Financial Services and Markets Bill

Debate between Baroness Kramer and Lord Forsyth of Drumlean

Report stage
Thursday 8th June 2023 Lords Chamber

[Lord Forsyth of Drumlean (Con)]

My Lords, I agree with everything that has been said by everyone in the debate so far and support all these amendments. I know that my noble friend Lord Bridges is mortified that he cannot be here today. We discussed the arguments and I supported them in Committee. The noble Lord, Lord Eatwell, is absolutely right about how this would have gone down in the Treasury. But I do not want to be grudging, given the amount of movement that the Minister has been able to achieve as a result of the debate, and the government amendments in this group will make a difference. We are dealing with the old “Quis custodiet ipsos custodes?” problem here. This group of amendments would have taken it a lot further forward, although the government amendments are helpful.

I do not want to anticipate the next debate, but the key question will be, as a number of noble Lords have pointed out, the resource that is made available. If it is not to be through a body such as the OBR, as my noble friend Lord Bridges was suggesting, it will have to be provided by the parliamentary authorities. Whether that will work, and how effective it will be, will depend on the extent to which the Government give a clear indication that they would welcome it, although it would be a matter for the House. I suspect that would be helpful.

I thank the Minister for having listened to the debate in Committee, which we are in danger of repeating, and having taken some measures, if not going perhaps as far as my noble friend Lord Bridges’s Amendment 64 would require. I also thank the noble Baroness, Lady Bowles, for so ably making the case for it.

[Baroness Kramer (LD)]

My Lords, I will speak very briefly. It will be evident to the House by now that, as was true in Committee, essentially every speaker takes one position, other than the Government. Maybe one or two support the Government’s position, but overwhelmingly there has been a common feeling across political ideologies and views. People from different perspectives, including those who are independent in this House, all share the same set of concerns.

We all particularly welcomed the amendment from the noble Lord, Lord Bridges, because it was a piece of completely new thinking—a way to break the conundrum very effectively by making sure that an office of financial regulatory accountability would change the game by providing Parliament and anyone else responsible for scrutiny and accountability with the analysis, information and data they need to do that effectively. I very much hope that the Government will take it away and consider it.

I join all other noble Lords in finding not only the amendments from the noble Lord, Lord Bridges, but those from the noble Lord, Lord Eatwell, and the others in this group extremely constructive. I vary slightly from the noble Lord, Lord Forsyth; I understand that the Government have moved a little in the amendments they have brought forward in this group but, my goodness, it is a baby step. This issue is far too big to be dealt with only by baby steps.

Making Tax Digital for VAT (Economic Affairs Committee Report)

Debate between Baroness Kramer and Lord Forsyth of Drumlean

Monday 29th April 2019 Lords Chamber

[Baroness Kramer (LD)]

My Lords, what a brilliant debate. I almost hesitate to speak for fear of diluting what has really been extraordinary. When a unanimous voice comes with passion from so many Benches, I am sure that the Minister will take on board and take back to HMRC and the Government that this is not a party-political issue or an attempt by one faction to embarrass the Government or make life difficult for HMRC; it reflects a genuine, sincere and deep concern among people who have looked at the powers and the way in which HMRC is implementing programmes and feel that there is a real risk that it is undermining its own reputation, as well as the respect that the collection of tax has within the United Kingdom. That respect is critical if taxpayers are genuinely to believe that, when they are asked to pay, it is on a fair basis and they will get appropriate and fair treatment.

I was privileged to be a member of the finance sub-committee and I thank the noble Lord, Lord Forsyth, for his extraordinary and skilled chairmanship. I know that he does that every time, but it is not an easy thing to do and I hope that he will not mind if we all take this opportunity to thank him for exercising that skill and leadership.

I am also a member of the All-Party Parliamentary Loan Charge Group, which started taking evidence essentially as the sub-committee’s process came to a close. I will try to use some of the information that I have received from participating in those hearings, some of which is quite shocking.

I shall turn briefly to the report on Making Tax Digital. I suspect that everybody would agree that making tax digital over time is entirely appropriate and that it is reasonable to start with VAT. It is a programme that must be implemented well and effectively—but that is not the experience that the sub-committee heard about when it took evidence. My noble friend referred to the fact that nearly 20% of small businesses impacted by this requirement have absolutely no idea, and many more have not been able to access relevant software.

Regarding the cost, I would far rather go with the estimates from the Federation of Small Businesses than with the, frankly, rather silly numbers that we heard from HMRC, which seem to suggest that it is completely out of touch with the real world of software costs in the marketplace. I point out that HMRC has allowed a delay for what it considers to be large and complex organisations—big businesses with a swathe of staff and several departments to take them through this process—while small firms are being told that they now have to report their tax through this new digital process. We understand that there will be some sort of leeway for those who attempt but fail—but, frankly, given HMRC’s lack of ability to relate to or communicate with small businesses, I am not sure that many have a great deal of faith in it.

Communication with that particular group is unbelievably weak. There really is no excuse, because HMRC knows every small business that is liable to pay VAT, so, if it chose, it could communicate with them directly. The answer that we frequently get is that information was put on the website on the “Spotlight” page, as I think it is called. That is considered to be communication, but it makes absolutely no sense. We heard from many people who were represented by accountants and specialists. My great fear—and, I think, that of the committee—is for the many people who do not have that representation and who are completely in the dark. As I said, this ought to be a good programme. It should be on a voluntary basis and have all the time that it needs, but poor implementation undermines what could be a long-term programme of significance.

However, I want to focus much more on the tax powers report. I agree with all those who have raised the extraordinary issue of the denial of rights to appeal accelerated payments notices and follower notices to tax tribunals, and who totally object to the disproportionate penalties for appealing follower notices and GAAR decisions. Justice is fundamental, and I wish that HMRC would understand that and take it on board. I cannot understand the argument for extending the time limit for assessing offshore tax to 12 years. Who in their right mind keeps records for 12 years, particularly on a small property or a few shares? This is nonsensical. HMRC is merely making up for the fact that it has been lax in pursuing cases where it believes that there is something to investigate. It should not be throwing the burden of its own incompetence, I might say, on to the taxpayer.

But I want to talk mostly about the loan charge. I agree with all those who have said that it is the little people who get no understanding from HMRC. In a sense, HMRC has not recognised that this is the pool of people it is dealing with when it comes to the loan charge. Many of the people who ended up becoming self-employed did so because of outsourcing. The majority worked once for local or central government, or for bodies such as the BBC, or even for HMRC. They did not seek to become self-employed. They were told that the only way to do this particular line of work was to become self-employed. Indeed, they were told, “If you want to be recruited, this is the agency we are using. Go to them, they will provide you with the advice and mechanisms to allow you to become self-employed and continue with your job”. This goes all the way from social workers to IT contractors.

HMRC denies engagement in this process but is totally culpable. On the All-Party Parliamentary Group we heard from people who were consultants to HMRC and are now being faced with a loan charge. This is perhaps a very good example, because the individual from whom we got the most detail was told that, to work as a contractor for HMRC, they would have to go to a particular recruitment agency—which had been retained, and was presumably being supervised, by HMRC—that would provide them with various options to enable them to structure themselves as self-employed.

[Lord Forsyth of Drumlean]

I am most grateful to the noble Baroness, and very interested in what she says. As she may recall, we did ask officials at HMRC whether any people involved with it had been involved in a loan charge. At first, the question was not answered. Then, on the second or third occasion, we were told that it was not aware of any evidence of this. So it might be useful to make that information available to HMRC so that we are not misled in the future.

[Baroness Kramer]

I think that the individual has made HMRC aware and happens to have an email trail, which makes the process rather easier to understand. On many of these occasions, people were not told, “You are going into a loan scheme”, or that they were going into some form of disguised remuneration. They were told that there were two or three ways in which they could structure themselves as self-employed. The word “loan” was rarely used. They were told that the advantage of scheme X—it always had a fancy name—was that the administration of it was quite simple. For many people, it was not financially particularly advantageous, because they paid a huge fee for the administration of the scheme: 18% was the standard charge. When that is added to the tax they were paying, they were not taking home more, and they had every reason to think that they were working in an approved situation.

Some people perhaps knew that one scheme was more advantageous in tax terms than another—not everybody is in the same position—but virtually everyone we talked to said that if they had had any clue that HMRC was troubled by this, they would of course have stepped away. When they did find this out, many did step away but were then put into another scheme with similar characteristics. So we have a population here who did not understand what they were getting into. They did not intend this—and intent is significant and important when you go after people for what effectively are their life savings.

HMRC says that it understands about vulnerable customers, but there is plenty of evidence that people have now sold businesses, sold their homes or gone bankrupt. Families have split up because, I am afraid, money can become very significant in shattering a family structure, particularly when someone has to dissolve their whole pension pot to meet a very large bill that comes in over one year. Being told that it could be spread over three years is pretty meaningless because the number is so fantastically large. Many people on the receiving end of a loan charge are no longer employed and have no way to pay.

I was horrified that some of the 70 individuals who submitted evidence to the APPG—I am not sure how many—have actually been called by HMRC, with messages left on their answerphone that have been picked up by business partners and family members who had no idea that there was an issue. We need an answer about that from HMRC. I was even more shocked that on 24 April, giving evidence to the Treasury Select Committee, the Chancellor claimed that the secretariat to the APPG was partly staffed by people who were promoters of loan charge schemes, which was absolutely not true. I hope that that has been retracted by this point in time.

When I pulled these notes together—the situation now may be slightly different—only a single promoter of a loan charge scheme, Hyrax, had been successfully prosecuted, but on the grounds that it breached DOTAS rules, not because it sold the schemes to people. Indeed, it has been allowed to keep its 18% fees that were charged to users. Hyrax’s penalty appears to be a requirement that it discloses the users’ names to HMRC so that they can be pursued. On the six other promoters that HMRC has been investigating, we hear that charges will not be pursued because they did not breach DOTAS; only the users of the schemes will be pursued. As far as I know, no one has yet gone and asked the employers—which ultimately would of course include HMRC, a beneficiary of this move to outsourcing and to self-employment under tax-advantage pricing—and nor do I believe that they have yet gone to local government, to central government departments or to the various public bodies.

Surely this is a real abuse. I understand that HMRC is under extraordinary pressure, but I believe that at the decision-making level people are completely detached from those on whom they have an impact. They have very little sense of the world of contracting and self-employment, very little understanding of how people made those decisions and what their capacities and capabilities were, and very little understanding of the impact of their decisions. With a body that is responsible for implementation, it is key that that changes.

I totally support the various recommendations in these two incredibly powerful and important reports, but I hope that, in addition, the Government will now consider not just a report but a proper review of the loan charge and a minimum delay of six months in implementing. I know that it is officially implemented, but that can always be delayed. On Making Tax Digital, surely we could now initiate a delay for small businesses, look again and make sure that it is implemented properly and effectively. It could be a superb programme and it should not be undermined.

Brexit: Preparations and Negotiations

Debate between Baroness Kramer and Lord Forsyth of Drumlean

Monday 23rd July 2018 Lords Chamber

[Baroness Kramer (LD)]

My Lords, the White Paper is in tatters, the country is riven and, frankly I fear that we face a no-deal Brexit. I can see no sensible way forward other than a people’s vote. I say this after getting reinforcement for that view from an unexpected quarter: namely, a series of conversations with leaders in the financial services sector, who are quite frankly in shock. Most will not put their heads above the parapet, which I really regret at this stage, when I think it would be very helpful and important—but I understand their reluctance to scare investors, customers and employees.

My noble friend Lord Newby quoted the key statement in the White Paper, which is that,

“the UK and the EU will not have current levels of access to each other’s markets”.

How can a Government wilfully draw red lines which hurt our primary industry in its primary non-domestic market—indeed, a market that accounts for roughly one-third of the total financial services sector? I discussed with the City a year ago the benefits that financial services bring to the UK: £76 billion a year in taxes—think what that delivers in terms of the public sector—and some 2 million jobs. The City told me: “We have been abandoned by May. We are not a popular industry and they will not go in to bat for us”. I wrote down that quote. The required battle is frankly not with the EU—because the financial services sector is very satisfied with the current arrangement and, if it could get a single market in financial services, that would answer so many of its difficulties. The battle, frankly, is with the Brexiteers.

I find when I talk to Brexiteers that they live in a world of delusion, where something called “different regulation”—let us be honest and admit that “different regulation” is faux for “deregulation”—brings some mythical great opportunity. It is telling, when I go around to talk to people and ask what regulation they would remove, that the only one that gets suggested is removing the cap on bankers’ bonuses.

[Lord Forsyth of Drumlean]

I declare my interest as the chairman of a bank. I will give the noble Baroness an example of a regulation: the regulation that increased the capital weighting for lending to housebuilders from 100% to 150%, making less money available to build the houses the Government say they need and making housing and mortgages more expensive.

[Baroness Kramer]

I understand that we are to stay within international standards, however—and the noble Lord will know that that is Basel-derived.

[Lord Forsyth of Drumlean]

I am grateful to the noble Baroness. She will also know that the United States does not implement those Basel standards and that we are required to do so because of the European Central Bank.

[Baroness Kramer]

Then I draw to the noble Lord’s attention the constant reaffirmation that we intend to stick to Basel standards. If we do not and we go for this broader deregulation, some honesty from the Government would be very relevant, frankly, at this point in time, and I will tell him why. The reason why I am so concerned about the lifting of the bankers’ bonuses cap is that it is a return to animal spirits and excessive risk taking, which we certainly cannot afford.

The noble Lord will know, if he talks to the asset managers and many of the other institutions that underpin financial services in the UK—I talked to the largest of those asset managers only a week ago—they will say that, if there is any move to deregulate, they will leave London for reputational reasons. They cannot afford the risk of being based and regulated in what is perceived to be an environment that is moving towards lighter-touch regulation. I understand that the reputation they have earned over the past years matters more than just about anything else.

I accept that financial services are complex and that different activities are impacted differently by Brexit. Purely domestic financial services—retail banking, for example—are pretty much untouched. But the opposite is entirely true for services sold from the UK directly to EU customers, and the White Paper makes it quite clear that these activities will move to the EU 27. They include commercial and specialty insurance, trade-related banking services—perhaps the noble Lord, Lord Forsyth, would add others to the list of banking services—and large parts of fintech that are very much tied to passporting and to the e-commerce directive. Ironically, when the UK has third-country status, because of the way local rules work within the EU, it will be less burdensome to sell to UK clients from the EU than it will be—not for all, but for many services—to sell to the EU from the UK. That is a powerful incentive to make that move—certainly for those core sales to EU companies, but more broadly.

Finally, we come to the capital and wholesale markets, which are at the heart of the City of London and underpin the financial services industry in the UK. These are, essentially, capital raising, and even more so because we are the global leader in FX trading and derivatives trading. We can easily forget that London is a global centre not despite but because of its role as the regional powerhouse for all the EU countries and for the euro. With the wholesale markets comes a further ecosystem of asset management and treasury operations, since senior managers prefer to be in one place, so they co-locate absolutely key operations.

I accept that no other capital or city in the EU could take London’s capital and wholesale markets away tomorrow. If the EU were to strip EU and euro activity out of London, it would go largely to New York. But that is day one. Read everything that Barnier says about financial markets, look at the rule changes put in place by the ECB and ESMA and it is clear that the EU has a 10 to 15-year strategy to build its capacity and leach these activities slowly into the EU. The battle is not really between London and the EU. It is a battle between Frankfurt and Paris to receive that business over the next 10 to 15 years.

One could say, “Why shouldn’t they?”. It is the EU economy—not the UK economy—that generates the core customers for so much of financial services that are, almost uniquely, wrapped up with financial stability issues. Could the EU rely on a UK regulator in a financial crisis when the whole point of Brexit is to put the UK interest first? If some businesses leave London and go to New York, why should the EU care? We are both third countries. So I believe that the consequences of any kind of leach are devastating over time—but financial services is an industry of the future, not the past, and it is key to opportunities for our young people, to our tax base and to our prosperity.

I quickly turn to two last issues. The first is timing. The political chaos in the Tory party, which makes a “no deal” prospect more likely, is having an immediate impact. Firms in the group that I described, which are selling services to the EU, have prepared for a move. They have licences in place, they have leased office space and they have optioned technology—but so far they have moved few people. Many pressed the go button after the Chequers fiasco and the disappointment of the White Paper. I hope, too, that we will look at this whole immigration issue. I would love to pick that up but I do not have time.

I urge the Government, even at this late stage, to find a way to stay in the single market for financial services. Nothing else will do and, quite frankly, if they cannot do it, they should tell people the consequences and let them have the final say.

Railways: East Coast Rail Franchise

Debate between Baroness Kramer and Lord Forsyth of Drumlean

Tuesday 28th October 2014 Lords Chamber

[Baroness Kramer]

My Lords, it is certainly true that other countries have chosen to invest and own companies across a wide range of industries. This is a particularly difficult industry in which to do that. Its fixed costs are extremely high. It costs something like £7 million to £10 million to put in a bid, with no assurance of winning. It is certainly a high-risk industry and the margins, as the noble Lord will know, even for an effective and profitable company, are quite fine. It is an entirely valid decision not to enter into actually running companies when there are private options that have delivered very successfully up and down the country.

[Lord Forsyth of Drumlean (Con)]

Surely my noble friend would recognise that the whole point of competitive tendering is to get the best value and the best deal for the taxpayer. If she is right that the state-owned company would not be able to compete, why is that a reason to exclude it from the process?

[Baroness Kramer]

Again we can see the complexities of a state-owned company being involved in this. Would we give it preferential financing or would it go out on the market? Let me make this point: do we want to set up a company and pay its senior management very high fees for the possibility that, with bids ranging from £7 million to £10 million apiece, it might eventually achieve a franchise? We have a long history and I have to suggest that the history of companies run over the long term by the UK Government has not been one of outstanding success. We know that we have very successful franchises across the country, so let us take advantage of them to make sure that we get the best opportunities for the many passengers using these services.