Ways and Means

Kirsty Blackman Excerpts

Ways and Means resolution: House of Commons
Wednesday 6th September 2017 Commons Chamber

[Nicky Morgan]

I thank my hon. Friend very much for that suggestion. What he says has much merit, and it may well be something we want to explore in Committee. It would be fair to say that a common view among Conservative Members, and the reason why we are on this side of the House, is that we believe in encouraging, not compelling, people to do something that the Government and the state want them to do. If there are ways of encouraging and incentivising people to get online and to use this system, and if it becomes clear at some stage in the future that that is the way forward, many businesses and sole traders will already be online and used to using the system.

Deferring the change for some taxes for a couple of years or more will give everybody welcome time to prepare, but it will not solve all the problems. I therefore suspect that the new Committee will want to explore the costs and benefits fully, as its predecessor had started to do. There is definitely scope to scrutinise the Government’s published estimates for the administrative costs to business and for the supposed reduction in the tax gap as a consequence of businesses making fewer mistakes because they are reporting digitally and quarterly. But that, you will be pleased to hear, Madam Deputy Speaker, is for another day.

Meanwhile, the forthcoming Finance Bill, which the House will consider shortly, will pave the way for the implementation of Making Tax Digital. The Bill that was introduced before the election was called did little more than pave the way; nearly every paragraph in the relevant schedule contained a regulation-making power. This meant that the Bill would have delegated nearly all the key details to secondary legislation under the negative procedure. Compounded by the fact that the draft statutory instruments were not published for consultation, that does not make for good parliamentary scrutiny, and the House will return to the overall principle of the scrutiny of secondary legislation when we consider the European Union (Withdrawal) Bill tomorrow, before we even get to the Finance Bill.

At a more general level, I suspect that the new Committee will also want to scrutinise Budgets, Finance Bills and possibly even spring statements in a similar way to its predecessor. It is important that tax policy gets adequate parliamentary scrutiny, and I hope that the new Treasury Committee and Public Bill Committees will get more chance to scrutinise the Treasury’s proposals at autumn Budgets than the Select Committee did with the last spring Budget, given the circumstances of the general election.

[Kirsty Blackman (Aberdeen North) (SNP)]

Organisations have suggested that Finance Public Bill Committees should be able to hear evidence, which has not happened in the past. What is the right hon. Lady’s view on that? Will she consider looking at it?

[Nicky Morgan]

I might be guided by you on this, Madam Deputy Speaker, but I suspect that that is actually a matter for the House authorities, the usual channels and the Front Benches, although the House and Ministers will have heard the hon. Lady. Obviously, the more constructive evidence that can be given on legislation, the better legislation we have.

I will finish by saying that I look forward to seeing the Minister before the Treasury Committee. He might not be looking forward to it so much, but I promise that we will be firm but fair in our questioning of him. I wish him all the very best as he embarks on his first Finance Bill.

[Kirsty Blackman (Aberdeen North) (SNP)]

I appreciate the chance to take part in this Ways and Mean debate, which is one of the few not to follow a Budget—somebody told me it is the first since 1987, when I was 1.

From the shadow Front Bench, the hon. Member for Bootle (Peter Dowd) talked about some of the process issues and timelines involved in how we got to where we are now, and I want to briefly mention them. The spring Budget was presented to the House on 8 March. We are looking at introducing the Finance Bill, which takes up some of the measures from that spring Budget, now, which is a pretty long time from 8 March. We have seen some changes from what we expected to happen, and what the Office for Budget Responsibility suggested might happen is not necessarily what has happened in the intervening period, so it is a bit strange that, in the main, the measures we are looking at are almost exactly the same as the ones introduced in the Finance Bill back in March. I understand that there needs to be a consultation, but I am concerned about the length of this process and about whether the changes to legislation in this Finance Bill are wholly appropriate.

In my intervention on the Chair of the Treasury Committee, I mentioned the Public Bill Committee taking evidence. I have raised the issue before and I will not stop raising it. The Finance Bill Committee should take evidence from external organisations so that it is in the best possible position to make the best decisions. I have been on a Finance Bill Committee and found it a useful experience whereby Members on both sides of the House had an in-depth debate about the matters raised. Enabling the Committee to take evidence would only add value to the scrutiny provided both by the Opposition and by Back Benchers, particularly those from the Conservative party.

The Minister will probably be surprised to hear that I welcome some of the Government’s proposed Ways and Means resolutions, including the changes to the treatment of corporation tax with regard to museum and gallery exhibitions. However, I wish to raise the issue of the Value Added Tax (Refund of Tax to Museums and Galleries) (Amendment) Order 2017. The intention was that it be laid before the House in advance of the summer recess, but then the general election happened. The order has not been mentioned and I am concerned that some museums and galleries may lose out on the VAT that they had expected to get back. They expected it to be paid to them, but the amendment has not yet been laid before the House. I know that that is a slightly different matter from that in the Ways and Means resolutions, but it is related to it. I would appreciate it if the Minister or his team could look into the order.

I also welcome the changes to grassroots sports and to pensions and legal advice. It is particularly important that people have better access to legal advice, especially when they are not the accused and are entering legal situations. That is a scary prospect for a number of people, so it is incredibly positive that they will get easier access to appropriate legal advice.

The Scottish Government’s programme for government was announced yesterday and they are incredibly positive about changes to enable electric vehicles to become more prevalent on our roads and petrol and diesel vehicles to be phased out. I am therefore pleased that there are likely to be changes to electric vehicle charging points. I hope that this Government will continue to make changes to allow electric vehicles and their associated infrastructure to become more affordable.

I support the Government on a couple of other things. If the proposed changes in the Ways and Means resolutions on petroleum revenue tax are the same as those proposed in the previous Finance Bill, they are positive because the oil industry has asked for them. I am pleased that the Government have acted on that. I am also pleased that the Government will take action against people who have been found to be enabling tax avoidance schemes, not just those who participate in such schemes. That is really positive and I hope that it will achieve the Government’s intention and discourage people from being clever and coming up with tax avoidance schemes. My fingers are crossed and we will wait to see what happens.

Members would not expect me to be positive about all of the Government’s proposals. I am concerned that there is a lack of evidence for the Government’s desired outcome regarding some of the proposals. Resolution 13, on business investment relief, sends a mixed message. Whereas the Government’s changes under resolutions 24 and 26 intend to make it more difficult for non-doms to benefit from their tax status, resolution 13 will make it easier for them to do so in a way that their next-door neighbour may not. Now, I would be less concerned about that if the Government had provided appropriate evidence to show why the scheme is a good thing. They have made it clear that they want to increase the use of the scheme, but I have not seen any evidence to explain why. They have not shown me that the scheme is working as it was intended to work, nor that it is having a particularly positive impact on the businesses that are receiving funding from it. I understand that 200 to 400 people take part in the scheme every year, which means that a pretty significant amount of legislative effort and time is being put into making a change that enables a very small number of people to make this investment. I would be interested to see more of the Government’s figures.

I am concerned about resolution 41, which deals with errors in taxpayers’ documents. It specifically includes changes that may result in people who seek tax advice getting into trouble for having errors in their documents. The onus is now on an individual to ensure that the person from whom they seek tax advice is suitably qualified, which is rather difficult for people to understand. I have had people come into my surgeries and tell me that they have sought immigration advice from somebody they thought was a solicitor, but who turned out not to be a solicitor. I am concerned that some people who have tried their very best to stay on the right side of the law, to pay the amount of tax that they should pay and to fill in the forms appropriately with the help of an adviser will be caught by the measure accidentally. I would appreciate it if the Government could look at that.

I am interested to see how the Government will play another couple of issues, if they look exactly as they did in the Finance Bill. One is the changes to gaming duty. I understand that the Government are trying not to penalise casinos with the changes to the duty that casinos pay, and that they are trying to change the rules around remote gaming to make it clear how much tax the companies should pay. That is welcome. But when the Government are doing things such as increasing alcohol duty to discourage negative behaviour, it seems strange to me to allow casinos to pay less tax—or not to increase the amount of tax that they pay—because it will achieve the opposite of what the Government are trying to do in encouraging positive behaviour. I will be interested to see how that looks, and we will continue to scrutinise it.

We will also continue to look at the dividend nil rate. The Ways and Means resolution allows the Government to change things in either direction. If the dividend nil rate allowed people to have more dividends before they paid tax, I would be particularly concerned about it; but if it allowed people to have less in dividends before they paid tax, as was the situation in the previous Finance Bill, I would be much more positive about it.

Those are the main proposals that I have concerns about, but I would like to see the detail that the Government will produce. I am pleased that the Minister has made changes to digital reporting, which was in our manifesto. We have particular concerns about the smallest companies, especially those in particularly rural areas, who struggle to get access to the right digital infrastructure. Both Governments have made commitments about digitisation and access to superfast broadband, so having this slightly further down the line makes more sense. I am pleased that the Government listened and made changes, but we will be scrutinising the proposal and making sure that the business community is as happy with it as it can be.

Moving to digital reporting will make the process easier for people, but I reiterate that, as the hon. Member for Coventry South (Mr Cunningham) has said, the closure of tax offices is a concern, even when it comes to Making Tax Digital. Computer systems can be quite black and white, and they often give yes/no answers when the answer should actually be “maybe”. Especially in the initial period, people who are trying to fill in the forms may need to phone the tax office to ask for assistance about what to put in each box. I am not convinced that businesses can access enough support to find out about that.

The Government will expect me to raise the issue of VAT on police and fire services, because such a debate would not be complete without my raising it. We would very much like the Government to bring forward VAT changes for police and fire services in Scotland. They have done so for organisations such as the London Legacy Development Corporation—the legacy body from the Olympic Games—and for Highways England, both of which are national organisations in the same boat as the Scottish police and fire services.

[Luke Graham (Ochil and South Perthshire) (Con)]

On the point about VAT on Police Scotland, does the hon. Lady recognise that the SNP Administration in Edinburgh knew that they would incur VAT charges by centralising the police forces? They knew that would be one of the repercussions before that action was taken.

[Kirsty Blackman]

Such a policy was in the Conservative party manifesto for the Scottish Parliament election that year, so the centralisation of Scottish police and fire services was also supported by the Scottish Conservatives. Yes, we knew that that would be the case, but we do not think it is fair, and we have made the case that it is not fair on numerous occasions. Organisations such as Highways England and London Legacy do not have the same VAT treatment as the Scottish police and fire services, and that is why we are asking for such a change.

I know that this legislation has been cobbled together—it is just the bits that did not get through last time—but none of the changes the Government are making will combat the current increases in inflation, and the Government are not increasing wages so that ordinary people can afford such increases in the cost of living. In Scotland, we are lifting the 1% public sector pay cap, and I very much hope that the UK Government will take the same decision to lift the public sector pay cap in England and that when they do so—if they do so—they will ensure that that is fully funded.

I have one last thing to mention, particularly in relation to tax raising and tax avoidance, which is about customs officers and customs checks. I am slightly concerned that the UK Government are losing out on some of the revenue they could receive because they no longer use customs officers in the way they used to, but instead make them dedicate most of their time at borders to making sure that people are travelling legally rather than to ensuring that goods are being transported legally. I know that some stuff is in place—but not enough. I want the Government to be scrutinised more effectively on this, and for the Government to monitor what happens at ports more effectively to ensure that the appropriate tax is paid on things coming into and going out of the country. Making a change to ensure that they are checked appropriately and are therefore taxed appropriately can only bring in more revenue.

In summary, there are a number of good things in the Ways and Means resolutions, but I have concerns about several of them. I have significant concerns about some resolutions, such as resolution 13 on business investment relief, and I am also pretty concerned about resolution 4 on termination payments, because I have not seen any evidence to show that the issue is as significant as the Government are suggesting. The likelihood is that the SNP will vote against those resolutions if there is a vote. I appreciate that I have used up my time, and I am grateful to hon. Members for listening.

Finance Bill

Kirsty Blackman Excerpts

2nd reading: House of Commons
Tuesday 12th September 2017 Commons Chamber

[James Cartlidge (South Suffolk) (Con)]

I thought I would take a leaf out of the shadow Chancellor’s book by bringing a red book into the Chamber to wave around in his style. It is a copy of “The Middle Way”, by Harold Macmillan, written in 1938. I brought it here because I think that what is significant about the Bill is not any of the individual measures, which we all accept are very technical—they are not particularly headline-grabbing or, dare I say, sexy—but the context. This is a serious point. I think many people feel that they are still living in a time when capitalism itself—in which I believe very strongly—is being questioned. It worries them that it is not seen to be fair, and they fear that our economic system is not rewarding everyone evenly.

Here we are, eight years after the credit crunch and its major impact. Macmillan wrote his book in 1938, nine years after the Wall Street crash, but, then as now, the impact of the crash was still being felt by society, and there was a drive towards populism. I believe that such a move to populism can be resisted only through sensible measures from centre parties that address the injustices of capitalism while still ultimately supporting its success and its growth.

We are very fortunate, in that when Macmillan wrote that book there was high unemployment and a deep depression. The situation was very different, but it was comparable in the sense that people on both the left and the right were turning to much more extreme alternatives. Interestingly, Macmillan’s answer was a national living wage. His answer was nationalisation. His answer was making all kinds of what we might typify as socialist interventions in the economy. Since 2008, we have nationalised the banks. A Conservative Government have introduced a range of measures that could be seen as potentially hitting—dare I say—our voters.

I think that the most classic example, for which I had argued myself, is the introduction of measures relating to buy-to-let landlords. We have seen a huge surge in that area of home ownership, with people owning multiple portfolios. I know that those measures have not been popular with the few. If we were the party of the few and not the many, we would never have introduced them, but we had the guts to do so because we felt that that was right at a time when first-time buyers were struggling ever harder to get on to the property ladder.

I think that this is the key point. The sense of injustice that is out there now, and which leads people to question our economy, is about asset wealth. Yes, wages have been under pressure since the crash, but when we came out of the crash, what did we do? In order to escape the worst effects of the depression, we pumped huge amounts into the economy. Inflating assets again, the help-to-buy scheme and quantitative easing—all those measures were right at the time, and in many ways continue to be.

[Kirsty Blackman]

The hon. Gentleman has been talking for three minutes, but I do not think that he has mentioned the Finance Bill yet. Are we going to have a discussion about it at some point?

[James Cartlidge]

That was a charming intervention by the hon. Lady—is that the best she can do? I am talking about our current economic context, which is why we have introduced this Finance Bill, and I was coming on to say that its measures could be seen by some as an attack on large corporations. The measure on dividends—I have to say that I still receive dividends—will be unpopular with some of our voters, who are some of the richest people in society, but we feel at this time that we have to strike a balance, and I support the balance we are striking. We are bringing in permanent non-dom status, but at the same time we will be encouraging non-doms to invest in this country, incentivising them to use money held legally abroad so that it comes here.

To me, that is the most important aspect of this Finance Bill: it acknowledges that there is still for the wider public what Ted Heath called the unacceptable face of capitalism—those people who are seen to be abusing the system with avoidance, evasion and all the other tactics. It is right that we are tough on those, and we have been incredibly successful in that, but the difference between us and the Labour party is that we act from a standpoint of fundamentally believing in capitalism. We believe in free enterprise, and in the idea of people standing on their own two feet, being brave, taking risks and creating businesses. We understand that in order to protect that system, just like Macmillan said, sometimes we have to take measures that can be seen to be even potentially anti-business, but the alternative is throwing the baby out with the bathwater wholesale by a party which now is fundamentally against our economic system.

There may be people who are unhappy with some of these measures, such as on dividends or the buy-to-let taxes I mentioned, but the alternative is a case of out of the frying pan and into the fire—into the arms of a Labour party whose leadership, at least, is fundamentally against the capitalist system. When those people attack with vigour the measures such as those we have taken on tax avoidance, saying we could go so much further, they do so because fundamentally they do not believe in the entire system. I do, and I think these measures are sensible. They help us to strike a difficult balance at this difficult economic time, and that is why we should support the Bill.

Finance Bill

Kirsty Blackman Excerpts

Committee: 1st sitting: House of Commons
Wednesday 11th October 2017 Commons Chamber

[Mr Harper]

I cannot take an intervention when I am still dealing with the first one. The base erosion and profit sharing programme is a global initiative, and we are leading on that work.

As for the point of the hon. Member for Oxford East about the EU, if I remember rightly, the reason why the Government blocked the French-driven proposals for country-by-country reporting was that they were part of an EU plan to try to drive up the total amount of tax that we take from business, not to ensure that companies pay tax in the right way. We are not an anti-tax country. That move was part of an EU plan to avoid countries being able to have competitive tax regimes and to avoid businesses locating in the United Kingdom. The French wanted to stop that because many of their businesses and smartest people now work in London or other parts of the UK, but the change was not in our national interest and I believe that that was why we blocked it. However, we need to continue the international work, and I am pleased that we have been leading on it.

My final point is about workers’ rights. I understand that the hon. Member for Bootle has to do this stuff to please people on his side, but he is absolutely wrong. This Government have absolutely no agenda of the sort that he mentioned. When talking about our leaving the European Union, my right hon. Friend the Prime Minister has made it clear that we want to protect workers’ rights. We stand four-square behind the rights that are in place, and we will be legislating for them in the European Union (Withdrawal) Bill, which I am sure will provide many hours of joy and fun in Committee. You may even be in the Chair, Dame Rosie, to listen to some of those exciting debates. We are going to protect workers’ rights, and there is nothing at all in the proposals to concern somebody who is worried about losing their job. This is about cracking down on people who have been abusing the provisions that protect legitimate workers who lose their jobs, using them as an excuse to get tax-free cash out of the system and cheat the taxpayer. That is what the proposals are about and that is why I hope that the Committee rejects all the amendments and supports clause 5.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is good to be back in the House after a bit of a recess and to be here again talking about the Finance Bill. It is our second such Bill this year—our second of three—so we are here for the long haul. I want to discuss termination payments and the relevant amendments tabled by the Scottish National party and Labour. The Government have been clear that they are just closing a loophole, but the Budget suggested that the measure will generate an extra £430 million a year. That is £430 million a year that these workers will not be getting when they receive their termination payments. However the Government want to dress it up, this is additional tax on these people who are losing their jobs and receiving termination payments. These people are in a vulnerable situation, as they are receiving a termination payment and are no longer in employment and they will be taxed more as a result.

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[Kelvin Hopkins]

The hon. Lady may remember that the tax expert Richard Murphy calculated at one point that the genuine tax gap—not the one that the Government give us—was £119 billion a year. That has no doubt come down slightly, but there is a long way to go before we collect that tax. That figure overwhelms the amount of money that the Government will squeeze out of workers who are losing their jobs.

[Kirsty Blackman]

I absolutely agree and I think that the tax gap is probably significantly larger than the Government are suggesting. On that note, small countries are very good at having a very small tax gap—a wee plug for Scottish independence there.

We have a couple of other specific concerns about termination payments. We are still not clear about people who have faced termination as a result of injury, injury to feelings or psychiatric injury. We do not want them to receive less as a result of this change. I heard what the Minister said about those people who have been involved in discrimination cases when the decision has been in their favour, but we want to ensure that people who are trying to move on from a situation after termination but who have been injured or have suffered an injury to feelings or a psychiatric injury are not disadvantaged by this change in the rules.

I will not speak for much longer, but let me say one more thing. The Government’s explanatory notes say that the Government are looking to ensure that all payments in lieu of notice, not just contractual payments in lieu of notice, are taxable earnings. That way of putting it is what most concerns me, because it is clear that workers will be impacted by this change when it comes in. I expect that this change will be proposed by the Government and accepted, so I would very much like a commitment from the Minister that, if it comes in in the next tax year, the Treasury will do an impact assessment one or two years in to see the specific impact on that group of low-income workers who the Government suggest are in the minority. I would like to see its impact, and if it proves to be particularly negative, I want the Treasury to take mitigating steps to change it.

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[James Cleverly]

The hon. Gentleman will be unsurprised to hear that I do not agree with him. The Bill is where the proposal is and the passage of the Bill has been timetabled in the way that it has. The idea that we delay changing the tax treatments of severance payments to a point in time when no one in British society is in the process of losing their job is farcical, as I am sure that, on reflection, he will recognise.

As has been said, the £30,000 threshold means that 85% of termination payments are completely unaffected. I am sure we have all heard anecdotes about businesses seeking to manipulate the definitions of the various elements of severance payments specifically to avoid the tax that is owed. Surely, Opposition Members would wish to make sure, as Government Members would, that tax is applied fairly, dispassionately and transparently, and that it affects all people equally. Once again, a disproportionate burden would otherwise fall on small businesses, which do not have that administrative back-office function and cannot play manipulative games to avoid tax. They are the ones that have to pay the full tax, as is right.

Some companies may have clever back-office accountants looking at ways in which to massage the definitions of the various elements of a severance payment to minimise the tax—tax that is due to the Treasury and that we want and need to fund public services. Surely, the Labour party is not suggesting we should turn a blind eye when a clever set of accountants can massage figures, making sure that the burden falls wholly and solely on small businesses, which do not have the opportunity to employ people to do that kind of smoke-and-mirrors work? I cannot imagine that is what Labour would want to do.

Amendment 4 proposes including the words “injured feelings”. Again, I am sure that this is being proposed with the best intentions, but the Labour party must realise that putting into a Bill a definition that is so vague and open to abuse is just inviting unscrupulous businesses to use it as a means of avoiding the tax that should be fairly paid upon a severance.

[Kirsty Blackman]

I am guessing that the hon. Gentleman is unaware—perhaps he is not—that “injury to feelings” is a legal term. It is used within that profession, and it is recognised and understood. Therefore, it is completely reasonable to include it in an amendment.

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[Mel Stride]

This is one of the most generous thresholds in the world. In fact, there is no threshold at all in Germany and the United States of America, because none of these payments is treated as being tax-exempt.

Such categorisation means that payments qualify for the £30,000 tax exemption and an unlimited employer national insurance contributions exemption. The situation is clearly unfair for the vast majority of employees, who are unable to manipulate their payments in this way. Clause 5 makes changes to prevent such manipulation in the future, while still ensuring that the vast majority pay no income tax on their payment. The first £30,000 of all termination payments will remain exempt from tax.

The hon. Member for Bootle (Peter Dowd) made a general point about the Conservative party’s treatment of workers, and I make no apologies for the way this Government have stood up for workers up and down our country. We are committed to enhancing workers’ rights. We introduced the national living wage, and we doubled fines for firms that break the rules in that respect. We appointed the first director of labour market enforcement, and we are committed, as we have constantly said, and as our Prime Minister has made clear, to protecting workers’ rights as we leave the European Union.

Nearly 85% of payments are below £30,000, so retaining the threshold will ensure that the vast majority of people going through the difficult experience of being made redundant will still pay no tax whatever. That means that the UK continues to have one of the most generous tax exemptions for termination payments, and I have mentioned Germany and the United States having no tax exemption at all.

Clause 5 tightens the tax rules for termination payments to prevent manipulation—a point made by my right hon. Friend the Member for Forest of Dean (Mr Harper) in an excellent contribution. He highlighted our overall record on bringing in taxes where attempts are made to avoid tax, and I referred to the £160 billion raised since 2010. He referred to our being at the forefront of the OECD base erosion and profit shifting project, and we have also brought in the diverted profits tax to clamp down on the kind of behaviour he referred to.

Let us not lose sight of the purpose of bringing in tax, which is to raise public finances so that we can employ doctors, nurses, paramedics, police and soldiers and pay for all those great public services that all of us hold so dear. That is why I am so proud of this Government’s record on clamping down on tax avoidance more generally.

The Office of Tax Simplification has said:

“the well-advised can often end up better off than the unadvised, as they are more able to structure their employment contract (or, indeed, their termination payment) to achieve the better tax treatment.”

The hon. Member for Bootle said in this House only last month:

“If there is genuine evidence of the abuse of payments in lieu of notice, that needs to be acted on”—[Official Report, 6 September 2017; Vol. 628, c. 206.]

It is fair to say that, while the hon. Gentleman is a very amiable fellow, he is not right about everything, but on this point he is actually very right. This clause is to deal with the very abuse about which he has previously expressed concern. We will prevent employers from categorising large pay-offs as tax-free payments, rather than earnings. Instead, employers will now be required to tax what the employee would have earned if they had worked their notice period in full. All payments in lieu of notice will now also be taxable as earnings to equalise the treatment of those with and without a contractual right to such a payment.

Finally, clause 5 clarifies that there is a total tax exemption for payments on account of injury or disability of an employee. In 2014, the Office of Tax Simplification raised the possibility of removing this exemption. It recognised that that would be a draconian approach, but it noted that interpretation is

“often a problem area for employers and their advisers.”

However, we have not pursued that approach. Instead, we have provided certainty by confirming the current position established by case law in statute. The total exemption relates to termination payments provided on account of a physical or psychiatric injury that prevents the employee from carrying on the duties of the employment, which hopefully addresses the point raised by the hon. Member for Aberdeen North (Kirsty Blackman). Therefore, employees with evidence of an identified medical condition will pay no tax on related termination payments.

Some Members raised concerns in previous debates that the Government would be taxing compensation paid to employees where it is proven that they have been discriminated against. Once again, I am happy to reassure them. All compensation for awards for proven discrimination during work will continue to remain completely exempt from tax. There was an interesting interaction between my hon. Friend the Member for Reddich (Rachel Maclean) and the hon. Member for Lewisham West and Penge (Ellie Reeves) on this point. We accept that, where there is a tribunal award in respect of injury to feelings, it is treated in exactly the same way as when an employer accepts that discrimination has actually occurred. All the clause seeks is to confirm the long-standing position that genuine compensation payments are tax exempt, while ensuring there is no loophole that can be used to reduce the tax that is owed.

Let me now turn to the amendments. As the hon. Member for Bootle set out, amendment 1 would remove the power to amend the meaning of basic pay for the purposes of calculating post-employment notice pay by regulation. When we consulted on this measure, we listened to responses that asked us to make the basic pay definition more simple. It now excludes overtime, bonuses, commission and tips. However, we introduced this power to allow the Government to act quickly and to remain flexible if there is manipulation in the future. Any amendment to the meaning of basic pay would be subject to a statutory instrument under the affirmative procedure, so the House would have to expressly approve any change to the meaning. I therefore urge the House to resist the amendment.

Amendment 2 and consequential amendment 3, also tabled by the Labour party, would remove the power to reduce the £30,000 threshold by regulation. Some Members have raised concerns during the debate that the Government intend to reduce this tax-free amount. We have no intention to do so. If we were to do so, we would, as my hon. Friend the Member for Braintree (James Cleverly) pointed out in his excellent speech, be required to do so by an affirmative statutory instrument. However, I repeat that we have no intention of reducing this tax-free amount. I therefore urge the House to resist the amendment.

Amendment 4 would include injured feelings within the definition of injury. As I outlined earlier, clause 5 confirms that termination payments provided on account of physical or psychiatric injury will be completely tax exempt—an important point raised by the hon. Member for Aberdeen North. However, the clause also confirms the established position that injury to feelings is not covered by this definition. The reason for this restriction is clear: without it, there would be a large loophole—as identified by my hon. Friend the Member for Braintree and my right hon. Friend the Member for Forest of Dean—allowing payments to be routinely reclassified on account of injury to feelings, and without medical evidence, simply in order for people to pay no tax. These things are hard to prove or disprove, and would be difficult for HMRC to police. However, it remains the case that payments on account of an injury to feelings, like any normal termination payment, will qualify for the £30,000 tax exemption. I therefore likewise urge the House to resist the amendment.

[Kirsty Blackman]

The Minister is concerned that some people might be exploiting a loophole, but as a result he has decided to disadvantage everybody who is subject to termination as a result of injury to feelings, rather than giving them the benefit of the doubt, which seems pretty unfair to me.

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Business Investment Relief

[Kirsty Blackman]

I beg to move amendment 13, page 22, line 21, leave out

“on or after 6 April 2017”

and insert

“on or after the date on which the Chancellor of the Exchequer lays before the House of Commons a report of the review undertaken under section 809VP of ITA 2007”.

This amendment would provide that the changes in Clause 15 do not have effect until after the Chancellor of the Exchequer has laid before the House of Commons the review provided for in NC3.

[The Temporary Chair (Mr George Howarth)]

With this it will be convenient to discuss the following:

Clause stand part.

New clause 1—Review of conditions under which business investment relief is available—

‘(1) Chapter A1 of Part 14 of ITA 2007 (remittance basis) is amended as follows.

(2) After section 809VO (investments made from mixed funds), insert—

“809VP  Review of conditions under which business investment relief is available 

(1) Within six months of the coming into force of section 15 of the Finance (No. 2) Act 2017, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the conditions under which business investment relief is available.

(2) For the purposes of this section “the conditions” means—

(a) Condition A as defined in section 809VD,

(b) Condition B as defined in section 809VF.

(3) The review shall make an estimate of the value of the reliefs granted as a result of the conditions in respect of each tax year for which the relief has been available.

(4) The review shall make an estimate of the change in the value of the reliefs granted as a result of—

(a) changes to the conditions relating to eligible hybrid companies,

(b) changes to the periods specified in sections 809VD and 809VH,

(c) changes to the grace period in section 809VJ.

(5) The review shall make an assessment of the effectiveness of the conditions in relation to the stated policy aims of the Government in relation to business investment relief.

(6) The review shall prepare an analysis of the characteristics of beneficiaries of reliefs having particular regard to—

(a) income distribution,

(b) gender and other protected characteristics under the Equality Act 2010,

(c) domicile (including deemed domicile).

(7) A report of the review under this section shall be laid before the House of Commons within one calendar month of its completion.””.

This new clause requires HMRC to carry out a review of the conditions under which business investment relief is available, including estimates of the value of the reliefs (before and after the changes proposed in this Bill) and an analysis of the characteristics of those using the relief, including their domicile status.

New clause 3—Review of the efficacy of the conditions for business investment relief—

‘(1) Chapter A1 of Part 14 of ITA 2007 (remittance basis) is amended as follows.

(2) After section 809VO (investments made from mixed funds), insert—

“809VP  Review of efficacy of the conditions for business investment relief

(1) Within two months of Royal Assent to the Finance (No. 2) Act 2017, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the impact of the conditions for business investment relief in encouraging investment in the UK.

(2) The review shall make an estimate of additional investment as a result of the condition for business investment relief—

(a) prior to Royal Assent being given to the Finance (No. 2) Act 2017, and

(b) if the changes to those conditions in section 15 of the Finance (No. 2) Act were brought into force.

(3) The Chancellor of the Exchequer shall lay the report of this review before the House of Commons.””.

This new clause requires HMRC to carry out a review of efficacy of the conditions under which business investment relief is available and the Chancellor to lay it before the House of Commons.

[Kirsty Blackman]

I appreciate having the opportunity to speak in this second part of our debate on the Finance Bill.

The matter in hand now has been discussed a number of times over the past few months, specifically around business investment relief. Some aspects of it were discussed while tackling the Ways and Means resolutions and on Second Reading. We are still not clear what impact this will have; the Government have still not told us. An overview of tax legislation was produced at the tail end of last year, when the Bill was first in draft form. It said there was likely to be a negligible impact on the public finances, but that does not explain what is actually going to happen. It also says that between 200 and 400 individuals a year benefit from business investment relief, but again that does not really explain the impact of this relief.

We do know, however, that everybody who benefits from the relief is a non-dom. The Government claim that they are changing the way non-doms are considered and are making it less easy for them to get away with dodging taxes, but this serves to increase the ability of non-doms to get away with not paying tax. The Government suggest this is about increasing investment, but they have not been able to produce any evidence of how much investment has been created as a result of business investment relief.

I am concerned about the amount of time and energy that the House is spending on this matter. It is spending a significant amount of time: we put this measure in place, presumably, at some point in the past few years, yet only 200 to 400 individuals have taken it up. Despite the fact that the numbers are so small, however, we are again debating the matter; this is the third time that we have done so this year, when there are many very important other items on the agenda.

[Craig Mackinlay (South Thanet) (Con)]

The amount of investment that has come to the UK from non-doms is £1.6 billion since 2012. I hope that is of some assistance to the hon. Lady.

[Kirsty Blackman]

Is that through business investment relief or from non-doms in general? We asked for those figures before, at the last stage of this discussion, and they were not forthcoming from the Front Bench. It would be nice to have those figures in writing from the ministerial team.

The hon. Member for Walsall North (Eddie Hughes) talked about why we should trust the Tories and what he would tell his constituents about that. He included things such as the living wage and increasing employment, both of which have happened, but the living wage is not a living wage, because people cannot actually live on the current living wage. If he made that proposition to his constituents, what he would actually have to say is that their wages have not gone up in a decade, that household debt is spiralling and that their savings are going down. If the Tories are doing such a good job, why are people poorer as a result?

One of our concerns is that we are facing a hard Brexit that will significantly damage the economy, but measures such as this one, which is projected to bring in only a small amount of investment from non-doms, will not undo the damage created by a hard Brexit; this will not undo the 5% reduction in GDP that Scotland is set to experience as a result of Brexit.

[Vicky Ford (Chelmsford) (Con)]

As I understand it, business investment relief ensures that overseas funds can be invested in the UK. It has resulted in £1.6 billion being invested in the UK—not a small amount of money. Of course it affects overseas people because it is overseas money that we want to be invested here. I do not understand the hon. Lady’s complaint about the relief only affecting overseas people—of course it does, because it is to introduce them.

[Kirsty Blackman]

My complaint was about the fact that people are being allowed to not pay tax on stuff they are doing in this country. My complaint is that the background note provided by the Treasury does not mention anything to do with £1.6 billion and that the overview of tax legislation put forward in December last year does not mention £1.6 billion. Despite our asking the Government for that figure on a number of occasions, this is the first time it has been forthcoming. I am very pleased that it is and that we can have a reasonable discussion about whether we should increase the ability of people from other countries to come under this.

I did not want to talk for a very long time, because we have already had a number of votes and two hours of debate on the Bill. As I said, the House has spent an incredible amount of time on this, and it probably should not have. The Labour party has tabled a new clause along similar lines to the new clause tabled by the Scottish National party.

[Ms Ghani]

I am concerned that we must not put inaccuracies on record. The HMRC figures published in August 2017 show that over £1.6 billion has been invested in UK businesses under the BIR scheme. We must not say that figures are not available when they are; we just have to go to the right place to find them.

[Kirsty Blackman]

I am very glad that those figures are there, but sadly, when we asked about them in September during our discussion on the Bill, after their production, they were not mentioned. I appreciate that they are being brought up now—that is great—but they were not brought up then.

As I said, I do not want to take up much of the Committee’s time discussing this matter. We have asked the Government to provide us with more data. We have also asked them to provide data on what effect they think this change will have on the amount of investment coming in. We would very much like to see that.

--- Later in debate ---

[Mel Stride]

Clause 15 expands the scope of the business investment relief scheme because it supports economic growth and investment by encouraging foreign individuals to invest in UK businesses. Business investment relief was introduced in April 2012 and is aimed at individuals who are taxed on the remittance basis. As Members will be aware, a remittance basis taxpayer is subject to UK tax on their overseas income or gains only if they bring them to the UK. That can discourage them from bringing their overseas money into the country, even when doing so would benefit the UK economy by investing in UK business. The business investment relief scheme seeks to address this by allowing those who are taxed on the remittance basis to bring their income and gains to the UK without incurring a tax charge, provided those funds are invested in a qualifying UK business. In other words, the scheme enables overseas funds that would otherwise remain outside the UK to be invested in UK businesses.

The independent Office for Budget Responsibility has confirmed in the costings that, without this scheme, this money would simply be left offshore, and so the UK would not benefit from it. Any UK gains and income arising from the investment will be fully taxable in the UK. It is worth noting that elsewhere in the Finance Bill—contrary to the views expressed by the hon. Member for Enfield, Southgate (Bambos Charalambous)—the Government have introduced the most fundamental change to non-dom taxation in history, ending permanent non-dom status. That is more than the Labour party managed the last time it was in government. This clause supports these wider reforms by ensuring that the UK remains attractive to those people who want to live here and use their foreign income and gains to invest in Britain.

Clause 15 expands the types of businesses in which investment can be made. The new rules widen the relief so that it can be used to purchase existing shares, not just new shares. The changes also lengthen the time before a new start-up company has to become a trading business from two to five years. That will enable investment in large infrastructure projects, which can take a long time to complete. Finally, clause 15 updates the anti-avoidance rules to ensure that genuine investment is not discouraged.

Let me turn to the amendment and new clause tabled by the Scottish National party. As the hon. Member for Aberdeen North (Kirsty Blackman) outlined, amendment 13 and new clause 3 would delay the commencement of these provisions until the Government had laid before the House a review of the efficacy of the conditions for BIR. I can be clear that the Government are confident of the effectiveness of this scheme. Investment using BIR increased from £197 million in 2012-13 to £837 million in 2014-15. In only three years, that has meant total investments of more than £1.6 billion in our economy since the scheme was first introduced.

[Kirsty Blackman]

I would very much appreciate it if the Treasury would commit to publishing that information and details of the sectors in which the money has been invested. If it does that, we will all be much happier, across the House.

[Mel Stride]

I thank the hon. Lady for her intervention, and I will come on to deal with the information that the Treasury is already publishing, which is very comprehensive.

As I was saying, that includes investment in the hospitality and energy sectors, and in many different types of businesses, including small and medium-sized ones. It includes investment in manufacturing and pharmaceutical science businesses in the midlands and north of England, and a £3 million investment in aerospace businesses in the north-west of England. As I outlined earlier, the independent OBR has certified that these changes do not have any cost to the Exchequer. In other words, this is money coming to this country which would not otherwise have done so. I am sure that these are investments in our country that the whole House wants to see—investment in British businesses right across the country. I therefore urge Members to reject new clause 3 and amendment 13.

Let me also address new clause 1, tabled by the official Opposition. In a similar vein to new clause 3, it would require the Government to review the conditions under which BIR is available, including estimates of the value of the relief and an analysis of the characteristics of those using it. Such a review is wholly unnecessary, as Her Majesty’s Revenue and Customs publishes much of this information already. As my hon. Friend the Member for Wealden (Ms Ghani) pointed out, in August HMRC published official statistics on non-domiciled taxpayers in the UK, which includes a commentary document and tables. This publication contains statistics on the number of individuals who are non-domiciled, and on the total income tax, capital gains tax and national insurance contributions of the non-domiciled population. Moreover, it includes information on the current number of investments and the amount invested in the UK by non-domiciled individuals using business investment relief.

To provide the report, HMRC uses information provided by taxpayers through the self-assessment process. It is impossible to determine from an individual’s tax return whether or not they have characteristics that are protected under the Equality Act. HMRC does not have the capacity or the resource to acquire such information, so it would be unduly burdensome to place on HMRC a statutory obligation that it would be incapable of meeting. For those reasons, I urge Members to reject the new clause.

To conclude, the clause builds on the notable success of the business investment relief scheme by expanding its scope, and it will bring more money into our country. I therefore call on Members to reject the new clauses and the amendment and to agree to clause 15.

[Kirsty Blackman]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 15 ordered to stand part of the Bill.

New Clause 1

Review of conditions under which business investment relief is available

‘(1) Chapter A1 of Part 14 of ITA 2007 (remittance basis) is amended as follows.

(2) After section 809VO (investments made from mixed funds), insert—

“809VP  Review of conditions under which business investment relief is available 

(1) Within six months of the coming into force of section 15 of the Finance (No. 2) Act 2017, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the conditions under which business investment relief is available.

(2) For the purposes of this section “the conditions” means—

(a) Condition A as defined in section 809VD,

(b) Condition B as defined in section 809VF.

(3) The review shall make an estimate of the value of the reliefs granted as a result of the conditions in respect of each tax year for which the relief has been available.

(4) The review shall make an estimate of the change in the value of the reliefs granted as a result of—

(a) changes to the conditions relating to eligible hybrid companies,

(b) changes to the periods specified in sections 809VD and 809VH,

(c) changes to the grace period in section 809VJ.

(5) The review shall make an assessment of the effectiveness of the conditions in relation to the stated policy aims of the Government in relation to business investment relief.

(6) The review shall prepare an analysis of the characteristics of beneficiaries of reliefs having particular regard to—

(a) income distribution,

(b) gender and other protected characteristics under the Equality Act 2010,

(c) domicile (including deemed domicile).

(7) A report of the review under this section shall be laid before the House of Commons within one calendar month of its completion.”’—(Anneliese Dodds.)

This new clause requires HMRC to carry out a review of the conditions under which business investment relief is available, including estimates of the value of the reliefs (before and after the changes proposed in this Bill) and an analysis of the characteristics of those using the relief, including their domicile status.

Brought up, and read the First time.

Question put, That the clause be read a Second time.

Finance Bill (First sitting)

Kirsty Blackman Excerpts

Committee Debate: 1st Sitting: House of Commons
Tuesday 17th October 2017 Public Bill Committees

[Peter Dowd]

That is a very valid point that people should listen to. As I said before, that goes to the nub of the situation.

In the light of that, I have a number of very reasonable amendments that the Committee members certainly will agree are pertinent, which need to be asked for and which need answers. Perhaps the Minister, who I know is the epitome of helpfulness, could explain to the Committee how the figure of £500 was reached, who was consulted on the figure, and the basis of the figure, in terms of the pensions advice market—or is the figure arbitrary? Dare I say, is there a smokescreen?

I am sure that the Government do not want to be seen to be acting without providing adequate funds to address the root problem. The cost of financial advice will inevitably inform the value of the advice. That is why we have put forward the amendment, which would raise the threshold for tax-free pension advice from £500 to £1,000. Pensions advice is, after all, the greatest protection against the threat of fraudsters keen to prey on some of those in vulnerable positions. Because we are talking about large sums of money that people rarely engage with until the end of their lives, pension savings are often an active target for scams.

We must recognise that as technology makes it easier for us to access our pension pots, it also increases the risk of fraud. This is also true of the reforms brought in by the Government under the previous Chancellor, giving pensioners greater freedom to withdraw a portion of their pensions earlier. That has been a benefit to some pensioners, although it has brought with it substantial risks and the problems that we continue to see today. The Money Advice Service website outlines the common signs of pension fraud. They include unsolicited approaches by way of a phone call, text messaging or emails. Other practices include a firm not allowing a person to call it back, and people being pressurised and forced into making a quick decision, or being encouraged to transfer pensions quickly and to send documents by courier. Contact details provided are mobile phone numbers only, or a post office box address.

Other tactics include claiming to be a person who can help to unlock a pension before the age of 55, which is sometimes known as pension liberation or referred to as a personal loan. This is possible only in very rare cases, such as very poor health. People say they know of tax loopholes, or they promise extra savings. They offer a suggested high rate of return on investments, but claim that the risk is low.

The Money Advice Service recommends that people looking for pensions advice check against the FCA register of approved pension advisers. The Opposition welcome the loosening of the advice that an individual can claim under the tax-free allowance, as I indicated earlier. Over the past few years, it has become apparent that people not only are concerned about the level of savings in their pensions, but have taken a greater interest in where their pension savings are being invested. Of course this is a good thing, and ultimately pension funds should be accountable to the person whose savings they invest.

All these issues that I have raised so far summarise the Opposition’s concerns about this clause and why we have put forward an amendment that would require a review of the effectiveness of the tax-free relief in the years 2017, 2018 and 2019. It is important that the Government accept the review, rather than rushing ahead with further reforms that may be considered tinkering around the edges. We are suggesting an increase from £500 to £1,000, and a review of the allowance system in due course.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is a pleasure to take part in another Finance Bill Committee, and I am looking forward to another one coming later this year. It feels like we have been discussing this one for quite some time, so I am glad to finally be at the Committee stage in a Committee Room. Thank you for your chairmanship, Mr Howarth.

I wanted to highlight our amendment on this. There have been a huge number of changes in the pensions landscape in relatively recent years. In my working lifetime, we have seen a move away from a final salary pension scheme to career average for the majority of people, even in the public sector. We have seen changes to things such as the lifetime individual savings account and the ability to withdraw pensions. Those are pretty significant changes in the landscape; pensions for people my age look very different from how they looked not that many years ago.

We have also seen changes to the Women Against State Pension Inequality issue, and the equalisation problem. A number of people have come through the door of my surgery and talked to me about how they have been caught by the WASPI issue. If they had had different pensions advice, they would not have retired in the way they did. More than one person who took early retirement now finds that they are caught by the WASPI issue when they should have retired under ill health, which would have given them a completely different outlook on their pensions. If they had had more appropriate advice when they were deciding when to retire, they would have been much better off.

I welcome the Minister’s proposal to make the first £500 of pension advice tax-free; that is an important change and one that we all generally agree with. I agree with the shadow Minister, however, who asked whether £500 is the most appropriate amount. Should it be £1,000? Should it be less? The amendment we have put forward specifically asks about the issues for women born on or after 6 April 1950, because they are the ones who have been caught by this WASPI issue. I am keen to see an increased uptake of pensions advice by those women, because for some of them changing the way in which they retire would make a difference.

Those women have been failed by the system. They have been failed by the Government, who have moved the goalposts and changed the date on which they expected to retire. Some of them retired not long ago and were completely unaware of the change. Those are people who would have read every bit of paper that came through their door. A medical secretary came to my surgery the other day. A medical secretary is someone very diligent about reading bits of information that come through the door, particularly about financial matters that are important for her future, and I believe that she would have chosen a different route to retirement if she had had appropriate advice, and if she had known what would happen on state pension equalisation and what would happen to her.

[David Linden (Glasgow East) (SNP)]

Does my hon. Friend agree that this Government have a pretty dire record on protecting pensioners, not least on the WASPI issue, but even on the winter fuel payment?

[Kirsty Blackman]

That is absolutely correct; I have seen people come through my surgery door to complain about that as well. I did not quite realise the difference in temperature between London and where I live until I became an MP. In London, I could quite easily not have the heating on at all through the entire year, whereas in Aberdeen my heating is on in September, or even earlier. Heating costs significantly more, so the winter fuel payment is hugely important for a number of my constituents and makes a significant difference to their lives. Those people are in fuel poverty; they have been failed by the system, and it is important to note that.

I will not stretch this out too much, but I must be clear that a number of people have been failed by changes to the goalposts. Those changes might be in how their pension is structured and what kind of pension they will get in the end because of movements away from final salary pensions, or because their state pension age has been moved, or because of things like the Government’s wonderful lifetime ISA, which means that if someone becomes sick, their lifetime ISA is considered a savings pot for benefits and held against them when they try to claim benefits. Therefore, a lifetime ISA cannot be seen as something that can be used instead of a pension, because it does not provide the level of safeguards that a real, proper pension pot does.

[Ruth George (High Peak) (Lab)]

The hon. Lady makes some valid points, as did my hon. Friend the Member for Bootle. My question is: given that Which? uncovered back in 2015, the fact that the average cost of independent retirement advice on a £100,000 pension pot was £1,863, does she feel that £500 is an appropriate limit for tax relief?

[Kirsty Blackman]

I thank the hon. Lady for her intervention, which highlights the issue. It would be useful to hear from the Minister about why £500 has been chosen, given that a £100,000 pension pot is not the biggest of pension pots and some people will have more in their pension pot than that. We need to hear from the Minister the reasons behind choosing that figure. It would also be useful to hear about how this might affect those women caught up in and disadvantaged by the Government’s changes to the state pension age, particularly those who have not been told about these changes.

[Mel Stride]

I welcome the hon. Member for Bootle and the hon. Member for Aberdeen North to the Committee and the part that they will play in the debates that lie ahead.

Before I respond to some of the detailed points raised, including the amendments, I will set out the purpose of clause 3. As we have heard, the clause introduces a new income tax exemption to the cover the first £500-worth of pensions advice provided to an employee in a tax year. That will increase the affordability and accessibility of financial advice for those saving for retirement through a workplace pension.

The success of the Government’s auto-enrolment policy means that more people than ever are saving into a workplace pension scheme, as the hon. Lady recognised. There has been quite a change to the general territory of pensions. On top of this, the Government’s historic pension flexibility reforms have given people better access to their retirement savings and control over their money, but with more money and more options, individuals may have a greater need for professional financial advice.

The recent financial advice market review conducted by HM Treasury and the Financial Conduct Authority concluded that there is a particular advice gap in relation to pensions. The Government are keen to ensure that financial advice is accessible and affordable to consumers, especially those nearing retirement. We want to encourage employers to provide advice to their employees to help them to make informed choices about what to do with their pension savings.

As I said, the changes made by the clause will introduce a new tax exemption to cover the first £500-worth of advice in a tax year. It will apply to advice provided to an employee on pensions savings, and on the general financial and tax issues relating to pensions. The exemption applies whether the employer pays or reimburses the employee for the cost of that advice.

Amendment 14 would double the tax exemption to cover the first £1,000-worth of pensions advice provided to an employee in a tax year. We believe that £500 is an appropriate amount. As the hon. Member for Bootle pointed out, that more than triples the current exemption. It also balances the cost to the Exchequer with the objective of encouraging more employers to provide access for their employees to affordable advice. Increasing the tax exemption to cover the first £1,000 also risks inflating the market and making advice too expensive for employers and employees. I can report that we are already seeing the emergence of new forms of tailored advice at a more accessible price of about £500.

The hon. Gentleman spoke about consultation. We have not formally consulted on the changes. As he pointed out, the matter was covered by the financial advice market review consultation, which received 268 responses. Respondents supported the introduction of tax measures to help consumers to afford financial advice. A wide range of stakeholders responded, including employers, individuals and financial services firms. The FAMR also conducted regional roundtables and sought the views of an advisory panel of industry and consumer experts. Consultation on the measure has been deep and meaningful.

On the question whether £500 is the correct amount, as I have explained, this is a tripling of the amount hitherto available. In addition, each employer can utilise the £500 exemption, so an employee who works for two companies may be provided advice by each and benefit from two allocations of the exemption. Although advice can be more expensive, the Government expect more affordable advice propositions to be launched as a direct result of the FAMR. For example, in May 2016 the Financial Conduct Authority launched its advice unit, which will provide regulatory support to firms developing cheaper, automated advice propositions.

The hon. Gentleman also raised the important issue of protections against pension fraud. The important point to bear in mind is that this measure covers all formats of pensions advice, as long as the advice is regulated financial advice delivered by an FCA-authorised adviser. I urge the hon. Gentleman to withdraw the amendment.

--- Later in debate ---

As the Committee would expect, we will keep the effectiveness of the provisions under review. The conditions have been carefully designed to ensure that employees are treated fairly. An employer offering the payments must do so to all employees generally. However, the rules also ensure payments can be targeted at employees at a particular location, who are within five years of their pension age, or who are suffering from ill health such that they are incapable of carrying on with their occupation. That ensures employers can target payments to those approaching retirement. Like other members of the Committee, I want to ensure these rules are effective. The financial advice market review body intends to undertake a review of the recommendations in 2019, so a formal review of the rules does not need to be included in primary legislation.

[Kirsty Blackman]

The Minister said the effectiveness of the provisions will be kept under review. Will he commit to ensuring that the review is published at some point?

[Mel Stride]

As I said, the FAMR body will be conducting a review, which is expected to be published in 2019, and the Government will keep those matters under review on an ongoing basis, as we do all measures of taxation, whether impositions or reliefs.

--- Later in debate ---

[Anneliese Dodds]

As colleagues know, the clause changes, from 2018-19 onwards, the amount to which the dividend nil rate applies down to £2,000 under section 13A of the Income Tax Act 2007. The Opposition are particularly keen to hear the Government’s position on what the impact of the change is likely to be for the self-employed, who could be significantly affected. I would be grateful if the Minister clarified that today.

That change is occurring in a context where existing changes to tax arrangements for self-employed people have not always been adequately dealt with. For example, HMRC’s electronic portal is frequently raised with us as an issue by tax practitioners. I do not mean to sound like a stuck record in relation to my hon. Friend the Member for Bootle, but that is occurring in the context of considerable structural change in HMRC, and we know that many people are already struggling to get through to it to receive advice on making tax returns. This measure will clearly have interaction with other allowances, so greater clarification would be welcome.

That is why we are calling for a review. There needs to be more consideration of these issues and the tax system’s readiness to deal with the change. The amendment would therefore require HMRC to undertake a review of the effects of the change to the dividend nil rate in the clause.

[Kirsty Blackman]

I hear the hon. Lady’s words, but I would probably go even further. We do not agree that the change should be made to the dividend nil rate for a number of reasons. To begin with, those people who are self-employed may have been planning their self-employment for some time and may have been relying on the fact that the dividend nil rate is currently £5,000 in their financial planning. I do not think that there is enough notice for those people who have been making plans to become self-employed. It is not good enough from the Government. There is not enough notice, and the change they are making is pretty rubbish. People on pretty low incomes are going to be hit by some of the change. It is really important that, for example, people who are becoming self-employed for the first time have the nil rate allowance that they thought they were going to have. Those people have not been given enough time to make considerations.

The point raised by the hon. Lady in relation to getting through to HMRC is relevant, particularly given the closures of tax offices and the difficulty that my constituents are having when trying to contact HMRC. The guidance and forms on its website tend to be black and white, but the answer might be somewhere grey in the middle, so people have to phone to get the advice they need to fill in the form online appropriately. As I said, one of our concerns about the general movement towards making tax digital is how people can get advice on filling in online forms, never mind anything else. It is difficult for people to get through to HMRC, and that is a relevant consideration. We are inclined to vote against clause stand part when that comes. However, we would support the amendment, were it to be pressed to a vote.

[Mel Stride]

Before I respond to the amendment as well as the other points raised in the debate, let me first remind the Committee of what the clause seeks to achieve. As we have heard, it reduces the tax-free dividend allowance from £5,000 to £2,000 from April 2018. The change will ensure that support for investors is more effectively targeted and helps to deliver a fairer and more sustainable tax system. It will also help to reduce the tax differential between individuals working through their own company and those working as employees and self-employed. Crucially, it raises revenue to invest in our public services, raising approximately £2.6 billion out to 2021-22.

Since the tax-free dividend allowance was first announced, the landscape for small business owners, savers and investors has changed. The hon. Member for Oxford East specifically asked about support for businesses in the context of these changes. I can assure her that, as the party of business, we are wholeheartedly behind businesses. First, we have supported businesses by reducing the main corporation tax rate to 19%, which is now the lowest rate in the G20. Secondly, for savers, we have increased the amount of money that an individual can save or invest tax-free through an ISA, by the largest amount ever, to £20,000, nearly doubling the limit since 2010. Thirdly, we have continued to increase the personal allowance to £11,500 this April. We have committed to increasing it further, to £12,500, helping individuals keep more of the money that they earn.

The hon. Member for Aberdeen North raised a specific point about response rates from HMRC to telephone contact. That is one of the measures that we are constantly looking at—how good are customer services—and I reassure her that it is one measure where HMRC performance has been relatively strong recently.

The clause should be considered in the context of that wider support for business and the need to deliver a tax system that works for everyone. We also need to take account of the ongoing trends in the different ways in which people are working. The design of the current tax system means that individuals who work through a company can pay significantly less tax than individuals who are self-employed or who work as employees. That can be true even when those individuals are doing very similar work.

At the autumn statement last year, the Office for Budget Responsibility estimated that the faster growth of new incorporations, compared with the growth of employment, would reduce tax receipts by an additional £3.5 billion in 2021-22. By that year, HMRC estimated that the cost to the public finances of the existing company population will be more than £6 billion.

The Government are committed to helping all businesses to succeed, large and small, and in all parts of the United Kingdom, but to deliver and maintain low taxes for everyone, we need a tax base that is sustainable. The cost to the public finances of the growth in incorporation is clearly not sustainable. It is, therefore, right to make the small but sensible change to reduce some of the distortions to which I have referred.

As we have heard from the hon. Member for Oxford East, amendment 18 would commit HMRC to undertake a formal review of the effect of this change to the dividend nil rate by the end of June 2019. It has been specifically proposed that such a review should consider in particular the effect of the change on the self-employed. Such a formal review is not necessary.

As I have mentioned, the change needs to be considered in the context of the wider support that the Government have provided to business owners all across the United Kingdom, from reducing the rate of corporation tax to giving the self-employed the same access to the state pension as employees, worth almost £1,900 more per year, to introducing successive increases to the personal allowance, which is available in addition to the dividend allowance.

Indeed, the Government have given careful consideration to the impact of reducing the dividend allowance. A £2,000 allowance ensures that support is more effectively targeted following this change. Around 65% of all recipients of dividend income will continue to pay no tax on such income. That includes around 80% of all general investors. Typically, a general investor will still be able to invest around £50,000 without paying any tax on the resulting dividend income. Those investors who are affected will have, on average, investments worth around £100,000, which will put them in the top 10% of wealthiest households in the country. I therefore invite the hon. Lady to withdraw the amendment.

The Government are delivering a tax system that works for everyone, including businesses, savers and investors. As the OBR has highlighted, there is a rising and unsustainable cost to the public finances of the growth in incorporation. The clause would help to address that by reducing the tax differential between those who work for a company structure and pay themselves in dividends and those who work as employees or self-employed, while ensuring that support for investors is more effectively targeted. I, therefore, urge the hon. Lady to withdraw amendment 18, while I commend clause 8 to the Committee.

Finance Bill (Second sitting)

Kirsty Blackman Excerpts

Committee Debate: 2nd Sitting: House of Commons
Tuesday 17th October 2017 Public Bill Committees

[Anneliese Dodds]

I am grateful to my hon. Friend for making that point, and I agree that this could apply to a range of different facilities. In many circumstances, this kind of arrangement is the only way to keep those facilities going. We could see them entirely disappear—we all know about the sad disappearance of community pubs in our areas—so I am grateful to her for making that point.

In addition to those potential issues, we are also concerned about the differential treatment of social enterprises by age, with the £1.5 million cap being lifted for social enterprises under seven years old. Will the Minister explain why there is precisely this seven-year limit? It may in practice be that local authorities are relying on well-established, well-run and highly experienced social enterprises to help to provide essential services and facilities in conditions of extreme budget cuts, but it is those older enterprises that are potentially disadvantaged by this scheme. I hope that we are going to learn the exact decision-making process on this seven-year cut-off point. If it is specifically to advantage younger social enterprises, why is that the point? Is it the case that youth is being viewed as a proxy for the ability to take on risky activities? If so, where is the evidence basis for that?

I point again to the example of Aspire in my constituency that operates a range of programmes, including one that supports offenders going into work—people who would not normally necessarily be taken on by different employers. Surely that is a highly risky activity, but it is one at which they—as an established social enterprise—excel. Age does not necessarily appear to be a good proxy for the ability to take on riskier activities. If this seven-year cut-off is not there to encourage younger social enterprises, then why has it been instituted? We need more information on this.

Finally, we feel that additional evidence on the effectiveness of the anti-avoidance clauses within the new provisions is required. Social enterprises in the voluntary sector have a long history in areas such as hospice care, specialist domestic violence and mental health services where they have often genuinely driven innovation. Other social enterprises, such as those I mentioned earlier, have merely donated some of their profits to charity, rather than having a genuinely social or environmental mission. May we have more clarification on how abuse will be identified and dealt with?

[Kirsty Blackman (Aberdeen North) (SNP)]

I do not want to speak for long, but I wanted to say that the hon. Member for Oxford East made a comprehensive, passionate and well-informed case on the amendment. If the Labour party seeks to press the amendment to a vote, we will support it. If the Minister responds to any of the comments by letter, I would be keen to see some of his answers, so I would appreciate being copied into that response.

[Mel Stride]

Compared with typical companies, social enterprises face greater difficulties in accessing the funding they need to grow and develop. Social investment tax relief provides a number of generous tax reliefs to encourage individuals to invest in social enterprises that deliver social or community benefits. The current limit to the amount of investment that a social enterprise can receive through SITR is around £300,000 over three years. We announced in 2014 that we would look to expand the scheme, and we are now doing so.

The changes made by schedule 1 will increase the investment limit to £1.5 million over the lifetime of all social enterprises using SITR. In order to target the relief more effectively at the social enterprises that most struggle to attract investment, those under seven years old will no longer be bound by the three-year rolling investment limit of £300,000. I think this addresses the issues raised by the hon. Member for Oxford East about why the period is seven years. There is a greater vulnerability when social enterprises start up and they are fresh and young. They have yet to have a track record on which they can build, in order to grow. For those we are removing the roaming £300,000 over three years requirement. Social enterprises older than seven years can still use SITR for investment up to the three-year rolling investment limit of £300,000, subject to the lifetime limit of £1.5 million.

Schedule 1 makes a number of other changes to ensure that the scheme is well targeted at activities that will genuinely achieve socially beneficial aims, and provides value for money. That includes targeting SITR at social enterprises with fewer than 250 employees. Some activities have always been excluded from the relief so that it is not used as a tax-advantage route for low-risk investment. The excluded activities list will be updated to exclude a number of low-risk activities, including leasing assets and raising finance to lend on to others.

I agreed wholeheartedly with the hon. Member for Oxford East’s assertion about the importance of these social enterprises. She mentioned Aspire, for example, in her own constituency and many of us can think of similar organisations in our constituencies. On the more detailed process points that she was interested in, particularly around HMRC and advanced assurances, I am happy to write to her.

On the specific issue of leasing, allowing those activities to benefit from SITR would risk diverting finance away from higher risk social enterprises. We must not lose sight of the fact that the whole purpose of this scheme is to encourage those kinds of organisations and all the good works that they do, which might not otherwise come forward for the reason of being high risk. Of course, those organisations struggle the most to raise finance. Leasing assets typically provides a reliable income stream, which makes it a lower risk activity. Allowing social enterprises to raise money to lend on to other enterprises would be complex to administer and would leave the scheme open to misuse.

Finance Bill (Third sitting)

Kirsty Blackman Excerpts

Committee Debate: 3rd sitting: House of Commons
Thursday 19th October 2017 Public Bill Committees

[Kirsty Blackman (Aberdeen North) (SNP)]

I appreciate where the hon. Member for Walthamstow is coming from with the amendments. We support Labour on new clause 1, which calls for a review of how much we are spending and where the money is going. Good points have been well made about how companies are making more of a profit as a result of the changes in corporation tax rates.

On the other amendments, we are concerned about the possible impact that any changes to PFI would have on Scotland. We are still paying off a number of PFI projects in Scotland. I know that people say that all Governments have implemented such projects, but the Scottish Government have moved away from the PFI funding model because the SNP does not support it. We have the Scottish Futures Trust and not-for-profit delivery mechanisms, which mean that profits do not go to private companies.

[Stella Creasy]

To be clear, the evidence of the problems with the PFI model extends to the not-for-profit model. I encourage the hon. Lady to read the work of Mark Hellowell of the University of Edinburgh. No political party can claim the moral high ground when it comes to private finance in this country.

--- Later in debate ---

[Kirsty Blackman]

I appreciate the hon. Lady’s comments. The not-for-profit model that was set up when I was a local councillor, which built schools in Aberdeen, was significantly better than some of the previous rental models. Perhaps that was just because Aberdeen was particularly diligent with the not-for-profit model that it chose specifically for its schools funding project.

As I have said, I am concerned about the effect the amendments might have on the projects in Scotland that were put in place under the previous Scottish Executive. The SNP Scottish Government have been very clear that the old PFI models are not the way to go and that they are incredibly burdensome for the public purse. Although there is a shiny new building, quite often they saddle the public purse with repayments for a very long time, which can amount to much more than the original cost of the building. There is also less flexibility, because the rules of the private sector organisation have to be abided by.

I agree with the concerns raised about PFI models and that we should not use them. The SNP Scottish Government have recognised that and are using initiatives such as the Scottish Futures Trust, which has delivered a significant amount of funding, savings and benefits to the people of Scotland. As I have said, we support new clause 1 because we do not agree with PFI models and think that it is completely reasonable to reconsider them, but we do not support the Labour party’s other amendments.

[Kelvin Hopkins (Luton North) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Howarth. Rather than speak specifically to the amendment, I want to make a comment. My hon. Friend the Member for Walthamstow has raised some very important issues about PFI, but from the beginning it has been an outrageous rip-off of the public purse and the citizens of this country. It should be abandoned. Indeed, in his speech at our party conference, the shadow Chancellor suggested that we should take PFI contracts into public ownership, saving billions for the public purse over time. That is what I want. I have spoken against, voted against and written a chapter of a book against PFI, because it is utterly ridiculous and total nonsense. It is driven by ideology to try to drive as much of the public sector as possible into the private sector. That is what PFI is really about: it puts vast sums of public money into rich private pockets. I will pursue that view vigorously over the next few years.

Finance Bill (Fourth sitting)

Kirsty Blackman Excerpts

Committee Debate: 4th sitting: House of Commons
Thursday 19th October 2017 Public Bill Committees

[Kirsty Blackman (Aberdeen North) (SNP)]

I promise that I will stick to the topic of the debate. For the avoidance of doubt, we will support the Opposition’s new clause 3. I heard what the Minister said about previous family structures, but that does not give us enough reassurance that the system that is being set up for overseas trusts is the correct one.

[Mel Stride]

I thank the hon. Lady for making her intentions so clear.

These changes are fair, and they have been carefully considered and consulted on since they were announced more than two years ago. With regard to a review of the legislation, as stated in the tax information and impact note published in December 2016, HMRC will monitor the effects of the provisions through information collected in tax returns. I therefore urge the Opposition not to press new clause 3.

The changes introduced by clauses 29 to 32 and schedules 8 and 9 will bring an end to permanent non-domicile tax status. When people live in the UK permanently, it is right that they should pay the same tax as everyone else. This is the biggest and most fundamental change to non-dom taxation in history, and strikes the right balance between raising £1.6 billion of much-needed revenue and ensuring that the UK tax system remains internationally competitive.

--- Later in debate ---

[Mel Stride]

Before I respond to the amendment tabled by Labour Members, I would like to set out for members of the Committee the overall aims as they relate to this particular piece of legislation.

Clauses 40, 41 and 42 make changes to ensure that the tax system works effectively for investors in co-ownership authorised contractual schemes, which I will refer to as COACS for short. COACS are UK collective investment schemes authorised by the Financial Conduct Authority. They were introduced in 2013 to make the asset management industry more competitive internationally, to reduce industry costs and to increase returns to investors. These schemes are transparent for tax on income. That means that the income generated by the scheme is taxed on the investors, not on the scheme. Investors are taxed as if they had invested directly rather than through the scheme.

COACS have been welcomed by investors, which are predominantly institutions such as pension funds and life insurance companies. Following consultation last year, the Government are now making three changes to simplify the tax rules for investors in COACS and to align them with rules for other types of investment funds so far as is practical.

Amendment 32 would require HMRC to complete a review of the operation of COACS by early 2019. I reassure the hon. Member for Oxford East that the Government have consulted extensively on the measure. There was a formal consultation in summer 2016, in which the industry participated fully and constructively. The consultation process also included a well-attended open forum of interested parties in September 2016 to investigate and evaluate options. In addition, the Government have held regular discussions with industry representatives. It was in those discussions that the issue that clause 40 seeks to address was first highlighted. The Government will continue to engage with the sector on COACS and the practical implementation of the rules governing the schemes.

The hon. Lady referred to master funds, which are a fund structure where a fund has a number of separate feeder funds as its investors. They were not the subject of any response to the consultation, but HMRC stands ready to engage further with industry, should it have any questions related to COACS and master funds. The hon. Lady suggested that there may be a possible means of tax avoidance here. Income accruing to a master fund that is a co-ownership authorised contractual scheme is treated as the income of the investors, so UK investors cannot avoid tax on it. Clause 42 and its related secondary legislation will help to protect revenue. The measure as a whole is robust against potential tax avoidance, but HMRC will of course continue to be vigilant.

[Kirsty Blackman]

The Minister has been positive about the transference of accountability with COACS. I want to raise a query. Will he confirm that the changes being made will not erode the transparency and accountability of the scheme as it is? Will that be kept under review ?

[Mel Stride]

Absolutely. All these matters will be kept under review. It is not the Government’s belief that the changes will erode the scheme; we believe that the changes will facilitate and ease the operation of these particular schemes to the advantage of pension funds and others that typically make use of them.

In the light of the extensive consultation held and the Government’s continuing commitment to work with industry on the implementation of rules governing COACS, I hope that the hon. Member for Oxford East will withdraw the amendment.

I turn now to the background to the clauses. COACS are not subject to tax, but the operators of the schemes hold information needed by investors to complete their own tax returns and to claim any capital allowances to which they are entitled. The calculation of capital allowances falls in practice on the investors and can be extremely complex. In addition, operators hold information that would help HMRC to check that investors’ tax returns are accurate, but at the moment there is no statutory requirement for COACS to provide tax information to either investors or HMRC. That is one example of the easements, from the investors’ and HMRC’s point of view, that the hon. Member for Oxford East may be interested in. Further, where a COACS holds investments in offshore funds, the rules that normally apply to ensure that offshore income is taxed appropriately on UK investors do not work as they should.

Clause 40 introduces new rules that allow the operator of a COACS to elect to calculate any capital allowances due, benefiting investors by avoiding the need to exchange large amounts of information with the operator of the COACS. The election can be made for periods that start on or after 1 April 2017. Clause 41 enables the Treasury to make regulations that will do three things to help to ensure that the right tax is paid on investments in COACS. First, the regulations will require the operator of a COACS to provide sufficient information to investors for them to complete their own tax returns. Secondly, they will require the operator to provide information to HMRC about the income arising to investors each year, and provide HMRC with a power to request copies of any other information provided to investors. Thirdly, they will impose penalties if scheme operators do not comply.

Clause 42 enables the Treasury to make regulations that will require a COACS that has invested in an offshore fund to ensure that all of the offshore fund’s income is treated as its investors’ income, regardless of whether it is actually distributed to them. This removes the risk of income rolling up offshore without being taxed as it arises. It also brings the treatment of investors in COACS into line with the treatment of UK investors in offshore funds generally.

These targeted measures will help to ensure that the tax system works efficiently for investors in COACS, and that they pay the right tax on their investments. I hope that the hon. Lady will withdraw the amendment, and that clauses 40, 41 and 42 will stand part of the Bill unamended.

Finance Bill (Fifth sitting)

Kirsty Blackman Excerpts

Committee Debate: 5th sitting: House of Commons
Tuesday 24th October 2017 Public Bill Committees

[Mel Stride]

If I may, I shall write to the hon. Gentleman on the specific questions that he has raised about the consultation on these measures.

Question put and agreed to.

Clause 43 accordingly ordered to stand part of the Bill.

Clause 44

Petroleum revenue tax: elections for oil fields to become non-taxable

Question proposed, That the clause stand part of the Bill.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is welcome that the Government are looking to reduce the administrative burden in relation to elections for oilfields to become non-taxable. That is positive news. The Chancellor of the Exchequer has mentioned in two Budgets that there will be changes in the taxation system to make it easier for late-life assets to be transferred. I have heard noises from the Chancellor in recent times that he may not introduce that in the autumn statement this year, and I will just make this pitch to the Minister. This issue is incredibly important. The oil and gas industry is not asking at this moment for significant changes, but for the change in relation to the transfer of late-life assets. I would very much appreciate it if, in the context of reducing the administrative burden and making things easier for companies dealing with the very mature field in the North sea, the Minister would hear my case on that and make the case to the Chancellor.

[Anneliese Dodds]

I must admit to being slightly confused about the purported impact of this change. Some of the inputs from stakeholder bodies seem to imply that there will be some kind of Revenue impact as a result of the changes in relation to procedures for elections for oilfields to become non-taxable. For example, Oil & Gas UK has welcomed the change, saying that the move will reduce the headline rate of tax paid on UK oil and gas production. In contrast, Friends of the Earth has expressed disappointment at the tax cut. As I understand it, petroleum revenue tax was permanently zero-rated in 2016, and the Government’s assessment of the measure’s impact on the Exchequer is that it will be negligible. Therefore, can the Minister enlighten us on why some people appear to view the measure as potentially having an Exchequer impact, but the Government do not appear to have that view?

--- Later in debate ---

Digital reporting and record-keeping for income tax etc

[Kirsty Blackman]

I beg to move amendment 37, in clause 60, page 71, line 16, leave out ‘paragraph 2’ and insert ‘paragraphs 1A and 2.

1A (1) The provisions of this Schedule shall not apply to a person specified in paragraph 1(1) except in accordance with the provisions of this paragraph.

(2) No person shall be subject to the provisions of this Schedule unless they fall within a class of persons specified in regulations made under sub-paragraph (3).

(3) The Commissioners may by regulations specify a class of persons to whom this Schedule applies provided that the relevant conditions in sub-paragraphs (4) to (9) are met.

(4) The condition in this sub-paragraph is that the first regulations may not be made until after the Commissioners have undertaken an assessment of the impact of the implementation of the provisions of this Schedule on—

(a) small businesses that have limited technological connectedness,

(b) businesses in rural areas, and

(c) businesses that are likely to have been affected by the closure of HMRC offices.

(5) The condition in this sub-paragraph is that the first regulations may not apply to more than 25 per cent of persons to whom paragraph 1(1) applies.

(6) The condition in this sub-paragraph is that the Commissioners have prepared an assessment of the likely effects of making regulations in the form of a draft which has been laid before the House of Commons by the Treasury.

(7) The condition in this sub-paragraph is that the House of Commons has resolved that regulations should be made in the form of a draft laid in accordance with sub-paragraph (6).

(8) The condition in this sub-paragraph is that the second regulations may not be made—

(a) until at least twelve months have elapsed since the making of the first regulations,

(b) unless, taken together with the first regulations, they apply to no more than 90 per cent of persons to whom paragraph 1(1) applies.

(9) The condition in this sub-paragraph is that the third set of regulations may not be made until at least twelve months have passed since the making of the second regulations.’

This amendment would provide for a staged implementation of the provisions for making tax digital in relation to income tax, with review of impact on specific groups and provision for each new stage to be subject to approval by resolution of the House of Commons.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 7, in clause 60, page 75, line 7, at end insert—

‘(1A) Regulations under sub-paragraph (1) must in particular require a person or partnership to record service charges separately from other income.’

This amendment imposes a duty on HMRC to require separate records to be kept of service charges.

Amendment 8, in clause 60, page 75, line 7, at end insert—

‘(1B) Regulations under sub-paragraph (1) must in particular require a person or partnership to maintain separate records in respect of each employee and in respect of any prescribed time period of service charges received and to make those records available in a prescribed manner.

(1C) In sub-paragraph (1B), “prescribed” means prescribed by regulations.’

This amendment imposes a duty on HMRC to require separate records of service charges to be kept in respect of each employee and in respect of prescribed period to be made available in a prescribed manner.

Amendment 39, in clause 60, page 75, line 7, at end insert—

‘(1B) Regulations under sub-paragraph (1) must in particular require a person or partnership to maintain separate records in respect of each employee and in respect of any prescribed time period of service charges received and to make those records available to those employees.

(1C) in sub-paragraph (1B), “prescribed” means prescribed by regulations.’

This amendment imposes a duty on HMRC to require separate records of service charges kept in respect of each employee and in respect of prescribed period to be made available to those employees.

Amendment 33, in clause 60, page 78, line 19, after ‘day’, insert

‘no earlier than 1 January 2022’.

This amendment provides that the provisions for digital reporting in Clause 60 may not be brought into force before 2022.

Amendment 40, in clause 60, page 78, line 20, at end insert—

‘(4A) No regulations may be made under subsection (4) until after 90 days after the Chancellor of the Exchequer has laid a report before the House of Commons which sets out—

(a) the steps which HMRC has undertaken to establish that suitable software is available;

(b) the results of the testing by HMRC and others of that software; and

(c) the reasons why mandatory use of the software is in the interest of HMRC and taxpayers.’

This amendment would require the Chancellor of the Exchequer to report on software suitability and testing before giving effect to the provisions of Clause 60.

Clause 60 stand part.

Amendment 34, in clause 61, page 78, line 34, after ‘day’, insert

‘no earlier than 1 January 2022’.

This amendment provides that the provisions for digital reporting in Schedule 14 and Clause 61 may not be brought into force before 2022.

Clause 61 stand part.

That schedule 14 be the Fourteenth schedule to the Bill.

Amendment 35, in clause 62, page 79, line 12, at end insert—

‘(5A) No regulations may be made under sub-paragraph (5) on a day prior to 1 January 2022.’

This amendment provides that the provisions for digital reporting in Clause 62 may not be brought into force before 2022.

Amendment 38, in clause 62, page 79, line 12, at end insert—

‘(5A) But no regulations may be made by the Commissioners unless the conditions in sub-paragraphs (5B) to (5D) are met.

(5B) The condition in this sub-paragraph is that the first regulations may not be made until after the Commissioners have undertaken an assessment of the impact of the implementation of the provisions of those regulations on—

(a) small businesses that have limited technological connectedness,

(b) businesses in rural areas, and

(c) businesses that are likely to have been affected by the closure of HMRC offices.

(5C) The condition in this sub-paragraph is that the Commissioners have prepared an assessment of the likely effects of making regulations in the form of a draft which has been laid before the House of Commons by the Treasury.

(5D) The condition in this sub-paragraph is that the House of Commons has resolved that regulations should be made in the form of a draft laid in accordance with sub-paragraph (5C).’

This amendment would provide for implementation of the provisions for making tax digital in relation to VAT to take place only following a review of impact on specific groups and provision for regulations to be subject to approval by resolution of the House of Commons.

Amendment 36, in clause 62, page 79, line 19, at end insert—

‘(6A) Regulations under sub-paragraph (5) may not impose mandatory requirements for businesses to generate quarterly updates.’

This amendment provides that any system for quarterly updates to be generated must not be mandatory.

Amendment 10, in clause 62, page 80, line 13, at end insert—

‘(12) Before making regulations under sub-paragraph (5) and in any case within three months of the passing of the Finance (No. 2) Act 2017, the Commissioners shall lay before the House of Commons an assessment on the effects on compliance with the requirements of those regulations by small businesses of the United Kingdom’s withdrawal from the European Union.’

This amendment requires HMRC to publish an assessment of the effects on electronic VAT records requirements for small business of the UK’s withdrawal from the EU.

Clause 62 stand part.

[Kirsty Blackman]

The Scottish National party has previously raised concerns about the moves to digital reporting. It is not that we do not support the principle of moving towards digital reporting. We have been clear that we think this could be a positive move. The concerns that we have raised previously have been about the timing of the moves and the way in which smaller companies were expected to move to digital reporting first. The Minister, to his credit, has changed the proposed plans and come up with a much more sensible direction and timeline for moving to digital reporting than the Government previously suggested.

Our amendment highlights specific concerns about the move to digital reporting, which, despite the Government’s changes and moves, we still feel have not been adequately answered. The amendment deals with the impact on specific groups that we feel might be negatively affected by the move to digital reporting.

The first group is small businesses that have limited technology for connectedness. There are small businesses that do not make that much use of the internet. There are some coming through that are wholly internet-based, and for which it is very important; but some are still starting that are not technologically advanced and do not use the internet much. We are concerned about the impact on them of having to report digitally online, in view of their access to technology. The businesses in question are not only in rural areas; they may just be run by someone who does not make huge use of the internet.

The second group is businesses in rural areas. In those areas in particular, even though commitments have been given by the Scottish and UK Governments about improving access to digital connectivity, at the moment not everyone has a fast enough internet connection to enable them to access the relevant services. If it is mandatory for businesses to use online digital reporting, that will be a problem for those without access to adequate technology—particularly in rural areas. Areas in England are affected, as well as those in more remote parts of Scotland. I understand that there have been Government commitments to get people on to digital systems, but we are not quite there yet.

[Ruth George (High Peak) (Lab)]

Does the hon. Lady agree that, in areas such as the remoter parts of Scotland, as in areas of my constituency, broadband access can be intermittent? The Government have excluded from the provision those who are completely digitally excluded. However, there are areas with patchy broadband—people have it on some days but not others—and there could be a problem for people who do not fall in the group that the Government have excluded.

[Kirsty Blackman]

I agree. In Kingswells in my constituency, which is a large suburb of Scotland’s third city, there are significant issues about access to fast broadband. There is access to slow broadband, and it is sometimes intermittent, for reasons to do with historical infrastructure. Broadband companies were put on the grid to begin with and they now find it more difficult to upgrade the historical technology. I appreciate the point that the hon. Lady has made; it is important to note that for some people intermittent access can be as difficult as no access.

The third category of businesses we have chosen is those likely to be affected by the closure of HMRC offices. I have needed to do tax returns online only since I became an MP. The problem with some of the questions is that yes or no are the options but my answer has been “maybe” or “kind of”. Despite the fact that the online form was fairly clear, I needed to phone someone to get some advice on whether to tick yes or no. If businesses lack advice and information from HMRC about the correct option to choose in some cases, it will be more difficult for them to fill out the forms.

It is important that businesses should be given the advice, information and support they need to fill in the forms correctly online. I am sure that no businesses will be trying to make errors; they will be looking for advice. My concern, particularly regarding HMRC offices, is the lack of access to advice that people might have.

[Mel Stride]

The important point is that, for many years, people have not simply been walking into or getting an appointment at their local HMRC office. The fact that we are drawing offices together into 13 beefed-up regional centres is particularly important in the context of telephone advice, which the hon. Lady is alluding to and which will still very much be available for exactly the circumstances she describes.

[Kirsty Blackman]

I appreciate the Minister’s point. In an earlier sitting, he mentioned the positive timelines when people phone HMRC for advice; apparently the phone is answered very quickly. I get that he says the statistics show that, but people are walking into my surgeries and into my constituency office saying that they have tried for hours to phone HMRC and have really struggled to get through. Despite him saying that the statistics show one thing, the lived experience of my constituents is very different. That is why I have these concerns, and even if one person or a handful of people cannot get through on the phone and fill in their form on time because they are not able to answer the question, it is a concern. I implore the Minister to continue working on call times and to ensure that, when people phone, they get through as quickly as possible and that the calls are answered, and that the advice provided is correct so that people can make the correct choice, particularly with online forms.

Labour Members have tabled a number of amendments to the clause. We were clear in the SNP manifesto that we supported a phased move to digital reporting, so what the Minister has proposed is now much more in line with what we were thinking. I ask that Labour Members, in speaking to the amendments, explain why they chose 2022, and I will make a call after that on whether we think supporting them is relevant. One Labour amendment suggests that we should not move towards digital reporting, which would be a concern for us because our manifesto commitment was positive about digital reporting. I look forward to hearing the comments from the Opposition and the Minister.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

As ever, I am eager to serve under your chairmanship, Mr Howarth. I come to the Committee with a series of amendments on what digital reporting might offer us to resolve some of the challenges faced by employers and employees in our country. There are two issues in particular, which I will come to in turn, because as ever with the Finance Bill, they are technical.

First, I will deal with the treatment of the lowest-paid staff in our country—Office for National Statistics data show that, of all low-paid people, waiters and hospitality staff get paid the least—and what we can do to help them with their incomes. Secondly, I will look at how digitisation could help us to address compliance, which is one of the biggest issues for small businesses. To prefigure the Minister’s comments, I know he will say that that is for another Bill, but given how important it is for the systems to work together, I think this is an issue for this Bill. I hope he will bear with me.

I turn first to amendments 7 and 8—amendments 8 and 39 are identical—which concern the treatment of waiters and hospitality staff. Many Members may be familiar with campaigns on the treatment of tips, service charges and gratuities and with evidence showing that some employers were using those to top up people’s wages and to avoid paying the national minimum wage. Members might therefore be relieved that legislation was brought in to prevent that, but it has become clear that many employers still use tips, service charges and gratuities to avoid paying their staff properly. The amendments go to the heart of how we can address that.

In particular, Members might not be aware that people are supposed to pay tax and national insurance on their tips. If an employee is paid their tips through a tronc, where their employer collects the money usually using an online system, which is what we are debating today, the employer is supposed not only to pool the tips and share them out—after all, I think we would all recognise that as well as the person who serves a meal, the people who work in the kitchen deserve recognition of their work—but to check that the employee has paid national insurance and tax.

--- Later in debate ---

[Mel Stride]

The hon. Lady overlooks the fact that it is often possible for those who wish to complain to do so anonymously through their trade union or other representatives. That is what happens in many cases. HMRC does not have to rely on a specific complaint to conduct an investigation. It may have suspicions of its own for a variety of reasons. I do not think that we are in a position where people are unable to come forward, as she suggests.

The hon. Member for Aberdeen North has tabled two amendments that seek to review the impact of MTD on specific groups. I recognise her concerns, but the Government have been clear from the outset that businesses that are unable to go digital will not be required to do so.

If you will indulge me, Mr Howarth, it is worth looking at some of the detail of the Bill at this point. The hon. Lady has raised a very important point about potential digital exclusion. Clause 60 covers exemptions, as I am sure she is aware. New sub-paragraph (4) of paragraph 14 of schedule A1 states:

“The digital exclusion condition is met”—

for those who would not be required to put in their returns digitally—

“in relation to a person or partner if…for any reason (including age, disability or location)”—

the hon. Lady rightly raised rural localities—

“it is not reasonably practicable”—

that is not the same as completely impossible—

“for the person or partner to use electronic communications or to keep electronic records”.

I think that is a well-crafted clause to catch the kind of circumstances about which the hon. Lady and I are concerned.

[Kirsty Blackman]

The concern raised by the hon. Member for High Peak was about intermittency. The issue is not about people who do not have access to the internet at all, but those who have only intermittent access. The clause may not be lenient enough for them to make a case for not having digital access. Does the Minister have a view on that?

[Mel Stride]

I thank the hon. Lady for her further point. I guess it comes down to interpretation. It seems to me that if it is not reasonably practical for a person or company to use electronic communications, the reliability of the service—another way of describing the point she raised—would be an important part of the judgment that would be made.

The clause continues with “Further exemptions”. Proposed new paragraph 15(1) states:

“The Commissioners may by regulations make provision for further exemptions.”

New paragraph 15(1) states:

“The exemptions for which provision may be made include exemptions based on income or other financial criteria.”

There is therefore a recognition in the Bill that not only do we need to get it right for the current circumstances, but we need the flexibility to be ready for any circumstances that might present themselves and which we have not considered at this stage. Those would need to be addressed further down the line.

For those who can go digital but require additional assistance, HMRC will continue to provide a diverse range of digital support, including webinars, helplines and YouTube videos, to help them meet the requirements of making tax digital.

The hon. Member for Aberdeen North also seeks to provide for a phased implementation period, with the commencement of each new stage requiring approval by the House. We have already revised the implementation to start with businesses that report quarterly, and stakeholders are operating on the basis of the new timeline. We are phasing in the implementation by piloting the changes and by starting with mandation only for VAT and those above the VAT threshold. The secondary legislation required to lay out the detailed operation of MTD will be laid before the House in due course, offering Members a further opportunity to scrutinise our plans and consider our proposals.

The hon. Member for Walthamstow has tabled an amendment to require HMRC to publish an assessment of the effect of our exit from the European Union on MTD for VAT for small businesses. HMRC wants to give businesses plenty of time to adapt to MTD and is allowing for a full year of piloting the changes before mandation applies and before the UK leaves the European Union. If businesses wish to begin keeping their records digitally before we leave the EU, they will be able to do so.

The hon. Lady raised specific issues in respect of VAT and the 13th directive. The Government do not consider there to be an MTD issue here. MTD is about how records are kept and reported, rather than the nature of the VAT regime itself. The regulations will be consistent with the requirements of the 13th VAT directive, but if she has specific concerns, HMRC will be happy to look into them.

Finance Bill (Sixth sitting)

Kirsty Blackman Excerpts

Committee Debate: 6th sitting: House of Commons
Tuesday 24th October 2017 Public Bill Committees

[The Chair]

I am afraid that we cannot. I call Kirsty Blackman.

[Kirsty Blackman]

I thank you, Mr Walker, and Mr Howarth for your chairmanship of this Committee. It has been excellent, as ever. I also thank all hon. Members—in particular, my hon. Friend the Member for Glasgow East, who has sat through his first Finance Bill. It will possibly be the first of many. I think he hopes not, but we shall see. I would like to give special thanks to Miriam Brett, our researcher, who provided me and my hon. Friend with a huge amount of useful information, which we used during the Committee.

Question put and agreed to.

Bill, as amended, accordingly to be reported.