14:59 - The House divided: - Ayes: 228 / Noes: 289 - Question accordingly negatived.
16:08 - The House divided: - Ayes: 231 / Noes: 296 - Question accordingly negatived.
17:59 - The House divided: - Ayes: 233 / Noes: 303 - Question accordingly negatived.
19:29 - The House divided: - Ayes: 228 / Noes: 296 - Question accordingly negatived.
Shabana Mahmood
My hon. Friend is absolutely right. We will debate later the issues in relation to tax avoidance and shares for rights.
The Exchequer Secretary to the Treasury (Mr David Gauke)
The hon. Lady accuses the Government of being ideological here. For the avoidance of doubt, were there to be yet another study that showed that the 50p rate failed to raise any substantial sums of money, would the Labour party still go ahead with an increase in the additional rate of income tax from 45p to 50p?
Shabana Mahmood
Let us see the report. The Minister has had many opportunities in Finance Bill debates where the Opposition have tabled amendments and new clauses calling for such a report. He has not produced one. I have no confidence that he will go away today and ask his officials at HMRC suddenly to produce a report. If he has such a report in mind, he should accept our new clause, and we can then have that debate. We have said that we will increase the rate to 50p. We believe that that can raise money and will be a good part of a much fairer deficit reduction policy.
The truth is that there was no justification for giving a huge tax cut to the richest in our country. We now know that bonuses are up by 83% for those in the financial sector, while ordinary working people are worse off now and will be worse off in 2015 compared with 2010. Wages will be 5.6% down at the end of this Parliament from what they were at the beginning.
The Government have not ruled out cutting the additional rate back down to 40p. We know that this is the ardent desire of many of their Back Benchers. Perhaps when the Minister replies he could tell the House whether the Government are planning any further cuts. They have ducked the opportunity on previous occasions to confirm that they will not go down from 45p to 40p. It will be good to hear from the Minister whether that is the case. The Government’s priorities are all wrong. Ordinary working people continue to struggle with their finances, and the link between the wealth of the nation and the money in people’s pockets and in their household budgets is broken. This Finance Bill does nothing to change the reality of the lives of millions in our country, yet Government Members want to cut taxes for the richest.
Frank Dobson
No, I will not give way—[Interruption.] Well, I have sat here throughout the whole debate and listened to what other people had to say, so I am going to get a little further in.
One thing that is particularly irksome for badly off people in this country is hearing apologists for the City talking about bankers’ compensation packages—compensation apparently for the horrid requirement that they turn up at work. The dictionary definition of compensation is,
“recompense for loss, suffering or injury”.
Those bankers—how they suffer when they are helping people to swindle their tax liabilities; laundering money for gun runners or drug runners; or fiddling money to help people evade sanctions and then having to pay up. We clearly need to ensure that those rich people pay more tax, and the only way to do that is by increasing the rate to at least 50p.
Mr Gauke
It is always a great pleasure to follow the right hon. Member for Holborn and St Pancras (Frank Dobson). He suggested that the motto of the Treasury was “Ignorance is strength”. If that is the case, let me say that his was a very strong speech.
New clause 14 calls for the Chancellor to—
Frank Dobson
Can the Minister identify anything I said that was factually incorrect? [Interruption.]
Mr Gauke
Someone says most of it, but in the time available, I ought to turn to the new clause.
The new clause calls for the Chancellor to publish a report within three months of passing the Act to set out the impact of setting the additional rate at 50% for the tax year 2015-16. In addition, it asks for an assessment of the impact of reducing the additional rate to 45% for 2013-14 on the amount of income tax paid by those with a taxable income of more than £250,000 a year and those with a taxable income of more than £1 million a year, as well as on all those who are liable for the additional rate. It also proposes that the report set out the impact of reducing the additional rate on the level of bonuses awarded in April 2013 to employees in the financial sector. I hope that there will be no controversy when I say that, in order to be credible, any such analysis would need to take into account behavioural impacts, as did the HMRC report on the additional rate that was published at Budget 2012. It is clearly inadequate to look simply at theoretical income tax liabilities when increasing taxes.
Let me use this opportunity to assure hon. Members once more that the Government already consider the impact of any policy decisions taken. The HMRC report on the additional rate concluded that the underlying yield from the introduction of the 50p rate was much lower than originally forecast, due to large behavioural effects.
Mr Gauke
I want to make this point, then I will give way.
Let me address the matter of behavioural effects. The hon. Member for Birmingham, Ladywood (Shabana Mahmood) conflated the issue of behavioural effects with tax avoidance, and seemed to suggest that the two were synonymous. That is simply not the case. What does the term “behavioural effects” include? If someone decides to retire earlier than they would otherwise do, that is a behavioural effect. If someone decides to leave the country and go to work elsewhere, that is a behavioural effect. If a multinational company, when deciding where to locate a new team, decides to go to another country rather than the UK, that too is a behavioural effect. If someone decides to put more money into their pension—making use of pension tax relief as Parliament has intended—that is also a behavioural effect.
In the eyes of the Opposition, all of that constitutes tax avoidance, and we have been asked why we do nothing about it. I do not know whether they are suggesting that we should take away people’s passports so that they cannot emigrate, or that we should somehow force companies to locate their staff here. Those decisions are behavioural effects over which we have no control, and we have to respond to the reality of the world as it is, rather than as some people might like it to be.
David Wright
Does the Minister accept that the Office for National Statistics and the Office for Budget Responsibility have said that, after the Chancellor made his Budget announcement about the tax rate, people delayed and deferred bonuses and shuffled their cash around to avoid the system? Is this not actually about very rich people shuffling their money around in order to avoid tax? We need a simple system with a 50p rate, and we need to study it over a long time to determine its impact.
Mr Gauke
The important point here is that the HMRC analysis explicitly dealt with that issue. Yes, there will be instances in which sums are shifted from one year to another, just as happened when the previous Government announced the introduction of the 50p rate. People brought forward income at that point. The analysis took those behavioural changes into account and excluded them, and still concluded that the 50p rate was ineffective in raising money. Given that HMRC has already carried out that analysis and reached that conclusion, which is consistent with the academic research in this area, and given that the IFS has said that no substantial sums were involved, would the Opposition be determined to go ahead with a 50p rate even though the evidence suggested that it would not raise money? That seems to be their ideological position. It would be illogical and unfair to reintroduce a tax rate that was ineffective at raising revenue from high earners, that made ordinary taxpayers pay more and that risked damaging growth.
Shabana Mahmood
The Minister will acknowledge that the IFS has said that this whole area would benefit from greater research. Now that HMRC has more data, that research would perhaps produce more accurate results. Will he take that point on board and support our new clause?
Mr Gauke
There is no evidence that HMRC’s original analysis was wrong. When the Opposition announced earlier this year that Labour would introduce a 50p rate, they claimed that a new £10 billion had emerged that had previously not been taken into account. That turned out not to be the case, however; they got that completely wrong. The data still point in the direction that HMRC’s conclusions are as I have suggested, and there is no reason to believe that the analysis was wrong. The fact is that the 50p rate is an ineffective way of raising money from the wealthiest.
Richard Fuller
Is the Minister as concerned as I am that Labour Members are not simply calling for a 50p rate? We have also heard calls for a 60p and a 70p rate. Are they not trying to set the tone for what has already been introduced in France—namely, a rate that is much higher than 50%?
Mr Gauke
I note the fact that the right hon. Member for Holborn and St Pancras referred to a rate of “at least 50p”, and I suspect that he speaks for many of his colleagues in that regard. The fact is that there is an ideological divide involved here, in that the Opposition want the higher rate, regardless of the practicalities.
The reality is that, if we want to raise money from the wealthiest, a high rate of income tax is ineffective. My right hon. Friend the Member for Wokingham (Mr Redwood) made it clear that the changes in the 1980s resulted in more income being raised from the wealthiest. If we want to raise money from the wealthiest, there are much better ways of doing it, as my hon. Friend the Member for Redcar (Ian Swales) said. For example, we have taken a number of steps to deal with avoidance and disguised remuneration—those measures were opposed by Labour, by the way—and to deal with stamp duty avoidance. We have increased stamp duty rates. We have also introduced measures relating to capital gains tax and restricted the cost of the pensions tax relief. Those measures have raised far more than the revenue forgone from the 50p rate.
We talk about priorities. Let me set out one fact for the House. Even if we put aside the additional sums raised from the wealthiest, and even if we put aside the damage to competitiveness from the 50p rate, for every £1 forgone as a result of our measures on the 50p rate, we have forgone £160 as a consequence of the increase in the personal allowance. That is where our priorities lie, and I am proud of that record.
Mr Redwood
Will my hon. Friend confirm that the Treasury publishes figures every month on tax collection, and that they show that the rich are paying more?
Mr Deputy Speaker (Mr Lindsay Hoyle)
With this it will be convenient to discuss amendment 67, in clause 107, page 90, line 33, at end insert—
‘(5A) The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish and lay before the House of Commons a report setting out the impact of changes made to Schedule 19 of the Finance Act 1999 by this section.
(5B) The report referred to in subsection (5A) must in particular consider—
(a) the impact on tax revenues;
(b) the expected beneficiaries; and
(c) a distributional analysis of the beneficiaries.”
Mr Gauke
New clause 7 rectifies a minor omission from clause 105 by applying the reduction of the threshold to £500,000 for the 15% stamp duty land tax higher rate charge to the SDLT relief for the exercise of collective rights by tenants of flats.
Clause 105 reduces the starting threshold for the 15% higher rate SDLT charge from £2 million to £500,000 for transactions where the effective date is on, or after, 20 March 2014. This is part of a package of measures including changes to the annual tax on envelope dwellings and the ATED-related capital gains tax charge. The purpose of these measures is to tackle tax avoidance and to ensure that those who wrap residential property in corporate and other envelopes, and do not use them for a genuine commercial purpose, pay a fair share of tax. However, clause 105 omitted to apply the reduction to the SDLT relief in section 74 of the Finance Act 2003.
This relief benefits lessees of flats who collectively acquire freehold of their block under rights afforded by the Landlord and Tenant Act 1987 and the Leasehold, Reform, Housing and Urban Development Act 1993. The relief sets the rate of SDLT according to the consideration given for the freehold divided by the number of flats. This brings the amount of SDLT paid by lessees more into line with what they might have paid had they been able to acquire the freehold of their flat separately. These acquisitions are commonly undertaken by a company in which the lessees are shareholders. In these circumstances, the 15% higher rate of SDLT will apply if the average consideration exceeds the higher rate threshold.
The changes made by new clause 7 mean that where lessees of flats purchase the freehold of their block through a company and claim relief, SDLT will be charged on the purchase price at 15% if that price divided by the number of flats comes to more than £500,000. The new £500,000 threshold applies to the relief where the effective date of the purchase, usually the date of completion, is on or after 1 July 2014. Transitional provisions will, in the great majority of cases, preserve the existing £2 million threshold where contracts were entered into before 20 March 2014. We estimate that the impact of this minor change will be negligible. In practice, very few transactions of this kind are likely to attract SDLT at 15%. I understand that no tax has been put at risk by delaying the implementation of this change.
On stamp duty reserve tax, amendment 67, tabled by Opposition Members, asks for the Government to lay before Parliament, within six months of the Bill receiving Royal Assent, a report setting out the impact of clause 107 on tax revenues and who benefits from it. The Government announced at Budget 2013 that they would abolish the schedule 19 charge as part of their investment management strategy to improve the UK’s competitiveness as a domicile for collective investment schemes.
Schedule 19 is a special stamp duty reserve tax charge levied on UK collective investment schemes, or “funds”. A charge arises when investors surrender back to the fund manager firm either their units in UK unit trust schemes, or shares in UK open-ended investment companies. It is paid by the fund management firm, but the cost is ultimately borne by the investors in schemes. The investors are largely pension schemes, life companies and individual savers. It is worth stressing that this charge is payable only by UK schemes. An identical scheme established outside the UK would not be subject to the charge, placing the UK at a competitive disadvantage as a domicile for collective investment schemes. Investors who do not wish to pay the schedule 19 charge already have the option of investing in funds domiciled offshore.
The schedule 19 regime is regarded as complex and burdensome, requiring frequent tax calculations and returns to be sent to HMRC. Additionally, because of how the tax operates, its headline rate implies a much greater tax burden than the annual cost actually suffered. This is difficult to explain to investors and gives rise to presentational complications when trying to market UK funds, especially overseas. It is for these reasons that schedule 19 was identified as a major deterrent to domiciling funds in the UK, with a particularly damaging effect on the ability of UK funds to attract non-UK investors. Clause 107 repeals part 2 of schedule 19 to the Finance Act 1999, thereby abolishing the schedule 19 charge. This levels the playing field between the UK and other countries as domiciles for collective investment schemes. The abolition has effect from 30 March 2014.
The Government rightly keep all tax policy under review, but there would be little merit in producing a report in the way suggested by the amendment. We have already had the impact of this measure independently assessed by the Government Actuary’s Department. It has calculated that a typical 22-year-old currently earning average weekly earnings and investing the equivalent of 10% of gross income each year over a 45-year period would see a fund value £11,200 greater at retirement as a result of this change—equivalent to approximately 1.3% uplift in total fund at retirement. In current money terms, that is equivalent to an additional £4,600.
I stress again that the schedule 19 charge is borne by investors and not by fund managers. Data from the Investment Management Association suggest about 85% of the charge is borne by pension and insurance companies together with retail and public-sector investors. Therefore, these underlying investors are beneficiaries of the change. Furthermore, as the new auto-enrolment of workers into pension schemes changes the pensions landscape, even more ordinary hard-working people will benefit from the change in future. Further detail on the distributional impact of the measure has already been included in the tax information and impact note produced in December alongside the draft legislation.
As for the benefits due to the improved competitiveness of the UK as a fund domicile location, the time taken to authorise and launch new funds means that any positive effects of the change would not have had time to become established. Therefore, such a report would be premature. For the avoidance of doubt, let me also reiterate the point—which the Government have made on many occasions—that abolishing schedule 19 to the Finance Act 1999 is not a tax cut for hedge fund managers or hedge funds, which have in fact never paid tax under the schedule 19 charge. I noticed that the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) was very careful in Committee not to say that it was a tax cut for hedge funds or hedge fund managers, and I would be grateful if she confirmed that that is the case.
James Duddridge (Rochford and Southend East) (Con)
I sense from the mood of the House that the Opposition are thinking of opposing new clause 7. If they are, will my hon. Friend make it clear how many hard-working savers will be hit by not receiving this benefit?
Mr Gauke
My hon. Friend makes an important point. It is investors in pension schemes who will bear the cost. The UK investment management industry, which exists up and down the country—we had a debate about the regional nature of that industry—will also be damaged. The cost makes it hard for UK-domiciled funds to compete. We want UK-domiciled funds to compete. [Interruption.] Maybe that is not Labour’s position, although I note that the shadow Chief Secretary seems to be accepting from a sedentary position that this is not a tax cut for hedge funds.
Mr Gauke
Again—I hope the record will pick that up—this is for investment managers, not hedge fund managers. That is the argument the hon. Gentleman is making, which is different from the argument we have heard from the Opposition on occasions. For example, in July last year, the Leader of the Opposition accused us of making a tax cut for hedge funds. In the shadow Chancellor’s response to the autumn statement in December last year—he gave a speech that many of us will remember for a long time—he called on the Government to reverse the tax cut for hedge funds. It appears that the Labour Front-Bench position is to accept that there is no tax cut for hedge funds. That, I suppose, is progress. [Interruption.] As the hon. Member for Kilmarnock and Loudoun says, it is for investment managers, not hedge funds. She is still wrong, but she is perhaps less awry than she was. That is progress, and I hope that the Leader of the Opposition and the shadow Chancellor will withdraw any suggestion of a tax cut for hedge funds. We will be looking out to see whether that features in any Labour party promotional material over the months ahead, but I am glad we have made progress on that front at least.
In conclusion, clause 107 supports the Government’s objective to create a more competitive tax system and will increase the attractiveness of the UK as a location for fund domicile. Amendment 67 would serve no useful purpose, given the information already made available about this measure. New clause 7 rectifies a minor omission from clause 105 and ensures that the reduction in the SDLT higher rate threshold to £500,000 operates as intended. I therefore move that new clause 7 be accepted and request that amendment 67 not be pressed.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
Let me begin where the Minister left off, on new clause 7. It is worth noting that section 74 of the Finance Act 2003 provides SDLT relief for lessees of flats who collectively acquire the freehold of their block under rights afforded by the Landlord and Tenant Act 1987 and the Leasehold Reform, Housing and Urban Development Act 1993. The relief sets the rate of SDLT according to the consideration for the freehold divided by the number of flats, which brings the amount of SDLT paid by lessees more into line with what they might have paid had they been able to acquire the freehold of their flats separately. As the Minister said, such acquisitions are commonly undertaken by a company in which the lessees are shareholders. Under such circumstances, the 15%, higher rate SDLT charge in schedule 4A to the Finance Act 2003 will apply if the main consideration exceeds the higher rate threshold.
The Minister pointed out that clause 105 reduces the higher rate threshold from £2 million to £500,000 for transactions where the effective date is on or after 20 March 2014. However, clause 105 omitted to apply the reduction to the relief in schedule 74 to the Finance Act 2003, an omission that new clause 7 rectifies. It is welcome that the Minister has brought forward something to deal with that earlier omission and I will therefore not take issue with him on that at present.
Let me turn to amendment 67 and stamp duty reserve tax. I hope hon. Members will forgive me if I confess to having a sense of déjà vu, because it is not the first time we have debated this issue. Not only did we debate it in Committee, as the Minister acknowledged; we also debated it in last year’s Finance Bill. In fact, it is almost a year ago to the day that my esteemed colleague the hon. Member for Nottingham East (Chris Leslie) was standing at this Dispatch Box trying, as I will be, to make the Government see sense and accept our call for a report to be published. [Interruption.] I think my hon. Friend is indicating that he failed on that occasion.
Cathy Jamieson
I thank my hon. Friend for that intervention. I can only hazard a guess as to why the Government consistently refuse to look at producing any report or to accept any of the requests—quite reasonable requests—that we have brought forward, seeking further information, further transparency and these particular pieces of information. I am forced to conclude either that the work has not been done or that the Government, for whatever reason, do not wish to share those facts and figures with us. That is a pity because it would help hon. Members of all parties if this information were put forward. I shall come on to deal in a few moments with some of my hon. Friend’s other points, particularly regarding how his and my constituents will be affected.
As the Minister said, the Government new clause removes the stamp duty reserve tax charge for which fund managers are liable when investors sell or surrender their units in UK unit trust schemes or shares in UK open-ended investment companies. Some people have argued that SDRT could essentially be considered as some form of transaction tax—not a term that everybody would use, but it has certainly been argued in that context—currently levied at what seems to be a not unreasonable rate of 0.5%. This is the element that the Government propose to remove.
As I have indicated, our amendment would require the Chancellor to publish a report—I always try to be reasonable, fair minded and mild mannered in my requests to the Minister, as he knows from our many discussions in Committee—to show exactly who benefits and who would be left worse off through the abolition of SDRT on investments in those units trusts and OEICs. As I said in Committee, in these straitened times, hon. Members—as my hon. Friend the Member for Inverclyde (Mr McKenzie) suggested—could be forgiven for assuming that such a generous tax break would fall to those who really need it, such as the millions of hard-working taxpayers who are £1,600 a year worse off under this Government than they were in 2010.
Cathy Jamieson
I will give way to the Minister, who I am sure will want to tell me what he is doing for those hard-working taxpayers.
Cathy Jamieson
As I said in Committee and as we have seen in some of the to-ing and fro-ing this afternoon, this tax cut relates to investment fund managers. I hope the Minister will listen very carefully to my points. As my hon. Friend the Member for Inverclyde and I have said, the families that, according to the Institute for Fiscal Studies, will be £978 a year worse off by the next election thanks to the Government’s tax and benefits changes will want to know exactly who benefits from this particular tax cut. I am sure that the Minister is now going to tell us how giving investment fund managers that tax cut will provide support and assistance for the hard-working families in my and my hon. Friend’s constituencies.
Mr Gauke
I have already set out how this tax cut will benefit those contributing towards their pension. I take it from the hon. Lady’s earlier answer to my intervention that she accepts that this is not a tax cut for hedge funds. Will she explain precisely what the Leader of the Opposition was on about when on 10 July 2013 he told the Prime Minister in Prime Minister’s Question Time that there was a £145 million tax cut for “hedge funds”? The Leader of the Opposition was wrong, was he not?
Cathy Jamieson
I am going to come on to the issue of who benefits, but I noticed that, once again, the Minister was not able to say how this particular tax cut proposed by the Government is going to benefit our constituents.
Let me deal with the Government’s tax impact note, which provides some information, saying that the chief beneficiaries of this particular initiative will be the 100 UK fund managers who control 2,500 investment schemes. Hon. Members would doubtless be very concerned if they thought that the overall health of the UK’s investment industry was somehow at risk, which is why the initiative was brought forward. One might think that it was somewhat ailing if it was deserving of a tax cut amounting to, as my hon. Friend the Member for Inverclyde said, £160 million a year. However, if we look at the reality of the industry, we could readily say that it is in pretty good health, raising the question of whether the industry really needs the Government’s help, which could more usefully be put to assisting those hard-working families feeling the squeeze as a result of Government policy.
According to the Investment Management Association, as of January 2014, its members managed over £4.8 billion in the UK on the basis of OEIC funds alone and around £4.5 trillion overall. The association also tells us:
“UK assets under management and funds under management are at record levels, and the UK retains its position as the second largest asset management centre in the world after the US.”
It could well be argued, therefore, that the UK’s investment industry is doing okay— without the intervention or assistance of the Government.
Cathy Jamieson
If the Government, of course, were to produce the report requested in this mild-mannered, sensible and reasonable amendment, we would perhaps have more information on who would benefit—exactly what amendment 67 calls for.
Mr Gauke
The hon. Lady always puts forward her proposals very reasonably, but I have to tell her that there is no need for a report on this issue. Schedule 19 stamp duty reserve tax is not paid by hedge funds, so abolishing schedule 19 SDRT does not benefit hedge funds. Does she accept the point that this has nothing to do with hedge funds?
Cathy Jamieson
I want to move on to discuss further who exactly it does benefit, which is the crucial point. We sometimes hear from the industry that there is some kind of existential threat presented by people moving to Luxembourg, Switzerland or wherever else, but it seems that despite all that, the industry is, as I said, in pretty good health.
One of the things that worry Opposition Members is that the only people about whom the Government seem to be genuinely concerned are those who are already wealthy and privileged. They have cut the top rate of income tax for those earning more than £150,000 per annum—we discussed that earlier, so I shall not say more about it at this stage—and, as bank bonuses rise again, they continue to oppose our proposal for a bank bonus tax to help young people back into work. They have failed to balance the books, as they promised to do, yet it seems that they can still find £160 million a year for those who may not need it as much as others.
Cathy Jamieson
As I said earlier, one thing that the Government could do and have consistently refused to do would help thousands of people throughout the country: they could abolish the hated bedroom tax. They could also accept our proposal for a tax on bankers’ bonuses, and adopt our properly designed programme to get young people back into work and give them the start that they want. Until we get young people into work, ensure that they have adequate housing and ensure that they can have a decent quality of life, the majority will not have an opportunity to think about saving from one year to the next, let alone trying to invest for the longer term. In Committee, I asked whether it was only me—or only Opposition Members—who held this view. My hon. Friend the Member for Gateshead (Ian Mearns) made a powerful speech in which, like my hon. Friend the Member for Inverclyde, he described the reality of what was happening to young people in his constituency.
I have looked at the tax information impact note again, in search of further details of that 22-year-old’s story, but I can find nothing that explains how such people will benefit. The only reference to benefits for investors was this rather disappointing revelation:
“This measure could improve returns on investments (including pensions) but would otherwise have no impacts on individuals or households.”
I do not yet see how the measure can benefit the people we are trying to represent.
I am sure that we would all like to hear the next chapter in the 22-year-old’s life story, and if the Minister has any more information to illustrate the fact that he is just the kind of person who stands to benefit from this measure, I am genuinely willing to hear it. However, in the absence of any such information, I shall return to the subject of amendment 67.
Our amendment invites the Government to lay out clearly and transparently exactly who will benefit from this policy and by how much. In Committee my hon. Friends expressed on a number of occasions the view that this is just another tax break for the Government’s friends in the City. While it does look like that, we are open to giving the Government the chance to prove otherwise. That is why our amendment asks the Treasury to publish the costs to the Exchequer in order to ensure that a list of beneficiaries and a distributional analysis for the abolition of stamp duty reserve tax are put into the public domain. That way we will be able to see all the facts as to who the Government are really concerned about.
Of course, if the Government do not agree to our amendment, we will be forced to conclude that this is just another tax cut for the wealthy, just as we suspected all along. We would also have to conclude, in the absence of any information to the contrary, that any claims of jobs created in regional economies are about as robust as the Prime Minister’s stance on Europe has been, and we would have to look a lot harder to try and find something in this which would create jobs, as seems to have been suggested on previous occasions, because I cannot for the life of me see how that stacks up. If we really want to tackle some of the regional imbalances, let us look at some of the announcements that have been made today, in terms of the reports put forward by the Opposition, about how we can create more wealth and look to ensure that power and resources are devolved to some of our cities and we tackle the issues around infrastructure in the regions.
In the light of the response when we tabled this amendment in Committee, I have to say that I am not at all confident that the Government are going to agree to provide us with the transparency we so urgently need. Again, if we look back to what was said in Committee, we find that the Government were not particularly transparent in terms of the information we were given, because, along with the story of the 22-year-old, speakers on the Government side were keen to stress that, because it is fund investors as opposed to fund managers who will benefit from the removal of SDRT, it would greatly boost investment. Again we have to question whether any increased investment would directly benefit those investment fund managers. Hon. Members were also very helpful in trying to enumerate how many people are currently employed by the industry, but try as they might, they failed, as did the tax information and impact note, to detail that important point about how many jobs would be created by the abolition of SDRT.
We also heard that the tax as it currently operates is
“an uncompetitive charge that puts UK-domiciled funds at a disadvantage to funds domiciled elsewhere”.––[Official Report, Finance Public Bill Committee, 10 June 2014; c. 412.]
That does not square with the idea that the UK investment management industry is doing so well that it is the second largest in the world, beaten only by the US.
I want to draw to a conclusion soon because I put quite a number of questions to the Minister in Committee and it would be useful for us to give him some time to respond to them, as he was not necessarily able to do so in Committee. It is important that we give him the chance again today, therefore. Unsurprisingly perhaps, the Minister is continuing to steadfastly—albeit politely—refuse to countenance our amendment for two reasons. First, he seems to be suggesting that the information requested has already been covered by the tax information and impact note, which, as I hope I have outlined, it does not seem to me to do in any clear and transparent way. The other argument that came up in Committee is that it would be difficult and it would perhaps take longer than six months to do. I am sure—and I am sure the Minister will understand this—that should he wish it to be so, he would be able to utilise all the capacity of the Government to overcome any difficulties, and indeed to ensure more information and a report were brought forward, and I am sure he would also be able to use his good offices to have his Government provide us with considerably more information than is currently contained in the tax information and impact note. It would also be helpful if the Minister could give us more information in his winding-up speech as to why he thinks it would not be possible to do this within a six-month deadline, as we have asked in our amendment.
In conclusion, this is all about priorities. The Government’s measures will reduce Exchequer revenues by more than £800 million over the course of the next five years if this particular measure goes ahead. That funding could be used in a variety of ways, and the Government have to be held responsible for the choices they make. Our amendment simply asks them to undertake that assessment and put the information in the public domain, so that we can see who benefits from this initiative and how it would benefit the wider public. The Government have not made that case; they have not shown how the measure would have an impact on our constituents—for the most part they seem to suggest it would not have any impact on them—and they have not answered the questions put previously about job creation and the impact on the regional economies.
Let me therefore remind the Minister of some of the questions we posed in Committee—I am sure other Members will wish to contribute, but he will also want to answer these in his summing up. The Investment Management Association is saying that the industry is doing very well, so why are the Government handing this tax break to the industry? What evidence can the Minister provide to us, even at this late stage, to suggest that the measure will have a positive impact on the UK economy and, in particular, the jobs market? Unless my memory fails me, he has not so far been able to give me a concrete number on the jobs he expects to be created or any more information about the regional benefits that have been referred to. Can he do that now? It would be helpful if he could do that and if he could set out all that information today. In those circumstances, perhaps I would consider whether our amendment was necessary. I suspect that he will not be able to give that information and will not be able to provide the clarity and transparency we seek, so I strongly suspect that when the time comes, I will seek to press my amendment to a vote.
Mr Gauke
It is a pleasure to respond to this short debate. The hon. Lady has an admirable ability to make unreasonable requests in a very reasonable way, and it falls to me once again to decline her offer, as Treasury Ministers have done in the past when a review or report is sought from them during a Finance Bill debate.
Let me quickly try to address some of the points raised, the first of which relates to the impact on the industry, the competitiveness argument and what we can do to assess that. It is worth pointing out that this measure came into effect only on 30 March, and it will take longer than six months for evidence of how the benefits of the change are accruing to investors to become available. So the report requested in amendment 67 will not adequately be able to do justice to that question.
Another area we have debated on a number of occasions is who benefits from this measure, and I will return to our little engagement on hedge funds. It is worth pointing out that the National Association of Pension Funds, the Association of British Insurers and the Investment Management Association stated their disagreement with the Labour party’s position and its policy proposal last year to reintroduce the schedule 19 charge. They say it would
“impose a £145 million annual cost on the ordinary savers, investors and pensioners, who are the beneficiaries of its abolition.”
That would weaken the UK’s competitiveness as a place for funds to be domiciled. If we are competitive in this sector, we will have more growth and more jobs. Let us be clear that this is not about jobs in the City of London—not that there is anything wrong with jobs in the City of London. The fund management industry directly employs 30,000 people throughout the United Kingdom, and about a half of those jobs are linked to fund domiciles. The jobs are located in many, if not all, the regions and nations of the United Kingdom.
Cathy Jamieson
Of course I recognise the value and the range of those jobs. Will the Minister tell us exactly what assessment the Government have done on the risk of reintroducing the measure, or indeed on the risk associated with producing a report? Surely he will want to investigate fully the number of jobs that he seems to think might be lost if our measure went ahead.
Mr Gauke
The hon. Lady puts her finger on an important word, which is “risk”. Yes, a number of jobs are involved. Some 30,000 people are employed in this industry in the UK. About 10,000 jobs are located in regions and nations such as Scotland, the north-west of England and the west midlands. If we have an uncompetitive tax system in the UK, that sector will suffer. There will be a threat to those jobs. We want to see an expanding and thriving sector, but there is a lot of competition from other jurisdictions in which funds can be domiciled. If we do not compete in the sector, we run the risk of losing those jobs.
There is not only the issue of the industry itself and the jobs that can be encouraged and protected in this country if we have a competitive tax regime, but the underlying point that it is the investors who indirectly bear the burden of this tax. That means that contributors to pension schemes—people in auto-enrolment schemes—will receive less in their pension if this tax remains in place. That is something that we should all seek to address. If we want policies that will be good for jobs and good for savers, then abolishing schedule 19 is a good policy. But what do we get from Labour? We get it embarking on a process to reinstate the policy because it misunderstands it. It thought that it was something to do with hedge funds. After it was explained to Labour Members—I have to say that it has been explained to them time and again—they refused to abandon it. I do not know whether it is still their policy to reverse this, or whether they are calling for a report. As I understand it, it is still the policy of the Opposition to reintroduce this tax.
Simon Kirby
Does the Minister agree that it seems incredibly naive to give away these jobs and reduce these pensions for nothing? Surely the Opposition should better understand the proposed legislation.
Mr Gauke
It is striking that time and again senior figures in the Labour party went around describing this as a tax cut for hedge funds. It is to the credit of the hon. Member for Kilmarnock and Loudoun that she refused to repeat that accusation. Although she did not quite go as far as she might have done towards putting the record straight, at least she did not repeat the accusation despite being given multiple opportunities to do so. I do worry about the understanding of some issues within the Labour party. Just today, we have seen the example of the confusion about how many jobs have been created inside and outside London. I understand that the Leader of the Opposition is standing by his position this morning, although he did not quote that in his speech—but there we go. I am afraid that this is an example of somewhat shoddy thinking from the Opposition.
Ian Swales
On the same theme, did the Minister share my concern about the number of speeches made in Committee by Opposition Members that appeared to suggest that the benefits of the policy would accrue to the managers of the funds rather than the funds themselves?
Mr Gauke
Yes, I did. There was a complete absence of any understanding of tax incidence and of who ultimately bears a tax, but that, I am afraid, is all too typical.
The removal of schedule 19 is a welcome measure that will ensure that we have a competitive investment funds management set-up in the UK. It will help savers and those investing in their pensions and remove a distortive and uncompetitive tax. It is a great pity, although not a great surprise, that this further measure to improve our competitiveness and to help savers is opposed by the Opposition, and I certainly urge my colleagues to vote against amendment 67, assuming that it is pressed to a vote.
Question put and agreed to.
New clause 7 accordingly read a Second time, and added to the Bill.
Clause 107
Abolition of SDRT on certain dealings in collective investment schemes
Amendment proposed: 67, page 90, line 33, at end insert—
‘(5A) The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish and lay before the House of Commons a report setting out the impact of changes made to Schedule 19 of the Finance Act 1999 by this section.
(5B) The report referred to in subsection (5A) must in particular consider—
(a) the impact on tax revenues;
(b) the expected beneficiaries; and
(c) a distributional analysis of the beneficiaries.”—(Cathy Jamieson.)
Question put, That the amendment be made.
Ian Murray
I apologise to the House for not being present at the beginning of the debate. The previous debate finished slightly earlier so there was a clash with something else that I had in my diary. However, I want to make a few comments on this because it harks back to new clause 14, which we debated earlier. All we are looking for in new clause 11 is some transparency on this policy. We know it was introduced with great fanfare by the Chancellor at the Conservative party conference last October when he said:
“Workers of the world unite.”
The conclusion to the workers of the world uniting was that everyone united against this policy.
This is incredibly relevant to the Finance Bill because it has created a significant tax loophole. On new clause 14 on the 50p tax rate and the need for transparency on how much tax that takes, the Government said clearly that 45p brings in more tax at the top rate than 50p, which brings in less because of tax avoidance. In this case, we are looking at the biggest tax avoidance measure we can get. It has been described by the Institute of Fiscal Studies as a billion-pound tax lollipop on the table. If we are serious about tackling such tax avoidance, it would be great for transparency, not just for the House but for the country, if a report were produced showing take up and the consequences of that.
Because it is such an important prospect, we need to look at what the Chancellor tried to do in his conference speech. We will end up in the situation where people are able to sell their rights for a few pounds that might be worth nothing. That is not the kind of working society that we want. It is not the kind of partnership that we want between employers and employees and trade unions, whereby people can sell their rights for maternity pay, unfair dismissal, and all those rights referred to by Beecroft in his report for the Prime Minister. We now have a fire-at-will culture, which does nothing to dispel the Government’s move towards a hire-and-fire culture with this proposal. There are the hallmarks of another tax avoidance scheme. Why on earth would we want to produce a scheme that not only allows people to sell their rights and not be covered by any employment rights, but to be in a situation whereby those at the top end of businesses can use these mechanisms to avoid paying tax? I hope that the Minister can address some of those serious concerns when he replies.
I cannot understand why the Government would not accept new clause 11 if they are so confident that this measure will be well used, resulting in a transformation in entrepreneurship, with people hiring more and more employees because they do not have what the Government would call the burden of employee relations. Why would they not want to produce a report showing how many people are using the measure? I do not understand why they do not want to produce a report showing the impact on the Treasury coffers, through capital gains tax and any other tax receipts that might be lost.
It is important for the Government to have confidence in their proposals. The Chancellor was confident when he announced it with great fanfare. I am not sure whether it will have any take-up, because of the way it has been presented and the message it sends out. Justin King, the former chief executive of Sainsbury’s, said that it sends out a poor message. Many chief executives and business owners say that it sends out such a poor message on the partnership we want in the workplace.
Therefore, if the Government wish to have confidence in their own policies, it is only right that they agree to new clause 11, bring forward the report setting out the take-up and the data collected on the scheme and publish further reports every year. If the scheme is denying people their rights at work at the same time as denying the Treasury valuable income, this House should know about it and be able to debate it so that it can hold the Government properly to account.
Mr Gauke
As we have heard, new clause 11 would require the Chancellor to review the impact of the new employee shareholder status on tax revenues and to publish a report setting out the impact on capital gains tax receipts, the estimated value of shares owned by employees with employee shareholder agreements and the number of such employees. Let me set out why I believe the new clause is unnecessary—a word the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) rightly predicted would come up, although, to be fair, we have had this debate before.
It is far too early for any detailed information on the employee shareholder status to be available. It has been available only since 1 September 2013, and we have not yet reached the deadline by which companies must submit their annual share scheme returns covering that period. Therefore, the Government do not yet have full information about the use of the new employment status. Once received, it will take time to process and analyse those data. The Government set out the potential impact on tax revenues in our tax information and impact note for the employee shareholder tax reliefs, and there are currently no additional data available that would allow that to be updated.
In addition, it is not necessary for a requirement to publish information to be placed in legislation. HMRC publishes a wide range of information about employee share schemes with no such statutory obligation. For example, only last week it published a wealth of data on the use of the tax advantaged employee share schemes during the year ending 2012-13.
We will consider whether that type of publication is appropriate for employee shareholder status or whether a different approach might better enable an evaluation of the employee shareholder status. As the Government have made clear, the employee shareholder scheme is different from the existing tax advantaged employee share schemes. It is primarily designed as an employment measure to encourage choice, growth and flexibility over the long term, rather than being focused on tax advantages. We will want to take those broader factors into account when evaluating the policy. However, given that employee shareholder legislation has been in operation for less than a year, it is simply too early to be finalising any details in that area.
Ian Swales
I certainly accept the Minister’s point about the timing for reporting back on the scheme. However, we are starting to see examples of the very few companies that are taking it up, and they seem to be focused on high earners in industries such as private equity, who arguably are not very worried about their employee rights anyway. For example, eight managers at European Capital each received the maximum £50,000 recently when they sold one of their businesses. Can the Minister say what kinds of companies are registering and how the scheme is working so far?
Mr Gauke
We have been consistent throughout. No one argues that the arrangement is right for everybody; it will be suitable only in particular circumstances. It is more likely to be relevant for fast-growing areas involving a relatively small number of highly valued individuals who benefit from arrangements that incentivise performance but who are not necessarily looking for extensive employment rights.
It has been said before in the context of this debate that there are employees who benefit in full from employment rights; there are the self-employed, who have essentially no rights in this area; and there is a gap in the middle. Part of the thinking behind the arrangement is about ensuring that something appropriate falls in between—something useful for fast-growing small and medium-sized companies that want to create a flexible work force.
Ian Murray
I appreciate the intervention just made by the hon. Member for Redcar (Ian Swales). The issue is surely not one of employment flexibility; it is about maximising tax advantages. The policy has been announced on the basis of allowing companies—particularly high-growth technology companies—to employ people on a more flexible basis, but the example just given by the hon. Gentleman goes completely against that. That shows that the scheme is being used for tax-avoidance purposes.
Mr Gauke
I do not accept that. As far as avoidance is concerned, the tax reliefs are intended to encourage the take-up of employee shareholder status by individuals when that is offered to them. However, those reliefs are not an end in themselves. A number of rules in the legislation will prevent abuse of the new status while keeping it as simple as possible for employers and employees to use. For example, there are rules that will stop people with a material interest in the relevant business exploiting the tax reliefs for their or their families’ benefit. We will always keep the matter under review. As I said, if we see any abuse, we will act. However, we believe that we have put in place rules that protect the Exchequer from such tax avoidance.
I want to say a little more about take-up. My hon. Friend the Member for Rochford and Southend East (James Duddridge) made a good point: the argument is simultaneously that no one is making use of the scheme and that the scheme will cost a lot in tax avoidance. There is something of a tension between those two positions.
We decided not to introduce a pre-registration or pre-approval system for those wishing to make an employee shareholder agreement. The Office of Tax Simplification has told us that HMRC pre-approval of share schemes is outdated and time consuming for businesses. Data on employee shareholder status will therefore be picked up from companies’ annual share scheme returns to HMRC. As I said, the scheme has been in place only since the beginning of September 2013, so we have not even reached the deadline by which companies must submit their returns to HMRC for that period. It is far too early to finalise any details of publication.
Catherine McKinnell
Given the widespread concern expressed about the scheme, is the Minister’s position—that the Government will just wait and see—not incredibly complacent? When the returns come in, the scheme may prove to have been one big tax avoidance opportunity, but the Government seem perfectly relaxed about that.
Mr Gauke
No, that is not the case. As I said, when the original legislation was passed, protections were put in place; a moment ago, I gave an example of one designed to prevent abuse. We will continue to monitor the issue. As with all activities, if evidence of avoidance emerges, the Government will be determined to act, as we have time and again.
On the data on employee shareholders and on take-up, a question raised by a number of hon. Members, I am simply seeking to explain that I am not in a position to give the information that the hon. Lady and others have asked for because we have not required pre-approval or pre-registration for the scheme. That point is also relevant to the FT figures on take-up that have been mentioned. As there is no need for companies making use of the employee shareholding scheme to contact BIS in advance and there is no registration or approval system, we do not expect BIS to have a definitive list of all those companies that have made use of the scheme. That is why I am not in a position to give that information to the House and why the figures that were used by the Financial Times should not necessarily attract a huge amount of excitement.
The scheme is a new facet of our employment practices. It is probably unfair to judge a scheme such as this in its first few months because it will need time to bed in before there is wider knowledge about it and it is more widely used. As I have said, I am not in a position to provide information at this point.
Ian Murray
I am grateful to my favourite Treasury Minister for allowing me to intervene again. What the Minister is missing is that, according to his Government’s own figures in the Red Book, £1 billion has been allocated to this proposal. Why will he not agree to the new clause, which would allow the House to scrutinise what that £1 billion of public money is being used for? That way we could avoid the situation raised by the hon. Member for Redcar in which people use the scheme to avoid tax rather than as a proposal to create growth and to get more people into employment by denying them their workers’ rights.
Mr Gauke
It is always a great pleasure to give way to my favourite Member of Parliament for Edinburgh South. In quoting the figure of £1 billion he is somewhat conflating two things. One is the OBR’s estimate of the potential cost of the scheme some years into the future, if a whole set of circumstances apply and we do not take action to deal with any concerns that might emerge. As far as the Red Book is concerned, the published estimates of the annual cost of the measures are £10 million in 2016-17 and £45 million in 2017-18. Those are the numbers and we have no reason to believe that they will prove inaccurate, so to correct the hon. Gentleman for the record, we are not talking about a cost of £1 billion.
New clause 11 would impose an obligation on the Government that is not only unnecessary but, as I have set out in some detail, could not be met given the current availability of data on take-up of the employee shareholder status. Given that the new clause is unnecessary and would be unworkable, I ask the Opposition not to press it.
Catherine McKinnell
It will be no surprise that I find the Minister’s response extremely disappointing and a little concerning in its complacency towards a policy about which widespread concern has been expressed. Taking away the rights of working people across the UK is no substitute for a proper strategy for economic growth. The policy makes it easier to reduce rights at work and fire people, rather than making it easier to hire people. That shows just how out of touch the Government are.
I commend the hon. Member for Bedford (Richard Fuller) on his thoughtful speech. I also commend my hon. Friend the Member for Islwyn (Chris Evans) on his mammoth and excellent speech, and my hon. Friends the Members for Wythenshawe and Sale East (Mike Kane) and for Edinburgh South (Ian Murray). Opposition Members have put forward a powerful argument for the reasonable new clause that we have tabled. It simply asks the Government to make a proper assessment of who is taking up the shares for rights offer and what the cost to the Exchequer will be, including any loss from tax avoidance or abuse. As far as we can see, this is just another way in which the Government are trying to water down the rights of people at work.
Frankly, to Opposition Members and the many business organisations that have expressed their concerns, this policy stinks. The House and members of the public deserve to know exactly what the implications of the policy will be before the horse has bolted. The Government say that they will only shut the gate once that has happened. [Interruption.] I hear hon. Members groan at that, but I quote Lord Deben:
“I cannot imagine any circumstances whatever in which this would be of any use to any business that I have ever come across in my entire life.”—[Official Report, House of Lords, 6 February 2013; Vol. 743, c. 293.]
I think that he puts it very well.
Shabana Mahmood
I think the hon. Gentleman and other Government Members should apologise for the fact that their Government have delivered a huge tax cut for millionaires while households are on average £974 a year worse off. That is a deplorable record and the Government should apologise for it.
We have already discussed at length today the fact that ordinary working people in our country are worse off as a result of this Government’s economic plan. As I have said, households are £974 a year worse off as a result of tax and benefit changes, and wages will be 5.6% lower in 2015 than they were in 2010. We also know that it is the richest 1% of the country who have benefited most from the recovery. With working people facing a cost of living crisis, it is vital that everyone pays their fair share and that we restore public trust. When ordinary people are struggling with their household budgets, which are stretched ever thinner, it is understandable that there will be increasing anger if they feel that others are successfully avoiding tax and the Government are failing to do enough about it.
The same goes for businesses, too. We know that small and medium-sized enterprises are struggling with business rates, for example, which have gone up since 2010. Many businesses are now paying more in rates than they do in rent. Businesses that do the right thing when it comes to tax are understandably frustrated and angry when they see others that do not play by the rules, and they are right to think that there should be a level playing field, so that those who do the right thing are not penalised because others get away with not paying their fair share. High-profile cases of tax avoidances have therefore undermined public trust in company taxation and hit businesses that play by the rules.
Our best measure of how well the system is working is the tax gap—which is effectively the amount of uncollected tax in the economy—which has risen under this Government by £1 billion to a total of £35 billion.
Shabana Mahmood
I know the Minister will say that it has gone down in percentage terms, but only by 0.1%. I assume that that was the intention behind the intervention he was about to make.
Shabana Mahmood
Focusing on the actual figure is important. It concentrates the mind when assessing the scale of the task both for this Government and the successor Government in 2015. By anyone’s analysis, £35 billion is a huge sum, which, if collected, would make a very significant difference to the nation’s finances.
Shabana Mahmood
Given the cuts at HMRC, this Government’s record on HMRC resources, which is a topic I regularly debate with the Minister, is not one for Members on the Government Benches to show off about.
First, let me take the issue of the quoted eurobonds exemption. That was originally implemented to make it easier for companies to obtain finance from the international bond markets by excluding corporate debt listed on recognised stock exchanges from UK withholding tax. Making it easier for companies to obtain finance on the international bond markets is a legitimate objective that we support. However, as covered in a spate of high-profile media stories last year, the exemption can also be used for tax avoidance purposes, allowing companies to shift profits out of the UK in the form of interest payments, without making any tax payment. As HMRC has noted:
“In recent years a number of groups have issued Eurobonds between companies in the same group, and listed them on stock exchanges in territories such as the Channel Islands and Cayman Islands, where they are not actually traded. In effect, the conversion of existing inter-company debt into quoted Eurobonds enables a company to make gross payments of interest out of the UK to a fellow group company, where otherwise deduction of tax would be required.”
The Government consulted on the issue in 2012, with HMRC proposing to amend the eurobond exemption so it would not apply where the eurobond is issued to a fellow group company and listed on a stock exchange on which there is no substantial or regular trading in the eurobond. HMRC stated:
“The effect of the amended rule would be to leave untouched the quoted Eurobond exemption for the overwhelming majority of Eurobond issues. It would deny the exemption only in the case of intra-group Eurobond issues that appear to be undertaken for the purpose of circumventing the requirement to deduct tax at source rather than being directed at the raising of third party finance.”
Despite HMRC estimating that the proposed restriction could have an extra impact of £200 million a year, in their response, the Government stated that they did not intend to proceed with it. Why not? Well, the Government said they made that decision in the “light of the responses” they received around a number of technical issues and after respondents questioned the positive Exchequer effect set out in the impact assessment.
That is simply not good enough. We say that abuse of the exemption can be shut down and must be shut down. Our proposals will explore removing the exemption where bonds are issued to connected persons, such as where a subsidiary issues a bond to a corporate parent or its private equity fund owners. To minimise disruption to private equity funds using the mechanism to simplify investor rebate claims under double taxation treaties, we would explore either offering an exemption for private equity partnerships where all, or the vast majority of, the ultimate beneficiaries would qualify for double taxation relief, or streamlining the withholding tax rebate process in consultation with the industry. So there is a mechanism to shut down the abuse of the exemption. It could and should have been taken up by the Government.
The estimates of the Exchequer impact of closing the loophole range from £1 billion to the Government’s estimate of about £200 million, with many more commentators saying that they would place it at about £500 million. In a letter to me dated 4 March 2014, the Minister said:
“Some newspapers quoted a figure of £500m for the tax at risk. This appears to be based on the unrealistic assumption that the interest paid out of the UK had not been restricted for tax purposes and that the beneficial recipient would not be entitled to gross payment. You will appreciate that I cannot discuss individual cases, but HMRC has confirmed to me that computational adjustments are frequently made. Consequently, the £500m sum is very wide of the mark. Any change here will not raise any significant yield.”
I was interested in that response, for which I was grateful and which I received after I had tabled a number of questions about the quoted eurobond exemption, because it displayed a concerning lack of clarity. The Minister says that the numbers quoted are “wide of the mark” but he does not say where the mark actually is. That is surprising, given that HRMC and the Minister have examined this in detail and have consulted on it, and given that they tell us that “computational adjustments” are regularly made for it. Despite that, still no figure has been given.
Mr Gauke
In my letter, I also offered the hon. Lady a meeting, attended by officials, to discuss the matter and explain some of these points to her further. I will try not to be personally slighted, but she has not responded to that offer. Why has she not done so? Is it because of the fear that when confronted with some of the challenges in this area she might find that this is all slightly more complicated than she has been led to believe by one or two newspaper articles?
Shabana Mahmood
I am grateful to the Minister for his intervention and I hope he does not take it as a personal slight that I did not, on that occasion, take him up on the offer of a meeting. I will try not to be patronised by the suggestion that these matters are far too complicated for me to understand and that I am getting my information only from newspaper articles.
Mr Gauke
It is quite the opposite: I have absolute confidence that the hon. Lady would have the capacity to understand that this matter is somewhat difficult, but it is often advantageous to speak to the officials who deal with it on a day-to-day basis in order to have a better understanding of it. It would be of benefit to her, and to the House as a whole, to ensure that this debate could take place on the basis of as good an understanding of the matter as possible. By the way, the invitation still stands.
Shabana Mahmood
I may yet take the Minister up on it. But it would be a mistake for him to think that our proposal has been made without consulting experts who are very much engaged on the issue of eurobonds. I am confident that the information we have put out as a result of our business taxation paper, launched yesterday, is accurate and that we have considered the different legal and other ramifications of limiting the abuse of the exemption as it currently stands.
Shabana Mahmood
I am going to make a bit more progress.
Let us say for the sake of argument that the figure is close to the £200 million or so set out in the original HMRC consultation. I was surprised that the Minister did not think that sum would merit action. The tone of his comments to me suggested that he considered that to be a small sum and so it was not worth going ahead with the attempt to close down the abuse of the exemption. I am afraid that, as an argument, that is not something that I am prepared to buy. Why? Well, in this year’s Finance Bill Committee, we have debated and supported a measure in clause 61 on business premises renovation allowances.
Mr Gauke
I would hate it if the hon. Lady inadvertently gave the impression that it was my view that the £200 million was not something that we would seek to address; we certainly would. In my letter to her of 4 March, I said:
“In the small number of cases in which a restriction might be considered appropriate, it was also clear from the consultation responses that the proposal would not be effective in addressing the concerns.”
In other words, the proposal that was consulted on would not have got the £200 million. That is why we did not proceed with it. I want to make that clear, and I am sure that she would not want to give a misleading impression.
Mike Kane
In the few moments that I have, I want to point out that self-employment is being used by far too many employers to engage workers in the construction industry, as my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) pointed out. According to the Union of Construction, Allied Trades and Technicians report “The Evasion Economy”, 400,000 workers are being engaged in that way. Those workers miss out on the rights that normal workers get. According to another UCATT report, “The Great Payroll Scandal”, this practice is costing the Exchequer up to £1.9 billion per annum.
When I talked to construction workers on Friday night, they spoke of the scandal of payroll companies making millions of pounds. This is a legitimised dodgy practice. The companies get workers to sign a contract to say that they are self-employed, but they work for a single employer. In any legal sense, their status would be defined as a direct employee, yet they lose all the rights that we have spoken about. It should no longer be possible for companies to instruct such construction workers to turn up on site when they want them. Construction workers need the security of employment rights and full national insurance contributions should be paid.
Mr Gauke
We have had a lively debate, and I will try to address as many of the points raised as possible in the time available.
New clause 12 seeks to have the Government produce a report on how to reduce the tax advantages arising from tax arrangements that are abusive. I agree that tax avoidance is a key issue, and the Government have made it abundantly clear that we will not stand for a minority of taxpayers continuing to seek unacceptable ways to reduce the amount of tax they pay through contrived and artificial means. That increases the tax burden on the rest of society and creates an unfair playing field for businesses.
Let me explain why I do not think that a report would be beneficial. The Government have taken strong and robust action to tackle avoidance. Since 2010 we have introduced 42 changes to tax law to close avoidance loopholes and make strategic changes to prevent and deter tax avoidance. Those measures include the introduction of a general anti-abuse rule, strengthening the disclosure of tax avoidance schemes regime, clamping down on stamp duty land tax avoidance with a new range of measures —including an annual tax on envelope dwellings—and numerous changes to business tax rules and reliefs to tackle bad behaviour, including misuse of the partnership structure and corporate loss buying.
We are going further. In the Finance Bill we are introducing new measures to put in place tougher monitoring regimes and penalties for high-risk promoters of tax avoidance schemes, and we are introducing accelerated payments and follower notice measures that will give HMRC the power to collect disputed tax bills up front, putting those who try to avoid tax on the same footing as the vast majority who pay all their tax up front.
Let me address the concerns raised by my hon. Friend the Member for Aldershot (Sir Gerald Howarth) and the hon. Member for Linlithgow and East Falkirk (Michael Connarty). The vast majority of people pay their tax up front, but it is possible for people working through self-assessment to make use of a tax avoidance scheme and hold on to the money during the—often lengthy—period where there is a dispute. The law is the law, however, and it is the law that existed when the arrangements were made that continues to apply. We are making a change, however, to say that while there is a dispute, the money should be held by the Exchequer and not the taxpayer, just as happens in many other circumstances where there is a dispute in our tax system. This is money that the individual would have already paid if they had not entered into an avoidance scheme. When completing their self-assessment return, they would have notified HMRC that they were taking part in a tax avoidance scheme under the disclosure of tax avoidance schemes regime, and as I said, the taxpayer can continue to dispute the case and will be paid interest should they win. The rights of the individual are therefore not being restricted. Prudent taxpayers should recognise that tax avoidance carries a significant risk of not working and the tax becoming payable, and they should make plans for such an outcome.
In addition to changes in law, we have invested £1 billion in increasing HMRC’s compliance resource, which has reaped huge benefits. HMRC is ever more successful at tackling the avoidance it sees, and it has an excellent record in litigating the avoidance schemes that taxpayers choose to take to tribunal. It wins about 80% of cases, and persuades many more taxpayers to settle before the case gets that far. Between April 2010 and March 2014, it won 94 avoidances cases in tribunals and courts, and in 2013-14 alone, its 30 wins protected £2.7 billion of tax.
The Government will continue to close loopholes in tax law and introduce strategic responses to tax avoidance across the tax system. We will act robustly to respond to abuses that we see. We consult on those measures where we can, although hon. Members will understand that in certain circumstances we must act quickly to close down abuse, so consultation is not possible. A report will add nothing to the progress that we have made and continue to make. Action is more important. We have proved we are taking action to tackle tax avoidance across the board, and we will continue to do so.
In the time available I do not think I can do justice to the fairly lengthy speech on eurobonds by the hon. Member for Birmingham, Ladywood (Shabana Mahmood), but the £500 million figure that she quoted, which is somehow supposed to be at risk, seems to be based on an article in a newspaper. It is not a figure we recognise. It wrongly assumes that the recipient of the interest would not be entitled to gross payment of interest and fails to take into account the fact that under the UK’s double tax treaties the tax would often be repaid anyway.
I extend again the offer that I made in March to the hon. Lady. I have been a shadow Treasury Minister and I recognise the challenges in developing policy in these areas without access to officials. I would be more than happy to meet her, with officials, to talk through some of the practical points of this issue. I think she will find that that £500 million is something of an illusion. In terms of the practical points that she raised about changing the withholding tax system, I ask her to bear in mind the double taxation treaties. Her proposals might not be as easy as she believes.
The alleged abuse of disguised employment in the construction sector is an important point. Some labour providers have created structures specifically designed to avoid tax and national insurance and gain a commercial advantage over those who play by the rules. The Government aim to put a stop to those practices in the construction sector and elsewhere through the new measures introduced in this Bill to tackle false self-employment intermediaries. They will provide a level playing field for compliant labour providers who help to facilitate the UK’s flexible labour market.
The new measures that we are introducing target structures set up to present workers as self-employed when they are really employees. This has been a growing problem in recent years and has spread from the construction industry to other sectors. That is not acceptable. Workers lose out on their rights, it creates competitive disadvantages for compliant businesses, and ultimately the taxpayer foots the bill. That is why we are acting now to stop the abuse. Intermediaries are the biggest mechanism for delivering false self-employment within the construction industry, and as I have said, the practice is spreading. Tackling employment intermediaries used to facilitate false self-employment will not only more effectively target a sizeable section of the false self-employment in construction—a point raised by the hon. Member for Wythenshawe and Sale East (Mike Kane)—but will stop the spread of the problem to the wider economy.
We believe our proposals are the best way to tackle avoidance in that area. The previous Government consulted on proposals to tackle false self-employment in construction in 2009, which deemed all construction workers to be employed unless they fulfilled one of three criteria. In practice, that would have meant that bricklayers would need to provide their own bricks and roofers would have had to supply their own tiles to be categorised as self-employed. As set out in the consultation response document, analysis suggested that the proposals could undermine legitimate commercial practice and run the risk of capturing genuinely self-employed individuals.
A dormant company is one that is not within the charge to corporation tax at all, whereas the new clause appears to relate to companies that are within the charge but fail to file returns. That is not avoidance but evasion. HMRC uses risk-based procedures and extensive data-matching analysis to identify companies that should have filed returns but have not done so. All such companies are risk-assessed to establish whether they come within the charge to tax. Research suggests that the risk of tax loss is small. HMRC’s activity is carefully targeted, ensuring administrative burdens for compliant customers are minimised while focusing on the non-compliant.
I draw the House’s attention once more to the Government’s strong response to the threat of tax avoidance, including our unprecedented action to close loopholes and provide new tools for HMRC to tackle avoidance. The report proposed by the Opposition is unnecessary and would distract HMRC from delivering on its important work tackling avoidance. I call on the hon. Lady to withdraw the new clause.
Shabana Mahmood
I am disappointed that the Minister will not engage with the practical measures envisaged in the new clause. We have had an interesting debate, but I wish to press the new clause to a Division.
Question put, That the clause be read a Second time.