Taxation (Cross-border Trade) Bill (Second sitting)
Anneliese Dodds Excerpts(8 years ago)
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The Chair
I have Anneliese Dodds, Jonathan Reynolds and Peter Dowd, and we must finish by 2.45 pm.
Anneliese Dodds (Oxford East) (Lab/Co-op)
Q
Rosa Crawford: A step forward would be to use as a baseline the new rules that the EU has adopted, whereby non-market economies are not regarded as reliable in having a price indication for the goods that they export. Rather, an analogue country of a similar level of development would be used to judge whether an unfair pricing practice was used. We hope that that will allow the EU to take stronger measures against countries—not just China, but Vietnam and other countries that are using undue levels of Government influence to set prices at a low level.
In the current UK legislation, we do not see any approach like that. Indeed, we know that the UK Government have been holding back EU attempts to take stronger measures against China and other non-market economies. I think we can be forgiven for not quite believing it when we are told that in the secondary legislation we will have adequate measures to deal with non-market economies. We do not have an indication that the Government are likely to introduce secondary legislation on that.
Ben Richards: A key new development within the European Union is that, when they are assessing an analogue country, where there is more than one, they can now also take social and environmental factors into account. That is obviously absolutely crucial, because if a country is abusing labour rights or environmental regulations, that is also trade distortion, and should be taken into account in our trade remedies regime.
Kathleen Walker Shaw: There are two more points that are vital in terms of dealing with the distortions in the UK within the Bill framework, the first of which is the timing of it. To expedite these procedures at a time when they can actually help the companies while they remain competitive and able to see off the challenge was a problem that we had in the steel crisis, as some of you will be aware. Even the EU timetables at that time were dragging on too long and exacerbating some of the problems that we had across the steel industry, so the speed with which we can move the procedures is vital. The placing of the economic interest test in there makes me doubt that we will be able to do that.
Again, setting the tariffs at a level at which they will have the effect of adding the effective protection that we need was something that we struggled with agreement on at European level. The European Commission was going to set the levels on certain types of steel much higher than the UK Government. In the end, it became a political process rather than an economic process of what was required to protect and maintain the competitiveness of British industries and other European industries in that case.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
Q
My worry on the public and economic tests is that, even in something like the steel crisis, there were people arguing for the benefits of very cheap steel coming into UK for construction and so forth. If those tests are not drafted correctly, frankly, we do not have any trade remedies at all. If we are going to have them in the Bill, how can we draft them to ensure that they are robust and fair? Who should be involved in the Trade Remedies Authority to ensure that that is the case?
Ben Richards: We need an opportunity to have that debate, which we will not have at all with the Bill as it is currently drafted. It will simply be written into secondary legislation—we will not have that ability. We have four or five minutes left to have a discussion about how it should be drawn up. It would take us another couple of hours. That is what we want, as a trade union movement: an involvement in these discussions and debates.
We have huge concerns about the way in which the appointments are being made to the Trade Remedies Authority. In effect, in the way that the Bill is currently written, we are not seeing one economic interest test but three. To give you a one-sentence answer about how it should be is very difficult: we want to engage in that debate. We want to have a role in that process in the future to ensure that our members are confident that those decisions are being taken with their interests in mind.
Kathleen Walker Shaw: On the Trade Remedies Authority, its structure is very important. We would like to see it set up in line with the Health and Safety Commission, where we have three employers, three trade unions and three other interests. I am a bit concerned that we are limiting that to nine, because I have a strong concern that devolved Administrations need to be involved in that process as well.
I would also like to see the Bill developed to give a role for parliamentary scrutiny—for the TRA to be liaising with structures within wider parliamentary scrutiny—on the European economic area IT, and on the decisions of the TRA, and to remove the power of the Secretary of State to veto a decision of the collective scrutiny of Parliament and the TRA on remedies. In that way, we might be some way to getting to the bottom of a justified and effective remedy.
Anneliese Dodds
Q
The question that I wanted to ask was, do you think there might be a role for sunset clauses in relation to some pieces of delegated legislation?
Joel Blackwell: I warmly welcome the House of Lords Delegated Powers and Regulatory Reform Committee report, which took the unusual step of publishing its report on this Bill while it was still in the Commons, as it did with the European Union (Withdrawal) Bill. Usually it waits until its introduction in the Lords. The report raised the issue of sunset clauses, which are very important in terms of the links between making changes to EU law in the European Union (Withdrawal) Bill and doing that through clauses 42, 45, 47 and 51. It makes valid comments on the potential of those powers. The powers are not required to be used in perpetuity, and sunset clauses, such as the ones inserted for clauses 7, 8 and 9, would bring some consistency, and that makes perfect sense. We would support the view of the Delegated Powers Committee on that point.
Kirsty Blackman
Q
Joel Blackwell: The negative procedure is the default procedure for scrutiny of delegated legislation, and in this Bill that represents that fact; the majority are subject to the negative procedure. Again, referring to the Delegated Powers Committee report, we would agree with the clauses they highlight that they think are negative and should be affirmative, particularly the ones that are what we call Henry VIII powers amending primary legislation. That Committee has always said that there needs to be a compelling reason why a negative procedure would be adequate for Henry VIII powers. Reading the delegated powers note, I cannot see a compelling reason; I think they should be made affirmative.
Kirsty Blackman
Q
Joel Blackwell: I think that the Hansard Society would like to see an equivalent Delegated Powers and Regulatory Reform Committee, first off, in the lower House—or some MP in the composition of a Joint Committee or what have you. That would be a good opportunity.
I think that delegated powers notes are extremely useful documents. This one is 174 pages long. There are well over 150 delegated powers in the Bill. Some of the justifications I am struggling with, particularly as regards the use of urgency and non-urgency. I think time is an issue here, particularly if you do not have the backstop of further scrutiny by a Chamber—the second House—that is usually very good at looking at delegated legislation and has taking the lead on it in the past.
When we were doing a similar Bill, which became the Welfare Reform Act 2012, a call by many MPs on the Public Bill Committee at the time was that it would be really useful if they had draft regulations alongside the scrutiny of the Bill. You could do things like that to improve scrutiny of delegated powers but, fundamentally, the lack of representation, the fact that you would have to wait for the Bill to get to the House of Lords for a report to be published, is an issue.
Perhaps one way around that is that the House of Lords Delegated Powers Committee does what it has done for this Bill and the European Union (Withdrawal) Bill, and publishes, as usual practice, the Bill as soon as it enters the House of Commons.
Anneliese Dodds
Q
Joel Blackwell: On the first point, with regards to sub-delegation or tertiary legislation and this use of public notice, the fact that they will not be subject to any parliamentary scrutiny is concerning. We basically reiterate the points made in the Delegated Powers and Regulatory Reform Committee: that if public notices can do the same as regulations they should be subject to parliamentary scrutiny, just as regulations would be. Sub-delegation is an issue for us because there is a lack of parliamentary scrutiny. In some cases it might not be appropriate, but it should still be considered as usual practice, and at the moment it appears not to be.
With regard to the Trade Remedies Authority, the Hansard Society has not really considered that yet. My colleague Brigid has probably, as I speak, just finished on the Trade Bill, so I am happy to write to the Committee about our points on that.
Peter Dowd
Q
Joel Blackwell: The fact that it is usually not subject to any parliamentary scrutiny is of concern to us.
Kirstene Hair (Angus) (Con)
Q
Richard Ballantyne: It is a concern. You can imagine that a lot of the Government’s attention is on the Dover corridor, and probably rightly so—that is where the main challenge is.
Going back to my opening statements, if we remove ro-ro for one minute, for a lot of bulk shipments—Robert may correct me if I am wrong—where there is one commodity on a shipment, there is a bit more time, and the environment is one where shipping agents are usually helping out, submitting information that then is facilitated to HMRC. We hope that either those agents or inventory linking as part of the Union customs code, which is coming forward, would mean that smaller ports such as Montrose are not disadvantaged.
There are concerns that there could be certain delays at the border—we would not want to see that, but perhaps the sensitivity at a bulk handling port or a port with break bulk is less than at a ro-ro terminal, where lorries basically want to get out as soon as possible. If they are stuck in a terminal, backlogs and queues start and the operational challenges associated with that.
Anneliese Dodds
Q
Robert Windsor: My members are very concerned about that. The Dover straits corridor is causing particular concern because it is a 24/7 activity—those lorries are coming in all the time. There have been issues with staffing at those areas. You have to differentiate between Border Force activity, which tends to be frontier, and the work done at the national clearance hub based in Salford. They provide 24/7 cover but, in air and sea, you could basically say that from about 6 o’clock or 7 o’clock in the evening there is a noticeable decline in the workload. If you put ro-ro coming in through Dover with a customs declaration, there will be less of a decline in the work being undertaken there.
It is not just Border Force that we have to consider. A lot of foodstuffs potentially could do with some sort of inspection. Even if there is a risk-based system, a certain proportion of that may still require inspection. Multiple Government agencies at a national level and a local level will face this impact. It will have an impact on my members because you will require more people to work in what is regarded as an out-of-hours situation. That will have a considerable impact on costs.
Kirsty Blackman
Q
Tim Reardon: We hear a lot of talk about it, but I think on every route that has published its traffic stats for last year the freight volumes have risen from what they were in 2016. First, of course, that is a national success story; it is an indication of economic health. It is great for all the businesses that we all represent, which handle that traffic, but of course it means that the system overall is increasingly full. There is not a great deal of spare capacity cumulatively across the UK.
The issue is more than just space on the terminal. The road network serves two or three main gateway points into and out of the UK. There needs to be a really good-quality landside connection from the terminal, to enable it to flourish; it needs more than just space on the berth. It would be very, very difficult to flick a switch and say, “Actually, the traffic will go somewhere else”.
Richard Ballantyne: Towards the end of last year, there was a new direct service from Zeebrugge to Dublin for roll-on roll-off traffic, and there was a lot of noise about, “Look! That’s a consequence of Brexit”, but when you actually looked into that investment, it was probably made before the referendum. There may be people looking at further direct calls from the Republic of Ireland to continental Europe, but as of yet we have not seen them.
Robert Windsor: Many of my members are multinationals —European-based forwarders. I know that there are discussions about this issue, which is inevitable given the situation, but we have not seen anything move yet, as such. What we are receiving is a lot of inquiries from European-based freight forwarders with no UK base who are inquiring whether they can establish in the UK because they obviously see an opportunity the other way round.
Richard Ballantyne: The warehousing industry is looking at potential new sites because they see that there could be further interruptions to trade flows, where they would need more storage.
Anneliese Dodds
Q
Richard Ballantyne: The British Ports Association is part of the European Sea Ports Organisation, which has a meeting tomorrow on Brexit that I am going to. It includes some of the main UK-facing ports, such as Dublin, Zeebrugge, Calais and beyond. It has been quite difficult. Some of those ports are state-owned, and it is quite difficult for the UK Government to talk with them, although there have been a number of information-type visits looking at customs arrangements as they are and what the operational situation will look like post-Brexit. We have good conversations.
In terms of what is going on with the customs authorities in those countries, it is varied. There is a French customs taskforce—that is an internal taskforce—that I think the ports there are plugged into. I went to see the French ports association to talk about Brexit, and it seemed on top of things, but it is a difficult one. There is a lot of mystery there. Just as the UK Government cannot divulge all the discussions they are having, the ports cannot divulge everything to us. They have to remember that negotiations are being led through the European Commission, so that is the correct avenue.
Peter Dowd
Q
Richard Ballantyne: As you know, the ports industry in the UK is market-led and market-driven. We have three types of port: local authority-owned ports, which operate on a commercial basis in competition with private ports; full private sector ports, or equity ports; and the trust ports, which are Dover, Aberdeen, London and so on, and they are still run on a private basis and pay corporation tax on any profits they make. Significantly, all of them are financially and strategically independent of Government decisions. That has worked. Effectively, the Government have delegated the authority to run the ports because they understand that you need technical experts to manage such things as safety and the commercial arrangements.
In terms of what is going on at the moment, the Government do influence the connections to ports. Ports have publicly owned road and rail connections. Following a lot of lobbying from my association and others, the Department for Transport is undertaking a port connectivity study, which is not about spending any money on connections but about assessing the state of the road and rail connectivity of the UK ports industry, and how we get ports more on the radar when big investment decisions like the road investment strategy and rail strategies are made and Treasury spending budgets are allocated. It is about us, perhaps, rising up. There has been a lot of big-ticket passenger-focused spend, such as HS2, Heathrow and Crossrail. Freight has felt a bit of a poor relation. We are working to improve that, but unfortunately freight does not vote, so it is a challenge for us.
The Chair
I am going to Anneliese Dodds next. We must finish at 5 o’clock and I am conscious that there are several people wanting to get in.
Anneliese Dodds
Q
Dr Laura Cohen: Particularly on the methodology, I will suggest two provisions that are not mutually exclusive; the UK needs to alter the Bill to include them both. The first provision is how the dumping margin will be calculated in highly distorted economies such as China. The UK should be stating clearly that there should be a special methodology for non-market economies. That would allow the UK to keep that option open for China until the WTO jurisprudence is clear. Indeed, that needs to be in place anyway for countries such as Tajikistan and Vietnam.
The second provision is a methodology that constructs what is called a normal value wherever price distortions occur. That is the EU’s new approach, which takes into account a number of price distortions, including several non-market economy indicators and an absence of labour or environmental standards. That can be used against a country, including former non-market economies such as Russia, which I know has been a problem in the chemicals sector. Indeed, the pasting in of EU legislation is an important principle of Brexit, as is being done in the EU (Withdrawal) Bill, and this part should be done as a default.
Gareth Stace: In the EU, that became law on 20 December. The UK Government are saying that they will broadly follow it. It would be the easiest thing to say, “That is what happens in the EU on those sorts of economies, and we will do the same”—done! They do not need to invent anything else.
Ian Cranshaw: It is a theoretical debate that we have been having with the DIT about where the risk is. Is the risk in following the new methodology that the EU is introducing or in the approach that the DIT are now taking in going with something that we have been delivering for x number of years, so that they believe they are following something we already have? The EU is moving in a different direction. From our industry the concern was that many of our companies here are EU-based or EU-headquartered, so they want something consistent. Then you have the political debate that we are leaving the EU because we want more flexibility. That is more of a political decision.
Emma Hardy
Q
Dr Laura Cohen: First, do you need them at all? It is not compulsory under the World Trade Organisation. Secondly, we should definitely have the text that is in the EU: weighing and balancing the competing interests, and special consideration to the need to eliminate the trade-distorting effects of injurious dumping and to restore effective competition. That would help.
Draft Help-to-Save Accounts Regulations 2018
Anneliese Dodds Excerpts(8 years ago)
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Anneliese Dodds (Oxford East) (Lab/Co-op)
I am grateful to the Minister for his helpful explanations. I am not going to comment on the principles underlying the Savings (Government Contributions) Act 2017 and regulations. However, we need urgent clarification of several issues in relation to whether the professed intent of the Act will be carried out in the regulations.
My first question is about the eligibility criteria for Help-to-Save accounts, which the Minister referred to. Colleagues will remember that they were described as enabling low-income people to prepare for a rainy day. I accept that the Act stated that regulations would ensure that
“specified conditions relating to working tax credit are met in relation to the individual”
and therefore implied that only those eligible for working tax credit, including those receiving it at a nil rate, would be eligible for the Help-to-Save scheme. On that point, by the way, the Minister said that he believed it would not just be working families who would benefit. It would be helpful if he provided the evidence for that, as it does not appear to be the case.
It is peculiar that a mechanism intended to aid low-income people includes what seems to be an income floor, rather than a ceiling, especially given what seems to have been the near-complete removal of the social fund after its devolution to local authorities. However, at least that restriction was indicated in the Act. I find it harder to explain the eligibility criteria for universal credit claimants as specified in the regulations.
There has recently been much ill-informed criticism of working tax credits, and of them involving a cliff edge of 16 hours’ work a week. In practice, however, individuals can obtain working tax credits while working more than 16 hours a week, albeit with consequent changes to their eligibility for child tax credits. I am surprised that the 16-hours requirement has been so criticised by Government Members, and crowbarred into arrangements to ensure that universal credit claimants are eligible for Help-to-Save accounts. The Minister said that this is a simple process, but for universal credit applicants it is not, and some indication of the Government’s thinking on that would be helpful.
I am sorry that I did not give the Minister more advance notice—I spent Saturday night enjoying myself reading through all this, and I did not have a chance to contact him during working time—but there seems to be a drafting error, or at least an ambiguity, in the regulations regarding the benefit condition for those on universal credit. The same introductory text is used for those on universal credit as for those on working tax credit—applicants have to meet eligibility criteria, which will be specified later, for both eligibility reference dates. The text for the benefit condition that follows for UC claimants indicates that income conditions should be assessed for the months preceding the first reference date only. That income condition is that applicants should have received an income equal to, or above, working an average of 16 hours a week for a month on the national minimum wage.
Will the Minister clarify that the intention of the universal credit benefit criterion is to require individuals to have that income qualification for the months preceding the date of application for their Help-to-Save accounts, and not for the date on which their application is accepted—the second eligibility reference date? That is enormously important given the extent to which the income of many low-income people can vary over time. It would be perfectly possible for someone to earn above the income requirement in one month but then, due perhaps to slow processing by their account provider, to have their income assessed for a different month and be found not to have worked sufficient hours or on a sufficient wage to qualify for that account. As the Minister said, there are penalties if someone is found to have submitted the wrong information about eligibility, so it is important to get this right.
Two questions arise about the provisional arrangements for Help-to-Save accounts. The first relates to undertakings made by the former Financial Secretary to the Treasury, the former hon. Member for Battersea, who said that the Government were open minded about credit unions becoming involved in the provision of Help-to-Save accounts in the future once the national system had bedded in, and if it could be shown to be appropriate and value for money. She also said that regulations would be tabled with sufficient flexibility for that to be possible. Indeed, the possibility of different authorised account providers is referred to in section 13 of schedule 2 to the Savings (Government Contributions) Act 2017.
As a responsible Minister, the former Financial Secretary said in a Third Reading debate on the Bill that nothing in it would preclude expanding the provider model in future. However, there is next to no reference in these regulations to the Government’s conducting a review into the possibility of additional providers providing Help-to-Save accounts. Instead, we are told only that if a decision is made in future to move to a multi-provider model, the regulations will be amended accordingly. The regulations provide no mechanism for that move, which I find peculiar given the tenor of those previous debates in the House. The regulations contain a reference to a five-year period for the authorised provider. Will the Government conduct a review into the possibility of credit unions providing Help-to-Save accounts, at least before the end of that five-year period?
My second point is about sub-contracts and procedures. We are informed in section 11 of the regulations that
“the authorised account provider shall satisfy itself that any person to whom it delegates any of its functions or responsibilities under the agreed terms is competent to carry out those functions or responsibilities.”
Last week I had the pleasure of debating with the Minister—it was good to talk about tax-free childcare arrangements in Westminster Hall, and he will remember that we spoke about how NS&I had outsourced the provision of the portal used to access tax free childcare to Atos. He will remember the many cases referred to in that debate regarding parents who had been frustrated not just because of a simple bug, but because of serious system errors, and to the extent that they were considerably out of pocket. Will the Minister assure us that the Government will aim to satisfy themselves that the arrangements will operate properly, and not leave that to the authorised account provider? The authorised account provider’s mechanism of childcare service does not seem to have operated satisfactorily. I hope the Minister can say how the trial period that he mentioned will ensure that any potential problems due to outsourcing are ironed out.
Finally, I would like the Minister to clarify that the Government have altered the regulations concerning working tax credits, as undertaken by the former Financial Secretary to the Treasury, so that income from Help-to-Save accounts will definitively not count for assessing the value of working tax credits for claimants. I have not been able to find out whether that undertaking has been fulfilled.
I apologise for this long set of questions, but in the context of considerable cuts to other forms of help for low-income people, it is important that there is clarity and certainty about this scheme if it is to succeed, even on its own terms.
John Glen
Today’s debate has been an interesting one, and I am grateful to hon. Members who have contributed. Before I deal with the detailed points that have been raised, I want to thank the many groups of individuals who have given their views on the proposals, including hon. Members, many of whom are here, who participated in debates during the passage of the Savings (Government Contributions) Act 2017.
On eligibility, the hon. Member for Oxford East suggested broadly that the passporting of eligibility rules excludes many people who could benefit from the scheme. I think the hon. Member for Glasgow Central mentioned people under 25, carers, and those who support themselves without claiming benefits. In essence, she was asking why we did not have bespoke rules. The eligibility rules balance simplicity and certainty for individuals and the aim of supporting low-income working families to become regular savers. Passporting the scheme in this way will ensure that it targets effectively those on low incomes, and is a well-established means of targeting Government support across a range of policies. There is a five-year window to enter the Help-to-Save scheme and applicants need to meet the eligibility criteria only at the time they register.
The hon. Lady mentioned eligibility rules in regulation 3(3), which refers to each date, and regulation 3(3)(b), which mentions the first date. The point is that the condition remains satisfied on each eligibility reference date. Respondents to the consultation were overwhelmingly in favour of keeping the eligibility criteria as simple as possible. Keeping in line with eligibility for other benefits and credits will keep the administrative burden on the customer to a minimum, therefore encouraging take-up and maximising the benefit of the scheme. Adding different thresholds for different groups would greatly complicate the scheme. The scheme has been designed in this way to create equality between applicants claiming working tax credits and universal credit.
In response to the point about different providers and the incentivisation of credit unions, using NS&I to build the accounts ensures national coverage of the scheme, as I said in my opening remarks. That is necessary for there to be confidence in the scheme when it starts. NS&I has a proven record in delivering a range of savings products. The hon. Member for Oxford East referenced our exchange last week on the performance of the voucher scheme.
John Glen
Tax-free childcare; I am sorry. I met with NS&I this morning to discuss the need to get things right and the improvements that have been made, but the hon. Lady raised a legitimate point. During the trial period, we will try to draw out any errors before the scheme is fully rolled out in October. We will use our expertise and what we have learned from the introduction of tax-free childcare to ensure that we provide a service that meets customers’ needs. We are always looking for opportunities to partner with others and we are open to ideas surrounding how we best ensure that as many people as possible benefit from the scheme.
The hon. Member for Glasgow Central referred to the number of people who might sign up. I thought it would be helpful for her to know that based on the take-up of previous schemes, our estimate is that 400,000 people will sign up to the accounts. I welcome the question on how customers will access the Help-to-Save accounts and our plans for the digitally excluded. Help-to-Save is an online savings account. All transactions, including checking the balance and paying in savings, can be managed online through gov.uk. Digitally excluded customers and people with particular needs will be able to manage their accounts through telephone banking. I offer reassurance that that will be through a 03000 number at the standard rate. That will also apply to calls that are transferred to NS&I. Paper statements will be issued to digitally excluded customers.
In terms of the future of the single provider, the regulations would need to be changed to provide for more than one provider. At this point, it would be sensible to monitor things as the scheme goes on. If there is evidence to suggest that additional providers would be helpful and would assist in the take-up, that is certainly something that the Government and I would be willing to look at.
Anneliese Dodds
I am sorry to intervene, but I wanted to double-check something with the Minister. I was encouraged to intervene because I think this is the only chance I will have. On the exact issue of eligibility, it was not totally clear whether applicants currently claiming universal credit will need to have fulfilled the income criterion and earned the equivalent of at least 16 hours a week at the national minimum wage only when they apply, which is what it looks like from paragraph 3(b), or also when their application is accepted. I share the Minister’s concern about having simplicity. I cannot get my head around this, and I have been able to look at all the different debates. Can he confirm that it is paragraph 3(b) that is right and not the introduction to that regulation, which suggests that the criteria will apply at the point of application and at the point of acceptance?
John Glen
I am very sorry for the lack of clarity in my remarks. The criteria will be fulfilled at the point of application. If that is satisfied, that is it for the duration. Many apologies for my ambiguity on that.
I want to deal with Help-to-Save’s impact on entitlement to benefits and credits. Help-to-Save is intended to help people build up a rainy day fund. The Government bonus will not count as income for means-testing purposes when assessing eligibility for housing benefit. The bonus and any savings accumulated in a Help-to-Save account will not affect tax credit awards and would start to impact on universal credit awards only if the customer had savings of £6,000 or over, including the money in their Help-to-Save account.
The hon. Member for Glasgow Central asked about access in the case of broken or abusive relationships. I would be happy to take representations on that issue and to look at it.
I hope that I have dealt with most of the points that have been raised. I acknowledge the broader point that the scheme does not solve every problem. It would be wrong for me to say that it will target everyone, but it is a step in the right direction. It will have a positive effect and it will deliver a change in behaviour with respect to savings that the work by the Money Advice Service two years ago showed is very much needed.
The Government’s vision is to empower working families with the confidence, skills and opportunity to manage their personal finances. The regulations will bolster people’s ability to save by giving a boost to what they manage to put aside each month. Help-to-Save will encourage such families to become regular savers and give them a financial buffer to protect them from income shocks. The ensuing financial resilience will benefit us all. Our economy is the sum of its parts, and the Government are committed to ensuring that every part of it and every person has the support they need. I commend the regulations to the Committee.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Help-to-Save Accounts Regulations 2018.
Oral Answers to Questions
Anneliese Dodds Excerpts(8 years ago)
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Anneliese Dodds (Oxford East) (Lab/Co-op)
Does the Minister acknowledge that the reasons why a quarter of people on low incomes are currently experiencing significant problems with arrears or debt repayment include, first, his Government not taking on board Labour’s programme to rein in credit card debt and, secondly, the fact that their changes to the tax threshold have been outweighed for the poorest people by alterations to social security?
John Glen
The hon. Lady needs to acknowledge the transformation that the national living wage has brought to so many people and this Government’s willingness to increase it above inflation. It is also worth noting that interest payments as a proportion of income are currently at the lowest on record.
Finance (No. 2) Bill (Fifth sitting)
Anneliese Dodds Excerpts(8 years ago)
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The Financial Secretary to the Treasury (Mel Stride)
Good morning, Sir Roger. As ever, it is a great pleasure to serve under your chairmanship.
Clauses 30 and 31 will ensure that companies operating overseas cannot benefit from tax relief twice for the same loss. Many UK companies operate overseas through branches. To prevent double taxation on the profits of those branches—tax payable both in the UK and overseas—rules exist that provide relief in the UK for foreign tax paid. However, we are aware that some companies with foreign branches set losses incurred by those branches against the profits of other overseas group companies, rather than against the future profits of the branch. As a result, foreign tax is paid on future branch profits without taking into account past losses. That foreign tax is then used to claim double tax relief against UK tax on the branch profits.
Relieving foreign losses in that way creates an unfair outcome for the UK Exchequer. UK companies effectively get tax relief twice in the UK—once as a deduction from their taxable UK profits for the loss, and again by way of double tax relief. Clause 30 will address that by restricting double tax relief when the losses of an overseas branch have been used to relieve foreign tax paid by other overseas group companies. The clause will stop companies exploiting the UK’s double tax relief system to disadvantage unfairly the UK Exchequer. The measure will apply only to future claims for double tax relief. However, to be effective and protect significant revenues, it will apply where losses have already been relieved against the profits of other group companies.
The Opposition’s new clause 13 calls for a statutory review of the impact of that restriction of double tax relief. I think it would be useful, in response, to review the processes and track record of Her Majesty’s Revenue and Customs in this area. First, the costings of the measure were prepared by HMRC’s central analytical team, which specialises in quantifying the impact of changes to tax legislation. Secondly, HMRC has significant experience in amending tax legislation to restrict opportunities for companies unfairly to reduce the tax they pay. For example, an amendment to the double taxation relief for loan relationships income in the 2014 Finance Act successfully protected tax revenue. Thirdly, HMRC regularly carries out reviews of tax legislation to ensure that it continues to meet its objectives, and the assessment of tax receipts is an important part of those reviews. The Opposition’s proposed review would not add to that analysis, and it is therefore unnecessary.
Clause 31 will amend the targeted anti-avoidance rule, which protects against certain ways of artificially creating or increasing a double tax relief claim. At present, the obligation to apply the TAAR lies with HMRC, not with the taxpayer. That puts HMRC at a disadvantage. In some cases, HMRC does not have sufficient information to identify, within the relevant statutory time limit, whether the TAAR is applicable. To address that, we are updating the double taxation relief TAAR to align it with more recent TAARs. The clause will remove the requirement for HMRC to give notice that the TAAR is being applied. Instead, the onus will be on the taxpayer to consider, during their self-assessment, whether the TAAR is applicable. We are also slightly extending the scope of the TAAR to ensure that it applies to double taxation relief schemes that involve transactions across a group.
Clauses 30 and 31 will ensure that companies pay a fair amount of tax in the UK and will protect significant tax revenue. I therefore urge the Committee to support them.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is good to be here under your chairmanship, Sir Roger. I appreciate the Minister’s explanation of clauses 30 and 31, but the Opposition request a review of their effectiveness in deterring the inappropriate use of double taxation relief, particularly as they relate both to funds received by the Exchequer and to the companies potentially affected by them.
Colleagues will be aware that, as the Minister said, double taxation arrangements have been under discussion for an extremely long time—effectively since the beginning of globalisation, if we take that term as referring to the proliferation of multinational companies. The international finance conference in Brussels in 1920 raised the need to consider the impact of double taxation on firms, and from 1923 to 1927 some of the first agreements to avoid double taxation came into force. Such agreements have been under continual discussion in more recent years within the OECD, as have been provisions to prevent the contrary: double non-taxation, which we are discussing today.
The extent of double non-taxation is believed by many commentators to be extremely significant, which is part of the reason why the Opposition are not convinced by claims that the tax gap has recently reduced; that tax gap does not include international profit shifting, such as that obtained by manipulating double taxation rules. That is why Labour’s tax transparency and enforcement programme offers a series of measures to deal with profit shifting.
The measures under discussion follow on from attempts made in the 2009 Finance Bill to clarify measures in the Finance Act 2005 that examine double taxation relief specifically for banks. That Act limited credit for foreign tax paid on trade receipts of a bank to no more than the corporation tax arising on the relevant part of the trade profits. Changes were made after the Act to prevent income being artificially diverted to non-banking companies in bank groups. That loophole, which was being exploited, was shut down by ensuring that the restriction applied to all relevant receipts going across a group. Such profit shifting was therefore prevented. The clauses under discussion will offer a similar tightening for non-bank companies, as well as other alterations and restrictions on the use of double taxation relief.
The Opposition are asking for a review for a variety of reasons. First, it would be helpful to understand from the banking sector’s experience whether the new rules are likely to have a positive effect, and what the magnitude of that effect is anticipated to be. Secondly, alternative approaches are available, and it would be helpful to assess the Government’s approach against those. In particular, I understand that the US has adopted a different approach to limiting the benefits of relief from double taxation. The UK’s approach, which I accept is in common with the OECD’s, is to focus the dissuasion from using an appropriate double taxation relief on the transaction and its nature. By contrast, the US approach relates to those entities that can benefit from favourable tax treatment; it focuses on the entity, rather than the transaction. As I discovered when looking at the debates on the 2003 agreement between the UK and the US on double taxation and non-taxation, the two approaches have to come together when we have a treaty with the US on tax matters. It would be helpful to know whether the Government have considered the apparently more restrictive approach adopted by the US.
It would also be helpful to know more about the removal of the counteraction notice specified in the clauses. Colleagues may remember—though they probably have more important things to think about—that in the discussion on hybrid mismatches, I asked whether a counteraction notice was still required. I do not recall receiving a totally clear answer, although the Minister offered many other helpful clarifications. Clause 31 removes the requirement to give a notice to trigger the double taxation relief targeted anti-avoidance rule, as the Minister mentioned. That seems to follow an approach of amending provisions to remove such notices when the measures concerned are otherwise under review, as part of a wholesale approach to reviewing the measures. The explanatory notes state that the approach follows that adopted under new TAARs, but it is not clear that there has been a more holistic investigation by the Government of this issue. It would be interesting for us to know whether the Government plan to review the existing use of any remaining requirements for counteraction notices in the area of international profit shifting.
The Minister can correct me if I am wrong, but the principle seems to have been accepted that such counteraction notices are no longer necessary before HMRC is able to act, at least in relation to this kind of international artificial profit shifting. He gave us quite a strong rationale for that when he indicated the problems with having to issue a notice when time limits can be relatively tight: it could impact on HMRC’s ability to take appropriate action against those engaging in international profit shifting.
It would be useful to know whether there is a broader review of the use of counteraction notices in this regard, but as I said, we are also calling for a review of the effectiveness or otherwise of the measures in deterring the manipulation of double taxation relief, and of whether the measures will deal with the international profit shifting that existing practices seem to be promoting.
Mel Stride
I thank the hon. Lady for her characteristically thorough dissection of the clause. She gave us something of a history lesson about double taxation agreements going back to the 1920s, before we came into the era of the OECD and more recent activities.
This is not directly relevant to the clause, but the hon. Lady mentioned the tax gap and the veracity or otherwise of the figure for it. The figure is produced by HMRC on an annual basis and audited by the National Audit Office. It is a statistic described by the International Monetary Fund as one of the most robust of its kind in the world. We are very proud of the fact that we have, at 6%, one of the lowest tax gaps in our history.
Interestingly, the hon. Lady introduced the subject of the movement of losses out of branches overseas by way of a discussion of the profits under the banking arrangements, and the shifting from banking to non-banking entities as an approach to avoiding tax. That approach, which certain corporations have taken to avoid tax, is long-established and lies at the heart of the measures that we, the OECD and others have been pursuing to clamp down on avoidance.
This measure is very important. As I described, overseas entities with branches are able to move losses into other overseas entities and claim a tax benefit there, but equally gain a double tax benefit with the UK authorities by way of double tax relief and the impact of the losses on profits that would otherwise fall to corporation tax. We do not believe that the review that new clause 13 calls for is necessary, largely for the reasons I gave in my opening remarks, and in particular because we keep all these measures under review. Indeed, the measures are a product of a review of earlier approaches to clamping down on avoidance, evasion and non-compliance.
The hon. Lady raised several questions that I will attempt to address. The first was whether we had considered the US model and focusing more on entities, which is an interesting point. I would be interested to take any representation from her, and to look at that in more detail with my officials. I do not have a comprehensive answer to her point at the moment, but my door is open for us to look at that in greater detail.
The hon. Lady also mentioned the operation of counteraction notices. As she recognised, the main thrust of the changes to the TAAR is to ensure we do not end up in a situation in which one might reasonably expect HMRC not to understand that something untoward was going on, and in which, by the time it came to the activity, it was out of time. That is the critical point. Once again, if there are further issues of a more detailed or granular nature that the hon. Lady would like to raise with me, I would be very happy indeed to have a look at those. On that basis, I hope we can accept the clause.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clause 31 ordered to stand part of the Bill.
Clause 32
Double taxation arrangements specified by Order in Council
Anneliese Dodds
I beg to move amendment 54, in clause 32, page 23, line 37, at end insert—
“(2A) After section 6 of TIOPA 2010 (the effect given by section 2 to double taxation arrangements), insert—
“6A Review of changes made by section 32 of Finance Act 2018
(1) Within twelve months of the passing of the Finance Act 2018, the Chancellor of the Exchequer must review the effects of the changes made by section 32 of that Act on the operation of double taxation arrangements.
(2) The review under this section must consider in particular—
(a) the extent to which those changes facilitate UK law giving effect to the Multilateral Instrument in a way which coheres with the principles of Policy Coherence for Development;
(b) the extent to which those changes facilitate UK law giving effect to the Multilateral Instrument in a way which coheres with the UN Model Tax Treaty;
(c) the effect of those changes on the number of disputes decided by arbitration;
(d) the counterparties in each such case;
(e) the outcome in each such case; and
(f) the effects of those changes on the public revenue of the United Kingdom.
(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.
(4) In this section—
“the Multilateral Instrument” means the Multilateral Treaty to Implement Tax Treaty related Measures to Prevent Base Erosion and Profit Shifting;
“the principles of Policy Coherence and Development” are to be interpreted in the light of relevant publications of the Organisation of Economic and Development Cooperation and of the 2011 Busan Partnership for Effective Development Cooperation, the UN Millennium Declaration and the 2010 UN Millennium Development Goals Summit; and
“the UN Model Tax Treaty” means the United Nations Model Double Taxation Convention between Developed and Developing Countries published in 2011.””
The Chair
With this it will be convenient to discuss the following:
Amendment 55, in clause 32, page 24, line 3, leave out subsection (4).
This amendment removes the retrospective effect of the foregoing provisions of Clause 32.
Clause 32 stand part.
Anneliese Dodds
This is about the arrangements for the incorporation of the multilateral instrument, if I am correct.
Anneliese Dodds
I am looking forward to more detailed explanations on this part of the Bill, because they are enormously important. Our amendment 54 requests a review of the operation of the provisions enabling the MLI’s implementation in the UK, and especially of the extent to which it promotes the principles of policy coherence for development, and the outcomes that would have been produced had the UN’s model tax treaty been used instead.
The MLI is, in many ways, a milestone for international tax law. Rather than being an amending protocol of the type we might have seen before in wholesale changes to international treaties, the MLI provides an instrument to swiftly and consistently implement a range of standards in taxation in existing treaties. It also provides the means, through the OECD, of monitoring its implementation—and, potentially, mechanisms for the future adaptations of treaties; it is important that we consider those, and I will come back to them.
Given that those bodies looking to engage in “treaty shopping” and their advisers are often highly sophisticated international actors that will readily search out new loopholes, the design of the MLI, which makes possible future alterations and provisions to deal with new tax challenges, is surely to be welcomed. I understand that the UK was one of the first 26 signatories to the MLI. There are now 69—more have probably signed since I looked that up. I understand that a UK Treasury official chaired the OECD working group that determined many of its provisions.
The MLI includes six articles to address treaty abuse. Many of them are already in accordance with the UK’s approach to international tax matters. One element of the MLI that seems particularly propitious is the principal purposes test,
“a subjective test based on an assessment of the intentions behind a transaction or arrangement”,
intended to rule out the obtaining of any benefits from a treaty if those benefits are not in accordance with the object and purpose of that treaty. That amounts to a general power, which could be useful for many countries encountering abuse.
In that connection, however, it is surely necessary for tax authorities to be sufficiently staffed, both overall and in terms of expertise, to make any accusation under these powers stick in court, not least if that court is a private international one, which the UK appears to have committed itself to by accepting multilateral binding arbitration. It would be helpful to hear from the Minister whether he feels that Her Majesty’s Revenue and Customs and the Treasury possess sufficient staff with sufficient knowledge of and expertise on international arbitration for our country to be able to defend its interests adequately, should the need arise. As well as measures concerning treaty abuse, the MLI also introduces uniform approaches —or rather, approaches that should be uniform in their outcomes, if not in specific details—to dispute resolution, permanent establishment and hybrid mismatches.
While in many respects there are very positive elements of the MLI, other elements might raise concerns. I will focus the rest of my remarks on those, and will be interested to hear the Minister’s response. First, the UK appears, in its adoption of the MLI, to have ruled in using mandatory binding arbitration where mutual agreement procedures have failed to produce an acceptable outcome within two to three years. Following the discussion last week of the use of mandatory binding arbitration in the UK’s new tax treaty with Lesotho, it was interesting to find, when I was reading the UK’s MLI position paper last night, that we already have mandatory binding arbitration in 18 of our tax treaties, including those concluded with Algeria, Armenia, Albania, Kosovo and Tajikistan, as well as a number concluded with higher-income countries. The UK appears to apply the principle already in relation to developing countries, but it strikes me that we have not had much discussion of that in the House.
Anneliese Dodds
I am grateful to the Minister for those enormously helpful clarifications. I was particularly pleased to hear his commitment to ensuring that the draft affirmative statutory instrument will be tabled in the House and that we will have a proper chance to debate it. As part of that discussion, I would urge him to ensure that additional information is provided on the Government’s reasoning around adopting a number of the provisions that are within the OECD but not the UN approach.
I fully accept that the OECD approach is supported by a large number of countries; that is absolutely right. None the less, as the Minister himself stated, there are then choices to be made by signatories to the MLI about how to interpret different elements. Those choices can make that approach either more like the UN’s or more like traditionally the OECD’s.
As the Minister said, mandatory binding arbitration is an approach that countries can decide to adopt or otherwise. It was positive to hear that that will be adopted only when both countries, as signatories to a double tax treaty, wish to adopt it. I am interested to know, first, on what basis we have already chosen to adopt mandatory binding arbitration or otherwise. I would again point to the inconsistency between the tax treaty agreed last week on Lesotho, and that which was proposed, albeit not yet discussed, around Kyrgyzstan, which seem to have very different approaches to mandatory binding arbitration. Why is there that difference?
Secondly, it would be helpful for us to assess the claim that mandatory binding arbitration promotes certainty and the ability to tax appropriately for all countries if we saw what some of the outcomes from existing cases subject to mandatory binding arbitration have been, particularly for our country’s ability to retain the revenue that is its due. I have not yet seen that kind of consolidated examination of outcomes from mandatory binding arbitration, and it would be very useful for us to have that in relation to our country and the impacts on our ability to collect revenue, and for developing countries as well. We need that before we can assess whether we want to adopt this in a more wholesale manner. The Minister is absolutely correct to say that we already have it in operation—I mentioned that before—but we need to have more detail.
One final point—I am sorry, but I managed to miss this in my previous remarks—is that it would be helpful for us to understand what transatlantic discussions the UK has been having with the US around the adoption of the MLI. It has not yet adopted the MLI and, sadly, some elements within the US have resisted the OECD’s action in this area—a lot of the time for totally unnecessary, politicised reasons—but it would be useful to know whether the US is likely to adopt this approach. That is because when we talk about double taxation, much of the time we will be talking about multinational companies that have the US as their host country or source country, and when those companies then conduct operations in the UK we need to be able to know that we can protect revenue from them.
Mel Stride
On the hon. Lady’s point around the different models—the OECD and the UN models—a number of countries have signed up to the MLI, and implicit in those discussions will be the kinds of issues that she has touched on, but it might be of interest to her that the Government do expect the UN to update them on the treaty in the light of what has been agreed within the MLI, which clearly we will be keeping a close eye on.
I said earlier that I did not have an answer to the hon. Lady’s specific question, but I now do—through a form of divine inspiration known as the officials of Her Majesty’s Treasury. Saudi Arabia is indeed not a signatory to the MLI initiative, but we hope that it will be signing in future, at which point we would intend that our treaty be amended accordingly to accommodate that.
On the hon. Lady’s point about mandatory binding arbitration, one of the points that I should have made earlier is in the context of how fair or otherwise this is on the countries with which we enter into those particular arrangements. Once arbitration is entered into, two arbitrators are appointed—one by each country—so this is not a stacked jury in any sense, and it will be for them, impartially and properly, through the normal processes, to come to their conclusions.
The issue of transparency and the disclosure of the outcomes of arbitrations really falls within the area of tax confidentiality. Inevitably, within those arrangements where companies, and indeed eventually individuals, are involved, it is important that we maintain the rigorous tradition that we have in our country of complete impartiality when it comes to HMRC, our tax affairs, investigations, arbitrations and so on.
The hon. Lady asked specific questions about US policy, which is probably a stretch too far for me to reach on this occasion, but if she has specific questions that relate to UK Treasury interaction with the US as an overseas tax authority, I would be happy to consider any representations that she would like to make.
Anneliese Dodds
I am grateful to the Minister for those clarifications. He rightly said that it is very important that HMRC conducts its affairs in a manner that is impartial between taxpayers and that is fair. That is absolutely right. However, we are surely not talking about anything that would threaten that impartiality when we talk about more transparency; we are not talking about the decisions themselves being altered, but rather the transparency around decisions that are taken. That would not affect the process leading up to those decisions being taken.
If there were concerns about this somehow negatively affecting taxpayers, I am sure that there could be some way of anonymising the results from different arbitration situations. However, I genuinely think it would be helpful for us, whatever side of the House we are on, to see more information about the use of that mechanism, because it can make a significant difference for taxpayers and, indeed, for our revenue.
Finally, on the difference between OECD and UN processes, it is absolutely right that some developing countries were involved in the OECD’s development of its approach. However, they were only observers—as we know, the OECD is a club of generally rich countries. Those developing country members were consultees, not full members. I look forward to seeing exactly that development of the UN model in the light of the OECD’s approach. Developing countries have full status in UN discussions, which they lack within the OECD process.
Question put, That the amendment be made.
Anneliese Dodds
I will speak to both of our amendments, if that is acceptable to the Committee. I am grateful to the Minister for his introduction. As colleagues will know, these measures attempt to close loopholes within the Government’s new non-dom regime. From an Opposition point of view, this is rather frustrating, because we were concerned about many of these issues, particularly the exemption of offshore trusts from the non-dom regime. We are pleased that there has been some tightening, but of course we would like to see more.
We see in these measures new anti-avoidance provisions so that, as was mentioned, it will no longer be possible to wash out trust gains by payments to non-residents. On capital payments made to a close family member of a UK resident, there will capital gains tax and income tax. Where a non-resident beneficiary receives a distribution from a trust and then makes an onward gift of all or part of it, directly or indirectly, to a UK resident, the original payment will be taxed as if received by that UK recipient. Surely that is right and correct.
Although these measures, in and of themselves, do provide some sticking plaster, they do not fundamentally reform the non-dom regime in the manner we would wish to see. I should qualify that by stating that the submission to the Committee by the Institute of Chartered Accountants maintains that the Government’s promises are essentially greater than what they are delivering, even within their own terms. It maintains that the Government’s indication that the inadvertent remittance trap has been closed is not, in practice, fulfilled by these measures, and that such a trap could be continued. It would be helpful to hear the Minister’s assessment of whether the institute is correct in that regard.
We debated the overall provisions on non-doms at length when considering the previous Finance Bill, so I will not rehearse all the arguments now. We are talking about the 121,000 individuals who claimed non-dom status in 2014-15. Non-domiciled UK resident taxpayers account for about 85,000 of those people; the remaining 35,000 or so are non-UK residents. Obviously, those non-doms are still subject to different taxation arrangements from UK residents. That is a fundamental principle of difference, even though, yes, the Government have made changes. Again, I will not rehearse all the previous arguments.
Even the Government’s changes enable people, if they so wish, to have a 15-year wait before triggering the new arrangements, because they have to have been resident in the UK for 15 of the past 20 years in order to be considered UK domiciled and for their status to be changed. We do not feel that those arrangements are strict enough.
We are focusing on the use by some non-doms—obviously, for many people it is a legitimate status—of offshore tax arrangements, particularly trusts. It would be helpful to hear from the Minister about the extent of existing abuse that these measures attempt to deal with. Have the measures arisen because of experience with disclosure of tax-avoidance schemes, for example? If so, can he provide us with some evidence on that? Or have they arisen from cases that HMRC has settled out of court? It would be helpful to understand the magnitude of the problem before considering mechanisms to try to deal with it.
More generally, taxing trusts is a difficult challenge. In public policy terms, there are obviously no simple solutions. Trusts often raise issues relating to capital gains tax, inheritance tax and many other matters. I understand that in November the Government committed themselves to a large programme of activity—or at least a programme of activity—on trust simplification. It would be helpful to hear from the Minister what exactly has moved in that regard.
The Institute of Chartered Accountants has said that it would be willing to participate in that programme of activity, as I know would many other stakeholders. It would be useful to know how far that activity has progressed, because there are many calls for a fundamental overhaul in our approach to trusts, and we also need to change how we deal with offshore trusts. That is particularly the case with evidence of abuse, but not sufficiently systematic evidence; as I mentioned before, we need more of it. We have already discussed in the House Deutsche Bank’s use of trusts to enable bankers to dodge income tax on bonuses. HMRC managed to defeat that scheme, but there are other schemes in use today. Again, concerns about HMRC’s capacity might arise when we are talking about very complex tax matters.
To be clear, Labour opposed the exclusion of offshore trusts from non-doms rules in the first place, and we have made that point consistently. We made it in the debate on the ways and means resolutions for the previous Finance Bill, and then again on Second Reading and in the Public Bill Committee. We still think that exclusion is inappropriate, particularly given the generalised lack of transparency on trusts. We have already referred to the discussions that the Government are having with our Crown dependencies and overseas territories. I know that part of those discussions have been about the creation of registers of beneficial ownership—so far just for companies. That has not yet been fully fulfilled for some of those jurisdictions, but in any case it does not extend to trusts, and we believe that it should. It would be interesting to hear about any progress on that.
Labour is also calling for a public register of UK trusts. Our amendment seeks more transparency on the use of offshore trusts, at least as a start. I am sure that the Minister will mention concerns about the confidentiality of those using trusts, which always seems to be the response when we raise the issue. I have huge faith in the British civil service and think that it is very good at creating appropriately targeted regimes. If we look at how Companies House has developed its system for registration and transparency on company ownership and operation, we see that there is already a mechanism within the regime to prevent inappropriate disclosure that could damage those involved with a company. For example, if we were talking about a firm that breeds beagles for animal experimentation, which could be targeted by animal rights activists or extremists, providing its address could be inappropriate, so it is possible for Companies House to have a different disclosure regime for that company. We could create a similar arrangement for trusts. Surely that would be possible and appropriate.
The British Government will have to come to a position on this because of a matter that I have raised previously: the EU now has an agreement to have transparency for business-like trusts. The devil is in the detail, of course, because we could see gaming around what is then deemed to be business-like, as opposed to other types of trusts. I think that a regime that just excludes those trusts from full transparency where there could be harm to the beneficiaries would be more appropriate. None the less, that is what the EU is moving towards. It would therefore be helpful to know exactly what the Government’s position is on the matter. That would offer a halfway house to much fuller transparency.
We are trying to get at the matter through a side door in our amendment, but we are going to keep pushing this argument for more transparency on trusts, which we think is absolutely essential. In the debate in the House on some of these matters and on the Paradise papers, I remember certain Government Members using an analogy for offshore trusts, stating that they were very similar to ISAs—surely they are exactly similar. I always use the “neighbour test.” I think, “What would my neighbour think?” If I asked her, “Is it okay for you to have an ISA?”, she would say, “If I had enough money, yes I would like to, if I could.” The exact intentions of an ISA are clear within its provisions: they are meant to promote savings. That is the whole point of them.
However, as far as I can see there is no legislation that promotes individuals undertaking trusts specifically as a means of tax avoidance—that is not the stated intention of any piece of legislation, as distinct from the stated intention of ISAs. Therefore, the analogy is inappropriate. We will continue to push for the need for greater transparency in this area.
The Chair
Before we proceed, I remind all hon. Members, both new and longer in the tooth, that all new clauses are debated with other items now but voted on at the end of the Bill. We will not miss it, do not worry; we will come to it in due course.
Anneliese Dodds
Thank you, Sir Roger, and I will aim to keep my remarks brief. This measure was requested by stakeholders during consultations in autumn 2016, particularly on the use of the cash basis in general. As the Minister said, it appears to offer more consistency for different groups of taxpayers, particularly self-employed traders and employees, and unincorporated property businesses. None the less, Labour Members are requesting a review of the measure because we think it important to have more information about its potential revenue effects. The Minister has said that the change is largely to the basis of calculation, but if we are talking about a shift to mileage rates rather than the value of the business technology used in the first place—the car—that could be significant for the amount of tax levied, and it would be helpful to have more information on that.
We know that public services and revenues are under a huge amount of pressure, but we do not have a clear view of the overall impact of reliefs on Government revenue. That point came up in our discussions last week, and a number of my colleagues rightly intervened on it. It would be helpful to have more information about that, and about whether there could be unintended consequences. Such consequences would affect self-employed traders and employees who use mileage rates—it is not just a matter for landlords who might be covered by the new provisions—and it would be helpful to know whether, for example, there has been any consideration of trying to reduce car use in general. Some of the small one-man, one-woman bands who might be covered by the measure could be landlords of a small number of properties in a small geographical area. The Government should consider how to enable people not to use a car in the first place, and it would be helpful to hear their thinking on that.
I fondly remember how, when I was a student, my landlord used to cycle around with his dog—sadly now deceased—in the basket of his bike, and that was how he got around his properties. [Interruption.] The landlord is still going, as I understand it; only the dog is deceased.
Anneliese Dodds
The bike, I think, is still going as well. I still see my previous landlord cycling between his properties, and perhaps we should aim to promote that model, particularly when we are talking about small concerns. I am not belittling the transport requirements of larger landlords or those with properties that are geographically spread out, but it would be helpful to consider such measures. It would also be useful to know whether a thorough analysis has been made of the administrative burdens that the measure might create. The Minister alluded to that, but more information would be helpful.
May we have an indication of the extent to which the Government will try to prevent abuse in this area? I am aware that that already applies to the use of this basis by self-employed traders and employees, but during the Minister’s remarks I was reminded of debates about the business use of private jets, which came up in discussions on the Paradise papers. I have talked to the Isle of Man’s representatives about this. They maintain that activities have generally been above board, and that they are sorting out activities that have not been. We all remember the video of Lewis Hamilton enjoying his new private jet, which, in theory, was just for business use. It appears that appropriate safeguards had not been put in place to make sure that the jet was just for private use.
How are we ensuring that, in these kind of cases and more generally, cars are used overwhelmingly for business use? I believe it is a question of whether they are predominantly for business use. We are talking about small landlords, so it could be quite difficult to make that distinction. It is about how we prevent abuse while protecting the interests of small business.
Mel Stride
I thank the hon. Member for Oxford East for her observations, particularly the curious incident of the dead dog and the bike, which I think might end up being one of the most memorable statements in the passage of the Bill.
The hon. Lady eloquently alluded to the impact of such measures on the size or type of vehicles used to carry out the business activities that we are discussing. I point to my earlier remark that, if a fixed rate per mile can be claimed, there is an incentive to use a less expensive means of transport, be it a bicycle or a less polluting vehicle, while claiming the mileage. A useful dynamic, in terms of her interest in this area, is built into the system.
As I have pointed out, the measure is a simplification, not a tax reduction. That is a pertinent point when it comes to a review of behavioural change, because it does not change the overall weight of the tax burden on this group. As I have set out, the Office for Budget Responsibility has stated that the fiscal impact of the measure will be negligible—meaning that the impact will not exceed £5 million in any year—in every year of the scorecard period, albeit that 1.8 million businesses are affected by it.
The hon. Lady asked how we will know if people are abusing the system by claiming mileage allowances for a use other than business use, or for travel that has not occurred. That problem is implicit in any arrangement of this nature, in which expenses are claimed as a tax deduction. HMRC has become more and more sophisticated in how it looks at tax returns—that is clearly how such information would be provided—and it uses technology to look for patterns and abnormalities. It sometimes looks at whole subsets of taxpayers that have a greater propensity to do certain things, and it therefore investigates members of those groups more rigorously. That would be part of the approach.
Overall, I do not think it is necessary to have a review, particularly given the negligible impact of the change. On the grounds of proportionality, I ask the hon. Lady to consider withdrawing the new clause.
Finance (No. 2) Bill (Sixth sitting)
Anneliese Dodds Excerpts(8 years ago)
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Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to be speaking with you in the Chair, Mr Owen. I thank the Minister for his clarifying comments. We on the Labour Benches still wish to have the review proposed in new clause 16. The review would, exactly as described by the Minister, examine the impact of the APD changes on the usage of aeroplanes and their emissions.
On one hand, it is helpful that we are shifting towards greater predictability for air operators and consumers around air passenger duty. It seems appropriate that we have the lag so that we can discuss and determine future rates, rather than having short-term change, but we would like a much stronger indication of the direction of Government thinking in relation to the tax.
The Minister offered the same argument for air passenger duty, to a word, as the one we were given in the previous Finance Bill discussion:
“With no tax on aviation fuel or VAT on international and domestic flights, APD ensures that the aviation sector plays its part in contributing towards general taxation, raising £3.1 billion per annum.”––[Official Report, Finance Public Bill Committee, 24 October 2017; c. 111.]
In our discussions in Committee on APD changes in the previous Finance Bill, we went on to talk about the potential environmental impact. I note that at that stage, the Minister said:
“Like all taxes, it will also change behaviour to some degree, and to the extent that it makes flying a little bit more expensive, it could be expected to have the effect of diminishing demand for air travel. The lower rates for economy, which takes up more space on aircraft than first class, assist in ensuring that flights are as full as they can be.”––[Official Report, Finance Public Bill Committee, 24 October 2017; c. 114.]
We would find it very helpful to have a review. I take on board the Minister’s point about regular information about the operation of APD, but what we do not have at the moment, to my knowledge—if I am wrong, the Minister can set me right—is an indication of the relative merits of this approach against potential others.
A number of transport economists and environmentalists have looked at the impact of levying duty on entire planes, rather than on individuals. The thought was that that would somehow lead to more incentives for more efficient use of space. I take on board the differential rates for private jets and small planes as against larger planes, which tend to be fuller during economy use, but it would be helpful to know whether there will be more impetus towards more intensive use of planes that are already in the air but all of whose seats are perhaps not being used. For the Opposition, that would be part of the stronger analysis of the impact of the duty, compared with other approaches. It would be part of the more general review that we feel we need on the overall impact of environmental taxes and reliefs, so that we can be sure that they are targeted as well as they can be for both economic and environmental purposes.
There are a couple of other issues on which we need clarification. We had a debate on the first during proceedings on the previous Finance Bill. My hon. Friend the Member for Luton North (Kelvin Hopkins) and others raised the matter when they talked about the extent of consultation on existing measures. There are higher rates for long haul in the proposals, as in the existing APD regime, but many Britons have no choice but to travel long haul if their family is in the Caribbean, the Indian subcontinent and so on. The Minister at the time made a commitment to write to my hon. Friend on the extent of consultation with groups of people who might be particularly affected. It would be helpful to have on the record the thoughts of the Minister in Committee on that issue, especially because, in many ways, short-haul flights are a lot easier for people to avoid than long-haul ones, because they can adopt other forms of transport instead. Any indications about that would be useful.
It would also be helpful to have an indication of the Government’s thinking about the extent to which they will be able to protect, or otherwise, revenue from APD. Arguably, we are seeing a race to the bottom on the duty. In previous Finance Bill Committees, we have discussed the new system in Scotland—the air departure tax. Clause 43 increases the band B multiplier in Northern Ireland. From the way in which it is written, I assume that that is happening in the absence of the Stormont arrangements coming back into play and giving the Northern Ireland Assembly control, so we are talking about an increase until the Assembly can make a determination.
Generally, however, the direction of travel appears to be downward, and it would be helpful to know the Treasury’s long-term thinking. We have a lot of pressure from airports, particularly those near Scotland, about whether they can protect their business given the potential reductions in the duty in Scotland. My hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) has made that point in the House.
Furthermore, we need consideration of the issue, given the discussion we had in the Chamber only a couple of hours ago, when a Minister—I appreciate that it was not the one in Committee, who is well apprised of all the issues relating to air passenger duty—seemed to indicate that we might change the extent to which we levy duty on incoming flights to the UK, departing from the existing practice under EU rules. That might be a possibility, but it would naturally have an impact on revenues. It would be helpful, again, if the Government indicated how the revenue—the £3.1 billion to which the Minister referred—will be protected.
Mel Stride
I need not repeat my earlier remarks about the reviews we already carry out, and I reiterate the point that the new clause, as worded, would implement a review of the possible impact of the taxation we are considering before such taxation had come into effect, which as an exercise is possibly not that valuable. Of course, we always keep all taxes under review. The hon. Lady talked about seeking beneficial behavioural change through mechanisms other than APD, for example. I am happy to receive any representations that she might make in that vein.
The hon. Lady mentioned her colleague, the hon. Member for Luton North, and the impact of APD on passengers who require a long-haul flight to visit relatives. I will certainly get back to her on that when I return to the Treasury. She also mentioned competition between different airports following the devolution of APD. Scotland will in due course bring in its own form of ADT. She also referred to the Northern Ireland situation. It will be for each of those tax jurisdictions to start to take whatever measures they think are appropriate to ensure that their particular airports and passengers are not disadvantaged. I suspect that, as with competing tax rates, the dynamics will probably be for those tax rates to come down, as a result of the competitive effect or the fact that there is a devolved Government. I commend the clause to the Committee.
Question put and agreed to.
Clause 43 accordingly ordered to stand part of the Bill.
Clause 44
VED: rates for light passenger vehicles, light goods vehicles, motorcycles etc
Question proposed, That the clause stand part of the Bill.
Anneliese Dodds
The Opposition have received a submission that it is worth asking a question about. It is about the specific case of taxis that are zero-emission capable. As I understand it, they will be exempt from the VED supplement from 1 April 2019, but not until then. There is the complication that taxis are classified as passenger cars because they are built to carry passengers, rather than as commercial vehicles, although in practice they are not really operating as commercial vehicles, which means that at the moment they are subject to the VED standard rates.
As those of us who have done any casework on this will know, taxi drivers need to purchase their car for a long period and there are complicated financing arrangements. In many areas we are keen to promote zero-emission taxis, or taxis that will be capable of transferring to zero or low-emission bases in future. It would be helpful to hear from the Minister whether some further calibration could be done on this measure, so as not to choke off the development of zero-emission capable taxis. I thought the submission was quite interesting in that regard.
Mel Stride
I thank the hon. Lady for her question about taxis. We will publish a consultation this spring, which will clarify who will and will not be eligible for the exemption and address the issues she has raised.
Question put and agreed to.
Clause 44 accordingly ordered to stand part of the Bill.
Clause 45
Tobacco products duty: rates
Question proposed, That the clause stand part of the Bill.
Anneliese Dodds
I am grateful to the Minister for that explanation. I understand broadly that we are essentially talking about three changes across the board: the duty rate increase of 2% across all tobacco products, the extra 1% for hand-rolled tobacco, and the minimum excise tax to ensure that there is a minimum tariff for the very cheapest cigarettes.
We are asking for a review and will continue to do so, because it is so necessary. I think that some of the changes are quite positive. The new measures around hand-rolled tobacco are important, given that that form of cigarette has become increasingly popular—more than a third of smokers now use hand-rolled tobacco. Men, rather than women, and people in more deprived socioeconomic groups are particularly likely to smoke hand-rolled cigarettes. We think it is important for action to be taken in that regard.
The MET is also important to ensure that cigarette taxes on their own do not lead to compensatory behaviour, such as switching to a lower price brands. Evidence from countries such as Thailand suggests that when taxes went up, people just compensated by smoking cheaper cigarettes rather than stopping. We are asking for a review because we are concerned about the sufficiency or otherwise of the duty rises reported here for the Government’s overall anti-smoking efforts.
Alison Thewliss
On that point about cheaper brands, does the hon. Lady agree that there is also a huge risk that people will turn to illicit tobacco, which is also a tax avoidance matter with people bringing cigarettes into the country?
Anneliese Dodds
I am grateful to the hon. Lady for making that germane point. I understand that more research is needed into the extent to which people substitute illicit brands. Of course, that is the nature of the beast, because these products are illicit and therefore difficult to discover. Many of those involved in the trade are involved in other forms of criminality. It is enormously important to deal with that and with the health problems associated with illegal products, which can include lots of chemicals in addition to the tar and other noxious substances present in all cigarettes. I absolutely agree with her.
There is evidence that cigarette taxes are leading to a reduction in smoking, and that the reduction is greater when there are measures in place to prevent the proliferation of very low-cost cigarettes. But there is also evidence that the effectiveness of both is greatly enhanced when coupled with health interventions, not just public awareness campaigns. For example, nicotine replacement therapies have been shown to increase the long-term success of quitting by about 3% to 7%, and if a quit attempt is made by a former smoker with the support of a health professional as part of a structured support programme, they are far more likely to keep that quit in place and not to start smoking again.
Similarly, behavioural support has been shown to increase the likelihood of a smoker quitting long term by a similar figure: between 3% and 7%. I mention that now because current developments are extremely worrying in this regard. A recent report by Cancer Research UK and Action on Smoking and Health shows that cuts to the public health budget nationally have led to dramatic changes in services for smokers. Only 61% of local authorities now offer what the National Institute for Health and Care Excellence suggests for evidence-based intervention to help people stop smoking. I am shocked by that, as I am sure are other members of the Committee. There have been huge cuts to local anti-smoking services, and I understand that at least one local authority now has no budget at all for addressing smoking. In one in nine local authority areas GPs no longer prescribe nicotine patches or similar measures.
Why am I mentioning that now? Let us face an obvious point: tobacco taxes are regressive, because they affect those on lower incomes most. We cannot escape that. If help is available for people to quit, then that regressive impact is in some way compensated for. The evidence is that only about half of the people who smoke actually enjoy it, so huge numbers want to quit. The average smoker in the UK spends £23 a week on cigarettes, and obviously that figure is increasing as a result of these additional duties.
There has been a debate within the international evidence, and this may come up within the Minister’s responsibility when he returns to the issue. Most of the international examination that says that there might not be a regressive impact has suggested that in the long run, low-income smokers will save on their medical costs. But that does not apply in the UK, thank goodness, because we have a national health service that is free at the point of use so everybody is able to use it and there is no such medical saving in that regard.
If those professional services for stopping smoking are not available, particularly to people on low incomes, it will be difficult to avoid the conclusion that this is a regressive tax being imposed without the help that people need to stop smoking. Only about one in twenty people who try to stop unaided manage to stop smoking for six months. People who do stop smoking for some time do have a number of symptoms, as those trying to do it will know. These symptoms are severe, and in many cases they lead to people going back to smoking even if they do not want to do that. It is therefore particularly important that we have help for young people. Labour—
The Chair
Order. The health implications are important, but we need to get back to the issue.
Anneliese Dodds
Labour said that we would prioritise having a special programme focused on young smokers. The point I am trying to make is that the Minister said this was part of a suite of measures, but he only mentioned public health information campaigns in addition, from what I can remember—I will check Hansard to see whether that is correct. The evidence strongly suggests that if we just increase duty, as we are doing now, without that suite of extra measures, we are not going to see the number of people stopping smoking that we really need. We have also seen cuts in trading services, which potentially is enabling more young people to access cigarettes than should be the case. For all those reasons, we urge the Government to review the effectiveness of this measure on overall smoking cessation rates, and we will continue to push for that review.
Mel Stride
The hon. Lady raised the issue of the potential substitution effect in individuals trying to avoid the priced-in tax on cigarettes by purchasing illegal cigarettes, which might increase the amount of illegal trade. I can tell her that tacking illicit tobacco is a key priority for the Government. Since 2000 the UK has adopted a strategic approach, with a wide range of policy and operational responses, in collaboration with other enforcement agencies in the UK and overseas. That effort has achieved a long-term reducing trend in the illicit tobacco market, despite duty rates increasing substantially over the same period. The percentage tax gap for cigarettes was reduced from 22% to 15% and for hand-rolling tobacco from 61% to 28%, so there appears to be some evidence that the substitution effect, or the increase in illicit tobacco coming into the country, is not quite as sensitive to some of the tax rises as one might instinctively imagine.
The hon. Lady asked what other measures the Government are engaged in to try to reduce smoking. As I have said, we are committed to reducing the prevalence of smoking through our tobacco control delivery plan 2017 to 2022, which also provides the framework for robust and ongoing policy evaluation. The plan sets out ambitious objectives to reduce smoking prevalence, including reducing the number of 15-year-olds who regularly smoke from 8% to 3% or less, reducing smoking among adults in England from 15.5% to 12% or less, reducing the inequality gap in smoking prevalence between those in routine and manual occupations and the general population—that touches on her point about the potentially regressive nature of tobacco tax—and reducing the prevalence of smoking in pregnancy from 10.5% to 6% or less.
We will of course continue to keep those measures under constant review. In fact, tobacco and smoking is one of the areas of public policy on which Governments of all colours have placed particular emphasis. There is a huge amount of scrutiny in that area and we will continue in that vein.
Question put and agreed to.
Clause 45 accordingly ordered to stand part of the Bill.
Clause 46
Power to enter premises and inspect goods
Childcare Vouchers
Anneliese Dodds Excerpts(8 years, 1 month ago)
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Anneliese Dodds (Oxford East) (Lab/Co-op)
Thank you, Mr Bailey, for calling me to speak on behalf of the Opposition in this important debate. I declare an interest, as someone who has personally benefited from the childcare vouchers scheme.
I thank my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) for introducing the debate. I also add my thanks to that of my colleagues to the tens of thousands of people who have made their opinions on this issue clear by signing the childcare vouchers petition. All those signatories have stated clearly that they are opposed to the closure of the scheme to new applicants and, as has been mentioned, to existing applicants merely because they have the misfortune of changing jobs. In addition, as colleagues have said, the petition has been echoed by early-day motion 755, which indicates that 49 Members of this House are displeased by the scheme closure scheduled for April.
I also thank my hon. Friend the Member for Batley and Spen (Tracy Brabin), who has been working hard on behalf of the Opposition to raise the profile of this issue, as well as other problems with the delivery of Government promises on childcare, not least the patchy implementation of the 30 hours’ free childcare pledge, as my hon. Friend the Member for East Lothian (Martin Whitfield) has rightly underlined.
I congratulate the hon. Member for Salisbury (John Glen) on his appointment as Economic Secretary to the Treasury, rather than as Children’s Minister. It is good to see him in this debate and I am looking forward to his response to the very detailed points made by my colleagues. Evidently, as a number of colleagues have made the point, we need a Government response on the extent to which childcare costs are outstripping wages. My hon. Friend the Member for High Peak (Ruth George) maintained that the cost of childcare has risen at seven times the rate of the increase in wages in recent years. Therefore, it is necessary for the Government to offer stretched parents more support.
I am sure that the Economic Secretary will refer to today’s announcement about the extension of tax-free childcare. I, like others, was absolutely astonished to see that announcement being made today, given the context of this debate.
I take on board the points made by colleagues that the tax-free childcare scheme benefits some parents. For some self-employed people who were not able to access the childcare vouchers scheme, there had to be some kind of new approach, although I underline the comments made by hon. Friends that we need to see figures on how many self-employed people benefit. Many will also see, to an extent, an increase in the support that they can obtain but, as my hon. Friend the Member for Birmingham, Selly Oak (Steve McCabe) pointed out, most of the gainers will be those who are already better off. That is very concerning. None the less, although some people have benefited, there are still significant problems with the roll-out of tax-free childcare, some of which may be shorter run and some longer run problems. It is disappointing to see the Government going ahead with cancelling childcare vouchers for new entrants and those changing jobs and not acknowledging those continuing problems.
I do not want to go on at too much length, but I shall reprise some of the comments made by colleagues and pose questions directly to the Minister. I hope that we will have some answers to the important points. First, there are the substantial IT failures that have accompanied the provision of tax-free childcare. Unfortunately, they are very similar to the problems that have been experienced by people trying to ensure access to 30 hours’ free childcare. As we saw in the media again this morning, thousands of people have been unable to access their 30 hours for this term because of technical glitches. My hon. Friend the Member for Batley and Spen informed me that one nursery owner she is in touch with understands that one of her parents has had to call the helpline more than 100 times.
It was reassuring that the technology underlying the childcare vouchers appears to work—certainly, in my experience and that of parents I have talked to. Sadly, the complete opposite has been the case for tax-free childcare. It shares the same platform, as colleagues have mentioned, with the delivery of the 30 hours provision and sadly, it has experienced many similar problems. We have heard many examples of those problems already. My hon. Friend the Member for Birmingham, Selly Oak talked about how he had heard that there was inappropriate release of data, which was worrying to hear. As a member of the shadow Treasury team, I have been contacted about some of those problems.
One person who contacted me said that it has been a “Kafkaesque nightmare”. He is a single parent—a widower—and he stated an issue that others have referred to:
“The government childcare service requires those who are claiming government support with childcare costs to reconfirm every three months. This requires going through a number of screens on the relevant website and pressing a button to either confirm that nothing has changed or to outline changes. The trouble is that there is a serious bug in the system.”
The bug was so serious that every time he pressed this button, it reset the system. It was a complete and utter system breakdown.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
My hon. Friend is making a passionate argument about why the system has failed so many families in our constituencies. Is she aware that the Childcare Voucher Providers Association said that thousands of parents will have no access to any form of childcare support come April 2018, because of the system failing? Does she share my shock and astonishment about that?
Anneliese Dodds
I absolutely share those concerns and I am grateful to my hon. Friend for mentioning that fact. There is a worrying combination of technical glitches, many of which seem to be ongoing and many of which have lost parents thousands of pounds—we are not talking about small amounts of money. Those parents are so frustrated; they have continually contacted helplines and different team managers, who have just said, “I’m very sorry; there are technical problems that we have been raising with those more senior.”
As well as that side of the issue, as we have heard from other colleagues, many parents do not have access to the kind of internet service that they need for the application every three months. As my hon. Friend the Member for Newcastle upon Tyne North and my hon. Friend the Member for East Lothian underlined, people need a secure, reliable and high-speed internet connection every three months to make this application. Parents I have talked to have told me that this is not a one-shot application, because of the numerous technical glitches that people have experienced.
Can the Minister offer us an iron-clad guarantee that no parent will be locked out of access to tax-free childcare, either because of IT glitches or because of a lack of access to safe, secure and permanent internet services? I would be grateful if he let us know what precisely he has done or will do, given he has just got his feet under the table, to push Atos in particular to speedily resolve these very concerning technical issues. I have no doubt that these kinds of technical problems, as well as many of the others that were referred to by colleagues, offer part of the reason for the low take-up of tax-free childcare.
There are nearly 800,000 families using childcare vouchers, as my colleagues mentioned, and the vouchers are provided by more than 60,000 businesses and employers, including every Government Department. Occasionally, the Government maintain that there is a low proportion of employers offering vouchers. That is the case for one-man and one-woman bands, but if we take them and very small businesses out of the equation, there is a much higher proportion of businesses that offer those childcare voucher schemes. There is an enormous gulf between the usership rate of childcare vouchers and that of tax-free childcare, even with existing restrictions.
Colleagues mentioned that the OBR report before the Budget indicated that the Government would pay out only £37 million this year for tax-free childcare, despite setting aside £800 million for it. There is also a strange issue of exactly how many people actually benefit from tax-free childcare. I am slightly confused, as are colleagues, about today’s announcement and what the figure of 170,000 referred to. In her statement, the Chief Secretary to the Treasury, maintained that 170,000 people have opened an account for tax-free childcare. I am interested to know whether those are live accounts—whether those accounts have paid anything out—because I understand that, as of November, only 30,000 accounts were actually live: a tiny proportion of the people who could have accessed the scheme have done so.
I am also concerned that the parents of disabled children may be considerably under-claiming. I was pleased that my hon. Friend the Member for Stockton North (Alex Cunningham) mentioned that, as well as my hon. Friend the Member for Newcastle upon Tyne North. I was surprised to hear in the response to a parliamentary question by my hon. Friend the Member for Batley and Spen that there are only 1,187 tax-free childcare accounts registered for disabled children. Of course, tax-free childcare is already fully rolled out for disabled children, so it would be helpful to hear the Minister’s assessment of the number of parents of disabled children who used tax-free childcare, compared with those who used vouchers, and why there is a disparity, as I expect there will be. I would also be interested to hear what the Minister has to say about the disincentive effect of the design of the tax-free childcare system. As many colleagues mentioned, parents need to pay around £10,000 into their account before they can receive the headline £2,000 per year. That enormous sum is simply impossible for the vast majority of parents to afford. It does not reflect their working patterns or their wages.
[Mark Pritchard in the Chair]
For that and other reasons, tax-free childcare will benefit people on large incomes who consume large amounts of childcare the most. As many colleagues said, the new scheme will generally leave people on lower incomes worse off. Indeed, the charity Employers for Childcare calculated that approximately 70% of the parents who approach it for help would be better off with childcare vouchers, tax credits or universal credit, or with a combination of those things, than with tax-free childcare. My hon. Friend the Member for Ealing Central and Acton (Dr Huq) rightly mentioned that the new system may negatively impact low-income single parents in particular.
Further calculations indicate that people in lower paid areas and people on lower wages generally are more likely to lose out as a result of losing access to childcare vouchers following the adoption of tax-free childcare. That is because—we might have discussed this issue more—tax-free childcare does not incorporate the progressive elements of the voucher scheme, which enables basic rate taxpayers to save more than higher rate taxpayers, who may in turn save more than additional rate taxpayers. In her insightful speech, my hon. Friend the Member for High Peak pointed out some of the disbenefits of tax-free childcare for low-income parents compared with people on low incomes who are already in the voucher scheme.
I would be grateful if the Minister indicated whether any impact assessment has been undertaken of how the closure of the childcare vouchers scheme will affect people who spend an average amount—not the very high amounts in Government projections—on childcare. It would also help to hear how the Minister expects the new system to affect people on lower incomes, who will largely see the support they receive proportionately reduced by these changes. That assessment should take into account the impact on employees’ ability to progress to higher paid jobs that require them to be more flexible with their working hours, which my hon. Friend rightly mentioned.
I would also be grateful if the Minister explained how the Government are promoting activity by employers to support employees who are parents. A number of colleagues made the point that childcare vouchers start a conversation about employers’ responsibility to consider their employees’ childcare responsibilities. Along with other benefits for working parents, vouchers often play a key part in recruitment and retention. Given that we will lose the vouchers scheme, will the Minister indicate what other measures the Government are putting in place?
We also need a response to the question that my hon. Friend the Member for Stockton North asked: why is there a tighter age restriction for tax-free childcare than for childcare vouchers? Have the Government considered the impact of that on parents who want to ensure that their children are properly cared for when they are not at school? My hon. Friend the Member for Birmingham, Selly Oak ably underlined that point—his speech was very important in that regard.
Given the low take-up of tax-free childcare, the extensive technical problems with its roll-out, its regressive impact and the apparent problems that parents with disabled children are having with accessing it, will the Minister see sense and keep the vouchers scheme open, as the petitioners request?
Finance (No. 2) Bill (Fourth sitting)
Anneliese Dodds ExcerptsThursday 11th January 2018
(8 years, 1 month ago)
Public Bill CommitteesRead Full debate Finance Act 2018 View all Finance Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 11 January 2018 - (11 Jan 2018)
Mel Stride
Clause 29 will extend the first-year tax credit scheme to 2023 and reduce the rate of eligible claims to two thirds of the corporation tax rate. That will ensure that loss-making companies are appropriately incentivised to invest in energy-saving equipment following reductions in the corporation tax rate.
As the Committee will be aware, first-year allowances allow companies immediately to deduct the cost of qualifying energy-efficient and water-efficient equipment from their tax liability. However, loss-making businesses are not able to benefit from tax deductions, so in 2008 the first-year tax credit was introduced, which provided loss-makers with a payable credit to ensure that they were still incentivised to invest in energy-efficient equipment. The original legislation was amended in 2013 to include a sunset clause that stipulated that the scheme would expire in March 2018 unless the Government legislated to extend it.
The first-year tax credit scheme helps as many as 100 loss-making companies annually to invest in energy-saving and water-saving equipment. It enables a business to bring forward its investment to get the machinery it needs when it is needed. The changes made by the clause will extend the life of the policy to 2023 to ensure that that support continues.
Since 2008, the tax credit rate has been fixed in law at 19%, but over the same timeframe the corporation tax rate has been reduced from 28% in 2008 to 19% today, and it is legislated to fall to 17% in 2020. Therefore, the incentives for profit-making and loss-making companies have become misaligned from their original policy intention.
The clause will therefore peg the tax credit rate to two thirds of the corporation tax rate, as opposed to a specific percentage. That will ensure that the policy is in line with its original intention by ensuring that the incentive to invest in energy-saving equipment is not disproportionately greater for loss-making companies than for profitable companies that can deduct their expenses from their tax bill. Pegging the tax credit rate to the corporation tax rate will also ensure that the scheme operates as intended when powers to set the corporation tax rate are devolved to Northern Ireland.
New clause 12 would require a review of the effectiveness of first-year tax credits in encouraging business energy efficiency and of their impact on tax revenues. As with all aspects of the tax system, the Government regularly review tax reliefs to ensure that they are effective in fulfilling their objectives. In line with that practice, and to allow an opportunity fully to evaluate the relief, the legislation includes a sunset clause that means that it will expire in 2023 unless renewed.
In addition, first-year tax credits are available only for investments made on qualifying equipment published on the energy technology list or the water technology list, which are routinely updated to ensure that the technologies listed meet efficiency criteria. The reviews of qualifying products are administered by the Department for Business, Energy and Industrial Strategy and the Department for Environment, Food and Rural Affairs respectively. The performance criteria for each review and the products that meet those criteria are publicly available.
To conclude, extending the policy will ensure that loss-making companies remain incentivised to invest in equipment with the greatest environmental benefits. Following the reduction in the corporation tax rates, the changes in the clause will also ensure that the scheme remains in line with the original policy intention.
Anneliese Dodds (Oxford East) (Lab/Co-op)
I am grateful to the Minister for his summary of the background to the measures and their purpose. I certainly agree that their initial purpose was to mitigate the barrier of high purchase costs where the efficiency of a product might provide savings to business and wider environmental benefits. The measures were introduced under a Labour Government in 2008 before being reintroduced in 2013. The Committee is considering their extension and some recalibrations, as the Minister set out.
None the less, we have tabled an amendment requiring a review of first-year tax credits as they currently exist. As the Minister stated, our review would examine the extent to which they encouraged investment in efficient plants and machinery, reduced the consumption of energy by business, and aided the UK’s carbon reduction obligations. We would also like the review to assess their impact on revenue. After all, as is the case with every tax relief, the tax credits amount to forgone tax.
Looking at this issue as a Member of Parliament, it does not appear to me—perhaps Conservative Members have had different experience when investigating this change in readiness for the Committee—that a huge amount of information is available on the current impact of the tax relief. It is not clear exactly who is using it, the average size of the companies or their sector. From what I can gather from the experts I have asked, the overall cost of the tax relief seems to be bundled up in HMRC’s summary of the estimated cost of all capital allowances, within its overall summary of the estimated costs of principal tax reliefs.
Ruth George (High Peak) (Lab)
The total corporation tax take in the last year was £56 billion and capital allowances reduced that bill by £22.5 billion—almost half as much again of the total bill. Does my hon. Friend not agree that that makes it even more important that we review such a substantial area of reduction in corporation tax?
Anneliese Dodds
I thoroughly agree with my hon. Friend. I must admit that the UK is not alone in its general lack of consideration of the incidence of tax reliefs and their impact on forgone expenditure, but surely we need to be at the forefront of public administration and public policy globally. We should be considering the issue. As my colleagues mentioned, we are talking about not small amounts of money but very substantial amounts, which to all intents and purposes are forgone tax, although they are classified differently from expenditure within Government accounts. For that and many other reasons, I commend the amendment to the Committee.
Mel Stride
It is pleasing to see that the hon. Lady and I can agree on a measure that was introduced under a Labour Government. It is something good that we are keeping going, but improving at the same time. That is our mission.
I will be brief, and will not go into all the discussions around the climate change arguments put by the hon. Lady; I will focus on the amendment specifically and the review that it calls for. The measure affects only a small number of businesses, in the order of about 100. We will, of course, keep this tax measure under review, as we do all tax measures. On the basis of the size of the measure and the universe to which it applies, I feel strongly that it would be disproportionate to introduce a full review of its effects.
On that note, I urge the Committee to agree to the clause. I think that the Chief Whip—sorry, I mean the Whip—will intervene shortly to suggest that the Committee adjourn. With that information in mind, I thank the Committee for its deliberations today and look forward to further deliberations on Tuesday. I wish everybody an enjoyable weekend when it comes.
Finance (No. 2) Bill (Third sitting)
Anneliese Dodds Excerpts(8 years, 1 month ago)
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The Financial Secretary to the Treasury (Mel Stride)
A very good morning to you, Mr Owen. Once again, it is a pleasure to serve under your chairmanship. It is a great pleasure to be again in the company of the Opposition Front Benchers. On Monday we debated the customs Bill; on Tuesday we had the Finance (No. 2) Bill Committee here; on Wednesday we debated a statutory instrument, which was quite interesting; today we have the Bill again; and on Monday we will meet again to consider a statutory instrument. I am delighted that we are all here.
Before I address the Labour amendment, I will set out the general background and aims of the clause. Clause 18 and schedule 6 provide additional clarity about aspects of the taxation of partnerships. The changes and clarifications in the clause seek to address areas of uncertainty and complexity identified as problematic by stakeholders, and to reduce the scope for non-compliant taxpayers to avoid or delay paying their tax. The changes also facilitate the digital transformation of partner taxation using information in the partnership return.
Partnerships in the UK are required to file a partnership tax return in the UK once a year. This partnership return ensures that Her Majesty’s Revenue and Customs has the information it needs so partners are correctly taxed on the profits and losses allocated to them. The return should summarise the profits and losses allocated to each partner, and HMRC uses it to audit the tax returns made by the partners.
The clause changes the partnership return in the following ways. First, it clarifies the treatment of partners who are in bare trust arrangements—trusts in which the beneficiary has the absolute right to income and capital from the trust—by confirming that beneficiaries of such trusts are treated as partners for tax purposes. It also clarifies the tax treatment for partners who are themselves partnerships, by providing a statutory definition of an indirect partner and setting out the basis period rules—the basis period being the period for which a partner pays tax each year—and how they apply to indirect partners.
To ensure all partners can complete their returns accurately, and to facilitate HMRC’s assurance work, a partnership that has indirect partners will be required either to report details of all the indirect partners or to submit the four possible profit calculations for UK resident and non-UK resident companies and individuals. The clause simplifies the rules for investment partnerships in the UK that already provide the information that HMRC requires under the common reporting standard or the Foreign Account Tax Compliance Act; it reduces the reporting requirements for investment partnerships where the information has been reported under those other international obligations. Finally, it introduces a new process to allow disputes over the correct allocation of profit for tax purposes to be referred to the first-tier tax tribunal to be resolved. That will ensure that partners have a dedicated method for resolving disputes that does not rely on HMRC assurance processes.
On the amendment, I assure hon. Members that the Government have carefully considered the risk of non-compliance in drafting this legislation. In addition to the clarifications that the clause provides to address areas of uncertainty for partners, HMRC already has the power, subject to certain conditions, to require payment on account, in the form of an accelerated payment notice, from taxpayers who are involved in schemes disclosed under the disclosure of tax avoidance schemes rules or counteracted under the general anti-abuse rule.
HMRC has issued more than 79,000 accelerate payment notices since 2014, which have brought in more than £4 billion to the Exchequer. They have changed the economics of tax avoidance, and there is strong evidence that they have had significant impact on marketed avoidance, as the Office for Budget Responsibility noted in its September 2017 report. The Government do not consider it necessary or proportionate to extend such notices where there is no clear indication of avoidance and a partnership’s tax returns are simply the subject of an inquiry. It is therefore equally unnecessary to review the effect that such an extension would have.
I hope that reassures hon. Members that HMRC has sufficient powers to address non-compliance by partners, and that the amendment calling for a review on whether to extend those powers is neither necessary nor proportionate. The clause provides additional clarity about aspects of the taxation of partnerships; I therefore commend it to the Committee.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to serve under your chairmanship, Mr Owen. I am grateful to the Minister for his kind comments, and look forward to future iterations of our debates, on other matters.
I want to give some context on the use of partnerships in the UK economy. Obviously, in some sectors they have proliferated, especially in forms such as limited liability partnerships. There is a broad question about unintended consequences of the proliferation of limited liability partnerships, particularly in accountancy, but I am well aware that that form of governance was created in 2001, so that growth can hardly be viewed as the result of the Government’s activity.
There are ways in which we can and should seek to ensure that partnerships are put on to as equal as possible a footing with other corporate forms. I appreciate that the package of measures on partnerships in the Bill is intended to do just that, as well as to simplify tax law on partnerships. However, our amendment would revive a measure that was initially floated by the Government, but appeared to have been rejected later: the notion of introducing, where one partner is absent, a payment-on-account system in relation to partnerships whose income is derived from trading or property, as described by the Minister.
The proposal would be similar to the system used for the self-employed, in which half the previous year’s tax bill is due in advance, and payable in July, to protect HMRC’s revenue. The proposal was No. 4 in a consultation document set out by HMRC. It received some negative responses in the consultation, I admit; however, some respondents were positive about its potential. We agree with them. It is important properly to incentivise the reporting of partners.
The Government maintain that the existence of penalty provisions for incomplete and late submission of partnership returns would be sufficiently dissuasive to prevent the non-reporting of partners to HMRC. They maintained that in the response to the consultation, and the Minister has done so again now. Our concern is that the penalty or fine could be lower than the tax due, and that could potentially open a loophole that we would rather was closed.
Our amendment would require the Government to rethink their position. However, I took on board the Minister’s comments just now, particularly about the applicability of the general anti-avoidance rule in this context. Because of that, we are willing not to push the amendment to a vote, but I hope that in the light of our discussion, the Minister will keep the matter under informal review in the Treasury.
Mel Stride
I thank the hon. Lady for those comments and for not pressing the amendment to a vote. I shall certainly keep the matters under review, as she urged, and would be happy of course to take directly any representations that she may want to make on them in future.
Question put and agreed to.
Clause 18 accordingly ordered to stand part of the Bill.
Schedule 6 agreed to.
Clause 19
Research and development expenditure credit
Question proposed, That the clause stand part of the Bill.
Anneliese Dodds
The Opposition have not tabled any amendments to clauses 20 and 21, but I have a question for the Minister about a specific matter that I raised briefly on Second Reading. It was not satisfactorily resolved at the time, so with the Committee’s permission I will raise it again.
I am grateful to the Minister for his explanatory remarks, but a pertinent question remains. As I said on Second Reading, the clauses essentially grab at what in many cases may be the holy grail: the assigning of market value to certain kinds of intangible for tax purposes. In that regard, the clauses seem to contradict the direction of travel in the Finance (No. 2) Act 2017, in which the tax impact of intra-group transactions was limited rather than regulated—I refer specifically to the measures to restrict the tax deductibility of interest payments to intra-group companies. Hon. Members will remember that the Government decided on a limit of 30% of earnings before interest, taxes, depreciation and amortization, which was the upper bound of the OECD’s suggestion. We questioned that, but at least they adopted the OECD position of restricting such payments. However, rather than limiting the admissibility of intra-group payments as a means of reducing tax, the Bill attempts to regulate their calculation. I think such an attempt may be flawed.
The Minister has covered this to some extent, but let me provide some further background. Related parties, including subsidiaries, affiliates, joint ventures or associated companies, may transfer among themselves intangibles such as patents, know-how, trade secrets, trademarks, trade names, brands, rights under contracts or Government licences and other forms of intellectual property. The attempt to regulate market value may be flawed because it assumes a market value for such intangibles. For most people, the image underlying such a view is one of an active market with buyers and sellers in it, but there is often no such market for intangibles that are transferred—sometimes entirely legitimately, but sometimes as an attempt to pay less tax by shifting to a lower-taxed or differently taxed jurisdiction. For example, I have been looking at statistics on global biotech. As I understand it, about 10 corporations control two thirds of the industry, including the intellectual property in it, so there is no normal market and enormous mental gymnastics are necessary to determine the market value of intangibles.
Firms that wish to exploit the situation can make rather wild claims. I hope Committee members will remember as a particularly egregious example the facts revealed by the European Commission’s case against Starbucks, in which vastly inflated assessments were made of the value of intellectual property held by a firm that had no employees. However, the Starbucks case was unusual in the sense that such manipulations of the value of intangibles normally remain, sadly, unchallenged. In connection with that, I understand that HMRC had, as of 2016, just 81 transfer pricing specialists. Surely that is dwarfed by the number of advisers employed by the big four firms who, potentially, would advise large companies that might well seek to reduce their tax perfectly legally by manipulation of the location of intangible assets into lower-tax jurisdictions.
Clauses 20 and 21 do not define intangible fixed assets. In accounting terms, of course, an asset is something that generates future cash flows, revenues or benefits, but there are no other qualifying criteria. The woolliness of such a definition has been recognised in the courts as problematic. For that and many other reasons, the European Union is moving towards a unitary system of corporate taxation. I appreciate that that is a matter for another day, so I will not open a discussion on it now—probably no political party would want to state its position on it in a Finance Bill Committee. We should note it here, however, because it indicates how our country may be merely entrenching problems that the EU27 are moving towards resolution.
Will the Minister introduce legislation to provide clearer guidance about how an intangible asset should be defined for tax purposes? Will he give us any further information about how he will prevent the measures from being exploited and alleged market value from being manipulated to avoid tax?
Mel Stride
I thank the hon. Lady for her speech. She raised the interplay of the corporate interest restriction and various rules, including the 30% EBITDA rule in the Finance (No. 2) Act 2017. As I am sure she appreciates, there is a distinction between that legislation and what we want to do in the clauses before the Committee. In the case of the corporate interest restriction, we are thinking about making sure that groups of companies do not abuse the borrowing of money by moving it around the group, thereby artificially reducing their tax burden. The clauses that we are considering are about regulating inter-group transfers of intangible assets, and getting the right values imputed in the circumstances.
The hon. Lady is right to say that assessing and establishing true market value is extremely complicated. A market value rule is applied in the relevant circumstances. As to whether we shall return to the matter in future and address in legislation questions of guidance and of definition of the value of intangible assets, I am happy to ask officials to look at various no doubt deep and dark parts of the UK tax code, where such definitions and other useful information may lurk, and provide the hon. Lady with what I can.
Overall, despite the complexities of the clauses and their deeply technical nature, they are important and worthy anti-avoidance measures, which we need to add to those—more than 100 of them—that the Government have introduced since 2010, saving the taxpayer £160 billion and giving us one of the lowest tax gaps in the world, and in the history of our recording such gaps.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clause 21 ordered to stand part of the Bill.
Clause 22
Oil activities: tariff receipts etc
Question proposed, That the clause stand part of the Bill.
Mel Stride
Clause 23 makes changes to ensure that the hybrid and other mismatch rules introduced in 2016 operate as intended. It does so by introducing a small number of technical amendments to those hybrid rules.
The hybrid and other mismatches regime was introduced in the Finance Act 2016 and deals with mismatches involving entities, permanent establishments and financial instruments. The regime is a set of anti-avoidance rules that tackle certain tax planning arrangements by multinationals. The regime addresses arrangements that give rise to hybrid mismatch outcomes and generate a tax mismatch. In doing so, it fully implements and, as a matter of policy, in some areas goes further than the OECD base erosion and profit shifting action 2 recommendations.
Mismatches can involve either double deductions for the same expense or deductions for an expense without any corresponding receipt being taxable. A consultation with stakeholders identified some practical and technical changes necessary to ensure that the UK regime fulfilled the policy intention. The clause amends the UK hybrid rules to clarify how they should be applied.
The changes made by the clause ensure that the hybrid and other mismatch rules operate as intended. Those changes and the hybrid regime in general will affect multinational groups with UK parent or subsidiary companies involved in cross-border or domestic transactions involving a mismatch in tax treatment within the UK or between the UK and another jurisdiction. The changes do not alter the overall effectiveness of the hybrid regime and will protect the expected yield from that regime. In some cases, as a matter of policy, the UK regime goes beyond OECD recommendations.
The detailed changes set out in schedule 7 to the Finance Bill make it clear that withholding taxes are to be ignored for the purposes of the regime, disregard taxes charged at a nil rate, ensure that capital taxes can be taken into account in appropriate circumstances, ensure that a counter-action in relation to partnerships will be proportional, clarify the scope of the rules in relation to companies with overseas branches, provide for certain intra-group transactions to be taken into account when quantifying mismatches, ensure that in appropriate circumstances income taxed in two jurisdictions can be taken into account in relation to imported mismatches, and provide for accounting adjustments that reverse or reduce mismatches to be taken into account.
Amendment 49 asks for a review into the hybrid and other mismatches legislation, focusing particularly on the rules that deal with hybrid transfer arrangements. Hybrid transfers are one of the several types of hybrid and other mismatch arrangements within the scope of the hybrid mismatch rules introduced by the Finance Act 2016. The rules that deal with hybrid and other tax mismatches, including hybrid transfer arrangements, have been implemented in line with the OECD BEPS recommendations. Likewise, the hybrid rules within the EU anti tax avoidance directive were designed to be consistent with, and no less effective than, the OECD BEPS recommendations on hybrid mismatches. The UK was instrumental in ensuring that the ATAD rules met that requirement, and the UK rules on hybrid transfers are consistent with the ATAD requirements.
In broader terms, the expected yield from the hybrid and other mismatches regime has been certified by the Office for Budget Responsibility, and those figures will be kept under review as part of the normal process for fiscal forecasting and monitoring of receipts. A review, in short, is unnecessary and will not strengthen our understanding of the legislation. As clause 23 demonstrates, the Government are already monitoring the operation and impact of the hybrid mismatch rules and making any changes necessary to ensure that they work as intended. I therefore commend the clause to the Committee.
Anneliese Dodds
I am grateful to the Minister for his explanation of the measures. As he explained, hybrid mismatch arrangements exploit differences in the tax treatment of instruments, entities or transfers between two or more countries. Sadly, those arrangements have proliferated in a number of countries, as sophisticated taxpayers and tax advisers have spotted opportunities to reduce the tax payable by what might otherwise be profitable companies.
The result has often been double non-taxation, whereby neither country involved in the arrangement can receive revenue, or the deferral of tax over many years, which is in practical economic terms similar to double non-taxation. That is just one part of the international dimension of tax avoidance that is, sadly, generally not picked up in statistics on the UK’s tax gap, but which experts maintain runs at a high level, denying our public services the revenue they need and placing small and medium-sized British businesses at a tax disadvantage.
Hybrid mismatch arrangements not only deny countries tax revenues but distort economic activity. They mean that investment decisions can be driven by tax-related criteria, not by effectiveness and efficiency. They can also lead to financial instability by encouraging tax-favoured borrowing and by reducing the transparency of company and taxation structures.
The Minister rightly referred to the groundswell of activity against these hybrid mismatch arrangements over recent years, from within the EU code of conduct group when it was chaired by the Labour MP Dawn Primarolo, and from 2013 onwards in the OECD and G20’s base erosion and profit shifting action plan. As colleagues will know, action 2 of the BEPS project, as referred to by the Minister, is focused on neutralising the effects of hybrid mismatch arrangements. The Minister referred to the fact that the most recent changes in this Bill build on those from last year. They were originally tweaks to the 2016 Bill, which amended the Taxation (International and Other Provisions) Act 2010, as I understand it.
I think we in the Opposition would agree that the general direction of travel appears to be the right one—considering the tax treatment in our own country and the corresponding jurisdiction, aligning our roles with the OECD’s approach and ensuring that measures have direct effect. As I understand it, in the past any measures had to be initially notified to the company before HMRC could take action. It is good that we now have a different approach. Above all, it is important that the new measures relate the tax treatment here to that in the corresponding jurisdiction. That means we need a more complex set of rules, but they are more appropriately targeted at dealing with the scourge of hybrid mismatch arrangements. It is precisely because of the need to continue to eliminate these arrangements that we believe a review is necessary.
I will quote here from an OECD report from 2012. It is, admittedly, from just before the BEPS process started, but I think it is still relevant. The report was specifically on hybrid mismatch arrangements, and it stated:
“Country experiences…show that the application of the rules needs to be constantly monitored. Revenue bodies have noticed that arrangements may become more elaborate after the introduction of specific rules denying benefits in the case of hybrid mismatch arrangements.”
The OECD report offers the example of Denmark, which in 2011 was required to amend its rules as sophisticated taxpayers and their advisers wised up to previous attempts to close loopholes.
I know that these specific rules are the result of successive rounds of finessing, from 2016 and through last year until now, but we would like a commitment to ensuring that the process continues through the mechanism of a review. I note that in discussions about the BEPS process, participating countries have expressed concern that without widespread acceptance and implementation of the new rules, the difficulties could be exacerbated by them. We really need more information about how they will operate in practice.
Of course, we must also bear in mind that the operation of these rules is affected by the foreign tax treatment of any companies concerned. In some ways, the Minister was absolutely right to say that such problems may have been reduced with the engagement of the OECD and EU in the adoption of consistent approaches to the treatment of hybrid mismatches. However, I note that there has been some suggestion that there is a different approach in the EU rules, as compared with the OECD rules, to the specific issue of which country is responsible for characterising the entity or instrument in the member state where the payment has its source. If that is still the case, our Government need to indicate to what extent our rules comply with the measures in the EU’s winter 2016 tax package relating to hybrid mismatches. The Minister stated that he felt that those measures were coherent, but we would like to see a more thorough assessment of that.
On a related note, I refer to my previous comments. It would be helpful for the Government to indicate the relative merits of their current approach to hybrid mismatches compared with formula-based approaches—or at least to reflect on that, given that the EU’s common consolidated corporate tax base programme is continuing at EU level. For all those reasons, I hope that the Minister and Government Members will agree to our sensible demand for a review of the effectiveness of these measures 12 months after their introduction.
Mel Stride
Once again, I thank the hon. Lady for a thoughtful contribution. I think we agree that hybrid mismatches are a form of avoidance and we need to clamp down on them as they operate between different tax jurisdictions. That is precisely why we are debating these measures today. She has reflected on the fact that they have come out of OECD and BEPS project activity, in which we have been absolutely at the forefront.
The hon. Lady said that she was satisfied with the general direction of travel. She made the important point that the work is, in effect, never done, because whenever we come up with new legislation to clamp down on loopholes, other, more ingenious, individuals out there come up with ways of working around it. By way of example, she raised the issue of identifying the effective country of origin for the hybrid mismatch and the different approaches that the OECD and the EU might have.
I reassure the hon. Lady that we agree with her on everything up to that point, and that we will continue to monitor the measures. There is no necessity to have some wide-ranging review that will go into things over time and report back while we wait for the outcome, because day in, day out we are monitoring exactly what is happening. The best evidence that I can provide for our approach and its efficacy is the fact that we have this clause at all. It is a perfect example of the way in which Government have put out some legislation to clamp down on tax avoidance—we are determined to do that—watched what has happened, identified some issues and come back to legislate quickly and in a timely way to ensure that we close new loopholes as they occur.
I ask the hon. Lady to withdraw her amendment and the Committee to accept the clause.
Question put and agreed to.
Clause 23 accordingly ordered to stand part of the Bill.
Amendment proposed: 49, in schedule 7, page 96, line 22, at end insert—
‘Review of operations
18A After section 259M, insert—
“259O Hybrid and other mismatches measures: review of operation
(1) Within 12 months after the passing of the Finance Act 2018, the Chancellor of the Exchequer must review the operation of the measures in this Part.
(2) The review under this section must consider—
(a) the impact of the measures on the use of hybrid transfer arrangements;
(b) the impact of the measures on the revenue effects of the use of hybrid transfer arrangements to reduce a person’s tax liability;
(c) possible alternative or additional measures to reduce the use of hybrid transfer arrangements to reduce a person’s tax liability;
(d) whether the measures constitute application of EU Directive 2016/1164 (‘The Anti Tax Avoidance Directive’), including in what ways the measures do not constitute an application of that directive.
(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.”’—(Anneliese Dodds.)
This amendment provides for a review of the measures against hybrid transfer arrangements to reduce a taxpayer’s tax liability, and that this review consider whether alternative or additional measures would be more appropriate, and how these measures compare to the EU Anti Tax Avoidance Directive.
Question put, That the amendment be made.
Draft Double Taxation Relief and International Tax Enforcement (Colombia) Order 2017
Draft Double Taxation Relief and International Tax Enforcement (Lesotho) Order 2017
Anneliese Dodds Excerpts(8 years, 1 month ago)
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Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure, Mr Bailey, to serve with you in the Chair. It is also a pleasure to sit across from the Minister for the third time this week, with more to come tomorrow during the consideration of the Finance Bill.
I do not want to repeat much of what has already been said, but I share the concerns that have been articulated by my hon. Friend the Member for Birmingham, Selly Oak and the hon. Member for Glasgow East. We need to be clear, particularly when we talk about the treaty with Lesotho, that there is an extreme power imbalance between the UK and that country.
Many of us have heard of Lesotho because it is the only country—at least, the only one that I know of—whose people seek not to have some form of self-determination. Indeed, many people in Lesotho want it to join with South Africa, because of the enormous pressures on its public services and the small amount of finance that it has to deal with its terrible AIDS epidemic; I am sure that colleagues know that around a quarter of people in Lesotho of working age are infected with HIV/AIDS. Life expectancy in Lesotho is just 54, which means there are more pressures on public services and public service financing in Lesotho than in many other countries.
In that regard, it is important that we take our responsibilities as parliamentarians very seriously when we scrutinise such deals. In particular, it is important that we assure ourselves that this treaty is in line with the policy coherence for development principles, which state that in every area we must ensure we do not legislate in such a way as to deviate from our international development commitments.
That is significant for the UK, because we are Lesotho’s largest single source of foreign direct investment. The total amount of FDI in Lesotho is $51 million and the British contribution is $17 million. That might seem like small beer to some of us, given the kinds of figures that we normally look at in British Budgets; for example, it is about a sixth of the cost of the building of the new hospital in Northumbria. However, the UK FDI is more than half of the total Lesotho Government spending commitment for 2018. So, what we, as parliamentarians, do in relation to the tax that our citizens and our companies make it possible to collect in Lesotho is enormously important for that country’s economy.
There are a number of questions that we really need answers to, and I am not willing to wait for those answers. We need them now, and if we do not receive them, I do not think that we can accept the treaty. First, have the Government assured themselves, or otherwise, that this treaty coheres with our development policies? In particular, are we enabling lower-income countries to become more self-sustaining?
I understand that in 2016, when Jane Ellison was an MP and the Financial Secretary to the Treasury, she reiterated the Government’s commitment to align our tax treaties with our wider developmental policies. May we please hear today which assessments of this treaty the Government have undertaken to consider its potential impact on governmental revenues, particularly those allocated to poverty alleviation, as well as those allocated to HIV/AIDS and tuberculosis reduction programmes? Also, have the Government already published, or will they publish, an analysis of the projected impact of the new treaty on investment levels and tax revenues in the UK and Lesotho?
May I ask what contact the Treasury and the negotiators of this treaty have had with DFID about the relationship between the measures we are considering today and any programmes in Lesotho that DFID might previously have conducted, might be conducting or might conduct in the future? It would also be interesting to hear about any discussions the Treasury has had with DFID generally about our international development policies and how they cohere with this treaty, rather than just about specific projects that might be happening in Lesotho or that might happen there in the future.
We also need to know the extent to which the treaty coheres with the principles set out in the Addis Ababa accord. Most of us would want to promote that accord very much, and particularly this principle:
“Domestic resource mobilisation and effective use is the crux of our common pursuit of sustainable development and achieving the SDGs”—
that is, the sustainable development goals. Also, will we agree to co-operate with others to combat tax evasion as well as tax avoidance? That is the first set of questions that we need answers to.
I come to the second set of questions. Like other colleagues, I regret the fact that parliamentarians have only been able to see the final version of this treaty. There is only a one-page explanation at the back of it, and there is no commentary on why particular approaches have been adopted rather than others. I hope that we will receive a commitment to a more open process for future double taxation agreements. In fact, we have the chance to begin that process next week, as my hon. Friend the Member for Birmingham, Selly Oak has just mentioned.
Thirdly—this is where we need some specific answers—I hope the Minister will explain why certain decisions in this tax treaty were taken. My hon. Friend the Member for Birmingham, Selly Oak mentioned the eye-watering reductions in the withholding tax for Lesotho, compared with what will apply to citizens and companies for other countries. There is a reduction of 80% for dividends, 60% for interest payments and 70% for royalties. Last night, I was looking at the rates in the previous treaty from 1997—I know how to live. I am particularly interested in finding out why the withholding tax on dividends has been pushed down from 10% in 1997 to 5%, and why there is a new lower rate for the beneficial owner of a company that directly holds at least 10% of the capital of the company that pays the dividends. Why is that new requirement in the treaty, given that it was not in the 1997 one? Why is the withholding tax on royalties down from 10% in the previous treaty to 7.5% in this one? The Minister said that these measures are in place to benefit the economies of the UK and Lesotho, but how will those changes do that?
Finally, as my hon. Friend mentioned, it would be helpful to know why the British Government decided to promote mandatory binding arbitration in this agreement through the mechanism of specialist—and, by the way, secret—international courts. That is a new measure in this treaty. It was not in the 1997 version, and, as was mentioned, it appears to be a new measure generally in our double taxation treaties for low-income countries. I am keen to learn whether the UK Government considered the potential barriers that would prevent a low-income country such as Lesotho from representing itself properly in such a court. Will the UK Government provide any help to Lesotho in that regard? I was pleased to hear from the Minister that there will be other forms of help—potentially with tax collection—but will there be help with the specialist court?
Was it the UK that requested the inclusion of mandatory arbitration, or was it Lesotho? We need an answer to that question, which the hon. Member for Glasgow East asked. What has the UK’s experience been so far with mandatory binding arbitration, and did that affect the UK’s decision to put the model in the treaty or to acquiesce to it, if the impetus came from the Lesotho side? Will the Minister indicate whether Her Majesty’s Revenue and Customs has any findings on the developmental impact of that form of mandatory binding arbitration? Were such findings taken into account when the decision to promote mandatory binding arbitration in this treaty was made?
I realise that that is a large set of questions, but this is a significant treaty for a country that has experienced enormous challenges in recent years. As parliamentarians, we are all committed to international development, particularly for the poorest countries. Especially given Lesotho’s public service challenges—a quarter of its population suffer from AIDS and HIV—we need to ensure our tax treaties are in line with our international commitments.
Mel Stride
As the hon. Gentleman will appreciate, that is a highly specific question, which I cannot be expected to be in a position to answer at present. I am certainly happy to get back to him. Typically with treaties of this nature, a number of discussions are held with stakeholders, the overseas Governments concerned and so on. That is one reason why such arrangements take a considerable time to come to a conclusion.
The agreement with Colombia—our first with that country—brings a significant improvement to our coverage of the region and will improve the trading conditions for businesses in both countries and aid the fight against tax avoidance and evasion. We have brought forward a mutually beneficial treaty in the case of Lesotho.
Anneliese Dodds
I am grateful to the Minister for his efforts to respond to the questions raised. I have some brief points to make on a number of the matters he referred to.
The Minister referred to the UK’s commitment to promote development in lower income countries. One of our main concerns about the Lesotho treaty is that it might not be coherent with the general direction of our aid efforts. I would be interested to know whether DFID was asked to comment specifically on this treaty. It would be helpful to know that.
Secondly, to be absolutely clear, I do not think that any Member has argued against the principle of having double taxation treaties in the first place. Rather, the comment is on the specific issues raised by treaties such as this one. For Opposition Members, the particular issue is the reduction in withholding tax rates and the introduction of mandatory binding arbitration, rather than the principle of having a treaty in the first place.
Thirdly, on the issue of negotiations, aspects of the treaty are surely a step forward. I do not believe the Minister mentioned permanent establishments, but the new rules on those seem to be fairer. A rather peculiar reference in the previous treaty to the tax treatment of loans through the UK Export Credits Guarantee Department is gone. I can understand that Lesotho might have wanted to get rid of strange elements from before, but I am interested to know what its comment was on the changes to withholding rates in particular, because those would seem to pose quite a large risk to its revenue.
On the negotiation, let us be completely frank: we are talking about a country of 2 million people, where the average person is 33 times poorer than a Briton. Are we honestly saying that we can have an equal negotiation? Pointing that out does no disservice whatever to the Lesotho Government—quite the opposite, because it means that we as parliamentarians have a much greater responsibility to scrutinise such agreements more fully. We need that.
On binding arbitration, yes, there is the OECD model, which is being promoted, but there is also the UN model. It would be interesting to know whether that came up in the negotiations at any stage, because most people view it as more favourable to developing nations than the OECD approach.
Finally, on the issue of information and impact assessments, I note that a tax information and impact note is provided for other tax requirements. Surely many tax issues within Britain are incredibly complicated—the Minister has ably discussed such matters in proceedings on the Finance Bill—so I do not see a huge difference there, in particular when UK investment in Lesotho seems to be concentrated in some quite large firms, especially, I understand, two very large mining concerns: Letšeng Diamonds, which is partly owned by the Lesotho state but mostly by a UK-based company, and Firestone Diamonds. We are not talking about a terribly complicated taxation arrangement, so surely it should be possible to have the information we require.
Again, I am grateful to the Minister for his responses and clarifications.
Mel Stride
I will endeavour to do my best to answer the additional questions posed by the hon. Lady, some of which were very specific ones about what may or may not have happened during the negotiations. Unfortunately, I was not there. If I had been there and knew the answers, I would share them with her. However, I can perhaps be a little more helpful on some of the other questions.
The hon. Lady asked whether DFID was aware of the discussions. Naturally, it would have been. I say that based on the fact that it has been very publicly out there that the negotiations have been taking place for some considerable time. DFID has not, to my knowledge, specifically requested meetings or interactions at an official level with the Treasury, but had such an interaction been requested I have no hesitation in reassuring her that we would of course have facilitated it promptly and effectively.
On binding arbitration, the situation is as I outlined earlier. It is now based on the OECD model. The hon. Member for Birmingham, Selly Oak asked earlier whether, during the process of consultation around the treaty negotiations, any company had requested that that form of arbitration be brought in. The answer to that is no. To the best of my and my officials’ knowledge, no business came forward and specifically requested that. Of course, it was then entered into jointly as a consequence of the agreement between the two Governments.
The hon. Member for Oxford East asked about tax information and impact notes. That is a fair point, but TIINs typically relate to where taxes, charges and duties are being imposed, and to the effect they have on individuals, companies, families and others. In this case, we are looking at reliefs in the context of a double taxation treaty.
I totally echo the hon. Lady’s powerful comments about the relative wealth of those who have the very good fortune to live in our country, for all its imperfections, compared with those who are less fortunate elsewhere. The Government are very aware of that. I will not re-rehearse the comments I made earlier about our commitment to international development and HMRC’s involvement over and above treaties in trying to alleviate such situations as much as we can. The hon. Lady made a powerful point, which I will certainly take away with me. I commend the orders to the Committee.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Colombia) Order 2017.
DRAFT DOUBLE TAXATION RELIEF AND INTERNATIONAL TAX ENFORCEMENT (LESOTHO) ORDER 2017
Motion made, and Question put,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Lesotho) Order 2017.—(Mel Stride.)
Finance (No. 2) Bill (First sitting)
Anneliese Dodds Excerpts(8 years, 1 month ago)
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Mel Stride
The level of income inequality is at its lowest in more than 30 years.
The Chair
Order. If Members wish to intervene on the Minister, they should do so in the proper manner.
Anneliese Dodds
Thank you, Chair. I apologise for intervening at the very end of the Minister’s speech. I know he is a thoughtful person, and in response to the specific point made by my hon. Friend the Member for High Peak, he maintained that the OBR could not do an analysis of the marginal tax rate on low-income or low-hours working people because it was not the appropriate body. Can he tell us which body would be the appropriate one? I noticed that he did not contest what my hon. Friend said about the marginal tax rate for very low-income people. Which body would be available to do that analysis?
Mel Stride
There are many bodies out there that could take on that kind of analysis, including the Institute for Fiscal Studies. There are many, even the House of Commons Library—
Mel Stride
If I could just finish: a number of bodies might look at those particular issues.
When we look at the marginal rates, under the last Labour Government, if someone worked beyond 16 hours per week they were in a situation where the marginal rate of tax they were facing when going into employment was far greater than under this Government.
Anneliese Dodds
My hon. Friend the Member for High Peak has explained that under the tax credits system, people were able to take home much more of their income. She has also provided a concrete example whereby people could be working for a short period of time and take home very little of that amount under the universal credit system. I was hoping we could get some commitment for a Government body to look at this issue, which has already caused enormous problems and, potentially, poverty for some low-income people. It would be wonderful if the Minister could give us a commitment that he will look into this issue.
Mel Stride
We will always look at the kind of issues the hon. Lady has highlighted. We will do that as a matter of good Government policy and to produce the policies we look at going forward. However, this is not the forum to begin looking for commitments on new reports, new investigations and new analysis. As the hon. Lady will know, there are many bodies out there that conduct that kind of analysis.
Anneliese Dodds
It will not surprise anyone to learn that Labour has similar concerns to the SNP about the married couples allowance. We would obviously all want families who have experienced a bereavement to be supported. The problem remains that bereavement has a severe impact, whether or not a family is composed of two people who are married or in a civil partnership. It also has a huge impact on lone-parent families, or on those who live together but do not have a formalised relationship such as a marriage or civil partnership. We are concerned about the allowance because, as was mentioned, it privileges certain family forms over others, and that is a particular concern when many families are under severe pressure.
Mel Stride
Clause 7 would provide certainty that employees of the Royal Fleet Auxiliary—the RFA—can claim seafarers’ earnings deduction. Most UK residents pay UK tax on all their earned income wherever it arises, but seafarers are entitled to a 100% deduction from income tax for their foreign earnings in certain circumstances. The deduction is available provided that at least half of the qualifying period of 365 days is spent outside the United Kingdom, and that no more than 183 consecutive days are spent in the UK during that period. The tax treatment recognises the importance of the maritime industry to our country, and helps to maintain the competitiveness of the UK in an international market. Around 20,000 seafarers currently claim the deduction each year, and of those around 900 individuals are from the RFA.
The civilian-manned RFA delivers worldwide logistical and operational support for tasks undertaken by the Royal Navy, and it plays a crucial role supporting counter-piracy, humanitarian relief, disaster relief and counter-narcotics operations. Currently those individuals claim the deduction, but it is on a concessionary rather than a legislative basis. The changes in clause 7 provide certainty that the employees of the RFA are eligible for the deduction by placing it on a statutory footing. The RFA plays a crucial role, and it is right that its employees are eligible for the deduction in the same way as other seafarers. This clause provides certainty for RFA employees. I believe the Committee should welcome it and I commend it to the Committee.
Anneliese Dodds
I am grateful to the Minister for his comments concerning this alteration, but I have a couple of questions. As I understand it, this change largely reflects existing practice in law, specifically the fact that RFA seafarers should be entitled to seafarers’ earning deduction. I understand that the seafarers falling into that category have asked the Government to make it clear in this Committee that there will be no detriment for them as a result of this change. They are asking for that because some of them fear retrospective penalties from HMRC or from the employer, given that previously the deduction was practically operated in an informal manner. I hope that the Treasury Minister can make it clear that this measure will not operate to the detriment of the seafarers.
I wanted to make the point that unfortunately this change will not alter the material circumstances of our RFA seafarers; it recognises in law a situation that already exists informally in many cases. We have substantial recruitment issues at the moment with RFA seafarers, and those issues could become more acute because we are going to have 12 vessels when the new ones come on-stream. They will need to be serviced by RFA seafarers, yet the level of pay provided for them has been squeezed because they are covered by the arrangements for public sector employees. Their situation is out of kilter with the situation for seafarers working in the private sector doing comparable jobs, and that is a major concern for them. While we may now see a reflection of the reality when it comes to the tax situation, my concern is that we are not reflecting reality when it comes to recruitment challenges and the need to consider whether current pay levels are appropriate. This should not be viewed as a proxy for the kind of pay lift that at least some of those seafarers are saying they think they need to deal with recruitment challenges. This is rather a cosmetic change.
Mel Stride
The hon. Member for Oxford East raised the issue of whether there will be any detriment, and she specifically mentioned retrospective issues in terms of this formalisation of the relief that has hitherto been available on an informal basis. I can assure her that there will not be any detriment, and I thank her for raising that important matter. As for seafarers’ pay, that is probably an issue that is out of scope for this Committee, but I am sure she will raise it in other quarters. Part of the reason for introducing this clause, and for formalising and putting into legislation these particular reliefs, is to make sure that we are as effective as we can be on the tax side when recruiting men and women who do such an important job, and that we remain internationally competitive in our tax treatment of their earnings. I hope that the Committee will accept clause 7.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 9
Benefits in kind: diesel cars
Question proposed, That the clause stand part of the Bill.
Mel Stride
Clause 9 provides for a 1 percentage point increase in the company car tax diesel supplement. This modest increase will help to fund the UK’s national air quality plan, and is designed to encourage manufacturers to bring forward next-generation clean diesels sooner. There have been significant improvements in air quality in recent years, with nitrogen oxide emissions falling 19% between 2010 and 2015. However, air pollution is still at harmful levels in many of our towns and cities, and road transport is responsible for 80% of nitrogen oxide emissions in roadside tests. Even new diesel vehicles are a significant source of emissions. A test on the 50 best-selling diesel cars in 2016 found that, on average, they emitted over six times more nitrogen dioxide in real-world driving than is permissible under current emissions standards.
Diesel company cars are already subject to an additional supplement, currently at 3%, in recognition of diesel engines producing harmful pollutants in addition to carbon dioxide, including nitrogen oxide, or NOx, gases. The measure increases the diesel supplement from 3% to 4% for all cars solely propelled by diesel for the tax year 2018-19, until a point at which they meet the real driving emissions step 2 standard, known as Euro 6d. RDE2 sets a standard for nitrogen oxide emissions in real-world driving situations, with an emission limit of 80mg of NOx per kilometre. The supplement will not affect diesel hybrids, petrol or ultra low emission vehicles, or drivers of heavy goods vehicles or vans. The measure also removes the diesel supplement altogether for cleaner diesel cars that are certified to the RDE2 standard.
A basic rate taxpayer with a VW Golf will pay an additional £54 in 2018-19 as a result of the change. Company car drivers typically travel more miles, and have therefore benefited greatly from successive fuel duty freezes since 2011; in the autumn Budget, the Chancellor announced the eighth successive fuel duty freeze, saving the average driver £160 a year compared with the pre-2010 escalator plans. The change will encourage manufacturers to bring forward next-generation clean diesel sooner, and will also strengthen the incentive to purchase cars with a lower number of harmful pollutants—for example, ultra low emission vehicles or zero-emissions vehicles.
The measure is designed to work over several years to encourage manufacturers to bring forward the development of cleaner vehicles, so we do not believe that a review after six months, as requested in new clause 5, which was tabled by Opposition Members, would be appropriate. Company car fleets are typically renewed every three years, so we will not see the full impact of any change that takes effect from April 2018 until three years later. We will of course continue to review the uptake of company diesel cars and developments with those vehicles as part of our wider strategy on improving air quality. On that basis, I do not believe that the new clause is necessary, and I ask hon. Members to consider withdrawing it.
Clause 9 makes a small change that will support the UK’s transition to less polluting cars, helping to make sure that our towns and cities are clean and healthy places in which to live. I commend it to the Committee.
Anneliese Dodds
I am grateful to the Minister for his comments. However, Labour Members will continue to be concerned about the measure and will continue to ask for a review of its effectiveness. There is obviously a clear rationale for this kind of measure: it follows widespread public and scientific concern about emissions from diesel cars that do not use emission capturing technology to the extent that they might.
There are many examples of this kind of technology-forcing regulation being effective. However, we believe that a review is required—first, because we need to be clear that new technologies will indeed be incentivised through this measure. We do not feel that we have effective evidence to prove that at the moment. The Institute of Chartered Accountants suggests that it is unlikely that any diesel cars will meet the standard required to avoid the supplement until at least 2020, so there is a question about whether distorting decisions could be made that would prioritise petrol vehicles over diesel vehicles in the meantime—especially if appropriate technologies are not introduced as quickly as they should be. I know from discussing this issue with motor manufacturers that they are confident about the roll-out of the new technology, but a review would none the less be appropriate, given the extent of use of diesel technology.
Secondly, it is important that we review the measure’s contribution to emissions reductions targets because of the lack of other environmental commitments in the Bill. Sadly, the Bill lacks measures to reduce carbon emissions in order to halt the climate crisis, despite many of us hoping that it would include, for example, more tax breaks for solar technologies, which have sadly been scaled back.
From what I can see, this is also the only measure to promote better air quality, when we know that there are many other sources of pollutants in the air that we breathe. Yes, of course NOx is important, but small particulates and other emissions are important as well. It is absolutely right to mention that NOx pollution from diesel emissions is significant at roadside sites, but petrol emissions are also significant away from direct roadside sites or at particular roadside sites, and industrial sites are also important, in terms of emissions.
Mel Stride
I am very clear on my instructions. Thank you, Mr Owen.
Clauses 11 and 12 make changes to ensure that businesses and individuals who have used or continue to use disguised remuneration tax avoidance schemes pay their fair share of income tax and national insurance contributions. Disguised remuneration schemes are used to avoid tax and national insurance contributions by paying individuals and taking profits through third parties in ways that are claimed not to be taxable, such as loans. Such schemes are highly artificial. In the Government’s and HMRC’s view, they do not produce the declared tax advantage, but that has not stopped their use entirely. The coalition Government first introduced legislation to stop such schemes in 2011. The legislation was successful, and since 2011 HMRC has collected more than £1.8 billion in settlements from scheme users.
Of course, more always needs to be done. The Government continue to tackle disguised remuneration avoidance schemes. The changes announced at Budget 2016 included the 2019 loan charge, which treats all outstanding disguised remuneration loans as taxable income on 5 April 2019. The 2016 package followed the tax avoidance industry’s aggressive response to the 2011 changes: it has created and sold more than 70 new schemes. It is claimed that those schemes achieve the same outcome through the addition of even more contrived steps. The Budget 2016 package will bring in more than £3 billion by 2020-21, and will ensure that scheme users pay their fair share of tax.
The changes made by clause 11 will make clear how the disguised remuneration anti-avoidance rules apply to schemes used by the owners of close companies. The clause also introduces a requirement for scheme users to provide information on disguised remuneration loans outstanding on 5 April 2019 to HMRC, which will help HMRC to enforce the 2019 loan charge. The new information requirement includes an additional penalty regime, which is consistent with existing HMRC information powers.
The clause also includes a clarification to the disguised remuneration rules. It puts beyond doubt the fact that anti-avoidance rules apply even if an earlier income tax charge arises. It will prevent any attempts to avoid paying the tax by claiming that HMRC is out of time to collect payment. The disguised remuneration rules prevent any double tax charge on the same income.
Finally, the clause will make a change to ensure that any employee who has benefited from a disguised remuneration avoidance scheme is liable for the tax arising on the 2019 loan charge where the avoidance scheme used an offshore employer. Clause 12 will also introduce a new requirement for self-employed individuals, and partners who have used disguised remuneration schemes, to provide information about loans that are outstanding on 5 April 2019 to HMRC. That will help to ensure that HMRC is able to enforce the loan charge.
Let me turn to the Opposition’s amendments. Amendments 34 to 37 seek to include penalties linked to the loan amount for those who fail to comply with the reporting requirement. Amendment 38 seeks to introduce a review to consider the impact of the measure on taxpayers—particularly basic rate taxpayers. It would be inappropriate to introduce a penalty based on the loan amount, as it would be inconsistent with HMRC’s other information powers, and a separate penalty regime already does that where a taxpayer does not correctly report the tax due from outstanding loans.
On the proposed review, the Government do not think it is appropriate that avoiders should get a discount, compared with the vast majority of taxpayers, who pay the right tax at the right time. However, the clause may have a significant impact on the users of disguised remuneration schemes. HMRC aims to contact those who are affected and encourages those who are concerned about their ability to make timely and full tax payments to contact HMRC. The Department has an excellent track record of supporting people with financial difficulties who may be finding it hard to pay immediately. The Government believe that the proposed review would not provide any additional benefit, so I urge the Opposition not to press the amendments.
It is right that everyone should pay their fair share of tax and make their contribution towards public services, and the changes will ensure that users of disguised remuneration schemes pay their fair share. I therefore commend clauses 11 and 12 to the Committee.
Anneliese Dodds
May I pose one brief question about clause 12 before speaking to amendments 34 to 38 to schedule 1? I am grateful to the Minister for his clarifications and comments about clause 12 and schedule 2, but a pertinent question has been asked by one of the different interlocutors—one of the taxation organisations —which suggested it might be easier for self-employed people who have used the schemes to report their use in accordance with the self-assessment deadline. Has that been considered, because there could be a helpful reduction in bureaucracy and in the amount of fees paid to accountants and so on were there an alignment with the self-assessment return deadline? Will the Minister respond to that?
Moving on to our amendments, we would obviously welcome tightening in the area of disguised remuneration schemes following widespread concern about practice. There have been some high-profile cases, not least those revealed recently in the Paradise papers or the Rangers football club case, which have shown the lengths to which some people are prepared to go to avoid paying the tax that others view as a normal part of doing business.
We are concerned that the measures in the Bill do not go far enough. Loans, for example, have been taxable since the disguised remuneration rules came into force in 2011. There should be no excuse for people not to be aware of the situation; there should be widespread understanding of the need for employers and employees to comply in the area and not to enter into such schemes. We therefore need to ensure that future penalties are sufficiently dissuasive of other forms of aggressive tax avoidance as well as this one.
The Minister rightly described some of what has gone on as involving excessively contrived steps to avoid tax. He suggested that our additional penalties might somehow be inconsistent with others delivered by HMRC but, for the reasons I have just mentioned, it is important for us to have a strong line on such issues. The consistent policy has been that there should be no disguised remuneration, in particular through loans or connections with third parties in effect—not third parties, but those presented as third parties—and we need to ensure that we dissuade people with appropriate penalties.
I further note that the projected IT cost to HMRC of delivering the measure is about £3.5 million, so it is important to ensure that such costs are covered and that HMRC does not lose out due to the creation of the new penalties, especially when it is already subject to new demands because of the possible shift to a new customs regime, as we were discussing until very late last night. For those reasons we are keen to press ahead with our amendments, despite the Minister’s suggestion that we do not press them.
Anneliese Dodds
At the risk of producing a horrible sense of déjà vu in the Committee, following consideration by the whole House, I will say that assessments of the tax gap do not include the loss of revenue caused by profit shifting internationally. I wanted to clarify that before we get too optimistic about the success of HMRC in that regard.
Mel Stride
I will make two points in response to the hon. Lady: first, she mentioned profit shifting, and we have been in the vanguard of the OECD base erosion and profit shifting project—right at the forefront, driving it forward and, indeed, implementing it in many areas earlier than other countries decided to. Secondly, I believe that our overall record is exemplary and world-class; but of course there is always more to be done. It is absolutely right and proper that those who owe tax pay it, and where HMRC or the Treasury come across schemes that use various artificial devices to avoid and evade tax we will clamp down on those measures with vigour. We have demonstrated our success in doing so in the past, and will continue to do so in the future. The clause is yet another step in pursuing that endeavour.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Amendment proposed: 34, in schedule 1, page 57, line 33, at end insert
“or such higher amount as may be determined in accordance with sub-paragraphs (1A) to (1D).
(1A) This sub-paragraph applies where the loan is between £100,000 and £199,999.
(1B) This sub-paragraph applies where the loan is a multiple of £100,000.
(1C) Where sub-paragraph (1A) applies, the penalty is £600.
(1D) Where sub-paragraph (1B) applies, the penalty is the equivalent multiple of £300.”—(Anneliese Dodds.)
This amendment provides for higher penalties for failure to comply with paragraph 35C where the amount of the loan is greater.
Question put, That the amendment be made.