Finance (No. 3) Bill (Fourth sitting)
Anneliese Dodds Excerpts(7 years, 2 months ago)
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The Financial Secretary to the Treasury (Mel Stride)
I will be brief, as I am conscious that the Committee is moving fairly slowly through the clauses, and we have quite a lot of the Bill still to cover.
The hon. Member for Oxford East mentioned the diverted profits tax and the digital services tax. Earlier on in her speech, in a different context, she used the expression “comparing apples with pears”. I think that is what we are doing here, and that lies at the heart of the objection to her amendment.
Anneliese Dodds (Oxford East) (Lab/Co-op)
The Minister knows that I have a lot of respect for him. However, that was exactly my point: the two taxes are based on a fundamentally different view of what should be taxed. Obviously, a digital services tax would be revenue based, whereas DPT is still profit based, and based on the arm’s length principle. Surely one should therefore compare them in terms of their efficacy at generating tax revenue, preventing avoidance, and so on. The fact that they are different does not mean that it is not legitimate to compare them.
Mel Stride
I understand what the hon. Lady says, but the expression “preventing avoidance”, which she has just used, lies at the heart of the meaningful distinction. DPT is about avoidance, as eloquently expressed by my hon. Friend the Member for Poole, whereas the digital services tax is not about avoidance at all; it is about reflecting the fact that the international tax regime is no longer fit for purpose when it comes to taxing certain types of digital businesses—those that operate through digital platforms, and that have a relationship with UK users and generate value as a consequence. She mentioned Google specifically, but it covers search engines in general, certain online marketplaces and social media platforms.
The two taxes are so distinct. It is important to place on the record that the digital services tax is not an anti-avoidance measure; it is about redefining the way in which those businesses pay their fair share of tax.
Mel Stride
It is important to review or consider all taxes in relation to other taxes as a matter of course, because they all have their own positive aspects, distortionary effects, negative aspects, impacts on the economy that might not be desirable, and so forth. It is important that we do that for all taxes. I say to the hon. Lady that, in the case of the digital services tax, we are now consulting on the detail of how that might operate should we introduce it in 2020, in the event that there is not a multilateral movement across the OECD or the European Union that allows us to work in conjunction with other tax jurisdictions. In the case of the specific tax that we are considering in Committee, there will be ample opportunity to look at it in the kind of detail that I know she will be keen on.
The hon. Member for Oxford East raised the issue of the split, as I understood it, between the impact of DPT as directly revenue raising through the additional corporation tax that is paid, and the deterrent effect that protects revenues that otherwise would have been avoided. We publish annual statistics that show how much tax DPT raises directly and how much it raises indirectly through corporation tax. This year, we published a detailed note setting out the methodology that was used to calculate the revenue raised by DPT, and I am happy to provide the hon. Lady with either that information or a signpost to where it can be found.
The hon. Lady raised the specific issue of the three-month extension that we have been considering in Committee. She made the point well: rather than extending the period by three months, why do we not stick to 12 months and expect the corporation in question to speed up their process? I think we would still be left with the problem that there would have to be a moment in time when that company could still provide information—HMRC would be required to take it into account—which might be of a very complex nature. It would be very difficult for HMRC to make an immediate and reasonable judgment at the last minute. I think that is what drives the importance of separating the time available to the corporation in those circumstances from the additional time that is available solely to HMRC to conduct its final review without additional information suddenly appearing at extremely short notice. I should also point out that the 12-month process is already an accelerated process, and typically we are—in circumstances where the additional three-month time period becomes pertinent—looking at very complex situations, which take time to consider fully.
On the basis of the extract that the hon. Member for Aberdeen North presented to the Committee, it seems to me that more information could have been given in the explanatory notes to make it absolutely clear what it refers to. I will have a closer look at that outside the Committee.
Anneliese Dodds
I am grateful to the Minister for his clarifications. I would like to accept his kind offer to share with me and the Committee—I am sure other Members will be interested as well—the information that he referred to, which sets out the different components of DPT. I think that would be enormously helpful.
The hon. Member for Poole seemed to suggest that there would be two reasons for fluctuation across years. I think he used the word “random” to describe HMRC’s choice of which companies to investigate—they could be large or small. I would hope that it would not be a random process, although I am not suggesting he was intimating that. I would hope that it was based on intelligence and that HMRC—I would like it to undertake more of this than it does at the moment—used some of the data sources available to it to drive the process of determining which companies to look at. Hopefully that would not be a source of too much variation.
The hon. Gentleman also suggested that there might be variation because it would be, in some way, a reflection of the compliance-mindedness of tax practitioners in different corporations at any one point. Surely that should improve over time, rather than fluctuate. There may be other reasons for the variation, but I feel we still need to have a clear understanding of it.
Sir Robert Syms
My central point is that if HMRC challenges a corporation tax computation, it does not have to do it every single year with the same company, because essentially it will come to an arrangement about what is acceptable—for at least a period of years. Then it can go and look for the next company. I see it as a rolling process in which essentially there is a dialogue between HMRC and the accountants of the companies. Therefore, everybody knows quite where they stand, and perhaps the companies will benefit as well.
Anneliese Dodds
I am grateful for that clarification of the hon. Gentleman’s comments. I suppose on that basis one would assume that the take would go down, if there was truly a deterrent action. It is not clear to me that that has occurred, but it would be interesting to have the analysis and review, so that we could see whether it is so. That is what our amendments aim to do.
I took on board what the Minister said about the review period, but I am a little confused. As I understand it, the additional time provided for the review period in the Bill is not of a different character from the rest of the review period. It is not a question of the additional three months being just for HMRC to deliberate. It is also a period during which the company can provide additional information—so, potentially, they can now do that right up to the end of 15 rather than 12 months. Therefore it is unclear to me that HMRC will necessarily be helped—unless I am missing something, which I may well be.
Mel Stride
To clarify, briefly, it is not as the hon. Lady views it: the additional three months would be solely for HMRC to carry out its deliberations, albeit that up to the 11th hour within the 12-month period further information could be provided by the company.
Anneliese Dodds
I am grateful to the Minister for clarifying that. It was not completely clear to me from the material provided to us. I underline the points that have been made by the SNP in that regard: it would have helped us to understand the impact of some of the measures if the explanatory notes had included a bit more of the thinking behind them.
In view of what the Minister has said, we are willing to drop some of our amendments. However, we shall want to vote on amendment 40, which is quite similar to the SNP’s amendment 37, and amendments 43 and 46.
Question put and agreed to.
Clause 18 accordingly ordered to stand part of the Bill.
Schedule 6
Diverted profits tax
Amendment proposed: 46, in schedule 6, page 220, line 2, leave out paragraph 11.—(Anneliese Dodds.)
This amendment removes the proposed extension of the review period to 15 months.
Question put, That the amendment be made.
Anneliese Dodds
I beg to move amendment 47, in clause 21, page 13, line 35, at end insert—
“(7) The Chancellor of the Exchequer must review the revenue effects of the preceding provisions of this section and lay a report of that review before the House of Commons within six months of the passing of this Act.”
This amendment would require the Chancellor of the Exchequer to review the revenue effects of the changes made by Clause 21.
The Chair
With this it will be convenient to discuss the following:
Amendment 48, in clause 21, page 13, line 35, at end insert—
“(7) The Chancellor of the Exchequer must, within 3 months of the passing of this Act, publish a list of additional non-UK resident companies that are classified as having permanent establishments as a result of restricting the application of section 1143 of the CTA 2010.
(8) The list in subsection (7) must be updated annually.”
This amendment would require the Chancellor of the Exchequer to publish a list of all additional permanent establishments created as a result of the changes made by Clause 21 three months after the passing of the Act and annually thereafter.
Clause stand part.
Anneliese Dodds
The clause focuses on attempts to wriggle out of triggering permanent establishment status by maintaining that economic activity is preparatory or auxiliary. Currently, certain so-called preparatory or auxiliary activities are understandably exempt from being classified as indicating a permanent establishment. They tend to be of low value and include storing products for the company involved, purchasing goods for it and collecting information for it.
Action 7 in the OECD’s BEPS—base erosion and profit shifting—process included a range of measures to tighten up in the OECD’s model tax treaty section 5, including in this area. The model tax treaty includes a far-reaching anti-fragmentation rule to prevent activities in a jurisdiction from being intentionally, artificially fragmented between different companies in a group merely so that those activities will not trigger permanent establishment status because they can be classified as preparatory or auxiliary.
The OECD rules prevent the preparatory and auxiliary exemption from applying in situations where there is already a permanent establishment in the country, and where the overall activity carried out both by the company concerned and by companies that are closely related to it are not preparatory or auxiliary. In both cases, however, the activities must constitute part of a so-called “cohesive business operation”. In practice, the measure puts into UK law what the UK has already signed up to via its ratification of the OECD’s multilateral instrument for the amendment and updating of tax treaties, which is now sequentially being applied to our existing tax treaties, as we have discussed on a number of occasions just along the Committee corridor.
We seek to amend the clause in a number of ways. First, amendment 48 requires the Chancellor to publish a list of all additional permanent establishments created by the clause, and to do so annually. There is a serious problem of accountability in our tax system. Those who have engaged in tax avoidance are not publicly held responsible. In response to the debate on Second Reading, it looks very clear what tax avoidance is and what it is not. It is behaviour that is legal, but although it may follow the letter of tax law, it does not follow its spirit.
Contrary to what was argued in the previous debate in the Chamber, individual savings accounts do not constitute tax avoidance because their creation was intended and promoted by legislators. On the contrary, artificial arrangements are tax avoidance, because policy makers, whether in the UK or elsewhere—such as for the Dutch and Irish sandwiches—did not indicate that they wished their tax law to be used by those schemes to exploit loopholes.
Relying purely on the spirit of the law or treaties, rather than their letter, leaves our system open to tax avoidance, which is one of the many reasons the Opposition support the introduction of a general anti-avoidance rule—not just anti-abuse. We have talked about that in this Committee. In any case, we must understand which firms profited from these forms of artificial fragmentation. Our amendment asks for that.
It is particularly important to have that analysis at a time when the US approach to corporate taxation and determining where permanent establishment lies is in flux. The corporate tax rate in the US is going down, but that problem is compounded by tightening up in a range of areas, including the adoption of many elements of the BEPS process relating to permanent establishments. It is important to assess the efficacy of measures put forward here in relation to what is occurring in the US, where claims have been made that the situation will lead to onshoring of activity. That remains to be seen, but it will be useful to have an analysis so that we can perform that assessment.
Amendment 47 would require a review of the revenue effect of clause 21. It is not possible to judge its likely efficacy without understanding the extent to which it will promote the correct payment of corporation tax. I note that some jurisdictions, such as Argentina, have included what appear to be more stringent requirements in their permanent establishment roles, going beyond the OECD requirements.
It is important that we properly understand the likely impact of the proposed rules. There has been a debate about this issue at OECD level for quite a long period—since about 2013. There are very different views about whether the OECD approach is sufficiently stringent. It is important to listen to some alternative views that were referenced when this particular action in the BEPS process was investigated, particularly from the BEPS monitoring group in 2015. That group is composed of a variety of experts looking at international tax law and a number of civil society organisations—I will not try to pronounce their names because some are in Spanish and I would get it humiliatingly wrong.
In response to a call for evidence in relation to changes in the OECD tax treaty chapter 5, the group maintained that although an anti-fragmentation rule was proposed by the OECD, it was
“only in relation to pre-sales related activities, such as storage, display or delivery”,
as delivered by this clause. The group suggested that was problematic and did not go far enough because:
“These proposed changes would therefore not affect other types of structures which fragment functions such as manufacturing, purchasing, design, marketing and customer support.”
It continued:
“Moreover, the current proposals would have limited application to services.”
It felt that there was a particular problem for developing countries—I appreciate that we are not in that situation. It said that for the countries it works with often there was also a particular problem from “stripped-risk contract manufacturers”. It argued that, as an alternative to the BEPS anti-fragmentation proposals,
“One way to deal with this would be for the Commentary to make clear that where decisions are made locally in a country by personnel of any group member or agent that affect the commercial risks borne by any group member, then that group member will be considered to maintain a ‘place of management’ within that country within the meaning of Paragraph 2 of Article 5.”
That is quite a different approach from assessing whether fragmentation is occurring, and it would be helpful to understand why the Government believe their approach is sufficiently stringent in the light of critiques such as that one. That is another reason why I think our amendment is necessary.
Mel Stride
The clause makes changes to ensure that foreign businesses operating in the UK cannot avoid creating a taxable presence by splitting up their activities between different locations and companies. A non-resident company is liable to UK corporation tax only if it has a permanent establishment here—I shall use the abbreviation PE for permanent establishment. A PE may be a fixed place of business, also referred to as a branch, or the activity of an agent. We are mostly concerned here with branches.
As the hon. Member for Oxford East has outlined, certain preparatory or auxiliary activities, which are normally low value, such as storing the company’s own products, purchasing goods or collecting information for the non-resident company, are classed as exempt activities and do not create a permanent establishment. Some foreign businesses could artificially split their operations among different group companies or between different locations to take advantage of those exemptions and so avoid being liable to corporation tax.
To counter that, the OECD and G20 recommended modifying the definition of permanent establishment. The UK has adopted that change in its tax treaties, the bilateral tax arrangements that divide up taxing rights between countries, with which the hon. Lady and I are most familiar, having taken a series of pieces of secondary legislation through this House on those matters. It has given effect to that change through the BEPS multilateral instrument, as she pointed out, which entered into force for the UK on 1 October 2018.
Clause 21 replicates that treaty change in UK domestic law to make the change to tax treaties effective. It is most likely to affect non-resident manufacturing and distribution businesses that might try to structure their UK operations in order to minimise their UK tax footprint. The measure sends a signal that the UK Government are determined to tackle tax avoidance by foreign multinationals.
Turning to the two amendments tabled by the Opposition, amendment 47 would require the Chancellor of the Exchequer to review the revenue effects of the changes made by this clause within six months of the Bill becoming law. I cannot support this amendment. Information on revenue effects will not be available six months after the passing of the Act, given that the first accounting periods likely to be affected are those ending on 31 March 2019, for which the filing date of company tax returns will be 31 March 2020.
The Government also cannot support amendment 48, which would require publication three months after the passing of the Act of a list of all additional PEs created as a result of this measure. HMRC would not know, as a company is not required to disclose, whether a declared PE has occurred as a result of this measure or for some other reason. The information would be available to HMRC only if it opened an inquiry into every non-resident company that newly declared a permanent establishment. That, as I hope the Committee would agree, is impractical. It would not be an appropriate use of inquiry powers and it would impose a significant burden on HMRC and the taxpayer for little revenue benefit. The Exchequer impact assessment has scored this measure as likely to have negligible yield. I therefore commend the clause to the Committee and invite Members to reject the amendments.
Anneliese Dodds
I am grateful to the Minister for his clarifications and comments. I think we would be willing to withdraw the amendment, but I note that he did not refer to the critique that I mentioned by the BEPS monitoring group on whether the definition of fragmentation coming within the OECD process was sufficient. I do not want to detain the Committee on that point any longer, but I ask him to bear that critique in mind as we go through any additional tax treaties; I am sure we will come to some in the future with developing countries, because arguably this is a significant problem for them. It can be difficult for them to apply even the conventions in the model tax treaty to capture economic activity within their boundaries when they need to build up their tax base. Of course, we give many of those countries development aid.
As I said, I am willing to withdraw the amendment, but I would be grateful if the Minister kept those points in mind. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 21 ordered to stand part of the Bill.
Clause 24
Group relief etc: meaning of “UK related” company
Anneliese Dodds
I beg to move amendment 51, in clause 24, page 14, line 4, at end insert—
“(1A) At the end of section 134 of CTA 2010, insert—
‘(2) The Chancellor of the Exchequer must review any change, attributable to the amendments made to this section by section 24 of the Finance Act 2019, to payments of corporation tax.
(3) A report of the review under subsection (2) must be laid before the House of Commons by 5 April 2020.’”
This amendment would require the Chancellor of the Exchequer to review the revenue effects of this Clause, as far as they relate to section 134 of the Corporation Tax Act 2010 and report on those changes by the end of the tax year 2019-20.
The Chair
With this it will be convenient to discuss the following:
Amendment 52, in clause 24, page 14, line 4, at end insert—
“(1B) At the end of section 134 of CTA 2010, insert—
‘(4) The Chancellor of the Exchequer must review the effects on the property market attributable to the amendments made to this section by section 24 of the Finance Act 2019.
(5) A report of the review under subsection (4) must be laid before the House of Commons by 5 April 2020.’”
This amendment would require the Chancellor of the Exchequer to review the effects of this Clause, as far as they relate to section 134 of the Corporation Tax Act 2010, on the property market and report on those changes by the end of the tax year 2019-20.
Amendment 53, in clause 24, page 14, line 7, at end insert—
“(2A) At the end of section 188CJ of CTA 2010, insert—
‘(2) The Chancellor of the Exchequer must review any change, attributable to the amendments made to this section by section 24 of the Finance Act 2019, to payments of corporation tax.
(3) A report of the review under subsection (2) must be laid before the House of Commons by 5 April 2020.’”
This amendment would require the Chancellor of the Exchequer to review the revenue effects of this Clause, as far as they relate to section 188CJ of the Corporation Tax Act 2010 and report on those changes by the end of the tax year 2019-20.
Amendment 54, in clause 24, page 14, line 7, at end insert—
“(2B) At the end of section 188CJ of CTA 2010, insert—
‘(4) The Chancellor of the Exchequer must review the effects on the property market attributable to the amendments made to this section by section 24 of the Finance Act 2019.
(5) A report of the review under subsection (4) must be laid before the House of Commons by 5 April 2020.’”
This amendment would require the Chancellor of the Exchequer to review the effects of this Clause, as far as they relate to section 188CJ of the Corporation Tax Act 2010, on the property market and report on those changes by the end of the tax year 2019-20.
Clause stand part.
Anneliese Dodds
The clause extends the definition of “UK-related company” for the purposes of group relief to include non-UK resident companies that are within the charge to corporation tax. That change follows previous announcements concerning the tax treatment of non-resident companies carrying out property-related business.
I think it will be helpful to indicate exactly what group relief relates to and why it is relevant. As I am sure the Committee is aware, group relief relates to the process whereby a so-called surrendering company that makes a corporate tax loss can pass certain kinds of losses to another company in its group. The benefiting company—the “claimant company”—can use the loss passed on to it to reduce its corporation tax liability. Apparently, the claimant company often then pays the surrendering company for the loss it received, up to the value of the tax that was saved. That payment is not counted for tax purposes. The surrendering company benefits from that arrangement, as it has access to those funds from the claimant company rather than having to hang on to the loss for subsequent years. There is no change to the circumstances of the claimant company—it cancels out some of its corporation tax and just passes that saving on to its fellow group member.
That regime was partially liberalised in 2016, albeit that it was then counteracted by the introduction for large companies of a limit, which means that only 50% of profits can be offset against losses carried forward. That ceiling applies across the group, not to individual firms. There are a number of stipulations concerning the extent of common share ownership, which are intended to prevent the false creation of groups in relation to group relief. It is necessary for one company to be the owner of three quarters or more of the other company’s share capital, or for a third company to own three quarters or more of the share capital of both companies involved, in order for them to be counted as part of a group for this purpose.
Other tests attempt to ensure that a genuine rather than a spurious group is involved. In addition, only certain types of income loss qualify, including trading losses, excess interest charges and management expenses. Until now, both the surrendering company and the claimant company had to be resident in the UK or carrying on a trade through a permanent establishment in the UK, although in some circumstances European economic area-based companies have been able to act as surrendering companies.
The Opposition have tabled four amendments to the clause. Amendments 51 and 53 would require a review of the impact on payments of corporation tax of the different elements of these proposals. Amendments 52 and 54 would require an examination of the proposals’ impact on property markets.
As I said, amendments 51 and 53 would require a review of the revenue effects of the clause, particularly on corporation tax. The measures in the clause appear to be part of a group of measures in the Bill that attempt to equalise the treatment of non-UK and UK-resident property companies when it comes to taxation. We have already discussed the fact that such companies will be transferred into corporation tax and standard capital gains tax. In many cases, although the measures concerned might be viewed as levelling the playing field, they might also be viewed as causing risks to revenue, not least due to the reduced rate of corporation tax, which we discussed before lunch.
Clearly, this change would benefit non-resident firms by enabling them more easily to plan when to pay corporation tax with the group of which they are a member. It would therefore to be helpful to have a clearer indication than has already been provided of the likely revenue effects of the clause. I am not saying that that ease and greater facility, in terms of planning corporation tax incidence, is necessarily a problem, but it will potentially have a revenue impact.
On a related note, we surely need a review of the impact of the clause on the UK property market, as would be required by our amendments 52 and 54. It will be particularly helpful if that review examines whether or not more non-EEA companies will be brought into the scope of this kind of intra-group transfer. It seems that that may well be the case. Currently, aside from UK-resident companies, only EEA-based companies, under certain circumstances, benefit from the ability to transfer loss, and thus tax incidence, across the group of which they are a member.
It would also be helpful to understand whether the new measures could help to incentivise more complex group structures that stretch beyond the UK and both into and outwith the EEA. There may be merits in the resultant diversification of risk, given the national specificities and risk profiles of different property markets in different countries and so on, but equally there could be a risk of contagion from poorly regulated property markets in some non-EEA countries. Those countries are not currently within the scope of these measures but will potentially be brought in by the Bill.
It would be helpful to be provided with a better understanding of the broader implications of the proposals in the clause than is currently set out in the explanatory notes. That is why we tabled amendments 52 and 54.
Mel Stride
The clause extends the definition of UK-related companies for the purposes of group relief to include non-UK resident companies within the charge to corporation tax. Non-UK resident companies are not simply those within the EEA but any company anywhere in the world.
Mel Stride
Yes. As the hon. Lady pointed out, clause 17 provides that a non-UK resident company that carries on a UK property business will be charged to corporation tax, rather than income tax, as we discussed earlier. This will deliver equal tax treatment for UK-resident and non-UK resident companies that carry on UK property businesses, including the application of anti-avoidance measures within the corporation tax regime, as I pointed out.
However, under the current rules, non-UK resident companies within the charge to corporation tax are not able to make use of group relief, which, as the hon. Lady described extremely well, is the mechanism by which a company is able to surrender its tax losses to another member of the group to relieve their taxable profits. Group relief is available to UK-resident companies and helps to ensure that the tax charged reflects the economic reality of the entire group.
The clause will extend the definition of a UK-related company for the purposes of group relief to include non-UK resident companies that are within the charge to corporation tax. This change will also apply to non-UK resident companies developing UK land that were brought within the charge to corporation tax from July 2016. The clause will ensure that the UK tax regime does not discriminate against non-UK resident companies. These changes come at a negligible cost to the Exchequer.
Amendments 51 and 53 would require a review of the impact of the clause on corporation tax receipts. The Office for Budget Responsibility’s certified assessment of the impact of the clause on corporation tax receipts has been estimated together with clause 17 and schedule 5, which we debated earlier. That is set out in table 2.2 of the 2018 Budget and will be updated in table 2.2 of the 2019 Budget.
Amendments 52 and 54 would require an analysis of the effects of the clause on the UK property market. The impact on the UK property market was considered in the design of the policy, but it is not expected to have any notable effect. The OBR did not consider that the clause, nor clause 17 and schedule 5, would have any impact on its UK property market forecast.
The clause is a necessary element of levelling the playing field between UK-resident companies and companies not resident in the UK. It provides for equal tax treatment so that companies in receipt of similar types of UK property income will face the same tax rules. I commend the clause to the Committee.
Anneliese Dodds
I am grateful to the Minister for that explanation and for the clarifications. It is important for the Committee to be aware that while this is part of a suite of measures to equalise tax treatment in terms of tax responsibilities, obviously the measure also provides some of the benefits of the UK tax system to non-EEA firms. Doing so could potentially increase the attractiveness of the UK property market for those non-EEA firms, which might be a good thing, but might also have other consequences. That is all I wish to say in response. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 24 ordered to stand part of the Bill.
Clause 25
Intangible fixed assets: exceptions to degrouping charges etc
Question proposed, That the clause stand part of the Bill.
Mel Stride
The clause amends the corporate intangible fixed assets regime, which I will refer to as the IFA regime, to align the degrouping adjustment rules more closely with the equivalent rules in the chargeable gains code. The clause responds to concerns expressed during the Government’s consultation on the IFA regime, and in previous consultations, that the IFA degrouping adjustment is distorting how genuine commercial transactions are structured. The main criticism is that there are two different tax treatments for intangible assets, depending on whether the chargeable gains code or the IFA regime operates in respect of such assets.
The IFA regime provides corporation tax relief to companies on the cost of their intangible assets, such as patents or trademarks. The IFA regime, like the chargeable gains regime, allows groups to transfer assets between companies within the same group on a tax-neutral basis. That prevents gains or losses arising on transactions between companies within the same corporate group and reflects the fact that the group can constitute a single economic entity. Instead of recognising the market value of the asset on transfer, the company acquiring the asset inherits the tax history and costs of the transferor.
The rules contain an anti-avoidance provision which applies when an asset leaves the group. That is often referred to as a degrouping adjustment or charge. The degrouping adjustment effectively removes the benefit of a previous tax-neutral transfer to ensure the full economic gain or loss made by the group is taxed.
The chargeable gains tax code includes a similar set of rules, which were, however, amended in 2011 to refine the degrouping anti-avoidance rules where the sale of the shares in the degrouping company is exempt from a tax charge under the substantial shareholding exemption rules.
The clause seeks to address concerns commonly expressed by stakeholders during the recent IFA regime consultation and those raised during the 2016 review of the substantial shareholding exemption. Part 8 of the corporation tax code is amended so that the degrouping adjustment will not apply when a company leaves a group as a result of a share disposal that qualifies for the substantial shareholding exemption. That exemption applies only to disposals of trading companies, or parent companies of trading groups. In doing so, it aligns the clause with the treatment in the chargeable gains regime.
In summary, the clause makes a sensible change to the degrouping rules in the IFA regime to align them with the treatment elsewhere in the tax system. The clause responds to legitimate business concerns that existing legislation is distorting how genuine commercial transactions are structured. I therefore commend the clause to the Committee.
Finance (No. 3) Bill (Second sitting)
Anneliese Dodds ExcerptsTuesday 27th November 2018
(7 years, 2 months ago)
Public Bill CommitteesRead Full debate Finance Act 2019 View all Finance Act 2019 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 27 November 2018 - (27 Nov 2018)
Peter Dowd
It would be. That goes to the heart of the point. We want to tease this issue out and have a review. I know we have raised a million and one issues for review, but that is as much as we can do in the current climate. That is what we want to do: we want to tease all these matters out.
Anneliese Dodds (Oxford East) (Lab/Co-op)
Does my hon. Friend agree that a review would enable us to tease out some of the matters that were presented to us and to explore some of the expert information that has been provided to us? For example, the Institute of Chartered Accountants in England and Wales tax faculty said that the clause will lead to a tax charge so, for example, emergency repairs will be initially paid for or arranged by an employee and then met by the employer. If we had a review, we could look into that matter and others in more detail.
Peter Dowd
That organisation is always helpful, and it points us in the direction that the Government should go in. That goes to the point I am making.
Many proposals have come back to bite us, so we need a proper review to see how they are bedding in. For example, according to the Society of Motor Manufacturers and Traders, the automotive industry employs 168,000 people directly in manufacturing, and more than 856,000 are employed across the wider industry. It accounts for 12% of total UK exports of goods, and invests £3.65 billion each year in automotive research and development. More than 30 manufacturers build in excess of 70 models of vehicle in the UK, supported by 2,500 component providers and some of the world’s most skilled engineers. The automotive industry represents 1% of all employment in the UK and 7% of all manufacturing. It is also one of the few industries in the United Kingdom that has had a huge productivity increase since the financial crisis. The manufacturing of motor vehicles went from 5.4% of UK manufacturing in 2007 to 8.1% in 2017. Those figures do not, however, reflect the role that the automotive industry play in communities across the nations and regions of the UK, and the impact that a fall in sales or rentals relating to optional remuneration might have.
Kirsty Blackman
This is a process question for the Minister about going forward and ensuring that we scrutinise legislation in the best way. It would have been helpful if, in the explanatory notes, there had been some comment provided by the Scottish and Welsh Governments because both measures involve making changes that affect devolved benefits.
Given the devolved and reserved aspects of many of the matters we are discussing, I again make the case for a geographical split in the changes that the clause makes. There could have been specific Scottish, Welsh, RUK or whole UK sections, which would have made effective scrutiny easier. I emphasise that it would have been incredibly helpful to have that. I suggest for next year’s Finance Bill that, if the Government make changes of this nature, they could make both changes to ensure the most appropriate scrutiny.
I am happy to support the Opposition amendment. The hon. Member for Bootle made a powerful case about the gendered impact of the social security changes of recent years and the fact that women have been disproportionately hit by them. We do not want to see those changes exacerbated by a tax system that amplifies the issues faced by women as a result of the Government’s policies on social security. I am comfortable supporting the Opposition’s amendment and I plead with the Minister to consider making the changes that I have requested for future years.
Anneliese Dodds
It is an enormous pleasure to be in this Committee with you in the Chair, Ms Dorries, and to make my first brief speech here. I would like clarification from the Minister on the specific issue of tax treatment of council tax reduction schemes. Subsection (5) on page 8 of the Bill refers to “a” council tax reduction scheme, stating that
“Payment under a council tax reduction scheme”
is exempt from income tax. However, page 26 of the explanatory notes refers to
“the” council tax reduction scheme.
I am sure that colleagues will know that there is no longer one council tax reduction scheme across the UK, since central Government decided to top-slice that form of social security and devolve the design of it to different local authorities, albeit with the stipulation that the protection should be maintained for older people. Only a very small number of local authorities still provide full council tax relief, including council tax relief for low-income families. I am enormously proud that Oxford City Council is one of those.
Central Government have washed their hands of responsibility for this benefit. They have refused to provide figures on take-up, for example, in response to parliamentary questions that I have tabled. They have also refused to provide figures on the number of low-income people now being taken to court because they cannot pay council tax, because they are no longer provided with the relief. I am not cavilling over semantics when I ask the Minister to make crystal clear that the exemption from income tax provided in the Bill will apply to all council tax reduction schemes, not to some particular version of those schemes that the Government might wish to focus on.
Related to that, I heard a very worrying rumour that the Government might seek spuriously to argue that funds spent on council tax relief for families by local authorities should not be counted in central Government’s assessment of local authorities’ expenditures, because they are, in theory, discretionary. I disagree fundamentally with that position, because it would penalise those authorities that support the worst off. It would be helpful if the Minister confirmed that, just as I hope he will confirm that council tax relief for families is viewed as legitimate in the Bill, and for income tax purposes, it will be viewed as legitimate expenditure when it comes to the allocation of central Government support for local authorities.
Mel Stride
I start by addressing the specific points raised by the hon. Members for Aberdeen North and for Oxford East. On the explanatory notes and the value or otherwise of a specific reference to input from the Scottish Government, I will certainly be happy to look at that in the future. I assure the hon. Member for Aberdeen North that there were significant discussions on these measures between the Treasury and Scottish officials in the appropriate manner. On the technical point raised by the hon. Member for Oxford East around “the” scheme versus “a” scheme, the information I have is that the scheme came into force in April 2013. However, I will look into her specific question about whether the measures apply to “a” scheme or “the” scheme. I am afraid that I do not immediately have an answer to that, but I will get back to her as soon as I can.
Clause 12 clarifies and confirms the tax treatment of nine social security benefits. The income tax treatment of social security benefits is legislated for in part 10 of the Income Tax (Earnings and Pensions) Act 2003, which provides certainty about existing benefits and needs to be updated when new benefits are introduced. For example, the Scottish Government are introducing five new payments following the devolution of powers, including the young carer grant, the discretionary housing payment and the carer’s allowance supplement. Other payments covered by the clause have been in operation elsewhere in the UK for some time, such as the council tax reduction scheme and the flexible support fund, but are not yet covered clearly in legislation.
The changes made by clause 12 ensure that such payments are taxed appropriately, and that that is clear in legislation. The clause clarifies and confirms that such payments are exempt from tax, with one exception—the carer’s allowance supplement—which is taxable. That is in accordance with “The agreement between the Scottish Government and the UK Government on the Scottish Government’s fiscal framework”, which states:
“Any new benefits or discretionary payments introduced by the Scottish Government will not be deemed to be income for tax purposes, unless topping up a benefit which is deemed taxable such as Carer’s Allowance.”
Amendment 2 would require the Chancellor of the Exchequer to review the revenue effects of the clause and lay a report of that review before the House within six months of the passing of the Bill. Such a review is unnecessary. The Government have already published a tax information and impact note for this measure, and our assessment, supported by the OBR, is that the Exchequer effects are negligible.
On the carer’s allowance supplement, which was introduced in Scotland in 2018, as a general rule benefits are taxable if they replace lost income. The carer’s allowance has therefore always been taxable. The vast majority of those receiving the supplement have income below the personal allowance and would therefore not be expected to pay any income tax. That is an important point in respect of the point made by the hon. Member for Bootle. I will not dwell on each payment covered by the clause, but I reiterate that eight of these payments are exempt from taxation. HMRC has not and will not collect any tax from these payments.
As the tax information and impact note sets out, the taxation of the carer’s allowance supplement is expected to have negligible Exchequer effects because, as I have said, the vast majority of those carers receiving the additional payment do not earn sufficient income to pay any income tax at all. However, any income tax receipts from that will of course go to the Scottish Government.
The Committee will also know that taxable social security income is aggregated and reported to HMRC through self-assessment after the end of the tax year. This is an important point in the context of the amendment. That income will not need to be reported until January 2020. A review would therefore be impractical only six months after the Bill’s passing. I therefore ask the Committee to reject the amendment. I commend the clause to the Committee.
Anneliese Dodds
I am grateful to the Minister for that explanation. As he stated, this clause and schedule are intended to perform a variety of functions to level the playing field—the number of times that he used that phrase was interesting—between UK and non-UK residents when it comes to the payment of corporation and capital gains tax on gains from disposals of interest in UK land. They include, as he mentioned, the removal of the charge to tax on ATED-related gains, with ATED standing for the annual tax on enveloped dwellings. As was mentioned, these changes follow on from the imbalance in the tax treatment of the disposal of interests in property by individuals as against companies, artificial or otherwise, which has been gradually rectified over recent years.
Part 3 of the Finance Act 2013 introduced ATED as a principle and the concept of enveloped dwellings so that there would be a capital gains tax charge on non-natural persons who had owned properties worth more than £500,000, subject to a range of exemptions. That was followed three years ago by the extension of capital gains tax on gains arising on the disposal of UK residential property interests by certain non-resident persons, including individuals, trustees and closely held companies. However, that was not accompanied by a levelling of the playing field in relation to non-residential property wealth—land and commercial property—until now, although for reasons that I will explain, these measures are wanting in their current form, in particular because they involve a so-called trading exemption, to which I note the Minister, unless I misheard him, and he is normally very clear, did not refer in his comments. I shall speak first about that main and very significant problem with the clause and schedule, before moving on to describe the amendments in relation to them.
In an ideal world, we as the Opposition would have sought to remove the trading exemption for enveloped structures to avoid capital gains tax. Indeed, that is what some of the amendments that we had tabled set out to do. I completely understand why they were ruled out of order. There is absolutely no criticism of the decision to do that. I am sure that it was because of the restrictions imposed on us because of the Government’s failure to table an amendment to the law resolution, which my hon. Friend the Member for Bootle has already referred to. However, that trading exemption threatens to emasculate this measure.
I am sure that members of the Committee will be aware that almost all the measure’s projected yield is expected to derive from non-resident companies when they dispose of UK commercial property such as offices, factories, warehouses, shops, hotels, leisure facilities and agricultural—
The Chair
Order. Amendments 26 and 27 were not selected because they are charging, not because of a lack of an amendment of the law resolution.
Anneliese Dodds
I am grateful for the clarification. I am sorry if I got the situation wrong, and it is helpful to have heard that. However, I understand that it is appropriate for me to discuss the substantive matters in the clause, even if we do not have amendments tabled on them. Other hon. Members have done that, so I will continue to do so before I move on to my amendments, if that is acceptable. I am sorry if I mischaracterised the position and the decisions that were taken.
Anneliese Dodds
To continue with reasons why the trading exemption is illegitimate to our mind, as I mentioned before, the yield that has been described as arising from the measure is expected to derive from non-resident companies disposing of the whole range of different types of UK commercial property that I listed. Unlike residential property, most of which is owned by individuals, almost all major UK commercial property is held by large corporates or collective investment schemes or trusts.
Those large corporate investors in property are sometimes known as property envelopes, which reflects the fact that the companies’ principal purpose is to operate as a synthetic wrapper for owning land. Since the property envelope has full title to the land, any individual or other corporate owning the property envelope—for example, by owning its shares—is the ultimate or indirect owner of the underlying land.
Typically, when selling the property, the ultimate owners do so indirectly, by selling their interests in the property envelope, rather than by a direct sale of the property itself. That form of disposal is often known as an envelope disposal, since the property envelope has full title to the land, and the transfer of its shares to a new owner is tantamount to a conveyance of the property to new ownership. There are often tax reasons for that form of conveyance, since the transfer of shares, rather than land, does not attract any stamp duty land tax charge, which results in a substantial saving for the purchaser.
Recognising that situation, the consultation on the proposed measures proposed charging non-UK residents capital gains on disposals of their interest in property envelopes in the same way as if they had sold the actual land. The consultation document proposed that a property envelope would be defined as a property rich entity if it had UK property assets that represented 75% or more of the value of the entity’s total assets, as the Minister mentioned. Given that the vast majority of high-value UK commercial property is owned through a property envelope, that element of the rules, which I will refer to in future as the anti-enveloping rule for ease of discussion, is critical to the measure securing significant yield.
In response to the consultation responses that the Government received, the draft legislation includes an exception to the charge on disposals of property envelopes if the property owned in that envelope is being used in an ongoing trade that continues after the disposal takes place. In effect, that means that non-residents who make a disposal of shares in a property envelope will not be subject to any charge, provided that the property is being used for a trade.
That condition will be met if the property is being used as an office, a factory, a warehouse, a shop, a hotel, a leisure facility, in a farming trade or for any other similar commercial purpose—I am sure the Committee gets my drift. As such, the exception is surely entirely contrary to the stated rationale for the measure, which is to ensure that non-residents are taxed on gains from the disposal of commercial property in the same way as UK residents. Again, I remind the Committee that the Minister used the phrase “having a level playing field” several times in his remarks. Commercial property will, almost by definition, be used in a trade.
I am sure that the entire Committee will be scratching their heads and asking why the change occurred. Well, there were 120 respondents in all to the consultation, a number of which focused on one question only, many of which came from the most significant actors in this arena, namely the big four and large property concerns, including representatives from the real estate and collective investment scheme sector.
The Government response to the consultation states:
“Many respondents were concerned by”—
what they described as—
“the ‘cliff-edge’ nature of the 75% property richness test. They noted that fluctuations in the value of property and other assets could lead to cases where an entity strayed in and out of property richness. Some were concerned that real-estate rich trades such as retail and hotel chains and utility companies could fall to be property-rich, or that investors in these trades might be concerned that they were, and be forced to go to lengths to explore the rules and test their situation, often finding that there was no impact. To ameliorate this, a number of respondents asked for a trading exemption to make it simple for smaller investors to understand when the rules did not apply to them. They noted that the main policy aim was to tax UK land, not interests in retailers or utility companies.”
The Government response went on to say that,
“the government will agree to add a trading exemption. When a disposal is made of an interest in an entity that is trading both before and after the disposal, as for connected parties under the Substantial Shareholdings Exemption rules, then it will not be considered to be an indirect disposal of an interest in UK land”—
That is, it will not be treated as an enveloped disposal.
“Although the government does not intend to provide a specific exemption for infrastructure, a trading exemption should also deal with instances where the infrastructure disposed of is in use as part of an ongoing trade being disposed of alongside it in the arrangement.”
Surely, that exemption will undermine the overall intent of the measure. First, the main target of the legislation is enveloped disposals of commercial property made by non-residents. Almost all commercial property will, as I mentioned before, by definition, be used in a trade. The examples of commercial property given in the consultation document—offices, shops, industrial units and hotels—are all examples where the property is used in a trade, yet these disposals will be outside the scope of the new rules, provided that the sale is an enveloped one, and that the trade continues under its new ownership.
That is in clear contrast to the situation for UK residents. An equivalent disposal made by a UK resident is chargeable to tax, unless it meets specific conditions laid out in those substantial shareholding exemption rules—the SSE rules, which the consultation response referred to. The original consultation document was clear that non-residents would be able to benefit from the substantial shareholding exemptions in the same way as UK companies. However, the response document, as I just described, goes further than that: it grants a blanket exemption available only to non-residents and in circumstances much wider than the SSE.
Frankly, I very much doubt that many property envelopes or large investors involved in them would go to the lengths of requiring ongoing trades in their ownership—say, a popular hotel—to close while they are selling that commercial property, just so that they can have the joy of paying stamp duty land tax. If the Government think otherwise, perhaps they can enlighten us, but I think the chances of that are fairly slim. That appears to be what would be necessary in order for them to be caught by this measure. Perhaps the Minister can enlighten us, if I have got that wrong.
This trading exemption undermines any claim that the measure creates a level playing field with comparable UK businesses, and also provides an avoidance opportunity that, worryingly, even UK businesses could exploit, if they arrange for their UK property to be held through chains of offshore envelopes. That is surely something that our Government cannot stand by and facilitate, yet they seem to be doing so—albeit unwittingly, I am sure.
The Government’s stated reason for making this change is to help smaller investors, but if that is the aim, surely it would be more appropriate to include an explicit small-investor exemption that would not apply to larger capital gains.
Anneliese Dodds
I am grateful to the Minister for those comments, but I would like to clarify a few points, so that we are not talking at sixes and sevens. In relation to the trading exemption, the point is not that it would exempt certain categories of business as opposed to others, but that it would exempt those businesses that are trading before and after the disposal, so it introduces a new concept that is not applied to UK-resident investors to the same extent. That is what is relevant, rather than whether we are talking about a supermarket or not. That would be relevant to the property richness test, but the trading exemption is a separate element of the Bill that I was trying to push on.
In relation to the 25%, the Minister always valiantly attempts to support his Government’s policies. He is right that a figure must surely be attached to any numerical proposition in a Bill. He tried to do that here and said that 25% had been arrived at. The suggestion was that any figure could be contested. Again, it is not the specific value of that figure that is problematic, but what the figure refers to. My contention was that the Government should focus not necessarily on the proportion of the gain, but on the value of the gain. His Government have decided to focus not on the value but on the proportion. As I said, 25%—or rather, 20%—of a gain could be £1 million, which is a tremendously large value, but it could be a smaller proportion if it is just 20%.
Kirsty Blackman
Does the hon. Lady agree that having both of those in the Bill would be useful, so we could have the 25% figure or gains over £200,000, or any such figure as the Government deemed appropriate?
Anneliese Dodds
The hon. Lady is absolutely right. The Government are quite keen on double thresholds in other contexts, so this is a case where a double threshold could be introduced if they were concerned about protecting those small investors. One could have both a measure related to the proportion of the gain and one related to the value of the gain. That could be very sensible.
I am grateful to the Minister for his comments on tax treaties, but I was trying to get at whether he feels that the reference in the legislation—I cannot remember the exact term used in the explanatory notes, but it is something like referring to the “intent” or “spirit” of the tax treaty, rather than the letter—is sufficiently legally watertight. I am concerned that it would not be, because many people who have moved their tax affairs to Luxembourg to avoid tax are quite adept at reading just the letter and not conforming with the spirit, when they want to.
Finally, in response to the question from the hon. and gallant Member for Poole—
Anneliese Dodds
I am a new Member and I am always getting my fingers rapped about how to refer to other Members. I never want to upset anyone, so I hope I have not upset the hon. Gentleman.
If we look at the proportion of the commercial property market owned by non-UK investors, we see that there has been a change over time. We should surely consider that when we look at the impact or otherwise of Government policy, as well as the absolute amount of tax revenue that will go up since absolute figures go up because of inflation and so on. I do not wish to try the patience of the Committee, so we will not press our amendments to a vote.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Finance (No. 3) Bill (First sitting)
Anneliese Dodds Excerpts(7 years, 2 months ago)
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Kirsty Blackman
It is a pleasure to make the first substantial speech in this Finance Bill Committee—the first of many, I am sure.
Once again, the Scottish National party has tabled an amendment to the programme motion. It has concerned me for a long time that Finance Bill Committees do not take evidence and I think it would be better for the quality of debate if they did. This year, there are specific issues relating to the lack of consultation on the draft clauses and to the tight timescale for considering the Bill. I raised in Committee of the whole House my concerns about the fact that paper copies of the Bill were published on a Wednesday and we had to debate them on the Monday, which did not give us enough time given that the House was in recess. External organisations have also raised concerns about the lack of time for scrutiny, particularly for the unusually high number of clauses that were not consulted on in draft form. Glyn Fullelove of the Chartered Institute of Taxation, whom I quoted in Committee of the whole House, has been a particular critic of the process.
The SNP asks that, on Thursday, instead of having two normal sittings as planned, we take evidence from the Treasury, Her Majesty’s Revenue and Customs, the Office for Budget Responsibility, the Institute for Fiscal Studies and the Chartered Institute of Taxation. They all know more about the legislation than we do, so it would be incredibly useful to hear from them.
I must also point out that the Government have included several clauses to make changes to previous legislation that was deficient. If Government legislation is deficient, I contend that more consultation must be a good thing.
Anneliese Dodds (Oxford East) (Lab/Co-op)
Given that, as I understand it, the Committee in the other House is taking evidence on elements of the Bill, surely the hon. Lady agrees that we should be afforded that opportunity in this House.
Kirsty Blackman
Absolutely. It is odd that the House of Lords is more democratic than this place in relation to the Bill.
The Finance Bill Committee should take evidence. I know that it is a long-standing convention that it does not, but having served on the Public Bill Committee on the Taxation (Cross-border Trade) Act 2018 and heard the evidence taken, I know how useful it was for Committee members and how many of them referred to it in subsequent debate. It was an incredibly useful exercise and the legislation that came forward was better as a result.
As I flagged up in last year’s Finance Bill debates, it is very good that external organisations have submitted written evidence, but I guarantee that the majority of hon. Members in this Committee have not read it all because of how little time we have had. Allowing us to question witnesses on the evidence that they provide on the Finance Bill Committee would be incredibly useful. The Government might not accept that this year, but can we consider taking evidence in future years? I am not the only one calling for this. The “Better Budgets” report produced by the Chartered Institute of Taxation and various other organisations called for the Finance Bill Committee to take evidence two and a half years ago, so external organisations have requested it, not just the SNP.
Peter Dowd
The hon. Gentleman makes a fair point, which I will address later in my remarks, and which we can tease out across the Committee if we want.
For Members who do not know, labour productivity is calculated by dividing output by labour input. Output refers to gross value added, which is an estimate of the volume of goods and services by an industry, and in aggregate for the UK as a whole. Labour inputs are measured in terms of workers, jobs—“productivity jobs”—and hours worked, or “productivity hours”.
The cuts to corporation tax have done nothing to improve our productivity. The hon. Member for Hitchin and Harpenden may wish to listen to that point, so I will repeat it: the cuts to corporation tax have done nothing to improve our productivity. That strikes at the heart of the Government’s failure on the issue. In fact, the economic statistics centre of excellence and the centre for macroeconomics at the National Institute of Economic and Social Research published a study this year of Britain’s very poor productivity. That brings us to the point that the hon. Gentleman raised, because one would assume that as a result of the tax cuts, more would be invested and productivity would rise—but that has not happened. The Government have argued that those corporations now receiving significant sums in tax cuts would invest in our economy and drive their business models forward, thus increasing UK productivity. Unfortunately, the 2018 paper shows that the billions of pounds of giveaways have not had a positive productivity effect. To deal with the point raised by the hon. Member for Hitchin and Harpenden, that paper says:
“Average annual…productivity growth was 2.5 percentage points lower during the period 2011-2015 than in the decade before the financial crisis…in 2007. We find that several years on from the financial crisis stagnation remains widespread across detailed industry divisions, pointing to economy-wide explanations for the puzzle. With some exceptions, labour productivity…lost…momentum in those industries that experienced strong growth before the crisis. Three fifths of the gap is accounted for by a few industries that together account for less than one fifth of market sector value added. In terms of why we observe continued stagnation, we find that capital shallowing has become increasingly important in explaining the labour productivity growth gap in service sectors, as the buoyancy of the UK labour market has not been sufficiently matched by investment…The collapse in labour productivity growth has been more pronounced in the UK than elsewhere”
notwithstanding those major cuts in corporation tax.
Anneliese Dodds
Does my hon. Friend agree that there is a contradiction in Government policy? They appear to believe that cutting corporation tax rates will lead to a higher activity rate and a higher investment rate—as he said, that has not been the outcome—but when it comes to social security, the assumption appears to be that cutting the rate of income that people can take home by having a high taper rate, for example, will necessarily lead to a higher work rate. Actually, the evidence shows that the vast majority of people on social security want to work and there is no evidence that they do not want to. The psychological approach to corporations—that if they give them more corporate welfare, they will work harder, although the evidence does not indicate that that is the case—seems to be very different from the approach to social security recipients, where the view is that if they reduce their income they will work harder, when actually most people want to work.
Peter Dowd
I do not want to introduce Gilbert and Sullivan, but the point is that it is a topsy-turvy world where cash for corporations equals productivity, when it does not, and cuts to welfare equal productivity, when they do not. It is not as simple as that and I am afraid that the Government’s rather one-dimensional approach does not work. That report shows that the billions handed to those big companies by the Government have not had the required effect on business investment to drive up productivity. The facts are there for everybody to see. No doubt, if we had had some experts here, we could have teased that out a bit more.
Mel Stride
I thank the hon. Members for Bootle and for Aberdeen North for their wide-ranging contributions to the important debate about corporation tax. As we know, clause 2 brings in the corporation tax charge for 2020, the rate of 17% having been set in part 2 of the Finance Act 2016.
The hon. Member for Bootle referred to slashing tax for big businesses. It is a typical Opposition characterisation of our tax policy to say that the largest companies are being treated to corporate welfare, as he put it, but tax cuts apply right across the board, including to the smallest businesses in our country. Given that we are reducing tax to 17% by 2020 for both small and large businesses, the Opposition’s proposal to increase it to 26% for large businesses and 21% for smaller businesses would represent overall tax increases of 50% and 25% respectively.
Anneliese Dodds
Does the Minister acknowledge that we are talking about profitable businesses and not about unprofitable businesses, of which unfortunately there are a large number in many parts of the country? I am pleased to hear him acknowledge that Labour’s tax plans include a differential rate for small businesses, but surely he must acknowledge the sunk cost in what his Government have done. Through their cuts to central Government funding, they have forced local authorities to rely more on business rates and council tax, so the fixed costs that all businesses pay have gone up.
Mel Stride
The hon. Lady correctly identifies that Labour’s position is for small businesses to pay 21% in corporation tax. Given that we are taking it down to 17%, her party’s policy would result in the tax bill for hard-pressed companies on high streets rising by some 25% for smaller businesses—a pretty extraordinary and hefty increase—and by some 50% for larger businesses. One has to ask what the effect of those tax increases would be. They would not drive productivity, as the hon. Member for Bootle would have us believe, but do quite the reverse: they would increase the costs on businesses, increase the pressures to drive up prices for their products and, critically, reduce returns to investors. The hon. Gentleman mentioned the importance of investment in our country, but we cannot increase that by driving up corporation tax rates.
As the hon. Members for Oxford East and for Aberdeen North rightly said, business rates are a fixed cost that cannot be avoided, irrespective of whether a business is profitable, but we are driving those rates down. In the last Budget, because of the prudent stewardship of our economy, we were able to announce a 30% reduction in rates for retailers at or below the rateable value of £51,000. That will take a huge amount of pressure off about 90% of the high street retailers in our country.
Anneliese Dodds
On that point, the current incarnation of GAAR is focused on abuse rather than avoidance, as the Minister mentioned. I wonder whether he can clarify something. I understand that the GAAR panel has given 12 opinions, but there are only nine on the website, although in any case that seems a relatively small number of decisions taken. Does he not feel that it would be appropriate to review the GAAR panel’s operations at this stage?
Mel Stride
I do not, for the reasons that I have given. On the matter of how many references there have been, nine in total have supported HMRC’s position. That said, if the hon. Lady has information that suggests there have been 12 referrals, I will look into what might be a further three and what the status of those was.
Anneliese Dodds
I received notice that there were 12 in a ministerial response to a written question that I tabled. That might indicate that the panel did not support HMRC in three cases. If that is the case, it would be enormously helpful for us to know why.
As the Minister knows, when the panel was created, considerable concern was expressed about the variety of its membership. The individuals themselves are obviously upright, knowledgeable people of good standing, but they come from a restricted group of people, many of whom have been involved in devising some of the tax schemes that the panel might be required to look at.
Mel Stride
The hon. Lady makes an entirely reasonable request for that information. As I indicated, I am happy to provide it to her. In fact, divine inspiration has just arrived—I have an answer; I knew it was lost somewhere in my mind. There have, in fact, been 12 opinions, all of which have been supportive of HMRC. If she would care for any further information, I am happy to provide it outside the Committee.[Official Report, 3 December 2018, Vol. 650, c. 5MC.]
Amendment 11 would make the clause contingent on a review of how the application of globally agreed measures to combat avoidance by multinationals would impact the tax gap. HMRC publishes annual updates on its tax gap analysis. The corporation tax gap is estimated to have declined from 12.4% of total theoretical liabilities in 2005-6, under the previous Government, to 7.4% in 2016-17.
Mel Stride
If it is in order, Ms Dorries, I will give the hon. Member for Oxford East an additional piece of information on the issue of referrals to the panel. There were nine cases rather than 12; there were 12 opinions on those nine cases, all of which supported HMRC. That might explain how I had a figure of nine while the hon. Lady was focused on 12.[Official Report, 3 December 2018, Vol. 650, c. 5MC.]
Mel Stride
I shall write to the hon. Lady on this matter and any others that she wishes to inquire about.
Question put, That the amendment be made.
Draft Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018
Anneliese Dodds Excerpts(7 years, 2 months ago)
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Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to serve on the Committee with you in the Chair, Mr Austin. I am grateful to the Minister for his comments.
As we know, the Government have decided to undertake the bulk of the preparation for our EU withdrawal through secondary legislation. The Opposition have voiced their concerns about that on many occasions. It is an unprecedented transfer of powers to our Executive. I appreciate the work that has been done by the Minister, his staff and the civil service, and their collective efforts to brief us on the process. However, we might ask whether, in a normal environment, a change of such magnitude would be made through primary legislation. It should be, given the scrutiny it demands.
The number of Treasury SIs and the speed with which they are set to unfold are deeply concerning, from the point of view of ensuring that the Government are held fully accountable. The Opposition commit to making every effort to do that, but the task is constitutionally unprecedented and enormously resource-intensive, and leaves room for error. It is also disappointing that we have reached a stage when such no-deal contingency measures, which obviously take up significant time and resource for both Government and Opposition, must be laid before the House. We are, of course, perilously close to the EU exit date.
All that being said, I have one question and one reflection on the Minister’s comments. As I said, I am grateful to him for explaining the Government’s thinking on the measures. The implication from the debate on them in the other place and the Minister’s words is that the regulations will not affect how the FSCS deals with UK-based consumers and deposit holders, but surely the deposit levels within the FSCS have been affected by EU legislation. They were revised downwards in late December 2015 to cohere with the EU-stipulated level of €100,000—that was later than in the rest of the EU, where the introduction date was July 2015. Similarly, the SI suggests a five-year period during which the PRA would assess whether a change was needed in the protected deposit level.
It would be helpful to learn from the Minister about an issue that came up in the other place, and to which the Government response was not clear: do the Government intend to seek at least rough coherence with the EU level of protected deposits in future? Baroness Kramer’s comments were interesting; she noted that in a no-deal Brexit, there could be a large impact on the value of the pound, which could affect the value of UK businesses’ and individuals’ deposits in the rest of the EEA. Will there be sufficient flexibility for the PRA to protect people to the level required if there is that significant change?
My other comment is about the broader context of these kinds of deposit guarantee schemes. They were not brought in in isolation; they were part of a package of EU-level measures intended to improve protection for taxpayers and public finances. They were balanced in the EU by the bail-in mechanism, the system of resolution and the stress-testing system for banks. We in the UK have not been affected by all those measures because we are not in the banking union, but we could say that we have substitutes for many of them, at least at the moment, through independent activity undertaken in the UK.
Will the Minister underline in his concluding remarks that the Government remain committed to ensuring that our regulation will always focus on protecting stability, security and resilience, and, above all, on ensuring that we never again have a situation in which banks and other financial institutions are bailed out by taxpayers? We are not in the banking union anyway, but we could—it sounds like we will—retain the deposit guarantee. Surely it is important to retain the other elements of banking regulation that would prevent the kind of moral hazard that there was during the financial crisis, when the risks were concentrated on consumers and the public purse, while the gains were privatised to a number of people in the financial services sector who did very well out of it.
John Glen
I thank the hon. Lady for her comments. All I can do in response to her opening remarks is reiterate my commitment as a Minister to continuing the rigorous process of examining the statutory instruments, bringing them to the Committee in a timely fashion, and being as thorough as possible in our impact assessments.
The hon. Lady raised two issues. First, she referred to the exchange between Baroness Kramer and Lord Bates in the other place on 6 November, concerning the level at which the PRA could set the compensation. The imperative from the directive has been to have a consistent level, and the UK has onshored, essentially, the €100,000. There are no plans to depart from the current level; frankly, there is a significant imperative to keep the levels aligned, regardless of what happens, but that will be a matter for the PRA.
Anneliese Dodds
Would that mean that the five-year period could be altered if there were a severe need for a change due to a fluctuating exchange rate?
John Glen
In a scenario of unforeseen volatility, there would be an opportunity for the Treasury to ask the PRA to examine that, or vice versa. In such a scenario, we would of course have more immediate discretion on that point.
The second point related to the need to maintain a stable prudential regulatory regime. As the City Minister, I hear lots of representations from different parts of the financial services sector for more flexibility on occasion. This is a matter for the regulator, not me, but in conversations with the PRA, I have made it very clear that the Government do not want to secure competitive advantage based on downsizing our regulatory environment. I agree with the hon. Lady’s sentiments with regard to keeping that as the driving imperative.
To conclude, the statutory instrument is needed to ensure that the rules governing the UK’s deposit guarantee scheme and the other systems covered by the SI function appropriately if the UK leaves the EU without a deal or an implementation period. I hope I have satisfactorily addressed the legitimate points made by the hon. Lady, and that the Committee will support the regulations.
Question put and agreed to.
Finance (No. 3) Bill
Anneliese Dodds ExcerptsTuesday 20th November 2018
(7 years, 2 months ago)
Commons ChamberRead Full debate Finance Act 2019 View all Finance Act 2019 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 20 November 2018 - (20 Nov 2018)
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to participate in this debate and to follow the Financial Secretary to the Treasury. I will speak to Labour amendments 3, 4, 19 and 23 and to new clauses 5 and 6.
As other Opposition Members have noted, it is disappointing, to say the least, that the Government have been unwilling to allow proper scrutiny and challenge of their proposals in this Finance Bill, as they have failed to introduce an amendment to the law resolution. Members will be aware that this approach has been used six times in the past century, each time necessitated by Budget provisions needing to be passed quickly.
Anneliese Dodds
Indeed. When we are unable to table amendments on provisions within a Budget, it is a severe restriction on the House’s ability appropriately to challenge the Government’s policies. In any case, if the Government can muster backing for their approach to prevent a change in policy, they can do so.
Kevin Foster
If the Labour party is so committed to scrutiny of this Bill, how come the Opposition Benches are virtually empty? The hon. Lady says that it is because Labour Members cannot table amendments, but they could come along and make speeches.
Anneliese Dodds
The hon. Gentleman has made the point for himself. It is precisely because we do not have the ability to table meaningful amendments that we are in this position. I am sure that he is aware that, when it was possible for Labour Members, often with other Members, to table meaningful amendments to Finance Bills, there was a huge amount of participation, such as when amendments were tabled on country-by-country reporting. Sadly, despite those amendments, we have not yet seen the change in Government policy that we would have liked. When the House is given the power, we exercise it; when we are not given the power, we are unable to exercise it.
As “Erskine May” sets out very clearly, in these circumstances, the only permissible amendments are
“strictly limited to what is authorized by the specific resolutions on which the bill is founded.”
Because of those restrictions, the Opposition cannot expand the scope of measures against tax avoidance and evasion beyond the very limited scope presented in the Bill.
There is a whole host of areas in which the Government should be taking action but where the Bill is completely silent. There has been no new approach from the Conservative Government on the verification of information supplied by companies when they register, despite widespread evidence of tax avoidance and money laundering being facilitated through the registration of fake companies via Companies House.
On shell companies, the Government have provided only a consultation on partnerships rather than action, and they have failed to use to any great extent their legal ability to impose fines on partnerships that fail to provide beneficial ownership information. Despite their consultation on a new offence of failure to prevent economic crime finishing more than a year ago, we still appear to have no more progress on that. Although our Government now have, as I mentioned, the legal means to require country-by-country reporting wholesale, following that amendment to a Finance Bill two years ago, when we were able properly to amend the Bill, they have refused to take up that option.
Despite this catalogue of failure, the Government continue to talk up their record. We saw this elevated to the level of farce last night, when Conservative central office—I assume—released a graphic on Facebook with the laughable claim that Labour had just voted against cracking down on tax avoidance. Labour has consistently advocated much stronger measures on tax avoidance than this Government have done. Indeed, the weakness of measures in the Bill is one of many reasons why we oppose it. The graphic included a background of palm trees, presumably a bizarre reference to our overseas territories. It is bizarre, given the woeful lack of action by our Government in this regard.
Chris Philp (Croydon South) (Con)
Would the shadow Minister like to join me in congratulating the Government on having reduced the tax gap from 8% under the last Labour Government to 6% today, which is the lowest level in the developed world?
Anneliese Dodds
I will go on to talk about the assumptions that the Government currently use to calculate that tax gap, and the hon. Gentleman will learn that their claims to have massively reduced the amount of tax avoidance through that measure are potentially questionable, to say the least. Perhaps after we have had that discussion, we will see whether he still holds to that assessment.
Julian Knight (Solihull) (Con)
While we wait for the hon. Lady to congratulate the Government on closing the tax gap, will she recognise that many of the steps taken in the Bill have to be taken in a way that is mindful of how international tax systems work and how we need to ensure that the tax we are gathering does not lead to companies leaving the UK and trading to it from international jurisdictions?
Anneliese Dodds
Of course we need a business-friendly tax environment, but we should also recognise, just as I find when I talk to many international businesses, as I do in my shadow ministerial position, that the vast majority of businesses want to be compliant. Sadly, a small number of firms are not necessarily complying with the letter of the law and some are also not complying with the spirit of the law. That is leading to a situation where our public services are starved of the funding we need, which has a huge impact on business, as I am sure the hon. Gentleman is aware through his discussions with businesses in his constituency.
Let me return to the matter of overseas territories, which strangely appear to be referred to in pictorial form in material released by Conservative central office. This Government were forced kicking and screaming by this House to require our overseas territories to produce public registers of beneficial ownership, but I understand that all that has happened since the vote that forced that change in policy is one conference call, leading to a vague commitment to convene a technical working group—but it is not going to meet until 2019. So we have had many months since that vote in this House but almost no action. In addition, rather than fulfil the commitments the Opposition were given that our Government would work with Crown dependencies towards transparency, tax treaties were presented to this House last week that included no such provisions whatsoever.
The Minister has, as ever, opined that his Government have reduced the tax gap, and indeed other Members have just referred to that. I am sure, however, that he will not illuminate us with the fact that his Government’s tax gap measure excludes the costs of profit shifting and that it starts from the assumption that companies are declaring the correct amount of tax, which surely begs the question. The tax gap for this Government is assessed on the basis of whether Her Majesty’s Revenue and Customs has found errors or evidence of avoidance on tax returns, an approach that has rightly been criticised by the Public Accounts Committee, given that it leads to a situation where much of the tax lost through avoidance simply does not count as part of the tax gap. The Government’s tax gap does not appear to include cases of avoidance or evasion that do not fall under existing legislation, so it fails to capture numerous loopholes that continue to be exploited simply because they are exactly that: loopholes.
Chris Philp
Did I detect a sigh when the hon. Lady gave way? She is questioning the basis of the tax gap as a sign of progress, so let me try a different statistic that she might feel better about. The amount of corporation tax collected has gone up from £35 billion a year to £55 billion a year; is that not evidence that these tax-raising measures are effective?
Anneliese Dodds
I am always delighted to hear from the hon. Gentleman, but when he talks about the tax-gap measurement, he is talking about his Government’s tax-gap measurement, not one that is universally accepted. In fact, it is quite the opposite, and many alternative measures suggest that much larger amounts of tax are being avoided and, indeed, that larger sums could be rectified if tax evasion was dealt with. Yet again, we hear this comment about the cut to the corporation tax rate. I am sorry to sound like a stuck record, but I have to remind the hon. Gentleman that every expert commentator on this matter has intimated that the rise in the corporation tax take is not because of the cut to the rate and that, in fact, had the rate not been cut, more revenue would have accrued to the Treasury. As I will go on to discuss, that revenue could have been used to support public services and social security for our constituents.
James Cartlidge
The hon. Lady will be sighing a bit more when I point this one out. It is very kind of her to give way. She said that the tax take has not gone up because of the rate cut, and she is absolutely right: above all, the reason the tax take has gone up is that the economy has been growing very strongly.
Anneliese Dodds
I am sorry that the hon. Gentleman views as a badge of pride the recent growth statistics. I would never talk down the British economy—it has a huge amount of promise—but I am deeply concerned about the fact that our growth statistics, particularly for the future, have been revised down. For next year and the following year, I believe that they are 1.6% and 1.4%, so they have been revised down. In the past, in normal times, we would have viewed growth statistics of that kind as a failure. Of course I am pleased that our economy is finally growing again—it was, of course, growing when Labour left office—but I am none the less deeply disappointed that we are not reaching the same levels of growth as many of our competitor countries.
Several hon. Members rose—
Anneliese Dodds
With the Committee’s permission, I shall continue with my comments.
We need a far more serious and engaged approach to countering tax avoidance and evasion. Our amendments are an attempt to provide that—at least within the scope of the limited measures in the Bill. First, with amendments 3 and 4, we are calling for public registers for beneficiaries of trusts who have relocated or plan to relocate to other EEA countries and who seek to defer their corporation tax exit charges, or those relating to capital gains tax, through a payment plan, as the Minister intimated. The Government’s action in this policy area has been necessitated by recent decisions of the European Court of Justice, which considered the compatibility of member state exit charges with article 49 of the treaty on the functioning of the European Union.
As the Minister intimated, the measures in the Bill will enable those who adopt an exit charge payment plan to pay in six equal instalments, albeit with interest. Given that this approach is necessitated by EU law and applies to individuals and trustees who move to another EU or EEA country, and given that some Government Members sadly flirt recklessly with the prospect of a no-deal Brexit, I would have expected the Government to explain what might happen in this policy area as our relationship with the EU changes. That was not the case in respect of the information about these measures that we were given; nor does anything in the Bill lead us towards greater transparency for trusts, which is desperately needed.
As of January this year, all trusts that pay beyond a very modest level of tax have had to register with HMRC through its trust registration service, but that is a private register, not a public one. The new iteration of the EU’s anti-money laundering legislation will require changes in the UK approach. First, it makes business-like trusts and those managed in the EU subject to reporting requirements, so potentially enlarging the category of trusts that have to register. Secondly, it enables parties with a legitimate interest to access information about those trusts—not just law enforcement agencies as currently—although the decision on who qualifies as having such a legitimate interest will be under the discretion of member states. Finally, this new legislation requires trusts owning EU companies to disclose full information about trustees, settlors and beneficiaries.
Helen Goodman (Bishop Auckland) (Lab)
My hon. Friend is making a fantastically good forensic case this afternoon, but I am still not sure whether I fully grasp the point. Is she saying that the Government have still not set out how they intend to collaborate with the European Union on information sharing for tax purposes, and/or is she saying that this will be an excuse for a lighter tax regime in this country and in the other EU member states, which will no doubt be taken into account when the future framework is being negotiated?
Anneliese Dodds
I am very grateful to my hon. Friend for her comments. In fact, I will go on to say both, because that is precisely our concern. So far, the Government have been incredibly vague about what commitments they will make on tax matters in relation to preventing avoidance and evasion. Furthermore, we have had some very, very unhelpful comments—to put it extremely mildly—from the Government about whether they might seek to undercut the rest of the EU on tax matters. I know that my hon. Friend follows these matters very closely, as she does money laundering matters, where I argue that we have not been clear enough about how we will collaborate with others into the future.
Our new clause 5 is directed at another Government blank spot: the distributional impact of their tax measures. It would require an equality impact assessment of the Government’s tax avoidance measures in relation to child poverty, household income levels, people with protected characteristics, and our nations and regions. That assessment is necessary because of the continuing leakage from our tax system owing to avoidance as well as evasion. Failure to deal with avoidance has put pressure on the rest of the tax system, which, as I have just mentioned, has been exacerbated by unnecessary tax cuts to the very best-off people and to profitable corporations. As many independent observers have noted, these tax cuts have tended to benefit the very best-off people and often men rather than women, while £4 out of every £5 cut from Government budgets has fallen on women’s shoulders. The Women’s Budget Group has shown how, out of all household types, lone mothers have been the hardest hit by cuts to services and tax and benefit changes, followed by lone fathers and single female pensioners. Among lone mothers, it is black and minority ethnic women who have lost the most.
Bim Afolami (Hitchin and Harpenden) (Con)
Is the hon. Lady suggesting that we should have differential tax rates for men, women and different ethnic groups?
Anneliese Dodds
I am grateful for the intervention, because it enables me to make the answer clear. Absolutely not. We are asking for something very simple. Sadly, it is something that this Government have not been willing to provide, which is the information about tax incidence. We do not have that information to the extent that the House needs. The process of analysis has been left to bodies such as the Women’s Budget Group and the Child Poverty Action Group. They have to crunch the data. That is an activity that should be carried out by Government, so that we as Members are able appropriately to scrutinise their policy and practice. We do not have that information at the moment.
James Cartlidge
The hon. Lady is being very generous in giving way. As a rejoinder and as a follow-up to the intervention by my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami), that is not the point he was making. He is saying that the implication is that, to change the system, we would need to have discriminatory tax policies to effect a different impact. We cannot just assess it; for it to be different in practice, the measures, by definition, would also have to be discriminatory.
Anneliese Dodds
I fear that the hon. Gentleman has yet again made the point for himself. This Government’s approach to taxation so far has affected different groups disproportionately. We can call that discrimination, unequal impact or whatever we like. The fact is that we found out about that not through Government figures, but due to analysis conducted by other bodies. We had a lengthy debate about this during the last Finance Bill, and I am very happy to run through all the arguments again. I suggest, however, that it might be easier for him to read analysis by those expert bodies, which will make the point more eloquently than I could.
Rachel Maclean (Redditch) (Con)
The hon. Lady is extremely generous in giving way. I wonder whether she will accept a point made by a member of one of the groups about which she is speaking—that is, by a woman. Does she accept that there are more women in work now due to this Government’s measures, making women better off compared with the legacy left by her party’s Government, of which I accept she was not a member?
Anneliese Dodds
I appreciate the hon. Lady’s comments, but is she aware that under her party’s Government, moving into work is sadly no longer the route out of poverty for huge numbers of working women? For example, two thirds of children living in poverty are in working households. Previously, someone who could obtain a job with enough hours would be able to climb out of poverty. That is no longer the case in the UK. Furthermore, as I just mentioned, those who have analysed the impact of tax and benefit changes on different genders have shown very clearly—it is simple to look at the statistics—that £4 out of every £5 cut by this Government have been cut from the pockets of women and from the services that women use.
Anneliese Dodds
The hon. Lady can shake her head at me, but she should shake her head at the Women’s Budget Group, which has shown this very clearly.
Chris Stephens
On seriously tackling the tax gap and the lack of analysis that the hon. Lady is identifying, could one of the reasons possibly be the meat cleaver that was taken to the HMRC office network, meaning that there is now a lack of local knowledge? Also, should not the Government employ as many people to tackle tax avoidance as they do for Department for Work and Pensions social security fraud?
Anneliese Dodds
I know that the hon. Gentleman has worked on the issue of cuts to HMRC’s capacity, as have many Members across the House. I will return to that important issue soon, because sadly the reality does not reflect the rather rosy picture that we were provided with by the Minister on that subject.
I return to the distributional impact of this Government’s tax measures. We had an interesting discussion about fairness following some comments by the hon. Member for Beckenham (Bob Stewart), who is no longer in his place. The Minister intimated that he was in favour of a fair tax system and said that the wealthiest people pay a large proportion of all tax. He is absolutely right: the wealthiest people do pay a large proportion of income tax. That is because of how wealthy they are. However, if we look at the impact of the tax system on different income groups, we find—I should not say “we” because it is the Office for National Statistics that has discovered this—that the best-off 10% of people pay less of their income in tax than the worst-off 10%. I note that the Conservatives did not contest this statistic when it was mentioned in the House yesterday. Surely that is a ringing indictment of their approach to taxation.
Chris Philp
I am delighted that the shadow Minister has given way once again, without sighing this time. The poorest in society are not in tax at all thanks to the increase in the threshold. The richest 1% do indeed pay 28% of tax, but they only earn about 12% of all income, so she will see that the amount of tax they pay is a great deal higher than their share of income.
Anneliese Dodds
It is always a pleasure to hear from the hon. Gentleman, who is always a very friendly face. Sadly, however—I feel bad doing this—I do have to correct him on two of the points that he mentioned. He stated that the poorest people will not pay any tax at all. That is simply not the case. Of course, they will pay—[Interruption.] No, no—he said “any tax”. Let us be clear: of course, large numbers of very badly off people pay a lot of value added tax, which is a regressive tax, even with the exemptions that apply to it.
In addition to that, increasing numbers of low-income people across this country are now paying council tax, many of them for the first time, because of the swingeing cuts that the hon. Gentleman’s Government have delivered to local authorities’ budgets for council tax relief. So we now have very large numbers of very-low-income people being taken to court because they are unable to pay their council tax. That situation is novel in our country but some might say it approximates things that happened back in the 1980s, which I am sure that the hon. Gentleman is too young to remember but which the history books have certainly not forgotten.
We also need a thorough understanding of how the failure to tackle tax avoidance affects our different regions, given that austerity’s impact on incomes has been strongest in areas that were already struggling economically. We need a thorough impact assessment of the impact that the failure to deal with tax avoidance is having on child poverty. Yesterday Ministers tried to deflect attention from their record on poverty by using only figures on absolute poverty. They never speak about the measure that is instead used by most academics and experts—relative poverty—because they know that more children are now living in relative poverty under their watch: almost a third of children, in fact. The problem is such that the chief executive of the Child Poverty Action Group has described the Conservative Government as being “in denial” on child poverty.
I will explain why we need to look at relative poverty. We should not look simply at whether people are destitute, as measured by absolute poverty, even though, sadly, many are having to resort to food banks for bare necessities; we also need to look at what people’s incomes are in relation to the living standards that everyone else enjoys. That is why the concept of relative poverty measures whether people are poor in relation to median-income people. Relative poverty matters because it shows whether people can afford to live a decent life.
Anneliese Dodds
No, it does not. Absolute poverty measures whether people can afford the bare necessities of life. To be able to participate in society—in their communities—they cannot fall so massively behind the median income. We are talking about families whose children cannot go to birthday parties for their friends because they cannot afford a card and a present. For me, that is a failure of our society, and it is to do with relative poverty, not absolute poverty. Over 4 million children in this country are classified as living in relative poverty, and that number is rising, not diminishing.
Anneliese Dodds
I will press on for now.
Labour’s new clause 6 would require a review of the Government’s measures presented in this Finance Bill on tackling avoidance, evasion and the tax gap. It would enable us to consider whether the Government’s reactive approach is sufficient, when many of us suspect that it is anything but. Here we are reminded of one of the biggest gaps in this Bill. Despite much fanfare in the Budget, and indeed in the Minister’s comments just now, there is no digital services tax presented in this Finance Bill. Instead, there will be a consultation on the Government’s approach. Of course, even what is in that consultation is less stringent than European-level proposals, and it includes giant loopholes in its safe harbour and double threshold elements.
The hon. Member for Walsall North (Eddie Hughes)—who is still in his place, which is fantastic—talked about the regime for intangible assets. He is absolutely right that we need tax authorities to deal with these issues more appropriately. When I think about the major strides that have been made on taxing profits arising out of those intangible assets, I think of the cases that have been taken by the European Commissioner for Competition against Starbucks and others. She showed, for example, that Starbucks’ intellectual property relating to its roasting processes was not based in the Netherlands, as it claimed, and that that was just a ruse to avoid tax.
Bim Afolami
Does the hon. Lady accept that, when we are dealing with the complexity of international tax treaties, judicial precedent and the rule of law, and given that those treaties and lots of judicial precedent were established at a time when we did not have multinationals in the way we do now, it is only prudent to consult properly before we put measures in place? Does she also accept that this Government have been a leader, according to the OECD and the IMF, in dealing with the problem that she outlines, and that she is not being fair at all?
Anneliese Dodds
I am grateful for the hon. Gentleman’s intervention. However, I am sorry to point out that he is slightly behind the times when it comes to the operation of tax treaties. Those are now multilateral, following the development of the OECD’s multilateral instrument, which aims to amend tax treaties for all signatories, including the UK, in a thorough manner.
Bim Afolami
I thank the hon. Lady for giving way again. The whole point is that this is all a work in progress, as she would accept.
Anneliese Dodds
That appears to be a slightly different point from the one the hon. Gentleman was making a moment ago. None the less, I agree that this is a work in progress. Sadly, our Government and Conservative Members in other jurisdictions have not always been promoting that process. I gently remind him that his colleagues in the European Parliament have consistently voted against measures that would increase tax transparency and have consistently not supported attempts to hold inquiries into, for example, the Panama papers and the Luxembourg leaks. I hope that, at some point, they will catch up with the need for more tax transparency and enforcement. Perhaps he could encourage them; that would be enormously helpful.
It is positive to see in this Finance Bill that the Government have adopted some of Labour’s proposed measures in our tax transparency and enforcement programme. They have finally seen the light on giving HMRC back preferred creditor status. They appear to be undertaking some action against umbrella agencies exploiting the employment allowance. They also appear to be looking towards creating an offshore property levy, although it is unclear to me, even following the Minister’s comments, how appropriately that will be targeted, given that it lacks the precision of Labour’s proposed oligarch property levy. But there are few additional measures in the Bill beyond what is already required by either the EU or the OECD, showing an abject lack of ambition and commitment from this Conservative Government.
Underlying all this, as the hon. Member for Glasgow South West (Chris Stephens) said, is the Government’s failure to appropriately staff HMRC to deal with tax avoidance and evasion and their determination to press ahead with its reorganisation, despite evidence that it is haemorrhaging experienced staff. Some additional money has been provided, which the Minister referred to in his speech. However, we still lack clarity on exactly where that money will go. The Government have committed to provide 5,000 additional customs staff. I still do not know where they will go. We are looking at a situation where, due to the regional reorganisation, there will not be a single HMRC hub along any of the south coast or beyond the central belt. Where customs officials will go is very unclear.
In addition, any additional money that is being provided by the Government, or at least much of it, will in any case just backfill what has been sucked out through the recruitment costs necessitated by the need to replace staff who have been lost due to the reorganisation process.
Rachel Maclean
The hon. Lady is painting a very negative picture, which I think is a shame. She should give this Government some credit for the fact that they have collected £71 billion more tax than would have been the case, given the tax regime, under Labour. That is £71 billion that has been collected. We all want to go further, but will she not welcome that money, which has gone into our public services?
Anneliese Dodds
I discussed a few moments ago how many of those measures are in fact disputed. It would be interesting if the hon. Lady could break down that figure. I suspect many of us would not agree that it reflects an accurate representation of the tax lost. In fact, as I mentioned, when profit shifting is taken into account, that figure is likely to be much larger.
I am very positive about the potential of our economy, and the potential of our tax officers, but I think they are being presented with an impossible task. I have talked to many of them—dozens of them—and they are very concerned about the future. They want to do a decent job, but they are being prevented from doing so a lot of the time, sadly, due to the Government’s determination to press ahead with this reorganisation programme.
Eddie Hughes
Is the hon. Lady aware that, following the Government’s consultation on their intentions for an increased tax take on intangible assets, they have introduced an allowance of £4 million to make amendments to computer systems and to employ more staff so that they can monitor compliance with these new tax regimes? Will she welcome that?
Anneliese Dodds
I am grateful to the hon. Gentleman for his intervention but, as I have said, some of the new staff coming in are replacing other staff who have been lost. In fact, when we look at those data, we see that over 17,000 staff years of experience in HMRC have been lost through redundancy. I find that many more experienced specialised staff are talking about leaving our Revenue in the future if the Government press ahead with their reorganisation scheme.
Mr Jim Cunningham (Coventry South) (Lab)
We have raised this many times and the hon. Member for Glasgow South West (Chris Stephens) has raised it as well. The Government are reducing the number of tax offices, in actual fact. They are closing the offices in Coventry. I do not know about the constituency of the hon. Member for Walsall North (Eddie Hughes), but people are having to go a long distance—16 miles to Birmingham—to deal with their tax problems.
Anneliese Dodds
As always, my hon. Friend has made an important point. We are seeing the loss of many experienced staff in these offices, which is not only a problem for HMRC, but an enormous problem for local economies.
Over the past couple of months, I have visited 10 of the locations where HMRC offices have either already closed or are set to close, and I must say that there is huge concern about the implications for those local areas. They are often ones where it takes a long time to travel to other destinations and where it is impossible to travel to work to the new regional centres. As a result, we are losing much expertise within our Revenue service.
That is reflected in the statistics from surveys of HMRC staff. We see that HMRC staff morale is incredibly low, but we have no recognition of that by the Government or any understanding of the implications of that for the services that HMRC provides. Indeed, as Members have mentioned, that would become even more of a problem if HMRC had to attempt to sort out the customs and VAT chaos that would be caused by a no-deal Brexit.
Our uncertain future relations with the EU are at the root of the penultimate Opposition amendment that I will speak to, amendment 23. The amendment requires a consideration of the implications for cross-border tax information sharing of no deal and of the Government’s withdrawal Bill arrangements. The European Scrutiny Committee asked for
“the Government’s view on the value of continued UK participation in the wider system of exchange of information created by the DAC Directive”—
the directive on administrative co-operation—
“after the post-Brexit transition period ends, and how it will seek to secure the desired level of cooperation when it becomes a third country for the purposes of EU law.”
The Financial Secretary to the Treasury, who is sitting on the Front Bench again today, sent a letter in response at the end of April. On this point, however, his letter simply said that
“the Government recognises the value of the exchange of information in tackling tax avoidance and evasion and will address procedures for ongoing administrative cooperation, including the exchange of information framework set up—”
under the directive—
“within the scope of the wider EU exit negotiations.”
It is one thing recognising the value of information exchange, but it is quite another ensuring that it will continue. We really need clarity from the Government, not only about administrative co-operation but about other forms of information exchange.
For example, will the Government continue to participate in the code of conduct group, potentially with observer status? I have asked about that repeatedly, but as of yet I have received no answer. Will we participate in the pan-EU database including information about trusts, which I referred to and which is due to be created as a result of the new iteration of the anti-money laundering directive? Will we continue to share information about tax rulings, those sweetheart deals concluded between HMRC and large taxpayers, which are not available to smaller taxpayers and which in some cases have rightly caused uproar when details of their provisions have leaked out?
The hon. Member for South Suffolk (James Cartlidge) referred to the need for a level playing field. Surely that applies in spades when it comes to transparency on tax rulings, so I am very disappointed that his Government have not yet provided that transparency. It is not clear how they will share that data with the EU27 in the future.
The Conservatives’ mood music on this issue so far has been worrying. Not only has the Chancellor damaged relations with the EU27 by threatening to turn our country into a tax haven, but his party’s MEPs—[Interruption.] He has. A number of Government Members are claiming, from a sedentary position, that that never happened, but many Opposition Members will recall precisely when he made those kinds of threats. I have talked to many colleagues from different political parties in EU27 countries who viewed those comments—
Anneliese Dodds
I will give way when I have finished my sentence. I am so pleased that the right hon. Gentleman is so excited about participating in this debate. As I have said, I have talked to many politicians in EU27 countries who interpreted those comments—discussing a shift towards a Singapore-style model—as a threat. Of course, often when Government Members talk about a Singapore-style model, they omit to mention the huge amount of social housing, for example, in that nation, and other aspects of its business model. I suspect they have a rather different approach in mind when they talk about it.
Sir Hugo Swire
The hon. Lady, who speaks for the Opposition, said she can specifically say when my right hon. Friend the Chancellor made these assertions or claims. When were they made?
Anneliese Dodds
I would be more than happy to look up that reference and send it to the right hon. Gentleman immediately. I regret that he cannot remember his own Chancellor’s words and that he is unaware that there have ever been comments from his Government suggesting that the UK may at some point shift towards a Singapore-style model. I regret that he is unaware of the comments that have so soured our relationship with the EU27, because I know that they have caused enormous problems for us. They have presented a picture of our country as seeking to undermine and undercut tax arrangements in the rest of the EU27. For that reason, it is enormously important that those comments should be counted.
If the right hon. Gentleman believes that his Government will no longer use that threat, I will be very pleased to hear it, and I would suggest that he perhaps has conversations with those members of his Government who have advocated that point of view.
Anneliese Dodds
I will not give way, because I fear that the Committee is losing patience with the length of my comments. [Hon. Members: “More!] It is wonderful to see so much interest in the topic of taxation; I only wish that were always the case.
The Conservatives’ mood music on this issue has been worrying, as I have said. As I have referred to previously, the Conservatives’ MEPs have consistently either voted against or abstained on EU-level measures to promote tax transparency, and the Conservative Government were, sadly, unwilling to meet representatives from the European Parliament’s Panama papers investigative committee when they came to the UK.
Our amendment 23 would force these issues into the open and require a proper consideration by Government of how they could act to ensure proper data sharing, in order to combat tax avoidance and evasion. It is paralleled by our amendment 19, which would require the Government to undertake a review of our controlled foreign companies regime, with particular consideration of how it would be affected in the event of a no-deal Brexit.
The Conservative Government appear to treat countering tax avoidance as a game of whack-a-mole, rather than the long-term strategic approach that is surely required. As a result, we wish to press new clause 5 and amendment 23 to a Division.
In conclusion, the Government have no long-term plan for protecting the revenue on which our public services rely and appear to have no clear idea of how they will co-ordinate, or otherwise, our measures on tax avoidance with the EU27. A different approach is needed and my party stands ready to implement it as soon as we get the chance.
Chris Philp
My hon. Friend is quite right. Having low and competitive rates of tax does attract people to this country, who then pay corporation tax they otherwise would not pay. I will come on to precisely that point in a few moments.
The reason I was explaining why it was not surprising that our tax gap has reduced is that the Government have taken quite a large number of measures to combat tax avoidance and tax evasion since 2010. In this Budget alone, there are 21 such measures. I was rather disappointed that by voting against the Budget on Second Reading, Opposition Front Benchers were expressing their disagreement with those 21 anti-avoidance and anti-evasion measures.
Anneliese Dodds
I fear, very sadly, that the hon. Member did not hear what I said on that point earlier. It is because those measures are far too weak and do not go far enough that we are voting against them. I set that out very clearly in my previous remarks.
Chris Philp
I am not sure that that is a very good basis for voting against something. A move forward is a move forward. I have yet to hear a detailed and coherent set of proposals that would take these measures further forward. I am sure that those on the Treasury Bench are always eager to receive ideas on measures that would raise revenue. If the hon. Lady wanted to propose ideas on the Floor of the House, I am pretty sure she would find a ready audience. One such measure, the diverted profit tax, has directly raised £700 million since 2015. In addition, it is interesting that businesses talk about not just the direct effect of the diverted profit tax. Some companies, realising that they might be caught by the diverted profit tax, choose to change their behaviour and effectively choose to pay ordinary corporation tax in a more compliant way. That does not appear in the diverted profit tax figures, but it is none the less successful in changing behaviour.
Anneliese Dodds
I am very grateful to the hon. Member for giving way; he is being very generous. I would like to mention, however, that I did refer in my speech to Labour’s tax transparency and enforcement plan. In fact, I referred to three cases where the Government have rightly learned from that plan, which is fabulous, and are either completely or partially adopting some of our suggestions. There are, however, many other areas where they need to take action. They should look at our plan and learn.
Chris Philp
The fact that the Government have adopted three measures shows that they are not only a Government who listen and adapt, but a Government who have taken more than 100 anti-avoidance and anti-evasion measures since 2010. That is a record the Government can be proud of, although there is always more that can be done. I will come on to one idea later.
The hon. Lady suggested in her very long and at times entertaining speech—perhaps inadvertently entertaining, but it was entertaining—that the Government had not shown leadership in the area of organising international co-operation to combat tax evasion. She also said it was a concern that we are leaving the European Union as we might lose that as a forum in which to combat tax evasion and tax avoidance. The most effective forum is the OECD’s BEPS initiative—the base erosion and profit shifting initiative. The UK Government have been a leader in this area—for example, on action five, which limited the deductibility of interest payments against corporation tax. That is another area where the UK Government have shown genuine global leadership.
Chris Philp
My hon. Friend is right to draw attention to the way in which very favourable tax systems can indeed attract companies to this country. We should be proud of the fact that we are attracting the world’s leading companies to the United Kingdom.
I am sorry to refer to the speech by the hon. Member for Oxford East so often, but it was a very full speech and there was a great deal to reply to. She suggested that the Chancellor of the Exchequer said that our plan was to become a tax haven. He never used the words “tax haven”, but he did say that we could be a tax competitive economy. There is nothing to apologise for in saying that we will be a tax competitive economy and attract companies to locate here. If there is a tax haven in Europe, it is Luxembourg, so the hon. Lady should reserve her ire for that jurisdiction.
Anneliese Dodds
I am very grateful to the hon. Gentleman for giving way; he is being very generous. I have not been reserved in showing my ire for Luxembourg; in fact, I have campaigned for a long time in relation to its tax practices. I am very glad that he has given me the opportunity to respond on this point, because I looked up exactly what the Chancellor did say. He was asked by the newspaper Die Welt in January 2017 whether the UK would become a “tax haven” for Europe, and he responded that the UK could be “forced” to abandon its European economy with European-style taxation. When the Prime Minister’s spokesperson was asked if she agreed with this assessment, she confirmed that the Prime Minister was in agreement and would stand by him.
Chris Philp
The words “tax haven” were not his, and what he clearly confirmed in response was the he intended to create a tax competitive economy, which we can all be proud of, and I will certainly support him in creating it.
I feel that I should move on—although I will happily take more interventions—to new clauses 14 and 15, which were spoken to by the hon. Member for Glasgow Central (Alison Thewliss), the SNP’s Front-Bench spokesman. In her speech, she drew attention to the importance of transparency, and she was right to do so. We have already made significant moves on limited companies and limited liability partnerships. Persons of significant control now have to be disclosed on the Companies House register, and I fully agree with her that that should be comprehensively enforced.
Finance (No. 3) Bill
Anneliese Dodds ExcerptsMonday 19th November 2018
(7 years, 2 months ago)
Commons ChamberRead Full debate Finance Act 2019 View all Finance Act 2019 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 19 November 2018 - (19 Nov 2018)
Rachel Maclean
I am sorry but I will not give way. I only have a couple of minutes left. Please forgive me.
The movement on the tax thresholds is a fundamental point at the heart of our Conservative philosophy, which is freedom of the individual to spend their own hard-earned money how they wish. What this Budget and this Finance Bill are doing is taking people out of tax. A basic rate taxpayer will pay £1,205 a year less than in 2010, when Labour left office, and that is, effectively, a pay rise for those people, leaving them with more money in their pockets.
Let me say this to the Opposition: they often talk about how they want people to pay more tax. Well, people are free to pay more tax voluntarily, but, surprisingly enough, that is not often what people do. What we do see as a result of our tax policy of lowering tax rates is a greater tax take coming into the Exchequer. We see that fundamental principle illustrated time and again because of the policies advocated and enacted by the Government. It is right to lower the tax thresholds for low and middle-income earners. In fact, the shadow Chancellor and the shadow Chief Secretary do not even oppose that; they agree that we should keep those tax thresholds low. We need look no further than corporation tax, as those receipts are up 50% to £53.6 billion because of the lowering of the rate that has happened under this Government. That is £53.6 billion more for this Government to spend on strong public services up and down the country.
Anneliese Dodds (Oxford East) (Lab/Co-op)
Surely, the hon. Lady is aware that just about every analysis that has been done regarding the reason for the increase in corporation tax revenue says that it is due not to the reduction in rates, but to factors such as the banks’ return to profitability after the financial crisis, so it is not right to link the two.
Rachel Maclean
I do not accept those comments because we have seen new businesses in my constituency and in the constituencies of many other hon. Members. In Redditch, we have record rates of business start-ups because of measures in this Budget, this Finance Bill and other Budgets. I am a great supporter of the Bill because it will drive more revenue into the Exchequer that I would like to see spent on strong public services in Redditch.
Vicky Ford
I too wish to speak about clause 89, which allows the Treasury to make minor amendments to tax legislation after we have left the EU.
EU tax issues are often extremely controversial. I think back to EU tax decisions I have seen in the past, such as the decision not to introduce a financial transaction tax, which this side of the House always strongly objected to but the other side would strongly have proposed at a European level. We objected to it because we felt it would have unintended economic consequences. Then there were the changes to the VAT MOSS—mini one-stop shop—situation for digital tax for small businesses. These decisions were taken without deep consultation or deep impact assessments, but were then found to have a huge number of unintended consequences. There were also the controversial issues to do with VAT on tampon taxes that sometimes came back.
Anneliese Dodds
It is important that Members are not misled, and it is important to say for the purposes of accuracy that a number of EU countries are looking to move forward with a financial transactions tax through the open method of co-ordination that I know the hon. Lady is very well aware of through her expert knowledge of the EU.
Vicky Ford
That brings me back to the point I was making: EU taxation matters can be hugely controversial, partly because decisions affecting tax at an EU level are often unanimous decisions, and therefore it would be very difficult for one member state to change them if a decision has gone wrong. Because they are so controversial it is worth thinking about the delegation of powers given to Ministers here. Indeed, during my time looking at European matters, I long argued for the concept of better regulation before decisions were made. People should be consulted and impact assessments published. Only after the assessments have been made public and the views of stakeholders who might be affected taken into consideration should decisions be made.
That is why I sit on ESIC, the European Statutory Instruments Committee, to which the hon. Member for Aberdeen North (Kirsty Blackman) referred. It was a Committee that I argued we needed. She suggested that when it decides to change a negative instrument to an affirmative instrument, that is because of some controversy with the Government’s decision, but by establishing that Committee, under the excellent chairmanship of my right hon. Friend the Member for Derbyshire Dales (Sir Patrick McLoughlin), we can ensure extra transparency in these complex decisions. I genuinely believe that we should think carefully before giving delegated powers to Ministers. However, clause 89 is very much about making minor decisions. It is tightly worded, and I do not believe that the amendments tabled by Opposition Members are necessary, as they would cause over-complexity. Amendments under clause 89 would be necessary, were we to leave the EU without a deal.
I am absolutely convinced that leaving the EU without a deal is not in the interests of this country, and I am glad to hear Ministers confirm that. However, I would also be glad to hear Ministers confirm that they will give Members a great deal more detail about the impact assessments of a no-deal scenario and a deal scenario, and also how that compares with remaining a member of the European Union, before our final vote on the withdrawal agreement, so that we can all be fully apprised of the impacts and make our decisions wisely.
Draft Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018
Anneliese Dodds Excerpts(7 years, 2 months ago)
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Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to serve with you in the Chair, Mr Bailey, and to be sitting across from the Minister once again—it is not the first time I have done so in recent weeks, and I am sure it will not be the last.
As the Minister rightly described, this delegated legislation follows on from the Financial Guidance and Claims Act 2018. Clearly, we are not discussing that Act today— we are focusing on the provisions of the order—but I did note that the Minister mentioned cold calling only right at the end of his remarks. Of course, while we are discussing regulatory arrangements and regulatory responsibility, we need to talk about exactly what the responsibilities could be and not just who will discharge them.
A huge element of debate when the 2018 Act was going through the House was about when a ban on cold calling would be implemented. That surely is the elephant in the room when we are talking about this issue. The Minister referred to the activity of the ICO in relation to cold calling, but in the Public Bill Committee a number of hon. Members stated why they felt that the current regulatory regime was not fit for purpose in that regard. It would be very helpful to me, and indeed to other members of this Committee, if the Minister could please indicate exactly what his Department has been doing to move us towards a cold calling ban. We have discussed many times appalling cases in which vulnerable people had been targeted by CMCs, often through cold calls, so I hope that the Minister will return to that issue in a moment. [Interruption.] I am grateful to him for saying yes from a sedentary position and being willing to comment on it.
As the Minister explained, the draft order essentially transfers regulatory responsibility for the activities of CMCs to the FCA. That appears to be appropriate. The measure specifies exactly which forms of activity will be regulated. As the Minister rightly said, it will give us a more finely grained regulatory apparatus, which appears to be highly sensible. Of course, we are talking about some companies that in recent years have made enormous profits—super-profits, some might say—in respect of certain types of claims. I am sure that all of us, as Members of Parliament, have been approached by constituents who believe that they have not been treated correctly by claims management companies, and many of the cases involve a lack of communication.
Of course, on the other side of the coin, CMCs have taken aggressive action to push on to people the opportunity to make a claim, whether that is legal or not. In that regard, it is worth reflecting on what has happened in relation to travel claims, especially for holiday sickness, which have increased fivefold since 2013. Arguably, that is having an impact on the price of holidays in some sectors, which affects everybody, whether they have engaged in that activity or not, so it is right that we take action and beef up the regulation.
I have two questions about how exactly the Government envisage the new scheme operating. First, on the transfer of regulatory responsibility, the Minister set out that there will be an interim regime, but I want to focus on how that will be funded. In particular, how will the skilled staff that we surely need to discharge the regime be brought into the FCA? As I understand it, the scheme will be self-funding through the mechanisms detailed in the 2018 Act, so the £60 million or so that it will cost to deliver will be raised from the claims management companies. As the Minister mentioned, however, the new regime starts on 1 April, so how will the FCA obtain the funds in the interim? Are we confident that it will have sufficient funds?
The FCA is being asked to adopt a new responsibility at the very time it might have to deal with a very high regulatory workload in the case of a no-deal Brexit, as we have discussed in this room many times. It would be useful to hear how that activity will be paid for and resourced in the run-up to the start of April. It would also be helpful to hear more from the Minister about how the FCA’s activity in this regard will be scrutinised and overseen by his Department and in the House. We are talking about the FCA being able to put caps on fees for CMCs, which I am sure many of us would strongly support, but how will that process of oversight operate?
Secondly, the Minister rightly mentioned that not all actors delivering claims management will be specifically covered by the FCA’s regulatory regime. He mentioned the situation for solicitors, but in that connection we could also have discussed the situation for others in the legal profession, as covered by the Law Society of England and Wales and the Law Society of Scotland—the hon. Member for Airdrie and Shotts may well speak to the regime in Scotland. I would find it helpful to hear from the Minister—perhaps through a letter if he cannot talk about it in Committee—what discussions the Government have had with those actors.
Some of us might say that the responsibilities placed on the shoulders of some of those bodies, for example in relation to money laundering, have not always been discharged to the fullest possible extent. I appreciate that the Government do not want to tread on professional toes, but surely we need to find out about the engagement that is going on, if any, to try to ensure that those bodies discharge their responsibilities appropriately.
John Glen
I thank the Committee for the serious questions and the range of issues raised. I will do my best to respond to all the questions. I will start with the hon. Member for Oxford East, who asked about progress on the cold calling plan. The Chancellor announced it in the Budget and laid a statutory instrument two days later banning cold calling in relation to pensions. It will be debated later in the year and hopefully will be in force early in the new year. I texted her counterparts on the Labour Front Bench to make them aware of that.
Anneliese Dodds
I am grateful to the Minister for enlightening us on that. However, we are talking about claims management rather than pensions.
John Glen
I will move on to that in a moment. I also want to touch on the point about the ICO as an enforcer, and why not the FCA. There are two debates here. The hon. Member for Garston and Halewood asked about the FCA’s suitability. One issue that has come up—my hon. Friend the Member for South Norfolk mentioned it as well—is the ICO’s experience and powers to enforce the restrictions on CMC cold calling. The ICO can levy fines of up to £500,000 for breaches of the Privacy and Electronic Communications (EC Directive) Regulations 2003. It has the international reach to enable enforcement action when companies are operating abroad, and perhaps calling my hon. Friend.
The ICO and the FCA work together to establish whether the claims management company has FCA authorisation to carry out marketing activity. The FCA will be able to consider whether the CMC is in breach of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and will sanction appropriately. It is really about the concentration of the FCA’s skills and experience in this domain.
John Glen
I will move on sequentially through the points made.
On the question about why the Government are not banning all cold calls, which I think is behind all this, we are determined to tackle CMC cold calling and pensions cold calling, but a balance needs to be struck between ensuring that consumers are adequately protected and providing the right conditions for the legitimate direct marketing industry to operate. I recognise that there is a debate about the extent of the coverage and which sectors should be covered, but we took a view about what should be included at this time so that we could make progress and lay the order. We are actively prepared to consider further sectors that should come under the order.
The hon. Member for Oxford East raised the issue of the interim regime’s funding. The FCA is making a one-off levy from April 2019, and it will continue to collect fees from industry. Having recently closed a fees consultation, it will release a policy statement later this year about the funding mechanism for that transition period.
Anneliese Dodds
I asked specifically about the resources available to the FCA for creating that interim regime at a time when it is under enormous pressure in other ways. Is it to be expected to fund all that through its existing budget and receive that levy only after 1 April? Surely that could pose some problems.
John Glen
The FCA has made provision for the funding of the activity, and it will make a policy statement later this year about how it will work after April.
I was asked about the impact of new FCA regulation on the fees, so I will give more detail. To cover the costs of the transfer, the firms will be required to pay a one-off levy spread over two to three years, which will be collected by the FCA. Clarification will be given later about the regime following that.
On the point about solicitors’ exemption, which goes to the point about regulatory arbitrage raised by my hon. Friend the Member for South Norfolk, there are strict controls in professional regulation under the SRA. The intention has been to have a tougher regulatory regime for CMCs without burdening solicitors with unnecessary regulation, because we believe that they are robustly regulated. Whether the two are aligned is a legitimate issue that needs ongoing review. We are concerned about the risks. The order is designed to close the potential loophole through a provision that removes the exemption for legal professionals if their claims management activity is not part of their ordinary legal practice. That is what has been happening: they have not been subject to FCA oversight because, in effect, they have been doing something that they could say was under their regulator but that the FCA has nothing to do with.
The FCA and SRA have therefore committed to reviewing their memorandum of understanding where it sets out how they will work together, to ensure that the regulation is effective and avoids precisely the matter that my hon. Friend raised.
In relation to FCA scrutiny, there is a statutory duty on the FCA to report to the Treasury, and that will cover CMC activity. The FCA will do that regularly—on an annual basis. Additionally, there are informal, three-weekly conversations between me and the FCA, and obviously I will be subject to scrutiny in the House. That mechanism is a real one: I am obviously pushing the FCA to get this right and it is keen to get it right.
The hon. Member for Airdrie and Shotts asked about the conversation with the Scottish Government. During the passage of the Bill that became the Financial Guidance and Claims Act, the Scottish Government confirmed that it would be proportionate and relevant to bring Scottish CMCs within regulation. This Government have had further, ongoing discussions with the Scottish Government and the Law Society of Scotland throughout the drafting of this legislation, and we are very happy that they are, obviously, included in it.
My hon. Friend the Member for South Norfolk asked about the current status of someone making a cold call. The 2018 Act prohibits anyone from making an unsolicited marketing call in respect of claims management activity. As I have said, that is enforced by the ICO, which has the power to levy large fines and has international reach. Under this statutory instrument, any advertising of claims management services must have prior authorisation by the FCA. Breaching the regulations and failure to have FCA authorisation will be an offence. There has been greater clarity about telephone numbers having to be published, but the ICO is the place where my hon. Friend could take the calls that he is facing.
Anneliese Dodds
I am grateful to the Minister for being so generous with his time. May I try to clarify something? Surely we are talking about two different forms of authorisation. This may have been in the Minister’s mind anyway when he was talking; I am not sure. There is authorisation by the regulator, but also by the person who is being rung by the claims management company. Surely they are two quite different things.
John Glen
Somebody should not be called unless they have given explicit permission to be called, so it is an illegal act if that permission has not been given.
My hon. Friend the Member for South Norfolk asked whether this regulation covers banks. No, they will be covered by their FCA authorisation and supervision, so they are covered but not under these provisions.
Draft Double Taxation Relief and International Tax Enforcement (Guernsey) Order 2018
Draft Double Taxation Relief and International Tax Enforcement (Isle of Man) Order 2018
Draft Double Taxation Relief and International Tax Enforcement (Jersey) Order 2018
Anneliese Dodds Excerpts(7 years, 3 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to serve on this Committee with you in the Chair, Mr McCabe. I am grateful to the Minister for his explanatory comments, but I am afraid that the Opposition cannot support the treaties in their current form.
Let me say at the outset that the Opposition’s concern about the treaties is in no way a reflection of our overall view of the Channel Islands, with whom we are determined to maintain a cordial and respectful relationship, building on our important historical and contemporary ties. Nor would the Opposition view the previous double taxation agreements as fit for purpose. They were not, although there appears to have been confusion in that regard on the Government side. I will return to that later.
Our opposition to the treaties is motivated instead by a deep concern about the lack of appropriate engagement by the Government in advancing the cause of tax transparency, which at rhetorical level they are committed to, but which time and again they seem sadly to have resiled from in practical terms. During debates on the Sanctions and Anti-Money Laundering Act 2018, the Opposition prepared an amendment requiring Crown dependencies to introduce public registers of beneficial ownership, but we were persuaded by Ministers that they were working with Crown dependencies to achieve transparency through other means. The amendment was therefore withdrawn.
What has happened in the intervening six months since the beginning of May? It looks as if even the Government’s responsibility to require overseas territories to introduce public registers of beneficial ownership has floundered. The Government are obliged to do that now by the will of this House, given that the amendment to that intent passed. I understand that there has been one conference call with the overseas territories, and that appears to have been in relation to what the Government are committed by this House to achieving regarding promoting beneficial ownership registers in the overseas territories.
When it comes to the Crown dependencies, the Government appear to be shutting the door on transparency with these treaties, which is unacceptable. From what I can see, the previous tax treaties with the Channel Islands covered only income tax and corporation tax, not information exchange. There was a separate agreement on the latter, signed in 2013 as an exchange of letters, although that does not seem to have been enacted. As an aside, it would be quite interesting to hear from the Minister why that is the case.
Information exchange is now included within the tax treaties, as one might expect given the OECD’s focus on this area and the fact that, as the Minister indicated, the treaties are modelled on the OECD’s multilateral instrument for amending tax treaties. Given that information exchange was a subject for negotiation as part of the treaty process, and given previous assurances, one would have expected our Government to seek to include an increase in transparency for beneficial ownership registers within the negotiations. However, article 26 in the Jersey agreement, replicated in those with Guernsey and the Isle of Man, states:
“Any information received under paragraph 1”,
which contains the provisions on information exchange,
“by a Territory shall be treated as secret”.
That, coupled with the fact that there is no mention elsewhere in the treaty text of public registers of beneficial ownership, appears to close the door on transparency, rather than open it in the manner that the Government committed to doing.
Alex Cunningham (Stockton North) (Lab)
The pensions industry is probably one of the most secretive as far as costs and transparency are concerned, although the Department for Work and Pensions and the Pensions Minister have done tremendous work to try to increase transparency. There is a lesson there for the Minister.
Anneliese Dodds
I am grateful to my hon. Friend. He makes the serious point that we have seen transparency moving forward in many areas, yet with these treaties we appear to be moving backwards.
The Government may say that they began negotiations on the treaties in April 2016, as reported by the then Minister responsible, Jane Ellison, but the fact remains that they were not signed until 2 July this year—after the Government had given an assurance that they would work with the Crown dependencies towards public registers of beneficial ownership. We often hear the Government say that they cannot force either the overseas territories or Crown dependencies to do anything at all. I resolutely state that we must do all that we can to support our friends in the overseas territories and Crown dependencies.
I have frequently met with politicians from both groups of jurisdictions, and I respect their efforts in the field of promoting clean financial services and in many other areas. Many people in both groups of jurisdictions now recognise that the writing is on the wall when it comes to excessive secrecy in the financial sector. More transparency is coming, and it is only a matter of time before it will become the international standard. The British Government must play their part in that.
The treaties were the perfect opportunity for our Government to seek to work with the Crown dependencies to promote public registers after previous commitments to do so, yet that opportunity seems not to have been taken up. It would have been perfectly possible for our Government not to have concluded the treaties until public registers were agreed to, but they chose to ignore that pressing need. Similarly, the Government failed to use the opportunity of the Building Societies Legislation (Amendment) (EU Exit) Regulations 2018 as a means to require change. Instead, the current relationship between the UK and the Crown dependencies is maintained in those regulations without any conditions attached whatsoever.
That is all in the context of the Government acting to defend the interests of UK-linked territories—or what is portrayed as their interests; I would argue that in the long run they are not—when it comes to the secrecy of financial activities. I have previously used freedom of information requests to try to get to the bottom of the lobbying that our Government have undertaken on behalf of overseas territories and Crown dependencies concerning the EU’s tax haven blacklist. Eventually that hit a brick wall, when those matters were classified as “diplomatic” and therefore not open to FOIs. The Süddeutsche Zeitung newspaper was rather more forthcoming, however, when it reported in March that the UK Government had intervened in the blacklisting process, in that case to try and stop the British Virgin Islands being blacklisted.
The British Government cannot have it both ways. They cannot on the one hand argue that they are powerless in relation to our overseas territories and Crown dependencies, and on the other promote a particular view of those territories’ interests—which, as I have said, I do not think are their long-term interests—to other actors such as the EU. Those positions are just not compatible. It would be helpful to hear the Minister’s view on why these treaties do not conform with previous commitments made by the Government with respect to public registers of beneficial ownership for our Crown dependencies.
The Minister will be aware of the eurobond exemption, which has been estimated to lose the Exchequer around half a billion pounds a year in tax revenue. The Channel Islands stock exchange is a recognised stock exchange under section 841 of the Income and Corporation Taxes Act 1988. Securities listed on that exchange enjoy exemptions from withholding tax even though they may be held by opaque companies. A UK company, for example, would make interest payments gross, without any withholding tax, while in many cases the recipient would arrange their tax affairs in such a way that they could escape tax altogether. I understand that, back in 2012, HMRC itself suggested that that could be restricted, so that the connected parties could no longer benefit from the exemption. My party also adopted that position at the time. The Government’s argument against it was that issuers, paying agents and clearing systems for eurobonds might not be aware of who noteholders are or whether they are in the same group as the issuer. Essentially, they would be unable to work out if they were connected parties. It would be good to hear from the Minister whether that matter even came up during discussions about these treaties and, if so, what the treaties do to prevent that kind of distortive activity.
It would be helpful to have a clear indication of how the Government view the process for concluding new double tax agreements. I noted when we ratified the OECD’s multilateral instrument that it did not result in a commitment to alter our treaties with Jersey, the Isle of Man or Guernsey. On that occasion the Minister replied to me:
“The hon. Lady asked why we do not include all the DTAs. She is absolutely right that the UK has a large number—from memory, I think it is around 130—and about 121 will be potentially covered by this measure. The answer is that, in some cases, the DTAs largely conform to the changes that would be introduced were they to be subject to the MLI. In some cases, it is not necessary, as our treaty contains substantial provisions. Our first-time DTA with Colombia would be one example.”—[Official Report, Third Delegated Legislation Committee, 9 May 2018; c. 8.]
That seems to be out of kilter with what has occurred with these treaties, which did not cover many of the measures covered by the MLI, such as royalties or capital gains tax—the treaties and the MLI have very different formats. Now that we see a different approach from what was initially suggested for the Channel Islands DTAs, I would be interested to learn what will to happen with the remaining DTAs, which cover Austria, the Falkland Islands, the Faroe Islands, Switzerland and the United Arab Emirates. Interestingly, the protocol to the Swiss DTA was concluded in 2017, but is still not in force, and it is not clear when it will be brought to the House. It would be interesting to hear from the Minister about progress in that regard.
To conclude, sadly we do not feel that we can accept these treaties. They appear to go against commitments made to the Opposition that the Government would continue to work extensively with our Crown dependencies towards having public registers of beneficial ownership. For that reason, we will be voting against the orders today.
Mel Stride
I thank the hon. Members for Oxford East and for Aberdeen North for their contributions to this important debate. I always expect a rattle gun of deep and technical questions from the hon. Member for Oxford East, and I was not disappointed. I will endeavour to answer as many questions as I can, and on those I cannot answer, I am happy to write to her in due course.
The hon. Member for Oxford East raised a lack of engagement, as she termed it, with the treaties that we are scrutinising. I took that to refer both to matters of transparency, on which she elaborated at some length, and also the scrutiny of the treaty, which is an issue that she has raised in relation to other DTAs that we have debated in Committee. I hope that she therefore welcomes the fact that we have made improvements, for example to the information memorandum, which now points out the differences and changes between the 1950s and the later iterations of the treaties and, indeed, the treaty to which we have been asked to give our consent.
I shall make the general points that I usually make on scrutiny. International treaties are complicated negotiations and do not necessarily lend themselves, nor would it be appropriate for them to do so, to discussion and rumination, as the hon. Lady may be seeking. The treaty was published in July this year, so there has been plenty of time to review it. Of course, these international agreements go through the process that we are going through at the moment, giving this treaty scrutiny.
I appreciate that the transparency debate is a hook on which one could add the whole issue of the public registers of beneficial ownership, about which we have had various parliamentary debates. The hon. Lady knows the Government’s position in that respect. It is important to stress that we have a common reporting standard between Her Majesty’s Revenue and Customs and the tax authorities of the three other jurisdictions in question, so we do have an exchange of information relevant to tax affairs between our two authorities, which is an important tool in clamping down on avoidance, evasion and non-compliance.
The hon. Lady asked specifically why we did not insist on the treaties containing a provision that public registers be set up. I think the answer to that is that these matters are outside the general context of these treaties. In addition, the treaties are entered into by bilateral agreement, and I think if we had insisted on that—indeed, had it been our desire to insist on that at this moment—it is unlikely that we would have had the improved version of the treaties that we are discussing today.
Anneliese Dodds
I am grateful to the Minister for giving way, but surely these treaties contain provisions that make it less likely that such a public register, which the Government committed to, will be set up, because they include the commitment to keeping information secret. It is just that these treaties do not include reference to public registers, which one would have expected if the Government were working on this, as they committed to do, to the Opposition; it is also the fact that they include a commitment to keeping information secret, which goes against what the Government said in this House that they would do.
Mel Stride
I do not think that these treaties require further secrecy than the appropriate confidentiality, as some might term it, of information that is, after all, highly sensitive; it involves the tax affairs of individuals and businesses between our various jurisdictions. It would only be right that confidentiality is respected in those circumstances.
Anneliese Dodds
I am grateful to the Minister for that clarification. However, we were just talking about having a register that is similar to the UK register, which is public, and surely any concerns about confidentiality have already been dealt with in our own jurisdiction.
Mel Stride
I had understood the hon. Lady in her earlier intervention to be suggesting that the treaties would make a move to public registers of beneficial ownership less likely. To the extent that I do not think they impose any additional confidentiality on the exchange of information over and above what was there before, I do not think that argument holds water, with respect to her.
On the information exchange issue that the hon. Lady raised, the agreement contains a new “assistance of collection of debt” provision, compared with the agreements that it supersedes. I hope that she would welcome the information requirements around that, and the fact that we can now actively seek the assistance of those jurisdictions to collect tax debt, for example.
On the general issue of anti-avoidance, as all Committee members will know—because they follow these affairs in intricate detail, as they have done during this debate—we have very much been in the vanguard of BEPS programme in the OECD. Members may see the footprints of that in these treaties through the main purpose test, to ensure that we do not have companies or individuals exploiting the tax advantages around these treaties for no other reason than to avoid or reduce their tax liability. Of course, in respect at least of the interest on royalty payments, as distinct from dividend payments, there are different categories of entity, and various tests accordingly that will be required to trigger the reliefs in that respect.
The hon. Lady mentioned the blacklisting process that is going on at the moment and the UK Government’s involvement. We have been actively involved in discussions with our overseas territories to ensure that we encourage them not to be blacklisted—to ensure that they comply with the EU code group’s provisions.
Finance (No. 3) Bill
Anneliese Dodds ExcerptsMonday 12th November 2018
(7 years, 3 months ago)
Commons ChamberRead Full debate Finance Act 2019 View all Finance Act 2019 Debates Read Hansard Text Read Debate Ministerial Extracts
Chris Philp
The growth in the use of food banks is of course a phenomenon that we have seen across western Europe. After the Budget, people on universal credit will be £630 a year better off than they were before—[Interruption.] The hon. Lady shakes her head, but that is a simple fact: the allowance has been increased. As I was saying a moment ago, the Resolution Foundation has found that the Government will be spending more money on universal credit following the Budget changes than would have been the case under the old benefits system. I would further point out that the track record of getting people off benefits and into work is better under universal credit than it was under the old benefits system. The way to combat poverty and create prosperity is to get people into work.
Anneliese Dodds (Oxford East) (Lab/Co-op)
I am listening carefully to the hon. Gentleman, but he does not seem to be aware that many of the people on universal credit are working.
Chris Philp
I realise that many people on universal credit are working. It is, by definition, an in-work benefit. The point I am making is that it is encouraging more people to take more hours, and it is encouraging people who are not working at all—[Interruption.] I would be happy to take another intervention from the hon. Lady, but perhaps she would like to listen to the answer to her first one. Universal credit is encouraging people who are not working at all to get into work, which is why unemployment is at a 43-year low. A legitimate question that she might ask is whether work is paying enough. This Government have successively increased the level of the minimum wage. This Budget increases it to £8.21 as of next April. That is up from £5.93 in 2010, which is a 38% increase. As I said in my intervention on the Financial Secretary, when we combine that with the increase in the personal allowance, from some £6,500 to £12,500 from next April, the post-tax income of someone on the minimum wage working full time—40 hours a week—has gone up by 44% over that eight-year period. Over the same time, inflation was 25%. So the personal allowance changes and the minimum wage increase have helped people on low incomes more than any other group. That is why income inequality is at a significantly lower level today than it was in 2010.
I turn for a moment to Labour’s plans. Inevitably, they involve spending a great deal of money—more money than contemplated even in the Budget. There is no great merit in spending more than we can afford today if we send the bill to our children and our grandchildren, saddling them with debt and burdening the Exchequer with very high interest charges, which are already high, at some £45 billion a year. As for Labour’s mass nationalisation programme, which it says is fiscally neutral, I point out that the last time we had mass nationalised industries—up to the 1980s—they tended to be grossly loss-making and required taxpayer subsidy, rather than generating revenue for the Exchequer. To assume that a mass nationalisation programme would be fiscally neutral is a dangerous assumption.
It seems to be assumed that the only measure of a Government’s effectiveness—or compassion—is the total amount that they spend. Of course it is important to fund public services properly, but it is the outcomes that matter, rather than the amount of money spent. Gordon Brown’s mistake was always to confuse spending money with success, when what actually matters is outcomes.
In education, for example, 86% of pupils are now in schools rated good or outstanding, compared with 68% in 2010. Notwithstanding any points that may be made about the funding levels in schools—and finding room to spend more is always welcome—the fact is that children are getting a better education today than they were eight years ago, according to Ofsted, which we can agree is an impartial observer. To the extent that the opportunity to loosen fiscally allows us to spend a little more, especially on services such as the police, it will of course be extremely welcome.
When the SNP leader replied to the Budget, he made some points about Brexit and the risks it poses. Some 61% of Scotland’s exports go to the rest of the UK, and only 17% go to the European Union. The single market that is of the most importance to Scotland, by a factor of about 4, is the United Kingdom single market—[Hon. Members: “Hear, hear.”] I see that view has support from my colleagues. That is the single market that the SNP should focus on most, because it is the one on which their prosperity most depends.
As many hon. Members wish to speak, I shall conclude shortly—[Interruption.] However, I would not want to disappoint Opposition Front Benchers by concluding too soon, so before doing so I wish to thank the Chancellor for the business rate change that he announced in the Budget. Cutting business rates for 90% of the high street—any business with a rateable value of less than £52,000—is a welcome move, and will do something to level the tax playing field. High street stores, which use real estate intensively, suffer a tax disadvantage relative to online companies. Online multinational companies also use lawful, but creative mechanisms so that they do not pay as much corporation tax as our high street shops. The business rate cut for smaller shops will really help them and I strongly welcome it.
One measure on entrepreneurship that I commend to the Chancellor for future Budgets is something that is close to my heart. Before being elected, I set up and ran businesses for 15 years. I set up the first one when I was 24 and floated it on AIM four years later—[Interruption.] I thank Opposition Front Benchers for promoting my career, but I am happy where I am. In setting up and growing that business and others, we benefited from all kinds of relief, including the enterprise investment scheme and entrepreneurs relief. I particularly commend the seed enterprise investment scheme, which is very effective in getting money into complete start-ups—companies being started from scratch. It is a very effective tax break for getting individuals to invest in greenfield start-up companies. I should declare an interest as my wife recently set up a company that used SEIS to raise capital. The limit is low—£150,000 per company—but it is very effective in getting individuals to make investments. The fiscal cost is quite low: according to Treasury figures it is about £110 million a year. I suggest that future Budgets may have scope to increase the £150,000 per company limit to encourage further significant investment in start-ups at relatively low fiscal costs—I can see the shadow Chief Secretary getting his pen out to write this down. I commend that idea to the Chancellor for future budgets.
I thank the Chancellor for the welcome business rate cut. I commend him and the Financial Secretary for delivering record high employment, record low unemployment and getting our public finances firmly back under control. Had we listened to the Opposition Front-Bench team, we would still be facing financially ruinous debt bills. It will be my pleasure to vote for the Second Reading later tonight.
Oral Answers to Questions
Anneliese Dodds Excerpts(7 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Hammond
My hon. Friend raises a perfectly legitimate question. This is a complicated area. We are making progress on it and we hope and expect to be able to make an announcement shortly.
Anneliese Dodds (Oxford East) (Lab/Co-op)
Just as the Chancellor’s claims to end austerity already lie in tatters, so do his claims of fiscal prudence, given the Institute for Fiscal Studies’ assessment that the Chancellor took a bit of a gamble with this Budget. Does he agree with the Father of the House that the Budget was based on an
“unexpected surprise”,
and that,
“news about…tax revenues recently may not last”—[Official Report, 1 November 2018; Vol. 648, c. 1099.]?
If so, how worried is he about Standard & Poor’s warnings about the potential for recession if we leave the EU without a deal?
Mr Hammond
The Opposition try to have it all ways. Look, the truth is that our remarkable record in creating jobs—3.3 million new jobs in this country since 2010—forecast by the OBR to continue over the next four years, has led to a boom in fiscal revenues, which we have been able to deploy. The Budget that I delivered to the House last Monday shows debt falling in every year, the deficit falling in every year, and both of those metrics lower today than they were forecast to be at the spring. [Interruption.] The hon. Member for Norwich South (Clive Lewis) says, “Inequality up,” but unfortunately for him, he is wrong. Inequality in this country is lower now than it was under the last Labour Government.