Taxation: Avoidance
Lord Davies of Oldham Excerpts(9 years, 2 months ago)
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Lord Davies of Oldham (Lab)
My Lords, I fear the House and the country are going to regard that as a fairly lame Statement in the light of the disclosures today. The Minister has not made any attempt at all to answer the questions that are being asked about past actions. We and the country want to know: why did the Prime Minister, first, appoint Stephen Green to this House when the information was already in the Government’s hands and, secondly, make him Trade Minister? Did they not address the issue of due diligence at all with regard to Mr Green’s past actions and responsibilities at HSBC, as chairman and before that as chief executive? When the information was received by the Government, why was it not acted on?
Why is it that we are now hearing from the Government that we have had one successful prosecution, but the French are talking about the very many successful prosecutions that they have carried out? Why are the Government now boasting about the fact that they have been able to persuade the French to release their information and be helpful to the British Government? That looks as if the French have set about the issue with the due seriousness and urgency that were required, and our Government have not.
Finally, despite what the Minister says about the actions being carried out, the amount of uncollected tax has risen year on year on this Government’s watch, from £31 billion in 2009-10 to £34 billion in 2012-13. When will this Government take real, meaningful action to tackle this tax gap?
Lord Newby
My Lords, as I explained at Questions earlier, before the noble Lord, Lord Green, was appointed to your Lordships’ House, he went through the normal rigorous vetting procedure that is undertaken by the House of Lords Appointment Commission, and the Cabinet Office went through its normal procedure. As for prosecutions, my colleague’s Statement in another place explained that HMRC received the HSBC data under very strict conditions which limited our use of them to pursuing offshore tax evasion, and prevented us from sharing the data with other law enforcement authorities. Under these restrictions, we have not been able to seek a prosecution for other potential offences such as money laundering. However, by pursuing the civil route, we have been able to recover some £135 million from people who were involved in this activity. The noble Lord is right in saying that, in monetary terms, the tax gap has increased very slightly but I think he will find that in real terms the tax gap has fallen.
Credit Unions
Lord Davies of Oldham Excerpts(9 years, 3 months ago)
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Lord Newby
My Lords, the Government support both those concepts. The right reverend Prelate will be aware that the Government have been working with the Archbishop of Canterbury’s task force on affordable credit and savings to institute the LifeSavers project, under which primary schools are working with credit unions to encourage young children into good savings habits and raise awareness of credit unions.
Lord Davies of Oldham (Lab)
My Lords, the House will have noticed just how vague the Government’s commitment is when they say that after the election—yet another commitment for “after the election”—they will introduce additional legislation. Does the Minister recognise that what the next Labour Government will do is to increase the levy on payday lenders in order to help the development of credit unions?
Lord Newby
My Lords, the Government have legislated several times to modernise the law in respect of credit unions. The proposals of the Labour Party are based on an assumption that payday lenders represent a large stock of cash. The way in which the payday lending industry is going suggests that there simply will not be that amount of resource available from the sector.
Wealth Inequality
Lord Davies of Oldham Excerpts(9 years, 3 months ago)
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Lord Newby
My Lords, I make two principal points. The first is that the increased level of employment means that there are now 390,000 fewer children living in workless households, which sets a very important example in those households about their future life prospects. The other point to bear in mind is that there are now record numbers of people from disadvantaged backgrounds going to university, which, as we know, is one of the best ways of ensuring that people get a good, well paid job.
Lord Davies of Oldham (Lab)
My Lords, does the Minister not know the evidence which indicates that inequality in this country is increasing? The policy of looking after the rich, based on some kind of theory of a trickle-down effect, is not working. How can there be a situation, under this Administration, where the rich are getting wealthier but the average family is £1,600 a year worse off?
Lord Newby
My Lords, it is simply not true: income inequality has not risen under this Administration. The £1,600 figure—which was immensely dubious even when it was first used three years ago—is now completely outdated by the fact that wages are rising in real terms. The key thing in terms of prosperity and, indeed, income distribution is to increase the number of jobs, to increase the number of well paid jobs. We have increased the number of jobs and vastly increased the number of apprentices. That is the how we are going to enable people from the bottom end of the income scale to do better in the future.
National Insurance Contributions Bill
Lord Davies of Oldham Excerpts(9 years, 4 months ago)
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Lord Newby (LD)
My Lords, in Committee, I outlined the Government’s intention to table an amendment to give effect to the important initiative regarding apprentices announced by the Chancellor of the Exchequer in his Autumn Statement on 3 December. I now move this amendment to the Bill. As noble Lords will be aware, the Chancellor announced that the Government will abolish employer class 1 national insurance contributions for apprentices under the age of 25 from April 2016. This builds on the removal of employer class 1 national insurance contributions for all under-21 year-olds from April 2015.
Amendments to Section 9 and new Section 9B of the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992 give effect to the Government’s intention to abolish employer class 1 NICs for apprentices under the age of 25 from April 2016 by introducing a zero rate of secondary class 1 NICs for employers of apprentices under the age of 25 on the earnings of those employees. The zero rate will apply to earnings below the upper earnings limit.
As the Chancellor made clear, apprenticeships are at the heart of the Government’s drive to equip people of all ages with the skills valued by employers. This measure is intended to support employers who provide apprenticeships to young people by removing the requirement that they pay secondary class 1 NICs on earnings up to the upper earnings limit for those employees. The measure is also intended to support youth employment. Under this Government, employment is at its highest ever level while unemployment is now lower than when they came into power. However, there is still more to do. The Government will provide a zero rate of employer’s class 1 NICs on the earnings of apprentices under the age of 25 from 6 April 2016. The measure will apply both to new and existing apprentices aged under 25 and is not time-limited.
The first main feature of the new clause is that there is a regulation-making power to define “apprentice”. There are existing statutory definitions relating to apprenticeships. For example, in England and Wales, the Apprenticeships, Skills, Children and Learning Act 2009 introduces the concept of an “apprenticeship agreement”, which is defined in part with reference to an apprentice. Because education and training is a devolved matter, and not all apprentices are employed under apprenticeship agreements, we will need to look at the approaches taken towards apprenticeships in the different devolved Administrations. The power will allow time to discuss the definition with stakeholders such as the Skills Funding Agency and its devolved equivalents. The power will also enable us to respond simply to changing statutory definitions and requirements in the future.
Secondly, there are regulation-making powers to vary the age group to which the zero rate of secondary class 1 NICs for apprentices applies. For example, the Government could in the future allow for an increase in the age bracket of apprentices falling into the zero rate band of secondary class 1 NICs. Thirdly, there is a regulation-making power to ensure that the benefit of the zero rate of secondary class 1 NICs for apprentices can be enjoyed only in respect of earnings below a certain level. In other words, the power will provide a means to introduce an upper secondary threshold for apprentices in the same way as we are doing for under-21 year-olds. This threshold will be set at the level of the upper earnings limit in the 2016-17 tax year.
The Government believe that this measure, alongside other initiatives on apprenticeships and the abolition of employer’s NICs for under-21s from April 2015, will help to address the problem of youth unemployment in the UK. I beg to move.
Lord Davies of Oldham (Lab)
My Lords, I begin with an expression of gratitude to the Minister. As he indicated in his speech, he was kind enough in Committee to indicate the thrust of amendments that would be tabled on Report. He duly fulfilled that promise. Therefore, when I received his letter dated 22 December—I give the House the opportunity to imagine just when I settled down to read this letter—it did not cause quite the degree of consternation that the Minister might have thought. It was not an unfortunate Christmas present but merely confirmed that the Government were in fact carrying out their intentions with regard to the Bill. Therefore, I thank him for his letter, timely as it was.
As we indicated at Second Reading and in Committee, we are supportive of the broad intent of the Bill and the form of the NICs position. We welcome the particular amendment, but nevertheless have some anxieties which I hope the Minister will assuage. What will be the level of scrutiny to ensure that this change to the NICs position in order to encourage apprenticeships does not result in a rerun in apprenticeships of some of the aspects we have seen of the Government’s obvious enormous delight in the number of self-employed people?
We are all too well aware that the increase in self-employment conceals in many respects great difficulty for people who cannot get work in any other way, so they engage in the most risky process of advancing and safeguarding their lifestyle. What reassurances can the Minister give that this extension of the reduction in national insurance contributions will not lead to unscrupulous employers using this strategy in order to reduce the taxation that ought to be paid?
The Minister must know that there are certain areas where self-employment is very significant. We should mention in particular the construction industry. All of us in the House recognise that that industry has particular patterns of labour engagement—that goes without saying. Nevertheless, we also know that evasion can be carried out with regard to taxation in this respect. The noble Lord must appreciate that the addition which this legislation presents as regards the under-25s, for example, might lead to difficulties.
The Government are passing this Bill without a clear definition of “apprenticeship”; they say that they are working on it. In due course a definition will be introduced in legislation which the Government say will meet the requirements. It is to be subject to secondary legislation at a date that is certainly some way in the future. Given that the Government are emphasising the importance of apprenticeships in this Bill, we would have hoped that the Minister would have got some way towards defining the term.
I can give him some illustrations of what a proper definition of apprenticeship might look like. It might indicate that the apprenticeship should normally last for two or three years at the least. It might indicate that apprentices should be new entrants to the area of work rather than existing employees. The fact that the Government have made no real attempt during the passage of the Bill to address these issues means that we fear that what they will do with it, if they have the chance, will reflect their present activities; namely, that a great number of apprenticeships involve merely rebranding workers who are already at a place of work and calling them apprentices without identifying what the skills acquisition and development actually involves.
Lord Newby
My Lords, as I mentioned in Grand Committee on Monday 15 December, the Government are bringing forward four minor technical amendments to Clause 2 and Schedule 1, which deal with simplifying the collection of class 2 NICs payable by the self-employed.
Amendments 2 and 3 are the Government’s response to the report of the Delegated Powers and Regulatory Reform Committee on the delegated powers contained in the Bill, which was published on 27 November. The report drew to the attention of the House the power in Clause 2 to amend primary and secondary legislation as a consequence of the reform of class 2 NICs. This power is currently subject to the negative procedure. The Delegated Powers and Regulatory Reform Committee said that in its view the justification given in HMRC’s delegated powers memorandum was not sufficient for the negative procedure to apply where the power allows for the amendment or repeal of primary legislation, and recommended that in this instance the power should be subject to the affirmative procedure. I can confirm that the Government have considered and acted on the report of the Delegated Powers Committee. Amendment 2 provides that regulations made under Clause 2 which amend or repeal primary legislation are to be subject to the affirmative procedure. Amendment 3 provides that the negative procedure will continue to apply to any use of the power set out in Clause 2 where a statutory instrument does not contain any regulations modifying primary legislation.
Amendments 4 and 5 are minor and technical amendments that the Government intend should be made to the draft legislation in the Bill that deals with simplifying the collection of class 2 NICs payable by the self-employed. Amendment 4 amends Schedule 1 to the Bill, which inserts new Section 11A into the Social Security Contributions and Benefits Act 1992. This is being made to ensure that the relevant self-assessment—SA—penalties apply to class 2 contributions collected through self-assessment by adding a missing reference to the self-assessment underdeclaration penalty contained in Schedule 24 to the Finance Act 2007. It was always the Government’s intention to align penalties for class 2 contributions more closely with those for SA as part of the reform of class 2 so that the self-employed are not subject to two different regimes, but this particular penalty was unintentionally omitted. Amendment 5 makes a corresponding amendment to the Social Security Contributions and Benefits (Northern Ireland) Act 1992. I hope that noble Lords will feel able to support these minor amendments.
Lord Davies of Oldham
My Lords, I have not the slightest difficulty in commenting favourably on technical Amendments 3, 4 and 5, which of course I understand the necessity for. I am glad the Government have brought them forward. Nor am I against Amendment 2—far from it, I am very much in favour of Amendment 2.
I merely draw to the attention of the House the very credible work of our colleagues in the Delegated Powers and Regulatory Reform Committee, which drew this issue to the attention of the Government in a way that gave them just sufficient time before Christmas to get their act together and indicate that they were going to table amendments on Report to give effect to the committee’s recommendation, which is to ensure that such a significant part of the legislation should be subject to the affirmative procedure and therefore much closer and more effective scrutiny in Parliament than the negative procedure. I am very much in favour of Amendment 2 and I congratulate our colleagues. I am sure the whole House is very appreciative of the work that is done by the committee. Once again it has done something that the House can take great pleasure in approving.
Childcare Payments Bill
Lord Davies of Oldham Excerpts(9 years, 4 months ago)
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Lord Newby
My Lords, the key thing is to increase both the quantity and the quality of the childcare that is available. A welcome development is the fact that a larger number of primary schools are now providing nursery places. Also, the Government have been supporting, by way of grant, individuals to set up as childminders, as a result of which there are now several tens of thousands more places available than was the case a couple of years ago.
Lord Davies of Oldham (Lab)
My Lords, it may be the season of good will, but there is not much good will on the part of the Government to women. Will he confirm that 85% of the additional cash received by the Government through changes to direct taxes and benefits is in fact obtained from women?
Lord Newby
My Lords, that is a figure I have never heard and do not recognise. I would just remind the noble Lord that more women are now in work than ever before, that there is better support in terms of free childcare for young children, that free school meals are provided for all children at a young age and that the pupil premium means, in effect, that families with several young children now get several thousand pounds-worth of direct benefit each year. None of these things obtained under the previous Administration.
Pension Schemes Bill
Lord Davies of Oldham Excerpts(9 years, 4 months ago)
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Lord Davies of Oldham (Lab)
My Lords, I thank the Minister for his extensive coverage of both Bills and reassure the House that my own contribution will be not to follow him down every detail of the legislation but to concentrate on those parts where we have anxieties and worries that we intend to contribute to the debate today and subsequently in Committee on the pension reform Bill. I thank the Minister for his extensive coverage but he will know that the Opposition support the principle of increased flexibility for people in retirement and reform of the pensions market so that people can get a better deal.
The Bill seeks to remove the limits on withdrawals from draw-down to make annuities more flexible and to prevent the Government’s pension reforms being exploited for unintended tax purposes, and we share those objectives. However, it is vital that the Government get the details of those changes right. We have set out three tests for pension reforms: guidance, fairness and cost. We are supporting the reforms to ensure that people have more flexibility in how they access their pension savings, but these are significant changes and we have to ensure that they work for all savers. First, on guidance, we need to ensure that savers get the right guidance, and I will develop that point subsequently. The fairness test needs to ensure that there are decent products for low-income and middle-income earners; it is fairly obvious that those with large pension pots are in a better position to look after their interests. The costs test that we are seeking to apply is to ensure that the reforms do not result in extra pressures on the state, either through social care or through pensioners falling back at a later stage on means-tested benefits such as housing benefit.
We have concerns about the speed with which these reforms have been pushed through. There was no consultation prior to the Chancellor’s Budget Statement, and the Government have refused our calls to publish further details and analysis of the behavioural impacts of these important reforms as well as, I might add, the potential impact on government revenues. I am not sure that the Minister was entirely convincing in his response to the point that my noble friend Lord Beecham made in his intervention; we need to examine carefully the potential impact on public revenues and resources.
We will press the Government to undertake a Treasury review within two years of the reforms coming into force. These are of such significance for such a significant part of our population that we need to know that they are working as intended. That review should detail the impact of the Bill on government revenues, with particular reference to opportunities for tax and national insurance contributions avoidance. The Government make great play of their approach to tax avoidance issues at present, but they must recognise that there are some anxieties about the potential effect in that area of those proposals.
The pension reforms will introduce increased flexibility for savers; however, they will also lead to the creation of a more diverse pensions market, with a range of new products available. Safeguards must be in place to protect customers from being exploited or facing unreasonable fees and charges. People need real support to negotiate this new, more complex landscape. That is why these changes must be accompanied by free guidance that is high-quality and impartial. The Government made a commitment to provide everyone with free impartial face-to-face guidance. They have a responsibility to ensure that that guidance is in place on time and meets customer expectations.
The Government are not always reassuring on that front; sometimes they seem to talk about guidance and sometimes about advice. Advice is something for which you pay in the industry; it is an activity regulated by the Financial Conduct Authority, which authorises individuals and firms acting as advisers. Guidance is different. Guidance in the context of the pension changes that will take effect from April 2015 must be free and impartial information to empower customers to make informed and confident decisions. That activity will not be regulated by anyone; the individual will have to make up their own mind as to the best route post-retirement.
After all, the FCA sums it up distinctly and neatly on its consumer website:
“The main difference between guidance and advice is that you decide which product to buy without having one or more recommended to you”.
That is why guidance will bear a heavy weight. The guidance envisaged in the Bill aims to provide the estimated 300,000 new retirees per year with defined contribution schemes with this service. Even with the distribution channels of the web, face-to-face—for example, Citizens Advice—and via telephone, including the Pensions Advisory Service, there must be grave doubts about the level of take-up that will be achieved. The amount of resources assigned and the task of preparation time leaves the impression that we are being subjected to rushed initiatives in the most crucial area for the citizen. There are no details on how the guidance will be delivered in a consistently high-quality manner, given that no specialist qualification, experience or regulation is required for the agencies to commence this process. The Minister must recognise our very clear anxieties on these points. Safeguards must be in place to protect customers.
The Bills, which share their Second Reading in this rather interesting procedure, allow for the establishment of the collective defined contributions pension schemes, which we promoted some time ago. We were convinced by the value of these potential schemes, and are of course pleased that they are included in the legislation. They have the potential to provide a more reliable retirement income than individual defined contribution schemes. Therefore, we are not opposed to the Bill but welcome it.
I hope that I have expressed the Opposition’s constructive criticism of the Bill, while at the same time indicating that we support its principles and wish it every success. Later in this debate and in Committee, my noble friend Lord Bradley will take up some of the challenges that I put forward. However, I hope that the House will recognise that our broad commitment of support does not involve a superficial approach to the very real challenges that this significant pension reform envisages.
Finally, in a rather more consensual manner than the one I normally adopt when expressing a view on government legislation from this Dispatch Box, I pay tribute to the noble Lord, Lord Jenkin, and his service to both Houses over a very considerable period. I will never forget the time when I had responsibility in this House for an Energy Bill on which we spent 17 days in Committee. The only noble Lord who was unremitting in his work at that stage, when even Ministers were forced to hand some responsibility over to each other, was the noble Lord, Lord Jenkin. It was a tour de force in everything we heard at that time, and of course the whole House will wish him well in his retirement.
National Insurance Contributions Bill
Lord Davies of Oldham Excerpts(9 years, 4 months ago)
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Lord Davies of Oldham (Lab)
My Lords, I rise to oppose Clause 1 standing part of the Bill, which ought to give the opportunity to explore in a little more detail the issues that we discussed previously. The Minister will appreciate that it was a fairly limited Second Reading, and I imagine he is anticipating that this Committee stage will also not be too prolonged. I certainly want to assure him that it is unlikely that I will ruin his Christmas Day and Boxing Day by giving him things to worry about on Report in the new year. We will move with some dispatch with regard to the Bill, because we are of course broadly in favour of it and have indicated that broad support at all stages. However, we have one or two anxieties, on which I would just like the Minister to give us the necessary reassurances that we have not detected thus far.
There are concerns about those who are going to be affected by the legislation. As the Minister will appreciate in particular, many who will be affected will be on low incomes, and therefore the issue of how and when payments are made is not a trivial matter but one that is bound to cause concern. We are worried about women claiming maternity allowance in the future. The Bill clearly recognises that pregnant women come into a particular category when it comes to claiming and we want to be certain about that, as well as about the rather broader category of those who claim universal credit. It would be very remiss if people on low incomes found themselves, as a result of this legislation, at a disadvantage when it came to claims for universal credit.
The self-employed will of course welcome the fact that the Bill introduces a simplification process and moves liability for NICs to the end of the tax year. However, that also means that there will be accumulated obligations that need to be paid, which for some low-paid workers could easily present very real problems indeed. We say this against the background of the Government making considerable play of the increase in the number of workers in the self-employed category. However, we detect that a very large number indeed are getting very little in terms of reward from this employment. We will come later on to those who were dangled a carrot—not, I hasten to say, by the Government but by unscrupulous intermediaries—about how to take a position with regard to the payment of NICs. We want reassurance from the Minister that he has fully taken on board the problems that may accrue for people who necessarily—we all know the evidence that establishes this—operate on the margin.
The Minister explained that the self-employed will continue to have the option of spreading the cost of paying NICs, but what is the method of payment? Is the Minister in a position to confirm that these payments may be made by monthly direct debit? That was the recommendation from the Chartered Institute of Taxation, and I would welcome his comment on that. Is the payment system due to be reviewed after implementation? We see it dealing with a group of people, some of whom—while many will find this very straightforward and will have welcomed the main proposals in the Bill, as indeed do the official Opposition—will find issues difficult. We wonder whether the Government have set in train a commitment to review the implementation of this part of the Bill.
The Government say that the simplification measure will help the self-employed, but of course it is the self-employed who have been the hardest hit in the cost-of-living crisis. A great number of the self-employed operate on very tight margins indeed, while those who have been self-employed for a considerable period of time, and are now subject to what may be an improvement in the way that NICs are collected, are likely to fall into the category of those who have lost significantly in recent years because average incomes have plummeted.
What other steps have the Government taken to address the impact that the cost-of-living crisis is having on self-employed people? It is clear that there has been a significant drop since this Government came into office, and therefore it would be a mistake on all our parts if, in thinking about the Bill as a progressive and helpful measure—a view that in broad terms we take—we failed to identify why those who are the hardest hit in our society might well find some difficulties in complying with the new arrangements.
Lord Newby (LD)
My Lords, I am extremely grateful to the noble Lord for his comments on Clause 1. He concentrated on the self-employed and the provisions for people to have a budget payment option available to them so that they can spread the cost. I assure him that budget payment plans will be operable and people can opt for them, paying by direct debit or standing order. They will allow an individual to decide the amount that they want to pay each week or month, change the regular payment amount, stop making payments for up to six months and cancel payments at any time. Indeed, even after they pay into the budget payment plan, an individual can choose to have the money repaid to them if they believe that there will be no eventual liability, or if they need it for another purpose. Indeed, we believe that this system is more flexible than what is currently available under the class 2 direct debit system, because someone is free to vary or cancel the arrangement at any time and there is no liability until a return is filed. They may request the money that they have paid through a budget repayment plan to be returned back to them, right up to the point when a future amount becomes a liability.
The noble Lord asked whether we would review the provision after implementation. The provision will indeed be kept under continuous review, because we are as keen as he is that everybody who operates it should be able to do so easily.
The noble Lord talked about the cost-of-living crisis as regards self-employed people and about the fact that, when many self-employed people become self-employed, they do so on a lower level of income than they were on when they were employed. That is undoubtedly true, but many people who start off on a lower level of income as self-employed build up a business and end up as well off as, if not better than, they were when they were employed. In addition, there is evidence that, for some people at least, being self-employed gives much more flexibility, which they welcome, and gives them a better work-life balance than they were able to achieve when they were in full-time employment.
The noble Lord talked about the cost-of-living crisis, but, as he is aware, the rate of inflation is low and falling and is likely to stay low; many prices—such as the price of petrol and food—are now falling and, as a result of the lower level of inflation, we are now seeing real wages rising across the board. All forecasters suggest that not just this year but for the next year and the next few years—indeed, for the entire forecast period—real wages are expected to rise. Therefore, while we do not in any way underestimate the impact of the recession on living standards, we believe that a very significant corner has been turned, and that the combination of low inflation, falling prices and rising real wages will mean that people will see greater prosperity than they have done as we have recovered from the great shock of 2008.
I hope that I have been able to give the noble Lord some reassurance on the specific questions that he raised.
Lord Davies of Oldham
My Lords, I am sure the Minister is pleased that we are making encouraging progress.
In moving that Clause 3 should not stand part of the Bill, I will reflect the fact that we are, of course, as committed as the Government to tackling tax avoidance and that we strongly believe that everyone must pay their fair share. As the Minister will recognise, tax avoidance is now a major issue as regards the operation of our economy, and there is not the slightest doubt that the public want things done. This is not the Bill in which to tackle the bigger of the issues—as regards multinationals and the problem of where they locate their profits as opposed to where they locate their sales and receipts—but the Bill is nevertheless a significant means of tackling tax avoidance, and we support that.
We are grateful in particular for the extension of measures to tackle high-risk promoters of NICs avoidance schemes, but we want some reassurance from the Minister that HMRC will be sufficiently resourced in order to implement both the measures and their safeguard. As the Bill has been considered, there has been constant reference on the government side to the amount of work that needs to be done—there is a great deal for Her Majesty’s Revenue & Customs to take on board. In a period when the major government priority seems to be to reduce the number of people who serve our society as national or local civil servants, he will forgive me if my party is anxious about how the Bill will be implemented as regards the manpower necessary to deal with these issues of tax avoidance.
We ask the Government to keep the measures on accelerated payments and follower notices under review, in addition to the new targeted anti-avoidance rule, as part of the review of all tax avoidance measures. It is quite clear that there are aspects of the collection of NICs—or the failure to collect NICs—which relate to quite a substantial business advising on how to avoid tax. We are pleased that the Government have recognised this as a significant problem, and the Bill represents their determination to act.
Lord Davies of Oldham
My Lords, let me say that this is an important provision in the Bill, which the Opposition support. We are glad to see that this important piece of legislation gives effect to certain promises that have been given on the overall issue of targeting tax avoidance.
In his previous answer, the noble Lord made it quite clear that there will be additional tribunal judges and so on, and I very much welcome that commitment because we all know the blockages that can occur in the work of tribunals. However, on the question of the staff in the new directorate, I was not too sure whether he was indicating that staff were being transferred from other parts of the department, because the department is so overladen with people with the expertise to get the work done that it is easy to effect such a transition, or whether further recruitment had been necessary. That point also applies to Clause 5, which deals with the important dimension of tax avoidance.
It is quite clear that the Government need to take further action to tackle the issue of false self-employment. In the past, many of the stories about that have issued from the construction industry, but it is quite clear that the vast growth in the number of self-employed applies far beyond the bounds of just the construction industry. It is clear that there have been occasions when self-employment levels have been very high in certain industries, but the construction industry stands out: the average is 14%, but in the construction industry it is 40%. What is the incentive among so many of the people who contribute to that industry being identified and set up as self-employed? Partially, it is to do with the nature of the work, but the construction industry is not that unique in the work that it does. For the construction industry to have such a substantial number of self-employed raises the obvious anxiety that it is of advantage to intermediaries, when considering taking on labour, to act in a way in which they take on “self-employed” workers, who are not really self-employed because they are effectively under the direction of those who see that their work gets done. This is a very real problem.
We want to confirm that the Government have committed themselves to monitoring closely the impact of changes introduced by this Bill on the issue of false self-employment. Ministers are aware, as we are, of the degree of self-employment that exists, which has probably been increasing in significant numbers in recent years. Are the Government committed to bringing forward new measures to tackle any continued abuse in this area? We would like a timeframe for some kind of review on this issue. It is commendable that the Government express the correct sentiments, but the Government are to be truly applauded only when they have properly served the nation by having delivered. We are interested in the question of delivery.
Let me say that we have reasons for anxiety. In the 2012 Autumn Statement, the Chancellor forecast that the Swiss deal would raise £3.12 billion. The latest figures from the ONS put the revenue to date as £868 million, which is a shortfall of £2.25 billion. As all Members of the Committee will recognise, that is a shortfall of almost two-thirds. In July, HMRC’s director-general of business tax told the House of Commons Treasury Committee that the actual amount recovered is now expected to be “reduced substantially” to around £1.7 billion, which is a shortfall of £1.42 billion. Despite the fact that the Government set out with the best of intentions, that is the result of ineffectiveness.
Lord Newby
My Lords, the noble Lord asked me a number of specific questions about this clause. The first question, on staffing, asked whether HMRC had the appropriate level of staffing and whether staff had been transferred across from other parts of HMRC or recruited specifically. HMRC carried out a review of the resource required and is committed to ensuring that the appropriate resource is in place to introduce the new changes. As regards where the staff came from, some were transferred and some were recruited. There is a maximum pace as regards how quickly you can beef up this kind of compliance department, because it is highly technical work, and in particular people coming in from outside need to have a considerable amount of training to get up to speed.
The noble Lord made the point that self-employment was high in a number of sectors and he mentioned in particular the construction industry, which is absolutely right. Of course the construction industry is very cyclical, and people literally move about if they are skilled workers in that sector. It is therefore not surprising that self-employment is somewhat higher there than in many other sectors—and the same applies to offshore workers. However, I completely agree with him that we need to keep a very close eye on that and see how it develops and how the measure is working.
HMRC is introducing a quarterly reporting requirement from 6 April 2015 in this area, with the first return due by 5 August next year. This will provide HMRC with almost real-time monitoring to ensure that the measure in the legislation is being used effectively. Obviously, the whole purpose of doing that is to keep the issue under review and, if necessary, to take action to rectify any further problems that apply.
The noble Lord pointed out that the Swiss tax deal had had a shortfall, which shows how difficult it is to estimate the amount of cash that such deals might generate. The reason for that is of course not too surprising: people deliberately secrete their money out of the gaze of the taxman, so when the taxman attempts to guess how much money there is, it is extremely tricky to get that right. The Swiss deal did indeed bring in a smaller amount of revenue than was expected—or it has to date—but I think it is fair to say that the Liechtenstein disclosure facility has brought in more than was originally thought and has proved exceptionally effective. All that one can expect HMRC and the Treasury to do in these circumstances, when specific areas are targeted to repatriate funds to the UK, is, first of all, to do it—which previous Governments have failed to do—and, secondly, to make their best estimate of how much money might be involved. There is a considerable degree of uncertainty at the point when that estimate is made. The important thing is to close the loophole.
The noble Lord also referred to the tax gap. All I would say to him is that in monetary terms the gap has risen by £1 billion over a period, but in real terms, and in relation to the size of the economy, I think it is fair to say that that is a fall. Although over a long period we might see the monetary value of the gap rising modestly, the key question is: is it falling as a proportion of the total amount of tax payable? The figures he quoted suggested that, if anything, on that basis the tax gap was falling rather than rising.
Perhaps I could have the indulgence of the Committee briefly, before we finish our Committee stage today, to say a little bit about the amendments to the Bill that the Government intend to introduce on Report. As noble Lords will be aware, in the Autumn Statement on 3 December the Chancellor announced that the Government will abolish employer class 1 NICs for apprentices under the age of 25 from April next year. As the Chancellor made clear, apprentices are at the heart of the Government’s drive to equip people of all ages with the skills valued by employers. This measure is intended to support employers who provide apprenticeships to young people by removing the requirement that they pay secondary class 1 NICs on earnings up to the upper earnings limit for those employees. The measure is also intended to support youth employment. It will provide a zero rate of employer class 1 NICs on earnings between the secondary threshold and the upper earnings limit in respect of apprentices under the age of 25 from 6 April 2016. It will provide the power to define “apprentice” in regulations, allowing the time discuss the definition with stakeholders. It will also contain powers to alter the age range to which the zero rate applies and introduce a threshold for apprentices. As with the other changes to which I am about to refer, the Government intend to table amendments to give effect to these measures in advance of Report.
Noble Lords will also be aware that the Delegated Powers and Regulatory Reform Committee published its report on the delegated powers contained in the Bill on 27 November. It drew attention to the power in Clause 2 to amend primary and secondary legislation as a consequence of the reform of class 2 NICs. The power is currently subject to the negative procedure. The Delegated Powers and Regulatory Reform Committee has said that the justification given in HMRC’s delegated powers memorandum is not sufficient for the negative procedure to apply where the power allows for the amendment or repeal of primary legislation, and it has recommended that in this instance the power should be subject to the affirmative procedure. The Government have considered the report of the Delegated Powers and Regulatory Reform Committee and intend to table an amendment on Report so that, where regulations made under this power amend or repeal primary legislation, they will be subject to the affirmative procedure.
Finally, we intend to amend Schedule 1 to the Bill to ensure that the relevant self-assessment penalties apply to class 2 contributions collected through self-assessment by adding a missing reference to the self-assessment underdeclaration penalty contained in Schedule 24 to the Finance Act 2007. It was always the Government’s intention to align penalties for class 2 contributions more closely with those for SA as part of the reform of class 2 so that the self-employed are not subjected to two different regimes, but this particular penalty was unintentionally omitted. This minor technical amendment will correct that omission.
I hope that noble Lords will have found that helpful. We will be tabling those amendments as soon as we possibly can.
Lord Davies of Oldham
My Lords, I am sure that the Committee is grateful to the Minister for indicating his response to the Delegated Powers Committee—that obviates the necessity of the Opposition chasing the Government on Report. We are very much in favour of the suggestion about the affirmative procedure, so we will be ensuring that the Report stage moves with maximum effect on that.
The only thing that I would add is that there is a certain justification for adding second thoughts and developments to a Bill as it proceeds. The Minister will recognise that it took the Delegated Powers Committee to bring this to the attention of the Government. We are only a couple of weeks from Christmas so I suppose we are bound to get a certain Christmas tree effect, but one of the consequences of this fixed-term Parliament is that, basically, since we came back in October we have had dangling bits of additional legislation added to Bills, whether they fit or not. In this respect I have no particular criticism, but I think for instance of the Infrastructure Bill, of which the first four parts were concluded before the Recess but then the minor issue of fracking was added to the Bill after it. The Government are not to take the fact that the Opposition very much approve of this initiative, which we will be supporting on Report, as in any way a feeling on our part that the Government are full of good conduct when it comes to adding bits to Bills whenever it suits them.
Childcare Payments Bill
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Lord Davies of Oldham (Lab)
My Lords, the House faces considerable difficulties in tackling this Bill. As it is defined as a money Bill, the Minister has to reply not only to the general arguments—and I congratulate all three noble Lords who have spoken thus far on identifying clear issues to which the Minister should respond—but, as far as possible, to issues of detail, because this is our only chance of dealing with this Bill. The Minister will recognise that there are a whole plethora of issues which, had we more time and the opportunity to be in Committee, we would have enjoyed discussing. As it is a money Bill, we are operating under some constraint and therefore the Minister will forgive me if I both seek to cover the general principles but now and again lapse into a degree of detail to which I shall expect him to respond.
The Opposition of course welcome the Bill. There is no way in which we would oppose a Bill that gives additional help to parents with childcare costs, particularly in the circumstances that the noble Baroness, Lady Eaton, identified: children have grown up in units that differ a great deal from the standard parental position. We are concerned about children and to whom the support is to be directed. The parents will take responsibility for it, but we are concerned about children as regards the Bill.
The great difficulty is that childcare costs have soared in recent years. There has been very little additional help for parents over these past few years, while costs have gone up so sharply. That is why we in the Labour Party are concerned to put a rather different perspective on how to identify in the Bill support for children and their parents. We very much seek to meet the point that the noble Earl, Lord Listowel, identified—he spoke about the need for extra help for the parents and carers of disabled children. We want to increase the age to which they are entitled from the Government’s position of 17 to 18. We think that disabled children involve extra costs. Therefore, the Government should have provided some recognition of such extra costs in the Bill.
We have some real concerns about the Bill. Commentators have indicated that it is regressive in its impact. The majority of support in top-up payments will go to those with above-average incomes. Support for those in very real need will form only a small fraction of the allocation in the Bill. Those who can afford to spend more will get more from this scheme. We do not think that that can be readily justified.
We are also concerned about the scheme’s complexity. We recognise that parental circumstances can change rapidly due to the very volatile state of employment in the economy. We know that a very high percentage of jobs are insecure and have limited hours—certainly no guaranteed hours with zero-hours contracts. This means that parents have real difficulties as regards making judgments on income. There is a big complicating factor in this. The Government intend to bring in broader income support. It is not at all clear whether parents will be in an intelligent position to judge whether they might get better returns from this scheme or under universal credit. The Government have indicated that some help will be given but, given the obvious complexities of the introduction of universal credit—it has been predicated and worked on for long enough, yet we still do not have it in full—the Bill has to be put against that difficult background.
We also consider the Bill to be late. The Government seek to bring in an improvement that will not come into play until 2015, but childcare costs have risen five times faster than pay since 2010. The impact on families of the failure of the Government to act in the past is quite clear. We intend to expand free childcare for three and four year-olds from the 15 hours that the Government have indicated to 25 hours per week for working parents, as well as guaranteed wraparound childcare access through their local school. The supply side measures will be in addition to the support provided for in the Bill, and we intend to increase the levy on banks to ensure that we have the resources for these.
There are quite difficult decisions about this Bill which, had we been in Committee, we would have gone into in some detail. The Government intend that NS&I will provide the childcare accounts. NS&I, of course, subcontracts a great deal of its work to Atos. We are not at all clear that that gives a great deal of security to such an important resource allocation as this involves, given the past record of that company. As I said, the interaction between the two schemes—universal credit, when it is finally rolled out, and this scheme—is far from clear in government thinking. The Government have to realise that what may work for certain families, with full control of modern technology, high levels of education and an ability to respond to the system, does not apply to those very large numbers of parents and carers of children who will need very great guidance to ensure that they get the best deal out of this scheme or universal credit, when it comes in. It means added bureaucracy for parents and a difficult route to follow.
We also are concerned about costs. This, of course, is a demand-led system. It gives extra resources to those who demand the childcare. The Minister spends enough time in the Treasury on the economics to know that if one increases demand for a product, often the consequence is that the price goes up. That certainly happened in the Australian circumstance of a scheme not dissimilar to this one. So what do the Government do about a situation where already severely increased costs over the past five years get a stimulus from being increased again by what is in fact a government subsidy for a demand-led system?
Far from opposing the Bill, we are giving it our full support in its passage. That does not alter the fact that we want to identify these issues clearly on the only occasion we can debate the Bill in this House. The Minister has some very serious issues to confront and to answer, and I look forward to his response.
Autumn Statement
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Lord Davies of Oldham (Lab)
My Lords, this has been an excellent debate and I congratulate the noble Viscount, Lord Younger, on introducing it and on concentrating in his contribution on skills and productivity, which are very important for the future of our economy. I fear that it is an issue we have neglected for too long and for which we have failed to produce the necessary solutions. I have taken great pleasure in a great deal of this debate having revolved around these issues. Clearly, as my noble friend Lord Whitty emphasised, unskilled labour operating on low wages and paying negligible tax impacts on all aspects of the economy. Part of the problem is that, while the Government can congratulate themselves on increasing employment, they actually find that that employment is not resulting in the resources necessary for the Government to meet some of their obvious targets.
I also congratulate the noble Lord, Lord Rose, on his maiden speech. We shall all benefit from his vast business experience in our economics debates. I can assure him that, on other occasions, the House will be more generous in the time it allocates to Back-Benchers. Yesterday, it was two minutes for Back-Benchers; five minutes today was an improvement, but it does not do justice to those who want to express themselves on such an important issue. I hope we can prevail on those responsible for business in the House to allow extended time on major debates such as this one in the future.
My noble friend Lord Adonis spoke very strongly about the skills agenda. A great deal of our economic problems revolve around our underskilled workforce. However, he went on, as we would have anticipated from his record in the past, to consider the issue of infrastructure. I am sure that the ears of the noble Lord, Lord Deighton, pricked and his eyes lit up when my noble friend got on to the area on which he would want to express strong views to the House. We pressed the Minister yesterday, but not with entire success: perhaps we did not ask the question with the same degree of precision as my noble friend Lord Adonis did. He emphasised that the Government had postponed anything to do with airport capacity until after the election, so that was a five-year delay on major infrastructure with regard to aviation. We were given a roads programme, but it is very difficult to identify when anything will start or be completed. My noble friend Lord Hollick said yesterday that he could identify only £100 million devoted to infrastructure over the next four years, so that did not look as though it will produce a great deal. I hope, therefore, that the Minister will be as convincing as possible about the emphasis that the Government are putting on infrastructure, where they will get the resources from, just how much money is involved and the timetable for it. There is not much point in talking about the Northern Hub and introducing better trains for the north and HS3 if we do not have a timetable, or—from what we can see—any resources being devoted to them in the near future. I hope, therefore, that the Minister will reassure the House on that.
Of course, the Government are trying to suggest that there is a success story implicit in the Autumn Statement; that the progress they have made in getting the deficit down, conveniently forgetting—as the noble Lord, Lord Skidelsky, emphasised—that the promise was that the deficit would be wiped out by 2015. However, it is quite clear not only that we will have a severe deficit for a time to come and that it has had a recent increase, but also that the price is going to be paid in public expenditure cuts. We know where they are going to fall: on certain key projects relating to the necessary aspect of public expenditure; on government departments, where it is even suggested that some could even be closed down; and, most frightening of all, cuts in welfare. We know how addicted Conservative Chancellors, in particular, are to an onslaught on welfare, but there are an awful lot of people in this country who, through absolutely no fault of their own, are dependent on some support in order to live a remotely civilised life. They will bear a dreadful brunt of that Budget. The Government suggested that 80% of the cuts were already through, but bodies that should know say that the cuts are only half way there at present, and we have a very grim immediate future ahead. There have been anxieties, and the right reverend Prelate the Bishop of Portsmouth emphasised that there would be certain people bearing the brunt of the Government’s failure who ill deserve to be hit in this way.
I heard what my noble friend Lord Desai said about productivity. There is sufficient gloom around regarding the difficulties with the economy without an informed, expert analysis of just how difficult it is to increase productivity and how we were doomed to have a poor future record on that. I do not agree; I think it is a question of where there is a will, there is a way. Where this is a concentration of resources in action, we can see significant improvements and we certainly need to do so. Of course, as the noble Lord, Lord Skidelsky, identified, because we are so poorly placed with regard to the workforce, the Government’s record in the past four years has been woeful in their declared objective of removing the deficit. This was also emphasised by the noble Lord, Lord Bilimoria. How on earth can the Government expect to be believed on their future promises when their absolutely cardinal promises made in the past have led to failure?
There are two promises that have been emphasised at the highest possible level. The Prime Minister said that the deficit would be removed by 2015 and that immigration would be down in the tens of thousands, when its current figure is 200,000. Contrary to what the noble Lord, Lord Palumbo, suggested when he said that politicians never pay the price for failure, the Prime Minister said, “If we fail, then we can be voted out”. That is a consolation devoutly to be wished on this side of the House.
In relation to that, I was grateful for the contribution made by my noble friend Lady Donaghy on the important fact that the one thing that never seems to pass government lips at any time is any recognition that the rampant increase in inequality in our society over the last two decades or so has had any impact on the welfare of our society. Serious academic treatises have established that the good society, and the greater contingent society, is when differentials are narrowed. What are we seeing here under this Administration? They are being widened continually by deliberate actions of the Government.
I, too, suffer from the constraints of time, but I am grateful to all who have contributed to this debate. The reason for my failure to refer to every single contribution is obvious: just one half-minute for each person would take me beyond my time. I hope that the House will appreciate those constraints.
Autumn Statement
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Lord Davies of Oldham (Lab)
My Lords, I am grateful to the Minister for referring to this Statement. We have an economic debate scheduled for tomorrow, in which a very significant number of Peers will contribute to what I think will be a very fruitful debate. One is also conscious of the fact that the very limited amount of time that we have to deal with the Statement scarcely merits this particular form of parliamentary procedure.
We have four issues on which we want to challenge the Minister with regard to the Budget: living standards and wages; tax receipts and borrowing; growth and immigration; and taxation and the National Health Service. Is it not quite clear that a great deal of revenue has been lost this year despite the Government’s boast about increasing employment, because many people in work, far from paying taxation, are actually receiving social payments? The Government’s much vaunted boast about the improvement in employment is destroyed by the fact that, clearly, we are not improving productivity. The only key to Britain actually paying its way is by improving our balance of payments and trade. That means that productivity ought to be a key objective of the Government. From what I could see of the Statement this morning, there was just a glancing reference to the issue of productivity.
The OBR also indicates today that wage growth is again weaker than expected. We know that the Chancellor puts on his long-range spectacles at this point—almost a telescope—to let us know when wages might, in due course, exceed inflation in rise. However, we are once again in a position that we have had year after year in which living standards have been falling because real wages have been dropping. Working people are now £1,600 a year worse off than they were in 2010. Someone in full-time work is £2,000 a year worse off. The issue is quite clear: working people are facing a cost of living crisis. That is why the Government are facing their own cost of living crisis, in the obvious fact that tax receipts are far below what the Government used to promise and predict. As a result, we are in a position where the Government are obliged to come before this House and the other place with a clear record of failure.
The books were meant to be balanced by 2015. In fact, that was the cardinal point of the coalition proposals on the economy. What we are facing is downright failure; and, of course, the failure is attributable largely to the shortfall in tax revenues. The OBR says that, so far in 2014-15, weaker than expected wage growth is depressing PAYE and NIC receipts. Does the Minister agree with the analysis from that independent source? Is it not clear that there is a great drop in tax revenue, which makes an absolute mockery of the idea that the Government somehow had a long-term plan? The Government are therefore forced to borrow.
Back in 2010, the Chancellor and the Prime Minister pledged to balance the budget by the end of this Parliament and to see the national debt falling. In 2010, the Prime Minister said:
“In five years’ time, we will have balanced the books”.
The national debt is now forecast to rise again this year. Perhaps I may ask the Minister—clearly, he will acknowledge that the Government have missed their targets—whether he will give us the figures on how much more will have been borrowed in this Parliament than was planned in 2010.
The reason why wages, incomes and borrowing have been hit hard this year is that productivity growth has been weak. Yet the Chancellor announced that, on this year’s figures, he is forecasting growth not to accelerate but to slow down next year. I know that he wants to blame the poor performance on the eurozone and the international situation. The Conservative Party, in particular when it is in trouble, is pretty good at analysing the difficulties that the international situation presents for the economy while decrying completely any aspect of the collapse of American, German or French banks as regards the British problem in 2008. Instead, it attributes all to the government overspend, when it is quite clear that the problem in 2008 was the collapse of receipts. This Government are facing exactly the same failure with regard to receipts.
One reason why growth has been so weak is that the Government are constantly forecasting that it will be greater than is the case because they are content to measure the wrong figures. They should concentrate on productivity and the creation of real jobs and ensure that the British balance of payments begins to improve as opposed to what is happening at present. Is it not the case that since 2010 our performance in the G20 places us 22nd out of 28 countries in the EU as far as these figures are concerned? Business investment has also lagged behind that of our competitors and fell in the most recent quarter. Bank lending to business is below what should be available and is still falling. The number of apprenticeships for young people is down this year on last year’s figure. These are all issues which I hope the Minister will address although I recognise that he has to give an abbreviated reply to a Statement of this kind.
The noble Lord has responsibility for infrastructure, but what percentage of the planned construction is actually being constructed? How many houses are being built? How many roads have been started? Or is this just another promise that the Government are making for the next Parliament that they will not realise if we have the misfortune of seeing them re-elected? Is that not also the case with rail? The Chancellor referred to improving the rolling stock in the north of England but he did not put a date on it. There is never a date attached to plans for so-called improvements in infrastructure—there are figures but no achievements. In fact, the greatest achievement of this Government in infrastructure over the past few years has been Crossrail, the majority of which was planned and developed under a Labour Government. We expect the Government to produce a plan to create more good jobs and to adopt a more balanced approach. That is clearly not predicted in today’s Statement.
What about another promise that has bitten the dust: the promise that net immigration to the UK would be down to the tens of thousands? What is the actual figure? It is 200,000. That is yet another projection by the Government that is belied by the facts. The Prime Minister claimed in the Times a month ago that 80% of the Government’s planned spending cuts—which have so heavily cost so many people of limited resource—have now been made. He said 80%, but the Institute for Fiscal Studies says that it is 50%. Would the Minister care to say which is right? Spending on social security in this Parliament is more than £20 billion higher than the Government planned in 2010, so they cannot even get their sums right.
We have been promised an extra £2 billion for the National Health Service. The calculation for the first year has to take into account the fact that £700 million had already been allocated to the health service and is now somehow being reallocated by the Government. Why does the Chancellor not introduce an annual charge on the highest value properties, as we are suggesting, to enable an investment of £2.5 billion a year to be made in the National Health Service? That is the figure that is clearly necessary to avoid the great difficulties it faces.
I am aware that this is meant to be only an introduction, and tomorrow we will be able to deliver a rather longer statement. However, I hope that I have at least identified to the Government that they have some singular and important questions to answer, lest the country treats this Statement with the same level of credibility that the Government’s past performance merits.