Draft Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018

Anneliese Dodds Excerpts

Monday 26th November 2018 General Committees

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

It is a pleasure to serve on the Committee with you in the Chair, Mr Austin. I am grateful to the Minister for his comments.

As we know, the Government have decided to undertake the bulk of the preparation for our EU withdrawal through secondary legislation. The Opposition have voiced their concerns about that on many occasions. It is an unprecedented transfer of powers to our Executive. I appreciate the work that has been done by the Minister, his staff and the civil service, and their collective efforts to brief us on the process. However, we might ask whether, in a normal environment, a change of such magnitude would be made through primary legislation. It should be, given the scrutiny it demands.

The number of Treasury SIs and the speed with which they are set to unfold are deeply concerning, from the point of view of ensuring that the Government are held fully accountable. The Opposition commit to making every effort to do that, but the task is constitutionally unprecedented and enormously resource-intensive, and leaves room for error. It is also disappointing that we have reached a stage when such no-deal contingency measures, which obviously take up significant time and resource for both Government and Opposition, must be laid before the House. We are, of course, perilously close to the EU exit date.

All that being said, I have one question and one reflection on the Minister’s comments. As I said, I am grateful to him for explaining the Government’s thinking on the measures. The implication from the debate on them in the other place and the Minister’s words is that the regulations will not affect how the FSCS deals with UK-based consumers and deposit holders, but surely the deposit levels within the FSCS have been affected by EU legislation. They were revised downwards in late December 2015 to cohere with the EU-stipulated level of €100,000—that was later than in the rest of the EU, where the introduction date was July 2015. Similarly, the SI suggests a five-year period during which the PRA would assess whether a change was needed in the protected deposit level.

It would be helpful to learn from the Minister about an issue that came up in the other place, and to which the Government response was not clear: do the Government intend to seek at least rough coherence with the EU level of protected deposits in future? Baroness Kramer’s comments were interesting; she noted that in a no-deal Brexit, there could be a large impact on the value of the pound, which could affect the value of UK businesses’ and individuals’ deposits in the rest of the EEA. Will there be sufficient flexibility for the PRA to protect people to the level required if there is that significant change?

My other comment is about the broader context of these kinds of deposit guarantee schemes. They were not brought in in isolation; they were part of a package of EU-level measures intended to improve protection for taxpayers and public finances. They were balanced in the EU by the bail-in mechanism, the system of resolution and the stress-testing system for banks. We in the UK have not been affected by all those measures because we are not in the banking union, but we could say that we have substitutes for many of them, at least at the moment, through independent activity undertaken in the UK.

Will the Minister underline in his concluding remarks that the Government remain committed to ensuring that our regulation will always focus on protecting stability, security and resilience, and, above all, on ensuring that we never again have a situation in which banks and other financial institutions are bailed out by taxpayers? We are not in the banking union anyway, but we could—it sounds like we will—retain the deposit guarantee. Surely it is important to retain the other elements of banking regulation that would prevent the kind of moral hazard that there was during the financial crisis, when the risks were concentrated on consumers and the public purse, while the gains were privatised to a number of people in the financial services sector who did very well out of it.

[John Glen]

I thank the hon. Lady for her comments. All I can do in response to her opening remarks is reiterate my commitment as a Minister to continuing the rigorous process of examining the statutory instruments, bringing them to the Committee in a timely fashion, and being as thorough as possible in our impact assessments.

The hon. Lady raised two issues. First, she referred to the exchange between Baroness Kramer and Lord Bates in the other place on 6 November, concerning the level at which the PRA could set the compensation. The imperative from the directive has been to have a consistent level, and the UK has onshored, essentially, the €100,000. There are no plans to depart from the current level; frankly, there is a significant imperative to keep the levels aligned, regardless of what happens, but that will be a matter for the PRA.

[Anneliese Dodds]

Would that mean that the five-year period could be altered if there were a severe need for a change due to a fluctuating exchange rate?

[John Glen]

In a scenario of unforeseen volatility, there would be an opportunity for the Treasury to ask the PRA to examine that, or vice versa. In such a scenario, we would of course have more immediate discretion on that point.

The second point related to the need to maintain a stable prudential regulatory regime. As the City Minister, I hear lots of representations from different parts of the financial services sector for more flexibility on occasion. This is a matter for the regulator, not me, but in conversations with the PRA, I have made it very clear that the Government do not want to secure competitive advantage based on downsizing our regulatory environment. I agree with the hon. Lady’s sentiments with regard to keeping that as the driving imperative.

To conclude, the statutory instrument is needed to ensure that the rules governing the UK’s deposit guarantee scheme and the other systems covered by the SI function appropriately if the UK leaves the EU without a deal or an implementation period. I hope I have satisfactorily addressed the legitimate points made by the hon. Lady, and that the Committee will support the regulations.

Question put and agreed to.

Finance (No. 3) Bill

Anneliese Dodds Excerpts

Committee: 2nd sitting: House of Commons
Tuesday 20th November 2018 Commons Chamber

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

It is a pleasure to participate in this debate and to follow the Financial Secretary to the Treasury. I will speak to Labour amendments 3, 4, 19 and 23 and to new clauses 5 and 6.

As other Opposition Members have noted, it is disappointing, to say the least, that the Government have been unwilling to allow proper scrutiny and challenge of their proposals in this Finance Bill, as they have failed to introduce an amendment to the law resolution. Members will be aware that this approach has been used six times in the past century, each time necessitated by Budget provisions needing to be passed quickly.

[Kevin Foster]

This is about scrutiny.

[Anneliese Dodds]

Indeed. When we are unable to table amendments on provisions within a Budget, it is a severe restriction on the House’s ability appropriately to challenge the Government’s policies. In any case, if the Government can muster backing for their approach to prevent a change in policy, they can do so.

[Kevin Foster]

If the Labour party is so committed to scrutiny of this Bill, how come the Opposition Benches are virtually empty? The hon. Lady says that it is because Labour Members cannot table amendments, but they could come along and make speeches.

[Anneliese Dodds]

The hon. Gentleman has made the point for himself. It is precisely because we do not have the ability to table meaningful amendments that we are in this position. I am sure that he is aware that, when it was possible for Labour Members, often with other Members, to table meaningful amendments to Finance Bills, there was a huge amount of participation, such as when amendments were tabled on country-by-country reporting. Sadly, despite those amendments, we have not yet seen the change in Government policy that we would have liked. When the House is given the power, we exercise it; when we are not given the power, we are unable to exercise it.

As “Erskine May” sets out very clearly, in these circumstances, the only permissible amendments are

“strictly limited to what is authorized by the specific resolutions on which the bill is founded.”

Because of those restrictions, the Opposition cannot expand the scope of measures against tax avoidance and evasion beyond the very limited scope presented in the Bill.

There is a whole host of areas in which the Government should be taking action but where the Bill is completely silent. There has been no new approach from the Conservative Government on the verification of information supplied by companies when they register, despite widespread evidence of tax avoidance and money laundering being facilitated through the registration of fake companies via Companies House.

On shell companies, the Government have provided only a consultation on partnerships rather than action, and they have failed to use to any great extent their legal ability to impose fines on partnerships that fail to provide beneficial ownership information. Despite their consultation on a new offence of failure to prevent economic crime finishing more than a year ago, we still appear to have no more progress on that. Although our Government now have, as I mentioned, the legal means to require country-by-country reporting wholesale, following that amendment to a Finance Bill two years ago, when we were able properly to amend the Bill, they have refused to take up that option.

Despite this catalogue of failure, the Government continue to talk up their record. We saw this elevated to the level of farce last night, when Conservative central office—I assume—released a graphic on Facebook with the laughable claim that Labour had just voted against cracking down on tax avoidance. Labour has consistently advocated much stronger measures on tax avoidance than this Government have done. Indeed, the weakness of measures in the Bill is one of many reasons why we oppose it. The graphic included a background of palm trees, presumably a bizarre reference to our overseas territories. It is bizarre, given the woeful lack of action by our Government in this regard.

[Chris Philp (Croydon South) (Con)]

Would the shadow Minister like to join me in congratulating the Government on having reduced the tax gap from 8% under the last Labour Government to 6% today, which is the lowest level in the developed world?

[Anneliese Dodds]

I will go on to talk about the assumptions that the Government currently use to calculate that tax gap, and the hon. Gentleman will learn that their claims to have massively reduced the amount of tax avoidance through that measure are potentially questionable, to say the least. Perhaps after we have had that discussion, we will see whether he still holds to that assessment.

[Julian Knight (Solihull) (Con)]

While we wait for the hon. Lady to congratulate the Government on closing the tax gap, will she recognise that many of the steps taken in the Bill have to be taken in a way that is mindful of how international tax systems work and how we need to ensure that the tax we are gathering does not lead to companies leaving the UK and trading to it from international jurisdictions?

[Anneliese Dodds]

Of course we need a business-friendly tax environment, but we should also recognise, just as I find when I talk to many international businesses, as I do in my shadow ministerial position, that the vast majority of businesses want to be compliant. Sadly, a small number of firms are not necessarily complying with the letter of the law and some are also not complying with the spirit of the law. That is leading to a situation where our public services are starved of the funding we need, which has a huge impact on business, as I am sure the hon. Gentleman is aware through his discussions with businesses in his constituency.

Let me return to the matter of overseas territories, which strangely appear to be referred to in pictorial form in material released by Conservative central office. This Government were forced kicking and screaming by this House to require our overseas territories to produce public registers of beneficial ownership, but I understand that all that has happened since the vote that forced that change in policy is one conference call, leading to a vague commitment to convene a technical working group—but it is not going to meet until 2019. So we have had many months since that vote in this House but almost no action. In addition, rather than fulfil the commitments the Opposition were given that our Government would work with Crown dependencies towards transparency, tax treaties were presented to this House last week that included no such provisions whatsoever.

The Minister has, as ever, opined that his Government have reduced the tax gap, and indeed other Members have just referred to that. I am sure, however, that he will not illuminate us with the fact that his Government’s tax gap measure excludes the costs of profit shifting and that it starts from the assumption that companies are declaring the correct amount of tax, which surely begs the question. The tax gap for this Government is assessed on the basis of whether Her Majesty’s Revenue and Customs has found errors or evidence of avoidance on tax returns, an approach that has rightly been criticised by the Public Accounts Committee, given that it leads to a situation where much of the tax lost through avoidance simply does not count as part of the tax gap. The Government’s tax gap does not appear to include cases of avoidance or evasion that do not fall under existing legislation, so it fails to capture numerous loopholes that continue to be exploited simply because they are exactly that: loopholes.

[Chris Philp]

Did I detect a sigh when the hon. Lady gave way? She is questioning the basis of the tax gap as a sign of progress, so let me try a different statistic that she might feel better about. The amount of corporation tax collected has gone up from £35 billion a year to £55 billion a year; is that not evidence that these tax-raising measures are effective?

[Anneliese Dodds]

I am always delighted to hear from the hon. Gentleman, but when he talks about the tax-gap measurement, he is talking about his Government’s tax-gap measurement, not one that is universally accepted. In fact, it is quite the opposite, and many alternative measures suggest that much larger amounts of tax are being avoided and, indeed, that larger sums could be rectified if tax evasion was dealt with. Yet again, we hear this comment about the cut to the corporation tax rate. I am sorry to sound like a stuck record, but I have to remind the hon. Gentleman that every expert commentator on this matter has intimated that the rise in the corporation tax take is not because of the cut to the rate and that, in fact, had the rate not been cut, more revenue would have accrued to the Treasury. As I will go on to discuss, that revenue could have been used to support public services and social security for our constituents.

[James Cartlidge]

rose—

[Julian Knight]

rose—

[Anneliese Dodds]

My goodness—who to choose!

[James Cartlidge]

The hon. Lady will be sighing a bit more when I point this one out. It is very kind of her to give way. She said that the tax take has not gone up because of the rate cut, and she is absolutely right: above all, the reason the tax take has gone up is that the economy has been growing very strongly.

[Anneliese Dodds]

I am sorry that the hon. Gentleman views as a badge of pride the recent growth statistics. I would never talk down the British economy—it has a huge amount of promise—but I am deeply concerned about the fact that our growth statistics, particularly for the future, have been revised down. For next year and the following year, I believe that they are 1.6% and 1.4%, so they have been revised down. In the past, in normal times, we would have viewed growth statistics of that kind as a failure. Of course I am pleased that our economy is finally growing again—it was, of course, growing when Labour left office—but I am none the less deeply disappointed that we are not reaching the same levels of growth as many of our competitor countries.

[Several hon. Members rose—]

[Anneliese Dodds]

With the Committee’s permission, I shall continue with my comments.

We need a far more serious and engaged approach to countering tax avoidance and evasion. Our amendments are an attempt to provide that—at least within the scope of the limited measures in the Bill. First, with amendments 3 and 4, we are calling for public registers for beneficiaries of trusts who have relocated or plan to relocate to other EEA countries and who seek to defer their corporation tax exit charges, or those relating to capital gains tax, through a payment plan, as the Minister intimated. The Government’s action in this policy area has been necessitated by recent decisions of the European Court of Justice, which considered the compatibility of member state exit charges with article 49 of the treaty on the functioning of the European Union.

As the Minister intimated, the measures in the Bill will enable those who adopt an exit charge payment plan to pay in six equal instalments, albeit with interest. Given that this approach is necessitated by EU law and applies to individuals and trustees who move to another EU or EEA country, and given that some Government Members sadly flirt recklessly with the prospect of a no-deal Brexit, I would have expected the Government to explain what might happen in this policy area as our relationship with the EU changes. That was not the case in respect of the information about these measures that we were given; nor does anything in the Bill lead us towards greater transparency for trusts, which is desperately needed.

As of January this year, all trusts that pay beyond a very modest level of tax have had to register with HMRC through its trust registration service, but that is a private register, not a public one. The new iteration of the EU’s anti-money laundering legislation will require changes in the UK approach. First, it makes business-like trusts and those managed in the EU subject to reporting requirements, so potentially enlarging the category of trusts that have to register. Secondly, it enables parties with a legitimate interest to access information about those trusts—not just law enforcement agencies as currently—although the decision on who qualifies as having such a legitimate interest will be under the discretion of member states. Finally, this new legislation requires trusts owning EU companies to disclose full information about trustees, settlors and beneficiaries.

--- Later in debate ---

[Helen Goodman (Bishop Auckland) (Lab)]

My hon. Friend is making a fantastically good forensic case this afternoon, but I am still not sure whether I fully grasp the point. Is she saying that the Government have still not set out how they intend to collaborate with the European Union on information sharing for tax purposes, and/or is she saying that this will be an excuse for a lighter tax regime in this country and in the other EU member states, which will no doubt be taken into account when the future framework is being negotiated?

[Anneliese Dodds]

I am very grateful to my hon. Friend for her comments. In fact, I will go on to say both, because that is precisely our concern. So far, the Government have been incredibly vague about what commitments they will make on tax matters in relation to preventing avoidance and evasion. Furthermore, we have had some very, very unhelpful comments—to put it extremely mildly—from the Government about whether they might seek to undercut the rest of the EU on tax matters. I know that my hon. Friend follows these matters very closely, as she does money laundering matters, where I argue that we have not been clear enough about how we will collaborate with others into the future.

Our new clause 5 is directed at another Government blank spot: the distributional impact of their tax measures. It would require an equality impact assessment of the Government’s tax avoidance measures in relation to child poverty, household income levels, people with protected characteristics, and our nations and regions. That assessment is necessary because of the continuing leakage from our tax system owing to avoidance as well as evasion. Failure to deal with avoidance has put pressure on the rest of the tax system, which, as I have just mentioned, has been exacerbated by unnecessary tax cuts to the very best-off people and to profitable corporations. As many independent observers have noted, these tax cuts have tended to benefit the very best-off people and often men rather than women, while £4 out of every £5 cut from Government budgets has fallen on women’s shoulders. The Women’s Budget Group has shown how, out of all household types, lone mothers have been the hardest hit by cuts to services and tax and benefit changes, followed by lone fathers and single female pensioners. Among lone mothers, it is black and minority ethnic women who have lost the most.

[Bim Afolami (Hitchin and Harpenden) (Con)]

Is the hon. Lady suggesting that we should have differential tax rates for men, women and different ethnic groups?

[Anneliese Dodds]

I am grateful for the intervention, because it enables me to make the answer clear. Absolutely not. We are asking for something very simple. Sadly, it is something that this Government have not been willing to provide, which is the information about tax incidence. We do not have that information to the extent that the House needs. The process of analysis has been left to bodies such as the Women’s Budget Group and the Child Poverty Action Group. They have to crunch the data. That is an activity that should be carried out by Government, so that we as Members are able appropriately to scrutinise their policy and practice. We do not have that information at the moment.

[James Cartlidge]

The hon. Lady is being very generous in giving way. As a rejoinder and as a follow-up to the intervention by my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami), that is not the point he was making. He is saying that the implication is that, to change the system, we would need to have discriminatory tax policies to effect a different impact. We cannot just assess it; for it to be different in practice, the measures, by definition, would also have to be discriminatory.

[Anneliese Dodds]

I fear that the hon. Gentleman has yet again made the point for himself. This Government’s approach to taxation so far has affected different groups disproportionately. We can call that discrimination, unequal impact or whatever we like. The fact is that we found out about that not through Government figures, but due to analysis conducted by other bodies. We had a lengthy debate about this during the last Finance Bill, and I am very happy to run through all the arguments again. I suggest, however, that it might be easier for him to read analysis by those expert bodies, which will make the point more eloquently than I could.

[Rachel Maclean (Redditch) (Con)]

The hon. Lady is extremely generous in giving way. I wonder whether she will accept a point made by a member of one of the groups about which she is speaking—that is, by a woman. Does she accept that there are more women in work now due to this Government’s measures, making women better off compared with the legacy left by her party’s Government, of which I accept she was not a member?

[Anneliese Dodds]

I appreciate the hon. Lady’s comments, but is she aware that under her party’s Government, moving into work is sadly no longer the route out of poverty for huge numbers of working women? For example, two thirds of children living in poverty are in working households. Previously, someone who could obtain a job with enough hours would be able to climb out of poverty. That is no longer the case in the UK. Furthermore, as I just mentioned, those who have analysed the impact of tax and benefit changes on different genders have shown very clearly—it is simple to look at the statistics—that £4 out of every £5 cut by this Government have been cut from the pockets of women and from the services that women use.

[Rachel Maclean]

indicated dissent.

[Anneliese Dodds]

The hon. Lady can shake her head at me, but she should shake her head at the Women’s Budget Group, which has shown this very clearly.

[Chris Stephens]

On seriously tackling the tax gap and the lack of analysis that the hon. Lady is identifying, could one of the reasons possibly be the meat cleaver that was taken to the HMRC office network, meaning that there is now a lack of local knowledge? Also, should not the Government employ as many people to tackle tax avoidance as they do for Department for Work and Pensions social security fraud?

[Anneliese Dodds]

I know that the hon. Gentleman has worked on the issue of cuts to HMRC’s capacity, as have many Members across the House. I will return to that important issue soon, because sadly the reality does not reflect the rather rosy picture that we were provided with by the Minister on that subject.

I return to the distributional impact of this Government’s tax measures. We had an interesting discussion about fairness following some comments by the hon. Member for Beckenham (Bob Stewart), who is no longer in his place. The Minister intimated that he was in favour of a fair tax system and said that the wealthiest people pay a large proportion of all tax. He is absolutely right: the wealthiest people do pay a large proportion of income tax. That is because of how wealthy they are. However, if we look at the impact of the tax system on different income groups, we find—I should not say “we” because it is the Office for National Statistics that has discovered this—that the best-off 10% of people pay less of their income in tax than the worst-off 10%. I note that the Conservatives did not contest this statistic when it was mentioned in the House yesterday. Surely that is a ringing indictment of their approach to taxation.

[Chris Philp]

I am delighted that the shadow Minister has given way once again, without sighing this time. The poorest in society are not in tax at all thanks to the increase in the threshold. The richest 1% do indeed pay 28% of tax, but they only earn about 12% of all income, so she will see that the amount of tax they pay is a great deal higher than their share of income.

[Anneliese Dodds]

It is always a pleasure to hear from the hon. Gentleman, who is always a very friendly face. Sadly, however—I feel bad doing this—I do have to correct him on two of the points that he mentioned. He stated that the poorest people will not pay any tax at all. That is simply not the case. Of course, they will pay—[Interruption.] No, no—he said “any tax”. Let us be clear: of course, large numbers of very badly off people pay a lot of value added tax, which is a regressive tax, even with the exemptions that apply to it.

In addition to that, increasing numbers of low-income people across this country are now paying council tax, many of them for the first time, because of the swingeing cuts that the hon. Gentleman’s Government have delivered to local authorities’ budgets for council tax relief. So we now have very large numbers of very-low-income people being taken to court because they are unable to pay their council tax. That situation is novel in our country but some might say it approximates things that happened back in the 1980s, which I am sure that the hon. Gentleman is too young to remember but which the history books have certainly not forgotten.

We also need a thorough understanding of how the failure to tackle tax avoidance affects our different regions, given that austerity’s impact on incomes has been strongest in areas that were already struggling economically. We need a thorough impact assessment of the impact that the failure to deal with tax avoidance is having on child poverty. Yesterday Ministers tried to deflect attention from their record on poverty by using only figures on absolute poverty. They never speak about the measure that is instead used by most academics and experts—relative poverty—because they know that more children are now living in relative poverty under their watch: almost a third of children, in fact. The problem is such that the chief executive of the Child Poverty Action Group has described the Conservative Government as being “in denial” on child poverty.

I will explain why we need to look at relative poverty. We should not look simply at whether people are destitute, as measured by absolute poverty, even though, sadly, many are having to resort to food banks for bare necessities; we also need to look at what people’s incomes are in relation to the living standards that everyone else enjoys. That is why the concept of relative poverty measures whether people are poor in relation to median-income people. Relative poverty matters because it shows whether people can afford to live a decent life.

[Kevin Foster]

That is what absolute poverty measures.

[Anneliese Dodds]

No, it does not. Absolute poverty measures whether people can afford the bare necessities of life. To be able to participate in society—in their communities—they cannot fall so massively behind the median income. We are talking about families whose children cannot go to birthday parties for their friends because they cannot afford a card and a present. For me, that is a failure of our society, and it is to do with relative poverty, not absolute poverty. Over 4 million children in this country are classified as living in relative poverty, and that number is rising, not diminishing.

[Luke Graham]

rose—

[Bim Afolami]

rose—

[Anneliese Dodds]

I will press on for now.

Labour’s new clause 6 would require a review of the Government’s measures presented in this Finance Bill on tackling avoidance, evasion and the tax gap. It would enable us to consider whether the Government’s reactive approach is sufficient, when many of us suspect that it is anything but. Here we are reminded of one of the biggest gaps in this Bill. Despite much fanfare in the Budget, and indeed in the Minister’s comments just now, there is no digital services tax presented in this Finance Bill. Instead, there will be a consultation on the Government’s approach. Of course, even what is in that consultation is less stringent than European-level proposals, and it includes giant loopholes in its safe harbour and double threshold elements.

The hon. Member for Walsall North (Eddie Hughes)—who is still in his place, which is fantastic—talked about the regime for intangible assets. He is absolutely right that we need tax authorities to deal with these issues more appropriately. When I think about the major strides that have been made on taxing profits arising out of those intangible assets, I think of the cases that have been taken by the European Commissioner for Competition against Starbucks and others. She showed, for example, that Starbucks’ intellectual property relating to its roasting processes was not based in the Netherlands, as it claimed, and that that was just a ruse to avoid tax.

--- Later in debate ---

[Bim Afolami]

Does the hon. Lady accept that, when we are dealing with the complexity of international tax treaties, judicial precedent and the rule of law, and given that those treaties and lots of judicial precedent were established at a time when we did not have multinationals in the way we do now, it is only prudent to consult properly before we put measures in place? Does she also accept that this Government have been a leader, according to the OECD and the IMF, in dealing with the problem that she outlines, and that she is not being fair at all?

[Anneliese Dodds]

I am grateful for the hon. Gentleman’s intervention. However, I am sorry to point out that he is slightly behind the times when it comes to the operation of tax treaties. Those are now multilateral, following the development of the OECD’s multilateral instrument, which aims to amend tax treaties for all signatories, including the UK, in a thorough manner.

[Bim Afolami]

I thank the hon. Lady for giving way again. The whole point is that this is all a work in progress, as she would accept.

[Anneliese Dodds]

That appears to be a slightly different point from the one the hon. Gentleman was making a moment ago. None the less, I agree that this is a work in progress. Sadly, our Government and Conservative Members in other jurisdictions have not always been promoting that process. I gently remind him that his colleagues in the European Parliament have consistently voted against measures that would increase tax transparency and have consistently not supported attempts to hold inquiries into, for example, the Panama papers and the Luxembourg leaks. I hope that, at some point, they will catch up with the need for more tax transparency and enforcement. Perhaps he could encourage them; that would be enormously helpful.

It is positive to see in this Finance Bill that the Government have adopted some of Labour’s proposed measures in our tax transparency and enforcement programme. They have finally seen the light on giving HMRC back preferred creditor status. They appear to be undertaking some action against umbrella agencies exploiting the employment allowance. They also appear to be looking towards creating an offshore property levy, although it is unclear to me, even following the Minister’s comments, how appropriately that will be targeted, given that it lacks the precision of Labour’s proposed oligarch property levy. But there are few additional measures in the Bill beyond what is already required by either the EU or the OECD, showing an abject lack of ambition and commitment from this Conservative Government.

Underlying all this, as the hon. Member for Glasgow South West (Chris Stephens) said, is the Government’s failure to appropriately staff HMRC to deal with tax avoidance and evasion and their determination to press ahead with its reorganisation, despite evidence that it is haemorrhaging experienced staff. Some additional money has been provided, which the Minister referred to in his speech. However, we still lack clarity on exactly where that money will go. The Government have committed to provide 5,000 additional customs staff. I still do not know where they will go. We are looking at a situation where, due to the regional reorganisation, there will not be a single HMRC hub along any of the south coast or beyond the central belt. Where customs officials will go is very unclear.

In addition, any additional money that is being provided by the Government, or at least much of it, will in any case just backfill what has been sucked out through the recruitment costs necessitated by the need to replace staff who have been lost due to the reorganisation process.

[Rachel Maclean]

The hon. Lady is painting a very negative picture, which I think is a shame. She should give this Government some credit for the fact that they have collected £71 billion more tax than would have been the case, given the tax regime, under Labour. That is £71 billion that has been collected. We all want to go further, but will she not welcome that money, which has gone into our public services?

[Anneliese Dodds]

I discussed a few moments ago how many of those measures are in fact disputed. It would be interesting if the hon. Lady could break down that figure. I suspect many of us would not agree that it reflects an accurate representation of the tax lost. In fact, as I mentioned, when profit shifting is taken into account, that figure is likely to be much larger.

I am very positive about the potential of our economy, and the potential of our tax officers, but I think they are being presented with an impossible task. I have talked to many of them—dozens of them—and they are very concerned about the future. They want to do a decent job, but they are being prevented from doing so a lot of the time, sadly, due to the Government’s determination to press ahead with this reorganisation programme.

[Eddie Hughes]

Is the hon. Lady aware that, following the Government’s consultation on their intentions for an increased tax take on intangible assets, they have introduced an allowance of £4 million to make amendments to computer systems and to employ more staff so that they can monitor compliance with these new tax regimes? Will she welcome that?

[Anneliese Dodds]

I am grateful to the hon. Gentleman for his intervention but, as I have said, some of the new staff coming in are replacing other staff who have been lost. In fact, when we look at those data, we see that over 17,000 staff years of experience in HMRC have been lost through redundancy. I find that many more experienced specialised staff are talking about leaving our Revenue in the future if the Government press ahead with their reorganisation scheme.

[Mr Jim Cunningham (Coventry South) (Lab)]

We have raised this many times and the hon. Member for Glasgow South West (Chris Stephens) has raised it as well. The Government are reducing the number of tax offices, in actual fact. They are closing the offices in Coventry. I do not know about the constituency of the hon. Member for Walsall North (Eddie Hughes), but people are having to go a long distance—16 miles to Birmingham—to deal with their tax problems.

[Anneliese Dodds]

As always, my hon. Friend has made an important point. We are seeing the loss of many experienced staff in these offices, which is not only a problem for HMRC, but an enormous problem for local economies.

Over the past couple of months, I have visited 10 of the locations where HMRC offices have either already closed or are set to close, and I must say that there is huge concern about the implications for those local areas. They are often ones where it takes a long time to travel to other destinations and where it is impossible to travel to work to the new regional centres. As a result, we are losing much expertise within our Revenue service.

That is reflected in the statistics from surveys of HMRC staff. We see that HMRC staff morale is incredibly low, but we have no recognition of that by the Government or any understanding of the implications of that for the services that HMRC provides. Indeed, as Members have mentioned, that would become even more of a problem if HMRC had to attempt to sort out the customs and VAT chaos that would be caused by a no-deal Brexit.

Our uncertain future relations with the EU are at the root of the penultimate Opposition amendment that I will speak to, amendment 23. The amendment requires a consideration of the implications for cross-border tax information sharing of no deal and of the Government’s withdrawal Bill arrangements. The European Scrutiny Committee asked for

“the Government’s view on the value of continued UK participation in the wider system of exchange of information created by the DAC Directive”—

the directive on administrative co-operation—

“after the post-Brexit transition period ends, and how it will seek to secure the desired level of cooperation when it becomes a third country for the purposes of EU law.”

The Financial Secretary to the Treasury, who is sitting on the Front Bench again today, sent a letter in response at the end of April. On this point, however, his letter simply said that

“the Government recognises the value of the exchange of information in tackling tax avoidance and evasion and will address procedures for ongoing administrative cooperation, including the exchange of information framework set up—”

under the directive—

“within the scope of the wider EU exit negotiations.”

It is one thing recognising the value of information exchange, but it is quite another ensuring that it will continue. We really need clarity from the Government, not only about administrative co-operation but about other forms of information exchange.

For example, will the Government continue to participate in the code of conduct group, potentially with observer status? I have asked about that repeatedly, but as of yet I have received no answer. Will we participate in the pan-EU database including information about trusts, which I referred to and which is due to be created as a result of the new iteration of the anti-money laundering directive? Will we continue to share information about tax rulings, those sweetheart deals concluded between HMRC and large taxpayers, which are not available to smaller taxpayers and which in some cases have rightly caused uproar when details of their provisions have leaked out?

The hon. Member for South Suffolk (James Cartlidge) referred to the need for a level playing field. Surely that applies in spades when it comes to transparency on tax rulings, so I am very disappointed that his Government have not yet provided that transparency. It is not clear how they will share that data with the EU27 in the future.

The Conservatives’ mood music on this issue so far has been worrying. Not only has the Chancellor damaged relations with the EU27 by threatening to turn our country into a tax haven, but his party’s MEPs—[Interruption.] He has. A number of Government Members are claiming, from a sedentary position, that that never happened, but many Opposition Members will recall precisely when he made those kinds of threats. I have talked to many colleagues from different political parties in EU27 countries who viewed those comments—

[Sir Hugo Swire (East Devon) (Con)]

Will the hon. Lady give way?

[Anneliese Dodds]

I will give way when I have finished my sentence. I am so pleased that the right hon. Gentleman is so excited about participating in this debate. As I have said, I have talked to many politicians in EU27 countries who interpreted those comments—discussing a shift towards a Singapore-style model—as a threat. Of course, often when Government Members talk about a Singapore-style model, they omit to mention the huge amount of social housing, for example, in that nation, and other aspects of its business model. I suspect they have a rather different approach in mind when they talk about it.

[Sir Hugo Swire]

The hon. Lady, who speaks for the Opposition, said she can specifically say when my right hon. Friend the Chancellor made these assertions or claims. When were they made?

[Anneliese Dodds]

I would be more than happy to look up that reference and send it to the right hon. Gentleman immediately. I regret that he cannot remember his own Chancellor’s words and that he is unaware that there have ever been comments from his Government suggesting that the UK may at some point shift towards a Singapore-style model. I regret that he is unaware of the comments that have so soured our relationship with the EU27, because I know that they have caused enormous problems for us. They have presented a picture of our country as seeking to undermine and undercut tax arrangements in the rest of the EU27. For that reason, it is enormously important that those comments should be counted.

If the right hon. Gentleman believes that his Government will no longer use that threat, I will be very pleased to hear it, and I would suggest that he perhaps has conversations with those members of his Government who have advocated that point of view.

[Chris Philp]

Will the hon. Lady give way?

[Anneliese Dodds]

I will not give way, because I fear that the Committee is losing patience with the length of my comments. [Hon. Members: “More!] It is wonderful to see so much interest in the topic of taxation; I only wish that were always the case.

The Conservatives’ mood music on this issue has been worrying, as I have said. As I have referred to previously, the Conservatives’ MEPs have consistently either voted against or abstained on EU-level measures to promote tax transparency, and the Conservative Government were, sadly, unwilling to meet representatives from the European Parliament’s Panama papers investigative committee when they came to the UK.

Our amendment 23 would force these issues into the open and require a proper consideration by Government of how they could act to ensure proper data sharing, in order to combat tax avoidance and evasion. It is paralleled by our amendment 19, which would require the Government to undertake a review of our controlled foreign companies regime, with particular consideration of how it would be affected in the event of a no-deal Brexit.

The Conservative Government appear to treat countering tax avoidance as a game of whack-a-mole, rather than the long-term strategic approach that is surely required. As a result, we wish to press new clause 5 and amendment 23 to a Division.

In conclusion, the Government have no long-term plan for protecting the revenue on which our public services rely and appear to have no clear idea of how they will co-ordinate, or otherwise, our measures on tax avoidance with the EU27. A different approach is needed and my party stands ready to implement it as soon as we get the chance.

--- Later in debate ---

[Chris Philp]

My hon. Friend is quite right. Having low and competitive rates of tax does attract people to this country, who then pay corporation tax they otherwise would not pay. I will come on to precisely that point in a few moments.

The reason I was explaining why it was not surprising that our tax gap has reduced is that the Government have taken quite a large number of measures to combat tax avoidance and tax evasion since 2010. In this Budget alone, there are 21 such measures. I was rather disappointed that by voting against the Budget on Second Reading, Opposition Front Benchers were expressing their disagreement with those 21 anti-avoidance and anti-evasion measures.

[Anneliese Dodds]

I fear, very sadly, that the hon. Member did not hear what I said on that point earlier. It is because those measures are far too weak and do not go far enough that we are voting against them. I set that out very clearly in my previous remarks.

[Chris Philp]

I am not sure that that is a very good basis for voting against something. A move forward is a move forward. I have yet to hear a detailed and coherent set of proposals that would take these measures further forward. I am sure that those on the Treasury Bench are always eager to receive ideas on measures that would raise revenue. If the hon. Lady wanted to propose ideas on the Floor of the House, I am pretty sure she would find a ready audience. One such measure, the diverted profit tax, has directly raised £700 million since 2015. In addition, it is interesting that businesses talk about not just the direct effect of the diverted profit tax. Some companies, realising that they might be caught by the diverted profit tax, choose to change their behaviour and effectively choose to pay ordinary corporation tax in a more compliant way. That does not appear in the diverted profit tax figures, but it is none the less successful in changing behaviour.

[Anneliese Dodds]

I am very grateful to the hon. Member for giving way; he is being very generous. I would like to mention, however, that I did refer in my speech to Labour’s tax transparency and enforcement plan. In fact, I referred to three cases where the Government have rightly learned from that plan, which is fabulous, and are either completely or partially adopting some of our suggestions. There are, however, many other areas where they need to take action. They should look at our plan and learn.

[Chris Philp]

The fact that the Government have adopted three measures shows that they are not only a Government who listen and adapt, but a Government who have taken more than 100 anti-avoidance and anti-evasion measures since 2010. That is a record the Government can be proud of, although there is always more that can be done. I will come on to one idea later.

The hon. Lady suggested in her very long and at times entertaining speech—perhaps inadvertently entertaining, but it was entertaining—that the Government had not shown leadership in the area of organising international co-operation to combat tax evasion. She also said it was a concern that we are leaving the European Union as we might lose that as a forum in which to combat tax evasion and tax avoidance. The most effective forum is the OECD’s BEPS initiative—the base erosion and profit shifting initiative. The UK Government have been a leader in this area—for example, on action five, which limited the deductibility of interest payments against corporation tax. That is another area where the UK Government have shown genuine global leadership.

--- Later in debate ---

[Chris Philp]

My hon. Friend is right to draw attention to the way in which very favourable tax systems can indeed attract companies to this country. We should be proud of the fact that we are attracting the world’s leading companies to the United Kingdom.

I am sorry to refer to the speech by the hon. Member for Oxford East so often, but it was a very full speech and there was a great deal to reply to. She suggested that the Chancellor of the Exchequer said that our plan was to become a tax haven. He never used the words “tax haven”, but he did say that we could be a tax competitive economy. There is nothing to apologise for in saying that we will be a tax competitive economy and attract companies to locate here. If there is a tax haven in Europe, it is Luxembourg, so the hon. Lady should reserve her ire for that jurisdiction.

[Anneliese Dodds]

I am very grateful to the hon. Gentleman for giving way; he is being very generous. I have not been reserved in showing my ire for Luxembourg; in fact, I have campaigned for a long time in relation to its tax practices. I am very glad that he has given me the opportunity to respond on this point, because I looked up exactly what the Chancellor did say. He was asked by the newspaper Die Welt in January 2017 whether the UK would become a “tax haven” for Europe, and he responded that the UK could be “forced” to abandon its European economy with European-style taxation. When the Prime Minister’s spokesperson was asked if she agreed with this assessment, she confirmed that the Prime Minister was in agreement and would stand by him.

[Chris Philp]

The words “tax haven” were not his, and what he clearly confirmed in response was the he intended to create a tax competitive economy, which we can all be proud of, and I will certainly support him in creating it.

I feel that I should move on—although I will happily take more interventions—to new clauses 14 and 15, which were spoken to by the hon. Member for Glasgow Central (Alison Thewliss), the SNP’s Front-Bench spokesman. In her speech, she drew attention to the importance of transparency, and she was right to do so. We have already made significant moves on limited companies and limited liability partnerships. Persons of significant control now have to be disclosed on the Companies House register, and I fully agree with her that that should be comprehensively enforced.

Finance (No. 3) Bill

Anneliese Dodds Excerpts

Committee: 1st sitting: House of Commons
Monday 19th November 2018 Commons Chamber

[Rachel Maclean]

I am sorry but I will not give way. I only have a couple of minutes left. Please forgive me.

The movement on the tax thresholds is a fundamental point at the heart of our Conservative philosophy, which is freedom of the individual to spend their own hard-earned money how they wish. What this Budget and this Finance Bill are doing is taking people out of tax. A basic rate taxpayer will pay £1,205 a year less than in 2010, when Labour left office, and that is, effectively, a pay rise for those people, leaving them with more money in their pockets.

Let me say this to the Opposition: they often talk about how they want people to pay more tax. Well, people are free to pay more tax voluntarily, but, surprisingly enough, that is not often what people do. What we do see as a result of our tax policy of lowering tax rates is a greater tax take coming into the Exchequer. We see that fundamental principle illustrated time and again because of the policies advocated and enacted by the Government. It is right to lower the tax thresholds for low and middle-income earners. In fact, the shadow Chancellor and the shadow Chief Secretary do not even oppose that; they agree that we should keep those tax thresholds low. We need look no further than corporation tax, as those receipts are up 50% to £53.6 billion because of the lowering of the rate that has happened under this Government. That is £53.6 billion more for this Government to spend on strong public services up and down the country.

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

Surely, the hon. Lady is aware that just about every analysis that has been done regarding the reason for the increase in corporation tax revenue says that it is due not to the reduction in rates, but to factors such as the banks’ return to profitability after the financial crisis, so it is not right to link the two.

[Rachel Maclean]

I do not accept those comments because we have seen new businesses in my constituency and in the constituencies of many other hon. Members. In Redditch, we have record rates of business start-ups because of measures in this Budget, this Finance Bill and other Budgets. I am a great supporter of the Bill because it will drive more revenue into the Exchequer that I would like to see spent on strong public services in Redditch.

--- Later in debate ---

[Vicky Ford]

I too wish to speak about clause 89, which allows the Treasury to make minor amendments to tax legislation after we have left the EU.

EU tax issues are often extremely controversial. I think back to EU tax decisions I have seen in the past, such as the decision not to introduce a financial transaction tax, which this side of the House always strongly objected to but the other side would strongly have proposed at a European level. We objected to it because we felt it would have unintended economic consequences. Then there were the changes to the VAT MOSS—mini one-stop shop—situation for digital tax for small businesses. These decisions were taken without deep consultation or deep impact assessments, but were then found to have a huge number of unintended consequences. There were also the controversial issues to do with VAT on tampon taxes that sometimes came back.

[Anneliese Dodds]

It is important that Members are not misled, and it is important to say for the purposes of accuracy that a number of EU countries are looking to move forward with a financial transactions tax through the open method of co-ordination that I know the hon. Lady is very well aware of through her expert knowledge of the EU.

[Vicky Ford]

That brings me back to the point I was making: EU taxation matters can be hugely controversial, partly because decisions affecting tax at an EU level are often unanimous decisions, and therefore it would be very difficult for one member state to change them if a decision has gone wrong. Because they are so controversial it is worth thinking about the delegation of powers given to Ministers here. Indeed, during my time looking at European matters, I long argued for the concept of better regulation before decisions were made. People should be consulted and impact assessments published. Only after the assessments have been made public and the views of stakeholders who might be affected taken into consideration should decisions be made.

That is why I sit on ESIC, the European Statutory Instruments Committee, to which the hon. Member for Aberdeen North (Kirsty Blackman) referred. It was a Committee that I argued we needed. She suggested that when it decides to change a negative instrument to an affirmative instrument, that is because of some controversy with the Government’s decision, but by establishing that Committee, under the excellent chairmanship of my right hon. Friend the Member for Derbyshire Dales (Sir Patrick McLoughlin), we can ensure extra transparency in these complex decisions. I genuinely believe that we should think carefully before giving delegated powers to Ministers. However, clause 89 is very much about making minor decisions. It is tightly worded, and I do not believe that the amendments tabled by Opposition Members are necessary, as they would cause over-complexity. Amendments under clause 89 would be necessary, were we to leave the EU without a deal.

I am absolutely convinced that leaving the EU without a deal is not in the interests of this country, and I am glad to hear Ministers confirm that. However, I would also be glad to hear Ministers confirm that they will give Members a great deal more detail about the impact assessments of a no-deal scenario and a deal scenario, and also how that compares with remaining a member of the European Union, before our final vote on the withdrawal agreement, so that we can all be fully apprised of the impacts and make our decisions wisely.

Draft Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018

Anneliese Dodds Excerpts

Monday 19th November 2018 General Committees

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

It is a pleasure to serve with you in the Chair, Mr Bailey, and to be sitting across from the Minister once again—it is not the first time I have done so in recent weeks, and I am sure it will not be the last.

As the Minister rightly described, this delegated legislation follows on from the Financial Guidance and Claims Act 2018. Clearly, we are not discussing that Act today— we are focusing on the provisions of the order—but I did note that the Minister mentioned cold calling only right at the end of his remarks. Of course, while we are discussing regulatory arrangements and regulatory responsibility, we need to talk about exactly what the responsibilities could be and not just who will discharge them.

A huge element of debate when the 2018 Act was going through the House was about when a ban on cold calling would be implemented. That surely is the elephant in the room when we are talking about this issue. The Minister referred to the activity of the ICO in relation to cold calling, but in the Public Bill Committee a number of hon. Members stated why they felt that the current regulatory regime was not fit for purpose in that regard. It would be very helpful to me, and indeed to other members of this Committee, if the Minister could please indicate exactly what his Department has been doing to move us towards a cold calling ban. We have discussed many times appalling cases in which vulnerable people had been targeted by CMCs, often through cold calls, so I hope that the Minister will return to that issue in a moment. [Interruption.] I am grateful to him for saying yes from a sedentary position and being willing to comment on it.

As the Minister explained, the draft order essentially transfers regulatory responsibility for the activities of CMCs to the FCA. That appears to be appropriate. The measure specifies exactly which forms of activity will be regulated. As the Minister rightly said, it will give us a more finely grained regulatory apparatus, which appears to be highly sensible. Of course, we are talking about some companies that in recent years have made enormous profits—super-profits, some might say—in respect of certain types of claims. I am sure that all of us, as Members of Parliament, have been approached by constituents who believe that they have not been treated correctly by claims management companies, and many of the cases involve a lack of communication.

Of course, on the other side of the coin, CMCs have taken aggressive action to push on to people the opportunity to make a claim, whether that is legal or not. In that regard, it is worth reflecting on what has happened in relation to travel claims, especially for holiday sickness, which have increased fivefold since 2013. Arguably, that is having an impact on the price of holidays in some sectors, which affects everybody, whether they have engaged in that activity or not, so it is right that we take action and beef up the regulation.

I have two questions about how exactly the Government envisage the new scheme operating. First, on the transfer of regulatory responsibility, the Minister set out that there will be an interim regime, but I want to focus on how that will be funded. In particular, how will the skilled staff that we surely need to discharge the regime be brought into the FCA? As I understand it, the scheme will be self-funding through the mechanisms detailed in the 2018 Act, so the £60 million or so that it will cost to deliver will be raised from the claims management companies. As the Minister mentioned, however, the new regime starts on 1 April, so how will the FCA obtain the funds in the interim? Are we confident that it will have sufficient funds?

The FCA is being asked to adopt a new responsibility at the very time it might have to deal with a very high regulatory workload in the case of a no-deal Brexit, as we have discussed in this room many times. It would be useful to hear how that activity will be paid for and resourced in the run-up to the start of April. It would also be helpful to hear more from the Minister about how the FCA’s activity in this regard will be scrutinised and overseen by his Department and in the House. We are talking about the FCA being able to put caps on fees for CMCs, which I am sure many of us would strongly support, but how will that process of oversight operate?

Secondly, the Minister rightly mentioned that not all actors delivering claims management will be specifically covered by the FCA’s regulatory regime. He mentioned the situation for solicitors, but in that connection we could also have discussed the situation for others in the legal profession, as covered by the Law Society of England and Wales and the Law Society of Scotland—the hon. Member for Airdrie and Shotts may well speak to the regime in Scotland. I would find it helpful to hear from the Minister—perhaps through a letter if he cannot talk about it in Committee—what discussions the Government have had with those actors.

Some of us might say that the responsibilities placed on the shoulders of some of those bodies, for example in relation to money laundering, have not always been discharged to the fullest possible extent. I appreciate that the Government do not want to tread on professional toes, but surely we need to find out about the engagement that is going on, if any, to try to ensure that those bodies discharge their responsibilities appropriately.

--- Later in debate ---

[John Glen]

I thank the Committee for the serious questions and the range of issues raised. I will do my best to respond to all the questions. I will start with the hon. Member for Oxford East, who asked about progress on the cold calling plan. The Chancellor announced it in the Budget and laid a statutory instrument two days later banning cold calling in relation to pensions. It will be debated later in the year and hopefully will be in force early in the new year. I texted her counterparts on the Labour Front Bench to make them aware of that.

[Anneliese Dodds]

I am grateful to the Minister for enlightening us on that. However, we are talking about claims management rather than pensions.

[John Glen]

I will move on to that in a moment. I also want to touch on the point about the ICO as an enforcer, and why not the FCA. There are two debates here. The hon. Member for Garston and Halewood asked about the FCA’s suitability. One issue that has come up—my hon. Friend the Member for South Norfolk mentioned it as well—is the ICO’s experience and powers to enforce the restrictions on CMC cold calling. The ICO can levy fines of up to £500,000 for breaches of the Privacy and Electronic Communications (EC Directive) Regulations 2003. It has the international reach to enable enforcement action when companies are operating abroad, and perhaps calling my hon. Friend.

The ICO and the FCA work together to establish whether the claims management company has FCA authorisation to carry out marketing activity. The FCA will be able to consider whether the CMC is in breach of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and will sanction appropriately. It is really about the concentration of the FCA’s skills and experience in this domain.

--- Later in debate ---

[John Glen]

I will move on sequentially through the points made.

On the question about why the Government are not banning all cold calls, which I think is behind all this, we are determined to tackle CMC cold calling and pensions cold calling, but a balance needs to be struck between ensuring that consumers are adequately protected and providing the right conditions for the legitimate direct marketing industry to operate. I recognise that there is a debate about the extent of the coverage and which sectors should be covered, but we took a view about what should be included at this time so that we could make progress and lay the order. We are actively prepared to consider further sectors that should come under the order.

The hon. Member for Oxford East raised the issue of the interim regime’s funding. The FCA is making a one-off levy from April 2019, and it will continue to collect fees from industry. Having recently closed a fees consultation, it will release a policy statement later this year about the funding mechanism for that transition period.

[Anneliese Dodds]

I asked specifically about the resources available to the FCA for creating that interim regime at a time when it is under enormous pressure in other ways. Is it to be expected to fund all that through its existing budget and receive that levy only after 1 April? Surely that could pose some problems.

[John Glen]

The FCA has made provision for the funding of the activity, and it will make a policy statement later this year about how it will work after April.

I was asked about the impact of new FCA regulation on the fees, so I will give more detail. To cover the costs of the transfer, the firms will be required to pay a one-off levy spread over two to three years, which will be collected by the FCA. Clarification will be given later about the regime following that.

On the point about solicitors’ exemption, which goes to the point about regulatory arbitrage raised by my hon. Friend the Member for South Norfolk, there are strict controls in professional regulation under the SRA. The intention has been to have a tougher regulatory regime for CMCs without burdening solicitors with unnecessary regulation, because we believe that they are robustly regulated. Whether the two are aligned is a legitimate issue that needs ongoing review. We are concerned about the risks. The order is designed to close the potential loophole through a provision that removes the exemption for legal professionals if their claims management activity is not part of their ordinary legal practice. That is what has been happening: they have not been subject to FCA oversight because, in effect, they have been doing something that they could say was under their regulator but that the FCA has nothing to do with.

The FCA and SRA have therefore committed to reviewing their memorandum of understanding where it sets out how they will work together, to ensure that the regulation is effective and avoids precisely the matter that my hon. Friend raised.

In relation to FCA scrutiny, there is a statutory duty on the FCA to report to the Treasury, and that will cover CMC activity. The FCA will do that regularly—on an annual basis. Additionally, there are informal, three-weekly conversations between me and the FCA, and obviously I will be subject to scrutiny in the House. That mechanism is a real one: I am obviously pushing the FCA to get this right and it is keen to get it right.

The hon. Member for Airdrie and Shotts asked about the conversation with the Scottish Government. During the passage of the Bill that became the Financial Guidance and Claims Act, the Scottish Government confirmed that it would be proportionate and relevant to bring Scottish CMCs within regulation. This Government have had further, ongoing discussions with the Scottish Government and the Law Society of Scotland throughout the drafting of this legislation, and we are very happy that they are, obviously, included in it.

My hon. Friend the Member for South Norfolk asked about the current status of someone making a cold call. The 2018 Act prohibits anyone from making an unsolicited marketing call in respect of claims management activity. As I have said, that is enforced by the ICO, which has the power to levy large fines and has international reach. Under this statutory instrument, any advertising of claims management services must have prior authorisation by the FCA. Breaching the regulations and failure to have FCA authorisation will be an offence. There has been greater clarity about telephone numbers having to be published, but the ICO is the place where my hon. Friend could take the calls that he is facing.

[Anneliese Dodds]

I am grateful to the Minister for being so generous with his time. May I try to clarify something? Surely we are talking about two different forms of authorisation. This may have been in the Minister’s mind anyway when he was talking; I am not sure. There is authorisation by the regulator, but also by the person who is being rung by the claims management company. Surely they are two quite different things.

[John Glen]

Somebody should not be called unless they have given explicit permission to be called, so it is an illegal act if that permission has not been given.

My hon. Friend the Member for South Norfolk asked whether this regulation covers banks. No, they will be covered by their FCA authorisation and supervision, so they are covered but not under these provisions.

Draft Double Taxation Relief and International Tax Enforcement (Guernsey) Order 2018 Draft Double Taxation Relief and International Tax Enforcement (Isle of Man) Order 2018 Draft Double Taxation Relief and International Tax Enforcement (Jersey) Order 2018

Anneliese Dodds Excerpts

Tuesday 13th November 2018 General Committees

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

It is a pleasure to serve on this Committee with you in the Chair, Mr McCabe. I am grateful to the Minister for his explanatory comments, but I am afraid that the Opposition cannot support the treaties in their current form.

Let me say at the outset that the Opposition’s concern about the treaties is in no way a reflection of our overall view of the Channel Islands, with whom we are determined to maintain a cordial and respectful relationship, building on our important historical and contemporary ties. Nor would the Opposition view the previous double taxation agreements as fit for purpose. They were not, although there appears to have been confusion in that regard on the Government side. I will return to that later.

Our opposition to the treaties is motivated instead by a deep concern about the lack of appropriate engagement by the Government in advancing the cause of tax transparency, which at rhetorical level they are committed to, but which time and again they seem sadly to have resiled from in practical terms. During debates on the Sanctions and Anti-Money Laundering Act 2018, the Opposition prepared an amendment requiring Crown dependencies to introduce public registers of beneficial ownership, but we were persuaded by Ministers that they were working with Crown dependencies to achieve transparency through other means. The amendment was therefore withdrawn.

What has happened in the intervening six months since the beginning of May? It looks as if even the Government’s responsibility to require overseas territories to introduce public registers of beneficial ownership has floundered. The Government are obliged to do that now by the will of this House, given that the amendment to that intent passed. I understand that there has been one conference call with the overseas territories, and that appears to have been in relation to what the Government are committed by this House to achieving regarding promoting beneficial ownership registers in the overseas territories.

When it comes to the Crown dependencies, the Government appear to be shutting the door on transparency with these treaties, which is unacceptable. From what I can see, the previous tax treaties with the Channel Islands covered only income tax and corporation tax, not information exchange. There was a separate agreement on the latter, signed in 2013 as an exchange of letters, although that does not seem to have been enacted. As an aside, it would be quite interesting to hear from the Minister why that is the case.

Information exchange is now included within the tax treaties, as one might expect given the OECD’s focus on this area and the fact that, as the Minister indicated, the treaties are modelled on the OECD’s multilateral instrument for amending tax treaties. Given that information exchange was a subject for negotiation as part of the treaty process, and given previous assurances, one would have expected our Government to seek to include an increase in transparency for beneficial ownership registers within the negotiations. However, article 26 in the Jersey agreement, replicated in those with Guernsey and the Isle of Man, states:

“Any information received under paragraph 1”,

which contains the provisions on information exchange,

“by a Territory shall be treated as secret”.

That, coupled with the fact that there is no mention elsewhere in the treaty text of public registers of beneficial ownership, appears to close the door on transparency, rather than open it in the manner that the Government committed to doing.

[Alex Cunningham (Stockton North) (Lab)]

The pensions industry is probably one of the most secretive as far as costs and transparency are concerned, although the Department for Work and Pensions and the Pensions Minister have done tremendous work to try to increase transparency. There is a lesson there for the Minister.

[Anneliese Dodds]

I am grateful to my hon. Friend. He makes the serious point that we have seen transparency moving forward in many areas, yet with these treaties we appear to be moving backwards.

The Government may say that they began negotiations on the treaties in April 2016, as reported by the then Minister responsible, Jane Ellison, but the fact remains that they were not signed until 2 July this year—after the Government had given an assurance that they would work with the Crown dependencies towards public registers of beneficial ownership. We often hear the Government say that they cannot force either the overseas territories or Crown dependencies to do anything at all. I resolutely state that we must do all that we can to support our friends in the overseas territories and Crown dependencies.

I have frequently met with politicians from both groups of jurisdictions, and I respect their efforts in the field of promoting clean financial services and in many other areas. Many people in both groups of jurisdictions now recognise that the writing is on the wall when it comes to excessive secrecy in the financial sector. More transparency is coming, and it is only a matter of time before it will become the international standard. The British Government must play their part in that.

The treaties were the perfect opportunity for our Government to seek to work with the Crown dependencies to promote public registers after previous commitments to do so, yet that opportunity seems not to have been taken up. It would have been perfectly possible for our Government not to have concluded the treaties until public registers were agreed to, but they chose to ignore that pressing need. Similarly, the Government failed to use the opportunity of the Building Societies Legislation (Amendment) (EU Exit) Regulations 2018 as a means to require change. Instead, the current relationship between the UK and the Crown dependencies is maintained in those regulations without any conditions attached whatsoever.

That is all in the context of the Government acting to defend the interests of UK-linked territories—or what is portrayed as their interests; I would argue that in the long run they are not—when it comes to the secrecy of financial activities. I have previously used freedom of information requests to try to get to the bottom of the lobbying that our Government have undertaken on behalf of overseas territories and Crown dependencies concerning the EU’s tax haven blacklist. Eventually that hit a brick wall, when those matters were classified as “diplomatic” and therefore not open to FOIs. The Süddeutsche Zeitung newspaper was rather more forthcoming, however, when it reported in March that the UK Government had intervened in the blacklisting process, in that case to try and stop the British Virgin Islands being blacklisted.

The British Government cannot have it both ways. They cannot on the one hand argue that they are powerless in relation to our overseas territories and Crown dependencies, and on the other promote a particular view of those territories’ interests—which, as I have said, I do not think are their long-term interests—to other actors such as the EU. Those positions are just not compatible. It would be helpful to hear the Minister’s view on why these treaties do not conform with previous commitments made by the Government with respect to public registers of beneficial ownership for our Crown dependencies.

The Minister will be aware of the eurobond exemption, which has been estimated to lose the Exchequer around half a billion pounds a year in tax revenue. The Channel Islands stock exchange is a recognised stock exchange under section 841 of the Income and Corporation Taxes Act 1988. Securities listed on that exchange enjoy exemptions from withholding tax even though they may be held by opaque companies. A UK company, for example, would make interest payments gross, without any withholding tax, while in many cases the recipient would arrange their tax affairs in such a way that they could escape tax altogether. I understand that, back in 2012, HMRC itself suggested that that could be restricted, so that the connected parties could no longer benefit from the exemption. My party also adopted that position at the time. The Government’s argument against it was that issuers, paying agents and clearing systems for eurobonds might not be aware of who noteholders are or whether they are in the same group as the issuer. Essentially, they would be unable to work out if they were connected parties. It would be good to hear from the Minister whether that matter even came up during discussions about these treaties and, if so, what the treaties do to prevent that kind of distortive activity.

It would be helpful to have a clear indication of how the Government view the process for concluding new double tax agreements. I noted when we ratified the OECD’s multilateral instrument that it did not result in a commitment to alter our treaties with Jersey, the Isle of Man or Guernsey. On that occasion the Minister replied to me:

“The hon. Lady asked why we do not include all the DTAs. She is absolutely right that the UK has a large number—from memory, I think it is around 130—and about 121 will be potentially covered by this measure. The answer is that, in some cases, the DTAs largely conform to the changes that would be introduced were they to be subject to the MLI. In some cases, it is not necessary, as our treaty contains substantial provisions. Our first-time DTA with Colombia would be one example.”—[Official Report, Third Delegated Legislation Committee, 9 May 2018; c. 8.]

That seems to be out of kilter with what has occurred with these treaties, which did not cover many of the measures covered by the MLI, such as royalties or capital gains tax—the treaties and the MLI have very different formats. Now that we see a different approach from what was initially suggested for the Channel Islands DTAs, I would be interested to learn what will to happen with the remaining DTAs, which cover Austria, the Falkland Islands, the Faroe Islands, Switzerland and the United Arab Emirates. Interestingly, the protocol to the Swiss DTA was concluded in 2017, but is still not in force, and it is not clear when it will be brought to the House. It would be interesting to hear from the Minister about progress in that regard.

To conclude, sadly we do not feel that we can accept these treaties. They appear to go against commitments made to the Opposition that the Government would continue to work extensively with our Crown dependencies towards having public registers of beneficial ownership. For that reason, we will be voting against the orders today.

--- Later in debate ---

[Mel Stride]

I thank the hon. Members for Oxford East and for Aberdeen North for their contributions to this important debate. I always expect a rattle gun of deep and technical questions from the hon. Member for Oxford East, and I was not disappointed. I will endeavour to answer as many questions as I can, and on those I cannot answer, I am happy to write to her in due course.

The hon. Member for Oxford East raised a lack of engagement, as she termed it, with the treaties that we are scrutinising. I took that to refer both to matters of transparency, on which she elaborated at some length, and also the scrutiny of the treaty, which is an issue that she has raised in relation to other DTAs that we have debated in Committee. I hope that she therefore welcomes the fact that we have made improvements, for example to the information memorandum, which now points out the differences and changes between the 1950s and the later iterations of the treaties and, indeed, the treaty to which we have been asked to give our consent.

I shall make the general points that I usually make on scrutiny. International treaties are complicated negotiations and do not necessarily lend themselves, nor would it be appropriate for them to do so, to discussion and rumination, as the hon. Lady may be seeking. The treaty was published in July this year, so there has been plenty of time to review it. Of course, these international agreements go through the process that we are going through at the moment, giving this treaty scrutiny.

I appreciate that the transparency debate is a hook on which one could add the whole issue of the public registers of beneficial ownership, about which we have had various parliamentary debates. The hon. Lady knows the Government’s position in that respect. It is important to stress that we have a common reporting standard between Her Majesty’s Revenue and Customs and the tax authorities of the three other jurisdictions in question, so we do have an exchange of information relevant to tax affairs between our two authorities, which is an important tool in clamping down on avoidance, evasion and non-compliance.

The hon. Lady asked specifically why we did not insist on the treaties containing a provision that public registers be set up. I think the answer to that is that these matters are outside the general context of these treaties. In addition, the treaties are entered into by bilateral agreement, and I think if we had insisted on that—indeed, had it been our desire to insist on that at this moment—it is unlikely that we would have had the improved version of the treaties that we are discussing today.

[Anneliese Dodds]

I am grateful to the Minister for giving way, but surely these treaties contain provisions that make it less likely that such a public register, which the Government committed to, will be set up, because they include the commitment to keeping information secret. It is just that these treaties do not include reference to public registers, which one would have expected if the Government were working on this, as they committed to do, to the Opposition; it is also the fact that they include a commitment to keeping information secret, which goes against what the Government said in this House that they would do.

[Mel Stride]

I do not think that these treaties require further secrecy than the appropriate confidentiality, as some might term it, of information that is, after all, highly sensitive; it involves the tax affairs of individuals and businesses between our various jurisdictions. It would only be right that confidentiality is respected in those circumstances.

[Anneliese Dodds]

I am grateful to the Minister for that clarification. However, we were just talking about having a register that is similar to the UK register, which is public, and surely any concerns about confidentiality have already been dealt with in our own jurisdiction.

[Mel Stride]

I had understood the hon. Lady in her earlier intervention to be suggesting that the treaties would make a move to public registers of beneficial ownership less likely. To the extent that I do not think they impose any additional confidentiality on the exchange of information over and above what was there before, I do not think that argument holds water, with respect to her.

On the information exchange issue that the hon. Lady raised, the agreement contains a new “assistance of collection of debt” provision, compared with the agreements that it supersedes. I hope that she would welcome the information requirements around that, and the fact that we can now actively seek the assistance of those jurisdictions to collect tax debt, for example.

On the general issue of anti-avoidance, as all Committee members will know—because they follow these affairs in intricate detail, as they have done during this debate—we have very much been in the vanguard of BEPS programme in the OECD. Members may see the footprints of that in these treaties through the main purpose test, to ensure that we do not have companies or individuals exploiting the tax advantages around these treaties for no other reason than to avoid or reduce their tax liability. Of course, in respect at least of the interest on royalty payments, as distinct from dividend payments, there are different categories of entity, and various tests accordingly that will be required to trigger the reliefs in that respect.

The hon. Lady mentioned the blacklisting process that is going on at the moment and the UK Government’s involvement. We have been actively involved in discussions with our overseas territories to ensure that we encourage them not to be blacklisted—to ensure that they comply with the EU code group’s provisions.

Finance (No. 3) Bill

Anneliese Dodds Excerpts

2nd reading: House of Commons & Programme motion: House of Commons
Monday 12th November 2018 Commons Chamber

[Chris Philp]

The growth in the use of food banks is of course a phenomenon that we have seen across western Europe. After the Budget, people on universal credit will be £630 a year better off than they were before—[Interruption.] The hon. Lady shakes her head, but that is a simple fact: the allowance has been increased. As I was saying a moment ago, the Resolution Foundation has found that the Government will be spending more money on universal credit following the Budget changes than would have been the case under the old benefits system. I would further point out that the track record of getting people off benefits and into work is better under universal credit than it was under the old benefits system. The way to combat poverty and create prosperity is to get people into work.

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

I am listening carefully to the hon. Gentleman, but he does not seem to be aware that many of the people on universal credit are working.

[Chris Philp]

I realise that many people on universal credit are working. It is, by definition, an in-work benefit. The point I am making is that it is encouraging more people to take more hours, and it is encouraging people who are not working at all—[Interruption.] I would be happy to take another intervention from the hon. Lady, but perhaps she would like to listen to the answer to her first one. Universal credit is encouraging people who are not working at all to get into work, which is why unemployment is at a 43-year low. A legitimate question that she might ask is whether work is paying enough. This Government have successively increased the level of the minimum wage. This Budget increases it to £8.21 as of next April. That is up from £5.93 in 2010, which is a 38% increase. As I said in my intervention on the Financial Secretary, when we combine that with the increase in the personal allowance, from some £6,500 to £12,500 from next April, the post-tax income of someone on the minimum wage working full time—40 hours a week—has gone up by 44% over that eight-year period. Over the same time, inflation was 25%. So the personal allowance changes and the minimum wage increase have helped people on low incomes more than any other group. That is why income inequality is at a significantly lower level today than it was in 2010.

I turn for a moment to Labour’s plans. Inevitably, they involve spending a great deal of money—more money than contemplated even in the Budget. There is no great merit in spending more than we can afford today if we send the bill to our children and our grandchildren, saddling them with debt and burdening the Exchequer with very high interest charges, which are already high, at some £45 billion a year. As for Labour’s mass nationalisation programme, which it says is fiscally neutral, I point out that the last time we had mass nationalised industries—up to the 1980s—they tended to be grossly loss-making and required taxpayer subsidy, rather than generating revenue for the Exchequer. To assume that a mass nationalisation programme would be fiscally neutral is a dangerous assumption.

It seems to be assumed that the only measure of a Government’s effectiveness—or compassion—is the total amount that they spend. Of course it is important to fund public services properly, but it is the outcomes that matter, rather than the amount of money spent. Gordon Brown’s mistake was always to confuse spending money with success, when what actually matters is outcomes.

In education, for example, 86% of pupils are now in schools rated good or outstanding, compared with 68% in 2010. Notwithstanding any points that may be made about the funding levels in schools—and finding room to spend more is always welcome—the fact is that children are getting a better education today than they were eight years ago, according to Ofsted, which we can agree is an impartial observer. To the extent that the opportunity to loosen fiscally allows us to spend a little more, especially on services such as the police, it will of course be extremely welcome.

When the SNP leader replied to the Budget, he made some points about Brexit and the risks it poses. Some 61% of Scotland’s exports go to the rest of the UK, and only 17% go to the European Union. The single market that is of the most importance to Scotland, by a factor of about 4, is the United Kingdom single market—[Hon. Members: “Hear, hear.”] I see that view has support from my colleagues. That is the single market that the SNP should focus on most, because it is the one on which their prosperity most depends.

As many hon. Members wish to speak, I shall conclude shortly—[Interruption.] However, I would not want to disappoint Opposition Front Benchers by concluding too soon, so before doing so I wish to thank the Chancellor for the business rate change that he announced in the Budget. Cutting business rates for 90% of the high street—any business with a rateable value of less than £52,000—is a welcome move, and will do something to level the tax playing field. High street stores, which use real estate intensively, suffer a tax disadvantage relative to online companies. Online multinational companies also use lawful, but creative mechanisms so that they do not pay as much corporation tax as our high street shops. The business rate cut for smaller shops will really help them and I strongly welcome it.

One measure on entrepreneurship that I commend to the Chancellor for future Budgets is something that is close to my heart. Before being elected, I set up and ran businesses for 15 years. I set up the first one when I was 24 and floated it on AIM four years later—[Interruption.] I thank Opposition Front Benchers for promoting my career, but I am happy where I am. In setting up and growing that business and others, we benefited from all kinds of relief, including the enterprise investment scheme and entrepreneurs relief. I particularly commend the seed enterprise investment scheme, which is very effective in getting money into complete start-ups—companies being started from scratch. It is a very effective tax break for getting individuals to invest in greenfield start-up companies. I should declare an interest as my wife recently set up a company that used SEIS to raise capital. The limit is low—£150,000 per company—but it is very effective in getting individuals to make investments. The fiscal cost is quite low: according to Treasury figures it is about £110 million a year. I suggest that future Budgets may have scope to increase the £150,000 per company limit to encourage further significant investment in start-ups at relatively low fiscal costs—I can see the shadow Chief Secretary getting his pen out to write this down. I commend that idea to the Chancellor for future budgets.

I thank the Chancellor for the welcome business rate cut. I commend him and the Financial Secretary for delivering record high employment, record low unemployment and getting our public finances firmly back under control. Had we listened to the Opposition Front-Bench team, we would still be facing financially ruinous debt bills. It will be my pleasure to vote for the Second Reading later tonight.

Oral Answers to Questions

Anneliese Dodds Excerpts

Tuesday 6th November 2018 Commons Chamber

[Mr Hammond]

My hon. Friend raises a perfectly legitimate question. This is a complicated area. We are making progress on it and we hope and expect to be able to make an announcement shortly.

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

Just as the Chancellor’s claims to end austerity already lie in tatters, so do his claims of fiscal prudence, given the Institute for Fiscal Studies’ assessment that the Chancellor took a bit of a gamble with this Budget. Does he agree with the Father of the House that the Budget was based on an

“unexpected surprise”,

and that,

“news about…tax revenues recently may not last”—[Official Report, 1 November 2018; Vol. 648, c. 1099.]?

If so, how worried is he about Standard & Poor’s warnings about the potential for recession if we leave the EU without a deal?

[Mr Hammond]

The Opposition try to have it all ways. Look, the truth is that our remarkable record in creating jobs—3.3 million new jobs in this country since 2010—forecast by the OBR to continue over the next four years, has led to a boom in fiscal revenues, which we have been able to deploy. The Budget that I delivered to the House last Monday shows debt falling in every year, the deficit falling in every year, and both of those metrics lower today than they were forecast to be at the spring. [Interruption.] The hon. Member for Norwich South (Clive Lewis) says, “Inequality up,” but unfortunately for him, he is wrong. Inequality in this country is lower now than it was under the last Labour Government.

Draft Central Counterparties (amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018

Anneliese Dodds Excerpts

Monday 5th November 2018 General Committees

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

It is a pleasure to see you in the Chair, Mr Bailey, and to be opposite the Minister once again. I am grateful to him for his explanation of the SI.

As we know, the Government have taken the decision to undertake the bulk of preparation for our EU withdrawal through secondary legislation. The Opposition have voiced our concerns on many occasions about this unprecedented transfer of powers to our Executive. I appreciate the work of the Minister, his staff and the civil service, and their collective efforts to brief us on the process, but it is unquestionable that in a normal environment, a change of this magnitude would and should be treated as primary legislation and given the scrutiny that it demands. The number of Treasury SIs and the speed with which they are set to unfold is deeply concerning. The Opposition are committed to making every effort to ensure that the Government are held fully accountable, but this is a constitutionally unprecedented and enormously resource-intensive task that leaves room for error.

It is also disappointing that we have reached a stage at which such contingency measures, which occupy significant time and resource both for the Government and for the Opposition, must be brought before the Committee against the possibility of no deal. The UK is perilously close to the EU exit date, which is just five months away. Financial services firms lack the certainty they need about the shape of things to come; as a result, many have already adopted contingency plans, some of which are leading to jobs leaving our country.

As the Minister explained, the SI deals with an enormously important issue: the nature of our clearing arrangements if there is a no-deal Brexit. As colleagues will be aware, and as the Minister explained, clearing houses are the buyer to every seller and the seller to every buyer in a financial trade that is cleared. They protect trading parties from the risk of default by the other parties. CCP clearing significantly reduces the cost of having that security to the trading parties, because they can net off the cost of collateral between different trades. CCPs significantly increase the resilience of the financial system by de-risking trades for the parties involved.

More and more trades have come to be cleared in that manner, not least following the landmark EMIR legislation to which the Minister rightly referred. Of course, that forces over-the-counter derivatives to be cleared through CCPs. Lord Sassoon said in the other place when the UK’s resolution framework for CCPs was introduced back in 2012, in tandem with EMIR, that it was

“the previous Labour Government…who identified this general area as one that needed to be dealt with, particularly in the context of deposit takers, where the need was identified to put additional provisions in place for resolution regimes.”—[Official Report, House of Lords, 15 October 2012; Vol. 739, c. 1266.]

That approach was then of course extended to other systemically important parts of the system, not least the trading operations of banks and other financial actors, which we are discussing.

Although introducing extensive requirements to clear through a CCP increased the overall resilience of the system, it concentrated default risk within CCPs, so disruption to their operation may have a significant impact. Indeed, Benoît Cœuré, an executive board member of the European Central Bank, indicated last year his concern that the failure of a CCP may have a destabilising impact, behoving very careful supervision. Ensuring that UK-based firms can continue to clear in a compliant and transparent manner is very important, but it is also important that UK-based CCPs can continue to clear EU27 trades. That point is not covered in the SI, but as I am sure the Minister anticipates, I will return to it.

I note that no fewer than 24 questions were posed during the discussion of the draft regulations in the other place. That is understandable given the significance of this area and the considerable uncertainty that persists as the SI is drafted. I am grateful to the Minister for his helpful explanation and clarification of exactly when CCPs will be expected and required to seek recognition, but there are still six outstanding questions to which I hope he can respond.

[Mr Mark Prisk (Hertford and Stortford) (Con)]

I am listening carefully to the hon. Lady, who cites the real dangers to the UK of having no deal. Will she explain why she and her colleagues have made it clear that they intend to vote down any deal the Government bring back?

[Anneliese Dodds]

The House voted to have a meaningful choice over the deal that was presented to us. Sadly, we have not yet been presented with such a choice. The deal the Government appear to be negotiating does not appear to the Opposition to protect jobs, the environment or workers’ rights, or to meet the other tests we set out, and all that has been set out thus far is a choice between that flawed deal and no deal. For a vote to be meaningful, we would need to be able to amend the deal, which possibility seems to have been removed from us, going against the undertaking that many people on both sides of the House thought we been given.

We are also not being given the additional option whereby the deal is remitted to Parliament to discuss a way forward, which most of us anticipate is what would make the choice meaningful. If a gun is held to one’s head and one is told, “You have to support this deal; otherwise it will be necessary to jump off a cliff,” that is not a meaningful choice. It is enormously disappointing that the Government have chosen to interpret that vote in that manner. Given the hon. Gentleman’s question, I hope he will work hard to persuade his Government colleagues of the need to offer the House a genuinely meaningful choice rather than what currently appears to be in front of us.

[Mr Prisk]

I certainly am doing that—

[The Chair]

Order. The question is rather wide of the core issue that we are debating. The hon. Gentleman did very well to slip it in, so I had to let the shadow Minister reply, but I will not allow the debate to continue.

[Anneliese Dodds]

Thank you, Mr Bailey. Perhaps the conversation can continue after the Committee, if the hon. Gentleman wishes to discuss it further.

My first question to the Minister relates to consultation about the provisions. I was grateful to him for holding what was described as a teach-in with his civil servants and the relevant regulators on the whole statutory instrument process. Obviously, the regulators were invited because potentially an enormous amount of power is being transferred to them through this and other secondary legislation.

Other Opposition Members and I were informed that we would be provided with an indication of the reasons for certain decisions being taken in individual statutory instruments and with details of the consultations that had been undertaken on them, but when my office asked about the consultation in relation to the draft regulations, it was informed that it had not been undertaken. When asked about that in the other place, the Minister answering the debate stated merely:

“The Treasury has continued to engage the financial services sector on issues relating to no-deal legislation and will continue to do so.”—[Official Report, House of Lords, 30 October 2018; Vol. 793, c. GC127.]

As it happens, my contact with interested parties suggests that there are no major concerns about the Government’s approach in this statutory instrument, but there is a general question about the level and type of consultation that should occur in relation to financial services no-deal statutory instruments. Will there be any formal consultation or will it all be informal? Will it be in relation to the whole body of statutory instruments, which could be difficult, given that several have not been formulated? Will it be done case by case, and if so, how will we ensure that that happens appropriately for every statutory instrument? It would be helpful to hear the Minister’s thoughts on that.

My second question is about the Minister’s interesting remarks about why decisions have been taken to vest different aspects of regulatory responsibility in the Treasury as opposed to in the Bank. It was helpful to hear his explanation, which I had not been able to glean from the accompanying documents. As I understand it, the Bank will focus on individual CCPs for individual decisions about equivalence and the Treasury will look at the overall regulatory framework and attempt to have discussions with the EU27 and presumably ESMA for co-ordination purposes. Have I understood that correctly? That is a big departure from the existing EU system for looking at that and for its equivalence provisions, and from how the system works within the EU.

The Minister probably knows that, in relation to every CCP, there will be a regulatory college that includes representatives from the member states that have the biggest stake in the operation of that CCP, relevant central banks, the European Central Bank—where required—and ESMA. It would be helpful to know more about the rationale behind those regulatory decisions.

My third question is about an issue that came up in the other place, but which I want to press today. It is unclear why the affirmative procedure will not be used to extend the implied recognition provided by the statutory instrument. As was stated in the other place, a small number of CCPs are involved, and surely it would be appropriate for Parliament to be made aware of a situation where the Treasury had been unable to create an agreement for future regulatory co-ordination, despite having had several years to do so.

In my experience in the European Parliament of achieving equivalence decisions when it came to EMIR and in other fields, parliamentarians were informed when there had been problems and there was a debate about the timescale. It is not clear that that will occur in this Parliament. Perhaps we can get more background on that question. Related to that, the Minister will know that the scope of EMIR has been under discussion at EU level, including whether trades by pension funds should become subject to the clearing obligation as well. That would require some additional margin, which is why there has been controversy around it. It would be interesting to hear his thoughts about whether the UK would be likely to wait for EU agreement on this subject and whether it would feel that it was necessary to comply if the situation changed. The current approach appears to be to postpone that decision indefinitely.

I note that regulation 14(1) states

“The Treasury may before exit day by regulations specify that—

(a) the legal and supervisory arrangements of a third country ensure that central counterparties authorised in that country comply with legally binding requirements which are equivalent to the requirements laid down in Title IV of the EMIR Regulation, as it has effect in EU law as amended from time to time”.

That seems quite vague, for example, about whether we would always keep step with EMIR as it is amended. It is unclear to me what the process would be for ensuring that we comply with any amendments, if there is a time lag and so on.

Fifthly, the huge elephant in the room when it comes to this SI is not what happens to UK trades cleared through the EU27 and third-country-based CCPs, important though that issue is, but what happens to EU27 trades cleared through UK-based CCPs. Of course ESMA runs the third-country regime, as the Minister mentioned, and it is unclear—to me, anyway—where exactly that is headed at the moment. As I am sure the Minister is aware, London currently clears about 90% of euro interest rate swaps and about 40% of euro credit default swaps. It is surely essential that LCH.Clearnet and others remain as zero-risk counterparties in the eyes of the EU and are able to continue this type of clearing.

If there were to be a wholesale transfer of trades away from the UK CCPs, we would be talking about hundreds of thousands of trades worth trillions of euros that would have to be cleared elsewhere, which would lead to traders having to ensure sufficient margin for often smaller CCPs, thus reducing liquidity and increasing the overall cost because of the decreased scope for trades to be netted off against each other within smaller CCPs.

As I am sure the Minister is aware, in June 2017 the Commission proposed amendments to the EMIR and ESMA regulations that would have included a different regulatory regime for systemically important CCPs. That approach was reported on in the European Parliament before the summer. As I understand it—it would be interesting to hear whether the Minister shares my understanding—that approach is being reviewed by the Council. Therefore, my penultimate question is this: are our Government doing everything that they can to underline to the rest of the EU, and particularly to the Council, the potential for disruption and additional cost if an over-restrictive approach to clearing within the EU27 is adopted in the short, medium or long term? The Minister referred to financial stability risk; surely that applies in spades if we are talking about trades from the EU no longer being cleared through our very successful and high-quality CCPs here in the UK, just as much as in the opposite direction.

Finally, we are told that the draft regulations will be put into practice if there is a no-deal Brexit, but the provisions are presumably in place pretty much as soon as this Committee has accepted them, and it is not clear to me that the SI includes a mechanism to switch off the extant provisions. If it does contain such a mechanism, can the Minister explain where it is, and if it does not, how will the provisions here be disapplied in the event of a deal covering financial services? I know that the Minister is a very honourable person and I would take his word on many things, but we need to know how a measure that is on the statute book can be switched off, as well as how it can be switched on, and it is not very obvious to me how the former can happen.

--- Later in debate ---

[John Glen]

I shall do my best to answer the questions that have been raised. I think it would also be helpful if I were to set the context with respect to powers under the European Union (Withdrawal) Act 2018. What is being done through the statutory instruments may be disputed by the Opposition, but it is ultimately a matter of the legislation that was passed. I am using the provisions to do everything I can to ensure that we have the right arrangements should there be a no-deal scenario. I recognise the points about the unusual nature of the process—the large number of statutory instruments. That is why I am committed to doing everything I can to facilitate meaningful scrutiny, dialogue and exchange of information in advance of Committee sittings.

The regulations are tightly constrained to fix deficiencies, not to make wider changes; this is not a power grab. The temporary recognition regime and other transitional arrangements are in line with the expectations of the industry, which needs certainty. It needs the contingency arrangements. I propose to go through the six questions and the additional points raised by the hon. Member for Glasgow Central and, I hope, answer them meaningfully.

First, as to the consultation, it is right to say that there has been long-standing engagement. It is done case by case, on the basis of the most appropriate mechanism. We announced it in December 2017 and published three letters over the course of this year. Engagement with relevant stakeholders in the industry has to vary according to different statutory instruments. In the case we are considering, I think it is fair to say that the arrangements we have undertaken have been well received by the industry, which welcomes the certainty we have given. Obviously there are a small number of players, and we have done what is necessary.

Secondly, the hon. Member for Oxford East is correct about the alignment of the Commission to the Treasury and the transmission of the ESMA powers to the Bank of England. The Treasury will make the equivalence decision, but the authorisation process will be carried out at a technical level with the appropriate skills in the Bank of England. That is purposefully aligned to the same distribution of roles from the Commission to ESMA.

Thirdly, on the question whether, if there were a need for an extension, it would be appropriate for the Treasury to make that provision using the negative procedure, that is an administrative, managerial decision. It is not based on any extension of the existing powers. It would be on the basis of a clear need to do so. The principle of what we are doing and the criteria for doing it are being discussed now; it is a translation of what already existed. The three years plus one arrangement is designed with industry convenience in mind.

Fourthly, as to the scope of EMIR and any changes, we are retaining most of EMIR as it currently applies in the EU and are unable to make significant policy changes, as I said, under the 2018 Act, so the legislation provides a good basis for discussions on equivalence with the EU. The hon. Lady raised the issue of regulation 14(1)(a) and the equivalence, as compared to EMIR,

“as it has effect in EU law as amended from time to time”.

Regulation 14 applies only before exit day. After exit day our approach to equivalence will be to compare third-country regimes to EMIR as onshored and part of domestic law. We will not necessarily as a matter of policy be following changes to EMIR in EU law; but equally it would not be our aspiration to deviate wilfully. There is obviously a lot of alignment. We start from a common starting point, and obviously we anticipate securing a deal on the basis of the alignment that currently exists.

Fifthly, the hon. Lady rightly pointed out the need for clarity the other way, in how the Commission deals with trades carried out through UK CCPs. It is welcome that, according to Tuesday’s Financial Times, Vice-President Dombrovskis has indicated a willingness to act to mitigate. That outcome is a function of the technical group dialogue that has been going on since April, and it has been welcomed in the City. More details are needed, but we have acted proactively to give as much assurance as we can, and that significant step forward is very welcome.

Sixthly, the hon. Lady asked about the mechanism to switch off the regulations. The SI itself does not include provision for switching itself off in the event of a deal, but the White Paper on the withdrawal agreement Bill confirmed that it would contain provisions to allow SIs like this one to be repealed, delayed or amended should a deal be secured. In the circumstances of a deal, we will do whatever is appropriate, and clearly this SI would not be necessary. The hon. Lady is looking at me quizzically.

[Anneliese Dodds]

I am grateful to the Minister for that explanation. Are we to understand that the decision whether to switch off any SI produced in the context of the withdrawal Act is ultimately in the gift of Ministers?

[John Glen]

To be honest, I will have to write to the hon. Lady to clarify that detail. The essential point is that the statutory instrument is for a no-deal scenario; if we get a deal, we will not need the SI because we will be in a close working partnership and we will have the implementation period. I will need to write to her about the precise mechanism that we would use to get rid of the SI or withdraw its provisions, but that is my attempt to answer her six questions.

The hon. Member for Glasgow Central asked about fees and, quite reasonably, echoed a number of other points. There has been dialogue with the industry on the fees, which will be proportionate to the process that the Bank of England will need to go through. In practice, these firms do not exist in massive numbers. I cannot give her the cost in pounds and pence, but it will be aligned to industry expectations and will not impede the choice to register.

Draft Financial Regulators' Powers (Technical Standards Etc.) (Amendment Etc.) (EU Exit) Regulations 2018

Anneliese Dodds Excerpts

Wednesday 10th October 2018 General Committees

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

It is a pleasure to serve on the Committee under your chairmanship, Sir David. I am grateful to the Minister for the explanation that he provided.

As the Minister mentioned, the SI is intended, as I understand it, to enable regulators, particularly the Bank of England, the Prudential Regulation Authority, the Payment Systems Regulator and the FCA, to remedy any deficiencies in binding technical standards, so that they can operate effectively from the point of the UK exiting the EU. The SI also, as I understand it, and as stated in the explanatory notes, but not necessarily reflected in the Minister’s remarks, enables authorities to have ongoing responsibility for making technical standards required under retained EU law in financial services and amending them so that they remain fit for purpose in the future. It is not just about exit day. As I understand it, it is about a potentially much longer period, at least as expressed in the explanatory notes and my reading of the SI.

The regulators’ powers are subject to the constraints in the European Union (Withdrawal) Act, as the Minister explained. They are limited to addressing deficiencies and dealing with any failure of UK law to operate effectively after exit, and that power is time limited under the withdrawal Act.

We first have to question why we have ended up here. It is deeply worrying that the Government feel that they have to go down this path because of the possibility of a no-deal Brexit, which the Brexit Secretary now recklessly describes as offering countervailing opportunities. I am not sure about the Minister, but I have yet to find somebody working in financial and related professional services who can find any countervailing opportunities from a no-deal Brexit. Maybe he has and it would be great to hear of it, if so.

[John Glen]

There are some.

[Anneliese Dodds]

Perhaps a couple of hedges but not many beyond that, I would expect. We could be pushed in this direction by the Government’s dogmatic rejection of a customs union with the EU and their inability to accept the reality.

As a result of that disturbing situation, it is right that those in Government who do want to act responsibly provide us with some kind of assurance of regulatory continuity, hence this SI, but I would say from the beginning that there is a misunderstanding in these proposals: the idea that technical, level 2, standards are non-political.

For two years I was a Member of the European Parliament and negotiated for the Socialists and Democrats a number of level 2 measures, relating to a raft of post-crisis financial services legislation: MAD/MAR, EMIR, CARRP, CSDR and last, but certainly not least, MiFID II. Parliamentarians were deeply involved in negotiations on those level 2 measures, which addressed a massive range of different issues. Of course, those negotiations were with the European Commission as well as regulators, mainly ESMA, in the case of the negotiations I was involved with.

The regulations seem to suggest that there would be public consultation only on changes and no more extensive engagements. That ignores the fact that so-called technical standards can emasculate the intent of legislative proposals at a stroke. One good example of that would be around the new regime in MiFID II for regulating commodities trading, where there is a lot of evidence, as Members will know, that having virtually non-regulated commodities markets had led to spikes in the cost of commodities, which had then led to serious problems in many countries in the global south, including potential famines.

Parliamentarians believed they had got to a situation and agreed at so-called level 1—primary legislation level—that we would have a new regulatory regime that would impose position limits on different types of commodities. That would mean we would not have that kind of speculation pushing up prices again, because we would not have individual traders controlling huge parts of these really important markets, and manipulating them just for financial gain. But the technical standards were really weak initially. We had a big fight and got them back to a much better position—that was through a political process, not a technical one. It would be interesting to hear the Minister’s thoughts on whether we are really considering these level 2 measures to the extent that they require. Of course, we as parliamentarians do not want to be poring over level 3, which is the real technical nitty-gritty. That would not be sensible but level 2 measures surely require more scrutiny than we are offered here.

I would like the Minister to respond to three questions. First, at EU level there is a strong institutional aid to the promotion of financial stability in the form of Finance Watch, which is funded by the EU. We lack any such body in the UK. That is significant, given where we are today, 10 years since the fall of Lehman Brothers. I hope the Minister can reflect on how the political imperative of ensuring financial stability will be ensured, or otherwise, by these arrangements.

It is interesting to look at the language and narrative that Government have given in relation to these proposals and contrast that with some of what has come from EU level. I quote from the report by Irish MEP Brian Hayes just before the summer in the European Parliament. It stated:

“In the absence of a transition period, the Commission and the European supervisory authorities must be prepared to protect financial stability.”

That was the first value that he isolated, yet we tend to find that a bit of an afterthought in Government communications on this topic.

Secondly, I am very concerned whether the regulators, particularly the PRA and FCA, have the requisite capacity. That is related to the point made earlier about whether parliamentarians have the capacity to deal with the huge volume of SIs. Of course, it is the PRA and FCA that would have to deal with the arrangements for level 2 legislation. What assessment has been undertaken by the Government of their readiness to accomplish that task? I say that having looked at the document that has just been released by the FCA, snappily entitled “Brexit: proposed changes to the Handbook and Binding Technical Standards—first consultation”, which is 781 pages long. Admittedly, quite a lot of that is a new revised handbook, but it is a very big task that we are giving to our regulatory authorities. It is not clear that they really have the requisite capacity to deal with that task. For example, if we look at some of the new burdens that might be applied to the FCA, the document states that credit rating agencies that are currently registered with the European Securities and Markets Authority and that wish to register with the FCA will need to send the information by exit day—that is information on all credit ratings issued and not withdrawn. We are talking about a lot of information that will have to be transferred to the FCA. Will it be able to cope with that?

The last question I have is about regulatory co-ordination. From my reading of the SI and the explanatory memorandum, these arrangements are not just about the exit point but about ongoing arrangements that are intended to ensure that binding technical standards will remain effective. It is not clear how co-ordination will be ensured between what occurs on the UK side and on the EU side. We could say it would be a function of a no-deal Brexit, which the SI is intended to deal with, but I am concerned by some of the suggestions. For example, the FCA document suggests that we should just remove binding technical standards, such as requirements to co-operate in

“supervisory activities, for on-site verifications, and investigations and exchange of information between competent authorities”.

That seems to be the assumption underlying what a no-deal Brexit would look like. I hope the Government will further consider what future regulatory co-ordination could look like at the same time as we are staring down the barrel of no deal.

--- Later in debate ---

[John Glen]

I am happy to answer any parliamentary question. I think we said there are about 70 SIs, but that will not be fully accurate.

The hon. Member for Oxford East asked, at the macro level, whether financial stability will be protected. The statutory objectives of the regulators for financial stability will not change. They are enduring. A tripartite system was set up as a consequence of the crash. I think there is broad cross-party agreement on the need for that to continue, and it will.

The hon. Lady asked about holding regulators to account. Parliament will be involved in every aspect of the process to onshore EU financial services regulations, so all the changes the Treasury proposes to level 1 legislation and delegated Acts will be put before Parliament for it to approve. Any transfer of responsibility to the regulators, including any transfer of powers to make technical standards, will be put before Parliament for it to approve through affirmative-procedure SIs.

The Treasury is working closely with the Bank of England, the PRA, the FCA and the PSR on how to fix deficiencies, including in the technical standards that we propose should become the responsibility of regulators. As was said, the Treasury will be required to approve all the deficiency fixes proposed by the regulators to ensure they are consistent with the deficiency fixes that Parliament will be asked to approve in onshoring.

[Anneliese Dodds]

The Minister is saying that there will be a change, to the extent that level 2 arrangements will be determined by the regulators. That is a shift away from arrangements at EU level, where parliamentarians—albeit European parliamentarians—are involved in negotiations about level 2 arrangements with the Commission and the regulator. That is a change. As I understand it, we are shifting to level 2 arrangements being uniquely the preserve of regulators, albeit with oversight from the Treasury, compared with a process where there is negotiation, in which parliamentarians are involved.

[John Glen]

We are seeking to give responsibility to the most appropriate body. The regulators are doing what they do. Frankly, some binding technical standards will not be suitably scrutinised or carried out within the Treasury. I refer back to the point I made about tier 1—or tier 2. Binding technical standards are sort of tier 3 within tier 2—it is a bit complicated—but basically, Parliament will have scrutiny over fundamental change, and the consequential changes that flow from that will be delegated to the appropriate body.

I think the hon. Lady asked whether this is about more than fixing deficiencies for exit. The withdrawal Act provides for the transfer of functions where necessary. Binding technical standards will need to be maintained by an appropriate body. After exit, that will be the UK regulators.

On what the hon. Lady said about her role as a Member of the European Parliament, it is absolutely right to say that we will have more to do because we will not have that scrutiny. As I understand it, MEPs can veto some binding technical standards proposals, but the UK FSMA framework of 2000 does not work in that way. Parliament has delegated technical rules to UK regulators, which is a difference.

The draft regulations set out the procedure where responsibility for future binding technical standards is transferred to regulators by other SIs. All those SIs will be scrutinised individually by separate Committees—I will probably be sat here introducing them—and subject to approval by Parliament under the affirmative procedure.

I turn to the Treasury’s authority over regulatory changes. It is appropriate that the Treasury approves all the deficiency fixes that the regulators propose, and Ministers will be accountable to Parliament for that. On the responsibility for binding technical standards that regulators will take on post-exit, the Treasury will need to approve future changes to those technical standards and will be able to veto a proposal for the two reasons set out in the draft regulations: if it appears the proposal would

“have implications for public funds”,

or if it would

“prejudice…negotiations for an international agreement”.

I cannot anticipate what they are, but all I know is that I would be subject to parliamentary scrutiny on that.

--- Later in debate ---

[John Glen]

Candidly, at the level we are at at the moment, in seeking a strong bilateral arrangement to determine the future dynamics of dialogue between the EU and the UK supervisory bodies, I cannot answer with that degree of specificity. I take the point and will seek to come back to him as soon as I can.

[Anneliese Dodds]

I am grateful to the Minister for giving way; he has been very generous. I have enormous respect for the hon. Member for Basildon and Billericay but, surely, it is important that whenever we talk about specific regulations we ground our discussion in an overall commitment not to seek to undercut EU-level regulation. Of course, there will be innovation and change, including at EU level. I would be surprised if these discussions are not happening in other European countries. I accept that the nature of the market is different in different European nations. But we have had this around many other regulations before. The danger is that we could end up with the mentality of a bonfire of regulation, which will overall have much more of an impact, because there are concerns that Brexit could be used as a means to undercut regulations generally. That is much more of a concern for industry than any specific regulation, in my experience anyway.

[John Glen]

I will take on that point, while also responding to the hon. Member for Glasgow Central, who made the same point about watering down of EU regulation. There is no provision to water down in the Act the regulations that we are seeking to onshore. The wider point has been made about the future direction. On that, again, I can be reassuring. We do not want to define ourselves as a nation by regulatory arbitrage.

I also acknowledge, as my hon. Friend the Member for Basildon and Billericay pointed out, that the financial services have ongoing issues with legislation that has been onshored while we have been members of the EU. They are not about reckless setting aside of prudential regulations. They are in areas, perhaps, on which there is greater emphasis in our UK financial services, as my hon. Friend mentioned, these are things that do not exist in other jurisdictions.

Those are matters that a future framework would at least give us a mechanism to examine and then there would be an understanding, if we achieve what we seek—reciprocal responses from both the sovereign regulatory supervisory bodies. But we are not starting from a point where we are seeking to deregulate.

On the point the hon. Member for Glasgow Central made about UK regulators losing influence, I visited Edinburgh and Glasgow over the recess and acknowledge the growing financial services hub that exists there. The UK is a major financial centre and UK regulators are major players in global forums for financial regulation. There are global colleges for supervision for banks, for example, where we are key players. Although I recognise that the context will be different, this is not the time for UK regulators to adopt a more detached role from international leadership in some of these areas.

Reference was made to the BBC report of the comment I made at the Lords Select Committee this morning about jobs. Throughout the last nine months that I have been doing this, I have been in frequent contact with firms about jobs lost. I was referring to a comment made by Sam Woods, the deputy governor of the Bank of England, about the contingency arrangements. In my opinion, it was not news; I was just reflecting what had been said by somebody else. Of course, contingency arrangements have been made, but I have seen no expectation or desire to move significant tranches of jobs to the EU beyond that. A deal would clearly arrest that fear. We have set out clear proposals on a future ambitious relationship with the EU. We hope that that will transpire, and we expect it to take place.

The other point was about rule-taking. We are not proposing that UK regulators will have to work within a framework, other than the UK Parliament framework. There would be parliamentary scrutiny of any significant changes that we wished to make, and we will set those changes in primary legislation.

The right hon. Member for North Durham made a point about the impact assessment. The regulations would have no cost to business, as they deal with the transfer of responsibility from the Treasury to the appropriate regulators. As a whole, the regulations will significantly reduce costs to business in a no-deal situation. That is the whole point--to ensure that the effects of the transition are minimised in an undesirable situation.

Through our dialogue with firms and trade bodies, we have attempted to minimise the disruption to firms, but it is inevitable that some preparation will be needed. The Government have committed to providing the UK regulators with the power to phase in regulatory requirements that will change as a result of exit, which will mitigate the cost to firms. Due to the wide scope of the changes needed and the broad set of firms affected, however, it has not been possible to accurately quantify the actual costs to firms—I concede that—but these regulations will reduce the cost to business in a no-deal scenario. That is undoubtedly their purpose.

[John Glen]

Because they will set a reliable regulatory framework that will mean that firms will not be at risk of defaulting or of not having the regulatory oversight that would not exist otherwise.

[Anneliese Dodds]

I would always hesitate to speak for my right hon. Friend the Member for North Durham, but I believe his question was actually about the cost to Government and the considerable amount of civil service time that is being eaten up by the process.

[John Glen]

With respect to that, we have prepared a narrative on the impact assessment, and I believe there is a conversation going on with the appropriate Committee to determine that, but we have not concluded that assessment. Obviously, it is necessary to move quickly to secure all these statutory instruments before the end of March. That has been our objective.

Oral Answers to Questions

Anneliese Dodds Excerpts

Tuesday 11th September 2018 Commons Chamber

[Mel Stride]

When it comes to business rates, which are the heart of the taxes that my right hon. Friend referred to, we have done a great deal since 2016. We will by 2023 have provided reliefs totalling some £10 billion, much of which will fall as relief to the high street. I take on board the comments he has made. As with all taxes, we will keep business rates under review.

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

Contrary to the comments of the Financial Secretary to the Treasury, international co-ordination on tax has frequently been blocked by the Government. We saw that particularly when it came to the taxation of trusts with both David Cameron and now the current Government arguing against more transparency. It is no surprise that, as a result, a director of Fidelity International and other experts are saying that the Amazon case shows

“how tax policy hasn’t moved on.”

Why are this Government letting giant multilaterals get away with it and letting everybody else down?

[Mel Stride]

Let me be extremely clear to the House: this Government have an exemplary record on clamping down on avoidance, evasion and non-compliance. We have one of the lowest tax gaps in the entire world, at 5.7%, far lower than was the case under the Labour party. We have brought in a number of rules under the base erosion and profit-shifting project—a project of which we were in the vanguard. For example, tax deductions for interest expense came in in 2016 and yielded £3.9 billion by 2021, and the diverted profits tax that we introduced in 2015 has already raised some £700 million.