Consumer Access: Financial Services

Anneliese Dodds Excerpts

Thursday 6th June 2019 Westminster Hall

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to take part in this debate with you in the Chair, Mr Walker. I thank the right hon. Member for Loughborough (Nicky Morgan) for securing the debate and for the important work she undertakes as Chair of the Treasury Committee. I am particularly pleased that the Committee emphasised the importance of access to financial services and financial inclusion. As we have shown in this relatively short debate, it is an issue that potentially touches us all, because we can all become vulnerable, and access and inclusion are crucial elements of a functioning economy.

The beginning of the report features a quote from Sian Williams, the director of the Financial Health Exchange at Toynbee Hall, that stood out when I was preparing for the debate:

“We are in an environment where you have to be able to transact to survive.”

The statistics provide a very worrying picture, because many people are struggling. The Financial Conduct Authority estimates that 3% of UK adults cannot transact in that way because they have no current account and no alternative e-money account. That is a significant minority, and it includes some of the most vulnerable people. That indicates that much stronger action is needed.

I will focus my remarks on vulnerability, poverty, the availability of credit—particularly low-cost credit—post office banking, bank branch closures and the policy process in this area, particularly as it applies to basic bank accounts. The report quite rightly considers the relationship between financial exclusion and different types of vulnerability. Obviously, a consultation is going on at the moment on whether current definitions of vulnerability are appropriate. There is a very welcome focus on mental illness in the report.

I was struck by the right hon. Lady’s remarks and the case study she mentioned. Actually, we were promised that we would have so-called jam-jarring available within financial services by now. It is not standard, and nor is it standard in relation to how people are paid their social security. Often people request that kind of approach so that they can manage their money properly. They are doing the right thing in acknowledging that they might have issues, but they are not being aided by the technology. As the hon. Member for Motherwell and Wishaw (Marion Fellows) said, it is often the most technologically literate who have the greatest resources and can make use of technological innovations. That needs to be accelerated, but we also need to acknowledge that although technology can empower, it can discriminate as well.

I have had discussions with people involved with the Money and Mental Health Policy Institute, who have pointed out that although it is possible to use people’s financial transactions to pinpoint and identify vulnerability, such information could be used to ration services and access, as well as to facilitate them. If it is used, for example, to take people to a pop-up chat with an adviser, who can say, “Are you sure this is what you want to be doing? Can I help you?”, that is fine, but if it makes it harder for people with mental illness to access services that we benefit from, that is inappropriate.

The report rightly focuses on access for vulnerable groups, such as elderly and disabled people, and on a number of risks that technology can embed, which result in people being unable to access the most basic financial services. In many cases, that is getting worse because of issues such as the use of touch-screen technology, which was mentioned earlier, and the speed at which high street banks are closing. I will come back to that point later.

The report contains useful recommendations about vulnerable people’s access to financial services. I support the recommendation that the Financial Conduct Authority should consult on how power of attorney works in relation to financial services. If that is done properly with appropriate safeguards, it could improve the situation for many carers and those they care for. The discussion in the report about that is very helpful.

The discussion in the report about the Equality Act 2010 is very useful. The Labour party is committed to strengthening the Act and other anti-discrimination law. There is clear evidence, which is repeated in the report, that it is not being complied with in a number of areas, and that is simply unacceptable. The exchange between the hon. Member for Strangford (Jim Shannon), who is no longer in his place, and the right hon. Member for Loughborough was very instructive in that regard. I am sure that every Member in this Chamber has a whole bag of cases involving people with various vulnerabilities who have not been treated in the way that we would expect. That has to end, because it is discrimination.

The report touches on issues relating to low-income households at various points. The discussion of the loyalty penalty was very interesting. Citizens Advice’s work shows that the average consumer pays up to £1,000 per year more because of the loyalty penalty. That is clearly totally unacceptable. The Competition and Markets Authority noted that people on low incomes are much more at risk of paying the loyalty penalty. For people in the bottom 10% of income, it could account for up to 8% of their spending.

The CMA’s recommendation about transparency is welcome. There should be more accountability. Regulators should publish the size of the loyalty penalty in key markets and for different firms annually, but as the report states, just informing the public about the loyalty penalty for each firm is not enough. It is clear that regulators currently have little ability to protect customer interests in that respect, so we need to focus on that much more strongly. The time is right to reform the regulatory system in that respect and for many other areas of financial services. The Labour party commissioned a review by Prem Sikka, the academic, to look into some ideas for reform, and it has now been published.

The points that the hon. Member for Motherwell and Wishaw made about access to cash were very relevant. Even with the current standards, we all know from our constituencies and elsewhere that there are pockets where access to cash is not available. It tends to be in areas where people have low spending power and are incredibly reliant on cash that there is not the provision that we expect.

The report did not examine the relationship between poverty and financial exclusion, as the 2017 report by the Financial Exclusion Committee in the other place did. I completely understand that the Treasury Committee had a slightly different focus. It would be useful to look at that issue in more detail, because in the Financial Exclusion Committee report, Gingerbread reported that single parents and low-income households often find that they are disproportionately excluded from financial services. Lower-income people often pay much more for financial services, compared with those with greater incomes. The Child Poverty Action Group said that that is the case, despite the fact that most low-income households manage their limited resources well. We are often told that the answer for people with few resources is to manage their money better. Well, many of them are extremely good at doing that already, and I was very pleased that the right hon. Member for Loughborough confirmed that. The Lords report also looked at the so-called poverty premium and how it exacerbates the effects of financial exclusion. It is important that we bear that in mind and continue to look at it.

Problems in accessing lower-cost credit primarily affect low-income households, and it is good that the report looked at that in detail. It praised the Government for their proposed pilot of a no-interest loan scheme in the 2018 Budget, but that arguably does not go far enough in tackling consumer debt. We still do not have a clear timetable for when that measure will be implemented. The Labour party and I believe that it is essential to go further. For example, we should cap the total amount that a person can pay in bank overdraft fees and interest payments on credit card debt. People who get caught by overdraft fees often use other forms of credit to pay it off because it is such an expensive debt and is extremely bad for them.

It is unfortunate that the Government have not really grasped the issues relating to debt enforcement. That is becoming more of an issue in many parts of the country, particularly given changes to the withdrawal of funds for council tax relief. Individuals are now being pursued for small amounts of money in many parts of the country. This report and the Justice Committee’s recent report show that we need much stronger action against poor practice in the debt enforcement industry. We should implement many of the measures recommended in the Treasury Committee report and, for example, introduce tougher regulations on debt enforcement firms, such as changes to terminology in payment letters. We must ensure that the language is understandable to people with varying literacy levels, and that information about how to seek help with debt is given equal prominence to demands for payment.

The report also examines the issue of those who are unable to access affordable credit because they lack a credit history. We believe that the Government’s approach so far has been inadequate. Obviously, there has been the pilot, and they have tried to get the private sector to take this forward. We need to have more of a discussion about how to ensure that people can build up a credit history. I hope the Treasury Committee will continue to do that, but the discussion in the report was useful.

Let me move on to the post bank and bank branch closures. The Labour party is looking at research that we commissioned on how the post bank approach can be revitalised and how we can ensure that it provides good quality services that are good for both the Post Office and local communities. We think it could be possible to do that on the basis of the research that we commissioned. There could be 3,600 additional post bank branches, compared with what we have currently. That would help communities that are currently struggling with access to banking facilities, and in many cases would also help high streets. We think that using and building on the existing infrastructure is probably the most sensible way forward. This is not about tweaking; it must be more fundamental. We cannot just load more activities on to already pressed postmasters. The comments of the hon. Member for Gordon (Colin Clark) were useful in that regard. This is not just about the post office network; we need other reforms elsewhere in the financial ecosystem, and we must also focus on the behaviour of the big banks. I concur with many of the comments of the hon. Member for Motherwell and Wishaw in that regard.

I want to talk a bit about the policy process in this area—in particular, the perils of not having a strong focus on implementation, and the initial legislation. The basic bank account legislation initially arose out of the EU payment accounts directive. Research conducted by Citizens Advice shows that, in practice, basic accounts are often still not very visible to consumers who might want to use them. Banks’ processes for determining what kind of account to give people rely too much on credit checks, and applying for a basic account is still too difficult for many people. The Committee recommended that the FCA should mandate banks to relax the restrictions on basic bank accounts and make them available to all—that is very sensible—and that it should require financial services to report how many basic current account openings they have rejected. That would be very helpful.

One particular problem that I have come across is that many of the most vulnerable and most excluded customers are informed that they cannot have a basic bank account because there has previously been some indication of fraud related to their financial activity, but no evidence of that has to be provided. In many cases, that fraud could be due to manipulation by others—for example, if people have been subject to domestic violence—or it could be because people had been addicted to substances and previously led chaotic lifestyles that are now behind them. Christians Against Poverty is concerned about that; it needs to be looked into and I hope the Government will do so.

We need a much stronger focus on the issue of access to financial services. We have mainly talked about access to basic banking—the Committee has a lot on its plate, so I do not want to suggest that it should deal with even more—but the savings infrastructure is another area in which there have been some worrying developments. Some 57% of UK adults do not have savings beyond £5,000. Help to Save was an interesting idea but it has not yet had the traction that many of us would have hoped. We still urge the Government to try to incorporate the credit union sector more closely with that initiative, and I hope that in future, the Government will view credit unions much more as part of the solution to many of the problems than they have in the past.

[Nicky Morgan]

I thank the hon. Lady for the many points that she is making. Did she, too, pick up Scope’s briefing for the debate, which makes the point that disabled people have an average of £108,000 less in savings and assets than non-disabled people? That is quite a staggering amount of money.

The Committee looked at household savings and debt last year. We might have a little issue with our agenda at the moment, but I take her invitation to perhaps return to that at some point.

[Anneliese Dodds]

I am very grateful to the right hon. Lady for raising that point. That is a staggering statistic, which is due to a whole range of factors: the support that people receive, their ability to participate in the labour market, and the savings infrastructure. She raises an important point: people living with a disability are very often at much greater risk of needing to tap into savings at different points, particularly when, sadly, many sources of support for doing things such as home alterations have dried up. It is really important that we listen to Scope about that.

We must also acknowledge that the ride has been bumpy and we are not moving forward in every area as we would want to. Research from the Friends Provident Foundation and the University of Birmingham suggests that in 2006-07 there were just over 1 million people with no household bank account access, and although that number fell to 660,000 in 2012-13, the trend was reversed in 2013-14 when the number rose again to 730,000. We need to understand what is not right here, and we need much stronger action.

I commend the Treasury Committee for its focus on the issue, particularly on the impact on the lives of vulnerable and low-income people. The Opposition will continue to campaign for reform of the financial services sector to ensure greater access to financial services and, as a result, a stronger economy for everyone.

[Mr Charles Walker (in the Chair)]

Minister, if you are inclined to speak until 3 o’clock, please do not, and allow two minutes for the right hon. Member for Loughborough (Nicky Morgan) to respond.

Draft Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019

Anneliese Dodds Excerpts

Wednesday 22nd May 2019 General Committees

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve on the Committee with you in the Chair, Mr Robertson. I am grateful to the Minister for his explanatory remarks but, as the Opposition have mentioned many times before, we have grave concerns about the use of secondary legislation to make sweeping changes to the statute book. Those changes could have a material impact on our financial services, and could affect jobs and consumers alike.

My right hon. Friend the Member for Delyn was absolutely right that the possibility that these measures will be revoked has become rather less hypothetical, given the comments made recently, including today. It is therefore essential that we look at these changes very carefully.

The official Opposition have frequently warned that this process risks creating drafting errors that are difficult to identify and may be found only after the legislation is enacted, despite our best attempt to provide legislative scrutiny. This instrument is an abject lesson in the perils of this process: it essentially comprises a collection of corrections to deficiencies, ambiguities and errors made in previous rounds of secondary legislation. That just goes to show that, as we stated at the time, the previous legislation passed in this place was rushed. Too much pressure has been put on already overburdened civil servants, who have been expected to do the impossible in some cases. This instrument corrects errors in six other statutory instruments. Who is to say how many more instruments will need to be corrected, and how many errors will go unnoticed until it is too late?

Many of us have argued that the situation has been compounded by the fact that the Government have been determined to opt for a series of different pieces of legislation, making minor amendments to them once the interactions between them have been determined, rather than having a coherent approach from the beginning. Colleagues who have been in these discussions previously will remember that we have asked for a Keeling schedule-like approach, whereby it would be possible to see the timings of the amendments made by the various pieces of legislation passed in this place. Of course, those statutory instruments have generally amended other pieces of legislation, which themselves have often been amended by other pieces of legislation. This is a horrendously complicated set of circumstances.

The Government have now withdrawn no fewer than 73 statutory instruments in the current Session. That is far more than usual, and we can only assume that much of the reason is the kind of drafting errors that we are talking about today. The Minister, perhaps understandably, tried to normalise the situation and suggested that—I hope I am capturing his words correctly—with any legislation, errors are made from time to time. This level of error, ambiguity and lack of clarity is, to my knowledge, unprecedented. Perhaps other Committee members remember this kind of thing happening previously. I am a new Member, but from what I understand about parliamentary history, I think this is fairly unusual.

The Minister suggested that all the changes that had to be in place for the immediate period after the UK leaves the EU were ready before 31 March. Is that reliant on some kind of threshold for the amount of legal difficulty that would be created by having ambiguity or inconsistency? Did the Government think, “Well, it will take a bit longer for a firm to get round to suing us or taking legal action about one issue, rather than another”? These issues are significant, because they are about allocating responsibility to different bodies, and indicating what firms are and are not able to do and what regimes they come under. These are important matters.

[Mr Kevan Jones (North Durham) (Lab)]

Does my hon. Friend agree that if we had left on 29 March with no deal and these instruments had come into being, large areas would not have been covered? That is being corrected today.

[Anneliese Dodds]

My concern—despite the Minister’s comments, I know he is trying to do his very best in difficult circumstances—is that it is not clear what criteria have been used to determine which are the really serious errors, inconsistencies and ambiguities, and which can just be altered later. As I say, perhaps the Government took a view about how long it would take for those problems to crop up in normal practice, but we need a bit more information.

There is also the issue that more powers will be transferred to the Financial Conduct Authority and the Prudential Regulation Authority. At the same time, concerns have been raised about Andrew Bailey’s comments suggesting that the UK would favour a lower-burden approach to financial regulation after we leave the EU, which some have interpreted to mean deregulation. Given that the Government have yet to provide us with information about their vision for their post-Brexit regulatory framework, it would be interesting to know whether the Minister thinks those who are concerned about a policy of deregulation are justified in their concern.

My Opposition colleagues and I have also raised concerns on numerous occasions about FCA funding. The FCA maintains that it is committed to keeping an overall budget that is flat in real terms, despite the rapid increase in responsibilities. Of course, the European Securities and Markets Authority, or ESMA—the regulator on the European level—received funding from member states, so when its responsibilities increased, member states could decide to provide additional funding. As the Minister has mentioned many times, the FCA’s status is different: its funding is provided by the bodies that it regulates. That may mean that it takes longer for the FCA to raise additional funds in the event of additional responsibilities. It may also increase the requirement for funds on bodies that are struggling, particularly as a result of a no-deal Brexit chaotic market situation.

As the Opposition have said before, this is one of many reasons why the FCA is not always automatically the appropriate choice for this massive transfer of powers from ESMA. That is also clear from Charles Randell’s comments that Brexit planning will mean “difficult decisions elsewhere”—his words, not mine—leaving many concerned that a lack of capacity at the FCA might also lead to deregulation, whether or not that is a conscious determination on its part. Again, it would be helpful to hear from the Minister whether he is also concerned about Brexit pressure leading to a reduction in what the FCA is able to achieve in areas that I know are important to him, such as consumer protection and the treatment of vulnerable customers.

Oral Answers to Questions

Anneliese Dodds Excerpts

Tuesday 21st May 2019 Commons Chamber

[Mr Speaker]

I call Anneliese Dodds. [Interruption.] No? I had the distinct impression that the hon. Lady wished to come in on this question, but it is not obligatory.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

On the next one I believe, Mr Speaker; I am terribly sorry.

[Mr Speaker]

On Mr Brake’s question—oh, very well. We do not want unwelcome contributors. The hon. Lady can choose her own destiny, and we are grateful to her.

--- Later in debate ---

[Mr Speaker]

Anneliese Dodds.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

Thank you, Mr Speaker; take two. The Environment Secretary said to Extinction Rebellion that he, at least, had got the message, but of course days later his Government were panned by the Solar Trade Association for new tax changes that will affect solar and storage schemes. That contrasts with Labour’s announcement last week of plans for 1.75 million households to benefit from the solar energy revolution. So will this Government abandon the damaging changes to VAT, match Labour’s solar investment plans and actually start taking renewables seriously?

[Elizabeth Truss]

As I said, we have an exemplary record in terms of our reduction of carbon. We are the top performer in the G7. It would be good to hear Opposition Members acknowledge the massive progress that we have made. The fact is that we are going to make more progress not by supporting a bunch of anti-capitalists that glue themselves to public transport, but by using market mechanisms instead, helping the economy grow. That is the way we improve the environment.

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill (Second sitting)

Anneliese Dodds Excerpts

Tuesday 14th May 2019 Public Bill Committees

Clause 3 makes a sensible, proportionate change to the NICs treatment of sporting testimonials, putting their treatment beyond doubt. Given the reassurances that I have provided to hon. Members, both now and in answer to questions this morning, I hope that they will not press their proposals and will agree that clauses 3 and 4 stand part of the Bill.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve in the Committee with you in the Chair, Sir Henry. I am grateful to the Minister for those explanatory comments. However, I would like to speak in favour of the official Opposition’s amendment 2 and new clause 5, as well as the SNP’s new clause 2, which overlaps with our amendment 2. I do not want to repeat what we have already covered in our discussions today or, indeed, in the House. None the less, even after all that, we surely require more information about the impact of these measures to make a proper judgement about them.

As the Minister acknowledged, our amendment 2 and the SNP’s new clause 2 ask for additional information about how the Bill would affect charities, and individual sportspeople and charities, respectively. There are quite a few elements that still remain unclear, even after the discussions we have had. I am sorry to drag us back yet again to the topic of what is customary and what is not, but, surely, when we are looking at the design of tax measures, we need to ensure that there is crystal clarity about what every concept could mean, particularly when there might be manipulation of some of those different concepts.

When we debated the meaning of “custom” in the House, the then Minister, after questioning by the hon. Member for Aberdeen North, said that funds from a testimonial above £100,000 would be subject to NICs where such a payment was “customary”. He described “customary” as referring, for example, to cases where, in a particular sports club,

“there is a testimonial every year for a particular player or group of players, and that had been going on for some time”.

He said that

“that would be a customary testimonial situation”—[Official Report, 30 April 2019; Vol. 659, c. 173.]

I explained in the previous session why I think that that kind of circumstance is extremely unlikely to occur. We need to have a reality check about how things are operating in different sports, so that we can assess them.

I looked at some of the information that has been provided by the Professional Footballers’ Association. It noted that, in 2015, about 0.5% of professional footballers had a testimonial to celebrate them, whereas on an average career length of about eight years—that is the average career length, which, as was mentioned before, is much shorter than it was historically, certainly in the professional game—12% of footballers should finish their career each season. Very roughly, that means that about one in 25 of the professional football players we would anticipate being eligible for a testimonial actually receives one. That is clearly a very small proportion of those who could qualify for one, which suggests that this is a very unusual process, so the use of the term “customary” does not have much weight.

I then looked at the evidence from the England and Wales Cricket Board, which states explicitly that there must be no pattern to the granting of testimonials and no specific connection with the player’s number of years’ service at the club, and that there is no specific period of time that should be seen as an automatic trigger for a testimonial. It appears, in the case of that organisation, that it is not possible for there to be a customary testimonial. It just cannot exist.

[James Cartlidge]

As I understand it, the difference is between something that is contractual and the fact that it is customary, in the general sense, to have what are called “benefit games” or “testimonials”. That does not mean that there has to be a specific number; in fact, if there were, that would presumably be contractual. The fact is that they are customary when someone has made a contribution or has been with a team for a long time, however that is defined or specified. It is a tradition of sport; surely that is all we are saying.

--- Later in debate ---

[Anneliese Dodds]

I am grateful to the hon. Gentleman for his passion about this issue, and—I am sure—about the sport of cricket, but he has underlined the point that I was trying to make. He has talked about a particular period of time, “however that is defined”. My point is that the quote I read out indicates that, according to the England and Wales Cricket Board, there can be no definition of the period of time that can be used for these testimonials, because if there is an automatic trigger for such an event, that should not be grounds for a testimonial. One assumes that it should instead be due to the fans themselves, the people who are calling for such a testimonial, but there is not an automatic trigger for it. That leads again to the question of what the term “customary” actually means. When we make legislation, it is important that we are clear about what those concepts mean, and whether they have any content. If it is just an empty placeholder, I think we would all agree that the term should not be used.

The Minister maintains that HMRC provides guidance about this. In my lunch break, I tried to look this up—I know how to live, Sir Henry—and I found the information about income tax. This language is already applied to income tax liability, exactly as the Minister mentioned, and reference is made to “normal practice” and case law. However, that information does not specify what the case law is, or indeed what the normal practice is. If there is a pattern to testimonials, one concern is that it would potentially be possible to argue that a pattern somehow is not there, and that a particular testimonial is non-customary, in order to get around having to pay the employer’s NICs. Equally, there could be pressure on employers to reduce the number of testimonials that are called for—to dissuade calls for testimonials in order to make them less likely to occur.

[Kirsty Blackman]

Picking up on that point, we are relying on HMRC guidance, which can be changed in the future. The word “customary” is written here, but that is reliant on guidance alone. If there had been more explanation in the Bill of what “customary” means, or if it had just said “contractual and not customary”, we probably would not be in this situation. We would not be relying on guidance that may or may not be accessible, and may or may not change in the future.

[Anneliese Dodds]

I absolutely agree with that point. Looking at that guidance, it is interesting that there is a lot of detail about certain issues, such as what happens if there is a second testimonial for whatever reason. Let us say that £70,000 was received from the first one, and then the second one goes over the £100,000 threshold; there is detail about what the tax treatment should be. There is detail about what the tax treatment would be if the testimonial was for a player who had, very sadly, died on the pitch, and the money was going to their family. Just about every eventuality is covered, apart from this issue of “customary nature”. In the interests of clear tax policy, it would help if we had more detail about that.

Secondly, explicitly concerning the tax treatment of charitable giving, we had a discussion about this before and the Minister referred to it again in his comments. It was argued that testimonial committees could use payroll giving from the testimonial to route funds to charities, given that they would be class 1A employer NICs. Indeed, he mentioned that players could use the gift aid procedures if payments were made directly to them. My hon. Friend the Member for Bootle rightly pointed out—and it was confirmed during the session—that this would add an additional layer of complexity and administration to the process. To inform those reading Hansard, the Minister is shaking his head. Perhaps he can explain why that would not be the case. We are talking about potentially large sums here that could provide the largest of any cash boosts received by a player’s foundation. We need more detail.

Finally, new clause 5 asks for an assessment of the Bill’s impact on testimonial payments made to professionals from different sports, including footballers, cricketers, rugby league players, rugby union players and other sportspeople. It is important that all varieties of sport receive adequate support and it would be helpful to have a better understanding of the likely incidence of the charge in that regard—for example, whether there is a similar rate of use in other sports to that provided by the PFA for professional football, and whether a similar proportion of those testimonials are contractual or non-contractual. As I said before, the implication of the information provided by the England and Wales Cricket Board is that there would be no customary non-contractual testimonials. Is that the case in other sports? We do not know. It would be useful to understand that. We also need that information because favourable tax treatment is still being provided for that first £100,000 of non-contractual, non-customary testimonial payments.

It may well be the case that in different sports, the employment opportunities on retirement as a professional player are very different. Within football, some go on to be agents, coaches, commentators and so on; many others do not. Such roles may not be as available in other sports. It would help if we understood more of the background to this.

[Kirsty Blackman]

I will not add a huge amount to what the Opposition spokesperson has said on this. I am particularly concerned about the effect on donations to charities that would result from the sporting testimonial changes contained in the Bill. New clause 2 requests a report on the assessment of the expected impact of

“the total amounts received by individuals from sporting testimonials”

which is the other concern here, and also

“the donations made to charity from sporting testimonial proceeds.”

If the Government are contending that there will be no change in the amount of money given to charity from sporting testimonial proceeds, it would be useful if they said that. If they believe it is unquantifiable, it would be useful if they said that too, so that we are clear what the Government expect—or what they think they expect—from the changes they are putting forward in the Bill. Once again, the Government have said they are expecting a negligible Exchequer impact from this. It would be useful to know the trade-off: how much they believe charitable organisations will be losing in order to generate a negligible Exchequer impact.

I agree with both of the Labour party positions: on amendment 2, which is similar to mine on donations to charities, but also on the one on the review of different sportspeople. It is important that we work out what is almost a distributional analysis. We all know that footballers in the male professional game get paid an awful lot more money than any other individuals. If we see that people who are getting paid far less are subject to the highest percentage of impact, there is a problem in what the Government are suggesting.

Lastly, on clauses 3 and 4, I raised the issue this morning and I got an answer—but not a very descriptive one—on the reason that the Government have used the term “general earnings”, which is different from the wording used in part 1 of the Bill. I was told that there is a good reason for it, but I am still not clear what that good reason is, although I understand that the Minister believes there is one. It would be useful to know why that change has been made, and whether it makes it easier or harder for the Government to change the threshold level. If changing the £30,000 threshold level in part 1 is by affirmative secondary legislation, how does the difference in language affect whether or not affirmative secondary legislation is required to change the £100,000 threshold as well? Is there a different process because of the choice of language?

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[Robert Jenrick]

Let me respond to as many of those points as possible. We have had a discussion of the impact of these measures on charities. Without repeating myself too much, we expect this to have a minimal impact. Where the sporting testimonial committee and the sportsperson make use of payroll giving, there would be no impact whatsoever. Were an individual to receive the money themselves and then pay tax and take advantage of gift aid, there would be a different tax treatment. Obviously, that would be the choice of the individual. The sportsperson and the sporting testimonial committee could and should choose to use payroll giving, which is a very generous and unlimited relief.

The hon. Member for Oxford East queried whether the measure would create a new bureaucratic impact on testimonial committees. It should not create any more impact than is already in place because we have already legislated for this from an income tax perspective; that is on the statute book. If a sportsperson wanted to use payroll giving today to avoid the income tax liability and ensure that the greatest possible amount of money went to the charity, the sporting testimonial committee today would already have to register for payroll giving, which they would then be able to use a second time for income tax and for the employer’s national insurance liability. This measure does not add bureaucracy. One could argue about the measure that has already been legislated for, but that is already on the statute book and the level of bureaucracy involved is pretty low.

We have had another debate around the definition of customary or non-customary sporting testimonial. The hon. Lady has already used her lunch break to root out the guidance, in her usual assiduous manner. If Members look at it, they will see that it is thorough. It is several pages long and goes into a degree of detail. I am happy to circulate it to other members of the Committee. It sets out that while the concept of “customary” is not defined in legislation, it has its ordinary, everyday meaning. The guidance says that in general, “customary” means a practice that is recognisable as the norm and where a failure to observe it would be exceptional. I think that is pretty clear. That suggests that if it is normal practice, a sportsperson would have a legitimate expectation of that as part of their employment at the club, and if the sportsperson did not receive the testimonial that they were expecting, that would be an exceptional occurrence.

[Anneliese Dodds]

I am grateful for that explanation, but I am sure the Minister will recall that in the expert evidence session, note was taken of the fact that the scope of that norm is not clearly indicated. One could look at the norm for a whole sport, the norm for a particular club, the norm for one year, and so on. Does he accept the need for greater clarity in the guidelines about what the norm is defined with reference to?

[Robert Jenrick]

I am happy to review the guidance and see whether we can give more examples. There are a number of examples within the guidance on a range of different issues, but if it would be helpful to give one or two examples on this specific issue, I am happy to do so. Without sounding as though I am not giving serious consideration to the issue, it is worth restating that this has not arisen as an active issue. Sporting bodies, sportspeople and sporting testimonial committees have not raised it. The practice is of long standing; it dates back to 1927. We legislated for it from an income tax perspective two years ago, and we have not had any adverse feedback since then.

[Anneliese Dodds]

Playing devil’s advocate, the whole point surely is that under the rules, if a testimonial is customary, the tax is payable. Therefore, if there is any ambiguity, one would not necessarily want to go stirring hornets’ nests to try to resolve that. Surely the Minister understands what I am trying to get at: the bias would surely be towards not seeking advice, rather than going out of one’s way to have the joy of paying tax.

[Robert Jenrick]

I understand that, although those sporting testimonial committees would want a degree of certainty that they were following the law, particularly if large sums of money were involved. They might seek the guidance of sporting bodies, or HMRC, perhaps on an anonymous basis, and that does not appear to have occurred.

Earlier in the day, the hon. Lady asked whether the customary test is specific or exclusive to sporting testimonials or whether it has a wider basis in law. There are other examples of the use of the customary test in tax law and case law, one being employer accommodation, where two factors are taken into account: first, how long the practice had existed, and secondly, whether it had achieved general acceptance with the relevant employers. There is therefore a history, as we have already described. I am happy to take away from today’s debate that we will review the guidance and ensure that there is a sufficient number of examples to provide clarity, should anyone require it, although it is not our experience that individuals have requested further clarification in the past.

The hon. Lady also questioned the wider point about the impact on different sports, which is one of the objectives of new clause 5. HMRC has announced that testimonials for sports other than football are all likely to be unaffected, as they are likely to be below the threshold. The measure is most likely to impact footballing testimonials. As I said earlier, the average testimonial, to the best of our knowledge, is around £72,000 a year and is therefore unaffected by the measure.

Without repeating myself, we have consulted many of the sporting bodies, and in fact, I met some of them. It is worth restating that in this instance, sporting bodies expressed a legitimate concern that the proposed threshold of £50,000 was too low. The Treasury responded by not just increasing it, but doubling it to £100,000. We have to be careful not to create unfairness for other members of society and taxpayers in the way that their payments are treated at the end of their career, or when one occupation ends and they unfortunately have to move on to another.

The hon. Member for Aberdeen North asked this morning, and again this afternoon, why there is a difference in language between part 1 and part 2 of the Bill. My experts at HMRC have looked into that, and the difference in language between the legislation for termination awards and sporting testimonials is accounted for as follows. First, in respect of termination awards, it is a charge on the employer. Secondly, termination awards are treated as earnings of the employment. Thirdly, the liability in respect of sporting testimonials is a charge on a third-party controller of a testimonial. Fourthly, there is no link between sportspeople and the testimonial committee. Fifthly, general earnings include earnings from the employment and any amount treated as earnings in, for example, the testimonial payment. I hope that provides some explanation. If the hon. Lady would like further information, I am happy to write to her and the Committee.

The hon. Lady also questioned the amount of revenue that is likely to be raised from the measure. We have said that it is negligible, which means, in the terminology of the Treasury and the OBR, less than £3 million per annum; but in all likelihood, it will raise significantly less than that. When we modelled it prior to doubling the threshold from £50,000 to £100,000 it was also negligible—less than £3 million a year—so it is likely to be closer to zero than to £3 million, now that the threshold has doubled. Once again, our motivation in introducing the measure is to clean up, and provide certainty and clarity to individuals and those organising such matches, rather than to raise revenue.

[Anneliese Dodds]

I am grateful to the Minister for that. Is he implying, therefore, that there would be a significant behaviour change as a result of the measure? Surely, otherwise there would not be zero income resultant from it.

[Robert Jenrick]

No—with respect, I did not say that there would be zero income. I said that within the spectrum of zero to £3 million, the likely amount of revenue raised would be closer to zero than to £3 million. The sums involved are very low—negligible, in our terminology—so I do not have more precise figures, but it helps to give some guidance that it is unlikely to be closer to £3 million. Clearly, the vast majority of testimonials will be excluded, and will be below the £3 million level. I hope that I have been able to allay some of the concerns, and that the amendments will not be pressed.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clause 4 ordered to stand part of the Bill.

Clause 5

Extent, commencement and short title

Value Added Tax (Tour Operators) (amendment) (EU exit) Regulations 2019

Anneliese Dodds Excerpts

Thursday 9th May 2019 General Committees

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve on this Committee with you in the Chair, Sir Henry, and I am grateful to the Minister for that explanation. Of course, this statutory instrument is one of a series that is intended to prepare the country for the event of a no-deal Brexit. The Committee will be aware that the Opposition have repeatedly voiced our concern about this process, in particular the fact that, in our opinion, very often the precise impacts of these measures have not been sufficiently spelled out. That is a point I will return to in a moment in relation to this SI. In addition, we are concerned that the process has not facilitated the accountability necessary for potentially significant changes to rules around tax and many other financial and economic issues.

Having said that, we agree with the premise of these specific regulations, which is to prevent the double taxation of travel companies or tour companies in the event of a no-deal Brexit—something that we have long argued the Government should have ruled out from the very beginning. However, these regulations do not deal with the significant uncertainty, and especially the additional cost, that companies would face in relation to their tax liabilities abroad if there was a change to the current VAT process, especially if they suddenly had to register separately for VAT in every EU country in which they operate.

I think this is a matter of omission by the Government, rather than commission. My concern is that the Government have not spelled out how they would help those companies and what they would do specifically to deal with the bureaucratic obstacles that would arise in what may currently seem an unlikely eventuality, although I think it is perhaps more likely than the Government appear to believe.

As the Minister explained, the current system of VAT for tour operators treats the place of supply for VAT purposes as the UK, irrespective of where their travel service is employed. Therefore, VAT currently stands at 20% across the board for outbound tourist services. Under the new system, as I understand it, the amount of VAT due would differ depending on the country the service was provided in, if those different EU27 countries decided they wanted to levy it; I appreciate that they might not, but equally they might decide to do so.

The rate due in that eventuality would vary depending on the country, with the burden of operating in, say, Scandinavian countries such as Norway or Sweden increasing due to their higher VAT rate of 25%. It would also potentially become very complicated; as we know, in some countries such as Germany there are different VAT rates for different aspects of tourism-related activities. In the hotel sector, for example, VAT is 7%, compared with restaurants where it is 19%.

The Government’s impact assessment insisted that the impact of this regulation was negligible, but I understand from the representations made to me by industry that the changes could be felt in significant ways by outbound tourist companies. If it was necessary to have multiple VAT registrations, it would place a significant financial burden on tour companies, particularly small and medium-sized enterprises. Those tour operators would need to understand the operation of VAT in all those other countries in which they operate within the EU and how each VAT system could affect their business. That could place a considerable burden on tour operators and many would need to pay for local advice.

There is also the fact that different types of digital tax systems have been introduced in different EU states. Under these proposals, tour operators may need to have systems capable of compliance with multiple different versions of digital tax accounting. For example, I understand that the digital tax system in Spain—the biggest destination for UK holidaymakers—has been described as particularly complicated and likely to lead to high compliance costs for British businesses.

Those new costs would have to be absorbed by those companies, potentially at the same time as they had to comply with making tax digital for the first time, given the Government’s timetable on MTD. In fact, it has been suggested that the typical cost of basic local compliance in each EU member state could amount to between €8,000 and €15,000 per VAT-registered entity per annum. That is a pretty big burden. If we look at the outbound tourist industry, according to the Association of British Travel Agents, 90.7% of companies in the industry employ fewer than 10 people and a further 8% employ fewer than 50. They are not gigantic organisations that can have whole sets of staff dealing with VAT; that is just not on the cards for them at all.

As a first question, can the Minister explain clearly to this Committee what his Government would do to support small and medium-sized enterprises through this transition, if necessary? I must say that I find the impact assessment quite peculiar in its claim that there would be a minimal impact on business, because that surely would not be the case if they suddenly had to comply with all those different systems.

This is very evocative for me of what happened with the situation for VAT on digital services. I am sure that Committee members remember that the EU introduced a lower threshold for the payment of VAT on digital services, and changed the locus of payment from the location of the seller—that is effectively the same approach as that of these regulations—to the location of the consumer. It also introduced the VAT mini one-stop shop—I am sure hon. Members remember VATMOSS. The VATMOSS system calculated the VAT that was payable for businesses without their having to do that work, but even with VATMOSS lots of businesses found it very difficult to comply with the new system. There does not appear to be anything equivalent even to VATMOSS in the regulations for tour operators if they suddenly have to start paying all that VAT in EU27 countries. My second question is, have the Government made any attempt to encourage the EU27 to consider creating a one-stop shop if these regulations are acted upon?

There is also the matter of the impact of these new rules on revenue to the Exchequer. Studies have shown that TOMS VAT equates to about 1.08% of tour operating turnover. ABTA estimates that its members paid in the region of £300 million in TOMS VAT last year. Thirdly, I hope the Minister will be able to outline what measures the Government intend to adopt to avoid the loss of revenue that looks set to arise from this approach if it is acted upon.

It is important, as we head into economically uncertain times, that the Government do all they can to support the tourism sector, particularly given that the UK has one of the most developed outbound travel markets in the world. I want to pause a little to consider the Minister’s claim that it is very unlikely that we will see change here because third-country regimes are not being invoked at the moment and because EU27 countries currently do not charge VAT to third-country operators. The UK is in a different situation because of the number of trips organised by UK-based tour operators for people from outside the EU which begin in the UK and follow a so-called grand tour of Europe. That is very important for many of our tour operators.

The overall industry of outbound tourism is worth more than £11.7 billion a year to the UK economy, and in excess of £28.3 billion a year by the time aggregate impacts are taken into account. Those tourists sometimes start their trip in Paris or Berlin, but I estimate that quite a large proportion of them start in the UK. Therefore, the incentives are stronger for the EU27 to look into changing this regime, particularly if they think that there could be a positive revenue impact on them or that there is the opportunity to persuade those tourists to start their trips within their jurisdiction, rather than the UK, or to prevent tours from being run by a UK tour operator.

This is all occurring at a time when the tourism industry is facing difficulties. We have all heard about what has been happening with Thomas Cook. There is growing uncertainty, and it is creating an increasingly difficult environment for the tourism and hospitality sectors to operate in. It is also affecting consumers, who have been warned by travel companies that they will not be compensated if a no-deal Brexit causes travel chaos.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

I am sorry I was late, Sir Henry. It is Europe day, and I was asking a question in business questions about celebrating our membership of the European Union. Does my hon. Friend agree that working people in the travel and tourism industry in our country, which is very important, are extremely worried about their jobs and their future? This statutory instrument is very important indeed to their lives.

[Anneliese Dodds]

I could not agree more. That is absolutely the case. To an extent, I have an interest in this sector, as some of my family members have been involved in it. It is often a route for social mobility, because small, innovative firms can develop a specific offer and, as a result, grow, innovate and create new jobs. It is a dynamic part of the UK economy. We need more information—I hope that the Minister can provide some—about how the Government will try to protect and nurture those firms, given the potential impact of the additional administrative and perhaps financial burden if these measures are required.

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Anneliese Dodds Excerpts

2nd reading: House of Commons & Ways and Means resolution: House of Commons
Tuesday 30th April 2019 Commons Chamber

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to follow the hon. Member for South Thanet (Craig Mackinlay), who always talks about these issues from a professional perspective, related to his work before he first entered this place. It was very interesting to hear his comments, and I will return to some of them as I set out the Opposition’s summary of our concerns about the Bill.

When the Minister was introducing these measures, he said that they were expected. As many Members have said, they most certainly were expected. In fact, they were introduced a lot later than we had anticipated, as the hon. Member for Aberdeen North (Kirsty Blackman) pointed out. In fact, the Government’s paperwork associated with the measures indicated that some revenue has been loss as a result of that late presentation. The hon. Member for South Suffolk (James Cartlidge) noted that the figures here were “baked in” to the Government’s accounts. Well, if he looks at the accompanying paperwork to these measures, he will see that it actually appears that those expectations have had to change given the late presentation of the Bill to the House. Of course, Labour would take very different decisions on taxation. We believe that the rates for the very best-off should be increased for the top 5%, that a different approach should be taken to corporation tax and, in particular, that we should not be focusing on trying to increase tax on those people who have, above all, lost their jobs—of course, that is part of the focus of this legislation.

I will, however, start by discussing the sporting testimonials element of the Bill. These measures would see NICs treatment of sporting testimonials charged to class 1A NICs, mirroring the tax liability. As has been mentioned, this would only apply to testimonial payments exceeding £100,000. Many members have already noted that the situation—I hesitate to say “playing field” because we have definitely had enough puns in this debate—has changed since these testimonials were introduced, when many players were not earning enough money adequately to save for their retirement. Particularly in football, which is the sport that I know best in this regard, players at the very top levels are earning more than enough throughout their lifetime not to have to rely on these testimonial payments for future revenue. It is therefore appropriate that clubs as employers, or the testimonial committees that would be providing the payments, look to make these national insurance contributions.

The public are rightly angry about the amount of tax avoidance that the wealthiest in this country engage in, but I am concerned that these measures do not come close to addressing systemic issues within football, particularly around taxation. As I understand it, as of January, HMRC was looking into the financial affairs of 173 players, 40 clubs and 38 agents. Now, I have little doubt that the Minister is itching to mention the case of Rangers football club when he responds to the debate—I am well aware of the case that was taken against Rangers—but I think we need to contrast what has occurred in our country with developments in Spain, for example, where firm action has been taken against the extremely well-paid players who sought to artificially avoid tax. We have not seen similar action taken here. For example, the problem around image rights companies was known about for quite a long time before action was firmly taken. It is an insult to the thousands of volunteers at clubs across the UK—who scrimp and save to ensure that the players are paid, the grounds and stands are properly maintained, and records are properly kept—to see some of those at the very top get away with sharp practices.

Ministers must be aware that testimonials are actually becoming less common as a means of ensuring financial security for players and that the funds from testimonials are very often donated to charity, as many hon. Members have mentioned. I would like some more detail from the Minister about the perceived impact of this legislation on funds being donated to charity. Yes, in some cases funds may pass straight to a charity, but in other situations they go to charity eventually—via a player. In fact, if one looks at the charities that have benefited from the most recent testimonials, many have been foundations associated with particular players. The Minister said that, of the previous 220 testimonials that have been examined in relation to coverage by such measures, most would not have been covered because the testimonial was contractual or because its value was less than £100,000, but he did not talk about testimonials where charitable donations were concerned. I am a little bit worried that this quite important source of funds for charities might not be getting the consideration it requires as part of the Bill. I hope that the Minister will reflect on that in his closing remarks or provide more detail in Committee.

I turn to the impact of the Bill on termination awards. The Bill would introduce a new 13.8% class 1A employer NICs charge to any part of a termination award that is already income tax liable. The Minister has stated his contention that abuse exists in this field, with the claim that some employers might be disguising final payments as termination payments. Again, we really need to see concrete evidence. We have probed on this issue in previous discussions on Finance Bills, but we have not been provided with evidence of abuse. Actually, from memory, consultations carried out in this area did not suggest that there was widespread evidence of abuse. Surely, we need that evidence before considering these measures in detail.

In fact, as my hon. Friend the Member for Bootle (Peter Dowd) explained very clearly, this measure on employers’ national insurance contributions on termination awards is likely to lead to employers being much less generous with non-statutory termination awards and to leave people worse off at a time when many of them are most vulnerable. That could have severe implications for the individuals concerned, but it could also have wider economic implications. I was interested to learn that around 30% of all small businesses founded in the UK in recent times have been started in response to redundancy, with many people only having the resources to pursue their entrepreneurial ambitions because of their termination award. It is necessary to think about those wider impacts.

The Government maintain—indeed, we heard it again this afternoon—that this measure does not affect individuals, as it is paid by the employer, but that surely is not the case. In fact, the Government themselves predict in the material presented alongside the Bill that the measure would reduce wages overall by 0.1% over the year 2020-21. It is crucial that the Government undertake more detailed consideration of the likely impact of this measure.

As has been discussed, this is not the first time that this Government have sought to narrow the scope of tax relief on redundancy and termination payments. In the 2017 Finance Bill, they removed any exemption for payments in lieu of notice from the tax-free scope of payments for injuries. As Members will remember, that was very concerning with regard to workers’ rights, which are one of the main aspects of compensation in discrimination cases. The Opposition rightly contested that change.

Again in the 2017 Finance Bill, the Treasury provided itself with the power to vary the tax-free amount for other termination payments. Trade unions raised their concerns about that measure, as they believed that if the Treasury further lowered the tax-free threshold, it would incentivise employers to lower non-statutory termination awards even further. Indeed, the TUC has suggested that the tax-free element should be increased rather than decreased. I was interested by the comments made by the hon. Member for South Thanet, who noted that the value of the £30,000 threshold has been eroded significantly over time and would be worth more than double the amount if it had kept pace with current prices.

The Opposition remain concerned that the Bill still includes the power to potentially vary the NICs threshold upwards or downwards without proper scrutiny in this place, and I hope the Minister will be able to rule that out today. I also hope he will return to this in legislative form, to make it crystal clear that the Government do not intend to reduce the threshold.

I note that the guidance published alongside the legislation emphasises that

“no statutory redundancy pay on its own will be affected”.

That implies that non-statutory redundancy pay could find itself affected, exactly as the Opposition have warned. Can we have a clear statement that we will not see, via secondary legislation, tax and NICs being applied to voluntary redundancy payments for individuals with two years, or more or less than two years, of continuous service?

The Minister will be aware that this kind of application of class 1A NICs to cash earnings is highly unusual, to put it mildly. That point has been underlined by the Chartered Institute of Taxation and was made eloquently by the hon. Member for Aberdeen North. This appears to be a set of rather ad hoc changes. The hon. Member for South Suffolk, in a wide-ranging and interesting speech, suggested that the Bill is part of a general push to simplify the tax landscape, particularly when it comes to the relationship between payment as an employee and other forms of payment. In reality, we have seen an increasing complication of that landscape. We have not seen an alignment between the tax treatment of individuals and their employment treatment. Instead, we see an increasing bricolage of measures to try to deal with the disjuncture, with what is happening around IR35 being a good example. One would hope that the Government will start to try to get a grip of this issue in a more determined and less ad hoc fashion in months to come—if, indeed, they have months to come.

There is one last administrative issue that I want to mention. We have had referred to us by experts in this area the fact that HMRC has suggested that the charge will arise and be paid in real time, rather than at the end of the tax year, as is the case with other class 1A charges. That seems to require a new process—again, additional complication—for submitting information through the pay-as-you-earn real-time information submission and for HMRC to have to adopt a different process for allocating the different elements of that payment. There are already many issues with it allocating real-time information payments into the wrong pots. This seems to suggest additional complication, and we need the Government to rethink this and consider an annual payment, rather than a real-time one. This change potentially comes at the same time as other significant forms of upheaval within the tax system, from making tax digital to preparations for Brexit.

As my hon. Friend the Member for Bootle stated very clearly at the end of his remarks, we will not oppose the Bill at this stage, but we hope that it will be possible to make some substantial changes in Committee, because they are very much needed, as has been reflected by the tenor of this debate.

Oral Answers to Questions

Anneliese Dodds Excerpts

Tuesday 9th April 2019 Commons Chamber

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

A recent survey by the Centre for Labour and Social Studies showed that a third of workers struggle with the cost of living and two thirds of workers expect to get poorer this year, yet FTSE 100 CEOs have been seeing their wages rise six times as fast as those of the average worker. To me, that sounds like a laser-like focus on increasing inequality.

[Mr Hammond]

The Government are responsible for the productivity agenda and the setting of targets for the national living wage. As I have already set out, working in those two tracks is the way to deal with the challenge of low pay. I can tell the hon. Lady what will not help workers on low pay: having their personal allowance taken away from them.

IR35 Tax Reforms

Anneliese Dodds Excerpts

Thursday 4th April 2019 Westminster Hall

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Sir David. I congratulate my hon. Friend the Member for Rutherglen and Hamilton West (Ged Killen) on securing this debate. It is also a pleasure to sit opposite the Minister. I had withdrawal symptoms after the end of the no-deal statutory instruments. I am afraid this subject has a similar level of complexity as the subjects we discussed in relation to no-deal preparations.

As many hon. Friends and Members have mentioned, IR35 arrangements are designed to operate in relation to workers involved in so-called off-payroll working. They cover situations where people work for a client through their own intermediary, often a personal service company. We have heard many examples in the debate. If people were providing their services directly, they would be classified as an employee. However, as a result of the arrangements, IR35 workers pay income tax and national insurance contributions in a different way to an employee. Individuals who work in such a manner benefit from increased flexibility and reduced tax liability, but the IR35 rules are intended to ensure that they pay broadly the same tax and national insurance contributions as an employee.

As we have discussed, the rules have applied to public sector bodies since 2017, and the Government confirmed at the 2018 Budget that they would extend the change to the private sector. The Government have just launched a technical consultation about the new arrangements.

Self-employment and contractual arrangements are a vital part of the UK economy. People who are genuinely self-employed deserve to be properly supported, while also ensuring that everyone pays the right amount of tax. However, there are real concerns that workers are being forced into self-employment by unscrupulous employers to avoid costs and their duties to workers. Both the law and the Exchequer are struggling to keep up on this issue—a point that has been made by various speakers today. HMRC estimates that it loses about £3 billion a year because of self-employment in name only.

There is a problem, but at the root of it is the gap between how work is characterised for tax purposes and how it is characterised for the purposes of employment legislation. The Taylor review was meant to clarify at least the latter, as was mentioned by my hon. Friend the Member for Clwyd South (Susan Elan Jones) in a speech that was characteristic of all the speeches today when she spelled out the experiences of her constituents, and appropriately so. The Taylor review had many flaws. I will not go into all of them now, but it suggested that, for example, sick pay could be traded for a weakening of minimum wage rules—certainly not something that I would support—and that came at the same time as the courts were recognising that many alleged self-employed workers were anything but.

However, the review did offer a number of recommendations that the Government have sadly been extremely slow to consider. The lack of clarity over the implementation of Taylor where it is warranted is leading to a huge number of problems, including the ones we have talked about, for genuinely self-employed contractors and for what we might call bogusly self-employed contractors, as well as for their employers, as they adapt to coverage by IR35, knowing that even the IR35 rules may be subject to change because of future alterations to employment law in the wake of the Taylor review.

It looks as though we will not see an immediate change, so HMRC is engaging in a process of what I call bricolage to try to bridge the gap, and the consequences are complicated and very confusing. The confusion was described appropriately by my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury), who talked about a constituency case. She was kind enough to share the details of the case with me before the debate. She was absolutely right to raise the concerns of her constituent.

[Ruth Cadbury]

May I clarify that it was not a constituency case? The case was raised with me as a result of the work that I did on the loan charge.

[Anneliese Dodds]

I am grateful for that clarification. Regardless of where the individual was based in the country, the case was revelatory. In theory, with a levelling of the playing field upwards when the private sector is covered by IR35, some of the concerns about the leakage of highly skilled contractor staff from the public sector could be removed by the extension. However, the other problems that hon. Friends and Members have rightly referred to are still there, not least the problems that arise for small, often one-man or one-woman-band contractor companies that are trying to provide specialist skills on this basis, who may well end up being disadvantaged in relation to much larger providers of those specialist services. Surely we do not want that; surely we want to continue to have the innovation that exists in the complex ecology of different firms and freelancers offering such services.

We really need a joined-up approach to the issues that brings together the consideration of tax and employment law and levels up protections for the self-employed, as well as dealing with the current implications of the tax system that boost bogus self-employment. In the absence of that, we have the issues that we have been talking about today, and employers themselves are trying to find a third way through all of this, as we have seen with the GMB-Hermes deal recently, where a new employment classification has been created in the absence of any other way to improve the situation.

We do not have a coherent approach. It is unfortunate that, as Members have mentioned, the lessons have not been learned from the roll-out of IR35 to the public sector before it is rolled out to the private sector. I will not go through all of them now, as they were appropriately described by my hon. Friends, but one that I want to underline again is the concern about the finance and time that has to be spent by the self-employed who face uncertainty because of the new rules.

The kind of experience that individuals have had with the HMRC online tool, which has already been explained, is a common one. The tool is not based on all of the case law, and the case law itself is not very clear in how it directs us to determining the status of many different contractors, so it does not resolve the situation for many users. It puts an additional strain on contractors, including many individuals who, as has been mentioned, might be on quite low incomes and cannot absorb additional costs. The Government need to look at the issue at a legislative level, rather than the onus being on HMRC to try to deal with it in a technical and procedural manner. It simply cannot. A different approach needs to be taken. As we established in our previous general election manifesto, the burden of proof should be with the employer, so that the law assumes a worker is an employee unless the employer can prove otherwise. We need to be clear on that.

Concerns about the appeals process have been mentioned. I will not go into them in detail, but I will underline the questions asked by hon. Members. How can we be sure that the process will be fair when it is led by those who employ contractors effectively marking their own homework, in the memorable words of one hon. Friend?

The Institute of Chartered Accountants has stated that tax and benefit differentials between different types of work need to be addressed. There needs to be further consultation on what, if any, tax incentives are offered to the self-employed. That is one view from industry and it coincides with what was outlined in the Taylor report:

“Over the long term, in the interests of innovation, fair competition and sound public finances we need to make the taxation of labour more consistent across employment forms while at the same time improving the rights and entitlements of self-employed people.”

That brings me back to the fundamental issue that I will close with, Sir David.

It is a fact that the tax and legal status of work is not aligned, not certain and not comprehensible. It is impossible for many of those caught up in it to understand the right way forward. My party has said that we need a proper commission to look at it in detail, to modernise the law around employment status and to look at how it interrelates with tax status. We have presented a 20-point plan for security and equality at work. We need to build on that through a consultation that includes the voices of the people affected. We have heard so many of them in the short time that we have had today.

[Mr Sweeney]

My hon. Friend is making important points about the flaws in current thinking. With the consultation on expansion due to start in the next month or so, there is an urgent risk. Does she think we need to pause and reassess the roll-out before we blunder into it and cause much damage?

[Anneliese Dodds]

I am very concerned that the consultation is going ahead and that the whole process is continuing, because the consultation does not focus on the problems with the public sector roll-out. I would have anticipated that any consultation to expand the approach would take those issues on board. I hope the Minister will address that in his response, specifically why there has not been the necessary change of direction.

We may need legislative change, as I suggested, because of the lack of clarity, but we should not treat individual contractors as guinea pigs while it all gets sorted out, given the impact it could have on them. I look forward to the Minister’s response.

Beer Taxation and Pubs

Anneliese Dodds Excerpts

Thursday 28th March 2019 Commons Chamber

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

I congratulate the hon. Member for Dudley South (Mike Wood) on securing the debate. As my hon. Friend the Member for Coventry South (Mr Cunningham) said, this is not the first time that we have debated many of these issues, but I very much agree with the hon. Member for Aberdeen North (Kirsty Blackman) that this has been a good-humoured debate, albeit one with rather too many puns. This debate is also important, as so many Members from right across the country have said, because the UK pub is renowned around the world—the oldest one was established right back in the 11th century—and an essential feature of our national life.

We have already gone through many of the statistics, so I will not do that now, but I very much agree with the hon. Member for Ribble Valley (Mr Evans) that much of the economic impact of the pub and brewery sector is indirect as well as direct. We have talked a lot about the impact on employment. It was very interesting, in particular, to hear about the experience of my hon. Friend the Member for Heywood and Middleton (Liz McInnes) and about her working life. It was also the first taste that I had of working life. Working in a pub and restaurant I was paid the princely sum of £2 an hour before Labour’s minimum wage was introduced.

This sector is very important, supporting around 1 million jobs in the UK. Those who work in it contribute many payroll taxes as well. However, pubs are really also community hubs, as so many hon. Members have said. My hon. Friend the Member for Ealing Central and Acton (Dr Huq) referred to the role that they can play in combating loneliness. We have heard about how pubs can help older gentlemen—I do not know why I am gesturing in the direction of the hon. Member for Beckenham (Bob Stewart)—and how they are open to mothers in the run-up to Mothers’ Day.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

We recently had a consultation in the west of Wales on the reconfiguration of health services. Dr Rhys Thomas, one of the lead consultants, informed us that one of the biggest public health challenges that we face is loneliness, so there is a public health aspect to this as well.

[Anneliese Dodds]

I absolutely agree with that point. There is now evidence of that. Work has been undertaken, commissioned by CAMRA, which set out clearly that there is a positive impact of people using pubs in the kinds of ways that we have been talking about during this debate. The point has also been made that many people who use pubs are not necessarily drinking alcohol. They use them in a whole variety of ways. I would also mention the fact that many pubs—particularly community pubs, and I will come back to that point later—are setting up special sessions for people with different conditions, such as dementia, so they are very important institutions from that point of view.

We have seen some worrying developments, which many Members have referred to. We have seen pubs closing at an alarming rate. Last summer, we saw figures showing that 18 pubs a week are closing. Those closures are occurring at the same time as the closures of libraries, post offices, banks and many local shops. They are happening in rural areas, as has been mentioned, but in urban areas as well. My hon. Friend the Member for Chesterfield (Toby Perkins) noted very movingly what happens when the last pub leaves an estate, and my hon. Friend the Member for Barnsley East (Stephanie Peacock) raised the same issue.

Members on both sides of the House rightly referred to the importance of local pubs, but also drew attention to the challenges they face. The first of those challenges relates to the tax system, and involves beer tax, small brewer’s relief and business rates.

We are in a peculiar position when it comes to beer tax. I agree with the Institute for Fiscal Studies, which has said that

“The UK’s current system of alcohol excise duties is a mess”,

and that the way in which we tax our alcohol does not necessarily

“fully correct for the social costs of alcohol.”

I hope that the Minister will spell out what the Government intend to do in the longer term, because a longer-term approach is needed, given the developments at EU level that were mentioned earlier and given the development of the low-alcohol beer sector, which was mentioned by the hon. Member for Faversham and Mid Kent (Helen Whately) and many others. Those developments are significant, but the tax system has not yet responded to them.

Many Members, including the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone), my hon. Friend the Member for North Tyneside (Mary Glindon) and the hon. Member for Strangford (Jim Shannon), referred to the corrosive impact of low-quality, high-alcohol products which are drunk at home and are cheaper to drink at home.

We had an interesting discussion about small brewer’s relief. My hon. Friend the Member for Stoke-on-Trent North (Ruth Smeeth) spoke of its importance to small breweries, but I think we should also look carefully at its calibration in the light of the unintended consequences that were mentioned. My hon. Friend the Member for Keighley (John Grogan) made some good suggestions, and I hope that they will be noted in the review that is currently being undertaken. Despite those pressures, however, we are seeing incredible innovations, especially in the craft brewery sector. I want to plug the micro-pub movement which is taking place in my constituency, and our amazing covered market as well.

Many Members referred to business rates, which have been extremely damaging to pubs and to many other businesses that are based on bricks rather than clicks. My hon. Friend the Member for Stoke-on-Trent North, and many other Members, talked about the imbalance in that regard. A business pays corporation tax only when it has become profitable, but the Government appear to have focused on reducing the corporation tax rate. My party would not take that approach, because we value the high streets and we value bricks-and-mortar-based businesses. Of course, that does not just apply to pubs. My hon. Friend the Member for Cardiff West (Kevin Brennan) mentioned the impact on music venues, many of which are, in practice, in the same place as the local pub. We need to look at these issues in the round, and, in fact, we should look at them in relation to council tax as well. That is why we have committed ourselves to a proper review of local taxation, which we think is well overdue.

However, pubs face many other impediments that are not related to tax. That point was made very forcefully by my hon. Friend the Member for West Bromwich West (Mr Bailey). The pubs code, which was intended to level the playing field for small pub tenants, has not operated in the way in which many of us hoped that it would. It appears that the situation is being manipulated, which is immensely problematic, because, as was pointed out by my hon. Friend the Member for Leeds North West (Alex Sobel), tenants are still subservient to pub companies. That is also a big problem for the social mobility referred to by my hon. Friend the Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney), because it means that people who start off pulling pints cannot end up as pub owners.

I should like to hear from the Minister when the compulsory review of the pubs code will be announced. I thought that it was to be announced this month. Can we also be assured that the process will be open and accountable? We need to restore trust and accountability to the process. We also, as was mentioned by my hon. Friend the Member for Stroud (Dr Drew), need to make sure communities are aware of that social value process so they can take over those community assets when they want to; many communities are not aware of it.

Many of us have said this debate is a refuge from Brexit, but, sadly, it is not entirely of course. That is first because the workforce is very important to the pub sector and we are all aware of many of the concerns about what will happen if in particular we have a threshold of £30,000 to get workers into the UK. UK Hospitality has said the current proposals are illogical. We need to deal with this challenge. Also, the hon. Member for Waveney (Peter Aldous) rightly referred to the importance of exports from our brewery industry in particular; we must not impose any additional bureaucracy on those exporters, particularly in growth fields and innovative parts of our brewing industry.

I hope the Minister will respond to my points in his remarks, particularly on the beer tax, small brewer’s relief, business rates and some of the legal issues.

Draft Cash Controls (Amendment) (EU Exit) Regulations 2019 Draft Customs (Economic Operators Registration and Identification) (Amendment) (EU Exit) Regulations 2019

Anneliese Dodds Excerpts

Monday 25th March 2019 General Committees

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve with you in the Chair, Mr McCabe, and to hear the explanatory remarks from the Minister. A huge volume of such legislation has obviously been passing through Parliament. When my shadow Treasury colleagues and I have been considering it, we have been determined to spell out our objections to the Government’s approach to EU exit secondary legislation, the volume of which has been deeply concerning in respect of accountability and proper scrutiny.

The Government have assured the Opposition that no policy decisions are being taken, but establishing a regulatory framework inevitably involves matters of judgment and raises questions about resourcing and capacity. Intrinsic decisions are being made about supervisory arrangements, and we are worried that mission creep is happening, which goes beyond what was outlined in the European Union (Withdrawal) Act 2018.

Secondary legislation should be used only for technical, non-partisan and non-controversial changes, because of the limited accountability it allows. Instead, the Government continue to push through far-reaching legislation via these vehicles. As legislators, we have to get them right. They could represent real and substantive changes to the statute book, so they need proper in-depth scrutiny.

We are only four days away from our original EU exit date. The legislation still stands, at least in the UK’s case, but it is unclear whether much of it will be used. Obviously, we are considering two instruments that amend our customs regulations to account for our exit from the EU, but there is a lack of clarity about whether they are no-deal SIs.

The impact assessment that relates to both instruments is entitled “HMRC impact assessment for the movement of goods if the UK leaves the EU without a deal”, but some of the associated explanatory notes suggest that they are not no-deal instruments, but pertain to all kinds of exit. In my opinion, the second set of regulations would be needed only if we shifted away from the EU’s customs code, as the Minister mentioned, which is not a condition of leaving the EU per se. It is therefore peculiar that we have information not about the impact that the instruments would have in all possible scenarios, but only about a no-deal scenario.

On the cash controls regulations, I want to probe why the Treasury has decided to make the threshold £10,000. That is higher than the previous €10,000 threshold, which converts to about £8,500. I hope that the Minister can explain why it is set at £10,000, apart from the fact that that is a nice round number—that may well be the reason, but surely we need more information if that is the case. I find it peculiar given that, as I understand it, the cash controls system currently applies to €10,000-worth of other currencies brought in or out of the country, rather than a different value being set—it does not refer to 10,000 rupees or $10,000 or whatever. Perhaps the Minister can enlighten us about that and whether I have the wrong end of the stick.

On the issues relating to the Irish border in the cash controls regulations, I hope the Minister can give us more information than is provided in the papers we have been given. The Irish border is mentioned only fleetingly in the instrument. The citation, commencement and effect section states:

“The amendments made by these Regulations do not have effect in relation to any person entering Northern Ireland from the Republic of Ireland or exiting Northern Ireland to the Republic of Ireland.”

The instrument omits articles 6 and 7 of regulation (EC) No. 1889/2005, which relate to information sharing. Some might say that that is understandable, given that the obligations will not stand after exit day, but surely we as parliamentarians need to know a lot more about what controls will be maintained than we are provided with. What discussions, for example, have the UK Government had with the Irish Government to ensure that there will be proper scrutiny of individuals who might try to exploit this situation to launder or otherwise hide cash?

I appreciate that the Government might respond by saying that we have the Proceeds of Crime Act 2002, which means that police or border officials are able to seize cash if they have reasonable grounds for suspecting that it is either itself stolen or laundered, or is intended to be used in illegal ways in unlawful conduct, and that that applies from £1,000 upwards. However, I find it a bit strange that the Government suggest that we have to have a separate approach to cash controls as a condition of leaving the EU, yet that seems to be no issue at all when it applies between Northern Ireland and Ireland. Maybe they are just saying that security considerations trump that, which they may well do, but surely we need more meat on the bones here.

That is particularly true given that the impact assessment states:

“Compliance with the SI…gives HMRC information on the movement of cash, which feeds into the risk profiles of individuals and their associates where they are acting on behalf of others.”

That suggests that it is pretty important information, so we need more detail on why the Government are saying that we will not seek it here. It may well be justified in the overall cost-benefit analysis, but we really do not have that information.

Moving on to the economic operators registration and identification SI, again we are informed:

“The amendments to the retained EU law contained in this instrument will not have effect in relation to economic operators whose only customs activities consist of the trade of goods between Northern Ireland and Ireland.”

That seems a reasonable measure to prevent a hard border while maintaining existing regulations, but it would be interesting to hear from the Minister whether the Treasury has calculated how many operators of this type only trade in goods across the Irish border. That would be useful to know.

Generally, the context of this SI is a worrying lack of certainty for Northern Irish companies provided by the current situation. We did not have any indication until 13 March that the Government would take a temporary approach to avoid new checks and controls on goods at the Northern Ireland land border if the UK leaves the EU without a deal, and we do not yet have those arrangements set out in detail—we have the aspiration, but we do not have the detail. The Government’s own “EU Exit” paper from last year said that,

“WTO terms would not meet the Government’s commitments to ensure no hard border between Northern Ireland and Ireland.”

This surely needs much more work.

Finally, the EORI SI sets up the requirements, as the Minister mentioned, for a UK-run economic operator and registration identification system. I am grateful to the Minister for being willing to confer with me about the extent of use of that system before this Committee sitting. I wrote to him about this matter in February, because as at the end of that month, HMRC itself admitted that less than one fifth of the businesses that were estimated to need an EORI number had one, meaning that four fifths did not. HMRC said at that stage that it takes up to three days for an EORI number to be sent out, and longer than three days if there are “high volumes” of applications.

HMRC maintained that it had the capacity to process 11,000 EORI applications a day. Perhaps it is a strange coincidence that when we multiply that by the number of working days that were left when HMRC’s press release was issued, it sums perfectly to 29 March—it is quite amazing that its systems mapped on so precisely. However—and I am sure the Minister will talk about this—it appears that in practice perhaps only about a quarter of the companies that will need an EORI number have one. If companies do not have one, what are they going to do? Will they literally not be able to trade if they are not provided with one of these numbers? That is surely quite concerning for them.

I asked at the time for the Treasury to provide more information on what it was doing to promote the need for people to get an EORI number. I also highlighted the fact that there are con merchants—perhaps I need to be careful legally what I say here, and I would not describe them as doing anything illegal, but there are certain companies that advertise themselves as enabling other companies to get such numbers and apply a charge for doing so, when it is actually free to get one. They seem to be trying to profit from this situation. As I said, there is potentially nothing illegal about that, but surely it is unfortunate, at the very least, if companies believe as a result that they have to pay to get an EORI number. It would be helpful to have an update on that.

Finally, what proportion of eligible businesses have signed up for the new transitional simplified procedures? HMRC acknowledges that there has been an underspend on training funds for that scheme. It would be helpful to have an update on that too, because it is meant to speed up some of the processes related to the EORI SI.

[Mel Stride]

I thank the hon. Lady for her questions, which, as usual, were very thorough and detailed. I will do my best to answer them all. The first related to the whole issue of why we are using secondary legislation. In general terms, I hope the hon. Lady recognises that, given the kind of detail involved in some of this secondary legislation, the sheer practicalities of setting all that out in advance in primary legislation would have been prohibitive, not least because the relevant Bill went through some time ago and we are now considering these matters nearer to the event of our potential departure from the EU without a deal—although that is certainly not our desired departure. She will also have noticed that both instruments were considered by the European Statutory Instruments Committee and, on its recommendation, turned from negative instruments into affirmative instruments.

The hon. Lady asked very specifically whether these instruments relate to a no-deal scenario. Indeed they do. Of course, if we have a deal—the current deal, which has been negotiated with the European Union—we will go into an implementation period until the end of 2020. Under those terms, we would continue to trade with the EU27 on broadly the same basis as we do today.

The hon. Lady asked specifically why £10,000 was used, rather than the sterling equivalent of €10,000, that being—I will take her figure at face value—about £8,500. She suggested that it might be because it is a nice round number, and I guess perhaps it is. It certainly maintains the figure 10,000, albeit there is a relatively marginal change in value at today’s exchange rate; as we know, that may change over time.

The hon. Lady made some very important points about the Northern Ireland border and, with regard to the cash controls instrument, the level of security that may or may not be in place as a result of no deal. In the case of the border between Northern Ireland and Ireland, the instrument really would maintain the status quo. Of course, as a member of the European Union at the moment, we do not have cash controls between ourselves and other member states, including between Northern Ireland and the Republic of Ireland. We have a variety of intelligence-based arrangements in place to track down those who may be moving cash for the wrong reasons across any of our borders with any member state, and we have always had very close co-operation with the Irish Government and the Garda in respect of such matters.

I turn to EORI. The hon. Lady asked how many operators trade only across the Northern Ireland-Republic of Ireland border and, because they do not already trade with a country outside the EU27, have not already been registered for an EORI number. I do not have a precise figure, but we estimate that about 245,000 businesses in the UK as a whole—145,000 that we can identify as being above the £85,000 VAT registration threshold, and an estimated 100,000 further that are below that threshold—trade solely intra-EU, so it will be a fraction of that number.

The hon. Lady touched on whether the arrangements relating to Northern Ireland in both statutory instruments would be compliant under WTO arrangements. Our belief is that they would be, albeit that they would be exceptional arrangements. In the case of both instruments, we would hope to be in constructive discussions with the Irish Government about how to move forward if we end up in a no-deal situation.

The hon. Lady asked some specific questions about EORI registration and referred to her letter. I am grateful to her for having raised that with me before this Committee. The answer to her question is that approximately 60,000 EORI registrations have now been made in the group we are targeting. That is 24.8% of those that we believe are in the scope of requiring an EORI. She asked what happens if a business turns up in the UK without the relevant EORI registration, and I point her to the transitional simplified procedures that we have set out.

The hon. Lady’s final point was about businesses that might provide a service to facilitate EORI registration. Quite rightly, she pointed out that is a free-of-charge service that can be completed very quickly, and it is not that complicated to do it online. If she has any specific examples that she would like to bring to my attention, where she believes that anybody is in any way misrepresenting the complexity of this process simply in order to profit from the interaction with the business concerned, I will look at them very closely.

[Anneliese Dodds]

I am grateful to the Minister for those clarifications, which are enormously helpful. I mentioned in my letter the name of one outfit that operates in that direction, but I will have another look and send it on. On his penultimate point about how companies would cope with not having an EORI, it was my understanding that, in order to participate in the new transitional simplified procedures scheme, businesses had to have signed up for that, and we do not know how many have. They could be in a double bind if they are not in either scheme. I know that the Government say they will completely suspend many of the normal reporting requirements, which opens up many concerning questions, but unless I am misunderstanding the transitional simplified procedures scheme, it is not clear that those who do not have an EORI would drop into that other scheme. Perhaps he can explain that further.

[Mel Stride]

The hon. Lady poses a fair question. Although what happens going the other way will be in the control of the EU27, in the event that a business came into the United Kingdom, arrived without an EORI number, was not in the TSP arrangements and was not in transit with the various suspensions that go with that, we would take a proportioned, flexible approach at the border under those circumstances. We would make sure, as we have always said, that we prioritise flow over other aspects, while in no way compromising on security.

Question put and agreed to.

Draft Customs (Economic Operators Registration and Identification) (Amendment) (EU Exit) Regulations 2019

Resolved,

That the Committee has considered the draft Customs (Economic Operators Registration and Identification) (Amendment) (EU Exit) Regulations 2019.—(Mel Stride.)