giving the opportunity for other new employees also to be furloughed.
With economic growth already predicted to fall even further in the months ahead, the coronavirus crisis must not be used as cover for all the problems that have resulted from the lack of investment over the past 10 years. Lessons need to be learned from this crisis. This Government’s Finance Bill does not come close to reversing the damage of the past 10 years of austerity. The Government need to make sure that no families, workers or businesses fall down the cracks, because there is no doubt whatsoever that after this crisis is over our society and our economy will have to be very different.
Lee Rowley (North East Derbyshire) (Con)
I refer Members to my declaration in the register, which pertains to some of the remarks that I will make today.
Thank you, Madam Deputy Speaker, for the opportunity to speak at this incredibly odd and strange time. We are in truly unprecedented times. I am not sure that we would have expected just a few short weeks ago that we would be here in the Chamber with some of our colleagues dialling in.
Debating the Budget, and the Finance Bill which I warmly welcome that succeeds it, almost feels as though we are talking about another time. We have moved on, but it is important to go back to many of the measures in the Budget—which I welcome, as one would expect of a member of the governing party—because it demonstrated this Government’s commitment to levelling up in many regions such as my own by putting in additional investment into areas that perhaps have not received the investment that they have needed and desired over the past half century. That ranges from broadband to R&D and to all the many things that so many of us across the House, particularly on the Government Benches, will welcome, not least the continuing commitment to debt falling as a proportion of GDP. That is important for constituencies such as mine because, although talking about bypasses might not seem to strike quite the right tone, there is money in the Bill for a bypass for which people in North East Derbyshire have waited for nearly a century. We first proposed it in 1927 and we are hoping that it might be built before 2027. With the help of my colleagues on the Treasury Bench, I will continue to push for that.
I warmly welcome the Budget. Of course, one can never agree with absolutely everything in a Budget package. There are challenges in my constituency. I have bent the ear of Ministers on the Treasury Bench about the challenges with regard to dilution—an issue relating to alcohol duty that was introduced in a previous Budget but implemented just a few short weeks ago. Such things cause challenges to towns such as Clay Cross in my constituency that are heavily reliant on companies that work in that sector. I look forward to the alcohol duty review, because I am very keen to promote the importance of fairness and equity in alcohol duty laws to support businesses and employees in my constituency.
I want to turn to what has been talked about both remotely and here in the Chamber throughout today’s sitting—the thing that is in front of us and has caused unprecedented changes to the way we work, the way we live and the way we are as a society, hopefully temporarily. I welcome what the Government have done over the past six weeks to respond to the most unprecedented crisis in our lifetimes. We forget, because we move very quickly through this, that we are trying to do something—I say this as somebody who was a historian many years ago at university—that is utterly unprecedented in the history of humanity: to turn back the tide of a pandemic which at any other time in our history would have overwhelmed us. The efforts that have been put in across the community, across local government and national Government and at the frontline of the NHS are absolutely unprecedented. I welcome and pay tribute to those efforts not just in North East Derbyshire but across the country as a whole.
In particular, I welcome what the Government have done to bring forward their support for people and for businesses, including today. I was in the Chamber when my right hon. Friend the Chancellor brought forward the latest in the package of bounce-back loans, and I look forward to businesses in North East Derbyshire benefiting from them.
We have said that we are trying to put ideology aside, and in the main I think that we have been positive in doing that in this debate. I say this as somebody who is genuinely a smaller-state liberal economic free marketeer who wants to see us thrive through those means: even I recognise—as do my right hon. Friend the Member for Wokingham (John Redwood) and my hon. Friend the Member for Wycombe (Mr Baker), who have already spoken, and many other colleagues—that now is the time to ensure that people have the support to get through these unprecedented times, and that is why I support these measures. However, that creates a responsibility for us in this House. I say this without any real ideology: we have a responsibility to support the immediate challenge in front of us, which is to ensure that the health of our nation and our communities is protected, but we also have a responsibility to ensure, as the Government and many Members of all parties are doing, that the health of our economy can come back in the medium term.
There is something that has not been talked about so much tonight, perhaps understandably, although I hope there will be more time to do so in the future. We also have a responsibility, in what we are doing as a nation, to the long-term health of our public finances and to the debt, so that when we pass this on to future generations, if they have a similar challenge to this one—God forbid that they do—they will be able to tackle it in the way we are doing at the moment.
Mr Alistair Carmichael (Orkney and Shetland) (LD) [V]
Thank you very much for calling me, Madam Deputy Speaker. It is a great pleasure to be able to join you from a mere 718 miles away.
In the normal course of things, the purpose of a Finance Bill is to give legislative underpinning to the Budget. As others have reflected, however, it is a mere seven weeks since we heard the Chancellor’s Budget, and in that time most of it has been fed into the shredder. Obviously, this Bill reflects the legal necessity of having a Finance Act, but I think we all know that there will be further fiscal measures this year. It may be at that stage that we get a truer sense of the Government’s intentions.
We have all fallen easily into the habit of using the rhetoric of war when speaking of the challenge of tackling the covid-19 pandemic. I can see why, but it is worth remembering that for a Government to get the support of the people for a war, it is essential that they are able to give a clear vision of the purpose of that war. What is it that we are fighting to preserve? As I look around my communities, I am pretty clear about what I am prepared to fight for in this war. I want to preserve and protect the small businesses that are the lifeblood of the economy in the northern isles. We are overwhelmingly a small business economy. I hear so often from the builders, plumbers, electricians, joiners and decorators—people who may be working out of their house or the back of a van—and they tell me that the schemes that are available are not going to help them, and that this war effort is not going to give them the assistance that they need to get to the other side.
I also want to protect the myriad people who are part of the important visitor economy here in the northern isles. That is something that we have built up gradually and organically over decades. It involves the tourism guides, the food and drink manufacturers and the people who run café and bed-and-breakfast businesses or provide self-catering accommodation. This is something that we have all built up, and those people are all essential to that future offering. Just recently, I spoke to someone at a local hotel who told me that, having come through the six difficult months of the winter, they were now looking forward to the six productive months. However, they have had to close, and they see little prospect of opening again. They say that if they do not open over the course of the summer months, they will stay closed until next Easter. That will be absolutely critical. The people who work in those businesses will find something else to do with their time if they are unable to continue to work in them.
At the start of this pandemic, my inbox was overflowing with messages from people wanting to know that there would be help, and I am sure I was not alone among hon. Members in that. Recently, that has changed. The volume of correspondence is perhaps not as big as it was, but the pleas are just as heartfelt. People are telling me time and again that the help that is available is not going to work for them. One chartered accountant in my constituency recently told me that he reckoned that about 75% of his clients would get no help from the available schemes. That is why, when it came to the Chancellor’s statement today, I made a very unusual-for-me step—to ask him to consider the introduction of a universal basic income.
Let me be quite clear: that runs against just about everything I have ever believed. I was always brought up to believe that you work hard, you get on, you contribute and you pay back. The idea of effectively giving people something for nothing would otherwise be anathema to me, but in these times if the schemes we have are just too difficult and complex to reach the people who have worked hard and taken risks, surely we are going to have to do something different. Consider, for example, the position of those who rely on dividend income; people are going to be left without the protection they need, and they will not then be there when the good times return and our businesses want to open up again.
Anthony Browne (South Cambridgeshire) (Con)
I have been engaged with Government Budgets for over two decades, either as an economics journalist, a political adviser or chief executive of the British Bankers Association, but this is my first speech in the Second Reading of a Finance Bill, and it is almost certainly the most surreal that I will ever make—not just because this debate was virtually entirely virtual, but also because many of the measures announced in the Budget, as well as the fiscal projections, have been overtaken by events.
Since the Chancellor made his Budget speech, he has announced the most comprehensive and generous package of measures to support businesses and individuals that any industrial country has made in this crisis. As someone who has in the past been involved with launching business support schemes throughout the banking sector, I have to say that I am amazed by the speed at which these packages have been launched. The Chancellor and his Treasury team, including the Economic Secretary to the Treasury, my hon. Friend the Member for Salisbury (John Glen), have packed years’ worth of work into weeks. It is an extraordinary achievement, but I still share the frustrations of others that the banks have not quite stepped up to the plate; things are moving faster now, I hope.
Many of my constituents—individuals and companies—are really hurting, but many are also really appreciating the support that the Government are giving. I think we all appreciate the new announcement today of the bounce-back loans, which should really help the smallest businesses to get quick access to the financing that they desperately need.
But even with all the support, the economic damage caused by this lockdown is deep. Some forecasters are predicting the sharpest recession for a century or more. As the Chancellor has made clear, he cannot save every business and every job, but with this package of measures, most of the productive capacity of the economy should be preserved for when the economy bounces back, which it surely will. We do not know how long the lockdown will last or to what degree it will cause permanent damage, but we do know that the UK and most other developed countries will be left with vastly bigger national debts.
The Office for Budget Responsibility, in what was widely deemed an optimistic scenario, said that the national debt could rise to as much as 100% of GDP. That is why I wanted to speak tonight—to touch on our longer-term economic strategy. How do we deal with this huge public debt? What impact will it have on the Government’s other plans, such as investing in infrastructure, levelling up and becoming carbon neutral?
I have long been a believer in sound finance—that we should all strive, in the long term, to live within our means. There is an intergenerational unfairness in one generation passing on their debts to another. I believe in fixing the roof when the sun is shining, but we are in the middle of the worst hurricane for a generation and the roof has been blown off.
It is absolutely right that the Government are being so generous in support of the economy, but how do we deal with the inevitable growth in national debt? The traditional answer to that question is to raise taxes or cut expenditure, or a mixture of both, but we have just had roughly a decade of so-called austerity that was necessary to reduce the huge annual budget deficit—getting the Government to live more within their means, and starting to patch up the roof. But I think even the strongest advocates of austerity would agree that there will be very limited public appetite for another wave of it, and big question marks about the impact on growth.
When it comes to raising taxes, there are also limits. According to the Office for Budget Responsibility’s recent Budget forecast, taxation is already heading to its highest level for 50 years. We know from decades of economic evidence that the risk of raising it further is that that slows economic growth, and that will make the national debt less affordable.
There is another solution: go for growth. The national debt is large, but interest rates are so low that it is actually surprisingly affordable. The debt interest to revenue ratio is below 4%, and at the time of the Budget it was predicted to carry on falling. If there was ever a time for a country to reconcile itself to high debt, it is after an historic economic crisis, with historically cheap borrowing costs. The national debt is a ratio of absolute debt to GDP. We might not be able to get the national debt down that much in absolute terms, but an alternative is to focus on growing GDP. That will steadily make the national debt more affordable. If the GDP growth is higher than the budget deficit, the national debt will go down.
After the economic shock we have had, we need a determined national focus on growth. We need to fire up the engines of the national economy. That means pursuing supply-side reforms, supporting free enterprise, taking advantage of some of the opportunities we have from leaving the EU, and pursuing trade and innovation. Despite the crisis, we still have dynamic growth sectors such as fintech and biotech—as we have in South Cambridgeshire, where we are in many ways world leading. We must promote them. We are combating the coronavirus crisis now, and soon we will have to deal with the consequences. This ambitious Budget is a good place to start. I commend it to the House.
Kim Johnson (Liverpool, Riverside) (Lab) [V]
We are living in unprecedented times. Since the Prime Minister announced the police-enforced lockdown on 23 March, the country has experienced the biggest challenge it has had to face in a long time. During the weeks since the lockdown, I have received a high volume of correspondence from non-essential businesses forced to close and from constituents experiencing financial hardship and uncertainty during this crisis.
The Riverside constituency covers Liverpool city centre, with a large number of leisure and hospitality businesses, hotels, micro-businesses, universities, private dentists’ practices, and freelancers and the self-employed engaged in a variety of enterprises. It is vital that the coronavirus economic schemes are effective so that we can protect people’s incomes, jobs and businesses, and prevent a deeper and longer-lasting recession.
The current guidance states:
“The government will provide additional Small Business Grant Scheme funding for local authorities to support small businesses that already pay little or no business rates because of small business rate relief… This will provide a one-off grant of £10,000 to eligible businesses to help meet their ongoing business costs.”
By tying eligibility for these grants to the business rate relief schemes, there are unintended consequences that will result in legitimate businesses, which are contributing to the economy through the tax system, not being supported through the scheme as was originally envisaged by the Chancellor.
In Liverpool, Riverside there are thousands of community businesses and charities providing essential frontline public health and wellbeing services to our most vulnerable residents that are not eligible for the grant and face closure. It would appear that the criteria being applied by some local authorities are resulting in a large number of small businesses not having their applications approved, and this is specifically the case in a number of circumstances.
Businesses that occupy separate designated office space under their tenancy licence agreement pay a contribution to the shared business rates in managed workspaces where one rateable value is applied to the whole building. This is often advised as the most appropriate method for business rates collection by the business rates officer. Social enterprises can have many structures, and one such is charitable status. It has been suggested that as these small businesses receive mandatory relief for charities, not small business rate relief, they will not be eligible for this grant.
CBILS has been operational since 23 March, but as of Thursday 16 April, only 6,020 loans, worth £1.1 billion, have been made as part of the scheme, with the survey data indicating that just 1% of firms have been able to access it. The Government will provide lenders with a guarantee of 80% on each loan to give lenders further confidence in continuing to provide finance to SMEs. However, the commercial banks are not acting in a consistent way, nor are they operating in the spirit of the guarantee. Banks are pushing their own products and seeking collateral security from the business owners rather than the business interruption product. Not all banks are offering the scheme, and other banks offer it only to their current customers. There is significant variation in the interest rates being charged to small businesses, and the terms and conditions and rates being offered, despite interest rates being so low, can only be described as extortionate.
The Government must act to increase the uptake of CIBLs, including offering a 100% guarantee, as other countries have. Providing 16,000 loans in four weeks in a country with nearly 6 million SMEs is not good enough. The Government must recognise that the scheme is not working adequately and change it urgently. The future of many of our small firms depends on their decisions.
The Government should also act urgently to protect the incomes of those who are falling outside existing schemes and on to universal credit. There are 9,000 self-employed people in Liverpool, Riverside, many of whom are creative freelancers working in our film, theatre and music industries who have seen their income dry up overnight. The self-employment income support scheme is intended to support self-employed individuals who have lost income due to the pandemic. The scheme allows self-employed people to claim a taxable grant worth 80% of trading profit, up to a maximum of £2,500 per month, for the next three months.
But there are anomalies. Newly established businesses that have submitted their first tax return for part of a year will have the self-employment income scheme 80% profit assessed for a whole year on this amount. While waiting for assessment and the release of the self-employed income support grant in June or July, self-employed people with no income are advised to apply for universal credit. This application results in immediate cancellation of any other benefits to which they are currently entitled, such as working tax credit, housing benefit and council tax benefit, leaving them with no income and in some cases destitute. Self-employed people with personal business savings of more than £16,000 are not entitled to universal credit or associated benefits. They are expected to use their savings to subsidise their income. This compares with the larger businesses—
Mr Deputy Speaker (Mr Nigel Evans)
Order. I am terribly sorry, but we have run out of time there. I call Miriam Cates.
Miriam Cates (Penistone and Stocksbridge) (Con) [V]
May I refer the House to my entry in the Register of Members’ Financial Interests?
The context of this debate is substantially different from that surrounding the Budget statement on 11 March. We are now facing significant economic challenges and we do not yet know the full financial impact of covid-19, but the reasons for introducing the measures in the Bill have not changed. We must make Britain the best place in the world to set up and run a business and we must level up our economy with more innovation outside London and the south-east to grow high-skilled, well-paid jobs in areas that have been left behind.
It has been wonderful to see the outpouring of gratitude across the nation to our NHS and care workers, who are on the frontline of the battle against covid-19. It is absolutely right that we recognise their bravery and dedication and the key part that they are playing in keeping us safe. But I also want to pay tribute to the millions of businesses in this country whose hard work and innovation have generated the tax revenue that funds the NHS as well as our schools, our roads and our railways.
The risks of setting up and running a business are considerable. Indeed, many fail. Many small business owners are now facing the toughest financial challenge of their lives. The coronavirus small business grant scheme, business rate holidays and loans, including the bounce-back loans announced today, have been a lifeline to these companies, but some still will not make it through this crisis and many lifetimes of hard work and investment, and jobs, will be lost.
When we emerge from this pandemic, we need our businesses to recover, to grow and to be profitable. That is the only way in which we will be able to continue to afford to invest in our NHS and public services, but we also need our businesses to innovate, to increase our productivity and to build on the UK’s reputation as a leader in science and technology, so I welcome the plans to increase spending on research and development to £22 million a year and the £200 million boost to our life sciences industry. Right now, we are seeing the immediate importance of research and development with the ongoing search for an effective coronavirus vaccine. The UK’s scientific community has already made important breakthroughs, including introducing a new swab test to overcome global reagent shortages, but it is important to remember that research and development does not only take place in our universities. Businesses up and down the UK are creating new technologies and making scientific advances that benefit all of us. The nature of R&D, as we can see from the vaccine trials, is that we cannot tell when a breakthrough will come. This presents a significant risk to businesses, which continue to pay their staff and fixed costs, whether or not the breakthrough has been made.
The increase in R&D tax credits in the Bill is an enormous boost to businesses in this position and will give them the confidence to continue to innovate and invest in new technologies. I know at first hand how vital this is from the small software company that I own with my husband. As we have worked to deliver technical advances, we have had some years when R&D credits have made the difference between staying in business and not.
Since 2010, British businesses have created over 3 million jobs, although, undoubtedly, employment levels have been negatively affected by coronavirus. But as we emerge from covid-19, we must make sure that we are creating productive jobs—skilled jobs—by capitalising on the knowledge and talent of our scientific and technical communities. Support for R&D will help our growing tech sector to continue to lead the world and to create the kind of well-paid jobs that present real opportunity to our young people.
We must also make sure that growth and innovation are spread equally across the country. As my right hon. Friend the Prime Minister has said, talent is spread evenly across this country, but opportunity is not. In my constituency of Penistone and Stocksbridge, there is a lack of skilled, well-paid jobs and too many young people are forced to leave the area to seek opportunities. This Government’s plan for infrastructure investment, a towns fund and investment in further education will help to rebalance our economy and make sure that skilled jobs can be created across the UK. In the past, manufacturing in the north of England was the powerhouse of the UK economy. Every manufacturing process, cottage industry and new factory was born of innovation and risk. In the north, we need a revival of this drive to start new, innovative businesses, and the measures in the Bill—particularly the support for research and development—will be crucial to our economic recovery.
Apsana Begum (Poplar and Limehouse) (Lab) [V]
I begin by saying that my thoughts are with the loved ones of those individuals who have sadly died in the UK, and with those who have contracted covid-19.
People in my constituency are worried about their security, their income, their job, their home and the wellbeing of their families, children and elderly relatives. The job of Government is to provide reassurance, especially at this most worrying of times, yet this Finance Bill fails to do so. With the economy necessarily being shut down in an unprecedented way, it is urgent that the Government act to protect jobs and incomes. It is now becoming clear that there are severe problems with the design and performance of many of the programmes that the Government have introduced to deal with the current crisis, and that these are reducing their take-up. This Finance Bill does not resolve those problems.
Due to time constraints, I will raise just a few specific examples today. As the Institute for Fiscal Studies has pointed out, the self-employed are more likely than employees to be in relative poverty and are more likely to work in sectors currently seeing large falls in demand. This Finance Bill offers such people little, if anything. I have been contacted by local nurseries regarding recent information stating that nurseries would not be able to claim furlough payments for all employees while also receiving local authority funding. They have argued that, as a result of the Government’s approach, they will probably have to make staff redundant. Basing eligibility on receipt of relief on business rates means that some businesses in need of support have been left behind. Many businesses in my constituency have contacted me with concerns that they are not eligible for this crucial lifeline, because they are not registered for business rates as they are renting a small space within a larger property, paying a proportion of business rates to the landlord.
On the wider economy, this Finance Bill does not properly address the fact that, according to the Office for Budget Responsibility, public health restrictions and social distancing mean lower incomes, less spending and weaker asset prices, which all reduce tax revenues, while job losses require more public spending. We already know that the covid-19 crisis is causing serious financial suffering for people and their families, and that while coronavirus can affect everyone, it does not affect everyone in the same way. It differs depending on class and status, and this Finance Bill does nothing to address that inherent systemic imbalance. This is of particular relevance to my constituency, Poplar and Limehouse, which already suffers from the highest rate of child poverty in the entire country. After a decade of austerity, too many people remain trapped in low-paid, insecure work, and they are invariably failed by the social security system.
After all our lobbying, the Government are now launching a review of the impact of covid-19 on BAME communities, which is to be welcomed, but for any review to be meaningful it must address the underlying economic system and the fact that years of austerity have had an utterly devastating impact on ethnic minority communities. I am hoping, therefore, that the Chancellor and his Department will accordingly carry out and publish a review of the Bill’s effect on equality.
This pandemic has exposed the fact that the Tories’ economy for the few is not fit for purpose, and it is fundamentally unfair and unequal. For example, Care England has today published a paper calling for greater financial support for the care sector, yet CareTech, which runs a large number of established residential care homes in the UK, has seen its shares rise by 12% in the last five days since announcing, in its words, “stronger” revenues and margins. Is it not obscene that as the coronavirus outbreak streaks across our care homes, with the death toll rising, profits are being pocketed by a rich few? The truth is that our social care system is a national scandal. Nearly £8 billion has been taken from councils’ social care budgets since 2010. At the same time, many big care providers have developed highly complex corporate structures involving offshore tax havens.
There have been emerging discussions about the need for new forms of progressive taxation as opposed to spending cuts, yet the Bill does not include an immediate windfall tax on the banks and finance sector, combined with a wealth tax on the richest in our society—policies proposed by my Labour colleagues that would ensure that there were enough resources to pay for our public services in a fair and just way.
Although this crisis is exposing the weakness in our economy and society, I have been inspired by the number of people who have organised to protect their communities. We need a Government who follow their lead and ensure that our economy is defined by solidarity and compassion, rather than by insecurity, fear and inequality. Unfortunately, this Finance Bill is further evidence that the Conservative party is unable or unwilling to be such a Government.
Andrew Griffith (Arundel and South Downs) (Con) [V]
I am pleased to be the first Member for Arundel and South Downs to speak in a virtual Parliament. This debate on the Finance Bill comes at a vital moment, and it is appropriate that we give the Government the resources to support our health and social care systems and protect the economy.
In respect of covid-19, we may have succeeded in flattening the infection peak, but today I support the Prime Minister and the Chancellor as they seek to flatten the economic trough and do the vital work of rebuilding our economic capacity. The first step was to stabilise the economy, and I congratulate the Government on the package of business support measures—some of the most generous and comprehensive anywhere in the world—to which they have added today with the very welcome bounce-back loan scheme. I know from my own career in business that is not easy to build an online delivery platform from scratch and still get money into bank accounts within a month. All involved deserve our recognition for what has been achieved.
I would like to single out the schemes aimed at small businesses and the self-employed, of which my constituency of Arundel and South Downs has one of the greatest concentrations. The retail, hospitality and leisure grant is a successful and well-executed initiative, which is pushing vital financial support to where it is needed. Perhaps because of this success, the current cliff edge of £51,000 is problematic, whereby a difference of a few pounds in rateable value can produce a large difference in outcomes. As Members from across the House well know, rateable values are an imperfect science, with almost 40% of appeals upheld. I raise the case of my constituents Gavin and Carole Austin at the 12th-century George and Dragon in Houghton—the only such premises in a five-mile radius not to find itself eligible—and that of landlord Paul Hills at the 15th-century Village House Inn in Findon. Those are just two of many. It was right to solve for simplicity and speed when the scheme was launched, but it would now be right to soften the sharp edge and introduce a taper, so that for every £1 by which the rateable value exceeds £51,000, the grant would reduce by £1 but would still be payable in part. Will the Minister consider that proposal?
This Bill will be the last from the pre-covid era. The Chancellor has the chance to be one of the great reformers, to rebuild our tax system to be fit for the 21st century, and in so doing, to unleash Britain’s potential. As those of us who have lived the reality in business know, the burden of tax is much more than the rate; it is about complexity, certainty and the approach to compliance. The World Bank ranks us eighth in the world for ease of doing business, but only 27th for ease of paying taxes. Our tax system is simply not simple enough. It is time to unify the income tax and national insurance regimes, to move much faster to a digital only tax system, and to simplify radically the tax code.
To focus on the future, we must release time and energy by not refighting the battles of the past. That means dealing with historical issues, such as properly compensating Equitable Life policy holders, many of whom were doctors and nurses, and giving an amnesty for all but the most egregious cases of abuse in respect of the loan charge. The only way to truly rebuild the economy is with an enterprise-led renaissance, as only business can create real jobs, opportunities and prosperity.
Ben Lake (Ceredigion) (PC) [V]
As others have already highlighted, the economic backdrop to this debate is unrecognisable to that envisioned only a few months ago, and it is likely that the coming months will bring further significant social and economic challenges. Before discussing the challenges facing the economy of Ceredigion, I wish to speak briefly to some of the amendments. Amendment 1, which is tabled in my name, relates to the Government’s proposal to increase research and development expenditure credit from 12% to 13%. Under the proposal, tax relief would rise by a mere 0.81%, to only 10.5%. If the Government wish to increase productivity in a meaningful way, they should consider going further and increasing that credit to 15%. I would also be interested to learn what plans the Government have to redistribute funding beyond the golden triangle of south-east England.
I support the campaign by the Women Against State Pension Inequality, and in particular the calls for the introduction of emergency measures to support women born in the 1950s who are not only waiting for receipt of their state pension but who, due to the destruction caused by covid-19, are now in even greater financial difficulty. I support the amendments that would provide employees who are participating in employee share schemes with legal protection against abuse by trustees, as occurred in the Roadchef case, and I put on record my appreciation of the work done by the hon. Member for Airdrie and Shotts (Neil Gray) on that issue. Although the amendments will not be pushed to a vote this evening, I hope the Government will consider these issues seriously and look to incorporate them in future measures.
The past few weeks have demonstrated the strength of society and its ability to respond to a crisis, but we have also seen that the impact of covid-19 will differ from person to person, between sectors of the economy, and between different countries and regions of the UK. I urge the Government to consider those differences as they formulate economic support measures.
The Institute for Fiscal Studies has identified some sectors as being particularly vulnerable to job losses in the light of the response to covid-19. According to a business register and employment survey by the Office for National Statistics, in 2018, 24% of employees in Ceredigion worked in one of those vulnerable sectors. That compares with 18% of employees in the rest of the UK. That might seem surprising to those who have not had the fortune of visiting Ceredigion, but according to a 2018 report by Universities Wales, the higher education sector generates up to 2,900 full-time equivalent jobs in the county, representing around 7.5% of total local employment. The sector has already proposed a package of measures that will ensure its survival, and I hope that the Government will consider that seriously.
Agriculture, and particularly the dairy sector, has experienced incredible volatility in recent weeks, and the restrictions necessary to contain the spread of the virus have effectively closed the hospitality sector overnight. Existing processing and supply chains have unsurprisingly struggled to absorb such a significant and sudden shift in demand. The beef and lamb sector is not immune to those challenges either. There is widespread concern that unless the Government intervene to support processors and to stabilise the incomes of the worst-hit farmers, the next few weeks could inflict serious long-term damage to such a key sector in Ceredigion and Wales by dealing a heavy blow to its processing capacity, suffering just as much as the tourism and hospitality sector, which, understandably, was asked to close in order to help to contain the covid-19 outbreak.
A survey conducted by Visit Wales, of over 400 tourism businesses, identified a number of concerns that need to be looked at closely. Businesses conveyed concerns about fixed costs, from bills and interest on loans already taken out, to the issue of refunding deposits and balances to customers. As with agriculture, the tourism and hospitality sector can be typified as seasonal. In that regard, the lockdown could not have come at a worse time.
To conclude, these businesses face the terrible prospect of a three-winter scenario, whereby they are closed for the summer months when they typically make their year’s earnings, before being plunged into yet another winter. I hope the Government can offer this sector, along with Welsh agriculture and higher education, some reassurances that bespoke support measures will be forthcoming to enable them to weather the storm.
Mr Mark Harper (Forest of Dean) (Con) [V]
The Financial Secretary, who opened the debate and is my constituency neighbour, made the point that the Budget seems like a very long time ago. It does to me too, having spoken in the Budget debate. The concerns we expressed then do not seem quite so present today, with the Government having to deal with the huge threat from coronavirus. I want to make several national points and then I want to raise with the Minister a couple of issues that are specifically relevant to my constituency.
My first point is that we have heard a lot of talk about how we exit lockdown, but I think it is much more relevant to talk about a recovery plan. We are going to be living with coronavirus until we either find a vaccine or until we have a successful treatment. It is possible—I hope it is not the case, but it is possible—that we never find a vaccine, so we need to think about how we enable the economy to operate with this virus. It is going to be with us for some time. I have one question for the Minister, relating to the fifth test, on how the Government wish to start easing restrictions. When it was first set out by the First Secretary, the Government said that they wanted to avoid a second peak in cases, which would overwhelm the NHS. We all, rightly, want to avoid that. However, in the slides published today, that caveat at the end about overwhelming the NHS had disappeared. It seems to me that that is a very important omission, because, as we relax restrictions, we will inevitably see more cases. The question for us is not whether we will see more cases, but whether we will see them at a level that is able to be dealt with by our fantastic NHS. I therefore hope the Minister can answer the question about exactly what that fifth test is.
The second point I wanted to raise is about openness and how we develop that plan. I am pleased that the Prime Minister, in his very welcome statement today on his return to Downing Street, confirmed that the Government would work as openly as possible as they set out their case. He said, for example, that they would look at bringing with them industry, constituents and Opposition parties as they develop their plan. I want the Minister, as we bring industry in, to think about the businesses that will have to change their business models to reflect the fact that social distance will be with us for some time, and to think about how we might help those businesses deal with the effects of coronavirus going forward.
My third and final national point, which was raised by a number of colleagues, is how we get economic growth to go sufficiently fast to deal with the debts we are going to have. We need to go back to the measures in the Finance Bill that were in the Budget relating to driving up research and development spend, and to driving up spending on education and skills. They will be critical.
The local points I wanted to raise have been raised several times in the debate already. They relate to the use of the rates system to qualify for grants. have a number of serviced offices and business parks, such as Vantage Point at Mitcheldean and the Newent business park, where individual tenants have rates rolled up into their rent. Because they are not ratepayers, they are not eligible for any of the grants that the Government are using to assist businesses in trouble. I urge the Minister to see whether there is a way that those small businesses can be helped with the valuable grants that have been raised.
My final point is again about the use of the rates system, with the £51,000 rate cut-off, which has already been mentioned in this debate. It means that some businesses in my constituency, particularly those in the leisure and tourism sector, find they are not eligible for any of the help that the Government have delivered, because there is a hard edge at that £51,000 cut-off. As others have said, if that could be tapered, it would be incredibly valuable and welcome. With those national and local points, I pay tribute to all those who have made this virtual sitting possible. It is fantastic to have been able to participate in this debate in the House from my Forest of Dean constituency.
Mr Deputy Speaker (Mr Nigel Evans)
Order. To finish at 10 past nine, I call Ian Byrne.
Ian Byrne (Liverpool, West Derby) (Lab) [V]
Thank you, Mr Deputy Speaker. At times of crisis, we come together. I have been inspired by the generosity and everyday solidarity of my own community in Liverpool, West Derby: mutual aid groups, initiatives to tackle social isolation, the distribution of food to the vulnerable, and community PPE production lines set up to supply frontline workers who have been left unprotected by the failings of the Government’s response. The coronavirus has at the same time kept us apart and brought us together.
But a crisis also shakes the foundations of the status quo. It poses questions about how our economy is run and who it is run for. When the Government released their list of key workers, it was a long-overdue recognition of the people who really keep our country moving: not the corporate executives or the hedge fund managers, but the nurses, the cleaners, the porters, the posties, the transport workers, the shop workers and so many more—the working class in all its diversity.
Just weeks earlier, many of those same workers were being labelled low-skilled by the Home Secretary. That goes right to the heart of the problem, because when the Government say low skilled, what they really mean is low paid or underpaid. Indeed, the Resolution Foundation highlighted that 61% of English care workers are paid below the real living wage. The way work is rewarded in this country is completely detached from the social value that it creates. We overvalue those at the top and we undervalue those at the bottom.
While I do not want to put a dampener on the collective appreciation when our nation comes together every Thursday to applaud our key workers, that applause will ring hollow if we do not also give those same workers the PPE, the testing and then the pay rise that they deserve. This crisis shows that the real wealth creators are those at the base of society, not those at the top.
That fundamental truth has to be central to the debate about where the burden of this crisis should fall. Working-class people were forced to pick up the bill for the last crisis through austerity. The choice was made, following the last crisis, to have the most sustained funding squeeze in NHS history. The choice was made, following the last crisis, to make cuts to social care, with more than £7 billion cut from council budgets. The choice was made following the last crisis to let emergency stockpiles of PPE dwindle and go out of date. Those damaging and short-sighted choices crippled our ability to respond to the situation we find ourselves in, as pandemic planning became just another casualty of austerity.
Once again, the Government have a choice to make. This time they must learn from their mistakes and not follow the bankrupted doctrine of austerity or the words of its architect, George Osborne, who continues to promote it despite witnessing the dire consequences of his actions during this crisis.
Never again can the consequences of a crisis be heaped on those least able to bear it. We know that extreme wealth in this country is accumulated by taking rather than making. Indeed, the TUC recently highlighted that some hedge funds are raking in billions as a result of this crisis, while careworkers, who are putting their lives on the line, can barely scrape by.
This time, instead of squeezing wages for those at the bottom, we should ensure that those at the top pay their fair share. Instead of cutting funding for our vital public services, we should restore them to properly funded, publicly owned institutions that we can all be proud of. Instead of bailing out corporate tax dodgers and big polluters, we should prioritise people and communities. If we want appreciation for our key workers to be more than just empty gestures, let us take this opportunity to restructure our economy so that it works in their interests. In other words, let us build a society that works for many, not the few.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
I would like to begin by thanking all the staff who have worked so hard to put arrangements in place so that parliamentary scrutiny can continue. I would also like to extend my thanks for the efforts made by key workers across the country, for which all of us in this House are grateful.
We have had a good debate today in what are difficult and unusual circumstances. My hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) made a passionate appeal for the Government to avoid the mistakes of the last decade, highlighting the pressures faced by local councils, as did my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), who underlined the real challenges we face around housing, with far too many families forced to live in overcrowded and cramped conditions.
My right hon. Friend the Member for Warley (John Spellar) was right to emphasise the importance of businesses and trade unions working closely together at this time and the tremendous work of the TUC, particularly in recent weeks. I hope the Minister will take heed of the point my right hon. Friend made about the role for Government in stimulating demand as we emerge from this crisis.
My hon. Friend the Member for Huddersfield (Mr Sheerman) is a tireless campaigner for children and young people, and he used his speech to press for greater opportunities for them, following this difficult time for so many families. My hon. Friends the Members for Nottingham South (Lilian Greenwood) and for Leeds East (Richard Burgon) called on the Government to look carefully at gaps in existing provision and the urgent need for a social security system that properly supports families through this crisis and beyond. My hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) also picked up that point, reminding us that far too many children—including those in working families—are already growing up in poverty.
We heard a great number of speeches from Members on both sides of the House highlighting the acute pressures faced by businesses. My hon. Friends the Members for Cardiff South and Penarth (Stephen Doughty), for Gower (Tonia Antoniazzi) and for Islwyn (Chris Evans) emphasised the real difficulties in accessing lending for business, but they were also clear about the additional support that the Labour Government in Wales are providing at this time of crisis.
My hon. Friends the Members for Birmingham, Ladywood (Shabana Mahmood) and for Liverpool, Riverside (Kim Johnson) stressed just how difficult it is for many firms—especially small businesses—to access the cash that they need to stay afloat. In Committee, I hope we will be able to discuss in more detail the concerns that my hon. Friend the Member for Birmingham, Ladywood rightly raised about the inadequacies of the proposed digital services tax.
My hon. Friend the Member for Poplar and Limehouse (Apsana Begum) drew our attention to the disproportionate impact of coronavirus on black and minority ethnic communities, which will only serve to exacerbate the existing social and economic injustice that those communities face. We heard from my hon. Friend the Member for Jarrow (Kate Osborne) about pre-existing regional inequality and the fact that the Government must do all they can to limit unemployment in areas such as the north-east, where the current level is already too high. Finally, the speech that we just heard from my hon. Friend the Member for Liverpool, West Derby (Ian Byrne) reminded us all of the debt that we owe to our incredible key workers.
Those contributions highlighted the scale of the challenge that our country faces today and the responsibility that the Government have to ensure that we as a country can overcome them. That is why the Opposition have sought to take a constructive approach at this time of national crisis, encouraging the best possible response from Government and pressing for the support announced to work effectively.
That brings us to the context of the Bill—whether it does enough to help those at the sharp end of the current crisis, to put our tax system on a fairer and more progressive footing and to shape our economy for the rather different world of the future. The changed circumstances and the new personnel on the Government Front Bench should not fool any of us about where this Budget comes from or which party is responsible for the underlying weaknesses in the shape and nature of the economy going into this crisis. The Conservative party has now been in power for 10 years. The inadequacies of our tax system and of our society, and the structural weaknesses in our economy, are its responsibility.
Labour’s economic priorities for the current crisis are straightforward, as the shadow Chancellor, my hon. Friend the Member for Oxford East (Anneliese Dodds), set out again today. We want to keep people in work, and the schemes that the Government have laid out are welcome but need improvement, especially as circumstances change in the months ahead. We want to get cash to struggling businesses, and we are concerned that, as we have heard today, too many firms are not getting the support that they need. We want to make our social security system sufficient to provide proper support to families, because we know that for too many it simply is not enough—and the current crisis is making things worse, not better.
The Budget focuses on maintaining the status quo and delivering limited reforms, rather than the ambitious reforms that we need. The Institute for Fiscal Studies has said that the tax measures announced in last month’s Budget look
“piecemeal…it is not clear they are part of any long term thought through strategy.”
The dire forecasts made by the Office for Budget Responsibility about the state of public finances owing to the covid-19 outbreak show how grave the challenge is likely to be, and they have already rendered the predictions included in the Budget out of date.
Our concern is that the Bill, even in a time of national crisis, is not enough. It is not enough to solve the immediate financial and economic problems that the covid-19 outbreak presents. It is not enough to solve the searing inequalities in our country, inflicted by 10 years of Conservative government. We need a more ambitious approach to making our tax system fairer and building a society and economy fit for the future—an approach that recognises that the consequences of covid-19 and the lockdown are being felt most by those who can ill afford it: those on low pay, those with insecure employment and those who face additional costs to access public services.
Too many of the people on whom our country’s response to the virus depends have seen their true worth to our society ignored for far too long. Too many are today among the poorest in our society and risk being the worst-affected by the coming recession. Others, such as those joining the labour market for the first time and lower earners, are likely to feel the impact for years to come.
We accept that much of the Bill was drawn up before the current pandemic, and we know that Ministers do not have a crystal ball with which to make policy, but they must know, as the country knows, that the Bill was an inadequate starting point even when it was drafted and that it fails to respond to the deep-seated problems of our country. Far more needs to be done to clamp down on tax avoidance, individual and corporate, which deprives our public services of the funding that they need, but there is little in the Bill to suggest that the Government have the appetite for pursuing that at the scale that is needed.
It is welcome that the Government maintain corporation tax at 19%, rather than cutting it to 17% as initially planned. Perhaps that suggests that Ministers have accepted the arguments made by many Opposition Members for many years that whittling down the rate, which is already among the lowest in the G20, is not the best approach. It has not given us a productivity miracle. It has not tempted companies to set up shop here on a scale adequate to balance the flow of companies moving away as a result of Brexit. What it has given us is overstretched public finances and underfunded public services. Instead, we should be asking that profitable companies, especially those for which the current situation has provided an unexpected windfall, contribute more to help to provide our public services with the funding that they need.
The digital services tax is a long-overdue step to make the tech giants pay their fair share. We welcome the intent behind it, but like so much of the Bill, it does not go nearly far enough. The tax and spend trade-offs that have been forced on us by the covid-19 pandemic cannot be put off for long, and when Ministers come to these decisions, they should learn from the mistakes of the past. The Labour Government’s immediate response to the 2008 financial crisis showed the good that Government can do, but since 2010, a decade of Conservative cuts has made the economic damage from that crisis fester.
Too many in our country have seen little improvement in living standards for a decade now. The Bill, and the further fiscal measures that the Government are likely to have to bring to the House in the months to come, should be about ensuring that the burden of current costs and the benefits of the recovery to come are fairly shared across our society. This Bill is not that. It is very far from being the basis on which our country can draw a social contract fit for the future. From these Benches, we will continue to call for a better settlement for today and a better plan for tomorrow.
The Economic Secretary to the Treasury (John Glen)
It is a privilege to close this debate on behalf of the Government. This is my first opportunity to congratulate the newly appointed shadow Treasury team and to welcome the hon. Member for Houghton and Sunderland South (Bridget Phillipson) to the Dispatch Box. I also welcome the hon. Member for Oxford East (Anneliese Dodds)—I spent a lot of time with her in Committee debating Brexit matters before Christmas—to her role and welcome the constructive tone that she took in opening this debate.
In last month’s Budget, my right hon. Friend the Chancellor initiated a coherent, co-ordinated and comprehensive economic response to the challenges of covid-19. As the shocking impact of the virus around the globe has become more apparent, the Chancellor has announced further unprecedented packages of support, doing so most recently this afternoon, with the new bounce-back loan scheme and refinements to make the CBIL scheme more accessible—points that I am sure my hon. Friend the Member for Wellingborough (Mr Bone) and the hon. Member for Hackney South and Shoreditch (Meg Hillier) will welcome, given what they said in their speeches. Such measures may not be to the taste of true free marketeers such as my hon. Friend the Member for Wycombe (Mr Baker), or even my right hon. Friend the Member for North Somerset (Dr Fox), but when they and my hon. Friends the Members for Yeovil (Mr Fysh) and for North East Derbyshire (Lee Rowley) welcome them, we know that such measures must be necessary.
The hon. Member for Bethnal Green and Bow (Rushanara Ali) was among those who argued that we should invest in public services to protect frontline services—and we are. The Government have allocated more than £14 billion from the covid response fund to go towards public services, including the NHS and local authorities.
I recognise that some sectors of our economy are experiencing enormous disruption. My hon. Friend the Member for Altrincham and Sale West (Sir Graham Brady) highlighted the challenges faced by the aviation sector, which is of course eligible for the coronavirus jobs retention scheme, under which the Government will pay up to 80% of staff wages up to £2,500 a month. We have offered support to households, too, by increasing the universal credit allowance by £1,000; providing meals or vouchers for eligible home-schooled children in place of free school meals; and making nearly £1 billion extra available for local housing allowance.
I acknowledge that the task is by no means complete. As my hon. Friend the Member for Broxbourne (Sir Charles Walker) eloquently argued, our wellbeing and our economy are not in competition. The Government will do whatever it takes to safeguard people’s health and livelihoods as the situation develops. We will continue to back NHS workers and those who support them on the frontline—for example, by exempting from vehicle excise duty medical courier vehicles that transport medical products and by reforming the tapered allowance so that doctors can spend more time treating patients without facing a higher tax burden.
As my hon. Friend the Member for North East Derbyshire reminded us with his reference to the 93-year wait for a bypass in his constituency, the Bill also delivers on commitments made to the British people at the general election in December. It is vital that these measures are not delayed. The Bill furthers the Government’s ambition to unleash the potential of our economy by increasing the credit rate for research and development expenditure credit and for the structures and buildings allowance—measures welcomed by my hon. Friends the Members for Meriden (Saqib Bhatti), for Stourbridge (Suzanne Webb) and for Penistone and Stocksbridge (Miriam Cates).
The digital services tax will improve the fairness and sustainability of our tax system by ensuring that digital businesses that access the UK market make a fair contribution to the Exchequer. It is anticipated to collect £2 billion in revenue. I welcome the support expressed from all parts of the House for the concept of a digital services tax, and thank the Chair of the Treasury Committee, my right hon. Friend the Member for Central Devon (Mel Stride), for his remarks on the subject. I acknowledge the work that he did on the matter while in government. I also note his reference to the need for better data on the loans scheme; the Government will address that and his letter will be responded to shortly.
The Bill reduces the tax burden on some of the most vulnerable and deserving members of our society, including the Windrush generation and victims of the troubles, for whom compensation will no longer be subject to income, inheritance or capital gains taxes. Kindertransport payments made by the German Government will no longer be subject to inheritance tax either.
This Bill helps in the Government’s efforts to move towards a greener and more sustainable economy, as mentioned by the right hon. Member for Kingston and Surbiton (Sir Edward Davey), and confirms that the CO2 emissions figures for vehicle excise duty will be based on the worldwide harmonised light vehicle test procedure for all new registered cars from 1 April 2020. In addition, zero-emission cars will no longer be subjected to the VED expensive car supplement. These measures will help to ensure that, as our economy develops and grows, it does not jeopardise our environment. I know that many of these measures will attract widespread support across the House. I thank Opposition Members for the constructive and collegiate approach that they have taken over the past few weeks. In that spirit, let me address some of the valuable points raised further in today’s debate.
The shadow Chancellor raised a number of important issues, including tax avoidance, which was also raised by the right hon. Member for Warley (John Spellar). This is a priority for the Government, and in last month’s Budget the Chancellor announced further measures, including legislation to strengthen HMRC’s existing anti-avoidance powers. The Government also plan to issue a call for evidence on the next steps to reduce or end the use of disguised remuneration schemes.
The shadow Chancellor also touched on the subject of entrepreneurs’ relief, a point echoed by my hon. Friend the Member for Weston-super-Mare (John Penrose). Most of the cost of this relief previously came from those making gains over £1 million. With such extreme gains now ineligible for this relief, we can ensure that the support is targeted where it was intended: at small businesses.
My hon. Friend the Member for Arundel and South Downs (Andrew Griffith) raised the prospect of a unified income tax and national insurance regime. The Government are indeed committed to a tax system that is simple and easy to use, which is why we created the Office of Tax Simplification in 2010 and put it on a permanent statutory basis in 2016. We have implemented more than half of the 400 recommendations that the OTS has made to date.
Tonight, this House once again has the opportunity to come together in the national interest. This Bill gives us the tools we need to mitigate the worst effects of the virus today, but it also lays the foundations that will allow our economy to return to strength in the months and years ahead. This is a Bill that will ensure that we truly have a 21st-century tax system: one that is not only competitive but fair and sustainable—a Bill that will help to deliver our commitment to zero carbon emissions by 2050, positioning the United Kingdom at the forefront of clean and sustainable future growth; a Bill that will help Britain to bounce back, levelling up investment and opportunity and putting in place the pro-enterprise policies that will ensure that this country remains one of the best places in the world to start and grow a business, a point made very eloquently in an informed speech by my hon. Friend the Member for South Cambridgeshire (Anthony Browne).
Through the action that the Government have taken, and with the support of the whole House, we will defeat this virus. We have heard speeches from the Shetlands to Central Devon, and from many constituencies in between. Everyone is committed to ensuring that the Government do everything they can to relieve the distress that our nation is now enduring. We will shepherd our country safely through this period of uncertainty and disruption. The United Kingdom will emerge from this crisis stronger, more resilient and more united than before. For all these reasons, I commend the Bill to the House.
Mr Deputy Speaker (Mr Nigel Evans)
I, too, would like to associate myself with the comments of the shadow Minister in thanking all those who have made today’s proceedings work so smoothly. Thank you very much.
Finance Bill (Ways and Means)
Tuesday 19th May 2020
(3 years, 11 months ago)
Commons ChamberRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Notices of Amendments as at 18 May 2020 - (19 May 2020)
The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That (notwithstanding anything to the contrary in the practice of the House relating to the matters that may be included in Finance Bills) provision taking effect in a future year may be made amending Chapters 8 and 10 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003.
This ways and means motion enables the Government to amend the current Finance Bill in order to implement reforms to the existing off-payroll working rules. We are presenting it separately because we wanted to extend the date at which it comes into force by one year to April 2021 in recognition of the effects of the coronavirus pandemic. The off-payroll working rules have been in place for 20 years. They are designed to ensure that people working like employees but through their own companies pay broadly the same income tax and national insurance contributions as people who are directly employed.
In April 2017, the Government reformed the way in which the rules operate in the public sector by transferring the responsibility for determining whether the rules apply from individual contractors to the public bodies that engage them. Unfortunately, in the private sector, non-compliance with these rules remains widespread, and it is forecast to cost the Exchequer over £1.3 billion a year by 2023-24 if not addressed. This is not a sustainable position. It costs the taxpayer a great deal of revenue that is needed for our public services, it perpetuates an unfairness between individuals working in the same way but paying different levels of tax, and it prolongs the disparity with the public sector, where the rules have been in place now for three years.
At Budget 2018, the Government announced that the reform would be extended to medium and large-sized organisations in the private and voluntary sectors, but it would not apply to engagements with the 1.5 million smallest businesses. It is important to be clear that this is not a new tax. The off-payroll working rules have been on the statute book since 2000. This reform is focused on improving on improving compliance with the rules that are already in place.
Let me turn to the amendment tabled by my right hon. Friend the Member for Haltemprice and Howden (Mr Davis) the hon. Member for Haltemprice and Howden. I understand that it will not be moved today, but it is important to be clear about the Government’s position on it. To help businesses and individuals deal with the economic impacts of the coronavirus, on 17 March the Government announced that the reform to the off-payroll working rules would be delayed by one year from 6 April 2020 until 6 April 2021. The amendment would delay the introduction of reform by a further two years to April 2023, but it is hard to see any genuine rationale for this further delay.
The current measure was first introduced at Budget 2018. Since then, the Government have carried out two consultations on the detail of the reform. Her Majesty’s Revenue and Customs has worked extensively to support businesses in preparing for the change. Draft legislation and guidance has been published. There was a further review earlier this year that resulted in several additional improvements. By delaying until 2021, the Government have already ensured that businesses and contractors will not need to make final preparations for this reform until next year. There is therefore no need for further delay. Moreover, such a delay would have very significant drawbacks. It would not address the intrinsic unfairness of taxing two people differently for the same work, it would extend the disparity between the private and public sectors, and it would come at a significant fiscal cost that other taxpayers up and down the country would have to make up.
I turn now to the substance of the measure. I want to address a number of further concerns that have been pressed by colleagues, including, in particular, my hon. Friends the Members for North East Bedfordshire (Richard Fuller), for Barrow and Furness (Simon Fell), for Workington (Mark Jenkinson) and for Watford (Dean Russell). The first of these is that organisations will no longer engage with personal service companies as a result of this reform, reducing the number of contracts available in the labour market. It is important to recognise that the Government are fully aware of the importance of the flexibility for individuals and businesses to agree working arrangements that suit their needs. We know that that has been one of the pillars of the success of the UK labour market in recent years.
In 2017, soon after the implementation of the public sector off-payroll working reform, the Government commissioned independent research to assess its effect on the labour market. It found that the Government and independent researchers had not seen any evidence of an overall change in the demand for the services and skills of contractors.
Some organisations have clearly decided to change the balance of their employees and their contractors. That can be for many reasons—for example, where that better suits the evolving business model of that organisation—but many organisations will still choose to engage contractors using personal service companies where that is appropriate to their business.
Nevertheless, the Government remain keen to ensure the long-term flexibility and success of the labour market. We will therefore use the additional time given by this one-year delay to commission further independent and robust research into the long-term effects of the 2017 reform on the public sector. We want that research to be available before the reform comes into effect in other sectors in April 2021, and I can tell the House that the Government will give careful consideration to the results of that further research and thereafter will continue to monitor the effect of the reform on the labour markets of those sectors, including by commissioning independent research six months after this private and voluntary sector reform has taken effect.
Secondly, colleagues have concerns that organisations might take a blanket approach to status determinations, categorising all engagements as employment, regardless of the facts. The Government have been very clear that determinations must be based on an individual’s contractual terms and actual working arrangements. Many businesses and public sector organisations have described processes that they have put in place to ensure that determinations are correct, based on the actual working practices of the individuals concerned. There is a vigorous contractor lobby, which has also shown itself willing and able to highlight cases where it feels that the rules are not being followed. The reforms themselves include a client-led status disagreement process, where contractors can lodge a complaint if they disagree with how they have been categorised.
Thirdly, HMRC is continuing to help businesses to get their employment status determinations right by ensuring that they have access to a wide programme of education and support. The independent research that we are announcing post-implementation next year will also evaluate from an external perspective whether decisions are being made properly.
Finally, HMRC has committed to a light-touch approach to penalties in the first year of the reform and has stated in terms that the reform will not result in new compliance checks being opened into previous tax years unless there is reason to suppose or suspect fraud or criminal behaviour, and the same is true for penalties for inaccuracies.
The Government very much value the important role that contractors play in the labour market and want businesses to be able to design their workforces in a way that makes sense for them. That should not mean, however, that contractors pay less tax than employees where their engagement meets the test of an employment relationship. The legislation is designed to remedy that unfairness and to support the tax base needed to fund our public services, and I commend it to the House.
Madam Deputy Speaker (Dame Rosie Winterton)
I now call Dan Carden, shadow Minister, who is asked to speak for no more than five minutes.
Dan Carden (Liverpool, Walton) (Lab) [V]
I am delighted to contribute to this debate as shadow Financial Secretary. May I start by acknowledging the significant interest and the strong feelings of people across the country on this issue? We are considering a technical change to our tax system, reforming compliance on IR35 rules for the private sector, but for many people watching us, there is genuine concern that this technical change—this attempt to strengthen the system against tax avoidance—may affect their incomes and their livelihoods. I and the Labour party approach this matter with the seriousness and the consideration that it merits.
The ambition of IR35 rules and the associated difficulties have been a long-running saga over three decades, and it is a near impossible task to do the issue justice in the five minutes I have to contribute today.
Provisions were introduced by the last Labour Government in 2000 for HMRC to investigate and identify the relationship between businesses and contractors and to ensure that, where individuals actually perform the role of employees, they were contracted as such, to pay the correct tax and benefit from the correct employment protections, two issues that remain at the heart of the difficulty around IR35.
The nature of today’s economy, with the weakening of workers’ rights and employment protections and with zero-hours contracts, demands a radical overhaul. We need a progressive tax system, and we need to rebalance the relationship between those at the top and those at the bottom. In the meantime, what we have are piecemeal attempts to stop some, perhaps the more blatant, tax avoidance arrangements utilised by some companies. The challenge for tax authorities and for us is to understand, and differentiate between, fair and correct contractual relationships for the genuinely self-employed who are providing a crucial service to business and those who are all too often forced into bogus self-employment by unscrupulous employers, a practice that has become all too common and is designed to cheat the tax system and to deprive working people of their rights and even their entitlement to a minimum wage and fair pay. HMRC estimates such bogus self-employment schemes cost around £3 billion a year in lost tax revenue, and the February 2020 Treasury review put the cost of non-compliance with IR35 at £1.3 billion a year by 2023-24.
Having taken effect in the public sector in April 2017, these measures were initially meant to be rolled out to the private sector last month, but that is being delayed by a year due to the current pandemic, and the Labour party broadly supports the decision to delay. We have raised concerns about the implementation of this reform and have called for a proper and thorough review before the roll-out to the private sector, and, as the Financial Secretary recognised, the additional time now available gives him an opportunity to get to grips with these concerns, but we do need reform.
The Labour party is committed to modernising the law around employment status, including new statutory definitions of employment status, and the Government’s own Taylor review was right to conclude that the nature of the tax system acts as an incentive for practices such as bogus claiming of self-employed status, both by businesses and individuals. It called on the Government to make the taxation of labour more consistent across employment forms while at the same time improving the rights and entitlements of self-employed people. I would also add—as we consider these changes in the midst of the coronavirus pandemic that has forced 2 million people on to universal credit and millions to rely on the Government’s furlough scheme, unsure of their future—that we need a social security system fit for the modern era that can protect all of our people in one of the wealthiest countries on the planet.
I would just like to finish with a few points that I hope the Financial Secretary can respond to when he winds up. Can he explain how reforms will only affect people working like employees through a company, and does he agree that there can be no space in our economy for zero rights employment? Will he respond to concerns most recently set out by the House of Lords Economic Affairs Finance Bill Sub-Committee that lessons have not been learned from the roll-out to the public sector, and will he look again at serious problems highlighted with the “check employment status for tax” online tool?
We need a joined-up approach in the consideration of tax regulations and employment law. We need better protections for the self-employed, and we need to tackle tax avoidance, and the Labour party will work constructively to achieve that end.
Madam Deputy Speaker (Dame Rosie Winterton)
I now call David Davis, who is asked to speak for no more than four minutes.
Mr David Davis (Haltemprice and Howden) (Con)
In the light of the impact that coronavirus is having across all sectors of the economy, the Government have rightly committed, in the motion, to postponing the planned reforms to IR35, but only until next April. The effects of the pandemic are going to be felt for considerably longer than one year. On this basis, in April next year self-employed contractors will be hit with unnecessary costs, confusion and uncertainty, just as many of them are getting back on their feet after the coronavirus has wreaked havoc across the economy. It is the self-employed and small businesses that make up the beating heart of our economy, and they will power the recovery of our economy out of this crisis.
The IR35 rules, as the Minister said, have long applied to the public sector. This is about applying them across the private sector. In that light, they were studied by the House of Lords Economic Affairs Committee in a report referred to by the shadow Financial Secretary to the Treasury. The report stated that the rules
“have never worked satisfactorily, throughout the whole of their 20-year history. We therefore conclude that this framework is flawed.”
The report found a system riddled with unfairness and unintended consequences and called for a wide-scale independent review—not just a few research reports, Financial Secretary—focused on how the reforms would affect the wider labour market and the costs that would be forced on businesses. The Lords Committee said that IR35 had the effect of reducing contractors to
“an undesirable ‘halfway house’: they do not enjoy the rights that come with employment, yet they are considerably employees for tax purposes. In short, they are ‘zero-rights employees’”.
That is, zero-rights employees effectively created by the state.
The Lords recommended that the Government adopt the Taylor review proposals, which we as a Government promised to do years ago, as they offer the best long-term alternative solution to the off-payroll rules and provide an opportunity to consider tax, rights and risk together, as they should be. Despite what the Financial Secretary said, however, the Treasury has neither the time nor the capacity for a wholesale review right now. Therefore, the only sensible course of action is to pause these reforms and take the time to properly review the impact they will have on the self-employed. So, I will vote for this motion today, if we have the opportunity, but only in the expectation that will be back here in nine months’ time to do all this again.
Madam Deputy Speaker (Dame Rosie Winterton)
I call Alison Thewliss, who is asked to speak for no more than five minutes.
Alison Thewliss (Glasgow Central) (SNP)
It is a strange day indeed when I end up agreeing with the House of Lords and the right hon. Member for Haltemprice and Howden (Mr Davis), but I very much support a review, as does the SNP, as we had this in our manifesto. Concerns about IR35 have been well raised by myself, my colleagues and colleagues of all parties. I mention in particular my predecessor in this role, my hon. Friend the Member for Aberdeen North (Kirsty Blackman), who in 2018 raised the impact on rural communities where teachers, doctors and nurses may be employed through intermediaries. My hon. Friends the Members for Aberdeen South (Stephen Flynn) and for Gordon (Richard Thomson) and the hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie) have also raised concerns about the impact of these reforms on people working in the oil and gas industry, which is also under significant pressure at this time.
In my constituency, many people working in IT are already finding that their contracts are not being renewed. This is having an impact on their industry because of the ongoing uncertainty with this policy. I should also like to mention the possibility of an equality impact assessment. Many of those people have come here to work from other countries because of their expertise, and if they are not able to work, that could have an impact on their immigration status and their ability to stay in this country, where they have made their home. I ask the Minister to consider that.
The House of Lords Economic Affairs Committee has set out very well the issues with IR35. Its report states that the Government should reassess the flawed IR35 framework and give serious consideration to the fairer alternatives to the off-payroll working rules. The report sets out a number of options that the Government may wish to pick up. In the Chancellor’s earlier statements on support for self-employed people, he hinted about the support the Government are offering to some of them—not all of them; there are still big gaps in the scheme—but there is an inconsistency in contributions between the self-employed and the employed, with a bit of uncertainty as to what exactly that means when we come out of coronavirus. What will people be expected to contribute? Any clarity that the Government can give on this would be extremely useful. The House of Lords also makes it clear in no uncertain terms that IR35 is not a good base to build on. Yes, it has been in place for 20 years, but for 20 years it has been plagued with these types of problems and by bolting more on to it and trying to reform it, the Government are building a house on the sand. We cannot rely on that house standing any longer.
The Taylor review that the Government carried out made it very clear that there are options open to the Government. The Financial Secretary spoke of reviews past and reviews yet to come, but there is a real lack of proper assessment and understanding of the impact this has already had in the public sector and there is a need to understand how this will work fully when it comes to the private sector. Further, the House of Lords Committee points out that shifting responsibility on to business for a scheme that is not fit for purpose is the Government and HMRC ducking a degree of responsibility.
I want to raise this with the Minister because we, and many in the industry, have concerns about the future of contracting because we do not know what the impact will be. As I have said, this ongoing uncertainty has led to people not having their contracts renewed. A deferral for a year gives the Government and HMRC some time, but they must use it wisely. Although some research has been carried out already, other people have looked at this and the industry understands what they need and what the norm is in their sectors, the outcome is still very unclear. The Government have said that they will use this year, but can the Financial Secretary say when that review will be completed and when it will actually be available for people to see and reflect on? Coming to this in nine months’ time will be too late for lots of people to make those changes; it needs to be much sooner than that. If the Government can say categorically that it will be six months, that is different—it provides a bit more time—but I am not quite convinced yet that the Government know what they want from this and what they are going to achieve.
Overwhelmingly, we are concerned about employment rights. I have seen from my casework, as we all have, people who are uncertain about what they are able to do, what their rights are, and what they are obliged to do by their contracts and by their employers. I think the Government need to reflect carefully on the situation that many have ended up in during the period of coronavirus, when some people have very little at all on which to survive.
Madam Deputy Speaker (Dame Rosie Winterton)
The time limit for speeches is four minutes, and I advise hon. Members who are speaking virtually to have a timing device visible.
Rushanara Ali (Bethnal Green and Bow) (Lab)
Self-employment is a vital part of our economy. People who are genuinely self-employed deserve to be properly supported while ensuring that everyone pays the right amount of tax. While we welcome the extension to 2021, it is crucial that we ensure that there is levelling up and protection of people’s rights, whether they are in the public or the private sector. That is why a joined-up approach is required in bringing together consideration of tax and employment law and protection for the self- employed.
I want to turn to my wider concerns about the Finance Bill. With every passing day, it is clear that we are entering a severe recession, which is going to lead to more poverty, inequality and greater unemployment if the Government are not bold in their response. The Office for Budgetary Responsibility has already said that the economy could shrink by 35%, with unemployment soaring to 2 million. Youth unemployment is likely to reach 1 million, with an additional 640,000 young people being made unemployed. We desperately need to support them so that they have hope for the future and we do not lose another generation. They need job guarantees, training, and mentoring and support from wider society.
We also need to make sure in relation to the Finance Bill—it could do so much more, given that it was conceived before the crisis—that Ministers look at the areas where the Government’s programmes following covid do not go far enough, leaving many out. The first is the job retention scheme, and while I welcome the extension to October, many employers are not clear about what their contribution to the furloughed salaries needs to be. That needs to be clarified, and I hope the Minister will do that. Research by the New Starter Justice campaign has found that 83% of its members received no universal credit for April. How do the Government expect them to survive for eight months with no income or welfare? Those in the hospitality sector also face huge challenges because they do not qualify for support. Between 350,000 and 500,000 remain unable to be furloughed, despite the extension of the job retention scheme.
When the Chief Secretary to the Treasury was asked about those issues at the Treasury Committee, he talked about “trade-offs” and “hard edges” to avoid the risk of fraud, but these are not people who are committing fraud. These are hard-working people—hundreds of thousands of them—who are getting no support from this Government. That is wrong, and it must be corrected. I hope the Minister will say something about that, because they desperately need our support.
The Institute for Fiscal Studies estimates that 2 million freelancers in sectors such as arts and entertainment and the creative industries who have some self-employment income are not covered by the scheme, while 675,000 people who get over half their income from self-employment will not be covered. The Government need to act to help them.
Finally, limited company directors are also left out. Local government need support from the Government. Only £3.2 billion of emergency funding has been provided, and yet there is a shortfall of £10 billion. They desperately need the Government to act now, so that they can cope with the crisis. My local authority has lost £35 million of income and will have to spend an extra £25 million to address the coronavirus crisis. The Government need to make sure that they are prepared for tough times. The Bill does not do that, and this particular change does not address the bigger crisis that is looming ahead of us.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
I think it is fair to say that covid-19 has shone a light on the different ways of working. Whether it be freelance work through personal service companies, which are often set up to deal with insurance and liability, or freelance work via short-term pay-as-you-earn contracts, many of these people are falling through the net. That does not even begin to embrace those who are in insecure, zero-hours work. Many in my constituency work four jobs over seven days just to make ends meet, while others earn enough to work a four-day week and can live quite comfortably.
Hackney South and Shoreditch is a microcosm of all the different ways of working, some of which the Chancellor has supported in his package, and some of which he has not. It is also a hub of innovation, particularly in the tech area in Shoreditch, in the creative industries. We are proud to be the home of many disruptor businesses that start off trying to change the way things work.
This motion brings to the fore a number of issues. Contractors providing a flexible, agile workforce allow many of the businesses in my constituency to buy in the skills they need when they need them. Those are typically high-cost skills that a business could not put on the payroll, especially at the start-up stage. Businesses have been in touch with me about this measure for that reason in particular. They would not be able to create a full-time job. They do not need this expertise full time, long term on the payroll. They need to be able to hire someone quickly, and if the company does not succeed, there is no direct impact on the careers of the people they have hired for that short contract because they go on to the next contract. It allows start-ups to get the help, support and technical skills they need as a fledgling business.
Since the Government announced the extension of IR35 to the private sector, many companies in my constituency have already taken the view that they need to move overseas, and many of the individual contractors are moving overseas. They often work in different countries anyway, so where they are physically based is less of an issue than it may seem.
Many of the companies that are employing those contractors are taking a very risk-averse approach, designating all contractors as needing to go under the IR35 umbrella. That is having a negative impact on those technically skilled individuals who would be available for work but will end up being employed for tax purposes only, with none of the perks. In pursuing the national insurance contributions of employers, the Government are in danger of throwing out the baby with the bathwater. No one wants to see tax avoidance on a huge scale, but this system has grown up and helped to generate a whole business sector that relies on this flexibility, and the employees caught up in this will have none of the benefits of employees but will be working alongside people who do.
The issue of national insurance contributions is really important in terms of the Government’s review. We need to know exactly what the timetable is for that review, who will do it and how they will calculate the tax take. Many businesses are presented with evidence, which I am happy to share with the Minister, about why the tax take will not actually increase for HMRC by going down this route. It is really important that we get those fundamental numbers right. Is the research commissioned yet? How will be people be able to contribute, and will it look at the overall tax rate? The delay of a year is welcome, but I completely agree with the right hon. Member for Haltemprice and Howden (Mr Davis) that we are going into an economic contraction, the likes of which this this country has never seen before, and a year is not long enough. We need to delay this further or we will lose these skills, and businesses will not replace these roles as employees, so we will have a double whammy in the economy.
Sir Edward Davey (Kingston and Surbiton) (LD) [V]
I am beginning to fear that this Government do not understand the self-employed. I fear that, yes, because of the IR35 proposals in front of us, but also because of the loan charge and the way that a large group of the self-employed have been kept out of the support programmes during the coronavirus crisis—I am talking about the people who are newly self-employed and the people whose self-employment operates through a limited company, all of whom have had no help. I am afraid that the evidence is mounting up. That is why there should be a review, not just of IR35, but of how self-employment is viewed—the way we tax it and the benefits that people get—so that we can get a proper balance, rather than the piecemeal approach that we have.
I am really struck by the Government’s approach, which is, as the right hon. Member for Haltemprice and Howden (Mr Davis) said, creating zero-rights employment —employees without employment rights. That is not acceptable and it is why there needs to be a review before this goes any further. I had expected a review because the former Chancellor of the Exchequer said so during the last general election campaign. On Paul Lewis’s “Money Box” programme on BBC Radio 4, he made it clear, and he tweeted afterwards that there would be a review of IR35, but there has not been a review. The Liberal Democrats argued for one in the election, as did others, but there has been no such review. That is a breach of a promise to people, which has made them very angry.
The Minister today is promising a review once the legislation is on the statute book. That is not a review—that is trying to make good once the stable door has closed. Any review must take place ahead of any legislation, if it is to be done in good faith. I am afraid that the way that the Government are treating the self-employed, breaking their promise at the election and now proposing to have a review after the legislation is in place is a breach of good faith to the 5 million self-employed people in our country. That is just not acceptable.
On the details of IR35 in front of us, the Treasury Minister talked about the fact that the measures were trialled in the public sector before the private sector. He seems to think that this can therefore be taken straight across, but that is not real life. The public sector, its HR and payroll look at risks such as tax liabilities in a very different way from the private sector, and I would have thought that he would know that. Therefore, I do not think we can draw the conclusions that he is trying to draw. I am afraid that the evidence, even ahead of this legislation as people were preparing it, expecting it to come in this April, shows that the private sector takes a very different approach. That is why lots of people have ended up going abroad and why the Treasury will lose money as a result of this proposal.
That is my final point. The Treasury Minister trots out the idea that there is a lot of tax avoidance and that this measure closes those loopholes. He should think again, because there are benefits that people are forgoing. I think that this will end up costing the taxpayer and the country, and it will mean that there is less money for our public services if the measure goes through. It is the wrong measure at the wrong time. The Government should withdraw it, review and proceed in a wholesale—not this piecemeal—way.
Rachel Hopkins (Luton South) (Lab) [V]
The covid-19 crisis has had a dramatic impact on the UK’s economy. A small state, low taxes and pure free market economics have failed to prepare the UK for the public health crisis and the ever-present climate emergency.
The public health crisis has forced the Government to postpone this failed style of governance, in favour of an interventionist, corporate welfare policy, aimed at protecting the needs of capital, with the hope that benefits will trickle down to workers through business-first schemes. The post-covid-19 economy must have fair taxation and strong workers’ rights at its centre. Self-employed workers will be pivotal in our economic rebuild, and people who are genuinely self-employed deserve fair support while also paying their taxes.
The Opposition are fundamentally committed to promoting and advancing workers’ rights, so we are deeply concerned that IR35 reduces the rights of the worker and the responsibilities of the employer. It is essential that, during the review of IR35, the Government recognise the overlap between employment law and tax status, and do not see them as exclusive entities. An initial recognition of their interrelation provides the basis for levelling up self-employment protection and ending forms of self-employment that are used as cover for tax avoidance.
I am aware that some workers are forced into self-employment by employers trying to cut costs and reduce their obligations. That was directly referenced by the Taylor review, which stated, based on evidence submitted to it, that
“the nature of the tax system acts as an incentive for practices such as bogus claiming of self-employed status, by both businesses or individuals.”
This highlights the importance of not assessing tax law in isolation. A joined-up approach that brings together tax and employment law can ensure that everyone pays their fair share of tax and that no one is exploited by holes in the system. It is vital that the Government recognise the relationship between poor employment practice, exploitative working arrangements and the tax system. Do the Government intend to introduce any additional measures to tackle the enablers of tax avoidance schemes, including those who exploit gaps relating to tax and employment law?
The precarious nature of certain forms of self-employment has made it difficult for many to access the coronavirus self-employment income support scheme. A large number of my constituents, including those working in the creative industries, cannot access SEISS as they receive less than 50% of their income from self-employment. Will the Minister consider introducing additional support that can be offered to those who receive less than half their income from self-employment, and who may also have been using short-term pay-as-you-earn contracts?
The covid-19 crisis has created a critical juncture in our country’s economy. I urge the Government to ingrain workers’ rights and fair taxation into the post-covid economy.
Jesse Norman
I thank all Members who have contributed to this brief but very lively debate. I thank the hon. Member for Liverpool, Walton (Dan Carden) and the Labour party for their support for this measure and their agreement not merely to the substance of the proposal but to the need for a delay. I think that is absolutely right. They should be congratulated on their bipartisan approach to this important public issue. The hon. Gentleman mentioned the Taylor review, which was picked up by several other Members. The Government whole- heartedly agree: the Taylor review made 53 recommendations, the vast majority of which we accepted, and several have already been put in place.
I covered the question of a delay in my speech. I encourage all Members who would like a further delay to reflect on the points that I made about the intrinsic unfairness of taxing two people differently for the same work, the disparity that it would continue between the private and public sectors, and the significant fiscal cost that would be involved in doing so.
The hon. Member for Glasgow Central (Alison Thewliss) spoke of a review. She should be perfectly clear that I have at no point discussed a further review. We had a review earlier this year, contrary to what the right hon. Member for Kingston and Surbiton (Sir Edward Davey) said. It was a perfectly good-faith discharge of a commitment made during the general election. It involved a wide range of parties discussing how the reforms could be effectively implemented, and several important changes were made as a result of it. Of course, it followed two processes of consultation, draft legislation and a full pre-legislative history.
We are not talking about a further review. We are talking about two pieces of research. The first, later in the year to come before April 2021, will look at the long-term effects on the public sector. It is entirely appropriate to look at the public sector reform, because that is the major case in which the reform has been put in place, and it has led to a significant improvement in the fiscal position relative to those involved and that is all to the good from the taxpayer standpoint. The second piece of research, which I mentioned earlier, will come at the end, after the reform has been introduced. It will be an early take on the effects on the private sector in the first six to 12 months of its introduction.
The hon. Member for Bethnal Green and Bow (Rushanara Ali) raised the issue of whether we could not go further. The Government have gone much, much further. We have essentially had three Budgets already this year, given the astonishing measures that have been taken by the Treasury and across Government to support businesses, people and families during the coronavirus crisis. This resolution and the Finance Bill are designed to bring into law the Budget that we had in March, and that is what they do.
Finally, I remind the House that the measure will not merely improve the fairness and equity of the system, but allow us to fund our public services better—the services on which all of us, across parties and across the country, deeply rely.
Madam Deputy Speaker (Dame Rosie Winterton)
I announced to the House earlier this afternoon the provisional determination that a remote Division would not take place on the Question now before the House. That is also Mr Speaker’s final determination.
Question put and agreed to.
Resolved,
That (notwithstanding anything to the contrary in the practice of the House relating to the matters that may be included in Finance Bills) provision taking effect in a future year may be made amending Chapters 8 and 10 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003.
Finance Bill (First sitting)
Thursday 4th June 2020
(3 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 4 June 2020 - (4 Jun 2020)
The Committee divided: - Ayes: 5 / Noes: 10 - Question accordingly negatived.
The Chair
Before we begin, I have a few preliminary announcements. I do not mind how you refer to me, but if you want me to call you, make sure I know that you wish to speak.
This is the first meeting of a Public Bill Committee since March. Members will understand that we need to respect social distancing guidance. I shall intervene, if necessary, to remind everyone.
Members may remove their jackets if they wish. I remind Members that tea and coffee are not permitted in Committee sittings. Please will all Members ensure that their mobile phones are turned off or switched to silent running during our meetings? The selection list, which is on the desks, shows how the amendments selected for debate have been grouped together. Please note that decisions on amendments are taken not in the order in which they are debated, but in the order in which they appear on the amendment paper. The Hansard reporters would be very grateful if Members emailed their speaking notes to hansardnotes@parliament.uk.
I ask the Minister to move the programme motion in the terms agreed by the Programming Sub-Committee.
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 11.30am on Thursday 4 June) meet—
(a) at 2.00pm on Thursday 4 June;
(b) at 9.25am and 2.00pm on Tuesday 9 June;
(c) at 1.30 and 2.00pm on Thursday 11 June;
(d) at 9.25am and 2.00pm on Tuesday 16 June;
(e) at 11.30 and 2.00pm on Thursday 18 June;
(f) at 9.25am and 2.00pm on Tuesday 23 June;
(g) at 11.30 and 2.00pm on Thursday 25 June;
(2) the proceedings shall be taken in the following order: Clauses 1 to 15; Schedule 1; Clauses 16 to 22; Schedule 2; Clauses 23 and 24; Schedule 3; Clauses 25 to 29; Schedule 4; Clauses 30 and 31; Schedule 5; Clauses 32 and 33; Schedule 6; Clauses 34 to 55; Schedule 7; Clauses 56 to 65; Schedule 8; Clauses 66 to 69; Schedule 9; Clauses 70 to 86; Schedule 10; Clauses 87 to 92; Schedule 11; Clauses 93 to 97; Schedule 12; Clause 98; Schedule 13; Clause 99; Schedule 14; Clauses 100 to 105; new Clauses; new Schedules; remaining proceedings on the Bill;
(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00pm on Thursday 25 June.—(Jesse Norman.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Jesse Norman.)
Clause 1
Income tax charge for tax year 2020-21
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 5, in clause 2, page 1, line 10, at end insert—
“(2) The Government must lay before Parliament a review of the impact of the rates of income tax for 2020-21 within six months of Royal Assent, which must consider the following issues—
(a) the effect on taxation revenue of maintaining income tax rates for 2020-2021; and
(b) the effect of income tax rates for 2020-2021 on annual income for the following:
(i) Households below average income, and
(ii) High-net worth individuals as defined by HMRC.”
This amendment would require the Government to assess the impact of the income tax rates in the Bill on tax revenues and on households and individuals of different income levels.
Clauses 2 to 4 stand part.
The Financial Secretary to the Treasury (Jesse Norman)
I am delighted to see you in the Chair, Ms McDonagh. I welcome all colleagues and thank them very much for their commitment to this important Bill and this important process. Ms McDonagh, you and our colleagues will be aware that we are scheduled to have seven sets of sittings to give every aspect of the Bill thorough examination. It will be a pleasure to serve on this Bill Committee with colleagues under your chairmanship. It is my first Bill as Financial Secretary to the Treasury, and I hope it will not be my last.
Let me begin by speaking to clauses 1 to 4, which legislate for income tax—the main default and savings rates of income tax, and the starting rate for savings for 2020-21. I shall also speak to amendment 5 to clause 2, tabled by the Labour party.
Clause 1 legislates for the income tax charge for this year, 2020-21. Income tax, as the Committee knows, is one of the most important streams of revenue for the Government, raising more than £190 billion in 2018-19. The clause is put into legislation annually in the Finance Bill. It is essential, because it allows income tax to be collected, so that it can fund the vital public services on which we all rely.
Clauses 2 and 3 set the main default and savings rates of income tax for 2020-21. These clauses, too, are put into legislation annually in the Finance Bill. Clause 2 ensures that for England and Northern Ireland, the main rates of income tax continue to be 20% for the basic rate, 40% for the higher rate and 45% for the additional rate. Clause 3 sets the basic, higher and additional rates of default and savings rates of income tax at 20%, 40% and 45% respectively for the whole of the UK.
I want to consider Labour’s amendment 5 to clause 2, which is in the name of the hon. Member for Houghton and Sunderland South. It would require the Government to review the impact of 2020-21 income tax rates on tax revenues, and both on households with below average incomes, and on high net worth individuals, as defined by Her Majesty’s Revenue and Customs. As the Committee will be aware, the Government already publish comprehensive assessments of income tax rates. In our judgment, the proposed additional review is therefore not necessary.
On revenue impacts, the Office for Budget Responsibility publishes tax revenue forecasts at every fiscal event, and did so most recently at Budget 2020. The Government’s tax information and impact note published in October 2018 provides a clear explanation of the tax impact on the Exchequer and the economy of maintaining the personal allowance and higher rate threshold for 2020-21. On distributional impacts, the Government publish a distributional analysis of the cumulative impact of Government policy at each fiscal event, and did so most recently at Budget 2020. HMRC’s annual income tax liabilities statistics publication provides breakdowns of the number of income tax payers and income tax liabilities across multiple characteristics, including by income source and by tax band. All those publications are in the public domain on gov.uk. Amendment 5 would do little to provide meaningful additional analysis that goes beyond the Government’s existing comprehensive publications, and I ask the Committee to reject it if it is brought to a vote.
Clause 4 maintains the starting rate limit for savings income at its current level of £5,000 for the 2020-21 tax year. As members of the Committee will be aware, the starting rate for savings applies to the taxable savings income of individuals with low earned incomes. The Government made significant changes to the starting rate for savings in 2015, lowering the rate from 10% to 0%, and also extended the band to which the rate applies from £2,880 to £5,000. The changes made by clause 4 will maintain the starting rate limit for savings at its current level of £5,000 for the 2020-21 tax year. The limit is being maintained at that level to reflect the significant reforms made to support savers over the last few years. That support is provided by the Government across the UK, for those at all stages of life and at all income levels. As a result of the support, about 95% of savers pay no tax at all on their savings income.
The decision in 2015 to increase the starting rate for savings by more than 75% has done much to support savers on low incomes. Since then, savers have been further supported by the introduction of the personal savings allowance, which offers up to £1,000 of tax-free savings income for basic rate taxpayers. This will remove an estimated 18 million taxpayers from paying tax on their savings income in 2020-21. In April 2017, the annual ISA—individual savings account—allowance was increased by the largest ever amount, to £20,000.
As a result of the combination of the personal savings allowance and the starting rate for savings, some savers can receive up to £6,000 of savings income outside an ISA completely tax-free. Most savers will of course also benefit from the tax-free personal allowance, which is set at £12,500.
The Government also support our nation’s youngest savers. To encourage those with children and grandchildren to save, the junior ISA and child trust fund allowance increased by more than double, to £9,000, from April 2020. Child trust funds will start to mature from September of this year, and the increase will provide an opportunity to boost the amount that children will have when their accounts mature.
Finally, I should mention the support that the Government offer those on the lowest incomes who wish to save through the Help to Save scheme. Help to Save provides savers with a 50% bonus on their savings—a perfect example of what the Government’s commitment to levelling up opportunity across the whole country can offer. I encourage Committee members to do what they can to promote the scheme to their constituents.
The Government remain committed to supporting savers of all incomes at all stages of life. Recent reforms, coupled with a significant increase in the starting rate limit in 2015, mean that the taxation arrangements for savings income are very generous. Around 95% of people with savings income, as I have mentioned, will continue to pay no tax on that income next year. The Government therefore do not believe that a further increase in the starting rate for savings is appropriate at this time.
Clauses 1 to 3 ensure that the Government can collect income tax, and set the main default and savings rates for the tax year 2020-21. Clause 4 maintains the starting rate for savings income at its current level of £5,000 for this tax year. I commend the clauses to the Committee, and ask it to reject amendment 5.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
It is a pleasure to serve under your chairmanship, Ms McDonagh, and to welcome other Members to the Committee. I thank the Clerk and all the team in the Public Bill Office for the support that they have provided in recent weeks and will continue to provide as we debate the Bill. Circumstances have been very challenging for staff who have adapted to working remotely. I am grateful for all the discussions and advice that they have been able to offer us. I also extend, via the Minister, our thanks to all the officials in the Treasury who have been working very hard to respond to the crisis that we face. I want to put on the record our thanks for their work, which is often not recognised. Our country’s response to the crisis depends on the work that they undertake on behalf of us all.
I am sure we all accept the importance and necessity of scrutinising the Bill. However, the Opposition find it regrettable that it was not possible to find an alternative arrangement for the Committee stage of the Bill. We hope that the House can resolve the wider issues around protecting those who have shielding responsibilities and making sure that we can all be kept safe at this time. Our proceedings obviously place a great deal of pressure on the staff who are vital to the House’s functioning. Again, I reiterate my thanks to them. We will want to consider certain aspects of the Bill in much greater detail over the coming weeks. I can assure the Minister that we appreciate the pressure that officials are under in responding to the crisis, and that we intend to be responsible in our approach, and will remain focused on our key priorities in the Bill.
Our amendment 5 would require the Government to assess the impact of income taxes in the Bill on tax revenues, and on households and individuals of different income levels. The Government like to tell us that we live in unprecedented times, which is of course true. As such, we need greater scrutiny of policies that may need to be revised in what is clearly becoming an unprecedented economic downturn. The Resolution Foundation estimates that GDP will contract between 10% and 24% owing to the outbreak of covid-19: an economic shock of a kind that has not been seen since the 18th century. Very much is at stake. It is crucial that the Government assess the means by which they generate revenue, given the huge demands facing our public services and economy.
First, we need to know how much revenue we are generating from maintaining income tax rates, in order to determine whether it is enough to meet the demands on our economy and the pressures on public services, as well as the Chancellor’s income support packages. Secondly, we need to better understand its distributional income. Over the past 10 years we have seen large cuts to working age benefits against reductions in direct tax, including a large rise in the tax-free personal allowance. Unsurprisingly, the winners in all this have not been low-income households. According to the Institute for Fiscal Studies, the poor have been disproportionately hit by tax and benefit changes since the Conservatives came to power 10 years ago. The worst-off 10% of households have lost 11% of their income since 2010. When we factor in households with children, that rises to 20%. In contrast, the highest-earning 10% of the population have seen their incomes fall by only 2% in the same period.
In its 2020 Budget analysis, the Resolution Foundation makes it clear that nothing has been done to offset the considerable welfare cuts made by previous Chancellors since 2015. Households in the second net income decile, for example, will eventually be £2,900 a year worse off on average, thanks to the tax and benefit changes announced since 2015, and £900 of that is yet to come; it will result from welfare policies that are still being rolled out. These cuts mean that the incomes of the poorest families have fallen over the last two years, and there is a real risk that child poverty rates will reach record highs by 2024.
Alison Thewliss (Glasgow Central) (SNP)
It is a pleasure to see you in the Chair, Ms McDonagh, and to join all the members of the Finance Bill Committee.
I echo the thanks that other hon. Members have given to the Clerks and staff who have made this possible, but I share the concerns about having to meet physically, and about the fact that there is no option for hon. Members to participate remotely or to vote digitally.
Given that the Secretary of State for Business, Energy and Industrial Strategy was taken ill yesterday at the Dispatch Box, we should think more carefully about how we spend our time in this place and how close together we are. I know discussions were had about how far apart we should sit and how that would work, but the reality is that the highest risk factor is people being in a room together and talking for hours on end, which sounds very much like the Finance Bill to me.
I agree with many of the comments made by the hon. Member for Houghton and Sunderland South, and I congratulate her on her position and her lead on this Bill. It is clear that for many people there is a fundamental unfairness in the economy. There are issues that are longstanding and intractable, and the Government have not shown great interest in trying to deal with those inequalities or in addressing the situation, particularly for women, ethnic minorities and disabled people, who still, after so many years, remain the worst off in society. The Government need to take far more and firmer action to address that.
The Government need to take further action to address the climate emergency. We should be seeing a lot more on that in the Bill, and should take our responsibilities on this issue far more seriously. If there ever was a time to do that, it is now. We have the opportunity. We have shut down huge chunks of the economy, and we can think, in this small time that we have, about how we want to reopen the economy, and how we could make changes that could otherwise pass us by. The amendments that the SNP will table to this Bill are in that vein. We want to look at equality and the environment. We want to look at how we can instil fairness in the system, if indeed that can be done.
I will also mention an issue that my hon. Friend the Member for Aberdeen North (Kirsty Blackman) has spoken about on many occasions: the need for this Committee to take evidence. The Domestic Abuse Bill Committee is also meeting today and is taking evidence from a range of experts. The Finance Bill does not do that. It will take written evidence—a lot of that has arrived, and I thank all those who have sent it—but we do not get the opportunity to take oral evidence and interrogate the people who have the most knowledge on the implications of the Bill. If we took that evidence, we would make better, wiser decisions and more fully understand the implications of the Bill, and the Government could avoid making mistakes and having to come back and change things retrospectively in the next Finance Bill. It would be incredibly helpful if people such as the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales could come before the Committee and we could hear from them. I urge the Government to consider why that could be helpful to all of us in this Room, rather than just passing it over as not necessary.
The amendment tabled by the official Opposition is worthy, but I would caution them, slightly, with respect to its implications for Scotland. They have not considered fully how it would affect Scottish income tax rates. What we do in this Parliament has that impact. Scotland has a progressive taxation system, and we are proud of it. We have taken the measures we can within the restrictions we have. However, if that system is not considered within the amendment, that will miss out a huge chunk of the impact on the Scottish budget and mechanisms within it for funding the Scottish budget and all the things we want in Scotland. I would not, at this stage, be willing to support the amendment, because it does not encompass that aspect, and it should. Scotland should be kept in mind in many of the measures or suggested changes. I will conclude my remarks with that reasonable point.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Main rates of income tax for tax year 2020-21
Amendment proposed: 5, in clause 2, page 1, line 10, at end insert—
‘(2) The Government must lay before Parliament a review of the impact of the rates of income tax for 2020-21 within six months of Royal Assent, which must consider the following issues—
(a) the effect on taxation revenue of maintaining income tax rates for 2020-2021; and
(b) the effect of income tax rates for 2020-2021 on annual income for the following:
(i) Households below average income, and
(ii) High-net worth individuals as defined by HMRC.’ —(Bridget Phillipson.)
This amendment would require the Government to assess the impact of the income tax rates in the Bill on tax revenues and on households and individuals of different income levels.
Question put, That the amendment be made.
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.
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.
Jesse Norman
I will speak to the amendment and the clause. I would also like to touch on some of the themes raised by the Opposition Front Bench team and by the Scottish National Party, because those important issues need a proper interrogation.
Clause 5 sets the corporation tax main rate for this financial year beginning on 1 April 2020. Clause 6 sets the corporation tax main rate and the annual power to charge corporation tax for the financial year beginning on 1 April 2021. The Government support a competitive corporate tax system that allows UK businesses to flourish, boosts the economy and supports further inward investment in the country. For that reason, the Government have made successive cuts to the headline rate of corporation tax, with the main rate falling from 28% in 2010 to its current rate of 19% in April 2017.
At Spring Budget 2016, the Government announced that they were going to cut the rate further to 17% in April 2020 and legislated to deliver that in the Finance Act 2016. It is important that cuts to the corporation tax rate, and the benefits that they can provide to business growth and investment, are balanced against wider objectives. The Government’s commitment to sustainability in public finances reflects that.
With that balance in mind, the Government announced at the Budget that the corporation tax main rate would remain at 19% in April 2020, rather than being reduced to 17%, and clauses 5 and 6 legislate for that change in rate for this tax year and the next. At the Budget, the Office for Budget Responsibility forecast that that would raise about £33 billion in additional tax receipts across the forecast period. That will enable the Government to further support the vital public services on which we all rely, including the NHS.
The Government remain committed to supporting investment in innovation through the business tax system. While the corporation tax main rate remains at 19%, the UK continues to offer the lowest headline rate of corporation tax in the G20. The Government also announced a series of generous capital release for business at the Budget, which are being legislated for in the Bill, including an increase in the R&D expenditure credit from 12% to 13% and an increase in the rate of relief for business investment in non-residential structures and buildings from 2% to 3%. The Government have also provided an unprecedented package of support for businesses in response to covid-19, as has been recognised.
Before I turn to amendment 6, I will pick up some of the helpful and interesting themes that the Opposition Front-Bench spokespeople have raised. The hon. Member for Houghton and Sunderland South thanked Treasury officials and the hon. Member for Glasgow Central thanked the Clerks. I echo those thanks. I am sure that they would also join me in thanking the officials at Her Majesty’s Revenue and Customs, who have done an astonishing job in the last few months, especially in response to covid-19.
The hon. Member for Houghton and Sunderland South said that her key priority will be a focus on accountability with an emphasis on responsibility. The hon. Member for Ilford North highlighted that the Labour party is pro-business in a more generous and inclusive sense than had perhaps been understood by regarding business as merely a source of revenue to support public services, which I welcome. I encourage the scrutiny, which I think increases the authority of the power that is being scrutinised, so it is a good thing in general. I welcome them both to what is an evidently responsible and highly competent shadow Front-Bench team.
I have a couple of further points. In relation to equity, hon. Members on both sides of the Committee know that many of those distribution analyses do not include the full welfare and benefit changes but focus on tax changes, which is one reason why it is hard to model them. It is important to be aware, however, that spending on public services was significantly increased in the spending round last summer. On the tax side, something like 29% of income tax is paid by the top 1% of earners.
On the question raised by the hon. Member for Glasgow Central about the status of women and equalities, which is an issue extremely near the hearts of Government Ministers—[Interruption.] I am delighted to hear the Exchequer Secretary behind me, fresh from her triumph in the urgent question, echo that. I am sure that hon. Members on both sides of the Committee know that 15.8 million women are in work at the moment, which is a record high that I am delighted about. The wages of the lowest earners have risen by 11% more than inflation over the four years from 2015 to 2019. The poorest 60% of households receive more in public spending than they pay in tax, and the lowest income decile will get more than £4 in benefits and public services for every £1 they pay in tax. It is important to see that those norms of equity and fairness that the Opposition rightly highlight are reflected in policy and shared by Government.
Bridget Phillipson
When Ministers are considering these issues in response to the pandemic, may I ask that they look at evidence as it emerges? While the Opposition welcome and have supported the creation of, for example, the furlough scheme, our concern is that we know women are more likely to be furloughed than men and women risk losing their jobs in bigger numbers during the crisis. I welcome the Minister’s comments about understanding the impact on the economy and within different groups, but I urge him to consider this issue as a Treasury priority.
Jesse Norman
The hon. Lady is absolutely right that as we work through this crisis and, as we all hope, come out the other side, there will need to be a more detailed understanding of the implications in data terms, how it has affected different groups and its distributional impacts. We have well-established procedures within existing frameworks, as she will know.
The question was touched on more generally by the hon. Member for Ilford North in relation to corporation tax, but we have a whole procedure of making updates to Parliament and a procedure for forecasting that is now independent, thanks to the decision taken in 2010 to create the Office for Budget Responsibility. That includes a fiscal sustainability report on the overall benefit of measures, which goes to his question about corporation tax revenues. Needless to say, the Government’s support for the NHS is not contingent on the revenues from corporation tax; it goes much deeper than that.
The hon. Member for Glasgow Central raised many of these issues. She touched on a question in relation to the Scottish tax system. Of course, it is for the Scottish Government to review the effects of their decisions on income tax and the benefits for which they are responsible. At the same time, they can review their own progress on equality and inequality.
Turning to the hon. Member for Ilford North, I noted with support his inclusive approach towards business. That is very important. He asked about the impact of maintaining the tax rate at 19%. I have indicated that that is estimated to raise several tens of billions over the course of the spending round. What the effect of covid-19 will be on that we do not know, but, as I say, we have processes for evaluating and forecasting on that basis.
Amendment 6 would require the Government to conduct a review of current corporation tax rates, including the effect on tax revenue and the impact of the corporation tax rate structure on businesses of different sizes within six months of the Bill receiving Royal Assent. As I have mentioned, the OBR-certified Exchequer impact for this measure was published in table 2.1 of the Budget Red Book.
We recognise that the economic disruption created by the pandemic will have an effect on the tax revenue forecast at Budget. That will be monitored and changes will be made through the OBR principle and process to the forecast and reflected at the next Budget. HMRC also publishes corporation tax statistics annually, alongside a report that includes a breakdown of the amount and proportion of total corporation tax receipts paid by businesses at different levels of profitability. Therefore, the Government already publish the information called for in the amendment and the separate review legislated for in amendment 6 is, in our judgment, not necessary. I ask the Committee to reject amendment 6 and move separately that clauses 5 and 6 stand part of the Bill.
Alison Thewliss
Corporate taxation is not within the power of the Scottish Parliament. We have to live with the decisions that Westminster makes on this, but I am glad the Government have realised the error their ways in originally aiming to cut corporation tax. Given the money that would have been lost to the economy, that is wise.
The Minister mentioned the impact on women in work. Findings from various women’s organisations suggest that coronavirus will have an impact on women’s employment, and that employment will not recover unless there is significant investment in childcare to redress that as we come out of this crisis. If we were to take evidence from groups such as the Women’s Budget Group, we would have a lot more detailed evidence on the impact of the proposed measures on women. I encourage him to look at that evidence and engage with the Women’s Budget Group to consider how better we can have evidence brought from groups who have expertise in this area. Such groups have pointed out that women are more likely to be furloughed and more likely to lose their jobs. As the furlough scheme is wound up, they will face unemployment sooner than they would have anticipated as employers look at the scheme and say, “I can’t afford to pay these wages. I’m just going to sack my staff.” None of that necessarily relates to the amendment on corporation tax, but I want to make sure those points are on the record.
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 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.
Alison Thewliss
There is indeed not terribly much to oppose here, but this is about the ambition of the Government to make a change, to make something different out of this Bill and to do something different. I draw the attention of Government Members to what Norway has done to increase the use of electric vehicles, so that 42% of its cars are now electric vehicles. The Norwegians did that with incentives such as no annual road tax for electric vehicles, company car tax reduction to 40% on electric vehicles, changes to purchase and import taxes, and an exemption from 25% VAT on purchase. They had an ambitious programme, and they needed the infrastructure, but they took those actions and they saw a dramatic change in the number of electric vehicles as a result.
I encourage the Government to look at what can be done. If cars are to be around for some time to come, how can we make them better? In many parts of Scotland, for example, people need a car to get around In large parts of rural Scotland it would be impossible to do anything other than have a car, but if we can make those cars electric vehicles, providing the plug-in infrastructure for them and the tax incentives to reduce their cost, we could make that change achievable. I ask the Government to be more ambitious.
Kemi Badenoch
I thank both hon. Members for the points that they have made and the good questions they asked. I reiterate that tackling climate change and improving the environment are top priorities of the Government. The UK is a world leader on climate change. The reason why we are doing this is to address several things at once.
Let us remind ourselves what the WLTP is. It is designed to ensure that we are reflecting real world driving conditions more accurately by including a longer test time. The aim is to reduce the 40% gap between lab tests and real world driving. We have put many other levers in place to address the broader issue of climate change.
I accept the point about complexity—I recognise the need to ensure that this does not have an overall impact on the consumer. One of the reasons why we are phasing it in this way is to better protect the automotive sector. I thank both Members for the points they made.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clauses 8 and 9 ordered to stand part of the Bill.
Clause 10
Apprenticeship bursaries paid to persons leaving local authority care
Question proposed, That the clause stand part of the Bill.
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.
Jesse Norman
Those were two useful, helpful contributions from the Opposition. The broad answer to the technical question raised by the hon. Member for Ilford North is that this is a cleaner and more direct way of addressing the problem; but I should be delighted to write to him and set out the reasoning in more detail.
The hon. Gentleman raised the question of other exemptions. As he will be aware, we are absolutely amenable to considering these things on a case-by-case basis, and if there are others that he thinks deserve further consideration, he is again welcome to write to me and we will give that a review.
The hon. Member for Glasgow Central raised a point about apprenticeship opportunities more widely, and she is absolutely right. The Government have already been leaning into the issue of apprenticeships, as she will know, through the levy. There is much more work to be done in this area, and it is well understood, certainly from the Prime Minister down, that the response to the coronavirus may well cause the Government to want to look at the whole area in more detail.
I cannot pass from this topic without drawing the hon. Lady’s attention to a personal interest that I have, which is the New Model Institute for Technology and Engineering, in Hereford. That is the new university we are setting up precisely to integrate the academic and the vocational in a way that gives scope for very high value-added learning, using apprenticeships but also actual project work, in a way that is integrated into the engineering curriculum in many ways.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clause 11
Tax treatment of certain Scottish social security benefits
Question proposed, That the clause stand part of the Bill.
Jesse Norman
I had hoped that we might be able to debate clauses 11 and 12 together, because in some respects they sit better together, but let me pick up clause 11 in its own right and we can then take clause 12 separately. The clause confirms that three new specifically Scottish social security benefits are not subject to income tax. The income tax treatment of social security benefits is legislated for in part 10 of the Income Tax (Earnings and Pensions) Act 2003. That Act provides certainty on existing benefits and needs to be updated when new benefits are introduced.
The Scottish Government are introducing three new benefit payments: the job start payment, disability assistance for children and young people, and the Scottish child payment. The tax treatment of those benefits is governed by the fiscal framework agreement between the Scottish Government and the UK Government, which sets out that any new benefits introduced by the Scottish Government will not be deemed to be income for tax purposes unless they top up or replace benefits deemed to be taxable already. The UK Government currently choose to clarify the treatment agreed in the fiscal framework through Finance Bill legislation, which is why we have the clause before us today.
The changes made by the clause ensure that these three new benefits are not liable to income tax, in line with the fiscal framework agreement between the UK Government and the Scottish Government. The clause is straightforward, clarifying and confirming the tax treatment of several welfare payments and introducing a new power to ensure that a simpler process may be used to effect future changes as may be needed. I commend the clause to the Committee.
Bridget Phillipson
The Minister made reference to the discussions we will have on clause 12, but the Opposition do not object to the principle behind this clause, which appears straightforward and to achieve its aim.
Alison Thewliss
I am happy to support the clause and the actions of the Scottish Government in bringing in these new social security measures, which will be of great benefit to the people of Scotland. My only regret is that we have to come asking the UK Government to put these measures into force—we would rather take care of all these things ourselves.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Power to exempt social security benefits from income tax
Alison Thewliss
I beg to move amendment 8, in clause 12, page 7, line 2, leave out ‘may’ and insert ‘must’.
This amendment seeks to exempt all social security benefits from income tax.
The Chair
With this it will be convenient to discuss amendment 9, in clause 12, page 7, line 4, leave out from ‘benefits’ to end of line 5.
This amendment seeks to exempt all social security benefits from income tax.
Alison Thewliss
I am happy to move the amendment and speak to amendment 9, which The Scottish National party tabled just as a query. When we were looking at the Scottish social security system and the opportunity not to have income tax levied on social security benefits, it got us thinking about what the logic is of taxation on social security, because it is the Government giving with one hand and clawing back with another, resulting in an incredibly complex system where some benefits—indeed, some parts of benefits, some types of benefits and some subsets of benefits—end up liable for income tax whereas others are not. We end up with a cumbersome system that is difficult to navigate.
Our thought process in looking at the benefits was to ask why it should be that bereavement allowance, carer’s allowance, contributory and youth ESA, income-based ESA, some but not all incapacity benefit, industrial death benefit pensions, state pension, widowed mother’s allowance, widowed parent’s allowance and the widow’s pension are all taxable, whereas others such as personal independence payment, war widow’s pension and universal credit are not.
The young carer grant is not, but carer’s allowance is. There are a huge number of inconsistencies in the social security and income tax system, and our amendment seeks to ask: why should that be? Should we not look for a much simpler system, which would give people the money in their own hands without having to negotiate backwards and forwards with the Government? That would save the Government a job in clawing back that taxation and allow people to get on with their lives, rather than having to worry about what the taxman will take from their benefits. The SNP thought it was worthwhile exploring this issue with the Committee.
Bridget Phillipson
As with clause 11, the Opposition have no objection to what the Government seek to achieve in this clause. On the substance of the amendments put forward by the hon. Member for Glasgow Central, there are a few issues that I hope she will be able to clarify. She will be aware that the general principle is that a benefit is taxable if it is an earnings replacement benefit. As the Treasury’s tax benefit reference manual notes, the reason behind that is to avoid creating an incentive whereby an individual receiving social security benefits is better off than someone on a comparable income whose earnings are liable to tax. What consideration has she given to that potential outcome of her amendments?
My second observation is about the cost of the measure. I am grateful to the House of Commons Library, which has sought to estimate the cost. The cost of exempting all taxable social security benefits from income tax would be around £5.9 billion in 2020-21. Of that amount, 95%, or £5.6 billion, is attributable to the state pension. The Library’s analysis identifies that those in the top decile of income distribution would benefit the most, while those in the lowest would gain the least. I know that the hon. Lady cares very much about those issues, and I would be grateful if she addressed that point, because it strikes me that such an approach would usually be regressive, and I would like to understand a bit more about the assessment of the distributional impact of such a policy.
Alison Thewliss
I thank the hon. Lady for her comments, which she is quite right to make—the Library analysis is really important. I am moving the amendments to point out just how complex the system is that there is of course a cost to having and administrating such a system. People have difficulty navigating that system, because it makes it more difficult to claim what they are entitled to, particularly if they are moving from one benefit to another. Although I appreciate the points that she has made and understand why she made them, these are probing amendments to see what the point is and what the Government are doing to make an ongoing assessment of the logic of that complexity, for which there is a cost and a difficulty. Although I in no way deny the cost—I know the amendments have no prospect of being passed by the Committee—I would like the Government to consider carefully the impact of that complexity on individuals, and whether they can simplify the system, which is ludicrously complicated.
Jesse Norman
I thank colleagues for their contributions. As they have recognised, the amendments are very technical in nature. I will keep my remarks brief because, if we can, I would like to discuss clause 13 before we break, which will leave us a clear run at the afternoon. Clause 12 introduces a power that commits the Government to clarifying tax exempt status for future new social security benefits introduced by the UK Government or devolved Administrations using a statutory instrument. That power has a more general applicability and creates an additional flexibility that will be of value to Government in making changes to address needs more rapidly than at the moment.
The hon. Member for Glasgow Central tabled her amendments in an interrogatory—or probing—spirit, for which I thank her. My response has been very well articulated by the hon. Member for Houghton and Sunderland South. Scottish benefits are treated in line with the fiscal framework and, under that framework, which exists between the UK Government and the Scottish Government, only new benefits that top up or replace an existing taxable benefit will be liable to tax. That is an established principle of taxation exactly to avoid the perverse incentives that might otherwise be created.
In addition to the questions raised by the shadow Minister about cost and equity, it is worth mentioning that the effect of entertaining the amendments would be to undermine the fiscal framework agreement and that longstanding principle of taxation. I ask the hon. Member for Glasgow Central, in a rhetorical spirit, whether she really means to overturn the fiscal framework that was hammered out over a number of years between those two sides. If she does, is it her intention to throw out other settled agreements between the Scottish Government and the UK Government within that framework? I suggest that that is not her intent and, because the meaning and purpose of the clause is clear, I commend it to the Committee and invite her to withdraw the amendment.
Alison Thewliss
I am indeed content to withdraw the amendment, but the point stands that there is an inconsistency within the system, in which a war widow’s pension is not taxable but a widow’s pension is. There are huge inconsistencies about which I have questions. The Minister is being mischievous when he suggests that I would want to undermine the fiscal framework, but he knows fine well that I long for the day when the fiscal framework is not necessary because Scotland is an independent country that makes for ourselves the full range of decisions about what is best for our people. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 12 ordered to stand part of the Bill.
The Chair
We now have four minutes to go. Does the Committee wish to move on to clause 13?
Jeff Smith (Manchester, Withington) (Lab)
Let’s take a break.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Finance Bill (Second sitting)
Thursday 4th June 2020
(3 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 4 June 2020 - (4 Jun 2020)
The Chair
Good afternoon, colleagues. Consideration of the Finance Bill recommences. I remind everyone that Hansard reporters would be grateful if hon. Members could email electronic copies of their speaking notes to hansardnotes@parliament.uk. If everyone could remember to do that, that would greatly assist those recording the proceedings. We now return to line-by-line consideration of the Bill.
Clause 13
Voluntary office-holders: payments in respect of expenses
Question proposed, That the clause stand part of the Bill.
The Financial Secretary to the Treasury (Jesse Norman)
What a delight it is to see you in the Chair, Mr Rosindell. As I touched on earlier, this is one of those clauses that I do not think elicits any spirit of contention on the different sides of the room.
Clause 13 creates a statutory income tax exemption for payments and reimbursements of reasonable private expenses incurred by voluntary office holders in carrying out the duties of their offices. Individuals undertaking voluntary work for an organisation such as a charity or local benevolent society are not generally classed as office holders or employees, so the payment or reimbursement of any reasonable expenses incurred by those individuals when doing the work of that organisation is not liable for tax. However, in some circumstances, an individual who does unpaid work for an organisation may also be an office holder. That is because they are appointed to a role that exists regardless of who occupies the position at any one time. They are referred to as a “voluntary office holder” in tax legislation. People in that position include, for example, magistrates and special constables.
An office holder, including a voluntary office holder, is chargeable to tax on any earnings from their position and subject to the tax rules for expenses and deductions on the same basis as employees. Her Majesty’s Revenue and Customs’ long-standing practice is that no tax arises on private expenses paid or reimbursed to voluntary office holders so long as they receive no reward for carrying out the duties of their office and any payments or expenses do no more than meet the expenses incurred. That treats voluntary office holders in the same way as volunteers in relation to expenses paid or reimbursed by their organisation, but the treatment is at the moment only concessionary.
This measure therefore places the current concessionary treatment on a statutory tax footing. That ensures that reasonable out-of-pocket private expenses paid or reimbursed to voluntary office holders in relation to their duties of office remain tax-exempt. The exemption recognises the role of voluntary office holders and the services that they provide. It ensures that the tax treatment of their private expenses continues to be comparable to that of volunteers, and it provides certainty by placing that treatment on a statutory footing.
Those who hold voluntary offices often—in fact, almost invariably—give valuable service in our communities. It is right that we legislate to provide certainty for people in such roles and bring the tax treatment of their expenses in line with that for others who volunteer their time. This is a simple and sensible technical change, and I therefore urge that the clause stand part of the Bill.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
It is a pleasure to serve under your chairmanship this afternoon, Mr Rosindell, and I welcome you to the Chair.
Opposition Members have no issue with the intention behind clause 13. It is right that the tax treatment of those carrying out valuable work on a voluntary basis is put on a statutory footing so that it is the same for all voluntary office holders, across the board.
Of course, most individuals who do unpaid voluntary work for an organisation are not office holders or employees, and I would like to take this opportunity, at this time, to express my gratitude for the amazing work that volunteers are doing right across our country in responding to the crisis we are experiencing. The work they are doing includes running food banks. Amazing volunteers in my constituency are providing that kind of support to vulnerable people and, frankly, to too many families. I yearn for the day when they will be able to be redeployed in other areas of activity because the support provided by the Government—the state—is adequate for all families to put food on the table. Many other volunteers at this time have been delivering meals or supporting people with prescriptions. There is a whole range of help and support being provided, which just demonstrates how important a role volunteers play in our society. That is of course no substitute for the necessary action we expect from Government, which has sadly been too lacking in recent years, and after a decade of big changes. That has meant that volunteers have filled the gap that should be filled by the state itself.
As for the scope of the clause, the Chartered Institute of Taxation has identified some technical issues, and I hope the Minister will be able to respond to some points about them. The first is about the lack of a definition of a volunteer office holder in this legislation and the fact that that may lead to some confusion as to whether charitable or other unpaid trustees would be regarded as office holders for the purpose of this exemption. The Minister was right to point to office holders such as special constables and magistrates—and perhaps those who are office holders in community amateur sports associations—but I would be grateful if he could clarify the scope of the clause.
The second concern that the Chartered Institute of Taxation has identified is whether this legislation will achieve its intended purpose, given that the clause covers expenses incurred in carrying out the duties of the office, but not explicitly those expenses that enable such duties to be carried out—for example, childcare costs. I would be grateful if the Minister could clarify the position and put on record that such costs would be tax-exempt for voluntary office holders under the legislation.
Jesse Norman
I thank the hon. Lady for her questions. These are two technical issues that she is right to cover. The position of Revenue and Customs, and of the Government, is that there is adequate clarity about the scope of the clause. It passes into law only a considerable body of accumulated practice in dealing with expenses of the kind that we have described. As I have mentioned, commissioners have discretionary powers—those collection management powers—to manage these taxes and duties, and are able to exercise those powers in particular circumstances. So if there is a concern that, somehow, the scope of the clause is inadequately defined, there remains extra statutory power for the commissioners to exercise those collection management powers in so far as they wish.
The hon. Lady is also absolutely right to raise the secondary issue of what counts as an allowable expense. The answer is that a definition of reasonableness exists in general in people’s minds and in law—of course, it reflects the facts of a case and is context-dependent. The core idea is that the payment or reimbursement should do no more than meet the actual expenditure that has been incurred by volunteers.
To give an example, someone may be volunteering for a charity, perhaps as a treasurer, which is an office holder, and doing most of their work from home. If the charity offers them a small weekly payment to cover the additional cost of using their home, that is a reasonable expense. To take a different example, if someone is volunteering as a magistrate at their local magistrates court for one day a week and seeks reimbursement for their childcare costs for the week, even if the court agrees to that, the full week will not be considered a reasonable reimbursement for private expenses, because it does not relate to the actual expenditure that has been incurred.
I can clarify, to that extent, the point the hon. Lady made. I think that tracks relatively clearly our normal intuitions about working, as well as working practice elsewhere in the voluntary sector. With that said, I would like to move that the clause stand part of the Bill.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14
Loan charge not to apply to loans or quasi-loans made before 9 December 2010
Question proposed, That the clause stand part of the Bill.
Jesse Norman
This is the first of seven clauses— clauses 14 to 20—that bear on the loan charge. I do not need to tell any Member of the House of Commons that the loan charge has elicited a degree of controversy in some quarters. It might be helpful if I remind the Committee of the nature of the loan charge and what it actually is.
The clause amends the date from which disguised remuneration loans are subject to the loan charge specifically from 6 April 1999 to 9 December 2010. That has the effect of removing loans entered into before 9 December 2010 from the scope of the loan charge.
Disguised remuneration, as it is described, is a form of abusive tax avoidance, where individuals seek to avoid paying income tax and national insurance contributions by receiving payment through a loan that is itself never repaid—a remuneration practice that costs the Exchequer hundreds of millions of pounds a year. In many cases, the loans are paid over and above a smaller payment that goes through the pay-as-you-earn system, and the payment is made, perhaps on a monthly basis, in the form of an accumulation of a loan. The loan never, in my experience, has interest charged to it. The expectation is that it will never be repaid. It is typically administered through an offshore vehicle, which highlights how contrived this approach is to the avoidance of tax.
The loan charge was designed to combat that form of tax avoidance. It was introduced as a new measure in 2017. In September 2019, the Chancellor commissioned Sir Amyas Morse to conduct an independent review into whether the loan charge was an appropriate policy response to the use of such disguised remuneration schemes. Sir Amyas had full control over the review’s management and recommendations. He received evidence from a very wide range of individuals affected. He spoke to interest groups, Members of Parliament, tax specialists, legal experts and many other stakeholders.
Sir Amyas’s report, which is 76 pages in length, is a thorough and exacting review document, which painstakingly worked through the issues and recommended notable changes to the policy, including substantial carve-outs regarding who was affected. The Government accepted all but one of Sir Amyas’s recommendations, and more than 30,000 people will benefit from the changes. This clause, along with others in the Bill, make changes to bring about those recommendations in so far as they require statutory change. Work is under way by the Government to implement the recommendations that do not require legislation.
Sir Amyas’s careful and considered report examined the question of the date from which the loan charge should apply. He concluded that the law regarding the tax treatment of disguised remuneration loan schemes was clear from 9 December 2010, when draft legislation was published setting out that income provided through schemes using third parties, such as loan schemes, would be subject to income tax and national insurance.
Clause 14 amends the date from which disguised remuneration loans can be subject to the loan charge and removes those loans entered into before 9 December 2010 from the scope of the loan charge. The clause, along with clauses 15 to 20, legislates for several recommendations from the independent review on the loan charge. It takes about 11,000 people out of the loan charge entirely, and it reduces the tax charge of around 21,000 individuals. I therefore commend the clause to the Committee.
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.
Jesse Norman
I thank the hon. Members for Ilford North and for Glasgow Central for their speeches. The hon. Member for Ilford North started by setting out the principles of, as it were, a Labour approach to tax avoidance and evasion, and described how, in the Labour view of things, tax avoiders were in fact guilty of robbery, which I thought was a very big claim. Robbery is not a word I would ever use in this context, but there is a serious problem of avoidance and evasion, and—as I will come on to, and as the hon. Member for Glasgow Central mentioned—there is a serious problem with the promotion or enabling of tax avoidance and evasion schemes.
I thank the hon. Member for Ilford North for his comments in support of Revenue and Customs, with which I fully concur, as I am sure does everyone in this Committee and the more than 10 million people who now have their livelihoods or jobs supported by schemes that HMRC has put in place in a very short period. He also rightly praised Sir Amyas Morse, saying that the Labour party accepted the Morse review as a piece of work. He is absolutely right about that. Sir Amyas, on his retirement, elicited unimpeachable measures of approval and statements of support from across the House.
Where I think the hon. Gentleman is wrong is on the question of retrospection. He will be aware that the loan charge is a new charge and is therefore not retrospective legislation. The common understanding of retrospection is that it somehow changes the law as it was at the time when people operated, but the whole point is that, as Sir Amyas found, from at least 9 December 2009, the law was as indicated. One can dispute the period before that, and HMRC retains the ability in the case of certain years to pursue people for tax due before that period. But the review made clear—this is very important—that Sir Amyas Morse accepted the principle of the loan charge. The review made significant changes to the application of a principle that Sir Amyas accepted.
We are bound to return to these themes later on in our discussions, but it is worth touching on them now. The hon. Member for Ilford North raised the provision that the Government did not accept in the Morse review, which was the idea that arrears in tax should be written off after 10 years. The reasons that the Government did not accept that were twofold. The first was that it would have had the effect of treating people who had engaged in these disguised remuneration schemes and benefited from this approach more favourably than other people who might be in arrears in tax with the Revenue, which the Government felt was not appropriate.
The second reason was that the Revenue and Customs has highly effective time-to-pay arrangements, which have been further extended in the case of the loan charge, to allow people on lower incomes an additional seven years of time to pay as a minimum. Those arrangements are very flexibly and intelligently administered by the Revenue and Customs, and they are already being utilised by people in significant numbers before the coronavirus pandemic and undoubtedly as a result of it. There is no need for a statutory change, and such a change would have had the effect of treating scheme users more favourably than others.
The hon. Member for Ilford North raised the all-party parliamentary loan charge group and the Loan Charge Action Group, which has been very vigorous on social media and elsewhere. Colleagues’ input is always valuable, but we should take this one with a little pinch of salt, because it is the product of an enormous amount of concerted political lobbying of an extremely intense kind on Members who are members of that group. In that sense, it does not exercise what I would consider the kind of independent judgment that we would want an all-party parliamentary group to exercise.
The contrast is with the Morse review itself, which was an admirably independent-minded piece of work. It by no means took a Government line in any of its recommendations and showed itself all the more valuable for that. It was itself a comprehensive response to the concerns that had been raised. If people have concerns about, for example, the choice that Sir Amyas made to locate the point of cut-off for the application of the loan charge to 9 December 2009, they have merely to read the relevant chapter, which is an extremely thorough and careful reconstruction of the legal process and the enforcement process up to and after that date.
I am struck by the fact that many of the themes that came through in the Morse review were picked up by a rather important recent case which related to the loan charge—Zeeman and Murphy v. HMRC—in which the judge said:
“This is not a tax on fictitious income or benefits, but on genuine remuneration received for work done or services rendered, paid in the form of a loan. The recipients of the money have had the advantage of its use for some time…over many years.”
That is true. The judge went on to say that
“it was well within the generous margin of appreciation for Parliament to decide that it would tackle the matter in the way that it did, and impose a present tax liability in respect of money whose use, tax-free, had been enjoyed by the recipient over a number of years.”
I do not want to comment on that, because I do not think that proceedings in a law court should be commented on by Members of Parliament, but I draw it to the Committee’s attention.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Clause 15
Election for loan charge to be split over three tax years
Jesse Norman
I beg to move amendment 1, in clause 15, page 9, line 8, at end insert—
‘(11) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that sub-paragraph (7)(a) applies to a specified class of persons as if the reference to 1 October 2020 were to such later date as is specified.
(12) In sub-paragraph (11) “specified” means specified in the regulations.’.
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 11 to the Finance (No.2) Act 2017.
Jesse Norman
The clause allows taxpayers to make an election to spread their outstanding disguised remuneration loan balance evenly across three tax years. The effect is to give to taxpayers greater flexibility on when the outstanding loan balance is subject to tax. In some circumstances, that will mean that the loan balance is subject to lower rates of tax than if taxed only in the 2018-19 tax year.
As I described, the Government accepted all but one of Sir Amyas Morse’s recommendations, which included that taxpayers should be able to choose not to stack their outstanding loan balances into a single year. In deciding to allow individuals to elect to spread the loan charge over three years, the Government balanced the aim of reducing the number of people affected by higher marginal rates of tax against the administrative burden on individuals, employers and HMRC.
The Government wanted to ensure that people have a choice about whether to make an election. Some taxpayers may prefer to settle their loan charge liability in one year, providing certainty for them going forward. For many individuals, however, the option to spread the loan charge balance over a three-year period will allow for the amounts to be repaid over a longer time than otherwise required, and potentially with a tax advantage, had they paid the loans in the years received
Part 1 of schedule 1 provides consequential amendments to schedules 11 and 12 to the Finance (No. 2) Act 2017 to give effect to clause 14 of the Bill. The changes amend further references to the date of 6 April 1999 to remove references to approved fixed-term loans, which related only to loans made before 9 December 2010 and so are no longer affected by the loan charge—they have essentially been taken out of scope. Those consequential amendments are necessary to give effect to the legislative changes introduced following the recommendations by the independent review into the loan charge.
Part 2 of schedule 1 makes the consequential amendments to the Income Tax (Earnings and Pensions) Act 2003 necessary to give effect to clause 15 of the Bill, which allows an individual to make an election to spread their loan charge balance over three consecutive years: specifically, the years 2018-19, 2019-20 and 2020-21. Furthermore, part 2 sets out consequential amendments to the Social Security (Contributions) Regulations 2001— S.I. 2001, No. 1004—to ensure that the liability to national insurance contributions can also be spread over three years. Part 2 also introduces amendments to ITEPA to ensure that where a person dies before 5 April 2019, the schedule 11 loan charge will not apply.
Government amendments 1 and 2 to clause 15, and Government amendment 3 to clause 17, seek to achieve the same aim of giving Her Majesty’s Revenue and Customs the flexibility to defer the dates set out in those clauses. Clause 15 deals with the date by which an election must be made by an individual subject to the loan charge where that person wishes to split their tax liability over three years. Clause 17 deals with the date by which an individual subject to the loan charge must submit a complete and accurate 2018-19 self-assessment tax return and pay the balance of their 2018-19 tax liabilities if they are to avoid paying interest.
Recognising the impact of the coronavirus pandemic on the potential ability of some loan charge taxpayers to finalise their affairs in time to meet those dates, as raised by the hon. Member for Glasgow Central, the Government think it prudent to enable HMRC to defer those dates for particular classes of loan charge taxpayers, should that prove necessary. Accordingly, the amendments will enable HMRC by laying regulations to defer the dates for a specific class of loan charge taxpayers. For many individuals, clause 15 will reduce the amount they need to pay. It will also reduce the administrative burden on individuals, employers and HM Revenue and Customs.
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.
Jesse Norman
I thank the hon. Gentleman for his question. The principle is as laid out in the legislation and it should be recognised as wider than might originally have been contemplated, as concerns were raised during the consultation process on the draft legislation about the definition of reasonable disclosure, and the Government responded to those. The definition of reasonable disclosure in the legislation introduced in the Finance Bill has thus been widened to include disclosure in either an income tax self-assessment return or a corporation tax self-assessment return. The effect of that is to enable disclosure by either an individual or an employer to meet the definition of reasonable disclosure.
Disclosure can be made in more than one tax return of the same type and, as I have said, a tax return includes any accompanying accounts, statements or documents and has therefore been widely specified. How that is to apply in a specific context is, of course, a limitlessly varied matter, and limitless ingenuity will doubtless be deployed in showing that it can be applied to whatever the circumstances are, but that is the standard that the legislation lays down.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Clause 17
Relief from interest on tax payable by a person subject to the loan charge
Amendment made: 3, in clause 17, page 13, line 36, at end insert—
“(5) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that this section applies to a specified class of persons as if—
(a) the references in this section to the end of September 2020 were to such later time as is specified, and
(b) the reference in subsection (3)(b) to 1 October 2020 were to such later date as is specified.
(6) In subsection (5) “specified” means specified in the regulations.”—(Jesse Norman.)
This amendment will allow HMRC to extend, for particular classes of person subject to the loan charge, the period within which liability to income tax and capital gains tax for the tax year 2018-19 may be discharged without incurring interest on those liabilities.
Question proposed, That the clause, as amended, stand part of the Bill.
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.
Jesse Norman
It must be a tedious amendment indeed that has not excited the imagination or genius of the hon. Member for Ilford North, so I am grateful to him for clarifying that.
Clauses 19 to 20 implement recommendation 6 of Sir Amyas Morse’s independent review, ensuring that Her Majesty’s Revenue and Customs can refund the elements of settlements that were made since 2016, paid to settle unprotected years either before 9 December 2010 or between 9 December 2010 and the start of the 2016-17 tax year, where the taxpayer had made a reasonable disclosure of their scheme usage in their tax return.
Clause 19 requires HMRC to set up a scheme under which it may refund qualifying amounts of certain voluntary payments. Such refunds can be made only where the qualifying amount was paid under a settlement agreement made with HMRC on or after 16 March 2016 and before Budget day on the 11 March 2020. Additionally, the qualifying amount must have been paid in relation to a loan made before 9 December 2010 where HMRC did not have power to recover the amount due at the time the agreement was made, or it must have been paid in relation to a loan made after 9 December 2010 and before 6 April 2016 where a reasonable disclosure of the use of the loan scheme was made to HMRC at a time when HMRC had the power to recover the amount due, but did not take any action.
Clause 20 sets out the details that may be contained in the refund scheme. This may include who is eligible to apply for a refund, how an application should be made and the factors that will be taken into account by HMRC in calculating the refund due.
I now move to new clause 7, an SNP new clause, which would require the Chancellor of the Exchequer to commission an independent review of the impacts of the repayment scheme established under sections 19 and 20, and to lay the report of that review before the House of Commons within six months of the passing of this Act. Of course, it is very important that we should consider the impact of all tax policy on individuals and, in this case, of the repayment scheme on the approximately 2,000 taxpayers, including companies, the self-employed and employees, who may be entitled to claim a refund under the scheme.
Although that is the case, the Government do not think there is any cause to undertake an additional report. The Government have already accepted Sir Amyas Morse’s recommendation in his independent, thorough and expert report that the Government should report to Parliament on all aspects of our implementation of the loan charge changes before the end of 2020. This was recommendation 14 of the independent review into the loan charge. It was accepted by the Government at the time, and it already adequately fulfils the requirement put forward in new clause 7. For that reason, I commend clauses 19 and 20 to the Committee, but I ask that the Committee reject new clause 7 if it is put to a vote.
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.
Jesse Norman
I thank the hon. Gentleman for his thorough and wide-ranging remarks. He is right that it is a kind of principle of tax policy in a way, or the typical reaction of an individual, and one wishes that the general instinct shared by 98% or 99% of the tax-paying population that he articulated well —namely, that if it looks too good to be true, it almost certainly is too good to be true—was shared by the whole of the population. However, for different reasons, that is not the case. The hon. Gentleman is right to articulate the principle that if it looks too good to be true, it is, and I thank him for doing so. I also thank him and his colleagues for the nuanced interrogation they have given this policy, but not diverging from us on its core thrust.
I want to make it clear that I am not remotely downplaying, undervaluing or minimising the personal feelings of people, or the impact or hardship that they have experienced as a result of this situation. Clearly, there have been cases that have been felt across the House and raised by different MPs, and Revenue and Customs understands that as well. It has made it very clear that it will not force people to sell their main home; that it will not, except in the most unusual circumstances, put people into bankruptcy; and that it will exercise, by adhering to a series of principles, a judicious approach to people’s settlement processes. That includes a principle that no more than half of someone’s disposable income should go to settle a tax dispute, so that families have not only their non-disposable income but at least half of their disposable income to support themselves.
Those principles also include, as I have indicated, a set of basic time periods to make a settlement—of five years in the case of someone earning under £50,000 a year, and of seven years in the case of someone earning under £30,000 a year—and that is part of the practice of Revenue and Customs, and a well-embedded principle.
Furthermore, if people have concerns that they are being badly handled in this process—this also relates to the point that the hon. Gentleman made about an independent review—they can appeal to tax commissioners for, as it were, an investigation and review. Of course, they also have the ability to go to their MP, and Members are very effective in raising tax-related issues on behalf of their constituents.
Alison Thewliss
On the point about MPs intervening on constituents’ issues, I would challenge the question around disposable income. A constituent of mine had been asked to pay money back, and the definition that HMRC gave of his disposable income was incredibly tight compared with the definition of it that he had, which included his finding difficulty in giving his children money for school meals. That seemed to be treated as part of his disposable income. His children have to eat; that is not disposable income as such. I ask the Minister to be very careful about how that is described and how HMRC acts on those kinds of things, because it takes a very strict line on disposable income.
Jesse Norman
Of course, the approach taken needs to have foundational principles aligned to it, and those can be questioned in specific contexts and by the mechanisms that I have described.
The distributional impact of the way the loan charge disguised remuneration population breaks down has been put into the public domain and analysed by HM Revenue and Customs. For example, a relatively small number of people work in caring professions, contrary to the impression that colleagues may have been given. That is the context in which the final recommendation by Sir Amyas Morse, which is that these debts should be written off after 10 years, has been rejected by the Government. It is a recognition of Sir Amyas’s expertise and independence that 19 of his recommendations were accepted, and the Government have given a full account of the reason why they have rejected the 20th.
In line with Sir Amyas’s recommendations on voluntary restitution, HMRC will refund voluntary restitution already paid for years now out of scope of the loan charge, but will not refund settlements for the underlying tax liability where HMRC had protected its position. That is so that the treatment remains in line with the existing legal framework for HMRC to recover tax. Sir Amyas also recommended that for disguised remuneration loans taken out on or after 9 December 2010, HMRC should only refund voluntary restitution where the scheme user had reasonably disclosed their scheme use. We have discussed that already at some length.
Regarding some of the impact of the different pressures that may be on taxpayers, HMRC will not as a matter of course meet professional costs incurred by taxpayers in reaching their original settlement or claiming refunds, but it may meet professional costs where they have been incurred as a direct result of a mistake or an unreasonable delay in its own dealings with a taxpayer’s affairs. That was not the position when HMRC was applying legislation in place at the time.
Refunding fees to those who have used avoidance schemes would send the thoroughly troubling message that taxpayers who had not used those schemes might not do as well as those who had, which is not one that this House should be particularly encouraging. Of course, if a taxpayer feels they have grounds for making a complaint, the usual mechanisms are available for them to do so.
In his recommendation 14, Sir Amyas called for the Government to report to Parliament on all aspects of their implementation of the loan charge changes,
“before the end of 2020”.
We will do that. I am grateful to the hon. Lady for laying out her concerns in that regard in this debate, and I will ensure that the officials understand and reflect on them when they start to frame this report.
As per Sir Amyas’s recommendations, the report will draw on input from the HMRC customer experience committee. It is very important to realise that the committee includes not only the non-executive directors of Revenue and Customs, but highly experienced independent people in positions of authority and expertise who are specifically customer experience experts in the private sector. The effect of the committee is to support but also challenge the HMRC executive on customer experience-related issues, and to help the Department deliver on its strategic objectives. In other words, part of its point is to ensure that HMRC treats taxpayers with a proper degree of courtesy and service levels, but in no sense becomes oppressive to them.
Let me pick up another important point, which I meant to mention earlier but have not yet: the very strong approach that HMRC is taking on promoters and enablers of tax avoidance. Certainly since I have been Financial Secretary to the Treasury, we have significantly enhanced the already substantial work being done in that area. That includes work that builds collaboration across Government, including with bodies such as the Advertising Standards Authority or the Insolvency Service. It involves proactive communications to help taxpayers to steer clear of avoidance.
HMRC has launched a consultation on ways to combat the promotion and enabling of tax avoidance; colleagues from different parties are welcome to make contributions to that if they wish. The areas it is looking at include tackling promoters and their supply chains, looking at the economics of tax avoidance, disrupting business models and improving compliance and enforcement in other ways. I would like the Committee to understand that HMRC is in no sense minimising the importance of going after promoters and enablers where it can—subject to law, and with new powers if it should be so decided after the process of consultation.
Question put and agreed to.
Clause 19 accordingly ordered to stand part of the Bill.
Clause 20 ordered to stand part of the Bill.
The Chair
That comes later, at the end. We do not vote on that now.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Finance Bill (Third sitting)
Tuesday 9th June 2020
(3 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 9 June 2020 - (9 Jun 2020)
The Chair
Good morning. I remind Members that tea and coffee are not permitted in Committee meetings. Please would all Members ensure that mobile phones are turned off and switched to silent mode during Committee meetings?
The selection list for today’s sitting is available in this Committee Room and written evidence received since the last sitting of the Committee, on Thursday, has been circulated by email to all members of the Committee.
The Hansard reporters would be most grateful if Members emailed any electronic copies of their speaking notes to hansardnotes@parliament.uk. Members should be aware that at 11 o’clock I will invite the Committee to observe a minute’s silence in remembrance of George Floyd.
Clause 21
Annual allowance: tapered reduction
Question proposed, That the clause stand part of the Bill.
The Financial Secretary to the Treasury (Jesse Norman)
Thank you very much indeed, Mr Rosindell; it is a delight to see you in the Chair.
I start by saying that we are at the point in “The Pilgrim’s Progress” where we are about to enter the slough of despond, and I apologise to all colleagues that the slough is a rather extended period of technical amendments. I can promise them that in due course we will enter the place of deliverance, although possibly not for some time.
Clause 21 raises both pensions tapered annual allowance thresholds by £90,000 each and also lowers the minimum annual allowance to £4,000. The Government provide tax relief on pension contributions. To give some background, in 2017-18 income tax and employer national insurance contributions relief cost £54 billion, of which 60% went to higher and additional-rate taxpayers.
The Government therefore impose limits on pensions tax relief. One of these limits—the tapered annual allowance—has affected some senior clinicians in the national health service and also some individuals in other public service workforces. This measure is the outcome of the Government’s manifesto commitment to carry out a review of the impact of the tapered annual allowance on the NHS. That review built on another review of the effect on public service delivery more widely, which was announced last August. Roundtable discussions with public service stakeholders, including representatives of the health professions, were held as part of these reviews. These reviews concluded at the Budget on 11 March.
In the last tax year, in recognition of the impact that the tapered annual allowance was having on some doctors, NHS England announced a special arrangement, for 2019-20 only, in which doctors in England could use that arrangement to ensure that they would not be worse off as a result of taking on extra shifts. As health is a devolved matter, that special arrangement applied only to England, but we are aware that the Welsh and Scottish Governments also put similar arrangements in place during 2019-20 for NHS staff.
Raising the two thresholds at which the tapered annual allowance applies by £90,000 each is the quickest and most effective way to solve this issue for senior doctors and other clinicians. It delivers a tax solution, which has been the British Medical Association’s primary request, and it comes into effect from 6 April, which is the beginning of the current tax year.
The changes made by clause 21 mean that no one with income below £200,000 will now be caught by the tapered annual allowance. The annual allowance will only begin to taper down for individuals who also have total income, including pension accrual, above £240,000. We estimate that this will take up to 96% of GPs and up to 98% of NHS consultants outside the scope of the tapered tax allowance, based on NHS earnings alone.
As this is a tax change, these measures will apply both to clinical and non-clinical staff across the whole UK, and they will apply in the same way to all workforces. These measures will also apply equally across public and private sector registered pension schemes. However, to ensure that the very highest earners pay their fair share of pension tax, the minimum level to which the annual allowance can taper down is reducing from £10,000 to £4,000 from the beginning of this tax year. This will affect only those with a total income, including pension accrual, of over £300,000. These measures will cost over £2 billion over the next five years.
The changes demonstrate that the Government are committed to ensuring that hard-working NHS staff do not find themselves reducing their work commitments as a result of the interaction of their pay, their pension and the tapered annual allowance tax regime. This meets the Government’s commitment to allow doctors to spend as much time as possible treating patients, and supports vital public services while ensuring that the very highest earners pay their fair share of tax. I commend the clause to the Committee.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
It is a pleasure to welcome you back to the Chair this morning, Mr Rosindell.
The Opposition welcome the Government’s efforts to resolve the issue. Hon. Members will know that the primary function of introducing the tapered reduction of the annual allowance in 2016 was to prevent tax avoidance in the private sector, but whatever the original intention of the tapered annual allowance threshold, its impact was not properly considered. The result has been damaging to our NHS: as the Financial Secretary says, it has led to a situation in which senior practitioners have refused to undertake extra shifts because of the tax impact, and in many cases have taken early retirement.
According to a British Medical Association survey, just under a third of doctors have reduced the number of hours they spend caring for patients because of actual or potential pension taxation changes, while 37% of those who have not yet reduced them plan to do so in the next year. That is perhaps unsurprising considering the nature of the tapered annual allowance: as the BMA sets out, it creates a tax cliff edge whereby doctors effectively pay to work. Although the Treasury and HMRC have repeatedly stated that tapering affects only people with earnings over £150,000, in defined benefit schemes it has created a tax cliff at the income threshold of £110,000, which means that those in defined benefit schemes may face additional tax charges of up to £13,500 if they exceed the tax threshold income by just £1, while some could face effective tax charges greater than 100%.
Of course, we should recognise that that is not the only factor contributing to the real problem of staff retention in the NHS. Aside from the impact of coronavirus, hospitals and A&Es have been overstretched for years, increasing numbers of people are waiting too long for operations, and key performance targets are being missed month after month. We also face a chronic lack of family doctors; as the Nuffield Trust has highlighted, we have seen the first sustained drop in GP numbers in 50 years, which adds to the pressures on remaining staff. The problem is particularly acute in certain parts of the country: in Sunderland and the wider north-east, we can see the same picture at a much bigger level, where we face a real challenge to recruit and retain family doctors.
The doctors I speak to are always striving to do the best they possibly can in challenging circumstances, but we must acknowledge that the stress they have been placed under, due to the underfunding and neglect of our NHS by this Government, has made the situation even worse. The pension situation that many have faced since 2016 has no doubt proved to be the final straw, as doctors have opted not to take shifts, or to retire early. As we have seen, that is complicating efforts to retain such important NHS staff.
The situation would be unsustainable even if we were not facing the impact of coronavirus, but the additional pressures on doctors, many of whom will have taken on extra shifts, make resolving the issue more pressing than ever. All of us owe a debt of gratitude to those NHS staff who have put themselves on the frontline, in harm’s way, to do all they can in the national interest at this very difficult time for our country.
It is important to note that the problem is not exclusive to staff within the NHS; the annual allowance is a problem in other defined benefit schemes, including for the armed forces. As the Forces Pension Society states,
“in 2018 almost 4,000 serving military personnel, including those in non-commissioned ranks, received notification that they might have exceeded their annual allowance limit and for many a significant tax charge followed—well ahead of receiving any of the future benefit on which the tax is levied.”
The society argues that
“unless action is taken, there is a real risk to retention and operational effectiveness”—
a concern also highlighted by the Ministry of Defence.
We all owe it to those in our public services and our armed forces, who do so much to care for us, protect us and keep our country safe, to make sure that they are treated fairly and can plan effectively for their pension and later life. It is clear that that has not happened as a result of the changes implemented by the Government in 2016. The proposed measure does at least promise to address the issue in part and in the short term and the BMA has stated that the vast majority of doctors are now removed from the effect of the taper. However, there are still concerns, and I hope the Minister will be able to respond to them.
The proposed tax change would take effect only from 6 April 2020; as the Minister will know, the additional pressures created by covid-19 began before that point. As the Chartered Institute of Taxation has identified, that means that doctors who took on extra shifts during this period face the risk of being hit by higher tax bills later. What consideration has been given to the issue of medical staff who have made extra efforts during this crisis, but before 6 April 2020? Has any analysis been undertaken of the scale of the problem and will any measures be necessary to address it?
Given that the purpose of the clause is to reduce and reverse the trends with doctors not taking shifts and retiring early, I would also welcome confirmation from the Minister that the Government intend to monitor the impact of the clause on an ongoing basis, to ensure that it is having its intended effect.
We have concerns more broadly because, as the Minister said, the proposed change would benefit all high earners, not just NHS staff and those in our armed forces that the clause ostensibly targets. Monitoring the effect on taxation revenue will also be critical, because the Opposition want to see fairness right across the system. Although the measure seems to address the issue in the short term, the Minister will be aware of the wider concerns about whether the tapered annual allowance is appropriate in general.
The Office of Tax Simplification has suggested removing the annual allowance from defined benefit pension schemes, and that move was supported by the BMA. As it said in its response to the 2020 Budget, although it welcomed the Government’s proposal in part, problems remained, given that many doctors with incomes far below the new threshold will face tax bills as a result of exceeding the standard annual allowance, which remains at £40,000. That can happen simply following a modest rise in pensionable pay—for example, when receiving a pay increment, taking on a leadership role or being recognised for clinical excellence. The BMA has added that there is no change to the lifetime allowance and many doctors will still need to consider taking early retirement.
The Minister will no doubt be aware that the former Pensions Minister, Baroness Altmann, has similarly warned that just raising the threshold of earnings at which the tapered annual allowance starts will certainly not solve the underlying problem. She has called for fundamental reform to provide those in defined benefit schemes with greater certainty into the future. The Opposition support that call for broader consideration of the issue.
All that brings us to wider considerations around pension tax relief and whether the system as it operates works as well as it could. The Chartered Institute of Taxation, among others, has said that a review of how tax relief applies to pension savings should be considered, given that the solution that the Government have presented here has only been achieved at significant cost to the Exchequer and to the benefit of many higher-earning people, beyond our medical and armed forces staff. Will the Government consider such a review and think more widely about creating a simpler, fairer and more sustainable pensions system?
Jesse Norman
I thank the hon. Lady for her remarks and for welcoming these measures. She expresses what I know will be the universal sentiment in this Committee: a sense of profound gratitude to the NHS for the astonishing way in which it and all the public services around them have responded to the crisis posed by coronavirus. I certainly echo that.
The hon. Lady talked about underfunding of the NHS. I really do not recognise that at all: the NHS has been very well funded, with continuous above-inflation funding settlements. In relation to coronavirus alone, public services have received over £16 billion, the NHS central among them. However, that only underlines the point that extraordinary work was being done by the NHS before, and it throws into greater relief how flexibly, energetically and effectively it has responded to the coronavirus pandemic. I think that shows the inner resilience of the organisation.
The hon. Lady asked about people somehow being deterred from taking extra shifts in the NHS. She will be aware that NHS England put in place its own measures for last year, and we understand that parallel measures were implemented in Scotland and Wales.
The effect of the change, which begins in April, is to give a sufficiently generous increase in the annual allowance thresholds so that up to 96% of GPs and up to 98% of senior medical staff will be out of scope of the tapered annual allowance as regards their NHS earnings. It is interesting to note that, as the hon. Lady rightly acknowledges, that has been widely recognised by the key institutions. The BMA said:
“The vast majority of doctors are now removed from the effect of the taper and will no longer be in a situation where they are ‘paying to go to work’”
as they see it. NHS Employers said:
“Employers across the NHS will welcome this significant step in reforming pensions taxation.”
That is all to the good.
The hon. Lady asked whether we will monitor the clause’s impact. The Treasury will of course monitor it as we do the effects of taxation across the piece. This reform will retain a certain political currency and therefore, I think, support and enthusiasm across the Committee. She also asked about fairness across public services. She will be aware that one of the benefits of a tax reform is that it offers fair treatment across those public services, irrespective of how people work.
The question of whether the allowance taper should be removed has been scouted by some. Of course, unless it was replaced by some other approach, it would have the effect of there being no corresponding reduction in the capacity to add pensions relief. The absence of a taper would therefore create precisely the cliff edge that the hon. Lady warned against.
The hon. Lady mentioned the idea of a review. She will be aware that the Treasury had a review only a short number of years ago, which was inconclusive. We continue to reflect on this complex and difficult area of taxation and will do so as we ponder the future fiscal effects. With that in mind, I hope the Committee will agree that the clause should stand part of the Bill.
Question put and agreed to
Clause 21 accordingly ordered to stand part of the Bill.
Clause 22
Entrepreneurs’ relief
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 2 be the Second schedule to the Bill.
New clause 8—Review of changes to entrepreneurs’ relief—
‘(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made to entrepreneur’s relief by section 22 and Schedule 2 of this Act and lay a 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, and
(c) productivity.
(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 for National Statistics.’.
This new clause would require a review of the impact on investment of the changes made to entrepreneurs’ relief.
Jesse Norman
The clause and schedule 22 rename entrepreneurs’ relief as “business asset disposal relief” and reduce the lifetime limit for gains eligible for relief so that from 11 March 2020 the relief can be claimed on gains of up to £1 million. The purpose of renaming the relief is simply to reflect its function and purpose more accurately.
The relief offers a reduced rate of 10% capital gains tax on disposal of eligible business assets. Evidence shows that for some people—indeed, quite a few people—the relief has been a tax planning tool, helping some of the richest people in society to pay less tax rather than discharging its purpose of incentivising entrepreneurship and enterprising business activity. Last year, three quarters of the relief’s cost was for claims made by just 6,000 people disposing of assets with gains of over £1 million. The reform ensures that the Government can more sustainably support small businesspeople with up to £100,000 capital gains tax relief available over their lifetime.
The clause also makes special provisions for disposals entered into before 11 March 2020—that is to say, Budget day—that have not yet been completed. The provisions ensure that such people can still use the previous lifetime limit, but only where the disposal has not been artificially structured for the purpose of securing a tax advantage. It is therefore an anti-forestalling rule, with the rules ensuring that everyone pays their fair share of tax.
The previous lifetime limit of £10 million was an unsustainable degree of support for those less in need of it, and, as I have said, did not discharge the purpose of supporting entrepreneurship as it should have done. The new £1 million lifetime limit is far more sustainable and better targets the people who it was intended should benefit from the relief.
Bridget Phillipson
I begin by acknowledging that the action on the relief is welcome, even if we believe it is overdue and could go further. The Minister might be familiar with the Resolution Foundation’s description of the entrepreneurs’ relief as “the worst tax break” that is, “expensive, ineffective, and regressive”. According to HMRC, it cost an estimated £2.1 billion in 2019-20 alone. Before responsibility is laid at the door of the previous Labour Government for introducing the measure, I should argue that many of the undesirable effects have followed changes made post-2010. I thank the House of Commons Library for providing me with a timeline of the changes made to entrepreneurs’ relief since its introduction in 2008, which has allowed me to illustrate that point.
The relief was introduced by the then Chancellor, Alistair Darling, in 2008 with the goal of promoting entrepreneurship in the UK and making us a world leader in the field by encouraging business owners selling up to reinvest the money into new businesses. The 2008 Budget established that the relief would set an effective tax rate of 10% for up to the first £1 million of gains made over a lifetime, which was increased to £2 million from April 2010.
In the coalition Government’s first Budget on 22 June, the then Chancellor, George Osborne, announced that the lifetime limit for entrepreneurs’ relief would be set at £5 million, while the single flat rate of capital gains tax would be replaced with the higher 28% rate paid by higher rate taxpayers. As part of the Government’s second Budget in March 2011, it was announced that the lifetime limit for entrepreneurs’ relief would be increased to £10 million from 6 April 2011.
When the relief was introduced by the Labour Government, the estimated cost was £200 million a year: the generous uprating of the lifetime limit under the coalition Government has undoubtedly contributed to its ballooning cost. Perhaps the cost would be justifiable if it had been shown to have a positive impact in boosting investment in jobs across our country, but there is no evidence to suggest that that has been the case.
The Institute for Fiscal Studies has calculated that, in 2017-18, three quarters of the £2.3 billion cost of entrepreneurs’ relief benefited only 5,000 individuals, with an average tax saving among that group of £350,000. The Resolution Foundation highlights HMRC data that shows that 82% of those who benefited have been male and in their late 50s, and that the majority of capital gains tax revenue is concentrated in London and the south-east. The 2017 HMRC evaluation found that only 8% of people claiming entrepreneurs’ relief in the previous five years had said that it influenced their investment decision making. That demonstrates the extent to which the relief was not working as intended, and the necessity of Government action.
Putting aside whether the approach taken by the Government is the right one, there are some technical issues that I hope the Minister can clarify. The Chartered Institute of Taxation has expressed a degree of surprise at the lack of transitional provisions, given that the capital gains tax changes are retroactive, affecting gains that have already accrued but not yet been realised and investment decisions that have already been made. The institute has also expressed concerns about the strength of the anti-forestalling measures for what is a change of policy rather than anti-avoidance legislation, saying it regards one aspect of the measures as open to challenge as retrospective taxation because the Government are changing the tax effect of an action after the right to take that action has arisen. Having sought legal consultation, it fears that may even be a breach of human rights. It has suggested changing the clause to allow a shareholder whose shareholding no longer qualified for entrepreneurs’ relief immediately after an exchange of shares to elect to retain the £10 million limit. Will the Minister tell us what consideration the Treasury has given to the issue?
What consideration have the Government given to going further than the measures contained in this clause? As I have sought to set out to the Committee, entrepreneurs’ relief is costly and is failing to achieve its objective. The Minister is aware, no doubt, that any number of organisations are critical of maintaining it in any form, although the criticism is not unanimous. The Federation of Small Businesses has voiced its concerns and believes that removing entrepreneurs’ relief would disincentivise employee ownership by reducing the value of businesses as they are handed over. Can the Minister say anything by way of reassurance to the Federation of Small Businesses, and does he agree with its assessment?
Many others remain critical and that is where the majority of opinion rests. The Institute for Fiscal Studies has stated that the £1 million relief in the clause is still too generous. The Association of Accounting Technicians says it is disappointing that the Government have failed to scrap it altogether, highlighting an overwhelming body of evidence from focus groups, HMRC-commissioned research, the Office of Tax Simplification, the National Audit Office and others,
“which indicates that the relief does not achieve its policy objectives, that it’s extremely expensive, poorly targeted and ultimately ineffective.”
In the light of that, will the Minister set out for the Committee why the Government have not gone further in this area?
On the new clause, which was tabled by the Scottish National party, we understand the rationale for a review of the measure’s impact on business and on different parts of the UK, but as I have sought to set out to the Committee, there is a strong body of evidence of the entrepreneurs’ relief not working effectively. I would appreciate a better understanding of the impact the amendment seeks to achieve. We do not oppose the new clause; we just think it could go further.
Let me make it clear that a more progressive approach to entrepreneurs’ relief should not be confused with being anti-business. As my hon. Friend the Member for Ilford North set out last week in Committee, Labour Members support measures to promote investment and entrepreneurialism and to support the small businesses that are the backbone of our community and that are doing so much at a difficult time to try and keep people in work, to support our communities and to contribute to our country. The Government need to bring forward measures to ensure that tax reliefs work effectively. The evidence suggests that the entrepreneurs’ relief, as conceived and delivered over the past decade, does not work.
There is a wider issue here that I hope we can revisit in later stages of the debate regarding the Government’s efforts to monitor the effect of tax reliefs such as entrepreneurs’ relief. The National Audit Office’s excellent recent report on tax reliefs shows that the Government are not reporting costs on over two thirds of them and that HMRC did not know whether most tax reliefs offered value for money. I believe the Public Accounts Committee will be taking evidence on this very shortly and publishing its report on the work of the National Audit Office in considering this important issue. We on the Opposition Benches will be following that discussion carefully, because it seems incredible that the Government do not have a proper grip on that area, where there is a real problem around value for money and whether the information provided to Parliament is sufficient, so we can understand whether tax reliefs are having the outcome intended by Government and whether fairness is built into the system.
We will continue to argue for a broad review of tax reliefs and continue to encourage Ministers to adopt the policy to determine exactly who is benefiting from the hundreds of tax reliefs that exist, whether they are fair, whether they represent good value for money, whether we can be confident that they are securing the policy outcomes as originally intended, and that the Government should legislate to make the system fairer as a whole.
Stephen Flynn (Aberdeen South) (SNP)
This is my first experience of a Finance Bill Committee—indeed, I think it is the first time we have met, Mr Rosindell, and I look forward to serving under your chairmanship. Dare I say that our new clause is constructive? That is the manner I am starting in. I would like the Government to change their stance a bit and look at the wider picture.
Before the Budget, it was well known to all of us in the public sphere that the Government were considering entirely scrapping entrepreneurs’ relief. We read a number of comments in the press and the public domain about Conservative Back Benchers being unhappy with that move because they felt it would stifle investment. Ultimately, the Chancellor did not scrap entrepreneurs’ relief but simply took it back to the level it was at when the Labour party introduced it in 2008, reducing it from £10 million to £1 million. We need to know what the Government’s long-term direction of travel is. We cannot be driven by a rebellion on the Government Back Benches. If the Government do not feel that entrepreneurs’ relief is beneficial, they should make that clear.
The Minister said that the Government have conducted a review, and indeed they have, but it was an internal review; as far as I am aware, it is not in the public domain. They are more than welcome to put it into the public domain, or they could agree to our new clause. The hon. Member for Houghton and Sunderland South talked about what we are could achieve. It is important that we have that review so that we all know where entrepreneurs’ relief is going to be in the coming years.
As I say, this is a constructive suggestion. It is based not just on our interpretation of the situation, but on the evidence. The IFS believes that entrepreneurs’ relief is poorly targeted; the FSB, on the other hand, is broadly supportive; and the Chartered Institute of Taxation believes that a public consultation on objectives and efficacy is necessary. There is a broad range of views about this policy, so the time has come for the Government to undertake a review in the public domain so that we all understand the direction of travel and know where they seek to go. Hopefully, that will inform us all a bit more about the position. As I say, this is a constructive suggestion, and I hope the Government will change their stance.
Jesse Norman
I thank the hon. Members for Houghton and Sunderland South and for Aberdeen South very much for their comments. They raise a number of important points.
It is certainly true that this relief has attracted widespread criticism from different interested and expert bodies; the hon. Lady is absolutely right to point that out. It is important to note that the Government have tried to strike a balance. An outright abolition might have had the effect of penalising a lot of entrepreneurial activity, undertaken in good faith up to the level that has been determined. That would have been, in the Government’s view, an overreaction to the situation. Therefore, we have tried to strike a balance by trying to keep the vast majority of entrepreneurial activity that is protected in place while cutting back on aspects that are ineffective or regressive.
It is interesting, as has been noted by Opposition Members, that alongside widespread concern there has also been notable recognition of the importance of that aspect of the relief that I have highlighted from the Federation of Small Businesses. I note that the national chairman described this as a
“sensible compromise on Entrepreneurs’ Relief”,
in which
“everyday entrepreneurs will be pleased to hear the Chancellor say that he has listened to FSB”.
Jesse Norman
We continue to stride boldly through the slough of despond. Here we come to the reform of the capital gains tax private residence relief ancillary reliefs. The clause makes changes to capital gains tax private residence relief where individuals have more than one residence, reducing the final period exemption from 18 months to nine months and reforming lettings relief so that that relief only applies where the owner shares occupancy with a tenant.
The clause also makes several other minor changes to make the private residence relief rules fairer. The Government are committed to keeping family homes out of capital gains tax, and private residence relief will still be available for the entire time a property is lived in. However, ancillary reliefs mean that in some circumstances people can accrue relief on two or more properties simultaneously. The reforms make private residence relief fairer by better targeting relief at owner-occupiers.
The final period exemption currently relieves the last 18 months of ownership of a main residence or former main residence from capital gains tax. This provides relief as people go through the process of selling their home, but it allows people to accrue relief on two properties simultaneously. From April 2020, the exemption will be reduced to nine months. The 36-month exemption for those who are disabled or are in a care home will remain.
Lettings relief is available when a property that was someone’s previous main residence is wholly or partly let out. This can extend the benefit of relief by up to £40,000 for an individual and £80,000 for a couple, while they are also accruing relief on their current main residence. In order to better target the relief at owner-occupiers, from April 2020 lettings relief will only be available in cases of shared occupancy. The armed forces future accommodation model is also a source of concern. We want to be sure that the clause will extend the benefit of employer-provided accommodation relief to those service personnel who live in privately rented accommodation under that new model.
The Government are also legislating on two extra existing statutory concessions. The first applies when an individual has more than one residence, but only one has any real capital value. This concession extends the time period for nominating the individual’s main residence. The second allows 24 months of relief where, for specific reasons, a person is unable to occupy a new home for use as their main residence. There is also a change to ensure that, when spouses or civil partners agree to transfer shares in a residential property between themselves, the receiving spouse or civil partner will inherit the transferring spouse’s past use of the property, no matter the use of the property at the time of transfer. This prevents unfair outcomes arising in certain cases.
The Government are committed to keeping family homes out of capital gains tax, through private residence relief. However, the current availability of lettings relief, and the 18-month final period exemption, can mean that people accrue relief on two or more properties simultaneously. These reforms address those concerns and make private residence relief fairer, by better targeting it at owner-occupiers. I therefore commend the clause to the Committee.
Bridget Phillipson
The objectives behind the clause seem well intentioned, but the Minister will no doubt be aware of the severe impact of covid-19 on the housing market, as referenced by many stakeholders—a point which I should be grateful if he would address. According to the Chartered Institute of Taxation, the evidential basis for the reduction in the final period exemption was based on an average selling time—before the current pandemic—of approximately four and a half months, and it is concerned that this evidence base may be undermined by the effects of covid-19.
The Minister will be aware of his Government’s own advice, which lasted until 13 May, that physical viewings of homes were not permitted, and as such, that the home-buying process would take longer, with people advised to delay moving into a new house. While there is updated advice, there are still clearly restrictions that will slow down the process of buying a new home, and wider practical difficulties in this area when it comes to estate agents, banks processing payments and the wider conveyancing system.
The Chartered Institute of Taxation referred to research by Zoopla, conducted between 12 and 19 May, which found that 41% of would-be home movers across Britain had put their property plans on hold in light of market uncertainty, loss of income and lower confidence in their future finances, with property inquiries reported to be more than 50% down on pre-lockdown levels. Given that ongoing uncertainty, it is increasingly likely that it may take longer than nine months for some of those affected by this provision to sell their property, given the deterrent impact of covid-19 and the lockdown on potential buyers, as well as all the practical difficulties for buyers, which I am sure we appreciate. That could leave sellers with an unexpected tax liability when a property takes longer than nine months to sell. Many stakeholders consulted on this legislation believe that the fairest way to resolve the issue is to defer the introduction of the final period exemption, so as not to burden some sellers with an unprecedented tax liability.
In their consultation with stakeholders from July 2019, the Government responded to worries about the nine-month period exemption being too short by saying that
“a 9 month final period exemption strikes the right balance between being long enough to provide relief whilst they go through the process of selling their home, but not so long that they are able to accrue large amounts of relief on two properties simultaneously, or on homes that are no longer used as their main residence.”
I will not seek to blame the Government for not predicting at that point the impact of a global pandemic, but we are living through some very difficult times. Has any further consideration been given to the timing of the measures contained in the clause? Given the pressures on the housing market, does he still regard them as appropriate and realistic? Is the Treasury considering the impact more broadly?
Putting the coronavirus aside, concerns have been raised that the clause runs in contradiction to the parliamentary convention on retrospective taxation, whereby retrospection is permissible only when dealing with unacceptable avoidance schemes. The clause is about changing long-standing reliefs rather than countering avoidance, and the Institute of Chartered Accountants in England and Wales has highlighted that the clause is retrospective. It also argues that it would be simpler for taxpayers if the measures were delayed until the start of the next tax year. I am sure the Minister has given consideration to that point, and I am keen to hear his views on the topic.
Another point raised by the Chartered Institute of Taxation is that the new rules must be well communicated. Their introduction coincides with the new 30-day time limit running from the date of completion to the reporting and payment of capital gains tax, meaning that there is now much less time to establish capital gains tax liability. What are the Government doing to communicate such changes, so that they are well understood?
The changes as a whole are projected to raise £50 million for the Government in this tax year and £120 million next year. Given the current situation in the housing market, I shall be interested to hear the Minister’s views on whether any change has been made to any projections in this area. It is vital that the Government can raise funding for our vital public services, but in the grand scheme of things, those seem like relatively modest sums. Although I want to ensure that our public services have the funding they need to get through this crisis, I am sure the Government would not seek to disadvantage those who, through no fault of their own, find themselves in a very difficult situation owing to the pandemic.
Those are the only comments that I seek to offer on the clause. I shall be grateful for a response from the Minister.
Jesse Norman
I thank the hon. Lady for her comments. She raises the question of retrospectivity. We do not regard the changes as retrospective. Capital gains tax is due only when a disposal is made, and taxpayers have 18 months’ notice of the changes. They have therefore had plenty of time to rearrange their affairs—for example, by selling property under the old rules if they had wished to do so. It is important to remember that any private residence relief accrued from periods when the property was lived in as a main home is retained.
I am glad that the hon. Lady does not blame the Government for failing to predict the pandemic. That would be a very widespread source of blame; few people across the world could be exculpated from that. She also raised the question of the effect of covid-19. It is worth saying that, as she highlights, the nine-month exemption is based on evidence that the average selling time was four and a half months, and the suggestion is therefore that nine months is not long enough. I note her point and will take it away with me from this sitting; I thank her for that. It still leaves the average significantly short of nine months. It is worth pointing out that, if people are taken over that level, they will still likely pay very little, if any, capital gains tax, because the annual exempt amount, which has just been increased to £12,300, keeps small gains out of CGT. If someone was running over by a month, it would have to be an enormous gain in order to breach the annual limit.
As I said, there are no changes to the wider 36-month exemption that is available to disabled people and to those in care homes. The Government think the CGT allowance provides an additional safeguard in case there are circumstances in which people might inadvertently run over time.
Question put and agreed to.
Clause 23 accordingly ordered to stand part of the Bill.
Clause 24
Corporate capital losses
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 3 be the Third schedule to the Bill.
Clause 25 stand part.
New clause 9—Review of changes to capital allowances—
“(1) The Chancellor of the Exchequer must review the effect of the changes to chargeable gains with respect to corporate capital losses in section 24 and Schedule 3 of this Act in each part of the United Kingdom and each region of England and lay a report of that review before the House of Commons within two months of the passing of this Act.
(2) A review under this section must consider the effects of the changes on—
(a) business investment
(b) employment, and
(c) productivity.
(3) A review under this section must consider the effects in the current and each of the subsequent four financial years.
(4) The review must also estimate the effects on the changes in the event of each of the following—
(a) the UK leaves the EU withdrawal transition period without a negotiated comprehensive free trade agreement,
(b) the UK leaves the EU withdrawal transition period with a negotiated agreement, and remains in the single market and customs union, or
(c) 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.
(5) The review must also estimate the effects on the changes if the UK signs a free trade agreement with the United States.
(6) 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 requires a review of the impact on investment, employment and productivity of the changes to capital allowance over time; in the event of a free trade agreement with the USA; and in the event of leaving the EU without a trade agreement, with an agreement to retain single market and customs union membership, or with a trade agreement that does not include single market and customs union membership.
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.
Stephen Flynn
Dare I say that I think I am potentially being constructive again in the new clause that the SNP have tabled? We are seeking to allow the Government to open their eyes to what is coming down the track and to look at the impact on business, investment, employment and productivity of a number of different scenarios, be they a comprehensive free trade agreement, remaining in the single market and customs union, not remaining in the single market and customs union, and/or a free trade agreement with the United States.
Ultimately, however, this is not just about helping the Government to see the error of their ways, should they follow the path they are on, but also about reinforcing to hon. Members the huge detrimental impact that leaving the European Union will have on Scotland. Lest we forget, the people of Scotland voted overwhelmingly to remain in the European Union. We are being forced to put forward amendments such as this because the democratic views of the people of Scotland have been disregarded once again by this Parliament.
I will touch briefly on the reality of the situation facing Scotland, because it is incredibly important to the debate we are now having. A new study from the Scottish Government says that, if an extension is not agreed, Scottish GDP could be up to 1.1% lower after two years. That is just in relation to an extension. The cumulative loss of economic activity from leaving the EU would be up to £3 billion over those two years. That is on top of the devastating impact of the current pandemic on the Scottish economy. We will potentially have billions wiped from our economy at a time when we are reeling from the impact of this public health tragedy. That is simply not good enough.
The very notion that a US trade deal will save the day is complete and utter rubbish. Analysis from the Scottish Government highlights that the loss of friction-free trade with the EU would lower GDP by 6.1% by 2030. Analysis by the UK Government shows that a free trade agreement with the US would increase UK GDP only by up to 0.16%. Those are remarkable figures, which we all need to consider in full. The reality is that the reckless approach of the UK Government in potentially losing full access to the European single market will have a devastating impact on Scotland’s economic growth and prosperity. It also puts in jeopardy many of our key priorities: the NHS, upholding food standards and tackling the climate emergency.
Lowering standards is perhaps a topical subject to touch on, because we have all read with interest comments in the press over recent weeks about the impact of lowering food standards on imports of food into the United Kingdom. We are proud of Scotland’s agricultural sector and the produce we create, which is world renowned for its class. We cannot under any circumstances have a situation where the quality of that produce is impacted by the decisions of the UK Government, particularly when those decisions will be made on the back of something we did not vote for. I cannot emphasise that enough to Members. Whether it is chlorinated chicken, selling off the NHS to Donald Trump or simply trying to bring down the tariffs on Scotch whisky, the UK Government have shown they are incapable of meeting the needs of the people of Scotland, and I have grave concerns about what is coming down the line.
As I say, the new clause we have tabled today is constructive, because it would allow the UK Government’s eyes to be opened to the reality of the situation facing Scotland. If they are true in their comments about believing that Scotland is a key part of the United Kingdom, and Scotland should lead and not be led, they will hopefully bear the new clause in mind.
I will finish by touching on the comments of the hon. Member for Ilford North, who rightly said that, for many, Brexit has been forgotten about. Well, for people in Scotland it has not been forgotten about, because we overwhelmingly do not support it. Rightly, the pandemic—overcoming it and ensuring that lives are saved—is the focus of all our priorities at this moment, but we know what is coming down the line and we are fearful. Up until now, none of the mood music coming from the UK Government has offered any reassurance whatever. Hopefully, the figures I have highlighted in relation to a United States trade deal will re-emphasise the reality of the situation to the Government.
I said I would finish, but that was perhaps a fib, because there is one further comment I wish to touch on. I apologise if I get a word or two wrong, but the Minister said that the new clause would not provide “any useful information”, and I am astounded at that. I thought that a UK Government Minister would want to know about the impact on productivity of the decisions that the UK Government may take. I thought a UK Government Minister would want to know about the impact on employment of the decisions taken on business productivity, but it appears not. It appears that wilful ignorance is the story of the day, which is not a good thing. The people of Scotland will pay close attention to the actions of the UK Government moving forward, as they have up until now.
Jesse Norman
I would not have dreamt of not responding to the concerns raised by Members of the Opposition, and I am grateful to you, Mr Rosindell, for allowing me to do so.
The hon. Member for Ilford North mentioned the simplification of the tax system and asked whether the measures before us could be regarded as a simplification. He is absolutely right that simplification of the tax system is a highly desirable thing. In this case, without getting too far removed from political business, it seems there is a parallel to some of the work done by Thomas Kuhn on how science proceeds, where he distinguishes between times in which normal science proceeds, as it were, in a normal fashion and times when there is a paradigm shift and everything changes. Often, the effect of a paradigm shift is to create a moment of radical simplification to a system that was becoming overly complex in its theoretical analysis before. That was the effect of Copernicus on the Ptolemaic system, and of Newton on pre-Newtonian physics. There may well come a case, as in the past, where this Government or their successor decide on a radical tax simplification, but while we are in the world of existing tax, that is not the world we are talking about.
The hon. Gentleman should be pleased to know that these measures have been regarded within the profession as the model of how to achieve effective tax legislation— that is not always the case with Government legislation. There is a nice quote in the Tax Journal for 5 December 2018:
“The corporate capital loss restriction is a good example of how to produce effective legislation. The consultation will enable draft legislation to be produced for publication in December 2019. This will be subject to technical consultation ahead of its inclusion in the Finance Bill 2020. This allows time for the profession to work with HMRC to iron out the inevitable teething troubles.”
That is right. As I have identified, there were essentially two periods of consultation: one on policy design and, in due course, more technical consultation on draft legislation. That work is what is reflected in this piece of legislation. I hope I have reassured the hon. Gentleman on that front.
The hon. Gentleman raised a question about competitiveness. He will know that the components of competitiveness are many and various. It is not immediately obvious why the treatment of capital for capital losses should have any huge or certainly immediate competitive effect. We are talking, lest it be forgotten, about a measure that is likely to have an effect on some 200 companies. Some of them may be large, but this is a very small proportion of the overall corporate world in which we live. It is also worth saying that, even after this change, the system that remains is significantly more generous in some crucial respects than the system in many other countries that are our notional international competitors.
The hon. Gentleman raised the question of whether the Government are disallowing adequate challenge to the Bill. I would say that one man’s meat is another man’s poison, one woman’s meat is another woman’s poison and so on. The effect of having this structure to the Bill is that, as we grind through these clauses—I apologise to colleagues if it is a grind—and give them the detailed consideration that this Parliament would expect with its history of scrutinising tax, that is now being done under a system in which non-charging measures are covered by individual resolutions. That is an increase in clarity and, I think, very much to be welcomed.
The hon. Member for Aberdeen South talked vigorously about what he sees as the democratic views of the people of Scotland. May I remind him of a few facts? Scotland had a referendum in 2014 in which, I am pleased to say, a substantial majority was in favour of remaining part of the Union. In so doing, Scots reflected the wisdom of arguably one of Scotland’s greatest thinkers, Adam Smith, when he said that the Union with England was a measure from which infinite good had derived to Scotland. How right Smith was. Of course, it would overturn the settled convention that referendums take place once in a generation, and, to that extent, it would be a denial of the democratic basis of referendums, to have another in a shorter time period.
May I also remind the hon. Gentleman that it was extraordinarily lucky in many ways that the Scots were, as I trust they will always be, wise enough to see their future within the Union, because when crisis struck, and the oil and gas industry were completely clobbered and the oil price fell, that would have cut an enormous hole in the GDP of an independent Scotland, which disastrous economic outcome was avoided by Scotland’s ability to work with and benefit from its position within the Union? The same will be true under coronavirus, given the different exposures that the Scottish economy has to sectors affected by the economic downturn.
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.
The Chair
Order. At 11 o’clock, I will suspend the sitting for a minute’s silence. The bell will ring at that point. I propose we do not proceed with any further discussions until after the minute’s silence. Please be upstanding.
Finance Bill (Fourth sitting)
Tuesday 9th June 2020
(3 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 9 June 2020 - (9 Jun 2020)
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
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.
The Chair
With this it will be convenient to discuss the following:
Clause 29 stand part.
That schedule 4 be the Fourth schedule to the Bill.
New clause 10—Structures and buildings allowances: review—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by section 29 and Schedule 4 of this Act and lay a 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) energy efficiency.
(3) 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 on investment of the changes made to structures and buildings allowances in Schedule 4.
Jesse Norman
Clause 28 makes changes that increase the rate of relief provided by the structures and buildings allowance. It is interesting that this allowance was also singled out by the CBI when referring to the economic incentives for investment that the Government provided in the Budget. From 1 and 6 April, for those businesses chargeable to income tax and corporation tax respectively, the rate of SBA will increase from 2% to 3% per annum. Clause 29 and schedule 4 ensure that SBA operates as intended through six minor and miscellaneous amendments.
The Government remain committed to incentivising businesses to invest in capital assets that will drive and support future prosperity. By increasing the SBA rate from 2% to 3%, we are levelling up the international competitiveness of the UK’s capital allowance regime. With a corporation tax rate of 19%, this country already boasts the lowest headline rate in the G20. Increasing the SBA rate helps us to go further, thereby reinforcing the UK’s attractiveness as a place to invest and do business, and addressing concerns about competitiveness—indeed, more than addressing them—that have already been raised in this 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.
Jesse Norman
I thank the two hon. Gentlemen for their questions and comments on the clause. The hon. Member for Ilford North raises the question of what he calls tinkering, and I of course recognise the concern. I think it is fair to say that Governments of all kinds were given a masterclass in the dangers of tinkering by the Labour Government that was in power between 1997 and 2010. I will not bore the Chamber by rehearsing the highlights, but some would give anyone cause for concern. It is an inveterate potential risk, and the difficulty, in this case as in others, is in trying to balance the desire not to make change with the positive good that can be made by a particular change.
In the case of the SBA, on which there has been considerable discussion with stakeholders in different ways, the effect of increasing the generosity of the relief is that a business investing in a £10 million building will be able to deduct an extra £100,000 a year. That is not a trivial amount of money; any such business would surely welcome that amount. That illustrates the difficulty with a general worry about that tinkering. It is noticeable that, again, this has received a lot of support.
I mentioned the CBI. The National Farmers Union says that the increase will
“deliver more effective tax relief for farm buildings.”
Interestingly, it also goes to the point raised by the hon. Member for Aberdeen South, by saying that this change
“will go some way to supporting farms investing in modern, efficient infrastructure which could help to improve productivity and deliver our net zero ambition.”
That is a worthwhile and a good thing.
There are a variety of amendments in the clause. The difficulty is that these are minor but necessary technical changes to ensure that the SBA legislation is fair and equitable. As the hon. Member for Ilford North said, there is a general problem with forestalling on much new tax legislation. In the case of this measure, it is inevitable that, when there is change in a complex environment, different consequential changes will occasionally have to be made in order to improve the functioning of the legislation, to ensure that it works as anticipated. That is what these changes do.
We have already discussed the amendment of the law and I pointed out that, in some respects, proceeding directly with an income tax resolution has the effect of increasing overall transparency. It does not constrain debate in any degree. If the Labour party or any other party wishes to come forward and say that it wishes, on balance, to have SBA at 2%, 4% or 10%, it is fully entitled to say that in Committee now. That can then be evaluated and used to interrogate the position of the Government, and when we come to vote on it, the Government and colleagues can consider what an alternative might look like when they consider how to vote. That debate is not constrained—formal processes of amendment are not the same thing as the possibility of debating.
The hon. Member for Ilford North mentions his desire to avoid the dry and technical subject matter found in a Finance Bill Committee. He has chosen the wrong Bill about which to have that worry, because this is a dry and technical subject, and it is of its nature that it is like that and will always be like that. The idea that, before these procedures were in place, Finance Bills had wildly exciting and disco-like sessions in which Members of Parliament were able to propose exotic new ideas and debate was thereby enlivened is, I think, quite far from the mark.
The hon. Member for Aberdeen South raised a question about energy efficiency. He is aware that a vast array of measures have been put in place that are designed to bolster and improve the way in which we use energy. In due course, the Government will come forward with our own plans for net zero, which will do more in that regard. I think he called—or if he did not, he came close to it—for VAT to be, as it were, nationalised within Scotland. However, as I pointed out to the hon. Member for Glasgow North, I wonder whether the hon. Gentleman really wishes to overturn the fiscal framework that has been so carefully agreed over such a significant period and so much consultation between the then Government and the Scottish Government. If he really wishes to overturn the fiscal framework by demanding new powers, let him do so, but of course that upsets a much larger potential apple cart. On that basis, I commend clause 28 and urge the Committee to reject new clause 10.
Question put and agreed to.
Clause 28 accordingly ordered to stand part of the Bill.
Clause 29 ordered to stand part of the Bill.
Schedule 4 agreed to.
Clause 30
Intangible fixed assets: pre-FA 2002 assets etc
Question proposed, That the clause stand part of the Bill.
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.
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.
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.
The Chair
With this it will be convenient to discuss that schedule 5 be the Fifth schedule to the Bill.
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.
The Chair
With this it will be convenient to discuss that schedule 6 be the Sixth schedule to the Bill.
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.
Jesse Norman
Again, this is a minor and technical amendment that makes a change to the Finance Act 2019 to remove a potential ambiguity in the spreading rules for businesses adopting the latest lease accounting standards.
The Finance Act 2019 made changes to the income and corporation tax rules for businesses leasing assets in order to allow rules to work following the introduction of international financial reporting standards 16. That legislation was designed to ensure equitable treatment for businesses by spreading the tax effects of adopting IFRS 16 over the average remaining terms of asset leases. Consequently, the Exchequer impact of those changes would also be spread out.
It was subsequently brought to the Treasury’s attention that minor aspects of the legislation did not work as originally intended. To address that, this clause makes minor amendments to the legislation, clarifying how the rules ought to be implemented. The Government published the amendments in draft on 11 July 2019, and they were well received by stakeholders.
The changes made by clause 34 clarify that firms ought to spread the tax effect of changes in adopting IFRS 16 over the average remaining term of asset leases. The changes are to be treated as having always had effect from 1 January 2019. They will affect only businesses, and they will have no novel impacts. They provide for only modest amendments to deliver on the policy intent agreed by hon. Members in the Finance Act 2019.
Making these clarificatory amendments will ensure that the legislation introduced in the Finance Act 2019 operates as intended, and therefore that there is fairness, certainty and stability for all businesses when applying the relevant accounting rules. I therefore commend the clause to the Committee.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
It is a pleasure to welcome you to the Chair, Ms McDonagh, and to take up the case for the Opposition on what my hon. Friend the Member for Ilford North described as the more technical aspects of the Bill. I am sure we will continue to enjoy debating these clauses none the less.
The Opposition do not object to the principle behind this clause, which appears straightforward and achieves its aim. Bringing leases on to the balance sheet is a welcome step in achieving greater transparency in our system. The Opposition believe that there is a very important need for the Government to continue to do more in this area. I simply ask the Minister why this was not done sooner.
I am keen to raise the broader issue of tax transparency and tax fairness in our system as a whole. Our small and family-run businesses are operating in a very difficult climate due to the ongoing pandemic, and they want to have confidence that everyone is playing by the rules and that there is fairness across the system. We know from various documents that we continue to have an ongoing problem with tax avoidance and the broader tax gap in our country.
I am always grateful to the House of Commons Library for providing additional material in this area. It is a wonderful source of useful information, research and analysis, especially for Opposition Members; our ability to undertake some of this research ourselves is a bit more limited, as we do not have access to the fine officials who the Minister has the privilege of working with on a daily basis. The Library has put to us that the wider tax gap for income tax, national insurance contributions and capital gains tax was estimated at £12.9 billion in 2017-18, based on HMRC documents; there are other assessments, of course.
I am sure that the Minister will want to make sure that we do everything in our power to ensure that there is fairness right across the system, particularly at this time. We believe that income must be more tightly tied to tax treatment, with tax liability going up with income, so that the Government can fund, and can ensure that we have revenue available to fund, our vital public services—not least now, at this very trying time for our country.
We hope that this change and the future legislation that the Government might seek to bring forward will be developed in the same spirit of creating greater transparency within our system. We also hope that the pressures that Ministers and officials are under at this time will not divert them from the necessary action that they must continue to take, to ensure that we have greater transparency and that everyone pays their fair share. We also want to make sure that HMRC has all the resources and staffing it needs to do this work to the best of its ability.
Jesse Norman
I am very grateful to the hon. Lady—what an effortless tag team she and the hon. Member for Ilford North make! It is good to see them in action.
The hon. Lady’s points are very well made, and I hope she recognises that the Government take these issues seriously—not just avoidance and evasion, and, in a separate category, fraud, but the wider question of fairness. It is absolutely right that we should do so. In an environment where the vast majority of taxpayers pay tax as due, in good time and do not become subject to any enforcement proceedings, it is all the more vital to maintain that consent and recognition of the public fairness of the system. She is absolutely right about that.
I hope that the hon. Lady will see that some of the issues that we have been facing in this Finance Bill and its predecessors, be they the loan charge or IR35, have reflected a persistent desire of the Government to see fairness through, despite some pretty strong headwinds. Also important is the ability to strike a fair balance within each of those schemes; we have discussed the loan charge and the Amyas Morse review, which is designed to ensure the right balance, even within that area.
However, I also draw attention to other important aspects. As the hon. Lady will be aware, we have announced a consultation on a strategy that takes a much more vigorous approach towards tackling the promoters and enablers of tax avoidance. I hope she will note that there continues to be a robust enforcement process within HMRC—one that has been carefully modulated and restrained in the context of coronavirus, but has not been in any sense left off thereby.
I will also say a couple of other things of which the hon. Lady may be less aware. One is that because of the concern about the balance of powers, which has been raised in part by the Lords Economic Affairs Committee and others, we now have a customer experience committee within HMRC. It has also brought in a series of experts who understand what might be called effective and successful customer and taxpayer treatment, bringing them in from other sources across the private sector to make sure that people do feel well treated and well handled, and that it is not a bruising process to have an interaction with HMRC. That sense of the importance of maintaining consent, and of Revenue and Customs not being oppressive while remaining highly effective in ensuring that people pay the right tax due, is a balance that both HMRC and the Government are constantly seeking to strike.
Question put and agreed to.
Clause 34 accordingly ordered to stand part of the Bill.
Clause 35
Enterprise investment scheme: approved investment fund as nominee
Stephen Flynn
I beg to move amendment 4, in clause 35, page 34, line 3, at end insert—
“(13) The Chancellor of the Exchequer must, no later than 5 April 2021, lay before the House of Commons a report—
(a) analysing the fiscal and economic effects of Government relief under the Enterprise Investment Scheme since the inception of the Scheme, and the changes in those effects which it estimates will occur as a result of the provisions of this Section, in respect of;
(i) each NUTS 1 statistical region of England and England as a whole,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland;
(b) assessing how the Enterprise Investment Scheme is furthering efforts to mitigate climate change, and any differences in the benefit of this funding in respect of—
(i) each NUTS 1 statistical region of England and England as a whole,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland; and
(c) evaluating the lessons that can be drawn from the effects of the Enterprise Investment Scheme with respect to the encouragement of both private and UK Government-backed venture capital funds in the devolved nations of the UK.”.
This clause would require the Chancellor of the Exchequer to analyse the impact of the existing EIS and the changes proposed in Clause 35 in terms of impact on the economy and geographical reach; to assess the EIS’s support for efforts to mitigate climate change; and to evaluate the Scheme’s lessons for the encouragement of UK Government-backed venture capital funds in the devolved nations.
The amendment is, hopefully, straightforward and one on which Members can agree. As things stand, as we all know, the enterprise investment scheme facilitates investment firms by offering a tax relief to individual investors of up to £5 million a year, and £12 million over a company’s lifetime. Scotland has an extremely strong financial services sector: a recent EY survey showed that we attract more foreign direct investment than any part of the UK outside London. Indeed, my own city of Aberdeen is well known for securing investment, and regularly battles ahead of cities of a far greater scale.
However, with little financial services power, we are unable to fulfil Scotland’s potential in respect of domestic venture capital. Venture capital in the UK is highly concentrated in the golden triangle—London, the south-east of England and the east of England—which received 73% of all venture capital between 2016 and 2018, according to the British Venture Capital Association. That disparity is also reflected in the EIS. Between 2015 and 2018, only 210 Welsh firms benefited from the EIS, receiving only 1.3% of the total investment. In contrast, the golden triangle received 67% of all investment, with the average UK angel investment per firm being 40% higher than in Wales.
We support Plaid Cymru’s attempts to get Westminster to own up to its failure to get investment into Wales. The amendment would force the UK Government to officially consider the unsustainable concentration of private investment in one region of the UK at the expense of all devolved nations. As the UK Government narrow the applicability of the EIS, they need to consider how that will affect the ability of firms in other areas of the UK economy; how EIS—a tax really funded by taxpayers—could benefit us all by addressing climate change; and how they can encourage the establishment of venture capital funds, and therefore private investment, in the devolved nations.
I will focus briefly on climate change once again. As I said, we cannot escape the climate crisis in front of us. If we have the opportunity to do more, and if we have the ability to leverage investment in a way that allows us to combat the climate crisis, that is surely something that we should all seek to achieve. With that, I bring my remarks to a close. I hope that Members will be minded to support the amendment.
Bridget Phillipson
We welcome the Government’s attempt to draw from their capital review with industry lenders on the enterprise investment scheme. I will come on to our response to amendment 4.
The Government have listened and are not offering further tax relief, instead providing additional flexibility for fund managers to make subscriptions in shares for investors over the years in which the relief is given. However, the difference between adding further tax relief and additional flexibility in this policy is not clear.
We are sympathetic to the position that the hon. Member for Aberdeen South has outlined. We know that there is a big imbalance across the nations and regions of the United Kingdom. The Government talk a lot about the need to level up; we hear about it all the time. It has not always been entirely clear to me what that means—not least because, over the past 10 years, what we have seen has involved precisely the opposite.
I look forward to the days when the Government will provide investment in parts of the country such as the north-east of England, which will enable us to contribute our fair share and play our full role in economic recovery more broadly. We are therefore sympathetic to the amendment proposed by the hon. Member for Aberdeen South.
The requirement to release a report on the effects of the enterprise investment scheme will enhance scrutiny of this policy and ensure that its results are fruitful and target the right causes. It is important to ensure that it starts benefiting regions that need it the most. I am sure the Minister will understand why I put in a particular plug for the north east of England, but we want to see this right across the country and the nations of the UK as well.
The amendment also raises the important issue of the climate emergency, which has not simply vanished because we are currently focused on the pandemic. The climate emergency is still with us and the longer we take to tackle it, the faster we will start to feel the effects of global warming. Research and investment must go towards tackling the climate emergency and we need to encourage the responsible and relevant use of Government funds for knowledge-intensive companies to benefit from them.
In the broader sense of the clause, it is not quite clear to the Opposition what the outcome of adjustments to the enterprise investment scheme detailed in the clause would be. The clause lacks some detail and clarity. We worry that it may be open and liable to exploitation, so I would like the Minister to say a little more when he responds. We have seen problems in recent years in this area and we do not want to see them repeated here.
Research conducted by Ipsos MORI for HMRC in 2016 showed that income tax relief was the main driver for investors to use the enterprise investment scheme: eight in 10 considered the income tax relief element of the scheme to be very important, and 32% essential, to their decision to invest; more than half also considered capital gains tax exemption to be either very important or essential. While many investors decide to invest in the enterprise investment scheme for philanthropic reasons, the financial incentive remains important none the less. The concern is reflected in the scepticism of some universities reported in the Government’s consultation back in March 2018. It is in all of our interests that academic institutions, entrepreneurs and fund managers are aligned, but it is clear there are some issues around greater cohesion between them as part of this scheme.
The hon. Member for Aberdeen South referred to the disparity. The Government’s own figures show that London and the south-east accounted for the largest proportion of investment, with companies registered in those regions receiving 65% of all enterprise investment scheme investment in 2018-19. London and the south-east of England does not have a monopoly on talent, innovation or research. If the Government’s levelling-up agenda is to mean anything in practice, we have to see much more support targeted to those regions so they are able to take part in the wealth of our nation and they can contribute more. We have wonderful universities, pioneering companies both large and small, and a wonderful and flourishing supply chain.
I put it to the Minister that the hon. Gentleman is quite right. We require greater scrutiny to be confident that we are pushing in the right direction and that the Government are making sure that where measures are introduced, they are targeted on the areas of the country where additional Government support could lead to much better outcomes for residents of those communities, who want the opportunity to contribute more broadly to the economic health of our nation. Especially as we start to emerge from this crisis, we will need targeted support that allows every nation and region to contribute to our economy, both in terms of skills and broader investment. For that reason, we are sympathetic to the amendment.
Jesse Norman
I am glad to be able to address clause 35 and the questions the hon. Members for Aberdeen South and for Houghton and Sunderland South have raised.
Clause 35 changes the approved enterprise investment scheme fund rules to focus investments made through such funds on knowledge-intensive companies. It provides additional flexibility for fund managers to make subscriptions in shares and for investors to claim relief. Fund managers will have more time to deploy capital raised, and investors will be able to claim relief one tax year earlier than previously when using an approved fund. The EIS encourages investment in smaller, higher risk trading companies by offering tax reliefs to individual investors who subscribe for new shares in qualifying companies.
A knowledge-intensive company is defined as a company that has spent a defined proportion of its operating costs on innovation and/or R&D and either creates intellectual property or has a defined proportion of its employees with advanced degrees. The intention to change the existing approved fund structures to focus on knowledge-intensive companies was announced at autumn Budget 2017 as part of the Government’s response to the patient capital review.
The Government consulted on new rules and outlined its response at Budget 2018, which set out planned additional flexibilities for fund managers and investors using this structure. The changes made by clause 35 set out the requirements that must be met for investments to be considered as made via an approved knowledge-intensive fund. They include investing at least 80% of capital raised into knowledge-intensive companies and deploying the majority of capital raised within two years.
Amendment 4 would require the Government to review the economic and geographical impacts of the existing EIS and the changes to approved fund structure, and how far they support wider efforts to mitigate climate change. I understand and appreciate the intention of hon. Members to use EIS more strategically to help with mitigating climate change and to ensure that the benefits of EIS are spread more widely across the country, but I put it to the Committee that the amendment is not necessary.
It is worth reminding ourselves of the principal purpose of EIS. It is designed to address a specific market failure, which is that younger, innovative companies across the UK struggle to get access to patient and long-term equity finance to grow their businesses and to develop the innovative products that consumers may want in future. It is not designed specifically to help certain types of companies—for example those that operate in certain parts of the country or certain sectors. The scheme operates on a neutral market basis, and there is no requirement for that companies use EIS funds in specific ways, such as to develop products linked to the fight against climate change.
I completely understand that Opposition Members would like us to collect more information about how attractive EIS is to companies in different parts of the country. HMRC already publishes statistics about where fundraising companies have their registered offices and where EIS investors have their main household. However, it is also worth reiterating the limits of what we know.
Her Majesty’s Revenue and Customs knows where a company’s registered office is, but companies that benefit from the scheme are free to place their registered offices and places of establishment for EI purposes wherever they please in the UK. A registered office in the south-east may not mean that that investment is going into the south-east, because a registered office does not need to be in the same place as where the bulk of the staff are employed.
The hon. Member for Houghton and Sunderland South is concerned that there might be a lack of clarity in the structure, so let me shed some light on that. The measure limits approved fund status to companies that invest 80% of their capital into knowledge-intensive companies and extends the period in which approved knowledge-intensive fund managers must subscribe for shares in those companies from 12 months to 24 months, provided that 50% of the qualifying individual investment is invested within the first 12 months and 90% within 24 months. It allows the investor to carry back the claim for income tax relief to the tax year preceding the tax year of the fund closure. I would suggest that, within the limits of a description within legislation, that is relatively clear.
The hon. Lady also raised a question about regional investment. Again, I fully share her concern, and the Government’s levelling-up agenda is designed to address that very issue. I must say that across my different ministerial jobs, I seem to spend most of my life investing in the north-east of England, one way or another—the massive pivot towards offshore wind has been nothing but good to that area, and I remember making a substantial investment in the Tyne and Wear Metro and the A19 when I was at the Department for Transport—so I hope that the hon. Lady does not feel that there is any lack of love for or investment in that part of the world from this quarter.
Stephen Flynn
There are a few points that I think are incredibly important to pick up on. The first relates to the Minister’s remark that the EIS is and needs to be a neutral fund. It does not need to be a neutral fund; that is a choice. If we seek to combat climate change and put our words into action, we can make those decisions and make them now—the gift to do that is in the Minister’s hands. It is incredibly important that we focus on that point: that it does not have to be how it is at the moment.
I respect the commitment to review before 2024, but that is a significant time away. I am not overly comfortable with the idea that we can allow that time to pass before we assess whether the scheme is working as we feel it should.
Jesse Norman
May I say what a joy it is to have the boot on the other foot and to be able to intervene on another member of the Committee? Of course the hon. Gentleman is right that legislation can be changed, subject to the will of Parliament, but this measure cannot be changed without distorting its essential character. Its purpose is to implement a reform that addresses, and hopefully cures, a market anomaly.
To address the real and important wider concern that the hon. Gentleman raises, the real question is therefore whether there are other measures outside the EIS that could achieve some of the aims he describes. The EIS cures the anomaly, which is about investment—as we know, we cannot deduce effectively where the investment goes from where the head offices are—but there may be other measures that the Government can take, and that the Scottish Government may want to take, to address more widely the concerns that he describes.
Stephen Flynn
I look forward to the UK Government coming forward with such proposals; that would certainly be of much interest to me and to colleagues across the UK.
I want to home in on the climate situation in Aberdeen. It would be remiss of me not to highlight the fact that Aberdeen is the oil and gas capital of these islands, and indeed of Europe, and has been so for a significant time. However, we are extremely conscious of the situation in Aberdeen due to the oil and gas sector downturn—we heard earlier about the support that the UK Government put in place during the downturn, although I was not quite sure which downturn was being referred to since we are currently in the midst of perhaps the sharpest downturn of the North sea basin—but we are very cognisant that we need to make a sustainable transition to a net zero future.
If we look to the possibilities of the north-east of Scotland—hydrogen technologies, carbon storage, alternative fuel gas turbines, subsea and offshore energy—there is a wealth of opportunity. We are blessed with unbelievable natural resources in Scotland. If we can have a fund that channels money into exploiting such research and talent, we should be willing to do so.
Ultimately, amendment 4 is very clear: it is about
“analysing the fiscal and economic effects of Government relief under the Enterprise Investment Scheme since the inception of the Scheme”.
We are talking about analysing the scheme and whether it is doing the job it should be doing. As I have said on a number of occasions, the Government should not be afraid of looking at whether their schemes are effective. We should all retain a firm commitment not just through our words but—I repeat—through our actions to combat the climate emergency and the amendment is one way in which we could do that.
Stephen Flynn
I will press the amendment.
Question put, That the amendment be made.
Jesse Norman
The clause introduces the gripping topic of top-slicing relief on life insurance policy gains. It makes changes to ensure that the calculation of top-slicing relief on life insurance policy gains operates fairly and prevents excessive relief from being claimed. This measure supports the Government’s objective, already discussed in the Committee today, of promoting fairness in the tax system by ensuring that the relief is calculated in a fair and consistent way.
Life insurance policy gains arise, for example, when an investment bond is surrendered or matures. In this case, the gain accrues over the lifetime of the policy but is taxed in one year, which can result in gains being taxed at the higher rate. Top-slicing relief, or TSR, was introduced in 1968 as a mechanism to mitigate the impact of that higher tax charge. The principle behind TSR is simple: a taxpayer should not pay a higher rate of tax on their life insurance gain just because all of that gain falls to be taxed in a single year. Instead, the rate of tax on the gain should reflect the fact that it was accrued over the lifetime of the policy, assuming it rose in even amounts over the years during which the policy was held.
The calculation for TSR was intended to be straight- forward. However, changes to the personal allowance from 2010 have led to unintended complexity. A recent first-tier tribunal case brought into question how TSR interacts with the restriction to the personal allowance for higher rate taxpayers, creating uncertainty for taxpayers and a significant administrative burden for HMRC. It is for those reasons that we are making a change and a clarification to TSR in the Bill. I turn to both of those things.
The change made by the clause will permit personal allowances that have been reduced because the gain arises in one year to be reinstated in the TSR calculation. The gain will now be treated as if it arose in even amounts over the years during which the policy was held when determining the availability of the personal allowance in the TSR calculation. The change comes at an estimated cost to the Exchequer of £15 million per annum, but it provides a fairer result for those taxpayers who would otherwise have been taxed on their gain only because that gain has fallen in one year and reduced their personal allowance.
The clause will also put beyond doubt the principle that taxpayers cannot set their gain against their personal allowance first, in preference to their other income, in the TSR calculation. That will ensure that higher-rate taxpayers cannot get the benefit of the relief by effectively taking the benefit of the personal allowance more than once when calculating TSR. That will prevent excessive relief from being claimed and, in turn, protect £240 million of revenue.
The measure is estimated to affect around 2,000 of the 45,000 taxpayers who are entitled to top-slicing relief every year. The clause ensures that the taxpayers receive all the relief that they are entitled to and makes clear that taxpayers who seek to claim excessive relief will no longer be able to do so. It will ensure that top-slicing relief continues to operate in line with its original policy intent, and will therefore provide a fair and consistent outcome for those taxpayers who are entitled to claim the relief. I commend the clause to the Committee.
Bridget Phillipson
Before I turn to the substance of clause 36, and without dwelling on it too much, I will take slight exception to the Minister’s comments around the so-called levelling up agenda and the last 10 years. First, though, I must commend him—he is one of the few Ministers I have come across who understands how to pronounce my constituency name properly. He has great north-east knowledge, which will stand us in wonderful stead for the years ahead, when we can make sure that Sunderland and the wider north-east get their fair share of Government investment.
On clause 36, we note the Government’s stated objective of creating fairness in the UK tax system, ensuring that top-slicing relief is calculated in a fair and consistent way, and of seeking to provide legislative clarity. However, there are some issues that still remain around the language of the clause, regarding the treatment of gains before 11 March 2020.
In response to the clause, the Chartered Institute of Taxation noted:
“The amendments made by clause 36 have effect…from the tax year 2019/20. It is not clear why the amendments, which are clarificatory in nature and in accordance with the original policy intent, should not be extended to years prior to 2019/20 to provide the same clarity for taxpayers in respect of earlier gains.”
It also comments that,
“as clause 36 is not retrospective, an individual who is liable to tax in respect of gains from chargeable events before 2019/20 and who wishes to reinstate the personal allowance within the calculation for TSR will instead need to rely on the basis agreed in Silver v HMRC. Decisions of the First-tier Tribunal do not create a legally binding precedent.”
It argues that it is
“not clear whether or not HMRC will accept claims for repayment from taxpayers with gains in years prior to 2019/20.”
The Minister touched on this point in introducing the clause, but I would be grateful if he could clarify whether he intends for HMRC to accept repayment from taxpayers with gains in years before 2019-20. If he does not, as the language stands, do the provisions of the clause still affect taxpayers fairly?
The Chartered Institute of Taxation also notes that the approach is different from the approach in clauses 100 and 101, which we will come to later, which put
“beyond doubt that the relevant rules work as designed and intended but apply both prospectively and retrospectively.”
What assessment does the Minister make of that point?
The institute also draws attention to the fact that clause 36 specifies how reliefs and allowances are set against life assurance policy gains:
“The personal savings allowance does not operate as a typical allowance. It is a nil rate band of tax that does not extend the basic or higher rate bands. The draft legislation should specify that the personal savings allowance is not an allowance for this or any other purpose.”
It regards the term “allowance” as “an unhelpful misnomer”. I would be grateful if the Minister would address that point.
HMRC also notes that the clause will only really affect those with above-average earnings. We have considered that point more broadly in other aspects of the Bill; it points to something of a pattern in the measures that the Government are bringing forward. Over a significant period—over the last decade—we have seen that the impact of changes, whether that is spending reductions or the broader impact of Government policy, has fallen more sharply on those with less ability to make a contribution. Earlier in proceedings, we discussed the distributional impact of Government measures after 2010. We have seen a disproportionate impact on those from lower and middle-earning backgrounds. That cannot be sustained, not least in the current situation.
Jesse Norman
I thank the hon. Lady for her questions. Let me respond. She will understand that top-slicing relief has been around for a long time. It is therefore something that we have come to for specific reasons. As she will be aware, a concern is arising that the judgment, coupled with challenges from taxpayers, suggests that more clarity is needed in the legislation and, therefore, that we need to review the relief.
The review highlighted that some payers were paying tax on their gain at the higher rate only because they lost the personal allowance due to a gain being included in their income. That is why the conclusion was for the reinstatement of the personal allowance, solely for purposes of the top-slicing relief calculation, to address that and to bring it back in line with the policy intent.
Of course, as the hon. Lady says, the changes work in both directions—there is a cost to the Exchequer, which comes from allowing the gain to be treated as though it arose in even amounts over the years, but, at the same time, there is also a return from the Treasury, which prevents excessive relief from being claimed. That points to the essential fairness of the approach, because it is designed to restore fairness in the spreading of gain, but also to ensure that there can be no funny business, if you like, in the way in which the gain is treated with regard to the personal allowance that might allow it to be manipulated to the detriment of the taxpayer or the system.
The hon. Lady also asked about timing. HMRC will calculate the relief for affected taxpayers and advise them of changes in the relief calculation. For self-assessment returns submitted for the 2019-20 tax year, that calculation will be performed manually. For subsequent tax years, the calculation will form part of the automatic self-assessment process. Detailed guidance has been put on gov.uk setting out the changes in full. I hope that will put the matter beyond doubt.
Question put and agreed to.
Clause 36 accordingly ordered to stand part of the Bill.
Clause 37
Losses on disposal of shares: abolition of requirement to be UK business
Question proposed, That the clause stand part of the Bill.
Jesse Norman
Again, this is a small and technical clause. It widens the scope of share loss relief for income tax and corporation tax so that it applies to shares in companies carrying on a business anywhere in the world and not just in the UK.
Share loss relief is available where an investor or investment company makes an investment in qualifying shares that are later disposed of at a loss. The relief enables the loss to be set against taxable income, rather than against capital gains under the normal rules. Qualifying shares are shares to which the enterprise investment scheme, EIS, or the seed enterprise investment scheme, SEIS, are attributable, or in a qualifying training company, as defined in statute, which can be summarised as a small or medium unlisted trading company that carries on its business wholly or mainly in the UK.
The measure will change the existing statute so that investors can claim relief no matter where the business is based, providing added protection for those investing in high-risk enterprises. It will be backdated to proposals made after 21 January 2019. A change will be made to the reporting requirements so that HMRC can identify the tax residency of the company that issued the shares.
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—hence the date—the European Commission issued a reasoned opinion arguing that applying SLR to shares only in UK companies 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, thereby, comply with the principle.
The change made by clause 37 widens the relief so that it applies to shares in qualifying businesses worldwide, not just in the UK. The proposed changes are expected to increase the cost of the relief to the Exchequer by £5 million in 2020-21, increasing to £15 million per year thereafter.
The Government consider that this legislation strikes the right balance between supporting overseas investment opportunities for UK-based investors and meeting our residual obligations to the European Union for the free movement of capital. I therefore commend the clause to the Committee.
Bridget Phillipson
The Opposition welcome the intention behind this clause, and the statement of the Minister seems straightforward in terms of what the Government are seeking to achieve in this area. For future trading to be as streamlined as possible, it is important that the Government introduce this measure to ensure compliance with article 63 of the treaty on the functioning of the European Union after the end of the transition period.
However, on the transition period—we touched on this this morning, and my hon. Friend the Member for Ilford North raised this issue—we have, sadly, not had the kind of regular updates we would like in the House around ongoing negotiations. We all want the Government to succeed, and we want to secure a great deal for our country, but we want to be confident that the Government are making progress and are on the right track.
Some of the reporting we have seen lately suggests that—for a number of reasons, some of which are entirely fair, given the unprecedented crisis in which we find ourselves—Ministers and officials have found things hard. I understand how difficult it must be to operate during this time, but the pandemic has highlighted how important it is that we ensure everything is properly aligned at the end of the transition period and that we secure an excellent deal, because so much depends on it—workers’ rights, businesses and our ability to export.
We want to avoid any further disruption to our economy. We have been through a very difficult time—we are still going through a very difficult time—for businesses large and small, and not least for our manufacturing sector and our world-class exporters. We want to avoid any further disruption to the economy, at the border or in people’s lives.
The Government have variously described the deal they will secure as
“a great new deal that is ready to go”,
“ambitious”, “broad”, “deep”, “flexible”, “a balanced economic partnership” and “oven ready”—that is one I recall particularly well from the recent general election campaign. Given all of that, I am sure that we will have no difficulty at all, notwithstanding the big challenges we face around the pandemic, and that we can ensure we do not have tariffs, fees or charges, so that our world-leading industries can continue to do well.
On clause 37, especially, businesses will, according to HMRC, need to familiarise themselves with tax changes, make the decision on whether to claim for the loss, determine the tax residency of the company that issued that shares and inform HMRC of this information. I would be grateful if the Minister could assure us that there is no prospect of exploitation in this area and that the Government will do all they can to ensure fairness across the system, so that we do not end up with companies potentially claiming this relief in a way that was perhaps not intended in the scope of the legislation and in the measures that Ministers are quite sensibly seeking to set out here.
Jesse Norman
I feel almost sad to be winding up on the final clause of this very good day. I thank the hon. Lady very much for her questions. Regarding the transition period, she has said she is sure the deal will be smooth and tariff-free. In that, she shares the Government’s high hopes and expectations for a deal with the EU. There is not much more I can add to that.
On the prospect of exploitation, I cannot give her, I am afraid, the guarantee she seeks, because if there is anything that my five years on the Treasury Committee and one year as Financial Secretary have taught me it is that there are no limits to human ingenuity in exploiting aspects of the tax code contrary to expectation, so there is some possibility of exploitation. The comfort I can give her is that, as this change is mandated as a result of compliance with an EU procedure, once we are free from the transition period, we will have the ability to make a sovereign change to our own legislation that remedies any concerns that are raised and any risks to the Exchequer that thereby arise.
Question put and agreed to.
Clause 37 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Finance Bill (Sixth sitting)
Thursday 11th June 2020
(3 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 11 June 2020 - (11 Jun 2020)
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Chair
With this it will be convenient to discuss the following:
Clauses 52 to 55 stand part.
That schedule 7 be the Seventh schedule to the Bill.
The Financial Secretary to the Treasury (Jesse Norman)
Clauses 51 to 55 come under the broad heading of a duty to submit returns in relation to the digital services tax. Having established that a group has DST revenues above the thresholds, it is appropriate for a group member, the responsible member, to provide Her Majesty’s Revenue and Customs with the necessary information to assess the tax. That is a sensible way of requiring groups to administer the tax. They need to submit a return to Her Majesty’s Revenue and Customs only when there is a potential liability, and they can stop doing so when it is clear that there will not be a future liability.
The group will be required to continue to submit a single return for each accounting period until an officer of HMRC provides a direction for the group to stop. The direction to stop will be given only when it appears that the threshold conditions will not be met. Put simply, the responsible member will be the point of contact between HMRC and the rest of the group. The effect is to make administering the new tax easier for the groups that will be liable for DST and for HMRC. It means that only a single return for HMRC will need to be produced when a group assesses its DST liability.
Clause 51 sets out which members of the group can be the responsible member and what can prevent a company from being a responsible member. Those are sensible precautions to reduce the burden of the tax as much as possible, recognising that it is intended to be a temporary tax. As we have already noted in Committee, groups are dynamic with members joining and leaving all the time. The best choice as the responsible member for a group at one stage may no longer be the best choice later. It is therefore necessary for groups to have the ability to change the responsible member, but where that happens, it is important that nothing is lost by the change of company, which is achieved by clause 52.
Clause 53 sets out the duty for a group to notify HMRC when it has met the DST threshold conditions set out in clause 45. Groups will have 90 days from the end of the accounting period in which they meet the threshold conditions to make the notification. It is important to say that we have listened to businesses in requiring notification after the period to which the notification relates, which gives groups the opportunity to collect the fullest information possible before making contact with HMRC to notify it of any liability.
As I have mentioned, groups are organic and details will change. Clause 54 sets out the duty for a group to notify HMRC when there is a change to the details registered under clause 53. Finally, clause 55 sets out the obligation of the responsible member to submit a return of information to HMRC.
The clause also introduces schedule 7, which provides further details about the obligations of the group and HMRC in relation to the return and ensures by that means that the figures and the return are complete and accurate. As the tax is new, a new set of rules is required to ensure that HMRC has the powers necessary to ensure that the correct amount of tax is paid by those from whom it is due. The new rules borrow and draw from existing concepts that will be familiar to many tax practitioners. The schedule does not grant HMRC any further powers in relation to the tax that do not already apply to other existing taxes. It grants companies the protections from those powers that they would expect from a fair and balanced tax administration. With that in mind, I commend the clauses and the schedule to the Committee.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
We have no real issue with the clauses, as they are understandable in the context of the overall measures proposed.
I will draw the Minister’s attention to some technical concerns raised by the Institute of Chartered Accountants in England and Wales, which I hope he can address. In September 2019, it wrote:
“Given the complexities which a business could encounter in identifying and quantifying DST revenues, we are concerned that notification within 90 days of the accounting period is unhelpful. It would make sense to tie this notification into the deadline for filing accounts—6 months for a plc or 9 months otherwise”.
The institute also states that there should not be a need to notify HMRC in advance of the payment deadline, as
“businesses will require more time to review their accounting records, analyse and quantify revenues to decide whether they are”
required to pay under the tax. It recognises that such obligations would not pose a problem for larger digital companies, but would be more problematic for marginal cases requiring “advice and review”, so
“the notification deadline should be aligned with the payment date.”
Regardless of whether we believe that the measures go far enough, or whether the tax is set at an appropriate rate, we believe that its implementation and administration should be fair, to give businesses—in particular those that fall on the margins of the scope of the measure—adequate time to provide accurate calculations of what they should be paying. I invite the Minister to respond to those points to provide some clarification.
Robin Millar (Aberconwy) (Con)
As much as we have heard excellent contributions on matters of delivery and on technical matters, which are far beyond my knowledge of accounting and such, it strikes me that, as we are talking about the introduction of a new tax, this is the moment at which we should reflect on its meaning and on the purposes behind it.
The phrase that caught my eye is in clauses 53 and 54 —“Duty to”. My sense is that tax should not be, or should not only be, a catch-up exercise—chasing after developments in industry and the disruption brought to different sectors. Nor should it be about how much money we gather, although that is clearly of keen and close interest to us. It is also about the privilege of membership of a community and of participation in the UK economy. I find it interesting that it falls to a Conservative Government to introduce a tax such as this, which I consider to be progressive in its nature and intent.
In support of that, I pray in aid consideration of the principle of permanent residence, for example. Permanent residence was traditionally attached to the ability to trade in a nation, and tax therefore followed. If not trading in—that is, without that permanent residence—someone would be trading with, so coming under a different regime. Now, we have disruption in the digital economy, which means that we are trading in even though there is no permanent residence.
I also point to the development in the understanding of value over the years. At one point, value was measured in amounts of gold, so the question was one of setting a price, or offering gold in return for something; that was in essence a measurement of weight. The free trade argument slugged that one out with the mercantilist over many years, but the free trade argument won because it made the case effectively that the value of gold could be expressed in terms of the labour required to extract it. Discussions of value therefore moved from a physical object to the notion of labour.
As the Financial Secretary to the Treasury mentioned earlier, we are now talking about user-generated value. The notion of value itself has changed, and there are many debates about what value is and how it is best measured and captured. I suggest that they are extremely relevant to a discussion of tax, especially the introduction of a new one.
To look at tax solely in terms of being punitive, a “fair share” or a certain quantum, is to miss the point. Returning to the issue of leadership that was mentioned this morning, tax properly administered is surely more than a statement of how much money we can collect. It is more a statement of what we are trying to become—tax used as an instrument of government. What kind of society do we wish to become? It is not even, as might be suggested, a statement of how well we can co-ordinate with other nations. For this Government—I am interested in whether the Minister agrees with me—it is a statement of leadership, of what we are trying to become as a nation and, in particular, how we are trying to capture value through the proper encouragement of those industries as they participate in our economy.
Jesse Norman
Let me start with the interesting remarks made by my hon. Friend the Member for Aberconwy. I think he is absolutely right to notice and bring to public attention the question of the basis of tax. He is absolutely correct to call upon an idea of tax as a privilege and obligation associated with membership of a community, and to highlight that that notion of tax, which in some sense has always been implicit in the idea of tax, is being drawn upon in this wider sense of a UK user contribution. He is absolutely right about that.
All government derives from the consent of the governed, as the cliché goes; but in order to give that consent, the governed must feel not merely that the tax is fair and equitable in its own right, but that it springs from a conception of government that fundamentally puts the wellbeing of society at its heart. In that sense, it is about not just an economic or fiscal change, nor necessarily who we want to become, but, as my hon. Friend said, who we are. It will come to no surprise to members of the Committee that I think Edmund Burke—one of my great heroes—put this well when he spoke about a nation as a moral idea. That is why the nation has historically been the basis of taxation: the nation provides the consent and, therefore, the guarantee of future taxation, which can underlie effective long-term public spending.
Going slightly beyond that point, it is notable that when crisis hits a country, that country and its Government must draw on that moral capital in pulling the alarm cable and using the power of taxation to secure future borrowing or future public spending that may be required to address the crisis. There is a very deep way in which my hon. Friend is getting to the centre of a very important fact about human life in democratic society, so I thank him for that.
On the more mundane and practical, but none the less vital points that the hon. Member for Houghton and Sunderland South made about notification periods, I will simply say this: these are businesses that keep this data in real time. Of course, it is by no means only UK companies that are caught by this tax. The whole point of a UK user contribution is to capture companies’ revenue sources that might be derived from UK users and from that sense of community my hon. Friend the Member for Aberconwy mentioned, but without being resident as such in a formal tax sense in this country.
The data is immediate. The tax does not merely apply to UK companies. It does apply from the end of an accounting period—90 days after the end of an accounting period. We think that is a proportionate, appropriate and internationally recognised way of levying this tax.
Question put and agreed to.
Clause 51 accordingly ordered to stand part of the Bill.
Clauses 52 to 55 ordered to stand part of the Bill.
Schedule 7 agreed to.
Clause 56
Meaning of “group”, “parent” etc
Jesse Norman
This group of clauses is again of a rather technical character and deals with some of the more detailed technical requirements of the new tax.
Clause 56 sets out the definitions of the terms “group” and “parent”, which are used to define the companies and revenues that will be taxable for the purposes of the digital services tax. It should be read along with clause 57, which makes it clear that the definition of “group” will be the same as that used for accountancy purposes. The choice of using accountancy definitions to define the group is, again, to reduce the burden of this new tax and to make it as straightforward and comprehensible as possible. Wherever possible, the Government are seeking to minimise the burden of administering the tax by using concepts that already exist and are in common use, if for other purposes.
Clause 58 sets out the conditions that determine if a group has remained the same in different time periods. That will be relevant when members of a group change through acquisition, disposal or otherwise over time. Like the changes to the responsible member, these everyday business transactions of companies joining and leaving groups should not prevent the tax operating correctly and this clause ensures that these changes do not prevent the tax from applying.
Finally, clause 59 sets out the treatment of two or more entities that are treated as stapled to each other and are subsidiaries of a “deemed parent”. This is a technical measure designed to enable the tax to work as intended in the widest possible circumstances. I therefore commend these clauses to the Committee.
Bridget Phillipson
These clauses are technical in nature and we have no questions to ask of the Minister.
Jesse Norman
No, I am entirely content with the summary that has been given by the hon. Lady.
Question put and agreed to.
Clause 56 accordingly ordered to stand part of the Bill.
Clauses 57 to 59 ordered to stand part of the Bill.
Clause 60
Accounting periods and meaning of “a group’s accounts”
Question proposed, That the clause stand part of the Bill.
Jesse Norman
These clauses, which are again of a thoroughly technical nature, provide more details on some of the aspects we have been discussing already in relation to the digital services tax.
Clause 60 sets the time period over which a group will account for revenues from relevant business activities for DST. This will usually be the period of account of the parent company of the group, which reduces the administrative burden as far as possible for these groups. They will be able to use figures they collect for other purposes wherever possible.
Clause 61 sets out how revenues and expenditure will be apportioned when a group’s period of account does not coincide with an accounting period. For example, many groups make up their accounts to 31 December each year. For 2020, their accounts will be for the 12 months to 31 December. However, for DST, their accounting period will only be nine months, from 1 April 2020 to 31 December. There is a mismatch in periods, and this clause enables the accounting figures to be used for DST by taking the correct proportion of those accounting figures.
Clause 62 sets out what is meant by
“revenues arising, or expenses recognised, in a period”
for the purposes of the DST legislation. Both of those terms mean the figures recognised in accordance with the applicable accounting standards for that period. Again, this demonstrates that the Government are seeking to minimise the burden of administration as much as possible by using figures that already exist for other purposes. Finally for this group, clause 63 sets out the definition of various terms relating to accounting standards for the purposes of the legislation. I commend these clauses to the Committee.
Bridget Phillipson
Once again, these clauses are technical in nature, and we have no further comments for the Minister in this area.
Question put and agreed to.
Clause 60 accordingly ordered to stand part of the Bill.
Clauses 61 to 63 ordered to stand part of the Bill.
Clause 64
Anti-avoidance
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 65 stand part.
That schedule 8 be the Eighth schedule to the Bill.
Clauses 66 to 69 stand part.
That schedule 9 be the Ninth schedule to the Bill.
Clause 71 stand part.
Jesse Norman
These clauses and schedules, again technical in nature, are also essential to the effective working of the digital services tax. Clause 64 sets out anti-avoidance provisions for the tax, and I make clear that the digital services tax has not been introduced to counteract avoidance of other taxes by digital groups. It is not about targeting particular businesses; it is a temporary measure designed to address failings in international tax rules. This clause provides HMRC with the power to counteract arrangements that may be designed or used to reduce the amount of DST that a group may have to pay. There are also safeguards within the clause that ensure the counteraction provisions do not apply when the tax advantage obtained was within the spirit of the rules.
Clause 65 sets out the process by which HMRC can collect unpaid DST liabilities from other members of the same group. This is particularly relevant to DST, as the companies liable to the tax may not be resident in the UK. Therefore, to assist HMRC in collecting unpaid debts, it will be possible for it to issue a notice to other members within a group it intends to collect the debt from.
Schedule 8 is introduced by clause 65, and provides further detail about how the notices operate. The combined effect of clause 65 and schedule 8 is to ensure that unpaid debts are collected wherever possible.
Clauses 66 and 67 set out at which rate, and when, interest will be due or required on DST payments that are made early or late, as the case may be. This will mirror the rates and timings found in corporation tax, and will therefore be familiar to many practitioners.
Clause 68 sets out that any DST liability is recoverable as a debt due to the Crown, the effect of which is to ensure that HMRC can collect any amount of DST that goes unpaid.
Clause 69 simply introduces schedule 9, which sets out provisions for minor consequential amendments in other enactments that are required as a result of the introduction of the DST. Primarily, these relate to interest rates, penalties and other tax administration processes.
Clause 71 sets out the meaning of various key terms used in the Bill relating to DST, and I commend the clauses and schedules to the Committee.
Bridget Phillipson
We have no substantial issue with these clauses, and obviously we welcome the inclusion of an anti-avoidance provision. As has been evident throughout the course of the discussions in Committee on this section of the Bill, it is a complex area, and we know that many large digital companies use intricate methods with considerable skill in order to reduce their tax liability. I mentioned earlier that some stakeholders have referred to the need for extra capacity at HMRC to make sure that this tax is properly administered and its impact properly accounted for. How confident is the Minister that anti-avoidance strategies will be adequately detected when the overall difficulties in administering the tax are taken into consideration?
Moreover, the Government’s website states that HMRC must counteract such arrangements by making such adjustments as are just and reasonable. The Minister touched on this in some of our earlier discussions, but I would be grateful if he could elaborate on exactly what a just and reasonable adjustment for tax avoidance arrangements entails. As I have already set out earlier today and in other debates we have had, the scale of tax avoidance practices by digital multinational enterprises is large and the methods that they adopt are intricate. The Government’s record so far in this area does not inspire a great deal of confidence on the Opposition Benches, and I would be grateful if the Minister could allay some of our concerns in this area.
Jesse Norman
I am grateful to the hon. Lady for raising those questions.
The first question she raised was about extra capacity. I think we touched on this already, but it is worth just saying that HMRC already has a digital services team in place. The tax requires, in the first instance, companies to come forward with a process of self-assessment, which HMRC can then assess and view. From that point of view, this is a tax that is designed to minimise administrative burdens, not merely on the groups being taxed but on HMRC itself.
It is also worth saying that one of the extraordinary aspects of the past few months has been that HMRC has been able to show itself remarkably flexible in the way it has operated, and this might be a moment to pay due tribute in respect of that. Although it is an enormous organisation, it has been very flexible in several different areas. The first was in reconfiguring its business to be able to deal with staff absence in the face of coronavirus, which has been extremely effective. The second has been in being able to configure its services in order to match the evolving demand. A classic example would be that many services that were being handled by telephone interactions are increasingly being handled by text interactions or chats. Many services that were being handled through office phone interactions are being handled through phone interactions at home.
HMRC has been very flexible in that regard. Almost the most salient aspect is that it has been able to bring a succession of schemes into play, such as the furlough scheme, the self-employment scheme and the statutory sickness pay scheme. That flexibility of organisation has allowed it to move incredibly quickly to put those schemes in place and thereby support the lives and livelihoods of millions of people. If someone had asked me at the beginning of year whether I would be publicly accountable for an organisation that would end up supporting the lives and livelihoods of some 10 million to 11 million people, I would have been very surprised indeed, but that is what has happened. I pay great tribute to the officials and staff at HMRC, and of course the Treasury, for their public spirit and service.
The hon. Lady asked how confident I am about anti-avoidance. Of course, anti-avoidance is an ever shifting and evolving pattern, and it is right to raise that question. If the past is any guide to the future, there will prove to be aspects of avoidance that are not contemplated at the moment and against which we may have to take future care, but the Bill provides a very broad capacity for HMRC to counteract arrangements that are designed to reduce the amount of tax that the group may have to pay through the digital services tax.
Bridget Phillipson
I beg to move amendment 7, in clause 70, page 53, line 8, leave out “before the end of 2025” and insert “within a year of Royal Assent and annually thereafter”
This amendment would require the Government to report on the DST annually.
The Chair
With this it will be convenient to discuss new clause 11—Digital Services Tax: review of effect on tax revenues—
(1) The Chancellor of the Exchequer must make an assessment of the net effect on tax revenues of the introduction of the Digital Services Tax and lay a report of that assessment before the House of Commons within six months of the passing of this Act.
(2) This review must also include an assessment of the revenue effect of the Digital Services Tax on tax payable by the owners and employees of Scottish Limited Partnerships.
This new clause would require a Government assessment of the effect on tax revenues of the DST, and in particular the change in revenues associated with Scottish Limited Partnerships.
Bridget Phillipson
Clause 70 would require the Treasury to conduct a review of the digital services tax before the end of 2025. Our amendment 7 would require a report to be provided annually. It has become clear from our debates in Committee today that the tax poses a number of different challenges to businesses and Government alike. That is why we have tabled an amendment that calls for a yearly report on the tax.
Earlier in our discussions, I highlighted that there is a substantial gap between the revenues of multinational digital companies and their tax liabilities, and that they are ultimately estimated to be underpaying on what is required. Even the Government’s modest predictions of what the tax will generate are in question. I appreciate that, as we discussed earlier and this morning, it can be difficult to arrive at such estimates with any degree of certainty. That said, the figures for the amounts that the Government intend the digital services tax to generate are quite modest.
I refer again to the OBR’s assessment of the Government’s costings methodology in 2018. It said:
“Every stage of this costing is uncertain. We have assigned uncertainty around data as ‘high’, uncertainty around behaviour as ‘medium-high’ and, given the complex multi-stage costing methodology, uncertainty around modelling as ‘very high’.”
Part of that is due, the OBR states, to behavioural responses, which could include
“reclassifying revenue currently in scope as being out of scope, particularly for groups with mixed business models; altering business models to generate new revenue streams that are out of scope; and profit shifting. The costing allows for attrition rising to 30 per cent by 2023-24.”
It is clear that the already limited takings of this tax could be reduced further by the practices of digital companies to reduce their liabilities. Yearly reporting would confirm whether such concerns are justified and would highlight what more the Government need to do to ensure that such companies pay a fair and appropriate amount of tax. A detailed yearly report would also help us to understand the distributional impact of this tax—whether, as the Chartered Institute of Taxation notes, it under-taxes businesses with high profit margins and over-taxes those with low profit margins.
The merits for regular reporting are also made clear in the Government’s response to their consultation in July of last year. They noted that respondents to the consultation believed that thresholds for the tax should be reviewed and potentially increased over time, given that the digital sector is characterised by rapid growth. Again, as we heard from Government Members, the pace of change in technology requires us to be fleet of foot in our response. Does the Minister not agree that the arguments put forward in his own Government’s consultation make the case for more regular reporting, and even a review of these measures?
Despite the strong justification for regular and transparent reporting, the Government have committed only to a review by 2025. We find it strange that they are unwilling to consider a more regular review of what is, to put it quite lightly, a contentious tax, even if one accepts the principles underlying it, as Opposition Members do.
As I have said throughout the debate, the times we are living through demand much more ambitious action. It is imperative that those with the broadest shoulders—including the digital giants, who are doing pretty well out of this crisis—bear a responsible amount of the burden. I am sure that the Minister would acknowledge that that reflects public sentiment on this issue, which has shifted over time; that is why the Government felt capable and confident about bringing forward this tax in the first place.
Perhaps the Government’s unwillingness to report regularly on the tax is a case of managing expectations, as highlighted by the Chartered Institute of Taxation, which says that the measure is not
“aimed at stopping profits arising in the UK being shifted by multinationals out of the UK to tax havens”,
adding that
“it is unlikely to raise amounts that materially affect the country’s finances, particularly in the context of the amounts being spent on COVID-19 measures.”
Therein lies the importance of yearly reporting, so that we can see how much these companies pay in tax, and whether more needs to be done.
That brings us to some wider issues around tax transparency and the Government’s approach to supporting companies during this crisis. We appreciate that the Government had to respond with real speed in making sure that people stayed in work and that our companies remained afloat in order to emerge from this period. However, at the same time, there can be no excuse for the level of tax avoidance in the UK in recent years. The vast majority of businesses do the right thing, including the many on our high streets that are so well respected and are very much regarded as part of the community, providing a much broader service to the public. I think there will be a growing public expectation that businesses should see that there is fairness within the system.
That is why we have also been urging the Government, in the measures brought forward both here and more broadly, to consider issues around fair tax practices, environmental standards and preventing share buy-backs where pandemic-specific Government and public support is offered to particular industries. One need only look at the action taken by the Labour Government in Wales to understand that it is possible for the Government to bring forward additional measures to safeguard public money, so that we do not see abuse in this area and that we see fair and just tax practices.
We discussed international co-operation and the need for a multilateral response. The Minister will be aware that my hon. Friend the Member for Liverpool, Walton (Dan Carden), who is also a member of our Front-Bench team, has raised with him in parliamentary questions some issues around building support at an international level for comprehensive and effective reform of the taxation of multinationals, instead of advocating partial patch-up measures targeting only the very large, highly digitalised companies, while continuing to adopt unilateral measures such as the diverted profits tax.
The issue around tax transparency specifically is that the UK will not allow the OECD to publish aggregate country-by-country data. I am aware that the Minister said in response to my hon. Friend that that was because of technical deficiencies within the system. I would be grateful if he said more about that. We all want to understand any efforts being made by some of these multinationals to avoid paying their fair share, and we all want to make sure, at this time of national crisis, that our public services can rely on the funding they need to get through this time.
If the takings of the tax turn out to be as limited as some might fear, it would of course further the argument that we need to implement more wholesale and ambitious measures to tax multinational digital enterprises. That is the approach that the Opposition will continue to call for.
I also want to highlight a concern raised by many stakeholders, including the Chartered Institute of Taxation, that there is no sunset clause in the legislation. Does the lack of such a clause suggest that the Government are willing to maintain this measure indefinitely, despite its imperfections; or will they continue to keep it under review? If the latter is the case, it strengthens the argument for annual reporting.
Finally, the new clause tabled by the SNP appears constructive. In many ways, it is similar to our amendment on assessing the effect of the tax, although perhaps within a timeframe within which its impact will not have been fully felt. Although we are sympathetic to the proposal, I should be grateful to hear a bit more about the aspect of the new clause that relates to Scottish limited partnerships.
Jesse Norman
I very much appreciate the hon. Lady’s comments. I will speak to the amendment and to clause 70, as well as to the SNP’s new clause 11.
Clause 70 requires the Government to review the DST and submit such a review to Parliament in 2025. It is a Government priority to secure an appropriate global solution to the corporate tax challenges posed by the digital economy, as we have discussed. As we have also said, once such a solution is in place, the DST will be removed.
Should the DST remain in place in 2025, the review will consider whether it continues to meet its objectives and whether international reform means that it is no longer required. However, it remains our strong preference to agree and implement an appropriate global solution, and to remove the DST as soon as possible.
The hon. Lady raised a point about the absence of a sunset clause. The 2025 review allows a context in which the Government can have an in-the-round consideration of whether this tax—were it, unexpectedly, still on the statute book—was doing its job and if it is, how it could be improved, and if it is not, where it could be tweaked to further advantage.
The amendment would require the Government to produce a review of DST annually rather than in 2025. It is not clear what the hon. Lady means by a review, but there are already very substantial processes in place. HMRC regularly reports on the taxes that it is responsible for collecting and DST will be no exception to that. It will be possible for parliamentarians and the public to scrutinise what tax has been collected by this measure. It is a new tax, so there may be some variety or it may come in higher or lower than expectation.
A review in 2025 as a backstop ensures that, should the DST remain in place at that point, its continuing relevance can be considered against the relevant circumstances at the time. However, the Government keep tax policy under continuous review through the annual budget process and, as I have said, it is our strong preference to agree and implement an appropriate global solution.
Bell Ribeiro-Addy (Streatham) (Lab)
The Minister said that tax policy was constantly under review and that if things changed, so would the legislation. What is the logic against an annual review? Is that not more flexible than waiting until 2025?
Jesse Norman
A review in the formal sense is a substantial undertaking. It is something that is done periodically to assess the viability or effectiveness of taxes. Given the amount of scrutiny that exists on existing tax, and given the fact that this is a new tax, that scrutiny will be carefully exercised. No doubt it will be scrutinised in Parliament as well, through the usual channels.
The case for a review comes when there has been a period of time in which one can establish and look at the track record and effectiveness of the tax. As I have said, however, we do not expect it to be on the statute book, because processes are under way internationally through the OECD that we expect to bring about a global solution that will be satisfactory to us and to the other countries involved.
Bell Ribeiro-Addy
I am trying to understand what the Government’s understanding of temporary is. How long is temporary—five years? The Minister has said that it is a temporary measure. I understand what he is saying about a review being a substantial undertaking, but if the measure is meant to be temporary, do the Government have set guidelines about what they think temporary is?
Jesse Norman
It is not often that I am invited to engage in philosophical speculation on the nature of time. Temporary, as far as I am aware, does not have a definition in law. We are framing the measure in the context of currently existing practices and discussions within the OECD. We expect those to come to fruition in the next five years.
As a long stop date, we have left a review in 2025 in place, but of course the Treasury may decide to vary that, or indeed the Government may decide to take it off the statute book, if such a process is forthcoming. The hon. Lady will be aware that taxes have a tendency to mutate. When the income tax was introduced by William Pitt, it was allegedly temporary, but it was temporary only for a while and then came back. It is a good point, however.
I will turn to a couple of wider points mentioned by the hon. Member for Houghton and Sunderland South. She talked about tax avoidance, and she will be aware that, as I have touched on, the Government have done a great deal to tackle and address tax avoidance; there are several such measures in the Bill, which I thank the Opposition Front-Bench team for supporting. Indeed, it is worth noting that the tax gap has continued to fall, which reflects the excellent work of successive Administrations. That is over and above the passage of a variety of measures designed to cut down on tax avoidance and evasion and, of course, an anti-promoters strategy, which is currently the subject of consultation with the public and which we hope to bring to fruition later this year. A series of initiatives is already under way, in addition to much previous work in that area.
On the issue of country-by-country reporting, the hon. Lady will be aware that we already, with the strong encouragement and support of the Government and our predecessors, have private country-by-country reporting, which was an important move forward. The difficulty is that public country-by-country reporting requires a measure of international consensus. If it does not have that, it runs the risk of setting all kinds of incentives that might actually have the effect of undermining the policy and the transparency that we move to, so it is an evolving position in this country, as in the OECD. We hope that the general move towards more integrated global solutions and greater transparency is one that we can reach in all those areas.
The SNP new clause 11, which would require the Government to report to the House within six months of the Act passing—
The Chair
Order. I am sorry to interrupt, but unfortunately I did not see Stephen Flynn indicate that he wanted to speak. Would the Minister mind if I brought him in first?
Stephen Flynn (Aberdeen South) (SNP)
Thank you, Ms McDonagh, and I thank the Minister for allowing me the opportunity to speak to new clause 11, of which there are two parts. The first relates directly to the digital services tax and the second relates to Scottish limited partnerships in relation to the DST. I shall come to that in due course, to address, I hope, the concerns of the hon. Member for Houghton and Sunderland South.
With direct reference to the new clause and DST, the Minister has taken great pains to stress that this is a new tax, and because of that we need to take things slowly. However, I feel there will still be a strong element of cynicism in the public domain about how effective the tax will be, which his why we have tabled new clause 11. Such cynicism would certainly be justified. Earlier we heard about Amazon as an example of a large multinational corporation that benefited from the lack of direct taxation. For instance, last year I believe it paid £220 million in direct taxation in the United Kingdom, despite revenues in excess of about £11 billion. That is neither sustainable nor fair.
As to fairness, we heard at great length earlier about online retail’s impact on high streets across the United Kingdom. We need not go far to see that many shop fronts are now derelict because of the change in consumer habits. I suggest that those habits are unlikely to change, particularly for people in the younger generations who have become accustomed to sitting in the comfort of their home ordering what they want, and getting it delivered in a day or two.
That being the case, we need to create an element of fairness, which will allow revenue to be gained and income put back into the system. I imagine Members can think of many avenues for spending that revenue, but perhaps it could be spent to provide local authorities with the finance they require to invest in city centres and transform them into something better. The issues relating to DST have perhaps never been as relevant as they are now, given the prevalence of online retailing.
We also need to be mindful during the pandemic of the fact that many companies in Scotland and the United Kingdom face an extremely bleak future, and will still have to pay their fair share, as they have always done. It is unacceptable for us to be in such a situation. That is why I welcome the measure, although it could perhaps have been dealt with in a way that sought to bring in more revenue. Many companies will be in extremely challenging circumstances, through no fault of their own, and we must have a system that provides fairness, as they would expect.
Netflix was discussed earlier. I understand, as do Members on both sides of the Committee, that it might not have the same financial burden of payment as Amazon. I did not ever think I would use this phrase in the Houses of Parliament, but rather than “Netflix and chill” the expression should surely be “Netflix pay your bill.” The reality is that it has coined it and has not had to pay back. No fair-minded person can support that.
I appreciate the Minister’s comments and understand his position: we need to see where the OECD is coming from in its approach. Ultimately we need a global, sustainable position on online taxation; everyone recognises that, but the Government have been slow in getting to the point where they are now, and they could have gone further. The new clause allows them to reflect on where they will be. As I have said, public cynicism will continue to be rife.
That brings me to the second element of the new clause, which relates to Scottish limited partnerships. As all those present are aware, the future of SLPs has been contentious. My colleagues in the Scottish National party have on numerous occasions suggested to the UK Government that changes need to be made, and that SLPs need to be brought under control. After all, they are not taxable in the UK if none of their members is resident there. There is a concern—a justifiable concern—that SLPs may be used to avoid DST. That is the crux of where we are coming from and it is an extremely reasonable concern, given the propensity of SLPs to be used for tax evasion in the past.
I do not wish to suggest that Amazon or the like will follow the pathways that many of the organised crime groups have in trying to funnel money through SLPs, because that is obviously not the same argument to be having, but the reality is that SLPs and the framework that they provide would allow for avoidance to take place, and we should all want to do everything that we possibly can to limit that.
Up to now, I think it was reasonable to say that the Government’s record on SLPs has not been good enough, to put it mildly and candidly. I hope that a recognition of our proposal in new clause 11 with regard to SLPs will be taken on board, out of a commitment to end the sorry practice of those partnerships.
Jesse Norman
I thank the hon. Gentleman for his contribution to the debate on this clause and for the points he has made.
It is worth pointing out a couple of things. First, I have talked a little about the Government’s record on issues of avoidance. The hon. Gentleman talked about cynicism. What is interesting is that the public are perhaps more discerning than he thinks, and I do not think that there is cynicism about this issue. In fact, although I have not looked at any polling on this issue, I think the public are generally highly supportive of this measure. It is not a tax on retail; it is a tax on user-generated content. However, the understanding that there was a problem in the application of international tax rules and that it needed to be addressed is widespread, and I think there is a recognition—for those who would get their heads around this tax—that this measure is part of a response to that problem, as indeed is the wider OECD programme.
Stephen Flynn
I perhaps did not convey it correctly, but I think the cynicism will derive from the fact that the public will not regard the levels that are being put in place as sufficient to bring in the revenue that they should. These companies have benefited exponentially in recent years, and the figures that the Government expect in terms of revenue pale into insignificance compared with the revenue that these companies ultimately bring in. I think that is where the cynicism will arise.
Jesse Norman
There are two points here. One is the question of what the right level is. As we have discussed, this tax is designed to raise what by any other standard would be a pretty substantial amount of revenue— £2 billion over five years—and at the same time to establish a category of taxation that, in and of itself, is an important category. We have talked about some of the wider philosophical implications of that with my hon. Friend the Member for Aberconwy as well, so I think there is recognition of it.
Of course, it is also worth saying that, in relation to Scottish limited partnerships, the Government have recognised the problem, we have consulted and considered, and we are framing a legislative response to it. So there is also recognition of that problem.
The effect of the new clause would be to require the Government to report to the House, within six months of the Bill’s passing into law, the effect of the DST on tax revenues, and in particular the effect on the tax payable by the owners and employees of Scottish limited partnerships. Of course, this is a tax on groups, not a tax on individuals, whether those individuals are employees or owners; therefore, that is where the tax will fall.
In addition, DST payments will not be required until after the end of the relevant accounting period for each liable group, and thus payments will not be required until 2021. So the report that the hon. Gentleman describes would not contain any useful information. The DST’s reporting deadlines mean that very few groups would have needed to register and no groups would have been required to send in their return by that point. The report would not provide useful information about DST receipts.
We have talked about the importance of reporting and reviewing, but the effect of the new clause would be to pass a requirement to report with very little information and with very little purpose to it. I therefore commend clause 70 to the Committee and urge it to reject amendment 7 and new clause 11.
Bridget Phillipson
I would like to press amendment 7 to a vote.
Question put, That the amendment be made.
Finance Bill (Fifth sitting)
Thursday 11th June 2020
(3 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 11 June 2020 - (11 Jun 2020)
The Chair
I remind Members to please respect social distancing guidance. As you are aware, tea and coffee are not permitted in Committee rooms. Please ensure mobile phones are turned off or switched to silent during the sitting. As I have said before, the Hansard reporters will be grateful if Members email their speaking notes to hansardnotes@parliament.uk.
Clause 38
Digital services tax: introduction
Question proposed, That the clause stand part of the Bill.
The Financial Secretary to the Treasury (Jesse Norman)
Thank you, Mr Rosindell. I am grateful to all members of the Committee for joining us this morning; I am also grateful it is not too hot outside. It is a rare moment in Parliament when one gets to introduce a new tax—the digital services tax—on to the statute book. With the clauses grouped together, it is appropriate to spend some time in my opening remarks outlining the overall architecture of the tax and how it is designed to work; then we can pick up specific details in the clauses as we come to them.
Clauses 38 to 44 introduce legislation to enact the digital services tax, and they set the scope of this legislation. DST will levy a 2% charge on the revenues that groups receive from providing specific digital services to UK users. The specific services in scope of the charge are search engines, social media, and online marketplaces. I will explain later why those three services are in scope of the new tax. DST will apply only to groups with annual global revenues from services of more than £500 million. It will then be charged on the revenues only where they are attributable to UK users, and only on amounts above £25 million.
An exemption will exclude online financial services marketplaces from the definition of an online marketplace. Businesses making low profit margins on their in-scope activity will be able to pay the tax at a reduced rate, while loss makers will pay nothing; that will minimise the distortions that a tax on revenues can create. To further reduce those distortions, a relief for certain cross-border transactions is also included. It will reduce by half the revenues subject to DST where those revenues are derived from an online marketplace transaction between a UK user and a user from a jurisdiction that also levies a DST. As this is a new tax, there are also extensive provisions to ensure the framework of the tax works as intended. These draw on many existing tax concepts to reduce the burden of implementing the new tax for what we hope will be a limited time.
The digital services tax was announced at Budget 2018 as a response to changes brought about by the rapid development of our digital economy. That economy brings many benefits, but it has posed a significant challenge for international corporate tax rules. Under current rules, digital businesses can derive significant value from UK users, but in many cases they pay little UK tax because international corporate tax rules do not recognise the user-generated value when allocating the right to tax profits between jurisdictions, so undermining the fairness and sustainability of our tax system. It is therefore now widely accepted that the rules require updating.
The Government remain at the forefront of international efforts to secure a comprehensive long-term solution to the issue, and we are fully engaged in discussions with OECD and G20 partners. Although we welcome recent progress towards a global solution, there remain important and difficult issues to resolve, so the Government are acting now to address those widely held concerns in a fair and proportionate manner. DST is a temporary measure, until appropriate global reform is in place.
As a temporary measure, DST is targeted at those business models that rely most significantly on user-generated value and that place the greatest strain on current corporate tax rules. It is the Government’s judgement that these services are search engines, social media platforms and online marketplaces. Of course I recognise that a broad range of digital services could be said to derive value from their users, and I am aware that some hon. Members have called for the scope of DST to be extended to include services such as media streaming. However, the services in scope of this tax are those that rely most significantly on user participation in the creation of value: for example, while media streaming platforms may utilise user contributions in the form of reviews or recommendations, users of a social media platform often create the content that is shared across the platform, and users of an online marketplace provide the market liquidity required for the marketplace to function. Also, while we are engaged in OECD discussions about finding a long-term global solution and exploring the case for broader reform, we judge that it would not be appropriate to implement a temporary tax on a broader basis.
DST follows the recommendations of the OECD’s 2018 interim report. Targeting DST at those services that derive the greatest value from their users minimises the distortive consequences of a tax on revenues and minimises the risks of introducing a temporary measure before global reform is agreed. That will ensure that DST is proportionate, while still raising up to £2 billion over the next five years. That in addition to the UK taxes that digital businesses already pay and, as I have said, reflects the value they derive from UK users.
I will now summarise the clauses that form this part of the Bill—clauses 39 to 44. Clause 39 sets out that DST will apply to all revenues that arise in connection with in-scope digital service activity. That is deliberately a very broad test; it ensures that however these businesses make money from their in-scope activity, that revenue will be subject to the tax. The clause also sets out that revenues should be apportioned on a just and reasonable basis when they are not wholly in connection with an in-scope activity.
Once a group’s digital services revenues have been established, the next step is to determine how much of those revenues is attributable to UK users. Clauses 40 and 41 set out the five cases where revenues are attributable to UK users. The first three cases deal with the specific types of revenue that online marketplaces may receive. The first case concerns the revenues that a marketplace earns from facilitating transactions between users; this will include a marketplace’s commission, for example. These revenues are attributable to UK users whenever a UK user is a party to the transaction. It does not matter whether the UK user is the buyer or the seller, or which user paid the revenue; where there is a cross-border transaction between a UK user and a non-UK user, all of the marketplace’s revenue from that transaction is regarded as attributable to UK users, although this may be subject to cross-border relief.
The second case concerns revenues that arise in connection with accommodation and land in the UK—for example when a user books a holiday let on a marketplace. These revenues are attributable to UK users when the property is in the UK. Where the property is overseas, the revenue will only be UK digital services revenue when the purchaser is a UK user. Some marketplaces charge users to list individual items for sale; under the third case, those revenues will be treated as attributable to UK users whenever the user listing the item is a UK user.
The last two cases apply to social media services and internet search engines, as well as to online marketplaces. The fourth case deals with online advertising revenues. These revenues are attributable to UK users when the advertising was viewed by a UK user; the focus is on the viewer of the advertising, not on who paid for it. The fifth and final case is a catch-all, to include revenue that is not trapped by any of the other rules but that is received in connection with UK users. This will cover any other type of revenue earned by social media services and search engines—for example, subscription fees.
Clause 42 defines each of the services in scope of DST. The tax will be charged on the revenues that businesses earn from providing a social media platform, search engine or online marketplace to UK users. The definitions are designed to be targeted and as clear as possible. They have been carefully drafted after extensive consultation periods with business to ensure that they apply as intended. Alongside the three named services, some businesses facilitate online advertising on other websites. The clause ensures that revenues from that source would also be subject to DST when the advertising service derives a significant benefit from operating one of the three named services.
Clause 43 clarifies the meaning of “user” and “UK user” for the purposes of DST legislation. Clause 44 sets out the exclusion of online financial marketplaces from the definition of online marketplaces. The highly regulated nature of financial services limits their ability to engage with users in the ways that other marketplaces do. As such, the clause ensures that they are not subject to DST.
Together, clauses 38 to 44 set out the scope of DST. The digital services tax is a clear signal of the Government’s commitment to ensuring that tax rules reflect the development of our modern economy. Ultimately, as I have said, our strong preference is for a global solution, which will be the most comprehensive and enduring way to address concerns about the current corporate tax rules. Until such a solution is in place, however, DST will ensure that digital businesses pay UK tax that reflects the value they derive from UK users. I therefore commend the clauses to the Committee.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
It a pleasure to see you in the Chair, Mr Rosindell. Like the Minister, I will use this opportunity to lay out our broad views and concerns about the operation of the digital services tax. We will pick up some of the technical issues with the clauses as they emerge later.
We welcome the principle behind the introduction of a digital services tax. It is regrettable, if not unsurprising, that it has taken the Government so long to get to such a measure, given the wider inertia when it comes to making sure that multinational companies pay their fair share of tax. The gap between the profits that digital companies derive from UK users and how much they pay in tax is stark. That fact has been evident for some time and is recognised by Labour Members, which is why for years we have consistently pressed for a far more ambitious approach.
It is not right that, at a time when high street shops are struggling in an unprecedented way, the likes of Amazon have been allowed to pay a much lower tax rate than British bookstores and other businesses of a comparable nature. Our local high streets are incredibly important; they are the backbone of our local economies. Many family-run businesses have found this time incredibly difficult, but they also have many long-standing problems because of the way they have been undercut by some of these big players, which do not have the same overheads or level of corporate responsibility and do not make the same impact in our communities. During this crisis, many of our local businesses—our small businesses on the high street—have adapted to do all they can to make sure that vulnerable people receive deliveries and support, and that they are open as much as they can be within the guidelines. It is only right that we make sure that the bigger players with large profits make a contribution too.
There is still much unfairness built into the system. As constituency MPs, we only have to visit the businesses on our high streets that have been operating for many decades to appreciate the scale of disillusionment that many of those family-run firms feel about the lack of fairness in the system and the need for change. The economic crisis we are facing only strengthens the call for action because it has compounded the impact on our high streets, which have struggled and will continue to struggle. It is such a shame that, in many of our communities, affluent and perhaps less affluent, there are clothes shops that had their shutters down even before we felt the impact of the lockdown.
Vibrant local high streets are central to a sense of pride in the community and to making sure that we can support local jobs and businesses. We want to do everything we can to support that, but hand in hand with the pressures facing many small businesses during this time, there has been an unexpected boon for digital and tech giants, as we have all had to adapt to life in different and difficult circumstances during the lockdown. It is only right that we ensure that those with the broadest shoulders help to bear the cost of the recovery that we must now achieve as a country. It is more important than ever to make sure that those big players are taxed properly, reasonably and fairly.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
I completely agree with my hon. Friend’s comments. Does she agree that large companies such as Amazon are unlikely to be substantially affected? The Bill aims to support start-up companies, but it does not go to the heart of addressing big digital companies that get away with not paying enough tax.
Bridget Phillipson
My hon. Friend makes an important point. That is one of many concerns raised by stakeholders, and an issue that I will be raising further with the Financial Secretary during the course of my contribution. As the he outlined, the measure does not capture media streaming services either, and I intend to say a bit more about that in due course.
The broad campaigning support that we have seen right across the House on issues of tax transparency, led primarily by my right hon. Friend the Member for Barking but with considerable support from Government Back Benchers, demonstrates the appetite both within this House and outside for greater transparency in this area. Tremendous work has been done by the all-party parliamentary group and by the Public Accounts Committee, led previously by my right hon. Friend the Member for Barking and subsequently by my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), which has continued to press the need for greater transparency in this area. It wants the Government to act, but it also recognises the need for greater multilateral action. I know the Financial Secretary touched on that point and I will come back to it later.
The Opposition understand the difficulties with multilateral action, but we think that the Government should provide a greater degree of leadership in seeking to resolve the problem. Another reason why the yield as outlined might be so low is the rate at which it is being set: it is among the lowest in Europe. I invite the Financial Secretary to explain why the Government have adopted such a cautious approach when other countries are going further. How did he arrive at the figure? How did he and the Government determine the level of the tax? What assessment was made not just of the yield and the difficulties with determining it, but of whether it is an appropriate level? Have other stakeholders and groups made representations on the level at which the tax has been set?
The modest nature of the measure becomes clear when we consider what some of the tech giants might actually have to pay under the tax. The Minister may well be aware of the research by TaxWatch UK, which estimates that Facebook would face an increased tax bill of £39 million despite estimated UK venues of almost £2.3 billion. Google would pay slightly more: around £168 million, based on estimated UK revenues of £9.3 billion.
Beyond the small impact on the companies to which the tax applies, there is the question of which companies will not be affected by the tax. That comes to the point made by my hon. Friend the Member for Erith and Thamesmead. Many digital businesses such as Amazon, which blend their activities, will be unaffected by the measure outlined by the Minister; nor, as TaxWatch UK has illustrated, will it apply to Apple’s hardware business, Microsoft or Cisco Systems, none of which involve social media platforms, search engines or online market places.
As I said earlier, my right hon. Friend the Member for Barking has done so much work in this area. I am aware that she pressed the Financial Secretary earlier this year to extend the scope of the digital services tax to include streaming services such as Netflix, which are not included in the measure, and he set out some of the Government’s concerns about broadening its scope. I want to provide a bit of background on the operations of Netflix, on which many of us have come to rely in a much greater way during the lockdown period. Many online streaming services have no doubt seen a real boost at a time when we are all trying to find ways to spend many an hour and entertain our children in the absence of any form of proper childcare.
Netflix’s estimated revenues from UK subscribers was £860 million in 2018, based on analysis from TaxWatch UK, which provides an analysis of Netflix’s corporate structure showing that the company has implemented a similar tax avoidance structure to those used by many other multinational companies operating in the digital sphere. Revenues are not collected in the country where they are made; instead, customers are charged from an offshore company, and profits are then moved from the hub company to a tax haven through the use of an intra-company transaction. Netflix’s historically low profit margins mean that the scale of any tax avoidance will be much lower than that of many other well-known companies that employ similar tactics. TaxWatch UK has argued that it is relatively easy to calculate the revenue of Netflix in the UK: there are surveys of TV usage that tell us how many subscribers it has in the UK, and Netflix publishes data on average revenue per subscriber, which is something that I imagine has grown considerably during this time.
That returns us to the issue of fairness. Despite receiving support from Government, many high street businesses have struggled and will continue to struggle for a prolonged period, while other companies have potentially seen a big increase in their revenues during the crisis. The Opposition urge the Government to consider whether the measure is adequate. As argued by my right hon. Friend the Member for Barking, extending the scope of the tax could feasibly bring other streaming platforms, such as video game streaming platforms, under the ambit of the tax. That would improve its takings and ensure that all companies pay their fair share.
The pattern of profit shifting displayed by Netflix, which I just outlined, reflects practices adopted by others. It is clear that the current system for taxing streaming services is not working. The proposed measure would go at least some way to resolving this, but it is not adequate.
I am aware of the Financial Secretary’s response earlier this year to my right hon. Friend the Member for Barking, disputing the practicability of widening the scope of the tax, but I urge him to look again at the issue, or at the very least to consider other means at the Government’s disposal to ensure that all companies pay an appropriate amount of tax. We will discuss the scope and the yield later when debating Opposition amendments, but I urge him to consider how we can be confident that this measure is working as intended—not only whether it is deriving the income that we need in order to provide support for our frontline services at this difficult time for the country, but whether the digital services tax is operating as it should.
I will also highlight some of the technical issues relating to clauses 38 to 44. Clause 39 indicates that revenue should be apportioned on a just and reasonable basis when not wholly attributable to a digital services activity. Does the Minister accept that there may be a risk in taking businesses at their word here? There may well be some issues in how that is applied, and I would be grateful if he could offer some reassurance in this area. Asking businesses to apportion revenue on a just and reasonable basis may lead them to structure their operations or disaggregate their costs in a certain way to avoid higher liabilities. In the absence of public country-by-country reporting measures to create full transparency, oversight of this will be essential. Can the Minister confirm what will be done to ensure that this has been calculated in a fair and open manner?
A related point is capacity within HMRC. As we have all acknowledged in earlier discussions on the Bill, HMRC and Treasury staff are doing tremendous work at this difficult time for our country, and we all commend them for their dedication and hard work. I imagine it must be a challenging environment in which to work, responding quickly to changes in policy and with the need to support businesses and taxpayers alike, but given the challenges faced, can the Minister assure us that HMRC will have the resources and staffing it needs to make sure that this tax is being applied properly and that revenues are being secured? Some stakeholders have suggested putting in place a dedicated digital services tax team, and I wonder what consideration the Minister and officials have given to that.
Since the legislation was first announced and consulted on, several stakeholders expressed throughout the consultation period concerns around whether the definitions the Government use in these clauses are clear enough and watertight. For instance, there is uncertainty around whether online gambling platforms will fall under the scope of this tax, as set out by the Chartered Institute of Taxation. I appreciate that the legislation has been modified since it was first announced, but I would be grateful if the Minister could clarify the position.
On Clause 43, concerns have been expressed about the difficulty in identifying a “UK user”. The use of virtual private networks presents an obvious difficulty in this regard. The process of monitoring users may also raise concerns around GDPR compliance. I will be grateful if the Minister could set out whether that is the case, and whether there may be difficulties in this area.
I will now touch on the international context in which this measure has been put forward, drawing in part on the Minister’s remarks on the need for both UK action but also global action, as companies work across country boundaries and jurisdictions. The international tax system is fundamentally not fit for purpose: it has not kept pace with the changing nature of technology and many of the changes that we have seen in our economy and the global economy. It was modelled on the trade in goods, rather than services. The challenge of how we respond to the digitisation of the global economy continues, and goes far beyond this measure and other measures that the Government are considering, but the OECD has been pressing on the issue for years, as the Minister acknowledged.
Anthony Browne (South Cambridgeshire) (Con)
I am generally a low-tax Conservative. I prefer lower, simpler taxes, but I thoroughly welcome this new tax. It is clearly welcomed across the House. The public are frustrated at seeing these big technology companies and other multinational corporations not paying their fair share of tax.
I have a few observations and then one question for my right hon. Friend the Financial Secretary. It is absolutely welcome that he is co-ordinating globally on this. I have led tax talks with the OECD on things like common reporting standards, and they take a very long time, so it is welcome that he has come forward with a national measure aligned with what we expect from the international measures, and we are not waiting for the international measures to come into place.
I notice that the shadow Chief Secretary says that the measure has not gone far enough, but it is still one of the first in the world and it also breaks the mould in being a turnover tax, which the UK Government have always resisted. As globalisation continues apace, the arguments for turnover taxes as opposed to profit taxes get a lot stronger and we now have one in the UK on digital services. I suspect that in years to come there will be arguments made for expanding turnover taxes to other sectors.
The case was made that the tax is modest in terms of revenue, but all taxes start out modestly. When we look at the history of value added tax, stamp duty or income tax, they started out modestly and tended to increase as we saw what their impact was. The digital services tax is an entirely new tax on a sector where we do not really know the dynamics. The data has not been collected by the companies, so it is absolutely right that we see what the impact is before deciding in what way to extend it.
When I was chief executive of the British Bankers’ Association, I was involved in many discussions with the Treasury on new bank-specific taxes. With a new tax, it is always the case that we do not know what revenue we will get. There is always a high amount of uncertainty because people have not collected the data for that tax. It is inevitable that for the digital services tax there will be a degree of uncertainty, as has been pointed out.
My question for my right hon. Friend the Minister is about enforcement and implementation. The digital services companies will have to collect a lot of data that they might not have been already collecting. HMRC will be dependent on them for providing the data because it will not have direct access to all their internal accounts and that level of detail. I want to know what work is being done with HMRC to make sure that it can get the right data and have confidence that the companies are paying the amount of tax that they should be paying and not playing games, as they are sometimes wont to do.
Andrew Jones (Harrogate and Knaresborough) (Con)
I am also not usually somebody who likes to find new ways to tax people in the UK. The digital services tax is totally new, but it is the right thing to do. The clauses detail the scope and the mechanisms for the tax and its collection. We even have a clause with an algebraic formula, which should certainly raise an eyebrow. [Laughter.]
The main thing to note is that the economy is changing fast and the tax is a part of that change. The Government’s response is to work internationally as we plot the course to a digital economy. Such economies are by definition international, so it is right to respond in a multinational way. I also know that it is very hard and takes a long time to achieve the objectives, so it is clearly right to proceed in the short term with this measure. Digital firms must pay their fair share.
It is increasingly hard for Governments to raise revenue from their traditional routes. The Government obviously have to raise revenue to fund the public services that we want. There is therefore an underlying, fundamental challenge for the Treasury. Work and consumption patterns change. I recognise that I possibly view this through the prism of somebody who has had responsibility for raising Government revenue—once a Treasury Minister, always a Treasury Minister—but this tax and the thinking behind it are the shape of things to come. Tax has to evolve to reflect the way the economy evolves.
The rise of the digital economy means different things for different companies. The opportunities for productivity and environmental gains are absolutely immense, so we must do all that we can to encourage the shift into a digital economy. Most people encounter it through social media search engines and online retail, which are the target areas for the tax. The growth of online retail has placed ever greater pressure on traditional high street retail businesses: a trend compounded, as colleagues have said, by the current crisis.
There have been concerns about the nature of competition and whether there has been a level playing field between online and offline: the argument between bricks and clicks. We should make every effort to level the playing field and the tax is a part of that. High streets have a role beyond their traditional economic role. They have a social role and bring people together. They create hubs for communities, but they also have to evolve to reflect the changing nature of competition, and a more level playing field in taxation will help give them the space to evolve.
I had some concerns that the tax may discourage digital start-ups; we have seen a good period for start-ups in the UK and I think that we have led Europe in this sector. However, I think those concerns have been dealt with by the threshold at which the tax becomes payable, which will only capture the very largest of businesses.
So, we have a very interesting new area for taxation, which I do not think any Government can enter into lightly. The Minister is an old friend—we have worked together for many years—and I commend him, because this is not easy stuff; it is pioneering for the UK and indeed for the world. But we have found a way forward that updates our taxation system and introduces more fairness to it, and through the operation of the new system we will learn how future taxation may work. So, as we go through further clauses in detail today, perhaps he could comment on how any learnings from this tax might influence and develop future taxation thinking.
Jesse Norman
All I can say to my colleagues on the Government Benches who have made their speeches is,
“soft, what light through yonder window breaks? It is the east”—
and my hon. Friends the Members for South Cambridgeshire, and for Harrogate and Knaresborough. What could be finer? I thank them very much for their interventions. If I may, I will start by responding to those interventions and then come on to the very detailed thrust of commentary from the shadow Chief Secretary.
My hon. Friend the Member for South Cambridgeshire rightly made the point that taxes are, of their nature, potentially distortive, and revenue taxes, of their nature, in particular. It is therefore appropriate to proceed with a degree of caution in considering how to introduce a tax, and to acknowledge that. He also made the point that many taxes start modestly. I could not possibly comment on the future direction of this tax, but I will say that I do not think that £2 billion is a trivial sum of money to raise from a new tax. I think the tax has been set at an appropriate level, and officials and the Government believe that, too.
My hon. Friend also asked whether businesses affected by the tax will have to collect a vast array of new information, and whether that may be burdensome to them. This is one area where, on reflection, he may be able to take a degree of comfort, because we are only talking about very large businesses, and about businesses for whom tracking users and extracting revenue from them is what they do for a living. So, it is not our expectation that there should be any enormous additional informational burden; there may be a selection process of pulling information out, but not an enormous informational burden.
I will also point out that the approach taken is one of self-assessment, which is to say that we expect businesses that have UK user-generated content revenue to come forward and self-assess. In a way, that relates to the question put by the hon. Member for Houghton and Sunderland South about whether HMRC has enough resources. I am pleased to tell her that it already has a digital team in place, whose job is to monitor this process of self-assessment. And as with other taxes, I have no doubt that they will become increasingly expert in doing that and evaluating the submissions that are made; of course, submissions will vary in their quality and I am sure that evaluating them will be, in turn, an educative process for tax officials at HMRC.
My hon. Friend the Member for Harrogate and Knaresborough, a beloved former Treasury Minister, made a couple of important points. Of course, he is absolutely right that we are talking about a dynamic market or sector. All markets are intrinsically dynamic and we are talking about an intrinsically highly dynamic sector of activity, perhaps never more so than at this particular moment in our history, when we are seeking—internationally and nationally—to find a whole range of new solutions to support people and maintain the economy. So, it is a very dynamic sector.
My hon. Friend is also right to highlight—in a way entirely unscripted and unprepared with me—the “pioneering” nature of this tax. It is a new form of tax, which seeks to tax UK user-generated content. Therefore, it is an important démarche in our history to consider whether this is an appropriate way in which to tax. I believe it is, and I believe that Parliament will think it is, but we will of course continue to review and take feedback on it. I point out that there have been two sets of consultations on this already—an original, principal set and then a more technical one.
Jesse Norman
I appreciate that, of course. I am grateful to the hon. Lady for welcoming the principles behind this, as she is right to do. For the same reasons I described to my hon. Friends, I do not think it appropriate to think of this as in any sense delayed. We are at the forefront of a developing area of tax law. We have not thought it appropriate to wait for international procedures. I am sure that, on reflection, she would prefer that we not have waited, both because of the revenue generated for public services but also because we deem it important—I have no doubt that the Labour party feels the same way—to try to make progress in this important area, removing what we see as ineffective rules or improving the working of the rules within the tax code.
I think it is fair to say, without blowing the Government’s trumpet too hard, that whether it is the diverted profits tax, work on base erosion and profit-shifting, corporate interest restriction rules or, indeed, on private country-by-country reporting rules, the Government have been at the forefront of much of the most progressive tax changes of the past few years, which is entirely appropriate.
The hon. Lady raises the question about the relationship with high streets. No Member of Parliament does not feel the concern about the high street, because they go back to their constituencies every week and see the effects of change. It is important to be aware that this tax is about addressing changes, or the way in which the tax rules are not fully capturing the value that is being generated. The high street is a rapidly evolving entity, as has been pointed out. Many high street businesses—even quite small ones—have online businesses of their own, which are effective supplements to what they do. They will not be caught by this tax, because in many cases their activity will be too small. However, it is in those hybrid models, which are evolving, where I think much of the future of the high street may lie.
It is not by any means obvious that the effect of the pandemic has been solely to privilege the online versus the offline. Plenty of online businesses have been clobbered by the pandemic in a way that many offline businesses have as well.
Bell Ribeiro-Addy (Streatham) (Lab)
The Minister raises a valid point about this tax generally creating more revenue. However, he mentions the pandemic, and I am clear that we are heading for one of the worst recessions in history. Does the Minister not think that we would do best to do what European countries are doing, with a much higher rate of tax? The £1.3 billion that we will potentially lose is no small fee. The public coffers need that money. Does he not agree?
Jesse Norman
I thank the hon. Lady very much for her question. As I said, the estimate by the independent OBR is of £2 billion over a five-year period. Our estimate is certainly £2 billion over a five-year period. I do not think that is a trivial amount. As has been discussed, we of course recognise the importance of generating revenue, but we also think it important to introduce a tax that is sustainable and that lays a framework that can be effective while it is in operation. There are countries that have had higher taxes, and we have offsetting rules regarding the interaction with those taxes in order to create equity as between the different jurisdictions, so it is a perfectly fair question, but we have taken the view that 2% is an appropriate level for a new tax. As I said, it is a tax that we will be very happy to take off the statute book as and when the OECD process starts to yield effective results, which it may well do before too long.
Bell Ribeiro-Addy
What I cannot seem to understand is why—the Minister mentioned sustainability—if other countries in Europe see it as sustainable and we have no evidence to the contrary, we have decided that it is not sustainable to have a higher rate.
Jesse Norman
That is, of course, a proper question to ask, but we have taken the view that this is a tax that we would like to take off the books in due course, when there is an OECD agreement. That agreement may take a variety of different forms; it may raise more tax or less. Different countries have different overall tax systems and seek to address different forms of corporate behaviour in deriving revenue. In the UK, there are plenty of businesses deriving revenue from user-generated content. Some of them will be over the thresholds that we are talking about, and those are the ones that are within the scope of the tax.
It is absolutely open to other parties to disagree about how they would put it, but the Government have taken the view that this is the appropriate level for a new tax—it is on revenue and, as I have said, is therefore potentially distortive. We have had feedback and consultations that reflect concerns on both sides of the issue.
Andrew Jones
My right hon. Friend makes a valuable point about the multi-channel operations of many retailers. I came to Parliament from a business background that had a mixture of high street and online retailers. From a business perspective, the key thing is to reach customers in the way that is right for them. By choosing either the high street or online, businesses miss out. Customers are open to trading in whichever way is convenient for them, as this crisis has shown.
I want to make a comment about the taxation. Higher taxation rates do not necessarily mean higher tax collected. We also have to recognise that having a tax environment that is conducive to creating a business-friendly environment is a critical part of the economic growth that we have seen over the past few years. We should certainly be looking around the world to see how other countries operate their tax systems, but drawing comparisons with countries that are not creating wealth or jobs might not be the way forward.
Jesse Norman
I thank my hon. Friend for that comment. In a way, he leads me on to my next remarks in response to the hon. Member for Streatham. He is right. The dynamic market that we are seeking to tax is one where revenues are not absolutely predictable; they may be higher or lower than estimated. The tax therefore stands in contrast to a well-established tax such as VAT, because we can be much more certain about how much that tax will raise.
It is also important to understand that this is not a tax designed to penalise certain companies. The strength of our online sector in the UK has been a very important part of the response to coronavirus, as I have mentioned. There is no attempt to pick out companies and target them with the tax. There is a concern about failings in the international tax rules, and that is what the Government seek to address.
The hon. Member for Houghton and Sunderland South raised the issue of multilateral action and asked whether adequate leadership had been exercised. It has been recognised that the OECD has made some good progress in this area recently, which has been achieved with a lot of urging and support from this country. Ultimately, we all agree that international and corporate tax needs to be addressed in a global and inclusive way. That would be the Government’s strong preference, but we have not waited—I do not think the hon. Lady would want us to wait—because we think it is important to take a lead.
It is also important to say that when we have done that, we have tried—as one might expect with a new tax—to target an area where there is a very clear rationale or justification for the tax that is being levied. UK user-generated content is a strong basis on which to levy a tax. There is a contrast with, for example, media streaming. The hon. Lady talks about how much she has enjoyed various media streaming services, and I welcome that, but we can all be relatively certain that she has not contributed a lot of UK user content to them—[Interruption.] Unless delight and shock are forms of UK-generated content.
I want to reassure the hon. Lady a bit about the apportionment of revenue. She is absolutely right that, as the history of base erosion and profit shifting around the world shows, many companies have found it only too easy to move the effective location where tax is generated. In part, this tax, by taxing revenue overall, is designed to sidestep a lot of the temptations that might exist to work round the edges. A very wide definition of revenue has been adopted, and we can go into that in more detail. As I said earlier, we require companies to do it. It is a self-assessment scheme, and we ask companies to designate, evidence and disclose the UK user-generated revenue of the different kinds that we have touched on.
On GDPR, which is the relative question, the legislation has been written so that businesses are expected to use information that they already have to make the determination. We believe that it is compatible with GDPR, and that it draws on data that is already collected. We are not inviting the groups to collect new information that might be in some sense at odds with people’s rights or in contravention of the law, and of course they will have their own GDPR processes to follow. As I have said, many of them collect a great deal of information, including IP addresses, delivery addresses, billing addresses and so on. To come to a point that the hon. Lady made earlier, that is another reason why the use of virtual private networks is more of an in-principle worry than an actual worry, because famously, so much other information is collected about the users of those services from multiple sources. That should help them to make those disclosures.
The hon. Lady asked about double taxation. It is true that some businesses will pay both UK corporation tax and the digital services tax. For reasons of international law, we are not capable in law of discriminating in favour of UK businesses, and we are not going to. The point, though, is to design a proportionate tax with a low rate, and another reason why we have chosen that rate is that we do not wish to be any more distortive or invoke any more double taxation than is absolutely necessary. As I said, our preference is to move to a global solution.
The hon. Lady talked about international leadership. We look forward to a day when the OECD will be able to pass an agreed set of rules with multinational support that give a proper basis for the levying of tax. As she is aware, a number of proposals are under discussion. They and the processes that generated them are well described in the House of Commons Library note, and I encourage any Members who want more detail to look at that. The Government are clear that we will maintain this tax until the OECD passage of agreement—there may be other supervening factors—causes us to remove it. I commend the clause to the Committee.
Question put and agreed to.
Clause 38 accordingly ordered to stand part of the Bill.
Clauses 39 to 44 ordered to stand part of the Bill.
Clause 45
Meaning of “the threshold conditions”
Jesse Norman
We now come to clauses 45 to 50. The last discussion was quite a long one, but hopefully it was helpful in framing the overall legislation within which we can now discuss the more specific elements, so we may not need to dwell as long on these parts.
Clauses 45 to 50 set out how the digital services tax charge will be calculated. The Government have sought to ensure that the DST is proportionate and charged only to those businesses that are best able to generate significant value from their users. As such, it will apply only to groups with annual global revenues from the named services of over £500 million. DST will be charged only on those revenues where they are attributable to UK users and only on amounts above £25 million.
Clauses 45 and 46 set out the thresholds and the allowance, and they set the rate of the charge at 2%. A DST tax rate of 2%, as we have discussed, ensures that digital businesses will make a fair and proportionate contribution to our public finances. Clause 46 also sets out how each member of a group should calculate their DST liability.
The Government recognise that some businesses have concerns about levying a tax on revenues rather than profits. That is why our strong preference is for a long-term profits-based global solution. That can be implemented only following an international agreement, however, so although the DST applies to revenues, the alternative basis of charge will reduce the charge for businesses with low profit margins or losses on their chargeable UK activity. Clauses 47 and 48 therefore set out the alternative basis of the DST charge and how DST liability should be calculated on that basis.
Online marketplace transactions will occur between two users, and those users may be based in different jurisdictions. Where one of those users is a UK user, revenues attributable to the transaction will be subject to the UK DST. Where the other relevant jurisdiction also levies a DST, however, there is a risk that the revenues could be taxed twice. Clause 49 sets out the relief for certain cross-border transactions, minimising that risk by ensuring that, in such cases, only 50% of the relevant revenues will be subject to the UK DST. Finally, clause 50 sets out when DST payments are due and payable.
Together, the clauses mean that the DST charge is proportionate while ensuring that digital businesses pay a UK tax that reflects the value they derive from UK users. Overall, as I have noted, the tax is expected to raise up to £2 billion over the next five years in a proportionate and responsible way.
Bridget Phillipson
As the Minister said, we have discussed at length the broader implications and the necessary measures set out in the clauses, but I have some technical issues relating to them.
On clause 46, the Institute of Chartered Accountants in England and Wales has said that,
“given the potential compliance burdens imposed by the DST, it is important to ensure that smaller digital businesses are not burdened by DST, so the inclusion of a £25m allowance looks reasonable but should be kept under review.”
On a similar but more general note, the Chartered Institute of Taxation has warned that some businesses will be undertaxed while others may be overtaxed. As we have said before, it is our position on the Opposition Benches that in these challenging times, those with the broadest shoulders should bear more of the load. Can the Minister confirm that he will keep the measure under review to ensure that companies, particularly smaller companies, do not pay more than their larger counterparts, to avoid the distortions that he talked about emerging all the time?
There are perhaps more substantial concerns around clauses 47 and 48 on the so-called safe harbour provision. As HMRC has stated, that is intended to ensure that the tax does not have a disproportionate effect on business sustainability in cases where a business has a lower operating margin from providing in-scope activities to UK users. Its inclusion is obviously well-intentioned, but some assurances will be welcome. It is clear that multinational companies are often adept at structuring their operations in a way that reduces their tax liabilities. Are there safeguards in place to ensure that the safe harbour provision is not used for such a purpose?
Clause 48, for instance, contains a list of excluded expenses that cannot be deducted from a company’s net profit, which goes on to form the basis of the alternative charge. The list, however, does not include royalties, and I am grateful to TaxWatch UK for drawing attention, through the research that it has done, to the implications that that might have, because royalties are at the heart of tax avoidance practices perpetrated by some digital tech companies. It describes how most of those companies’ profits are attributable to various types of intellectual property that they have developed.
By artificially locating the intermediate and ultimate legal ownership of the intellectual property in avoidance-facilitating jurisdictions and tax havens, those companies can avoid tax on UK royalties, and ultimately reduce their taxable profits in the UK. Why, therefore, are royalties not included on the list of excluded expenses? Surely the Minister would accept that that is a potential failure to adequately tackle the use of royalties to reduce tax liabilities, and might further incentivise the use of the safe harbour provision by larger tech companies, which will in turn be able to reduce their taxable profits through their practices with regard to royalties.
More broadly on the safe harbour provisions, the Institute of Chartered Accountants in England and Wales has also said that in spite of those, it is still concerned that low-margin businesses could face a very high rate of tax on UK-allocated profits. Will the Minister address those concerns?
On clause 49, the Chartered Institute of Taxation has highlighted that the interaction with other national tax regimes, including broadly similar but subtly different unilateral taxes in other countries, will still mean some double taxation, which the Minister talked about in our earlier debate. It describes this as a rough and ready way of reducing such instances by reducing the revenue chargeable by 50% if it arises from a transaction where a user in respect of a marketplace transaction is normally located in a country that operates a similar tax to the DST. Does the Minister agree with its assessment? What analysis has been done in that area? Has consideration been given to other possible approaches to reduce the risk of double taxation?
Jesse Norman
I thank the hon. Lady for her questions. She asks whether the £25 million threshold has the effect of clobbering small businesses. Our view is that the purpose and effect of the thresholds is to levy the tax on the businesses that are best able to afford it, and that to have a global revenue base of £500 million and revenue attributable to UK users above the £25 million threshold is in itself a basis that excludes a vast number of small start-ups—which might turn out to be wildly successful and effective unicorns. We do not believe that the threshold will inhibit growth. If this is a direction in which tax will be going over time, as I rather think it is and as colleagues have suggested, an awareness of how tax will bear on future revenues and profitability is in itself an important part of any business’s market development.
The hon. Lady raised a concern about the safe harbour alternative charge arrangements. That is designed to ensure that the DST is not punitive for businesses with low profit margins or losses, and I think that is appropriate. At the margin, there is a risk that some businesses might try to reconfigure their activities to qualify for that, but I think it will be relatively clear to the Revenue from self-assessment when a business that is intrinsically high-margin is disguising that or is, essentially, seeking to utilise the alternative charge unfairly. It is worth saying that the alternative calculation applies only to in-scope UK activity, so businesses will not be able to reduce profit margins by using out-of-scope or non-UK activity. That is an important safeguard.
The hon. Lady asked about royalties. The tax is designed to work based on the consolidated figures of groups as groups. The concern about royalty payments is that, typically, royalties are used within groups to move revenues around, so, from a gross standpoint, they tend not to fall within the scope of the revenue charge, and they should not. Of course, from a tax-principle perspective, there are perfectly legitimate royalty uses and payments that one would want to continue to allow in any case. The alternative charge takes into account only expenses in the consolidated accounts, and is not therefore principally touched by the concern about intra-group royalties, for the reasons that I have described.
Question put and agreed to.
Clause 45 accordingly ordered to stand part of the Bill.
Clauses 46 to 50 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Finance Bill (Seventh sitting)
Tuesday 16th June 2020
(3 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 June 2020 - (16 Jun 2020)
The Committee divided: - Ayes: 7 / Noes: 10 - Question accordingly negatived.
The Chair
Good morning, everyone. As you are aware, social distancing guidelines are in place, so I remind all Members to sit only in marked seats. Tea and coffee are not permitted in Committee Rooms. Will all Members please ensure that mobile phones are turned off and switched to silent mode during Committee meetings? The Hansard reporters will be grateful if Members email any electronic copies of their speaking notes to hansardnotes@parliament.uk.
We now continue line-by-line scrutiny of the Bill.
Clause 72
Excluded property etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss clause 73 stand part. I call the Minister, Kemi Badenoch. [Interruption.] Sorry—Jesse Norman.
The Financial Secretary to the Treasury (Jesse Norman)
Thank you, Mr Rosindell. My hon. Friend and I are sharing the duties on the Front Bench today, and it is I who rises to speak to clauses 72 and 73. The clauses make changes to ensure that additions of assets made by UK domiciled or deemed-domiciled individuals to trusts made when they were non-domiciled cannot be treated as excluded property. As that explanation indicates, it is a somewhat technical measure, which means that such additions are within the scope of inheritance tax.
The clauses have been introduced following a decision by the Court of Appeal. To give some background, the inheritance tax treatment of trusts depends on the domicile status of the person setting up the trust when it was made, known as the settlor, and the location of the assets. If the settlor is UK domiciled, inheritance tax is chargeable on their worldwide assets. By contrast, non-domiciled individuals do not pay inheritance tax on assets in trusts situated outside the UK.
The long-established position of Her Majesty’s Revenue and Customs has been that a settlement is made when a trust is created, and that a settlement is also made when assets are added to that trust. That means that assets would be within the scope of inheritance tax if they were added to a trust by an individual who is currently UK domiciled, even if the trust was set up when the same individual was non-UK domiciled. The Court of Appeal decision created uncertainty by ruling that a settlement was made only when assets were first added to the trust. That ruling meant that the domicile of the settlor for later additions to the trust would not matter. In turn, all subsequent settlements of assets into the trust would not be liable for inheritance tax in the UK. The measure was announced in the autumn Budget 2018, and stakeholders have had nearly two years’ notice of the change.
In July 2019, the draft legislation was published, which provided an opportunity to give feedback to Her Majesty’s Revenue and Customs. HMRC received feedback from a range of bodies including the Chartered Institute of Taxation, the Society of Trust and Estate Practitioners, the Institute of Chartered Accountants in England and Wales, the Tax Faculty and PricewaterhouseCoopers by the deadline for responses. HMRC then made a number of amendments based on the feedback provided, and stakeholders have since provided further feedback regarding the legislation.
Together, the measures will confirm that additions of non-UK assets by UK domiciled or deemed-domiciled individuals to trusts are chargeable for inheritance tax, even when the trust was originally set up while that individual was non-domiciled. The measures will also ensure that transfers between trusts made by a UK-domiciled individual are chargeable for inheritance tax. That will affect UK-domiciled or deemed-domiciled individuals who created an offshore trust when they were previously non-UK domiciled and have subsequently made additions of assets to that trust.
Although the measure will apply only to a small number of individuals, the tax saving for them could have been significant, and there have been claims for tax repayments as a result of the case. The clauses will ensure that the legislation is applied as intended and all tax is collected as expected. The changes introduced by the clauses will add clarity and remove any doubt from the legislation by confirming HMRC’s published and widely accepted views. I commend the clauses to the Committee.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
It is a pleasure to see you back in the Chair, Mr Rosindell. We regard the measure as a welcome imposition to provide for a fairer tax system. HMRC figures indicate that the number of individuals who live in the UK but pay no tax on their offshore income has fallen, with the number of UK-based individuals with non-domiciled tax status falling by 13% on the previous year. HMRC believes that that is explained by individuals switching to domiciled status and other individuals leaving the UK tax system. Thus the clauses reflect that particular change. However, there are some issues reported by stakeholders.
Responding to clauses 72 and 73, the Chartered Institute of Taxation states that among its members transfers between trusts are most commonly undertaken for family or related reasons, and without any intention to avoid inheritance tax or to circumvent the excluded property rules. It argues that the main thrust of the legislation should be to limit additions by the settlor after they become deemed or actually UK domiciled.
The institute expresses concern about some scenarios in which property could inadvertently be brought into the scope of inheritance tax because a change is made to a trust, not an addition of assets, that could be treated as a resettlement, or trustees make a transfer between two settlements, both set up when the settlor was non-domiciled. In neither case is inheritance tax avoidance being attempted. There are some situations where trustees, not the settlor, are involved in transferring between two settlements, both set up when the settler is foreign domiciled, or when the second is set up by the trustees of the first. We believe that there should be no loss of excluded property status because of the changing status of the settlor. I would be interested to hear the Minister’s assessment of those concerns.
Secondly, both the Institute of Chartered Accountants in England and Wales and the London Society of Chartered Accountants were critical of the potential for retrospection. The former argued that if clause 72 is
“to be treated as always having been in force, this will result in unexpected IHT charges arising as a result of past events.”
The institute says:
“Given that the clause is not countering avoidance but is changing long-standing rules that are familiar to trustees and are clearly stated in the existing law…new legislation on this point should not affect events that happened earlier than the measure is enacted, ie Royal Assent.”
Similarly, the London Society of Chartered Accountants believes that this
“clause changes the IHT status of trusts to which assets are added. This change will have effect from the time that the trust was set up, so is retrospective. However, as the clause is not an anti-avoidance measure but is just a change to the law, retrospection is not appropriate and the clause therefore does not follow Parliamentary convention.”
I understand that these comments presume that the individuals in question do not seek to avoid tax when transferring assets between trusts, but I would be grateful if the Minister responded to these concerns.
Last, I heard the Minister’s comments, but the Institute of Chartered Accountants in England and Wales has raised the lack of a consultation period or of any follow-up, despite being led to believe that that would happen after a meeting with HMRC in November 2018. It reported that
“trustees of offshore trusts are unlikely to have considered these changes in the necessary detail”
and had concerns that there would be
“insufficient time for trustees to take advice to help them understand the full implications and…whether they want to take any action to unwind structures.”
In working with the intention of the measures the Government have introduced, I would be grateful if the Minister responded to those concerns and addressed the lack of a consultation period.
Jesse Norman
I am grateful to the hon. Lady for her questions and for her support on this technical but important measure.
The hon. Lady asks about unanticipated negative effects. I am happy to put on the record that HMRC has given reassurance that it will adopt a cautious approach if there is a case in which a taxpayer may accidently taint a trust that contains a mixture of excluded and non-excluded property. Hopefully, that will address many of the concerns about unexpected consequences that she touched on.
The hon. Lady asks whether this measure is retrospective. As she will be aware, we do not believe that it is retrospective. The key point is that HMRC’s application of the legislation, and therefore the legal position, was widely accepted in practice before the Court of Appeal decision put that position in doubt. The effect of it is going to be that individuals have been liable to the tax owed in the spirit of the legislation. Formally, clause 72 is not retrospective because it does not create any new changes pre-Royal Assent, but we recognise the concern that is raised. It is true that in some cases there may be what I would describe retroactable, and not retrospective, effects. That is precisely because HMRC and the Government are seeking to restore what might be referred to as the position as it had always been understood previously. That is the intended effect of the legislation.
The hon. Lady asks whether there should have been more consultation. As I outlined in my speech, the Government have had this in the public domain for a considerable period and discussed it, with plenty of occasion for people to conform their tax affairs to what is, after all, only a reaffirmation of existing tax law through legislation. There is also the counterpart problem, which the hon. Lady will understand: if the clause is not introduced now, it may allow opportunities for individuals to avoid paying inheritance tax on assets they put into trust or on properties transferred between trusts. I am sure she would not wish to abet or support those opportunities and that she would wish, overall, to join us in protecting revenue and providing certainty to taxpayers.
Question put and agreed to.
Clause 72 accordingly ordered to stand part of the Bill.
Clause 73 ordered to stand part of the Bill.
Clause 74
Relief for payments to victims of persecution during Second World War era
Question proposed, That the clause stand part of the Bill.
Jesse Norman
This is a small measure, but a very important one. The clause exempts compensation payments received under the Kindertransport fund from an inheritance tax liability. In late 2018, the German Government agreed to provide compensation payments for child survivors of the Kindertransport. As you will know, Mr Rosindell, the Kindertransport was an organised rescue effort for Jewish children, who were transported unaccompanied from Germany to escape persecution from the Nazi regime. I must say, it is one of the most shining examples of effective humanitarian action in Germany’s history—and in our history—in a very difficult time.
The Kindertransport fund, launched in January 2019, awarding one-off payments of €2,500 to survivors is subject to specified criteria as set out by the German Government. The measure will ensure that Kindertransport payments are not subject to inheritance tax. Changes made by clause 74 will be backdated to take effect so that no inheritance tax is paid on payments from the scheme from its opening date on 1 January 2019.
The clause provides reassurance to the original survivors of the Kindertransport that any payment made in connection with or under this compensation scheme will not be subject to IHT. While no amount of money could ever remove the suffering those children and their families experienced, the Government remain committed to supporting survivors of Nazi persecution. I trust that all agree that it is fundamental that the clause stand part of the Bill.
Bridget Phillipson
The Opposition welcome the provision. As the Minister says, it is a very important measure. Exempting from inheritance tax compensation payments made to the survivors of the Kindertransport is a just measure for those who had to face the devastating experience of being torn from their families as children in order to escape persecution. The House of Commons Library states that around 100,000 children were brought to the UK under the Kindertransport scheme, but of course many of those survivors have since passed away. It is only right that in the spirit of the Kindertransport fund all survivors receive their compensation payment in its fullest form and that that remains the case if the compensation is inherited.
According to the claims conference, to be eligible for payment survivors have to have been under 21 when the Kindertransport took place, between November 1938 and September 1939. However, the UK set an age limit of 17 for those transported. The oldest would therefore be born around 1921 or 1922, suggesting that they would be nearly 100 if they were alive today. The average age of the children who were transported was nine, so many would be in their mid-nineties today. Given those figures, we know that many people claiming compensation from the compensation fund will be survivors’ inheritors, so it is welcome that the payment is not subject to inheritance tax. However, I gently urge the Government to consider the issues that child refugees face today, and I urge Ministers to show the same level of commitment and dedication today that our country demonstrated in the past.
The Kindertransport survivor and incredible campaigner Lord Dubs worked tirelessly to protect child refugees following our withdrawal from the European Union, but the Government’s amendment of clause 37 watered down the UK’s commitment to protect unaccompanied child refugees in Europe who seek to reunite with their families in the UK. I hope that the Government will review their approach to child refugees and take seriously their commitment to protect child refugees fleeing violence and persecution in our present, just as they have taken seriously compensating child refugees of the past. Meaningful dedication to supporting child refugees requires both.
Jesse Norman
I thank the hon. Lady for her comments. She spoke very well about the Kindertransport scheme. As the Committee knows, the Government stand by our position on child refugees, and this country has a proud record in that area.
Question put and agreed to.
Clause 74 accordingly ordered to stand part of the Bill.
Clause 75
Stamp duty: transfers of unlisted securities and connected persons
Question proposed, That the clause stand part of the Bill.
Jesse Norman
In the spirit of proper scrutiny of legislation, we should chew carefully on clauses 75 and 76. They are quite technical clauses, which address the use of contrived arrangements involving the transfer of unlisted securities to connected companies for an artificially low consideration in order to minimise stamp duty and stamp duty reserve tax liability on company reorganisations.
In the Finance Act 2019, the Government introduced a targeted market value rule to prevent the artificial reduction of the stamp tax due when listed shares are transferred to a connected company. That was introduced with immediate effect to prevent forestalling. The Government consulted on extending the rule to unlisted shares, to ensure that we fully understood the potential effect of the change on small businesses. That is why draft legislation is narrowly targeted only at companies that enter into contrived arrangements that are used to minimise stamp tax on reorganisations.
The Finance Bill 2020 therefore extends the market value rule to the transfer of unlisted shares to connected companies. This form of avoidance seeks to exploit the way stamp duty and stamp duty reserve tax are currently charged: on the payment given as consideration, rather than on the value of what is received. Some taxpayers have been using contrived arrangements that reduce the value of the consideration paid when they transfer unlisted shares to a company with which they are connected as part of a company reorganisation.
The changes made by clauses 75 and 76 will mean that when unlisted shares are transferred to a company and the person transferring the shares is connected with the company, the tax charge is based on the value of the consideration for the transfer or the market value of the shares transferred, whichever is higher. The new rule will apply only when there is an issue with shares by way of consideration, narrowly targeting the measures to the circumstances where contrived arrangements are used to minimise the share of the tax on the transfer of unlisted shares. The measures will have effect for stamp duty in relation to instruments executed on or after Royal Assent of this Bill, and for stamp duty reserve tax in relation to agreements to transfer made on or after Royal Assent.
Clauses 75 and 76 prevent the artificial reduction of the stamp tax due on share acquisitions when unlisted shares are transferred to connected companies. It is expected to raise £25 million over the scorecard, and I commend the clauses to the Committee.
Bridget Phillipson
The Opposition welcome the measures implemented by these clauses to minimise the scope of continuing avoidance of stamp duties by extending the stamp duty and stamp duty reserve tax market value rule to the transfer of unlisted securities to connected companies. However, I raise a point regarding the impact of the clauses.
HMRC’s impact assessment of the policy notes that there will be a negligible impact on 250 to 350 businesses in the first year, disproportionately affecting small and microbusinesses. It estimates that the arrangements are most likely to affect private companies with a small number of stakeholders, such as owner-manager businesses, with an average value of £2.5 million. These may include family businesses, many of which we understand to be struggling in the face of the current pandemic. What assessment has the Minister made of this, and who is really the intended target of these clauses?
The Chartered Institute of Taxation expressed concern that unintended consequences could arise from clause 76 due to significant additional costs that are disproportionate to the tax at stake in many cases. It goes on to say that this
“may in some situations prevent commercially advantageous transactions, with no avoidance motive, from going ahead. The…vague description of policy rationale and the contrived arrangements being targeted has prevented stakeholders from assisting in designing a targeted rule so as to reduce the unintended consequences.”
Similarly, legal firm Cleary Gottlieb notes that
“the new rule is not limited to cases of stamp duty or SDRT avoidance, and it should not be assumed that transactions driven entirely by commercial considerations will fall outside its scope.”
I will be grateful if the Minister explains how the Government will seek to minimise unintended consequences of this measure being the targeting of businesses that are not seeking to avoid stamp duties.
Respondents to the consultation suggested that it would be preferable to introduce a targeted anti-avoidance rule into the legislation, or to extend the general anti-abuse rule or the disclosure of tax avoidance scheme provisions. What consideration have the Government given to inserting a targeted anti-avoidance rule into the legislation?
Last, the Chartered Institute of Taxation points out that, in relation to clause 77, there are a number of circumstances in which a shareholding of 25%—required for this exception to section 77A of the Finance Act 1986 to apply—will be an excessive hurdle, reasoning that it is not uncommon for a company to be owned equally by five or six entrepreneurs or a family group. It suggests that a requirement that the relevant shareholding is at least 10% would be more appropriate to cover a wide range of commercial scenarios. I will grateful if the Minister will address those concerns.
Jesse Norman
I am very grateful to the hon. Lady for the questions she raises. Let me take them in order.
On whether these measures will affect most small businesses or organisations, as the hon. Lady highlights, a relatively small number of organisations will be affected. The measures were subject to consultation, and interestingly the respondents were satisfied that there would be little impact on commercial activity as the measures were suitably targeted, and expressed some pleasure that the concerns they raised during the policy consultation about the impact of a more wide-ranging measure had been heard. This is, of itself, a tightly focused measure. It falls—where it falls—on a relatively small number of organisations, as I said.
However, it is important to pick out the logic of what I think the hon. Lady is saying. We all recognise the importance of combating the pandemic. She will be aware that the Government have spent many tens of billions of pounds on supporting businesses, families and jobs during this process. This measure is about something else: avoid a form of tax avoidance, or rather heading off a form of tax avoidance; curbing and preventing it. I do not think people’s concerns about the pandemic should be allowed to obtrude on that.
The hon. Lady asked a question about unintended effects. Our analysis is that precisely because of the targeting that was noted during the consultation phase, unexpected effects, while they can never be ruled out, should be limited and minimal. It is also important to say that there will be a modest additional administrative burden that will decline over time as people become accustomed to the new rules.
The hon. Lady asked whether it would be better to address this with a more targeted anti-avoidance rule, but this is quite a targeted anti-avoidance rule. It picks out particular forms and is restricted to company reorganisations of a certain kind, and it builds on the existing approach for listed shares. I therefore think that it addresses her concerns.
Question put and agreed to.
Clause 75 accordingly ordered to stand part of the Bill.
Clause 76 ordered to stand part of the Bill.
Clause 77
Stamp duty: acquisition of target company’s share capital
Question proposed, That the clause stand part of the Bill.
Jesse Norman
Clause 77 prevents a double stamp duty charge from arising on some company reorganisations, and follows on from clauses 75 and 76. During the consultation on extending the market value rule to unlisted securities, it was put to the Government that a double charge could arise on a type of company reorganisation known as a capital reduction partition demerger. We are very heavily in the long grass of tax intricacy. Such a demerger is where shares in a company are cancelled and shareholders are compensated with shares in a new company, rather than with cash. A corporate group may pursue this strategy where, for commercial reasons, it wants to split a group and ensure that the companies in that group are held separately by the original shareholders.
Currently, taxpayers who follow the rules can incur two stamp duty charges on such demergers, while other taxpayers use contrived arrangements to avoid paying any stamp duty on the same reorganisation. This clause, together with clause 75, ensures that one charge arises on most capital reduction partition demergers by more tightly targeting existing anti-avoidance provisions related to company reorganisations.
Stamp duty is a transaction tax. When a company is split using a demerger arrangement, there are a number of steps, two of which are potentially subject to stamp duty unless a relief applies. Usually relief applies on one step only, so that there is just one charge on the overall transaction. In some demergers, known as capital reduction partition demergers, relief is unavailable on both steps due to anti-avoidance provisions. Clause 77 will prevent a stamp duty double charge from arising, so that only one charge will arise on most capital reduction partition demergers. It does this by better targeting the existing anti-avoidance provisions. The measure applies to stamp duty instruments that are executed on or after Royal Assent.
Clause 77 works together with clause 75 to ensure that one charge will apply on most capital reduction partition demergers. This increases fairness and consistency. I therefore commend the clause to the Committee.
Bridget Phillipson
I raised these points in an earlier debate, but I will do so again so that the Minister can respond.
On clause 77, the Chartered Institute of Taxation points out that there are a number of circumstances in which a shareholding of 25%, which is required for the exception to section 77A of the Financial Act 1986 to apply, will be an excessive hurdle. Its reasoning is that it is not uncommon for a company to be owned equally by five or six entrepreneurs or a family group. It suggests that a requirement that the relevant shareholding be at least 10% would be more appropriate to cover a wide range of commercial scenarios. I would be grateful to hear the Minister’s response on that issue.
Jesse Norman
The hon. Lady raises a very specific circumstance. It would be appropriate for me to write to her about the specifics of the decision about percentages, rather than try to go through the argument here.
The discussion has already been had between HMRC and stakeholders, and therefore it has to some extent already been addressed through the consultation process, but I am happy to revisit the issue.
Question put and agreed to.
Clause 77 accordingly ordered to stand part of the Bill.
Clause 78
Call-off stock arrangements
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 13—Call-off stock arrangements: sectoral review of impact—
‘(1) The Chancellor of the Exchequer must make an assessment of the impact of section 78 on the sectors listed in (2) below and lay a report of that assessment before the House of Commons within six months of the passing of this Act.
(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 Clause 78 on a number of business sectors.—(Alison Thewliss.)
Jesse Norman
Clause 78 simplifies the rules for accounting for VAT on goods moving from the UK to member states of the EU or vice versa in advance of goods being “called off”, as it is known, for delivery. This is known as “call-off stock”. These changes represent a simplification for businesses that use call-off stock arrangements and provide common rules across the EU. They apply to goods removed from or to the UK from 1 January 2020, and will apply for the remainder of the UK’s transition period with the EU. We expect the changes to have a negligible effect on businesses that adopt them.
The clause transcribes EU call-off stock law—new article 17A to the principal VAT directive—into UK legislation. It sets out the conditions for the rules to apply and provides sellers with statutory obligations to adhere to strict record keeping and reporting requirements. These changes are an administrative easement; the primary benefit is to UK businesses that will no longer have to register and account for VAT in the customer’s country, and vice versa. However, the quid pro quo is additional reporting requirements as well as EU regulations, which have direct effect, that set out new record keeping requirements, as I have indicated.
There is no obligation on a business to restructure transactions so as to meet the conditions and fall within the new rules. We expect that they would use the simplification only because they might derive a benefit for their business. Businesses that do not meet the conditions and so do not fall within the new rules should continue with the current VAT accounting mechanisms for EU cross-border transactions.
The Government published the draft legislation and guidance on the operation of the rules in December. The legislation was laid before the House in the Finance Bill at Budget earlier this year. A resolution under the Provisional Collection of Taxes Act 1968 means that the legislation currently has effect.
Call-off stock are goods that are bulk-shipped by a supplier across a border to a warehouse from where they will be supplied, or called off, as the customer requires. Different EU member states previously had different VAT accounting rules for call-off stock. Some required the seller of the goods to register and account for VAT in the country where the goods were to be called off. The UK avoided the need for the overseas supplier to register for VAT here. We allowed the customer to account for the VAT when the goods first arrived and in advance of being called off. The measure implements the changes adopted by ECOFIN on 4 December 2018, which were designed to simplify the rules and make them more consistent within the single market.
In normal circumstances the new rules, like the existing UK rules, do not require the seller to register and account for VAT in the country where the goods are called off. The new rules delay accounting for VAT until the goods are called off. To avoid VAT fraud, suppliers are required to report the initial movement of the goods to their tax authority, and both the supplier and the customer are required to keep additional records of the stock. When the goods are called off, normal VAT accounting and reporting procedures will apply and the customer will account for the acquisition of VAT. The Government had some concerns over the potential burden on business of keeping the new records required under the new rules and pushed for the right of business to continue using the existing rules if they so wished. A business is not required to arrange its affairs such that the new rules must be used. A supplier and their customer can agree to continue to use the existing UK rules for goods called off in the UK.
HMRC has produced guidance reflecting the introduction of the changes, and the measure is expected to be revenue neutral. It constitutes a simplification for UK businesses. The measure updates UK law to take account of the approach in the EU. It simplifies the VAT rules for call-off stock transactions and avoids the requirement for the supplier to register in the destination state.
New clause 13 would require the Government to conduct a review on the impact of the new call-off stock rules on a variety of different sectors within six months of the Bill receiving Royal Assent. The new legislation provides a simplification for businesses that choose to meet the conditions for it to apply. With that in mind, we expect it would have a negligible impact on businesses. I can inform the Committee that recent figures show that fewer than 200 UK businesses have reported that they are using the new rules, and we are not aware of any being in the sectors mentioned in the amendment. I therefore ask the Committee to reject the amendment and commend the clause to the Committee.
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.
Alison Thewliss
Can the Financial Secretary tell us how many companies are using the previous rules?
Jesse Norman
I certainly do not know the number of companies operating under the previous rules, but I would be happy to drop the hon. Lady a letter with any number that HMRC may have that can be publicly disclosed. The point is that there is a relatively small number of companies; they have seen this coming and it is an optional advantage for them. In reply to the point raised by the hon. Member for Ilford North, it applies only during the transition period, which will end at the end of this year.
We will be leaving the transition period on 1 January, which is not only stated by Government but is commonly understood. That goes to the question of divergence, which was raised by the hon. Member for Ilford North. We are bound by EU law while we are in the transition period. The Government certainly do not have any interest in divergence for the sake of divergence; the Government have an interest in the ability to set our own law, including our own tax law, as we as a sovereign nation see fit. That might or might not involve divergence, but this measure will not apply after the transition period.
The hon. Member for Ilford North also raises an important question about whether there is enough time for business to accommodate rules. I cannot comment on behalf of other Departments, but it certainly is a concern that has been raised in relation to the creation of tax law. Wherever possible, the Government try to abide by rules that we introduced after 2010 in order to have a more effective tax process. As he knows, it involves several stages and periods of consultation. We are coming up to an L day for legislation to be considered for the 2020 Budget, for the autumn Budget—if there is one—and for a Finance Bill next year. There is an orderly process, but I take his point about the importance of ensuring that it is as orderly and well structured as possible.
Question put and agreed to.
Clause 78 accordingly ordered to stand part of the Bill.
Clause 79
Post-duty point dilution of wine or made-wine
Stephen Flynn (Aberdeen South) (SNP)
I beg to move amendment 10, in clause 79, page 67, line 25, at end insert—
‘(3) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the Alcoholic Liquor Duties Act 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 impact of the proposed changes to alcohol liquor duties on public health.
It is a pleasure to serve under your chairmanship, Mr Rosindell. The amendment is quite simple and would require the Government to review the impact of alcohol duties on public health. It should come as no surprise, given that the SNP has long called for duty to reflect content, but we do not have the powers in Scotland to do that. Instead, we have to rely once again on the Westminster system in that regard. That is a real pity, because where we have powers in Scotland in relation to public health and alcohol, we have made great strides. For instance, we have seen the banning of irresponsible promotions and the lowering of the drink-drive limit. We ended multi-buy discounts, something that was certainly contentious at the time. As a young student, I was not overjoyed about the fact that I could not buy three crates of Tennent’s for £20. None the less, it was an important measure that no doubt changed the behaviour of many people, including myself at that time.
Of course, we have seen the overwhelming success of minimum unit pricing in Scotland. That was, again, an extremely contentious measure at the time, whereby we placed a 50p-per-unit charge on units of alcohol. The cumulative effect of all those measures has seen something that we all wanted to see in Scotland, where we have a difficult relationship with alcohol—one that was challenging to confirm but that we needed to confirm. We saw off-duty sales fall by 3.6% in the first year since minimum unit pricing was introduced. In England and Wales during the same period, off-duty sales increased by 3.2%. That is a very telling figure.
When I first came to Parliament, one of the very first debates that I took part in was in Westminster Hall. I cannot remember which hon. Member secured the debate, but it was about alcohol duty. I think the purpose of the debate was to galvanise hon. Members to stop the Government increasing alcohol duty and, hopefully, to reduce it. There was extreme passion in that Chamber and there were a lot of hon. Members present—more than are often seen debating any given matter in the main Chamber. There was a lot of passion about pints, but we cannot be passionate about pints without also having passion for public health and the consequences of the decisions being made. The stark reality is that the two are inextricably linked, and the UK Government need to be mindful of that fact. Supporting the amendment would be a good, positive first step on that journey to a more sensible approach that takes into account public health.
Alison Thewliss
Does my hon. Friend agree that the minimum unit pricing introduced in Scotland had the effect of removing from our shelves some of the most harmful drinks, including the high-strength industrial ciders that cause so much harm to so many people in our communities?
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.”
Alison Thewliss
I am sure the Minister has seen the graph that sets pence per unit against alcohol by volume. To say that it looks as though it was drawn by a child with a crayon is being generous to children with crayons. Will she consider a wider review of the duty per unit of alcohol by product type, because at the moment it makes absolutely no sense?
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.
Felicity Buchan (Kensington) (Con)
Does my hon. Friend agree that, although this is a very interesting debate, we are here to talk about taxation, not public health policy on alcohol?
Kemi Badenoch
I completely agree. I hope I have given enough answers to address the point raised by the amendment. We have already carried out an assessment on public health grounds, but this is tax legislation. I therefore ask that amendment 10 be withdrawn.
Clause 79 introduces a new sanction to prevent a practice that is currently available only in the wine and made-wine sectors and is used by only a small number of producers. Prevention of the practice by the use of prohibitive sanctions will address inequity of treatment across the alcohol industry and will create a level playing field so that alcohol products can compete more fairly in the marketplace. I therefore commend the clause to the Committee.
Question put, That the amendment be made.
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?
Kemi Badenoch
Clause 80 increases the duty charge on all tobacco products by RPI inflation plus 2% in line with the tobacco duty escalator. In addition, the duty on hand-rolling tobacco will rise by an additional 4% to 6% above RPI inflation this year.
Smoking rates in the UK are falling, but they are still too high. Around 14% of adults are smokers. We have ambitious plans to reduce that still further, as set out by the Department of Health and Social Care in its tobacco control plan. That includes a commitment to continue the policy of maintaining high duty rates for tobacco products to improve public health. The UK has comprehensive tobacco control legislation, which is the envy of the world. However, smoking is still the single largest cause of preventable illness and premature death in the UK. It accounts for around 100,000 deaths per year and kills about half of all long-term users. According to Action on Smoking and Health, smoking costs society almost £14 billion per year, including £2 billion in costs to the NHS of treating disease caused by smoking.
At the Budget, my right hon. Friend the Chancellor announced that the Government were committed to maintaining the tobacco duty escalator until the end of the Parliament. The clause therefore specifies that the duty charged on all tobacco products will rise by 2% above RPI inflation. In addition, duty on hand-rolling tobacco will rise by an additional 4% to 6% above RPI inflation this year. The clause also specifies that for the minimum excise tax—the minimum amount of duty to be paid on a pack of cigarettes—the specific duty component will rise in line with cigarette duty.
The new tobacco duty rates will be treated as taking effect from 6 pm on the day they were announced: 11 March 2020. Recognising the potential interactions between tobacco duty rates and the illicit market, the Government announced at the Budget that they would publish a consultation on proposals for strengthened penalties for tobacco tax evasion as part of the track and trace system, including a £10,000 fixed penalty and a sliding scale for repeat offenders. In addition, the Government will strengthen the resources of trading standards and HMRC to help to combat the illicit tobacco trade, including the creation of a UK-wide HMRC intelligence-sharing hub. I hope the hon. Member for Ilford North will support that. I believe I have addressed quite a number of the points that he has raised.
I turn to amendment 11, which is designed to place a statutory requirement on my right hon. Friend the Chancellor to review the public health effects of changes to tobacco duty. The Chancellor assesses the impact of all potential changes in his Budget considerations every year. The tax information and impact note published alongside the Budget announcement sets out the Government’s assessment of the expected impacts. The Government are committed to improving public health by reducing smoking prevalence, and we co-ordinate these efforts through the tobacco control delivery plan 2017 to 2022, which also provides the framework for robust and ongoing policy evaluation. Accordingly, we review our duty rates at each fiscal event to ensure that they continue to meet our two objectives of protecting public health and raising revenue for vital public services.
I hope that reassures the Committee, and I ask Members to reject the amendment. The clause will continue our tried and tested policy of using high duty rates on tobacco products to make tobacco less affordable and continue the reduction in smoking prevalence, thus reducing the burden that smoking places on our public services.
On the point about a tobacco levy, I believe the Government laid out their position on introducing a levy in 2015. We do not believe a levy is an effective way to raise revenue or protect public health.
Amendment 11 negatived.
Clause 80 ordered to stand part of the Bill.
Clause 81
Rates for light passenger or light goods vehicles, motorcycles etc
Question proposed, That the clause stand part of the Bill.
Kemi Badenoch
Clause 81 makes changes to uprate the RPI vehicle excise duty rates for cars, vans and motorcycles with effect from 1 April 2020. VED is paid on vehicle ownership, and rates depend on the vehicle type and first registration date. The Government have uprated vehicle excise duty for cars, vans and motorcycles with inflation every year since 2010, which means rates have remained unchanged in real terms during this time. As announced in the 2018 Budget, all vehicle excise duty revenues will be used specifically for the national roads fund from this year, to provide certainty for road investment.
The changes made by clause 81 will uprate vehicle excise duty for cars, vans and motorcycles by RPI for the 10th successive year. As a result, the rates are unchanged in real terms since 2010, and that comes on top of the Government’s decision to freeze fuel duty rates for the ninth successive year. By April 2021, this will have saved the average car driver £1,200 in comparison with the pre-2010 escalator.
From April 2017, a reformed VED system was introduced that strengthened the environmental incentive when cars are first purchased, with all cars paying a standard rate in subsequent years. The standard rate will increase by only £5, the flat rate for vans will increase by £5 and the rate for motorcyclists will increase by no more than £2. These changes will ensure that the Government continue to support motorists with the cost of living, and that the vehicle excise duty system continues to incentivise the purchase of lower emission vehicles.
Felicity Buchan
Does my hon. Friend agree that as the economy comes out of the dislocation of coronavirus, we need to build a greener and cleaner economy? Incentivising the use of low-carbon cars is part of that, and clearly we cannot do so just through the tax system; we also need a structure of electric charging points. I am glad to say that my borough is one of the top boroughs in the country in that regard. As we look to build a greener economy, I commend this clause and the related clauses.
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
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
Alison Thewliss
I beg to move amendment 12, in clause 85, page 72, line 33, after “supplies” insert “, including human breastmilk”.
This amendment would ensure that vehicles carrying human breastmilk would benefit from the exemption from Vehicle Excise Duty.
I am delighted to continue my personal journey to ensure that breastfeeding is mentioned in every possible place in this House. I am chair of the all-party group on infant feeding and inequalities, so I declare that interest up front.
The measure I seek to add to the Bill would cost the Government very little, if anything at all, but would send a very strong signal that the Government support and recognise breast milk banks across the UK. Sub-paragraph 2(b) of proposed new paragraph 6A to schedule 2 to the Vehicle Excise and Registration Act 1994 refers to
“medicines and other medical supplies”.
I am not quite sure whether that would capture breast milk. I seek clarification from the Minister on that, because I do not think it is clear enough, which was why I tabled the amendment.
Human breast milk banks exist across the UK. Some do not exist quite to the size and scale that we would like, so the amendment would help to encourage them that there is Government support for what they are doing. I mention the Human Milk Foundation, the Northwest Human Milk Bank, Hearts Milk Bank and Milk Bank Scotland, which is based in Glasgow and the one that I know best. Having spoken to Debbie Barnett, its donor milk bank co-ordinator, I know that Milk Bank Scotland does not have its own vehicles at the moment, but relies on the Glasgow Children’s Hospital Charity volunteers, who transport the milk, after picking it up from donors, and take it out to those who need it. Having its own vehicles would be something for a future point, but the amendment would certainly support the milk bank, and others across the UK, in doing that.
Like blood, breast milk has to be properly processed, and there are procedures in place for doing so. Like blood, it needs special carriage to take it from donors to the milk banks for processing, and back out again. The National Institute for Health and Care Excellence guideline 93 on donor breast milk banks says that, when transporting milk to the milk bank, critical conditions for transport include
“temperature and time limit, to ensure that donor milk remains frozen during transport.”
The guideline also states that donor milk should be transported
“in secure, tamper-evident containers and packaging”
and that a range of procedures are in place for achieving that.
In chapter 33 of its guide to the quality and safety of tissues and cells for human application, on the distribution of and transport conditions for human milk, the European directorate for the quality of medicines states:
“During transport, milk should remain frozen and dry ice may be used for this purpose.
The use of validated, easily cleaned, insulated transport containers is recommended.
The transport procedure should be validated, and the temperature of the transport container monitored during transportation.”
All those measures are relatively similar to how blood and other blood products are transported around the UK, and would fit quite well with the medical courier vehicles exemption set out in the Bill. Many of these organisations are charities, and they would very much appreciate support in moving milk around the country.
I appeal to the Government to accept the amendment, which is uncontentious—and indisputable, really. Doing so would send a good signal that the UK Government support milk banks, the people across the UK who wish to use them, and the science behind them. They are particularly important in supporting premature babies in their earliest days. The World Health Organisation recently indicated the significance of breast milk during coronavirus, and that women should be supported whenever possible to feed their babies with human breast milk. Covid-19 is not present in breast milk, and the milk is therefore of huge benefit in supporting babies in their earliest days. I encourage Ministers to take on the amendment, if they can take on anything at all, and to show support for milk banks across the UK.
Kemi Badenoch
Amendment 12 would extend the exemption so that it applied to people carrying human breast milk. I do not think that any of us would disagree with that, but clause 85 already covers the transportation of human breast milk. The purpose-built vehicles used by medical courier charities, which are exempted from VED by the measure, transport not just blood, but a wide range of medical products, including X-rays, MRI scans, plasma and human breast milk.
The inclusion of the amendment in the Bill would make things more difficult. Its wording is quite vague, it does not clearly define the vehicles that it is trying to capture, and it would create the risk of abuse. We believe that the matter is already covered by clause 85. Although the Government fully support the sentiment of the amendment, as breast milk is already captured under the clause, I ask the Committee to reject the it.
Alison Thewliss
I would like to press the amendment to a vote, to add to the clarity of the clause.
Amendment 12 negatived.
Clause 85 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Finance Bill (Eighth sitting)
Tuesday 16th June 2020
(3 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 June 2020 - (16 Jun 2020)
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Chair
With this it will be convenient to discuss the following:
That schedule 10 be the Tenth schedule to the Bill.
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.
Anthony Browne (South Cambridgeshire) (Con)
This is my first ever Bill Committee, but I was under the impression that we were meant to talk about the actual elements of the Bill, rather than wider economic policy or industrial strategies for business. The hon. Member for Ilford North has kindly emphasised all the support the British Government are giving the airline industry, but it is completely irrelevant for discussion now.
The Chair
I would just say to the hon. Gentleman that the decision on what is spoken about and what is not is mine. My general attitude is to encourage participation and comment. I will show the same latitude to both Government and Opposition Members. I call the Minister.
Kemi Badenoch
On the issue of a specific support package for the industry, the hon. Member for Ilford North has mentioned the range of measures that we have put in place, and we know that the DFT, the Transport Secretary and the aviation Minister are in close contact with the aviation sector. What the hon. Gentleman does not know is that Treasury Ministers, including myself, have also received lots of representations from the industry—it is not an issue that we are ignoring—but we need to be careful about how we make interventions.
The aviation sector is important to the UK economy. When those companies, as with any other companies that make a material contribution to the economy, find themselves in trouble as a result of coronavirus and have exhausted the measures already available to them, the Transport Secretary and Chancellor are listening to understand the issues, but any intervention needs to represent value for money for the taxpayer.
As we saw in the urgent question earlier today, there are so many people we need to help. We need to be careful about how we spend taxpayers’ money and where it should be directed. At this time, the Chancellor has not made that decision, but we will continue to work closely with the sector, and we are willing to consider the situation of individual firms, rather than working a sector-wide basis, once all the other Government schemes and commercial options have been explored and exhausted. That includes—I am sure this is something Opposition Members agree with—raising capital from existing investors and approaching other investors first.
Question put and agreed to.
Clause 87 accordingly ordered to stand part of the Bill.
Clause 88
Amounts of gross gaming yield charged to gaming duty
Question proposed, That the clause stand part of the Bill.
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?
Kemi Badenoch
The answer is to look at what the duty is designed to do. It is a change to gambling taxation; it is not related to the regulation of gambling activity, which, as we know, is the remit of the Department for Digital, Culture, Media and Sport.
The Government continue to monitor the effectiveness of existing gambling controls. As the December 2019 election manifesto set out, we intend to review the Gambling Act 2005. We will always consider the potential impact of tax changes at the same time.
We should remember that freezing the duty bands would have a small impact on public finances, while pushing smaller, generally regional, casinos into higher duty bands. The casino industry paid about £220 million in duty in the last financial year. The Government believe that the sector already makes a fair contribution to the public finances. I do not believe it is the small regional casinos that we would be looking to affect in terms of problem gambling.
Question put and agreed to.
Clause 88 accordingly ordered to stand part of the Bill.
Clause 89
Rates of climate change levy until 1 April 2021
Question proposed, That the clause stand part of the Bill.
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.
The Chair
With this it will be convenient to discuss, That schedule 11 be the Eleventh schedule to the Bill.
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.
The Chair
With this it will be convenient to discuss the following:
Amendment 15, in clause 94, page 76, line 33, at end insert—
“(2) No regulations under this section may be made unless a draft has been laid before and approved by a resolution of the House of Commons.”
This amendment would require the Government to seek the approval of the House before making regulations varying rates of import duty in an international trade dispute.
Amendment 16, in clause 94, page 76, line 33, at end insert—
“(2) The Chancellor of the Exchequer must, no later than a month before any exercise of the power in subsection (1), lay before the House of Commons a report containing the following—
(a) an assessment of the fiscal and economic effects of the exercise of the powers in subsection (1);
(b) a comparison of those fiscal and economic effects with the effects of the UK being within the EU Customs Union;
(c) an assessment any differences in the exercise of those powers in respect of—
(i) England,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland; and
(d) an assessment of any differential effects in relation to the matters specified in paragraphs (a) and (b) between—
(i) England,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland.”
This would require a review of the economic and fiscal impact of the use of the powers in section 94 including comparing those effects with EU Customs Union membership.
Clause stand part.
Alison Thewliss
This is a small clause in the Bill, but hidden within it is the Government’s intention to set the conditions under which they would consider it appropriate to vary the rates of import duty in an international trade dispute. With amendments 14 to 16, we seek to amend clause 94 because we are concerned that it gives the Government a huge amount of additional power, with which they will avoid scrutiny. The explanatory notes state that the clause
“replaces the requirement for ‘authorisation’ with a requirement to have regard to international obligations.”
The Government need to explain why they feel they need the additional power, what the safeguards to it will be and why they think it is appropriate at this time.
Trade wars are damaging and should be very much a last resort. If the Government intend to take such actions, they deserve the scrutiny of the House. It should not just be about what the Secretary of State deems to be appropriate. I remind Members of the dispute affecting the Scotch whisky industry in Scotland, which is facing a 25% tariff because of US actions regarding Airbus and Boeing. Disputes have spillover effects that affect other parts of the economy, so we need a good understanding of why the Government are seeking these powers.
Amendment 14 would force the Government, by 9 September 2020, to set out the conditions under which they would breach international law to engage in a trade war. If none exist, they can surely remove the clause from the Bill. If there are conditions under which they would jeopardise our economic prosperity, the House deserves to know. Amendment 15 would require Commons approval before Ministers could follow such an irresponsible course of action. Brexit campaigners said they wanted to restore parliamentary sovereignty. If that is the case, the Government should accept that Parliament must have a say in such important matters.
Amendment 16 would force UK Ministers, no later than a month before any exercise of power, to make an economic assessment of the implications of the power and compare it with the economic health that the UK would be enjoying within the EU customs union. Ensuring that the public are informed of the impact of such an act of economic vandalism should not be controversial. We were promised a veritable land of milk and honey during the EU referendum campaign, so we certainly deserve to see the truth about these kinds of actions. The Government must explain why they think it is important to remove that authorisation and allow the Secretary of State to do what they want without the check and balance of this House.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
The Opposition have considerable sympathy with the hon. Lady’s arguments and the amendments tabled by the SNP. We have many concerns about clause 94, which seems buried, given that it is of such considerable importance for the years ahead.
The change to the language in section 15 of the Taxation (Cross-border Trade) Act 2018 has worrying implications for the Government’s adherence to the World Trade Organisation’s dispute settlement system. Replacing the requirement for authorisation under international law with the more nebulous consideration of appropriateness is extremely concerning, and implies that the Government may seek to sidestep international law regarding trade disputes. The matters set out in section 28 of the 2018 Act already give the Government considerable flexibility over what they consider to be appropriate action in the light of international law. It is effectively up to the Secretary of State to decide which international agreements are relevant to the exercise of the function. Loosening up the language even further in this clause is thus highly questionable.
The proposed changes seemingly downgrade the Secretary of State’s responsibilities when it comes to their international obligations. Having regard is nowhere near as onerous as having authorisation. That would allow the Secretary of State to operate at a much lower standard of requirement, and move away from recognised EU standards. We therefore seek to understand the reasoning behind the change. What is wrong with the current provisions regarding the variation of import duties in trade disputes?
There are further questions to which we seek answers from the Government. What will they use the clause for? It does not detail what kind of dispute is in question. How might the Trade Remedies Authority be involved in the decision-making process? Could this be an upshot of the digital services tax? The US has already found similar measures by France to be trade-restrictive, leaving the office of the United States trade representative to authorise retaliatory tariffs, as we discussed last week in Committee with reference to the digital services tax. While both parties are in the process of reaching a deal over the matter, it is possible that the Government wish to introduce this clause in preparation for a similar confrontation with the US. I hope the Minister can assure us that that is not the case, but why do the Government wish to reduce their responsibilities in adhering to international law?
The amendments tabled by the hon. Member for Glasgow Central and her colleagues go some way towards responding to that. The production of a report by the Chancellor no later than a month before any exercise of the power regarding the economic impact of such an action might enable Parliament to better scrutinise the actions taken through the clause. As it stands, other than through the scrutiny of primary legislation, Parliament has little say over international trade. I welcome the amendment to seek approval of any regulations deriving from the clause by resolution of the House of Commons, in the spirit of parliamentary scrutiny. However, the Government hold a considerable majority, and therefore I question how far the amendment would go in practice towards ensuring that the Government act in accordance with international law.
I welcome the amendment regarding the requirement for the Government to detail the conditions under which they would consider it appropriate to vary the rates of import duty under the clause. However, I believe that the implications of the wider clause are of significance and that the Government ought to provide these details during debate, rather than by September, although we are sympathetic to the intention behind the amendment. I stress that I would like the Minister, when he responds to the hon. Lady’s concerns, to explain the reasoning behind this change, what kinds of disputes the clause would cover, and whether the Trade Remedies Authority will be involved.
If the changes in the clause are in anticipation of a dispute with the US over the digital services tax, does this not involve giving the Government permission to ignore international trade rules when disputes arise, undermining the authority of the WTO in the process? I hope that the Minister will provide assurances on the issue of appropriateness and respond to the concerns that the hon. Lady and I have, because this is a significant change. We have reservations about the measure that the Government are putting forward, and we would like to understand much more about their intentions.
Jesse Norman
I thank hon. Members for their comments, and pay tribute to my colleague the Exchequer Secretary for rattling through the clauses we debated earlier with such effectiveness. The hon. Member for Glasgow Central has raised important questions, which I want to address properly, so I will give this issue quite a considerable amount of discussion because it is an important aspect of the Bill.
Clause 94 makes a change to the criteria in section 15 of the Taxation (Cross-border Trade) Act 2018 to ensure that the UK can vary the amount of import duty in the context of an international trade dispute. Provisions in various international trade agreements allow for the UK to vary the amount of import duty applied to goods in the context of an international trade dispute. There is existing provision in section 15 of the 2018 Act that gives the Secretary of State the power to
“make regulations varying the amount of import duty”
where
“a dispute or other issue has arisen between Her Majesty’s government…and the government of a country or territory”.
Currently, section 15 of the 2018 Act is worded in a way that could be interpreted to mean that a binding ruling of the World Trade Organisation is needed before the UK can impose a duty, which would be restrictive. In certain circumstances, countries are within their WTO rights to impose additional tariffs quickly in relation to the actions of other WTO members and, where necessary, outside of WTO dispute proceedings.
In addition, since section 15 of the 2018 Act was enacted, there have been developments in the wider sphere of trade policy, including increasing trade protectionism and problems with the WTO dispute settlement system. The WTO appellate body has stopped functioning, and it has now become possible for final and binding resolution of a WTO dispute to be blocked by a party to the dispute by appealing a panel report. That means it may not be possible to apply retaliatory duties, even where a panel report has found in the complaining body’s favour and the respondent has failed to bring itself into compliance.
Against this background, it is essential to ensure that the UK has the appropriate tools to respond to any unilateral measure or action taken by a WTO member that is not compatible with its obligations to the UK and that harms UK interests. Clause 94 therefore amends the original provision to ensure that, after having regard to relevant international arrangements, the Government may deal with such an issue by varying the amount of import duty. The EU is seeking similar powers, it should be noted, through amendments to its enforcement regulation, because it too recognises the importance of being able to respond quickly in the event of illegal measures being taken against it. What we are talking about is therefore in parallel to a process seeking similar powers within the EU.
At present, section 15 of the 2018 Act permits variation of import duty only where the UK is authorised under international law to deal with the issue. Clause 94 will amend section 15 to allow the Government to vary import duty where they consider it appropriate, having regard to relevant matters, including the UK’s international obligations, as set out in section 28 of the 2018 Act. That amendment will allow the UK to respond more effectively to developments in the international trading system, in line with international laws and our rights as an independent WTO member.
To come to the question asked by the hon. Member for Glasgow Central, there are a number of situations in which it would be appropriate to vary rates of import duty. The most likely situation is that in which the UK has successfully challenged another WTO member’s measures in the WTO dispute settlement system, and the other member has failed to bring itself into compliance. The UK could then impose retaliatory measures, including higher import duty against the other member. That is not contrary to and does not undermine the international rule of law; it insists on the international rule of law, in the face of measures that could disable it.
Import duty variations might also be imposed following a dispute brought under a free trade agreement or in the context of a WTO member applying a safeguard measure but failing to agree an adequate level of trade compensation for the adverse effects caused by the measure. It is also possible that the UK could lose a dispute under a free trade agreement and could agree compensation with another country. The compensation could take the form of lower import duty on certain goods.
In each of those circumstances, the Government are still required by the 2018 Act to have regard to our international arrangements that are relevant to the exercise of this power. It need hardly be said that the UK strongly supports the rules-based international trading system and appropriate enforcement of WTO agreements. It is because appropriate enforcement would be otherwise lacking that this clause is being brought into effect.
Amendment 14 would require the Government to state the conditions in which they would consider it appropriate to vary rates of import duty. As you will know, Ms McDonagh, international trade disputes are broad and varied, depending on the nature of the international agreement under which they are conducted and on the subject matter of the dispute. It would limit the Government’s ability to respond effectively in a particular dispute if they were required to list in advance conditions for varying import duty in a dispute. I have already set out several situations in which it would be appropriate to vary rates of import duty. Examples have also been provided in the explanatory notes to both the Taxation (Cross-border Trade) Act 2018 and the Finance Bill.
Amendment 15 would require the Government to seek the approval of the House of Commons before making regulations varying rates of import duty in an international trade dispute. It is important to say that clause 94 is not an unchecked power. Any specific tariff measure introduced under section 15 of the 2018 Act would require secondary legislation, as is prescribed in that Act. The requirements set out in amendment 15 are therefore not necessary. Secondary legislation will involve the public passage of a piece of legislation. The Government need flexibility to respond effectively to state-to-state disputes, but with the understanding that they must have regard to the international arrangements to which the UK is party.
Amendment 16 would require the Chancellor of the Exchequer to lay before the House of Commons a report containing an assessment of the economic and fiscal effects of the exercise of the powers in clause 94, including a comparison of those fiscal and economic impacts with the effect of the UK being within the EU customs union, and an assessment of any differences in the exercise or effects of those powers in respect of England, Wales, Scotland and Northern Ireland.
Information on the expected impacts of import duty variations will be provided in the documentation accompanying any and each statutory instrument. However, it would not be appropriate to publish extensive detail, because doing so could undermine the effectiveness of the UK’s response. It would also not be appropriate to compare the economic and fiscal impact of the use of the powers in clause 94 with EU customs union membership. First, the EU may not itself have a dispute with the WTO member against which the UK has brought an action. Secondly, even if the EU were applying retaliatory measures against that WTO member, the EU’s retaliatory tariffs would be based on the impact on the EU27 and would not take into account impacts on UK industries and sectors. The amendment would therefore invite the Governments and others to compare apples with oranges.
Alison Thewliss
Although the Minister spoke for a long time, he did not get to the nub of why the clause is necessary, what safeguards are in place, and why the requirement for authorisation is replaced with a requirement to have regard to international obligations. I will press my amendment to a vote.
Question put, That the amendment be made.
Alison Thewliss
I beg to move amendment 17, in clause 95, page 77, line 5, after “tax” insert
“which is due at the relevant date from the debtor and which became due in the 12 months immediately preceding that date, and/”.
This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
The Chair
With this it will be convenient to discuss the following:
Amendment 18, in clause 95, page 77, line 6, after “deduction”, insert
“from a payment made by the debtor in the period of 12 months immediately preceding the relevant date.”
This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Amendment 19, in clause 95, page 77, line 29, after “tax”, insert
“which is due at the relevant date from the debtor and which became due in the 12 months immediately preceding that date, and/”.
This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Amendment 20, in clause 95, page 77, line 30, after “deduction”, insert
“from a payment made by the debtor in the period of 12 months immediately preceding the relevant date.”
This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Amendment 21, in clause 95, page 78, line 9, after “tax”, insert
“which is due at the relevant date from the debtor and which became due in the 12 months immediately preceding that date, and/”.
This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Amendment 22, in clause 95, page 78, line 10, after “deduction”, insert
“from a payment made by the debtor in the period of 12 months immediately preceding the relevant date.”
This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Amendment 23, in clause 95, page 78, line 26, at end insert—
“(8) The amendments made by this section do not apply to any debt secured by a floating charge in respect of monies were advanced to the debtor before 1 December 2020.”
These amendments seek to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Clause stand part.
Clause 96 stand part.
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.
Anthony Browne
As somebody who used to run the British Bankers Association, which turned into UK Finance, I was very involved in some of those earlier lobbying efforts. I must say that in this case, I simply do not believe it. I do not think this measure would have any impact on business lending; it is quite clear that the tax has already been paid by employers or customers, and it would have a very limited impact—virtually no impact—on the actual risk of a loan or the risk of default. I fully support the Government on this.
Jesse Norman
I am grateful to colleagues for their comments. I will talk about the clauses in a moment, but I will first enjoy this moment in Committee: a senior Opposition Member of Parliament says that he is resistant to financial sector lobbying, which I am thrilled about; and on the other side, someone who headed up the lobbying organisation says that, from an inside standpoint, we are talking about irrelevant minutiae. Let us enjoy for a second that rare moment of harmony and joy in Committee.
Alison Thewliss
From what the Opposition Front-Bench team said, I do not think that I have support for the amendment, so I am content to withdraw it, but I may return to the subject later. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 95 ordered to stand part of the Bill.
Clause 96 ordered to stand part of the Bill.
Clause 97
Joint and several liability of company directors etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss, That schedule 12 be the Twelfth schedule to the Bill.
Jesse Norman
Clause 97 and schedule 12 introduce a new power to allow HMRC to tackle the behaviour of tax avoiders and evaders who seek to reduce their tax bill unfairly through the misuse of company insolvency. This measure tackles the small minority of people who use insolvency intentionally to sidestep tax liabilities. It does so by allowing HMRC to issue notices that make directors and other persons connected to the company jointly and severally liable for the company’s avoidance, evasion or phoenixism debts, as they are described, if insolvency is threatened. It is not linked to clauses 95 and 96, which make HMRC a secondary preferential creditor for certain tax debts.
The Government announced our intention to consult on tax abuse and insolvency at Budget 2017. The consultation ran from April to June in 2018, and the Government published a response document in November 2018. The Government also published draft finance Bill legislation for technical consultation in July 2019.
As I made clear when I discussed earlier clauses, it is the Government’s aim to support companies and help them to avoid insolvency, particularly at this very difficult and challenging time, and the measures recently announced to restructure the UK’s insolvency framework support this aim. This legislation will not impede those restructuring plans, and the measure focuses firmly on those who misuse insolvency in connection with tax avoidance or evasion, or who run up repeated liabilities that they then step away from.
In ordinary times, insolvency is a highly unfortunate but necessary part of commercial life. However, a small minority of people misuse insolvency for their own ends. They hide behind a company to engage in tax avoidance or evasion, or repeatedly build up tax debts, and then strip out the assets, liquidate the company and leave nothing to meet outstanding tax liabilities. Not only does this deprive the Exchequer of funds for important public services, but it undermines the insolvency process and adversely affects creditors and other businesses, and it casts the whole reputation of insolvency into disrepute. It is only right that we should act to discourage such misuse, and that is what this measure is designed to do.
Clause 97 introduces schedule 12, which contains details of the new regime and sets out conditions that must be met before the legislation will apply. First, paragraph 2 sets out the conditions that must apply before HMRC can issue a notice to an individual connected to a company that has engaged in tax avoidance or evasion. The conditions are: that the company has begun an insolvency procedure, or there is a serious risk that it will; and that the person was responsible for, facilitated or knowingly benefited from the avoidance or evasion.
Paragraph 3 sets out the conditions that must apply before HMRC can issue a notice to an individual who is connected to companies that repeatedly go insolvent with significant outstanding debts. Such companies are often referred to as phoenix companies, and it is widely agreed across the House that they are a blight on commercial life. The conditions are: that the person must have had a connection in the previous five years to at least two companies that began insolvency; that the person has a connection to a new company that carries out the same trade as the old ones; and that the amounts due to HMRC from the old companies total at least £10,000 and at least 50% of the amount due to unsecured creditors overall. That is an important safeguard to ensure that the measure focuses on catching those who play fast and loose with their tax. Paragraph 4 allows the amounts to be varied by a statutory instrument.
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.
Jesse Norman
I thank both hon. Members for their comments. I draw from them strong support for the clause, although it was caveated in the way they described. Let me address the issues that they raised.
The hon. Member for Ilford North asked, “Why not do this earlier?” There is a long-standing principle in company law that the corporate veil should not be pierced, and limited liability should exist in place. As he will recall, there was a moment not so long ago when HMRC had Crown preference and was always the first, or close to the first, creditor to get paid out. It then got moved to the back of the queue.
As we think about the current insolvency and abuse regime, there has been a process of further reflection on all the different aspects of it, and that inevitably includes the phenomenon that we have seen. My impression—I do not know whether it is true—is that phoenixism is a better recognised phenomenon and a more widely understood problem than it has been. This is part of a much wider effort that has been made—particularly since I have been Financial Secretary to the Treasury, but before that, too—to really push on the issue of avoidance and evasion, and that is what we are doing.
The hon. Gentleman also asked about process. It is a perfectly good, important question, and I have been through it myself with HMRC officials. I will not read out the conditions in each case, but there are central cases for the issuance of avoidance and evasion notices, avoidance and evasion facilitation notices, and repeated insolvency notices. Each has some quite specific criteria sitting underneath it. For avoidance and evasion facilitation notices, a company must have begun an insolvency procedure or given assurance that it will; it must have incurred a penalty for facilitating tax avoidance or evasion; there must be a serious risk that some or all of that liability will not be paid; and the person must have a relevant connection to the company at the time that the behaviour leading to the penalty occurs. There are important threshold tests that must be met, and there are appeals processes against notices that have been filed, which are designed to provide safeguards, for all the reasons that one might imagine.
I have a degree of sympathy for the point that the hon. Member for Glasgow Central makes about Companies House. In the promoter strategy, which we published at the time of the Budget, we looked to create a more integrated approach to trying to crack down on abusive avoidance and evasion, and the promotion of avoidance and evasion. It has been in part about pulling together different entities, one of which might be Companies House and another of which might be the Advertising Standards Authority, if the two had been outside the purview of a more traditional approach. I take the hon. Lady’s point, and I thank both hon. Members for their support for this important clause and schedule.
Question put and agreed to.
Clause 97 accordingly ordered to stand part of the Bill
Schedule 12 agreed to.
The Lord Commissioner of Her Majesty’s Treasury (David Rutley)
One more!
Clause 98
Amendments relating to the operation of the GAAR
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 12—General anti-abuse rule: review of effect on tax revenues—
‘(1) The Chancellor of the Exchequer must review the effects on tax revenues of section 98 and Schedule 13 and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) The review under sub-paragraph (1) must consider—
(a) the expected change in corporation and income tax paid attributable to the provisions in this Schedule; and
(b) an estimate of any change, attributable to the provisions in this Schedule, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.
(3) The review under subparagraph (2)(b) must consider taxes payable by the owners and employees of Scottish Limited Partnerships.
This new clause would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of Clause 98 and Schedule 13, and in particular on the taxes payable by owners and employees of Scottish Limited Partnerships.
That schedule 13 be the Thirteenth schedule to the Bill.
Jesse Norman
One more clause unto the breach, dear friends; or close the wall up with our English dead, and possibly our Scottish dead as well—our British dead. We will rephrase the bard.
Clause 98 makes minor procedural and technical changes to the general anti-abuse rule referred to as the GAAR to strengthen its procedural efficiency and ensure that it operates as originally intended. The clause tackles a small minority of taxpayers who deliberately avoid, in this case, providing information and thereby frustrate HMRC’s ability to pursue inquiries into abusive tax arrangements under the GAAR.
The clause also introduces some minor amendments to remove ambiguity and to ensure that, where HMRC decides not to pursue a case using the GAAR, inquiries can continue using other arguments. This measure was announced at Budget 2018 and the Government published draft legislation for technical consultation in July 2019. The changes will help to protect over £200 million in tax revenue by ensuring that the GAAR works effectively.
As I have often said, the Government take a firm line against those who seek to avoid tax and try to circumvent the rules. The GAAR was introduced in July 2013 and it has become an important part of the Government’s strategy to clamp down on tax avoidance; to deter individuals from engaging in it in the first place; and to prevent promoters from marketing and selling such arrangements.
The GAAR focuses on tackling abusive tax avoidance. By abusive, I mean the sort of arrangements that push the boundaries of the law and are clearly not within the spirit of what Parliament intended. The GAAR legislation asks whether a specific tax arrangement is abusive and applies what is known as the “double-reasonableness” test. Tax arrangements are considered abusive if they cannot reasonably be regarded as a reasonable course of action. An independent advisory panel provides an opinion to HMRC on whether a tax arrangement constitutes a reasonable course of action.
The clause will strengthen procedural changes made to the GAAR previously in 2016 which tackle mass-marketed tax avoidance schemes. The changes in 2016 introduced provisional counter-action notices, which allowed HMRC a 12-month window to gather information and consider whether to continue a GAAR challenge or pursue a different approach.
Some taxpayers and advisers, I am sorry to say, have deliberately refused to co-operate with HMRC during that window, deliberately withholding information to prevent HMRC from making an informed decision. In effect, those people are seeking to run down the clock and it is right the Government take action to prevent this. At the moment, HMRC has no recourse against such people. Once that window closes, no further GAAR action is possible and HMRC is unable to pursue any alternative non-GAAR approaches.
The clause replaces the provisional counter-action notices introduced in 2016 with a simpler protective GAAR notice. This will enable HMRC to carry on its investigations beyond 12 months and it mirrors the way normal tax inquiry notices work. The amendments will also confirm that where HMRC decides not to pursue the GAAR, cases can still be pursued using a technical non-GAAR argument. That has always been the intention of the legislation.
The changes remove the incentive not to co-operate with requests for information and ensure that appropriate safeguards, such as appeal rights and the oversight exercised by the independent GAAR advisory panel remain in place. Given that the GAAR targets the abusive end of the avoidance spectrum, the changes proposed here will only affect a small minority—those who persistently go to extreme lengths to sidestep the rules. These changes are needed now to ensure that HMRC can take action against those who are constantly looking for new ways to avoid paying their fair share of tax.
New clause 12 in the name of the SNP requires the Chancellor of the Exchequer to review the impact of clause 98 and schedule 13 within six months of the Bill receiving Royal Assent. Specifically, it would require the Chancellor to review the effect on public finances and on reducing the tax gap, particularly on taxes payable by earners and employees of Scottish limited partnerships.
In response, I highlight to hon. Members that amendments to the GAAR are minor procedural changes designed to ensure the policy operates as originally intended. The effects of these changes to the regime will not be visible within six months’ time. As with all tax measures, however, we will continue to review and monitor the effect of this change, as is standard.
HMRC already publishes the “Measuring the tax gap” report annually which shows how the tax gap has changed year on year for different forms of behaviour and different taxpayer groups. HMRC also publishes an annual report and accounts that provide specific information on the impacts of the GAAR, including the number of GAAR opinion notices issued. For that reason, I ask the Committee to reject new clause 12.
To sum up, these amendments ensure that the GAAR remains an effective tool in HMRC’s armoury for tackling abuse of tax avoidance. I therefore commend the clause and the schedule to the Committee.
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.
Jesse Norman
I am grateful to colleagues for their contributions. I want to take up some of the points made by the hon. Member for Ilford North. The delicacy and agility in his ability to pivot from detailed scrutiny to a swingeing extension of tax powers, and new taxes galore, is interesting to watch, but the fertility of his invention is great, and I will read his suggestions with some care, in the record. I am grateful to him for that.
The ugly truth of the matter is that tax avoidance and, in particular, the promotion of it, is an amoebic activity that tends to flow into empty spaces and to be parasitic, if amoebas can be parasitic—I am not sure whether they can—on good activity. So, right next to where we see good or lawful and legal activity, we can see some unpleasant, nasty and abusive tax avoidance.
The hon. Gentleman is right to focus on how we see new forms emerging. It means that the battle against tax avoidance and evasion is never fully won. I hope that he will take some comfort from all the work we are doing on the promoter strategy. It is designed not merely for potential new powers, but for a different way of thinking about disrupting the economics of the supply chain. To pick up on a point that he raised about effectiveness, the GAAR can lead to a fine of 60% of the counteracted advantage. It can be pretty substantial, and it has genuine teeth.
I hope what I say in responding to the point made by the hon. Member for Glasgow Central on Scottish limited partnerships falls within the framework of the Bill. The issue is well understood, and there is public concern about it, which is shared across the House. She will be aware that BEIS introduced some new reporting requirements for Scottish limited partnerships in June 2017. Since then, new registrations have declined sharply. Of course, there is a sump of existing partnerships and, as she will be aware, BEIS is consulting on wider reforms to prevent the criminal misuse of those partnerships but retain their core and, in many ways, effective and important other purpose. It announced reforms in that area as of December 2018, and the Government have made clear that they will legislate when parliamentary time admits. So although the matter does not, in its preponderance, fall directly within the clause, she is right to raise it and the Government are fully sighted in that regard, and fully seized of it.
Question put and agreed to.
Clause 98 accordingly ordered to stand part of the Bill.
Schedule 13 agreed to.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Finance Bill (Ninth sitting)
Thursday 18th June 2020
(3 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 18 June 2020 - (18 Jun 2020)
The Committee divided: - Ayes: 7 / Noes: 10 - Question accordingly negatived.
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.
Jesse Norman
I thank both hon. Members for their comments. To pick up on the last point, the hon. Lady is absolutely right about the value of building in capacity to respond more quickly in future. It is noticeable that the Chartered Institute of Taxation, which is well respected across the Committee, commented that,
“This is a sensible move from the government to help… It is also encouraging to see that the bill…will make it easier in the future for payments…to be made tax-free, without the need for fresh legislation.”
That very much remakes the point she made, and I thank her for that.
On the point about the numbers paid out, I completely understand the concern and I know that other Ministers do as well. There is a balance between due process and speed. Of course, the compensation claims have to be agreed on both sides—the offers have to be accepted—for them to be payable. It is important that the hon. Members have put their concerns on the record, and I fully share them.
Question put and agreed to.
Clause 99 accordingly ordered to stand part of the Bill.
Schedule 14 agreed to.
Clause 100
HMRC: exercise of officer functions
Question proposed, That the clause stand part of the Bill.
Jesse Norman
Clause 100 is a technical measure that makes changes to put it beyond doubt that tasks that are being done by an individual officer of Her Majesty’s Revenue and Customs may be carried out by HMRC using a computer or other means. It ensures that the intention of Parliament is appropriately reflected in the legislation and confirms that the rules work as they have been widely understood and applied over many years. No new charges or obligations for taxpayers will result. The changes merely clarify legislation.
If I may explain the context for the introduction of the clause, the Government announced by written ministerial statement on 31 October 2019 that it would legislate retrospectively and prospectively to confirm notices to file tax returns and penalty notices issued by HMRC through automated processes as valid. That long-standing practice has been challenged in the courts on the basis that the legislation states that some tasks are to be carried out by
“an officer of the Board.”
The relevant legislation in the Taxes Management Act 1970 is 50 years old and was designed to support a paper-based manual tax system.
The way in which HMRC administers the tax system has evolved over time, in line with taxpayers’ expectations for a modern and digital system. Decisions made by HMRC officers are often given effect by computer-driven processes, so that HMRC can assess and collect taxes in the most efficient and cost-effective way.
Harriett Baldwin (West Worcestershire) (Con)
As he expatiates on the value of digital technology to tax collection, will my right hon. Friend share with the Committee his thoughts on making tax digital and how the recent opportunity to make furlough payments has shown the value of a digital tax system?
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.
Alison Thewliss
I want to raise some of the concerns expressed to us by the Institute for Fiscal Studies’ Tax Law Review Committee, which sent an extensive note earlier in the week. It is looking for ministerial reassurance that the powers will not be used without proper consultation and discussion of safeguards to replace the discretionary decisions, especially about penalties, currently made by human officers. It is the discretionary point that I am most worried about. We must not get to a situation where computer says no and that is the end of the story, because sometimes it can be quite difficult for businesses to get the decision pulled back and unpicked, and reconsidered.
I will highlight the case of uploading real-time information, because businesses in my constituency had serious issues with the technology for uploading RTI prior to coronavirus and now find themselves unable to claim under the job retention scheme, for example. That has been an issue with technology, and it has been very difficult to resolve it. Meanwhile, those businesses are on the brink, on the point of going bust, with employees whom they are struggling to pay. That is because in an emergency it is difficult to unwind a technical, computer-based decision, made months ago.
I ask for reassurance about the automating of discretionary decisions. What safeguards will be put in place to ensure sure that no businesses find themselves in a situation where they cannot unpick a decision made by a computer, and to ensure that they will be able to speak to a human who has discretion and is able to exercise it effectively?
Jesse Norman
Again, I thank Opposition colleagues. Let me pick up a couple of the points raised. The hon. Member for Glasgow Central asks for safeguards, and of course she makes a very important wider point. In a rule of law society we want as little discretion as possible to be exercised—and, in particular, personal discretion—so it is important that within HMRC there is baked in a culture of accountability for decisions. From that point of view, nothing is changing. This measure is ratifying an existing set of arrangements by putting them on a legal basis. However, I can reassure her that the issue of safeguards and the balance of powers between HMRC and taxpayers is taken very seriously, and I have specifically commissioned work within HMRC to ensure that that balance is appropriately maintained, not just at customer level but more generally.
The hon. Lady and the hon. Member for Ilford North raised the question of decision making more generally. I think I have, in a way, spoken to that, but I recognise that there is a distinction between the automated exercise of a decision and the capacity to make a decision itself. Of course, HMRC does increasingly rely on computerised systems, and it is absolutely right for our purposes as a nation that it should do so. It is, for example, inconceivable that we could have responded to coronavirus with either the self-employed scheme or the furlough scheme without heavy reliance on computing. It is to HMRC’s enormous credit that it was able to commission and bring into effect a platform and an approach to those schemes in a matter of weeks, using that computing expertise. I also agree with the hon. Gentleman when he points out that there are benefits not merely in terms of customer service, but in freeing up people and, we hope, improving the quality of work by taking HMRC staff away from the more routine operations and more towards higher quality work that can give more professional satisfaction.
Question put and agreed to.
Clause 100 accordingly ordered to stand part of the Bill.
Clause 101
Returns relating to LLP not carrying on business etc with view to profit
Question proposed, That the clause stand part of the Bill.
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.
Jesse Norman
Clause 102 ensures that Her Majesty’s Revenue and Customs can make preparations to introduce a new tax in respect of certain plastic packaging. The new tax will apply to plastic packaging that is manufactured in or imported into the UK and that contains less than 30% recycled plastic.
Plastic waste is a very serious global issue. Often, it does not decompose. Indeed, it can last for centuries in landfill, or it ends up littering the streets or polluting the natural environment. More than 2.2 million tonnes of plastic packaging are produced in the UK each year. The vast majority is made from new plastic, rather than recycled material, because recycled plastic is often more expensive to use than new plastic.
To tackle this problem, the Conservative manifesto reaffirmed the commitment to introduce, from April 2022, a world-leading new tax on the manufacture and import of plastic packaging that does not contain at least 30% recycled plastic. The tax will provide a clear economic incentive for businesses to use recycled material in the production of plastic packaging, which will create greater demand for this material, and in turn stimulate increased levels of recycling and collection of plastic waste, diverting it away from landfill or incineration.
This follows an initial announcement of the tax at Budget 2018 and consultation on the high-level design in 2019. In its response to the consultation framework, the Chartered Institute of Taxation welcomed the Government’s measured approach to the implementation of the tax. Many respondents agreed with the initial proposals on the tax design, although there were areas where some respondents disagreed.
The Government took this feedback into consideration, announcing in response that we would extend the scope of the tax to include imported filled plastic packaging that contains less than 30% recycled plastic, given concerns about the impact on UK competitiveness without that adjustment. The Government are currently holding a further consultation on the detailed design and implementation of this tax, to ensure that it works as intended and so that businesses have time to prepare for it.
Clause 102 is a technical provision to ensure that HMRC can make preparations for the introduction of the new tax, such as incurring expenditure on the development of an IT system. Alongside this, HMRC is developing the detailed legislation to introduce the tax. We expect that this will be published in draft for technical consultation later this year, before being implemented in a future finance Bill.
In conclusion, the clause forms the first part of the legislation needed to introduce the plastic packaging tax. I therefore commend it to the Committee.
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.
Jesse Norman
I thank the hon. Gentleman for his comments. As he will know, the introduction of any new text requires great care and attention, which is why, as he rightly highlighted, we have taken such a deliberate approach to consultation. However, I thank him for his support and note his suggestion. With that, I commend clause 102 to the Committee.
Question put and agreed to.
Clause 102 accordingly ordered to stand part of the Bill.
Clause 103
Limits on local loans
Question proposed, That the clause stand part of the Bill.
Jesse Norman
This is another small, technical measure. Clause 103 makes changes to ensure that Public Works Loan Board lending is available to local authorities in order to support worthy capital endeavours that benefit their residents. There is a statutory limit on the total amount that may be lent to local government through the PWLB, a limit that is governed by section 4 of the National Loans Act 1968. That Act allows for two future levels of that limit to be specified in advance through primary legislation and activated through secondary legislation.
The legislation would be exercised through HM Treasury. A date to exercise these powers has not been, and would not usually be, set in advance. The Treasury considers this clause to be a high priority because of the central role the PWLB plays in the capital finance system, supporting local authorities to deliver public services and, still more urgently, supporting communities through the pandemic as the need may arise.
The changes made by clause 103 will amend the predetermined legislated figures in the 1968 Act. The limit is currently £95 billion, and the clause resets the two future amounts to £115 billion and £135 billion. Clause 103 thus ensures the continuity of PWLB lending, which is a key stream of funding for local authorities across the country.
Harriett Baldwin
I know that Worcestershire County Council finds the Public Works Loan Board very useful. Can the Minister update the Committee on the interest rate charged on that facility?
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.
The Chair
With this it will be convenient to discuss Government new schedule 1—Workers’ services provided through intermediaries.
Jesse Norman
The new clause and new schedule 1 make changes to ensure that the off-payroll working reform is extended to medium and large-sized organisations in all sectors outside the public sector from April 2021.
The reform moves the responsibility for determining whether the off-payroll working rules apply from an individual’s personal service company to the client engaging them. It also requires the client, or the party paying the individual’s personal service company to account for and deduct employment taxes where they are due, rather than that responsibility resting with the individual’s personal service company. The change is not the imposition of a new tax, but is focussed on improving compliance with the already existing off-payroll working rules.
The off-payroll working rules have been in place for nearly two decades. They are designed to ensure that individuals who work like employees but through their own personal service company pay broadly the same income tax and national insurance contributions as those who are directly employed. Without those rules, nothing prevents individuals from being engaged off-payroll simply to reduce the tax and national insurance contributions rightfully due.
Personal service companies have traditionally had to self-assess whether the rules apply. Unfortunately, non-compliance with the off-payroll working rules outside the public sector is widespread. The public sector reform has demonstrated that organisations engaging individuals are better placed to assess the employment status for tax of that individual.
There have been several attempts to tackle non-compliance with the rules in recent years. In November 2015, the Government carried out a consultation on how to improve the effectiveness of the off-payroll working rules. Since then, the Government have carried out three further consultations on reforming the rules. During this period, several alternatives to the original off-payroll working rules were suggested. The Government fully considered alternative proposals as part of the extensive consultation process on the reform.
In general, the approaches suggested would create a group of people who are exempt from the employment status tests and subject to a separate and advantageous tax regime, which the Government did not consider to be fair to the majority of working individuals who are subject to the existing boundary between employment and self-employment. Options such as administrative changes and strengthening HMRC’s compliance response were also discussed, but the consultation found that those would not be sufficient to tackle the problem.
The off-payroll working rules were reformed in the public sector in April 2017, shifting the responsibility for determining whether the off-payroll working rules apply from an individual’s personal service company to the public sector client engaging them. That was because organisations are better equipped to make the correct employment status for tax assessments than are individual contractors, and HMRC is better able to monitor their compliance. This reform is effective in reducing non-compliance with rules: it raised an estimated £250 million in additional revenue in the first 12 months, with independent research showing that it did not damage the flexibility of the labour market.
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.
Alison Thewliss
My hon. Friend makes an excellent point about contractors in the north-east of Scotland. In my constituency of Glasgow Central, it is IT contractors, many of whom came to live in Glasgow from India. They work in the IT sector and have found that their contracts have not been renewed with companies that they have been working for, and they are now really struggling to find employment, causing them a huge deal of uncertainty at this time, particularly with the coronavirus crisis.
Stephen Flynn
I welcome the intervention from my hon. Friend, which goes to the nub of the issue that we are discussing. The Government’s policy is, frankly, to turn their back on those people who need support at this time.
If the Minister is not willing to take my word for that, perhaps they will listen to the salient words of one of their own. The hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie) said late last year in a letter to the then Chancellor:
If the proposed changes—making every medium and large sector private business responsible for setting the tax status of any contractor they use—were to come into effect, I would worry for the industry”—
the oil and gas industry—
“and its ability to attract the highly skilled workers they need. It is also predicted that changes could see a worker’s income reduced by up to 25 per cent. Many of these workers are my constituents.”
Many of those workers are also my constituents, and it is simply not good enough. I am glad that there is cross-party support in north-east Scotland for opposing what the Government are seeking to do, and I sincerely hope that that cross-party ethos will be found in this room today, before the Government do more damage.
I just want to pick up on one final point. I think the Minister said in his opening remarks that he listened carefully—that the Government have listened carefully. They have not listened to the House of Lords—I do not say that with any joy, being a member of the Scottish National party—which has been clear that they need to pause this policy and go back to the drawing board. I urge them to do just that.
Andrew Jones (Harrogate and Knaresborough) (Con)
The issue of off-payroll working has attracted much attention in the House and beyond. Clearly, there are some problems to solve, but they are not easy problems to solve.
In some cases, the issue is straightforward. People work for one employer for prolonged periods up to several years and they really are employees, because they do similar jobs to colleagues and use company equipment, but they do so on different terms. It may be that they are better paid in terms of headline salary than their immediate work neighbours, but the situation is more complex, because they are not paid for holidays or potential pension contributions and so on.
Some workers may have been put under pressure to become self-employed by less scrupulous employers who have sought to save money on things such as NI payments. I have read of cases—I am sure we all have—where the imbalance of power that can exist between an employer and an employee has seen pressure on people to choose a particular route. That is not satisfactory for those employees or taxpayers generally as revenue for public services is missed.
While some may have been pressured into becoming self-employed, vast legions in our economy have chosen the self-employed route because they enjoy the challenge of that type of work or they want to be more in control of their own destiny, which being your own boss can achieve, or many other personal reasons.
That is to be really encouraged, because the flexibility that self-employed workers, often on contracts, provide has been a great boost to our economy. It is one of the ingredients that has contributed to the recent economic progress that we have enjoyed. Being swift of foot in response to commercial opportunities gives a competitive advantage. It has allowed companies to bring in extra resource where they need to boost operational capacity. It has allowed extra skills to be brought into a company when needed. Many people I have met or corresponded with in my Harrogate and Knaresborough constituency have highlighted to me that they have built careers adding real value to their clients.
There are some sectors where the use of contractors is more prevalent than others. We have just been hearing about the oil and gas sector, but that includes IT and technology more broadly, as well as marketing and the creative industries, sectors where the UK is strong, and where I worked before coming into this place. This is about bringing skills and capacity into a company when needed but when there is not enough work for long-term permanent employment. There is also the issue of the growing sector of interim managers.
I see a balance to be struck here in the way the issue is taken forward by Ministers between protecting some employees and recognising that the vast majority have chosen self-employment and are providing real value. We need to balance employment rights and protections between the employed and self-employed, while ensuring that the rules do not have a sclerotic effect on our economy. Flexible, nimble companies responding to customers, adding value, creating wealth and grabbing opportunities is how economies grow and jobs are created. Ensuring that is preserved is critical to the operation of these rules. That is something the Minister must consider as he takes this forward.
Miriam Cates (Penistone and Stocksbridge) (Con)
I refer hon. Members to my entry in the register of Members’ interests. This is clearly a contentious issue, but the majority of employers and contractors I have spoken to agree that some kind of reform is necessary.
Our tax system must be fair, but it should also support those who take risks to grow businesses and innovate in a way that benefits our whole economy. It should not offer advantages to those who are using PSCs to create wealth only for themselves. I am certainly not saying that it is wrong to create personal wealth, just that our tax system should not offer particular advantages in doing so and tax should not be avoided as a result. We must balance flexibility with fairness and it is not fair that two people doing the same job in broadly the same conditions pay different rates of tax. We must recognise that those who are genuine contractors do not have the same benefits as employees—they do not have the same job security—but where someone is to all intents and purposes an employee, they and their employer should pay their fair share of tax and national insurance.
I have personal experience of running a small business in the tech sector and I believe that current practices discourage people from becoming employees in some sectors. For example, in the tech industry, people with certain programming skills can command such high day rates as contractors that there is very little incentive to become an employee in a small company. That is a particular issue in a sector where there is a shortage of talent and a great demand for skills.
While there is and always will be a role for contractors, contracting costs can be prohibitively high for start-ups and scale-ups, and those businesses find it difficult to recruit employees with the right skills. Start-ups and scale-ups need employees—people who are committed to the company, who can help shape its culture and, importantly, who can pass on their knowledge and skills to new employees as the company grows. Labour market flexibility has to work for employers and employees. At the moment, the very businesses that we most need to grow and innovate are struggling to recruit skilled employees, especially in areas outside London and the south-east, such as Sheffield and Barnsley, which I represent.
I believe that the reforms will make employment and the benefit that it brings more attractive. As I said, we should be using the tax system to support those who create wealth not only for themselves, but for our whole economy. In that way, any tax saving to an individual or company is an investment for the taxpayer, not just lost revenue. A great example of that is the research and development tax reliefs, which I am delighted have been increased in the Bill and will encourage the kind of innovation that the UK really needs to boost growth and productivity. They are incentives that help to create wealth for us all.
In contrast, using a personal service company to reduce an individual’s tax burden does not benefit the taxpayer. The individual’s income tax and national insurance savings are not used to create other jobs or to invest in technology or create products, and so the taxpayer does not receive any return on the lost revenue. Where a worker is genuinely self-employed, facing additional risks, with none of the benefits of employment, there should be no change, but where someone is to all intents and purposes an employee, improving compliance should make sure the taxpayer does not lose out.
I understand that any changes bring risks and uncertainty and I am pleased that the changes to IR35 have been delayed for a year to give our economy some chance to stabilise after covid-19, but fairness should be the foundation of our tax system and properly applied, the regulations will help to achieve that aim.
Jesse Norman
I will respond to the many important points raised by hon. Members, who I thank for raising them.
My hon. Friend the Member for Penistone and Stocksbridge is absolutely right to highlight the importance of making employment attractive. It is vital that best practice be spread throughout the economy as rapidly as possible and if the effect of that is to create a more level playing field between two sides of a particular divide, that would be a very valuable thing. The Government’s concern is that there is an unfairness in that someone can be, as it were, latently employed, although working for a personal service company, and that is the concern that the Government seek to address.
My hon. Friend the Member for Harrogate and Knaresborough is absolutely right to emphasise the importance of having a flexible and nimble economy. He is right, and the hon. Member for Ilford North is right, to focus on the effect of the self-employment and self-employed contractors in making this happen. For reasons I will come on to, this reform does not tax the self-employed. It does not tax anyone. What it does is to change the determination for people who are not self-employed but who are in fact employed, and to determine whether they are or not.
The hon. Member for Aberdeen South made a series of comments that I am afraid are simply not true. He was very rude about the Government’s decision to introduce this via a separate resolution, but the details of the change were announced as part of the Budget resolutions. They were not moved. They could and may well have been discussed—I do not recall the details—during the Budget debates. Therefore, it was perfectly open to the House to scrutinise those details, although the resolution was not itself moved. If the resolution had been moved, it would not have been possible for us to legislate with anything like the same straightforwardness for the move to an April 2021 deadline. That was the purpose of delaying moving the resolution. The effect was that the resolution was debated on the Floor of the House of Commons in and of itself—given a separate debate to that resolution in order to discuss that. Therefore, the idea that there has been any short-circuiting of due process is entirely wrong.
Of course amendments can still be tabled on Report, and the hon. Gentleman may seek to do that. He was very rude about the reform, saying it would lead to zero-hours contractors, and calling it shocking, but is he planning to support it? Will he vote in favour of it or against it? That will be the true measure of his and the SNP’s position on this important reform.
Finally, the hon. Gentleman talks about the Lords Economic Affairs Committee, but of course he is entirely wrong about that. We have yet to respond to the Lords Committee—we will do so in due course—but we have engaged very closely with it on a whole variety of different areas. If he speaks to Lord Forsyth, he will know that I approached Lord Forsyth personally, having just become Financial Secretary, to reopen the relationship and make it flourish. Indeed, I volunteered to appear in front of the Lords Economic Affairs Committee last year precisely to hold myself and the Treasury accountable in this area.
Stephen Flynn
The Minister has gone through a number of the points I made, but one that he did not touch upon was the impact that the proposal will have upon contractors working in the oil and gas sector, given the huge challenges facing those workers at the moment. What message would he give those contractors, whose future is uncertain in any case, but who are facing this change on top of an already devastating situation?
Jesse Norman
We are obviously very concerned about the effects of coronavirus, which is precisely why we have delayed the implementation of the reform by a year. The message I would give is that we absolutely respect and support the work that those individuals are doing and understand the position they are in. The Government have rapidly made available very important sources of support for the economy across a whole range of different areas and sectors of work and, indeed, in the benefits system, both for businesses and families and the sustaining of jobs. Therefore, there is no absence of respect or support for the people the hon. Gentleman describes.
The hon. Member for Ilford North mentioned the diverse nature of these different forms of employment. He referred to the self-employed, but actually the self-employed are not taxed by this. The genuinely self-employed are not affected by the reform. The reform is designed merely to change the way in which the status of someone who is latently employed—actually employed, but perhaps unaware of it or not behaving on that basis—is determined. The hon. Member asks us to use the additional time appropriately. We have got before April 2021. I have said already, but let me say again that we are in the process of commissioning external research into the effect of the public sector reform. As he will be aware, the early research immediately after the public sector reform did not bear out the dire predictions regarding flexibility or reduction of income, but we will make sure that external research into the longer-term effects of the public sector reform is completed and placed in front of the House before April next year.
Alison Thewliss
Can I ask the Minister about the impact assessments that will be done? What monitoring is his Department doing of the chilling effect that this is having on contracts right now? What I am hearing from contractors in my constituency is that those contracts are not being renewed now and it is already having a chilling effect, regardless of when the measure is coming in. What monitoring is he doing of the situation?
Jesse Norman
As I have said, in relation to public sector reform, the external research did not detect any great chilling effect. We will be looking at the longer-term effects of public sector reform. On this reform, it is undoubtedly true that the measure is nudging some companies to consider whether people they had thought of as contractors are not, in fact, employees. In some cases, they are having to review the structure of their workforces. I do not think that is a chilling effect on the status of those contracts, because those people were always latently employed. It is then for the contractor and the company to work out what future arrangement they wish to have.
Alison Thewliss
The IT contractors from India who I mentioned earlier can choose to go anywhere in the world. They have chosen to locate in Glasgow because the work is there, the skills are there and they have a good community in my constituency. If the contracts are not there, they will take their skills and their money and go somewhere else. What is the Minister doing to mitigate against that?
Jesse Norman
That is a claim that the hon. Lady makes and we will be able to test it over time through external research. It is not a view that has been validated so far in the roll-out to the public sector. It is a diverse and vibrant area of our life and it may well have more resilience overall than she is giving it credit for, but we will not know until we have seen the effects of the reform.
The final point, raised by the hon. Member for Ilford North, is to do with rights. Of course, the measure is to do with the determination of tax due, but the Government have put in the Queen’s Speech a substantial commitment to bring forward a Bill in that area following the Taylor review. I know that my colleagues in the Department for Business, Energy and Industrial Strategy take that very seriously.
Question put and agreed to.
New clause 1 accordingly read a Second time, and added to the Bill.
New Clause 2
Review of geographical effects of provisions of Sections 27 to 30
‘The Chancellor of the Exchequer must within twelve months of the passing of this Act lay before both Houses of Parliament a report assessing the differential geographical effects, broken down by nation and NUTS 1 statistical region, of the changes made by sections 27 to 30 of this Act.’—(Alison Thewliss.)
This new clause would require a geographical impact assessment of the clauses of the Bill relating to reliefs for business.
Brought up, and read the First time.
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.
Alison Thewliss
The Treasury Select Committee is also looking at regional imbalances. Part of the Committee’s work has identified that the data collected by the Government on a range of areas is not sufficient. It is not good enough for the Minister to say, “Oh, it’s difficult to do that.” I accept that money is not necessarily spent where an office is based, but it is a start in understanding where that money is going. If lots of organisations based in London are taking in the money and perhaps it is going somewhere else, the Government ought to be aware of that and ought to be looking at it to make sure that if somebody based in London is taking in the money but it is being spent somewhere else, then perhaps they should be based where the money is being spent. Perhaps they should be moving their offices to where the money is being spent. That puts it back on to those businesses, to add to that consideration, so I do not buy the Minister’s argument that it is awfully difficult and that we should not do it. It is a first step into looking at how it might be done, so I would like to press clause 2.
Question put, That the clause be read a Second time.
Finance Bill (Tenth sitting)
Thursday 18th June 2020
(3 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 18 June 2020 - (18 Jun 2020)
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 2 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 10 - Question accordingly negatived.
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 hansardnotes@parliament.uk.
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.
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.
Jesse Norman
I rise to urge the Committee to reject these new clauses. Let me say a few things about them and then I will turn to the comments that have been made.
New clause 1 would require the Chancellor to conduct an impact assessment on the effect of household incomes on GDP in each part of the United Kingdom and in each region of England. New clause 18 would require the Government to conduct a review within one month of Royal Assent, of the effect of the Bill on the nations and regions of the United Kingdom if the Government’s main coronavirus support schemes continue for the next year—a hypothetical case if that be so—or if they were ended or changed in any way by a Minister of the Crown. The SNP’s new clause 21 would require the Chancellor to make an assessment of the impact of the legislation on a large number of different sectors and to lay a report of that assessment before the House of Commons within six months of Royal Assent.
We do not think that any of those clauses are necessary. I should remind the Committee that, apart from the provisions relating to the main rates of income tax, provisions in this Bill will apply across the whole of the United Kingdom and will directly benefit households and businesses in every part of the country. They have been developed with careful consideration of their impact on all regions and sectors of the United Kingdom. It is worth just saying that Ministers assess individual measures as well as the package as a whole for the differential impacts that they may have on each part of the UK throughout the policy development process, and they are under a statutory duty to assess the equalities impact of the provisions contained in the Bill, and those have been analysed and published.
In addition, the Treasury publishes extensive distributional analysis of the impacts of this Bill, together with the impact of the Government’s decisions on welfare and public services. What that amounts to is a rigorous and detailed record of the impact of the Government’s policies on households. The Office for National Statistics also publishes monthly estimates of GDP, and analysis of the impact of Government decisions on GDP is also carried out by the Office for Budget Responsibility, which is itself independent.
Therefore, between those checks and balances and that degree of inbuilt institutional consideration and the packages of support that we have offered, I think that it should be fairly plain that these new clauses are not required. We continue to monitor the impact of the coronavirus crisis closely as well as the response to the schemes that have been put in place. It is right that we should do so alongside the general continuous review of tax and the economy in relation to policy.
Let me remind the Committee that the Government have a commitment to consult—and they do consult—regularly on new tax policy and tax legislation in order to make sure that as wide a range of views and impacts as possible are captured during the tax policy-making process. We have touched on that matter in a previous discussion.
Let me come quickly to the points raised by the hon. Members opposite. The hon. Member for Ilford North rightly highlighted the levelling-up agenda, and he was fully justified in doing so. He said that London was a global city and should be understood as such, but that the Government’s attention should properly be on all the regions and nations of the country, and of course I share that view.
The hon. Gentleman talked about centralisation within the Treasury. I have been a trenchant critic of centralisation in the Treasury historically and on the public record, and I think it reached a bit of an apogee under the last Labour Government—I would say that, wouldn’t I? But I still think it is true—there was a tendency to view every problem as potentially soluble by tweaking the marginal costs and benefits of a system. In some respects, we have had to counteract that tendency in order to give us more of an inclusive view of what ultimately are a set of devolved settlements as well as a UK picture.
The hon. Member for Glasgow Central said something that I thought was quite bold: that the Scottish Government would do a far better job of governing Scotland than the UK Government do within a UK national framework. Of course, the UK does not govern Scotland; it has areas that are reserved and areas that are devolved, and many areas, including higher education, are devolved in Scotland.
I must say that I share the high regard that the hon. Member for Ilford North has for the history of higher education in Scotland. He will know that for many hundreds of years there were two universities in England and five in Scotland, which represented and reflected a high-quality orientation and a commitment to higher education. Unfortunately, it is in the record that Scottish higher education has not made the same kind of progress under the Scottish National party Government, particularly in relation to minorities and equalities, which is a terrible, terrible shame. I wish it were otherwise. So I would not accept the suggestion made by the hon. Member for Glasgow Central, but I will invite the Committee to reject these clauses.
Wes Streeting
Yes, Mr Rosindell.
Question put, 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.
Stephen Flynn
New clause 4 closely aligns with what the SNP seeks to promote in new clauses 19 and 20, and I will address each of them in turn. First, new clause 19 would require a review of the Bill’s impact on the UK meeting the UN sustainable development goals. The obvious thing that must be said to start with is, why would we not want to do that? Why would we not want to know whether our actions are complementing the UN sustainable development goals? We heard from the hon. Member for Ilford North, who helpfully stole some of my lines, about how important the UN sustainable development goals are. That perhaps suggests why the Government may be reluctant to agree to this new clause, although I hold out hope that the Financial Secretary to the Treasury will rise and show that my doubts are misplaced.
The first sustainable development goal is on ending poverty. Quite frankly, it is absurd that poverty exists in these isles. Unfortunately, the UK Government have been in charge for much of my lifetime, and during that period, poverty has been prevalent because of the actions and decisions that they have taken—we cannot escape that fact. Whether in more recent times through universal credit and the two-child cap, or regarding their inability even to provide free school meals to children in England, the consequences of their actions are great. We have heard that Marcus Rashford achieved more in a matter of days than the Government managed to achieve in a number of years, but that is not something the Government should be proud of. It should not take a footballer to change their direction; that is not how politics should work at the best of times.
The last UN sustainable development goal is on partnerships to achieve the goals. We heard from the hon. Member for Ilford North that the Department for International Development has been completely disbanded and is getting moved into the Foreign and Commonwealth Office. That is an absurd move by the Government, and it flies in the face of sustainable development goal 17, on partnerships to achieve the goals. DFID has done so much to foster good relations across the world, which has allowed us to play a leading role in trying to improve the lives of those whose life chances, quite frankly, are worse than anything we can possibly imagine.
The simple question is, why would the Government not wish to support the new clause? The answer is perhaps that their own record shames them from doing so. If they were to support it, they would be following the path of the Scottish Government, who embedded the sustainable development goals in our national performance framework—Scotland’s vision for national wellbeing—following consultation with the public, trade unions, business organisations, local government, voluntary organisations and wider civic society. It can be done, and in a positive and proactive way, with community groups from across the spectrum. Where Scotland leads, the UK Government have the opportunity to follow
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.
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.
Alison Thewliss
I rise to speak to new clause 17 and associate myself with the remarks of the hon. Member for Ilford North, with which I broadly agree and support. We certainly support new clause 5, which chimes with our new clause. We live in a society where it is clear and evident that able-bodied older white men do better than almost everybody else, so what we want to see from the Finance Bill is who benefits from the measures within it and how we know that. We do not know that from how the Government have acted, as they have conducted a very light-touch equality impact assessment on the Budget.
The Women’s Budget Group has produced an excellent briefing, and it calls the Treasury out on failing to publish comprehensive equality impact assessments:
“The only impact assessment relating to protected characteristics in the Budget documents are the Tax Information and Impact Notes (TIINS) produced by HMRC. Only a few measures were recognised to have any equalities impact at all and even here the analysis is cursory, based on limited evidence and with a poor understanding of equality impact…In the absence of a meaningful cumulative equality impact assessment of the budget as a whole it is impossible to judge whether the Treasury has met its obligation under the Public Sector Equality Duty to have ‘due regard’ to equality.”
That is pretty damning on the equality impact assessments that Ministers say they have carried out.
Under the measures assessed as having an equalities impact in the equality impact assessment, the Women’s Budget Group notes that for the lifetime limit for capital gains tax entrepreneurs’ relief, the assessment recognises that
“claimants tend to be older, men, of above-average means, and include individuals who are selling their business or their company’s shares on retirement”,
and does not anticipate an impact on any other groups sharing a protected characteristic, but there is no working to show how the Government arrived at that. There is no further analysis as to why they think that no other groups will be affected. It is one thing to assert that, but the Government have to show their working, and they have not done that.
The Women’s Budget Group also notes that the equality impact assessment states that the measure on pensions tax income thresholds for calculating the tapered annual allowance will impact more on men than on women. The assessment states that it is
“not anticipated that there will be impacts on any other groups sharing protected characteristics”.
However, the Women’s Budget Group points out that the family resources survey could have been used to assess the impact by age, ethnicity, disability and various other characteristics, but that was not done. Again, it is not a full equality impact assessment; it is very light touch.
The WBG also mentions the changes to the disguised remuneration loan charge as referenced in the equality impact assessment. The analysis states that,
“broadly the measure is expected to affect more males than females”,
but that it is
“not anticipated that this measure will have a significant, or disproportionate, impact on groups with protected characteristics”.
However, there is no explanation for that. It might well be true, but we cannot tell because the Government have not shown their working.
The Women’s Budget Group analysis also discusses measures where no equalities impact is identified at all, when it really should have been. I do not want to go into all of these things, because they are multiple, and we would be here all afternoon, but I will touch on the changes to the van benefit charge and fuel benefit charges for cars and vans and the taxable benefits regime for measuring CO2 emissions, which primarily impact on
“individuals who use a company van or car which is available for their private use and/or who are provided with fuel for their private use by their employer”.
Those people are far more likely to be men. We might guess that, or we might anticipate that. The Government’s statistics on driving licences show that in 2018, 81% of men had a driving licence, compared with 70% of women. There are also issues of race, because 62% of people designated as Asian, 52% who are black, and 76% of people who are white have driving licences. That is a clear discrepancy and will have a clear differential effect as to who will or will not benefit from the measures. The Government already have those statistics but have not chosen to do an equalities impact assessment on them. There will be a differential impact because not everyone has a driving licence and those who do have one are predominantly white men.
The Government might want to look at the sectors that would benefit. There may be differences in the types of people who would do jobs with a company car or van. The Government might want to look at those sectors and say, “Actually, there is a disproportionate number of people of a particular background in there.” That has not been done. If we do not count those things we do not know what the impact is. We do not know who benefits and why, or what we can do to make sure that everyone benefits from the measures that the Government propose.
That, I suppose, is just a small example of why the impact assessment is needed. There are clear disparities across society and clear inequalities. If we do not count in the Finance Bill who benefits, why, and what can be done to redress the imbalances that we see in society in front of us, by taxation or other measures, we will never be able to address those inequalities and go to a more equal society.
Kemi Badenoch
New clause 5 would require the Chancellor to conduct and lay before the House an equality impact assessment of the Act within six months of Royal Assent. New clause 17 would require him to lay a similar report within 12 months. Those additional reporting requirements are not necessary. The Treasury considers carefully the equality impacts of the individual measures mentioned and announced at fiscal events on those sharing protected characteristics, including gender, race and disability, in line with its legal obligations and its strong commitment to equality issues.
The outcome of all fiscal events is published, and is subject to much parliamentary and public scrutiny. The Treasury also takes care to pay due regard to the equality impact of its policy decisions relating to the covid-19 outbreak, in line with all legal requirements and the Government’s commitment to promoting equality. There are internal procedural requirements and support in place, to ensure that such considerations inform decisions taken by Ministers.
In the interest of transparency the Treasury and HMRC publish tax information and impact notes for individual tax measures that include in summary form assessments of their expected equalities impacts. The system of accompanying tax legislation with TIINs was introduced under this Government, and the notes include headline summaries of equality impacts, as well as other important information that reflects internal assessments carried out as an integral part of decision making.
In addition, the Treasury already publishes analyses of the impacts of the Government’s measures on households at different levels of income, in the “Impact on households” report, which is published separately alongside each Budget, along with trends in living standards and the labour market, by region and income level. That is the most comprehensive analysis of its type available, and it shows that as a result of decisions taking in Spending Round 2019 and Budget 2020 the poorest households have gained the most as a percentage of net income.
That brings me to the comments of the hon. Member for Ilford North and the hon. Member for Glasgow Central. They keep talking about the Government not doing enough on inequalities. Actually the Government have done quite a lot, but the hon. Members refuse to acknowledge it. When we have commissions and recommendations the hon. Member for Ilford North complains about a new commission. We have carried out recommendations, and the hon. Members pretend that nothing has happened. The hon. Gentleman mentioned the shadow Justice Secretary. Did he ask him about the progress that we have made on the Lammy report? We have carried out many of those recommendations, but hon. Members stand up in Parliament and pretend that nothing has happened. They continue to use incendiary and inflammatory rhetoric. Is it any wonder that there are people out there who feel that the Government are doing nothing, when so many MPs in this House stand up and say so? It is a shame, and as Equalities Minister I think it is a disgrace.
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.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
I beg to move, That the clause be read a Second time.
The Chair
With this it will be convenient to discuss new clause 22—Review of effect of Act on tax revenues—
“(1) The Chancellor of the Exchequer must review the effects on tax revenues of the Act and lay a report of that review before the House of Commons within six months of Royal Assent.
(2) The review under (1) must contain an estimate of any change attributable to the provisions in this Act in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.
(3) The estimate under (2) must report separately on taxes payable by the owners and employees of Scottish Limited Partnerships.”
This new clause would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of the Bill; and in particular on the taxes payable by owners and employees of Scottish Limited Partnerships.
Bridget Phillipson
It is a pleasure to take over from my hon. Friend the Member for Ilford North, and to see you back in the Chair this afternoon, Mr Rosindell.
Throughout proceedings in Committee we have repeatedly touched on the changes that the Government wish to make to tax reliefs. The regularity with which we have discussed such matters is not surprising when we consider that the UK had 1,190 tax reliefs as of October 2019, including 362 so-called tax expenditures—in other words, reliefs that support specific Government objectives.
HMRC has identified that the cost of policy-motivated tax expenditures is large both in absolute terms—approaching 8% of GDP—and by international standards. That is the reason behind this new clause. As I argued earlier in Committee, we on the Opposition Benches would like to see a broad review of tax reliefs, to determine exactly who is benefiting from the hundreds that exist, whether they are fair, whether they represent good value for money and whether they are securing the policy outcomes originally intended.
We believe the Government could start improving the scrutiny of tax reliefs by supporting the new clause to ensure that those contained in the Bill are monitored properly and transparently and that Parliament can debate whether they are having the desired effect and represent value for money for the taxpayer. Points raised earlier in our debates demonstrate the merits of embedding such a practice.
On clause 21, we highlighted how changes to pensions tax relief around the tapered annual allowance will affect all pensions, not just those of the senior clinicians and other public sector workers who have been adversely affected by recent changes. We should therefore be reviewing the impact of that measure, not only to ensure that it reverses the worrying trend we have seen in the retention of senior medical staff, but to consider the overall impact on taxation revenue.
On clause 22, relating to entrepreneurs’ relief, I raised concerns that the measure had benefited a small number of wealthier claimants and had a negligible effect as an incentive for investment decision making. The Minister responded that the Government had conducted an internal review that had influenced the reform and that he would review and monitor the effects of the change as standard.
It is reassuring to know that there are reviews of some of these reliefs, but as the Minister will know from the National Audit Office’s report, the Government’s monitoring of tax reliefs is just not what it could be. Indeed, the Government are not reporting costs on more than two thirds of tax reliefs, and HMRC does not know whether most tax reliefs offer value for money. Furthermore, internal reviews, where they occur, do not go far enough and do not lead to an adequate level of debate or scrutiny.
I know that we have all enjoyed delving into the finer details of Government tax policy in recent weeks. Although we might return to this soon, we should accept that such opportunities are fleeting, and little is done to facilitate ongoing scrutiny of tax reliefs. Other countries do this much more regularly, and I will return to that point. No doubt the intention behind tax reliefs is often positive—namely, to incentivise a certain type of social or economic behaviour that is of some benefit to the country—yet the lack of adequate monitoring and oversight makes determining whether they are having the desired effect more difficult. In many instances, we have seen costs spiral out of control, differing substantially from initial projections.
Of course, cost is not the only metric by which we might want to measure the success or otherwise of a tax relief. There are other—particularly behavioural—impacts that we may want to consider. That is why proper parliamentary scrutiny of these policies, which takes into account the full picture, is so important. This new clause would enable that to happen. In addition, it would help to embed the processes being undertaken by HMRC and the Treasury, which have been noted by the National Audit Office.
Our concerns about the adequate scrutiny of tax reliefs go beyond those included in the Bill, and I would like to draw the Minister’s attention to the concerns raised in the NAO report. It notes that the estimated cost of tax expenditures was £155 billion in 2018-19. Some of that will obviously go to achieve worthwhile social or economic objectives, but the NAO says that
“it does not reflect the amount of tax that would be generated if tax expenditures were removed”
due to any corresponding behavioural change and the economic impact that would result.
There remains a concern that, for something that is such a cost to the Government, there is little in the way of evaluation to ensure value for money. Of the 362 tax expenditures that exist, 111 have been costed by HMRC, 63 have been assessed by the Treasury, and only 15 have had published evaluations since 2015. That is despite their cost having grown in recent years. In July 2019, the OBR reported that the known cost of tax expenditures had risen in the past decade. That is a 5% real increase in the summed estimated cost of tax expenditures from 2014-15 to 2018-19.
The mounting number and cost of tax reliefs adds complexity to our tax system and to evaluating fairness and value for money. Despite warnings, we have not seen enough progress on this front. The NAO stated in 2014 that there was little in the way of “a framework or principles” to guide the administration of tax reliefs. In 2018, the Public Accounts Committee concluded that HMRC did not know whether a large number of tax reliefs were delivering value for money. It should be acknowledged that both HMRC and the Treasury have since taken steps to increase their oversight of tax expenditures and actively consider their value for money, but that has not allayed concerns. In July 2019, the OBR identified the costs of tax reliefs as one of four new fiscal risks to the public finances. It stated:
“The Government does not seem to have a systematic way of evaluating the effectiveness of those tax reliefs and expenditures with a stated policy objective.”
The International Monetary Fund has also stated that tax expenditures require the same amount of Government oversight as public spending.
Despite those warnings and recommendations, we have simply not seen the necessary progress from Government in implementing the measures that would allow for the proper scrutiny of tax reliefs. This new clause would help us to turn a page on this, by establishing the principle that Parliament should play an ongoing role in this process. As I mentioned earlier, in relation to the annual allowance and entrepreneurs’ relief, we should be able to assess whether these reforms are having the right effect and debate this in Parliament.
Other measures in the Bill demand similar levels of ongoing scrutiny. As we heard in the debate on clause 27, many businesses are set to benefit from increases to the rate of relief for investing in research and development. In that debate, my hon. Friend the Member for Ilford North noted:
“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.”––[Official Report, Finance Public Bill Committee, 9 June 2020; c. 90.]
Such a warning is pertinent, given the NAO’s observation that R&D tax credits have been subject to increased levels of abuse, including by companies with a limited UK tax presence. As the OBR states, when a tax credit becomes more generous,
“it increases incentives to re-badge existing expenditure as qualifying R&D or to engage in fraudulent claims.”
It is welcome that the NAO has found that HMRC has been working to better understand factors affecting the cost of R&D reliefs and others, including entrepreneurs’ relief. Rigorous parliamentary oversight would ensure that any abuse of tax relief measures is properly investigated.
The wider point about the potential abuse of tax reliefs is worth exploring further. I am grateful to the research of TaxWatch UK, which highlights the troubling extent of these practices. For example, it points out, in relation to the video games tax relief, that some companies claiming significant amounts in tax credits were not even paying corporation tax. The relief was initially estimated by the Government to cost £35 million a year. Ministers committed to reviewing the relief after three years of operation to determine whether it had been effective. However, it is not clear whether a review has taken place, and in the meanwhile the cost of the relief has substantially exceeded what was forecast, reaching £108 million in 2017-18.
Alison Thewliss
I agree wholeheartedly with the hon. Member for Houghton and Sunderland South. She has gone into extensive detail, and I am sure everybody will be glad to know that I do not aim to repeat what she said, but the notion of the tax gap, and the fact that money is not coming in that our public services desperately need, particularly at this time, is very serious. The UK Government should be seized of the significance of this, and should do everything they can to eliminate the tax gap.
In many cases, the tax gap arises because of the complexity of our tax system. Those who are looking for loopholes—who are looking not to pay their taxes, and to divert and dodge—find ample opportunity to do so. It is not acceptable that this and successive Governments have played whack-a-mole with all these tax schemes as they have appeared. As soon as one appears, the Government shut it down, and then another one, or several more, emerge. A whole lot more needs to be done on anti-avoidance, rather than our being reactive to all this. A comprehensive anti-avoidance rule, and measures to make sure that the tax that is supposed to come in does so, ought to be a priority for the Government.
Our new clause—it is similar to Labour’s new clause, which we fully support—states:
“The Chancellor…must review the effects on tax revenues”
of the measures in the Act and bring that review before the House of Commons. It asks that
“any change attributable to the provisions in this Act in the difference between the amount of tax required to be paid…and the amount paid”
be reported on.
However, I want to touch more on Scottish limited partnerships, because this issue is not going away. The Government have failed to deal with it comprehensively. There is a continuing problem, both in respect of Companies House and in respect of how the partnerships are dealt with; that includes fines not being enforced and collected. Again, that money should be in the Government’s bank account, but if they are not going to enforce the rules, they will not get the fines. The fines would have been quite substantial had they been enforced since the measures came into place a couple of years ago.
The system allows those with an intent to conceal or deceive to do so easily by registering in secret as an SLP. These vehicles have a legal personality that makes them quite different from English limited liability partnerships. It means that individuals can make agreements in the name of the financial product without ever having to name the person or the people who control it. They have been used for years to funnel millions of pounds of dirty money created by illicit business activities, and this is still ongoing.
I can quote headlines to the Committee. There is, “How a Scots council house was secret base for criminals busting Putin sanctions”. There is one about Scotland’s firms and bribes to Argentina and Uzbekistan. There is, “Russian gang leader jailed for faking metal exports to Scotland”, and “Ukrainian mercenaries are using Scottish ‘tax haven’ firm as front”. There are headlines about money coming through Baltic banks, the effect on issues in Peru and a private war in Libya funded by Scottish funds. These are all current or previous issues in which Scottish limited partnerships have been involved. As I said in a previous debate, this is having an impact on Scotland’s reputation in the world. Most recently, just last month, David Leask and Richard Smith, who have been brilliant campaigners on this issue, revealed that more than 700 British firms have been blacklisted in Ukraine for suspicious activity related to money laundering across the former Soviet Union, and all involve Scottish limited partnerships.
That is why we in the SNP keep pushing on this issue; that is why it is so important to us. There is dirty money going around the world, fuelled in part by SLPs and the way in which they work. Also, the Government are not collecting tax on any of this money, and that contributes to the tax gap—the money that is not going to the Exchequer—as well as to global criminality.
If the Minister will not accept the new clause—given all the new clauses that the Government have not accepted, I suspect that they will not accept this one either—I urge him, at the very least, to listen to my concerns and those of campaigners about SLPs, and to take action to close the loopholes, including by fining the companies that are still flouting the rules, which the Government are not doing, and making sure that the money collected goes to the Exchequer, where it can be spent for the benefit of all our constituents.
Jesse Norman
I thank the hon. Members for Houghton and Sunderland South, and for Glasgow Central, for their comments, which I will respond to in due course.
New clause 6 would require the Government to review all tax reliefs in the Bill within a year, while new clause 22 would require the Government to review the effect on tax revenue of the Bill within six months of it being passed into law. These amendments are not necessary. Let me deal first with new clause 6 and then turn to new clause 22.
As Members will know, the Government keep all tax reliefs under review, to ensure that they strike the right balance between simplicity, effective targeting and overall yield. When a new tax relief is announced at a fiscal event, the Government publish estimates of the Exchequer impacts of the policy change in the Budget document.
The Government also consult on new tax reliefs and proposed changes to tax reliefs, bringing in external expertise as part of the policy-making cycle. Officials are constantly working on ways to improve policy development and administration, and management of reliefs.
The Government also conduct evaluations, including of a number of quite significant reliefs, such as research and development expenditure credit, or R&D tax credits, and entrepreneurs’ relief. In 2015, Her Majesty’s Revenue and Customs published an evaluation of R&D tax credits. In 2017, it commissioned an evaluation of entrepreneurs’ relief that led to a series of reforms—most recently, in Budget 2020, a significant reduction in the lifetime limit. HMRC will continue to monitor and evaluate reliefs, and it will bring forward a pipeline of further evaluations in due course.
HMRC is also considering—very much at my insistence—a proposal for a more systematic evaluation programme for tax reliefs, which would respond to the concern raised by the hon. Member for Houghton and Sunderland South, and it already monitors the effect of tax reliefs on taxation revenue.
HMRC issues an annual tax reliefs statistics publication, which includes estimates of the costs of tax reliefs. It is also undertaking a project to expand its published cost information, and I am pleased to remind the Committee that in May HMRC published cost estimates for a further 47 previously uncosted tax reliefs.
New clause 22 would require the Government to review the impact of the Bill on tax revenues within six months of it receiving Royal Assent. As I have said, the Government keep all taxes under review, and will continue to measure and publish annual statistics on the tax gap.
HMRC’s annual “Measuring tax gaps” report estimates the difference between the amount of tax due to be paid to HMRC and what is actually paid. It provides a breakdown of different kinds of behaviour, taxpayer groups and changes over time. However, the tax gap report is retrospective, with some time lag, due to the dates on which data become available. For example, estimates for 2018-19 are due for publication in July 2020, with some components projected in this year.
In addition, data limitations mean the tax gap is not suitable for evaluation at a granular level. For this reason, it would not be possible to disaggregate the impact of the compliance, for example, of SLPs. Furthermore, the tax gap may rise or fall due to a number of external factors that are unrelated to the actions of the Government.
HMRC also publishes annual reports and accounts, which include detailed information on revenue collection and on additional yield from compliance activity. It is committed to providing transparency to taxpayers about its activities, and these publications are important in demonstrating that commitment.
I now come to some of the points made by the hon. Members for Houghton and Sunderland South, and for Glasgow Central. The hon. Member for Houghton and Sunderland South, who I welcome back to the Committee after her period of absence, is absolutely right that tax reliefs can play a valuable role. However, she is also right that there are reliefs that can and should be reduced. That is, as I have said, a matter on which the Government are closely focused.
Bridget Phillipson
I welcome the Minister’s suggestion that the Government will look more systematically at the whole range of tax reliefs that are available, but it is not clear to me that, without the sterling work of the National Audit Office, we would have seen much progress at all in this area. The Government must seek to do a lot more. We believe that there is a strong case for additional parliamentary scrutiny in this area, so I would like to test the will of the Committee on new clause 6.
Question put, That the clause be read a Second time.
The Chair
With this it will be convenient to discuss
New clause 15—Review of effects on migration of measures in Act—
“(1) The Chancellor of the Exchequer must review the effects on migration of the provisions of this Act in each of the scenarios in subsection (2) and lay a report of that review before the House of Commons within one month of the passing of this Act.
(2) Those scenarios are that—
(a) the UK leaves the EU withdrawal transition period without a negotiated future trade agreement
(b) the UK leaves the EU withdrawal transition period following a negotiated future trade agreement, and remains in the single market and customs union, and
(c) the UK leaves the EU withdrawal transition period following a negotiated trade agreement, and does not remain in the single market and customs union.
(3) In respect of each of those scenarios the review must consider separately the effects on—
(a) migration by EU nationals, and
(b) migration by non-EU nationals.
(4) In respect of each of those scenarios the review must consider separately the effects in each part of the United Kingdom and each region of England.
(5) 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 Government review of the effects of the measures in the Bill on migration levels.
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.
The Chair
With this it will be convenient to discuss new clause 23—
Review of impact of Act on poverty—
“(1) The Chancellor of the Exchequer must conduct an assessment of the impact of this Act on poverty and lay this before the House of Commons within six months of Royal Assent.
(2) This assessment must consider—
(a) the impact on absolute poverty;
(b) the impact on relative poverty; and
(c) whether such a study should in future be a regular duty of the Office for Budget Responsibility.”
This new clause would require the Chancellor of the Exchequer to review the impact of the Bill on poverty and consider whether the OBR should conduct such assessments as a regular duty.
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.
Jesse Norman
I thank Opposition Members for their comments. This Government will always be committed to reducing poverty and child poverty. There is no difference in our view and the Opposition’s view of the importance of these issues: they are very, very important.
The hon. Member for Ilford North has been free with statistics. Let me give him a couple that he might find of interest regarding households with a below average income. The Department for Work and Pensions has shown that 200,000 fewer people were living in absolute poverty in 2018-19 than in 2009-10, including 100,000 children. The record also shows that Government policies continue to be highly redistributive. Distribution analysis of the most recent Budget shows that the poorest 60% of households receive more in public spending than they contribute in tax. In 2021, households in the lowest income decile will receive more than £4 in public spending for every £1 that they pay in tax, on average.
No one thinks that the present situation is such that a Government of any stamp could rest easy. We need to continue to press for lower poverty and greater equality in our society. That is an important theme for this Government. I remind the Committee that, in the past few months, the Government have been focusing on supporting lower income families through the pandemic outbreak—through the schemes that we have discussed and through increases to universal credit and working tax credit. Much of the information that the new clauses ask for is already in the public domain, including with regard to the distributional effects of tax, welfare and spending policy, and data on poverty rates, as the hon. Member for Ilford North highlighted.
I hope that the Committee enjoyed, as I did—how sharper than a serpent’s tooth—the moment when the hon. Member for Ilford North turned on his erstwhile partner and highlighted some of the weaknesses in the Scottish National party Government’s own activity. The hon. Member for Glasgow Central said that the Scottish Government will do everything they can to take action in this area. They now have a significant amount of devolved power, through the tax system and other means, and we will look at what impact they make on the issue. How they exercise that responsibility will be a very interesting matter for further scrutiny.
Stephen Flynn
The Scottish Government announced a £10 per week child benefit supplement for the poorest families in Scotland, which is expected to lift 30,000 children out of poverty by 2023-2024. Will the Minister’s Government do the same?
Jesse Norman
We will look at the effects of that and at whether it will be adequate to meet the challenge the Scottish Government have laid down for themselves.
We have now reached the end of this process. I have found it very exciting, and I thank all colleagues for the work that they have done. With that in mind, I reject the new clauses.
Alison Thewliss
I wish to press the new clause to a vote.
Question put, That the clause be read a Second time.
Jesse Norman
On a point of order, Mr Rosindell. On behalf of the Exchequer Secretary and myself, I thank you and your co-Chair, the excellent folks at Hansard, our Whips, our Parliamentary Private Secretaries and the officials who have supported us throughout the Committee. Of course, they wrote this note, so I hope they will be aware of the generous terms in which I single out, in particular, Edward Ferguson and Charlie Grainger; our Bill team at the Treasury, consisting of Kate O’Donoghue, the Bill manager, as well as Helena Forrest, Nye Williams-Renouf and Samuel Fenn; and a host of other people. The Opposition do not have access to the same level of resources; it would be astonishing if they could replicate the expertise to which we have access, and I am profoundly grateful for that expertise.
I thank all the members of Committees, on both sides of the Chamber, for making this such an energised and productive Committee, especially considering the great difficulties under which it has had to operate.
Bridget Phillipson
Further to that point of order, Mr Rosindell. I would also like to put on record my thanks to you and Ms McDonagh for being so fair and generous in allowing us to speak at some length about our concerns on the Finance Bill. You were exceptionally generous—at times, and arguably today, a little too generous—when it came to some of the wider conversations we had around interesting and irrelevant matters around Scottish separatism. Doubtless we will return to that at a later stage.
I put on record our thanks to the Clerks for all the help that they have offered us, particularly around amendments and the order of proceedings—their expertise at this time is particularly appreciated by us—and to the Hansard reporters.
This is the first opportunity I have had to lead on the Finance Bill in Committee. It has been made much easier thanks to the wonderful support of Members on the Opposition side, not least our wonderful Whip, my hon. Friend the Member for Manchester, Withington.
I thank all members of the Committee for their contributions. I am sure the Financial Secretary has enjoyed talking to more technical aspects of the Bill, although he did particularly relish opportunities to elucidate on Adam Smith and Edmund Burke, and on the transcendental nature of what might be regarded as temporary, or otherwise, when pressed by my hon. Friend the Member for Streatham.
I also thank those individuals and stakeholders who have been very generous in providing advice and information to the Opposition, and, of course, the House of Commons Library, whose staff are, as ever, very prompt and professional in their response to all research requests.
Although this is a small Finance Bill, compared with some recent efforts, I thank my staff and those in the office of my hon. Friend the Member for Ilford North for their dedication and hard work, and for allowing us to hold the Government to account. We have had a wide-ranging debate, and I look forward to returning to some of these issues on Report.
Alison Thewliss
Further to that point of order, Mr Rosindell. I echo others in thanking you and Ms McDonagh for your excellent chairing; the Clerks for all they have done to keep things moving smoothly; my hon. Friend the Member for Aberdeen South for signing up to come and do the Finance Bill with me, which was much appreciated; and our small research team, Scott Taylor and Jonathan Kiehlmann, who have worked incredibly hard to bring a range of amendments and new clauses to the Committee, and who have had even more pressure than the other parties and the Government have had. I am incredibly grateful to them.
Finally, on independence, as long as we are here in this House—hopefully it will not be too much longer—we will press our cause if we can. I am sure all hon. Members will miss us once we have independence.
The Chair
Does the hon. Member for Glasgow Central wish to move any of her remaining clauses?
The Chair
Does the hon. Member for Houghton and Sunderland South wish to move new clause 23?
Bridget Phillipson
No, Mr Rosindell.
New Schedule 1
“Workers’ services provided through intermediaries
Part 1
Amendments to Chapter 8 of Part 2 of ITEPA 2003
1 Chapter 8 of Part 2 of ITEPA 2003 (application of provisions to workers under arrangements made by intermediaries) is amended as follows.
2 For the heading of the Chapter substitute “Workers’ services provided through intermediaries to small clients”.
3 (1) Section 48 (scope of Chapter) is amended as follows.
(2) In subsection (1) for the words from “, but” to the end substitute “in a case where the services are provided to a person who is not a public authority and who either—
(a) qualifies as small for a tax year, or
(b) does not have a UK connection for a tax year.”
(3) After subsection (3) insert—
(4) For provisions determining when a person qualifies as small for a tax year, see sections 60A to 60G.
(5) For provision determining when a person has a UK connection for a tax year, see section 60I.”
4 (1) Section 50 (worker treated as receiving earnings from employment) is amended as follows.
(2) In subsection (1) before paragraph (a) insert—
“(za) the client qualifies as small or does not have a UK connection,”.
(3) After subsection (4) insert—
(5) The condition in paragraph (za) of subsection (1) is to be ignored if—
(a) the client concerned is an individual, and
(b) the services concerned are performed otherwise than for the purposes of the client’s business.
(6) For the purposes of paragraph (za) of subsection (1) the client is to be treated as not qualifying as small for the tax year concerned if the client is treated as medium or large for that tax year by reason of section 61TA(3)(a).”
5 After section 60 insert—
“When a person qualifies as small for a tax year
60A When a company qualifies as small for a tax year
(1) For the purposes of this Chapter, a company qualifies as small for a tax year if one of the following conditions is met (but this is subject to section 60C).
(2) The first condition is that the company’s first financial year is not relevant to the tax year.
(3) The second condition is that the small companies regime applies to the company for its last financial year that is relevant to the tax year.
(4) For the purposes of this section, a financial year of a company is “relevant to” a tax year if the period for filing the company’s accounts and reports for the financial year ends before the beginning of the tax year.
(5) Expressions used in this section and in the Companies Act 2006 have the same meaning in this section as in that Act.
60B When a company qualifies as small for a tax year: joint ventures
(1) This section applies when determining for the purposes of section 60A(3) whether the small companies regime applies to a company for a financial year in a case where—
(a) at the end of the financial year the company is jointly controlled by two or more other persons, and
(b) one or more of those other persons are undertakings (“the joint venturer undertakings”).
(2) If the company is a parent company, the joint venturer undertakings are to be treated as members of the group headed by the company.
(3) If the company is not a parent company, the company and the joint venturer undertakings are to be treated as constituting a group of which the company is the parent company.
(4) In this section the expression “jointly controlled” is to be read in accordance with those provisions of international accounting standards which relate to joint ventures.
(5) Expressions used in this section and in the Companies Act 2006 have the same meaning in this section as in that Act.
60C When a company qualifies as small for a tax year: subsidiaries
(1) A company does not qualify as small for a tax year by reason of the condition in section 60A(3) being met if—
(a) the company is a member of a group at the end of its last financial year that is relevant to the tax year,
(b) the company is not the parent undertaking of that group at the end of that financial year, and
(c) the undertaking that is the parent undertaking of that group at that time does not qualify as small in relation to its last financial year that is relevant to the tax year.
(2) Where the parent undertaking mentioned in subsection (1)(c) is not a company, sections 382 and 383 of the Companies Act 2006 have effect for determining whether the parent undertaking qualifies as small in relation to its last financial year that is relevant to the tax year as if references in those sections to a company and a parent company included references to an undertaking and a parent undertaking.
(3) For the purposes of subsections (1)(c) and (2) a financial year of an undertaking that is not a company is “relevant to” a tax year if it ends at least 9 months before the beginning of the tax year.
(4) For the purposes of this section, a financial year of a company is “relevant to” a tax year if the period for filing the company’s accounts and reports for the financial year ends before the beginning of the tax year.
(5) Expressions used in this section and in the Companies Act 2006 have the same meaning in this section as in that Act.
60D When a relevant undertaking qualifies as small for a tax year
(1) Sections 60A to 60C apply in relation to a relevant undertaking as they apply in relation to a company, subject to any necessary modifications.
(2) In this section “relevant undertaking” means an undertaking in respect of which regulations have effect under—
(a) section 15(a) of the Limited Liability Partnerships Act 2000,
(b) section 1043 of the Companies Act 2006 (unregistered companies), or
(c) section 1049 of the Companies Act 2006 (overseas companies).
(3) Expressions used in this section and in the Companies Act 2006 have the same meaning in this section as in that Act.
60E When other undertakings qualify as small for a tax year
(1) An undertaking that is not a company or a relevant undertaking qualifies as small for a tax year if one of the following conditions is met.
(2) The first condition is that the undertaking’s first financial year is not relevant to the tax year.
(3) The second condition is that the undertaking’s turnover for its last financial year that is relevant to the tax year is not more than the amount for the time being specified in the second column of item 1 of the Table in section 382(3) of the Companies Act 2006.
(4) For the purposes of this section a financial year of an undertaking is “relevant to” a tax year if it ends at least 9 months before the beginning of the tax year.
(5) In this section—
“relevant undertaking” has the meaning given by section 60D, and
“turnover”, in relation to an undertaking, means the amounts derived from the provision of goods or services after the deduction of trade discounts, value added tax and any other taxes based on the amounts so derived.
(6) Expressions used in this section and in the Companies Act 2006 have the same meaning in this section as in that Act.
60F When other persons qualify as small for a tax year
(1) For the purposes of this Chapter, a person who is not a company, relevant undertaking or other undertaking qualifies as small for a tax year if the person’s turnover for the last calendar year before the tax year is not more than the amount for the time being specified in the second column of item 1 of the Table in section 382(3) of the Companies Act 2006.
(2) In this section—
“company” and “undertaking” have the same meaning as in the Companies Act 2006,
“relevant undertaking” has the meaning given by section 60D, and
“turnover”, in relation to a person, means the amounts derived from the provision of goods or services after the deduction of trade discounts, value added tax and any other taxes based on the amounts so derived.
60G Sections 60A to 60F: connected persons
(1) This section applies where—
(a) it is necessary for the purposes of determining whether a person qualifies as small for a tax year (“the tax year concerned”) to first determine the person’s turnover for a financial year or calendar year (“the assessment year”), and
(b) at the end of the assessment year the person is connected with one or more other persons (“the connected persons”).
(2) For the purposes of determining whether the person qualifies as small for the tax year concerned the person’s turnover for the assessment year is to be taken to be the sum of—
(a) the person’s turnover for the assessment year, and
(b) the relevant turnover of each of the connected persons.
(3) In subsection (2)(b) “the relevant turnover” of a connected person means—
(a) in a case where the connected person is a company, relevant undertaking or other undertaking, its turnover for its last financial year that is relevant to the tax year concerned, and
(b) in a case where the connected person is not a company, relevant undertaking or other undertaking, the turnover of the connected person for the last calendar year ending before the tax year concerned.
(4) For the purposes of subsection (3)(a)—
(a) a financial year of a company or relevant undertaking is relevant to the tax year concerned if the period for filing accounts and reports for the financial year ends before the beginning of the tax year concerned, and
(b) a financial year of any other undertaking is relevant to the tax year concerned if it ends more than 9 months before the beginning of the tax year concerned.
(5) In a case where—
(a) the person mentioned in subsection (1)(a) is a company or relevant undertaking, and
(b) at the end of the assessment period the person is a member of a group,
the person is to be treated for the purposes of this section as not being connected with any person that is a member of that group.
(6) In this section—
“turnover”, in relation to a person, means the amounts derived from the provision of goods or services after the deduction of trade discounts, value added tax and any other taxes based on the amounts so derived, and
“relevant undertaking” has the meaning given by section 60D.
(7) For provision determining whether one person is connected with another, see section 718 (connected persons).
(8) Expressions used in this section and in the Companies Act 2006 have the same meaning in this section as in that Act.
60H Duty on client to state whether it qualifies as small for a tax year
(1) This section applies if, in the case of an engagement that meets conditions (a) to (b) in section 49(1), the client receives from the client’s agent or the worker a request to state whether in the client’s opinion the client qualifies as small for a tax year specified in the request.
(2) The client must provide to the person who made the request a statement as to whether in the client’s opinion the client qualifies as small for the tax year specified in the request.
(3) If the client fails to provide the statement by the time mentioned in subsection (4) the duty to do so is enforceable by an injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.
(4) The time is whichever is the later of—
(a) the end of the period of 45 days beginning with the date the client receives the request, and
(b) the beginning of the period of 45 days ending with the start of the tax year specified in the request.
(5) In this section “the client’s agent” means a person with whom the client entered into a contract as part of the arrangements mentioned in paragraph (b) of section 49(1).
When a person has a UK connection
60I When a person has a UK connection for a tax year
(1) For the purposes of this Chapter, a person has a UK connection for a tax year if (and only if) immediately before the beginning of that tax year the person—
(a) is resident in the United Kingdom, or
(b) has a permanent establishment in the United Kingdom.
(2) In this section “permanent establishment”—
(a) in relation to a company, is to be read (by virtue of section 1007A of ITA 2007) in accordance with Chapter 2 of Part 24 of CTA 2010, and
(b) in relation to any other person, is to be read in accordance with that Chapter but as if references in that Chapter to a company were references to that person.
Interpretation
6 In section 61(1) (interpretation), in the definition of company, before “means” insert “(except in sections 60A to 60G)”.
Part 2
Amendments to Chapter 10 of Part 2 of ITEPA 2003
7 Chapter 10 of Part 2 of ITEPA 2003 (workers’ services provided to public sector through intermediaries) is amended as follows.
8 For the heading of the Chapter substitute “Workers’ services provided through intermediaries to public authorities or medium or large clients”.
9 (1) Section 61K (scope of Chapter) is amended as follows.
(2) In subsection (1) for the words “to a public authority through an intermediary” substitute “through an intermediary in a case where the services are provided to a person who—
(a) is a public authority, or
(b) qualifies as medium or large and has a UK connection for a tax year”.
(3) After subsection (2) insert—
(3) For the purposes of this Chapter a person qualifies as medium or large for a tax year if the person does not qualify as small for the tax year for the purposes of Chapter 8 of this Part (see sections 60A to 60G).
(4) Section 60I (when a person has a UK connection for a tax year) applies for the purposes of this Chapter.”
10 In section 61L (meaning of “public authority”) in subsection (1)—
(a) after paragraph (a) insert—
“(aa) a body specified in section 23(3) of the Freedom of Information Act 2000,”,
(b) omit the “or” at the end of paragraph (e), and
(c) after paragraph (f) insert “, or
(g) a company connected with any person mentioned in paragraphs (a) to (f)”.
11 (1) Section 61M (engagements to which the Chapter applies) is amended as follows.
(2) In subsection (1)—
(a) omit paragraph (b),
(b) omit the “and” at the end of paragraph (c), and
(c) after paragraph (c) insert—
“(ca) the client—
(i) is a public authority, or
(ii) is a person who qualifies as medium or large and has a UK connection for one or more tax years during which the arrangements mentioned in paragraph (c) have effect, and”.
(3) After subsection (1) insert—
(1A) But sections 61N to 61R do not apply if —
(a) the client is an individual, and
(b) the services are provided otherwise than for the purposes of the client’s trade or business.”
12 (1) Section 61N (worker treated as receiving earnings from employment) is amended as follows.
(2) In subsection (3)—
(a) after “subsections (5) to (7)” insert “and (8A)”, and
(b) after “61T” insert “, 61TA”.
(3) For subsection (5) substitute—
(5) Unless and until the client gives a status determination statement to the worker (see section 61NA), subsections (3) and (4) have effect as if for any reference to the fee-payer there were substituted a reference to the client; but this is subject to section 61V.
(5A) Subsections (6) and (7) apply, subject to sections 61T, 61TA and 61V, if—
(a) the client has given a status determination statement to the worker,
(b) the client is not the fee-payer, and
(c) the fee-payer is not a qualifying person.”
(4) In subsection (8) (meaning of “qualifying person”) before paragraph (a) insert—
“(za) has been given by the person immediately above them in the chain the status determination statement given by the client to the worker,”.
(5) After subsection (8) insert—
(8A) If the client is not a public authority, a person is to be treated by subsection (3) as making a deemed direct payment to the worker only if the chain payment made by the person is made in a tax year for which the client qualifies as medium or large and has a UK connection.”
13 After section 61N insert—
“61NA Meaning of status determination statement
(1) For the purposes of section 61N “status determination statement” means a statement by the client that—
(a) states that the client has concluded that the condition in section 61M(1)(d) is met in the case of the engagement and explains the reasons for that conclusion, or
(b) states (albeit incorrectly) that the client has concluded that the condition in section 61M(1)(d) is not met in the case of the engagement and explains the reasons for that conclusion.
(2) But a statement is not a status determination statement if the client fails to take reasonable care in coming to the conclusion mentioned in it.
(3) For further provisions concerning status determination statements, see section 61T (client-led status disagreement process) and section 61TA (duty for client to withdraw status determination statement if it ceases to be medium or large).”
14 In section 61O(1) (conditions where intermediary is a company) for paragraph (b) substitute—
“(b) it is the case that—
(i) the worker has a material interest in the intermediary,
(ii) the worker has received a chain payment from the intermediary, or
(iii) the worker has rights which entitle, or which in any circumstances would entitle, the worker to receive a chain payment from the intermediary.”
15 In section 61R (application of Income Tax Acts in relation to deemed employment) omit subsection (7).
16 For section 61T substitute—
“61T Client-led status disagreement process
(1) This section applies if, before the final chain payment is made in the case of an engagement to which this Chapter applies, the worker or the deemed employer makes representations to the client that the conclusion contained in a status determination statement is incorrect.
(2) The client must either—
(a) give a statement to the worker or (as the case may be) the deemed employer that—
(i) states that the client has considered the representations and has decided that the conclusion contained in the status determination statement is correct, and
(ii) states the reasons for that decision, or
(b) give a new status determination statement to the worker and the deemed employer that—
(i) contains a different conclusion from the conclusion contained in the previous status determination statement,
(ii) states the date from which the client considers that the conclusion contained in the new status determination statement became correct, and
(iii) states that the previous status determination statement is withdrawn.
(3) If the client fails to comply with the duty in subsection (2) before the end of the period of 45 days beginning with the date the client receives the representations, section 61N(3) and (4) has effect from the end of that period until the duty is complied with as if for any reference to the fee-payer there were substituted a reference to the client; but this is subject to section 61V.
(4) A new status determination statement given to the deemed employer under subsection (2)(b) is to be treated for the purposes of section 61N(8)(za) as having been given to the deemed employer by the person immediately above the deemed employer in the chain.
(5) In this section—
“the deemed employer” means the person who, assuming one of conditions A to C in section 61N were met, would be treated as making a deemed direct payment to the worker under section 61N(3) on the making of a chain payment;
“status determination statement” has the meaning given by section 61NA.
61TA Duty for client to withdraw status determination statement if it ceases to be medium or large
(1) This section applies if in the case of an engagement to which this Chapter applies—
(a) the client is not a public authority,
(b) the client gives a status determination statement to the worker, the client’s agent or both, and
(c) the client does not (but for this section) qualify as medium or large for a tax year beginning after the status determination statement is given.
(2) Before the beginning of the tax year the client must give a statement to the relevant person, or (as the case may be) to both of the relevant persons, stating—
(a) that the client does not qualify as medium or large for the tax year, and
(b) that the status determination statement is withdrawn with effect from the beginning of the tax year.
(3) If the client fails to comply with that duty the following rules apply in relation to the engagement for the tax year—
(a) the client is to be treated as medium or large for the tax year, and
(b) section 61N(3) and (4) have effect as if for any reference to the fee-payer there were substituted a reference to the client.
(4) For the purposes of subsection (2)—
(a) the worker is a relevant person if the status determination statement was given to the worker, and
(b) the deemed employer is a relevant person if the status determination statement was given to the client’s agent.
(5) In this section—
“client’s agent” means a person with whom the client entered into a contract as part of the arrangements mentioned in section 61M(1)(c);
“the deemed employer” means the person who, assuming one of conditions A to C in section 61N were met, would be treated as making a deemed direct payment to the worker under section 61N(3) on the making of a chain payment;
“status determination statement” has the meaning given by section 61NA.”
17 (1) Section 61W (prevention of double charge to tax and allowance of certain deductions) is amended as follows.
(2) In subsection (1)—
(a) in paragraph (b) for “a public authority” substitute “another person (“the client”)”, and
(b) in paragraph (d) for “that public authority” substitute “the client”.
(3) In subsection (2)(b) for “public authority” substitute “client”.
Part 3
Consequential and miscellaneous amendments
18 In section 61D of ITEPA 2003 (managed service companies: worker treated as receiving earnings from employment) for subsection (4A) substitute—
(4A) This section does not apply where the provision of the relevant services gives rise (directly or indirectly) to an engagement to which Chapter 10 applies and either—
(a) the client for the purposes of section 61M(1) is a public authority, or
(b) the client for the purposes of section 61M(1)—
(i) qualifies as medium or large for the tax year in which the payment or benefit mentioned in subsection (1)(b) is received, and
(ii) has a UK connection for the tax year in which the payment or benefit mentioned in subsection (1)(b) is received.
(4B) Sections 60I (when a person has a UK connection for a tax year), 61K(3) (when a person qualifies as medium or large for a tax year) and 61L (meaning of public authority) apply for the purposes of subsection (4A).
(4C) It does not matter for the purposes of subsection (4A) whether the client for the purposes of this Chapter is also “the client” for the purposes of section 61M(1).”
19 After section 688A of ITEPA 2003 insert—
“688AA Workers’ services provided through intermediaries: recovery of PAYE
(1) PAYE Regulations may make provision for, or in connection with, the recovery of a deemed employer PAYE debt from a relevant person.
(2) “A deemed employer PAYE debt” means an amount—
(a) that a person (“the deemed employer”) is liable to pay under PAYE regulations in consequence of being treated under section 61N(3) as having made a deemed direct payment to a worker, and
(b) that an officer of Revenue and Customs considers there is no realistic prospect of recovering from the deemed employer within a reasonable period.
(3) “Relevant person”, in relation to a deemed employer PAYE debt, means a person who is not the deemed employer and who—
(a) is the highest person in the chain identified under section 61N(1) in determining that the deemed employer is to be treated as having made the deemed direct payment, or
(b) is the second highest person in that chain and is a qualifying person (within the meaning given by section 61N(8)) at the time the deemed employer is treated as having made that deemed direct payment.”
20 In section 60 of FA 2004 (construction industry scheme: meaning of contract payments) after subsection (3) insert—
(3A) This exception applies in so far as—
(a) the payment can reasonably be taken to be for the services of an individual, and
(b) the provision of those services gives rise to an engagement to which Chapter 10 of Part 2 of ITEPA 2003 applies (workers’ services provided through intermediaries to public authorities or medium or large clients).
(3B) But the exception in subsection (3A) does not apply if, in the case of the engagement mentioned in paragraph (b) of that subsection, the client for the purposes of section 61M(1) of ITEPA 2003—
(a) is not a public authority, and
(b) either—
(i) does not qualify as medium or large for the tax year in which the payment concerned is made, or
(ii) does not have a UK connection for the tax year in which the payment concerned is made.
(3C) Sections 60I (when a person has a UK connection for a tax year), 61K(3) (when a person qualifies as medium or large for a tax year) and 61L (meaning of public authority) of ITEPA 2003 apply for the purposes of subsection (3B).”
21 For the italic heading before section 141A of CTA 2009 substitute “Worker’s services provided through intermediary to public authority or medium or large client”.
22 In the heading of section 141A of CTA 2009 for “public sector” substitute “public authority or medium or large client”.
23 (1) Part 13 of CTA 2009 (additional relief for expenditure on research and development) is amended as follows.
(2) In section 1129 (qualifying expenditure on externally provided workers: connected persons) after subsection (4) insert—
(4A) In subsection (2) the reference to the staff provision payment is to that payment before any deduction is made from the payment under—
(a) section 61S of ITEPA 2003,
(b) regulation 19 of the Social Security Contributions (Intermediaries) Regulations 2000, or
(c) regulation 19 of the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000.”
(3) In section 1131 (qualifying expenditure on externally provided workers: other cases) after subsection (2) insert—
(3) In subsection (2) the reference to the staff provision payment is to that payment before any deduction is made from the payment under—
(a) section 61S of ITEPA 2003,
(b) regulation 19 of the Social Security Contributions (Intermediaries) Regulations 2000, or
(c) regulation 19 of the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000.”
(4) After section 1131 insert—
“1131A Sections 1129 and 1131: secondary Class 1 NICS paid by company
(1) This section applies if—
(a) a company makes a staff provision payment,
(b) the company is treated as making a payment of deemed direct earnings the amount of which is calculated by reference to the amount of the staff provision payment, and
(c) the company pays a secondary Class 1 national insurance contribution in respect of the payment of deemed direct earnings.
(2) In determining the company’s qualifying expenditure on externally provided workers in accordance with section 1129(2) or section 1131(2) the amount of the staff payment provision is to be treated as increased by the amount of the contribution.
(3) In determining the company’s qualifying expenditure on externally provided workers in accordance with section 1129(2) the aggregate of the relevant expenditure of each staff controller is to be treated as increased by the amount of the contribution.
(4) But subsection (2) does not apply to the extent that the expenditure incurred by the company in paying the contribution is met directly or indirectly by a staff controller.
(5) “A payment of deemed direct earning” means a payment the company is treated as making by reason of regulation 14 of the Social Security Contributions (Intermediaries) Regulations 2000 or regulation 14 of the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000.”
Part 4
Commencement and transitional provisions
Commencement
24 The amendments made by Part 1 of this Schedule have effect for the tax year 2021-22 and subsequent tax years.
25 The amendments made by Part 2 of this Schedule have effect in relation to deemed direct payments treated as made on or after 6 April 2021.
26 The amendment made by paragraph 18 of this Schedule has effect for the purposes of determining whether section 61D of ITEPA 2003 applies in a case where the payment or benefit mentioned in subsection (1)(b) of that section is received on or after 6 April 2021.
27 The amendment made by paragraph 20 of this Schedule has effect in relation to payments made under a construction contract on or after 6 April 2021.
28 The amendments made by paragraph 23 of this Schedule have effect in relation to expenditure incurred on or after 6 April 2021.
29 Sections 101 to 103 of FA 2009 (interest) come into force on 6 April 2021 in relation to amounts payable or paid to Her Majesty’s Revenue and Customs under regulations made by virtue of section 688AA of ITEPA 2003 (as inserted by paragraph 19 of this Schedule).
Transitional provisions
30 (1) This paragraph applies where—
(a) the client in the case of an engagement to which Chapter 10 of Part 2 of ITEPA 2003 applies is not a public authority within the meaning given by section 61L of ITEPA 2003 (as that section had effect before the amendments made by paragraph 10 of this Schedule), and
(b) a chain payment is made on or after 6 April 2021 that can reasonably be taken to be for services performed by the worker before 6 April 2021.
(2) The chain payment is to be disregarded for the purposes of Chapter 10 of Part 2 of ITEPA 2003.
31 (1) This paragraph applies where—
(a) the client in the case of an engagement to which Chapter 10 of Part 2 of ITEPA 2003 applies is not a public authority within the meaning given by section 61L of ITEPA 2003 (as that section had effect before the amendments made by paragraph 10 of this Schedule), and
(b) one or more qualifying chain payments are made in the tax year 2021-22 or a subsequent tax year (“the tax year concerned”) to the intermediary.
(2) A chain payment made to the intermediary is a qualifying chain payment if it can reasonably be taken to be for services performed by the worker before 6 April 2021.
(3) A chain payment made to the intermediary is also a qualifying chain payment if—
(a) another chain payment (“the earlier payment”) was made before 6 April 2021 to a person other than the intermediary,
(b) the earlier payment can reasonably be taken to be for the same services as the chain payment made to the intermediary, and
(c) the person who made the earlier payment would, but for paragraph 25 of this Schedule, have been treated by section 61N(3) and (4) of ITEPA 2003 as making a deemed direct payment to the worker at the same time as they made the earlier payment.
(4) Chapter 8 of Part 2 of ITEPA 2003 applies in relation to the engagement for the tax year concerned (in addition to Chapter 10 of Part 2 of ITEPA 2003), but as if—
(a) the amendments made by Part 1 of this Schedule had not been made, and
(b) the qualifying chain payments received by the intermediary in the tax year concerned are the only payments and benefits received by the intermediary in that year in respect of the engagement.
32 (1) This paragraph applies for the purposes of paragraphs 30 and 31 where a chain payment (“the actual payment”) is made that can reasonably be taken to be for services of the worker performed during a period that begins before and ends on or after 6 April 2021.
(2) The actual payment is to be treated as two separate chain payments—
(a) one consisting of so much of the amount or value of the actual payment as can on a just and reasonable apportionment be taken to be for services performed before 6 April 2021, and
(b) another consisting of so much of the amount or value of the actual payment as can on a just and reasonable apportionment be taken to be for services performed on or after 6 April 2021.
33 For the purposes of section 61N(5), (5A)(a) and (8)(za) of ITEPA 2003 it does not matter whether the status determination statement concerned is given before 6 April 2021 or on or after that date.
34 For the purposes of section 61T of ITEPA 2003—
(a) it does not matter whether the representations to the client mentioned in subsection (1) of that section were made before 6 April 2021 or on or after that date, but
(b) in a case where the representations were made before 6 April 2021 that section has effect as if the reference in subsection (3) to the date the client receives the representations were to 6 April 2021.”—(Jesse Norman.)
This new schedule alters the tax treatment of certain engagements under which a worker provides services to a client through an intermediary.
Brought up, read the First and Second time, and added to the Bill.
Bill, as amended, to be reported.
Finance Bill
Wednesday 1st July 2020
(3 years, 9 months ago)
Commons ChamberRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 1 July 2020 - large font accessible version - (1 Jul 2020)
16:41 - The House having divided: - Ayes: 248 / Noes: 340 - Question accordingly negatived.
18:44 - divided: - Ayes: 246 / Noes: 342 - Question accordingly negatived.
20:45 - The House divided: - Ayes: 241 / Noes: 339 - Question accordingly negatived.
21:00 - The House divided: - Ayes: 232 / Noes: 321 - Question accordingly negatived.
21:15 - The House divided: - Ayes: 254 / Noes: 317 - Question accordingly negatived.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
I beg to move amendment 18, page 53, line 28, leave out “before the end of 2025” and insert—
“within a year of Royal Assent and annually thereafter”
This amendment would require the Government to report on the DST annually.
Madam Deputy Speaker (Dame Eleanor Laing)
With this it will be convenient to discuss the following:
Amendment 19, page 53, line 29, at end insert—
“(2) Any review made under (1) must include an assessment of the effect of the DST on tax revenues.”
This amendment would require any report on the DST to include an assessment of the effect of the DST on tax revenues.
New clause 5—Digital Services Tax: review of effect on tax revenues—
“(1) The Chancellor of the Exchequer must make an assessment of the net effect on tax revenues of the introduction of the Digital Services Tax and lay a report of that assessment before the House of Commons within six months of the passing of this Act.
2) This review must also include an assessment of the revenue effect of the Digital Services Tax on tax payable by the owners and employees of Scottish Limited Partnerships.”
This new clause would require a Government assessment of the effect on tax revenues of the DST, and in particular the change in revenues associated with Scottish Limited Partnerships.
New clause 33—Requirement on groups to publish a group tax strategy including a country-by-country report—
“(1) A group which is not required to publish a tax strategy in compliance with Schedule 19 of the Finance Act 2016 shall be deemed to be so required.
(2) Any tax strategy published by a group in compliance with that Schedule must include any relevant country-by-country report.
(3) “Country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016.
(4) A country-by-country report is relevant if it—
(a) was filed or required to be filed by the group in compliance with those Regulations on or before the date of publication of the tax strategy, or would have been so required if the head of the group were resident in the United Kingdom for tax purposes, and
(b) has not already been included in a tax strategy published by the group.”
(5) The Treasury must make regulations to bring this section into operation no later than 1 April 2021.
This new clause would require all groups subject to the DST to publish a group tax strategy, including a country-by-country report. Such a report would include information about the group’s global activities, profits and taxes.
I should draw the attention of the House to the fact that a corrected text of new clause 33 has been published this morning. The version that was initially published inadvertently omitted the concluding subsection.
Bridget Phillipson
Amendments 18 and 19 would require the Treasury to conduct a review of the digital services tax within a year of Royal Assent and to report to Parliament on the tax annually thereafter with a specific consideration of the effect of this measure on taxation revenue.
We welcome the introduction of the digital services tax, although this support is qualified. The Minister will be well aware that we like to be thorough even with proposals that we broadly welcome. It is deeply disappointing that it has not been possible to reach multinational international agreement, hence the need for this unilateral approach. This Government should demonstrate much more leadership in pressing for international efforts to tackle this scourge. Ensuring that companies that operate across national borders pay the tax that they should requires us to co-operate, to lead, to persuade, to negotiate and to set an example.
More troubling is the fact that, in the crisis we are living through today, when ambitious and decisive action is demanded of Government, Ministers have only managed to put forward such a modest measure, when other countries are willing to go further. Many of the companies that will be affected by this tax are the same ones that will have benefited from the impact of covid-19. Before the pandemic struck, they were the beneficiaries of an uneven playing field, while much loved high street businesses struggled.
Local firms and UK chains have faced a real battle competing with companies that base themselves overseas, do not have the same overheads as physical shops and go to great lengths to minimise their tax liabilities. The impact of lockdown has only exacerbated this tension. It has provided an unexpected boon to tech giants, which have managed to rake it in as demand soars and business is directed online. Meanwhile, our high street businesses, which were already struggling, have only seen their worries increase as footfall has understandably plummeted.
Even with the easing of lockdown, there is a real challenge ahead in ensuring the continued success of our bricks-and-mortar retail sector. If shoppers will not venture on to our high streets and the Government fail to provide an effective test, track and isolate system, many businesses that are just starting to open up will soon be forced to close their doors again, perhaps even permanently. These businesses are the bedrock of our communities. They help create a sense of place, and are often a lifeline for older and vulnerable residents and for those in more isolated communities. Government must do more to ensure that there is a level playing field, and that those who have benefited the most from this situation—as I have noted, those that have not exactly paid their fair share in the past—make more of a contribution to the national effort.
Sammy Wilson (East Antrim) (DUP)
Does the hon. Member accept that not only is it right that the Government intervene to ensure that taxes are paid on a level playing field, but that, at a time when public finances are under pressure, we should not be allowing large firms to escape paying the tax revenue that is due and should be paid?
Bridget Phillipson
The right hon. Gentleman is absolutely right, and I sincerely hope that the Minister will respond to that point, because we have seen this unfairness built into our system. We recognise that this measure takes some steps towards levelling the playing field, but we need to see much more from Government in clamping down on the kind of tax avoidance that we have seen far too often in recent years, because it is not right.
Sir Edward Davey (Kingston and Surbiton) (LD)
Can I say how much I support the argument the hon. Lady is making? Does she agree with me that the Government’s digital services tax measure is actually a mouse of a measure compared with the huge profits made by American big tech? Does she also agree with me that the Government need to co-operate very closely with the European Union, which is devising an international tax with much greater teeth, so that these big tech companies do pay their fair share of tax?
Bridget Phillipson
Yes, I support the point the right hon. Gentleman makes, and I will come on to say more in my contribution both about how those companies need to contribute more and how it is essential that we see international consensus on this issue. The measure the Government have put forward today is necessarily time-limited, and we will need to see a much more sustainable, long-term solution with a broader international base.
It is not right that British bookstores and other businesses face a higher tax rate than Amazon. Unfortunately, this measure does not go far enough to address this fundamental unfairness, nor does it really get to the heart of the tax avoidance strategies some of these tech companies have used in recent years. As the Chartered Institute of Taxation points out, this measure is not aimed at stopping profits arising in the UK being shifted by multinationals out of the UK to tax havens. However, for far too long the companies that make the modern economy work have got away with complex ways of moving and hiding the money we pay them.
Kevin Hollinrake (Thirsk and Malton) (Con)
I agree with many of the points the hon. Member makes, and certainly about making sure that we have a fair and level playing field for small businesses. I am certainly a supporter of new clause 33 in principle, which is trying to see these multinationals disclose profits on a country-by-country basis. However, to be fair, does she accept that the Government have gone further than previous Governments, with measures such as the diverted profits tax and now the digital services tax?
Bridget Phillipson
We welcome all measures and will support any proposals to tackle tax avoidance, whether it is in terms of tech giants or more broadly, but we still face a big gap in this country, and we are urging the Government to do much more. I am sure the hon. Member would agree that it is vital that we see greater action, because we have seen this unfairness, particularly during the pandemic. He, like me, will have many wonderful local businesses in his constituency that pay their taxes and are trying to come through this crisis, and they want to ensure that there is a level playing field between the bricks-and-mortar businesses and online businesses. I am sure that we all want to get behind that endeavour.
For too long, companies have moved and hidden the money we pay them. Research by TaxWatch UK estimates that we are losing £1.3 billion in corporation tax from five of the biggest firms each year. In comparison, the Government’s own estimate is that the digital services tax is only set to produce £280 million this financial year. The modest nature of this measure becomes clear when we consider what some of the tech giants might actually have to pay under the tax. I will highlight again for the benefit of the House, as I did in Committee, research by TaxWatch UK which predicts that Facebook would face an increased tax bill of £39 million, despite estimated UK revenues of almost £2.3 billion. Google would pay slightly more—around £168 million—based on estimated UK tax revenues of £9.3 billion. Many businesses, such as Amazon, that blend their activities will be unaffected by the measure.
The Government will be aware of our concerns that streaming services are not included at all, which we discussed in Committee. The Financial Secretary to the Treasury said then that
“it would not be appropriate to implement a temporary tax on a broader basis.”––[Official Report, Finance Public Bill Committee, 11 June 2020; c. 126.]
He will doubtless be aware that taxes introduced on a temporary basis have ended up becoming permanent fixtures, including income tax, introduced to fund war with Napoleon. With little evidence that the Government are working to secure international agreement on a replacement for this tax, temporary could end up being for a very long time. Her Majesty’s Revenue and Customs employs many extremely capable people, and I am sure that it is not beyond their wit to develop a way of taxing streaming services too.
New clause 33, which was tabled by my right hon. Friend the Member for Barking (Dame Margaret Hodge) and has many cross-party supporters, would require those liable for the digital services tax to publish a country-by-country tax report. My right hon. Friend has campaigned tirelessly and incredibly effectively on this issue, and I wish it were possible for us to hear from her directly today. Sadly, the way in which we now conduct our proceedings makes it impossible for her to contribute, which is a real shame, given the expertise and insight she brings, but I am aware that the cross-party support of the new clause will allow other speakers to raise the points that she might have sought to make.
For years, the Opposition have urged the Government to commit to country-by-country reporting on a public basis. Their reticence to do so, and the way in which they have held up progress at an international level, has been a source of deep frustration to those of us who want to see far greater transparency around the taxation of multinational companies. This new clause would not only be of practical use, so that we can see whether those liable to the digital services tax are paying an appropriate amount. It would also help to address the concerns I have outlined that the measure as it stands does little to address the tax avoidance practices by digital multinational companies. It would end the secrecy around such practices and pave the way for public country-by-country reporting at a wider level. The Government have been fond in recent months of saying that they wish to be a world leader—well, here is the opportunity to become a world leader in tax transparency, and I urge the Minister to listen to the arguments being made and take urgent action to address them.
The pressure on our public finances and vital frontline services means that we should be doing far more to ensure that those tech companies that have benefited from the lockdown are contributing more. We need a level playing field between our high streets and the tech giants. We need to build a society where everyone—individuals and businesses alike—pays their fair share. A digital services tax must be part of that, but the Government simply are not going far enough. A bolder approach on a digital services tax would not only help to address this unfairness; it would help to deliver a sustainable recovery from the economic crisis we are facing.
Labour has called for a back-to-work Budget—one that focuses on retaining jobs, sustaining jobs and creating jobs; a full Budget that invests in our young people, who are facing the worst employment prospects for a generation, and helps to secure a future that they can look to with hope. An effective digital services tax would go some way to supporting that goal. As I have indicated, this measure is expected to generate a fairly limited amount when compared with the extent of the tax avoidance practices we have seen from some of these companies in recent years and the profits they have made in recent months. Therein lies the principal reason for our amendments: we need to understand as soon as possible how effectively the measure is working and what more can be done to ensure that such companies are paying an appropriate amount of tax.
The Government’s unwillingness to conduct a review earlier than 2025 means that the opportunity for Parliament to properly scrutinise the measure will be hugely limited. I know that the Minister hopes that a multilateral approach will be in place by then; we on the Opposition Benches hope that that will be the case, too. A comprehensive multilateral agreement, based on a lasting international settlement, is the only long-term solution, but until that happens, the Opposition will continue to push for a more ambitious approach, to which our European neighbours are looking as well. The times that we are living through demand such an approach.
Mr Andrew Mitchell (Sutton Coldfield) (Con)
I draw the House’s attention to interests, which are set out clearly in the Register of Members’ Financial Interests.
I rise to speak to new clause 33, which was tabled by the right hon. Member for Barking (Dame Margaret Hodge) who, alas, for the reasons set out by the hon. Member for Houghton and Sunderland South (Bridget Phillipson) from the Opposition Front Bench, cannot be here today. The House may rest assured that she will be watching every word of this debate from where she is.
The House will notice that not one but three former and current Chairs of the Public Accounts Committee—the hon. Member for Hackney South and Shoreditch (Meg Hillier) and my right hon. Friend the Member for Haltemprice and Howden (Mr Davis), as well as the right hon. Member for Barking—have signed the new clause. In addition, my hon. Friend the Member for Amber Valley (Nigel Mills), who is unavoidably locked down with his two adorable new children and who has great expertise in this policy area, has also signed it
New clause 33 makes a number of points. The first is that any company that is subject to the new digital services tax, which came into force this April, must publish transparently and publicly a country-by-country report. Although as it stands in the amendment paper the new clause does not include a starting date, that was rectified this morning and the starting date would be April 2021.
The new clause is targeted at international technology giants—that is Google, Facebook and Amazon. These huge businesses are well known for using corporate structures deliberately designed to shield them from the payment of tax. The new clause would allow Parliament, journalists, campaigners and civil society to see clearly whether these businesses are paying their fair share of taxation. If the Government accept the new clause, that would, as the hon. Member for Houghton and Sunderland South suggested, make the UK a world leader in financial transparency. It would give a major boost to country-by-country reporting for all corporations, so that everyone can see that tax is paid on profits in the locations where those profits are earned.
Let me be clear at the outset that it is not our intention to divide the House on the new clause today—subject to the Minister, who is a very clever fellow, showing due respect for advancing this agenda and for the importance of making progress on this issue in due course.
In my submission, there are three reasons why the new clause really matters. The first is that its logic sits four-square behind the priorities of the Conservative-led coalition—I thought the hon. Member for Houghton and Sunderland South could perhaps have given a little more attention and, indeed, support in this respect—who wanted to inject greater transparency and openness into the financial system, in the first instance by championing open registers of beneficial ownership, which were introduced in the UK in 2016.
The open-registers process has been enhanced over the past two years, during which the right hon. Member for Barking and I persuaded the House that open registers should be embraced by the overseas territories and subsequently secured agreement that the Crown dependencies would also implement them. Such progress is a huge advance in tackling money laundering and financial corruption, and it bears down heavily on tax evasion as well. It also makes it more difficult for bent politicians and corrupt businesspeople to steal money from poor countries and their citizens. The new clause builds on that whole approach.
Secondly, at this dreadful time in our country, when our constituents are suffering financially so severely and our Government are rightly seeking to help every family as we combat the economic effects of this crisis, it is frankly obscene and very offensive that some major corporations who rely on UK customers and make huge profits in our country should not pay their fair share of tax. The public and the public finances cry out for fairness and equity, particularly at a time like this, when some companies have benefited from taxpayer-funded rescue packages organised by the Government while not contributing equitably to the public purse. Public expenditure is now at an all-time high. This borrowing will have to be paid for and it is simply not right or fair that while most taxpayers will have to pay more tax—85% of us pay taxation through PAYE—some multinational companies deliberately create financial structures to avoid paying tax.
I also point out to right hon. and hon. Members that those same multinationals are undermining British business by undercutting them on price. They can do that because they do not pay tax at anything like the same rate. In Sutton Coldfield, we are struggling to make a success of our town centre and high street, to renew it and reinvigorate it, but Amazon undercuts bookshops in our high streets and stores such as John Lewis in our shopping centres because it can avoid paying its fair share of tax.
Thirdly—this is of particular importance to developing countries—credible research shows that developing countries lose three times as much each year from tax avoidance as they gain from development aid. The OECD has been pressing for international reform in tax rules for decades. Those countries with the most to lose have been most resistance, so the OECD compromise was that information should be provided confidentially to the tax authorities. While that is progress of a sort, it does not really help developing countries, for obvious reasons to do with cost and with complexity. Clearly, it would be better, as with open registers, for all the data simply to be placed in the public domain so that there is a level playing field and public accountability for the tax conduct of multinational enterprises worldwide.
Sir Edward Davey
The right hon. Gentleman may remember that during the coalition Government, we put measures through, agreed at European level, for a directive on transparency on payments made by the extractive industries across the developing world because of concerns about corruption with respect to mining in particular. That created greater transparency. The same approach could be taken on the tax issues that he is raising.
Mr Mitchell
Yes, the extractive industry transparency initiative, which has been led by a former Member of this House, Clare Short, for some time, did a huge amount of good as, of course, have open registers, because open registers have continued that agenda of transparency. As I said at the outset, this agenda was championed and driven forward internationally through the British at the G8.
Sammy Wilson
I agree with all the points that the right hon. Gentleman has been making. Does he accept that unless we can dig behind the accounts to see where companies, for example, inflate costs in countries where they can get lower tax rates and deflate costs in countries with higher tax rates, a tax strategy in itself is simply not going to ensure that we get behind how companies avoid paying tax in the countries where they earn the profits?
Mr Mitchell
There is an important principle: while commercial confidentiality should not be compromised, we should move to greater transparency to tackle the problems that lie behind what the right hon. Gentleman is saying. I agree with that and I think that there is common cause across the House that that is what we want to do. Clearly, getting a multinational standard will be the right result, but these things have to be led.
In summary, the new clause is part of the noble campaign that is supported across the House, to shine a light on the profit shifting, transfer pricing and tax haven abuse that is used to minimise tax liabilities. The House has already voted in favour of public country-by-country reporting through an amendment to the Finance Bill in 2016, which gave the Treasury the power to make the information public. My right hon. Friend the Financial Secretary will no doubt rely on the prayer of St Augustine, “O Lord, make me chaste, but not yet,” and argue that the UK would not want to implement this reform unilaterally, and he has already acknowledged, in a letter to the right hon. Member for Barking (Dame Margaret Hodge) dated 27 February this year, that a multinational agreement to do country-by-country reporting would be a good achievement, but I put it to him that that is too timid an approach.
As we contemplate Britain’s role post Brexit and we set out what we mean by global Britain, let my right hon. Friend stand tall, show leadership internationally, and follow the proud, confident example of David Cameron and George Osborne. Let global Britain lead by example, to the huge benefit of our domestic taxpayers and taxes, and for those in the poorest countries, whose mineral wealth is so often developed without their citizens reaping the benefits they should receive and that they deserve. This reform would be in the finest traditions of Britain’s past international development leadership, and I commend the new clause to the House.
Alison Thewliss (Glasgow Central) (SNP)
We support a fit-for-purpose digital services tax. Our new clause 5 seeks a review of how effective the Treasury plan is. It would force the Government to assess the digital services tax’s effectiveness and draw conclusions on that information within six months.
It is unfair that multinational online firms pay less tax than small high street shops, and the SNP has long said that we would support a fit-for-purpose tax, but during the lockdown many people have become adept at finding what they need online, from replacement parts for the oven and a tablet and macaroon subscription in my case, to clothes, trampolines, desks, chairs, food and drink, and this period may well have a permanent effect on how people do their messages.
The high street has been facing difficulties for many years now, under fierce competition from digital competitors. Retailers including Intu, Debenhams, Oasis and Warehouse have gone into administration, and job losses were announced today at Harrods, John Lewis and Arcadia Group—all while online retailers are booming. It is not a level playing field, and it seems only fair that the taxation system catches up and seeks to level it out. I agree with the hon. Member for Houghton and Sunderland South (Bridget Phillipson) that streaming services are also a huge money-spinner, and I do not see why the UK Government would not want to get in on that action. Taxes going uncollected in an area that is growing would be useful to Treasury coffers right now.
As the digital services tax is a new measure, it is vital that we try to capture how effective it is. By their very nature, online companies can be nimbler than their bricks-and-mortar counterparts, and it is always possible to find loopholes. We will wait to see how successful the policy is, but it is regrettable that the UK failed to implement it alongside international partners, despite countries such as France, Spain and Italy seeking to introduce similar measures. I appreciate the difficulties and limitations of work in the OECD, but co-operation is all the more important in the face of the US attempting to apply pressure to shut down the measure. Steve Mnuchin, the US Treasury Secretary, has stated:
“The United States remains opposed to digital services taxes and similar unilateral measures… As we have repeatedly said, if countries choose to collect or adopt such taxes, the United States will respond with appropriate commensurate measures.”
I wish the UK Government all the best in that fight, but it would surely be wise to enlist other countries for hauners, rather than taking the UK through this alone. I would be grateful if the Financial Secretary to the Treasury updated us on the progress of international co-operation.
On the subject of loopholes, I share the concerns that my hon. Friend the Member for Aberdeen South (Stephen Flynn) made clear in our amendment in Committee on the significance of Scottish limited partnerships. SLPs have been used for a huge and well documented range of nefarious ends, including money laundering, arms running and undermining democracy, yet they are still being advertised as an ideal way to avoid paying tax and hide under a veneer of respectability. It is entirely conceivable that online companies could use SLPs or other such vehicles to avoid their obligations and shift their profits, and we in the SNP want to ensure that the Government are aware of this, and to encourage them to act. The abuse of SLPs has gone on for far too long.
Chris Evans (Islwyn) (Lab/Co-op)
I rise to support amendment 18 on the digital services tax, and I will focus my comments on the pressures faced by businesses on high streets. The coronavirus crisis has brought into sharp focus the issues that high street businesses have faced over the past decade. Primarily, those include outdated and confusing business rates, sky-rocketing rent costs, and competition from the internet and out-of-town shopping centres.
Last year I visited Tidal’s Store, a furniture retailer located on Blackwood high street in my constituency. It told me that shops at the top of the high street are charged business rates at £300 per square metre, those in the middle are charged £310, while further down the rate is £320. Ironically, those charged the highest rate overlook a business park that contains many large chains that are charged only £60 per square metre. The council agrees that is unfair, but it cannot do anything because it only collects the rates. When queried, the Valuation Office Agency hides behind byzantine rules that it says are set by central Government and are completely in order.
Since lockdown, the high street has been on life support. Independent businesses have faced uncertainty, and despite help with the furlough scheme and support grants, they have had to find innovative ways to stay afloat amid the pandemic. Household names such as Cath Kidston, Oasis and Warehouse have announced the permanent closure of their stores, and Debenhams, once a staple of every major town centre, has announced a string of further store closures as it enters administration.
The pandemic has changed the shopping habits of Britain, with supermarkets and in particular online retailers being the biggest beneficiaries of lockdown. However, when the supermarket shelves were empty, and when online retailers sold out of basic essentials and items such as hand sanitisers, the local corner and high street shops came to the rescue. Local restaurants and cafes helped to feed those in need in the community, and provided food and discounts for key workers during the pandemic. Those businesses stepped up to the plate for us, and the Government have a duty to step up for them.
Many of those businesses are family-owned and run, and employ local people. They pay rent, meet their business rates, and play by the rules. All they ask for is a level playing field. The question that must be asked—this goes to the heart of the amendment—is why large multinational companies such as Amazon, which often undercut our independent shops, are allowed to pay lower tax rates than the stores on our high streets.
Online businesses have lower property costs, due to being based out of single warehouses or offices. They are also able to domicile their businesses in tax havens. Meanwhile, our struggling local businesses have to pay extortionate business rates and rents for a spot on the local high street. In many cases that is more than businesses can afford, and thus they find themselves in debt and facing closure. How are small and medium-sized businesses expected to compete with large, multinational retailers or the online behemoths of fast fashion brands, when the financial odds are so stacked against them?
Large multinational conglomerates pay very little corporation tax in the UK. Research conducted by TaxWatch UK suggests that the UK is losing up to £1.3 billion in corporation tax from five of the biggest US technology firms each year. This is not only an issue for the UK. Across the world, these corporations are exploiting gaps in countries’ tax laws to avoid paying more tax. Worst of all, this base erosion and profit shifting has the most detrimental impact on developing countries, which rely on corporate tax more heavily than others to sustain their economies.
Although the digital services tax would go some way to making up for that £1.3 billion loss in corporation tax, it is not anywhere near enough. As my hon. Friend the Member for Houghton and Sunderland South (Bridget Phillipson) said from the Front Bench, it is estimated that the digital services tax will produce only £440 million annually. That is why it needs to be reviewed every year. That is what amendment 18 would do, and I hope that the Government adopt it.
However, like my hon. Friend, my support for the tax is qualified. My concern is that it will be the consumer who ultimately pays it. What measures will be put in place to ensure that companies do not offload the tax on to shoppers in order to avoid paying it from their own profits? Amazon has already been open about this matter and increased its costs for the small online businesses that sell and deliver through its platform. That means that the customer, in turn, pays more, with Amazon seeing no difference in its profits as a result of the tax. It is time that those who operate in this country paid their fair share of tax in this country.
The amendment for a fair taxation system in regard to the digital services tax is welcome. The data could be provided by businesses subject to the tax, and country-by-country reporting would better equip Governments who want to identify and tackle tax avoidance schemes in their country. The OECD worked with the G20 to develop this, and it is high time that the Government implemented this measure right here in the UK.
That said, the belief that imposing this tax is some sort of silver bullet to cure the high street of all its ills is misguided. If we are serious about rejuvenating our high streets, particularly after the coronavirus pandemic, alongside this tax there needs to be a clear, coherent strategy to save our high streets. That must include immediate reform of business rates that is fair, transparent and open to appeal. I also urge the Government to devolve business rates to local government so that it can set rates according to local economic conditions. Equally, we need to address parking, although I think that is a matter for another day.
In essence, the reason I support amendment 18 and urge the House to do the same is that the lockdown and the closure of non-essential shops has allowed online retailers to make hay while British businesses in our town centres and on our high streets face grave uncertainly. There is still no vaccine for covid-19, which means that those businesses that can open will be able to operate only in a limited manner, impacting sales and profits, and many more businesses will have to stay shut indefinitely. Without help, this nation’s once proud boast that Britain is a nation of shopkeepers will become, like many of our big-name stores, a thing of the past.
Andrew Jones (Harrogate and Knaresborough) (Con)
One of the features of the lockdown economy has been the march of online retail, as evidenced by the prominence of delivery vehicles on all our streets, but the growth of the digital economy is actually deeper.
The Federation of Small Businesses in North Yorkshire tells me that one of the major concerns among its members is the extent of the digital skills that they have in their businesses. I have spent a significant amount of time listening to business—I know that is something we all do as Members of Parliament, but I have also done so as a Minister and as someone with specific responsibility for this for my party—and one of the messages from that engagement was to focus on digital. That means different things for different companies. It could be the new channels to market and the need to ensure that they are able to reach their customers in the most appropriate way. It could simply be the opportunities to enhance productivity by digitising processes. My point, really, is that the digital economy is the future.
From a Treasury perspective, that is quite difficult. It presents it with hard challenges. The international nature of this economy makes it hard to collect tax—a point already made by colleagues in the debate.
Stephen Flynn (Aberdeen South) (SNP)
I note that the hon. Member said that digital was the future. Would it not be fair to suggest that digital is not only the future but the present—the here and now—and that that is why the Government’s proposals should go further?
Andrew Jones
It has been the past, the present and the future. My point is about scale. I am not suggesting that the economy will be all digital in the future and that it has been all analogue in the past. That is perhaps a misunderstanding of what I have been saying.
Returning to the point that the digital economy presents challenges for the Treasury in raising taxation, I know that the Treasury is making good progress in working with other countries on developing a multinational response, but that could take a significant amount of time. It is therefore right to take appropriate action now. The direction of travel is a positive one, particularly building on the points made by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) earlier in the debate. The evolving nature of the economy—how we work and how we consume—means that tax has to evolve too. Traditional routes for collection are becoming more difficult, and the Bill is a response to that.
I am not normally keen on finding new ways to tax people. We are already quite a highly taxed country, but we need to raise revenue to fund our vital public services. In Committee, we discussed the fact that this tax could raise up to £2 billion, but there is also something unusual about it, in that it is a tax on revenues. In this case, I think that that is a positive thing, because we are talking about very large companies. The thresholds mean that we are dealing with the largest players in the online marketplace, such as social media platforms and search engines. Basically, I am pleased to see efforts to make tax fairer between offline and online—or bricks and clicks, as it is sometimes referred to.
Steve Brine (Winchester) (Con)
I am listening carefully to what my hon. Friend is saying. The more we debate this, the more time moves on. Does he agree that non- domestic rates—business rates—are looking increasingly dated, and that while we welcome the rates holiday that the Government have given to so many businesses in our constituencies until next year, the cliff edge that they will face next year, having been able to take it out of their cash flow this year, will be a real problem for them? Does he therefore agree that the manifesto promise of a long-term review of non-domestic rates is becoming more important and pertinent than ever?
Andrew Jones
My hon. Friend makes a valuable point, and I agree with him entirely. It is an analogue tax in an increasingly digital world, and it will need to evolve and be replaced. However, to build on the point made by the hon. Member for Islwyn (Chris Evans) earlier, many companies operate in both spheres. I know that from my own commercial experience prior to coming here. The key thing is to be available through the channels that your customers want; otherwise, they will not buy from you.
Equally, I have been talking to high street retailers, especially some of the smaller independents in my constituency, and they do not see a level playing field. High streets and town centres have been under significant pressure for many years. This is not new, but the trend is being compounded by the coronavirus crisis. Some sectors have been incredibly badly hit over the years. Bookshops are particular example. High streets have a role beyond the purely economic. They have a social role, in that they bring people together and create hubs for communities, so the work that the Treasury is doing to create a more level playing field is welcome. This is not to deny the digital market; is about giving high streets and the businesses on our high streets more time to respond to the evolving nature of competition. We must not be in denial about the march of digital. We must embrace it, and the UK has a good record of doing so, but we must recognise that we need more digital connectivity and more emphasis on digital skills.
Kevin Hollinrake
My hon. Friend is raising some important points about the level playing field. Does he accept that, although introducing the digital services tax is the right thing to do, it does nothing to rebalance online versus the high street because the money is not coming off business rates? The £30 billion is still going to be coming from business rates, and if we lose that system, we will have to find another system to replace it that will raise £30 billion. The research we have done in the various Select Committees shows that there is no consensus around what could replace business rates in a fair way.
Andrew Jones
My hon. Friend makes a really interesting point. It is hard to create new taxes and the reform of certain parts of our taxation has been put into the bottom drawer marked “too tricky” by successive Governments over many years. Perhaps business rates are a part of that. It is clearly going to have to evolve, and it is evolving, but it is also hard to create a new and entirely fair system, particularly as the economy is changing so rapidly that we are in danger of creating a system that solves yesterday’s problem.
I will conclude by saying that this positive measure creates a more level playing field, but not an absolutely level playing field. The digital economy is critical to us. I am very keen to see more digital start-ups across the country, greater digital connectivity and more emphasis on skills and start-ups. None of that is compromised by the digital services tax. It is about bringing more fairness into the tax system, but it will also give us some valuable insights into how tax may be raised in the future, because one thing we do know is that there will be a new normal after the crisis, and the digital economy will be at its heart.
Dr Rupa Huq (Ealing Central and Acton) (Lab)
I rise to echo some of the points that the right hon. Member for Sutton Coldfield (Mr Mitchell) opposite made about new clause 33. Although it is not being pressed to a vote today, I hope that the Government will bow to the inevitable before long and will heed our calls. A few of us on the Opposition Benches will be talking about that.
I echo the disappointment of my right hon. Friend the Member for Barking (Dame Margaret Hodge) and the hon. Member for Amber Valley (Nigel Mills), with whom I co-chair the all-party parliamentary group on anti-corruption, that they could not be here. We have had the rug pulled from under our feet with the hybrid Parliament, but let us not get into that; that is another debate for another day.
If we are talking build, build, build, the new clause would help towards rebuilding our economy post-coronavirus and rejuvenating our high streets, which have long felt clobbered by online competitors even before all this crisis. The new clause would do that by creating tax transparency for multinational giants, responsible investment and the closure of loopholes that enable financial flows that may not quite be illegal, but many would call pretty immoral.
The principle of country-by-country reporting, whereby multinational monster companies file public reports on their dealings country by country and then pay their dues, getting rid of the secrecy around their affairs and ensuring that tax is paid at the right time and in the right place—where the profits were made—has already been adopted by the OECD as an ambition. If that idea brings on a sense of déjà vu, it was passed by this House back in 2016 as the “show me the money” amendment tabled by Caroline Flint.
The issue is about fundamental fairness. When considering what the state of our public finances will be post-pandemic, we should be careful not to burden ordinary taxpayers with the whole tab, particularly when the tech giants have enjoyed state bail-outs. We have heard about high street decline, and the fact that the measure would rake in billions means it is needed now more than ever.
It cannot be one rule for hard-working UK businesses that play by the rules and pay into our Exchequer, and another for multinationals that can pretty much pick and choose what they do and pay minimal tax by shifting—sorry, “reallocating”— profits around the globe to low-tax dominions, where they might effectively just have a PO box to demonstrate a presence, all to save themselves cash that could be spent on our public services.
New clause 33 would mean that companies would have to publish how many employees they have, how much profit they make and their assets in each dominion. How is it, for example, that we have Amazon employees in warehouses here—some of them are our constituents—but its UK subsidiaries paid just £5 million of tax in the UK last year? We know that Amazon makes billions and billions. My small businesses in Acton, Ealing and Chiswick do not have the option of routing things through the Cayman Islands under the practice of tax haven abuse.
Since 2016, sadly there seems to have been a kind of stalemate. The principle is well-established and agreed, even back to David Cameron’s crusade for anti-corruption at the G8 in 2013, but there has been complete timidity from Government to act. A series of replies to written questions discuss how multilateral action is needed. The Government are basically saying, “I will move if you do”, but what good is having something on the statute book if it is not enacted? People will remember the Marcus Rashford affair the other day and they will see another U-turn here. I am hoping the Government can prove them wrong.
The new clause would make the principle a reality in relation to the digital services tax applying to the Facebooks, Googles and Amazons of this world. It is wrong that pound-for-pound, relative to what they make, they pay less tax than any of our constituents or we do. No market-sensitive data is included in the reporting format, so tech giants have nothing to fear.
The world has moved on from 2016, which was two Parliaments or three elections ago, although elections take place every other year now—I have had three in my short time here. Although the coronavirus rescue packages were entirely the right thing to do, it looks at the moment like the bill is going to have be footed by our children’s children’s children, who will still be paying it off. If we are serious about levelling up, this new clause would provide a level playing field for honest British businesses with the multinationals that can bypass proper procedures with their tentacles spreading everywhere around the world.
Kevin Hollinrake
The hon. Lady has said that the Government are being timid. Does she accept that it is not timid to introduce a digital services tax in the teeth of opposition from our largest trading partner, the United States? Much as I support new clause 33 in principle, the digital services tax is a very bold move.
Dr Huq
The hon. Gentleman is on the all-party parliamentary group and I know that he secretly agrees. Perhaps he is not saying so because his Whips are listening. The EU is our biggest trading partner. For many years before I came here, I used to teach and would sometimes say, “Could do better.” Yes, we support the measure, but we could do better, and this is a glaring example of an issue that is in need of urgent rectification.
The covid-19 crisis necessitating Government help for industry has, I hope, reversed the trend towards laissez-faire economics. It has been remarked by many people that we are missing a trick. We could bring some of these unscrupulous companies—we can call them companies with clever accountants, if Members prefer—to heel. It seems wrong that the Bank of England has made £1 billion of loans available to the German chemicals giant BASF, which has transferred profits to Malta, the Netherlands and Switzerland in order to avoid tax. There are countless other examples, but because these things are shrouded in secrecy, that is the example I am able to give. The easiest way to do it is by enacting what is already agreed, and we do that via the digital services tax, which the hon. Member for Thirsk and Malton (Kevin Hollinrake) hails. These companies could be given time to make adjustments, and the very fact of transparency, rather than overly punitive measures at the start, could shame them into action and make them see sense.
We face a double whammy of the covid financial crisis and uncertainty outside the EU. The Chancellor said, “Whatever it takes”. Those headquartered in the UK already submit all this information to HMRC and to other relevant tax authorities. All we are asking is that we can all see it and that there is full and frank disclosure—including for investors and other stakeholders, who increasingly want to know these things—and then we can see where each company has its economic bulk or footprint. Making public what already exists would be low cost and straightforward. I see no downsides to this. The only people who oppose the proposal are those who usually abuse the rules. I understand that the tax havens of Jersey and Luxembourg are not too keen on it.
We keep being told that, post-virus, things cannot go on as before and, “We shouldn’t waste a good crisis, should we?” Ensuring that very large companies publicly reveal revenue and tax information could be something on which we lead the world, and we can still apply pressure on the OECD and G20—the two are not mutually exclusive. We cannot wait forever for action from the EU, because we are no longer a member of that organisation. Time and again, we were told by the leavers that we could be an independent nation and we were reminded of the sovereignty of Parliament. This proposal has wide cross-party support.
Sir Edward Davey
Does the hon. Lady not think it would be right for the Minister to say from the Dispatch Box that the UK Government will work closely with the European Union as it develops its digital services tax, and should not the Opposition parties be calling on the Government to make it very clear that European co-operation on this issue is vital?
Dr Huq
Yes, I think we should be working closely with the EU, but we can even beat them to it. Already on the EU Council there are countries such as France—which was called “cheese-eating surrender monkeys” on “The Simpsons”—that have agreed to it. This could be a bit of a trick for our Government if they pipped them to the post—I think we abstained when it last came up in the European Council. Yes, I completely agree that we should be in harmony with those countries, but this is an opportunity to beat them. By the way, not that I endorse “The Simpsons”, obviously—I do not want to cause a scandal—but, for those who are insistent, this presents opportunities. We have now left, after all.
The measure has cross-party support, and Oxfam, Christian Aid, CAFOD, the Churches and a list of development charities as long as your arm are all for it. They are spurred on by the fact that, as has been said, developing countries lose three times as much as they gain from development aid due to tax avoidance.
Regaining the respect of the aid sector, after the cruel surprise of the DFID merger was sprung on it the other day; delivering progressive taxation to ensure that corporations pay their fair share; rebalancing towards ordinary people; levelling up, so that our high street traders are not undercut by online giants with lax morals; levelling the playing field with multinationals, which is good for British business; bringing in billions and leading the way to be genuinely world-beating, which sadly the track and trace app was not; and beating the EU to it, when we have got Brexit done, and reinforcing the role of our sovereign Parliament—what is not to like?
The Nobel prize-winning economist Professor Joseph Stiglitz has remarked:
“It is time for countries to take both unilateral and multilateral actions to tax multinationals.”
Let the UK not drag its feet any more, but be a leader. It was David Cameron who said that sunlight was “the best disinfectant”, and the Conservative West Midlands Metro Mayor said when he was managing director of John Lewis:
“If you think of two companies making the same profit, one of them pays corporation tax at the UK rate, one does not because it claims to be headquartered somewhere else—that is not fair.”
Anyway, that is enough Conservative quotes in a Rupa speech—this is quite unusual for me. The Government should now set a date.
The Financial Secretary to the Treasury (Jesse Norman)
May I say how much I am enjoying the thoroughly Conservative nature of much of what the hon. Lady is saying?
Dr Huq
I think that is the point. The Minister should recognise that this has cross-party support. I started by praising the right hon. Member for Sutton Coldfield; I am ending with the Metro Mayor, the John Lewis man. These are all reasons why the Minister should adopt this measure forthwith. It is time to act. The time is now.
Miriam Cates (Penistone and Stocksbridge) (Con)
I just want to get that image of “The Simpsons” out of my head.
As a new MP, I was very grateful for the opportunity to sit on the Finance Public Bill Committee. It was a fascinating experience, during which I learned a great deal, including how the progress of a Public Bill Committee can be compared so poetically to the stages of “The Pilgrim’s Progress”.
I would like to speak briefly about the amendments tabled to part 2 of the Bill, namely new clauses 5 and 33, and amendments 18 and 19, all of which pertain to the new digital services tax. I very much welcome the introduction of the new tax on some of the world’s largest digital service companies. Economies evolve, and it is right that from time to time we act to address imbalances and unfairnesses that arise as a result of that evolution. Over the last few years, and particularly the last few months, we have become more and more reliant on social media companies and online marketplaces. Many of us now use these services every day of our lives, sometimes against our own better judgment. I have no interest in condemning the success of these companies. The reason why they have been so successful is that they have harnessed technology to provide something that consumers want. Surely that is the aim of every business in a free market economy where there is healthy competition.
However, multinational companies have grown rapidly in recent years and tax systems around the world have not caught up. As has been said, many digital service companies now enjoy unfair advantages when it comes to competing with traditional, offline businesses. They usually face lower property costs and business rates, and their multinational nature means that they can move profits around the world to reduce the burden of taxation. That is unjust. This new tax seeks to address this unfairness.
The introduction of the digital services tax is especially timely as we emerge from the coronavirus pandemic, during which offline businesses have been even more disadvantaged and many consumers have made the switch—perhaps permanently—to online shopping. I note that the digital services tax generally has cross-party support, as it did in Committee, with Members on both sides of the House welcoming this new measure to address unfairness in our tax system and generate revenues for the Exchequer, which will, of course, be used to strengthen our public services. The amendments therefore do not aim to alter the tax in itself and how it is applied or collected. Rather, they seek to force through a reporting regime that I believe could be counterproductive or futile.
New clause 5 would require the Government to make an assessment of tax revenues following the introduction of the DST and lay it before the House within six months of Royal Assent. Similarly, amendments 18 and 19 seek to press the Government to report on the DST within 12 months and annually thereafter. The amendments do not take into account the fact that there will be little data of any value to report within that short timeframe. Clause 51 states:
“Digital services tax in respect of an accounting period is due and payable on the day following the end of 9 months from the end of the accounting period.”
This means that many companies that become liable for DST following the passage of the Bill may have a significant proportion of their financial year remaining, and then another nine months following that, before DST contributions become payable.
Chris Evans
The hon. Lady is making a fantastic speech; she is a lot more confident than I was when I entered the House. I have a word of warning for her: she said that she enjoyed the Finance Bill Committee. I was like her once—I said that, and I ended up sitting on six in a row. Even the most enthusiastic Member can get weighed down after a while. The real concern for the digital high street is how we can ensure that the burden of the digital tax bill is not being rested on the shoulders of the millions upon millions of small digital traders. How does she think the Government can guard against that happening?
Miriam Cates
I did not enjoy the Committee that much; I want to put that on record. The hon. Gentleman makes a good point, but I will say two things. First, we are only talking about the very largest businesses here—those with £25 million of UK revenues, though I appreciate that for some companies that may be split. Secondly, we are one of the first countries in the world to introduce a tax such as this, and it will take time to record, report and analyse its exact effects. As a number of Members have said, we are hoping for international co-operation in the long term, and hopefully this is a short-term measure where the UK is acting alone. I think things will become clear over time.
For companies that do become liable for the tax following the passage of the Bill, it may be some time after the 12-month period following Royal Assent before they actually pay the levy, and some businesses will only be paying the amount due during the part of the year that the Bill was enacted. That means that there will be little, if any, meaningful data within six months or even 12 months of the Bill being enacted, so the amendments add little value to the Bill.
New clause 33 would require all groups subject to the DST to publish a group tax strategy with a country-by-country report, including information about the group’s global activities. While I have no doubt that this is a well-intentioned amendment, I fear that it may have some unintended negative consequences. We need to remember that the DST will affect only the very largest companies—those with over £500 million of international revenues and over £25 million of revenues from UK-based activities. Companies like this will think nothing of rearranging their activities to avoid this kind of enforcement, so UK mandation alone could push businesses offshore. We want to encourage voluntary compliance, and I know that my right hon. Friend the Financial Secretary to the Treasury and his colleagues have worked hard to ensure that this new tax will not deter UK trade. At this point, especially given that the UK is one of the first nations in the world to introduce such a tax, and given how mobile these companies are, it is prudent to ensure that the administrative burden is as light-touch as possible.
It has been a great opportunity to serve on the Finance Bill Committee. My hon. Friend the Member for Aberconwy (Robin Millar) said how much fun it was. I am not sure that I would go so far as to say that it was fun, but it has been a privilege, particularly given the opportunity to discuss a groundbreaking new measure that will level up our tax system and help to restore a level playing field in our UK economy.
Kevin Hollinrake
It is a pleasure to follow my hon. Friend the Member for Penistone and Stocksbridge (Miriam Cates), who made some very important points. She made the critical point that the digital services tax is a temporary, short-term measure, and we need something more encompassing to replace it. That is why I want to speak to new clause 33, which proposes a radical reshaping of how tax affairs would be disclosed. If we are going to tackle this fundamental problem, it is essential that we have country-by-country reporting. I therefore do not secretly support this new clause; I openly support it, even though it is not going to be pushed to a vote today. The principle behind the clause is absolutely right, and I pay tribute to my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) and the right hon. Member for Barking (Dame Margaret Hodge) for their work on it and in many other areas to tackle tax avoidance and corruption.
The other key element of the digital services tax is that it tries to level the playing field in corporation tax, but it does not level the playing field for business rates. That is a completely different discussion and it is one that we definitely need to have.
When I first came to the House, I attended one of those breakfasts; I think it was run by the Industry and Parliament Trust, of which I am a trustee. The subject of that seminar was the values of business—I have been in business for 30 years, and in my view business is a force for good in the vast majority of cases—and it was addressed by a vice-president of Kellogg’s, who talked about the values of business to the economy and the inherent values of some businesses. As examples, he talked about the great values and corporate social responsibility of businesses such as Facebook, Google and Amazon.
While the speaker was addressing us I googled, “Do Kellogg’s pay corporation tax in the UK?” My search came up with a Daily Mail article saying that Kellogg’s turns over £650 million in the UK and does not pay any corporation tax. When he got to the end of his comments, I asked him, “How can you square the circle—saying that you have great corporate social responsibility policies and put money into good causes in the UK, which might cost you a few pence or percentage points in terms of cost and contribution, when you are not paying corporation tax? Your customers are taxpayers. You are trading and turning over a significant amount of money in the UK. And yet you are not contributing back to the bills and the vital public services that your customers rely on. I think it is a cynical approach.”
This Kellogg’s vice-president was clearly quite stunned by my question. I quoted to him that Kellogg’s is one of those companies that does not pay corporation tax. When pressed for an answer, the only one that he could come up with was, “Well, we’ve got a duty to shareholders to minimise our tax burden.” That is an old chestnut. I hear lots of big shareholders of big companies in the US—people such as Warren Buffett—absolutely reject that notion. In my mind it cannot be right that businesses seek to avoid fair taxation rates in this world and, as many hon. Members have said, we have a duty to stand up for small and medium-sized enterprises that cannot benefit from these kinds of devices. The vast majority of us pay tax through pay-as-you-earn anyway, so we pay our fair share of tax—and most people do so willingly.
Jesse Norman
My hon. Friend raises an interesting point. Does he share my view—I think it is also the view of the people who really know the law in this area—that in Britain a corporation exists to maximise the interests of all its members, rather than merely the shareholders, and that the shareholder entitlement is to the residual that is left after satisfying other claims on the company?
Kevin Hollinrake
I absolutely agree. Any businessperson starts off on the premise that they have responsibilities not just to their shareholders, but to their customers and other stakeholders.
Due to the scale of the problem and the lack of country-by-country reporting, it is difficult to establish exactly what some of these companies are making in the UK, but let us look at Google as an example. In 2018, Google turned over $137 billion and had net revenues— so a profit—of $31 billion. The whole organisation internationally works on a profit margin of about 22%. The company turned over around $10 billion in the UK in the same year, and makes about $2.2 billion of profit from UK activities each year. If we applied 19% corporation tax to that amount, we would come up with a figure of £420 million in corporation tax that Google should have paid. It actually paid £67 million that year. This is happening on a huge scale and is multiplied by many other companies.
Bob Stewart (Beckenham) (Con)
I thank my good and hon. Friend for allowing me to speak. This confuses me. I would have thought that very clever tax inspectors could visit these international companies. Surely these companies cannot disguise the money that they are sending out of the country. Surely we have methods of checking that, and, from that, we can devise a way of actually taxing them. It seems to me, from what I can gather from this debate, that these companies seem able to spirit money away with magic dust or something, and I am sure that that cannot be so.
Kevin Hollinrake
My hon. Friend makes a very good point. We have some very good people here in our tax authorities and in our ministerial team. The difficulty is, of course, that those companies have some very good advisers working for them, too. It is a case of “Catch me if you can”. That is why the Government have stepped in with a diverted profits tax and a digital services tax, neither of which existed before 2010. The Government have stepped forward to try to do this, but it is certainly not easy.
From the figures, Google should be contributing £420 million to the Exchequer. Of course, much of that money would have previously gone to the Exchequer through some of our own companies, but they no longer get that revenue. Regional media is a good example of that. As businesses, we used to spend our money in regional newspapers and regional radio. Now we put that money straight into Google and Facebook and other such places, so it is being shifted away from UK jobs and UK businesses and spirited away to different parts of the world.
I know the Minister will say that we are working with the OECD in terms of base erosion profit shifting, which is absolutely right. The difficulty, of course, is the lack of public scrutiny of that. That information is available only to tax authorities. The media play a hugely important role in highlighting the inappropriate shifting of profits internationally by companies, which therefore do not pay their fair share of tax. It is hugely important that we have publicly disclosed country-by-country reporting.
I very much support new clause 33. I hope that the Government will step forward with something similar in the very near future. The digital service tax is a great step forward and a very bold move in the teeth of international opposition, particularly from the USA, but it is a short-term measure. We need something much more important and much more fundamental. At a very minimum, that fundamental thing should be country-by-country reporting and I urge the Government to go further, continue with their great efforts to tackle tax avoidance, and bring in country-by-country reporting for all multinationals.
Alison McGovern (Wirral South) (Lab)
It is good to rise to speak in support of new clause 33. In doing so, I want to begin by thanking the right hon. Members for Sutton Coldfield (Mr Mitchell) and for Haltemprice and Howden (Mr Davis) for their leadership on this issue. They have been talking about this and pressing the Government on this for many years. Although this House is not always a model of cross-party decorum and high-mindedness, on this it certainly has been, and I pay tribute to their work. They have made compelling arguments, and I sincerely hope that the Minister will listen.
Other very good arguments have been made in this debate. The hon. Member for Penistone and Stocksbridge (Miriam Cates) caused slight jocularity in the Chamber when she suggested this idea that Finance Bills are not fun. I do not know who she thinks thinks that, but, obviously, they are the best bit of Westminster.
The hon. Member for Harrogate and Knaresborough (Andrew Jones) pointed out how difficult it is to introduce new taxes. He is right, and we are introducing a new tax here, so we should have a think about how the circumstances are different. Anybody who thinks that it is easy to introduce new taxes should offer George Osborne a trip to Greggs. He thought that the pasty tax would be a minor and uncontroversial measure—how wrong can you be?
Mr Mitchell
The hon. Member is absolutely right. I think two very good examples are Pakistan, where British techniques and expertise have helped the Pakistan authorities to raise more tax from their citizens, and Rwanda, where Britain helped the Rwandan Government set up a fair and equitable system of taxation that has worked and succeeded in helping that country to fund its expenditure. Back in 2007, the Rwandan Government raised only about 20% of their annual expenditure, and today they raise over 80%.
Alison McGovern
I know some people think that tax is boring, but how could we listen to that example, talking about one of the countries that has suffered worst in the world in my lifetime, and not think that this new clause—the issue of getting tax to the place where it belongs—is truly a great mission that we should all subscribe to? Forgive me for being passionate about it, Madam Deputy Speaker, but I think it is much more important than any of us ever properly give it credit for.
The DFID aspect of this is absolutely crucial. If we want to stop giving aid forever and a day—I personally think that that should be our objective in having a more equal world—we absolutely need to pull every other lever that we possibly can in this House to get developing countries and poor countries globally the tax they are due, and this is how we will do it. As has been mentioned, this House has already voted in favour of it. It is quite obvious from the debate today that there is cross-party support, and, given all the other controversies that we have to deal with, why we would not do something supported by all corners of the House, I do not know.
The Minister will forgive me for telling him that while accepting that the Government have gone so far and have made efforts and shown willing, there is an old trade union saying, “When you argue with the manager, never say that they have done nothing; always say that they have not yet done enough.” That is my message to the Minister: you need to go further.
Jim Shannon (Strangford) (DUP)
It is a pleasure to be called to speak in this debate and make a few short comments. None of us can accept the argument that tax is boring, because it is not boring. Tax is a necessity: it is necessary for building a recovery and it is necessary for helping others. On the earlier earlier about the help we can give to other countries through DFID—and through the new Department and the new Minister who will have this responsibility—I am very much in support of helping out countries in other parts of the world where we need to be.
I want to speak to new clauses 5 and 33 and amendments 18 and 19 in relation to the digital services tax. I work with my local high street to attempt to see businesses reopen and not shut their doors, and a large part of my efforts over this last period of time as an elected representative, along with others, has been to help point them towards the dual concept of online sales as well as a high street presence. I suppose many of those shops have a small online presence but some do not, and I am very keen to work with the Government—here at Westminster, but also the Northern Ireland Assembly, including my own colleague and friend, the Economy Minister—to ensure that the opportunity of having an online business or increasing online business is there to help.
For many, the ability to make ends meet strictly on the high street has been curtailed owing to lack of footfall and to more people learning to shop online during the crisis, when that was all they could do. Others have referred to us—indeed, I think it was Margaret Thatcher who referred to us—as a nation of shopkeepers. I have to make a confession that my mum and dad were shopkeepers. From a very early age, I can recall that we owned a shop—the post office—in Clady outside Strabane.
Bob Stewart
I thought it was Napoleon who said we were a nation of shopkeepers—or perhaps it was Hitler. It was one of those people. I am not sure it was the hon. Gentleman’s mum or dad, or uncle.
Jim Shannon
I think I said it was Margaret Thatcher—as far as I am aware, it was neither of the other two. It was said by our former Prime Minister, who led this country for a long period, and I am pleased to put that on the record.
When my family moved to the east of the Province, to Ballywalter, my mum and dad continued as shopkeepers. We were the first people to have one of the grocery stores in our village of Ballywalter, and this was at the start of the chain stores, the supermarket chains and so on. So, again, I am pleased to be associated with those comments.
As things stand, it is clear that although our online businesses will be paying the appropriate tax, it is not the case that there is regulation of all digital services globally. It is unfair that international firms benefit so vastly from reliefs that our own people are unable to access. As right hon. and hon. Members have said, it is time we made such firms accountable for their tax regimes and ensured that the money they earn in this country stays here, so that we can build our own economy and pay some of the debts that have been accumulated in these past few months.
For too long, we have been trying to reach an international reasoning on this, but that has not been accomplished. The Government have said that they would disapply the digital services tax if an appropriate global solution was successfully agreed and implemented. That remains their position, and it is a logical one. It is right that if we cannot get our internationally accepted, one-size-fits-all approach, we should cut our cloth to suit. The sheer scale of the possible income underlines the importance of putting measures in place. We must make sure we have accountability in the tax process, including for those who shift their money overseas, for whatever reasons and using whatever methods.
The House of Commons Library briefing outlined the Government’s belief that if they implemented the UK’s digital services tax, it could raise more than £400 million a year by 2021-22, which is not too far away. If that could be done, it would help balance the books and it would help our Government, who have allocated moneys during the covid-19 crisis, to ensure that we could pay back some of that debt. This is absolutely worthy of work and consideration in this place. Understandably, it is difficult to be accurate about the worth of this tax, but even half of that estimate, £200 million, could change policing in our communities, building relationships and confidence. Those moneys could be used for the purposes for which tax is used; they could make expensive, life-changing drugs, such as Orkambi, readily available at all trusts. Given my role as my party’s health spokesperson, and as someone who has been involved in the rare diseases groups here at Westminster and, in a former life, at the Northern Ireland Assembly, I know how just how important it is to have those drugs available for rare diseases, and revenue is the way that that happens. We can and should make the difference. This money can and will make a difference, and, in lieu of international agreement, it is right and proper that we go ahead with this legislation.
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.]
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.
Kevin Hollinrake
I am surprised that my right hon. Friend says that this is not a method to try to bring companies that are avoiding tax to the tax table. The previous Chancellor, Philip Hammond, said in a speech that these measures would effectively insist that,
“global internet giants…contribute fairly to funding our public services.”
Is that not reflective of a position where he felt those companies were avoiding tax?
Jesse Norman
I think one could put it a slightly different way, which is to say, “You do not have to take a position on avoiding tax to come to the view that this is a base of tax revenue that has not been adequately taxed and should be taxed, and if you do follow that approach,” —here I will defer to the hon. Member for Wirral South (Alison McGovern)—“ipso facto you are going to be levelling the playing field to a degree.” Anti-avoidance measures are measures used in separate contexts to level the playing field as well.
Mr Mitchell
The Minister is getting to the meat of the matter in what he is saying now, but while he rightly extols the virtues of some very good companies that he has named, which voluntarily publish whereabouts in the world their activity is taking place, where their profits are declared and where they are paying tax, by definition, if it is voluntary, those who are up to no good probably will not comply. That is one of the reasons why publishing that information in the way I set out in my earlier remarks is so important, because there is greater pressure on them if they do not comply, including the sanction of the law.
Jesse Norman
My right hon. Friend is absolutely right. My point was a slightly different one. I have not yet come to the thrust of what he is suggesting about mandation, but in the first instance Government should be seeking to support, promote, energise and activate more voluntary compliance, precisely in order to increase a public norm of voluntary reporting, which then does a lot of the job and perhaps isolates the groups that decide not to do it. There are plenty of other contexts in which that approach of voluntary, then moving to mandatory, has been quite successful, including in tax.
Bridget Phillipson
The Minister talks about the voluntary nature of compliance, but it is my understanding that EU rules require some element to be reported. Could he clarify? Is that the position, or is reporting entirely voluntary?
Jesse Norman
The answer is that what I am talking about is a voluntary disclosure by those companies. I am not aware of a separate EU requirement for them to do so. Certainly, it is the voluntary disclosure that is the thrust of what I am talking about. Many other companies have the capacity to make voluntary declarations, and I am indicating in response to my right hon. Friend the Member for Sutton Coldfield my support for more of those companies doing that. I am only doing that, however, as a preliminary to coming to his point about mandation. We have taken the view that for the time being this approach should remain voluntary and that further legislation will not be needed until and unless we can get public country-by-country reporting agreed on a multilateral basis.
Steve Brine
I have sat quietly listening to this whole debate and I understand what the Minister is saying. I actually think he is right. Could he then give us briefly a sense of what work Her Majesty’s Treasury is doing to achieve the unilateral position he says he wants?
Jesse Norman
If I have given that impression, I have been misunderstood. We are pushing for a multilateral approach, as I have indicated, through the OECD and the G20, and also in consultation and collaboration with the EU. The purpose is to achieve a sustainable approach that does not run the risk of creating incentives to restructure out of this country and thereby reducing tax transparency and effectiveness. It might also reduce the impetus for tax transparency, because the more countries there are that require it and so have firms relocating or restructuring to avoid it, the less impetus there could be to secure a multilateral solution.
Alison McGovern
Would the Minister be so kind as to give a rough deadline for the multilateral approach?
Jesse Norman
It is in the nature of these beasts that I cannot give a deadline, and I am not sure anyone can. It is a continuing debate. That does not mean, however, that progress cannot be made. As we have seen, for example in some of the work done with the OECD on minimum taxation levels, there has been clear evidence of progress in discussions within the OECD, which is a matter of public record.
Steve Brine
Clearly, I meant to say “multilateral” in my last question. I know from having attended G7 and G20 summits in a health context, when I was in the Health Department, that the agenda for those meetings is decided by who has the chair at the time. Could the Minister give us any sense of optimism that it is even on the agenda of those meetings to make the progress I know he wants to see?
Jesse Norman
My hon. Friend will be aware that the different organisations have different ways of working—the G20 tends to work towards summits, and the OECD often has a more continuous process. The most important work is always done in between, in the official interactions that then set the terms. Often one does not know exactly what will be on the agenda until the last minute, so it is hard to give a specific undertaking. I am not avoiding that; I simply do not think it is possible to give that undertaking. I can tell him that we are extremely keen to promote voluntary compliance, and we continue to press for a multilateral approach.
Mr Mitchell
I am most grateful to my right hon. Friend for giving way; he is being very generous. This is an ingenious argument that he is putting to the House about restructuring, and it might be helpful to flesh that out in correspondence. The argument about the unilateral and multilateral approach was clear in relation to open registers of beneficial ownership, when the House obliged the Government to accept that there was a case for going through the unilateral approach in order to get a multilateral approach. I understand what he is saying, but I think it would be helpful to flesh out the point about restructuring.
Jesse Norman
If my right hon. Friend wants to raise some specific questions, I would be delighted to respond to them. There is a slight tension in his argument, because it contains the following two claims: first, that these international organisations are shape-shifting amoebas that constantly mutate to avoid tax, and secondly, that that shape-shifting and amoebic quality will stop when it comes to thinking about how to react to a unilateral tax transparency initiative.
Jesse Norman
I am sorry, but I have been really generous in giving way. I have to allow the hon. Member for Houghton and Sunderland South (Bridget Phillipson) time to speak, and I have an awful lot of material remaining, including on new clauses and amendments and contributions made by colleagues. I do not know how many minutes she wants, but perhaps she could give me a bit more time.
Dr Huq
The information is already collected—this is just about making it transparent, open and public. As I said in my speech, we could give companies time to readjust if they wanted to move things around. What is the incentive for any multinational through the voluntary approach?
Jesse Norman
We know that the incentive exists for all the reasons why we get voluntary compliance in a whole variety of areas—that is to say, groups with particular concerns, press organisations and companies. We know that there has been a revolution in corporate social responsibility, although it has not in many ways been an adequate revolution, because it does not extend in some respects to paying tax, as my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) highlighted. There is a role that Government can play, in terms of improving the norms and setting a bar. This is a reasonable, staged approach.
It is important to have a level playing field for the reasons that I have described, and that applies to tax transparency as it does elsewhere. If a multinational group exceeding the country-by-country reporting threshold operates in the UK, HMRC will, in the vast majority of cases, already receive the report and is already using it for risk assessment purposes. Given that, we do not believe that it is appropriate to introduce these new requirements at this stage, but I understand the principles set out by my right hon. Friend the Member for Sutton Coldfield and the right hon. Member for Barking, and the debate has shown that those are widely shared. The argument we are having is over the nature of the approach and the implementation of a broad set of principles with which Members across the House generally concur.
I will turn to the comments made by Members in the debate. The hon. Member for Houghton and Sunderland South has been very generous with her time, and I have covered most of her remarks. The debate rightly touched on the issue of business rates. My hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones) will know that we are publishing a business rates review, which will specifically include online forms of taxation and invite public discussion on those. That is another part of the same process of trying to engage more widely and not just recruit information and knowledge but set expectations and norms about the way in which firms should be paying tax.
The hon. Member for Ealing Central and Acton (Dr Huq) talked about sunlight being the best disinfectant. She is right, but she was quoting Louis Brandeis from 1914, who was dealing with forms of corporate thuggery that make what we see today modest by comparison.
The hon. Member for Wirral South talked about the distinction between justice in principle and justice in fact. Of course, she is absolutely right. There is a view at the moment of the nature of the corporation, and it is very widespread—more in America than in this country even—that companies are run in the exclusive interest of their shareholders. That is not true in the UK. That is not, as a matter of legal fact, true in this country. The shareholders are entitled to the residual proceeds but companies are run—it is in the Companies Act 2006—in the interest of their members.
Finally, the hon. Member for Strangford (Jim Shannon) made a very good point. I think I am right in saying that “nation of shopkeepers” was coined by Adam Smith—but then I would say that, wouldn’t I?
Bridget Phillipson
Having listened to the debate, we are keen to see greater scrutiny and transparency in this area, so I seek to press the amendment to a Division.
Question put, That the amendment be made.
The House proceeded to a Division.
Madam Deputy Speaker (Dame Rosie Winterton)
I ask all hon. Members, other than Front Benchers and Tellers, to leave the Chamber by the doors behind me. Members should join the queues to vote in Westminster Hall. To vote, Members should enter the Lobby and swipe their pass on one of the pass readers. I remind Members that the Lobby doors will be locked after 12 minutes.
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.
Peter Kyle
The right hon. Lady mentioned low-carbon heating. Heating homes and businesses accounts for about 43% of our CO2 emissions as a country, yet Government do not have a single target for it. How can we tackle these things if Government will not even set a target for reducing the single biggest emissions area for our country?
Andrea Leadsom
As a matter of fact, it is not the single biggest emissions sector in our country, but the Government have a number of plans and projects to look at how we can decarbonise home heating, which are very important and I will come on to specifically talk about target setting.
We are not just leading the world in science and innovation, but creating an ideal platform for millions of new jobs. In particular, it is well known that young people—more than 70% of them—would prefer a career in the green sector. Perhaps the greatest UK success story to date is our pioneering efforts in renewable energy. The UK accounts for more than a third of the world’s deployed offshore wind, and renewables have accounted for 37% of electricity to the network this year, with nuclear accounting for a further 18%. Furthermore, the speed of UK achievement has accelerated under successive Conservative Governments. When I was Energy Minister in 2015, we announced we would be taking coal off the grid entirely by 2025, and it is a real credit to our energy sector that we have achieved close to zero coal now, and it is only 2020.
Anna McMorrin (Cardiff North) (Lab)
The right hon. Lady talks about the renewables sector being led by business and entrepreneurs, yet when she was leading the Business Department, she blocked the groundbreaking tidal energy scheme in south Wales, which would have transformed the sector and offered thousands of jobs, including supply chain jobs.
Andrea Leadsom
The hon. Lady has got her point on the record. In fact I did not block the scheme. The issue with that particular tidal power project was its cost. It in no way represented value for taxpayers’ money. The Government support all forms of renewable energy, but it has to come at a reasonable cost to the taxpayer.
Decarbonising in the UK is only a tiny part of the picture. Climate change is a global threat and the UK will be hosting COP26 next year, which offers a massive opportunity to demonstrate global leadership. COP26 must be a turning point for the world, as well as the moment to demonstrate the UK’s commitment. There are four objectives I would like the UK to achieve at COP26. The first is to announce a significant collaboration with a small number of other major nations. For example, we could have a collaboration with India on battery storage, with China on offshore wind, and with Brazil on reforestation.
Secondly, measurement is so key to performance, so I would like to propose the launch of a new year book at COP26 in which all 157 nations have their own page setting out not just their Government but their state-level and business-level achievements and goals. For far too long, arguing about how to audit decarbonisation has been a convenient excuse for inaction.
Thirdly, the UK is a world leader in financial services, and in recognising the excellent decision by the Prime Minister to appoint Mark Carney as finance adviser for COP26, I urge the Government to consider championing the development of an international infrastructure organisation to help to fund global decarbonisation. Fourthly, while the world continues to rely heavily on carbon, we urgently need an internationally recognised carbon offset licensing body to ensure that global living standards can continue to improve while we protect our planet.
To finish, I am desperately worried about the inevitable job losses that the covid-19 pandemic is going to cause, but I see a way forward, with the Government maximising the tools at our disposal to build a cleaner, greener world and to facilitate the jobs we will urgently need. That means apprenticeships for young people, retraining for those who have lost their jobs, setting clear decarbonising targets by sector, investing in green infrastructure and building international collaborations. All of that requires businesses to power up, so I want to say to businesses: you need to get your teams off furlough and get your businesses going again. Start trying to build and create and use your innovative energy to build a cleaner, greener future. We have all been in it together during lockdown, and we definitely all need to play our part if we are going to bounce back successfully.
Stephen Flynn
With your indulgence, Madam Deputy Speaker, I will speak to new clause 13 before moving on to new clause 14. New clause 13, which I and my colleagues in the Scottish National party tabled, would require the Chancellor of the Exchequer to review the impact of the Bill on the UK meeting the UN sustainable development goals. That is an incredibly important issue.
I will start by referencing someone who has been in the news quite a lot in recent days, in relation to a new deal—former President Roosevelt, who stated:
“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”
What sage words indeed, which chime directly with the purpose of the 17 United Nations sustainable development goals about creating a just society for all, where we all have the same opportunities and access to vital services.
If we look at some of those sustainable development goals in a bit more detail, we might see why the Government are perhaps not so keen on new clause 13. For instance, the first UN sustainable development goal is on there being no poverty. Of course, we are all well aware of the Government’s record in relation to poverty. It was discussed at great length in Committee. At the time, the Minister made some fairly strong remarks, as did the hon. Member for Ilford North (Wes Streeting), on the situation in Scotland. They were absolutely correct to highlight that Scotland is not immune to the problems of poverty, but at that Committee sitting, I challenged the Minister on whether the UK Government would follow the pathway trodden by the Scottish Government and introduce £10 a week for every child living in poverty. That commitment was not given, so I say to the Government today: will you meet that challenge? Will you follow the route laid out by the Scottish Government?
The second UN sustainable development goal relates to there being no hunger. Of course, we have seen the UK Government’s record on that, too, in an all too apparent focus in recent weeks through the ridiculous situation where we had to have a footballer—a very good footballer, but a footballer none the less—force the Government to U-turn on feeding the poorest children in England. Incidentally, that is of course being done in Scotland.
If we look further at the UN sustainable development goals, No. 10 relates to reducing inequalities. Has that ever been more timely, given the situation around us on a daily basis in relation to Black Lives Matter? I find it disturbing and deeply unfortunate that the Government do not believe that the impacts of the Bill need to be looked at in relation to such sustainable development goals, because they should be at the heart of all policy making and legislation. Again, that is very much the case in Scotland, where the United Nations sustainable development goals have been embedded in our national performance framework. What kind of nation we want to be goes hand in hand with the goals and aspirations laid out by the UN.
Anna McMorrin
The hon. Member is making a very strong speech about the sustainable development goals. Is he aware of the Well-being of Future Generations (Wales) Act 2015, which puts into law the sustainable development goals and links them with what public bodies have to abide by in law in Wales? Does he believe that that should happen across the UK?
Stephen Flynn
I thank the hon. Member for that intervention. Surprisingly enough, I was not aware of that, but it certainly seems to reflect the situation in Scotland through the national performance framework. I encourage the UK Government to look at the example that has been set in that regard, and the one set north of the border. I will finish there in relation to the UN sustainable development goals and move on to new clause 14.
New clause 14 would require the Chancellor of the Exchequer to review the impact of the Bill on the UK meeting its Paris climate change commitments. As the hon. Member for Ilford North said, the immediate focus of all legislators has been on overcoming the coronavirus pandemic, and rightly so. Protecting public health has had to be at the forefront of everything that we do. But the climate emergency has not gone away. We need to be cognisant of that fact and make sure that policies that are put in place recognise it. The need for urgent action has not stopped. In fact, we could perhaps argue that covid-19 has shown just how fragile our society is, particularly for those who need support the most and who live in the areas of higher deprivation. Those who have been impacted the most by covid-19 are projected to be impacted the most by the climate crisis.
It might sound a little bit bizarre that an MP for Aberdeen, which is of course a city well known for its oil and gas industry, would stand here and talk about climate change, but it is for a good reason: the reality is that we do not get to net zero without taking the oil and gas industry with us. We need to invest in the support that it requires in order to meet net zero.
Richard Thomson (Gordon) (SNP)
As another Member of Parliament who is very proud to represent a part of the great city of Aberdeen, I very much appreciate the speech my hon. Friend is making. There is no route to net zero without investing in the oil and gas industry for things like carbon capture and storage. Does he share my concern that there is as yet no apparent sign of any sector deal, which might harness the skills and capital invested in that industry to help us to effect the transition?
Stephen Flynn
I thank my hon. Friend, who shares representation of the wonderful city of Aberdeen through his Gordon constituency, for his timely intervention: it is almost as though he has read my mind as to what was due to come next in my speech.
As things stand, to date the UK Government have failed to deliver on their promise of an oil and gas sector deal. An oil and gas sector deal may on the face of it, to those who look at it from the outside, appear to be a way to support the oil and gas industry to continue to take oil out of the ground. There is a certain element of that—we need to ensure that sustainability in the industry is there—but more importantly, it is about ensuring a sustainable transition that allows us to meet net zero but provides sustainable energy moving into the future. The UK Government have to date been found absolutely wanting. I have raised this on numerous occasions since the start of March. In recent weeks, Oil and Gas UK produced a report that outlined that 30,000 jobs are due to go in the oil and gas sector as a result of the current downturn in oil prices. That is on top of the huge impact of covid-19 across the tourism sector and all the other sectors that are impacted in every single constituency across Scotland and the United Kingdom. Yet this Government continue to sit silent and continue to fail to deliver.
The Scottish Government have stood up to the challenge. Only last week, they put £62 million into sustainable energy going forward, with £25 million going into a transition, and money going towards a hydrogen hub and a number of other projects put forward by the oil and gas technology sector. Yet this UK Government have failed, to date, to provide a single penny. So where is the strategy? Where is the desire to support the industry in getting to net zero? As I have said, we do not make the sustainable energy transition without that investment, be it in the aforementioned energy transition zone, in further investment in hydrogen, or, as my hon. Friend the Member for Gordon (Richard Thomson) mentioned, in carbon capture and underground storage—a pledge that was made prior to 2014 and, shamefully, taken off the table by the Conservatives following the independence referendum result. It is now on the table but has no delivery timescale whatsoever. When is the Acorn project going to be brought online so that we will see that investment in climate priorities? We have heard from the Government numerous times that they will do whatever it takes, but “whatever it takes” is not enough—we need action,
This is a Finance Bill debate, so I shall mention this important point. The Treasury has coined £350 billion from the oil and gas sector, notwithstanding the taxes being paid by those individuals whose employment has been linked to the industry. It is time to give back, and it is time to give back in spades. We cannot afford to wait. What we have had up to now from the UK Government is simply not good enough. I shall conclude where I started, with the remarks of a former President of the United States, who stated:
“No country, however rich, can afford the waste of its human resources. Demoralization caused by vast unemployment is our greatest extravagance. Morally, it is the greatest menace to our social order.”
Let us invest in those industries and the tech that can protect jobs, protect our environment and lead us into a future that protects our planet.
Andrew Jones
A lot of people wish to speak on this group of amendments, and time taken will squeeze future debates so I will be brief.
I support the positive words from my right hon. Friend the Member for South Northamptonshire (Andrea Leadsom), but I also want to highlight clause 102. It takes up two and a half lines in a large Bill of 7,500 lines, so it is easy to miss. It makes provision for HMRC to start work now on a new tax on plastic packaging containing less than 30% recycled plastic. I welcome this measure. Indeed, I hope that in time it might be possible to go further, but it is clearly right to start now. During the coronavirus crisis, we have heard little about the environment, although I think people have been pleasantly surprised by the real and noticeable difference to our environment—our clean air—resulting from the lack of vehicle use. That 2050 deadline for net zero carbon countries has got ever nearer, and reducing what we use and reusing what we have are ingredients for progress. Changing our plastic use in our lives is one way that all of us can make a difference.
This was a hot topic before the crisis and it will be one in the future, but it has not always been so. I launched plastic bag-free Harrogate with some colleagues in 2008, and although it was generally well received, some people did ask me if I had gone a little bit cranky. We nevertheless made a bit of a difference, and I see a difference being made now in the actions taken by national Government, regional government, local government and community groups. My local council, Harrogate Borough Council, has done good work in waste collection, recycling and education, and I see strong community groups and vibrant environmental groups such as Zero Carbon Harrogate and Knaresborough SPARKs moving the debate forward. We can and will go further and faster. So, although this measure has not attracted attention, it is very positive and I congratulate my right hon. Friend the Minister on taking it forward and using a financial lever to change behaviour among companies using plastic packaging, and, through that, encouraging people to recycle more. That has to be a good thing.
There is one other measure in the Bill that I would like to highlight, and that is the measure on increasing the uptake of electric vehicles. Basically, it is a measure to ensure that employees and employers pay no tax on zero-emission company cars. It supports the measure on electric vehicle charging infrastructure. I have had responsibility for this, as both a Transport Minister and a Treasury Minister, so my views are known. I have shared them in this place on previous occasions, and I will therefore not detain the House with repetition. I simply say to my right hon. Friend the Minister that he will be even more popular if he goes on to further incentivise change in this area.
Alex Sobel (Leeds North West) (Lab/Co-op)
I come to the debate more with sadness than with pleasure, having read the progress report from the Committee on Climate Change on how the Government and the country are doing. The report is absolutely damning of the Government’s performance. It says that they are not even meeting the 2° warming target, they are failing the commitments that we made in Paris five years ago, and, as my hon. Friend the Member for Ilford North (Wes Streeting) said, they are not expected to meet the fourth and fifth carbon budgets. The report goes on to say that many national plans and policies are not acknowledging the long-term risks of climate change, and that many Government Departments are not acknowledging those risks.
I am going to talk about a few different areas and measures, hopefully not for too long, to let other colleagues fully take part in the debate. We have with us a Minister who has spent time at the Department for Transport, along with my neighbour the hon. Member for Harrogate and Knaresborough (Andrew Jones), who was a long-serving Minister in that Department, so I will start there.
I am pleased that there are measures such as clause 83, which exempts electric vehicles from vehicle excise duty, and clause 82, which deals with the calculation of cars’ CO2 emissions, but is that enough? We are talking about a country still addicted to petrol and diesel vehicles. Just look across the North sea to Norway. We have to thank the Norwegians, because their No. 1 selling vehicle is the Nissan Leaf. They are therefore supporting Nissan jobs in Sunderland with their Government measures, yet we are not sufficiently supporting them with ours. Those two measures in the Bill will not be enough to make Nissan Leaf the top selling car in the UK, which is what the Government should be aiming for. Not that I am particularly promoting Nissan—this goes for any electric vehicle. I have no interest to declare in relation to Nissan; this is about British jobs. We should look to Norway and its measures on sales tax, charging points and other things, which have meant that the majority of vehicles sold in Norway are electric.
Looking forward to COP next year, the reason why Paris was so successful was that the French showed global leadership, through domestic policy and diplomacy. The problem we will have is that we are not showing the same global leadership in domestic policy. We are a global leader, rightly, in reducing the use of coal-fired power stations, which will effectively have ceased in this country by the time we get to COP. However, we are not a global leader in any other area, so how can we secure a world-leading agreement in Glasgow next year? It is incumbent on the Treasury to introduce incentives to ensure that we reach those points, so that we can show that our measures work. It is not enough to talk a good game; we have to deliver.
Let me turn to some points drawn up by the all-party net zero group, which I chair, which should be instructive for the Minister. They are points that he should take on board and that hopefully the Government will look into. One thing we have seen in the renewable energy sector is a lack of confidence, because in many areas the Government have withdrawn support or not introduced it. One area where I would say the Government have done well and are world leaders is offshore wind. Contracts for difference have made a huge difference. However, we do not have the same confidence in other areas of the renewables market.
What has happened with solar feed-in tariffs has removed confidence from the solar market. Support for green hydrogen and the renewables to create it has not come forward in the way that it should have. My hon. Friend the Member for Cardiff North (Anna McMorrin) mentioned the tidal barrage. Again, we are not talking about value for money; we are talking about a world-leading project that could create new technology that we could export. We are not thinking broadly enough about these measures, and the Treasury needs to rethink them.
Obviously we are in the post-covid period, and we need to think about retooling our workforce, because of the many people unfortunately losing their jobs and the Government’s own agenda of levelling up areas. I want to give one example of where that might really work. Not far from my constituency, in East Yorkshire, we have a plethora of factories that build caravans. I will come to the construction industry later, but the way in which we build houses is the 19th-century way of doing it. In fact, we have been building houses in more or less the same way since the Romans. Why are the Government not incentivising the repurposing of those factories to build modular, Passivhaus standard, zero-carbon homes, creating jobs in areas neighbouring coastal resorts, a lot of which are going to lose jobs, and making available houses at different specs for a wide range of people, from social housing right through to the most expensive types of houses in this country, all of which could be implemented quickly? The Prime Minister said, “Build, build, build”, but it is not enough just to build; we have to build in a way that creates a green recovery.
There is a real dilemma around how we incentivise the construction sector. If someone has a property—a terrace, a house or even a heritage property—and wants to refurbish it and put in green measures, they have to pay VAT. If they want to demolish that property and build a brand new one, they pay no VAT. Is that not perverse? Should the Minister not be looking to fix that? We have systems and financial incentives in place that are going to create more carbon, not less.
I will finish soon as I want to give colleagues a chance to speak. Every Department’s plans should include a green fiscal rule or measure that every single policy has to meet. Every time the Treasury or another Department are putting forward a new policy, they should be asking whether it will reduce carbon, and help to meet our fourth and fifth carbon budgets—and the carbon budgets after that, if we get to that stage. If it does not, that policy should not be coming forward, because we only have one chance to do this. There is no planet B. There is no second United Kingdom. We need to be doing this now and in the best possible way.
Mike Amesbury (Weaver Vale) (Lab)
Yesterday, like a number of Members across the House, I was lobbied—by 15 residents, in my case. The time is now.
Today I spoke to 180 delegates of CPRE, the countryside charity. The hon. Member for Brighton, Pavilion (Caroline Lucas) was there as well. Those people told me what they wanted fed back to Ministers about the progress they would like to see in the green economy. They are frustrated with the lack of progress, and determined and ambitious to ensure that we get to net zero a damn sight quicker than the Government’s current targets suggest. They are keen to protect our green spaces and environments, and, in turn, to create great green jobs. Where there is development, they are determined that we have a brownfield-first policy, and that the houses built are genuinely affordable and carbon neutral. Picking up on the point made by my hon. Friend the Member for Leeds North West (Alex Sobel); there are some great examples of modular houses that we can build at scale and create the jobs, jobs, jobs that the shadow Minister spoke about.
We need real and bold investment in our cycleways and pathways, and affordable transport, until the point that it is in our DNA to ensure that our buses are electric, that we get more people working on buses and that our railways get people from A to B, which they clearly do not do currently. At Northwich station in my constituency, people who are disabled or have mobility problems cannot get to the other side of the tracks. That affects their mobility across the conurbation and productivity in terms of sustainable growth.
People have spoken about renewable energy, including the decision on the tidal lagoon. That was a retrograde step; the lagoon should have been invested in. There is a similar situation in Merseyside, where Mayor Steve Rotheram is taking forward a project. I sincerely hope that the Government can escalate that problem—not only for Merseyside, but for the whole nation.
Finally, on renewable energy, people have mentioned hydrogen, which is a real growth industry in my community in Weaver Vale. I would like to see the Government actually escalate such support and put some speed behind it. I would also like to see a recovery plan, which again is about jobs, jobs, jobs, but also about building back better and certainly building back greener with more ambition.
Anna McMorrin
Yesterday, the Prime Minister announced that we will “build back greener”. He said that that was part of his
“mission to reach Net Zero”.
He also said he would build “Jet Zero”. This was on the same day that Airbus announced 15,000 jobs were to be cut. This just shows how out of touch this Prime Minister and his Government are with what is going on in the real world.
The climate emergency barely got a look-in throughout the Prime Minister’s speech yesterday. When we look at how money is to be spent, frankly, this Government’s strategy is to hide inadequate commitments with bluster and rhetoric. With the climate emergency upon us, where is the action that must follow words? Take where I am from, south Wales, for example—cancellation of electrification of trains, no support for the groundbreaking tidal lagoon and now no new money for Wales at all in the announcement yesterday, despite the ridiculous rhetoric we are hearing.
Compare this with Macron in France or Merkel in Germany, who are making commitments of €15 billion and €40 billion to invest in rebuilding a green economy and green jobs. They know, like many in this House, that that is the future. We know that only by transitioning to a green economy, with apprenticeships and jobs in the sustainable and green sectors, are we going to be able to meet this climate emergency head-on, replace jobs lost in that transition and fix the unemployment crisis we now face.
This £5 billion that has been announced is not new money at all. As I have said, we know there is not even new money for Wales. It bears little resemblance to what is actually needed, and even less resemblance to the person whom this Prime Minister seeks to emulate—Roosevelt. This spending represents just 0.2% of GDP compared with Roosevelt’s new deal, which represented 40%. As my friend the former Member of Parliament for Bury North, James Frith, said yesterday, this stunt is “Less Franklin and the Hoover dam and more, ‘Frankly, I don’t give a damn’.”
I know the Prime Minister has a liking for big shiny announcements to occupy the days when he is not doing press-ups, but I would have thought he would not have looked twice at this bargain basement new deal. The global health crisis has led to such disruption in our lives—the uncertainties that lie ahead for so many people are numerous—but this should be a reason to give people hope and to use the post-covid rebuild to invest in that green infrastructure and green jobs.
The challenges we face present us with a unique opportunity to do just that—to right past wrongs and to stop future ones occurring. It has shone a spotlight on what truly matters to us: values, who we value and what we value. As we begin to reimagine what the world —our communities, our high streets, our town centres—and our future look like, we have a chance to face up to the starkest challenge of all, which is our rapidly changing climate.
In the future when we talk about the bottom line, that bottom line must be to stop undercutting the environment. We must recognise what is good for our planet is good for jobs, good for livelihoods, and good for health and prosperity. We must build sustainability into absolutely everything that we do. Now is the time to be bold, but ensure that a sustainable future is ahead for us, and for our children too. We have only a few years left to act and, unfortunately, we have a Prime Minister who favours big words over actually delivering anything, so I really do urge this Government to listen and act.
Last week, the Committee on Climate Change released its annual report. The UK is still on course to miss the legally binding fourth and fifth carbon budgets. The Government are falling well short of what is needed to meet the previous target of an 80% reduction in greenhouse gas emissions, let alone their own net zero carbon commitment.
Halting runaway climate change means embedding resilience at the very heart of infrastructure plans; retrofitting homes, offices and public buildings; greening our energy network, and expanding public transport. Yet the Committee on Climate Change reported that the Government have failed to build climate resilience into their work, with no UK sector demonstrating even the ability to meet the 2° C rise in global temperature, which we absolutely must meet.
The Government have yet to radically scale up the construction of renewable energy generation or create any coherent plans to integrate onshore and offshore networks. We are lagging behind other countries in developing a proper plan to train and skill a net zero workforce, and we need to shift public investment away from high-carbon infrastructure. This Government have failed again and again, and the Prime Minister’s new plans are stuck in the fossil fuel age, with more money being spent on roads than on greening our rail networks or investing in energy efficiency, which would boost our communities and local economies. We must stop financing failure and start financing the future.
A better way forward is possible. People have made huge sacrifices during this pandemic that we have lived through. Many have lost loved ones. But this health crisis, just like the climate crisis, has not been a great leveller; it has been a great reminder of the entrenched inequalities in this country and around the world. How we invest now must take account of that.
We must look at what a green energy revolution can do for both the generation of young people who fear for their job prospects and the many millions more who have fallen foul of our fragile economy and now look nervously towards the autumn. We must invest in green energy, mass retrofitting schemes, green building and a sustainable transport network. By financing the future of education, we can equip the next workforce with the skills we need to achieve net zero well before 2050.
Now is the time to make our economy and society fairer and more just, setting us on a green and sustainable path. We have a moral obligation to pass a better world on to the next generation. People want change, too; a recent poll found that six in 10 want the Government to put health and wellbeing ahead of growth after this pandemic. The suffering that people have gone through throughout this crisis deserves to be recognised with adequate and appropriate investment.
We need a Government who will not just level up our country, where the least among us meet the just about managing; we must have a major adjustment that will make life worthwhile—action, not words. We need leadership on this, not rhetoric.
Claudia Webbe (Leicester East) (Lab)
Today’s debate on the environment and climate change is crucial because, in addition to the coronavirus pandemic, an even more devastating crisis is already here. Europe had its hottest year on record in 2019, and 11 of the continent’s 12 warmest years have occurred in the past two decades. Global grain yields have declined by 10% due to heatwaves and floods connected to climate change, unleashing mass hunger and displacement. More than 1 million people living near coasts have been forced from their homes due to rising seas and stronger storms. With the highest ever temperature recently recorded in the Arctic circle, we cannot delay in taking action to save our planet and future generations. Sadly, we cannot rely on the Government to take the urgent, radical action that is required.
I support clauses 82, 38, 87, 89, 90, 92, 93 and 102, all of which either introduce or raise taxes on environmentally damaging goods. However, they amount to a woefully inadequate response in the fight against planetary breakdown. Not only is the Government’s commitment to bringing greenhouse gas emissions to net zero by 2050 perilously unambitious, but they are not even on track to meet it. Last year, the Committee on Climate Change said that the UK is not on course to meet the original long-term ambition of an 80% carbon reduction, let alone net zero. The Institute for Public Policy Research estimates that the Government need to invest an additional £33 billion per year, just to meet their 2050 net zero target. So far, however, less than 10% of that investment has been committed.
Conservative Governments have continued to give oil companies further tax breaks, including as recently as December 2018. Yesterday, the Prime Minister boasted that his repackaged announcement of existing infrastructure plans was “Rooseveltian”, yet his announcements were incompatible with FDR’s new deal which, imperfect as it was, used the full power of the state genuinely to transform and rebuild America as it recovered from the Great Depression.
As we emerge from the pandemic, we must channel that spirit to forge a new social settlement, and a green new deal to rebuild the country with a more just and sustainable economy. We must fight for a society in which public health always—always—comes before private profit. The big polluters and corporate giants must bear the cost of that, not ordinary people. It is vital that the protection of our workers and communities is guaranteed during the transition to renewable energies. As we rebuild our economy from the ruins of a pandemic, it is possible for the Government to create 1 million green jobs with a programme of investment in renewable energy, flood defences, and a resilient health and care service.
The coronavirus crisis has demonstrated the need for our communities to have access to clean air, green spaces, and interconnectivity. That is why we must introduce full-fibre broadband, free at the point of use, a mass house insulation programme, and a green integrated public transport system. We must bail out workers and the planet, not big polluters. The bail-out in Project Birch must be subject to stringent commitments to workers’ rights, tax justice, and rapid decarbonisation. Without immediate Government intervention, the urgent action required to preserve a habitable planet will be too slow. That will cause unimaginable disruption, and could cost millions of lives, most immediately and sharply in those countries of the global south, which have contributed the least to climate change. To ensure a global green new deal, our Government must strongly consider the cancellation of the global south’s debt, and enable investments in public health. The UK must also take strong action against tax evasion and international fossil fuel finance, and rapidly step up financial support for a just, global energy transition.
Moments of crisis often shape the future. From the horrors of the second world war, we created the welfare state and our treasured NHS. While we rightly focus on tackling the coronavirus pandemic, the wellbeing of the entire planet relies on our taking this opportunity to mitigate the existential threat of climate change. If we are to achieve the necessary goal, the Government must raise their ambition and begin to act on the scale that the climate crisis demands.
Catherine West (Hornsey and Wood Green) (Lab)
It is a pleasure to follow my hon. Friend the Member for Leicester East (Claudia Webbe). I wish her and other Members of Parliament representing the Leicester area well with the non-easing of lockdown this weekend. Coronavirus has given us an exceptional opportunity to rethink things and do things differently. New clause 28 seeks to have a green thread running through our finance legislation. I will vote for it, because it seeks to inject some green thinking and some fresh thinking into the way that our economy acts.
Like other Members, I have been approached by many constituents this week about the Climate Coalition declaration. I had a very useful discussion with constituents yesterday about the three key demands, which fit neatly into this debate. The first is unleashing a clean energy revolution. I am proud to be in a city where the ultra-low emission zone scheme, which was introduced by the Mayor of London, has reduced emissions by 40% over a short period. That was quite a brave move—it is not universally popular. Often these green measures are not particularly popular to begin with, but when people realise that they can breathe better, the measures become more popular. I am sure the Minister agrees that the ULEZ is a good scheme that could be rolled out in other cities.
The wonderful campaigner Rosamund Kissi-Debrah is the mother of Ella, who, at the age of nine, tragically lost her life due to asthma. That was back in 2013, and we know that asthma deaths have risen exponentially in the last decade. Indeed, there seems to be a link between asthma and how badly one suffers from coronavirus, so we must redouble our efforts on a clean energy revolution, to make our environment much fitter for human beings.
Housing should be fit for the future. I notice that housing was way down the list of the Prime Minister’s capital spending priorities, and that is a missed opportunity. We know that a lot of air quality issues relate to people’s homes. For example, older construction in the social rented sector often means that there is damp, which can lead to problems such as chronic obstructive pulmonary disease and asthma. We also know that a number of homes in the privately rented sector desperately need to be renovated, with new boilers and a reduced carbon footprint. This is the simple, low-hanging fruit that could be tackled through the Bill. It would be lovely to have the tidal lagoons as well, and I voted in favour of those, but tackling the low-hanging fruit and funding local authorities properly so that they can do these basic things would be easy and would create jobs, including green jobs.
The second thing that the Climate Coalition is pushing MPs to do is to protect, restore and expand our green and wild spaces. Many of us will have had a renewed interest in and respect for our local parks during the coronavirus lockdown. I make a simple plea that the Minister look at increasing finance for local authorities to look after our parks better, to create beautiful walking environments and to plant more trees. I know that tree planting is on the list of things that will happen, but maintaining and looking after our green spaces is one of the easy things we could do to boost our air quality and our health.
Thirdly, leaving no one behind is a fantastic idea. It is simple: by addressing social justice, we can have the greener environment and better economy that we all seek. For example, we can do that by increasing support to the most vulnerable, which means targeting many of our green measures not just at people who can afford, say, a Tesla or a Nissan Leaf. My hon. Friend the Member for Leeds North West (Alex Sobel) talked about Nissan Leaf vehicles and Government incentives on electric vehicles; the trouble is that electric vehicles are still too expensive for most people. That needs to be addressed and the Government need to look at it very quickly.
With Brexit coming down the line—with six months to go—I have a specific question for the Minister: what is the replacement strategy for the EU emissions trading system? I see him looking studiously at his notes and hope that he will reply to that question when he responds to the debate. I shall give him some time to prepare.
Leaving the European Union has of course left the UK much more exposed to a degradation of ambition on things such as cleaner water. Our beaches, rivers and lakes became much cleaner to swim in once we were using the benchmark of the European clean water directives. We were also pushed much more at local authority level to pick up our recycling rates—which, by the way, have completely plateaued at local authority level in the past decade of austerity.
Such things are the low-hanging fruit. We want to be ambitious on big schemes as well, but so much can be done at a local level, with more funding for local authorities and regional mayors to do the basics to bring us all up at the same time and not leave anyone behind.
Several hon. Members rose—
Madam Deputy Speaker (Dame Rosie Winterton)
Order. We have just under 30 minutes before I want to bring in the Minister and we have four more speakers. I do not want to set a time limit, but it would be helpful if speeches did not go over, for example, eight minutes.
Caroline Lucas
This debate could not be more important. The Arctic is on fire; 2020 is on course to be the hottest year on record; and 16 of the 17 hottest years on record have been since 2000. There is such a thing as being too late. This is a pivotal moment, because the actions that we take over the next few weeks and months will either lock us into high-carbon dependency for decades to come, in which case we can say goodbye to any chance of avoiding the worst of climate catastrophe, or they will start to lay the foundations for a greener, safer, fairer future as we emerge from the peak of this pandemic. These decisions could not be more consequential and nor could the issue be more urgent.
New clause 34 would require the Chancellor to review the impact of the Bill on human and ecological wellbeing, including the wellbeing of future generations. I am grateful to colleagues for their support. Ministers might like to note that the Scottish and Welsh Governments are already members of the Wellbeing Economy Governments partnership, a global collaboration of nations and regions whose leaders and Finance Ministers recognise that economic progress in the 21st century means delivering human and ecological wellbeing as the overriding priority.
If we are going to build back better, we need to put improving the health and wellbeing of people and nature first when it comes to economic policy making. That should be the primary objective of every Budget, every Finance Bill and every short-term measure that the Chancellor announces next week as part of his plans for economic recovery. I hope that today we can take a small step in that direction by requiring that the Bill be assessed against its impacts on human wellbeing and the health of our natural life-support systems.
My new clause is also a step towards putting the provisions of the Wellbeing of Future Generations Bill into action. That is the subject of Lord Bird’s Today for Tomorrow campaign, which is supported by dozens of colleagues across both Houses. I am pleased to have introduced a private Member’s Bill in this House to match Lord Bird’s in the other place. That would bring about a future generations Act. I pay tribute to Jane Davidson for all her work in the Welsh Assembly on that issue.
Yesterday, the Prime Minister talked of addressing inter-generational injustice, yet so far the Government’s economic response to covid has doubled down on business as usual. Young people are at the forefront of the campaigns for a transformative green new deal, yet all they are being offered is a bargain-basement imitation, with none of the necessary boldness, vision or resource.
My new clause 34 also considers the interim report of the Treasury’s own Dasgupta review on the economics of biodiversity. It recognises, as Professor Dasgupta has written, that economies
“are embedded within—not external to—Nature.”
So we urgently need a new economic rulebook. As Dasgupta explains:
“Unlike standard models of economic growth and development, placing ourselves and our economies within nature helps us to accept that our prosperity is ultimately bounded by that of our planet. This new grammar is needed everywhere, from classrooms to boardrooms, from parish councils to government departments.”
I would argue that it is needed in this Bill as well. The good news is that just 6% of the public want to return to the pre-pandemic economy. Many of them know that GDP is a poor measure of the things that really matter and that we should not let policy be guided by it. The Government must change course and put public health above private wealth.
As for what an assessment of human and ecological wellbeing would look like, the Treasury could do worse than start with the seven wellbeing goals in the Wellbeing of Future Generations (Wales) Act 2015: prosperity; resilience; health; equality; cohesive communities; vibrant culture; and global responsibility. All this comes with a “sustainable development principle” to guide delivery. Even the inventor of GDP was adamant that it should not be used as a measure of wellbeing, because GDP goes up when things that are detrimental to human wellbeing go up. For example, a motorway pile-up is a nightmare for everyone involved, but a boon for GDP, as new vehicles are bought and possessions are replaced. It is little wonder that the majority of people want the UK Government to pursue health and wellbeing ahead of economic growth.
Anna McMorrin
The hon. Lady is making an excellent speech about the wellbeing of future generations and the Act that I am proud to have drafted and written in the Welsh Government, along with Jane Davidson, when I was a special adviser. Does the hon. Lady agree that that Act helps pave the way for what we hope will be something across the UK, including in England? Does she also agree that it demonstrates working together across all the Departments and all the different forms of government, and how we must have sustainability at the heart of things?
Caroline Lucas
I thank the hon. Lady for that intervention, not least because it gives me the opportunity to pay tribute to her work in drafting that Bill. I was not quite clear about the role she had played in drafting it. I have worked closely with Jane Davidson on the private Member’s Bill, as has Lord Bird. I am delighted to pay tribute to the work of the hon. Lady and to agree with the substantive point she makes, which is that that kind of Bill is a way of mainstreaming sustainability across every Department and every nation of the UK.
If we were to ask the millions of households in the UK suffering from hunger, food insecurity or fuel poverty whether our current growth-based economic model has delivered them prosperity, we would find that they would say that it has not. It has delivered rising inequality, insecurity, and environmental breakdown. What would change if we made the wellbeing of people and nature our primary economic goal? Some examples are obvious. Of course, we would have investment in things such as energy efficiency and retrofit, creating thousands of good jobs in every constituency, ending fuel poverty and getting emissions down—a real win, win, win. Despite Dominic Cummings apparently thinking this is all a bit boring, it is fundamental to that win-win of combining social and environmental justice. It would also mean more jobs in care, and the Women’s Budget Group shows how sensible that would be. Investing in care creates seven times as many jobs as the same investment in construction, for example, with 50% more recouped by the Treasury in tax revenues. Investment in care is also greener, producing 30% fewer greenhouse gas emissions than construction. A care-led recovery is also a green-led recovery. That just one example of what new clause 34 is all about, and I hope the Government will agree and look upon it favourably.
I wish to finish by saying a few words about the level of climate ambition. I am delighted to hear everybody, right across this House, talking about the importance of the climate crisis, but unless we get the ambition right, fine words will not get us where we need to be. As for where we need to be, organisations such as Friends of the Earth, Christian Aid, ActionAid and others have worked what our fair share of a climate reduction ought to be. If we look at how that compares with the Government’s 2050 net zero target, we will see a massive gulf. Those organisations have worked out that, based on our relative wealth and historical emissions, we should be getting to net zero by 2030—a full two decades earlier than the current target—and that we should be creating the equivalent of another 100% reduction of UK emissions overseas through climate finance to the global south. That is what we need to be aiming for.
Zarah Sultana (Coventry South) (Lab)
The need to rebuild from this crisis, and to rebuild better and greener, could hardly be more important for my constituency. Early analysis shows that unless bold further action is taken by the Government, the economic effects of the pandemic will hit Coventry and the west midlands particularly hard.
The effects are already being felt. Each week, new job losses are announced and more businesses close their doors. Rolls-Royce plans to cut thousands of staff, including at its nearby Ansty plant. Jaguar Land Rover has announced hundreds of redundancies in nearby Solihull, with a domino effect causing hundreds of job losses in car parts manufacturers in Coventry South. That will have a devastating knock-on effect for local suppliers and shops in the city, not to mention the dire impact of the crisis on hospitality, the arts and countless other industries in the city.
Even before the job retention scheme is wound down and the potential unemployment tsunami hits us, the human cost is already starting to build up. Pressure is growing on Coventry’s voluntary sector, on its food bank and on local services. It is estimated that without further action, across the country 1 million more people will fall into poverty this year alone.
We stand on the verge of an economic and social calamity. This is no time for the Government to sit on the sidelines, or to offer the same old answers, or to try to go back to the old normal. That system was broken and already failing working people, but the Prime Minister’s announcement yesterday does not rise to the challenge. What he is proposing is barely even a sticking plaster. In the face of the worst recession for generations, the new deal the Prime Minister promises equates to less spending than the cost of two aircraft carriers. It is a drop in the ocean.
The challenge before us is not simply recovering from coronavirus, but combating the climate emergency as well, because the danger of ignoring warnings and delaying actions is now all too clear. We simply cannot afford to make the same mistakes with the climate. There is no planet B to fall back on. We do need a new deal, but it must be a green new deal—one that is bold and ambitious, that hardwires lasting change in our society, and that works for working people. It should be a new deal that creates 1 million green jobs, as the TUC has proposed; one that invests in green industries, renewable energy and home insulation, and builds a resilient health and care service. It should be a new deal that harnesses the skills and industry that we have in Coventry to make the city a world leader in the automotive industry once again, but now building the electric cars of the future. It should be a new deal that builds green public transport, with railways and bus networks expanded, owned and run for public benefit, not private profit.
It should be a new deal for our key workers. They kept society running through this crisis; now it is time to run the economy for them. Let us give them a new deal with the pay rise they deserve. With this new deal, let us ask the super-rich and the big corporations to pay their fair share—no more bail-outs for companies registered in tax havens, no more tax dodging or corporate excess.
As we emerge from this crisis, we stand at a crossroads that will determine our future, so let us learn from the lessons of the past. In 2008, bankers crashed the economy, but working people paid the price, with a decade of cuts and stagnant wages. We became a nation of food banks and zero-hours contracts. The Government missed deficit targets, but ripped up the social safety net. There is no doubt that that was a grave mistake, but even now we hear calls for more years of austerity.
In 1945, we took a different path. With mountains of debt and an economy in ruins, we planned and invested for the people. We built the national health service, the welfare state and 1 million council homes. We ran industries for the public good and we taxed the richest. Living standards rose, the economy grew and debts were repaid. Which path we take now is up to us.
In this crisis, we have seen the best of society, from the mutual aid groups that sprang up to the outpouring of love for the NHS and its heroic workers. We have seen how deeply we care for one another. Across divides and differences, we pulled together, so let us pull together again and build back better and greener with a green new deal, tackling social injustices and the climate crisis and building a Britain fit for our key workers and for the future.
Tim Farron (Westmorland and Lonsdale) (LD)
There has been much talk of Roosevelt and the new deal but, as the hon. Member for Cardiff North (Anna McMorrin) said, the Roosevelt new deal comprised 40% of US GDP and the Prime Minister’s announcement 0.2% of UK GDP. The new deal rhetoric is right—let us congratulate the Government on that—but the reality is utterly limp.
We stand on the precipice of a recession, probably the worst of our lifetimes, and so it is good to hear Conservatives, for the first time in generations, looking to the great liberal economist John Maynard Keynes for inspiration. This is a time to boost demand and economic activity, to create jobs by direct Government intervention. We will do that by borrowing to invest, and we should do so on a colossal and ambitious scale. Yesterday’s announcement of £5 billion investment would transform Cumbria, if all of it was spent there. No serious person thinks it will even make a dent in the UK-wide economic situation.
Nor does that investment, of course, comprise a green infrastructure revolution. Yet, if we really are to build an economy that is better, that is the revolution we would choose. An active, ambitious Government would invest not £5 billion, but the £150 billion that the Liberal Democrats propose, over the next three years. That way, we would stand a chance of ending the recession before it starts, protecting and creating jobs and preventing hardship. We would also stand a chance of leaving a legacy that future generations will thank us for.
In working together, in a collective national endeavour to build the sustainable infrastructure we need, we can generate the national unity and common purpose that has been absent ever since the debate about our relationship with the rest of Europe turned into a self-destructive culture war. We can unite the country, avert the recession and save the planet all in one go, but it will take an awful lot more than 0.2% of GDP.
So what should we do? We expect to see as few as 3,500 social rented homes built across the entire country this year, the lowest number in history. In my constituency alone, we have 3,000 people languishing on the housing list. We need new homes, genuinely affordable homes and zero-carbon homes. The Government must fast-track the affordable homes programme and spend it on building new, zero-carbon social rented homes.
The Government must also launch a nationwide programme of energy insulation, starting with the homes of those with the lowest incomes, and they must also use this time of fast-tracked legislation—since they are in the mood to do it—to reform the Land Compensation Act 1961 to prevent land values from being inflated, so that we can make zero-carbon homes more affordable to build and more likely to be built.
Transport is key to rural communities such as mine, and to the environment and the recovery. In the north-west, transport spend per head of the population is still barely half of what it is in London, despite the promises made when the northern powerhouse was established. Bus services in London receive a £722 million annual subsidy; in Cumbria, we receive nothing at all. What little money exists rarely makes it north of the M60—not much of a powerhouse, and not very northern.
Our communities in South Lakeland have done a spectacular job putting together community bus services, such as the Western Dales Bus service connecting Sedbergh and Dent with Kendal and the surrounding communities, to plug some of the gaps caused by the steady loss of services, but we should not have to do that. The lack of subsidy means that fares are extortionate, which is a huge challenge, especially for low-paid workers. The 5-mile journey from Ambleside to Grasmere costs £4.90; a journey of equivalent length in London costs £1.50.
Bus services are essential to life in rural communities such as ours—essential to boosting our economy, moving to zero carbon and tackling isolation. They are also key to Cumbria’s vital tourism industry. Between 16 million and 20 million people visit us each year, and 83% of those visitors travel to us by car. With the right interventions and conditions, our visitors will travel sustainably.
We ask for a comprehensive, affordable rural bus service connecting all our villages to our main towns regularly and reliably. We ask for a network of electric hire bike stations. There should be such stations at all railway stations, in village centres, and at major bus stops, and action to make cycling easier and safer throughout Cumbria. We ask for the Lakes line, which connects the English Lake district to the main line, to be electrified. It is shameful that the Government cancelled electrification plans in 2017 for utterly bogus reasons. Now is the time to keep that promise and electrify this iconic line, which serves Britain’s second-biggest visitor destination after London. We ask that there be a passing loop on the Lakes line at Burneside to enable a huge increase in capacity, and we ask for Staveley station to be made accessible, so that it is no longer out of reach of those with mobility difficulties, who cannot make it up the 41 steps.
We ask that the Government show their commitment to industrial renewal and to tackling the climate emergency by investing in wave, hydro and tidal power in the most beautiful but—let us be honest—wettest part of Britain. Why is it that the UK, with the highest tidal range on the planet after Canada, spends so little on the reliable power that water offers? We are proud to have Gilkes in Kendal, beacon to the hydro energy industry. Let us back it, and others like it, so that we can get Britain working, sustainably.
For Cumbria and Britain, building back better and greener is possible—essential—but it means doing more than just using Roosevelt’s name; it will mean deploying Roosevelt’s courage.
Jim Shannon
I am thankful for the opportunity to speak on this important topic. I declare an interest as a landowner. Many years ago, I used the initiative to provide saplings to landowners free of charge, and I planted 3,500 trees on my farm—my father’s farm, as it was then. Over the years I have watched them grow, and have seen wildlife flourish. I am very proud of my biodiversity foray. However, I would never have thought to use some five acres of my farm to plant trees had not the relevant Department publicised and encouraged the scheme, and made it easier for me.
I understand that the Prime Minister has this week indicated that 1.5 billion trees will be planted between now and 2050. That will raise forest cover across the United Kingdom of Great Britain from 15% to 17%. I would have liked more than that, of course, but I welcome it; we should welcome that very positive announcement. It is clear to me that Government initiatives on the environment make a difference. I am not talking about ceasing production of diesel cars or other preventive measures; I am talking about initiatives from which the constituent feels the benefit. Constituents knew that they could get money for scrapping their old carbon-emitting guzzler car, and could put that towards a more environmentally friendly car that cost them less in road tax, and they did it. They knew that they could get a grant to help install solar panels on their roof and for insulation, so that they did not have to use as much oil, and they did it. Battery storage is one of the projects in my constituency. We hope to see it going forward as one of our very positive green energy projects. I understand that my hon. Friend the Member for North Antrim (Ian Paisley) is in discussions with the Government about hydrogen vehicles. He also asked a question of the Prime Minister today about buses.
Jesse Norman
It is a great pleasure to be able to speak to the very interesting debate that we have just had. It ranged very wide and far indeed, but I will speak now to the specifics of the clauses.
New clause 28 would require the Chancellor to assess the impact of the Bill on the environment, and new clause 34 would require the Chancellor to review its impact on human and ecological wellbeing, including that of future generations. New clause 13 would require the Chancellor to assess the impact of the Bill on the UK meeting the UN sustainable development goals. New clause 14 would require an assessment of the Bill’s impact on the UK meeting its Paris climate change commitments.
I could do no better than the hon. Member for Ilford North (Wes Streeting) in rehearsing many of the achievements of the Government set out in his speech, so I am very grateful to him for doing that. He rightly highlighted the achievements that we have made in terms of offshore wind, but it was left to my right hon. Friend the Member for South Northamptonshire (Andrea Leadsom) to mention the 42% reduction in emissions since 1990 while the economy grew by two thirds, so I do not need to dilate too much on that topic.
Let me merely speak to these amendments to the legislation. These amendments are not necessary and they should not stand part of the Bill. Tackling climate change is a top priority for the Government, with the UK becoming the first major economy to pass legislation committing to reach net zero emissions by 2050. The Government remain committed to meeting this milestone and have consistently demonstrated the UK’s world leadership in clean growth and development. For example, the 2019 spending round included additional funding for biodiversity measures to support the maintenance and restoration of vital habitats for wildlife and to deliver the 25-year environment plan. Following that, the spring Budget reinforced our track record in the area, announcing at least £800 million for carbon capture and storage—that should be of great interest to the hon. Member for Weaver Vale (Mike Amesbury), who is no longer in his seat—and more than £1 billion of further support for ultra low emission vehicles. That Budget also announced that we will at least double funding for energy innovation.
The Bill highlights the progress we are making towards our commitment to tackling climate change, as well as towards sustainable low-carbon development and meeting international agreements. The Bill provides significant incentives to support the continued decarbonisation of transport. Clause 83 establishes tax support for zero-emission vehicles, exempting them from the vehicle excise duty expensive car supplement.
The Bill also ensures that Her Majesty’s Revenue and Customs can prepare for the introduction of the plastic packaging tax. That was rightly highlighted by my hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones) and will incentivise businesses to use 30% recycled plastic instead of new material in plastic packaging. The Government are also reopening and extending the climate change agreement scheme to support energy-intensive businesses to operate in a more environmentally friendly and sustainable way.
Jesse Norman
If I may, I will speak to the clauses and then take up the points made by Members in the debate.
New clause 28 would require the Chancellor to assess the impact of the Bill on the environment, specifically considering the impact on achieving net zero emissions by 2050, on meeting carbon budgets and on air quality standards and biodiversity. The Government are committed to meeting our net zero milestone. The net zero review continues to make progress, although, let us be clear, like everything else the capacity to consult a wider group of stakeholders has been affected by covid. Many resources have been devoted to covid-related matters given the position we are in, but the review continues to make progress and we will publish a call for evidence, which will allow businesses and stakeholders the chance to engage seriously ahead of publication.
Carbon pricing has already contributed to emissions reductions in the power sector, as the share of coal-based electricity fell from 40% in 2012 to 5% in 2018, which is something everyone should be proud about. Future climate strategies will be set out in due course, including as part of the national infrastructure strategy.
The Government have also created skills advisory panels to help local areas understand their current and future skills needs, including in low carbon industries, and to tailor provision accordingly. The Government will assess the impact of potential interventions against the contribution they make to our environmental goals, including on climate change and air quality targets.
New clause 13 would require an impact assessment of how the Bill is meeting the UN sustainable development goals within six months of Royal Assent. It is important to realise that it is already a requirement for UN member states to review their progress towards meeting the global goals at least once, and we as a country have been proactive in assessing that and reporting back to the UN.
New clause 14 would require a review of the Bill’s impact on the UK meeting its UN Paris climate change agreements. 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 that implements that commitment under the Climate Change Act 2008 is world-leading.
New clause 34 would require the Chancellor to review the impact of the Bill’s provisions on human and ecological wellbeing, including on future generations. The Environment Bill is designed to ensure that the environment is at the heart of all environmental policy making. This Government and future Governments are held to account if they fail to uphold their environmental duties through a newly established Office of Environmental Protection, including legally binding, long-term targets on biodiversity, air quality, water, resource efficiency and waste management on top of the net zero target.
Turning to some of the comments that I thought were of great interest, my right hon. Friend the Member for South Northamptonshire was absolutely right to highlight the Government’s record in this area. The hon. Member for Aberdeen South (Stephen Flynn) raised a challenge on top-ups. My view here, as elsewhere, is that we will look with great interest to see whether the policy is effective. If it is effective, we will look even more closely at whether our policy as the UK Government needs to be changed, but it is obviously far too early to be able to say that. If he believes, as we believe, that actions matter, not just words, I am sure he will agree. If the Scottish Government want to do more in that area, they have received an additional £3.8 billion through covid funding, and they can divert some of that if they wish.
Jesse Norman
I am afraid I just do not have any time. I will come back to the hon. Gentleman at the end if I do.
I want to respond to the hon. Member for Hornsey and Wood Green (Catherine West), who rightly highlighted the importance of local authorities for cycling, walking and tree planting. I agree with her about that. She asked about the replacement strategy for the emissions trading system. I think she is aware that we have framed two alternatives. The first is a UK ETS, and the second is a carbon emissions tax. We are open to a negotiated agreement, but we have the resources, through either of those options, to implement a scheme that addresses the issues that she is concerned about.
Finally, the hon. Member for Cardiff North (Anna McMorrin) called for leadership not rhetoric. I wonder whether she was referring to the Welsh Government, whose tree planting plans have been disastrous. They seem to be way behind, according to their own tree planting estimates.
The hon. Lady specifically picked out the Swansea Bay tidal lagoon. As my right hon. Friend the Member for South Northamptonshire said, that project would not provide value for money. It would be a terrible waste of public money. That money could be spent much better.
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.
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.
Madam Deputy Speaker (Dame Rosie Winterton)
Order. I ask all hon. Members other than Front Benchers and Tellers to leave the Chamber by the doors behind me. Members should join the queues to vote in Westminster Hall. To vote, Members should enter the Lobby and swipe their pass on one of the pass readers. The doors will be closed in 12 minutes.
Mr Pat McFadden (Wolverhampton South East) (Lab)
I beg to move, That the clause be read a Second time.
Mr Deputy Speaker (Mr Nigel Evans)
With this it will be convenient to discuss the following:
New clause 1—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 20 and 21 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 20 and 21.
New clause 31—Restricting the loan charge to cases where taxpayer knew loan was taxable—
“(1) In Schedule 11 to F(No.2)A 2017 (employment income provided through third parties: loans etc outstanding on 5 April 2019) in paragraph 1(1)—
(a) at the end of paragraph (b) omit “and”; and
(b) at the end of paragraph (c), insert—
“, and
(d) if the relevant year is 2015/16 or an earlier tax year, one of the conditions 1 to 3 is met.”
(c) After paragraph 1(1), insert—
“(1A) Condition 1 is that—
(a) P submitted a return in accordance with section 8 of TMA 1970 for the relevant year,
(b) the loan or quasi loan was not accounted for in the return as income, and
(c) P knew that the loan or quasi loan should have been accounted for as income in the relevant year.
(1B) Condition 2 is that P has not been issued with a notice under section 8 of TMA 1970 for the relevant year.
(1C) Condition 3 is that P has been issued with a notice under section 8 of TMA 1970 for the relevant year but that notice is or has been withdrawn under section 8B(2) of that Act.”.
(2) In Schedule 12 to F(No.2)A 2017 (trading income provided through third parties: loans etc outstanding on 5 April 2019) in paragraph 1(2)—
(a) at the end of paragraph (a)(ii) omit “and”; and
(b) at the end of paragraph (b), insert—
“, and
(c) if the tax year in respect of which the loan or quasi loan should have been accounted for as income (or otherwise treated as a receipt of a revenue nature for income tax purposes) (“the relevant year”) is 2015/16 or an earlier tax year, one of the conditions 1 to 3 is met.”
(c) After paragraph 1(2), insert—
“(2A) Condition 1 is that—
(a) T submitted a return in accordance with section 8 of TMA 1970 for the relevant year,
(b) the loan or quasi loan was not accounted for in the return as income (or otherwise treated as a receipt of a revenue nature for income tax purposes), and
(c) T knew that the loan or quasi loan should have been accounted for in the return as income (or otherwise treated as a receipt of a revenue nature for income tax purposes).
(2B) Condition 2 is that T has not been issued with a notice under section 8 of TMA 1970 for the relevant year.
(2C) Condition 3 is that T has been issued with a notice under section 8 of TMA 1970 for the relevant year but that notice is or has been withdrawn under section 8B(2) of that Act.”.
This new clause provides that, in respect of loans made in 2015/16 tax year and any earlier tax years, the loan charge applies only if the taxpayer submitted their tax return and deliberately did not declare the loan to be income. The clause also extends this protection to taxpayers who were not required by HMRC to submit tax returns.
New clause 35—Review of Off-Payroll working (IR35) legislation—
“(1) The provisions of section 7 and Schedule 1 of this Act do not have effect unless the Treasury has conducted a review of Off-Payroll working (IR35) legislation and has laid a copy of the report of that review before both Houses of Parliament.
(2) A review under (1) must include assessment of—
(a) impact on individuals’ livelihoods,
(b) impact on individuals’ employment rights, and
(c) relevant business practices.
(3) Any review under (1) must be carried out no later than 31 December 2025.”
This new clause would provide that the IR35 provisions of the bill would not take effect unless the Treasury has conducted and published a review of off-payroll working legislation.
Amendment 16, page 2, line 23, leave out clause 7
Amendment 55, in clause 20, page 15, line 6, at end insert—
“(3A) An amount paid, treated as paid or due to be paid under a qualifying agreement is also a qualifying amount if—
(a) the amount is referable (directly or indirectly) to a qualifying loan or quasi-loan,
(b) the tax year in which an amount representing the loan or quasi-loan should have been accounted for as income (or otherwise treated as a receipt of a revenue nature for income tax purposes) (“the relevant year”) is 2015/16 or an earlier tax year, and
(c) one of the conditions 1 to 3 is met.
(3B) Condition 1 is that—
(a) the person to whom the income tax liability the agreement referred to in subsection (2) relates (“P”) submitted a tax return in accordance with section 8 of TMA 1970 for the relevant year, and
(b) the loan or quasi loan was not accounted for in the return as income (or otherwise treated as a receipt of a revenue nature for income tax purposes).
(3C) However, condition 1 is not met if P knew that the loan or quasi loan should have been accounted for in the return as income (or otherwise treated as a receipt of a revenue nature for income tax purposes).
(3D) Condition 2 is that P has not been issued with a notice under section 8 of TMA 1970 for the relevant year.
(3E) Condition 3 is that P has been issued with a notice under section 8 of TMA 1970 for the relevant year but that notice is or has been withdrawn under section 8B(2) of that Act.”.
This amendment is consequential on the new clause “Restricting the loan charge to cases where taxpayer knew loan was taxable”. It provides that a prior settlement with HMRC can be unwound unless the worker failed to account for a 2015/16 tax year (or earlier) liability in his or her tax return deliberately despite knowing that the loan should have been included as income.
Amendment 17, page 85, line 2, leave out schedule 1.
Amendment 20, in schedule 1, page 97, line 15, leave out “2021-22” and insert “2023-24”
This amendment and 21 to 36 and 57 seeks to delay the introduction of the IR35 changes until the tax year 2023-24.
Amendment 21, page 97, line 17, leave out “2021” and insert “2023”
Amendment 22, page 97, line 21, leave out “2021” and insert “2023”
Amendment 23, page 97, line 23, leave out “2021” and insert “2023”
Amendment 24, page 97, line 25, leave out “2021” and insert “2023”
Amendment 25, page 97, line 26, leave out “2021” and insert “2023”
Amendment 26, page 97, line 38, leave out “2021” and insert “2023”
Amendment 27, page 98, line 4, leave out “2021-22” and insert “2023-24”
Amendment 28, page 98, line 8, leave out “2021” and insert “2023”
Amendment 29, page 98, line 12, leave out “2021” and insert “2023”
Amendment 30, page 98, line 30, leave out “2021” and insert “2023”
Amendment 31, page 98, line 34, leave out “2021” and insert “2023”
Amendment 32, page 98, line 37, leave out “2021” and insert “2023”
Amendment 33, page 98, line 40, leave out “2021” and insert “2023”
Amendment 34, page 98, line 44, leave out “2021” and insert “2023”
Amendment 35, page 98, line 45, leave out “2021” and insert “2023”
Amendment 36, page 98, line 47, leave out “2021” and insert “2023”
Amendment 57, page 97, line 36leave out ‘2021’ and insert ‘2023’
New clause 12—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 are continued for—
(i) six months,
(ii) the next year,
(iii) eighteen months,
(iv) the next two years; 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 other than as specified in (a).
(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 18—Review of changes in Act—
“(1) The Chancellor of the Exchequer must review the effect of the changes in this Act in each part of the United Kingdom and each region of England and lay a report of that review before the House of Commons within two months of the passing of this Act.
(2) A review under this section must consider the effects of the changes on—
(a) business investment,
(b) employment, and
(c) productivity.
(3) A review under this section must consider the effects in the current and each of the subsequent four financial years.
(4) The review must also estimate the effects on the changes in the event of each of the following—
(a) the UK leaves the EU withdrawal transition period without a negotiated comprehensive free trade agreement,
(b) the UK leaves the EU withdrawal transition period with a negotiated agreement, and remains in the single market and customs union, or
(c) 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.
(5) The review must also estimate the effects on the changes if the UK signs a free trade agreement with the United States.
(6) 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 requires a review of the impact on investment, employment and productivity of the changes made by the Act over time; in the event of a free trade agreement with the USA; and in the event of leaving the EU without a trade agreement, with an agreement to retain single market and customs union membership, or with a trade agreement that does not include single market and customs union membership.
Mr McFadden
It is a pleasure to be facing my old sparring partner from the Treasury Committee of some years ago across the Dispatch Box. In this debate we will cover a number of amendments dealing with IR35 or off-payroll working, through to the loan charge and the impact of this Finance Bill on the crucial issue of jobs.
On IR35, we have always said that we need an approach that brings together the consideration of tax and employment law and that levels up protections for the self-employed, as well as dealing with the current implications of the tax system, which sometimes boosts bogus self-employment. The Chancellor has already hinted at changes to the tax regime for self-employed people as a consequence of the help given to them through the current crisis. Some contractors have raised concerns about being treated like an employee for tax purposes but not for employment rights purposes. Given the huge ongoing labour market difficulties caused by the current crisis, I would like to ask the Minister what consideration the Government have given to the timetable for their proposed changes and, in particular, what their attitude is to the amendments before us tonight calling for a delay in the roll-out of the IR35 changes to the private sector, so that we can get the balance between tax and employment rights correct.
Many Members have also received representations about changes to the loan charge. We have supported attempts to deal with tax avoidance, but also expressed concern for those advised into such arrangements, by either employers or the promoters of such schemes. We will continue to press the Government to review how the promoters of disguised remuneration schemes have been tackled—or not tackled, as the case may be—by HMRC and ensure that those who promote such schemes are held to account.
Sir Edward Davey
I agree with what the right hon. Gentleman has been saying. Would he support the option of the House having a vote tonight on new clause 31, which relates to the loan charge? There are many people watching our deliberations who hope that this House will express a view on the loan charge, and I am told that at the moment that is not likely to happen. Will he confirm from the Front Bench that the Labour party would like a Division on new clause 31?
Mr McFadden
The matter of what is voted on is of course, a consideration for the Speaker. I do not always get to decide what is voted on in this House.
New clause 26, standing in my name and those of my hon. Friends, focuses on the issue of jobs and does so for the very good reason that that is the principal economic challenge facing us right now. If there was any doubt about that, we need only look at the news over the past 24 hours—1,700 jobs lost at Airbus, up to 5,000 job losses announced by the owners of Upper Crust, 4,500 at easyJet a couple of days ago, another 4,500 at Swissport, and many more around the country that do not make the front page of the national news. These are not just numbers. Every one of them is a human story of a livelihood taken away and a family wondering how they will pay the bills and what the future will hold for them.
Across the country, the claimant count measure of unemployment is up by 1.5 million since the start of the year. In addition to those out of work and the estimated 9 million on furlough schemes, it is estimated that up to 8 million employees are working fewer hours than usual. These stark figures show us that we are facing the jobs challenge of a generation. It is decades since young people leaving school, college or university graduated into a labour market such as this.
Giving my age away, I remember, as a young teenager growing up in Glasgow, attending the people’s march for jobs. Unemployment back then was around 3 million. The vocabulary of it infused the times—“signing on”; “the Girocheque”. It even gave birth to the great band UB40, named after the unemployment card that people got for signing on. The damage caused by that mass unemployment affected not just the city where I grew up, but the Black Country that I now represent, and many similar communities across the country. Long-term social and economic pain was caused by far too many people facing a life on the dole, and we must never go back to those days. If we have learned anything from that experience of the 1980s, it is that the cost of not acting is greater than the cost of acting, and we must do everything we can now to prevent mass unemployment. That is the challenge facing us.
At the start of this crisis we called for wage support to help people through. The furlough scheme and the self-employed furlough scheme were the right and necessary things to do, but as lockdown is eased, and support from those schemes starts to be withdrawn from next month, we can see the danger facing the economy. The danger is that businesses that have been just about hanging on start to let people go, caught between having no income and facing rising employment costs. This is the moment that the Government need to act to preserve jobs, jobs, jobs.
John Redwood (Wokingham) (Con)
I agree with the right hon. Gentleman about the importance of jobs. Is he worried that the reform the Government have in mind might mean that a self-employed person working on their own in one of our constituencies could lose a contract to a foreign company, because the big company undertaking the contract might think that was safer?
Mr McFadden
I am not sure about the part of the right hon. Gentleman’s intervention that referred to foreign companies, but the turbulence of the labour market right now does pose a danger to contractors. The Government have already recognised that to some degree in the delay announced for this measure.
Withdrawing support schemes at the same pace for all sectors does not recognise that some sectors are in far more difficulty than others, and that is particularly true for any sector based on the idea of people gathering closely together. Many sectors such as transport, aviation, sport, theatre, music, and others, are global British strengths, but right now they are on their knees. Dropping the social distancing rule from two metres to one metre is not enough when, in some cases, any kind of social distancing is impossible. Let us take live music, for example, which is based on the very opposite of social distancing. The break-even point for many venues and events is often being 80% to 90% full, and the change to one metre will not make that much difference to them. We need an approach that takes into account the different impact on different sectors.
If there was already a sectoral problem in withdrawing employment support, there is also now a geographical one, because Leicester is entering its second period of lockdown. Our thoughts go out to the people and businesses there who, like the rest of the country, have made great sacrifices over the past few months. We cannot yet know how long that second period of lockdown in Leicester will last. It could be a few weeks, but equally, it might be longer. Neither can we know whether Leicester will be the only place to go into another lockdown. Other cities may follow, and there has already been speculation about where those might be. How can it be right to withdraw employment support on a national basis when we are no longer in a single national position on the easing of lockdown?
We are asking people and businesses in Leicester today, and possibly other cities in the days and weeks to come, to shut down for a second time, and they should not be penalised for doing so. Will the Minister consider as a matter of urgency flexibility in the unwinding of the furlough and other support schemes, to take account of the new development of at least one, but possibly more, local lockdowns? Let me now turn to the future, and the jobs that might be created. The Government announced their back-to-work plan yesterday.
Jim Shannon
Something that concerns me—and I know that it also concerns the right hon. Gentleman and many other Members—is the fact that manufacturing as a proportion of the UK’s GDP has fallen from 30% in 1970 down to 10% today, which is perhaps why our economy has not grown as it should have. I understand that if we do not get that figure up from 10% to 15%, we will not have a manufacturing base for the future. Does he share my concern that if we do not retain, restore and increase our manufacturing base—including in the aerospace sector, for companies such as Bombardier in my constituency—it will not have a future?
Mr McFadden
There is no MP from the west midlands who does not care about our manufacturing base. It is a vital part of our economy. It may be true that we make less than we used to, but it is also true that we make more than we think, and we should never be dismissive of the activity and the creativity of making things in this country.
The Government announced their back-to-work plan yesterday, praying in aid President Roosevelt and the new deal. First, the Prime Minister wanted to compare himself to Churchill. Now it is Roosevelt. We have to wonder why he seems so uncomfortable with just being himself. Let us look at the comparison. F. D. R.’s new deal did indeed rescue the United States from the great depression. Millions of workers were hired, 255,000 miles of roads were built, as were 40,000 schools and almost 1,000 airports—major infrastructure projects that modernised the United States and stood the test of time, all at a cost of around 40% of pre-depression United States GDP. By contrast, what the Prime Minister announced yesterday was around 1% of the cost of the new deal—one cent on the dollar, if you will. He has taken the old political maxim, “Under-promise and over-deliver”, and turned it on its head.
I know that the Minister likes a good book. One of the shorter, but nevertheless hugely illuminating, studies of Roosevelt’s approach comes in Doris Kearns Goodwin’s book on leadership. In it, she sets out Roosevelt’s watchwords behind the new deal. I will leave the House to make its own judgment on the comparison between this and the Prime Minister. First, “Strike the right balance of realism and optimism”—not everything has to be claimed to be the biggest or the best in the world. After the events of recent months, systems that just worked would be an improvement. We then have, “Infuse a sense of shared purpose and direction”, “Lead by example”, “Forge a team aligned with action and change”, “Bring all stakeholders aboard”, “Set a deadline and drive full-bore to meet it”, “Address systemic problems. Launch lasting reforms”, “Be open to experiment”, “Adapt and be ready to change course where necessary”, and “Tell the story directly to the people”. That was Roosevelt’s approach, and I will leave it to others to judge whether the Prime Minister’s approach falls short not only in scale but also in spirit.
Sir Edward Davey
Like the right hon. Gentleman, I have read books about F. D. R. I have studied F. D. R. The Prime Minister is no F. D. R.
Mr McFadden
Quite.
Infrastructure expenditure is, of course, welcome, and we support it. It makes sense to do this when interest rates are historically low.
Sir Mike Penning (Hemel Hempstead) (Con)
There are people in our constituencies whose lives are being destroyed every day because the loan charge has been applied to them retrospectively. Forget what Mr Speaker might say—will the Labour party support new clause 31 if it is called? If not, why not?
Mr McFadden
On the loan charge, as I said, we have always supported cracking down on tax avoidance and we support action against those who enabled the scheme. New clause 31 makes a connection between people’s tax treatment and what they knew; I believe we have to explore that principle as a matter of taxation and think carefully about how to proceed. I look forward to the debate on that later.
Mr David Davis (Haltemprice and Howden) (Con)
I rise to speak to the amendments and new clauses tabled in my name and the names of other Members of this House. They include new clause 31 and the consequential amendments relating to the loan charge legislation, and amendment 20 and the consequential amendments relating to the application of the so-called IR35 regulations, which deal with off-payroll taxation arrangements.
It is a pleasure to follow the right hon. Member for Wolverhampton South East (Mr McFadden). I am even older than him: I can remember discussions across the table in my household about the means test when I was too young to understand it.
When I first spoke in this House about the loan charge arrangements, I quoted the Chief Justice of the US Supreme Court who once said that the power to tax is the power to destroy. That description could be used of both the policies that I wish to talk about today. The loan charge destroys lives. To date, at least seven people have taken their own lives as a result of this unfair and retrospective policy—and I will use that word “retrospective” over and over again, even though HMRC fails to recognise it. For many ordinary, decent people, including locum nurses, teachers and contractors—ordinary folk, not big City bankers—who were misled by their employers in many cases, the loan charge has robbed them of their peace of mind, their self-respect and, in some cases, their lives. Some 39% of them have considered suicide, 49% could lose their homes and 71% could face bankruptcy.
New clause 31 would simply stop the Government pursuing any employees who were innocent parties who did not know that what they were doing was illegal and who believed they were acting correctly and in good faith. Yesterday, when I spoke on immigration, I had to deal with a briefing from the Government supposedly rebutting the lines in my proposed amendment, and I have the same again today. A disgraceful and frankly wrong briefing has been handed out by the Government describing what they thought we were saying. I will not go into details, but I hope that others will have time to do so. I will simply say that HMRC seems to have forgotten that in English law you are innocent until proven guilty. It is about time we followed that principle with respect to the loan charge.
Sir Edward Davey
As the right hon. Gentleman knows, I am the second name on new clause 31, and he will note from the amendment paper that 54 hon. and right hon. Members have signed it. That is more than any other amendment before the House today, and the only one that comes close to it is another amendment on the loan charge. Does he not think that that is a signal that the House wants to divide on new clause 31, and that whatever the Front Benchers think, the Back Benchers who have signed new clause 31 want a vote?
Crispin Blunt (Reigate) (Con)
On a point of order, Mr Deputy Speaker. Forgive me; I might have missed the reason why are we are not going to be able to divide on new clause 31, but I would be grateful if you could explain it to me. I have today become the longest serving Member for Reigate since the Great Reform Act, so I might have missed one or two things that are going on, but I would be obliged if you could tell me why we are not going to have the opportunity to divide on new clause 31.
Mr Deputy Speaker (Mr Nigel Evans)
I thank the hon. Member for his point of order, but I think we have to wait until the end of the debate before these decisions are made.
Mr Davis
Thank you, Mr Deputy Speaker. I shall move on to the other issue that I want to discuss today.
Amendment 20 would delay the imposition of the IR35 rules from 2021 until April 2023. It is very unlikely that the economic crisis we are facing will be over by April 2021, and attempting to implement IR35 will cost jobs and do serious economic damage. A few months ago, the powerful Cross-Bench House of Lords Economic Affairs Committee wrote a report on IR35, and much of what I am going to say involves quotations from that report. I will start with this:
“It is right that everyone should pay their fair share of tax. But the evidence that we heard over the course of our inquiry suggests that the IR35 rules—the government’s framework to tackle tax avoidance by those in ‘disguised employment’—have never worked satisfactorily, throughout the whole of their 20-year history. We therefore conclude that this framework is flawed.”
It is right not to impose unnecessary burdens on business at a time like this. I agree with a great deal of what the right hon. Member for Wolverhampton South East had to say about the importance of preserving—and, indeed, not destroying—employment in the current circumstances. This goes right to the issue of IR 35. The report states that
“the government made this decision after considering the issue too narrowly, in terms of its tax take. It has severely underestimated the costs to business of implementing the changes…And it did not analyse sufficiently the unintended behavioural consequences of the proposed reforms or their wider potential impact on the labour market, and on the gig economy in particular.”
Many contractors in the coming years will be left in an “undesirable halfway house”. They do not enjoy the rights that come with employment, yet they are considered employees for tax purposes. In short, IR35 will create “zero-rights employees”. I am saying this directly to Labour Members, because the idea that a Government action can create a class of employee with zero rights is an issue close to their hearts. Such employees have no rights under employment law but under tax law they are employees.
The Lords Committee called on the Government to commission an independent review to devise a better implementation of the scheme. I think that is exactly right, which is why I want to see another two years before we implement whatever the decision is. We need that time to understand precisely what the effect of our new policy will be.
It would be a disaster if, in the context of the economic crisis and the growing gig economy, the Government accidentally created that class of zero-rights employees with no holidays, no sick pay, no pension, no redundancy —no employment rights whatsoever. We must stop that happening either accidentally or deliberately, and on that basis I ask the House to support amendment 20.
Alison Thewliss
I am glad to follow the right hon. Member for Haltemprice and Howden (Mr Davis), who set out well the impact that the loan charge has had on many people’s mental health and wellbeing. Many of them will be watching the House tonight.
The implementation of the loan charge has been a disgrace. Our new clause 1 would force the Treasury to come clean on its unfairness and would require a review of the impact of the scheme. That reflects the limitations of Finance Bill amendments, but given the freedom of information revelations released yesterday by the all-party parliamentary group on the loan charge, suggesting that there was too cosy a relationship between Government officials and the staff working on the independent Morse review, looking again at this whole shambles seems appropriate.
It remains a scandal that tax professionals advise their clients to use such loopholes. It is important that people pay their fair share for the public services we all use, and the UK Government must pursue the organisations and individuals who facilitated these loans. An independent review should be carried out of the advice given. As I said in Committee, those who trade in the business of loopholes are surely looking for the next thing to come along, so coming down on those scheme promoters now would prevent future loss to the Treasury.
There is widespread concern that HMRC has failed to work constructively with those seeking a loan charge repayment plan, with concerns that some may face bankruptcy and homelessness. I thought the right hon. Member for Haltemprice and Howden laid that out quite well. He mentioned the seven people who sadly took their own lives.
We continue to call on the UK Government to review the implementation of this policy, and our new clause 1 would force them to publish one within six months, including on the fairness with which HMRC has implemented the policy and whether it has provided reasonable flexibility on repayment plans, with the aim of avoiding business failures and individual bankruptcies.
My hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) tabled early-day motion 296 to welcome the publication of Sir Amyas Morse’s loan charge review and the fact that, through this Bill, the UK Government would amend relevant legislation such that loans made before 2010 would no longer be subject to the loan charge. The motion also welcomes the fact that the self-assessment deadline has been delayed until 30 September 2020.
Initial analysis suggests that more than 30,000 individuals will benefit from those and related measures, but a pause in the policy is still necessary to assure MPs that HMRC is working constructively with those who are seeking a reasonable repayment plan—one that recoups the unpaid tax while avoiding the unacceptable risks that people face. If HMRC cannot deliver on that, an independent arbitration scheme should be used.
We on the SNP Benches support the cross-party amendment 55 and new clause 31, which, as the right hon. Member for Kingston and Surbiton (Sir Edward Davey) pointed out, has 54 names to it and would provide that a prior settlement with HMRC could be unwound unless the worker failed to account for a pre-2016-17 tax liability in his or her return deliberately, despite knowing that the loan should have been included as income.
It is disappointing to hear that there may be no vote on new clause 31, given how many signatories there are to it and the lobbying we have all had. People watching this debate at home will not understand why. Since we are trading FDR quotes, we should note that he said: “In politics, nothing happens by accident. If it happens, you can bet it was planned that way.”
The Tories have failed to address our concerns about IR35, which is why we tabled amendment 16 to scrap it. Instead of pressing ahead with the discredited IR35 in the Bill, the Government should take the advice of the House of Lords—that is not something I often say, but they should; they should pause this policy and go back to the drawing board. It seems evident that the UK Government have not learned from their previous experience in the public sector and are ploughing on regardless.
On a process issue, we maintain that it was not acceptable that the Government introduced all this through a deeply contentious 45-minute money resolution debate instead of going through the full scrutiny of the Budget process. We have been against IR35 since the start, and these proposals would introduce a new group of zero-hours employees, paying full taxes without the associated employment rights—something that should give us all pause for thought. People working in our constituencies in a huge range of jobs should be entitled to those employment rights.
Under the present economic circumstances, it is wrong to place new and unfair taxes on firms. Contractors are particularly liable to be struggling at this point—not least those who are part of the 3 million people excluded from the UK Government’s support schemes. I pay tribute to ExcludedUK and all those who have sought to highlight this issue.
Stephen Flynn
A number of constituents in my Aberdeen South constituency have contacted me because they are facing a triple whammy of covid-19, the oil and gas sector downturn, and the impact of IR35. Should the Government not think again?
Alison Thewliss
I agree with my hon. Friend. I was going to mention the oil and gas sector, because it is part of the triple whammy. The situation is very difficult for people at the moment and the Government should not be in the business of trying to make it more difficult. They should be thinking again and looking at the circumstances we are in, rather than pressing ahead with something that does not suit these circumstances.
The “check employment status for tax” online tool for IR35 is also problematic. The UK Government have basically tried to replace a complex legal specialty—employment law—with an online quiz, which objectively does not give the same results as the courts in deciding whether an individual is an employee. We have asked questions about the empirical methods used to test that tool, but I have not been provided with any specifics other than it has apparently been rigorously tested. It is hardly surprising that employers feel that these are moving goalposts, and they may avoid the risk by avoiding using contractors altogether. We support new clause 35, which would provide that the IR35 provisions of the Bill would not take effect unless the Treasury had conducted and published a review of legislation on off-payroll working.
Our new clause 12 would make clear the economic hit that would follow the ending of the coronavirus support schemes. Along with many others across the country, I fear that winding up these schemes too soon will prompt companies to lay off staff. The major job losses announced in the past few days really must prompt the Treasury to reconsider this strategy. It is no coincidence that Airbus, Wigan Athletic, Harrods, John Lewis, easyJet, Upper Crust, TM Lewin, Royal Mail, Harveys and Arcadia have all laid off staff today and in the past few days. They are all looking at the scheme and thinking, “How are we going to survive in the next few months without any support for our workers?”
New clause 12 seeks assessments of the impact of the Bill within a month and various economic variables, comparing a situation where the Treasury sees sense and continues its covid support schemes for the next year with the likely reality that it discontinues them as planned, leaving the economy and people’s living standards reeling. The review set out in the new clause would consider the effects of the provisions on GDP, business investment, employment, productivity, company solvency, public revenues, poverty and public health.
The right hon. Member for Wolverhampton South East (Mr McFadden) set out quite well his experience of growing up in Glasgow. We still live today with the post-industrial legacy and generation of health harms of the ’80s—with the shutdown of heavy industry and the impact that had on people’s wellbeing. I am determined that we will not see that again from this crisis. The Chancellor must live up to his pledge to do whatever it takes to protect people’s jobs and livelihoods. The Treasury Committee report published the other week said that over 1 million people have fallen through the gaps in the UK Government’s welcome support schemes. In the report, the Committee also asked the UK Government to explore measures to help those newly in employment and self-employment, freelancers and those on short-term contracts, all of whom face barriers to accessing support schemes or have sadly been excluded from them altogether. This is now a choice. The Government cannot say that they did not know that these people were left out. They are now choosing not to support them.
With the ONS earlier revealing that the UK’s economy suffered its biggest monthly slump in GDP on record—of 20.4%—in April due to the coronavirus pandemic, we have renewed our calls on the Treasury to extend the income support schemes rather than wind them down. We need only look at Leicester, where the outbreak has meant a further shutdown, and wonder whether that will happen again. How will people be incentivised to stay at home and protect their friends, neighbours and families if they do not have an income coming in? People cannot survive on statutory sick pay and without support.
There is an effect across different sectors, such as theatre and arts productions, which may not come back until March next year. How are staff in those sectors going to pay their wages without some kind of job retention or support scheme? What about the people in hospitality—many of whom have businesses next to the very same theatres that will not open their doors until March? Where are the pre-theatre dinners if there is no theatre to go to afterwards? The tourism sector faces the prospect of three consecutive winters and cannot survive without support schemes. If we want these businesses and livelihoods to exist, the Government need to pay the money now, because if they do not, they are going to pay it out in unemployment benefits. We also need to look across the nations of the UK. Scotland’s experience is different from those of England, Northern Ireland and Wales. None of the countries of the UK should be punished for putting public health first. With businesses struggling to survive, thousands of jobs on the line, and households taking a severe hit as people’s income drops or they lose their jobs, it is vital that the Treasury strengthens and extends these schemes, and brings forward a comprehensive financial package to ensure that a strong economic recovery from this crisis happens, rather than pushing ahead with these plans.
Our new clause 18 would force the Government to come clean on the damage our economy faces from Brexit in the midst of this crisis. The new clause would require a review of the impact on investment, employment and productivity of the changes to the capital allowance over time; in the event of a free trade agreement with the USA; in the event of leaving the EU without a trade agreement; in the event of leaving with an agreement to maintain single market and customs union membership; or in the event of leaving with a trade agreement that does not include single market and customs union membership.
With our economy already struggling with coronavirus, leaving the EU single market and customs union this year would do unthinkable damage to our economy. It was a bad decision before, but it is a worse decision now. The risk of long-term scarring to the economy is significant, and investment from the UK Government could stave that off, if they choose to do this. Roosevelt’s new deal was equivalent to 40% of US GDP. Germany has invested 4% of its GDP, whereas the Prime Minister has invested 0.2%. It is not just FDR’s clothes that the Prime Minister has attempted to steal this week, because President Duterte of the Philippines, whose “build, build, build” phrase he plagiarised, invested $177 billion in the Philippines economy. The UK response is completely inadequate. It is the emperor’s new clothes, leaving Scotland bare. We call on the UK Government to take up Scottish Finance Secretary Kate Forbes’ plan , which would inject £80 billion into the UK’s economy as a whole. I commend that and our new clauses to the House.
Andrew Jones
I share colleague concerns about the prospect of unemployment. One of the best things that happened over the past decade was the growth in jobs, with 1,000 new jobs a day on average. Unemployment in Harrogate and Knaresborough fell to about 2%. The current crisis is, of course, changing that dramatically. We have 9,500 people working in the hospitality sector in my constituency, so I am anxious about that and have welcomed the partial lockdown release this weekend.
The measure to help business prosper that I was most pleased to see in the Bill was the encouragement for further investment in research and development, specifically the increase in the R&D expenditure credit from 12% to 13%. Businesses win in the long term by ensuring that their product or service has competitive advantage—a reason why customers should buy it. I spent 25 years in business before coming to this place and I spent that time making sure that the companies I worked for had the right products for our customers. In some sectors it takes significant resource to develop one’s product, be it automotive or pharmaceutical—both sectors in which this country is strong—or one of plenty of others. There is a strong record of creativity in the UK, but we are not always as good at finding ways to commercialise those ideas, to go from start-up to scale-up. Creating a better environment for the development of ideas is important for the longer-term success of our economy.
I wish to make a few comments on a significant issue before us in this section of this debate, which is off-payroll working. That has attracted much attention and there are clearly some problems to solve, but they are not easy to solve. In some cases, the issue is straightforward, in that people have been working for one employer for prolonged period, perhaps for many years, and they are really employees. They do similar jobs to the person who is sitting next to them and they use the same company equipment, but it could of course be on totally different terms of employment. They could be paid better or less in terms of their headline salary, but the situation is more complex than that because they will not be paid for holidays, pension contributions and so on. I have read of cases where the imbalance of power that can exist between employer and employee has led to pressure on people to choose a particular route—in effect, people being bullied into self-employment by unscrupulous employers seeking to save on costs and national insurance. That is wrong for all parties—wrong for the employee certainly, wrong for the employer, and wrong for taxpayers too, as revenue for public services is missed. However, that is not the case for the vast majority of people. They choose a route of self-employed, freelance or contractor work expressly because they enjoy the challenge of that type of work, or perhaps they want to be their own boss and more in control of their own destiny, or there could be all sorts of other personal reasons. That is a good thing. It is to be encouraged, because the flexibility that that provides has been a great boost to our economy.
Contractors and consultants play a huge role in the economy. Their work is one of the ingredients that has contributed to the recent economic progress. Being swift of foot in response to commercial opportunities is competitive advantage. It has allowed companies to bring in extra resource when they need to boost operational capacity, or extra skills when they are needed. I have been contacted by or met many people, including many in my Harrogate and Knaresborough constituency, who have built careers adding real value to their clients. In some sectors, there is more use of contractor work than in others; such sectors include IT and technology more broadly, as well as marketing and the creative industries—sectors where the UK is strong. There is also the growing sector of interim managers.
I see a balance to be struck here—a balance between protecting some employees and recognising that the vast majority have chosen this route and are providing real value; a balance between employment rights and protections, and between those who are employed and self-employed contractors. That balance has to be struck while ensuring that the rules do not have a sclerotic effect on the economy. Flexible and nimble companies responding to their customers, adding value, creating wealth, seizing opportunities—that is how economies grow, it is how jobs are created. Fair taxation, employment protection, company flexibility, highly skilled contractors and freelancers—finding the right balance of these benefits everyone in our economy.
Paula Barker (Liverpool, Wavertree) (Lab)
I remember the 1980s: 3 million people on the dole and my city of Liverpool left to managed decline. We did not cope then, but people got by. There were the remnants of the welfare state, we had council housing to provide shelter, and with whole communities often devastated simultaneously, people came together. However, this is 2020: many workers have hefty mortgages or face sky-high private rents, and as we know, private household debt in this country is completely unsustainable. It is household debt that has artificially driven economic growth for much of the past decade, when previous Tory Chancellors were declaring a sound economic recovery. Now we will see the consequences of the destruction of the welfare state in the past decade.
If this Government do not act in the coming weeks and months, I truly dread to think what happens when thousands of workers with mortgages of £180,000 to £250,000-plus, or rent payments of £650 to £1,000-plus per month are forced to apply for universal credit. It is in this Government’s power to ensure we do not get to that stage. The Government must continue to act and extend support for workers, the self-employed, small and medium-sized enterprises and all sectors of the economy, or else our recovery will be a slow one. A decade of austerity, under-investment, low productivity and a dwindling manufacturing base has blunted the levers we need to deal with this crisis properly. Despite the Chancellor demonstrating considerable ambition at times, I fear he will be hamstrung by the warped economic thinking of his predecessors and the inertia of his future self.
I saw the impact that the last tidal wave of unemployment had on my generation. We cannot subject this generation to the same. I have already seen apprentices being laid off, redundancy notices being served across the board, and even in non-unionised workplaces that may escape redundancies, cuts to pay being forced through with little or no consultation with the workforce.
The economic hardship faced by our young people will lead to a disaffected generation of adults who have had their hopes, dreams and aspirations for the future dashed by a crisis they did not cause. My first question to the Government is: does their ambition match that of our young people? How are they going to support the good, well-paid, unionised jobs of the future that our young people—my own children—will need to thrive?
Stephen Hammond (Wimbledon) (Con)
I am fortunate to have represented Wimbledon in this House, and it has seen unemployment levels driven to unheard-of low levels. However, as a result of this crisis, 10,000 people are on furlough and 4,000 self-employed have had help, so the suggestion that there is anybody in this House not concerned about unemployment must be false; it will affect all our constituencies, as will not only this Finance Bill, but the Government’s reaction in terms of the policies they put in place, flexibility about the furlough scheme, job support and, as my hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones) said, some consideration of how IR35 works. There needs to be some flexibility, because modern working sees people with the same employer for longer periods, and some employers will force people to do that. Therefore, in the context of the current crisis, forcing people to move away from arrangements that keep them in employment would undoubtedly be wrong.
I do not want to detain the House for too long, but I want to talk about the loan charge. Like many in this House, I have been contacted by a number of my constituents and others.
Joy Morrissey (Beaconsfield) (Con)
My concern about the loan charge is the repayment method that HMRC is pursuing. I ask that the Government look at alternative ways, or means-testing, rather than just demanding punitive repayment in full, which is causing extreme emotional stress and, for some, even suicide. If they would look at alternative ways of collection, rather than demanding all payment at once, I think we could find a much better way through this.
Stephen Hammond
My hon. Friend anticipates some of the questions I might have for the Minister in a moment. The loan charge raises particularly unique considerations; that is why 55 Members of the House have signed the new clause tabled by my right hon. Friend the Member for Haltemprice and Howden (Mr Davis). The whole aspect of proportionality and the unusual construction of the charge also raise issues about the capability of HMRC and the role of financial advisers.
I have spoken in various debates, and made representations to my right hon. Friend the Financial Secretary to the Treasury only this week, about the charge and the impact it is having on very many people. I am pleased that the Government set up the Morse review and that they have accepted most of its recommendations, but I ask the Minister to address a couple of points in his closing remarks.
First, Morse explicitly states:
“I am also very clear that I have no sympathy for the people who promoted…loan schemes after the law became clear.”
Will my right hon. Friend the Minister clarify this: if financial advisers gave recommendations when the law was not clear that the loans were illegal, why will the Government not accept that those individuals acted in good faith and look at the ability to treat them more leniently?
Secondly, given the Morse comment, will my right hon. Friend confirm whether HMRC is investigating the advisers? Is it seeking reparations from the advisers, and, if it intends to do so, would it agree that the amount of reparation sought from the financial adviser be set against the liability of the person who took the loan?
As my hon. Friend the Member for Beaconsfield (Joy Morrissey) said, we all want to ensure that bankruptcy, home loss and family destruction do not happen. My right hon. Friend the Minister has alluded in previous remarks to the fact that the Government are keen to ensure that that does not happen and that he has asked HMRC to work with individuals to ensure that it does not. Will he set out tonight exactly how he intends to instruct HMRC to do that?
Finally, I will just have a look at amendment 55. I absolutely support the intent, which is to help those affected and to alleviate the crisis that many face. Like most people, I absolutely oppose the concept of retrospectivity and retroactivity, so it is a bit of a disappointment to many of us that, in accepting the Morse recommendations, the Government did not feel able to accept the recommendation that loans between 2010 and 2016 be exempt. I wonder whether the Minister might, even at this late stage, choose to do so. I suspect not.
Stephen Hammond
I am not very good at holding my breath, so I certainly shall not try it now—but probably people do not want me to expend much more breath in my remarks tonight.
I must say to my right hon. Friend the Member for Haltemprice and Howden that my problem is with part of what his new clause does. I absolutely accept the premise, as everybody in this House must, that people are innocent until proven guilty. However, and I do not know whether this has really been addressed so far, his new paragraph 1(c)(1A)(c) says that condition 1 is that
“P knew that the loan or quasi loan should have been accounted for as income in the relevant year.”
There is a fundamental problem with that, in that anyone could say they did not know that, and how do we prove it? The clear problem is that, much as I support the intent of what he is trying to do, the effect of what he seeks would be to create a precedent that seems to me to take away the basis of the UK tax system, because I might say to someone, “We both know that we should not be paying tax on this and therefore we can proceed on that premise.” The precedent that that sets is a major problem for gathering tax.
Mr David Davis
If my hon. Friend thinks that this is the precedent, he should go back to the Finance Act 2008, which gives HMRC a 20-year assessment period in which it can assess whether the taxpayer participated in a transaction knowing that it was part of an arrangement attempting to bring about loss of tax. That is precisely what it says.
Stephen Hammond
The precedent that I am looking at is very clear that there seems to be an issue with the whole tax system.
Sir Edward Davey
The hon. Gentleman has heard from the right hon. Member for Haltemprice and Howden (Mr Davis) that the way that new clause 31 has been designed has used words already on the statute book, so he cannot make that argument. Moreover, the real precedent that he ought to be worrying about is the loan charge itself and its retrospective nature. I know he is concerned about that, so should he not therefore be voting for new clause 31, which is based on existing tax vocabulary, and opposing the real precedent, which is the appalling way that taxpayers have been treated?
Stephen Hammond
I have already made the point about retroactive behaviour and retrospectivity. I have said that there is much that the Government can do. I want the Minister to set out exactly how a person who has no assets, is on benefits or is on earnings less than the national average could get forgiveness. I have explained what I am concerned about. I hear what my right hon. Friend the Member for Haltemprice and Howden has said, and perhaps the Minister will want to address the point I am raising. I may be wrong, but it seems to me that this is quite a dangerous precedent to embark on.
Joy Morrissey
Referring to the means-tested and alternative ways of looking at a nuanced approach to how this is handled, the point that has been raised about everyone denying culpability on a tax issue is valid. However, my concern is about the companies and advisers that promoted this scheme. Are we going to prosecute them? Are we going to investigate them? What are we going to do to hold them to account?
Stephen Hammond
I hope that my hon. Friend heard my earlier remarks on that point, so I will not repeat them.
I would be grateful to hear the Minister’s responses to the points that I have made and look forward to hearing them later.
Dr Huq
I think it was some time before Brexit, when we had that previous Speaker with his comedy antics, that it used to be said that we are gripped by an age of apathy in politics. Well, I have to say that this debate has engendered quite the opposite in my inbox, which has been flooded—if not quite on a Dominic Cummings scale—by dozens of requests from constituents asking me to speak in this debate, aided and abetted by the digital function that we debated earlier today.
Yesterday, like other right hon. and hon. Members, I was pleased to participate in the virtual “The Time Is Now” lobby. I know that this was the subject of the previous debate, but I promised my constituents that I would lobby vigorously for the adoption of a green new deal. Seeing as how everyone has been channelling their inner Roosevelt, it seems appropriate to put that on the record. We need a greening of our economy locally and nationally.
I want mainly to address an issue that has already come up time and again—IR35 and the loan charge—and perhaps some other little bits about job creation and regional impacts.
I am sure I am not the only one who has heard harrowing stories from constituents. There are people in tears at my weekly advice surgery—and I represent Ealing Central and Acton, a prosperous West London suburban seat. The two schemes are markedly different—we should not muddy the waters too much—but they have features in common. The undercurrent of today’s debate has been how we rebuild our economy after the pandemic —this health crisis that turned into an economic crisis.
Matt Rodda (Reading East) (Lab)
Does my hon. Friend agree that the common characteristic of the people who have contacted many of us is that they are very hardworking? They have tried to play by the rules. They have possibly been sold a scheme that they did not fully understand, and may have been manipulated by unscrupulous advisers, and now they face threatening behaviour from HMRC. It is truly difficult for these people, many of whom work in IT in the Thames valley, and in creative industries. Does she agree that the Government need to show these people some understanding?
Dr Huq
My hon. Friend is completely right. HMRC needs to show some humanity in these cases. The scheme was obviously badly implemented, with inadequate impact assessment. The word “scandal” is frequently used and often misapplied, but in this case, all the elements needed are there. People have been pushed into bankruptcy; families have been fractured; people are facing financial ruin and losing their homes. As we have heard, there have been seven suicides. The all-party parliamentary loan charge group, which is very active—I am sure it is in everyone’s inbox all the time—has sent round a letter from the daughter of one of the people who sadly took their own life about the impact that has had on everyone involved.
The Morse review is a start, although the APPG feels that it could do better and go much further. All of us have seen these cases; my hon. Friend the Member for Liverpool, Wavertree (Paula Barker) described the situation movingly.
Ruth Cadbury (Brentford and Isleworth) (Lab)
Does my hon. Friend and neighbour agree that the reason why people are driven to suicide, and why a high proportion of those affected are so stressed about the loan charge, as has been mentioned, is that there is no right of appeal to a tax tribunal, or right to negotiate, as there is with all normal forms of tax business with HMRC?
Dr Huq
I completely agree, and I pay tribute to the work that my hon. Friend has done on the APPG, together with the right hon. Member for Hemel Hempstead (Sir Mike Penning); they have done brilliant stuff, and it is disappointing that we will not vote on new clause 31 today.
Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)
The hon. Lady talked about the Morse review. We called for a review before the present Prime Minister was brought in; he agreed to it. The Morse review does not completely cover everything. I have certainly said to my constituents, as I suspect most of us have, that the Government were bound to implement its findings, even if we think the findings could have gone further—but the Government have not done that. That shows a lot of bad faith on their part.
Dr Huq
I completely concur with the right hon. Gentleman. It is very disappointing that even the crumbs of the Morse review are not being fully implemented in a transparent and fair way. Again, we have heard so much about these reviews. There are 200 recommendations on all the race relations stuff that have never been implemented. Another review is not what we need now; we need action.
My hon. Friend the Member for Reading East (Matt Rodda) described some of the people in IT who have come to see him. Those affected are not actually all in IT or accountants. Some of those who have come to me are from the public sector, including Eugene Nicholson in the NHS and Abigail Watts. I have had a supply teacher and a social worker. Some people are terrified and do not want their cases raised because of repercussions. As has already been said, the real culprits are the promoters of the schemes—individuals who are still practising today. They duped our constituents, who are now facing a nightmare of private debt collection and all sorts of things.
I will briefly turn to IR35, where there is some overlap, because it has caused enormous pain and strain. People got into these schemes innocently—in this case, their employers told them to do it. Many are individuals on low incomes who do not have deep pockets. The assumption is that they are all tax dodgers or whatever. Catherine Qian said that she was a one-woman band. These are micro-businesses. It is not like the discussion earlier where we were talking about going after multinationals. She has no employment rights. She has an accusation of being a hidden employee, but she gets no sick pay, stability or pension. Needless to say, she is not eligible for furlough. The Conservative manifesto at the election we recently fought said that there would be a review of self-employment, so I ask the Minister directly: when will that see the light of day? Will it be another one of these reviews that just sits on a dusty shelf?
How do we solve all of this? At the very least, HMRC should give those who fell prey to the loan charge more time and favourable conditions to reach an amicable solution. It has been said that no one will lose their home, and that is good, but HMRC must accept its share of responsibility.
Ruth Cadbury
My hon. Friend is right that HMRC has said it will not be taking people’s homes, but is she aware, as I am, that bailiffs on behalf of HMRC are locking people out of their own homes and refusing to let them back in until they make payment?
Dr Huq
My hon. Friend is so much more knowledgeable than me. Lots of my constituents cannot afford to buy their own home and are in rented accommodation, so that does not even apply to them. They are in beds in sheds—maybe I should not dob them in, but that is a phenomenon in the London Borough of Ealing.
Again, HMRC must accept responsibility for not communicating regularly with people. It could have acted sooner to avoid this sizeable group of people who went into these remuneration schemes having to pay back sometimes hundreds of thousands of pounds at a time. IR35 is being rolled out now, so the deferral is obviously welcome, because these things can be fixed in real time, as long as the deferral is not just pushing punitive measures further away. The Government need to urgently commit to a full review of tax reliefs.
While the debate is about job creation, I want to flag, as my hon. Friend the Member for Liverpool, Wavertree pointed out, that the global pandemic we are in seems to be a bit of a cover for certain companies to behave badly. British Airways and Virgin spring to mind as using the coronavirus job retention scheme—the clue is in the name—to do the very opposite. Having accepted furlough funds from the public purse, they are now using coronavirus as a cover for restructuring plans—plans they were always itching to execute—while they believe the eyes of the world are diverted elsewhere. I say to the Minister that we need a sector-specific deal for aviation.
The situation is the same for the creative, cultural and arts sector. I represent many constituents who work in it. Not for nothing was Ealing long-called a BBC borough. The Questors theatre—the jewel in our crown—is the biggest amateur dramatic venue in the country and it has written to me. It is about to go under. Its rateable value is too high to get any of the reliefs. That is another plea to the Minister.
We were told that, when we left the EU, we would be world-beating on employment rights, and that our rights could exceed those of the bloc after Brexit, but now, with IR35, we are heading for zero employment rights. The Government always said that this would not be a race to the bottom, so they need to put their money where their mouth is. There is nothing like a global pandemic to concentrate the mind. We have heard slogans such as, “We’re all in this together”. To stop all these Government utterances from being just hollow words, we need action. Snappy slogans are not enough.
Sir Edward Leigh (Gainsborough) (Con)
It is true that we find ourselves in a very serious situation. The number of workers on UK payrolls was down by more than 600,000 between March and May. Of course, the Government are attempting to redress the situation with the Business and Planning Bill and the Corporate Insolvency and Governance Bill. We also hope that we can end lockdown as soon as possible. Certainly, the Prime Minister is talking the talk in terms of build, build, build. That is all very good. We have infrastructure needs; let us meet them. There are no massive spending projects. The problem with them is that they are often hugely bogged down in cost overruns.
I want to say a bit about tax simplification. That is the genesis of this whole debate on IR35 and the loan charge. There is also our hugely ineffective, inefficient and long tax code—longer than India’s—and that is after 10 years of Conservative Government. I think that there is a new wind breathing through No.10, and I hope that we are going to be bold about tax reform. Are there any taxes that we can abolish completely or replace with simpler alternatives? We have created this massive tax avoidance industry, which has sucked many people with quite moderate means into its claws. Let me cite as one example, inheritance tax at 40%. We have to understand how people act. At a rate of 40%, most people are willing to make a significant investment to reduce the effectiveness of that rate. I am not condoning that behaviour, but if someone were left a million pounds and if the state said that it would take £400,000, they might begin to think that it is worth spending £40,000 or £50,000 on tax advice as a way of lessening their payment of tax. All sorts of complicated trusts and avoidance schemes are available to those who recognise that they can avoid paying tax. The result is less money for the Treasury to spend on the things that we need.
On this debate about the loan charge, it is natural that politicians should want to close down loopholes, but often, in closing down loopholes, we are affecting people of quite modest means. It is true that as a level of complexity involves means, those loopholes are usually available to those who have the resources to investigate them, but not necessarily. An entire industry has been created around how to lessen our tax burden, inheritance or otherwise, and I think that the Government are, in a way, responsible for this kind of behaviour. The people who have taken advantage of these tax loopholes, often of modest means, are simply reacting to our hugely complex tax codes. Taxes need simplifying and they need lowering. I make that point because I hope the Minister will say something in his summing up about this. I hope that he tells us that the Government have an agenda, otherwise we will go on having these debates over and over again. Every time a new loophole is discovered, people will take advantage of it, often with the wrong sort of advice. Then the Government have to close the loophole, creating injustice, which we have heard all about in this debate.
Sir Iain Duncan Smith
My right hon. Friend talks about tax loopholes and, yes, that is absolutely clear, but the thing about the loan charge is that HMRC itself was complicit in the process. It was advising and letting people believe that those charges were quite safe and reasonable. Then quietly, it came to the conclusion that they were not and did not make it clear to anybody. In effect, therefore, it is HMRC that has created the tax loophole and then failed to identify it and tell people that they were on the wrong scheme.
Sir Edward Leigh
I absolutely agree with my right hon. Friend, and he puts it far more clearly than I have done. I was trying to make the point that he has just made, which is that, ultimately, HMRC and the Treasury are responsible for this in not giving proper advice and in creating an over-complex tax system, and that has created this kind of behaviour. It is natural behaviour and we should not blame the people who have tried to take advantage of these sort of schemes. This complexity kills the economy.
Sir Christopher Chope (Christchurch) (Con)
One of my constituents says that because he put in freedom of information requests to HMRC, on two occasions last summer, HMRC paid him a visit at his home. Is that the behaviour we expect from HMRC?
Sir Edward Leigh
We have learned to expect that sort of behaviour. As Ronald Reagan said—we have heard about Roosevelt, so why can we not hear from Ronald Reagan, who was a better sort of Conservative as far as I am concerned?—when we tax something, we get less of it, and when we subsidise something, we get more of it. Research from the European Central Bank shows that when the tax burden is raised by 1%, economic growth is reduced by 0.13%. We have heard a lot about job creation, but that change means many fewer jobs. Every time we create taxes, we destroy jobs.
The Office for Budget Responsibility forecasts that the UK tax burden will grow to 34.6% of GDP by 2024, which is the highest tax burden for this country in more than half a century. We think of ourselves as a seafaring, deal-doing, trading nation, but how can we compete when the trend of tax burden is going the wrong way? That is how we will stifle job creation. We must look at a comprehensive reform of our economy, not the usual tinkering under the hood, and we can do some of that through regulatory reform. That is not aiming for deregulation—instead, the Government should ensure that the UK’s regulatory structure is simple, clear, and appropriate. That is the genesis of this entire debate: our tax system is not simple, not clear, and not straightforward.
If we radically simplify the tax system we will spur more activity, so it is a virtuous circle of benefit to the whole of our society. Imagine if all the money spent on corporate or personal tax avoidance—tax avoidance is perfectly legal, I say to the Minister—could be invested in productive activity instead. Imagine all those thousands of accountants going off and taking up machine tools—I know it is unlikely, but at least it is a thought. That would also be fairer, as it would no longer mean that the richer someone is, or the bigger their company, the more they are capable of exploiting complicated tax loopholes.
We know it is simplistic to base our economy on Singapore or Hong Kong—we are a larger country with more complex needs—but on tax policy, the example they have set is applicable. Let us consider per capita GDP of the UK, Singapore and Hong Kong. They were all more or less at a parity in 1989, about five years after I came to this House, with each at around $25,000 a year. All three countries have improved their GDP per capita, but the scale of the difference is notable. By 2016, six years into a Conservative Government, the UK, with its complex tax code, had a per capita GDP of $37,000. Low tax, simple tax Hong Kong was at more than $48,000, and Singapore at $65,000 to our $37,000. We neglect at our peril that opportunity for a huge growth in numbers of jobs, for our per capita GDP and for income for the Treasury. My simple point to the Minister is this: when he sums up, will he say something about tax simplification and tax reduction?
Mary Kelly Foy (City of Durham) (Lab)
We are facing an employment crisis unlike anything we have seen in a decade. The impact of coronavirus will undoubtedly weaken much of our infrastructure, leaving many workers unemployed, and businesses on the brink of collapse. Unfortunately, when lockdown ends, the Government seem intent on a return to normality and business as usual, stuck in the past when they should be learning lessons and looking to the future. The Government’s slow reaction cost us as we entered this pandemic, and they cannot repeat that mistake as we emerge from lockdown.
In contrast, my hon. Friend the Member for Oxford East (Anneliese Dodds) has proposed a back-to-work Budget that places jobs at the heart of the economic recovery. That does not mean a sticking plaster solution, however, or jobs with little or no protection for workers. The damage to our economy caused by this awful virus has been severe, but the economic structuring of society was already broken—skewed in favour of the wealthy rather than workers.
Over the last decade of Tory austerity, the Government have launched attack after attack on the rights and protections afforded to working people. Through the promotion of zero-hours contracts, ambiguity in employment status, low pay and lack of protection in the workplace, the Government have encouraged irresponsible employers and abandoned the country’s workers. Before lockdown, 9 million people living below the poverty line—3 million of them children—were in households with at least one person in work. The Government boast of record levels of employment, but they should be ashamed of the amount of in-work poverty. This economic model needs to end.
If this pandemic has shown us anything, it is that the people on whom society relies the most are those least rewarded in pay and respect. Whether it is the poorly paid nurse, the carer on a zero-hours contract or the retail and hospitality staff working shifts so long that they would not be out of place in Victorian society, the people of Britain deserve better. This pandemic has been devastating, but it provides us with an opportunity to shape the economy and society in a way that prioritises the environment and protects workers. That means better pay, shorter and more consistent working hours and job security. Workers need to be able to look ahead into the week knowing that they have work, that their wages will provide a decent standard of living and that their working hours will leave them the time and energy to live their life. The better the conditions and protection for workers, the better their quality of life and the greater their health, wellbeing and sense of worth—it really is that simple.
The pandemic has also exposed the lack of protections for staff in the workplace and how fragile health and safety standards are. The Government must begin to see employment law as a red line, rather than being advisory, and they must properly fund the Health and Safety Executive, so that safety in the workplace is properly enforced. When the Government finally begin to plan for our post-coronavirus society, they must accept that the status quo has not worked, and any attempt to return to business as usual will fail the public. The 33 million workers of Britain deserve more. When society needed them most during this pandemic, they delivered. It is time for the Government to do the same for them.
Ben Everitt (Milton Keynes North) (Con)
I draw the House’s attention to my entry in the Register of Members’ Financial Interests.
In this part of our debate, we are talking about jobs. Today the Government launched the flexible furlough scheme, and flexibility needs to be the watchword of our response and how we consider the economy. We are emerging, blinking in the sunlight from lockdown, and our businesses are blinking too, in the light of the new economic reality. Things will never be the same. Things have changed irrevocably, and we have learned a lot about our society, volunteering and our communities. We have learned a lot too about how business will need to change and adapt.
The drivers of that change—the adapters—are the consultants and contractors in our professional services sector, which provides such immense value to our economy and also revenue to the Exchequer. These are the people who bring the sparkle of innovation. They are the lubricant of the cogs of capitalism. They are the critical friend to beleaguered boards and exhausted executives. These are the people who are caught up in the IR35 reforms. I welcome the decision of my right hon. Friend the Financial Secretary to the Treasury to postpone the introduction of those reforms until next spring. I am sure that, in the short term, that decision will have reassured many who face huge challenges in retooling our economy, reorganising the businesses that provide those jobs and repositioning and repurposing our private sector.
Christine Jardine (Edinburgh West) (LD)
Does the hon. Member perhaps wonder, as I do, if postponing does not simply extend the period of stress for people who are waiting to find out? I was curious about that.
Ben Everitt
The hon. Member has perhaps read my speech. That postponement is quite problematic, and in fact I am sure I am far from alone on the Benches either side of this Chamber when I say that I wish it were not postponed, but were cancelled.
However, we can learn lessons. I welcome the commitment to review the implementation of IR35 in the public sector because, frankly, this is about the implementation of such schemes. The hon. Member for Ealing Central and Acton (Dr Huq) noted some similarities between the loan charge and IR35. I think the biggest similarity is the fact that both have been implemented in a way that one could describe as a sledgehammer to crack a nut. These nuts are important to our economy, and I hope that we can learn some lessons and implement such schemes in a way that captures the essence of what we want to do, which is obviously to crack down on elaborate and excessive tax avoidance and, indeed, in the words of my right hon. Friend the Member for Gainsborough (Sir Edward Leigh), simplify our tax system and make it more efficient and more productive, but we must have an equitable and fair system—a system that empowers growth, but ensures that we benefit from a buoyant economy.
The ability of a flexible workforce to assist our businesses, large and small, across the economy in this time of particular economic turmoil will be crucial to our recovery, and it is one that we must not curtail. We must not risk squandering the competitive advantage that our British spirit—our consultancy sector, our contractors, our professional services—gives to the UK economy as we look to bounce back or, in the words of a Prime Minister, bounce back better, bounce back faster and bounce back greener. Many contractors and consultants will be watching this debate today and looking to the Treasury Bench for some hope, and some sign that they are not forgotten and that this Government recognise them as part of the solution to our economic woes, not part of the problem we face.
Charlotte Nichols (Warrington North) (Lab)
Our economy stands on the brink of catastrophe. The coronavirus job retention scheme has been, there is no doubt, an unprecedented package of support, which I welcomed as a vital lifeline for employers and sectors across our economy. We have seen already, however, how the failure to attach conditionality to the scheme meant that too many employers have used it as a subsidy towards the notice pay of staff they were laying off, rather than to preserve jobs. We have seen huge job losses announced in sectors across the economy, and many more businesses are vulnerable, particularly in catering and hospitality, aviation, manufacturing and the creative sectors.
The approach from the Government has been one size fits all, but more bespoke support must be forthcoming to ensure the viability of businesses and sectors that have been hardest hit by this crisis and by social distancing measures that may be in place for some considerable time. I ask the Government also to look at early warning systems, so that employers can access targeted support before sliding into administration, with the Government taking an equity stake, where necessary, to protect the taxpayer interest.
I turned 18 as the 2008 economic crash started to bite. I know what it is like to be totally despondent, looking at opportunities that generations before us took for granted, feeling that they will never be in our reach, yet the anxiety I felt has nothing on what young people in Warrington North and across the country will be feeling right now, given the scale of our current crisis. They need hope and cause for optimism.
Further to the measures outlined in the Bill, I urge the Government to develop a scheme based on the future jobs fund to support young unemployed people into work and give them the opportunity to establish their careers in their chosen sectors. Decades of research has shown the scarring effect of youth unemployment, which can be a lifetime penalty for young people, in terms of subsequent lower pay, higher unemployment and reduced life chances. If we do not get this right, and get it right now, the impacts will be felt for decades to come.
Taiwo Owatemi (Coventry North West) (Lab)
The coronavirus pandemic has revealed much of what we already knew about our jobs market and the deeply entrenched structural problems in our economy: insecure work, low-paid jobs, wages that are not rising as much as they should and our reliance on debt and consumer spending. However, this crisis offers an opportunity to provide a remedy to these problems and for the Government to act—to act decisively, to act now and to act in the interests of my constituents in Coventry North West and across the country, so that even more people do not lose their jobs and we can boost their incomes and recover from this crisis.
There are 13,100 people in my constituency who are on furlough and there were 4,630 claimants for unemployment benefits in May. These figures are staggering, and my constituents, as well as the millions who have lost their jobs across the country, demand action. I welcome the introduction of the furlough scheme. Labour called for the introduction of the scheme, which has provided a lifeline for my constituents. We need to ensure that businesses can keep workers on furlough.
Alex Davies-Jones (Pontypridd) (Lab)
My hon. Friend is making some important points. The Bill is not just about job creation; it is about job protection. So many people are being abandoned by this Government, and they desperately need saving to secure their livelihoods and protect their jobs now and for the future.
Taiwo Owatemi
I have been contacted by many residents who are extremely worried about the changes to the furlough scheme and their potential impact on unemployment. One of my constituents, James, recently got in touch with me to say that the company that his partner works for has already announced that it will be letting almost 40 employees go. The reason the company gave, I am told, was that the Government have asked employers to share the load of the furlough scheme from August. As can be imagined, staff at the company have been left heartbroken and have said that they feel this is completely wrong and runs contrary to the much repeated idea that a furlough scheme was a job retention scheme. James has said to me that while he understands that companies must ensure that they can continue to operate on a sustainable financial footing, it seems very unethical of the company to make the decision to reduce its numbers two months before that would start to become a significant financial burden on it.
The Prime Minister has repeatedly said that companies should not use the scheme just to keep employees on their books, only to get rid of them later, but should use it as a scheme to retain jobs. This compounds my view that the furlough scheme masks the true extent of the crisis in our jobs market. Since the start of the crisis, the Government have been too slow to take these threats seriously. We have seen very little from the Government around preventing unemployment since their economic package was created. If we do not take action now, we could see even more people lose their jobs.
This crisis requires a regional response, so that places such as the west midlands are not left behind. The Government’s one-size-fits-all approach fails to understand how our economy works. My own city has seen a devastating impact, with mass redundancies coming at Coventry College. Last week, I spoke about the impact on the aviation industry, with job losses at Rolls-Royce Ansty and in the arts and small businesses such as Exhibit 3Sixty. We need to protect our industries in the west midlands. That is why we need decisive rapid action to boost the economy, to provide small and medium-sized firms with the support they need, and to give businesses the strongest incentive to start creating jobs again.
My office has already started this work. Working alongside Coventry City Council, we are getting ahead of the response. I will not sit idly by while people in my community lose their jobs and vital skills. I have been holding a series of meetings with employment and skills agencies, as well as with Coventry and Warwickshire chamber of commerce and other business groups, to discuss supporting businesses during this time and upskilling people so that they can secure jobs for the future and find new work now. As part of its employment and skills priority for Coventry, the city council has been working with partners to host a series of virtual jobs fairs, with thousands of views and impressions to give people a head start. But this effort cannot be left up to us. The Government must do everything in their power to create support systems for those who become unemployed as well as new opportunities. We need to see the Government working with employers, unions and local government, with a joint approach across government to maximise job creation and comprehensive support to tackle unemployment.
Matt Rodda
Does my hon. Friend agree that there is a role for private sector landlords in this, working with the Government and local authorities? I have been quite taken aback by the approach of a number of commercial landlords who put extreme pressure on tenants at this time, which I believe is quite wrong.
Taiwo Owatemi
I agree with my hon. Friend; that is completely wrong.
No business or individual should be left behind. Every livelihood deserves the chance to survive this crisis. Otherwise, who knows what impact it will cause? Where there are job losses, will the Government commit to retraining those workers, whether old or young, through a future jobs fund so that they can harness the jobs that will come out of the crisis? Those jobs should be part of a new, prosperous economy, and they should be green, well-paid and sustainable. We do not need a race to the bottom, the slashing of safety regulations or the austere measures that we have seen in the past 10 years. The Chancellor said that he would do “whatever it takes” and frankly that is the least that my constituents in Coventry North West deserve. We have seen 18 years of growth and millions of jobs lost in two short months. To restore dignity, to save jobs and create new ones and to stimulate this much-needed recovery, bold progressive action is required. Nothing less will do.
Mr Deputy Speaker (Mr Nigel Evans)
If Judith Cummins wishes to speak until 8.39, she may do so. Otherwise, I need to call the Minister.
Judith Cummins (Bradford South) (Lab)
I have 40 seconds. Thank you, Mr Deputy Speaker!
I want to comment on two things. The first is the beauty, aesthetic and wellbeing industry, which is far wider than the nail bars that the Prime Minister has flippantly referred to. It is a sector that contributes a hugely significant £6.6 billion to the UK economy, employs more than 300,000 people across the UK and provides 16,000 apprenticeships, yet it seems to have been forgotten. Hundreds of jobs are at risk. The industry needs clarity, and it needs it now. Those people want to know when they can go back to work. Also—
Jesse Norman
I take my hat off to the astonishing hon. Member for Bradford South (Judith Cummins), who brought so much content into such a short presentation, and I thank her for that. We have an enormous body of material to get through quickly, so I shall deal initially with the question relating to new clause 26 on job creation and related measures. The new clause would require the Government to conduct an assessment of the effect of the Act on job creation. As the House will know, the Government have announced unprecedented support through the coronavirus job retention scheme, the self-employed scheme and the like. The Office for Budget Responsibility has said that those actions will directly help to support the incomes of individuals. The Treasury does not produce economic forecasts and the OBR does, publishing them twice a year. For that reason, I ask Members to reject the new clause.
New clause 12 relates to a matter previously considered in the Public Bill Committee, the impact on regions and nations. The new clause would require the Chancellor, within one month, to review the impact of the Act. As I emphasised in Committee, the provisions in this Bill have already been developed with careful consideration. Analysis of Government decisions on GDP is also carried out by the independent OBR. Again, we will continue to monitor the impact of the crisis, but I ask Members to reject the new clause. SNP new clause 18 would require a review of the impact of the Act on investment, productivity and employment. Again, it would require the Government to look at hypothetical scenarios, whereas the OBR is required by law to produce its forecasts based on stated Government policy, so I ask Members to reject the measure.
I come now to IR35 and the off-payroll working rules. I have been pressed vigorously on this issue by my hon. Friends the Members for Milton Keynes North (Ben Everitt), for Guildford (Angela Richardson), for Workington (Mark Jenkinson) and for Barrow and Furness (Simon Fell). Amendments 16 and 17 seek to remove the reform of these rules from the Bill, which would be a serious mistake, costing the country many hundreds of millions of pounds. The level of non-compliance at the moment with the rules is scheduled to cost the country £1.3 billion in 2023-24 if not addressed. As I do not believe the SNP really wants that, I encourage Members to vote against it.
I come now to the cross-party amendments framed by my right hon. Friend the Member for Haltemprice and Howden (Mr Davis), as it is important to engage with several of the things he said. He said that contractors could be pushed into a state of no benefits employment. It is important to note the contractors already receive a number of benefits funded by the Government when they are employees of their own personal service companies. Such benefits include statutory maternity, paternity, adoption, parental bereavement and shared parental pay, and they are provided by PSCs, which are then able to claim 100% of those payments plus 3% compensation from the Government. My right hon. Friend said that at least seven people have taken their own lives as a result of the loan charge. It is important to put on the public record that of course every single death of an individual is a tragedy. The circumstances surrounding those deaths have been considered by the coroner, the Independent Office for Police Conduct and HMRC’s own internal independent investigations. None of them has suggested, in these four reports, that HMRC is to blame for these deaths; no conduct issues have identified either by the independent office or internal investigations that would warrant disciplinary actions.
Jesse Norman
I am afraid that I just have to press on, because I have no time. My right hon. Friend raised the issue of a review on the loan charge. These are some of the most egregious and clearest forms of tax avoidance in the tax system. In reaction to my right hon. Friend the Member for Gainsborough (Sir Edward Leigh), let me say that it is hard to see how simplification of the tax system would prevent the kind of abuse we have seen through the loan charge or indeed potentially through IR35. The all-party group on the loan charge published a report rubbishing the independence of the Morse review. I can do no better than refer its members to the remarks made by my right hon. Friend the Member for Haltemprice and Howden, who described Sir Amyas Morse as
“principled and highly respected”
That was true then and it is true now.
New clause 31 would drive a coach and horses through long-standing principles of taxation, because the tax system relies on people being responsible for their own tax and there being as little discretion as possible in the system. Both principles would be overturned, as my hon. Friend the Member for Wimbledon (Stephen Hammond) hinted. For that reason, I urge the House to reject the new clause, if it comes to a vote.
Question put, That the clause be read a Second time.
Finance Bill
Thursday 2nd July 2020
(3 years, 9 months ago)
Lords ChamberRead Full debate Finance Act 2020 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 2 July 2020 - (2 Jul 2020)
Finance Bill
Thursday 2nd July 2020
(3 years, 9 months ago)
Commons ChamberRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 2 July 2020 - (2 Jul 2020)
Bridget Phillipson (Houghton and Sunderland South) (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 2—Review of changes to entrepreneurs’ relief—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made to entrepreneur’s relief by section 23 and Schedule 3 of this Act and lay a 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, and
(c) productivity.
(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 for National Statistics.”
This new clause would require a review of the impact on investment of the changes made to entrepreneurs’ relief.
New clause 4—Structures and buildings allowances: review—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by section 30 and Schedule 5 of this Act and lay a 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) energy efficiency.
(3) 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 on investment of the changes made to structures and buildings allowances in Schedule 5.
New clause 17—Review of geographical effects of provisions of Sections 28 to 31—
“The Chancellor of the Exchequer must within twelve months of the passing of this Act lay before both Houses of Parliament a report assessing the differential geographical effects, broken down by nation and NUTS 1 statistical region, of the changes made by sections 28 to 31 of this Act.”
This new clause would require a geographical impact assessment of the clauses of the Bill relating to reliefs for business.
Amendment 1, in clause 36, page 34, line 29, at end insert—
“(13) The Chancellor of the Exchequer must, no later than 5 April 2021, lay before the House of Commons a report—
(a) analysing the fiscal and economic effects of Government relief under the Enterprise Investment Scheme since the inception of the Scheme, and the changes in those effects which it estimates will occur as a result of the provisions of this Section, in respect of;
(i) each NUTS 1 statistical region of England and England as a whole,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland;
(b) assessing how the Enterprise Investment Scheme is furthering efforts to mitigate climate change, and any differences in the benefit of this funding in respect of—
(i) each NUTS 1 statistical region of England and England as a whole,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland;
(c) evaluating the lessons that can be drawn from the effects of the Enterprise Investment Scheme with respect to the encouragement of both private and UK Government-backed venture capital funds in the devolved nations of the UK.”
This amendment would require the Chancellor of the Exchequer to analyse the impact of the existing EIS and the changes proposed in Clause 36 in terms of impact on the economy and geographical reach; to assess the EIS’s support for efforts to mitigate climate change; and to evaluate the Scheme’s lessons for the encouragement of UK Government-backed venture capital funds in the devolved nations.
Bridget Phillipson
New clause 27 calls on the Government to lay a review before Parliament considering all the tax reliefs within this Act, their effect on taxation revenue and the effectiveness of systems to evaluate these reliefs and to ensure value for money. We know that there are real problems with how the Government monitor tax reliefs. Thanks to the outstanding work of the National Audit Office and its report from February this year, we can see how unwieldy the system has become over the past decade and how much this is costing the public purse. It shows that there are currently 362 tax reliefs, which support Government economic and social objectives. This is a huge financial undertaking. The cost of tax reliefs for 2018-19 is estimated to be £155 billion.
The National Audit Office notes that this is not money that would simply be recouped in tax if these reliefs were abolished, but that is not the point that we are seeking to make. We on the Opposition Benches do not doubt that sometimes the outcomes from tax reliefs can be positive and that they can drive positive social and economic behaviour. The problem, as the NAO’s report makes plainly clear, is that we simply do not know enough about this, because the Government are failing to properly monitor and evaluate their effectiveness.
Of the 362 tax reliefs, only 111 have been costed by Her Majesty’s Revenue and Customs, and only 15 have had published evaluations since 2015. At the same time, on the Government’s watch, their cost has been rising since 2010. In normal times, such an enormous cost, without corresponding effective oversight, would be an area of real concern. As the Office for Budget Responsibility identified in July 2019, tax reliefs are considered to be a new fiscal risk to public finances, due to the Government’s not knowing their full cost and the lack of transparency built into the system. But of course we are not in normal times; we are living through an incredible economic crisis. The lack of effective monitoring and evaluation is hard to justify when our public services are under such enormous strain. The inattention shown by Ministers over the past decade must change and we need a much greater focus on ensuring value for money.
In Committee, we touched on one area where I ask the Minister to respond further today, namely the social investment tax relief, an area also pressed by my hon. Friend the Member for Ilford North (Wes Streeting) and my Front-Bench colleague my hon. Friend the Member for Liverpool, Walton (Dan Carden). What further consideration has the Minister given to extending this relief from April 2021 to April 2023? Will he update us on what further consideration the Treasury has given to this arising from discussions we held in Committee? This important aspect has been raised by many charities. I know that the Minister is sympathetic to the concerns they raise and I am sure they will be grateful for any further updates he might be able to provide in this area.
Our new clause paves the way for a greater focus on value for money, by establishing a more systematic and transparent way for the Government to evaluate the cost of tax reliefs and to empower Parliament to scrutinise this more effectively. The limiting scope for amendments to the Finance Bill set by the Government means that we have been able to opt only for a review of the tax reliefs contained in the Bill. Many changes to tax reliefs—for instance, on the entrepreneurs’ relief and the annual allowance—will potentially have a significant impact on tax revenues. In other areas, there are concerns about whether tax reliefs are being abused.
TaxWatch UK has highlighted particular concerns about the future of research and development tax credits, given the evidence of abuse in recent years. It is therefore right that there is greater transparency and that Parliament can properly scrutinise whether the measures proposed by Government are having their intended effect. The Minister attempted to address some of these concerns in Committee, saying that the Government kept all these reliefs under review and that he has proposed a more systematic evaluation programme for tax reliefs. We would welcome any progress towards such a system. However, if the picture was so rosy, I doubt whether the National Audit Office would have painted such a concerning picture in its report. I also look forward to the Public Accounts Committee’s report on this issue to find out whether it agrees with his assessment or what further insight it might be able to offer.
None the less, this amendment attempts to get to a wider point, which is that Parliament currently has few proper and meaningful opportunities to scrutinise tax reliefs on an ongoing basis. The Minister will know of the 2017 joint report by the Institute for Fiscal Studies, the Institute for Government and the Chartered Institute of Taxation entitled “Better Budgets: Making tax policy better”. It states that the information publicly available to Parliament on the costs and benefits of tax expenditure is not sufficient for it to assess their value for money, pointing out:
“Although taxes constitute almost 40% of national income, Parliament has little standing support to help look at tax legislation, support general inquiries on tax issues or help with post-implementation reviews.”
The report had a clear recommendation:
“Increase support to Parliament on tax issues”.
That means going beyond the support currently available and the opportunities that exist, in Finance Bill Committees, through the Treasury Committee, through Public Accounts Committee and through other work in this House, and instead embedding a proper system so we can assess the value for money of past tax measures. That is hardly controversial. As the Resolution Foundation points out, the Governments of Canada, Australia and New Zealand produce annual tax expenditure statements, which can be accompanied by parliamentary debate.
We want to see improved scrutiny of whether money is being well spent, to ensure that the system is fair and helps those who need it most. When all the benefits and tax reliefs are taken into consideration, the Government provide more support to the richest fifth of non-retired households than to the poorest fifth, and that gap has grown since 2010. This is in part due to the system of tax reliefs that has flourished under this Government and previous Conservative Governments and is clearly not based on any genuine notion of fairness.
Today, as we grapple with the looming jobs crisis, the question of fairness is paramount. We need to create a recovery from coronavirus that benefits everyone in our society, from young to old and right across every region and nation. The Opposition do not doubt the scale of the challenge. Our public finances are enormously stretched, our public services have been pushed to the brink by the pandemic, and there is a risk of unemployment on a scale not seen since the 1980s. We have yet to hear anything about the economic support package that we need: a back-to-work Budget to help those at the sharp end of the looming jobs crisis—a Budget that creates jobs, supports people back into work and properly invests in our young people so that they have the opportunities they deserve at this challenging time.
Kevin Hollinrake (Thirsk and Malton) (Con)
I am keen to talk briefly about the future fund, which is dealt with in new clause 22. The new clause covers those who have benefited from tax relief under the enterprise investment scheme and the seed enterprise investment scheme, to ensure that those tax reliefs are not withdrawn. These are important tax reliefs. I have set up a number of companies—I declare my interest, Madam Deputy Speaker—and some of the capital needed to invest in them was solicited through the EIS and the SEIS. Those schemes are very effective in encouraging high net worth individuals and angel investors to invest in small start-up and scale-up businesses.
The future fund is really for bigger, high-growth businesses wanting to attract capital. It is a very effective scheme, in that the Government match the funding that is attracted from individual investors—often venture capital investors. It is incredibly important, as we start to recover from this crisis and seize the opportunities ahead, that we encourage more equity investment. The UK is particularly reliant on debt financing in how our businesses start up and scale up, whereas other countries are much more effective at delivering equity finance solutions. This is important because at the moment the Government are investing a huge amount—about £35 billion—through guaranteed loans in the bounce back loan scheme and the coronavirus business interruption loan scheme, which businesses are making decisions on in terms of debt finance.
However, on equity finance, the Government do not always have the best record on deciding which businesses to support. That is why the future fund is a good scheme, in that it fund-matches private sector investment, which is much better at determining which businesses are the right ones to support. Individual investors are much better at picking winners than are Governments. As we move forward, there are going to be some huge corrections in the private sector. Lots of businesses have borrowed money to get through this crisis and it is fair to say that many of them will not be able to pay that money back. My all-party parliamentary group on fair business banking has contributed to a report by the Recapitalisation Group, a consortium headed by Ernst & Young and TheCityUK, which states that there will be about £100 billion of unsustainable debt—not all connected to the Government schemes—by this time next year because of borrowing by businesses hit by the recession caused by the covid crisis.
To get us through that period and the subsequent period, and to prevent business failures—there is no question but that some businesses will fail and jobs will be lost as a result—we need to understand that it cannot be all about debt financing. The Government cannot be expected simply to give grants to keep businesses going. We need to find a different route to encourage private sector investment, which is good at picking winners, to invest in small and medium-sized enterprises and scale-up businesses. Equity finance will be critical to that. We need something different from the future fund, which is there to help to scale-up, high-growth businesses. Instead of the growth capital that characterises the future fund, we need equity finance for the restructuring, rescue and turnaround of good businesses that could get through this, but that are not big scale-up businesses. In the past, equity finance has been used for high-growth businesses rather than for restructuring and turnaround, and most equity finance is focused on London rather than the regions. I know, Madam Deputy Speaker, you are as keen as I am to ensure that our regions are well served by equity finance and support.
We need a discussion about the schemes that we could introduce. I am a big fan of the seed enterprise investment scheme and the enterprise investment scheme, and I think the tax incentives around them should be enhanced for a time. Clearly, the temptation for high net worth individuals will be to keep their money in the bank for 12 months rather than investing, and wait to see what happens the other side of the crisis. We have to encourage them to put money into businesses today. A doubling of the incentive for EIS relief would be very welcome, and a loosening of the restrictions on EIS investment—such as by enabling relatives to invest in businesses—would be appropriate for the next 12 months.
We need to relax some of the restrictions on venture capital. There are annual and lifetime limits on venture capital in businesses, and they should be doubled, because lots of businesses need extra support at the moment and the venture capital companies that sit behind them did not expect to have to see them through this crisis. I am keen for the Treasury to relax some of the unreasonable restrictions on the amount of money that can be invested in those businesses.
We should perhaps consider loans that are based on a contingent tax liability—a kind of student loan system, whereby the loan is repaid through future profits. I know that Lord Bilimoria is keen to see a new 3i scheme, in which the Government put a significant amount of money—in his view, it should be £5 billion—into several different private equity organisations to sit behind UK businesses.
I will touch on something that is not directly related to tax reliefs, but that is very important in relation to finance. The Minister has been very good at engaging with me on clause 95, which I think unreasonably restricts the opportunity for businesses to get finance by putting HMRC up the ladder as a preferred creditor. That may mean that some lenders are less likely to lend, and I caution the Treasury to keep a close eye on that to make sure that debt finance is still made available to SMEs. I am very supportive of what the Government are doing with the future fund, but we need to go a bit further in certain other areas.
Stephen Flynn (Aberdeen South) (SNP)
I rise to speak in support of the amendments tabled in my name and in those of my SNP colleagues. It is important to state from the outset that we hear regularly from across the Chamber—albeit not today, given that it is quite empty for this discussion of tax—that the UK’s tax relief system is full of inefficiencies.
Our core aim with the proposed new clauses is to be constructive and get to the root of that problem in respect of entrepreneurs’ relief by asking the Government to undertake a review of the impact on investment of the changes to the relief. As I said in Committee, that can only be a positive thing. After all, there remain varying views on the effectiveness and efficacy of entrepreneurs’ relief, and whether it delivers the necessary economic objectives or whether that could be done by other means. Those varying views are clear for all to see. For example, the IFS has been quite critical of the relief, highlighting that it is poorly targeted. On the converse, the Federation of Small Businesses has emphasised the importance of the relief for the retirement of business owners.
I have no doubt that we will hear much from the Minister about the fact that a review has already been undertaken. It has, but that was an internal review, which is not good enough. That is of particular importance when we consider that there was much talk in the public domain of entrepreneurs’ relief being scrapped entirely at the Budget. A Back-Bench revolt ensued and that position swiftly changed, so instead of the relief being scrapped, it has gone from £10 million back to the £1 million introduced by the Labour party in 2008. I am sure that even the Minister would agree that the tail should not be wagging the dog on such important matters. What we need is clarity—clarity on effectiveness, clarity of efficacy and clarity on direction. Those points have perhaps never been as important as they are now. As we rebuild our economy following covid-19, it is more important than ever that tax incentives go to those entrepreneurs who we know will rebuild the economy.
That takes me on quite neatly to the further new clauses that we have tabled in respect of tax avoidance, for as we rebuild the economy, the very last thing that we need is individuals and organisations dodging what they are due. On the Scottish National party Benches, we have been clear and consistent in highlighting our profound concerns relating to Scottish limited partnerships, yet despite the obvious manner in which these can be abused, we are yet to see any real action. I sincerely hope that in his contribution, the Minister will make a commitment to end the avoidance practices of such partnerships, but I hope he can go further, too.
For decades, we have seen consecutive UK Governments talk the talk on ending tax avoidance, but in 2017-18, HMRC still put the tax gap at £35 billion. I have some sympathy for the Government in this regard, for just as they legislate to close one gap, another one is opened by those who wish to cheat both the system and the public, but there is scope for a comprehensive anti-avoidance rule to be introduced. The Government will point to the general anti-abuse rule introduced in 2013, but this has been heavily criticised, not least by the TUC. What we need is workable general anti-avoidance rules that tackle avoidance in all its forms, including international tax abuse, and more than ever, we need real action to combat Scottish limited partnerships.
I am conscious of the fact that you wish to finish before 2 o’clock, Madam Deputy Speaker, so I intend to keep my contribution brief. I will move on to my closing remarks, in which I wish to highlight that more can be done to incentivise energy efficiency through tax reliefs and, similarly, to meet the needs and demands of the Scottish economy.
In respect of structures and buildings, it is clear that the Government are making an attempt to amend the system to incentivise capital investment, but they can and should go further. At the risk of repeating myself once again, the easiest step they could take is to scrap VAT on building repairs. In my constituency of Aberdeen South, I have been struck by just how many homeowners, who often live in some of the most beautiful granite buildings, are unable to undertake the repairs and improvements that they either want or need due to the high costs involved. As we seek to improve energy efficiency in our homes, particularly in often old and cold buildings, surely the Government should be assessing every measure to incentivise progress, not just to help rid us of fuel poverty, but to protect both the environment and the future of our planet. Cumulative action to combat climate change is needed, and I would welcome a firm commitment from the Minister in this regard.
On the issue of tax reliefs, it would be remiss of me not to highlight to the Chamber the proposals put forward in recent days by my colleagues in the Scottish Government. I think that everyone—even the most ardent of UK Government supporters—was deeply underwhelmed by the plans announced by the Prime Minister to restart the economy, and that collective sigh from across the UK was entirely justifiable, because £5 billion will likely work out to be less than the cost of renovating the very building that we are in, and it is a far cry from the £80 billion of investment called for by the Scottish Government. Importantly, however, my colleagues called not just for capital investment, but for tax relief. Indeed, they were clear that reducing VAT must be an urgent act of this Government, both in terms of reducing the general rate of VAT from 20% to 15% for six months and, importantly, reducing tourism and hospitality VAT to just 5%. On top of that, a 2p cut in employers’ national insurance contributions to reduce the cost of hiring staff was also identified.
Unfortunately, as with all too many matters, the hands of the Scottish Government are tied on such issues. The power lies with the UK Government, a Government who Scotland neither supports nor votes for. I hope that the Minister is listening and the wider Government are listening too, because now is the time for them to introduce the tax incentives that the Scottish economy needs; to deliver the investment that the Scottish economy needs; and to provide the Scottish Parliament with the borrowing powers that it so desperately needs. If they do not, they should be ever mindful that they are only doing further damage to the very Union that they claim to support.
Ben Lake (Ceredigion) (PC)
Diolch, Madam Deputy Speaker, for calling me to contribute to this important debate, the importance of which is perhaps not reflected in the attendance in the Chamber today, but as the shadow Minister, the hon. Member for Houghton and Sunderland South (Bridget Phillipson) rightly said in her opening remarks, reviews of tax reliefs tend to be important not just for improving the transparency of their effectiveness but, as the hon. Member for Thirsk and Malton (Kevin Hollinrake) said in relation to the enterprise investment scheme and the future fund, for their transformative impacts on policy. I agree with him that one of the key things that we need to consider as we move ahead is how we can encourage greater investment, especially equity investment, in regions other than London. I hope to dwell a little on that point later in my remarks.
It is a pleasure to follow my hon. Friend the Member for Aberdeen South (Stephen Flynn), who not only laid out effectively the inefficiencies of the tax reliefs system but raised the important question, which I would like to address, of whether reliefs achieve their economic objectives in the current climate and context, as we try to rebuild or at least begin to consider how we can rebuild after covid-19. Tax reliefs will have an important part to play, and it will be vital that they are channelled to those who will rebuild the economy.
I wish to speak at greater length to amendment 1 and new clause 17, both of which are tabled in my name. Both are probing amendments. I seek to probe the Government’s commitment to levelling up every nation and region of the UK by requiring them to report on the differential territorial impacts of the changes that the Bill introduces to certain reliefs and tax incentives.
Most hon. Members will welcome the Conservatives’ efforts to see balanced economic growth throughout the UK and in particular to move away from what I consider to be a hub-and-spoke approach to economic development. Over the past decade, the Government have mainly concentrated on improving connectivity between rural areas and smaller towns and the supposed economic engines of the larger cities, as opposed to incentivising and supporting economic growth in those areas themselves.
Such a centralised model has inevitably concentrated economic activity in London and the south-east. As a consequence, Wales’ potential and that of other regions and nations of the UK has been overlooked. That is perhaps most apparent when we consider the way in which public funding for certain development has been allocated. Between 2001 and 2017, London R&D funding per head totalled almost twice the UK average— £3,900 per head compared with a national average of £2,300. What is more, the trend worsened in that time. The share of the core research budget spend across the three cities of Oxford, Cambridge and London—also known as the golden triangle—rose from 42.1% in 2002-03 to 46% in 2017-18.
Perhaps just as relevant to this debate is how public spending on transport infrastructure is allocated. I note that per-head spending in London in the past decade has averaged nearly three times that spent in the rest of the UK. During the same period, the city has received five times the average per-head spend on culture. It is perhaps unsurprising, therefore, given that disparity, that the golden triangle of London, the south-east of England and the east of England also attracts the lion’s share of venture capital. Indeed, the region received 73% of all venture capital between 2016 and 2018, according to the British Private Equity and Venture Capital Association. When we reflect on this concentration of venture capital in one region of the UK, as with R&D, not only are the failings of past economic development policy laid bare, but it is difficult to deny a popular saying in Ceredigion, “I’r pant y rhed y dŵr”—or in English, “To the hollow the water runs”.
It is clear that as the world moves increasingly to a knowledge-driven economy, expenditure on R&D will be vital not only as a source of innovation that can be commercialised to form the basis of the next generation of business, but as a means of equipping people with the requisite skills for the new economy and, as my hon. Friend the Member for Aberdeen South said, the post-covid economy. It follows, therefore, that the economy of any nation or region that does not receive the right level of support will be hindered in its attempt to adjust to the challenges of tomorrow. Government support for R&D is essential for Wales in particular, to address problems that range from a low-wage economy to a looming demographic time bomb, while also building an economic platform to take advantage of trends, including automation, that could otherwise cause quite a serious long-term social risk.
New clause 17 would require the Chancellor to report on the geographical impact of changes to several tax rules, including R&D expenditure credit. It would ensure that the UK Government consider how different geographic areas benefit from taxpayer-funded reliefs so that the financial incentives can be better tailored to overcome the UK’s chronic regional inequalities. I have previously drawn attention to the concentration of R&D funding in the golden triangle, but assessments might also provoke a debate within Government about how public spending on other priorities is allocated.
In a similar vein, my amendment 1 would require the Government to consider the unsustainable concentration of private investment in one region of the UK at the expense of the devolved nations and other regions of England. As the UK Government narrow the applicability of the enterprise investment scheme, they need to consider how that will affect firms in different areas of the UK. The EIS benefits us in a great many ways—the hon. Member for Thirsk and Malton outlined them effectively in his remarks. The ways in which the UK Government can encourage the establishment in the devolved nations of venture capital funds, and therefore private investment, is so important. The geographic disparities to which I have already referred are reflected in the EIS. To pick just one example, between 2015 and 2018, only 210 Welsh firms benefited from EIS, receiving just 1.3% of the total investment. By contrast, to pick on the golden triangle again, that area received 67% of all investment. The average UK business angel investment per firm has been some 40% greater than that in Wales.
Modern advanced economies such as Germany, the Netherlands and even the USA have ensured a better geographic spread of economic prosperity, so the Government’s intention to address this policy failure is to be welcomed. However, we must make sure that the rhetoric is backed up by the reality and that the measures designed to realise such lofty ambitions are fit for purpose. My amendment and new clause would require the Government to report on the effectiveness of some tax relief schemes in this regard, and I hope that the Minister can give them some serious consideration.
The Financial Secretary to the Treasury (Jesse Norman)
I am grateful to everyone who has contributed to this short but interesting debate. As colleagues have noted, when we think about tax transparency, we are in what might these days be referred to as a niche area of taxation—technical, but no less important. In some respects, it is more important that we do not get lost in the detail but can come back and talk about the issues more widely. If I may, I will address the different clauses and then come to the specific points raised in the debate.
New clause 27 would require the Government to review all
“tax reliefs contained in this Act”.
It states that the review must contain
“the number of tax reliefs…the effect on taxation revenue of each of the tax reliefs…and…an assessment of the efficacy of systems for designing, monitoring and evaluating the effect of the tax reliefs.”
It asks the Government to publish the number of tax reliefs in the Bill and their effect on taxation revenue.
As the House may be aware, the Government already publish tax changes and estimates of the Exchequer impacts of policy changes in the Budget documents at each fiscal event. Moreover, Her Majesty’s Revenue and Customs monitors the effect on taxation revenue of tax reliefs after they are introduced and issues an annual tax relief statistics publication—I am sure that is closely scrutinised by all Members—which includes estimates of the costs of tax reliefs. Building on this, HMRC is also undertaking a project to expand its published costs information. I remind the House that in May HMRC published cost estimates for a further 47 previously uncosted reliefs.
New clause 27 also asks for an assessment of the efficacy of systems for designing, monitoring and evaluating the effect of a relief. As the House will know, the Government consult on new tax reliefs and proposed changes to tax reliefs, bringing in external expertise as part of the policy making cycle wherever possible. Officials are constantly working on ways to improve the policy on development, administration and continuing management of reliefs. As colleagues will know, the Government, and particularly the Treasury, keep all reliefs under review.
The Government also do evaluations of different forms. This work has included evaluations of a number of significant reliefs—some 15 since 2015. These include our R&D tax credits and entrepreneurs relief, on both of which I will say a few words later. In 2015, HMRC published an evaluation of R&D tax credits. In 2017, it commissioned an evaluation of entrepreneurs relief that led to a series of reforms, most recently the significant reduction of its lifetime at spring Budget 2020, which is legislated for in this Bill. The hon. Member for Aberdeen South (Stephen Flynn) picked up on the point about entrepreneurs relief, which he somehow regards as “the tail wagging the dog”. What he calls “the tail wagging the dog” other people would call consultation across Parliament and discussion with stakeholders. Since the measure resulted in a 90% reduction in the scope of the relief, I do not think he can claim that there is any lack of ambition in it.
HMRC will continue to monitor and evaluate reliefs and will bring forward a pipeline of further evaluations in due course. It will also consider a proposal to which I have already said I am quite sympathetic—I thank the hon. Member for Houghton and Sunderland South (Bridget Phillipson); we have discussed this before: a more systematic evaluation programme for reliefs. In the light of all this, the Government do not believe that the new clause is necessary.
New clause 2 would require the Chancellor of the Exchequer to review the impacts of the reduction in the lifetime of entrepreneurs relief that is being legislated for in this Bill within six months of Royal Assent, and specifically to review the impacts on business investment, employment and productivity in the constituent nations and English regions of the United Kingdom. I would first highlight to hon. Members that the Government have already conducted an internal review of this relief that built on the 2017 independent research commissioned by HMRC. That review considered the distributional effects and benefits of the relief against its cost in order to better understand the targeting of the relief. This, in turn, has been used to inform the reform that is being legislated for in this Bill. It ensures that the majority of entrepreneurs are unaffected. A lot of the concern about entrepreneurs relief historically has been that it is not well targeted, and this measure greatly improves the targeting. Unfortunately, the effects of the changes to the relief will not be visible in six months’ time, and for that reason I urge the House to reject new clause 2.
New clause 4 concerns the structures and buildings allowance. It would require the Chancellor to review the impacts of clause 30, which makes miscellaneous amendments to the SBA, within six months of the passing of the Finance Act. Specifically, it would require the Chancellor to review the impacts on business investment, employment, productivity and energy efficiency. Again, I reassure Members that both HMRC and the Treasury already monitor tax reliefs according to the level of risk that they are deemed to pose. It is in the nature of a structures and buildings allowance that it is configured to reflect the fact that it can take many years to erect new buildings. Claims under the SBA are ordinarily settled when businesses bring buildings into use and submit tax returns at year end. For that reason, it would be neither possible nor appropriate to try to draw conclusions on the productivity or energy efficiency impacts of these changes within such a short period.
New clause 17 would require the Government, within 12 months, to assess and report on the geographical effects of changes to business reliefs across a variety of areas. There is a concern, which I recognise, that there are geographical disparities that reflect the historical evolution of our economy in different areas. It is by no means a uniform picture, even outside London.
HMRC does not routinely require businesses to provide geographical information about where expenditure is incurred as part of claims for the R&D expenditure credit, structures and buildings allowance or intangible fixed assets. To do that, changes would be required that would create additional burdens on businesses. Those claiming the reliefs, of course, could only provide information after the year end. For that reason, it would not be possible for HMRC to have information within the 12 months stated in the amendment, even if the amendment were passed. It is not capable of being fulfilled.
Jesse Norman
With permission, Madam Deputy Speaker, I will give way to my hon. Friend.
Kevin Hollinrake
I declare an interest as somebody who has benefited from entrepreneurs’ relief in the past. Is the Minister considering extending the reduction in entrepreneurs’ relief, which I support, to investors’ relief, which currently stands at the same figure as entrepreneurs’ relief used to stand at—£10 million?
Jesse Norman
If my hon. Friend is asking questions, he ought to stay for the next debate, because he is abusing the privilege of this debate. I thank him for his suggestion of a revenue-raising possibility for the Government; we take all those in great heart.
Bridget Phillipson
Could the Minister say a little more about the social investment tax relief? I am not aware that he responded on that point.
Jesse Norman
The hon. Lady is absolutely right. Let me address that. As she knows, the relief remains in place until next year. Even its doughtiest supporters would agree that so far it has not been anything like as effective as anyone would have liked or as had been projected or anticipated. Only £11.2 million has been raised under it in the period 2014 to 2018-19.
We are looking at it closely. As I mentioned in Committee, I am in discussions with leading figures across the social investment world about whether we can get some more visibility on the sources of funds that would use such a relief and the sources of projects that those funds would support. If we do not get that and we cannot have that in a slightly more concrete form, it looks like quite an empty request, but there may be other things that we can do to support social investment. As the hon. Lady knows, I have written a book on the big society. It is an area that I care deeply about, so I am happy to respond and I am grateful for her question.
Bridget Phillipson
We do not intend to divide the House on the new clause, but I will make a few brief points in response to what the Minister has said. I am glad that he shares our assessment that the current situation and system are unwieldy, and therefore we look forward to seeing real progress in that area. Frankly, it is not good enough that of those 362 tax reliefs, only 15 have had published evaluations since 2015, at a time when costs have risen.
During these extraordinary times, we need to see much more from the Government, not just on tackling tax avoidance, as we discussed at some length yesterday. There needs to be a renewed focus on taxpayer value for money, with greater opportunities for scrutiny of tax reliefs in this place and from external experts. Although we are not seeking to divide the House, I hope that we will see progress in that area. It is an issue to which we intend to return. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Madam Deputy Speaker (Dame Rosie Winterton)
We will have a three-minute suspension.
Madam Deputy Speaker (Dame Rosie Winterton)
With this it will be convenient to discuss the following:
Government new clause 20—Protected pension age of members re-employed as a result of coronavirus.
Government new clause 21—Modifications of the statutory residence test in connection with coronavirus.
Government new clause 22—Future Fund: EIS and SEIS relief. Government new clause 23—Interest on unpaid tax in case of disaster etc of national significance.
Government new clause 24—Exceptional circumstances preventing disposal of interest in three year period.
Government new clause 25—HGV road user levy. Government new clause 32—Enterprise management incentives: disqualifying events. Government new schedule 1—Taxation of coronavirus support payments.
New clause 29—Review of impact of Act on poverty—
‘(1) The Chancellor of the Exchequer must conduct an assessment of the impact of this Act on poverty and lay this before the House of Commons within six months of Royal Assent.
(2) This assessment must consider—
(a) the impact on absolute poverty,
(b) the impact on relative poverty, and
(c) whether such a study should in future be a regular duty of the Office for Budget Responsibility.’
This new clause would require the Chancellor of the Exchequer to review the impact of the Bill on poverty and consider whether the OBR should conduct such assessments as a regular duty.
New clause 10—Impact of provisions of the Act on child poverty—
‘(1) The Chancellor of the Exchequer must review the impact of the provisions of this Act on child poverty and lay a 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 impact on—
(a) households at different levels of income,
(b) the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010,
(c) different parts of the United Kingdom and different regions of England, and
(d) levels of relative and absolute child poverty in the United Kingdom.
(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 for National Statistics.’
This new clause would require the Chancellor of the Exchequer to review the impact of the Bill on child poverty.
New clause 3—Review of changes to capital allowances—
‘(1) The Chancellor of the Exchequer must review the effect of the changes to chargeable gains with respect to corporate capital losses in this Act in each part of the United Kingdom and each region of England and lay a report of that review before the House of Commons within two months of the passing of this Act.
(2) A review under this section must consider the effects of the changes on—
(a) business investment
(b) employment, and
(c) productivity.
(3) A review under this section must consider the effects in the current and each of the subsequent four financial years.
(4) The review must also estimate the effects on the changes in the event of each of the following—
(a) the UK leaves the EU withdrawal transition period without a negotiated comprehensive free trade agreement,
(b) the UK leaves the EU withdrawal transition period with a negotiated agreement, and remains in the single market and customs union, or
(c) 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.
(5) The review must also estimate the effects on the changes if the UK signs a free trade agreement with the United States.
(6) 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 requires a review of the impact on investment, employment and productivity of the changes to chargeable gains with respect to corporate capital losses over time; in the event of a free trade agreement with the USA; and in the event of leaving the EU without a trade agreement, with an agreement to retain single market and customs union membership, or with a trade agreement that does not include single market and customs union membership.
New clause 6—General anti-abuse rule: review of effect on tax revenues—
‘(1) The Chancellor of the Exchequer must review the effects on tax revenues of section 99 and Schedule 14 and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) The review under sub-paragraph (1) must consider—
(a) the expected change in corporation and income tax paid attributable to the provisions in this Schedule; and
(b) an estimate of any change, attributable to the provisions in this Schedule, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.
(3) The review under subparagraph (2)(b) must consider taxes payable by the owners and employees of Scottish Limited Partnerships.’
This new clause would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of Clause 99 and Schedule 14, and in particular on the taxes payable by owners and employees of Scottish Limited Partnerships.
New clause 7—Call-off stock arrangements: sectoral review of impact—
‘(1) The Chancellor of the Exchequer must make an assessment of the impact of section 79 on the sectors listed in (2) below and lay a report of that assessment before the House of Commons within six months of the passing of this Act.
(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 Clause 79 on a number of business sectors.
New clause 8—Review of effects on measures in Act of certain changes in migration levels—
‘(1) The Chancellor of the Exchequer must review the effects on the provisions of this Act of migration in each of the scenarios in subsection (2) and lay a report of that review before the House of Commons within one month of the passing of this Act.
(2) Those scenarios are that—
(a) the UK leaves the EU withdrawal transition period without a negotiated future trade agreement,
(b) the UK leaves the EU withdrawal transition period following a negotiated future trade agreement, and remains in the single market and customs union, and
(c) the UK leaves the EU withdrawal transition period following a negotiated trade agreement, and does not remain in the single market and customs union.
(3) In respect of each of those scenarios the review must consider separately the effects of—
(a) migration by EU nationals, and
(b) migration by non-EU nationals.
(4) In respect of each of those scenarios the review must consider separately the effects on the measures in each part of the United Kingdom and each region of England.
(5) 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 Government review of the effects on measures in the Bill of certain changes in migration levels.
New clause 9—Review of effects on migration of measures in Act—
‘(1) The Chancellor of the Exchequer must review the effects on migration of the provisions of this Act in each of the scenarios in subsection (2) and lay a report of that review before the House of Commons within one month of the passing of this Act.
(2) Those scenarios are that—
(a) the UK leaves the EU withdrawal transition period without a negotiated future trade agreement
(b) the UK leaves the EU withdrawal transition period following a negotiated future trade agreement, and remains in the single market and customs union, and
(c) the UK leaves the EU withdrawal transition period following a negotiated trade agreement, and does not remain in the single market and customs union.
(3) In respect of each of those scenarios the review must consider separately the effects on—
(a) migration by EU nationals, and
(b) migration by non-EU nationals.
(4) In respect of each of those scenarios the review must consider separately the effects in each part of the United Kingdom and each region of England.
(5) 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 Government review of the effects of the measures in the Bill on migration levels.
New clause 11—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.
New clause 15—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.
New clause 16—Review of effect of Act on tax revenues—
‘(1) The Chancellor of the Exchequer must review the effects on tax revenues of the Act and lay a report of that review before the House of Commons within six months of Royal Assent.
(2) The review under (1) must contain an estimate of any change attributable to the provisions in this Act in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.
(3) The estimate under (2) must report separately on taxes payable by the owners and employees of Scottish Limited Partnerships.’
This new clause would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of the Bill; and in particular on the taxes payable by owners and employees of Scottish Limited Partnerships.
New clause 30—Review of rates of air passenger duty—
‘(1) The provisions of section 88 shall not come into effect until the Treasury has carried out and published a review of the likely effect of changes to rates of air passenger duty on the aviation sector.
(2) The review must take into account the effects of Covid-19 on the sector.
(3) The review must be published no later than 1 October 2020.’
This new clause would require that the changes to APD in clause 88 not come into force until a review of the effect of changes to APD has been published by the Treasury.
Amendment 2, in clause 80, page 68, line 2, at end insert—
‘(3) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the Alcoholic Liquor Duties Act 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 impact of the proposed changes to alcohol liquor duties on public health.
Amendment 3, in clause 81, page 68, line 21, 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.
Amendment 4, in clause 86, page 73, line 20, after “supplies” insert “, including human breastmilk”
This amendment would ensure that vehicles carrying human breastmilk would benefit from the exemption from Vehicle Excise Duty.
Amendment 5, page 77, line 10, leave out Clause 95
Amendment 6, in clause 95, page 77, line 14, 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.
Amendment 7, page 77, line 14, at end insert—
‘(2) No regulations under this section may be made unless a draft has been laid before and approved by a resolution of the House of Commons.’
This amendment would require the Government to seek the approval of the House before making regulations varying rates of import duty in an international trade dispute.
Amendment 8, page 77, line 14, at end insert—
‘(2) The Chancellor of the Exchequer must, no later than a month before any exercise of the power in subsection (1), lay before the House of Commons a report containing the following—
(a) an assessment of the fiscal and economic effects of the exercise of the powers in subsection (1);
(b) a comparison of those fiscal and economic effects with the effects of the UK being within the EU Customs Union;
(c) an assessment any differences in the exercise of those powers in respect of—
(i) England,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland; and
(d) an assessment of any differential effects in relation to the matters specified in paragraphs (a) and (b) between—
(i) England,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland.’
This would require a review of the economic and fiscal impact of the use of the powers in clause 95 including comparing those effects with EU Customs Union membership.
Amendment 9, in clause 96, page 77, line 26, after “tax” insert
‘which is due at the relevant date from the debtor and which became due in the 12 months immediately preceding that date, and/’
This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Amendment 10, page 77, line 27, after “deduction”, insert
‘from a payment made by the debtor in the period of 12 months immediately preceding the relevant date.’
This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Amendment 11, page 78, line 11, after “tax”, insert
‘which is due at the relevant date from the debtor and which became due in the 12 months immediately preceding that date, and/’
This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Amendment 12, page 78, line 12, after “deduction”, insert
‘from a payment made by the debtor in the period of 12 months immediately preceding the relevant date.’
This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Amendment 13, page 78, line 35, after “tax”, insert
‘which is due at the relevant date from the debtor and which became due in the 12 months immediately preceding that date, and/’
This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Amendment 14, page 78, line 36, after “deduction”, insert
‘from a payment made by the debtor in the period of 12 months immediately preceding the relevant date.’
This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Amendment 15, page 79, line 10, at end insert—
‘(8) The amendments made by this section do not apply to any debt secured by a floating charge in respect of monies were advanced to the debtor before 1 December 2020.’
This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).
Jesse Norman
The Government have tabled eight new clauses to the Bill, the majority of which are in response to the covid-19 pandemic. I would like to start by offering Members an explanation for why these new clauses are being brought forward on Report. The Government have been working very hard to combat the pandemic, as the House will know, and these measures are just a small part of a much more extensive and wide-ranging response. I am sure that colleagues across the House will appreciate that Ministers and civil servants have been working in extraordinary circumstances in the past three months. As I often do, I again pay great tribute to officials at the Treasury and Her Majesty’s Revenue and Customs. Without their work, it would not have been possible to deliver many, if any, of these aspects of this extremely comprehensive response, let alone in such a rapid timeframe as, for example, with the coronavirus job retention scheme.
We have brought forward these new clauses at the earliest possible opportunity, and for technical reasons, it is on Report. We have also been slightly limited by the fact that to table each new clause requires a new Ways and Means resolution to be agreed by the House. Report was the first amendable stage of the Bill to take place after the Government had been able to agree the necessary Ways and Means resolution on the Floor of the House. I hope the House will agree that there is a clear need for each of these new clauses to stand part of the Bill.
I will touch on each new clause briefly. New clause 19 seeks to do two things. First, it confirms that grants made under covid-related schemes—for example, the furlough scheme, the self-employment scheme, the small business grant fund, the retail, hospitality and leisure grant fund, the local authority discretionary grant fund and schemes corresponding to those grants within the devolved Administrations—are subject to tax. The new clause also includes a delegated power to add or remove further grant schemes through a statutory instrument, which provides sensible flexibility, so that the Government can continue to support the economy in their response to the pandemic.
The second part of the new clause ensures that HMRC has appropriate and proportionate compliance and enforcement powers in relation to the furlough scheme and the self-employment income support scheme. To ensure that taxpayer money is going only to those who are eligible, the new clause gives HMRC powers to recover overpayments and to impose penalties where there is deliberate non-compliance. HMRC has given a clear undertaking that these powers will not be used to penalise taxpayers who may be going through difficult times but make honest mistakes in their applications. As previously stated, the powers are designed to be proportionate, and they balance the fact that we are in unprecedented and uncertain times with the need to ensure that HMRC has sufficient powers to enforce the schemes according to eligibility criteria set out and to protect the Exchequer.
New clause 20 seeks to mitigate potential pensions impacts for those with a protected pension age returning to work to help in the battle against the pandemic. Its purpose is to provide certainty for those people by temporarily suspending rules that would otherwise see the pension income of recently retired people reduced if they were to return to work in crucial workforces at this important time. These retirees have been and will remain critical to the Government’s response to covid, and this new clause temporarily removes restrictions that might impede a flexible response.
New clause 21 temporarily relaxes the statutory residence test so that highly-skilled individuals from across the world are not discouraged from coming to the UK and helping this country to respond to the unprecedented health emergency. The actions and presence of normally non-resident individuals in the UK could have inadvertently affected their tax residence status. The measure is to be restricted, however, to ensure that it applies only between 1 March and 1 June 2020 for time spent in the UK by individuals who worked specifically on coronavirus disease-related activities in specified sectors. That time will not count towards the residence test.
Matt Rodda (Reading East) (Lab)
May I press the Minister on innovative companies getting a lack of support from HMRC? I have come across a case in my constituency where a very innovative British company appears to have had a lack of support from the agency. Would he look into that for me?
Jesse Norman
I am grateful to the hon. Gentleman for his question. As the House will be aware, HMRC is often responsive and generally extremely responsive to such issues. I will happily look at any correspondence he wants to send me, and I will ensure that there is a properly engaged response to the extent that my limited powers over HMRC permit me. I hope that will be effective.
New clause 23 enables the Treasury to specify in an order made under section 135 of the Finance Act 2008 which payments of tax and other liabilities will not attract late payment interest or surcharge as a result of being deferred by agreement during a period of national disaster or emergency. It also enables the Treasury to set specific relief periods for different deferred taxes or liabilities. As the House will know, the Government have announced an unprecedented package of economic support for businesses and individuals affected by covid. The new clause ensures that late payment interest that would normally accrue automatically where tax is paid late does not apply, supporting taxpayers further and in ways in which I am sure the whole House will support. The payment deferral for VAT that we have announced provides taxpayers with a much-needed cash flow boost. HMRC is using its existing powers as set out in the Commissioners for Revenue and Customs Act 2005 to defer those payments of tax.
New clause 24 allows a refund of the additional 3% higher rate of stamp duty where exceptional circumstances prevented the sale of the previous main residence in the three-year window within which a sale must ordinarily take place. The new clause applies to those whose refund window ended on or after 1 January 2020. It is to ensure that responsible actions taken by people do not lead to negative tax implications and that those who would otherwise have received a stamp duty land tax refund are still able to receive it, despite the pandemic.
New clause 25 suspends the heavy goods vehicle road user levy for a period of 12 months, cutting fixed operational costs to the logistics and haulage industries as the economy begins to recover from the pandemic. These industries support many other industries, and temporarily easing their financial burden will support the haulage sector, reducing fixed costs as the economy recovers over time.
I turn finally to new clause 32, which makes minor changes to the existing enterprise management incentives legislation, introducing a time-limited exception to the disqualifying event rule so that EMI option holders who can no longer meet the EMI working time requirement due only to the pandemic are not forced to forfeit their options or to exercise them earlier than planned. This has the effect of protecting employees furloughed under the coronavirus job retention scheme or who have taken unpaid leave and had their working hours reduced. The measure means that affected employees will not forfeit their options or be forced to exercise them within the statutory 90 days normally required.
Since the point of EMI schemes is to help high-growth small and medium-sized enterprises recruit and retain skilled employees by giving them tax-advantaged share options, I am sure the House will understand that the measure supports a very important sector that is also likely to be important to our recovery. The changes will be effective from 19 March to ensure that employees who were furloughed or had to reduce their hours do not lose out. I hope the House will accept the need for the new clauses in these highly uncertain and unusual times. I commend them to the House.
Wes Streeting (Ilford North) (Lab)
I thank the Financial Secretary for making the case for the Government’s new clauses this afternoon. Throughout the coronavirus pandemic, the Labour party has made clear as the official Opposition that we seek to work constructively with the Government in response to this unprecedented public health crisis which, as we have seen, has brought about an economic crisis to follow it. In that spirit, and to ensure the smooth passage of legislation, we have helped to expedite the progressive measures taken by the Government, and this afternoon will be no exception.
I wish to speak to new clause 29, which has been tabled in the name of my hon. Friend the Member for Oxford East (Anneliese Dodds), the shadow Chancellor, and other hon. and right hon. colleagues. Yesterday afternoon, I addressed the Government’s poverty of ambition on climate change. This afternoon, I want to address their poverty of ambition on tackling poverty itself.
The Conservative party has now been in government either alone or in coalition for a decade. Over the past 10 years, their record on poverty in this country and on tackling poverty in this country has been absolutely lamentable. According to the Government’s own Social Mobility Commission, 600,000 more children are now living in relative poverty than in 2012, and that is projected to increase further due to benefit changes and the obvious economic impact of covid-19. As of 20 February this year, some 14 million people were in poverty, according to the Joseph Rowntree Foundation, including 2 million pensioners and 4 million children. We know that the impacts of poverty are felt disproportion- ately among different communities. Children from black and minority ethnic groups, for example, are more likely to be in poverty, with 45% of BAME children living in poverty, as compared with 26% of children in white British families.
We believe that the Government are failing on something that should be the most basic of priorities for any Government. That is not just our view as the Opposition party; the Government’s own Social Mobility Commission has said:
“The government should be more proactive in addressing poverty overall.”
It is worth bearing in mind that behind every statistic is a child, and 30 years ago I was one of those children in the child poverty statistics, growing up on a council estate in London’s east end, sandwiched between the bright lights of the City of London and the glistening lights of what was then the blossoming London Docklands Development Corporation land, which has become Canary Wharf. Today, they are two global financial centres at the centre of our global city. In between is a vista of poverty that was bad then and remains bad now.
One of the things I find most frustrating about the experience I had growing up in a council flat in the east end in the 1980s is that I look back, and I think about the conditions of the council flat I lived in and the embarrassment of not wanting to bring friends home from school because the conditions were not ones that we were proud of. It was a source of shame and embarrassment. I think about the experience of relying on free school meals, and the stigma that arises from having to collect a dinner ticket while other children go and pay for their food quickly—and get the best food, I hasten to add, while handing over their cash. I think about the difficulties my mum had as a single mum, balancing the challenge of bringing up a child while relying on the benefits system, and having to make compromises in choosing how she spent the family budget: the choice between putting food in the fridge or some extra money in the electricity meter.
One of the things that makes me most angry is that, when I think about my experience, which I thought was bad in the 1980s, and compare it with that of children growing up in the same circumstances today, as seen in my own constituency casework, things have got worse for children in the decades following my childhood, when things ought to be getting better. Whereas I had the stability of a council flat—albeit not a nice one—and a roof over my head, children in my constituency today, and no doubt in those of so many others across the Chamber, are growing up in temporary bed-and-breakfast accommodation, being moved from pillar to post and living in substandard accommodation, with disruptive consequences for their education and their schooling, and the inability for them to form lasting friendships and for their families to build supportive networks and family relationships.
When I think about the enormous strides that were made, particularly by the last Labour Government, in tackling educational disadvantage, I think it is outrageous that, in this country in the 21st century, children still today arrive at school at the age of five with their life chances already limited and in many cases predetermined, because we failed to get early years right. Sure Start centres have closed, and the support for families is no longer there. As a result, children arrive at school, at five, less prepared than their peers from more affluent backgrounds. It makes me angry that, for all the difference made to my education through programmes under the last Labour Government and the impact they have had on children since—the London Challenge and Excellence in Cities—today children are leaving school at 16 at a time when the attainment gap between children from the most advantaged backgrounds and the least advantaged backgrounds is actually widening, and where the further education system in which many working-class young people go on to study has been described by the Government’s own Social Mobility Commission as “undervalued and underfunded”. This is at a time when the changing nature of our economy and the changing nature of the world of work make post-16 adult education delivered in further education settings more important, not less. We should be making progress, but we are in reverse gear.
Matt Rodda
My hon. Friend is making an extremely powerful speech, which focuses us, as we should be, on this vital issue. Does he agree with me that a central part of the problem many families face is that the costs of food and of rent have risen so dramatically, with the impossibility of being able to afford a home? In my constituency in Reading, it is very difficult for many people to get on to the housing ladder. Many young professionals and young families are crammed into flats, which are hugely expensive. They are also suffering huge problems with the high cost of food. Does he agree with me that this is a very significant part of the problem?
Wes Streeting
I strongly agree with my hon. Friend, and that brings me neatly on to the next point I was about to make about employment conditions in our country. For my mum, as a single mum, it was difficult to hold down a steady, stable job and often she was reliant on temporary, casual, low-paid work to help make ends meet. Looking at the picture in the labour market—and this was pre-pandemic—even in households where one or both parents are working, children are still growing up in poverty. As my hon. Friend said, over the last decade we have seen the bills going up, but the wages failing to follow.
We have also seen labour market conditions that mean that, even when people are doing the right thing, as the vast majority of people want to do—going out to work, often with two, three or even four jobs in a week, and working all the hours God sends to try to make ends meet—they are still unable to make ends meet. It should never be the case, especially in a country with the wealth and opportunity available here, that when someone goes to work and puts in a full week’s work, at the end of the day they still do not have enough to make ends meet. Things are likely to become even more challenging in the wake of the economic fallout from coronavirus. Unemployment statistics from recent months have been not only jaw dropping but unprecedented, and the pace at which our economy has collapsed as a result of the necessary shutdown has been astonishing. I welcome and recognise the steps that the Chancellor has taken to try to protect people’s incomes, but unless he goes further than he has already announced, many people will face greater poverty and hardship later this year.
Jesse Norman
the hon. Gentleman is making a powerful speech, but he did not say whether the Blair Government hit their target of halving child poverty by 2010. Did they or not?
Wes Streeting
I am delighted that the Minister asked that question, because I am about to lay out, in full, the record of the previous Labour Government. According to the London School of Economics and its Centre for Analysis of Social Exclusion, by the end of the new Labour Government’s period in office, child poverty and pensioner poverty had fallen considerably, in circumstances where child poverty would have risen without those reforms, and pensioner poverty would have fallen less far. In terms of absolute poverty, child poverty fell by more than 2 million from 1997-98 to 2009-10, and pensioner poverty fell by almost 3 million in the same period. In terms of relative poverty, child poverty fell by 800,000 between 1997-98 and 2009-10, and the number of pensioners in relative poverty fell by more than 1 million in the same period.
That Labour Government oversaw an £18 billion annual increase in spending on social security for families with children, as well as an £11 billion rise in payments for pensioners by 2010. Those rises were supported by other anti-poverty policies, including Sure Start, the national minimum wage, increased childcare support, and increases in education spending, which rose from £56 billion in 1996-97, to £103 billion in 2009-10—a real-terms increase of 83%. The last Labour Government pretty much eradicated homelessness and made ending insecure housing a priority, reducing the number of households in priority need of housing from 135,000 in 2003-04 to just 40,000 in 2009. They pursued the decent homes standard to boot, ensuring that children were growing up in far better conditions than I did. That is a record to be proud of—a record of a Government who got their priorities right.
It took a celebrity footballer to get this Government to do the right thing on something as basic as ensuring that children who would otherwise have gone hungry were fed this summer. It is not just that the Government do not have their head in the right place; they do not have their heart in the right place either. Unfortunately, we cannot rely on Marcus Rashford being on speed dial to get the Prime Minister to do the right thing on every occasion, and we cannot rely on the Chancellor to do the right thing on every occasion either. That is why it is important, as we have laid out in new clause 29, that we ensure that what counts is what is measured.
New clause 29 would require the Chancellor to conduct a review of the impact of this Bill—no doubt, very soon, this Act—on poverty in the United Kingdom. As with the Government’s environmental ambitions, I doubt that this Bill will move the dial on poverty much, if at all.
The Government’s own Social Mobility Commission has asked for the Office for Budget Responsibility to conduct assessments of all the fiscal statements that it usually does, but this time to look at child poverty and anti-poverty measures in particular. I urge Ministers to look carefully at this issue again. We raised it in Committee and were not successful in persuading the Minister of the case then, but I hope that we can persuade him of the case now. If Treasury Ministers and officials know that the OBR will be looking at those numbers in the same way that it does the other numbers in its assessments of Government fiscal events, perhaps it will concentrate the minds of people in the Treasury to get their priorities right.
Next week, the Chancellor will be coming before the House to deliver an economic update. After the Prime Minister’s statement this week, I think he needs to do a lot better than his apparent boss did when making a speech that was trailed as a new deal. It was not a new deal. Its ambitions were modest and much of the content was re-announcement. It certainly was not a green new deal. Perhaps when the Chancellor here next week, he can do the opposite of the Prime Minister. The Prime Minister over-promised and under-delivered. Given the way in which the economic update has been trailed, perhaps the Chancellor can under-promise and over-deliver next week, because he has a golden opportunity in the wake of this crisis to think seriously and substantially about the way in which our economy works and whose interests it serves.
I hope that when he comes forward next week, he does so with the full Budget that the shadow Chancellor has called for—a back-to-work Budget that is focused on jobs, jobs, jobs, that can actually tackle the gross inequalities and injustices of our society, and that puts us back on track to eradicate child poverty within a generation and to eradicate poverty for everyone because, for all the challenges of the last decade and all the challenges that we are living through now, this remains one of the wealthiest countries in the world.
This also happens to be a great country that is full of opportunities for so many people—in education, industry, arts, science and imagination—but those opportunities are not available to everyone. That should keep Ministers awake at night. It keeps me awake at night. But having listened to our Prime Minister only weeks ago in this Chamber, when it comes to tackling child poverty in this country, I do wonder whether his heart is really in it at all.
Sir Graham Brady (Altrincham and Sale West) (Con)
I am grateful for the opportunity to speak to new clause 30, which stands in my name, that of my right hon. Friend the Member for Maidenhead (Mrs May) and of a former aviation Minister, as well as of other Members who understand the crucial role of the aviation sector in bringing a very large amount of employment and prosperity to our constituents—in my case I represent an area immediately adjacent to Manchester airport, and my right hon. Friend has many constituents who work at Heathrow airport—and the wider impact of the aviation sector on the British economy and the way it drives growth and opportunity in our country.
The deficiencies of air passenger duty are well known, and this is an argument that has gone on for many years. It was introduced originally under the guise of being an environmental duty or tax. In fact, it has simply been a way of driving revenue. It is, by now, the highest tax of its sort anywhere in the world. In normal times, it is a drag on the development of new routes and connections around the world and a particular problem for regional airports, which find it harder to establish those new, especially long haul routes. Crucially, air passenger duty takes no account whatever of emissions or the environmental impact of an aircraft, a class of aircraft or a flight.
New clause 30 seeks to ensure that a review should be held—and held quickly, to be published within three months, by 1 October—of the likely effect of changes in air passenger duty rates on the aviation sector. The Bill as it stands only provides the capacity for Ministers to increase rates of air passenger duty, but it is critical that we look wider than that at the possible benefits that could come from reductions or a suspension. That is particularly important, of course, in the context of the covid-19 pandemic and the Government’s response to it.
The House will know that the aviation sector, along with hospitality and leisure, is among the hardest hit sectors of all. The effect on aviation has been exacerbated by Foreign Office guidance, which still advises against all but essential overseas travel, and in the past few weeks or so by the implementation of a blanket quarantine proposal, a policy which I hope will come to an end in the very near future with the announcement of a large list of so-called air bridges, which I think the industry expects might take place tomorrow.
The effect over the last few months of both the pandemic itself and policy in relation to the pandemic has been chilling for the aviation sector. The House is well aware of the very large number of jobs that have already been lost in the aviation sector in recent weeks and months, and there is little doubt it will take a long time for aviation to come back to the state of health that it previously enjoyed. While this is by way of a probing new clause, I say to the Minister on the Treasury Bench that the real purpose of it perhaps is simply to flag the importance of this issue prior to the fiscal event or the statement that will be made next week by the Chancellor. I am sure the Minister is well aware of the principle set out by Colbert, who said:
“The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”
The danger at the moment is that far from being an easy source of revenue for Government, air passenger duty, if it remains unreformed in the coming weeks and months, risks killing the goose rather than allowing the Government to extract the feathers.
I hope that the Chancellor will, before his statement, look seriously at the case for a temporary reduction or suspension of air passenger duty to assist the aviation sector to get back to where it should be. This is an opportunity to see the wider economic benefits that could come by achieving greater connectivity for our aviation sector, and particularly for regional airports. It would also be an opportunity to look at whether at the end of such a period of suspension an improved regime might be introduced that seeks to reward more sustainable aviation rather than simply to extract revenue for each passenger who flies.
Alison Thewliss (Glasgow Central) (SNP)
The unprecedented support that the UK Government have given to business during this crisis has been welcomed, but we feel we need a bolder and more radical approach to ensure that the recovery helps to deliver a fairer, more resilient economy, with wellbeing at its core.
Across the parties and nations of the UK, everybody’s aim in this crisis was principally to save lives, but we now face the difficult task of rebuilding the economy after the unprecedented suspension of economic activity over the past few months. There is no doubt that we will have divergent ideas as to how to achieve this, but my colleagues in the Scottish Government and on the SNP Benches here have worked as constructively as we can to produce a clear strategy for the future of Scotland’s economy. That strategy is important, because it is not good enough just to lurch from crisis to crisis. I have now been in Parliament for five years, with two elections in between, three Prime Ministers, and now a pandemic and a likely no-deal exit from the EU at the end of year. We have seen a vacuum of economic strategy from successive Conservative Governments; it is time for this Government to recognise the unique circumstances in which we find ourselves.
We need to rebuild and grow our economy, and we need a vision for what we want that to look like. This crisis has clearly deepened existing inequalities. We have to seize the opportunity to build a new kind of economy that tackles poverty and inequality at its root. Research from the New Economics Foundation has found that only 6% of the public want a return to the pre-pandemic economy. The SNP’s new clause 10 would hold the Government to account on tackling child poverty and require the Chancellor to review the impact of the Bill, because we want to ensure that the inequalities that have widened as a result of this crisis do not continue to widen. We support Labour’s new clause 10, which complements our clause.
Unfortunately, we cannot trust the UK Government to deliver on tackling inequality on their own. In the past couple of weeks, we have seen an intention to return to the punitive regime of benefit sanctions that has caused so many families misery and hardship. How are people supposed to go out to work when they may be shielding, when they may have children at home and when they may put their families at risk by going out to work? It is really quite impossible. I do not know how the Government expect people to do that. They should definitely urgently rethink the proposals on benefit sanctions.
We have seen the Government providing free school meals for children in England only after being shamed into a U-turn Marcus Rashford, and we have seen a Prime Minister more concerned about a £900 million paint job on a plane than supporting families. That gives a real indication of this Government’s priorities. The Scottish Government have taken child poverty incredibly seriously. They have set in statute their commitment—[Interruption.] They are grumbling on the Government Benches; if they would like to tell me why spending £900 million on a plane is more important than—
Alison Thewliss
If Government Members want to tell me why spending £900,000 on a plane is more important than feeding children—[Interruption.] All of it is too much. All of it is unnecessary; when there are children in my constituency and constituencies throughout the country not having food to put on the table, money spent on redecorating a plane is a shame that should stain this Government.
As I was saying, the Scottish Government have taken child poverty incredibly seriously. They have set in statute the commitment to eradicate child poverty by 2030, with concrete action in the child poverty delivery plan backed by the £50 million tackling child poverty fund. Child poverty in Scotland had fallen, but it has been on the rise since the Conservatives took over in 2010. Research from the Joseph Rowntree Foundation directly attributes this rise to welfare policy. In addition, the policies outwith the control of the Scottish Government, such as no recourse to public funds, cause significant poverty among people who are working. Constituents come to my office who cannot put food on the table for their children and who are struggling to pay their bills. Some have come to my office several years in a row to apply for the Christmas presents fund that is run in Glasgow, because even though they are working, they are not entitled to the benefits that their neighbours get; two children may sit next to one another in the classroom but one will go without because one family has no recourse to public funds. The Government must rethink this, because we have seen through the coronavirus crisis that people with no recourse to public funds find it more difficult to support themselves through this time.
Wes Streeting
The hon. Lady is right to say that so much of the responsibility and blame for what is happening in Scotland rests on the shoulders of the decisions taken here by the Conservative Government in Westminster, but I cannot resist asking her: given that between 1999 and 2007 Labour was in government in Holyrood and Westminster, are the people of Scotland not better served when there is a Labour Government here and a Labour Government there?
Alison Thewliss
The hon. Gentleman seems to think that Scotland just hangs about and waits for a Labour Government, and everything is going to be fine. We would rather have Scotland’s powers in our hands than have one hand tied behind our back in this Union. So we are stuck with the policies that this Government and Parliament propose, which the people of Scotland, in many cases, have not voted for and do not want.
It is difficult to assess the impact that no recourse to public funds has on poverty in constituencies across the UK. I asked for a breakdown by constituency of the number of people with no recourse to public funds, but the Government said that that information could not be provided to me. So I cannot tell how many people in my constituency have no recourse to public funds and are struggling. It falls to the Scottish Government to try to fix some of these problems, because as soon as anything is proposed to get around no recourse to public funds, the UK Government shut it down and say it cannot happen. The Scottish Government therefore have an anti-destitution strategy for no recourse to public funds, to take a degree of responsibility for the serious situation many people face—these are our people and we want to try to help them. When that strategy comes forward, I call on the UK Government not to stand in the way of trying to support people in society who need help.
Academic research has shown that the single most effective policy to reduce child poverty in Scotland would be for universal credit payments to be increased, and the Scottish Government are using the powers we have to invest in the new Scottish child payment, which will lift 30,000 children out of poverty. With UC applications more than doubling since this time last year, we badly need sustained investment in the welfare system from the UK Government, and it is disappointing that the Prime Minister has failed to rule out a return to austerity. The UK Government’s welfare cuts are estimated to reduce social security spending in Scotland by up to £3.7 billion in 2020-21. The Scottish Government are spending more than £100 million a year to mitigate the worst of those, including by mitigating against the bedroom tax. However, as Professor Alston, the United Nations special rapporteur on extreme poverty and human rights, wrote in his report on poverty in the UK:
“Devolved administrations have tried to mitigate the worst impacts of austerity, despite experiencing significant reductions in block grant funding and constitutional limits on their ability to raise revenue. Scotland and Northern Ireland each report spending some £125 million per year to protect people from the worst impacts of austerity and, unlike the United Kingdom Government, the three devolved administrations all provide welfare funds for emergencies and hardships.
But mitigation comes at a price, and is not sustainable. The Scottish Government said it had reached the limit of what it can afford to mitigate, because every pound spent on offsetting cuts means reducing vital services.”
Professor Alston was absolutely right in that assessment.
We cannot, in any circumstances, return to the austerity of the past. The welfare state and public services have been devasted in the past 10 years, leaving our economy vulnerable. Unfortunately, we still do not know if or when a second wave of covid-19 might happen, so we must use this opportunity to build resilience, if possible. We can allow a more flexible labour market response by increasing the generosity of universal credit, which will give people the financial headroom to gain new skills to meet the changing demands of the economy.
The Chancellor said that he would do whatever it takes to protect jobs, after a recent Treasury Committee report revealed that more than 1 million people have fallen through the gaps in support schemes. At this critical stage, it is vital that the Treasury strengthens and extends the schemes to ensure a strong economic recovery from the crisis. It is extremely concerning that the Government are pushing ahead with plans to wind down support schemes, and in particular that new clause 19 will designate grants to help businesses, employers, individuals and members of partnerships affected by the coronavirus crisis as taxable income.
It is also concerning that HMRC will be given new compliance powers to enforce those rules and that that has not been effectively communicated to businesses. Any new powers granted to HMRC must be proportionate and serve to aid recovery, rather than providing a further barrier for businesses to overcome. Those concerns have been backed by tax experts, such as the Chartered Institute of Taxation, which has said that it is vital that HMRC
“take a reasonable approach to enforcement in cases where recipients of CSPs were not entitled to the amount they received…there will be cases where people have made inadvertent errors in claims which may not come to light for some time. There will be cases where the person just did not know of the requirement to notify an overpayment. It is imperative that HMRC obtain a full understanding of the facts in every case and take a proportionate and targeted approach in their compliance activity in the months ahead.”
It is extremely important that HMRC and the Government get those details right. Many businesses are already on their knees and vulnerable to further shocks. Many businesses in my constituency are struggling to deal with HMRC, with errors in reporting systems meaning that they are not entitled to the payments that other businesses have received. It is difficult to address those problems.
If businesses are left to fail as support is withdrawn, the billions of pounds that have already been spent by the Government will be money wasted. As I did in Committee, I highlight the concerns raised by the Association of Business Recovery Professionals, R3, about the plans to grant preferential status to HMRC in insolvency procedures from December, covered by our amendments 9 to 15. It and UK Finance are concerned that that will undermine business lending and make it harder to rescue businesses from administration. Many companies across the UK in recent weeks have been struggling and going into administration, so the Treasury should carefully consider whether its plans will help businesses or hasten their demise.
Countries all over the world are facing the same choices and growing levels of public debt, but if we are to recover fully from the crisis, we need to prioritise growth and wellbeing over deficit reduction. This week, the Scottish Government laid out a plan for a fiscal stimulus package of £80 billion to stimulate growth for the whole of the UK. That would be used to accelerate major investment in low-carbon energy efficiency and digital infrastructure and deliver a green new deal for UK. The value of that investment can be recognised by assessing the Government’s fiscal sustainability in terms of its public sector net worth.
It is regrettable that the UK will, of course, miss out on the European Commission’s €750 billion stimulus. That makes it even more critical that the UK Government commit to their own stimulus—a proper stimulus, not the pretendy one that was announced by the Prime Minister this week—in the wake of covid-19, such as a reduction in VAT and job guarantees for young people.
Speaking of even younger people, I make a plug for my small and uncontentious amendment 4, which seeks to clarify that human breast milk is part of the vehicle excise duty exemption for vehicles carrying blood. It would be an important signal of support and recognition from the UK Government to those operating milk banks and to the mums donating their breast milk, which helps some of the most vulnerable babies in intensive care units across the UK. Among them is the extraordinary woman who, last week, donated an astonishing 32 litres to the milk bank that covers all of Scotland.
The Scottish Government and my colleagues in Westminster have put a considerable amount of work into formulating a meaningful strategy for Scotland’s recovery and future progress in delivering inclusive growth. I sincerely hope that those policies are taken seriously by the Treasury and that we can look back on this time as a pivotal one for making progress towards a fairer and more equitable society.
Mark Jenkinson (Workington) (Con)
It is an honour and a privilege to be addressing you from these green Benches, Mr Deputy Speaker, and most unexpected for a Wukkington lad like me. It would be fair to say that neither the timing nor circumstance of my maiden speech are as I imagined, with my original timing altered by the loss of one of Workington’s great artists—a much-loved former teacher and my wife’s grandmother—followed by lockdown, and the circumstance altered by a socially distanced Chamber and our new normal in the light of coronavirus.
On that subject, I must pay tribute to the huge sacrifices that each and every one of my constituents has made to stop the spread of the virus and to the huge effort from many individuals and businesses with their contributions to local community and national efforts. If I was to look for one positive in recent months, it would be the way that so many of my constituents have stepped up to the plate to support those around them.
The scale and speed of the Government’s response to coronavirus has been unprecedented. The measures that we have seen across the grant schemes, rate relief schemes, furlough schemes and bounce-back loans have been welcomed by my constituents in Workington. There is more to do and there are lessons to be learned, but I am incredibly proud to be here today to support the Government in their efforts.
Mary Kelly Foy (City of Durham) (Lab)
I congratulate the hon. Member for Workington (Mark Jenkinson) on his maiden speech, and I hope that he—a newbie like me—enjoys his time in this place and is a strong voice for the people of Workington. Yesterday, I spoke in the Finance Bill debate about job creation and the importance of creating not only jobs, but secure jobs that put the needs of workers at the heart of the economy, rather than profit. It seems rather appropriate that I have the opportunity to speak in the child poverty debate today, because as we all know, the Government’s shameful record on employment and workers’ rights is one of the main drivers behind child poverty.
To be honest, I have absolutely no faith that the Government understand the issue of child poverty in any meaningful way. In the space of a month, I had the Secretary of State for Health and Social Care telling me that this Government were committed to levelling up the north-east, yet I also witnessed an equalities Minister admitting from the Dispatch Box that they had not heard of the Marmot report—essential reading when looking to tackle health inequalities. As one popular actor said in response, it is like a vicar not having heard of the Bible.
Over the last decade, Conservative Governments have systematically dismantled the progress that the last Labour Government made on child poverty. Currently, 4 million children are living in poverty, with 3 million of those living in a household where at least one person is in work. In addition to that, the Government’s Social Mobility Commission reports that there are 600,000 more children living in relative poverty than in 2012. The commission referenced the Government’s welfare changes as a key cause of this and have predicted that those changes, along with the impact of covid-19, will only increase child poverty. While the Prime Minister might be confused as to whether the Government have caused more child poverty, I am not. It is there in black and white in those appalling figures and, quite frankly, it is an utter disgrace.
In recent weeks, we have also seen the Government being forced into a U-turn on free school meals after a campaign by a leading footballer—one of the people the Health Secretary was telling to do their bit at the start of the crisis. Is it not shameful that we have a Government who have to be embarrassed into feeding hungry children? To top it all off, the Government have reintroduced benefit sanctions in the midst of a global pandemic and economic disaster. Welfare support from the Government will be essential during the coming recession, yet the Government seem more concerned with taking support away than supporting people in dire financial straits. How on earth does this help child poverty? I wish that the Government were as quick to sanction Dominic Cummings or the Secretary of State for Housing as they are to sanction vulnerable people. What is clear from these decisions is that the Government either fundamentally misunderstand the issue of child poverty or simply do not care. I would ask the Minister which it is, but I suspect it is both.
Unfortunately, this country now faces one of the biggest crises in living memory. There is a combined threat to public health and the economy, which must be tackled together. However, the Government’s tendency to view poverty as an issue with individual causes, and their ignorance of health inequalities, show that they are poorly equipped to deal with this problem. When confronted with the rise in child poverty by my right hon. Friend the Leader of the Opposition, the Prime Minister denied the extent of the issue. To bluster and deflect would be one thing, but to deny that the issue exists is deeply worrying. How can the Government be trusted to tackle the issue if they refuse to confront it and deny its existence?
Successive Conservative Governments have made the problem worse; that is not my opinion but a fact. What they must do now is admit that they were wrong and change course. A starting point would be to accept the Social Mobility Commission’s recommendation that the Treasury give the Office for Budget Responsibility the role of assessing the impact of the Government’s fiscal policies on poverty. Sadly, I fear that under this Government, child poverty will continue to rise, as they simply do not recognise that the problem exists or know how to solve it. I can only hope that they prove me wrong.
Aaron Bell (Newcastle-under-Lyme) (Con)
It is a pleasure to follow the hon. Member for City of Durham (Mary Kelly Foy). It is also a pleasure to follow my hon. Friend the Member for Workington (Mark Jenkinson) and to congratulate him on a truly excellent maiden speech. It was warm, it was witty and it was thoughtful, and I know that he will serve the people of Workington very well in this place. He, like me, represents a red wall seat. The hon. Member for Ilford North (Wes Streeting), the Labour Front-Bench spokesman, spoke nostalgically and warmly about the Blair Government. Under the Blair Government, both his seat and mine had 10,000 Labour majorities or more, and perhaps the Opposition might reflect on why those voters have lost faith with Labour to solve their problems. There is poverty in my constituency; there is poverty in my hon. Friend’s constituency, but those people put their faith in the Conservative party to make their lives and their futures better.
I turn to the Bill and the amendments. It is clear that an ambitious and decisive response was demanded of the Government by the serious economic situation that we as a nation and the whole world face. The Budget debate in which I spoke back in March already feels a very long time ago for all of us, I am sure. In many ways, the world has changed a great deal since the day when my right hon. Friend the Chancellor of the Exchequer delivered his excellent first Budget to the House. I welcome these Government new clauses, which provide both relief and certainty in a number of affected areas, and I will speak a little more specifically about new clause 20 later.
In other ways, however, it is even clearer now than it was then that my right hon. Friend was ahead of the curve in the response to the challenges that we face. The Treasury has been at the forefront of the national response to the coronavirus and a leading example to the rest of the world, with its focus on protecting jobs and maintaining the capacity of our economy, while also looking after the most vulnerable in our society in all the measures taken to respond to the virus.
The extraordinary success of the coronavirus job retention schemes means that we have been paying the wages of more than 9 million people who would otherwise have been laid off or made redundant and therefore we have protected their jobs, their livelihoods and their families through this most difficult time. The Government have, in my view, risen to the challenge of protecting our economy thoughtfully, responsibly and with ambition. In my constituency of Newcastle-under-Lyme, that has meant 10,200 jobs supported through the furlough scheme and 2,600 self-employed workers supported with grants of more than £7 million. The local borough council has also supported our local businesses by distributing more than £21 million of business grants. I have received many emails from constituents asking me to pass on their thanks to the Government for the grants, the furlough scheme and all the other measures that have helped to keep them, their businesses and their families afloat through this period.
Claudia Webbe (Leicester East) (Lab)
It was Mahatma Gandhi, a hero to many Leicester residents, who famously said that the true measure of any society can be found in how it treats its most vulnerable members. When it comes to ensuring that vulnerable children are fed and looked after, our Government should be ashamed of themselves.
According to the Government’s own Social Mobility Commission, 600,000 more children are living in relative poverty now than in 2012. That is projected to increase further because of benefit changes and, of course, the coronavirus pandemic. In 2018, the number of children living in relative poverty rose by 100,000 to 4.2 million, or around 30% of all children. That appalling figure reflects the Government’s failure on the fundamental principle of governance: to provide for the most basic needs of our citizens.
As of February 2020, around 14 million people were in poverty in the UK. The virus may not discriminate, but our economic and social system certainly does. Children from African, Asian and minority ethnic families are nearly twice as likely to be in poverty than children in white British families. Leicester East is one of the most ethnically and culturally diverse places in the UK and has high levels of both child poverty and in-work poverty—we suffer from a perfect storm which enables the virus to have its impact.
Like many of our residents, I am deeply concerned about the recent increase in coronavirus cases in our city and the economic impact of the necessary lockdown extension. I am particularly worried about the impact that the pandemic will have on those Leicester children who are already living in conditions of unacceptable hardship. Over one in three children—42%—in Leicester East live in poverty. Nearly 6,000 households—around 14%—in Leicester East are in fuel poverty. As of April last year, the average weekly income for full-time employees in Leicester East was £420. That is £130 less than the east midlands average and £160 less than the UK average. The proportion of people claiming unemployment benefits in my constituency is also higher than the regional and national level. Do this Government believe that my constituents are somehow worth less than others? It is unacceptable that they have allowed such rank regional inequality to fester.
The worst thing about these shocking figures is that they reflect our local reality before the unprecedented coronavirus pandemic. We do not yet know the full impact of the unprecedented economic disruption caused by the virus. With widespread job losses, it is certain that it will have exacerbated hardship across Leicester and the UK. I have been helping countless local businesses and employees to stay afloat and access funding, despite the Government’s prohibitively strict guidelines. At a national and local level, we see companies such as British Airways take huge amounts of taxpayers’ money through the job retention scheme and then fire vast swathes of their workforce while imposing worse terms of employment. Too many Leicester residents have started to receive threats of redundancy at a time when the protection of workers must be prioritised. With Leicester required to maintain lockdown measures, it will be necessary for economic support to be extended and expanded. It is crucial that families in Leicester East have the material basis to stay safe and stay alive during the continued lockdown.
The Government’s callousness is demonstrated by the fact that benefit sanctions have been resumed at a time when we face an unprecedented period of economic hardship. For people forced to endure severe levels of hardship and such insecurity, it is impossible to comply, at times, with the Government’s guidance on self-isolation and social distancing. It is a moral imperative and in the public interest of everyone in our community that the basic needs of all residents are met. The cruelty of this Government over the last decade has transformed the Department for Work and Pensions into a symbol of fear. The coronavirus pandemic has further demonstrated the need for universal welfare support that will be there to help and support people, not punish and police them.
Even before the coronavirus hit, the Government had presided over a decade in which they cut essential services for the people of Leicester East while providing tax cuts for the wealthy, in which they allowed poverty and homelessness to rise in my constituency and across the country, and in which they sought to sow divisions as they facilitated the transfer of wealth from the poorest to the richest. The Government must act now to prevent the further impoverishment of working people and their families during the pandemic. They must start treating the widespread poverty of our children as the national scandal that it is. This virus has demonstrated that we have a moral duty to ensure that everyone in Leicester and across the country is protected. That means that, after the crisis, we can no longer live in a society that is defined by extreme inequality and in which it is commonplace for our children to go to bed hungry.
Andrew Griffith (Arundel and South Downs) (Con)
It is a pleasure to follow the passion of the hon. Member for Leicester East (Claudia Webbe). Our thoughts are with her and her constituents at this difficult time. It is a particular pleasure, if I may say so, to follow my hon. Friend the Member for Workington (Mark Jenkinson). He made us wait for his maiden contribution because of the difficult circumstances that we are in, but we are absolutely delighted that it was worth the wait. Workington has gained an important and well respected voice in this House.
I am speaking today in support of my hon. Friend the Member for Altrincham and Sale West (Sir Graham Brady) and of new clause 30, which requests that the Treasury review the level of air passenger duty. I am doing so on behalf of the 645 individual constituents from Arundel and South Downs who have signed the parliamentary petition on support for the aviation industry. They work for firms such as British Airways, Virgin and TUI, and in the extended Gatwick supply chain in West Sussex. As we know, aviation has taken the full force of the economic impact of the covid-19 crisis; it has been devastated by border closures and the calamitous drop in passenger demand. Going into the pandemic, our aviation sector was world-leading in terms of growth, jobs and competitiveness, but that is now at real risk. Research from the International Air Transport Association shows that the UK will be the worst revenue-hit country in Europe, facing a £29 billion revenue loss and with more than 660,000 jobs at risk. There are many aspects of this crisis that my right hon. Friend the Minister cannot help with, and I shall raise those another day, but one practical thing that he could do is to remove or mitigate the headwind of air passenger duty and help hard-pressed families to return to the air.
I know that the Financial Secretary does not share this affliction, but some falsely believe that air passenger duty is an environmental measure. That is manifestly not the case. It is levied on passenger numbers, so that an inefficient empty plane pays less than an efficient full one. It bears no relation to how modern an aircraft is or to the fuel efficiency with which it is being flown. Also, it does not take into account the fact that, to the extent that it disincentivises flight, the alternative for many passengers may be a long and polluting car journey. This is particularly true of domestic aviation. In any case, aviation accounts for barely 2% of human-induced global emissions, and in February this year, UK aviation committed to being net carbon zero by 2050. That is the first national net zero aviation commitment anywhere in the world.
This is a sector on the verge of exciting and disruptive change. We are at the dawn of what is called the third era of aviation, which will bring quieter and cleaner transport to the skies. Electrification will have as profound an impact as the replacement of the piston engine by gas turbines. British businesses such as Rolls-Royce are leaders in this field, providing engines to the first generation of all-electric planes, which are being certified for use by the Federal Aviation Administration right now. Air passenger duty is not a large source of revenue for the Treasury. At the best of times, before this crisis, it was expected to account for just 0.5% of all receipts, but with our busiest airport, Heathrow, reporting flights at just 3% of their normal levels in April, the revenue from APD this year and next will in any case be paltry. I conclude by humbly putting the proposition to the Minister that he may never again have such an affordable opportunity to help a vital British industry, to enhance his own formidable reputation on the Government Benches, to strengthen the Union by supporting domestic flights and to simplify the tax system than he does in accepting new clause 30.
Matt Western (Warwick and Leamington) (Lab)
It is a pleasure to follow the hon. Member for Arundel and South Downs (Andrew Griffith). I spoke in the debate on the Budget delivered on 11 March, which for all of us seems like a lifetime ago, such has been the impact of covid-19 on us socially and on our health but also on our communities and, profoundly, on our economy. That is one reason why I wanted to speak, although perhaps some of my comments are more relevant to yesterday’s debate.
We were told that covid-19 would not discriminate and that all of us would be impacted equally, but, as we have seen, we are witnessing a further widening of inequality by virtue of this terrible crisis. We now know that its impacts are different according to the nature of someone’s employment, where they live and so on. It reminds me of what happened from 2010 onwards, post the financial crash, when we were told we were all in it together. Of course, that was never the case. Those who had wealth and capital prospered. Look at the wealth of the top 100 people in this country and how it grew exponentially in the past decade, and how inequality widened so considerably. That has to be our great fear: the mistakes of the period from 2010 onwards will be repeated now. The warm words are not enough. We have to address this. We must recognise the sacrifice and contributions made by everyone across our society, irrespective of what people do. It does not matter whether they work in finance in the City or whatever; it is not enough. We all make a contribution. We all have a part to play in our society and in our economy.
In my constituency, there are just under 2,000 children living in relative poverty. Many people think it is a wealthy, prosperous community, but that is one in nine of all children. When it comes to energy poverty, one in 11 households lives in such poverty. We have no quality social housing being built at scale: something like nine social rent council homes have been built since 2010, and an average of 90 social rent homes have been built a year for the past five years. That is inequality. The children of this next generation will not enjoy the same benefits as that those of us who grew up in the 70s and elsewhere. We had a right and an opportunity to quality housing, to an education and to good job prospects. We are now seeing the beginning of unemployment rocketing.
I want to cover what is missing from the Finance Bill, given the drastic change in the economic picture. With prosperity, we can address inequality, but it is a choice. In particular, the support we now need from the Treasury for the automotive industry, which is so important to my constituency, is to protect jobs and get the Warwick and Leamington economy back on its feet. Covid-19 has had a huge impact on my constituency, as it has everywhere else, but of course the effects vary.
I have spoken with a wide range of businesses that have required the financial support offered by Government, which has been broadly welcomed, albeit there have been some huge gaps in the support for directors of small limited companies and others. In Warwick district—that is not entirely the same as the constituency—16,900 people had been placed on furlough. Many of them will be in the sectors hardest hit, such as hospitality, retail, leisure and tourism, and many are the lowest paid workers in my constituency, who will be at the start of their working lives. I have great concerns about what will happen once employer contributions to the job retention scheme are phased out entirely. The claimant count in my constituency has already shot up by 129% since March to over 3,000 people, and the figure will only go higher as the JRS is wound down. I urge the Government to consider extending the scheme for those sectors that are being badly impacted by the virus, until we can remove social distancing measures. The Leader of the Opposition also asked for this at PMQs yesterday.
Even with furlough still in place, people in my constituency are already losing well paid, skilled jobs in our precious automotive industry. Just last month, Jaguar Land Rover announced that it will be cutting 1,000 jobs and Aston Martin announced 500 job losses. With UK sales down 97% in the past two months, the sector has effectively had to cease production for three months, yet companies have often found that they do not qualify for the Government-backed loans. Demand for vehicles has understandably fallen off a cliff, and those businesses are going to need a lot of support to get back on their feet.
Along with colleagues on the all-party parliamentary group on electric vehicles, I have written to the Chancellor and the Business Secretary in my role as chair of that group to ask them urgently to discuss a stimulus package for the sector. I hope they will respond to that letter soon. There is an opportunity not only to protect skilled manufacturing jobs—the kind that we are desperate to attract and retain in this country—but to drive the industry towards a greener future. I know that the industry is desperate for the Government to work with it in that regard.
We need Government intervention because it is vital to managing transition. I very much hope that we will hear some positive words from the Chancellor next week. I therefore welcome the reforms to vehicle excise duty in the Bill and the £500 million for electric vehicle charging infrastructure announced at the Budget, but we must be much bolder if we are to make electric vehicles and other alternative fuel vehicles a good choice for consumers as has been done in other markets. By way of example, Norway has been the most successful country in achieving EV market penetration. The support from the Government there provides reduced road tax, free municipal parking and VAT exemption. This approach makes the total cost of ownership less than for dirtier, more polluting vehicles. We need 30,000 charging points in the UK—three times the amount we have now—and the investment to make it happen.
When the Prime Minister talks about trying to get the economy back on its feet, the phrase “build, build, build” is wrong for me. We must make, make, make and invest, invest, invest in our infrastructure, including in EV charging points and getting more alternative energy sources into our grids in order to build a cleaner and better future. As it happens, I travel by electric bike and would encourage everyone to take shorter journeys using this mode of transport, but we must make it cheaper for consumers to do so. Such grants and benefits can really help to stimulate new sectors. I urge the Government to consider doing this next week.
I urge Treasury Ministers to look again at how the Government can use our taxation system to incentivise the purchase and uptake of new, cleaner internal combustion engine vehicles; to support our automotive industry to get firing on all cylinders again; to look at alternative fuels, electric vehicles and hydrogen vehicles; and to think about how we can really progress and drive the sector forward. The Government must have the sector at the front of their mind before any financial statement delivered next week that is designed to protect jobs. Without urgent action and action at scale, we risk losing this sector forever.
Sarah Olney (Richmond Park) (LD)
I congratulate the hon. Member for Workington (Mark Jenkinson) on his maiden speech and warmly welcome him to his place. I shall attempt to tune my Surrey ears to his Cumbrian dialect, and I very much look forward to hearing more from him.
I want to take this opportunity to ask the Government, in their response to the coronavirus and all the challenges that are still to come, to focus particularly on two priorities when making their decisions about how to allocate resources to meet this enormous challenge. The first is to focus on the interests of our children and young people. It would have been unthinkable at any other time for an entire generation of schoolchildren to have missed a whole term and a half of schooling. Among all the justifiable anxiety about infection rates, testing, PPE and reopening the economy, the needs of our children seem to have been somewhat sidelined.
I welcome the Secretary of State’s statement earlier today about reopening schools in September. Like the rest of the House, I fervently hope that infection rates continue to decline to facilitate this. I would like to see a wholesale commitment from this Government to overcoming the educational deficit that has resulted from the shutdown. We already know how much of an attainment gap opens up between different groups of children over the summer holidays, and we can only imagine how much more pronounced that this will have become after half a year’s worth of missed schooling. I urge the Government to allocate generous resources to schools so that they may invest in the additional staffing and resources that they need to meet the needs of all children who have been disadvantaged.
I would also like to see a commitment to more diverse forms of learning to help engage young people who have become alienated from traditional forms of learning over their time away. Music, drama, sport, and open-air learning can all help children to re-engage with their education and will also help to revive employment sectors that have been damaged by the shutdown.
Beyond education, we have a cohort of school leavers who are attempting to enter employment at the worst possible time. If we are not to doom this cohort to a lifetime of missed opportunities, we must act now to provide them with the employment opportunities where they can build real skills and lay the foundations for a meaningful working life. In that spirit, I welcome the aspiration in the Prime Minister’s speech to build, build, build, as I recognise that this will provide opportunities for high-skilled jobs and apprenticeships. However, I ask that the Government include a real commitment to retraining career changers to help people who have lost their jobs in this pandemic to find work among the new opportunities that these projects will provide.
I note that the sectors the Prime Minister promises to provide funding for are areas of employment that are typically masculine. I urge the Government to redouble their efforts to engage young women and female career changers in training for careers in construction and engineering if those are the sectors where employment is due most quickly to recover. We know that child poverty is most effectively overcome when women are in work and earning a good wage, supported by affordable childcare.
On that note, I draw the Government’s attention to the financial precariousness of both our pre-school providers and our universities. Every one of these institutions that is forced to close or scale back activity as a result of the pandemic is a narrowing of opportunities for our children and young people, and every effort should be made to support these sectors. While I am on this point, I should like to take the opportunity to raise the issue of travel in London for those under-18. For many years, it has been free for under-18s to travel on Transport for London services, and that has opened up to all of them a much wider range of opportunities—education, cultural, sporting and social. As part of the package that the Government put in place to bail out Transport for London earlier this summer, they specified that that travel offering for the under-18s had to be scrapped. In support of that decision, they cited the fact that young people use buses only for short journeys that they would otherwise walk. I have obtained from the Minister the evidence for that assertion, and it came from a report published some years ago that concluded that free travel for under-18s had an overwhelmingly positive impact on young people’s social and educational lives. I urge the Government to prioritise young people in this recovery and to make a start by scrapping this restriction on their travel.
The second area that I call on the Government to prioritise as we plan our future beyond this pandemic is the environment. I was really disappointed not to hear a greater emphasis on the progress towards our net-zero carbon targets in the Prime Minister’s speech. This is a fantastic opportunity to implement carbon-free and low-carbon standards into our construction of new homes and into our transport systems. We can also take this opportunity to specify new standards for biodiversity, water quality and air quality and to redouble our efforts to increase the proportion of our energy that comes from renewable sources. I particularly encourage the Government to think not just about new buildings, but about bringing existing buildings up to 21st-century standards. Committing to a programme of retrofitting insulation to our ageing homes, especially those belonging to low-income families, can provide skilled employment opportunities and help us to make substantial progress towards our net-zero carbon goals.
There are so many other challenges that this Government will need to face over the next few months and so many calls on taxpayers’ money, but I want to see the Government establish clear strategic priorities for their future spending, and I would like those priorities to be our children, our young people and our environment.
Rachel Hopkins (Luton South) (Lab)
After a decade of austerity, which has seen an assault on people’s living standards and our social security system, child poverty is at a disgracefully high level, and the Bill will not work towards tackling the root causes. I am speaking in support of Labour’s new clause 29, which would ensure that the Government review the impact of the Bill on poverty, and I commend my hon. Friend on the Front Bench for his opening remarks and others on this side of the House for the passion and understanding with which they have spoken.
Fleur Anderson (Putney) (Lab)
I congratulate the hon. Member for Workington (Mark Jenkinson) on his maiden speech and on taking his place in the House.
I am honoured to be able to give a speech today that will be arguing for the correct place of focusing on child poverty in all our legislation. If we do otherwise, we will fail the very people we should be serving. I stand here to represent a mother whom I met last year. I went to her house to support her children and she told me in passing about the one lightbulb they have in their house. I asked, “One lightbulb, why is that?”. They moved it around from room to room so that her children would not inadvertently be able to switch on and use more electricity, because they could not afford to light up more than one room at a time. That was a stark reminder to me about the child poverty levels we have in this country.
New clause 29 would mandate the Government to look at the effect of this Finance Bill on the basis of its impact on poverty and on inequalities—on relative poverty. To measure the success of the Bill, we need to carry out a review within six months and consider whether future studies should be carried out regularly by the OBR. I may be able to pre-empt the Minister’s response to this new clause. He may well say that it is unnecessary and that impact assessments will be carried out, but if those are not public and are not regularly carried out, the Government are marking their own homework on this. When it comes to measures that may make people poorer, that is not acceptable and we need a public report. The Government’s own Social Mobility Commission says in its “Monitoring social mobility” report, published this year:
“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 (OBR) 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.”
The Government must be more strategic in their recovery from coronavirus than they have been in handling the crisis. They cannot take a hands-off approach, as they have done in the past decade towards child poverty. The cost of inaction, in terms of supporting the economy and reversing growing poverty levels, will be far greater than the cost of action. This really matters in London, which has the highest rate of child poverty of any English region, with 700,000 children—37% of all children in London—living in relative poverty, after housing costs are taken into account. In my borough of Wandsworth, 36% of children live in poverty. Although poverty rates are higher for everyone in London than they are nationally, this gap is larger for children than for any other group. Two thirds of children living in poverty in the UK are in working households or where at least one adult is in work, and they will be very impacted by the measures in this Bill, so we should record it.
When the UN’s special rapporteur Philip Alston produced his report on extreme poverty and human rights in Britain in 2018, long before coronavirus came along, he found that the UK Government’s policies had led to
“the systematic immiseration of millions across Great Britain”.
He also saw the disproportionate impact on women, saying:
“If you got a group of misogynists in a room and said how can we make this system work for men and not for women they would not have come up with too many ideas that are not already in place”.
We cannot continue with this kind of policy making.
Following drastic changes in Government economic policy beginning in 2010, the two preceding decades of progress in tackling child and pensioner poverty have begun to unravel, and poverty is on the rise. This Bill must not add to that. Under the previous Labour Government, child poverty was going down, but the latest figures from the Child Poverty Action Group show that 4.1 million children live in poverty in the UK; 47% of children living in lone parent families are in poverty; and 70% of children growing up in poverty live in working families. This is going in the wrong direction, as 5.2 million children are expected to be in poverty by 2022. Under this Government, we are heading towards having half of our children being poor in 21st century Britain. That would be not only a disgrace but a social calamity and economic disaster rolled into one.
On Tuesday, the regional director of Public Health England, Professor Kevin Fenton, warned a meeting of the London health board that the coronavirus has worsened stark and pervasive inequalities in London. A growing bank of national evidence shows that the virus has hit older people, poorer communities, men, and black, Asian, and minority ethnic Londoners the hardest. Some of those groups are also likely to be impacted by the wider social and economic consequences of the outbreak. According to Professor Fenton:
“These inequalities are stark, they’re pervasive and they are a call to action for the system moving forward to ensure that we do not go back to where we were…but we redouble and enhance our efforts to address these widening inequalities.”
Given those shocking figures, the worrying direction of travel, and the limiting daily impact on so many people’s lives, any new Bill that does not bake in an assessment of its impact on the lives of the poorest people in our country is set up to fail, and it will fail all those people and children in this country who we should be serving the most.
Ruth Jones (Newport West) (Lab)
It is a pleasure to bring up the rear in this important debate—last, but hopefully not least—and I commend the hon. Member for Workington (Mark Jenkinson) for his maiden speech. Labour Members obviously mourn the loss of his predecessor, but we trust that the hon. Gentleman will speak up for Cumbria as strongly as she did.
I wish to touch on three important areas that I think the Government should keep in mind as we look to rebuild our economy, and as communities across the UK get used to our new normal. We must remember that this is a recovery from the first wave of covid-19, and events in Leicester and elsewhere in England show how sensitive the evolving situation continues to be. A key component of any recovery effort is public sector pay, and the way we treat those who go above and beyond for us. Our workers deserve to be paid properly, and we must pledge to do that now. Last week there was a debate in this House about how we can acknowledge and support those workers in the NHS who give their lives to keep us, our families and our constituents alive and healthy. The answer to how we show our appreciation, and when we do it, is simple: we should pay people what they deserve. I hope that the Chancellor’s statement next week will lay out the building blocks to enable that to happen.
Newport is one of the most diverse parts of Wales, and I am proud of our city and its diversity. It is, however, a matter of deep regret that our cherished diversity has seen us on the frontline in the fight against the devastating impact of covid-19 on black and minority ethnic communities. A report commissioned by the Welsh Labour Government under First Minister Mark Drakeford was published recently, and it rightly calls for action to tackle the structural and systematic racism that may have contributed to the higher than average death rate in BME communities. Addressing those structural inequalities must be integral to the economic recovery for which our city is crying out.
In a city such as Newport—it will be the same in many other cities across the UK—we know at first hand how vital BME communities are for our collective prosperity. It really is as simple as that. We know that BME workers are more likely to be in low-paid jobs with little of the protection needed to stay safe and secure, and so the funding and delivery of PPE, and other protection, must be a priority for this Conservative Government.
One real, tangible thing that Ministers could do is follow the lead of the Welsh Labour Government, who have made provision for a comprehensive risk assessment that supports people from BME backgrounds in the NHS and social care sector in Wales. That works for my constituents in Newport West, and it should be rolled out in England too. For our welfare system, there is a need for common sense and decency to be at the heart of our economic recovery. That is vital to ensure that we do what the Blair and Brown Labour Governments did, which was to take millions of children out of poverty.
A few weeks ago, we saw a Manchester United player shame this Tory Prime Minister and his Ministers into ensuring that free school meals would be provided throughout the summer in England. I say to new Tory Back Benchers, many of whom are auditioning for places on the Treasury Bench: we will not forget the tweets, the press releases and the speeches in this Chamber explaining why free school meals for children in England were not possible, and neither will the people who were affected. I am proud to say that, in Wales, we take our responsibility to our children seriously. We did not need to be shamed into action; the Welsh Labour Government know how crucial it is that we give our children nutritional and accessible meals. As such, we guaranteed that free school meals will be available to Welsh children throughout the summer, because it is the right thing to do.
Jesse Norman
As is customary at the conclusion of Report stage, I will speak to the issues that have been raised, rather than the full content of the Bill. Let me start by saying how much I enjoyed the splendidly generous and warm speech by my great and hon. Friend the Member for Workington (Mark Jenkinson). As Members across the House noted, Workington will have a fine voice in the Chamber for many years to come. I was impressed by his ability to smuggle some Cumbrian dialect into the Chamber—I do not know whether it counts as a foreign language, but it was certainly unintelligible to me, which may be true for other colleagues. I take my hat off not only to Mr Harris for identifying his prime ministerial potential but to my hon. Friend for his robust sense of self-confidence. Colleagues normally play down their prime ministerial potential early in their political careers, and I admire his chutzpah, to use a different piece of dialect, in bringing our attention to that. He also acknowledged his predecessor’s capacity to align himself with the Opposition rather than the Whip; I am grateful to him for that. He made some valuable points, and I congratulate him on his maiden speech.
Labour’s new clause 29 and the SNP’s new clause 10 would require the Chancellor to review the impact of provisions in the Bill on child poverty and total poverty and to lay a report before Parliament within six months of Royal Assent. We were treated to a moving and personal speech from the hon. Member for Ilford North (Wes Streeting). I congratulate him on his achievement in getting to Cambridge University on the back of that personal experience. Of course, he is right to focus on the importance of combating educational disadvantage—a cause that every Member of the House believes in. I found it surprising that he did not go on to acknowledge the achievement of this Government in raising the number of good or outstanding schools from 68% in 2010 to 86% today, or the fact that the proportion of 18-year-olds from disadvantaged backgrounds going to university went from only 13% in 2009-10 to 21% in 2019.
The hon. Member talked about pensioner poverty but neglected to mention that there are 100,000 fewer pensioners in poverty now than there were in 2010. He talked about jobs but without acknowledging that, at least until the pandemic, which has struck us all and will have had unfathomable effects, as we know, 3.9 million more people were in employment. Specifically, the employment of the poorest 20% was 9% higher under this Government than in 2009-10.
The hon. Member was right to say that the tragedy of an economic crisis is that it hits the least well off the hardest, and that is precisely the inheritance that this Government’s predecessors left to us in 2009-10. As I never cease to remind the House, the financial crisis of 2007-08 was brought about because bank leverage was allowed to rise from 20 times, where it had been for the previous 40 years, to 50 times in seven years under the Blair Government. If hon. Members do not believe me, they can look at the independent report on banking published under Professor Vickers.
I should, however, return to new clauses 29 and 10, some of which are not necessary because the information they seek is largely already in the public domain, including on the distributional effect of tax, welfare and spending policies, on the equalities impacts of tax measures and on poverty rates.
I thank my hon. Friend the Member for Altrincham and Sale West (Sir Graham Brady) for his probing new clause 30. I admire his range of references. I thought he was going to reference Stephen Colbert, the American talk show host, but tragically it was Jean-Baptiste Colbert, who produced the line about plucking the feathers from the goose. He is absolutely right. No one would describe him as a hisser, but we do pay careful attention to the points he has made, and I am very grateful to him for raising them. I would also single out my hon. Friend the Member for Arundel and South Downs (Andrew Griffith), who rightly pointed out that the configuration between APD and the environmental performance of flights is a very blunt relationship indeed, so I thank him for that.
Colleagues across the House will know that new clause 30 would ask the Treasury to review the effect of proposed rate changes on APD. We are working closely with the sector and are closely attuned to its concerns in the face of the pandemic, and of course we have paid close attention to the points my hon. Friend raised. I am sure colleagues will be aware that, even as it is, the current rate will only take effect in April 2021 and will rise by only £2 for a long-haul economy flight, which is the cost of a rather inexpensive coffee at airport prices. It may not be quite as urgent, but the point about the wider need to look at this is well made.
I turn quickly to amendment 4, which seeks to extend the exemption from vehicle excise duty for medical courier charities in clause 86 explicitly to include vehicles carrying human breast milk. The hon. Member for Glasgow Central (Alison Thewliss) will know that this amendment is not necessary because the clause already provides for the transportation of human breast milk. The purpose-built vehicles used by the medical courier charities, which are exempt from VED, do not merely transport blood; they transport a wide range of medical product, including X-rays, MRA scans, plasma and human breast milk.
There are many other things I could say in response to other comments, but I will leave it there.
Question put and agreed to.
New clause 19 accordingly read a Second time, and added to the Bill.
New Clause 20
Protected pension age of members re-employed as a result of coronavirus
“(1) In FA 2004, in Schedule 36 (pension schemes etc), paragraph 22 (rights to take benefit before normal minimum pension age) is amended as follows.
(2) In sub-paragraph (7F), at the end of paragraph (b) insert “, and
(c) that the member is or was employed as mentioned in sub-paragraph (7B)(a) where—
(i) the employment began at any time during the coronavirus period, and
(ii) the only or main reason that the member was taken into employment was to help the employer to respond to the public health, social, economic or other effects of coronavirus.”
(3) After sub-paragraph (7J) insert—
“(7K) In sub-paragraph (7F)(c)—
“coronavirus” has the same meaning as in the Coronavirus Act 2020 (see section 1(1) of that Act);
“the coronavirus period” means the period beginning with 1 March 2020 and ending with 1 November 2020.
(7L) The Treasury may by regulations amend the definition of “the coronavirus period” in sub-paragraph (7K) so as to replace the later of the dates specified in it with another date falling before 6 April 2021.
(7M) The power in sub-paragraph (7L) may be exercised on more than one occasion.”
(4) The amendments made by this section are treated as having come into force on 1 March 2020.”—(Jesse Norman.)
In certain circumstances, people who have a protected pension age under a pension scheme (i.e. a right to receive pension benefits at an age below the normal minimum pension age) can lose it on being re-employed. This new clause prevents that happening for people re-employed as part of the response to coronavirus.
Brought up, read the First and Second time, and added to the Bill.
New Clause 21
Modifications of the statutory residence test in connection with coronavirus
“(1) This section applies for the purposes of determining—
(a) whether an individual was or was not resident in the United Kingdom for the tax year 2019-20 for the purposes of relevant tax, and
(b) if an individual was not so resident in the United Kingdom for the tax year 2019-20 (including as a result of this section), whether the individual was or was not resident in the United Kingdom for the tax year 2020-21 for the purposes of relevant tax.
“Relevant tax” has the meaning given by paragraph 1(4) of Schedule 45 to FA 2013 (statutory residence test).
(2) That Schedule is modified in accordance with subsections (5) to (13).
(3) Paragraph 8 (second automatic UK test: days at overseas homes) has effect as if after sub-paragraph (5) there were inserted—
“(5A) For the purposes of sub-paragraphs (1)(b) and (4), a day does not count as a day when P is present at a home of P’s in the UK if it is a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of it).”
(4) Paragraph 22 (key concepts: days spent) has effect as if—
(a) in sub-paragraph (2), for “two cases” there were substituted “three cases”;
(b) after sub-paragraph (6) there were inserted—
“(7) The third case is where—
(a) that day falls within the period beginning with 1 March 2020 and ending with 1 June 2020,
(b) on that day P is present in the UK for an applicable reason related to coronavirus disease, and
(c) in the tax year in question, P is resident in a territory outside the UK (“the overseas territory”).
(8) The following are applicable reasons related to coronavirus disease—
(a) that P is present in the UK as a medical or healthcare professional for purposes connected with the detection, treatment or prevention of coronavirus disease;
(b) that P is present in the UK for purposes connected with the development or production of medicinal products (including vaccines), devices, equipment or facilities related to the detection, treatment or prevention of coronavirus disease.
(9) For the purposes of paragraph (7)(c), P is resident in an overseas territory in the tax year in question if P is considered for tax purposes to be a resident of that territory in accordance with the laws of that territory.
(10) The Treasury may by regulations made by statutory instrument—
(a) amend sub-paragraph (7)(a) so as to replace the later of the dates specified in it with another date falling before 6 April 2021;
(b) amend this paragraph so as to add one or more applicable reasons related to coronavirus disease.
(11) The powers under sub-paragraph (10) may be exercised on more than one occasion.
(12) A statutory instrument containing regulations under sub-paragraph (10) is subject to annulment in pursuance of a resolution of the House of Commons.”
(5) Paragraph 23 (key concepts: days spent and the deeming rule) has effect as if after sub-paragraph (5) there were inserted—
“(5A) For the purposes of sub-paragraph (3)(b) and (4), a day does not count as a qualifying day if it is a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of it).”
(6) Paragraph 28(2) (rules for calculating the reference period) has effect as if—
(a) in paragraph (b) the “and” at the end were omitted;
(b) after paragraph (b) there were inserted—
“(ba) absences from work at times during the period specified in an emergency volunteering certificate issued to P under Schedule 7 to the Coronavirus Act 2020 (emergency volunteering leave), and”;
(c) in paragraph (c), for “or (b)” there were substituted “, (b) or (ba)”.
(7) Paragraph 29 (significant breaks from UK or overseas work) has effect as if in sub-paragraphs (1)(b) and (2)(b), for “or parenting leave” there were substituted “, parenting leave or emergency volunteering leave under Schedule 7 to the Coronavirus Act 2020”.
(8) Paragraph 32 (family tie) has effect as if after sub-paragraph (4) there were inserted—
“(4A) But a day does not count as a day on which P sees the child if the day on which P sees the child would be a day falling within the third case in paragraph 22(7) (if P were present in the UK at the end of it).”
(9) Paragraph 34 (accommodation tie) has effect as if after sub-paragraph (1) there were inserted—
“(1A) For the purposes of sub-paragraph (1)—
(a) if the place is available to P on a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of that day), that day is to be disregarded for the purposes of sub-paragraph (b), and
(b) a night spent by P at the place immediately before or after a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of that day) is to be disregarded for the purposes of sub-paragraph (c).”
(10) Paragraph 35 (work tie) has effect as if after sub-paragraph (2) there were inserted—
“(3) But a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of it) does not count as a day on which P works in the UK.”
(11) Paragraph 37 (90-day tie) has effect as if—
(a) the existing text were sub-paragraph (1);
(b) after that sub-paragraph, there were inserted—
“(2) For the purposes of sub-paragraph (1), a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of it) does not count as a day P has spent in the UK in the year in question.”
(12) Paragraph 38 (country tie) has effect as if after sub-paragraph (3) there were inserted—
“(4) For the purposes of sub-paragraph (3), P is to be treated as not being present in the UK at the end of a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of that day).”
(13) Paragraph 145 (interpretation) has effect as if at the appropriate place there were inserted—
““coronavirus disease” has the same meaning as in the Coronavirus Act 2020 (see section 1(1) of that Act);”.”—(Jesse Norman.)
This new clause modifies the statutory residence test in Schedule 45 to the Finance Act 2013 so that the presence of certain individuals in the UK for purposes connected with coronavirus is discounted for the purposes of determining whether they are resident in the UK in the tax years 2019-20 and 2020-21.
Brought up, read the First and Second time, and added to the Bill.
New Clause 22
Future Fund: EIS and SEIS relief
“(1) This section applies if an individual to whom shares in a company have been issued—
(a) enters into a convertible loan agreement with the company under the Future Fund on or after 20 May 2020, and
(b) subsequently receives value from the company under the terms of the agreement.
(2) If, as a result of the receipt of value, any EIS relief attributable to shares issued before the relevant time would (apart from this subsection) be withdrawn or reduced under section 213 of ITA 2007, the value received is to be ignored for the purposes of that section.
(3) If, as a result of the receipt of value, any SEIS relief attributable to shares issued before the relevant time would (apart from this subsection) be withdrawn or reduced under section 257FE of ITA 2007, the value received is to be ignored for the purposes of that section.
(4) If, as a result of the receipt of value, shares issued before the relevant time would (apart from this subsection) cease to be eligible shares by reason of paragraph 13(1)(b) of Schedule 5B to TCGA 1992, the value received is to be ignored for the purposes of that paragraph.
(5) In this section—
“the Future Fund” means the scheme of that name operated from 20 May 2020 by the British Business Bank plc on behalf of the Secretary of State;
“the relevant time” means the time when the individual enters into the convertible loan agreement.”—(Jesse Norman.)
This new clause prevents EIS and SEIS relief from being withdrawn or reduced for the purposes of income tax and capital gains tax in cases where an individual enters into a convertible loan agreement under the Future Fund with a company and subsequently receives value from the company under the agreement.
Brought up, read the First and Second time, and added to the Bill.
New Clause 23
Interest on unpaid tax in case of disaster etc of national significance
“(1) Section 135 of FA 2008 (interest on unpaid tax in case of disaster etc of national significance) is amended as follows.
(2) In subsection (2), for the words from “arising” to the end substitute “that—
(d) arises under or by virtue of an enactment or a contract settlement, and
(e) is of a description (if any) specified in the order.”
(3) In subsection (4)—
(a) after “relief period” insert “, in relation to a deferred amount,”;
(b) in paragraph (b), after “revoked” insert “or amended so that it ceases to have effect in relation to the deferred amount”.
(4) In subsection (10)—
(a) at the end of paragraph (a), omit “and”;
(b) at the end of paragraph (b) insert “, and
(c) may specify different dates in relation to liabilities of different descriptions.”
(5) The amendments made by this section have effect from 20 March 2020.”—(Jesse Norman.)
This new clause amends section 135 of the Finance Act 2008 to enable the Treasury to specify in an order under that section which payments of tax and other liabilities that are deferred by agreement during a period of national disaster or emergency will not attract interest or surcharges.
Brought up, read the First and Second time, and added to the Bill.
New Clause 24
Exceptional circumstances preventing disposal of interest in three year period
“(1) In FA 2003, Schedule 4ZA (stamp duty land tax: higher rates for additional dwellings etc) is amended as follows.
(2) In paragraph 3 (single dwelling transactions)—
(a) in sub-paragraph (7)(b) for “the period of three years beginning with the day after the effective date of the transaction concerned” substitute “a permitted period”;
(b) after sub-paragraph (7) insert—
“(7A) For the purposes of sub-paragraph (7)(b), the permitted periods are—
(a) the period of three years beginning with the day after the effective date of the transaction concerned, or
(b) if HMRC are satisfied that the purchaser or the purchaser’s spouse or civil partner would have disposed of the major interest in the sold dwelling within that three year period but was prevented from doing so by exceptional circumstances that could not reasonably have been foreseen, such longer period as HMRC may allow in response to an application made in accordance with sub-paragraph (7B).
(7B) An application for the purposes of sub-paragraph (7A)(b) must—
(a) be made within the period of 12 months beginning with the effective date of the transaction disposing of the major interest in the sold dwelling, and
(b) be made in such form and manner, and contain such information, as may be specified by HMRC.
(7C) Schedule 11A (claims not included in returns) does not apply in relation to an application made in accordance with sub-paragraph (7B).”
(3) In paragraph 8 (further provision in connection with paragraph 3(6) and (7))—
(a) in sub-paragraph (3), after “paragraph 3(7)” insert “by virtue of paragraph 3(7A)(a)”;
(b) in sub-paragraph (4), after “paragraph 3(7)” insert “by virtue of paragraph 3(7A)(a)”;
(c) after sub-paragraph (4) insert—
“(5) Where HMRC grant an application made in accordance with paragraph 3(7B)—
(a) the land transaction return in respect of the transaction concerned is treated as having been amended to take account of the application of paragraph 3(7) by virtue of paragraph 3(7A)(b), and
(b) HMRC must notify the purchaser accordingly.”
(4) The amendments made by this section have effect in a case where the effective date of the transaction concerned is on or after 1 January 2017.”—(Jesse Norman.)
This new clause amends Schedule 4ZA to the Finance Act 2003 to provide that where a person purchases a dwelling intending it to be their only or main residence, the three-year period within which a major interest in the previous dwelling must be disposed of to be able to obtain a refund of the higher rate stamp duty land tax may be extended to a longer period if, because of exceptional circumstances, the interest was not disposed of in that three-year period.
Brought up, read the First and Second time, and added to the Bill.
New Clause 25
HGV road user levy
“(1) Section 5(2) of the HGV Road User Levy Act 2013 (HGV road user levy charged for all periods for which a UK heavy goods vehicle is charged to vehicle excise duty) does not apply where the period for which a UK heavy goods vehicle is charged to vehicle excise duty is a period that begins in the exempt period.
(2) Section 6(2) of the 2013 Act (HGV road user levy charged in respect of non-UK heavy goods vehicle for each day on which the vehicle is used or kept on a road to which the Act applies) does not apply in respect of any day in the exempt period.
(3) The exempt period is the period of 12 months beginning with 1 August 2020.
(4) Section 7 of the 2013 Act (rebate of levy) has effect as if, after subsection (2A), there were inserted—
“(2B) A rebate entitlement also arises where HGV road user levy has been paid in respect of a non-UK heavy goods vehicle in accordance with section 6(2) in respect of any part of the exempt period within the meaning of section (HGV road user levy)(3) of the Finance Act 2020.””—(Jesse Norman.)
This new clause provides that HGV road user levy is not chargeable in respect of the period of 12 months beginning with 1 August 2020. It provides that where the levy has been paid in respect of a non-UK heavy goods vehicle in respect of the exempt period a rebate can be claimed (no equivalent provision being required for UK heavy goods vehicles which will benefit from the exemption in respect of any period for which the levy would otherwise be paid that begins during the exempt period).
Brought up, read the First and Second time, and added to the Bill.
New Clause 32
Enterprise management incentives: disqualifying events
“(1) The modifications made by this section apply for the purposes of determining whether a disqualifying event occurs or is treated as occurring in relation to an employee in accordance with section 535 of ITEPA 2003 (enterprise management incentives: disqualifying events relating to employee).
(2) Paragraph 26 of Schedule 5 to ITEPA 2003 (requirement as to commitment of working time) has effect as if, in sub-paragraph (3)—
(a) the “or” at the end of paragraph (c) were omitted, and
(b) at the end of paragraph (d), there were inserted “, or
(e) not being required to work for reasons connected with coronavirus disease (within the meaning given by section 1(1) of the Coronavirus Act 2020).”
(3) Paragraph 27 of that Schedule (meaning of “working time”) has effect as if, in sub-paragraph (1)(b), for “(d)” there were substituted “(e)”.
(4) Section 535 of ITEPA 2003 has effect as if, in the closing words of subsection (3), for “(d)” there were substituted “(e)”.
(5) The modifications made by this section have effect in relation to the period—
(a) beginning with 19 March 2020, and
(b) ending with 5 April 2021.
(6) The Treasury may by regulations made in the tax year 2020-21 amend subsection (5)(b) by replacing “2021” with “2022”.”—(Jesse Norman.)
This new clause provides that a disqualifying event does not occur in relation to an individual as regards enterprise management incentives as a result of the individual taking leave, being furloughed or working reduced hours because of coronavirus disease.
Brought up, read the First and Second time, and added to the Bill.
New Schedule 1
Taxation of coronavirus support payments
Accounting for coronavirus support payments referable to a business
1 (1) This paragraph applies if a person carrying on, or who carried on, a business (whether alone or in partnership) receives a coronavirus support payment that is referable to the business.
(2) So much of the coronavirus support payment as is referable to the business is a receipt of a revenue nature for income tax or corporation tax purposes and is to be brought into account in calculating the profits of that business—
(a) under the applicable provisions of the Income Tax Acts, or
(b) under the applicable provisions of the Corporation Tax Acts.
(3) Subject to paragraph 2(5), sub-paragraph (2) does not apply to an amount of a coronavirus support payment if—
(a) the business to which the amount is referable is no longer carried on by the recipient of the amount, and
(b) the amount is not referable to activities of the business undertaken at a time when it was being carried on by the recipient of the amount.
(4) If an amount of the coronavirus support payment is referable to more than one business or business activity, the amount is to be allocated between those businesses or activities on a just and reasonable basis.
(5) Paragraph 3 contains provision about when, in certain cases, an amount of a coronavirus support payment is, or is not, referable to a business for the purposes of this paragraph and paragraph 2.
(6) In this Schedule “business” includes—
(a) a trade, profession or vocation;
(b) a UK property business or an overseas property business;
(c) a business consisting wholly or partly of making investments.
Amounts not referable to activities of a business which is being carried on
2 (1) This paragraph applies if a person who carried on a business (whether alone or in partnership) receives a coronavirus support payment that—
(a) is referable to the business, and
(b) is not wholly referable to activities of the business undertaken while the business was being carried on by the recipient of the payment.
(2) So much of the coronavirus support payment as is referable to the business but which is not referable to activities of the business undertaken while the business was being carried on by the recipient of the payment is to be treated as follows.
(3) An amount referable to a trade, profession or vocation is to be treated as a post-cessation receipt for the purposes of Chapter 18 of Part 2 of ITTOIA 2005 or Chapter 15 of Part 3 of CTA 2009 (trading income: post-cessation receipts), and—
(a) in the application of Chapter 18 of Part 2 of ITTOIA 2005 to that amount, section 243 (extent of charge to tax) is omitted, and
(b) in the application of Chapter 15 of Part 3 of CTA 2009 to that amount, section 189 (extent of charge to tax) is omitted.
(4) An amount referable to a UK property business or an overseas property business is to be treated (in either case) as a post-cessation receipt from a UK property business for the purposes of Chapter 10 of Part 3 of ITTOIA 2005 or Chapter 9 of Part 4 of CTA 2009 (property income: post- cessation receipts), and—
(a) in the application of Chapter 10 of Part 3 of ITTOIA 2005 to that amount, section 350 (extent of charge to tax) is omitted, and
(b) in the application of Chapter 9 of Part 4 of CTA 2009 to that amount, section 281 (extent of charge to tax) is omitted.
(5) In any other case, for the purposes of paragraph 1(3)—
(a) the recipient of the amount is to be treated as if carrying on the business to which the amount is referable to at the time of the receipt of the amount, and
(b) the amount is to be treated as if it were referable to activities undertaken by the business at that time.
(6) Where the recipient of the amount has incurred expenses that—
(a) are referable to the amount, and
(b) would be deductible in calculating the profits of the business if it were being carried on at the time of receipt of the amount,
the amount brought into account under paragraph 1(2) by virtue of sub-paragraph (5) is to be reduced by the amount of those expenses.
(7) But sub-paragraph (6) does not apply to expenses of a person that arise directly or indirectly from the person ceasing to carry on business.
Amounts referable to businesses in certain cases
3 (1) An amount of a coronavirus support payment made under an employment-related scheme—
(a) is referable to the business of the person entitled to the payment as an employer (even if the person is not for other purposes the employer of the employees to whom the payment relates), and
(b) is not referable to any other business (and no deduction for any expenses in respect of the same employment costs which are the subject of the payment is allowed in calculating the profits of any other business or in calculating the liability of any other person to tax charged under section 242 or 349 of ITTOIA 2005 or section 188 or 280 of CTA 2009 (post-cessation receipts)).
(2) A coronavirus support payment made under the self-employment income support scheme is referable to the business of the individual to whom the payment relates.
(3) Where an amount of a coronavirus support payment made under the self-employment income support scheme is brought into account under paragraph 1(2), the whole of the amount is to be treated as a receipt of a revenue nature of the tax year 2020-21 (irrespective of its treatment for accounting purposes).
(4) But sub-paragraph (3) does not apply to an amount of a coronavirus support payment made under the self-employment income support scheme in respect of a partner of a firm where the amount is distributed amongst the partners (rather than being retained by the partner).
(5) An amount of a coronavirus support payment made under the self-employment income support scheme in respect of a partner of a firm that is retained by the partner (rather than being distributed amongst the partners) is not to be treated as a receipt of the firm.
(6) Accordingly—
(a) the receipt is not to be included in the calculation of the firm’s profits for the purposes of determining the share of profits or losses for each partner of the firm (see sections 849 to 850E of ITTOIA 2005 and sections 1259 to 1265 of CTA 2009), and
(b) the receipt is then to be added to the partner’s share.
Exemptions, reliefs and deductions
4 (1) An amount of a coronavirus support payment that relates only to mutual activities of a business that carries on a mutual trade is to be treated as if it were income arising from those activities (and accordingly the amount is not taxable).
(2) A coronavirus support payment is to be ignored when carrying out the calculation—
(a) in section 528(1) of ITA 2007 (incoming resources limit for charitable exemptions);
(b) in section 482(1) of CTA 2010 (incoming resources limit for charitable companies);
(c) in section 661CA(1) of CTA 2010 (income condition for community amateur sports clubs).
(3) A coronavirus support payment made under an employment-related scheme is to be ignored when carrying out the calculation—
(a) in section 662(2) of CTA 2010 (exemption from corporation tax for UK trading income of community amateur sports clubs);
(b) in section 663(2) of that Act (exemption from corporation tax for UK property income community amateur sports clubs).
(4) No relief under Chapter 1 of Part 6A of ITTOIA 2005 (trading allowance) is given to an individual on an amount of a coronavirus support payment made under the self-employment income support scheme brought into account under paragraph 1(2) as profits of that tax year.
(5) For the purposes of that Part, such an amount is to be ignored when calculating the individual’s “relevant income” for that tax year under Chapter 1 of that Part.
(6) Neither section 57 of ITTOIA 2005 nor section 61 of CTA 2009 (deductions for pre-trading expenses) (including as they apply by virtue of sections 272 and 272ZA of ITTOIA 2005 and section 210 of CTA 2009) apply to employment costs where an amount of a coronavirus support payment made under an employment-related scheme relates to those costs.
Charge where employment costs deductible by another
5 (1) Income tax is charged on an amount of a coronavirus support payment made under an employment-related scheme if conditions A and B are met.
(2) Condition A is that the amount is neither brought into account under paragraph 1(2) in calculating the profits of a business carried on by the person entitled to the payment as an employer nor treated, by virtue of paragraph 2(3) or (4), as a post-cessation receipt arising from the carrying on of such a business.
(3) Condition B is that expenses incurred by another person in respect of the same employment costs which are the subject of the coronavirus support payment and to which the amount relates are deductible—
(a) in calculating the profits of a business carried on by that other person (for income or corporation tax purposes), or
(b) in calculating the liability of that other person to tax charged under section 242 or 349 of ITTOIA 2005 or section 188 or 280 of CTA 2009 (post-cessation receipts).
(4) Tax is charged under sub-paragraph (1) on the whole of the amount to which that sub-paragraph applies.
(5) The person liable for tax charged under sub-paragraph (1) is the person entitled to the coronavirus support payment as an employer.
(6) Section 3(1) of CTA 2009 (exclusion of charge to income tax) does not apply to an amount of a coronavirus support payment that is charged under this paragraph.
Charge where no business carried on
6 (1) Tax is charged on an amount of a coronavirus support payment, other than a payment made under an employment-related scheme or the self-employment income support scheme, if—
(a) the amount is neither brought into account under paragraph 1(2) in calculating the profits of a business nor treated as a post-cessation receipt by virtue of paragraph 2(3) or (4), and
(b) at the time the coronavirus support payment was received, the recipient did not carry on a business whose profits are charged to tax and to which the payment could be referable.
(2) In this paragraph “tax” means—
(a) corporation tax, in the case of a company that (apart from this paragraph) is chargeable to corporation tax, or to any amount chargeable as if it was corporation tax, or
(b) income tax, in any other case.
(3) Tax is charged under sub-paragraph (1) on the whole of the amount to which that sub-paragraph applies.
(4) The person liable for tax charged under sub-paragraph (1) is the recipient of that amount.
(5) Where income tax is charged under sub-paragraph (1), sections 527 and 528 of ITA 2007 (exemption and income condition for charitable trusts) have effect as if sub-paragraph (1) were a provision to which section 1016 of that Act applies.
(6) Where corporation tax is charged under sub-paragraph (1), sections 481 and 482 of CTA 2010 (exemption and income condition for charitable companies) have effect as if sub-paragraph (1) were a provision to which section 1173 of that Act applies.
Modification of the Tax Acts
7 The Treasury may by regulations modify the application of any provision of the Tax Acts that affects (or that otherwise would affect) the treatment of—
(a) receipts brought into account under paragraph 1(2),
(b) amounts treated as post-cessation receipts under paragraph 2(3) or (4), or
(c) amounts charged under paragraph 5(1) or 6(1).
Charge if person not entitled to coronavirus support payment
8 (1) A recipient of an amount of a coronavirus support payment is liable to income tax under this paragraph if the recipient is not entitled to the amount in accordance with the scheme under which the payment was made.
(2) But sub-paragraph (1) does not apply to an amount of a coronavirus support payment made under a coronavirus business support grant scheme or the coronavirus statutory sick pay rebate scheme.
(3) For the purposes of this Schedule, references to a person not being entitled to an amount include, in the case of an amount of a coronavirus support payment made under the coronavirus job retention scheme, a case where the person ceases to be entitled to retain the amount after it was received—
(a) because of a change in circumstances, or
(b) because the person has not, within a reasonable period, used the amount to pay the costs which it was intended to reimburse.
(4) Income tax becomes chargeable under this paragraph—
(a) in a case where the person was entitled to an amount of a coronavirus support payment paid under the coronavirus job retention scheme but subsequently ceases to be entitled to retain it, at the time the person ceases to be entitled to retain the amount, or
(b) in any other case, at the time the coronavirus support payment is received.
(5) The amount of income tax chargeable under this paragraph is the amount equal to so much of the coronavirus support payment—
(a) as the recipient is not entitled to, and
(b) as has not been repaid to the person who made the coronavirus support payment.
(6) Where income tax which is chargeable under this paragraph is the subject of an assessment (whether under paragraph 9 or otherwise)—
(a) paragraphs 1 to 6 do not apply to the amount of the coronavirus support payment that is the subject of the assessment,
(b) that amount is not, for the purposes of Step 1 of the calculation in section 23 of ITA 2007 (calculation of income tax liability), to be treated as an amount of income on which the taxpayer is charged to income tax (but see paragraph 10 which makes further provision about the application of that section), and
(c) that amount is not to be treated as income of a company for the purposes of section 3 of CTA 2009 (and accordingly the exclusion of the application of the provisions of the Income Tax Acts to the income of certain companies does not apply to the receipt of an amount charged under this paragraph).
(7) No loss, deficit, expense or allowance may be taken into account in calculating, or may be deducted from or set off against, any amount of income tax charged under this paragraph.
(8) In calculating profits or losses for the purposes of corporation tax, no deduction is allowed in respect of the payment of income tax charged under this paragraph.
(9) For the purposes of this paragraph and paragraphs 9(4) and 14, a firm is not to be regarded as receiving an amount of a coronavirus support payment made under the self-employment income support scheme in respect of a partner of that firm that is retained by the partner (rather than being distributed amongst the partners).
Assessments of income tax chargeable under paragraph 8
9 (1) If an officer of Revenue and Customs considers (whether on the basis of information or documents obtained by virtue of the exercise of powers under Schedule 36 to FA 2008 or otherwise) that a person has received an amount of a coronavirus support payment to which the person is not entitled, the officer may make an assessment in the amount which ought in the officer’s opinion to be charged under paragraph 8.
(2) An assessment under sub-paragraph (1) may be made at any time, but this is subject to sections 34 and 36 of TMA 1970.
(3) Parts 4 to 6 of TMA 1970 contain other provisions that are relevant to an assessment under sub-paragraph (1) (for example, section 31 makes provision about appeals and section 59B(6) makes provision about the time to pay income tax payable by virtue of an assessment).
(4) Where income tax is chargeable under paragraph 8 in relation to an amount of a coronavirus support payment received by a firm—
(a) an assessment (under sub-paragraph (1) or otherwise) may be made on any of the partners in respect of the total amount of tax that is chargeable,
(b) each of the partners is jointly and severally liable for the tax so assessed, and
(c) if the total amount of tax that is chargeable is included in a return under section 8 of TMA 1970 made by one of the partners, the other partners are not required to include the tax in returns made by them under that section.
Calculation of income tax liability
10 (1) Section 23 of ITA 2007 (calculation of income tax liability) applies in relation to a person liable to income tax charged under paragraph 8 as if that paragraph were included in the lists of provisions in subsections (1) and (2) of section 30 of that Act (amounts of tax added at step 7).
(2) For the purposes of paragraph 7(2) of Schedule 41 to FA 2008, a relevant obligation relating to income tax charged under paragraph 8 of this Schedule relates to a tax year if the income tax became chargeable in that tax year.
(3) But this paragraph does not apply to a company to which paragraph 11 (companies chargeable to corporation tax) applies.
Calculation of tax liability: companies chargeable to corporation tax
11 (1) This paragraph applies where a person liable to income tax charged under paragraph 8 is a company that is chargeable to corporation tax, or to any amount chargeable as if it was corporation tax, in relation to a period within which the income tax became chargeable.
(2) Part 5A of TMA 1970 (payment of tax) applies in relation to that company as if—
(a) the reference to “corporation tax” in subsection (1) of section 59D (general rule as to when corporation tax is due and payable) included income tax charged under paragraph 8 of this Schedule;
(b) an amount of income tax charged under paragraph 8 of this Schedule were an amount within subsection (6) of section 59F (arrangements for paying tax on behalf of group members);
(c) any reference in section 59G (managed payment plans) to “corporation tax” included income tax charged under paragraph 8 of this Schedule.
(3) Part 9 of that Act (interest on overdue tax) applies in relation to that company as if—
(a) the references in section 86 (interest on overdue income tax and capital gains tax) to “income tax” did not include income tax charged under paragraph 8 of this Schedule;
(b) in subsection (1) of section 87A (interest on overdue corporation tax) the reference to “corporation tax” included income tax charged under paragraph 8 of this Schedule.
(4) Schedule 18 to FA 1998 (company tax returns etc.) applies in relation to that company as if—
(a) any reference in that Schedule to “tax”, other than the references in paragraph 2 of that Schedule (duty to give notice of chargeability), included income tax charged under paragraph 8 of this Schedule, and
(b) in paragraph 8(1) of that Schedule (calculation of tax payable), at the end there were inserted—
“Sixth step
Add any amount of income tax chargeable under paragraph 8 of Schedule (Taxation of coronavirus support payments) to the Finance Act 2020.”
(5) But the modifications of that Schedule are to be ignored for the purposes of the Corporation Tax (Instalment Payments) Regulations 1998 (S.I. 1998/3175).
(6) Schedule 41 to FA 2008 applies in relation to that company as if —
(a) the references to “income tax” in paragraph 7(2) did not include income tax charged under paragraph 8 of this Schedule;
(b) the reference to “corporation tax” in paragraph 7(3) included income tax charged under paragraph 8 of this Schedule;
(but see paragraph 13(5) of this Schedule which has the effect that paragraph 7 of that Schedule does not apply in certain circumstances).
(7) For the purposes of paragraph 7(3) of Schedule 41 to FA 2008 (as modified by sub-paragraph (6)), a relevant obligation relating to income tax charged under paragraph 8 of this Schedule relates to an accounting period if the income tax became chargeable in that period.
Notification of liability under paragraph 8
12 (1) Section 7 of TMA 1970 (notice of liability to income tax and capital gains tax) applies in relation to income tax chargeable under paragraph 8 as provided for in sub-paragraphs (2) to (5).
(2) Subsection (1) has effect as if paragraph (b) (and the “and” before it) were omitted.
(3) Subsection (1) has effect as if the reference to “the notification period” were to the period commencing on the day on which the income tax became chargeable and ending on the later of—
(a) the 90th day after the day on which this Act is passed, or
(b) the 90th day after the day on which the income tax became chargeable.
(4) Subsection (3)(c) has effect as if after “child benefit charge” there were inserted “or to income tax under paragraph 8 of Schedule (Taxation of coronavirus support payments) to the Finance Act 2020”.
(5) In relation to income tax chargeable under paragraph 8 in relation to an amount of a coronavirus support payment received by a firm, the duty in subsection (1) (as it has effect by virtue of sub-paragraphs (2) and (3)) is taken to have been complied with by each of the partners if one of the partners has complied with it.
(6) The reference in section 36(1A)(b) of TMA 1970 (20 year period for assessment in a case involving a loss of income tax) to a failure to comply with an obligation under section 7 of that Act is not to be taken as including a failure arising by virtue of the modification of that section by this paragraph, unless the failure is one to which paragraph 13 applies.
Penalty for failure to notify: knowledge of non-entitlement to payment
13 (1) This paragraph applies to a failure of a person to notify, under section 7 of TMA 1970 (as modified by paragraph 12), a liability to income tax chargeable under paragraph 8 where the person knew, at the time the income tax first became chargeable, that the person was not entitled to the amount of the coronavirus support payment in relation to which the tax is chargeable.
(2) Schedule 41 to FA 2008 (failure to notify) applies to a failure described in sub-paragraph (1) as follows.
(3) The failure is to be treated as deliberate and concealed.
(4) Accordingly, paragraph 6 of that Schedule has effect as if the references to a penalty for “a deliberate but not concealed failure” or for “any other case” were omitted.
(5) For the purposes of that Schedule (except in a case falling within paragraph 14 of this Schedule), the “potential lost revenue” is to be treated as being the amount of income tax which would have been assessable on the person at the end of the last day of the notification period (see paragraph 12(3)).
Penalties: partnerships
14 (1) This paragraph applies to a failure to notify, under section 7 of TMA 1970 (as modified by paragraph 12), a liability to income tax chargeable under paragraph 8 by a partner of a firm that received the amount of the coronavirus support payment in relation to which the tax is chargeable.
(2) For the purposes of paragraph 13(1) of this Schedule, each partner is taken to know anything that any of the other partners knows.
(3) Where a partner would be liable to a penalty under Schedule 41 to FA 2008 (whether in a case falling within paragraph 13 or otherwise), the partner is instead jointly and severally liable with the other partners to a single penalty under that Schedule for the failures by each of them to notify.
(4) In a case not falling within paragraph 13, if the failure of at least one of the partners—
(a) was deliberate and concealed, the single penalty is to be treated as a penalty for a deliberate and concealed failure;
(b) was deliberate but not concealed, the single penalty is to be treated as a penalty for a deliberate but not concealed failure.
(5) For the purposes of Schedule 41 to FA 2008, the “potential lost revenue” is to be treated as being the amount of income tax which would have been assessable on any one of the partners (see paragraph 9(4)(a))—
(a) in a case falling within paragraph 13, at the end of the last day of the notification period, or
(b) in any other case, at the end of 31 January following the tax year in which the amount of coronavirus support payment was received by the firm.
(6) Paragraph 22 of that Schedule (limited liability partnerships: members’ liability) does not apply.
Liability of officers of insolvent companies
15 (1) This paragraph—
(a) provides for an individual to be jointly and severally liable to the Commissioners for Her Majesty’s Revenue and Customs for a liability of a company to income tax charged under paragraph 8, where a notice under sub-paragraph (2) is given to the individual, and
(b) applies paragraphs 10 to 15 and 17 of Schedule 13 (joint liability notices: tax avoidance, tax evasion and repeated insolvency and non-payment) to such a notice.
(2) An officer of Revenue and Customs may give a notice under this sub-paragraph to an individual if it appears to the officer that conditions A to D are met.
(3) Condition A is that—
(a) the company is subject to an insolvency procedure, or
(b) there is a serious possibility of the company becoming subject to an insolvency procedure.
(4) Condition B is that the company is liable to income tax under paragraph 8.
(5) Condition C is that the individual was responsible for the management of the company at the time the income tax first became chargeable and the individual knew (at that time) that the company was not entitled to the amount of the coronavirus support payment in relation to which the tax is chargeable.
(6) Condition D is that there is a serious possibility that some or all of the income tax liability will not be paid.
(7) For the purposes of sub-paragraph (5) the individual is responsible for the management of a company if the individual—
(a) is a director or shadow director of the company, or
(b) is concerned (whether directly or indirectly) in, or takes part in, the management of the company.
(8) A notice under sub-paragraph (2) must—
(a) specify the company to which the notice relates;
(b) set out the reasons for which it appears to the officer that conditions A to D are met;
(c) specify the amount of the income tax liability;
(d) state the effect of the notice;
(e) offer the individual a review of the decision to give the notice and explain the effect of paragraph 11 of Schedule 13 (right of review);
(f) explain the effect of paragraph 13 of that Schedule (right of appeal).
(9) An individual who is given a notice under sub-paragraph (2) is jointly and severally liable with the company (and with any other individual who is given such a notice) to the amount of the income tax liability specified under sub-paragraph (8)(c).
For provision under which the amount so specified may be varied, see—
(a) paragraph 10 of Schedule 13 (modification etc),
(b) paragraphs 11 and 12 of that Schedule (review), and
(c) paragraphs 13 and 14 of that Schedule (appeal).
(10) Paragraphs 10 to 15 and 17 of Schedule 13 apply to a notice under sub-paragraph (2) as they apply to a joint liability notice (see paragraph 1(2) of that Schedule) as if—
(a) the references in those paragraphs to “relevant conditions” were to conditions A to D in this paragraph;
(b) sub-paragraphs (3) and (4) of paragraph 10 were omitted (and references to sub-paragraph (3) in that paragraph were omitted);
(c) in paragraph 10(6)(a), after “or (9)” there were inserted “or paragraph 15(8)(c) of Schedule (Taxation of coronavirus support payments)”;
(d) in paragraph 12(6)(b) after “5(9)” there were inserted “or paragraph 15(8)(c) of Schedule (Taxation of coronavirus support payments)”.
(11) Expressions used in this paragraph and in Schedule 13 have the same meaning in this paragraph as they have in that Schedule (subject to the modification made by sub-paragraph (10)(a)).”—(Jesse Norman.)
This new Schedule makes provision about the taxation of payments made under various coronavirus related business support schemes, including the coronavirus job retention scheme (“CJRS”) and the self-employment income support scheme (“SEISS”). Paragraphs 1 to 7 clarify how payments under those schemes are to be subject to tax, following (with some exceptions) the normal principles for taxing receipts of a business. Paragraph 8 provides that where a person receives an amount to which they were not entitled under CJRS or SEISS, or misapplies an amount paid under CJRS, the person will be liable to income tax at the rate of 100% in relation to so much of that amount as was not repaid to HMRC. Paragraphs 9 to 15 make provision in connection with that charge (for example in relation to assessments and penalties).
Brought up, read the First and Second time, and added to the Bill.
Third Reading
Jesse Norman
I beg to move, That the Bill be now read the Third time.
This Finance Bill stands in the shadow of a pandemic unprecedented in its scale and reach. We are keenly aware of the immense challenges and pressures that that has placed on us. These conditions—this situation—cannot and will not be ignored. The Government are working flat out to alleviate the impact of covid-19 on the economy, on the public finances, and, most importantly, on the health and wellbeing of every person and family in the United Kingdom.
My right hon. Friend the Chancellor has announced numerous measures over the past few months in response to the virus, including the job retention scheme, the business interruption loan scheme, and the self-employment income scheme. Together, this represents, contrary to many of the comments made in the previous debate, an economic intervention by Government on a scale hitherto unseen in peacetime, and necessarily so. At such a difficult time for millions of people around the United Kingdom, the Government have worked to protect businesses and are specifically focused on the wellbeing of the most vulnerable in society.
Of course we recognise, and the House must recognise, that this is a still a work in progress and there is a way to go. The crisis is not over. The pandemic continues. People around this country are still suffering and may do so for many months yet. The Government will continue to work to lessen the impact, but it remains the responsibility, the duty and the important role of businesses, families and individuals to play their part, too, in this colossal collective national effort. Together, we must work to bring ourselves through and out of this crisis.
The Bill supports the emergency services as they go about their vital duties and exempts from vehicle excise duty vehicles that have been purpose-built to transport NHS products. The Government have introduced new clauses that were considered today to ensure that workers who have returned to public sector jobs to help fight the effects of the pandemic will face no adverse pensions consequences from doing so. The Bill reforms the tapered annual allowance so that doctors can spend more time treating patients without facing precipitous tax bills. This pandemic has brought out, in many ways, the best in our society, and I am certain that the Britain that emerges from it will be stronger and fairer.
The Bill provides tax exemptions specifically for those who receive payments under the Windrush compensation scheme, the troubles permanent disablement payment scheme and the Kindertransport fund, as well as for care leavers who are starting apprenticeships, and rightly so.
The necessary focus on the here and now must not come at the expense of tomorrow. In the words of the Prime Minister, our great national hibernation is coming to an end, and we must and will now at last look to the future. Now is the time to start to rebuild the economy and to restore our public finances. Our police, our teachers, our armed forces and many other public sector workers have all played their part in combating this pandemic alongside the NHS. I would also single out, as I have said, our public servants in the civil service, particularly in my own area of HM Treasury and within HMRC.
This public sector support cannot be provided for if the public finances are not supported, in turn, with a fair and sustainable tax system. That is a key fact. We do that while seeking to remain competitive internationally, and maintaining the corporation tax rate at 19% is therefore the right approach. Even at that level, it is still the lowest headline rate in the G20, and it reminds the world of UK strength as a location for inward investment.
But we have also been clear about fairness. Everyone must pay their fair share of tax. That is one reason we have introduced the digital services tax, for which this Bill also legislates. A tax set at a rate of 2% on revenues from digital services will ensure that digital businesses pay a fairer share of UK tax that more accurately reflects the significant value that they derive from their UK users. As we look to recovery, we want business to receive the support that it needs. That is why we have delayed the extension of the off-payroll working reforms in the private sector to April 2021.
Businesses need time to prepare for the reforms, and it would have been burdensome to ask them to do so during the pandemic.
We focus on innovation in the Finance Bill. We wish to go further to support enterprise in this country, which will be desperately needed in the coming months. This country has a proud history of innovation, and increasing the research and development expenditure credit rate to 13% will allow that to continue. The structures and buildings allowance rate increase will also aid investment in new shops, factories and agricultural buildings, which will help to stimulate capital investment across the nation. As ever, we are committed to levelling up across the United Kingdom.
As has been pointed out, covid-19 is not the only crisis that we face. The Government have committed to reducing the United Kingdom’s carbon emissions to net zero by 2050. The Bill is another step towards that target. Not only does it pave the way for the forthcoming plastic packaging tax, but it removes the vehicle excise duty expensive car supplement for zero-emissions vehicles and ensures that, now we have left the European Union, a carbon price will remain in place. Those measures will help to ensure that our post-covid-19 economy is greener than before.
At the end of 10 hours of debate in the last two days, for which I thank all my colleagues and the Opposition Front-Bench team, we understand that the world during the passage of the Bill has changed. Its impact on this House, our daily lives and our economic outlook has radically altered. To some extent, we have made changes on the fly to shore up and support our public services and our response to the pandemic. As a result, the Bill is a firm foundation—indeed, firmer than it was originally framed—on which we can rebuild our economy and protect our public finances as we recover from this devastating virus. The Bill supports businesses, the vulnerable and our key workers, and I commend it to the House.
Bridget Phillipson
I begin by thanking my colleagues in the shadow Treasury team for their work throughout the journey of the Bill and the Minister and his colleagues for their responses to many of the questions and concerns that we have raised. I also put on record our thanks to the Clerks for all their work. They have helped us so much during the progress of the Bill in difficult and dangerous times for them. The House of Commons Library staff have, as ever, been incredibly helpful and professional and I record our thanks to them as well.
I am grateful to all hon. Members who have contributed to our discussions about the Bill. I am delighted that we have heard such a range of contributions, not least from hon. Members on the Opposition Benches. It is rather disappointing, however, that we have not heard from a single woman from the Government Benches today. I do not know whether it is men-only Thursday on the Tory side when it comes to the Finance Bill, but given that we know the impact of the coronavirus pandemic on women in particular will be profound, I hope that we might be able to set that straight when we continue our discussions of this nature on Wednesday. Women are more likely to have lost their jobs or to have been furloughed during the crisis and, sadly, despite many of the changes that we have seen in our society, they often shoulder the burden of childcare.
As I have repeated throughout the progress of the Bill, it does not recognise the scale of the challenge we face. I appreciate what the Minister said, but it is a Finance Bill for a different age. We have consistently warned of the looming threat of mass unemployment since the beginning of the pandemic. As the days go by, that is becoming a reality. This month, the OECD reported that the UK is set to face a slump in its GDP that will outstrip the falls of France, Italy, Germany and the US.
Young people are about to enter the worst jobs market in more than a decade. Those who entered the jobs market in 2008 will know what a challenge that is, but this will be worse still. The class of 2020 have no part-time retail and hospitality jobs to fall back on while they look for their first job. For young people, completing their education is supposed to be a step on the ladder, but for many this year, it will involve falling down a snake.
Airbus, TM Lewin, easyJet and SSP Group are all large employers that have announced that they will be making thousands of redundancies. At least 12,000 jobs have been lost in the last three days alone; the real number is doubtless higher still. In every case it is a tragedy for those affected, because it means thousands more jobseekers having to rely on meagre social security payments to provide for their families and thousands more jobseekers needing to sign on when demand at jobcentres will already be very high and when recruitment in many sectors has already frozen indefinitely. It is not just young people, however, who will be affected. I think especially of older workers who will need additional support to retrain and reskill during this time.
We recall the devastation of mass unemployment in the 1980s that scarred communities like mine for far too long. The pain was acute and the social and economic damage was lasting and real. I have long believed that Government can and must be a force for good, but this is a political choice. While the lockdown restrictions are slowly easing, the threat of coronavirus is far from gone. It will take much longer for businesses to operate at their usual capacity. We recognise that protecting our economy would be an immense challenge for any Government, but to meet the challenge, we will need ambitious, decisive and swift action.
When we hear that update from the Chancellor next Wednesday, we will need a full back-to-work Budget with a resolute focus on jobs. It is more important than ever that those with broadest shoulders pay their fair share, so that we can raise revenues to fund the schemes and the vital frontline workers we need to get us on the road to recovery and revive our public services.
The Finance Bill is a series of tweaks and corrections. Rather than raising revenue, it extends and expands tax reliefs and tinkers with, rather than ends the entrepreneurs’ relief. Netflix, Amazon Prime and other high-grossing streaming services will be unaffected by the digital services tax, for all we welcome its introduction in its limited scope. As it stands, the digital services tax will create up to £440 million in annual revenue, when the UK in fact loses £1.3 billion in corporation tax to five of the biggest UK tech firms each year. That is £1.3 billion that could go towards helping schools to enable children to return safely in September, towards more nurses and more doctors, towards creating new jobs, towards decarbonising our economy and towards funding more public health research, which this pandemic has shown we desperately need.
We have sought to improve the Bill in Committee and on Report, introducing amendments so that the Government could review their policies against their effects on job creation, on poverty, on a green recovery and on measuring the cost of tax reliefs. We have sought to entrench greater scrutiny of policies that may well need to be revised in what is becoming an unprecedented economic downturn. Again, the Government have defeated our amendments. We fear that their approach highlights that they have not yet recognised that they will need to go much further in protecting our economy. The Prime Minister’s plans for economic revival are mere repetitions of existing spending, announced wearing a different hard hat in a different tractor. They are a Government who run the economy by repetition, not innovation.
Labour has consistently approached this crisis constructively, and we will try to keep doing so. In this time of crisis, I urge the Government to rethink their approach and to show meaningful dedication to economic recovery next week. We know that the furlough scheme has provided a lifeline to thousands of workers, but that work is not yet done. There can be no room for a sense of pride or complacency. If the Government fail to provide a full stimulus package before October, the 1 million people who lost their jobs in March and April will have been unemployed for six months, and not enough will have been done to support demand and create new jobs.
We again call for a back-to-work Budget that is rigorous, takes into account the differing needs of sectors and regions and gives the right level of support to workers old and young, rather than taking a one-size-fits-all approach. We need a full Budget that supports viable businesses—a Budget that is future-facing in promoting green jobs, reskilling older workers and investing in our young people, because infrastructure is more than just bricks and mortar. We need a Budget that honours the sacrifices the British people have made during this crisis. The future success of our country depends on it.
Alison Thewliss
Like everybody, I acknowledge these extraordinary times. The world has changed since the Budget was announced in March. All the certainties that we used to rely upon are gone, and things that we thought that the Government would never do, never say or never spend money on are suddenly things that are no barrier whatever. That goes some way to show that the Government can do a lot more when they want to, and that should give us some hope that they may go back on things they have said before.
I wish to take this opportunity to thank everybody who has contributed to debates on the Bill. I thank the Clerks and the Bill team, who have been so incredibly helpful; I thank you, Madam Deputy Speaker, for your sage advice; and I thank my hon. Friend the Member for Aberdeen South (Stephen Flynn), whose first Finance Bill this is and who has done a fantastic job representing both his constituents and the party.
I also thank our researchers, Scott Taylor and Jonathan Kiehlmann, who have supported us so well throughout this process—with all the amendments that we tabled and having to learn about everybody else’s amendments, it has been a huge challenge to keep up but they have risen to it admirably—and Mhairi Love in my office, who has also done an incredible job while studying for her exams and completing a dissertation. She has provided support to me throughout all that and I thank her for it. I thank the people on Twitter who think I talk too quickly. I swear that I am making an effort to slow down; this is just how I speak.
I repeat the call for evidence that I made at the start of the Bill’s progress. A Finance Bill Committee should be able to take evidence. Other Bill Committees in this House have the practice—for example, the Domestic Abuse Bill Committee for England and Wales took evidence from experts. It seems absolutely ludicrous that Finance Bills, which affect so many different aspects of everybody’s lives, do not take evidence from experts at the start and instead rely on getting written evidence and us scrutinising that written evidence, rather than being able to ask questions about the Government’s policies and find the best way through. I also reiterate that some kind of standing committee on the Budget is very much required to keep an eye on what the Government are doing and how effective their policies and proposals are.
Many questions remain at the end of this Budget process, and I suppose the first of those is whether we will be back here for another Budget in the autumn. Issues such as the loan charge and IR35 are not going away, as much as the Government would like them to. We cannot predict the course of the coronavirus, but we do know that the UK Government’s handling of it has been far from impressive. As I said yesterday, I fear a return to mass unemployment. The Treasury has the toughest of decisions to make, but it ought to put wellbeing and people first, because if we do not have that, we will not have much else to go with afterwards.
Jesse Norman
The hon. Lady has raised the loan charge; we did not really get a sense of it yesterday, but is the SNP in favour of the loan charge as a substantive matter or against it?
Alison Thewliss
We believe that there are still many questions to be answered on the loan charge, not least the revelations in the press during the week over the FOI request that have raised more questions. We want to see further probing on the issue and further support for those people who have ended up losing not only their livelihoods but their homes—and some have lost their lives. It is no light-hearted matter to be considered in such a flippant way.
If the Financial Secretary to the Treasury wants to prevent scarring in the economy, he must encourage his colleague the Chancellor to be bolder next week. He must keep the job retention scheme and the self-employment support scheme going, and he must fill the gaps in those schemes when he makes his announcement next week, because too many people have lost out and too many sectors are not yet back to full strength. When that change comes—when people have to pay more of the wage costs themselves—we will see more and more employers doing what many employers have done this week and simply deciding to hand back the keys, fire their staff and wind up their companies. And the unemployment figures will soar.
Stephen Flynn
Does my hon. Friend share my particular concern about the oil and gas sector in which we have already seen vast swathes of employees made redundant because the furlough scheme had an end date? The fact that that end date is now coming closer and has not been extended will only compound the difficulties and lead to further unemployment.
Alison Thewliss
The oil and gas sector is a perfect example of a sector that needs additional support right now. These are people who have a great deal of uncertainty involving many different factors, not least the oil and gas price at the moment, the need to invest in green technologies in the future and the need to transition in a just way that makes sure that jobs and livelihoods are protected. The Government need to have an oil and gas sector deal to support those jobs and those people and to protect the economy of the north-east of Scotland.
Other sectors of concern include tourism, hospitality and the arts and theatre. There is a huge campaign today for the music sector as well. I fully support those concerns because if we cannot return to these venues, the people who work in them will not get a wage and they will struggle, with many companies perhaps not coming back. They will lose their Christmas season—they will lose everything and perhaps not even be able to come back to theatres and to those kinds of sectors until March. I do not know where the Government expect those people to earn a wage or how they expect them to live, but it is clear that support needs to be in place for the sectors that are affected.
There are stark figures out today from the Scottish Chambers of Commerce. Its president, Tim Allan, has said:
“It is critical that governments in Holyrood and Westminster continue to provide business support for companies during and beyond the easing of lockdown restrictions. A sudden end to these vital financial support measures would not be welcome by anyone and a tsunami of jobs would disappear overnight.”
Commenting on the results of the Scottish Chambers of Commerce survey, Professor Graeme Roy, director at the University of Strathclyde’s Fraser of Allander Institute, said:
“What is particularly worrying is the employment outlook. The survey shows a clear warning of what is to come, with a sharp rise in unemployment now inevitable as businesses adjust to a new normal.”
Inevitable—a tsunami of jobs lost. It is not surprising that 95% of the firms in that survey reported a fall in business confidence. To boost business confidence, the Government really need to make sure that the schemes continue. The findings paint a bleak picture of the deep economic hit to key sectors across Scotland, once again highlighting the need for strengthened financial support measures to help businesses and industries survive this crisis. Rather than looking to shut down the support schemes and putting increased financial pressure on firms that are already struggling to get by, it is critical that the Treasury extend and strengthen support to protect business and countless jobs.
This Government have all the levers. I only wish that the Scottish Government had at their disposal—as the Government of an independent country—the levers to make such choices. At the very least, the Chancellor should look at the fiscal framework and allow devolution of borrowing powers to the Scottish Government as soon as possible. The Scottish Government’s powers to borrow are incredibly limited, and we do not have the flexibility to meet the economic demands of this crisis. It could not have been envisaged when the fiscal framework was agreed; nobody would have seen this coming. The Government must react and listen to the demands of the Scottish Government.
This Government have a choice. They can invest in green infrastructure and recovery and they can decide to help people, or they can decide to turn off the taps and risk recession and devastation across many sectors of the economy. All I can hope is that they choose wisely.
Anthony Browne (South Cambridgeshire) (Con)
I have followed the Treasury’s Budgets professionally for a quarter of a century and contributed to many of them, but this is the first time I have helped to legislate for a Budget. As well as speaking in various stages of the Finance Bill, I served on the Bill Committee. I have been impressed by the thought, the hard work and the dedication that Treasury Ministers and officials have put into the Bill, taking on board many of the concerns that have been raised throughout the process. I particularly pay tribute to my right hon. Friend the Financial Secretary and my hon. Friend the Exchequer Secretary, who have steered the Bill through its various stages with patience and humour.
When I first sat on the Finance Bill Committee, I never expected that in our discussions I would learn about Burkean philosophy or why there are different rates of take-up of driving licences among different ethnic groups. I pay tribute to the work of the Clerks on the Bill, who made it work so smoothly, and to my own staff, who have supported me throughout the process.
This Budget is one of the most unusual in history. Announced just weeks before lockdown, it was legislated for during the deepest recession and the biggest economic support package in modern times. It is notable that, almost without exception, the measures have withstood these exceptional circumstances and they are as justified now as they were before.
I sat through the amendments that the Opposition tabled in the Bill Committee, and I observed that none of them had anything to do with promoting economic growth. I was reminded of a conversation that I had with a peer of the realm when I first came to this House. I had always thought that he was a Labour peer, but he told me that he was a Conservative. I asked him why he was Conservative rather than Labour, and he said, “The trouble is that they know only about spending it, not about making it, but you can’t spend it unless you have made it first.” That could not be more true.
There are some much-debated measures in the Bill, but I think that in the end it gets the balance right between tackling tax avoidance and encouraging entrepreneurialism. It is right that everyone pays their fair share. I am at heart an economic liberal who believes that if a Government are going to take a person’s hard-earned money, the burden of proof lies on the Government to justify doing so. In general, I get more joy from cutting or scrapping a tax than introducing a new one, but it is notable that the Bill introduces new taxes. The possible carbon tax is needed to tackle climate change by ensuring that companies pay what economists call the externality of emitting greenhouse gases. The plastics tax is a great nudge tax, pushing industry into recycling more plastic by imposing costs on not recycling. As economists say, we should tax bads, not goods.
Then there is the new digital tax, discussed broadly in this House, which ensures that global technology companies pay their fair share. These technology companies bring us all so many benefits, which is why many of them have grown rapidly into some of the most valuable firms in the world, but their global business model and the joys of internal transfer pricing, basically mean that they can decide how much corporation tax they pay in each different country where they operate. The ultimate solution to this is a global agreement on the taxation of technology companies, but these agreements can take forever to reach, not least if those countries that benefit from the lack of an international agreement drag their heels. So it is absolutely right that countries such as the UK take the lead in introducing interim national measures. With declared national profits at the discretion of finance directors, the only option for the digital tax is to be that unprecedented thing—a tax on turnover. So the carbon tax, the plastic tax and the digital services tax are three taxes that can all clearly be justified. I welcome them.
Finally, I want to look ahead at the biggest economic challenge of our time. Yesterday in the Treasury Select Committee, on which I sit, the chief economist of the IMF and the OECD both paid tribute to the Government’s economic support package. Economists rarely agree about anything, but they do agree that things would have been a lot worse without this unprecedented Government support. I welcome the news yesterday from the Bank of England that we are bouncing back quicker than many had feared, but we are still set to have one of the sharpest recessions in modern history. Thousands of jobs are already being lost across the private sector, and the risk is that we undo the hard work that we have done since the 1980s to become a country of high employment and low unemployment. We must do everything we can to prevent that. We must not go back to the 1980s.
We now need to have a laser-like focus on getting the economy going again. We need to stop jobs being lost in the first place and then ensure that the short-term unemployed do not become the long-term unemployed. That means getting them back to work as quickly as possible. We have rightly all been paying tribute to the NHS staff who have done so much to look after us during the pandemic, but we should also pay tribute to the dedication of private sector workers—from supermarket staff who have kept us fed to drug companies that have developed treatments and companies that have built ventilators. It is private enterprise that has taken the brunt of this recession, and it is private enterprise that will pull us out of it. Private enterprise is not the problem that some on the Opposition Benches see it as; it is the solution. Across the House, we need to focus in the coming months and years on helping businesses get going again, so that they can create the jobs and pay the taxes that pay for our public services and our welfare system. We need to build, build, build, and that leads to jobs, jobs, jobs. I commend the Bill to the House.
Felicity Buchan (Kensington) (Con)
I believe that the hon. Member for Houghton and Sunderland South (Bridget Phillipson) said that there were no female Members on the Conservative Benches, so I just want to reassure her that I am still a woman. I am also delighted to say that on the Treasury Select Committee we have five Conservative Back Benchers, of which three are women. So women are very much represented on the financial side on these Benches.
I promise to be brief, so I want to talk about only two areas in this Bill, which are really relevant to my constituents in Kensington. The first is the digital sales tax, which I commend to the House. We all want it to be superseded by a multilateral solution, but it is an important and bold interim measure. Kensington High Street, like high streets across the country, is suffering. That is partly due to the burden of business rates, but it is also due to changing shopping habits. The new tax will be an important source of revenue for the Exchequer, and it will also go some way towards levelling the playing field between online retail and high streets. I am also looking forward to the fundamental review of business rates that we shall see later in the year.
I also commend to the House the measures in this Bill that incentivise the greening of the economy. Over the last 10 years, we have shown that we can have economic growth while lowering emissions. The environment is critical to my residents in Kensington and, in particular, air quality, since we are in central London. I am glad that my area, Kensington and Chelsea, has seen the largest three-yearly decline in emissions in the whole of London, but we all know that there is an awful lot still to be done, so I welcome many of the measures in this Bill, such as the support for zero-emission vehicles, the changes to the vehicle excise duty regime and the preparations for the introduction of the plastic packaging tax. These will all be warmly welcomed in Kensington.
In the interests of brevity, I am going to conclude there and commend this Bill to the House.
Duncan Baker (North Norfolk) (Con)
Last but not least is the saying, I suppose, Madam Deputy Speaker. My hon. Friend the Member for Kensington (Felicity Buchan) gave a fantastic speech, putting it far more succinctly than I will probably be able to. I must also say that my hon. Friend the Member for South Cambridgeshire (Anthony Browne) does not look old enough to have been studying the Finance Bill for the last 25 years—that is quite something. The Treasury has made an incredible effort in preparing the Bill and in all the work that has been put together over the last few months to safeguard our economy through this pandemic, and it should be widely praised.
I shall talk about the digital services tax from two perspectives. Again, the Treasury should be roundly applauded for the tax’s hugely progressive nature. As we heard yesterday, it is a pioneering tax, but I wonder whether we can be even more pioneering. The two perspectives are these: first, by being more pioneering, we can go further and help to save the high street; and secondly, it is all very well saying that we need to do that, but we have to have a solution to be able to do that. This is nothing new—I have been talking about retailing and the high street since I became a Member of this House, and I like to think that given my previous career, I am able to talk a bit about that. However, given the pandemic, the digital services tax, in my view, cannot come quick enough, and I wonder now whether we can go even quicker. What we are seeing is a structural change to the high street, and it is of course incredibly worrying when we listen to the news in the morning and hear of bellwethers, such as John Lewis and Harrods beginning to struggle.
I have long believed that it is absolutely key that all our companies pay their fair share of tax, regardless of industry. If they create value in this country, they should be taxed in this country. That is not only bold and brave, but fit and proper. Taxing those companies is more pertinent than ever, because the incomes and profits that they generate are eating away into the more traditional businesses’ market share when they are the very ones that are paying their fair share of tax and suffering as a result of the digital platforms’ dominance. When Google is reported to have paid less than £50 million in UK tax last year and Facebook to have paid £30 million on sales of £1.5 billion, it is absolutely right that the Government are bringing this legislation in as quickly as they are. For me, this is not about taxing those with a competitive advantage, but a move in the correct direction of fairness and equality. As the Government have said, should we find a global solution to this problem, we will probably abolish this tax, making it to all intents and purposes temporary.
Of course, this is not just about taxing the Facebooks, Googles and Twitters of this world; it is more encompassing than that, and it will focus on intermediaries as well. For me, that is a really good thing, because I would like to think that the digital services tax is a bridge to where we should be going. That is the crux of my argument. I do not think at the moment the digital services tax does quite enough—I wonder whether we can go a bit further—and I will just bring out the reason for that. I would like to see some kind of online sales tax levied on online retail sales as a way to support the high street. This would enable the Treasury to take the step, which we know it wants to take, of abolishing retail business rates for good. That would level up an industry sector that is seeing technological shift erode it year after year. The DST is a stepping stone to where we want to be.
At the moment, online sales in retailing are approximately £80 billion, and their share of total retail sales has now grown from 5% when records first started to nearly 20% of all UK retail sales. That means that retailing through traditional bricks-and-mortar stores in towns and cities across the country, which employ millions of people, is being completely eroded by sales moving online, where cost bases are much smaller and profits can grow quickly. Just as we are getting a grip on online marketplaces, I wonder whether we can move on this issue as well.
What coronavirus has done is see a further step change in reduced footfall on the high street. People are doing two things: not only are they not going out, in order to avoid crowded areas, but those that have been inside have converted—we have seen evidence that they have converted, with 48% of all retail sales in supermarket shopping now being online.
If the Government would like to think about abolishing retail rates, they should consider some form of VAT-style levy on retail online sales. If we take £8 billion as the current total of UK retail rates, a VAT-style levy of a few percentage points on those total sales at the moment could pay immediately for half of the amount of abolishing those rates. Surely, that is something we would want to think about sooner rather than later to help.
I will finish by saying that I really welcome the boldness of this Bill, and I really welcome the boldness of the digital services tax. I think we are now turning to face the right direction for what I believe is a real institution in this country—shopping on our high streets—and it only leaves me to say to the Treasury Minister that I commend this Bill to the House. I wonder if we can go even further, but I think it is a fantastic step in the right direction.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Finance Bill
Friday 17th July 2020
(3 years, 9 months ago)
Lords ChamberRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 2 July 2020 - (2 Jul 2020)
The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)
My Lords, with the leave of the House I will also speak to the remaining Motion standing in my name on the Order Paper.
The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)
The question is that the Bill be now read a second time. I call the next speaker: the noble Lord, Lord Livermore.
Lord Livermore (Lab) [V]
My Lords, this Finance Bill gives effect to the tax measures announced in the Chancellor’s Spring Budget. Although just four months ago, that already feels like a Budget from a different age. The subsequent Covid-19 pandemic created an unprecedented shock to the economy and the Government’s policy response was unparalleled. At 20% of GDP, it was the largest peacetime fiscal expansion in British history. Now, in his summer economic update, the Chancellor has continued to accept that he needs to intervene to support the economy by announcing an additional £30 billion of measures that bring the total cost of economic support, according to the Office for Budget Responsibility, to £192 billion, with a further £122 billion spent on loans and deferred taxes since the start of this crisis. Government borrowing is now on course to reach more than £350 billion this year. At an estimated 18% of GDP, the deficit will be twice the size reached during the 2008 global financial crisis.
The UK economy was already exceptionally weak before this pandemic, recording its worst ever average annual growth forecast in the Spring Budget. Going forward, the impact of coronavirus will be vast. This is the deepest recession in history; the economy could contract more this year than in any year since 1706. This week’s monthly GDP data show a steeper decline in March and a slower pickup in May than had been expected, leaving the economy still 25% smaller than before this crisis began. Now, as well as the UK recording the highest excess death rate in the world, Britain is also forecast to suffer the worst recession of any country in the G7.
Against this backdrop of a pandemic-induced recession, the Government have decided that the end of this year is the right time to end the transition period, imposing a red-tape bill on British business of between £7 billion and £13 billion a year. The Government’s paucity of ambition in seeking only a free trade deal, and focusing solely on tariff reduction for goods trade—when modern trade is dominated by supply chains and Britain’s strength lies in services—means that even if they achieve the deal they seek we will still see a reduction in GDP of some 6.7%, compared to staying in the single market. This puts further pressure on business, the economy and the public finances at a time of already unprecedented economic disruption.
This week’s Fiscal Sustainability Report from the Office for Budget Responsibility highlights the risk of huge job losses from this pandemic unless we see further government action. It estimates that 15% of furloughed workers will lose their jobs, meaning that unemployment would peak at 12%—some 4 million people—by the end of this year. The Labour Party has consistently argued that the furlough scheme must now evolve to deliver sectoral-specific support, targeting help where it is needed most, supporting employment in industries that are viable in the long term and protecting our country’s economic capacity for the future. Instead, the Chancellor announced in his economic update that the furlough scheme will be wound down in October, replacing it with a much less generous and very poorly targeted jobs retention bonus. The risk now is that billions of pounds will be spent on a policy that does very little to protect jobs.
The Institute for Fiscal Studies has warned that a majority of this money will go to jobs that would
“have been returned from furlough anyway”
while the Resolution Foundation argues that
“the deadweight in the scheme will be large”
while
“the scale and temporary nature of the bonus means”
that it will have no “major impact on employment”. The Resolution Foundation went on to conclude that this lack of further action on jobs leaves the Chancellor risking higher unemployment this autumn.
The temporary cut in stamp duty, also announced by the Chancellor, raises further questions about the Government’s willingness to target support on the areas that need it most. He announced about the first £500,000 of residential property purchases would be stamp duty-exempt for the next nine months—a measure we are also debating today. All measures which help to get the economy moving are of course welcome and, at a cost of £3.8 billion, it is a very significant revenue giveaway. But the main beneficiaries will be buyers of costlier properties in London and the south-east. The average buyer in London will be more than £14,000 better off, while the average buyer in the north-east will gain nothing.
The threshold increase also temporarily removes one of the few advantages that young people had in the housing market, while doing almost nothing to help first-time buyers. By including second-home buyers and buy-to-let investors, this measure will cost an additional £1.3 billion. It is surely right that we examine whether this delivers value for money, or whether these funds could be better spent supporting much-needed genuinely affordable and social housing.
The Chancellor’s announcement of targeted VAT cuts on hospitality, leisure and tourism are of course welcome, when local businesses are desperately in need of that support, as is the kick-start scheme to create jobs for young people, particularly since young workers have been among those hardest hit by this crisis so far. This policy is almost an exact replica of the Future Jobs Fund, introduced during the global financial crisis and previously cancelled by this Government. The scale of job creation required will be a major delivery challenge, requiring many jobs to be created by local authorities decimated by a decade of cuts. In a signal of a potential return to such austerity, the Chancellor warned in his statement last week:
“Over the medium term, we must, and we will, put our public finances back on a sustainable footing.”—[Official Report, Commons, 8/7/20; col. 974.]
Before this crisis, public finances were already rapidly deteriorating, with debt having doubled to £2 trillion and being set to reach nearly 80% of GDP. If the Chancellor now decides to increase taxes before the recovery, or to cut public services, he risks damaging demand and inhibiting the growth that our economy and public finances desperately need. The Chancellor must also ensure that the distribution of any such measures is borne more fairly than in the previous decade, when money was found to reduce the top rate of income tax while the incomes of the poorest in society were cut by some 15%.
Ultimately, very few of the measures announced by the Chancellor so far will make a significant difference if people are unwilling, or unable, to leave their homes in the months ahead. The British economy is being held back, not because families are waiting for £10 off their restaurant bill but because they are still worried for their health.
The Government were too slow into lockdown, too slow on track and trace and are now too slow on saving jobs. They have damaged public confidence and, in turn, harmed consumer demand. Only when the Government have in place an exit strategy that generates confidence will they be able to genuinely address the huge challenges that our country and economy must now confront.
The Deputy Speaker
With the leave of your Lordships’ House, I now call the Minister to make his opening remarks.
Lord Agnew of Oulton
My Lords, we are here to debate the annual Finance Bill, introduced in the other place following the Budget on 11 March, over four months ago. During that time, the circumstances in which we find ourselves have changed beyond recognition. The passage of this year’s Finance Bill has taken place in the shadow of a pandemic unprecedented in living memory, to which the Government have responded with one of the largest and most comprehensive economic responses in the world, aiming to protect people’s jobs, incomes and businesses.
The Government have already supported more than 11 million people and jobs through the Coronavirus Job Retention Scheme and the Self-employment Income Support Scheme, and have helped over 1 million businesses to protect jobs through tax caps, tax deferrals, direct cash grants and over 1 million government-backed loans.
In his summer economic update last week, the Chancellor set out plans for phase two of the Government’s economic response. An ambitious plan for jobs will give a job retention bonus to firms that keep on furloughed workers. The new kick-start scheme will directly pay employers to create new jobs for 16 to 24 year-olds at risk of long-term unemployment. To support the high-employing hospitality and tourism industries, the Government will cut VAT on food, accommodation and attractions from 20% to 5% for six months, and fund an “eat out to help out” 50% discount at participating businesses for the month of August.
Additionally, the Covid-19 pandemic and subsequent lockdown have resulted in uncertainty in the housing market. Property transactions fell by as much 50% and house prices have fallen for the first time in eight years. What is more, any housing market freeze is bad for jobs and businesses whose custom relies on a confident housing market, such as retailers, tradespeople and the construction industry.
As lockdown eased, there were signs that the property market was waking up. It is important to encourage this and to drive momentum. The Government are therefore cutting stamp duty land tax by temporarily increasing the nil rate band for residential property from £125,000 to £500,000, with effect until 31 March next year in England and Northern Ireland. It will cut bills for every person who buys a property for more than £125,000 and will support and create jobs. The average buyer, getting on or moving up the housing ladder, will save £4,500, with a maximum saving of £15,000. These measures have all been carefully designed to protect and sustain our economy, the public finances and the health and well-being of the British public while we weather the impact of coronavirus.
Of course, there is still some way to go to overcome this pandemic. As we do so, the Bill will make its own valuable contribution to the efforts of our health and emergency services across the country. The Bill exempts from vehicle excise duty those vehicles purpose-built to transport NHS products. It introduces legislation to ensure that workers who have returned to public sector jobs to help fight the effects of this pandemic will face no adverse pensions consequences from doing so. It legislates reforms to the pensions tapered annual allowance, so that doctors can spend more time treating patients without facing exceedingly high tax bills.
However, our collective efforts in the here and now cannot come at the expense of planning for tomorrow. In the words of the Prime Minister,
“our long national hibernation is beginning to come to an end”.—[Official Report, Commons, 23/6/20; col. 1170.]
Alongside the measures we have already taken in our plan for jobs to support employment across the country, now is the time to set about reinvigorating the economy and safeguarding our public finances.
Our police, teachers, armed services and many other public sector workers have all played their part in this pandemic, alongside the tremendous efforts of front-line NHS staff. These public sector workers cannot be provided for if the public finances are not protected with a fair and sustainable tax system. Maintaining the corporation tax rate at 19% instead of pursuing further cuts is the right approach—this is still the lowest headline rate in the G20, which demonstrates the UK’s strength as a location for inward investment.
This Government have always been clear that everybody must pay their fair share of tax. We have therefore introduced the digital services tax, legislated for in the Bill. This tax, set at a rate of 2% on revenues from digital services of larger companies, will ensure that digital businesses pay a fair share of UK tax and more accurately reflect the significant value that these businesses derive from their UK users.
As we look ahead to recovery, we must ensure that businesses receive the support that they need. That is why, in addition to all the measures the Chancellor set out last week in his plan for jobs, we have also delayed the extension of off-payroll working reforms to the private sector to April 2021. Businesses need time to prepare for these reforms and requiring them to do so during the pandemic would have been burdensome.
This Bill goes even further to support enterprise in this country, which will be desperately needed in the coming months. This Government remain committed, as ever, to levelling up all nations and regions of the United Kingdom. Britain has a long and proud history of innovation. Increasing the research and development expenditure rate to 13% will allow this to continue for businesses across the country. The structures and buildings allowance rate increase will aid investment in new shops, factories and agricultural buildings, helping to stimulate capital investment across the UK.
We must also acknowledge that Covid-19 is not the only challenge that we face. This Government have committed to reducing the United Kingdom’s carbon emissions to net zero by 2050. The Bill will take us further towards that target. Not only does it pave the way for the upcoming plastic packaging tax but it removes the vehicle excise duty expensive car supplement for zero-emissions vehicles and legislates for a carbon pricing regime now that the UK has left the European Union. Together, these measures will help ensure that the UK’s post-Covid-19 economy is greener than before.
During this Bill’s passage, our daily lives and our economic outlook have changed dramatically. However, alongside the Chancellor’s ambitious package of measures, including most recently the plan for jobs, this Bill represents a strong foundation on which to rebuild our economy and protect the public finances as we weather the impact of the virus. The Bill supports businesses, it supports the vulnerable and it supports our fantastic key workers. For these reasons, I commend it to the House.
Lord Bruce of Bennachie (LD) [V]
Inevitably, my Lords, the March Budget has been overtaken by events and subsequent measures. I think we all recognise that, with the escalating crisis of Covid-19 and lockdown, the Government were faced with an unprecedented challenge which required drastic and radical action.
The measures taken have the benefit of providing cash quickly to individuals and businesses across the United Kingdom. I am sorry to record that the Scottish Government, unable to acknowledge the benefits of being part of the United Kingdom, have responded with churlish denial.
The massive increase in spending has been described as an end to austerity and, in terms of the scale of intervention and the escalation of the budget deficit, that is certainly how it looks. However, I contest that, had the coalition Government not tackled the hangover they inherited from the financial crash, the public finances would have been considerably more fragile than they are. Let us bear in mind that, before Covid-19, the economy was already slowing down and the OBR forecasts were pretty modest.
Now we know that the economy shrunk by 20% in April, and recovery is slow. Billions are being poured into helping people survive the lockdown and measures are trying to stimulate recovery. It is impossible to predict how the economy will recover and what the impact on public finances will be, but a day of reckoning will surely come.
Let me address some of the measures in the Bill. The Minister referred to the reversal of a proposed cut in corporation tax from 19% to 17%. This is projected to yield around £5 billion, but surely that now looks wide of the mark. Some companies may see a profit increase as a result of Covid-19, but surely most will struggle to make a profit or, as recent announcements have shown, even survive. Can the Minister indicate what adjustments have been made to the yield projections?
A couple of measures in the Budget are designed to claw back revenue to the HMRC, but the timing could not be worse. The loan charge proposals have hit many people hard. Some have been able to negotiate a deal with their employers, who effectively pick up the tax liability, but those who have not face real difficulty if they are forced to pay back earnings which they thought were legitimate and have probably spent. The issue of IR35 is one that we have been wrestling with for years. It convulsed the UK offshore oil and gas industry, as my constituency casework proved. Surely the case for further delaying implementation of these two measures is well made, and I hope that the Government will consider it.
The furlough scheme has been widely welcomed, but will all those furloughed have jobs to return to? Or will the Government have to fund increased unemployment, and will individuals be struggling because of the loss of their jobs?
Bounce-back loans totalling £30 billion have been rolled out, but normal due diligence has been suspended by government guarantees. What default estimate does the Government expect from those? Some people have already had access to finance in the form of grants and cheap loans, but many self-employed people have been given nothing. Such people are the backbone of the economy and provide essential, skilled services and they deserve better. Will the Government consider supporting them as they struggle to return to work and to cope with a total lack of income during lockdown?
For the hospitality industry, the VAT cut is of course welcome. However, not every hotel or restaurant can open cost-effectively this late in the season. There are considerable costs in social distancing in hotels and restaurants. For many, it can be justified only for a full season. Will the Government consider extending the VAT cut to boost bookings for what we hope will be a full season next year?
The digital services tax is a small start to what will need to be an international move to ensure that digital companies pay a fair share of tax on profits derived from their operations in individual countries. It is expected to deliver £275 million in the current tax year, rising to £440 million in 2023-24. The objective must be to ensure that digital companies are taxed fairly and equitably in the same way as other companies and pay proportionately.
The stamp duty Bill is projected to cost £3.8 billion, which is offered as a scattergun approach. Would it not have been better to target it towards first-time buyers rather than giving a kickback to many transactions that would have gone ahead anyway? Can the Minister comment on the different approaches taken by Scotland and Wales, which concentrate the benefit on the lower end of the market? Have the Government considered the effect on the lettings market? Will not landlords take advantage of this holiday to put currently let flats on the market? This would cause distress and expense to tenants forced to look for alternative accommodation, which was surely not the intention of the measure.
Finally—I declare an interest in that my wife is a local councillor—can I put in a demand that the Government recognise the crucial role played by local authorities in helping to cope with this crisis? This surely underlines the case for a fundamental review of local government finance so that it is not left at the mercy of short-term whims of the Government, happy to burden councils with responsibilities but not to provide the funding.
I hope that the mantra for moving out of this unprecedented shock is to build a fairer, more sustainable and more caring society. That is certainly what the Liberal Democrats are committed to.
Lord Macpherson of Earl’s Court (CB) [V]
My Lords, I want belatedly to congratulate the Minister on his appointment to the Treasury. I had the good fortune of supporting from the official Box one of his distinguished predecessors, the noble Earl, Lord Caithness, in a Finance Bill debate back in the 1980s. I wish the Minister well in responding to so many speakers today.
The Chancellor set out a sensible Budget in March, and this is a sensible Bill. He has announced further measures since, all of which should support demand through a very difficult time, but we should be in no doubt that the best way to support the economy is to get on top of the virus and enable people to return to work.
When it comes to a temporary stamp duty cut, timing is everything. In the early 1990s, the re-imposition of the duty after a temporary cut may have added to the housing market slump which had then taken root, but I am happy to defer to the noble Lord, Lord Lamont, on that. In current circumstances, the cut could lift animal spirits and hence demand. In any event, I hope that the Chancellor will take the opportunity to look again at the stamp duty regime. Rates of duty are too high; they discourage people from moving. In a rational world, we would follow Ireland’s example, cut stamp duty rates and introduce a self-assessed property tax, but I am a realist and I do not expect this to happen any time soon.
Of course, dispensing largesse, whether through tax cuts or higher spending, is the easy part of the Treasury’s job. The Fiscal sustainability report, published by the independent OBR earlier this week is a reminder of the difficult part. On its central projection, the country will still be a running a deficit of over £100 billion in four years’ time, which is some 4.5% of national income. That suggests to me that we will need tax rises or public spending cuts of at least £50 billion to restore the public finances to a sustainable footing.
Public spending cuts can play a part—in my view, the abolition of the so-called triple lock for uprating the state pension is long overdue—but given the Government’s promise of no return to austerity, tax increases will have to deliver the bulk of the consolidation. For my part, I would recommend a social solidarity charge, payable on all income and with no reliefs. As the economy comes off life support, I encourage Treasury Ministers to lead a national debate about how the country will live within its means in the medium term.
Lord Lamont of Lerwick (Con) [V]
My Lords, I thank the Minister for his observations and applaud the bold measures taken by the Chancellor and the announcement last week. Taking the measures as a whole, the UK is, proportionately, giving a larger amount of fiscal support than Germany or Japan and about the same as America. The latest measures, including the furlough bonus scheme, may partially postpone the cliff edge back to January, but it is difficult to believe that we will avoid a tsunami of job losses.
The hard truth is this: no Finance Bill, no fiscal stimulus, no monetary stimulus can entirely compensate for the effects of restrictions such as lockdown and social distancing. Last week, for example, the Government announced a £1.75 billion package of assistance for the arts. It was well received—as well it might be, because it was extremely generous—but I doubt if it will result in theatres or concert venues putting on a single extra performance. Most of the money will go on mothballing facilities, because theatres would need to sell some three out of four seats. In the meantime, in South Korea, “Phantom of the Opera” is selling to packed houses because social distancing does not exist in theatres.
What is true for culture is true for the commercial sector in spades. Financial support is fine; lifting the restrictions is better and should be the goal, when health considerations of course allow. It would be good if Ministers could emphasise this more. Instead, some Ministers talk about social distancing being here to stay, or face masks being here for the foreseeable future. For an economy like ours, largely service-based, in which services depend partly on human proximity, social distancing is not easily compatible with them.
Sir Patrick Vallance has said that there is no reason why people should not work at home, but we have to consider the economic effects on our offices, on the City of London and on the hospitality sector. There is much debate about the cost of the Chancellor’s measures, which he has promised to address in the autumn. He does not need to act then, but he does need to set out a timetable to which he will consider acting in order to show that, long term, the finances will be sustainable.
There is, however, another cloud approaching: private and corporate indebtedness. The longer restrictions go on, the greater this becomes. Already in the US, some banks have made huge provisions. The new head of the OBR has warned of the possible need for a massive write-off of toxic Covid debt in order to stop the economy stagnating. The Chancellor has already rejected this, but I fear he may find, as politicians so often do, that words are for eating. He has been bold and I applaud it, but the difficult part is yet to come.
Lord Empey (UUP)
My Lords, we need to recall that, in attempting to increase revenue, by increasing tax we have in fact reduced revenue in stamp duty terms. This a lesson we need to learn for the future. I ask the Minister to look very closely at how this tax is reintroduced—not only its thresholds but the rationale for it. Simply imposing a large amount of tax does not in fact produce enough revenue for the Treasury.
There is an overwhelming fear in the hearts of many people in this country about the enormous amount of money we are borrowing. There is no alternative, but having been taught in recent years to believe in the age of austerity and the dangers of spending too much money on the public sector, many people fear that we are embarking on a journey whose destination and the time it will take we do not know.
There is an underlying issue when we talk about trying to regenerate the economy. Walking into this building this morning—and indeed last week, for the first time since March—one could see the problem with one’s own eyes: the people are simply not there. They are not there because they are afraid, or they can see that there are alternative ways of working—Sir Patrick Vallance tells them one thing, the Prime Minister tells them another. The fact is, the streets are largely empty in this part of London, which is symptomatic of the rest of the country. We need to get our act together, bearing in mind that, if there were to be a second spike, our economy would be in colossal difficulty.
In the 1970s, this country made a huge mistake in turning its back on manufacturing. We are not making things, and our service sector is vulnerable to very short-term issues. As has already been mentioned, the furlough was a bold announcement. But, speaking as someone who takes a keen interest in the APPG on aerospace, I know that if we do not find a sectoral resolution for aerospace, we will have great difficulties. We are number two in the world in aerospace, but that could very quickly slip away from us.
We need to refocus our economy and take this opportunity, but we need to remember that making things is how we generate the most revenue, and we are simply not doing it.
Lord Wood of Anfield (Lab) [V]
My Lords, I want to make a few remarks about the emergency stamp duty provisions announced in the Summer Statement. Cutting stamp duty to stimulate the economy is a classic response to a recession. It stimulates not just the housing market but economic activity around house purchases. At least, that is the theory. The evidence on just how much genuinely new activity it stimulates is patchy, to say the least. If you are one of the hundreds of thousands of workers who has lost their job or expects to, this will not make you move house. Most likely, it will bring forward some planned purchases, but I doubt it will stimulate many new ones.
So, what will it do? First, it will reward people for living in the south-east. The Resolution Foundation has called the measure
“a tax cut for Londoners”.
As my noble friend Lord Livermore reminded us, the average gain if you buy a house in the capital will be £14,200. The average gain in the north-east will be zero.
Secondly, this is a cash boost for buy-to-let-landlords. Experts suggest that the move will certainly lead to greater transfer of buy-to-let properties into limited company structures to take advantage of mortgage tax relief, so that is one activity that will definitely be stimulated.
Thirdly, sellers will win, as they will now be able to renegotiate asking prices to take advantage of the extra cash available to buyers. So, another activity this will stimulate is arbitrage between buyers and sellers. Fourthly, sellers may also win when March comes around, as price spikes occur when the cliff edge of the end of this tax break looms. What happens to the property market after that is anyone’s guess.
Lastly, relatively speaking, first-time buyers will lose, unless they are wealthy ones in London, because the stamp duty proposal spells the end of the period of using the tax to give preferential help to those who have never owned property before. So the stamp duty measures will generate lots of activity and may well pull forward some transactions, but at the price of greater regional inequality, loss of policy focus on promoting home-ownership and first-time buyers through stamp duty tax, and uncertainty and volatility when March of next year comes into view. Is this really where the Government’s fiscal focus should be at a time of unprecedented shocks to jobs, growth and confidence in our economy?
The unintended consequence of this, of course, arises from a more fundamental problem: the stamp duty itself. It is a bad tax. It applies only when a house is sold, so discouraging mobility and first-time buyers, and its cliff edges mean that there are perverse incentives to distort the price and save on tax. The sensible strategy on stamp duty, in my view, would be to abolish it and tax the huge windfalls that come from owning housing property, particularly for the top quarter of our population, in other ways: a housing services tax, for example, as recommended by the Mirrlees commission many years ago. I also see from the newspapers that the Chancellor is passing an interested eye on revisiting a capital gains tax. But I live in hope that perhaps he and the Treasury will be persuaded to use this moment to think about a more sensible general approach to taxing assets, especially housing, in ways that the curious side-effects of this stamp duty proposal suggest are urgently needed.
Lord Oates (LD)
My Lords, when we debated the March Budget in this House a week after it had been delivered, coronavirus had already completely transformed the outlook since the Chancellor’s Statement. Today, the Budget seems a lifetime ago. GDP figures for May, which were well under expectations, underline the scale of the challenge we face. Alongside that disappointing news came alarming data from Siberia, which provided what scientists involved in the study, including our own Met Office, describe as unequivocal evidence of the impact of climate change on our planet. So, as we rebuild from coronavirus, it is vital that a net-zero economy is at the heart of our approach.
Coronavirus has already shown us what happens when something we cannot control gains unstoppable momentum. We need to heed that lesson with regard to climate change, and that means understanding the urgency of the moment and acting upon it. The one thing we do not have is the luxury of time. Given the three-minute time limit, sadly, nor do I, so in that very limited time available I shall focus on two areas. The first is dramatically improving the energy efficiency of our housing stock. The second is seizing the opportunities of the hydrogen economy. Liberal Democrats welcome the injection of significant funds into home energy-efficiency measures which were announced by the Chancellor last week and which we have long called for. The scheme aims to retrofit 650,000 homes, which is ambitious over the short term envisaged, but 20 million homes need attention if we are to have a hope of meeting our net-zero target. We need a commitment to year-on-year funding of this sort of magnitude over a 10-year period, as a minimum. Without that sort of long-term investment and a stable policy environment, the industry will not be able to invest in the skills required, and this will be chalked up as just another well-intentioned but ill-designed green homes scheme.
Secondly, I turn to the opportunities and imperatives of developing the UK’s hydrogen economy. The All-Party Parliamentary Group on Hydrogen, of which I am a member, recently published a report on the prospects of the hydrogen economy. It notes that the UK is well positioned to become a global leader in the technology. ITM Power, a British company based in the great city of Sheffield, is just one example of that opportunity. It is shortly opening what will be the world’s largest electrolyser factory, positioning it to supply the burgeoning demand for green hydrogen around the world. But the APPG report also warns that, despite the opportunities, we risk squandering our comparative advantage and throwing away our chance to become the global hub of this new industry. It is essential, therefore, that the Government do not delay any further in announcing a hydrogen strategy and putting a massive investment boost behind a UK-led hydrogen economy. I hope the Minister will be able to give us some hope that the Chancellor recognises the imperative of urgent action on this issue.
Lord Blencathra (Con)
My Lords, I begin by saying how much I agree with the remarks of my noble friend Lord Empey. This is my first day back in the Chamber, and in London, since 18 March. I came down yesterday from Penrith on an 11-coach train. There were two people in my carriage, 30 on the whole train, and I am appalled at the empty streets and inactivity in London: that has to change.
I wish to comment on part 2 of the digital services tax. I approve of this tax, but not because these companies are indulging in so-called tax evasion—they are not, they are simply operating under all the existing rules agreed with the OECD. The trouble is that these rules are now way out of date, because we need the revenue from these companies to repair the damage they are doing to society.
I detest Twitter, Facebook and all other forms of anti-social media. Every week, feeble Governments around the world beg them to take down vile paedophile stuff, terrorist-supporting websites or fake news, and every week, these new masters of the universe tell us to clear off. How many millions of children around the world are now traumatised because of online Twitter abuse? If we cannot get them to stop their activities, which are damaging millions of people, then we have to tax them so that we have the resources to deal with the problems they have created, just as we tax tobacco to get more money for the NHS. In the last 20 years, Chancellors have taxed petrol or diesel more highly to deal with climate change—leaving aside the disastrous policy of Gordon Brown and the then chief scientist, David King, to replace petrol with diesel, which was going to be better for us. These digital companies should pay a digital tax so that we have the money to spend on children’s mental health, anti-terrorist activity and taking down paedophiles.
Then I come to Amazon. I use it a lot and I hate doing so. I desperately try to use physical, local shops, just to keep them going, but it is a losing battle, because Amazon, with its giant warehouses, pays hardly any rates and can undercut everyone else. We all know that our high-street shops are being destroyed, and Amazon is a major destroyer, aided by a rating system that is no longer fit for purpose. These giant Amazon distribution centres are treated like a big farmer’s shed, at ridiculously low rateable values, whereas shops on the high street have excessive rateable values. The Amazon distribution centres are, in effect, giant retail shops and should be treated as such.
Last year, Amazon, which made £8 billion from its total sales in the UK, paid a derisory £63 million in rates. The Debenhams rates bill is £80 million per annum; House of Fraser’s is £18 million per annum. Is it any wonder that these shops are being pushed to the verge of extinction when up against Amazon? John Lewis has a rates bill of £170 million and a net revenue of £172 million, and it did employ 80,000 people: a great British company which looks after all its workers is now just one of many being crucified by Amazon. The owner of Amazon makes $9 million per hour; he could pay the annual UK business rates for Amazon in just nine hours’ trading. Therefore, while I support a digital services tax—but at a much higher rate than 2%—it is only part of the solution. We must have urgent business rates reform to save our high-street shops.
Baroness Falkner of Margravine (Non-Afl) [V]
My Lords, I broadly welcome most of the measures the Government have taken since the onset of this fiscal emergency. I think Her Majesty’s Treasury needs to be congratulated on the dexterity and speed with which it has risen to these unprecedented challenges. In a sense, our heroes are the operators of Whitehall: the Civil Service has stepped up to the mark and done an extraordinary job in the last several months.
I want to start with the reference that has been made to the health emergency being equivalent to fighting a war. If that analogy holds, surely a solidarity tax, already mentioned by the noble Lord, Lord Macpherson, would be the appropriate response, because that is what is normally used in a war. I accept that one of the unique features of this fiscal emergency is that there is both a demand and supply-side shock, and that the measures taken need to be very carefully calibrated, but I wonder whether the Minister is completely au fait with the German example after reunification in 1991, when a solidarity tax surcharge was introduced across the board: on individuals, SMEs and larger corporations. It was set at a flat rate of 7.5% for one year—it was reintroduced several years later, for a different reason—but it gave an injection to the East German economy for the vast amounts of money that had to be spent in bringing that up to the level of the West German economy.
Given where we find ourselves on the need to ultimately deal with the debt burden, will the Government consider a progressive version of that kind of programme, perhaps to last for two years at 1% for basic rate taxpayers, 2% for higher rate taxpayers and 3% for additional rate taxpayers? It would not breach the Government’s manifesto commitment not to bring in higher taxes in the sense that the public now want—I think 66% is the figure in recent polls—to pay higher taxes to support vital public services such as the NHS and social care.
My second point, very briefly, is about the stamp duty land tax. I wish it had been longer-term relief for first-time buyers and not a rather blunt tax which will benefit second homeowners, buy-to-let landlords and all those who are the last people to need assistance at this point.
Lord Hain (Lab) [V]
My Lords, the OECD estimates that the fall in economic activity in 2020 in the UK will be the worst in any developed country. So we have both one of the worst Covid-19 death rates and the worst economic consequences.
In the United States, after the 1929 Wall Street crash, the economy sank into the great depression, with 25% unemployment. Recovery began only four years later, after President Roosevelt took office in March 1933 and launched his New Deal. In 2008, only bold Labour government action saved the UK financial system from complete collapse and stemmed the slide into slump. The British economy was growing again by the final quarter of 2009 and well on the way to recovery in 2010 when savage Tory austerity reversed it.
In both cases, it was the state, not the private sector, that got the economy moving again. Capitalism has no innate tendency to return to a full employment equilibrium state, as Keynes made clear. We must look to Government to stimulate recovery when a severe shock hits the economy hard. Waiting on the private sector to do the job would be like waiting for Godot.
The UK economy now faces its worst peacetime predicament for 300 years. British business is on life support. Industrial towns that used to brag about their bustling business centres now fear seeing them turned into shuttered trading estates or gone-out-of-business parks. Without massive state intervention, many of Britain’s businesses would already have gone bust, taking millions of families with them.
But 10 years of Tory austerity cast a long and bitter shadow. It took £150 billion of spending power out of the economy by 2020, 80% of it in public spending cuts. The Chancellor’s plan for jobs brings forward nearly £9 billion of public investment into 2020 and 2021. Alistair Darling—my noble friend Lord Darling—brought forward £29 billion of public investment into 2009 and 2010.
No one has accused the present Government of excessive spending. No one says that their budget deficit is too big or their debt dangerously high. No one has mentioned the Cameron-Osborne mantra of “maxing out the national credit card”. Today there is widespread acceptance that a national emergency warrants an extraordinary response, and that public finances must stand the strain. Even the Prime Minister concedes that, at a time of national crisis, big budget deficits and rising national debt are a sign of an effective corrective policy, not a mark of irresponsibility. In other words, all their attacks on the last Labour Government were false, and a decade of Tory austerity put Britain through years of pointless pain.
The Earl of Shrewsbury (Con)
My Lords, I agree entirely with my noble friends Lord Blencathra and Lord Empey. They could not have hit the nail more clearly on the head. On the way to the station this morning to come down on an 11-carriage train from Stoke-on-Trent, with two people in my carriage, I listened to Ken Clarke, the former Chancellor, on Radio 4—as I am sure many of your Lordships did—deliberating on doom and gloom. When I got to the station, I realised what he was talking about.
The Government have done very well with their measures—furlough, bounce-back and this sort of thing. In my carriage on the way down here, there was one other person. He was a businessman who had an engineering company dealing with energy in Buxton in north Derbyshire, fairly close to where I live. He told me that he had not taken a penny in furlough money but was finding it incredibly difficult. Much of his business was done in London, and he was finding it difficult to travel here to meet the people whom he uses as financiers. A message came to me very clearly indeed: we have to get back to work and we have to do it soon.
Following on from what my noble friend Lord Empey said, I will mention two things which are key to recovering from this terrible situation. The first is training, retraining and the teaching of skills. I come originally from near Shrewsbury. Very close by is Ironbridge, the birthplace of the Industrial Revolution. In Bridgnorth, a town not that far away from there, there is an excellent firm called SD Technology, which runs training, retraining and skills courses. It is about to go under because of lack of funding, and we need it badly. Can I ask my noble friend on the Front Bench whether I can put his officials and SD Technology together so that they can discuss the way forward for the very necessary teaching and training of skills?
My second point is that I firmly believe that large infrastructure projects are a serious key to recovery. I have never been a fan of HS2—it is a dreadful scheme—but in these extraordinary times in which we find ourselves, I am sure that it is a key to the future. It will employ a lot of people. It will produce a lot of employment elsewhere in secondary places. With all these large infrastructure projects, so many things trickle down to fund other things. We really need to do that. It is much better than furlough. It is the way forward.
Lord Razzall (LD) [V]
My Lords, this is clearly our opportunity to comment on the Chancellor’s economic policy. He has an unenviable task. The unemployment forecast is grim, particularly for the under-25s, and a recent forecast for the manufacturing industry shows the cost of the pandemic at £37.5 billion and recovery postponed to 2022 at the earliest. Obviously I welcome the overall thrust of his actions. Keynes is back, and hopefully austerity is dead. But the job of an opposition party is to provide constructive criticism and to suggest alternatives.
First, the criticism. Will £1,000 per employee brought back from furlough really provide an incentive to employers? For example, if a company employs 20 people at £15,000 per annum and brings them back at a cost of £300,000 per annum, will a £20,000 payment provide a real incentive to bring them back?
There is admirable aspiration in the Chancellor’s proposals for young people, but the proposal that 16 to 24 year-olds should receive a minimum wage for six-month work placements requires 350,000 work placements. In reality, as I am sure the noble Lord, Lord Hain, would agree, there is no chance of business offering 350,000 work placements. A similar scheme, the Future Jobs Fund referred to by the noble Lord, Lord Livermore, introduced after the 2008 crisis, produced only 100,000 placements. If the Government are modelling themselves on Roosevelt’s 1930s New Deal, as Will Hutton has suggested, do we not need an organisation such as a national youth corps as an umbrella organisation to marshal placements? Otherwise, I fear these proposals will be more aspiration than reality.
I have three suggestions as additions to the Chancellor’s policy. First, why not raise the national insurance threshold to the level of the income tax threshold? That would provide an incentive for employers to take on staff and, obviously, would help the working poor. Secondly, we should establish an entity to take on the billions of pounds of toxic loans that will remain after the virus, as was done after the previous crisis and as is recommended by the leaders of all our major banks. Thirdly, there is Brexit. The government policy is clearly to crash out and blame Covid, but that will not work. In the current climate, will we really replace the European Union with China as a major trading partner and import chlorine-washed chicken from the United States as a price for a US trade deal? The only rational policy is to conduct negotiations to keep us as close as possible to the European Union, our largest trading partner. If we do not do that, I echo the comments made by a number of commentators on our Brexit policy, who have gone back to Enoch Powell’s infamous “rivers of blood” speech in a different context:
“Those whom the gods wish to destroy, they first make mad.”
Sadly, all of us will be the victims of this lunacy.
Baroness Jones of Moulsecoomb (GP) [V]
My Lords, I cannot say much about the budget except that it is inadequate for the scale of the problems ahead. We know that coronavirus has hit us hard and shaken all our systems, but the scale of the climate change crisis will knock all that out of the park.
I will set out some of the budget figures that I think are necessary, which are from the Green Party’s fully costed 2019 manifesto and which will show the Government what a truly ambitious green new deal budget would look like. It would include: £12 billion invested in renewable energy generation; £24.6 billion for insulation and deep retrofitting of homes; £10.2 billion for 100,000 new social homes built every year by local authorities; £6 billion a year for green research and development, and another £3 billion a year for green industrial processes; £12.2 billion a year for upgrading and electrifying railways—no HS2—and £2 billion a year for upgrading cycleways and footpaths; £10 billion a year to fill the black hole in local authority funding created by a decade of Conservative austerity; a £3 billion a year climate adaptation fund, to be administered by local authorities; and £6.5 billion a year extra international aid, to help all countries meet the climate and environmental emergencies.
The corresponding tax measures would include: a £76 billion carbon tax; a £12 billion increase in corporation tax; £3.5 billion saved from scrapping HS2—hooray; and £2.2 billion saved from scrapping Trident nuclear weapons.
We can do all this, and it is actually a good time to do it; when we have had such a huge crisis, people are ready for a different normal. These are the scale of figures that we need to face up to the reality of the climate emergency. The Green Party set these figures out in last year’s general election manifesto, but the need for a huge fiscal stimulus has become only more obvious. Our country can move rapidly to a high well-being, high-employment, net-zero carbon society, but we need the Government to make the investments to achieve that. With such low borrowing costs, it is time to borrow and invest in the green future. The question is simple: if not now, when?
Lord Loomba (CB) [V]
My Lords, I will concentrate my remarks on the stamp duty land tax Bill. This is a welcome move by the Chancellor to reduce the amount of stamp duty payable on property sales in the UK. It will help the economy as the country gets back on its feet and will help people as they assess their situation and make decisions about moving or buying a home.
However, the Bill is lacking in specific help for first-time buyers. Previously, there was an incentive for first-time buyers to gain a foothold on the property market, as compared with the people who bought properties as their second home or properties to let, thereby depriving young first-time buyers, who primarily start out in life on lower salaries than their older contemporaries. Many young people will now be hit with a double whammy of finding it harder to get or move jobs as the ongoing certainty in the jobs market continues, and then having to compete for housing without any help or incentives. Can the Minister say whether the Government will look more closely at what can be done for first-time buyers so that they are not priced out of the market and deprived of buying their first house? They need incentives, as this Bill could well encourage second home ownership, to the detriment of young people.
Lord Naseby (Con) [V]
I sincerely congratulate the Chancellor. The Bill before us is sensible, with sensible policies. However, the key point which I remember from my economics lectures is the multiplier effect. The more people spend, it affects other levels of society, and that is the whole basis of the key to recovery.
Our economy in May was forecast to hit 5.5% but it hit 1.8%. However, there was an interesting test market there, which was the recommendation on 13 May that employees in manufacturing and construction should return to work, which they did. Sadly, however, someone in government decided that they should not take public transport and should drive to work. That was an error. Will it be better in June? Certainly, lockdown is being reduced, particularly for the services category. However, households remain very fearful, and the social distancing rules are likely to limit consumption of services until the population is vaccinated. Yes, some pent-up demand was unleashed in retail in June, but the footfall numbers are still way down on last year.
In my judgment, all employees should now return to work, in both the public and private sectors, and should not stay at home. All civil servants should stop working from home, and all Parliament personnel should stop working from home and come in to Parliament. The same applies to the private sector. We must, for their sake, reassure people that they will be safe, and they need to use public transport. Indeed, we need also to recognise that some of the services that are supposed to have reopened have not reopened. Around 50% of pubs and restaurants that in theory were going to be open are not yet open, and do not show much sign of doing so.
Frankly, social distancing going from two metres to one metre-plus is not progress. You either go from two metres to one metre or do not bother at all. That is the only way we will get back to normal life.
I say to my right honourable friend the Chancellor that the twin challenges are that, as unemployment rises just as government support fades, he will need to watch it very carefully, and he may yet need billions more. If that happens, I say to him: for heaven’s sake, make sure that you do it.
Baroness Andrews (Lab) [V]
First, on the stamp duty issue and the problems facing young people, welcome though they are, the stamp duty proposals may have very perverse consequences for the most vulnerable people in the rented sector. Yesterday, I received the following message:
“Three days ago our landlord contacted us to say that he intends to put our flat on the market as a direct result of the proposed tax relief. The effect of this is increased anxiety, uncertainty and instability in a time when Covid-19 has heightened these feelings. While I understand the intention of the Bill is to stimulate the market and economy, the effect for those who rent is to precipitate an unplanned and unwanted search for a new home, affecting mental health, and at a time of financial uncertainty for many.”
This is one personal instance to illustrate what my noble friend Lord Livermore said so eloquently. This is the voice of Generation Rent, for whom the prospects of owning their own home have disappeared over the horizon, who face a lifetime in rented accommodation and who could now well lose their jobs in the next six months.
The Government are totally silent on the private rented sector, so my first question to the Minister is: how does he think people such as my correspondent should be protected? How would he answer that email?
Secondly, will he ask his right honourable friend the Chancellor to take a good look at the 12 recommendations in yesterday’s report from the Affordable Housing Commission, which argues strongly that the way to lift society, as well as parts of the economy, is by investing in a massive building programme for social and affordable housing? Housebuilding is already badly hit by Covid, especially small firms. We need a bold and real new deal for housing which is not about deconstructing the planning system or turning offices into the slum dwellings of tomorrow.
Thirdly, will the Minister ask the Chancellor to focus more resources on a long-term fund for young people and their future? The kick-starter fund is a good place to start, but there is no indication that it will meet the scale of need of those young people, who now face such a different future. They have already been landed with Brexit: 400,000 young people were out of work before the crisis; a further 800,000 are set to enter the labour market. They will be first in line if we have 12% unemployment or more by Christmas. Moreover, the Treasury’s independent forecaster has said that as much as a fifth of the 9 million people whose jobs were furloughed on the scheme will be made redundant.
I very much look forward to hearing how the Minister will answer the questions raised by my noble friend Lord Livermore. My questions to the Minister are, finally: will the money promised in kick-start create new jobs incentives, where new and green jobs can also be created—careers in tourism and environmental technologies, for example? Will it support people to remain in employment once their apprenticeship finishes? Who will get priority, and how will it improve on such a poor track record of apprenticeships so far?
The Prime Minister, in typically inflated language, says that this is all about a new deal. How I wish it were. How I wish it had the scope, salience and success of FDRs original New Deal.
Baroness Northover (LD) [V]
My Lords, we are in unprecedented times. We had a weak economy and have now been hit badly by coronavirus, which itself is having a massive effect globally, which will affect our future trading figures. Pandemics have long been on the UK’s risk register. The Government were distracted at the beginning of the year, wanting to project the union jack onto Big Ben on 31 January, rather than looking at what was happening in China, South Korea and, by then, on our doorsteps in Italy. The Government have also decided that we are leaving the single market and the customs union, decisions which cannot be laid at the door of the referendum, when those promoting leave promised that that would not happen.
The Government have now decided that we will leave the transition period with the EU at the end of the year. Have the Government made an assessment of leaving the EU in December or extending the transition period? If not, why not, and if so, will they publish it? One would hope that the Chancellor would apply his agile brain to this challenge. He should be commended for a number of his measures in the pandemic. As he looks to the future, it is the most vulnerable in society and building a green economy that must be key. There must be worry about older people, who may not get back into the jobs market again. There is, rightly, huge concern about unemployment levels among young people.
We compete globally as countries such as China and India are rising, with a great emphasis on training their young people, but we are undermining our higher education sector by leaving the EU, reducing our ability to join mutual research programmes and attract staff and students. What level of unemployment do the Government anticipate and what analysis have they made of it on an age and regional basis?
We have also become extremely grateful to those from overseas who have been helping in our hospitals, care homes and other essential services. The measures here set in place help for some of those in this crisis. The Government have suddenly seen how important they are. What are we doing to make sure this is sustained? Are we really now going to turn our backs on them?
As it looks like we are not heading for a V-shaped recovery, I look forward to the Minister’s response.
Baroness Wheatcroft (Non-Afl) [V]
My Lords, the Chancellor has responded to the Covid crisis with unprecedented cash handouts. Some are clearly well judged, the furlough scheme most obviously. Others, however, look off target. When the head of HMRC, Jim Harra, questions the wisdom of measures, it would surely be wise to pay attention, yet the Government took the rare step of issuing a statement to HMRC, insisting that it should go ahead with implementing two measures of highly dubious worth.
The first is a bonus scheme to reward employers for doing what they were probably going to do all along: taking back some staff who have been on furlough. The second is a £10 bribe to eat out. Do people really seem likely to respond by going out to eat because of a £10 bribe when they were frightened to go into restaurants beforehand? I doubt it.
I also question the wisdom of the changes to stamp duty, as have others: £3.8 billion is a large amount to spend to encourage people to move house when our major problem is the shortage of housing. It seems slightly weird to bribe people to buy second homes or to swap their second homes when too many people in this country do not have a home of their own. I thought we were going to use this opportunity to build infrastructure and invest in our capital, but that is not happening with the changes to stamp duty.
Others have remarked on the mixed messages coming from government on distancing and whether people should be going to the office, and I echo that. It is not helpful when the Prime Minister and the Chief Medical Officer are giving completely opposite advice to the public.
How much more confused will the public be when, in just a few months, Britain finally severs its relationship with the EU, and business has to cope with an onslaught of new form-filling and costs? Even the Trade Secretary has raised doubts about the preparedness of the UK’s ports to cope with the new regime that will dawn at the beginning of next year. We may need a job creation scheme, but 500 new members of the Border Force is a very unhelpful way of creating new jobs. Who is going to pay for these new jobs when the economy takes yet another hit? Brexit is an unnecessary onslaught on top of Covid. Can the Minister tell me that he really believes that it is the right time for such a drastic move?
Lord Lilley (Con)
My Lords, it is unfortunate that because, during the worst recession in two centuries, we have not had a full debate on the economy, we have to use this debate on the Finance Bill, but so be it.
Most recessions are the result of a shortfall of demand. This, uniquely, is caused by suppression of supply. There is considerable pent-up demand. I agree with my noble friend Lord Lamont, who said we must end the lockdown and encourage people to return to work, and Parliament itself and this House should set an example in that.
If we do so, and if the economy is enabled to, many businesses will spring back—more rapidly, I suspect, than some suppose—to full activity, but some sectors will have permanently shrunk. Many viable businesses have spent the last few months devising ways to produce previous levels of output with fewer employees, so we face a vast potential increase in unemployment, and unemployed buildings and other resources. We need to make it easier and quicker for new businesses to set up and expand, and for existing firms to expand, grow and diversify.
During the crisis, we have learned that public regulatory bodies can, in an emergency and under public pressure, take in days and weeks decisions that previously took months or years. We need to ensure that they do so henceforth to enable businesses to increase their activities rapidly. In most areas, we cannot scrap regulations, so we should accelerate decision-making in planning, building controls, environmental measures, health and safety and so on by, for example, setting time limits. If those time limits are not met, consent will be deemed to have been given. Every department should be required to publish at six-monthly intervals the times that it takes to give approvals or refusals or to make decisions when requested by business. Every Select Committee should hold those departments to account. Past experience has shown that the British labour market is more dynamic than any other in Europe; if we do this, we will be able rapidly to bring people back into work in viable and productive employment.
Lord Adonis (Lab)
My Lords, I completely agree with the noble Lord, Lord Lilley, that we need a more efficient state. We need to pay attention to that in this crisis.
In his speech this morning, the Prime Minister predicted that there will be a return to normality by Christmas. I tend to be with George Eliot on these matters: of all mistakes in life, prophesy is the most unnecessary. I do not think it at all likely that we will be back to normal by Christmas, but who knows? Anyone who tries to prophesise is almost certainly making a mistake. However, we must have public policy in the midst of a crisis where, as the Japanese famously say of politics, “An inch ahead is darkness.” The question is: what should that policy be?
Among those who are more reputable economists than me, there are three different models: the post-crisis situation could be L-shaped, V-shaped or U-shaped. The truth is that no one knows whether it will be L-shaped, V-shaped or U-shaped. The right stance for the Government, who hold our destinies in their hands, is to observe the precautionary principle. Since there is a distinct possibility of mass unemployment after this crisis on a scale that we have not seen in recent history—my noble friend Lord Livermore said that the economy has contracted more this year than in any year since, I think, 1706—surely the right precautionary principle for the Government is to work on the assumption that the post-crisis situation will be L-shaped; that is, with a big shock in demand and supply, which will continue. Significant efforts by the Government to boost both supply and demand will therefore be required.
That broadly seems to be the Government’s policy, except that they make announcements then put time limits on them. At the moment, they have to do that because they can only see a certain period ahead, but I look to the Minister to assure us that, if we are in an L-shaped post-crisis situation with a massive contraction of both supply and demand, the Government will continue to provide the economic support that they have done.
On the actual measures, let me be frank: I agree with some and I disagree with others. I agree strongly with the measures taken in respect of youth employment, such as the kick-start scheme. I am sceptical about the stamp duty cut. I am not a great fan of giving people £10 to eat out when many cannot even afford to eat in. We need ceaseless activity on the Rooseveltian principle in this crisis. I will not criticise the Chancellor or the Minister for taking initiatives that involve action to try to tackle the roots of a supply and demand crisis just because I may happen to disagree with particular measures. Inaction is the great crisis that we potentially face, not too much action, particularly in respect of youth unemployment, where the kick-start scheme is vital.
I do not have time to continue. Will the Minister give a commitment that the Government will do all that they can to maintain the kick-start scheme and, if necessary, give a direct and explicit commitment to employing young people who face unemployment after this crisis? If I can break my own rule and engage in some prophesy, the big thing I fear is mass youth unemployment after this crisis, which would be unconscionable.
Baroness Burt of Solihull (LD) [V]
My Lords, I will address my remarks from the perspective of small business. As other noble Lords have said, there is much to be welcomed in this Bill, especially the £3.7 billion to support jobs and the help for our struggling hospitality sector.
However, an eye-watering £9 billion has been allocated to the supporting jobs programme. This will be largely dead money and not well spent. Either a job is economically viable enough to be retained or it is not. I do not think that a £1,000 pat on the back for keeping on someone whom you already need will change the decision if the job is not viable.
Some categories of people have been left out, such as newly self-employed people and company directors who rely mainly on dividends for their remuneration. I know that the Chancellor has steadfastly resisted the pleas from representatives of these two categories, but many entrepreneurs—those arguably at the most precarious stage of their journey and who receive awards only when they have been earned—will be lost to the economy at a time when their willingness to take risks is most needed. Rather than showering £9 billion on companies for workers who would have been retained anyway, a small fraction of this money could have saved tens of thousands of wealth generators for the future.
Finally, I make a plea on behalf of those companies whose ability to borrow will be blighted to the tune of over £1 billion—possibly far more—by proposed changes to the Government’s Crown preference policy. Floating charge creditors and unsecured creditors, such as pension schemes, would be leapfrogged by HMRC in any subsequent insolvency proceedings. Who is going to lend when they could lose everything if the company to which they are lending goes bust? This will seriously hamper the recovery, especially for small businesses. The insolvency and restructuring profession has been clear that the policy will make it harder to rescue businesses from administration and will reduce the likelihood of successful CVAs. This measure should be paused, at least until the full economic impact of Covid-19 is known. I urge the Government not to help with one hand and take away with the other.
Lord Truscott (Ind Lab) [V]
My Lords, I will refer to the Stamp Duty Land Tax (Temporary Relief) Bill. I declare my relevant interests as recorded in the register.
It is obvious that whoever designed this policy does not understand the housing market. The timing is wrong and the wrong groups are targeted. First-time buyers will not primarily be the ones to benefit from the stamp duty reduction, as many noble Lords have said; it will be investors and those with buy-to-let portfolios. Foreign investors will also see this as a window of opportunity to invest in the UK property market, both to benefit from the current stamp duty reduction and to invest ahead of the 2% rise in SDLT coming into effect in April 2021. First-time buyers will find themselves squeezed out of the market yet again.
As I mentioned, the timing is all wrong. It is too early to stimulate the housing market. As the furlough scheme comes to an end in October and the end of the Brexit transition period looms, a massive wall of unemployment will hit the country at the end of the year and early next year—that is a fair prediction. Mass unemployment always impacts on the housing market. With the end of the stamp duty holiday and the impending 2% additional SDLT rise for foreign investors in spring 2021, the housing market will most likely come crashing down by April 2021. That is when a stimulus really will be required.
Instead of the current policy, Her Majesty’s Government should exclude buy-to-let investors, second home owners and foreign buyers from the proposed stamp duty reduction. This would avoid temporarily overheating the housing market and primarily benefit those who really need help—first-time buyers—while giving a real boost to the housing market, which provides many jobs and so much revenue for the Government: £11.9 billion in 2018-19.
Baroness Verma (Con) [V]
My Lords, I too start by thanking the Government and congratulating them on the measures that they have introduced so far. I largely agree with my noble friends Lord Shrewsbury and Blencathra, and the noble Lord, Lord Empey, that we now need to move fast and encourage people to go out and back to work. I want to focus my attention on small and medium-sized businesses. In my own city of Leicester, we are in a second lockdown that only yesterday was extended. Many businesses will now look for further support from the Government, and I hope my noble friend can confirm that I can tell them that help will be available. Grants of £10,000 and £25,000 were issued for businesses at the start of the lockdown, but if money is still available in local authority coffers, it should be reassigned to provide further help for struggling businesses in cities like my own, because we are going to have to work even harder to ensure that they do not close down.
I would like my noble friend to speak to colleagues about skills, an issue raised by my noble friend Lord Shrewsbury. It is critical that in cities like mine where manufacturing was the main driver of economic growth, a skills programme be provided so that manufacturing can return and help support economic growth in the country. I am thinking in particular of the fallout from PPE production, which cities like Leicester and others across the East Midlands could deliver. Can my noble friend assure me that every step will be taken to put in place a skills agenda for young people in these industries? The spotlight has been shone on Leicester in recent days because of poor working conditions and workers being paid less than the minimum wage. Let us eradicate these practices and put in place proper working conditions, training and skills, so that not just the people but their local economies and the national economy as a whole can benefit. I hope that my noble friend’s response will be positive.
Lord Haskel (Lab) [V]
The Minister has talked about the digital services tax. That is a small step on the long road to properly taxing the digital economy, as called for by the noble Lord, Lord Blencathra. The noble Lord, Lord Bruce, told us that in this financial year, the digital services tax will raise £279 million. That is a small but welcome step in the right direction. In directing this tax at large companies, the Government are rightly aiming it at those which have long practised so-called “tax optimisation”, which, translated, means choosing where you pay tax. The IMF is constantly pointing out the revenues lost through these activities, so the Government are right to separate out these multinationals from domestic companies which have much less opportunity to optimise their tax.
The 2% tax will be paid by businesses that provide online marketplaces, search facilities or social media services in the UK to residents and other users. The definitions are fairly detailed, but some companies operate both online and offline. Are the Government satisfied that these can be properly identified? Part of tax optimisation can mean that digital and non-digital activities are separated, and the digital element located outside the UK. A study by Oxford University in 2019 showed that more than 50% of the subsidiaries of foreign multinational companies active here reported no taxable profits in the UK. Yet a third of the companies that received coronavirus loans under England’s largest scheme are substantially owned in a tax haven. Some of these companies have also been in receipt of job retention funds, grants and emergency loans. This is perceived by the public as unfair and is yet another example of the unfairness brought to our attention by the pandemic. Surely the quid pro quo must be a commitment to better behaviour in matters regarding tax.
I do see a glimmer of hope. There has been quite a shift—companies are acknowledging that public opinion requires them to recognise that they also have a social purpose. Indeed, only last week, HSBC reported some evidence to show that companies which focus on these strategies are weathering the consequences of the pandemic better. I welcome the digital services tax, but it is only an early step. Do the Government have further steps in mind?
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, the expansion of IR35 has been postponed for a year. That is a small mercy, but a fair balance between the employed and the self-employed needs a more thorough reckoning. First, for the same reasons as now, the economy will not be in sufficient shape by next year to take the IR35 risk to workforce flexibility, nor for companies to take the burden.
Secondly, the fix is simply a tax fix that ignores the reality, recognised by both the Office of Tax Simplification and the Taylor review: that there is a set of flexible, dependent workers who are part way between being employed and self-employed. The Government are roping them in to tax and NI as if they were employed, on the basis of tax fairness, but leaving them out in the cold when it comes to employment rights and benefits, which is clearly unfair if they pay the same.
Thirdly, along with the aid given to the self-employed during lockdown, the Chancellor has indicated that a revision of national insurance and the coverage it provides for the self-employed might be necessary. This must apply vice versa, to the situation of the self-employed and the dependent worker: you must get the security that you pay for. Notably, many self-employed have been left out of grant-based help, ironically because they are not companies.
Fourthly, there is no fair solution, other than banning dependent workers, if this is not taken in the round alongside employment and social security rights.
Fifthly, contract workers have other expenses that can be imposed on them by their clients. How are these to be treated? They can include public liability insurance and giving indemnities to the client. They come as part of the package terms, which often include unreasonable contract terms that are not applied to employees. What protections will the Government bring in to defend taxpayers equally?
There are more points to make but time is short. As a veteran of proceedings on the Corporate Insolvency and Governance Bill, I share now, as I did then, the concerns expressed by my noble friend Lady Burt about the new preferential status for HMRC in insolvency, making it even wider in scope than before the Enterprise Act 2002. The arguments about it relating to tax paid by employees and held by the company do not wash, given that the company does not apply that logic to pension schemes in the hierarchy.
Lord Mann (Non-Afl) [V]
My Lords, this morning the Prime Minister announced that he hopes to see spectators at sports such as football by October; I trust that there is a plan on top of the hope. I suggest that the best approach to look at is the creation of spectator bubbles—in other words, the same group of 10 or 20 supporters sitting together but socially distanced from the next spectator bubble, attending each match and with no variation among them. This would allow an effective test and trace system to operate, should any of them go down with Covid, and allow the opportunity for income and spectators and the joy from that to flow back into sports such as football. An effective plan is very much needed.
I urge the Government to ensure that other policy decisions do not impinge on sport. I refer specifically to the growing demands for restrictions on gambling advertising; it is an important debate. Take one of the clubs about to be relegated from the Premier League, Norwich City, whose last accounts showed a £30 million annual loss: some 9% of its turnover comes from revenue from shirt advertising. Aston Villa, precariously positioned in the Premier League, had a £112 million annual loss in its last accounts and 12% of its turnover comes from shirt revenue. Across the Premier League, half the clubs have their shirt revenue from the gambling industry. In the Championship, it is 16 out of 24 clubs. This will be devastating at this time.
I also urge the Government to look further at the high street, not least in the red wall. The companies going bust in recent times include Peter Jones in Wakefield, Cardinal shopfitters of Yorkshire, Harveys, Boots Opticians, Poundstretcher, Monsoon, Bonmarché, Ena Shaw of St Helens and Beales of Keighley, Mansfield and Peterborough, on top of those that went last year such as Jessops, Mothercare, Clintons, Thomas Cook and Yorkshire Linen. These are the high street stores in the red wall that we most recognise. The situation is precarious, and the situation with landlords we are seeing with Bonmarché properties is perhaps even more precarious. High streets in the north and Midlands are in danger of decimation. There will need to be additional intervention if they are to be saved over the next six months.
Baroness Noakes (Con)
My Lords, I welcome the tax reductions in the Stamp Duty Land Tax (Temporary Relief) Bill; they should help to get the property market moving again. Stamp duty may well be an efficient tax for collection, but it is a terrible drag on the property market. It particularly hits homes in the south-east, which account for more than two-thirds of the total yield. I hope the Government will not simply allow the system to return to its previous state when the temporary relief expires next year. They would do well to look again at the impact the tax has on the property market, in particular on the property-owning aspirations of younger people.
In previous years we have been assisted in debates on the Finance Bill by reports from the Finance Bill Sub-Committee of the Economic Affairs Committee of your Lordships’ House. Its excellent report on the off-payroll working element of the Bill is hard-hitting; the Government’s response is tone deaf. I understand that my noble friend Lord Forsyth will seek a separate debate on this report later this year, and I certainly look forward to that. As other noble Lords have said, IR35 is an area that has never really worked well. It has led to tax rules with more unfairness than fairness in them—never a good look for a tax system.
I wish the Treasury were more joined-up. On the one hand, the Chancellor has provided massive support to businesses to help them through the pandemic and to enable economic recovery, and this has been terrific; on the other, the Treasury is legislating to make business rescue and business lending much more difficult. As the noble Baroness, Lady Burt of Solihull, noted, this Finance Bill reinstates Crown preference in insolvency for tax debts. As she said, R3, the representative body for insolvency and turnaround professionals, has called it a potential £1 billion blow. That may well be an understatement. The Crown preference proposals were heavily criticised before the Covid-19 pandemic hit us, and in the current context Clause 98 could well prove disastrous if business rescues are hampered or indebted businesses cannot access further debt.
My final point is about finance Bills and our tax system in general. We have long passed the point of having the longest tax code in the world. This Finance Bill is not particularly long—a mere 207 pages—but bears the hallmark of our tax system: complexity. We have a complex web of taxes to start with. They are then complicated by reliefs and exemptions, which are in turn further complicated by anti-avoidance provisions. This does not help business. In April the economy shrank by 20%, and the bounce-back in May has so far been modest. If we are to get to where we were before the pandemic hit us, we need everything to run at top speed. Complicating the tax environment for wealth creators will not do that. A good start for the Government next year would be a finance Bill of no more than 10 pages.
Lord Holmes of Richmond (Non-Afl) [V]
My Lords, it is always a pleasure to follow my noble friend Lady Noakes, and I agree with all her comments. I also thank my noble friend the Minister for the clear way in which he introduced the Bills. I ask him to join me in paying tribute to all our front-line workers, many of them in the financial sector, who have done so much for so many over this crisis period. Does he agree with me that we owe them all an enduring debt of gratitude?
Basic economics will always remain the same: we can either increase income or take out costs. I believe we have some significant opportunities to do both these things without having economically illiterate taxation or cutting support to people who often need it the most. I agree with many of the comments of my noble friend Lord Blencathra, the noble Lord, Lord Empey, and particularly my noble friend Lord Lamont, who as an excellent Chancellor had his term cut well before it should have been.
I will ask my noble friend the Minister about three areas: payments, central bank digital currencies—CBDCs—and sovereign wealth funds. On payments, has he had a chance to look at the excellent paper from the Committee on Payments and Market Infrastructures on the need to transform cross-border payments? As in domestic settings, we pay too much and it takes too long. Does he agree that the Government, as one of the biggest payers, could save multiple billions if we had a true transformation of our payments infrastructure? For example, can he say how much the DWP pays in fees and to intermediaries in making the billions of payments it makes year on year?
Does my noble friend the Minister agree that the current consultation undertaken by the Bank of England in relation to CBDCs is an excellent piece of work and could have truly transformational benefits for the UK?
Similarly, will my noble friend comment on the work undertaken to look at the potential for a sovereign wealth fund in the UK? We have needed one for decades; I believe we need it now more than ever. Is he satisfied with the level of fintech involvement in all the current government programmes? Could the Government do more to introduce more small and medium-sized enterprises into assisting businesses and individuals who need it most? Does he agree that if we truly deploy all the elements of the fourth industrial revolution—robotics, AI, distributed ledger technology and quantum—we could truly transform the payments infrastructure, take cost out and get income in? That would benefit state and citizen alike.
Viscount Chandos (Lab) [V]
My Lords, never can economic conditions have changed so much in the time between the publication of a Finance Bill and its consideration by your Lordships’ House. As the Minister has outlined, the Chancellor has, quite rightly, announced a wide range of emergency measures in response to the Covid crisis—even if, in many cases, they fall short of what these Benches would wish to see.
In macroeconomic terms, it was indeed a Budget and hence a Finance Bill from a different era, as my noble friend Lord Livermore described it in his forensic remarks from the Front Bench. But the Chancellor, basking in the current personal popularity that must cause such anxiety to his neighbour—no wonder the Prime Minister’s senior adviser is an advocate of Andy Grove’s dictum “only the paranoid survive”—has shown himself reluctant to move on fully. Yesterday, the Institute for Fiscal Studies published an analysis of the Chancellor’s recent £30 billion package, suggesting that a third of this supposed new spending is actually recycled or reallocated spending already announced in the Budget or otherwise. This
“makes scrutiny of plans more difficult and is corrosive to trust”,
commented the IFS dryly. More importantly, it means that support for the economy and employment is falling even further short of what is needed.
“The Finance Bill is a series of tweaks and corrections”,—[Official Report, Commons, 2/7/20; col. 625.]
said my honourable friend the shadow Chief Financial Secretary in another place, rather than implementing the vision necessary to address this devastating economic shock. Even these “tweaks and corrections” are under- whelming. Although the proposed delay to IR35 reform is welcome, the powerful report by the Economic Affairs Finance Bill Sub-Committee highlights the extent to which the Government are as much at sea in micro as in macro waters.
The Office of Tax Simplification reported on inheritance tax in two stages, between November 2018 and July 2019, with 11 recommendations. Could the Minister say how many of these have been adopted in the Bill? The Chancellor has just announced a further inquiry by the OTS, into capital gains tax. This prompted speculation that CGT changes would be used to fund some of the necessary public spending measures, which the Treasury quickly denied. O that in fact they might be! The Chancellor
“must change a tax system that was designed before returns to capital (and especially property) greatly outstripped returns to labour”,
wrote not a Marxist economist but the FT columnist Janan Ganesh. Although he was writing in 2015 about George Osborne, of whom he was the biographer, his analysis is even more valid today than it was then.
Lord Cormack (Con) [V]
My Lords, faced with the greatest depression since the reign of Queen Anne, the Chancellor has displayed imagination and ingenuity. But his task will not be made easier when we come to 31 December and his Government’s insistence on the transition period being over by then, whatever happens. I worry about many aspects of the present situation, as do many colleagues. What will happen as furlough comes to an end? I welcome some of the measures announced last week—those on VAT in particular—but will the £1,000 bonus really help? Is the half-price meal voucher not a bit of a gimmick? We should be concentrating money on the self-employed, who include so many of the most talented and innovative people in our country.
My noble friend Lord Lamont, in a splendid speech, talked about the welcome package for arts and heritage, in which I take a particular interest. But there is a danger that it will be mothballed, in his words. We need some specific things to be done in that field. I warmly commend to the Chancellor a zero rating on all restoration and repair work on historic buildings. New build is zero-rated, and it would be a tremendous boost for craftsmanship. We will lose many of our craftsman in the next couple of years—and some much sooner than that—if we do not take a bold step here. I urge this on the Chancellor. I hope the Minister will refer to this in his wind-up and that tell the Chancellor himself that this would give an enormous boost to the heritage sector.
I completely agree with my noble friend Lord Blencathra in what he said about digital services. He juxtaposed Amazon and the high street, and made some telling points. I also agree noble Lords who said it was a pity that we were having to debate this subject in this manner. Parliament must lead by example. I was in the Chamber last week and, God willing, will be there next week, but I hope all noble Lords will be back in the autumn, because it is essential that the Government are held properly to account. This one-dimensional Parliament, with no opportunity for intervening or spontaneity, is not the sort of Parliament the country needs in the greatest crisis we have faced for three centuries.
Lord Shipley (LD) [V]
My Lords, I will speak about stamp duty and the temporary change in policy being introduced. It is estimated that there could be 100,000 extra house sales in the next nine months. I accept the importance of that in reviving the housing market. When people move homes, they generate sales of fittings and materials for those new homes, which is an additional benefit. But I hope the scheme will not be extended in its current form after 31 March next year and that the opportunity is taken to learn from the experience of the next few months. There are two reasons for saying this.
First, it will not solve the housing crisis, which is primarily about a lack of supply, particularly of low-cost housing for those on lower incomes. There is a real risk that this change will just lead to more competitive bidding and sale prices higher than they would have been. I ask the Minister specifically why the Government have included second homes in this policy change. It seems a very strange subsidy, albeit a temporary one, even though the 3% additional homes levy still applies. Why have the Government included second homes, when buying a second home reduces opportunities for local first-time buyers?
This new policy will not help those who cannot afford to buy a house in the first place, nor will it help many first-time buyers get a mortgage, since banks and building societies want a 15% deposit. There is an additional danger that buy-to-let landlords will outbid first-time buyers and push up prices. There are 9 million people on furlough, who could find it hard to move anyway. What assessment have the Government made of the fact that many households will not be able to take advantage of the reduction in stamp duty anyway? The supply of low-cost homes for sale and rent to low-income earners really matters, and I see nothing in this proposal that will address that.
Might the Government look again at two related issues? The first is the question of who benefits from increasing land values, which can result from planning permission, and how that financial gain could be used differently for the support of more low-cost housing. Secondly, will they look again at why 70% of new housing supply lies with 10 developers, and what might be done to broaden the number of builders and thereby increase supply?
Baroness Watkins of Tavistock (CB)
My Lords, I draw attention to my interests as outlined in the register. I support the contents of the stamp duty land tax Bill that are designed to enable people to feel confident to buy, sell, move and improve housing stock. The changes should assist not only first-time buyers but older people who may choose to move and release equity in their homes.
The Finance Bill is designed to protect jobs, yet no mention is made of people’s need to maintain the right to stay in the homes they currently live in. Many people expect to lose their jobs in the next few months, the prospect of which will create fear and anxiety—doubly so if they also lose their homes. We are seeing the toll coronavirus has put on the nation’s mental health. Many people have benefited from mortgage holidays and the temporary cessation of evictions. As these constructive government interventions come to an end, what is to happen to people heavily in rent arrears and mortgage debt ? What of private renters whose landlords decide to sell their housing stock quickly because of the stamp duty holiday? Are they to be evicted?
The Government are committed to protecting children’s rights and acknowledge that these need to be at the centre of any coronavirus recovery plan. The Chancellor has said that we need
“a patience to live with the uncertainty of the moment”.—[Official Report, Commons, 8/7/20; col. 978.]
I agree, but families should not have to fear eviction and either become homeless or be placed in bed and breakfast if they currently live in suitable housing. The Ride Out Recession Alliance, which is being put together by, among others, my noble friend Lord Bird, who knows a thing or two about homelessness, is calling for there to be no evictions for up to two years, to be achieved by paying or guaranteeing people’s rent or mortgages. It is argued that this will be cost effective on society in the long term.
The Affordable Housing Commission, chaired by the noble Lord, Lord Best, has called for social landlords to be supported to buy homes from “overstretched landlords”. I go further and suggest that this could include peoples own homes and repurchasing elements of shared ownership homes where arrears may otherwise lead to repossession and associated homelessness. People could then remain in their current homes, paying a fair rent.
As well as good and secure work, people need good and secure homes. The Government’s intervention to find accommodation for homeless people at the start of lockdown was truly fantastic. Can the Minister confirm that Her Majesty’s Government will give serious consideration to intervening in a similarly swift and humanistic manner to enable most families to stay in their current homes and to prevent an increase in homelessness and associated poor mental health, particularly for children, as a result of coronavirus? We need a comprehensive financial plan for homes to follow the excellent plan for the protection and future of jobs, particularly Kickstart.
Lord McCrea of Magherafelt and Cookstown (DUP) [V]
My Lords, I thank the Minister for his presentation of the Finance Bill. There is no doubt that this year will be remembered as one that fundamentally challenged our economic prosperity. Indeed, Covid-19 has challenged every system of government across the world and threatened not only people’s lives but their livelihoods. Extraordinary measures had to be taken and much of the political dogma and individual party manifesto commitments have been set aside to meet the challenges presented by this crisis.
The Chancellor has made some swift and imaginative decisions that have provided businesses with immediate help to protect their long-term viability. I believe that, from the beginning, our banks could have been more proactive, sympathetic and co-operative with small and medium-sized businesses. An inquiry should be held into how quickly loans were approved and funds reached businesses in the light of the Government providing security for the loans. Sadly, for some, approval was too late.
We all acknowledge that taxes are necessary to support our public services, but we must ensure that they are fair and that those who are able to work are encouraged to do so by making work really pay. I am sure the Minister will agree that huge numbers of businesses are struggling. As we seek to emerge from these past months of lockdown, we must do everything to protect jobs while encouraging wealth creators. It is true that there are no easy answers, because we are in uncharted waters and face still unseen possibilities and probabilities. However, with fortitude, we can steer a pathway through.
In so doing, we must have an aggressive policy to deal with tax avoidance and evasion. The new 2% tax on the revenues of search engines, social media platforms and online marketplaces that derive value from UK users is to be welcomed. It is unfair that huge multinational online firms pay less in tax than small high street businesses. Like many other regions of the United Kingdom, our high streets in Northern Ireland have witnessed countless shop closures because of the burden of various taxes. We must re-energise the spirit of local enterprise and bring life back into our towns and villages. However, I also recognise that digital-based businesses will play an even greater part in our economy. Therefore, we must work with our international partners to agree an appropriate taxation system for the future.
In accepting the reality that the United Kingdom has left the European Union, I ask the Minister to ensure, in future trade negotiations, that the Government will protect Northern Ireland businesses from being disadvantaged in any manner and that our industries will not be burdened with additional bureaucracy not experienced by other regions of the United Kingdom.
I ask the Minister to consider the survival of the aviation sector. Does he not think that the time has come for the Government to look again at air passenger duty and remove this impediment, bearing in mind the unfair advantage it gives to airports in the Irish Republic, our competitors?
While I recognise the uncertainty over job retention, I trust that the Government will take measures to ensure that our young people will be able to get a mortgage and get on the property ladder. We need to get our country back to work and resurrect our manufacturing industry.
Lord Hunt of Wirral (Con)
My Lords, I draw attention to my entry in the register. The Budget on 11 March, first conceived in a time of peace, was delivered under heavy bombardment. The Bill was published on 17 March—the day on which theatres closed and the grim truth sank in that full lockdown was imminent. Since then, as a nation and as families, friends and neighbours, we have endured a period when fear ran rife and hope seemed forlorn. Many of the Bill’s provisions are, of course, technical, conceived in what now feels like a different, far-off world. While we discuss the principles of this Bill, far greater principles must be in all our minds.
The coronavirus hits indiscriminately, yet it also affects different individuals and different groups in very different ways. The furlough scheme—more properly the Coronavirus Job Retention Scheme—has sustained millions of employees in this time of crisis. The brutal reality is, however, that as the furlough scheme tapers away, many jobs will disappear for good and many sectors may never recover fully. Hospitality and the performing arts are the most obvious but not the only ones. We may hope for the best, but we must also prepare for the worst. As my noble friend Lord Lamont of Lerwick put it at the start of the debate, the difficult part is yet to come.
As several noble Lords have referred to, the Prime Minister has alluded to Roosevelt’s New Deal—a highly effective response to mass unemployment in the 1930s when the free market failed. The nation needs not only tax reforms and short-term palliatives but a comprehensive response to a crisis that is obliterating the education, exams and employment of young people and leaving older people isolated and fearful. I strongly agree with my noble friend Lady Noakes that we need to see the Government being more joined up and working at top speed. We need a response that unites the nation as one nation—a response that is practical but securely founded in a shared sense of social justice. The Bill may be only one step on that urgent journey, but we will need to take many more steps before this year is out.
Lord Rooker (Lab) [V]
Before I was elected to the Commons in 1974, I spent my working life in the manufacturing industry, producing products from machine tools to motor cars, weighing machines and loudspeakers. Only one of the factories I worked in still exists. In the 1970s, manufacturing was around one-third of the economy; today it is 10%. While we remain in the top 10 countries in the world by manufacturing output, our unbalanced economy has created regional disparities. This is due to substantial deindustrialisation—greater than most, if not all, advanced economies.
It is not surprising that a key finding of the annual manufacturing report for 2019 was that two-thirds of the British people do not understand the importance of manufacturing to the economy. The brilliant House of Commons briefing paper on manufacturing, published in January, made it clear that manufacturing productivity has grown better than the whole economy.
These aspects of our debt-ridden economy, which is heading for stagnation, are neatly brought together by John Mills in part three of his Civitas Covid-19 review, The Road to Recovery: Reviving Manufacturing after Coronavirus. I cannot even begin to set out the case in three minutes, but with an overreliance on services, low growth, a high exchange rate and banks reluctant to lend to the manufacturing sector, we need a plan for turning things around and getting manufacturing up to 15% of GDP. We must not prop up only the existing companies but encourage manufacturing across the board; get the exchange rate to support manufacturing at the expense of services; and aim for 2% extra growth up to 3.5% and create the conditions for this.
We also need to rebalance society. Improving productivity is easier in manufacturing than in services. I strongly encourage a serious read of The Road to Recovery. I was told by the Minister yesterday at Oral Questions, in response to a question about PPE, that there are not thousands of UK domestic producers capable of producing the PPE that we need. That says it all. The choice is between export and investment-led growth, or imports and debt-led stagnation. We need a better policy.
Lord Young of Cookham (Con)
My Lords, I applaud my noble friend the Minister’s opening remarks, and the comments of my noble friend Lord Hunt.
I will make three points: one minute each. First, as it addresses the challenges that noble Lords have been talking about, the Government should make it clear that they are not bound by their manifesto commitments. One was:
“We will not borrow to fund day-to-day spending,”
which is already out of the window. Another was that the national debt would be
“lower at the end of the Parliament”.
It would be insanity to pursue that. On 16 June, when I asked whether the Government would review these manifesto commitments, my noble friend Lord True replied that
“this Government are still fully committed to meeting all commitments made in the 2019 manifesto.”—[Official Report, 16/6/20; col. 2046.]
The opportunity should be taken at the end of this debate for my noble friend to clarify that remark and make it clear that the Government will not have their hands tied by those commitments.
My second, related point, is that at some point—not now—taxes will have to be raised, the difficult part referred to by my noble friend the Minister and others. I will ask your Lordships a pub quiz question: who made this statement?
“In principle, there is little economic difference between income and capital gains, and many people effectively have the option of choosing to a significant extent which to receive. And in so far as there is a difference, it is by no means clear why one should be taxed more heavily than the other. Taxing them at different rates distorts investment decisions and inevitably creates a major tax avoidance industry.”
It was my noble friend Lord Lawson, in his March 1988 Budget Statement; my noble friend Lord Lamont may have been Financial Secretary at that time. He went on to say:
“In other words, I propose in future to apply the same rate of tax to income and capital gains alike.”—[Official Report, Commons, 15/3/88; col. 1005.]
That policy was subsequently watered down. If reintroduced, the IPPR estimates that it would raise £90 billion. It is worth another look.
Finally, along with other noble Lords, I spent 90 minutes on Zoom last week with Stephanie Kelton, author of The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy. To those of us who learned economics in the 1960s, modern monetary theory is John Maynard Keynes on steroids. It asserts that there is no budgetary constraint on government spending, that we should not be fixated on debt and deficit, that the only constraints on government spending are the limits of real resources and the threat of inflation, and that we should aim at full employment. The new director of the OBR is moving in this direction with his work for the Resolution Foundation, asserting that we should stop worrying about national debt and instead focus on increasing net worth, looking at both sides of the balance sheet.
Although I have two economics degrees, I venture no comment on either of those theories, but will make this point. In the 1920s, we clung to an outdated economic theory. We stayed on the gold standard and did enormous harm to the country. A century later, we should avoid the same mistake. We should be open to fresh thinking that may help us navigate our way out of this crisis.
Lord Greaves (LD)
What a lot of good sense, my Lords.
The noble Baroness, Lady Verma, is in Leicester, which is having difficulties, and asked if there is any money left in the local authority coffers. I rise to tell her that there is not, and to talk about local government. I declare my interests, having been a local councillor in the Pendle area for most of the last half-century. Pendle is now working hard to avoid imposing a Leicester-type lockdown.
The Local Government Association estimates that the cost to local government of coronavirus will be about £7 billion. That is the shortfall after all the grants so far announced by the Government. One of the real problems is that the Government are not fully funding lost income. For the council in Pendle, of which I am a member, the overall cost for that small district is about £3 million, of which the Government have so far provided about £1 million, leaving a shortfall of £2 million. That may not sound a lot, but that is on this year’s budget of about £13.5 million, and so is a very substantial amount on top of all the cuts made in the last few years, which have cut council finances to the bone.
There are two specific grouses as far as we are concerned. The test and trace funding is going only to upper-tier local authorities in a shire county such as ours, whereas a lot of the hard work has to be done by the people on the ground: the district council environmental health officers and the public health staff, with the expertise and the local knowledge. In Lancashire, the money for the hubs which were set up to help people who could not afford food and other essentials during the worst of the lockdown goes to the county but is being spent by the district.
Finally, the cost to parish and town councils, particularly the big ones that provide leisure services and so on, has been very substantial. They are being left out altogether. Local government needs the shortfall of £7 billion to be addressed. The Government promised that they would provide whatever was needed. We are still waiting.
The Deputy Speaker (Lord Duncan of Springbank) (Con)
I am sure the House will join me in wishing a very happy birthday to the next speaker, the noble Baroness, Lady Gardner of Parkes.
Baroness Gardner of Parkes (Con) [V]
My Lords, I feel privileged to speak in this debate today, particularly as my niece telephoned me this morning from Victoria, Australia, because of my birthday, for which I thank noble Lords for their good wishes. It was interesting to hear how Victoria, which is in its second lockdown, is suffering the same difficulties as Leicester. However, other states are doing more business than they did last year, so clearly the impact of coronavirus is a big problem.
It is important for us to feel that this is a matter of health. The National Health Service needs to be well supported, as do people’s social lives. People need to have contact with other human beings. The restrictions have been quite irksome, even for people such as me, who are under lockdown where we are living.
My niece told me that there is a different feeling between the economic and the social side, and it is the same here. People who would like to go back to work are finding that their premises are not necessarily available for them, which is extremely hard. The Government are aiming to change that. We do not want to face a terrible depression, which would do such tremendous damage. The spirit in this country has always been to survive; that is what we should be aiming at, and I believe that the Bill is doing that. The health issue is under control but will not be resolved until the day that an effective solution is found to deal with this particular virus.
I have always been involved in social and affordable housing and I really feel that it is the number one essential at the moment. Getting that going again will give employment and provide homes, which should be offered to people on favourable terms. Above all, people need somewhere they belong and that they feel is home. I support the Bill.
Lord Snape (Lab) [V]
My Lords, two matters and one glaring omission arise from the Spring Statement on which I wish to comment. A few hours ago, the noble Lord, Lord Young of Cookham, said that taxes must rise and of course he is right. All of us in the Chamber and outside would agree that that is the case. One obvious case for a tax rise is the fuel duty escalator, which is not going to rise. Again, it seems a matter of pride on the part of the present Government that they are not prepared to look at the fuel tax escalator. I remind noble Lords that this tax has been frozen since 2011. The freeze will cost the nation about £520 million in the present financial year and I would like to know from the Minister how much the freeze has cost since 2011.
I remind noble Lords that the escalator was introduced by a Conservative Government in 1993 to stem the increase in pollution and cut the need for new road building. That was in 1993. Since then, the number of vehicles on our roads has risen from around 22 million to approaching 40 million, so it has not been very successful in reducing pollution and, according to the Spring Statement, we are to spend £27 billion on new road building. Although my party, the Labour Party, is often accused of declaring war on motorists, Ken Clarke was Chancellor when the fuel tax escalator was introduced. I do not know whether he is still a Conservative—the turnover in the Conservative Party is pretty enormous these days—but he was certainly a Conservative when the escalator was introduced.
The second point from the spring Budget has been dealt with fairly thoroughly in the debate, which is the digital sales tax. Rarely have I heard such unanimity. The Cross-Bencher, the noble Lord, Lord MacPherson, my noble friend Lord Haskel from the Labour Benches and, in a fairly coruscating speech, the noble Lord, Lord Blencathra, from the Conservative Benches demanded that Government proceed with the digital sales tax. Will the Minister tell us how the special relationship is looking so far as the threats about its introduction from the United States are concerned?
The omission concerns our manufacturing sector. Like my noble friend Lord Rooker, who spoke earlier, I represented a constituency in the other place where manufacturing was the main employer, but not any more, I am afraid, because across the West Midlands nearly 300,000 people in manufacturing, construction and the automotive trade are furloughed. Other noble Lords mentioned the need for proper training. Again, I am afraid that that is also a job for the Government. It is missing from the Budget and, unless it is addressed, the decline in the manufacturing industry will continue.
Baroness Bennett of Manor Castle (GP) [V]
My Lords, many noble Lords have expressed concerns about the impact of the stamp duty holiday. I believe that I have correspondence from the same private renter as the noble Baroness, Lady Andrews—a man about to be turfed out of his home because the landlord wants to cash in. Why are the Government encouraging instability when, as the noble Baroness, Lady Watkins of Tavistock, said, what people need now is stability, security and certainty?
As the noble Lord, Lord Wood of Anfield, said, it is a huge bonus for London and the south-east—the last region in need of subsidy. As the noble Baroness, Lady Wheatcroft, said, it is slightly weird that second-home buyers will benefit. I would put it more strongly than that: it is a disgrace when we know that there is rising inequality. The young and the lower paid have suffered most in the lockdown. They are not thinking about buying second homes because they are struggling to pay the rent.
Behind this is the long-term dependence of the UK economy on house prices and treating houses as primarily a financial asset rather than a secure, genuinely affordable place for people to live. Money from bank loans has gone into pumping up property prices rather than into productive investments in making goods and providing services. Trying to kick-start the economy by more of the same is not building back better.
Many noble Lords who might be said to come from the right of the House have called on the Government to drop essential anti-Covid health measures, to pack the trains and fill the city centres again. But they are ignoring the fact that this is not within the Government’s control. People will leave home, travel on public transport and travel internationally only when they feel safe, so many measures outside the realm of finance are crucial. Also, many people have come to recognise that it is perfect possible to do their work from home. It means a chance to eat dinner with their children, read them a bedtime story or take an evening stroll around their neighbourhoods. Companies can see the huge savings in rent, gains in productivity and improvements in the health and well-being of their workers. We shall not go back to the world of December 2019.
There are many good things about that. We have, on average, twice the commuting time of the rest of Europe, the second-longest working hours and, relatedly, the highest rates of family breakdown and epidemic levels of mental ill-health. The ideal is a 15-minute community—everything you need for daily life within a 15-minute walk of your home. The just re-elected Mayor of Paris set out that vision and it is something we need to adopt in the UK, as my colleague Caroline Russell has been saying on the London Assembly. That is how the world is going: we should not be left behind. When the Government talk about levelling up, strong local economies, where money circulates in a rich ecosystem of small independent businesses, are a great way to ensure prosperity for every community in the land.
But as the noble Lord, Lord Cormack, said, we face the greatest crisis for three centuries. More than that, we have a climate emergency. Behind Covid comes the climate emergency. My noble friend Lady Jones of Moulsecoomb set out what we should be doing for that. Why are we still supporting things such as road building, HS2 and airport expansion, which are taking us in entirely the wrong direction?
Baroness McIntosh of Pickering (Con) [V]
My Lords, I join the Deputy Speaker in congratulating my noble friend Lady Gardner of Parkes on her birthday. I am delighted to follow the noble Baroness, Lady Bennett. I will focus my remarks primarily on how the Budget will impact rural communities and, in particular, make a plea to the Minister for rural communities to benefit from the shared prosperity fund.
I am involved in a number of charities in rural North Yorkshire and I declare my interests as in the register. Primarily, I am honorary president of the North Yorkshire Moors Railway and a member of the Yorkshire Agricultural Society. I also work closely with the charities FCN and RABI that do outstanding work with the farming community. These organisations have obviously had their fundraising activities slashed and I hope that as small charities they will benefit from the Government’s proposals for charitable organisations set out in the Budget. The impact on volunteers has been great. Many in rural areas fall into the category of self-isolation and it will be extremely difficult to re-engage with them in the future. But without them, the charities heavily rely on the staff, many of whom have been furloughed. The full impact will really be felt only when the furlough scheme ends in October. Do my noble friend and the Government recognise that the tourist season in rural areas of North Yorkshire and across the north of England and other parts of the UK is, by necessity, very short and those areas need to be treated as a special case in this regard?
The Government have set out a big homebuilding programme. On support for alternative home heating systems, I hope my noble friend will ensure that every new home has a boiler that is fit for purpose for the 21st century and that will not need to be replaced in the next five or 10 years. Will my noble friend also ensure the provision of funds to improve 4G mobile phone coverage, and that broadband will be rolled out to the hardest-to-reach areas, which currently have poor mobile signals and broadband connectivity?
I shall end with the two sectors, aviation and automotive, which have been hardest hit. The aviation industry simply asks that its furlough scheme be extended, and for a very modest 12-month air passenger duty wavier. The automotive industry is the only industry across the five EU markets in this category that does not have a scheme in place, and I hope my noble friend will set one up in the near future.
Lord McConnell of Glenscorrodale (Lab) [V]
I draw attention to my interests as declared in the register. I agree with my noble friend Lord Rooker on manufacturing—he made a persuasive and positive case for a change of policy. A number of noble Lords have commented on the Government’s package of support for the arts and culture, but can the Minister say at the end of the debate when the Government will make a similar announcement in relation to sport and physical recreation, which have been damaged across the country at voluntary, local and professional elite level?
I want to focus the rest of my remarks on the strategy moving forward. As a number of noble Lords have said, we need to build back better. There are two issues in particular to which the Government should give a lot of thought over the coming weeks as they prepare the comprehensive spending review that will follow this Finance Bill and Budget. The first is the future prospects of young people in our country. In the 1980s, a generation was left aside as mass unemployment wreaked havoc in communities. It will be vital to build on the initiatives already announced by the Government to ensure that education and job creation in the private sector provide real opportunities for our young people over the coming years, and that those opportunities are not limited by the economic disaster of the past few months.
Secondly, I had a fascinating meeting yesterday with a couple of dozen of the UK’s top companies, all of which not only endorsed the sustainable development goals but are building them into their forward planning as they prepare to build back better. The Government are way behind the private sector in this area, despite signing up to the goals in 2015. Each Budget and comprehensive spending review since then has made no reference to those cross-government departmental goals. It is time to change that. Given our departure from the European Union and the recession that might follow this pandemic, an opportunity now exists to ensure that the Government’s policies align with those goals, and that we truly build back better both at home and abroad.
The Deputy Speaker
My Lords, before I call the next speaker, I must announce that we will take a short adjournment after the contribution of the noble Baroness, Lady Bull. I call the noble Baroness, Lady Bakewell of Hardington Mandeville.
Baroness Bakewell of Hardington Mandeville (LD) [V]
My Lords, it is a pleasure to follow the noble Lord, Lord McConnell of Glenscorrodale. I am grateful to the Minister for introducing this debate. I shall speak on the temporary reduction in stamp duty as part of the Government’s plan to get the economy moving again. People moving home for a variety of reasons, including downsizing or upsizing, may have a small effect in stimulating the economy, but the building of desperately needed new homes could have a definite positive effect. The timeframe is exceedingly short in terms of stimulating housebuilding. Planning permission has been given for more than 1 million homes in the past 10 years, as my noble friend Lord Shipley said. Seventy per cent of the planning permissions are held by 10 developers and work on the houses has not yet started. It could be started this weekend. What measures are the Government putting in place to ensure that those developers start and finish the sites as a matter of priority? People need decent homes and they need them now. The stamp duty holiday is a bonus, but unless the housebuilding industry gets a move on, many potential purchasers will lose out.
The stamp duty measure should be a boost to first-time buyers, but it is unlikely to be so. It is more likely that those with spare capital looking for holiday homes will snap up homes from under the noses of those trying to get on the housing ladder. Fishing villages in Cornwall and cottages in our national parks in Cumbria or the Peak District are very attractive to those escaping the towns and cities. This measure does nothing for those living and working in rural and coastal areas who are able to afford only properties in the shrinking rental market. The stamp duty holiday is a golden opportunity for potential second home owners.
There is of course the issue of geography. The Resolution Foundation has said that a non-first-time purchaser looking for a home at the average English house price will save £2,500 as a result of the stamp duty holiday, but the average buyer in the north-east will see no gain, while those in London will be more than £14,000 better off.
I would have liked to welcome this measure in the hope that it will assist families with young children and newly-weds to live in rural areas of their choice, rather than being forced into the towns, but I doubt that will happen. The cost of this measure is £3.8 billion —money that could have been targeted at improving the supply of low-cost housing for those on lower incomes. This is a wasted opportunity.
Baroness Altmann (Con) [V]
My Lords, we are here to debate the Finance Bill, which is about fiscal policy. However, I would like to focus on the off-radar branch of fiscal policy that is not openly conducted by the Treasury, by which I mean monetary measures, supposedly operated independently by central banks.
So-called quantitative easing has had impacts that mimic tax changes but with rather perverse distributional and social side-effects. It has acted like a major tax cut for financial market operators, home owners and the wealthiest asset owners, while feeling like a tax increase that has reduced the disposable income of savers, first-time buyers and the young. It has also been an effective tax increase on pensions for companies sponsoring a defined benefit scheme and those trying to buy annuities.
Central banks around the globe have continued the massive monetary policy experiment that began after the 2008 financial debt crisis. It was meant to be an emergency measure to boost growth and stave off economic collapse. Economists insisted that this was not just money-printing with a fancy name, because it would be unwound as the stimulus imparted by forcing long rates lower stabilised economies and markets. However, despite growth, rising employment and record high stock and bond prices, quantitative easing has remained in place since 2009 and has entered a further round during the current crisis.
Monetary policy has now been used to fund helicopter money, which is effectively what the furlough scheme, restaurant vouchers and other government emergency measures are. However, the side-effects of this policy are that the wealthiest asset owners and financial institutions have done very well but the rest of the economy has not necessarily benefited, as much of the new money has leaked away. Therefore, I hope that my noble friend will consider taking seriously the need to boost growth more directly than through the use of QE, which is a very indirect route.
I support the establishment of the sovereign wealth fund, and perhaps would also welcome the establishment of an organisation such as the KfW, which was so effective in rebuilding Germany. There is a potential domestic source of funding for this without creating new money. Long-term assets to be used for infrastructure, social housing and other revenue-generating investments that can deliver much better returns than gilts could be used by pension funds to help repair deficits and reduce the ongoing cost of funding in the long run. I hope that my noble friend and his department will take seriously the potential of using our long-term pension assets to boost growth directly.
Baroness Bull (CB)
My Lords, recognising the vastly changed landscape in which we discuss this Bill, I want to focus on the measures related to research and development and their potential to support the UK’s economic recovery. The extra tax relief is welcome, as is the annual increase in government spend on R&D to £22 billion by 2024—an additional £1.5 billion per year. It is not yet clear whether this will be distributed through existing or new structures, and perhaps the Minister can shed some light on that, but it is a strong acknowledgment of R&D’s importance to the economy and to post-Covid recovery.
The £22 billion is part of a broader commitment to raise UK investment in R&D to 2.4% of GDP by 2027. Most R&D comes from the private sector in roughly a 2:1 ratio, but we know that
“British business invests less in R&D compared to similar nations, and this investment is concentrated in major players in just a few sectors.”
Therefore, can the Minister say what the Government will do to persuade businesses, both UK and overseas-owned, to spend the extra £18 billion a year on R&D in the UK that would be required to meet their target?
One area in which the Government might consider measures to increase R&D is in the creative industries. Creative businesses undertake almost as much R&D as manufacturing but, as much of it relies on arts, humanities and social sciences research, it is explicitly excluded from HMRC definitions and therefore from R&D tax relief. This rules out legitimate innovation in what has for some time been one of the fastest-growing parts of the UK economy, but it misses the opportunity to build behavioural insights into technological innovations, which would increase the likelihood of wider adoption.
Thus far the UK has been
“bound by the Frascati convention of the OECD definition”
of R&D,
“which is tilted primarily towards technology and science”.—[Official Report, 8/1/20; col. 181.]
The noble Lord, Lord Duncan of Springbank, who is now on the Woolsack, might recognise his own words there from the Dispatch Box on 8 January, in what feels like a very different lifetime. However, as we are leaving the EU, might the Minister press the Government to consider the possibility of the UK adopting its own, wider definition of R&D? This would help in moving towards the Government’s targets and, at the same time, support the post-Covid recovery of a sector that, over recent years, has contributed almost £102 billion annually in GVA.
I want to make one brief additional point as a supporter of the Government’s commitment to levelling up. Clearly, there is a pressing need to invest in areas left behind as our industrial landscape changes, but there are deep inequalities within our cities too—inequalities starkly exposed by this pandemic. Levelling up cannot just mean equalising between north and south; it must also address inequalities within cities, including those seen as affluent, such as London, where poverty rates in some inner-city boroughs are 10 percentage points higher than in many parts of the UK. If we do not tackle the inequalities within our cities at the same time as tackling the inequalities between the regions of the UK, unleashing the nation’s potential will never be anything more than a campaign slogan.
Lord Balfe (Con) [V]
We are meeting, as has been said, in very different circumstances from when the Budget was delivered, but I would say that we are meeting against a background of obedience, fatigue and confusion. People are getting mixed messages: our buses are going around with seats roped off, our stations tell us not to travel, but our Prime Minister tells us to go back to work. We have message confusion and numbers confusion. Most people do not have the faintest idea what £1 billion is—or a billion of anything else—but the Government keep on saying, “A billion here and a billion there”. The image created is that there is an unlimited amount of money, and I do not think that that is a good start.
There has recently been a report about 120,000 new deaths. If that figure is to be taken seriously, do we expect people to go back to work or to restaurants, et cetera? No, it is actually encouraging people to do the exact opposite. Do the Government have a financial strategy for another spike? They need a strategy.
I turn to taxes. The noble Baroness, Lady Falkner, who like me is from the LSE but is more distinguished, mentioned the need for a crisis levy. This is probably the only practical tax solution that we can come forward with. There has to be a levy that affects everybody, with everybody contributing according to their ability, but one that is severely time-limited. We all remember the temporary nature of income tax, so any levy needs to be time-limited. I also endorse the idea of a delivery charge for online orders. This could get around some of the problems of a tax. A delivery charge on online orders would be environmentally sensible; it would also even up, to an extent, the fact that out-of-town shopping opportunities such as Amazon pay virtually nothing for their premises. This would put some more tax revenue into the Exchequer.
The third thing I suggest is that we even up the tax between unearned income and PAYE income. It is ridiculous that, at the moment, you can have unearned income taxed more lightly than your earned income. I hope that the Government will look at ways in which they can raise taxes—fairly—and also have something in reserve in case there is another spike.
Lord Blunkett (Lab) [V]
My Lords, I draw attention to my declaration of interests. I endorse entirely the opening remarks made by my noble friend at the very beginning of this debate on the macro position. I draw attention to the fact that, while we are debating this, our withdrawal from the world’s third-largest trading and economic bloc, the emerging conflict with China and the prospects in relation to the presidential election in November in the United States pale much of what we are debating into insignificance.
Nevertheless, I would like to endorse many of the remarks made about the digital services tax and draw attention to the current anomaly in business rates, which the noble Lord, Lord Balfe, has just referred to. Let us take the largest business rate payer in the country, Heathrow. Airlines and airports are not flavour of the month at the moment, but tens of thousands of jobs are at stake, not just in the business itself but in all the businesses that are absolutely dependent on it. It is necessary for the Government to be prepared at least to defer the national business rate for major enterprises such as Heathrow and other airports, while continuing to allow relief for retailers who have benefited from that.
Much has been said already about education and training. The £1.5 billion over five years for infrastructure for further education is welcome, but we need a massive injection of revenue so that the young people who are currently in further education can continue and those who are displaced by the terrible unemployment that faces young people have the opportunity of education and training—including apprentices who are receiving training, both on and off site, who are likely to lose their job and, with it, their training. Flexibility and responsiveness in making this possible are crucial.
We should also stop the attack on higher education. We can be in favour of further education without denigrating one of our greatest international earners and something that we should be proud of. Mention has already been made of research, not least by the noble Baroness, Lady Bull. Some of our substantial research funding comes not from government or the private sector but from the transfer from overseas students so that the cross-funding and cross-subsidisation of research can continue. Government really must recognise this.
Finally, on decentralisation, it is crucial that we put resources into local government and ensure that it can play a pivotal part in co-ordinating the future recovery of our economy
Lord German (LD) [V]
My Lords, I will make two points about measures in the Finance Bill. These are extraordinary times, and the only certainty is uncertainty—and, unfortunately, greater unemployment. As other noble Lords have said, local firms and UK chains have faced a real battle competing with online companies based overseas which do not have the same overheads as physical shops and services.
The Government’s digital services tax plan in this Bill is a mouse of a measure compared with the huge profits made by American big tech companies. The Government need to co-operate closely with the European Union, which is devising an international tax with much greater teeth so that these big tech companies will pay their fair share of tax. We need a much more sustainable, long-term solution, with a broader international base.
What impact is the demand for trade deals having on this measure? British bookstores and other businesses should not face a higher tax rate than Amazon. The Chartered Institute of Taxation points out that this part of the Finance Bill is not aimed at stopping profits arising in the UK being shifted by multinationals out of the UK to tax havens. These disrupter companies play an essential role in our economy, but they use complex ways of moving and hiding the money that we pay them. They have thrived during the pandemic as our high streets have suffered. Their business has grown as demand has shifted online. Surely their tax bills should be at least comparable with those of other retailers—it is a very uneven playing field, and the limited measure in this Bill will do little to rebalance the tax paid. The jobs in this sector are the most fragile. Those who can work at home are higher paid, and it is the lower-paid, face-to-face jobs that are being most challenged.
My second point concerns small and medium-sized enterprises in the manufacturing sector. The Government’s infrastructure announcements are welcome, but the Chancellor has performed an Aladdin sleight of hand—not “old lamps for new” but “old money for new”. The IFS has crunched the numbers and the £5.5 billion announced for transport and infrastructure is old money repurposed. My point is that this money would have been circulating in the economy anyway and does not represent a real boost to companies seeking to rebuild their order books. With half of UK manufacturing companies seeking to make redundancies in the next six months, we have to make sure that there are skilled jobs left, because they are going to be lost right across the country and all sectors of manufacturing.
Lord Bourne of Aberystwyth (Con) [V]
My Lords, it is a great pleasure to follow my good friend the noble Lord, Lord German. I thank my noble friend the Minister for setting out the scenario at the start of this debate. As others have done, I commend my right honourable friend the Chancellor, Rishi Sunak. He has shown great ingenuity and nimbleness. I urge him to continue to demonstrate the remarkable and appropriate lack of dogma. These are extraordinary times and they demand extraordinary solutions. I also urge my right honourable friend to consider the needs of the young, particularly those who will have lost out on crucial education and apprentices whose jobs may well have been prejudiced, and I urge him to look at job creation and job retention schemes to help these people.
I turn to some of the technical aspects of the Bill which have an impact on the current scenario. As others including the noble Baroness, Lady Burt, and my noble friend Lady Noakes have urged, the return of Crown preference, even in a diluted form, is unwelcome, particularly in the present scenario. It will have the effect of prejudicing businesses as creditors at a very difficult time, effectively enabling those businesses to be queue-jumped, as it were, by the Crown. This is not appropriate.
I welcome other aspects of the Bill, as others have, such as the digital services tax, long-heralded and now being delivered from April 2020. This is the right move. Can my noble friend outline what progress we have had internationally, as I know that the success of this measure depends on international action? I also welcome the plastic packaging tax due to be introduced in April 2022, after consultation on some more detailed aspects on plastic of which less than 30% is recycled. I think that is appropriate; it helps us, it helps our position as a leader in this field and it helps in the climate change scenario.
I also welcome what the Bill does in relation to Windrush compensation payments, effectively exempting them from income and capital gains tax. This is absolutely appropriate. Can my noble friend outline what success we have had in speedier payment of the compensation, which obviously remains a key consideration and key problem?
The action of the Chancellor in particular in the Government is very much to be welcomed and encouraged. I certainly support this Finance Bill.
Baroness Uddin (Non-Afl) [V]
My Lords, I am pleased to follow the noble Lord, Lord Bourne. Coronavirus is the biggest crisis of our generation and I recognise that the Government have provided constructive financial solutions to address the many emergency economic pressures. They have protected health and the economy with the furlough and measures to help the self-employed, providing many families with some relief, even though millions have faced incredible hardship and had to rely on paltry universal credit and food banks. Countless community efforts have provided families with basic sustenance. I pay tribute to many restaurateurs, including the 5,000 Bangladesh Caterers Association UK members whose earnings have dropped by 90%. Many are finding it impossible to navigate bank loans and other measures. What assessment have the Government made—
The Deputy Speaker (Baroness Garden of Frognal) (LD)
Lady Uddin, we seem to have lost you. Are you there?
Baroness Uddin [V]
Sorry, I do not know what happened. What assessment have the Government made of the inevitable effect of withdrawing the furlough scheme and Self-employment Income Support Scheme on levels of unemployment, particularly in SMEs including the curry industry?
As the Bill includes no measures focused on increasing employment, could the Minister outline how the Government intend to address this worrying trend, particularly among women, who are often in low-paid, part-time jobs and have been exceptionally affected during this lockdown? Muslim women-led organisations are deeply concerned about the well-being of their members. What actions will the Government take to ensure that Muslim women, among other minorities, do not become further isolated and more permanently out of the job market?
According to the Government’s Social Mobility Commission, 600,000 more children are now living in relative poverty than in 2012. Their plight will be further exacerbated by benefit changes and coronavirus, with 45% from minority communities more likely to live in poverty in comparison to 26% of their white neighbours. Does this period, the most challenging in terms of addressing poverty and social injustice, warrant an equal and absolute commitment to redress the effects of social injustice and prejudice, as well as class, race and faith discriminations? What impact assessment has been made of the Bill on child poverty and the well-being of vulnerable families and people with disabilities and autism in those communities which have excessively experienced hardship?
I welcome the kick-start scheme and the guarantee of apprenticeships for those leaving care. Can this be extended to the 465,000 young people who would not currently be in line to participate in any apprenticeship? Speaking as a witness to the Canary Wharf development and the remaining disconnect with lack of employment opportunities—
The Deputy Speaker
The noble Baroness’s time is up. I call the noble Lord, Lord Addington.
Lord Addington (LD)
My Lords, when I see the noble Lord, Lord Agnew, something in my memory tells me we should be talking about education after all these years.
The Finance Bill is the backdrop to a disaster, not one which the Government made but one which they must handle. I would like to concentrate on the charitable sector, which has had only one or two mentions so far. At the start of this process, a couple of months ago, I was lucky enough to lead a debate about the problems of the charity sector. The Government have given hundreds of millions of pounds to back it up; that is great. However, the sector looks like it has lost billions.
Why does this matter? Quite simply, there is virtually no section of our society which does not use charities to fulfil its ends. Charities are involved in education, recreation, healthcare support, housing—you name it, charities are there. They have lost their main income streams—those fun things which you do together. The sponsored walk is out; the charity dinner, where everybody drinks slightly too much and makes pledges, is gone; the high-street shop, which has filled a vacuum, is gone or has a very low uptake. The pressure is there.
Some charities, such as the British Dyslexia Foundation—I here remind the House of my interest as its president—are providing training. There is a big surge with children at home, as parents want to know what to do with a dyslexic child. One feels that, to go back to the old ground of the noble Lord, teachers should have been doing this beforehand, but never mind. All this training is fine, but you still need other activities to back it up, and not all charities can do it. Those sections of our society dependent on social activities to generate their income to deliver social goods are vulnerable.
There has not been enough attention paid to these groups at the moment. They overlap with other things, like furlough for staff—we have had a great deal of people asking why you cannot volunteer when you have been furloughed. There must be another look at how we can get this sector to work as the economy starts to emerge from lockdown. Some of the primary fundraising activities will be among the last things we can return to.
We must have another look here or the state must take over these duties, and I do not think that it has a great appetite for that. A little bit of pump-priming, thought and help is required here, or huge sections of our social support structure and things which make life bearable will be threatened.
Lord Wei (Con) [V]
My Lords, I refer Members to my interests, as well as to an article I wrote recently in “ConservativeHome” which expands in greater detail on some of the topics I want to cover today.
I welcome the Bill and the measures that the Government have taken over the last months to deal with this unprecedented crisis. There is much to applaud within policies such as furloughing and tax breaks—ensuring that cash can get to as many of those affected as possible so they can survive the coming months.
Of course, we are now starting to turn and look up a little further out to the coming months and rebooting our economy—bouncing back, as it has been called. I am a bit concerned that, with all the talk of bouncing back in a greener way, which is important, and levelling up, which remains rightly a priority across the country, there is an assumption in so much of our thinking at the moment, and certainly in the Bill, around normal returning. If I am wrong and what I am about to say will not happen, what a relief. However, I fear that we are entering a phase in our nation’s and the world’s history of much greater volatility. Some of that is climate driven and is obviously geopolitical. Again, with this issue of viruses, it is now cheap and becoming cheaper to manufacture viruses. I am fearful that this may not be the only one. Perhaps we will deal with this one, and perhaps there will be a lockdown in winter, or not.
My question—which I mentioned in my article—is: do we need now to have another lens, which is to look at resilience? We have had our Dunkirk and we scraped through. Millions were affected and there were huge losses, personally, in human terms, and financially. However, what will we do to make sure that this never happens again? Even if there are lockdowns in future, why will we still allow millions of people to be reliant only on work that can be done physically? I therefore welcome, for example, the Government’s policies around boosting apprenticeships; how can that be done in a way to give people resilience? How can we have less centralised healthcare so that the huge machines in hospitals can be shrunk down with better technology so that they can be closer to people’s homes or even in their homes? There is also education, supply chains and agriculture—I do not have time to go through them all. There is an opportunity potentially for this nation to become a leader in redesigning our systems so that they can work even in volatile emergency situations like this. In fact, the internet was invented to deal with emergencies like this.
How can we move our entire country forward in a way that makes something of an opportunity to help other countries deal with future crises like this? Perhaps in so doing, we may not quite end up with some of the tax issues, the debt burden and some of the productivity issues. Instead, we can become a leader in being a resilient country to ensure that those who have fewer resources than us will be better able to weather the next pandemic or crisis that hits us.
Lord Young of Norwood Green (Lab)
My Lords, I declare an interest as an apprenticeship ambassador. I came here today for the first time since lockdown—driving my electric car—and I have not been here because my wife has been shielding.
I echo the concerns expressed by my noble friend Lord Livermore when he opened the debate from our Front Bench, but I will focus my remarks mainly on apprenticeships. Before I do, I have to agree with my noble friend, my namesake, the noble Lord, Lord Young of Cookham, who unfortunately is not in his place. I do not have a degree in economics, unlike him, who has two—not even an O-level, come to think of it. However, he was right when he said that the Government need perhaps to challenge some of their manifesto policies. One that he did not refer to, the triple lock for pensioners, ought to be looked at in the current circumstances, and I would welcome the Minister’s comment on that.
I welcome the Government’s intention as regards helping young people, who will be hardest hit by this crisis. Who knows whether the Government have it all right or wrong? As a number of speakers have said, these are difficult, challenging and unpredictable times. However, they are right to focus on younger people. As they said, 700,000 will leave education this year, and the worst thing that could happen is for them to become institutionally unemployed, if you like, when they should be in work, training or education.
So we are going to face a challenge. There are thousands of furloughed apprentices who, unfortunately, are likely to lose their jobs, so anything that the Government do to ensure their future employment is welcome. I agree with those who have talked about SMEs, the growth companies that are likely to provide many of the opportunities for young people—and not just young people, of course, but those who are well over 25 who have been made redundant for the first time.
In the brief time that I have, I want to focus a bit on the apprenticeship levy, which is due for reform. It needed it. The number of apprenticeship starts before the crisis was actually down on what it had been a few years ago, which is worrying. Then there is the future of training providers, which are an essential part of that scheme. Many of them are, unfortunately, not going to be in business.
One area that I think the Government should be concerned about is nursing apprenticeships. They are a vital part of the Government’s policy of trying to recruit 50,000 more nurses, but they are finding difficulties there. They ought to be looking at the best practice in that area.
I close by echoing what the noble Lord, Lord Cormack, said about the importance of sustaining heritage skills and zero rating on restoration work, and with the point made by the noble Baroness, Lady Gardner of Parkes, about the importance of social housing.
Baroness Ritchie of Downpatrick (Non-Afl) [V]
My Lords, it is a pleasure to follow the noble Lord, Lord Young of Norwood Green.
In many ways, I find it slightly surreal that we are discussing this Finance Bill today. The 11 March Budget, on which the Finance Bill is based, feels like a relic from another age. The Covid-19 pandemic means that we are now living in a completely different world. It has led to an economic contraction of 25% and the total cost of emergency measures could run as high as £300 billion. These are eye-watering figures.
The recent mitigating measures announced by the Chancellor are largely welcome as far as they go, but the extent of this crisis means that the Government need to engage in some bold and imaginative new thinking, including the relief on stamp duty for house buyers for one year. I hope the Minister will advise us of further thinking in this regard.
Covid-19 has created huge volatility and uncertainty, and the economic shock waves will be with us for years to come. This means that the policies of the past and the effect that they have, in both the public and private sectors, need a thorough examination. Nothing should be left off the table. One particular focus should be on making public revenues work as hard as possible, and I am thinking particularly about tax reliefs. Earlier this year, the National Audit Office concluded that these should be reviewed, and I wonder if the Minister could provide us with some further detail on that.
I want to refer to a matter in Northern Ireland. Earlier this year, in the first week of January, the Government signed up to a wide range of financial commitments in the New Decade, New Approach all-party settlement. The then Secretary of State for Northern Ireland, Julian Smith, was congratulated on delivering this agreement with the Northern Ireland parties after a long downtime. There are important commitments in that document about getting Northern Ireland’s critical infrastructure—in particular, water, transportation and health—up to UK norms after years of underinvestment. Could the Minister investigate this matter and, if that is not possible today, come back to me in writing about when those financial commitments will be delivered as promised in New Decade, New Approach to ensure that we have proper and adequate delivery of devolution? The regions are left wondering about the disparities and inequalities.
Lord Dobbs (Con) [V]
My Lords, 40 years ago this country was confronted by mass unemployment. It went way above 3 million. Foreigners mocked us. Britain was the sick man of Europe. Unemployment was supposed to be the club with which the Opposition would beat the Thatcher Government to death, but it did not happen. The Government were re-elected. Unemployment began to decline and hope returned. But unemployment is not just figures; it is real people and real lives. I have never forgotten the darkness that enveloped my family when my father lost his job—not for days or weeks, but many months.
Today the challenge is much the same. We are about to suffer another great blow. Unemployment will rise very sharply, beyond 3 million again. Many families and decent people will suffer. Many worthy causes will suffer with them, as the noble Lord, Lord Addington, has just pointed out. Yet we are in a better position to respond than we were in the 1970s. Our economy is far more flexible, fleeter of foot, more adaptable and more entrepreneurial—and it will become much more so as Brexit opens up new opportunities.
Yet for the moment the challenge that lies ahead—for us all, not just for the Chancellor—is not just about trying to balance conflicting and impossible demands and repaying all that debt. That is important, but life is not just about money—about living on bread alone, if you will—but about dreams and intangibles that cannot be measured but are crucial. Our recovery will be about not letting go of our dreams, ambitions and entrepreneurship.
That means a prime objective for government policy will be sustaining and strengthening our wealth makers, whose success underpins everything else: our elderly, our sick, and the young people who are our future. So, simplified taxation, sustained training, providing incentives, encouraging innovation and new investment, enterprise in everything we do—and, I hope, discovering new plays, new music and new entertainments to restore our spirits.
Let us not despair. We will get through this challenge. We have before. I wish our remarkable Chancellor well.
Lord Goddard of Stockport (LD) [V]
My Lords, I will address the loan charge in the Finance Bill. For the avoidance of doubt, we do not support tax evasion and fully support everybody paying the tax that is due. However, the scandal of the loan charge must be addressed.
Today I spoke to a family whose breadwinner unwittingly signed up for a payroll loan scheme in 2012. He checked that the company was legally compliant. It was backed up by a QC opinion and a chartered accountant was appointed to look after his tax returns. It was only in 2018 when he had retired that he became aware that a loan charge had been made to his retirement plans. Now on a pension, not working, he faces a bill of upwards of £50,000. He is uncertain of the final settlement, as HMRC will decide how much to add on in penalties, interest and maybe inheritance tax. The Loan Charge APPG has published a damning report on the conduct of HMRC’s dealings with loan charge-affected citizens, who have no right of appeal to HMRC. They simply want to work and be on the right side of legislation.
This person is not alone. About 100,000 families are similarly affected. The use and industry-wide acceptance of payroll loan schemes, where the payroll scheme makes substantial deductions and passes the money back to the employees through a mixture of PAYE and credits, became common from 2010. The people affected are not Premier League footballers and celebrities, but hard-working contractors in oil, gas and IT and, latterly, NHS and care workers, for whom in many instances it was a condition of employment that they engage in a recommended payment loan scheme.
These schemes still operate. A recent BBC report on “Money Box Live” highlighted how they are drawing into their clutches lower-paid and essential workers. This Finance Bill also condones retrospective tax law—a dangerous precedent.
According to a recent Morse report, the average liability is around £50,000. For the family I spoke to, that is two years’ gross pension and clearly unpayable. They are now putting their house on the market, as they have no other course of action. New Clause 31, which is not included in the Bill, would have restored natural justice to our system. It proposed to exclude people who have submitted tax returns in good faith and that the loan change should apply only to those who have deliberately reduced their tax bill. The principle of “innocent until proven guilty” would also have been preserved.
In summary, the loan charge has not stopped payroll loan scheme companies operating. It is retrospective. It has caused immeasurable stress and hardship to those facing it. It is forcing house sales, bankruptcy, family breakdowns and confirmed suicides. It does not serve a purpose. In rejecting NC31, the opportunity to restore the rule of law and fairness to the tax system has been missed. It must be looked at again.
Lord Moynihan (Con) [V]
My Lords, if we are follow the Prime Minister’s lead in tackling obesity, we must think beyond the input of unhealthy food to output policies to address a generation of young people who are less fit now than when the Government initiated the national Fight for Fitness campaign in 1900, during the Boer War. We have a generation of young people heading into the summer holidays who are some 60% less fit than they would normally be. Mental health issues are on the increase and boredom and obesity are commonplace. We need to consider a national campaign for sport, recreation and fitness, with sports clubs, home fitness campaigns and new levels of access to facilities at an affordable cost at its epicentre.
Community sports clubs deserve to be at the centre of this plan and not, regrettably, to be penalised by the Finance Bill. Due to the way in which tax law applies to not-for-profit clubs, Schedule 16 to the Bill will impose CT liabilities and potentially significant additional costs and reporting burdens on community sports clubs in relation to Covid-19 support grants. In practice, clubs are likely to have to pay corporation tax on their grant income, thus reducing the funds available for investment in grass-roots sport at a time when finances are critical and the need to engage with a growingly unfit population is all the more important. It appears counterproductive for the Government to continue to claw back a proportion of these grants in tax when there is now a vital need to support the sectors that have been hit the hardest by the pandemic and resulting lockdown.
In addition, many clubs will have to file corporation tax returns for the first time, with many having to use costly professional help to do so. Little tax is likely to be collected, but significant administrative burdens will be imposed on both community sports clubs and HMRC. I would be grateful if my noble friend the Minister and his colleagues would consider the proposal for a coronavirus support payment received by a not-for-profit sports body to be exempt from tax under paragraphs (1) and (6). For this purpose, a not-for-profit sports body is one that qualifies as an eligible body in group 10 in Schedule 9 to the Value Added Tax Act 1994. I hope that the Government would agree.
I appreciate the constraints that this House is under when it comes to money Bills, but I very much hope that the Minister will give serious consideration to the consequences of this additional burden on the sport, recreation and fitness sector, as it is this sector that, alongside health, will unlock the potential of this country to recover through an absolutely essential improvement in the population’s fitness so that we can minimise further cases of coronavirus this winter.
Lord McKenzie of Luton (Lab) [V]
My Lords, Covid-19 has changed all our lives in a way that we might have thought unimaginable a few months ago. With optimism for a V-shaped recovery receding and facing a 12.8% fall in GDP this year, and with public sector borrowing in excess of £500 billion, we face difficult times. Levels of borrowing that might previously have been said to be indefensible, dangerous and unsustainable are now being viewed as mainstream.
With the reality of major job losses growing apace, and faced with the changing norms of ongoing social distancing, working at home, changing supply chains and accelerated use of technology—just look at this place, for example—life has changed. The world of work has changed, and will change more after Brexit, and I do not think it will spring back any time soon. If it is to, where are the signs to suggest that it will?
The pandemic has brought home that, in times of crisis, we have to look to and engage the power of the state to find solutions and to provide resource and direction, nowhere more so than in tackling unemployment. It is to the state that we must look to build a safety net—the social security system newly enthused by those who hitherto never imagined that they should need recourse to it and who now have to engage with the paucity of its provision and the frustrations of its complexity. Of course, this will necessitate more borrowing, but one of the lessons we have directly learned is that levels of public borrowing must not be bound by the orthodoxy of the past. We need jobs as the priority.
One of the lessons, as we see from its nightly inclusion in people’s lives through our TV screens, is the spotlight being shone on just how unequal is the society in which we live and how fragile the financial resilience of many families—evidenced by growth in access to food banks, for example. With the poorest one-fifth of households suffering a 7% fall in income, how do we find this acceptable?
Baroness Kennedy of Cradley (Non-Afl) [V]
My Lords, growing up in the Midlands, and the Black Country in particular, I know how much pride there is in this country’s manufacturing tradition and its industries. The Black Country is the home of the Industrial Revolution and I am delighted that it recently received the recognition it deserves by being awarded UNESCO Global Geopark status. It is an area that makes things, where small and medium-sized enterprises and large manufacturers are working hard, creating wealth and selling their products, at home and abroad. They employ thousands of local people. This is why the Government, local government, businesses and academics come together and talk about support for the Midlands engine. This is why the Government must do more now to support manufacturing in this country.
As others have noted, our manufacturing sector faces what many employers are privately warning is a tsunami of job losses. It is tragic to read that, because of the economic shock of Covid-19, many in the manufacturing industries now expect their recovery to take 12 to 24 months. Across the West Midlands, nearly 300,000 people in manufacturing, construction and the car trade are furloughed. To put this into perspective, this is equivalent to the entire population of Dudley borough not being at work. Across the country, nearly 8,000 manufacturing jobs losses have already been announced by world-leading companies such as Rolls-Royce, McLaren, Aston Martin, Jaguar Land Rover and Arlington Automotive. The Government need to do more and act now to save our manufacturing base.
Why are the Government reluctant to consider extending the furlough scheme to different sectors of our economy that need extra support? Will they consider emergency measures to stimulate market demand, particularly in our car industry? What are the Government doing to ensure that the banks are doing their bit to help save our manufacturing sector? The need for flexible access to finance and support for firms attempting to restructure and reshape themselves to adapt to the new economic environment is vital.
For the last 300 years and more, my family has been working in iron and steel in the Midlands. Like many Black Country families, they worked hard, and now they need more action to protect their jobs and their wages if we are to save this country’s manufacturing jobs and tradition. I look forward to the Minister’s reply.
Baroness Kramer (LD) [V]
My Lords, we must brace ourselves for high levels of unemployment in the autumn and the failure of a significant number of businesses, especially in vulnerable sectors. SMEs are likely to be among the hardest hit. Many noble Lords who spoke today identified the plight of hospitality, retail, the arts, transport, the charity sector and leisure. The call for the Government has been powerful: target support and do not remove it too soon.
I am now picking up anecdotally that Brexit is resulting in a wave of damage. British SMEs are being cut out of supply chains that have been a major part of their business for years. Larger companies in the UK, which anticipated shifting operations to the EU 27 over several years because of Brexit, are now accelerating those decisions. Supply networks are just not willing to put up with the costs and complications of regulatory divergence and border constraints, which now seem inevitable under every government scenario. My noble friends Lord Razzall and Lady Northover and the noble Baroness, Lady Wheatcroft, emphasised the risk.
Add to that the breakdown of the US-China relationship—to which the noble Lord, Lord Blunkett, drew attention—and the growing momentum for the world to divide into regional economic blocs, and we see a dangerous economic storm. I am concerned that this Government have found themselves the flotsam and jetsam between regional economic powers. They have clearly decided to hitch their wagon to the US bloc, in the hope of a trade agreement that, at best, offers very modest gains to the UK.
Like others, I support the Chancellor’s swift action to mitigate the immediate impact of Covid on the economy, with a huge injection of cash. The triage has been vital. But other countries, our rival economies, have been designing their rescue plans to fit a long-term strategy of building an economy for the future—a green economy, a digital economy and an economy framed by the fourth industrial revolution. Germany, as I have remarked before, has earmarked €8 billion just for hydrogen. France has committed €7 billion just for electric vehicles. At the very least, the Government could commit to a strategy of major investment in a green recovery. My noble friend Lord Oates underscored the need for urgency and the scale of the investment and commitment required.
I want to highlight three issues with the Chancellor’s schemes that I find outrageous. The first is the exclusion of 3 million businesses from any help, mostly self-employed contractors and freelancers who work through entirely legal personal service companies. My noble friend Lady Burt discussed this in detail. I do not buy the Government’s explanation that it cannot help this sector for fear of fraud; it stems from the Treasury’s institutional hostility to these kinds of contractors. We saw it with the loan charge, and I am grateful to my noble friend Lord Goddard for expanding on this. We still urgently need a rational basis for settlement under the loan charge of open years—something that will avoid destitution and bankruptcy. We have also seen that same attitude with the new off-payroll working rules, as described by my noble friend Lady Bowles. I know we will discuss those and the Economic Affairs Committee’s report on them another day.
As the IFS reminded us this week, many of those who become unemployed because of Covid will turn to setting up their own businesses. As explained by my noble friend Lord Bruce, the solo self-employed are critical to economic recovery. If the Government do not change their attitude and provide meaningful help, there will be a long tail of unnecessary damage from Covid, and it will hit the poor, especially those with children, gig workers, women and young people the hardest.
The second issue is the failure to open the Bank of England term funding scheme to fintechs and alternate lenders. The Government announced their £330 billion in schemes, including CBILS, CLBILS and bounce-back. Only £46 billion has gone out the door. Did they really intend only 14% of their schemes to be used?
The clearing banks have been given incredibly cheap money from the Bank of England to fund these loans and have behaved in their usual way, cherry picking existing customers and the most desirable customers, and leaving out the rest. They argue that they cannot expand their balance sheets too much, but they have refused to funnel the cheap Bank of England funding money to alternate lenders, even though this would not be put on to their balance sheets, and are blatantly using public money to undermine their competition. It has left the alternate lenders accredited by the British Business Bank unable to find the cheap money that would enable them to lend under these schemes and is threatening the diversity of providers that we need for economic recovery.
I go further. The Government need to take an active step to support finance for SMEs. This includes facilitating equity investment—it is incomprehensible that EIS has not been included in the future funding scheme—and a review of forbearance, and requires permission for new mechanisms such as shared platforms to improve access to financing.
The third travesty in this Finance Bill is the restoration of Crown preference, putting HMRC ahead of the queue and collecting money from bankrupt companies. At a time of national emergency, a measure that will hit small creditors and suppliers badly—as we heard from my noble friends Lady Burt and Lady Bowles and the noble Lord, Lord Bourne—is completely unacceptable.
We are also debating the stamp duty land tax Bill. My concerns have been that these measures help those buying second homes with buy-to-let instead of being more targeted. The move does little to stimulate the building of affordable housing, as my noble friends Lord Shipley and Lady Bakewell described. My noble friend Lord Bruce, the noble Lords, Lord Wood, Lord Truscott and Lord Loomba, and the noble Baronesses, Lady Falkner and Lady Wheatcroft, underscored the concern. The stamp duty change does nothing for renters. I have received the same letter as the noble Baronesses, Lady Andrews and Lady Bennett, from a renter who has been told their lease will not be renewed because the landlord wants to sell to take advantage of the stamp duty reductions. I suspect that letter is the tip of the iceberg.
Finally, I say how disappointed I am that we still do not know how the Government plan to borrow, tax or cut its way to covering the £188 billion in crisis spending. We know that in March sterling went into free fall and the capital markets turned against the UK Government’s debt until the Chancellor intervened with his rescue package and the Bank of England announced another £200 billion in QE. We should all take note of the warnings by the noble Baroness, Lady Altmann, on QE’s down sides. I accept that right now we have to splash the cash, but we also need a long-term economic plan.
Lord Tunnicliffe (Lab) [V]
My Lords, this debate has come at an interesting time. Despite the limitations on speeches, we have had a number of insightful and diverse contributions. I am sympathetic with the Minister in the number of ideas he has to comment on.
On Tuesday the ONS published May’s GDP estimate, which suggests a weaker return to growth than many had anticipated. We also saw the OBR’s Fiscal Sustainability Report, which contained a range of potential post-Covid outcomes that give cause for concern.
Yesterday we learned that nearly 650,000 people have fallen off UK payrolls as a result of coronavirus. A survey by the British Chambers of Commerce found that just under a third of companies planned to lay off staff in the next three months, meaning that the furlough scheme will be able to disguise the scale of the problem only for so long.
Last week’s announcement of the job retention bonus has been met with bewilderment by many. Like many of the other schemes announced by the Chancellor, it was not deemed by officials to be value for money and therefore required a ministerial direction for preparation to proceed. Primark has announced that it does not intend to accept the funds, and other firms, including John Lewis, are believed to be sceptical. Despite the job retention bonus, thousands more job losses have been announced, each a personal tragedy. The Government must do more to prevent mass unemployment.
I hope the Minister will accept that the Labour Party is trying to be a constructive and co-operative Opposition throughout the coronavirus crisis. In doing so, we have pointed out what we perceive as flaws in the approach taken, and that includes in relation to the measures contained in the Bills we are considering today. For example, we did not oppose the stamp duty Bill in the Commons, despite the concerns that the measures do not necessarily help those most in need of support.
Despite playing that role and giving the Government space to formulate one, we still lack a cohesive plan for exiting lockdown. The situation was summed up by a senior Cabinet Minister telling the country on Sunday that it should not be compulsory for people to wear masks in shops, only for an announcement on Tuesday to make it compulsory. Such instances increase confusion, which in turn undermines public confidence and hence the economic recovery.
If the country’s recovery falters, the problems already felt by central and local government before the pandemic are likely to be substantially worse. This is true of the shortfalls faced by many councils, many of which feel that Ministers have failed to fulfil their promise to deliver whatever resources are necessary. That applies equally to the welfare system, which was struggling with the rollout of the flawed universal credit even before millions more suddenly required its support.
As I have raised on a number of occasions, specific sectors of our economy are at a disproportionate disadvantage as a result of recent events. Aviation, which the Government have so far failed to support in any meaningful and joined-up way, will not get back to its pre-crisis state for some years. The same applies for much of the hospitality sector, as well as the performing arts. Although the former has started to reopen and the latter will receive new support, concerns remain over the long-term viability of businesses and jobs.
With the two Bills we are discussing soon to be on the statute book, the question is: what comes next? We have all read the reports that government departments are being asked to identify substantial savings. I say to the Minister that a decade of austerity is a large part of the reason why the economy has suffered so badly from the coronavirus crisis. A return to cutting budgets for the sake of it is not the answer, especially locally, where this simply is not possible without drastic consequences for local communities.
The area we should prioritise is the immediate review of the tax system, including tax reliefs. Some of the 1,190 reliefs have their benefits, but many noble Lords will have read the NAO’s February report, which notes that the UK relies more heavily on them than other countries. It has called for significantly more oversight of tax expenditure by the Treasury and HMRC, suggesting that some costs far exceed published forecasts.
Lord Agnew of Oulton
My Lords, this has been an excellent debate, and I thank noble Lords for their expert and insightful contributions. I shall use what time remains available to address some of the issues raised by your Lordships in the debate. First, I shall briefly review some of the Bill’s achievements, for, despite the unprecedented events of the past few months, it is still significant.
The introduction of the digital services tax places the UK in the vanguard of global digital tax policy development—I will build on that later in response to individual queries—even as we continue to drive forward an international effort to secure a long-term multilateral solution. Our reform of IR35 off-payroll working rules represent a significant step towards ensuring the fair and equal treatment of individuals working in the same way across the labour market.
We are delivering on the Government’s manifesto promises to increase the rates of relief for businesses investing in R&D from 12% to 13%, and, as provided by the structures and buildings allowance, from 2% to 3% per annum. This underlines our commitment to incentivise businesses to invest in research and capital assets that will drive our future prosperity as we level up across all four nations of our union. It is worth reminding noble Lords of the colossal sums committed in this budget that have been forgotten and washed away with the crisis. We have committed to increase the capital budget from £71 billion in 2019-20 to £113 billion per year up to 2024-25. That is a 40% cumulative increase.
Over the next five years, the public sector will invest more than £640 billion for our future prosperity. The OBR has said that the large planned increase in public investment should boost potential output, and indeed, when we look at the crisis we are facing, there are two ways to get through it: to increase tax or to reduce services to the public. I do not agree with that because I believe that there is another way. We can improve the productivity of this country and make the delivery of services by the Government a lot more efficient, so I want to be a little more optimistic.
I turn now to the various points raised by noble Lords and will try to address some of their queries. The noble Lord, Lord Livermore, asked about a more sector-specific approach. The view of the Government is that it would be challenging to target the comprehensive job retention scheme in a fair and deliverable way if it was sectorised. It may not be the case that this is the most effective or sensible way to provide longer-term support, but in A Plan for Jobs 2020 the Chancellor announced measures to support firms in particular sectors, including the hospitality and tourism sectors. It is the case that some firms will be affected by the coronavirus outbreak for longer than others. The Government will seek to support these firms appropriately by engaging with businesses and representative groups with the aim of ensuring that the support provided is the right kind and relevant to them.
A number of noble Lords, including the noble Baroness, Lady Wheatcroft, and the noble Lord, Lord Livermore, asked about the dead weight of the job retention bonus. This bonus will provide an additional incentive to firms to keep their employees as demand recovers. Several noble Lords talked about the horror of mass unemployment, and we want to try to instil confidence in employers so that they bring their staff back. The Chancellor has given compelling reasons to justify the introduction of the job retention bonus, which falls outside the confines of the Managing Public Money guidance. The chief executive of HMRC has asked for a direction, but it is important to remind noble Lords that that has happened on a number of the schemes announced over the past few months, many of which have been supported both here and in the other place. For example, the discretionary grants top-up required a letter of direction, as indeed did the loan schemes. This is not an unusual mechanism. We are all working at pace and trying to be proactive in the face of the enormous challenges that exist.
Noble Lords asked about support for the self-employed and the noble Baroness, Lady Bowles, said that we should do more. On 29 May, the Chancellor announced an extension of the Self-employment Income Support Scheme and eligible individuals may now qualify for a second and final grant when applications open in August. This means that the UK continues to have one of the most generous self-employment Covid support schemes in the world as the economy reopens. Around 95% of those with more than half their income from self-employment may be eligible for the scheme. By 12 July, some 2.7 million individuals had claimed grants worth £7.8 billion in total. As the Government begin to reopen the economy, it is right that state support is tapered off and the focus shifts to getting people back to work.
A number of noble Lords, including the noble Lords, Lord Livermore, Lord Wood, Lord Bruce and Lord Empey, commented on the stamp duty land tax. I should like to speak briefly about the value of this tax and the measure announced last week. SDLT continues to be an important source of government revenue, raising several billion pounds a year to help pay for services. Any permanent changes would have a significant impact on the Exchequer. The Government believe that this is the time to encourage and bring forward transactions in the property market. This measure is there to increase confidence. First-time buyers will save up to £10,000 in addition to the £5,000 that they have already saved from the holiday. The Government are committed to helping to support first-time buyers on to the property ladder. They will still pay no SDLT on purchases worth up to £300,000 once the holiday ceases, and although second home and buy-to-let property buyers will benefit from the tax change, they will continue to pay the 3% top-up of the standard SDLT rates. It is worth reminding noble Lords that it is this Government who have reduced some of the tax incentives for buy-to-let borrowers over the past few years.
The noble Baroness, Lady Bakewell, and the noble Lord, Lord Shipley, asked about the market’s concentration in the hands of 10 developers. After the 2008 crisis, the number of SME housebuilders was reduced. We have extended the short-term home building fund with an additional £450 million boost to provide support for smaller builders and developers and help them access finance for new housing developments. This additional funding will help to provide finance to firms experiencing cash-flow issues, and we anticipate that it will support the delivery of over 7,000 new homes.
Taking a broader view of the Government’s efforts to date, the noble Lord, Lord Macpherson, my noble friend Lord Lamont, the noble Baroness, Lady Falkner, and the noble Lord, Lord Young, all spoke about longer-term financial sustainability. The immediate focus of the Government’s economic and fiscal strategy is ensuring that it continues to support workers and businesses as the country recovers from the Covid crisis. I cannot speculate on the contents of future Budgets but we will set out further plans at the next Budget as the economic and fiscal outlook becomes clearer.
Noble Lords—and the noble Lord, Lord Greaves, in particular—asked about support for local authorities. The Government have provided over £3.7 billion in new grant funding to councils to help them respond to the pressures. We have provided a further £600 million to support social care and £300 million to support track and trace. On 2 July, the Government announced a major scheme to help reimburse councils for their loss of income during the pandemic.
A number of noble Lords, including my noble friends Lady Verma and Lord Cormack, raised the issue of reskilling. We are creating a new skills fund worth £2.5 billion to transform people’s lives and give businesses the workers they need. We will invest £1.5 billion in dramatically improving the entire further education college estate. We recognise that it has been something of a Cinderella, and we are addressing that. We have committed to 20 new institutes of technology, where we will connect students learning about the world of science to the real world of business and industry.
We have also committed to a dramatic increase in the number of careers coaches in jobcentres, with an additional 14,000 careers coaches between now and the end of March next year. We are unashamed in taking an idea used by the previous Labour Government during the 2008 crisis. We hope that we can learn from that experience how it might work better.
A number of noble Lords, including the noble Lord, Lord Bruce, my noble friend Lord Blencathra and the noble Lords, Lord Haskel and Lord Snape, all stressed the need for a digital services tax. We would all have preferred an international response to the rise of these new juggernauts over the last 10 years. However, we have now put in place the framework to ensure that they start to contribute to our tax base.
Going slightly off piste, I ask my noble friend Lord Blencathra to forward any ideas he has on curtailing the anti-social behaviour that occurs on some sites. My own idea, which I would like to push further, is to have the platforms designated as publishers. As such, they would not be allowed to air all the dreadful things that appear on some sites. I apologise for digressing. The Government’s preference is for a strong global solution, and we have been at the forefront of this. One noble Lord mentioned retaliation from the United States. We have been very clear in our discussions with the US that this is not aimed at a particular country; it is a solution for any large platform.
The rates system is a matter of concern for noble Lords. We have committed to a fundamental review of business rates, and we published its terms of reference in the Spring Budget. As they set out, we invite expressions of interest from everyone who is interested in coming up with solutions. As noble Lords will know, people are much keener to see the abolition of taxes than the creation of new ones, but it is an important part of our tax base and we need to come up with a sensible alternative. The DST is intended as a temporary measure until the international world catches up. I hope that we can have a system that will operate in a uniform way across the developed world.
We have published an online harms White Paper where we set out the Government’s plans for a world-leading package of online safety. We are designing our proposals, and the next step will be to publish a full response to the White Paper consultation later in the year followed by legislation.
The noble Lord, Lord Snape, referred to the US digital services tax. As I have mentioned, we are engaging and trying to show to them that this is not a matter of discrimination.
Noble Lords, including the noble Lord, Lord Bruce, asked about the loan charge. Those affected by the loan charge are already able to defer submitting their self-assessment return for 2018-19 until September this year without having to pay any late filing charges or penalties. Changing the date would impact customers who legitimately made provision to help pay in the 2018-19 year. HMRC will keep the situation under review over the coming months and take a proportionate and reasonable approach to anyone who is unable to do this.
The noble Lord, Lord Goddard, suggested that the loan charge was retrospective. It is not retrospective; it is a new charge on disguised remuneration loan balances outstanding as at April 2019. It is worth reminding noble Lords that this scheme was simply too good to be true. People were offered their remuneration on the basis that they would never have to pay tax. In the recent High Court case Zeeman and Murphy, the judge explained that the loan charge only altered the timing of the payments received and held that it was
“well within the generous margin of appreciation for Parliament to decide that it would tackle the matter in the way that it did, and impose a present … liability in respect of money whose use, tax-free, had been enjoyed by the recipient over a number of years.”
A number of noble Lords expressed concern about the changes to insolvency and making HMRC a preferred creditor. The measure is not expected to have a significant impact on financial institutions. The reforms are forecast to raise approximately £220 million a year. That money will be spread thinly and recouped from both unsecured creditors and holders of floating charges. Bank lending to small and medium-sized businesses in 2019 alone was £57 billion, which is of a massively different order of magnitude. A financial institution holding fixed charges over assets will remain above HMRC in the creditor hierarchy and will be unaffected by this reform. The Government recognise that floating-charge creditors will recoup less than under the current law as a result of the way in which such tax debts are treated. However, we believe that the measure is right. It takes a fair and proportionate approach and applies only to taxes that have been paid by employees and customers in good faith and are held on their behalf by a business before being passed on to HMRC.
Another point of contention for some noble Lords is the IR35—the noble Baroness, Lady Bowles, and other noble Lords referred to it. It is true that falling within the off-payroll working rules does not change an individual’s status in respect of employment rights, as there are separate legal frameworks for determining employment status for tax and for rights, with no direct link between the two. Again, I urge noble Lords to consider common sense. There are some very simple principles of self-employment status; for example, if you are able to send a replacement for yourself to the person or firm employing you, if you are being directed regularly by that company, and if the tools of trade that you are using are not owned by the company contracting or employing you, they are marks of self-employment. Those who wish to challenge their employment status rights can take their case to the employment tribunal. The Government are making good progress on implementing the recommendations of the Taylor review and we continue to work across government on these issues.
On green policy, noble Lords have reiterated the fact that climate change issues are a massive priority for the Government, but it is worth reminding the House that we have been a leader on climate change and have reduced our emissions faster than any other G7 country since 1990. In the spring Budget, we reinforced our strong track record in this area, announcing at least £800 million for carbon capture and storage, more than £1 billion for further support for ultra low emission vehicles and a commitment at least to double funding for energy innovation. Many of the actions will take time to deliver on climate targets, but they will also help the UK’s economy recover from the impacts of Covid. Between 1990 and 2017, the UK reduced its emissions by 42% while growing the economy by more than two-thirds.
I am running out of time, but I want to pick up on one or two other comments made by noble Lords. On the future of manufacturing, for example, the noble Lord, Lord Empey, and several other noble Lords raised concerns that we have pivoted too far away from manufacturing over the last 30 years. What this crisis has shown us, and all countries in the developed world, is that we must have tighter and more accountable supply lines. I think we will see a renaissance in manufacturing.
I have some uplifting examples of that from my own experience during the last few months. For example, I have run a small initiative to build non-medical masks in this country. One of the British companies making the masks is in the south-west called Expert Technology, which previously made car parts. It has swivelled its whole operation to build these machines. Very movingly, when I spoke to the chief executive a couple of weeks ago, he had brought 70 of his staff back from furlough to build these machines. It shows the ingenuity that lies in the bedrock of our manufacturing industry that he could move so quickly to make such a dramatic change.
Another one that I was involved with was the manufacture of CPAPs; these are a kind of oxygen support mechanism, not an intrusive ventilator. UCL teamed up on this with Mercedes, which took its Formula 1 staff from making high-performance engines and built 10,000 of these units in less than a month. It shows what we can do, and this crisis will showcase and give us the potential for doing more.
The noble Lord, Lord Oates, asked about hydrogen. I completely agree that this is a crucial development. It will take the production of offshore wind energy so that we can capture it and the hydrogen can then be used for other forms of energy creation. We announced in the Budget £121 million to support a range of projects to explore and develop the potential of low-carbon hydrogen; I am sure that more will follow.
The noble Baroness, Lady Falkner, asked about using the German reunification tax as a model for a short-term tax, but she may not know that the tax, introduced in 1991, is still there in various forms. This is the problem with these taxes; as one noble Lord mentioned, income tax was brought in to help fund the Napoleonic War, which is now some 200 years ago.
My noble friend Lord Shrewsbury asked whether he could meet officials to talk about a company in his area called SD Technology. I will be very happy to organise that.
A number of noble Lords were anxious that we are still leaving the EU in the midst of this crisis. We need to draw a line under this very divisive debate that has scarred our whole body politic, certainly for 10 years. I stood as a Referendum Party candidate in 1997, which is 23 years ago. I would like to try to get through the important message that we want to negotiate in good faith with our EU partners. We want to have a collaborative and successful relationship with them, going forward. We do not expect to be treated like a third-class citizen. When we suggested that we should be treated in the same way as they had Canada, we were told that we could not even have a Canada deal. They need to come to the table in a constructive way.
I want to pick up what the noble Baroness, Lady Andrews, said on housing. She mentioned what we call office-to-resi. I declare an interest as I have done some of these. I actually live in one, and they are not slums. There are crooks, vagabonds and bad people in any situation and walk of life, and I am sure that there have been some poorly built office-to-resi units. But tens of thousands of good-quality properties have been built; as I say, I live in one myself.
I want to raise an important point on pushing economic activity forward. I apologise to the Deputy Speaker; I will finish after this point. There are two important things. We are bringing forward an omnibus Bill in the autumn, which will have a number of levers to accelerate economic reconstruction in this country. That will include things such as looking very carefully at planning regulations. I declare an interest as having built properties over many years. The regulations are beyond parody. I have a potting shed in my garden; it took me 12 years to get planning permission and then I was told that I could not go into it before 9 am. That is the madness of the system, so I hope very much that we will attack this once and for all.
We are bringing forward a Green Paper on procurement. It will be out in the next couple of weeks in a preliminary consultative form. It will not be a formal consultation, though I am pushing it very hard as it falls in my own specific area of responsibility. This might sound dry as dust but we spend £290 billion a year on public procurement in this country, and this is a fantastic opportunity post Brexit and the OJEU rules to recast it and make sure that we can point it to parts of this country where we can generate activity. Included in there will be the first time that we have used something called social value, so we will be able to assess a contract beyond just the pounds and pence of a bid.
I have sought to address noble Lords’ questions to the best of my ability. I will of course review the record of the debate, which has been of high quality; indeed, as is so regularly the case, many of the expert interventions illustrate the significant value of the ongoing scrutiny by this House. If in my closing remarks I have missed a point of substance, I will follow up in the usual way and write to those before me. I commend the Bill to the House.
Royal Assent
Wednesday 22nd July 2020
(3 years, 9 months ago)
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