Draft Double Taxation Relief and International Tax Enforcement (Guernsey) Order 2018
Draft Double Taxation Relief and International Tax Enforcement (Isle of Man) Order 2018
Draft Double Taxation Relief and International Tax Enforcement (Jersey) Order 2018
(5 years, 6 months ago)
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The Committee divided: - Ayes: 9 / Noes: 7 - Question accordingly agreed to.
The Committee divided: - Ayes: 9 / Noes: 7 - Question accordingly agreed to.
The Committee divided: - Ayes: 9 / Noes: 7 - Question accordingly agreed to.
The Financial Secretary to the Treasury (Mel Stride)
I beg to move,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Guernsey) Order 2018.
The Chair
With this it will be convenient to consider the draft Double Taxation Relief and International Tax Enforcement (Isle of Man) Order 2018 and the draft Double Taxation Relief and International Tax Enforcement (Jersey) Order 2018.
Mel Stride
It is a pleasure to serve under your chairmanship, Mr McCabe, as always. As you have suggested, I will speak to all the orders.
The orders before the Committee give effect to replacement double taxation agreements with each Crown dependency. DTAs remove barriers to international trade and investment and provide a clear and fair framework for taxing businesses that trade across borders. By doing that, they benefit business and the economies of the jurisdictions concerned.
I will briefly say a few words about the agreements, which are identical in all material respects. Our current DTAs with the Crown dependencies date back to the 1950s. Although they have been updated on occasion, there was a need for a comprehensive update. The new DTAs extensively modernise the existing texts to reflect updates to the OECD model tax convention and changes to the tax laws and treaty preferences of all jurisdictions.
Like the UK, the Crown dependencies are signatories to the BEPS—base erosion and profit shifting—multilateral instrument, or MLI. However, we could not use the MLI to make changes to our existing DTAs with the Crown dependencies because they are not international law agreements. Instead, the new DTAs include all the provisions that would have been implemented by the MLI.
Instead, we have implemented the treaty-related minimum standards mandated by the BEPS project through the agreements. That means that we have included the new preamble, which clarifies that the purpose of an agreement is not to create opportunities for avoidance and sets out the principal purpose test, which is the mechanism by which benefits can be denied where the main purpose of a transaction or arrangement is to avoid tax.
In line with the OECD model, the new agreements are comprehensive in scope and cover all income and gains, including articles on interest and royalties for the first time. However, benefits in respect of interest and royalties are limited to persons who can demonstrate a close connection to Crown dependencies, which ensures that residents of third countries will not be able to exploit the provisions. The new agreements also provide for mandatory binding arbitration, which ensures that disputes are resolved and double taxation avoided.
The current agreements have been updated twice in the recent past to ensure that they could not be used to frustrate the intention of UK legislation on offshore property developers and leasing in the oil and gas sector. The amendments are incorporated in the new agreements, and this comprehensive update will avoid the need to make such changes in future. Finally, the new agreements also provide for mutual assistance in the collection of tax debts, which will enable the UK to ask the Crown dependencies to recover UK tax from their residents on our behalf.
In summary, these are agreements that the UK and the Crown dependencies can be happy with. They protect UK revenue and provide a stable framework in which trade and investment between the UK and the Crown dependencies can continue to flourish. I therefore commend the three orders to the Committee.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to serve on this Committee with you in the Chair, Mr McCabe. I am grateful to the Minister for his explanatory comments, but I am afraid that the Opposition cannot support the treaties in their current form.
Let me say at the outset that the Opposition’s concern about the treaties is in no way a reflection of our overall view of the Channel Islands, with whom we are determined to maintain a cordial and respectful relationship, building on our important historical and contemporary ties. Nor would the Opposition view the previous double taxation agreements as fit for purpose. They were not, although there appears to have been confusion in that regard on the Government side. I will return to that later.
Our opposition to the treaties is motivated instead by a deep concern about the lack of appropriate engagement by the Government in advancing the cause of tax transparency, which at rhetorical level they are committed to, but which time and again they seem sadly to have resiled from in practical terms. During debates on the Sanctions and Anti-Money Laundering Act 2018, the Opposition prepared an amendment requiring Crown dependencies to introduce public registers of beneficial ownership, but we were persuaded by Ministers that they were working with Crown dependencies to achieve transparency through other means. The amendment was therefore withdrawn.
What has happened in the intervening six months since the beginning of May? It looks as if even the Government’s responsibility to require overseas territories to introduce public registers of beneficial ownership has floundered. The Government are obliged to do that now by the will of this House, given that the amendment to that intent passed. I understand that there has been one conference call with the overseas territories, and that appears to have been in relation to what the Government are committed by this House to achieving regarding promoting beneficial ownership registers in the overseas territories.
When it comes to the Crown dependencies, the Government appear to be shutting the door on transparency with these treaties, which is unacceptable. From what I can see, the previous tax treaties with the Channel Islands covered only income tax and corporation tax, not information exchange. There was a separate agreement on the latter, signed in 2013 as an exchange of letters, although that does not seem to have been enacted. As an aside, it would be quite interesting to hear from the Minister why that is the case.
Information exchange is now included within the tax treaties, as one might expect given the OECD’s focus on this area and the fact that, as the Minister indicated, the treaties are modelled on the OECD’s multilateral instrument for amending tax treaties. Given that information exchange was a subject for negotiation as part of the treaty process, and given previous assurances, one would have expected our Government to seek to include an increase in transparency for beneficial ownership registers within the negotiations. However, article 26 in the Jersey agreement, replicated in those with Guernsey and the Isle of Man, states:
“Any information received under paragraph 1”,
which contains the provisions on information exchange,
“by a Territory shall be treated as secret”.
That, coupled with the fact that there is no mention elsewhere in the treaty text of public registers of beneficial ownership, appears to close the door on transparency, rather than open it in the manner that the Government committed to doing.
Alex Cunningham (Stockton North) (Lab)
The pensions industry is probably one of the most secretive as far as costs and transparency are concerned, although the Department for Work and Pensions and the Pensions Minister have done tremendous work to try to increase transparency. There is a lesson there for the Minister.
Anneliese Dodds
I am grateful to my hon. Friend. He makes the serious point that we have seen transparency moving forward in many areas, yet with these treaties we appear to be moving backwards.
The Government may say that they began negotiations on the treaties in April 2016, as reported by the then Minister responsible, Jane Ellison, but the fact remains that they were not signed until 2 July this year—after the Government had given an assurance that they would work with the Crown dependencies towards public registers of beneficial ownership. We often hear the Government say that they cannot force either the overseas territories or Crown dependencies to do anything at all. I resolutely state that we must do all that we can to support our friends in the overseas territories and Crown dependencies.
I have frequently met with politicians from both groups of jurisdictions, and I respect their efforts in the field of promoting clean financial services and in many other areas. Many people in both groups of jurisdictions now recognise that the writing is on the wall when it comes to excessive secrecy in the financial sector. More transparency is coming, and it is only a matter of time before it will become the international standard. The British Government must play their part in that.
The treaties were the perfect opportunity for our Government to seek to work with the Crown dependencies to promote public registers after previous commitments to do so, yet that opportunity seems not to have been taken up. It would have been perfectly possible for our Government not to have concluded the treaties until public registers were agreed to, but they chose to ignore that pressing need. Similarly, the Government failed to use the opportunity of the Building Societies Legislation (Amendment) (EU Exit) Regulations 2018 as a means to require change. Instead, the current relationship between the UK and the Crown dependencies is maintained in those regulations without any conditions attached whatsoever.
That is all in the context of the Government acting to defend the interests of UK-linked territories—or what is portrayed as their interests; I would argue that in the long run they are not—when it comes to the secrecy of financial activities. I have previously used freedom of information requests to try to get to the bottom of the lobbying that our Government have undertaken on behalf of overseas territories and Crown dependencies concerning the EU’s tax haven blacklist. Eventually that hit a brick wall, when those matters were classified as “diplomatic” and therefore not open to FOIs. The Süddeutsche Zeitung newspaper was rather more forthcoming, however, when it reported in March that the UK Government had intervened in the blacklisting process, in that case to try and stop the British Virgin Islands being blacklisted.
The British Government cannot have it both ways. They cannot on the one hand argue that they are powerless in relation to our overseas territories and Crown dependencies, and on the other promote a particular view of those territories’ interests—which, as I have said, I do not think are their long-term interests—to other actors such as the EU. Those positions are just not compatible. It would be helpful to hear the Minister’s view on why these treaties do not conform with previous commitments made by the Government with respect to public registers of beneficial ownership for our Crown dependencies.
The Minister will be aware of the eurobond exemption, which has been estimated to lose the Exchequer around half a billion pounds a year in tax revenue. The Channel Islands stock exchange is a recognised stock exchange under section 841 of the Income and Corporation Taxes Act 1988. Securities listed on that exchange enjoy exemptions from withholding tax even though they may be held by opaque companies. A UK company, for example, would make interest payments gross, without any withholding tax, while in many cases the recipient would arrange their tax affairs in such a way that they could escape tax altogether. I understand that, back in 2012, HMRC itself suggested that that could be restricted, so that the connected parties could no longer benefit from the exemption. My party also adopted that position at the time. The Government’s argument against it was that issuers, paying agents and clearing systems for eurobonds might not be aware of who noteholders are or whether they are in the same group as the issuer. Essentially, they would be unable to work out if they were connected parties. It would be good to hear from the Minister whether that matter even came up during discussions about these treaties and, if so, what the treaties do to prevent that kind of distortive activity.
It would be helpful to have a clear indication of how the Government view the process for concluding new double tax agreements. I noted when we ratified the OECD’s multilateral instrument that it did not result in a commitment to alter our treaties with Jersey, the Isle of Man or Guernsey. On that occasion the Minister replied to me:
“The hon. Lady asked why we do not include all the DTAs. She is absolutely right that the UK has a large number—from memory, I think it is around 130—and about 121 will be potentially covered by this measure. The answer is that, in some cases, the DTAs largely conform to the changes that would be introduced were they to be subject to the MLI. In some cases, it is not necessary, as our treaty contains substantial provisions. Our first-time DTA with Colombia would be one example.”—[Official Report, Third Delegated Legislation Committee, 9 May 2018; c. 8.]
That seems to be out of kilter with what has occurred with these treaties, which did not cover many of the measures covered by the MLI, such as royalties or capital gains tax—the treaties and the MLI have very different formats. Now that we see a different approach from what was initially suggested for the Channel Islands DTAs, I would be interested to learn what will to happen with the remaining DTAs, which cover Austria, the Falkland Islands, the Faroe Islands, Switzerland and the United Arab Emirates. Interestingly, the protocol to the Swiss DTA was concluded in 2017, but is still not in force, and it is not clear when it will be brought to the House. It would be interesting to hear from the Minister about progress in that regard.
To conclude, sadly we do not feel that we can accept these treaties. They appear to go against commitments made to the Opposition that the Government would continue to work extensively with our Crown dependencies towards having public registers of beneficial ownership. For that reason, we will be voting against the orders today.
Kirsty Blackman (Aberdeen North) (SNP)
It is a pleasure to be here, Mr McCabe. This is a nice warm-up for all the time that we look forward to spending together in a room like this considering the Finance Bill.
I align myself with most of the comments made by my colleague, the hon. Member for Oxford East, particularly about beneficial ownership. She always asks difficult questions of the Minister, who is left scribbling and trying to come up with the answers. Hopefully, he will have them and we will all leave here happy as a result, but I am not sure that that will happen. In relation the UK’s ability to tackle tax avoidance and evasion, some changes have not been made despite the fact that they have been called for in this place. I would like to highlight a 2017 European Parliament report that said that
“most of the offshore structures revealed in the Panama Papers were set up from Luxembourg, the United Kingdom and Cyprus”.
The UK is one of the three countries specifically mentioned, which shows that there is still a long way to go before it can be recognised as somewhere that does not incentivise these kinds of things and does not allow them to happen.
The Scottish National party has a strong track record in relation to our work on Scottish limited partnerships, and we are still waiting for change in relation to our support for the Magnitsky changes and the work that we have done on that. Finally, to pick up on a point made by the Opposition spokesperson, there is not much point having an international agreement if we do not use it. Some of the agreements that have been made and signed have not come into force. If the double taxation treaties that are discussed in the explanatory notes come into force, particularly on transparency-related issues, it is important that the Government come back to us with information about how regularly the information sharing was used. If there are problems and tax avoidance is going on, but the Government do not use the measures in the Bill that has been introduced to obtain the information that they need to tackle tax avoidance, that would be a major concern. If the orders are introduced—the Government currently have a working majority, so that is possible—it is important that the Government commit to return to the House and report on the application of the arrangements, particularly in relation to the new information-sharing provisions. It is important that we do not just do the right thing but are seen to be doing the right thing. It would give Opposition parties some comfort if we had a commitment from the Government.
Mel Stride
I thank the hon. Members for Oxford East and for Aberdeen North for their contributions to this important debate. I always expect a rattle gun of deep and technical questions from the hon. Member for Oxford East, and I was not disappointed. I will endeavour to answer as many questions as I can, and on those I cannot answer, I am happy to write to her in due course.
The hon. Member for Oxford East raised a lack of engagement, as she termed it, with the treaties that we are scrutinising. I took that to refer both to matters of transparency, on which she elaborated at some length, and also the scrutiny of the treaty, which is an issue that she has raised in relation to other DTAs that we have debated in Committee. I hope that she therefore welcomes the fact that we have made improvements, for example to the information memorandum, which now points out the differences and changes between the 1950s and the later iterations of the treaties and, indeed, the treaty to which we have been asked to give our consent.
I shall make the general points that I usually make on scrutiny. International treaties are complicated negotiations and do not necessarily lend themselves, nor would it be appropriate for them to do so, to discussion and rumination, as the hon. Lady may be seeking. The treaty was published in July this year, so there has been plenty of time to review it. Of course, these international agreements go through the process that we are going through at the moment, giving this treaty scrutiny.
I appreciate that the transparency debate is a hook on which one could add the whole issue of the public registers of beneficial ownership, about which we have had various parliamentary debates. The hon. Lady knows the Government’s position in that respect. It is important to stress that we have a common reporting standard between Her Majesty’s Revenue and Customs and the tax authorities of the three other jurisdictions in question, so we do have an exchange of information relevant to tax affairs between our two authorities, which is an important tool in clamping down on avoidance, evasion and non-compliance.
The hon. Lady asked specifically why we did not insist on the treaties containing a provision that public registers be set up. I think the answer to that is that these matters are outside the general context of these treaties. In addition, the treaties are entered into by bilateral agreement, and I think if we had insisted on that—indeed, had it been our desire to insist on that at this moment—it is unlikely that we would have had the improved version of the treaties that we are discussing today.
Anneliese Dodds
I am grateful to the Minister for giving way, but surely these treaties contain provisions that make it less likely that such a public register, which the Government committed to, will be set up, because they include the commitment to keeping information secret. It is just that these treaties do not include reference to public registers, which one would have expected if the Government were working on this, as they committed to do, to the Opposition; it is also the fact that they include a commitment to keeping information secret, which goes against what the Government said in this House that they would do.
Mel Stride
I do not think that these treaties require further secrecy than the appropriate confidentiality, as some might term it, of information that is, after all, highly sensitive; it involves the tax affairs of individuals and businesses between our various jurisdictions. It would only be right that confidentiality is respected in those circumstances.
Anneliese Dodds
I am grateful to the Minister for that clarification. However, we were just talking about having a register that is similar to the UK register, which is public, and surely any concerns about confidentiality have already been dealt with in our own jurisdiction.
Mel Stride
I had understood the hon. Lady in her earlier intervention to be suggesting that the treaties would make a move to public registers of beneficial ownership less likely. To the extent that I do not think they impose any additional confidentiality on the exchange of information over and above what was there before, I do not think that argument holds water, with respect to her.
On the information exchange issue that the hon. Lady raised, the agreement contains a new “assistance of collection of debt” provision, compared with the agreements that it supersedes. I hope that she would welcome the information requirements around that, and the fact that we can now actively seek the assistance of those jurisdictions to collect tax debt, for example.
On the general issue of anti-avoidance, as all Committee members will know—because they follow these affairs in intricate detail, as they have done during this debate—we have very much been in the vanguard of BEPS programme in the OECD. Members may see the footprints of that in these treaties through the main purpose test, to ensure that we do not have companies or individuals exploiting the tax advantages around these treaties for no other reason than to avoid or reduce their tax liability. Of course, in respect at least of the interest on royalty payments, as distinct from dividend payments, there are different categories of entity, and various tests accordingly that will be required to trigger the reliefs in that respect.
The hon. Lady mentioned the blacklisting process that is going on at the moment and the UK Government’s involvement. We have been actively involved in discussions with our overseas territories to ensure that we encourage them not to be blacklisted—to ensure that they comply with the EU code group’s provisions.
Alex Cunningham
Having anticipated what the Minister said, I should be interested to learn what new areas the Minister is working on to encourage greater transparency within the territories.
Mel Stride
One of the principal areas is that of economic substance when it comes to the activities of those businesses that purport to be operating from those low or no-tax jurisdictions, which is the main thrust of the EU’s move here—that we have genuine businesses involved in those jurisdictions, rather than their just being used as a conduit for the purposes of avoiding or paying extremely low levels of tax.
The hon. Member for Oxford East mentioned eurobond exemptions and restricted connected parties. These treaties do not impinge on that matter, which is dealt with in UK domestic tax law, so it is quite distinct from what we are debating today. The hon. Member for Aberdeen North asked if we could come back with a report on information sharing and how effective it had been. I do not think that, in this instance, there is a need for a specific report. The tools for scrutinising that, whether by way of debates or parliamentary questions, are here in this Parliament. On that note, I shall conclude my remarks.
Question put.
Draft Immigration (Health Charge) (Amendment) Order 2018
(5 years, 6 months ago)
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The Committee divided: - Ayes: 9 / Noes: 8 - Question accordingly agreed to.
The Chair
I hope that the Committee will forgive me if I conduct proceedings unusually from a sedentary position. I have a dodgy leg, and standing up is hard work. I hope that will be all right.
The Minister for Immigration (Caroline Nokes)
I beg to move,
That the Committee has considered the draft Immigration (Health Charge) (Amendment) Order 2018.
It is a pleasure to serve under your chairmanship, Mr Gray, and I hope that the leg is making a good recovery.
We all rely on the national health service for a range of help and support, often at the most difficult times in our lives. Our NHS is always there when we need it. We believe it is right that long-term temporary migrants make a fair contribution to the NHS’s sustainability, as they will not have built up the same contributions as permanent residents. That is why we introduced the immigration health surcharge in April 2015.
The charge is paid by non-European Economic Area temporary migrants who apply for a visa for more than six months or to extend their stay in the UK for a further limited period. It is paid up front, as part of the immigration application process, and is separate from the visa fee. The charge should not be conflated with NHS charging regulations, which form part of health legislation and apply to tourists and illegal migrants, who may be directly charged for the cost of their hospital treatment. Those who pay the charge may use the comprehensive range of NHS services without further charge for the duration of their valid leave, subject to a few exceptions: they are charged for assisted conception services in England and must also pay the charges that a UK resident would pay, such as those for prescriptions in England. From the point of arrival in the UK, a charge payer can enjoy the same access to the NHS as a permanent resident. They can make full use of NHS services without incurring hospital treatment charges and without having made any tax or national insurance contributions in the UK.
The charge is currently set at £200 per year, with students and youth mobility scheme applicants enjoying a discounted rate of £150. To date, the charge has raised more than £600 million for the NHS. Income is shared between the health administrations in England, Scotland, Wales and Northern Ireland, using the formula devised by Lord Barnett. The charge rate has not increased since its introduction in 2015. The draft order amends schedule 1 to the Immigration (Health Charge) Order 2015, to double the amount of the charge across all routes. Students, dependants of students and youth mobility scheme applicants will continue to pay a discounted rate, and this will rise to £300 per person. The annual amount in respect of all other relevant categories of application will rise to £400 per person. The order also makes a minor clarifying change to the principal order, to set out the exchange rate that the Home Office applies when the charge is paid in a currency other than sterling.
The Government recognise the valuable contribution that migrants make to this country. International students enhance our educational institutions financially and culturally, enrich the experience of domestic students, and may become important ambassadors for the United Kingdom in later life. However, faced with increasing demands on health services, we must ensure that migrants make a fair and proportionate contribution to the NHS. There is a balance to be struck, one that is fair to migrants and to the UK taxpayer and that helps to ensure the long-term sustainability of the NHS while maintaining the UK’s position as an attractive destination for global talent.
The Department of Health and Social Care has reviewed the cost to the NHS of treating charge payers in England, and it estimates that the NHS spends an average of £470 per person per year in respect of those who pay the charge. The new level of the charge will, therefore, better reflect the cost to the NHS of treating those who pay it. In recognition of the important contributions that migrants make to this country, the charge will remain below the average cost recovery level and continue to represent good value compared with health insurance requirements in comparable countries.
Teresa Pearce (Erith and Thamesmead) (Lab)
Currently the price of a child application for leave to remain is well over £1,000. The Home Office has said that the cost is about £372, so it already makes £600 on each application. Is it fair, therefore, to increase the cost of the health surcharge for children?
Caroline Nokes
As the hon. Lady pointed out, children do use the NHS, and we know from the information we have that they are particularly high users of its services. The immigration health surcharge is transferred to the NHS in its entirety, so this is not about the Home Office making a charge. It is about the Home Office implementing a levy for the NHS that enables it to provide ongoing services to those who use it, and provides fairness, both for migrants who will use more than £400-worth of services and for the UK taxpayer.
The new level of the charge will better reflect the cost to the NHS of treating those who pay it. In recognition of the important contribution that migrants make, the charge remains below the average cost recovery level, and the Government’s proposal to double it is consistent with the direction of travel set out in our general election manifesto. The proposed increase is based on the Department of Health and Social Care’s closer analysis of the cost that charge payers present to the NHS, analysis that was not previously available. The exemptions for vulnerable groups set out in the 2015 order will remain, and the charge will continue to be waived if a person’s application fee is waived on destitution grounds.
I am sure there will be questions about the future application of the charge to EEA nationals. The Government are clear that any EU citizen who is resident in the UK before we leave the European Union in March 2019 will not pay the charge, and we have committed to publishing a White Paper on the future immigration system later in the autumn. The charge is being considered as part of that process, and of ongoing negotiations.
The Government believe it is fair that temporary migrants make a financial contribution to the comprehensive and high-quality range of NHS services available to them during their stay. By increasing the charge, we estimate that a further £220 million a year could be raised to support the NHS, helping to protect and sustain this country’s world-class healthcare system for everyone who uses it. In England alone, the additional contribution could fund roughly 2,000 doctors or 4,000 nurses. The new rate compares favourably with private health insurance requirements in other countries, and we believe it continues to represent a good deal for migrants, given the extensive range of NHS services they may use during their time in the UK. I commend the order to the Committee.
Afzal Khan (Manchester, Gorton) (Lab)
It is a pleasure to serve under your chairmanship, Mr Gray. The Labour party will be voting against the motion. The costs associated with applying for visas have skyrocketed, and the UK is becoming an increasingly expensive and unwelcoming place for migrants. A family of four will now pay £6,132 in fees for two and a half years’ leave. If the immigration health surcharge were to double, the total bill would be £8,132, which is completely unaffordable for many families. There is a discount rate for students and those on the youth mobility scheme, but under current proposals, the discount rate would be £100 higher than the top rate is now. Meeting the criteria for receiving a fee waiver is notoriously tricky, and most people will not be considered for a fee waiver, but will nevertheless be unable to pay the costs. How many people have been granted a fee waiver, and how many are expected to be granted one once the increase comes into force?
The immigration health surcharge is not a fair contribution. The majority of migrants are taxpayers, so they will effectively be paying twice for any NHS treatment they receive: once through the IHS, and again through their taxes. That double taxation is particularly unfair given that migrants are less likely to use the NHS, as they are on average younger and healthier than the rest of the population. The UK is facing an NHS staffing crisis, and we desperately need to attract doctors and nurses from abroad, to at least plug short-term gaps. The chair of the Royal College of Nursing emphasised that point when she said:
“The immigration health surcharge not only imposes an enormous personal cost on hardworking nurses and health care assistants, but risks driving away overseas staff at a time we need them most.”
We have already seen falling numbers of EU citizens coming to the UK. Will the charge apply to EU citizens in any post-Brexit scenario, posing yet another barrier to EU citizens coming to the UK after Brexit?
The immigration health surcharge goes hand in hand with the Government’s hostile environment for migrants. Requiring them to pay such an exorbitant cost will push people to defer regularising their status. Without regularised status, a migrant cannot access housing, education and health services. This is not only a very difficult personal position, but poses a public health risk. In the end, the cost to the NHS will be greater, as people will not seek treatment until a problem reaches a crisis point.
I would like to highlight the effect that this increasing cost will have on one group in particular. The Minister’s statement described those who will have to pay the IHS as “temporary migrants”, but it will also apply to people who came here as young children, for whom the UK is the only home they know but who are not British citizens. This group is at high risk of being pushed into irregular status. The path to citizenship for these young people is already extremely expensive; they have to pay four times for limited leave to remain before they can apply for indefinite leave. The proposed IHS increase will bring the cost of LLR to £2,033 each time, which is an entirely unaffordable cost for most young people. Many will delay applying or will be forced into debt to pay those costs. The organisation Let Us Learn describes how these young people live in fear of being taken from their families and communities and put in detention if they cannot save enough money in time to pay for the next set of fees.
The Home Secretary has committed to a review of the Home Office’s structures and practices. We already have the Windrush lessons learned review, and in a Westminster Hall debate on 4 September, the Immigration Minister committed to review the Government’s approach to settling fees for visas and immigration and nationality services. I am sure that I am not alone in feeling fed up with review after review.
Andrew Bridgen (North West Leicestershire) (Con)
I have listened intently to the shadow Minister’s speech, and I am sure that people outside the Committee will look at the text in the same way. From his speech, it is clear to me that Labour’s position on this modest increase in charging for our excellent health services in the UK is that it is in favour of more migration and less money for the NHS. Does he not realise how that will grate with the British public and his electors, and does he not appreciate that we run a national health service? We cannot fund an international health service.
Afzal Khan
Doubling the fees is not a modest increase. Labour is interested in having a fair system, not in charging people double for a single service. The hostile environment caused the Windrush crisis and the recent DNA scandal, and it will be the cause of many crises to come. The Government must end the hostile environment, including by setting fees and costs for visas and nationality at a fair and reasonable rate.
Stuart C. McDonald (Cumbernauld, Kilsyth and Kirkintilloch East) (SNP)
It is good to see you in the Chair, Mr Gray. I want to put on record why the SNP also opposes the immigration health surcharge and the proposed increases. I absolutely echo what the shadow Minister said about the impact on recruiting doctors and nurses and about the terrible effect this will have on children who are on a long route to settlement, who will have to make four applications at intervals of two and a half years. The proposed increase will take the total cost of fees to £10,000 for every single child on that route.
There are two principal reasons why we oppose the order. First, we regard it as an unjustified form of double taxation, which takes no account of the fact that, like everybody else, migrants pay tax towards public services. They also face extortionate immigration fees that this Government have already put in place. It is a form of poll tax as well, because it takes absolutely no account of the ability of a person or their employer to pay. The only thing that I would expand upon a little bit is just quite how out of kilter UK immigration charges are now, compared with those of international competitors.
The Chair
Order. The hon. Gentleman should restrict himself entirely to these fees rather than discuss general immigration costs.
Stuart C. McDonald
I am happy to do that, Mr Gray. At the end of the day, the increase of £200 a year in the immigration health surcharge means that the overall charge for a researcher with a dependent spouse or partner and three kids will be above £11,000. That is between double and 10 times as much as in comparative countries such as the USA, Australia, Ireland, Norway, Canada, France, Sweden and the Netherlands, where a family in exactly the same position would be paying £800, not £11,000. The Home Office speaks of competitiveness, but the figures show how far removed from reality that is. For reasons that the shadow Immigration Minister has given, the order is also far from fair. We oppose the order; it is irrational, unfair and counterproductive.
Caroline Nokes
I am grateful for hon. Members’ contributions to the debate and should like to address some of the points raised. The hon. Member for Manchester, Gorton commented on the concerns about the combined cost of the charge and visa fees, and I am conscious of those, but the charge is set at a competitive level and will remain low compared with the potential benefits—free access to the NHS, including GP care and accident and emergency care, as well as routine scheduled healthcare. It offers far better value than private medical insurance, where premiums are much more expensive. If we consider the international comparison, in Australia, for example, the annual price of an insurance policy would be in the region of £302 per year for a student, but if it was for a student and a partner, that might increase to somewhere in the region of the equivalent of £1,700.
As I said, the Department of Health and Social Care studied very closely the average cost of treatment to migrants and that transpired to be in the region of £470 each per year. The Government are clear that migrants must pay the charge when they make an application and should plan their finances accordingly. Both the cost of the health charge and the application fee are available online and are very clear. Those in a vulnerable situation are protected. Immigration application fee waivers are available on specified human rights routes, where a migrant is exercising the right to remain in the UK based on family but is destitute or would be rendered destitute by payment of the immigration application fee.
Stuart C. McDonald
When I speak to people practising immigration law who are dealing with clients in this position, they say that it is virtually impossible to get a fee waiver. In fact, as I understand it, fewer than 8% of children are successful in obtaining one. That leaves them, as I said earlier, facing a charge of more than £10,000 as they go on the long route to settlement. Surely the Minister cannot be comfortable with that.
Caroline Nokes
As the shadow Minister highlighted earlier, we keep our fees and charges under review, but at £400 per year, the fee is less than the average amount that the NHS spends on treating migrants. That is why the Government regard it as being fair. We know that children are higher users of national health services than their parents.
I am aware that there have been calls for NHS professionals to be exempt from the charge. The Government fully recognise the important contribution that international healthcare professionals make to the UK, but it is only right that they also make a proportionate contribution to the long-term sustainability of the NHS. In that regard, NHS professionals are in the same position as other providers of essential public services, including teachers.
I recognise that there are some concerns about the financial impact on nurses. However, the answer is not to exempt nurses from the charge but to increase their pay, and that is happening. All NHS nurses will benefit from a pay increase as set out in the Agenda for Change framework.
We are in the process of negotiating reciprocal healthcare arrangements with the European Union. We have reached an agreement with the EU on citizens’ rights that will protect those EU citizens and their family members who are resident in the UK by the end of the planned implementation period on 31 December 2020. That will provide the same entitlement to access public services and benefits, according to the same rules as now. In the unlikely event of no deal, the Prime Minister has already confirmed that all EU citizens resident here by 29 March 2019 will be welcome to stay.
The Government believe that it is right that migrants make a fair contribution to the extensive and high-quality range of NHS services available to them during their stay, in line with their temporary immigration status. On that basis, I commend the order to the Committee.
Question put.
Draft Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018
Draft Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018
(5 years, 6 months ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018.
The Chair
With this it will be convenient to consider the draft Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018.
John Glen
It is a pleasure to serve under your chairmanship, Mr Hanson.
An essential part of preparing for a potential no-deal scenario in which the UK leaves the EU without a deal or an implementation period is ensuring that there continues to be a functioning legislative and regulatory regime for financial services in the UK. To deliver that, the Treasury is laying statutory instruments before Parliament under the European Union (Withdrawal) Act 2018, several of which have already been debated in this place and in the House of Lords. Both sets of draft regulations before the Committee are part of that comprehensive programme. They will fix deficiencies in UK law relating to the regulation of e-money institutions, payment institutions and account information service providers, as well as making transitional provisions. They align with the approach taken in other SIs laid under the 2018 Act by maintaining existing legislation at the point of exit to provide continuity, but amending it where necessary to ensure that it works effectively in a no-deal context.
The regulatory regime that applies to payment institutions, electronic money institutions and account information service providers, and the rules for facilitating payments and issuing electronic money for those institutions, are created by various pieces of EU legislation: the EU directives on payments and electronic money, which were implemented in the UK through the Payment Services Regulations 2017 and the Electronic Money Regulations 2011 respectively, and the EU’s directly applicable regulation on credit transfers and direct debits in euro.
In a no-deal scenario, the UK would be outside the European economic area and outside the EU’s legal, supervisory and financial regulatory framework. The existing legislation needs to be updated to reflect that and amended to ensure that its provisions will work properly in such a scenario. Furthermore, in a no-deal scenario, the UK will no longer automatically maintain participation in the single euro payments area, which enables efficient, low-cost euro payments to be made across EEA member states and non-EEA countries that meet the governing body’s participation criteria. SEPA is a key enabler of trade between the UK and other EEA member states and non-EEA participants.
To ensure that the legislation continues to operate effectively in the UK once the UK has left the EU, and to maximise the prospects of the UK maintaining participation in SEPA in a no-deal scenario, the draft regulations will make amendments to retained EU law relating to the 2017 and 2011 regulations and to the EU regulation on credit transfers and direct debits in euro. I will set out the approach taken in each set of draft regulations and the interaction between their provisions and the UK’s future participation in SEPA.
The Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations will make the following principal amendments to the 2017 and 2011 regulations. First, they will create a temporary permissions regime for payment firms. Should the UK leave the EU without a deal, there would be no agreed legal framework under which the passporting system implemented for EEA payment firms under the Payment Services Regulations could continue to function, so firms from the EEA would not legally be able to operate in the UK. The draft regulations will therefore create a temporary permissions regime for such firms that is similar to, but separate from, the regime set out in the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018, which applies to firms regulated under the Financial Services and Markets Act 2000 and has already been debated in the House.
Secondly, the draft regulations will make changes to ensure the continued effective safeguarding of consumer funds. To provide consumer protection in the event of an institution becoming insolvent, the Payment Services Regulations require payment institutions and electronic money institutions to safeguard consumer funds to ensure that they are paid out in priority to other creditors. The most common method of safeguarding funds is for the firm to hold them in a segregated account with a credit institution. A considerable number of UK firms hold safeguarding accounts in the rest of the EU. They will still be able to do so once the draft regulations come into force, but they will also have the option of using safeguarding accounts based anywhere else in the world, subject to adequate guarantees of consumer protection. This is in line with existing practice for protecting client assets and investments.
Thirdly, the draft regulations will remove the provisions that currently require supervisory co-operation with EU authorities. In a no-deal scenario, it would not be appropriate for UK supervisors to be unilaterally obliged to share information or co-operate with EU authorities, so the provisions that require co-operation and information sharing with the EU have been removed. However, that will not preclude UK authorities from sharing information with EU authorities if appropriate, which the existing domestic framework for co-operation and information sharing with countries outside the UK allows for on a discretionary basis.
Fourthly, the draft regulations will transfer to the appropriate UK bodies functions currently carried out by EU authorities. Under the payment services directive implemented by the Payment Services Regulations, responsibility for drafting regulatory technical standards currently sits with the European Banking Authority. In line with the Government’s cross-cutting approach to the transfer of functions, the draft regulations will ensure that those functions are transferred to the appropriate UK body, the Financial Conduct Authority.
The draft Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations will make the following principal amendments to the retained EU regulation on credit transfer and direct debits in euro. First, they will introduce the concept of a qualifying area, comprising the UK and the EEA, within which they will apply to UK payment service providers’ euro-denominated transactions. The qualifying area is broadly aligned to the geographical scope of SEPA, but it does not include SEPA’s existing non-EEA country participants; EU law does not include those countries, so it is not possible to include them in UK law under the European Union (Withdrawal) Act.
Secondly, the draft regulations will transfer to the appropriate UK body functions currently carried out by EU authorities. Under the regulation on credit transfer and direct debits in euro, the European Commission may adopt delegated acts to take account of technical progress and market developments. In line with the Government’s cross-cutting approach on the transfer of functions, the draft regulations will ensure that those functions are transferred to the appropriate UK body, Her Majesty’s Treasury.
Finally, let me turn to the interaction between the UK’s future participation in SEPA and the provisions made in both sets of draft regulations. The UK payments industry is required to make an application to maintain participation in SEPA as a non-EEA country in a no-deal scenario; I understand that UK Finance, which represents UK payment service providers, has made such an application on behalf of the industry. Applications from non-EEA countries are determined by the European Payments Council by reference to its published criteria for non-EEA country participation. Through the draft regulations, the Government intend to retain relevant EU law in a way that maximises the prospects of the UK maintaining participation in SEPA.
Should the UK not maintain participation in SEPA in a no-deal scenario, UK payment service providers would be unable to comply with some of the requirements in UK law that presuppose the existence of euro-denominated transactions within SEPA. To cater for that scenario, the draft Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations will give HM Treasury limited powers to revoke certain requirements to prevent detrimental effects on UK payment service providers.
In summary, the Government believe that the draft regulations are necessary to ensure that the regulatory regime that applies to payment institutions, electronic money institutions and account information service providers works effectively if the UK leaves the EU without a deal or an implementation period, and to maximise the prospects of the UK maintaining participation in SEPA to the benefit of UK consumers, businesses and the wider UK economy. I hope that colleagues from all parts of the House will join me in supporting the regulations. I commend them to the Committee.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
It is a pleasure to see you in the Chair this morning, Mr Hanson.
As we are all aware, the draft regulations are part of a large number of statutory instruments related to preparations for a potential no-deal Brexit, of which about 70 are expected between now and February. The Minister and I have broached the first few of them already, as have some of my Front-Bench colleagues. We have covered matters relating to the temporary permissions regime, building societies and counterparty clearing. We shall return to such Committees frequently over the coming months.
The Opposition have voiced our concerns about the adequacy of the process, and I will state them again for the record: the number of Treasury SIs and the speed at which they are set to unfold are deeply concerning with regard to ensuring that the Government are held fully accountable. As the Opposition, we commit to make every effort to do that, but this is a constitutionally unprecedented and enormously resource-intensive task that leaves room for error, as much as we appreciate the time that the Minister, his staff and the civil service have taken to brief us.
We continue to be alarmed that we have reached a stage whereby such contingency measures for a no-deal scenario, which occupy significant time and resource of both the Government and the Opposition, must be laid before a Committee. Financial services firms need to be able to plan with certainty about the shape of things to come. In the absence of such clarity, they have ended up enacting their own contingency measures, such as moving staff and resources to the continent in preparation.
Everyone hopes that we will never have to use the provisions before the Committee today, but the day of reckoning gets ever closer. We still await details following the news reports last week that a potential Brexit deal has been struck for financial services, but nothing has yet been communicated formally to the House. Chief negotiator Michel Barnier has contradicted those reports publicly. Will the Minister begin by kindly providing some further details about that settlement, as it relates to the draft regulations, and saying whether there is any substance to those reports? At face value, it appears that we are looking for enhanced equivalence, which the industry has articulated will fall short of what we need to prevent our industry becoming a rule taker.
The draft regulations bring us specifically to the issue of payments. Much collaborative work was undertaken to bring about the implementation of the single euro payments area in January 2014, to the benefit of consumers and businesses alike. It is vital, therefore, that any detriment to consumers must be mitigated as far as possible and that we do not lose the efficiencies that have made cross-border payments easier for individuals and companies. The European Payments Council, in its report on possible outcomes published in May 2018, optimistically posited that we might be able to remain a member of SEPA after exit through functional equivalence—that is significant.
The explanatory notes on the draft regulations refer to the fact that no formal consultation has been undertaken, but that some stakeholders have been consulted. Will the Minister please elaborate on which stakeholders have been engaged on the issue and how any relevant concerns have been integrated into the statutory instruments?
The notes also acknowledge the benefits of SEPA, as did the Minister in his speech. It sounded as if the Minister was confirming that the Government see maintaining access to SEPA as a priority. Will the Minister confirm beyond question whether that is the case? If we crash out without a deal, what mitigation of detriment is being planned? The Minister explained that the draft regulations will set up the temporary legal regime, but will consumers see any difference in how they go about their business?
Finally, I note that the draft regulations will extend safeguarding of assets to an approved foreign credit institution anywhere in the world. Will the Minister please explain the driver behind that policy decision to expand beyond EU institutions, and what the criteria would be for foreign institutions to be assessed for their suitability? Those are the only questions that I have this morning.
Alison Thewliss (Glasgow Central) (SNP)
It is a pleasure to join you and everyone else in the Committee today, Mr Hanson.
I reiterate the concerns expressed by the hon. Member for Stalybridge and Hyde about this process and the necessity for it. From the Scottish National party’s point of view, whatever processes and procedures we put in place, all of these regulations will fall woefully short of what we have at the moment as a member of the European Union and the customs union. The Government cannot hide from this: regardless of what deal comes back, it will not be as good, effective or efficient as the system we have at the moment as a full member state. However the Government try to dance around that, it is the reality.
I appreciate what the Minister said in his statement this morning, but there is still an awful lot of uncertainty around this issue. Membership of SEPA is not a done deal and we will not know for some time when it will be a done deal. It would be incredibly useful if the Minister elaborated on the timescale, because we do not even fully know what it will look like to be an adjunct or extra member of this scheme. The reality is that we will have to continue to align with the scheme. We will be a rule taker, accepting all that comes as part of being an additional member of SEPA, without having much influence over how its rules work and how they affect us.
That is detrimental not only for financial services, but for consumers, who have seen the huge benefits of being able to make transactions in euros easily and efficiently, almost without thinking about it. We all see that when we go abroad on holiday and use our credit card or whatever else. We no longer have to have travellers cheques and things are no longer difficult when we go away. Financial transactions have become something that we do not need to think about, because they happen so easily and quickly, whether online or in person. That has been a huge benefit of being in the European Union. I do not think we have talked enough in the debate on the EU referendum about the simplicity that this has brought to people. They no longer need to think about these technical matters—these things just happen.
In moving out of the regime, we will have to set things up ourselves. The Minister mentioned that the FCA will take on some of the financial regulatory framework and standards, and that HM Treasury will take on other matters to do with credit transfers. Again, that creates further burdens on Government, such as the costs of setting up the regimes and ensuring, as I have mentioned previously, that we have the necessary staff, expertise and continuing engagement with the SEPA regime to ensure that we are not caught out if something else changes that we are not involved in setting up. We will have to take whatever comes, or we will risk falling out of the system altogether.
The Minister mentioned that we could offer to share our information on a discretionary basis. Is the reverse also true? Will the regimes under SEPA engage with us on the same basis? We do not know that yet. I ask the Minister to clarify that. It is all very well saying, “We will do our bit and we will help,” but if there is no reciprocal arrangement, it is pretty much worthless.
Finally, it would be worthwhile if the Minister outlined clearly the full implications of not being in SEPA. Will it mean, in a no-deal scenario, that transactions will cease? That would have a detrimental impact across all industries and areas. We have to know absolutely clearly what the implications are of no deal and not getting some kind of membership arrangement with SEPA, because if we do not have that, the impact on our economy will be hugely detrimental. We need to know what kind of catastrophe we may face.
John Glen
I will respond to the substantive points raised by the hon. Members for Stalybridge and Hyde and for Glasgow Central. First, I remind the Committee that these statutory instruments are needed to ensure that the regulatory regime that applies to payment institutions, electronic money institutions and account information service providers works effectively if the UK leaves the EU without a deal or an implementation period, and to maximise the prospects of the UK maintaining participation in SEPA.
The hon. Member for Stalybridge and Hyde spoke about the undesirability of this process. I acknowledge that going through 30 or so debates in this place is an interesting experience, but we are doing it to ensure that, in the unlikely scenario of no deal, we have a comprehensive regime in place.
On the overall situation with financial services, the negotiations are ongoing. I acknowledge the speculation over whether we have reached a deal. I am not able to confirm anything, but we are seeking to establish a strong bilateral relationship with EU regulators to fully mitigate the risks of being subject to equivalence decisions that are, at the moment, inadequate. I cannot comment further on that, nor on the progress on the deal as a whole. Members will appreciate that, as a relatively junior Minister at the Treasury, I am not privy to that information.
I can comment on some meaningful points. Concerns were raised about changes to consumer safeguarding as a result of the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations. The Payment Services Regulations 2017 require that payment and electronic money institutions safeguard consumer funds to protect consumers in the event of an institution becoming insolvent. The most prevalent method used to safeguard funds is for the firm to hold them in a segregated account with a credit institution. A significant number of UK firms hold safeguarding accounts in the rest of the EU, and they will still be able to do so once the statutory instrument comes into force. They will also have the option of using safeguarding accounts based elsewhere in the world, subject to adequate guarantees of consumer protection. That is in line with existing practices for protecting client assets in investments.
On the consultation undertaken, the hon. Member for Stalybridge and Hyde quite reasonably said that the usual process has been somewhat truncated. None the less, the draft regulations were published on 5 September and laid on 9 October. Consultation took place with key lobby groups in the industry, in particular UK Finance. We held a series of bilateral conversations with banks, FinTechs, payment providers such as PayPal and lawyers to verify the credibility of the statutory instruments. Although we have not undertaken a formal consultation on the statutory instruments, we have submitted them for approval in terms of the impact assessment and we expect that to come through imminently—next week, I hope.
I was asked about the impacts if the UK loses access to SEPA. SEPA enables efficient, low-cost euro payments to be made across participants. If, as expected, the UK secures a withdrawal agreement from the EU, EU law will be applicable in the UK during the implementation period and the UK will automatically remain within the geographical scope of SEPA. The Government’s approach to onshoring legislation is designed to maximise the prospects of the UK maintaining participation in SEPA in a no-deal scenario.
On the determination of the application to SEPA, which was raised by the hon. Member for Glasgow Central, UK Finance has made an application. Applications from non-EEA countries are determined by the European Payments Council, which is an international not-for-profit association; it is not part of the EU institutional framework. I cannot give the hon. Lady a categorical assurance over the timetable, because it is a matter for the EPC. UK Finance is in dialogue with it and has made the necessary provisions to do that in a timely way.
The hon. Lady also raised the impact of the UK losing access to SEPA. I think I have covered that.
John Glen
I am sorry: what are the impacts if the UK loses access to SEPA? In the unlikely scenario that the UK does not maintain participation in SEPA, UK consumers could face higher transaction costs and longer transaction times when making euro payments. That is precisely why we are making these provisions and I am happy to concede that. That is what underpins the whole of this legislative effort through statutory instruments.
The hon. Member for Stalybridge and Hyde asked why safeguarding goes beyond the EEA. In order to protect consumer interests, we wanted to make it possible for firms to use as wide a range of safeguarding accounts as possible. Restricting them only to UK accounts could place a burden on firms and restricting them only to EEA accounts would not be legally viable under World Trade Organisation rules on a most favoured nation status.
I hope that I have answered all the questions that were raised. There are two more, possibly. The hon. Member for Glasgow Central asked if the EU will engage with UK authorities on the same information sharing basis. Obviously, that is ultimately a matter for the EU and will be determined by EU law after we leave, but we hope that the UK authorities and the EU authorities maintain a constructive working relationship. Having visited two EU countries last week, I think there is a lot of good will towards the maintenance of that relationship, and that underpins our approach to the negotiations.
We should not assume that in a no-deal scenario there would be outright hostility to the UK; we hope we would be able to manage that. [Interruption.] I am seeking to be as constructive and reasonable as possible. I do not mean to be flippant about it. We are doing everything that we can to ensure that those relationships are as strong as possible. Throughout the last 40 years, we have played a leading role in influencing the regulation of financial services and many are uncomfortable with us leaving, but that means that the dialogue can still be very constructive in terms of our influencing future regulation.
Finally, the hon. Member for Stalybridge and Hyde asked about the prioritisation of the SEPA measure. It is a priority, as part of the Government’s approach to onshoring legislation. It is designed to maximise the prospects of the UK maintaining participation in SEPA. We are having a complex series of engagements in these Committees, but I am reassured that we have had a full discussion. I hope that the Committee is reassured and has found the sitting informative, and that we will now be able to support the regulations.
Question put and agreed to.
DRAFT ELECTRONIC MONEY, PAYMENT SERVICES AND PAYMENT SYSTEMS (AMENDMENT AND TRANSITIONAL PROVISIONS) (EU EXIT) REGULATIONS 2018
Resolved,
That the Committee has considered the draft Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018.—(John Glen.)