Co-operatives
Catherine McKinnell Excerpts(10 years, 10 months ago)
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Catherine McKinnell (Newcastle upon Tyne North) (Lab)
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Islwyn (Chris Evans) on securing the debate, which is extremely timely, given that it is being held during this year’s co-operatives fortnight. My hon. Friend is well known and respected for his staunch support of the co-operative movement, and he serves as one of 32 Labour and Co-op Members, some of whom are members of the shadow Treasury team. The debate has included several excellent contributions that put the case for co-operatives and their impact on the economy, and I will mention a few of the most powerful points that were made.
My hon. Friend the Member for Islwyn made a characteristically passionate speech about rebuilding trust in our society and the role that the co-operative movement clearly plays and can play in future. My hon. Friend the Member for Rochdale (Simon Danczuk) rightly and proudly proclaimed the historical roots of his constituency as the birthplace of the co-operative movement. My hon. Friend the Member for Stalybridge and Hyde (Jonathan Reynolds) talked about not just the past and the present but the future of the co-operative movement, while my hon. Friend the Member for Rutherglen and Hamilton West (Tom Greatrex) touched on the potential for the co-operative movement to make a real contribution to many of the challenges that we are facing—not just regarding our energy solutions for the future, but in housing.
My hon. Friend the Member for Corby (Andy Sawford) referred to “sticky money”, which is a useful way of thinking about the contribution that co-operatives make to the economy and the issue of trust to which my hon. Friend the Member for Islwyn so poignantly referred. My hon. Friend the Member for Walthamstow (Stella Creasy) made a late but welcome contribution on the many benefits that the co-operative movement brings in finding innovative solutions to the challenges facing us.
I want to add my wholehearted support to this year’s co-operatives fortnight, the theme of which is “Choose co-operative”. It seeks to raise consumers’ awareness and understanding of the diversity and benefits of co-operatives, most of which are local, loved and trusted firms. The co-operative movement employs almost 100,000 people in 2,800 food stores throughout the country, and I declare an interest as a regular shopper at my local Co-op store, which never fails to impress me with its contribution to the local community and its clear desire to put something back. The Co-op also has a significant work force and a dramatic impact on local economies. The Co-operative Group estimates that it contributed £2.2 billion to national wealth in 2012, while co-operative businesses turn over more than £37 billion a year.
We should focus on what makes the Co-operative Group, one of the UK’s largest private employers and the country’s largest mutual business, different. What makes co-operatives—to use the theme of co-operatives fortnight—local, loved and trusted? The speeches made by all hon. Members have provided the answer: the ethical values and principles underpinning those businesses of honesty, openness, social responsibility and caring for others. My hon. Friend the Member for Corby referred to the clear principles on which the co-operative movement bases its approach. They are powerful in themselves, and together they make an important contribution to the economy.
The co-operative movement is about a different way of doing business. It puts sustainability, the welfare of local communities—in the UK and overseas—and its members at the heart of everything it does. The co-operative sector has grown by more than 20% since 2008, despite turbulent economic times, and has around 15.4 million members. It demonstrates that is possible to run a viable, thriving business while staying true to all the social values and principles that saw the Co-operative Group supporting 12,000 community initiatives. My hon. Friend the Member for Corby referred to some of its important work in that regard.
Under the “farm to fork” programme, more than 17,000 primary school pupils were invited to visit Co-op working farms in 2012 alone. The Co-op plays an important role in meeting the rising challenge of childhood obesity and the importance of linking where our food comes from and how it is produced.
An issue that is close to my heart and that was key in bringing me into politics in my youth is fair trade, and the Co-op is delivering record sales of Fairtrade products. Indeed, with sales up 20% over the past 12 months, the Co-operative Group is the UK’s leading Fairtrade retailer, selling three times the volume of such goods that would be expected for a business of its size.
Crucially for the UK’s current and future economy, the co-operative enterprise hub is a nationwide programme that delivers support and assistance to up-and-coming co-operative businesses. It provides advice, skills and support for co-operatives that want to start trading, that are in their first year of trading, that are experiencing rapid growth, that are planning to move premises, that are developing a new product service or market, or that want to change their management structure. The valuable support of the enterprise hub has helped more than 1,000 co-operatives. I am sure that the Minister will want to commend the hub on that impressive figure and that he will suggest how the Government will support its important work.
I would be remiss if I did not mention that 37% of directorships in co-operatives are held by women, which contrasts starkly with 13% in leading companies. Will the Minister comment on that and explain what the Government are doing to learn from the work of co-operatives in supporting women to get to the very top of decision making?
Let me turn to financial services and the Co-operative bank. My hon. Friend the Member for Islwyn explained that his co-operative values and principles, combined with his background in the financial sector, led him to campaign on the need for greater transparency in banks’ activities and transactions through his Banking (Disclosure, Responsibility and Education) Bill. Sadly, it ran out of parliamentary time last year, but it would have ensured that everyone, regardless of their background, would have equal access to routine affordable financial services and credit. He said that it was time that banks started serving society, rather than the other way round, and we should all support that.
The shadow Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Streatham (Mr Umunna), has said that co-operatives are not guarantees of special wisdom or perfect foresight. It is still too early to make a proper assessment of what went wrong at the Co-operative bank that led to the bail-in that was announced last month, but I want to echo the views of hon. Members, including the hon. Member for Warrington South (David Mowat), that it would be incredibly disappointing if the Co-operative bank’s ethos was lost because of a slight change in the way its shares are bought and sold. I would be grateful for an update from the Minister on that important issue for those Members who expressed concern about it.
I finish by again thanking my hon. Friend the Member for Islwyn for securing this important debate and giving Members the opportunity to mark co-operatives fortnight in a very apt way. I look forward to hearing the Minister’s response to the positive solutions that we have heard today.
Finance Bill
Catherine McKinnell Excerpts(10 years, 10 months ago)
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Mr Gauke
How quickly a particular case will be dealt with depends on the length of time it takes to be resolved. The right hon. Gentleman will know from his considerable experience as a Treasury Minister that some of these cases can take a number of years. It is worth pointing out that, by and large, large corporates tend to be involved in this type of litigation. The length of time it will take for a case to be resolved is ultimately unaffected by these changes. Their only significance is that there will not be interim payments in these rare cases.
The right hon. Gentleman asked how many cases there are per year. I cannot give him the number straight away, but it is very low. In the vast majority of cases, disputes are taken through the tax tribunal. As I say, this is about making common law cases consistent with tax tribunal cases. It is difficult to give the precise number of cases per year, but we are talking about low numbers.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
I thank the Minister for responding to my right hon. Friend’s useful question. Will he clarify why the Government are proposing this change as a new clause to the Finance Bill? What has come to light between the initial drafting of the Bill and this stage in the proceedings, which is clearly very late given that the Bill is due to receive its Third Reading today?
Mr Gauke
We have introduced it at this point because recent jurisprudence has crystallised our view in this regard. As I say, we want consistency between common law cases and tax tribunal cases. A degree of volatility has been created in terms of tax revenues that none of us should welcome. In short, the answer to the hon. Lady’s question is that the reason is recent jurisprudence.
Let me give the right hon. Gentleman a little more detail in response to his question about rare cases. HMRC is aware of fewer than 10 strands of litigation where tax issues are being handled through the High Court. That is not to say that they would necessarily all involve interim payments, but I hope that that gives some sense of the scale of the issue. As I say, it is a procedural matter.
Mr Gauke
The first point to make is that this does not ultimately change the amount of tax at stake, because a litigant will either win or not win. If a litigant who ultimately wins has not had access to an interim payment as a consequence of this measure, that does not change what they will ultimately receive. Some of these cases involve large sums of money, sometimes many millions of pounds. In some cases, interim payments have been very significant. However, I stress that this does not ultimately change how much money will end up in the pocket of the litigant. It is a question of timing and ensuring that we have some consistency.
Turning to why we are doing this now, it follows recent jurisprudence of the Court relating to the application of the interim awards procedure. This jurisprudence has crystallised our view that the interim payment procedure is not suitable for complex tax disputes. There is also an element of risk management in this. HMRC is routinely involved in litigation where the tax at stake may be for very high sums of money. The granting of payments on an interim basis before a final decision has been reached contributes to the volatility of tax revenues. By limiting the application of the interim payment procedure in common law court claims relating to taxation matters, and bringing the system into better alignment with what is standard practice in the tax tribunal, the new clause will cut down on complex work associated with calculating claims on a contingent basis before matters relating to liability and quantum have been resolved by the judiciary.
Catherine McKinnell
The information being provided by the Minister is very helpful. The impact note states that the change will have no Exchequer impact, but that Her Majesty’s Revenue and Customs will benefit from reduced administrative costs and burdens. Is the Minister able to put a sum on that economic benefit to the Treasury?
Mr Gauke
That is a fair question and there will be a benefit to HMRC, but it is difficult to put a sum on it. I do not want to overstate the argument—we are not talking about an administrative saving of many millions of pounds—but clearly these cases are difficult to deal with. They involve the additional complexity involved in large-scale litigation matters that are taken through the courts. There is a saving, but I do not want to overstate it. The hon. Lady raises a perfectly fair question, but it is difficult to provide a precise number.
At a time when there is considerable pressure on resources, it is difficult to justify the considerable additional work that the interim payment procedure creates for the Revenue by adding stages to the litigation process. We have, therefore, taken the decision to legislate now in order to achieve better alignment between the treatment of different tax cases at the earliest opportunity. The Government believe that this will help bring an end to misalignment whereby the availability of interim payments in the context of tax differs depending on whether claims are brought in the court system or the tribunal system.
Catherine McKinnell
I thank the Minister for his comprehensive account of new clause 7 and for responding to our queries. As he has said, the Government want to introduce a number of new clauses and amendments to the Bill. Could you clarify, Mr Deputy Speaker, whether we are dealing with just new clause 7 at this stage, or are we taking any other amendments?
Catherine McKinnell
Thank you, Mr Deputy Speaker; I appreciate that clarification.
New clause 7 makes changes to the procedure for the granting of interim payments in common law claims relating to taxation matters so that the treatment of tax cases commenced under common law court claims and tax tribunals will be more closely aligned in future. We support this simplification process, and the Minister’s response to our probing questions during his generous explanation of the new clause has clarified the issue.
Harriett Baldwin (West Worcestershire) (Con)
Is it appropriate, Mr Deputy Speaker, that I now speak to amendments 52 and 53, tabled in my name?
Mr Gauke
These Government amendments make important changes to the UK’s inheritance tax rules.
Amendments 1 to 7 will bring in greater flexibility and provide more individuals with the option to elect to be treated as UK domiciled for the purposes of inheritance tax. They demonstrate the Government’s willingness to listen to the views of external interested parties and act where there is a principled case for change.
Amendments 35 to 51 are being made as a result of comments by interested parties. They clarify the technical interpretation of the legislation and change the commencement provisions with respect to certain liabilities.
Let me turn first to amendments 1 to 7 to clause 175. The clause reforms the inheritance tax treatment of transfers between UK-domiciled individuals and their non-UK-domiciled spouses or civil partners. The changes allow individuals who are not domiciled in the United Kingdom but who have a UK-domiciled spouse or civil partner to elect to be treated as domiciled in the UK for the purposes of inheritance tax.
The amendments are being made following comments from two key interested parties—the Chartered Institute of Taxation and the London Society of Chartered Accountants—about how the Finance Bill as drafted amends the inheritance tax treatment of spouses and civil partners not domiciled in the UK. Their further representations since the publication of the Bill in March have helped us understand the concerns raised in more detail. Considering the points raised has taken time, but the amendments will resolve these issues.
The clause as drafted stipulates that a person must be non-UK-domiciled and married at the time they make an election. Consequently, a person who has recently become UK domiciled would not be able to make a retrospective election that would cover a period when he or she had been non-domiciled. Effectively, they are trapped if they are not aware of the possible IHT consequences at the point just before they become UK domiciled—for example, if they decide to remain in the UK indefinitely after having children here. This might be especially harsh in situations where the original UK-domiciled spouse dies suddenly having made potentially exempt transfers to the surviving spouse.
Similarly, the Bill as drafted requires a person to remain married to, or in a civil partnership with, the UK-domiciled spouse or civil partner throughout the “relevant period” preceding the election, which can be up to seven years. Therefore, in circumstances where the marriage or civil partnership has been dissolved and the person is a non-domiciled individual, they are prevented from making an election retrospectively and hence prevented from gaining access to spousal relief for the period when they were married in return for their overseas assets being brought into IHT. That was not the intention of the policy.
Amendments 1 to 7 remove the condition that a person must be non-UK-domiciled at the time of making an election. They also remove the requirement that the person making the election is married or in a civil partnership with the UK-domiciled individual throughout the relevant period. The amended clause stipulates instead that they were married or in civil partnership at any time during the relevant period.
As a result of these amendments, individuals who are domiciled in the UK but who were previously domiciled elsewhere will be able to make a retrospective election. Similarly, the amendments will also enable individuals previously married or in a civil partnership to make a retrospective election following divorce or dissolution. This will ensure that changes in domicile or marriage status do not restrict the ability of individuals to elect to be within the UK inheritance tax system.
Amendment 1 simply removes a sub-paragraph that is no longer required as a consequence of amendments 2 to 6, while amendment 7 provides clarity that the provision for revoking an election applies only to the person who made the election and not to that person’s personal representatives.
Let me now turn to amendments 35 to 51 to schedule 34. Clause 174 and schedule 34 reform the inheritance tax treatment of outstanding liabilities. They introduce new conditions and restrictions on when a liability can be deducted from the value of an estate.
The current rules allow almost all outstanding liabilities at death to reduce the value of an estate, irrespective of how the borrowed moneys have been used, or whether the loan is repaid following the death. That creates opportunities for avoidance and can lead to decisions and arrangements being made purely for tax reasons. A range of contrived arrangements and avoidance schemes on the market seek to exploit the current rules. The number of those is expected to grow as other avoidance routes are closed off.
There is an inconsistency in how the current rules treat liabilities that are used to acquire assets that qualify for relief, but that are secured against different types of assets. That creates an advantageous tax position and distorts decision making by encouraging individuals to secure business loans against their personal property where there may be no need to do so. The Government believe that the tax system should neither encourage nor penalise the choice of one form of security over another.
Clause 174 and schedule 34 address those opportunities for avoidance and inconsistency in three ways. First, deductions will be disallowed where the loan has been used to acquire excluded property—that is, property which is excluded from the charge to inheritance tax. Secondly, where the loan has been used to acquire relievable property—that is, property which qualifies for a relief—the relief will be allowed against the net value of the property after deducting the loan. Thirdly, the loan will generally be allowable as a deduction only if it has been repaid from assets in the estate.
The Government are making those changes to improve the integrity and fairness of the inheritance tax system, close avoidance opportunities and remove the inconsistency in the treatment of loans.
Following the publication of the Finance Bill in March, Her Majesty’s Revenue and Customs has received comments from representative bodies, practitioners and individuals that have highlighted sections of the legislation that could be clarified. Interested parties have also expressed concern that the new provisions will apply retrospectively where individuals have secured business loans on their non-business property for commercial reasons, rather than for avoidance purposes, before the changes were announced. Those individuals would face a higher IHT bill if they died before the debt was repaid.
Amendments 35 to 49 clarify the interpretation of the legislation to ensure that it works as intended, and address some of the technical issues identified in feedback. If a loan has been used to acquire excluded property, which later becomes chargeable to IHT, amendment 37 will allow the deduction for the liability. Conversely, if chargeable property subsequently becomes excluded property, the amendment will deny the deduction.
Where a loan has been used to acquire relievable property and that property is given away before death, amendments 41 and 42 will ensure that the liability is not deducted again against other types of property if it has already been taken into account. Amendment 45 will widen the meaning of “estate” to allow the liability to be repaid from property that is usually treated as being outside a person’s estate for IHT purposes, such as foreign property that is owned by an individual who is not domiciled in the UK. Where a loan has not been repaid and the deduction is disallowed, amendment 47 will make it clear that the liability will not reduce the amount that would be eligible for the inheritance tax exemption for transfers between spouses or civil partners.
The Government recognise that some lenders may require security in the form of personal assets and that individuals who have secured existing loans against their personal property to finance business investment may not be able to restructure the loan or unwind the arrangements. Amendments 50 and 51 will therefore amend the commencement date so that the new rules dealing with liabilities incurred to acquire relievable property will apply only to new loans taken out on or after 6 April 2013. That will mean that someone who took out a business loan in the past secured against their other assets will not be affected by the new provisions.
The commencement date for the other provisions in schedule 34 will remain unchanged as the date of Royal Assent. Those provisions will apply to other liabilities, irrespective of when they were incurred.
Catherine McKinnell
The Minister is again providing a thorough explanation of the Government amendments. He may recall that the Chartered Institute of Taxation expressed concerns that clause 174 and schedule 34 were “profoundly anti-business” and did “not recognise economic realities”. Will the Minister provide reassurance that the Government are confident that those concerns are addressed by today’s amendments?
Mr Gauke
We have sought to address many of the concerns that have been raised. It is perhaps worth outlining the policy objective of limiting the deduction for liabilities. It removes a tax advantage that certain schemes and arrangements seek to achieve. It removes an anomaly in the current rules that may distort business financing decisions. The measures will ensure that the value of an estate that is subject to IHT reflects the normal economic consequences of incurring a liability. They support our policies on anti-avoidance and fairness.
Catherine McKinnell
Amendments 1 to 7 will make technical changes to clause 175, which introduces provisions by which an individual who is or has been married to or who is or has been in a civil partnership with someone who is domiciled in the UK can elect to be treated as UK domiciled for inheritance tax purposes. The Minister has set out in detail the reasons for the changes and the expected impact.
I have one additional question. The impact note that was published with the amendments states that there will be a negligible impact in this year, but that in future years there is expected to be a £5 million negative impact on the Exchequer. Will the Minister clarify how and why that negative impact will be realised?
Amendments 35 to 51 will alter schedule 34 and clause 174 on the treatment of liabilities for inheritance tax purposes. Understandably, the Minister focused on those proposals for the majority of his remarks, because they have been the subject of significant concern from a number of quarters. As he explained, the clause was drafted in response to avoidance schemes and arrangements that sought to exploit the inheritance tax rules that allow for a deduction for liabilities owed by the deceased against the value of an estate, regardless of whether the debt is paid after death.
HMRC has outlined some of those arrangements. Some involve contrived debts that are subsequently not repaid, so there is no real reduction in the value of the estate. Others involve loans that are used to acquire assets that are not chargeable to inheritance tax or which qualify for a relief so that the value of the estate is doubly reduced. The policy intention of the measure is to remove the tax advantage that such schemes and arrangements seek to achieve through the exploitation of that loophole. Obviously, that is an aim that the Opposition support.
The impact assessment shows a net positive return to the Exchequer of £5 million in 2013-14, rising to £20 million in 2014-15, then falling and remaining steady at £15 million after 2017-18. It is obvious why the impact will be lower in 2013-14, but it would be helpful if the Minister would clarify why the return is expected to peak at £20 million and peter down to £15 million on an ongoing basis. Presumably, individuals who are aware of the changes will, as executors, adjust their tax planning behaviour, but it would be interesting to understand why we expect that increase in 2014-15, and why the return will continue at £15 million on an ongoing basis. Is that return expected to continue indefinitely in terms of tax protected by the Exchequer?
A number of concerns about this measure were raised in Committee, and also expressed by several external organisations that the Minister mentioned. Most notably, there is concern that the new rules are too broad and may unintentionally catch genuine existing arrangements, rather than solely avoidance behaviour. It is welcome that amendments 35 to 51 seek to focus the new rules more tightly, and clarify the legislation where appropriate to minimise the impact on those with innocent arrangements. Despite the amendments, there are still a number of concerns about clause 174 and schedule 34. I have already asked the Minister whether he is confident that those concerns have been addressed, because even despite the amendments, concerns continued to be raised. It would be helpful if the Minister would provide comfort to the House, members of the public and tax professionals who are concerned about the clause.
The key concern expressed by the Chartered Institute of Taxation relates to debts that are not discharged from the estate of a deceased person. New provisions in clause 174 appear to mean that if a debt has not been discharged directly out of an estate, it will not be deductible for inheritance tax purposes. For example, if the deceased’s estate contains a house subject to a mortgage, the mortgage debt might be repaid from the proceeds of an insurance policy, payable directly to the beneficiary. Although a spouse or civil partner would not be subject to inheritance tax under such circumstances, a cohabitee or orphan child would be. Alternatively, if there is no insurance to pay off the mortgage, the beneficiary might take on the mortgage debt. In either case, as liability will not have been discharged directly out of the estate, which is a requirement of the new provision, it appears that it will not therefore be deductable.
I understand that HMRC intends to deal with such scenarios in its guidance, but it would be helpful for the Minister to clarify the position in his response. The Chartered Institute of Taxation previously expressed concerns that the measures are “profoundly anti-business” and do “not recognise economic realities”. Indeed, it went so far as to state
“we can hardly think of a more counter-productive measure than to deny relief for lending related to business.”
I am sure the Government will want to respond to that strong concern, given current economic conditions and their stated desire to stimulate economic growth. I am sure it is not their intention to enact measures that could be counter-intuitive to that desire.
The Government’s amendments mean that new rules on liabilities incurred to acquire a relievable property will apply to loans taken out or varied on or after 6 April 2013. That is important because of the retroactive nature of schedule 34, which has been criticised given the significant implications for business loans taken out many years ago and secured against a person’s house.
The Chartered Institute of Taxation continues to be concerned that the amendments do not provide adequate protection for small businesses. If a business loan was taken out many years ago but is varied after 6 April 2013, the transitional protection offered by the amendments falls away. That could trap small business owners into existing loans, or hinder anyone whose loan comes to an end, where the bank wants to alter the terms, or if the individual wants to refinance. Ultimately, the Chartered Institute of Taxation fears that that could result in people facing an unenviable choice between selling the family home and selling their business if the business owner dies. I would be grateful to hear the Minister’s comments on those concerns.
To return briefly to my comments on amendments 1 to 7, the impact assessment states that the proposed changes could impact on small businesses. There has been no consultation with small firms or any other groups, so perhaps the Minister will confirm that both sets of changes will not have the detrimental impact on small businesses and business lending that many tax professionals are concerned about.
Mr Gauke
I will try to address the hon. Lady’s points. First, on inheritance tax and non-domiciled spouses, she correctly mentioned the costs of the policy, which are largely due to an increase in the lifetime limit set out in the Budget documents. Clause 176 increases that limit from £55,000 to £325,000—it has not been increased since 1982, and we wanted to address that to be fair to non-domiciled spouses. That is the reason for the cost.
The yield from measures in clause 134 and schedule 34 comes from two main types of avoidance scheme that will be closed by these provisions. The main impact on one will be relatively short-lived. The hon. Lady is right to point out that we expect tax agents providing tax avoidance schemes to move on to new schemes in other parts of the tax code, and that will have a behavioural impact. That explains the peak in one year—2014-15—and the £15 million yield for subsequent years.
The hon. Lady mentioned the impact on business and I refer her to my earlier remarks—as you will have noted, Mr Deputy Speaker, I covered quite a lot of ground in a fairly lengthy speech. Estates will continue to get a deduction for loans or liabilities, provided they are not used to acquire assets that are not chargeable to inheritance tax and are repaid after death, unless there are genuine commercial reasons for non-repayment. Business and investment decisions are made on a range of factors, including tax. One of the Government’s key principles for good taxation is that the tax system should be efficient. It should neither favour nor penalise one form of lending or security over another. The new provisions will ensure that this is the case.
Catherine McKinnell
I appreciate the Minister’s point, but I question the reference to how the majority of small businesses manage to secure funding. Small businesses in particular are struggling to obtain funding from banks.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. We are wandering away from the amendment, and I know the hon. Lady just wanted to make a point on the amendment.
Catherine McKinnell
My point relates specifically to the amendment, Mr Deputy Speaker. Many businesses that manage to obtain funding are often required to provide their home as security. If this provision has a detrimental impact on small businesses and puts family homes in jeopardy, will the Government keep it under review?
Mr Gauke
I can appreciate why the hon. Lady raises that point, but recent evidence from inheritance tax returns suggests that the majority of business overdrafts and loans continue to be unsecured. There may well have been changes to the balance between secured and unsecured business overdrafts and loans in recent years, but it remains the case that the majority are unsecured. Where security is provided, it is typically in the form of a charge on a business property. I understand why she raises the point, but the evidence suggests that this will not cause the concern that she anticipates. All measures are kept under review and this will be no exception, but we believe that we have got the balance right. This will address a distortion and an avoidance opportunity. I therefore hope that these proposals, as refined by the amendments, will become part of the Bill.
Amendment 1 agreed to.
Amendments made: 2, page 105, leave out lines 39 to 43.
Amendment 3, page 106, line 4, leave out ‘spouse or civil partner’s’ and insert ‘deceased’s’.
Amendment 4, page 106, line 7, leave out from first ‘date’ to end of line 19 and insert—
‘if, on the date—
(a) in the case of a lifetime election—
(i) the person making the election was married to, or in a civil partnership with, the spouse or civil partner, and
(ii) the spouse or civil partner was domiciled in the United Kingdom, or
(b) in the case of a death election—
(i) the person who is, by virtue of the election, to be treated as domiciled in the United Kingdom was married to, or in a civil partnership with, the deceased, and
(ii) the deceased was domiciled in the United Kingdom.’.
Amendment 5, page 106, line 21, leave out ‘spouse or civil partner’ and insert ‘deceased’.
Amendment 6, page 106, line 27, leave out ‘or (4)(b)’.
Amendment 7, page 106, line 41, leave out ‘a lifetime or death election’ and insert
‘an election under section 267ZA(1)’.—(Mr Gauke.)
Schedule 2
Tax advantaged employee share schemes
Mr Gauke
Clause 14 and schedule 2 provide a wide-ranging simplification of the four tax advantaged employee share schemes, following recommendations by the Office of Tax Simplification. The Government are introducing amendments 8 to 16 to provide further clarity on the rules that apply where company events involving “general offers” take place. When clause 14 was discussed in Committee, we highlighted some of the improvements that we are making to simplify the tax advantaged employee share schemes, and I shall provide hon. Members with some background on the specific provisions relating to these amendments.
Current legislation allows employees affected by certain company events, such as takeovers, to exchange their original scheme shares or options for shares or options in the acquiring company. The schedule also creates new rights for participants to realise scheme shares or exercise options without tax liability in the event of a cash takeover of their company.
Earlier this year, a tax tribunal hearing a particular case published a decision on what constitutes a “general offer” for the whole of the ordinary share capital of a company. Following this decision, and a number of requests from taxpayers and advisers, the Government consider it desirable to clarify the scope of what constitutes a “general offer” for the purposes of the provisions. The amendments clarify the position across all four tax advantaged employee share schemes, and confirm the rules as they have been consistently applied by HMRC. Our aim is to remove any uncertainty for advisers and taxpayers, consistent with the general simplification theme of the changes. The amendments, alongside the changes that already form part of the Bill, demonstrate the Government’s commitment to simplifying and clarifying the tax rules where possible.
Catherine McKinnell
These are technical amendments tabled in response to concerns about the operation of the share incentive plans in section 498 and schedule 2 to the Income Tax (Earnings and Pensions) Act 2003. The amendments will clarify save-as-you-earn option schemes. We support the clarification of the rules that apply when general offers take place.
Amendment 8 agreed to.
Amendments made: 9, page 144, line 45, after ‘“(7)’, insert—
‘For the purposes of sub-paragraph (5) it does not matter if the general offer is made to different shareholders by different means.
(8) ’.
Amendment 10, page 146, line 20, at end insert—
“(3DA) In subsection (3D)(a) the reference to the issued ordinary share capital of the relevant company does not include any capital already held by the person making the offer or a person connected with that person and in subsection (3D)(b) the reference to the shares in the relevant company does not include any shares already held by the person making the offer or a person connected with that person.
(3DB) For the purposes of subsection (3D)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.’.
Amendment 11, page 147, line 16, at end insert—
‘(1A) After sub-paragraph (3) insert—
(3A) In sub-paragraph (3)(a) the reference to the issued ordinary share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (3)(b) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person.
(3B) For the purposes of sub-paragraph (3)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.”
(1B) A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 37(1) of Schedule 3 to ITEPA 2003 by reference to paragraph 37(2) has effect with any modifications needed to reflect the amendment made by sub-paragraph (1A).’.
Amendment 12, page 147, line 37, leave out sub-paragraph (1) and insert—
‘(1) In Part 7 of Schedule 3 (exercise of share options) paragraph 38 (exchange of options on company reorganisation) is amended as follows.
(1A) In sub-paragraph (2)(c)—
(a) after “982” insert “or 983 to 985”, and
(b) after “shareholder” insert “etc”.
(1B) After sub-paragraph (2) insert—
“(2A) In sub-paragraph (2)(a)(i) the reference to the issued ordinary share capital of the scheme company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the scheme company does not include any shares already held by the person making the offer or a person connected with that person.
(2B) For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means.”’
Amendment 13, page 149, line 34, at end insert—
“(2HA) In subsection (2H)(a) the reference to the issued ordinary share capital of the relevant company does not include any capital already held by the person making the offer or a person connected with that person and in subsection (2H)(b) the reference to the shares in the relevant company does not include any shares already held by the person making the offer or a person connected with that person.
(2HB) For the purposes of subsection (2H)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.’.
Amendment 14, page 150, line 31, at end insert—
“(3A) In sub-paragraph (3)(a) the reference to the issued ordinary share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (3)(b) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person.
(3B) For the purposes of sub-paragraph (3)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.’.
Amendment 15, page 151, line 6, leave out sub-paragraph (1) and insert—
‘(1) In Part 6 of Schedule 4 (exercise of share options) paragraph 26 (exchange of options on company reorganisation) is amended as follows.
(1A) In sub-paragraph (2)(c)—
(a) after “982” insert “or 983 to 985”, and
(b) after “shareholder” insert “etc”.
(1B) After sub-paragraph (2) insert—
“(2A) In sub-paragraph (2)(a)(i) the reference to the issued ordinary share capital of the scheme company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the scheme company does not include any shares already held by the person making the offer or a person connected with that person.
(2B) For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means.”’.
Amendment 16, page 151, line 13, at end insert—
‘Enterprise management incentives
30A (1) In Part 6 of Schedule 5 (company reorganisations) in paragraph 39 (introduction) after sub-paragraph (3) insert—
“(4) In sub-paragraph (2)(a)(i) the reference to the issued share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person.
(5) For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means.”
(2) The amendment made by this paragraph comes into force on such day as the Treasury may by order appoint.’.—(Mr Gauke.)
Schedule 9
Qualifying Insurance Policies
The Economic Secretary to the Treasury (Sajid Javid)
I beg to move amendment 17, page 205, line 7, after ‘(g)’, insert ‘or (4A)’.
Sajid Javid
Allow me now to turn to amendments 52 and 53, in the name of my hon. Friend the Member for West Worcestershire (Harriett Baldwin). I recognise that she speaks from experience and in support of concerns raised by her constituents. I have listened very carefully to those points, and I welcome the opportunity to debate this issue. In providing some additional background to the annual premium limit, I hope that she will be reassured by the safeguards that we have introduced—and the reasons for introducing them—and will consider not pressing her amendments. Amendments 52 and 53 ask that the Government exclude assignments that make a policy non-qualifying where either the policy has an annual premium of £3,600 or less, or the policy is subject to capital gains tax.
Let me respond to some of the points raised by my hon. Friend. She commented that seven small businesses selling second-hand endowment policies could close as a result of the change to the tax treatment of qualifying policies. We recognise that these policies are likely to sell for less on the market where the purchaser is an individual who is a higher or additional rate taxpayer, due to the income tax charge when the policy matures. Let me reassure her that there is currently no bar to the sale of non-qualifying policies on the market and that research from the industry shows that non-qualifying policies are currently sold in the market. We envisage that this market might actually increase as a result of fewer QPs being available for sale.
Let me reassure the House that any adverse impact of the tax changes will be limited to those purchasers who are higher or additional rate taxpayers. Where a second-hand endowment policy is bought by a corporate investor or a basic rate taxpayer, there will be no impact on the tax position of the buyer when the policy matures. As a result, the loss of QP status will not make these policies any less attractive for those investors.
My hon. Friend made a point about capital gains. Previously, the purchaser of a traded endowment policy would have been liable to tax under the capital gains tax regime. That tax treatment was based on the maturity proceeds, less what the purchaser paid to acquire and maintain the policy. Capital gains tax treatment was more favourable, in that no additional tax would be payable unless the gains exceeded the annual exempt amount. In practice, it is likely that higher or additional rate taxpayers structured their affairs so as to ensure that little or no capital gains tax would be payable by using their full annual exempt allowance for a tax year. For 2013-14, that amount is £10,900. There is an additional safeguard for basic rate taxpayers who fall into the higher tax bracket as a result of the policy maturing. If that happens, the individual will get top-slicing relief, which reduces any additional tax payable. The relief is not available if the taxpayer is already a higher or additional rate taxpayer when the policy matures.
My hon. Friend has stated that her amendments would set the same annual premium limit for traded endowment policies as that set for new policies and existing policies. The annual premium limit of £3,600 applies to each individual rather than to a single policy. The effect of amendment 52 would be to exclude a policy from the limit if it had an annual premium payable of £3,600 or less. Purchasers of traded endowment policies will already have an annual premium limit of £3,600 applying to their own policies. As a result of that amendment, they would also be able to acquire as many traded endowment policies as they could afford, so long as each of those policies had premiums payable under the threshold. That would put an individual who had taken out a qualifying policy from the outset at a disadvantage to an individual who later acquired a policy. Amendment 52 would not result in a level and fair playing field. Rather, it would inadvertently create an unfair advantage for purchasers of these traded endowment policies.
My hon. Friend understandably referred to the restrictions on assignments for consideration, which are an essential part of the policy. The aim of our measure is to help to promote fairness in the tax system by limiting the tax relief available to higher rate and additional rate taxpayers. Without this restriction, individuals in a financial position to purchase traded endowment policies would be able to acquire qualifying policies without limit, while everyone else would be subject to the £3,600 annual premium limit. That would put an individual who had taken out a qualifying policy from the outset at a disadvantage to an individual who later acquired a policy, which would be unfair and inconsistent.
My hon. Friend considers that there is an element of retrospection about applying the annual premium limit to any QPs existing before 6 April 2013. Let me reassure her that there is no element of retrospection. The sale of a traded endowment policy on or after 6 April 2013 is treated no differently from an individual varying an existing policy after that date either to change the term or to vary the annual premiums payable. In all those cases, an individual will have made a conscious decision with regard to an existing product in full knowledge of the tax consequences resulting from that decision. The Government’s position is therefore that it would be unfair, inconsistent and disproportionate to allow all pre-6 April 2013 policies to remain qualifying following assignment to maintain the secondary traded endowment market.
The Government have listened to my hon. Friend’s concerns, however. As a result of the representations made, we would like to remind her that amendment 19 proposes giving HMRC a power to deal, in regulations, with any additional circumstances for which exclusion may be appropriate. I will ask officials to meet my hon. Friend’s constituents and to work with the industry to ensure that the annual premium limit remains proportionate as it beds in. I want to reassure her that if the evidence shows that the impact of the annual premium limit would prematurely bring to an end the traded endowment market, as she fears, the Government would consider using their power in amendment 19 to address the matter in a proportionate way, following discussions with interested parties. I hope that that provides her with a degree of reassurance that the Government are listening, and I respectfully ask her not to press her amendments to a vote.
These important technical changes enjoy the broad support of the life insurance industry. They will provide a more effective and more proportionate regime for the operation of the annual premium limit on QPs, and help to ensure that tax reliefs for QPs are appropriately given. I therefore commend Government amendments 17 to 29 to the House.
Amendment 17 agreed to.
Amendments made: 18, page 206, line 32, after ‘(g)’, insert ‘or (4A)’.
Amendment 19, page 213, line 25, at end insert—
“(4A) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that sub-paragraph (2) does not apply if prescribed conditions are met in relation to the assignment.
“Prescribed” means prescribed by the regulations.
(4B) Regulations under sub-paragraph (4A) may—
(a) make different provision for different cases or circumstances, and
(b) contain incidental, supplementary, consequential, transitional, transitory or saving provision.’.
Amendment 20, page 213, line 27, after ‘(3)’, insert ‘or (4A)’.
Amendment 21, page 213, line 48, after ‘(g)’, insert ‘or (4A)’.
Amendment 22, page 214, line 33, at end insert—
“(6A) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that an individual is not required to comply with sub-paragraph (2) if prescribed conditions are met.
“Prescribed” means prescribed by the regulations.
(6B) Accordingly, if by virtue of regulations under sub-paragraph (6A) an individual is not required to comply with sub-paragraph (2), sub-paragraph (3) does not apply because that individual does not comply with sub-paragraph (2).’.
Amendment 23, page 214, line 42, leave out ‘Finance Act 2013 is passed’ and insert—
‘first regulations under paragraph (c) below come into force’.
Amendment 24, page 215, line 12, at end insert—
“(8A) Sub-paragraph (8B) applies in relation to a policy if the obligations under the policy of its issuer are at any time the obligations of another person (“the transferee”) to whom there has been a transfer of the whole or any part of a business previously carried on by the issuer.
(8B) In relation to that time, in sub-paragraph (2) the reference to the issuer of the policy is to be read as a reference to the transferee.’.
Amendment 25, page 215, line 13, after ‘sub-paragraph’ insert ‘(6A) or’.
Amendment 26, page 221, line 38, leave out from ‘regulations’ to end of line 9 on page 222 and insert ‘—
(a) requiring relevant persons—
(i) to provide prescribed information to persons who apply for the issue of qualifying policies or who are, or may be, required to make statements under paragraph B3(2) of Schedule 15;
(ii) to provide to an officer of Revenue and Customs prescribed information about qualifying policies which have been issued by them or in relation to which they are or have been a relevant transferee;
(b) making such provision (not falling within paragraph (a)) as the Commissioners think fit for securing that an officer of Revenue and Customs is able—
(i) to ascertain whether there has been or is likely to be any contravention of the requirements of the regulations or of paragraph B3(2) of Schedule 15;
(ii) to verify any information provided to an officer of Revenue and Customs as required by the regulations.’.
Amendment 27, page 222, line 10, leave out ‘(2)’ and insert ‘(1)(b)’.
Amendment 28, page 222, leave out lines 20 and 21.
Amendment 29, page 222, leave out lines 29 and 30 and insert—
‘“relevant person” means a person—
(a) who issues, or has issued, qualifying policies, or
(b) who is, or has been, a relevant transferee in relation to qualifying policies.
(6) For the purposes of this section a person (“X”) is at any time a “relevant transferee” in relation to a qualifying policy if the obligations under the policy of its issuer are at that time the obligations of X as a result of there having been a transfer to X of the whole or any part of a business previously carried on by the issuer.”’.—(Sajid Javid.)
Schedule 34
Treatment of liabilities for inheritance tax purposes
Amendments made: 35, page 424, line 36, leave out ‘subsection (2) or (3)’ and insert ‘subsections (2) to (3A)’.
Amendment 36, page 424, line 38, leave out ‘excluded property’ and insert ‘property mentioned in subsection (1)’.
Amendment 37, page 425, leave out lines 11 to 14 and insert—
‘(3) The liability may be taken into account up to an amount equal to the value of such of the property mentioned in subsection (1) as—
(a) has not been disposed of, and
(b) is no longer excluded property.
(3A) To the extent that any remaining liability is greater than the value of such of the property mentioned in subsection (1) as—
(a) has not been disposed of, and
(b) is still excluded property,
it may be taken into account, but only so far as the remaining liability is not greater than that value for any of the reasons mentioned in subsection (3D).
(3B) Subsection (3C) applies where—
(a) a liability or any part of a liability is attributable to financing (directly or indirectly)—
(i) the acquisition of property that was not excluded property, or
(ii) the maintenance, or an enhancement, of the value of such property, and
(b) the property or part of the property—
(i) has not been disposed of, and
(ii) has become excluded property.
(3C) The liability or (as the case may be) the part may only be taken into account to the extent that it exceeds the value of the property, or the part of the property, that has become excluded property, but only so far as it does not exceed that value for any of the reasons mentioned in subsection (3D).
(3D) The reasons are—’.
Amendment 38, page 425, line 19, leave out ‘excluded’.
Amendment 39, page 425, line 20, leave out ‘subsection (3)(a)’ and insert ‘this section’.
Amendment 40, page 425, line 23, at end insert—
‘“remaining liability” means the liability mentioned in subsection (1) so far as subsections (2) and (3) do not permit it to be taken into account;’.
Amendment 41, page 426, leave out lines 12 to 19.
Amendment 42, page 426, line 37, at end insert—
‘(7A) Subject to subsection (7B), to the extent that a liability is, in accordance with this section, taken to reduce value in determining the value transferred by a chargeable transfer, that liability is not then to be taken into account in determining the value transferred by any subsequent transfer of value by the same transferor.
(7B) Subsection (7A) does not prevent a liability from being taken into account by reason only that the liability has previously been taken into account in determining the amount on which tax is chargeable under section 64.
(7C) For the purposes of subsections (1) to (4) and (7A), references to a transfer of value or chargeable transfer include references to an occasion on which tax is chargeable under Chapter 3 of Part 3 (apart from section 79) and—
(a) references to the value transferred by a transfer of value or chargeable transfer include references to the amount on which tax is then chargeable, and
(b) references to the transferor include references to the trustees of the settlement concerned.’.
Amendment 43, page 426, line 45, after ‘162A(1)’, insert ‘or (3B)’.
Amendment 44, page 427, line 13, after ‘162A(1)’, insert ‘or (3B)’.
Amendment 45, page 427, line 22, after ‘estate’, insert—
‘or from excluded property owned by the person immediately before death’.
Amendment 46, page 427, leave out lines 32 to 34 and insert—
‘(b) securing a tax advantage is not the main purpose, or one of the main purposes, of leaving the liability or part undischarged, and’.
Amendment 47, page 427, line 42, at end insert—
‘( ) Where, by virtue of this section, a liability is not taken into account in determining the value of a person’s estate immediately before death, the liability is also not to be taken into account in determining the extent to which the estate of any spouse or civil partner of the person is increased for the purposes of section 18.’.
Amendment 48, page 427, line 43, leave out from ‘(2)(b)’ to end of line 46.
Amendment 49, page 428, line 9, after ‘162A(1)’, insert ‘or (3B)’.
Amendment 50, page 428, line 19, leave out ‘The’ and insert—
‘(1) Subject to sub-paragraph (2), the’.
Amendment 51, page 428, line 21, at end insert—
‘(2) Section 162B of IHTA 1984 (inserted by paragraph 3) only has effect in relation to liabilities incurred on or after 6 April 2013.
(3) For the purposes of sub-paragraph (2), where a liability is incurred under an agreement—
(a) if the agreement was varied so that the liability could be incurred under it, the liability is to be treated as having been incurred on the date of the variation, and
(b) in any other case, the liability is to be treated as having been incurred on the date the agreement was made.’. —(Sajid Javid.)
New Clause 10
Impact of the Spending Round 2013 on tax revenue
‘The Chancellor shall publish, within six months of Royal Assent, a review of the impact on revenue from rates and measures in this Act, resulting from the Spending Round 2013. He shall place a copy of the Review in the House of Commons Library.’.—(Catherine McKinnell.)
Brought up, and read the First time.
Catherine McKinnell
I beg to move, That the clause be read a Second time.
The Opposition’s new clause 10 challenges the Chancellor to publish, within six months of Royal Assent, a review of the impact of last week’s spending review announcements on tax receipts. Should the Government agree to undertake such a review, as we hope they will, we suspect that its conclusions would be pretty short, given the Chancellor’s comprehensive failure to deliver the economic boost that this country so desperately needs. It was a dead duck of a spending review, and it was even more disappointing, given the context in which it was made. The Chancellor did not want to come to the House to announce a spending review last week, but he was forced to announce a further £11.5 billion of spending cuts in 2015-6. Why? Because his economic plan has utterly and categorically failed.
David T. C. Davies (Monmouth) (Con)
Is the hon. Lady suggesting that the Government should be borrowing even more billions of pounds than is already the case, or that they should make further cuts? If it is the latter, she should not be surprised if she gets some support from the Government side of the House.
Catherine McKinnell
I am pleased to hear the hon. Gentleman suggesting that those on the Government Benches are considering supporting our proposal. I wonder whether he has realised that his Government are borrowing £245 billion more than they planned, because they have failed. Their economic plan has failed—it has failed on living standards, on growth and on getting the deficit down. The Chancellor promised in 2010 that by 2015 he would have balanced the books, yet he is borrowing £245 billion more than he planned—and those books will not get balanced in the time frame that he promised.
Andy Sawford (Corby) (Lab/Co-op)
I support new clause 10 because it is really important to see whether the measures in the spending review will increase tax receipts. My hon. Friend is highlighting the failure over the last three years to get the economy growing and the impact of that on tax receipts. That explains the reality of the further and deeper cuts that the Chancellor promised us we would not have to face.
Catherine McKinnell
I thank my hon. Friend for that interjection, which gets to the crux of the matter. The Chancellor had to come here last week to announce further spending cuts in 2015-16, planning for future failure, because he is failing to deal with the economic reality that we face today. Ultimately, we are tabling this new clause because we hope that the Government will take stock of the situation in which they are leaving households up and down this country. The price of the failure of the Chancellor’s economic plan is not being paid by those at the top. We debated at great length yesterday the fact that the top-earning taxpayers are getting a tax cut from this Government, while it is ordinary families that rely on public services that are paying the price for this economic failure throughout the country.
Andy Sawford
My reading of the new clause is that the review would have to be placed in the House of Commons Library within six months. Is it my hon. Friend’s intention to urge the Government to look at infrastructure spending in the review and, specifically, to include the figures on the impact of cutting capital investment again, year on year, in the spending review and what that does for our economy?
Catherine McKinnell
Indeed, it is very much the hope that the Government will shine this laser focus on measures to boost spending and boost jobs and growth now in order to stimulate the economy, get people into work and get the welfare bill down. We know that that bill is rising as a result of the failure of the Government’s economic plan. They should focus on infrastructure spending, which is not just what we say, but what the IMF says, too.
John Pugh (Southport) (LD)
How does the hon. Lady think she could work out the true implications and effect of the spending review in only three months? Why did she choose three months rather than six months, nine months or one year?
Catherine McKinnell
That is an interesting question because the new clause suggests that the review should be published “within six months”, so I wonder whether the hon. Gentleman has simply misread our new clause. We feel that there is no time to lose, but that six months is a reasonable period to give the Government time to consider the likely impact of the spending round in 2013 on tax receipts. Ultimately, if we are to balance the books and get borrowing down, we are going to have to increase our tax receipts into the Exchequer.
John Pugh
Does the hon. Lady recognise that one of the biggest effects of the spending review will be on local government expenditure, which of course has to be dealt with in the following May—falling outside the six-month period? Some of the greater impact of the spending review will be felt after she has asked the Government to produce the report.
Catherine McKinnell
I am pleased that we have the hon. Gentleman’s support in principle for the fact that the Government need to take stock of the impact of these spending decisions and his acknowledgement of the devastating impact of the cuts to local authority projects, which we have rehearsed many times here, particularly in areas such as the one I represent. We will not see the impact straight away; we will see it in six months, 12 months, 18 months or two years’ time. The Government have imposed cuts without allowing the economy time to grow, create jobs and consolidate the debt in a responsible way, so we will face the consequences of this economic approach for many years to come. I am pleased, as I say, that the hon. Member for Southport (John Pugh) recognises that.
Andy Sawford
My hon. Friend has mentioned local government cuts. According to my reading of the spending review, capital spending in the budget of the Department for Communities and Local Government is to be cut by 35.6%. Could the review take account of that, although it will be some time before we are aware of its full impact on the economy?
Catherine McKinnell
The purpose of the proposed review is to encourage the Government to become laser-focused on the impact of their spending review. My hon. Friend is certainly laser-focused—not just on the impact of the cuts on local authority budgets, but on their impact on jobs and economic growth up and down the country.
Common sense tells us—well, it tells everyone but the Government, it would appear—that boosting growth and living standards this year and next would bring in tax revenues and reduce the scale of the cuts that will be needed in 2015, but nothing in the spending review will boost the economy over the next two years. It seems incredibly complacent and counter-intuitive to come to the House and simply plan for the consequences of economic failure in 2015. We believe that the Chancellor should have used his spending review to concede that he has got it wrong and has failed to secure growth. He should be proposing genuine investment in infrastructure this year.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
My hon. Friend is, again, making a powerful speech. Is it not the case that 1% growth since 2010 would have generated an additional £335 billion in the economy? As a result of this incompetent economic policy, however, the Government are having to come back and ask for more.
Catherine McKinnell
My hon. Friend has made a very good point. I should be interested to hear the Minister’s response to the figures that she has given, and to what she has said about the lost opportunities for growth. Those opportunities, moreover, have not just been lost over the last three years; the Government are planning on the basis of a further two years of lost economic growth, which simply defies common sense. According to the International Monetary Fund, they should be investing in infrastructure this year to boost economic growth and the housing market, and to encourage job creation and increased tax receipts. The Government seem to be ignoring not only what we are saying, but what the IMF is saying.
Mel Stride (Central Devon) (Con)
The hon. Lady has referred several times to the impact of Government policy on jobs. Does she not recognise and welcome the fact that under the present Government there are more people in work than at any other time in our history? We have created more than 1 million private sector jobs—three for every job lost in the public sector.
Catherine McKinnell
I acknowledge what the hon. Gentleman has said, but I do not think that it can be linked to the economic reality—the reality of what households and people are experiencing. Many people are in insecure work, many are on zero-hour contracts, and many are self-employed. People all over the country feel that their living standards are being squeezed to such an extent that they cannot afford to pay for what they need by the end of the week.
Debbie Abrahams
The fact is that the employment rate is lower now than it was in 2008. Absolute numbers mean nothing. The rate is lower now than it was before the recession.
Madam Deputy Speaker (Dawn Primarolo)
Order. The debate is, to put it politely, starting to go a little wide of the new clause. Perhaps we could focus—in a laser fashion!—on new clause 10.
Catherine McKinnell
Thank you, Madam Deputy Speaker, but I think that my hon. Friend has made an important point. What we needed to hear from the Chancellor last week was a plan for economic growth that would boost tax receipts and increase the number of jobs. Ultimately, that is how we can balance the books and reduce the deficit: by getting people into work and reducing their dependence on welfare.
My hon. Friend made a powerful point: the Government should not be so complacent about the unemployment situation in this country, and in particular the long-term unemployment situation.
Catherine McKinnell
Well, I am pleased that the Minister is engaging with the need to review his own Government’s spending plans so they can take stock of precisely how those plans are working to resolve the unemployment situation and the lack of economic growth in this country. If the Minister could provide some reassurance that his Government are focused on reducing the debt, that would be very helpful.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
My hon. Friend was speaking about the spending review’s failure in respect of living standards, and that is crucial. Real wages are set to fall by 2.4% over this Parliament, meaning people will be worse off at the end of the Parliament than they were when this Government came to office. That is the real story: it is a spiral of lower wages, lower living standards and lower tax receipts, and then ultimately more debt, more borrowing and a higher benefits bill. Does my hon. Friend agree that that is the spiral we are in?
Catherine McKinnell
Yes. My hon. Friend makes a powerful point, and it highlights the complacency of this Government. They feel it is a case of “job done” as some jobs have been created in the private sector, but ultimately the reality families are facing is that they cannot afford to pay for heating and buy food and what they need for their children and their families because living standards are being so desperately squeezed.
Mr Gauke
I just want to give the hon. Lady another opportunity to answer the simple question I asked. The position of her party has for some time now been to favour a cut in VAT. We do not support that approach, but does she support it? Does the Labour party still believe that, at this precise moment, VAT should be cut to 17.5%?
Catherine McKinnell
The Government clearly do not support that approach because one of the first things they did when they came to power was increase VAT and the costs for ordinary families up and down the country. We have said all along that we would not have taken those decisions. We would not have chosen to give a tax cut to those on the highest incomes. We would not have slapped a 2.5% charge on poor families who are struggling to make ends meet. We have made that very clear, but the Government have ignored that call. We think the Government should be taking action now to try to stimulate the economy and put some money back into very hard-pressed families’ hands.
Nic Dakin (Scunthorpe) (Lab)
My hon. Friend is stating the case for this new clause very clearly. Does she agree that the increase in VAT took a lot of individuals’ spending power out of the economy and also took out a lot of confidence, and that that is what has led to the decline in growth?
Catherine McKinnell
Yes, it was a huge blow for families across the country to see costs spiral overnight. This Government seem incredibly complacent about the impact their spending decisions have had, not only on families but on economic growth. We need to look at the facts. The Chancellor promised growth of 6% in 2010. He also promised that he had asked the country for all he would ask for and would not come back for more, but there he was last week, planning for more cuts in 2015 and completely failing to recognise both that his economic plan has resulted in 1% growth, not the 6% he promised, and that his increase in VAT was very much a part of the reason for that.
Mel Stride
May I press the hon. Lady for a third time on the question my hon. Friend the Minister has been asking? At this moment in time, given where we are with VAT at 20%, would she advocate, as her party has in the past, that it now be reduced to 17.5%? Also, is her party still in favour of the five-point plan for growth, of which the VAT reduction is but one part?
Catherine McKinnell
It is very strange that Government Members, who are in power and making the spending decisions that are having such an impact on families, are solely obsessed with what Labour would be doing. We are in opposition. The hon. Gentleman can speak to his Minister and implore him to make the necessary changes that will bring economic growth back to this country. That is what the Government need to be focused on. The Chancellor is so obsessed with his own economic failure—a failure to recognise that his plan has completely failed—that the Government simply obsess about and focus on what we would be doing, but we are not in government.
Andy Sawford
I came in to support my hon. Friend in pushing for new clause 10, which focuses on the impact of the spending review on the economy and, in particular, on tax revenue, so I am a little surprised at the nature of the debate. However, would she envisage the review examining the implications of the tax cut for millionaires on the economy over the past few years? Would it examine the impact of giving the richest people in our country a tax cut, as that is an actual policy?
Catherine McKinnell
To be fair, and to stay laser-focused on the new clause, I should say that we hope and envisage that the Government’s review would look at the impact of the spending review they announced last week. We heard more promises of action from the Government last week, but we did not hear about action that will take place next week, next month or even next year. We heard the Government pledging action on infrastructure investment in two years’ time.
That would be bad enough even if the Government had a proud record, or indeed any record at all, on delivering on the infrastructure projects they announced three years ago. As we have heard a few times—it bears repeating because the figures are so shocking—just seven out of 571 so-called “priority” projects identified by the Government in 2011 in their national infrastructure plan have actually been completed; 80% of the projects announced have not even got off the ground. Despite all the hype, if we delve into the figures, we find that the Government are cutting investment in infrastructure in real terms by 1.7% by 2015. Instead of an urgent boost to jobs and growth, which this country is crying out for, by bringing forward long-term investment in infrastructure, as advocated not only by us but by the International Monetary Fund, all we got was a series of empty promises for two years’ time—and some for beyond that—from a Government who lack all credibility on this issue.
Andy Sawford
My hon. Friend rightly talks about how few of the Government’s priority infrastructure projects have begun. Does she hope the review would also examine progress on the Government’s priority school building programme? I understand that there are 261 projects, and I wonder whether she has had time to consider how much progress has been made on them.
Catherine McKinnell
That is another absolute failure in terms of the promises made by this Government that are simply not delivered. I hope that the Government will agree to undertake the review we are calling for today and that the House will, by voting with us, acknowledge that the economic plan the Government have so far pursued is failing and that they need to examine what last week’s spending review will deliver. I hope that there will be a recognition that they promised to rebuild, again as part of a “priority” programme, 261 schools and only one project has begun. It is devastating, not just for the children who need those new schools, but for the communities that need those jobs and the small businesses that need to supply the construction industry, which, as we know, has been brought to its knees by this Government’s failure to invest in infrastructure. Instead of investing in affordable homes, improving transport links and repairing Britain’s broken roads, which would give the country the short, medium and long-term returns that we are looking for, the Government are cutting capital spending in 2015. Announcing infrastructure projects for two years’ time will not create a single job today.
Stephen Doughty
My hon. Friend is making a crucial point about the impact on jobs. I had hoped that the spending review would consider jobs in the construction sector, where 84,000 jobs have been lost since the Tory Government came to power—that is, between the second quarter of 2010 and the first quarter of 2013. That is a shocking figure: 84,000 jobs have been lost when we should have seen 84,000 jobs created in the construction sector.
Catherine McKinnell
My hon. Friend makes his point very powerfully. It is a fact that a number of jobs have been lost in the construction industry that should have been created if the Government were taking not just our advice but that of the IMF and investing in infrastructure projects now. If they did so, tax receipts would improve this year and next year and we would not have to plan for failure in 2015, which is what the Chancellor came here to do last week.
Andy Sawford
My hon. Friend is right when she talks about the implications of the Government’s failure to invest in house building and construction in this country on the revenue from rates. Does she think that the review placed in the Library ought to consider the implications of the lack of receipts from house building in the Government’s vaunted programmes, such as the community infrastructure levy and so on, as well as of the business rates raised from firms in the construction industry? Is scepticism not one reason behind this request for a review? Four major housing announcements have been made in the past three years, and there have been 300 announcements, four launches and no action, and the lowest house building in 2012 for 70 years, so is there not some scepticism behind it?
Catherine McKinnell
My hon. Friend tempts me to suggest a less than honourable motive for our tabling the new clause. I appreciate that there may be some scepticism about the Government’s commitment to investing in infrastructure and growth and that last week’s announcement was simply about planning for more cuts to public services rather than a genuine attempt to try to look for opportunities for growth. It must be said, however, that the spending review, which plans more cuts in 2015 and was accompanied by an infrastructure announcement on Thursday that was mostly reheated—I think my hon. Friend the Member for Nottingham East (Chris Leslie) described it as a “microwave statement” as its announcements had been reheated so many times—failed to impress anybody.
Liberal Democrat Members in particular should be concerned by statements from the Deputy Prime Minister. He has commented that
“the gap between intention, announcement and delivery is quite significant”.
He puts that rather mildly, and I would hope that by supporting our new clause the Government could take stock of the impact mot just of the 2013 spending round they announced last week but of the delay in delivering any of the projects that have already been announced, as well as the delay pursuant to the announcements that have been made for 2015. This is an important opportunity for the Government to take stock and consider why their economic plan has so catastrophically failed. That would mean that rather than planning for failure in 2015, they could take the steps necessary now to bring forward infrastructure investment and put into play the infrastructure investment that has already been announced so that we can start to create jobs and opportunities for communities up and down the country that are suffering from stagnation in the economy.
Mel Stride
The hon. Lady has made the link between infrastructure and its impact on the construction industry and jobs. Does she therefore welcome the recent survey by the ManpowerGroup of more than 2,000 companies in the construction sector, which concluded that we have the best outlook for construction job creation for five years?
Catherine McKinnell
I would welcome any signs of positivity in economic growth from any sector of our economy, especially the construction industry, which has suffered catastrophically from the cuts and stagnation in the economy over the past three years. I would indeed welcome that small piece of good news. It is a step in the right direction, but our amendment calls on the Government to take stock and do more.
Andy Sawford
I think construction is an incredibly important part of the economy, so I think it is right that the hon. Member for Central Devon (Mel Stride) suggests that the review six months after the spending review would look at construction. I hope it would explore the figures that I have seen, suggesting that the volume of new construction orders fell by 10% between quarter 4 of 2012 and quarter 1 of 2013. Construction is going in the wrong direction at the moment, and we need to know from the review whether the measures in the spending review will actually make that worse.
Catherine McKinnell
My hon. Friend makes an important point. Ultimately, it is about what we hear in our communities when talking to businesses about confidence—the confidence to invest, the confidence to take seriously the Government’s commitment to investing in infrastructure and growth. The reality on the ground is deeply worrying. Members of the public will be concerned about the complacent tone that the Government adopt towards the economic situation. The Government are apparently ignoring the fact that they promised 6% growth and delivered only 1%, that they promised 576 infrastructure projects and have delivered only seven, that they promised 261 rebuilt schools and have only put spades in the ground in one. Members of the public will be worried to hear how complacent this Government seem to be. That is why we tabled the new clause—to give the Government the opportunity not just to make the announcement and walk away, hoping that nobody will notice that they are doing nothing about economic stagnation, but to spend some time reflecting on what these announcements will mean in real terms in respect of expected tax receipts.
There is one key Government Department that is capable of increasing tax receipts to the Exchequer, and that is Her Majesty’s Revenue and Customs. Indeed, without the receipts that HMRC collects, there would be no funding to invest in public services. HMRC’s capacity and resources are therefore absolutely critical, and it is widely accepted that it can make a pretty impressive return on investment. Last year, senior HMRC officials brought in £16.7 billion over and above what was returned voluntarily by businesses and individuals.
Andy Sawford
I am very pleased to hear my hon. Friend highlight the important role that HMRC plays in our economy. Whatever the review shows about the implications of the spending review, one of the key aspects is HMRC’s effectiveness in bringing in tax revenue. Will my hon. Friend therefore urge the Government, in this review, which I hope they will support, to look at the implications of underpayment of wages to people, particularly minimum wage avoidance issues? HMRC recently sent a team to my constituency, and found that £100,000 was owing to local workers. There are huge implications for receipts at HMRC.
Catherine McKinnell
My hon. Friend raises a very important point. I have tabled several parliamentary questions to the Minister on that subject, and I look forward to his response outlining what action the Government are taking, alongside HMRC, to ensure that it not only collects tax throughout the country but ensures that employers abide by the national minimum wage legislation to ensure that employees do not fall short despite the fact that they are working. It is imperative that HMRC has the Government’s support and also has the correct resources to ensure that workers are not exploited in the way that my hon. Friend suggests is prevalent in his part of the country and which I have no doubt is a phenomenon that impacts on hard-working people countrywide.
Despite the headlines suggesting that everybody is avoiding tax, we are generally a tax-compliant nation—I believe the current figure is approximately 93%. Of course, it is the 7% for which HMRC needs extra support and resources to get the returns. The Association of Revenue and Customs estimates that a senior tax official earning £50,000 a year can expect to generate additional yield of at least £1.5 million a year—a return 30 times greater than the cost of their salary. That is a good investment, I think most would agree.
Andy Sawford
My hon. Friend’s question to the Government is incredibly important and I hope we hear an answer. Does she share my concern that some of the measures in the spending review will have serious implications for tax collection unless HMRC has sufficient resources? For example, the director of the Institute for Fiscal Studies said of the shares for rights policy that it has “all the hallmarks” of another tax-avoidance opportunity, and Lord Forsyth, the former Conservative Employment Minister, said it
“has all the trappings of something that was thought up by someone in the bath”.—[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 614.]
HMRC will have to be very alive to these issues of tax avoidance.
Catherine McKinnell
My hon. Friend makes an important point. The Bill Committee debated at some length the fact that the Government like to talk the talk on tax avoidance, but have created another tax-avoidance opportunity in the hare-brained shares for rights scheme. I think we all agree with Lord Forsyth.
Mel Stride
The hon. Lady talks about the importance of clamping down on tax avoidance, and the hon. Member for Corby (Andy Sawford) talks about tax avoidance in the context of share transactions. Does she, as I do, condemn the £1.65 million donation to her party by John Mills using precisely that type of scheme—a share donation—as means to “tax efficiently” avoid tax?
Catherine McKinnell
The hon. Gentleman seems to be expressing some consternation about his Chancellor’s new shares for rights scheme. I am not sure I heard him express the same concerns when this House debated and voted on that scheme. He knows that any donations made to the Labour party are made within all the rules on donations, and any tax due on those donations will be paid. I think he can rest assured that that is in hand.
Returning to the point made by my hon. Friend the Member for Corby (Andy Sawford), it is vital that when additional tax avoidance opportunities are created, HMRC has the resources to deal with them, and that it does not take its eye off other aspects of its activity, such as enforcing national minimum wage legislation and general customer service. We know that the National Audit Office report on HMRC’s customer service performance, which was published in December last year, contained some worrying figures on HMRC’s ability to handle customers.
We hope that the review that we are calling on the Government to undertake will look at HMRC’s ability to recover tax receipts and ensure that its customers, many of whom are not customers by choice, get the support they need in order to pay their tax—not just individuals, who are often dealing with tax credits and find that they need support from HMRC, but small businesses that need support in order to pay the right tax. It is not right that individuals and small businesses in particular, but large businesses too, are left struggling to pay the tax that they wish to pay HMRC voluntarily. The Government should be aware that there is a limit to the extent to which HMRC can do more with less, as they are asking of it in the spending review.
Mel Stride
Given the hon. Lady’s response to my previous intervention, I wanted to clarify the issue of John Mills and his donation to the Labour party. Does she accept that his donation is a case of tax avoidance—yes or no? [Interruption.]
Madam Deputy Speaker (Dawn Primarolo)
Order. Mr Sawford, I do not need your help in chairing the debate in the Chamber today. I have done enough Finance Bills to know what is in order and what is not in order. The question that has been put is about tax receipts, excluding the reference to individuals, and that is in order.
Catherine McKinnell
It is open to the Government to support our proposed review of spending round 2013 and the impact that that may have on tax receipts. If the hon. Member for Central Devon (Mel Stride) wants to support our motion today and the Government in undertaking such a review, it is open to him to do so. We have not specified exactly what should be included in that review and it is open to the Government to look at whatever avoidance opportunities they consider relevant to ensuring that we protect future tax receipts.
I know from written answers that I have received from HMRC recently that staff numbers were projected to fall from 88,875 in March 2009 to 58,464 by March 2014. Will the Minister provide an update on those figures, and in particular what HMRC’s headcount is expected to be by March 2016, following last week’s spending review and the additional resource reduction flowing from it? It is concerning that despite much-publicised announcements about increased investment in tax avoidance and evasion activity, the number of HMRC staff working in enforcement and compliance was expected to fall from 34,762 in March 2009 to 26,905 in March 2014.
I assume that given the Government’s much-stated commitment to getting tough in this area, the predicted fall in staff numbers is no longer going to happen and that we will see a rise in the number of HMRC staff dedicated to enforcement and compliance work. It would be helpful if the Minister could confirm that for the House and tell us how many HMRC staff will be working in this area between this year and 2015-16.
In conclusion, the Government had the opportunity last week to boost tax receipts by announcing measures that would provide the short and medium-term boost our economy needs while providing a long-term return for the country, yet despite the catastrophic failure of their economic plan to date, the Chancellor came to the House and announced that he would continue ploughing the same infertile furrow he has been on since 2010. He just cannot bring himself to admit that it has gone badly wrong. We believe that conducting the review set out in new clause 10 might just help the Government to take stock and note the error of their ways to date. I therefore urge all Members to support the new clause, not only for the sake of their constituents, but for that of our country’s finances.
John Pugh
I will try to say something positive about new clause 10. It is quite laudable, in a way, because it would link spending to taxation and get us to engage in retrospective analysis, and frankly we do not do enough of that in this place. We talk about policy a great deal, but the long-term effects are often hidden from us. It can be quite counter-intuitive. We had an interesting debate yesterday on the 50% tax rate, the Laffer curve and the effect that such a rate might or might not have. There are plenty of other examples where the effect of taxation needs to be adequately scrutinised. In Committee we debated what tax avoidance measures would do to people’s behaviour, what petrol taxation would do to people’s behaviour and to the revenue we get, what landfill tax would do to councils’ behaviour, and what the video games industry would make of the various changes that will affect it.
My problem with what the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) is saying is that I think Parliament should do what she is suggesting. It seems to me that Parliament does not have enough good, accessible data and that we make no real effort to examine the whole business of tax revenue yields in any systematic, thorough, regular or routine way. When it comes to spending, there is a very similar picture. There is no real scrutiny of spending in this place. The scrutiny we do is not even as good as that which might be found in a local council. We have the big events, such as the announcement of the spending review, but there is no detailed examination of expenditure.
If Members do not believe me, they should come along to estimates day tomorrow and see the examination of estimates that is imposed in this place. The last time we had an estimates day, I was actually ruled out of order by the Deputy Speaker—not you, Madam Deputy Speaker—for talking about the estimates, which was thought improper.
We do not examine the non-controversial, everyday departmental expenditure that goes on from year to year and the errors that occur in it. The Public Accounts Committee does a very good job of looking at the controversial stuff, but there is no rigorous, effective or ongoing examination of expenditure. We do not do enough of that and we do not know enough about what tax policy actually does, how Departments spend and what the profile of a Department is on a day-to-day, month-to-month and year-to-year basis.
Arguably, somebody in the basement of the Treasury knows the spending profile of Departments, but they would probably be unable to give the hon. Lady the answer she wants in three months, and probably not in six months. I think she has to recognise that she is making a hard ask and, in my view, probably a futile one, because if we do not do any real scrutiny of taxation in this place—we scrutinise policy, but certainly not outcomes—beyond headline figures and big grandstanding days such as the announcement of the spending review, then what we are essentially doing with the Government finance is firefighting.
What takes place in this place is not effective financial scrutiny. We do not look at the boring, pedestrian, routine and important spending, which is massive. The new clause asks the Treasury to mark its own work, and I am sure that it would be perfectly happy in some contexts to do so, but what we really need is to get Parliament to do the work and to give us an answer that would satisfy us, including the hon. Lady.
Catherine McKinnell
I was hoping to leave the Minister time to respond to some of the serious concerns that we have raised, but this complete fantasy-land account of the Government’s record on infrastructure investment has prompted me to jump to my feet. Will he confirm that his Government are investing less in infrastructure than was proposed under the Darling plan? They are investing 1.7% less in real terms over the course of this Parliament, and again in 2015-16. They are also borrowing more.
Mr Gauke
It is clear that the balance of our plan has focused much more on current spending, as compared with capital spending, than did the plans that we inherited.
I want to turn to the issue of HMRC, which the hon. Lady rightly raised. I can assure her that, as a consequence of the measures we are taking, HMRC’s yield is going up compared with what we inherited. By 2015-16, yield will have increased by approximately 70%, which represents a staggering increase in the performance of HMRC under this Government. Yes, staff numbers are falling but, when it comes to enforcement and compliance, staff numbers will be higher in 2015-16 than they were under the previous Government. We should not always focus on inputs; we should focus on outputs. The record on outputs is very good. If the hon. Lady wants to focus on inputs, however, she should be aware that the record of the previous Government involved the number of staff working in enforcement and compliance falling by 10,000. Under this Government, that number will be increasing.
I have run out of time, but I believe that the spending review is evidence of a Government who are prepared to take the difficult decisions that we need, and a Government who have economic credibility. The contrast with Labour could not be greater.
Question put, That the clause be read a Second time.
Finance Bill
Catherine McKinnell Excerpts(10 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
This Government are determined to crack down on tax avoidance by the small minority of individuals and companies who are unwilling to pay their fair share of tax. This Bill includes some important anti-avoidance provisions, including the general anti-abuse rule—the GAAR—a major new development in UK tax law and a key part of this Government’s drive to tackle tax avoidance, and, in particular, abusive tax avoidance schemes. The Government have also made it clear that we will continue to legislate to close down specific loopholes if there is a clear case for doing so.
Before addressing the GAAR and the Opposition’s new clause 12, let me discuss new clauses 4 and 5, and new schedules 1 and 2. At this year’s Budget, the Chancellor of the Exchequer announced that the Government proposed to introduce legislation in the Finance Bill 2013 to prevent companies from entering into arrangements to access, as part of a business transfer, various forms of unrealised corporation tax losses from unconnected third parties—a practice that, for the sake of brevity, I will refer to for the rest of the evening as latent loss buying. Legislation on that matter was not included in the Finance Bill published in March, in order to allow more time for consultation with interested parties. Technical detail on the circumstances and manner in which the proposed legislation would operate was published on 20 March. That was followed on 28 March by the publication of draft legislation for a period of technical consultation. New clauses 4 and 5 and new schedules 1 and 2 introduce those targeted latent loss buying rules to this Finance Bill, and take on board comments received during the technical consultation.
Let me set out a little background to these new clauses and schedules. The UK’s loss relief system provides a measure of parity between taxing profits and relieving losses over the life cycle of a business, ensuring that businesses with different patterns of profit and loss pay a broadly similar amount of tax. Relief is based on long-standing underlying principles that: brought-forward trade losses should only be relievable against future profits from the same trade, carried on by the same legal entity; tax losses should not be transferable against profits of unconnected parties; and the movement of losses between companies should be allowed only where they are under common economic ownership for the accounting period when the losses arise. Within those principles, companies can gain relief for losses through being set off against profits in a number of ways. However, loss relief and business reorganisation rules are designed to prevent companies from passing the benefit of a loss to an unconnected third party. Those tax rules are designed to prevent companies from “selling” losses to some unconnected company that has taxable profits.
However, Her Majesty’s Revenue and Customs is now seeing a marked increase in companies entering into different arrangements to access deductions not caught by those existing rules. Indeed, we are expecting the new rules to bring in revenue of close to £1 billion over the next five years. A particular pressure point arises where it is possible to dictate or predict the amount and timing of reliefs, allowances and deductions. Where those are sizeable, they can encourage tax-motivated reorganisations through which unconnected entities may get access to what are, in effect, unrealised losses.
Where the amount and timing can be dictated or predicted, ownership or part-ownership changes can take place in advance of the crystallisation of the amount, enabling the current loss-buying rules to be bypassed. Such arrangements may take the form of selling all or some of the shares in a company or the assets of a company, where either there are allowances that could have been claimed but were not by the previous owner or where it is known that a debit will be created in a future accounting period. Arrangements can, however, be more complex and contrived, and may also involve moving profits into a company to use up relevant deductions.
These new clauses and schedules therefore deliver on what the Chancellor announced at the Budget. They bring the tax treatment of unrealised amounts, involved in a transfer between unconnected parties, more closely into line with the long-standing treatment of realised losses. The proposed changes introduce three separate rules to combat latent loss buying. The first rule expands the application of current rules in chapter 16A of part 2 of the Capital Allowances Act 2001—I am sure you have fond memories of that Act, Madam Deputy Speaker. The other two rules are targeted anti-avoidance rules—TAARs—to be included in a new part of the Corporation Tax Act 2010. One seeks to counter tax-motivated reorganisations between unconnected parties involving other forms of relevant deductions, and the other seeks to counter arrangements that aim to transfer profits to companies so that the relevant deductions can be used.
A draft of the legislation was published for technical consultation on 28 March and nine responses were received: four from legal firms, two from accountancy firms and three from individual businesses. The majority of representations related to the technical application of the legislation rather than the underlying policy intent and have been addressed in the provisions before us today. I hope that is helpful to the House and anticipates some of the questions that might be raised by those on the Opposition Front Bench. Of course, I am happy to deal with any further questions later this evening.
Let me turn to what I suspect will take up most of the time for our debate this evening—that is, new clause 12. As I have said already, the GAAR is an important new tool, but it is not a panacea. New clause 12 focuses on much broader issues to do with the taxation of multinational companies, which have already been extensively debated during the course of the Bill and fall beyond the scope of the GAAR. Let me once again explain why that is the case.
New clause 12 first asks for a review of ways to require companies to publish a clear statement of their UK tax payments. That is not a matter for the GAAR. I am aware that the GAAR does not do what people want it to do by tackling a wider range of tax issues, particularly those involving multinational companies. We have never pretended otherwise.
The GAAR can of course apply to multinational companies if they engage in abusive schemes, but the broader issues concerning where and how their profits are taxed are grounded in how the international tax system operates. That is why we are driving forward the OECD’s work on improving international tax standards through the G8 and G20. Both the Chancellor and the Prime Minister have set out clearly that international tax problems need international solutions.
We accept that tax rules have not kept up with the age of electronic business, but the answer is not for the UK to take unilateral action. That approach would do the UK no favours as a location for business investment. It would risk setting in train a disparate approach among our trading partners, with serious consequences for international trade and growth and hence for jobs in the UK.
The OECD report on base erosion and profit shifting, which was endorsed by the G20 in February this year, shows that to tackle the issue effectively requires collective action to strengthen international tax standards. The Government have been at the forefront in taking forward work on the issue through the OECD.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
The Minister has made some rather bold statements. Will he reiterate what he just said? He suggested that the proposal made by new clause 12, which asks the Chancellor to review proposals for the Government to require the production of a single corporate tax figure, as well as the other amendments, would result in lost jobs in the UK. Will he confirm whether that was what he said and on what evidence the statement was based?
Mr Gauke
That is not quite what I said. I said that it would not be sensible for the UK to take unilateral action to change the tax law that applies internationally and that the best approach to dealing with international tax issues is to work multilaterally with other economies to update the tax system. I shall turn to some of the specific elements of new clause 12 in a moment, but I am setting out the framework. It is sensible for us to work with other countries to ensure that the international tax system does what it needs to, rather than going off on our own and making changes that could damage the UK’s competitiveness. I am sure that no one in this House would want us to do that.
Mr Gauke
The hon. Gentleman tempts me into an area that I am very much looking forward to debating with him on Thursday afternoon. He has secured a debate on that very subject, so perhaps I shall keep some of my powder dry for that occasion. The point that I am making is that the Government are making substantial progress in this area and we also have an international agenda, ensuring that other countries move as well, so that there is much more information about beneficial ownership. That is not to say that the job is done and that there are not challenges that we face, but we have made a great deal of progress, particularly at the recent Lough Erne summit. That should be acknowledged.
Returning to new clause 12, the final element takes us back to an issue that we have debated previously, which is a requirement on the Government to assess how UK companies could report avoidance of tax in developing countries and how assistance could be offered in the recovery of that tax.
Under the disclosure of tax avoidance schemes—DOTAS—regime, UK companies are already obliged to report to HMRC their use of tax avoidance schemes carrying certain hallmarks. That applies to avoidance schemes that have an impact on developing countries, but only where UK taxes are affected.
The Opposition’s new clause 12 effectively suggests that Her Majesty’s Government should require UK companies to report their use of tax schemes, so that developing countries’ tax authorities can be notified of tax avoidance schemes, and that the Government should assist them in recovering any tax lost. It is unlikely that HMRC will have sufficient understanding of the details of developing countries’ tax systems to enable it to do that.
Catherine McKinnell
I appreciate that we debated the issue at some length in Committee, but I should like to pick up on the Minister’s language: he stated that it was “unlikely” that HMRC would have sufficient information on developing countries’ taxation regimes. Will he clarify whether HMRC and the Treasury have undertaken an assessment? That is what the new clause is asking for. It is not asking whether they can do these things, but whether they will undertake an assessment of what they can do, and how they could do it.
Mr Gauke
I have certainly sought advice, in preparation for this and other debates, on how practicable it would be for HMRC to provide such a service. HMRC makes the point that it is not something that it is well set up to do; its expertise is on how the UK tax system works. It is also worth pointing out that DOTAS is based on hallmarks set by UK tax law. Trying to extend it in the way suggested would be very difficult. That would require a major change to a successful tool—the hon. Lady and I have debated this point before—for tackling tax avoidance, and would risk disrupting the effectiveness with which HMRC does its job. My answer to her is one that I have given in the past: I do not believe that this is something that HMRC could do effectively. It is not a good priority for us. All sides want to do more to help developing countries to develop their tax systems, but it is better to focus on building capacity by providing training and support than for HMRC to try to judge, police and assess the tax system in developing countries.
Catherine McKinnell
The Minister perhaps betrayed the true answer at the end of his comments. His previous response sounded a bit “computer says no”; he said it was all very difficult and he did not believe it would be possible. However, he just said that it would not be a good use of HMRC resources. Does he not agree that a bit of transparency on the possibility of putting the clause into action would be of benefit, not only to Parliament, but to the public, so that it could understand the reasoning and how the conclusion was arrived at?
Mr Gauke
The reasoning remains what it always was. HMRC has a large number of specialists on the UK tax system, and the UK tax system does not apply in other countries. Assessing whether a particular arrangement constituted tax avoidance in Tanzania, to pluck a country at random, would require a detailed understanding of the Tanzanian tax system. If the hon. Lady is asking whether we could train up somebody to learn an awful lot about the Tanzanian tax system, in theory that could be done, but it would be a better use of HMRC resources to help train the Tanzanian tax authority, so that it was in a better position to collect the taxes that are due. Indeed, that is exactly what we do; we provide a lot of support to the Tanzanian tax authority.
Mr Gauke
It is not just me saying this, and there is no desire to be unhelpful. Indeed, the Government’s record on building up tax capacity in developing countries is very good, with regard to providing them with technical assistance so that they gain a better understanding of the tax that they could collect. Indeed, we are providing support to help developing countries to make greater use of the new information exchange positions.
I will again quote Richard Murphy, whose views on these matters tend to differ profoundly from mine. He works closely with the non-governmental organisations, and he has said:
“I admit, I have never seen how extending DOTAS internationally could work. I can’t see how HMRC could know if they got accurate data, or none at all and as such can see no way such a scheme could be enforced in which case I admit I can’t see how it could ever be workable.”
I do not often pray in aid Richard Murphy, but he makes that point not from any desire to limit the help that we provide to developing countries but as a matter of sheer practicality. He makes a reasonable point.
Catherine McKinnell
The Minister certainly does not often pray in aid Richard Murphy. Indeed, I think this is the only thing that Richard Murphy has said that he agrees with, and he is using it to advance his argument. Will he acknowledge that all the elements of new clause 12 relate to information sharing and transparency? We are asking the Government to consider how they can improve information sharing and transparency and use DOTAS to that end, and it would be helpful if the Minister could focus his comments on that. I think that members of the public will struggle to understand why the Government are refusing even to consider that proposal.
Mr Gauke
It is important that our debates on these matters should not simply be about the expression of warm words. They should also be about working out what we can do at a practical level, and what will and will not work. I take the view that extending DOTAS will not be effective, but our response to the hon. Lady’s proposals should not be, “Oh, they are all terrible.” It should be to ask ourselves what would be effective. There is a lot that we can do that is effective. This is about capacity building. It is about ensuring that developing countries have the right information, and about bringing them into the existing web of treaties so that they can have access to more information. It is also about ensuring that multinationals provide information that is useful to tax authorities in order to ensure that the right amount of tax is collected and the tax authorities’ efforts can be focused in the right place. That is the agenda that we have been pursuing, with some success.
I am sympathetic to what new clause 12 is getting at, and I do not in any way doubt the motives behind it, but I do not believe that it is necessary. We are already leading international action on tax transparency and on the taxation of multinational companies, and I do not believe that the GARR, as drafted, is the right vehicle for tackling these issues. For those reasons, I urge Opposition Members not to press the new clause to a vote.
Catherine McKinnell
It is a pleasure to speak here today on these important issues. I shall focus particularly on those covered by amendment 56 and by new clause 12. First, however, I shall touch on new clauses 4 and 5, and on new schedules 1 and 2, which relate to measures announced in Budget 2013. Together, they introduce three separate rules to combat what the Minister describes as loss buying. That activity goes against the accepted concept that losses brought forward on or after a change in company ownership should be allowable for corporation tax relief to the company and to the trade in which they occurred.
The Government’s new clauses seek to strengthen the loss-buying rules, first by expanding the application of chapter 16A of part 2 of the Capital Allowances Act 2001 so that it applies to “qualifying activities” and not just trades, as is currently the case. The other two rules introduced by the clauses are targeted anti-avoidance rules and will be included in a new part of the Corporation Tax Act 2010. As a consequence of the new clauses, companies will be prevented from entering into arrangements to access, as part of a business transfer, various forms of unrealised corporation tax losses from unconnected third parties. The Opposition support the introduction of these anti-avoidance measures, but it would be helpful if the Minister outlined, in response to this submission, what additional annual yield the Exchequer is expected to receive as a result of their introduction.
Before speaking specifically to the Opposition’s new clause 12, I would like to refer more generally to the Government’s general anti-abuse rule, which will be introduced by clauses 203 to 212, and take the opportunity to probe the Minister on its implementation, because it was last discussed in Committee of the whole House back in April. The Government have made much of the GAAR, their flagship policy for tackling tax avoidance, but, as the Minister knows, several serious concerns were raised about its likely impact, or lack thereof, during our debate in April.
We have been advised that the GAAR will target only “egregious”, “very aggressive” or “highly abusive” avoidance schemes, which the Bill defined as those that use “contrived or abnormal steps” to obtain a tax advantage. Yet the GAAR guidance’s definition of what those entirely subjective terms mean is inadequate. It states merely that they will be interpreted and applied in their “normal” sense. I do not know how Government Members would apply those terms in their normal sense, but I am interested to know whether Opposition Members would know how to apply those terms in their normal sense, given that we will be voting on that tomorrow when the Bill is considered on Third Reading.
Stella Creasy
I wonder whether my hon. Friend, like me, is concerned that the subjectivity and lack of clarity on this subject is a little like the concept of pornography; we all know it when we see it, but defining it is very difficult unless there is clarity. With tax avoidance schemes, clarity is absolutely crucial.
Catherine McKinnell
I fear that you, Madam Deputy Speaker, might accuse me of straying into rather unexplored territory if I were to compare tax avoidance to pornography, so I simply acknowledge the point my hon. Friend makes, which is that they are very subjective terms. That point has been made not only by me, but by many experts who are very concerned about the wording in the legislation. That is why it would be useful if the Minister responded to some of the concerns that have been raised during the Bill’s consideration.
The GAAR is projected by the Government to result in an additional yield of only £85 million a year by 2017-18. That is a notable sum of money, but it does not even come close to putting a serious dent in the £5 billion tax gap estimated to arise each year as a result of avoidance activity, and it is a mere drop in the ocean compared with the overall annual tax gap of £32 billion estimated by HMRC, which we know is a conservative projection. We also know that concerns remain about the so-called “double reasonableness” test and the GAAR advisory panel that will judge whether arrangements can
“reasonably be regarded as a reasonable course of action.”
As I have highlighted previously, what one person—let us say, a tax expert who has spent his or her entire career advising companies on how they might reduce their tax liability—regards as reasonable could be very different from what a member of the public or, indeed, a Member of this House might consider to be reasonable.
Stewart Hosie
The hon. Lady is asking whether the GAAR is too narrow. It is designed to squeeze out tax advantage through abusive means. The advantages include
“relief or increased relief from tax…repayment or increased repayment of tax…avoidance or reduction of a charge to tax or an assessment…avoidance of a possible assessment…deferral of a payment of tax or advancement of a repayment”
and
“avoidance of an obligation to deduct or account for tax.”
What else could she add to widen that if she thinks it is too narrow?
Catherine McKinnell
The hon. Gentleman makes a helpful point. One would question to what extent the Government can rely on their general anti-abuse rule when they still have to invoke targeted anti-abuse rules, many of which we debated in Committee. Yet the GAAR is supposed to provide reassurance in relation to these matters. Will the Minister clarify exactly how it will work? As the hon. Gentleman says, there is much debate about whether it is too general or too narrow—too general to be effective or too focused on what could be deemed by a reasonable person to be egregious behaviour, and therefore arguably too narrow. I would be interested to hear the Minister explain exactly how the GAAR will work in reality.
The Minister will be aware of the concerns raised in Committee about how the GAAR’s effectiveness will be reviewed. Our amendment calling for an evaluation to be held two years post-implementation was dismissed on the grounds that it would be impractical. At what stage does the Minister think it would be practical to conduct a post-implementation review, given that this is one of the Government’s main tools to tackle tax avoidance? At what point does he think it would be appropriate to consider whether the GAAR needs to be strengthened by, for example, a penalty regime? He has said that it will be kept under review, so it would be extremely helpful if he could provide details of the time scales involved.
One of the most widely held concerns about the GAAR is that it simply does not deal with many of the issues about which members of the public in particular are understandably angry with regard to corporation tax avoidance. The Minister has said that the Government have never sought to give the impression that they will deal with these issues, but many people feel that when they raise concerns about corporate tax avoidance the Government give the impression that their general anti-abuse rule will somehow deal with them.
We believe that the Government could and should use this Finance Bill to go much further on tax avoidance and on increasing tax transparency in particular. We have presented the Government with many opportunities to put their money where their mouth is and to take action now.
I was pleasantly surprised to read in The Guardian on Friday that the Minister voiced his intention to take firm action on this issue—the Minister is looking at me blankly; I am not sure whether he reads The Guardian—during last week’s Back-Bench business debate on multinational companies and UK corporation tax avoidance. I usually pay attention to everything the Minister says, but I confess that Friday’s revelation passed me by. Given his reported new-found enthusiasm for tackling the issue head on, the Opposition would like to take this final opportunity, through new clause 12, to persuade the Minister and Government Members to use this year’s Finance Bill to demonstrate a commitment to increasing tax transparency and to cracking down on tax avoidance both here and abroad. It is unfortunate that the Liberal Democrat Benches are devoid of Liberal Democrat Members, because this is their opportunity finally to walk the walk on this issue, given that they have been very good at talking the talk on it for so many years.
The nub of the issue is this: there has been a monumental breakdown in public confidence in the corporation taxation system and it is clear that the era of tax secrecy should end. At a time of austerity around the world, when people have lost or are losing their jobs and are seeing their services cut and the cost of living rising while the value of their wages does not, they are rightly angry when they see the complex and extraordinary lengths to which multinational companies may go in order to avoid paying their fair share of tax in the countries where their profits are actually being generated. People, including more than 1 million supporters of the IF campaign, are equally furious that aggressive tax avoidance activity is reducing the ability of developing countries to tackle the issue effectively and contributing to their failure to combat hunger and invest in the vital infrastructure that we take for granted. As the OECD estimates, these countries lose three times more through tax avoidance than they receive in aid every year.
The Opposition believe that rather than simply calling on the OECD
“to develop a common template for country-by-country reporting”,
which the G8 has said it will do, we should actively work with our G8 partners to ensure that all multinationals, regardless of sector, are required to publish a single, easily comparable statement on the amount of tax that they pay in each country in which they operate. That needs to be introduced as a matter of urgency.
Kerry McCarthy (Bristol East) (Lab)
My hon. Friend is doing a good job of spelling out the sheer ludicrousness of countries losing more by profits being put into tax havens than they are given in aid. I am sure that she is aware of the recent ActionAid report, which mentions a single transaction made through UK-linked tax havens that would have provided the Indian Government with $2.2 billion in tax if it had not taken place offshore. Surely that is something that the Government ought to rectify.
Catherine McKinnell
My hon. Friend gives a powerful example of how ludicrous the failure to act on this issue is.
At a stroke, statements would give people, whether they are experts or not, the information they need to assess the amount of tax that multinationals pay. That would give British consumers the power to take such matters into consideration when they decide who to buy from. It would also give developing countries a vital boost to their resources so that they could tackle hunger and invest in the infrastructure that they so desperately need.
As the Minister is all too well aware, the Opposition have backed the calls of the IF campaign for a convention on tax transparency. We saw the UK’s presidency of the G8 as a prime opportunity to take international leadership on the issue by launching a convention at the G8 summit to establish a global standard of public registration for the ownership of companies and trusts. As the House knows, the G8 nations took a step in that direction; we have acknowledged that steps have been made in the right direction.
The G8 stated in “Common principles on misuse of companies and legal arrangements”:
“Beneficial ownership information on companies should be accessible onshore to law enforcement, tax administrations and other relevant authorities including, as appropriate, financial intelligence units. This could be achieved through central registries of company beneficial ownership and basic information at national or state level. Countries should consider measures to facilitate access to company beneficial ownership information by financial institutions and other regulated businesses.”
At the end of the day, there was a statement about what could or should be achieved or considered by G8 nations, and the UK promised to establish a register at Companies House on beneficial ownership of companies in the UK, but to make it available only to HMRC, not the public. That was a step in the right direction, but the Opposition feel that it did not go far enough. We believe that we need proper transparency about who is holding their wealth behind shell companies and trusts in tax havens, not just secret lists at Companies House.
My hon. Friend the Member for Bassetlaw (John Mann) put to the Minister doubts about the effectiveness of the UK’s proposed arrangements. Those doubts have been well articulated recently. Private Eye commented:
“Those with knowledge of the Companies House reality would take a great deal of convincing that it is about to become a tough enforcer able to scare global or even home-grown tax evaders—any more than it has ever deterred conmen the world over.
Companies House is merely a receiver and filer of documents. It is not set up to be reactive, never mind proactive. ‘We do not have the statutory power or capability to verify the accuracy of the information that companies send to us,’ a Companies House official candidly admitted to the Mail on Sunday last month when the newspaper wanted to know if a foreign currency investment company director actually existed. Hardly surprising when it is considered that there are 3 million ‘live’ companies on the UK register.”
Aware of the Government’s steadfast opposition to our proposals on country-by-country reporting and a global standard of public registration of company ownership, we have tabled new clause 12 to ask HMRC and the Government to at least review the possible effect of those measures. It is eminently reasonable and perfectly sensible for Government Members to support it. Crucially, on the subject of abusive tax arrangements, it calls on the Government to consider what steps they could take when working alongside the Governments of developing countries—not should, but could—to assess how UK companies could report their use of tax schemes that might have an impact on those countries, and how the UK could then assist in the recovery of that tax.
Stella Creasy
My hon. Friend is making a powerful case about the importance of the measures in question for developing countries. Does she agree that the Exchequer Secretary, having spoken about the importance of acting multilaterally and understanding how international companies operate, should be able to see the benefits of transparency to the UK tax system? Surely one thing that we are concerned about right now is UK companies using overseas territories to avoid paying tax in the UK. If we had the transparency that we suggest and HMRC worked with countries such as Tanzania, there would be benefits for both UK taxpayers and developing nations. It would be a win-win situation for all concerned.
Catherine McKinnell
My hon. Friend makes a good point. The Government have trumpeted their commitment to 0.7% of GDP being spent on international aid, but they stand by and say that they can do little to assist in ensuring that that is not swallowed up by the three times more that is lost in tax avoidance every year. If they could assist, that would be a win-win situation for developing countries and the UK.
In new clause 12, we call for additional transparency in what the Exchequer Secretary admitted are four fairly reasonable requests. Those requests are well considered and are made in all sincerity. We want to be able to bring in additional tax receipts for the UK Treasury, but we also want to use our powers and information, and the additional intelligence that we would gain from transparency, not only to benefit the lives of UK citizens, for whom public resources could be funded through the tax receipts, but to support developing countries.
My hon. Friend makes the point that it is a win-win situation, and we very much agree. That is why we urge hon. Members to support our new clause. As I have said, it is completely reasonable and I cannot see why Government Members would oppose it, particularly Liberal Democrat Members—I am pleased that the hon. Member for Burnley (Gordon Birtwistle) is in the Chamber to hear this debate on an issue that I know the Liberal Democrats feel strongly about. Indeed, at their recent party conference they held a debate in support of some of the measures we are proposing. I therefore see no reason why Liberal Democrat Members will not vote with the Opposition in the Lobby this evening.
Stephen Doughty
My hon. Friend has been making strong points. Does she agree that in a way this debate exemplifies the difference between settling for charity and seeking justice on some of these issues? I would not say that the Government are not charitable. They continue to give aid; we continue to give aid—that is charity and people on both sides of the House do charitable work. However, when it comes to achieving justice on these issues, and getting a grip of the problems and understanding why they are there in the first place, we often find the Government wanting.
Catherine McKinnell
My hon. Friend makes the important point that we are talking about justice. We talk about justice and fairness in relation to developing countries when considering how a disclosure of a tax avoidance scheme, and the information we receive from it, might be used to support developing countries and international justice on that level. However, it is also about justice for UK taxpayers. We must ensure that companies that engage in the sort of tax avoidance activities that so rile members of the public, and should concern every Member of the House, do not have a competitive advantage over companies that do not engage in such activities, which may mean that their business ends up suffering.
That is what we are discussing and the amendments should not be just a step in the right direction. The announcements that came out of Lough Erne and the G8 agreement contained warm words and welcome sentiments, but there is an opportunity for the Government to start walking the walk, not just talking the talk. They must make not only warm statements but legislative changes that will move the issue forward and show the leadership that the UK should be showing. That would give us greater leverage when debating such matters on an international scale.
The Prime Minister rightly put tackling tax avoidance and evasion at the top of the G8 agenda, and Government Members now have the opportunity to demonstrate their commitment to delivering in that area. What came out of the G8 does not have to remain a statement of intent; it could become a reality for the UK today. We believe that our amendments would help the UK to take genuine action towards securing tax transparency and the fairness the world needs in the 21st century. I therefore urge all Members on both sides of the House to back our suggestions for how the Government can put their money where their mouth is on this issue.
Nigel Mills (Amber Valley) (Con)
It is a pleasure to be here to discuss issues that we have already discussed once or twice this year. The Government’s new clauses have rightly been introduced to tackle loss buying and capital allowance avoidance planning. Those are examples of what we can, following the logic of the hon. Member for Walthamstow (Stella Creasy), call hard-core tax abuse. The rules have been allowed to get out of date and have been exploited for years, so it is right that they are tackled.
The new clauses demonstrate, however, that the system is far too complex. There are far too many different types of loss and of relief, which create the scope for transactions to try to exploit them. I am not entirely sure why we need trading losses, schedule A losses, D3 losses, non-trade debits and capital losses—and probably a few more I cannot remember off the top of my head. If we moved to a simpler corporation tax system that had only revenue losses and capital losses, we could perhaps tackle avoidance more easily, rather than having to introduce separate anti-avoidance rules for each different kind of loss to try and ensure that they all work. I encourage the Minister for the umpteenth time to try to simplify our corporation tax system, because it would help in tackling these problems.
There is an interesting question on the interaction of legislation with the general anti-abuse rule—if each time we see some aggressive abuse that we think the general anti-abuse rule should stop, we end up producing a specific anti-abuse rule, what does that say about how strong we believe the general anti-abuse rule is? I would personally prefer specific, clear legislation that all taxpayers can read, understand and abide by, rather than relying on some general statement of principle, but there has to come a point when we say, “We think that is abusive and falls foul of the general anti-abuse rule, and that is enough for us to tackle it. We do not need to introduce more complexity to our tax code: instead, we will rely on the rule.” It will be interesting to see, as the years pass, how confident the Government are in that position. For us to be able to evaluate how successful the general anti-abuse rule is, we will probably need to see if the Treasury—or, at least, HMRC—can win some court cases relying on that rule. It may be a few years before we have some returns filed and challenged on that basis.
Catherine McKinnell
Does the hon. Gentleman share the concerns of some people that we will never see those court cases, because the panel, depending on how it is selected, may deem most tax behaviour to be so eminently reasonable that it prevents such cases from ever getting to court?
Nigel Mills
I doubt that. The general anti-abuse rule came out of some proposals by Graham Aaronson, a leading tax counsel, so it is not fair to suggest that the whole industry is so wedded to egregious tax abuse that they will find any arrangement acceptable. That would make a complete mockery of the whole thing. I do not share that concern, but we have to be careful in how we draft the general anti-abuse rule. Effectively, it comes back to saying, “Although Parliament may have passed legislation in these terms, what we really meant was something slightly different.” Perhaps we did not envisage a complex scheme that works its way into what we actually said, rather than what we really meant.
If we tried to define a general anti-abuse rule too closely, we would be straight back on the horns of the dilemma of what Parliament meant when it passed a certain piece of legislation. I suspect that most people would say that we actually mean what we write in the many hundreds of pages of taxes that we pass each year. We have to allow the courts room to interpret where arrangements are clearly not what we intended when we passed them. The clue is in the word “general” in “general anti-abuse rule”. If we make it too focused, it will not work. We will see in a few years what happens.
Another measure we could use is whether the tax gap comes down. Do we see fewer of these abusive arrangements being entered into? Is that because of the threat of a general anti-abuse rule? Perhaps we could also measure it by the weight of the Finance Bill next year. If we do not need all these anti-avoidance clauses, the Bill will be an inch thinner and the Government will be happy that the general anti-abuse rule is working. I expect I will serve on the Committee next year and I am not optimistic about the Bill being much shorter.
I cannot support new clause 12. I can see why it was drafted, and I might have drafted some amendments in Committee that were equally creative as a way to force an issue into a debate where it does not really fit. I generally agree with the idea that we should require more transparency from our largest corporate taxpayers about how much tax they are paying, but also crucially why they are paying that amount of tax.
Catherine McKinnell
I thought I would take this opportunity to say that we have thoroughly missed my hon. Friend on the Finance Bill Committee this year. In response to the intervention by the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), I point out that the new clause asks for a review of how these aims can be achieved. The cost of HMRC undertaking the review would be the issue to consider.
John Mann
I thank my hon. Friend for that intervention. In this matter, as in many matters, my approach is to beef up my own Front Bench, as well as expose the fallacies, weakness and hypocrisy of the Conservative Front Bench and the absence of anything from the Liberal Front Bench. Therefore, the stronger the Opposition Front Bench is in the practical detail, and in saying to the British public that it is unfair and unjust that these large companies pay so little tax that a company such as Starbucks pays less than a café in the centre of Worksop, the better. How can that in any way be just?
This is not just about justice, however. Those of us on the Opposition Benches must articulate the fact that this is about economic efficiency. Let us consider the small entrepreneur or the new company, the company looking to grow, or the company that has reached its place in society, such as a small family café that is providing an excellent service to the community and that pays its taxes and is being undercut by multinationals. How can they compete with large multinationals avoiding their taxes?
Multinational Companies and UK Corporation Tax
Catherine McKinnell Excerpts(10 years, 10 months ago)
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Catherine McKinnell (Newcastle upon Tyne North) (Lab)
Let me begin by commending the hon. Member for Warwick and Leamington (Chris White) for securing this Backbench Business Committee debate, ably supported by my hon. Friends the Members for Newcastle-under-Lyme (Paul Farrelly) and for Paisley and Renfrewshire North (Jim Sheridan).
Once again, we find ourselves discussing the challenge of corporate taxation—an issue which increasingly agitates not just businesses up and down the country but members of the public. The mood could not really be better exemplified than by the constituents of the hon. Member for Warwick and Leamington, who run the independent bookshop Warwick Books. As the hon. Gentleman outlined, Francis and Keith Smith achieved quite a remarkable feat by gathering 170,000 signatures for their petition calling on a certain online bookseller to pay its fair share of corporate tax. They highlighted the fact that last year the company made £3.3 billion of sales in the UK, yet it is not registered to pay corporation tax here.
The hon. Gentleman’s constituents and I have something in common in that we both studied at Northumbria university. I also understand that one of them once worked at Fenwick’s, which is a great Newcastle department store. So it is enough to convince me of their pedigree.
We have had a thoughtful and productive debate, with excellent contributions from both sides of the Chamber. All hon. Members have noted the cross-party agreement, certainly on the problem and the diagnosis, if not necessarily on the cure. I commend my right hon. Friend the Member for Barking (Margaret Hodge) for her contribution, for her powerful chairing of the Public Accounts Committee, and for the work it has done, and I commend all the members of the Committee who have raised this issue in the eyes of the public.
At the beginning of this year, my right hon. Friends the Leader of the Opposition and the shadow Chancellor laid down a challenge to the Government to end the era of tax secrecy and to use the G8 presidency to do that, both by showing international leadership and by taking action here at home. I think we all agree that sometimes there are good reasons why companies pay little, reduced or even no tax: some firms are investing large sums in research and development, assets and infrastructure, and where that is done for genuine commercial reasons and not simply to minimise their tax liability, it is to be welcomed and has to be acknowledged in the tax system. However, as I have said previously in this Chamber, something has gone very wrong in the system when a large multinational company can make £1.2 billion-worth of sales in this country and describe itself to investors as profitable, yet report no UK tax liability.
It is not only UK taxpayers who pay the price of such profits shifting, although the loss to the Exchequer is significant, and my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) powerfully argued the case for why this is so important to the UK Exchequer. Such behaviour totally undermines the notion of a level commercial playing field by putting at a serious disadvantage responsible firms that pay their fair share of tax on profits generated in this country, as well as employ thousands of people here and pay all the associated taxes. There are those who believe that the problem is just too difficult, too complicated, too entrenched to tackle, and I suspect that that is what some people—especially those who are involved in that sort of activity—would like us to think, but we believe that there are measures that the Government could and should be instigating right now to end the era of tax secrecy and move us toward the greater transparency that is so desperately required if we are to rebuild confidence in our tax system.
To give him his due, the Prime Minister committed to putting tax avoidance at the top of the G8 agenda when world leaders met in Northern Ireland last week, and many people—including several million campaigners for tax transparency—had high hopes for what could be achieved through the UK presidency of the G8. Ahead of the summit, we called on the UK to push for an internationally agreed system of country-by-country reporting in which multinational corporations, regardless of sector, would be required to publish a simple statement of the amount of tax they pay. We believe that that information should incorporate multinational revenues, profits and taxes paid in every country in which they operate, and include the key pieces of information that enable people, whether they are experts or not, properly to assess the amount of tax they pay. That would also benefit British consumers by enabling them to make informed choices about the companies they buy from. The G8 leaders’ communiqué stated:
“We call on the OECD to develop a common template for country-by-country reporting to tax authorities by major multinational enterprises, taking account of concerns regarding non-cooperative jurisdictions.”
That is a serious step in the right direction, but we need to see far more detail and we need to see it soon.
Today, we have heard about various tricks used by multinationals to minimise or avoid their tax liability in this country—for example, shifting profits and using complex corporate tax structures. It is increasingly clear that we have failed to keep pace with the changes, and my hon. Friend the Member for North Ayrshire and Arran talked about the resources HMRC needs to tackle the problem. We need progress on transparency if we are to put a stop to multinational and global companies hiding behind an unacceptable veil of secrecy about their tax.
Oral Answers to Questions
Catherine McKinnell Excerpts(10 years, 10 months ago)
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Mr Osborne
Of course, if there is unacceptable pressure, I absolutely say that that is not acceptable—if that is the right way to put it. The PRA, which we created, is completely independent and it has made its independent decisions on capital in our banks. We also have the Financial Policy Committee, which again is completely independent and able to make these recommendations. We empower our regulators to do their job. Of course, banks, consumer groups and anyone else can make their case, but this is ultimately an independent body, an independent regulator, that makes the judgment. That is the system we have created.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
The whole House agrees that we need to see more lending to small businesses and a return of RBS and Lloyds to the private sector so that taxpayers can get their money back, yet two weeks since the Chancellor helped to remove Stephen Hester from RBS, the taxpayers’ stake in the bank has fallen in value by £4 billion. Was that part of the plan?
Mr Osborne
In case the hon. Lady had not noticed, stock markets around the world are down. Bank stocks are down—
Oral Answers to Questions
Catherine McKinnell Excerpts(10 years, 12 months ago)
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Catherine McKinnell (Newcastle upon Tyne North) (Lab)
The Government should listen to people such as the deputy chair of Harlow Conservatives, who has said:
“The voters are disillusioned with Cameron…They don’t like the fact that he didn’t keep the 50p tax. That has really grated and people feel here that he is not working for them, he is working for his friends.”
No wonder the Conservatives in Harlow lost so many seats to Labour last month. Will the Minister explain again, for the people of Harlow and elsewhere, just why the Government have prioritised a tax cut for those at the top while ordinary taxpayers are struggling?
Mr Gauke
This is the Government who have raised the personal allowance that has taken millions of people out of income tax and resulted in tax cuts for some 26 million people. A tax rate that does not bring in revenue is a flawed tax rate, which I assume is why, despite everything we hear from the Opposition, they will not commit to returning to a 50p rate of income tax. They know that it does not raise revenue.
Finance (No. 2) Bill
Catherine McKinnell Excerpts(11 years ago)
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Catherine McKinnell (Newcastle upon Tyne North) (Lab)
I beg to move amendment 1, page 1, line 7, at end add—
‘(1) The Chancellor of the Exchequer shall, within three months of the passing of this Act, publish a report on the additional rate of income tax.
(2) This report shall review the impact upon Exchequer receipts of setting the additional rate to 50 per cent. in tax year 2014-15.
(3) The report shall review what impact reducing the additional rate for 2013-14 will have on the amount of income tax currently paid by those with taxable incomes of
(a) over £150,000 per year; and
(b) over £1,000,000 per year.’.
The Second Deputy Chairman of Ways and Means (Dawn Primarolo)
With this it will be convenient to discuss the following:
Clause stand part.
Clause 16 stand part.
That schedule 3 be the Third schedule to the Bill.
Catherine McKinnell
It is a pleasure, Ms Primarolo, to serve under your chairmanship this morning. I shall speak to the Opposition amendment to clause 1 and about clause 16, which relate to income tax rates and reliefs.
The Opposition believe that politics is about priorities—about providing support to those who need it most, rather than to those with the broadest shoulders. This has never been more the case than in the country’s current economic climate—a parlous economic climate which, let us remind ourselves, has seen just 0.8% growth since autumn 2010, compared with the 5.3% that was forecast at the time. The economy continues to stagnate under this Government, leading to the independent Office for Budget Responsibility halving its predictions for 2013 and anticipating growth of only 0.6% this year, compared with the 1.2% forecast just four months ago.
We have surely now reached the stage where we must ask ourselves what further evidence the Chancellor needs before he accepts that his economic plan is catastrophically failing. Once again, I note the lack of Conservative Members on the Government Benches. Perhaps Back Benchers are demonstrating their lack of confidence in the Chancellor’s plan which, I am sure they would agree, is far from acceptable.
The latest criticism of this failure came on Tuesday, with the International Monetary Fund downgrading its forecast for UK economic growth to 0.7%, in contrast to its view a month ago, when the IMF said that growth of 1% could be expected. Having subjected the UK to the biggest downgrade of any developed country for 2013 and 2014, the IMF commented:
“In the United Kingdom, the recovery is progressing slowly, notably in the context of weak external demand and ongoing fiscal consolidation.”
It went on to say:
“Greater near-term flexibility in the path of fiscal adjustment should be considered in the light of lacklustre private demand”.
In simple terms, it is time for plan B.
Alex Cunningham (Stockton North) (Lab)
I am grateful to my hon. Friend and fellow north-east MP for giving way. Does she share my view that yesterday’s unemployment figures showing an increase of 70,000 were disgraceful? The north-east of England has suffered a disproportionate increase in unemployment, and 12,000 of those 70,000 are from the region that she and I both represent. Does she agree that this is further evidence of the need for change, particularly in regions such as the one we share?
Catherine McKinnell
I very much share the deep concern expressed by my hon. Friend about the figures published yesterday. I hope the Chancellor will start to pay attention to the effect that his economic plan is having on people throughout the country but, I agree, particularly in the north-east, where unemployment is above 10%, which is a shocking figure and spells deep trouble for the long-term entrenchment of unemployment. I will come to that shortly.
As we have heard so often from this out-of-touch Chancellor, he is not for turning, despite the fact that the consequence of his economic failure means that Government borrowing is rising, not falling, with the Tory-led coalition set to borrow £245 billon more than it forecast in autumn 2010. His promise to balance the books by 2015 will not be met and the national debt will not fall until 2017-18 at the earliest. Who knows how many times that will need to be pushed back before the Chancellor realises that his plan is not working?
Of course, that dire situation has led to the downgrading of Britain’s triple A rating by Moody’s and the more recent decision by Fitch to place the UK on rating watch negative, both of which had been prized by the Chancellor and used as cover for the austerity measures he introduced back in 2010.
At a time when living standards are being squeezed, average earnings are rising at their lowest rate since the end of 2009, Government borrowing is up, growth forecasts have been downgraded again, the public services on which people rely are being cut or threatened up and down the country, and ordinary people are being asked to pay the price for the Chancellor’s economic failure, what we needed was a Budget that was on the side of ordinary, hard-working people and families, increasing numbers of whom are clearly struggling to make ends meet.
As my hon. Friend the Member for Stockton North (Alex Cunningham) noted, unemployment is rising again. What we needed was a Budget that would back Labour’s jobs guarantee, using money raised from the tax on bank bonuses to fund a guaranteed job—a real job—for every young person who has been out of work for a year or more. I am not sure whether Government Members have had a chance to analyse the long-term unemployment figures published yesterday, but I can tell them that in March this year 167,345 adults over the age of 25 had been claiming jobseeker’s allowance for more than 24 months. Let me repeat that figure: 167,345 adults had been out of work for more than two years, compared with 84,765 in February 2012 and 52,895 in February 2011. That is a disturbing rise of 97% since February 2012 and 216% since February 2011.
Targeted and urgent action is required if the unemployment situation is not to become dangerously entrenched. We believe that it is a totally unacceptable state of affairs and that action is needed now to stop people being put on the scrap heap and left there, as they were under the previous Conservative Government—and, of course, so that we do not continue building up long-term costs for the taxpayer.
What we needed from the Budget was a reversal of the Government’s decision to stop tax relief on pension contributions for people earning over £150,000 being limited to 20% to fund Labour’s compulsory jobs guarantee for long-term unemployed adults.
Stephen Williams (Bristol West) (LD)
Perhaps the hon. Lady will remind us of the maximum amount of pension relief an individual could get right up to April 2010, or perhaps a little later. In case she does not know, someone could put just over a quarter of a million pounds a year into their pension fund and get higher-rate tax relief, including at 50%. This Government have lowered that figure to £40,000.
Catherine McKinnell
I said that the Budget needed to be about priorities and that we need to look now at how to help people struggling on the lowest incomes and ensure that those with the broadest shoulders bear the greatest burden. In government, Labour took steps to ensure that its pension reliefs were fair to those at the bottom as well as those at the top. This Government have reversed that decision to limit the relief to 20%, and we have seen the result: the impact across the board is being unfairly borne by those at the bottom. When times are as tough as they are now, it cannot be right to subsidise the pension contributions of the top 2% of earners at more than double the rate for people on average incomes who pay the basic rate of tax. However, the Conservatives and Liberal Democrats clearly believe that the time is right to prioritise those earning more than £150,000.
What we got in this year’s Budget, and in the very first clause of the Finance Bill, is the coalition’s unjustifiable and grossly unfair decision to reduce the top rate of income tax from 50p to 45p, a cut that benefits just 267,000 people earning more than £150,000, 13,000 of whom are lucky enough to earn more than £1 million. Indeed, those lucky few are receiving an average tax cut of a whopping £107,000 according to HMRC figures. Who wants to bung a millionaire indeed?
I have no doubt that at this juncture Liberal Democrat Members will want to trumpet the increase in the personal allowance—to pipe up and explain that they are not prioritising the richest in society over those who genuinely need support, but unfortunately for them the facts state otherwise. Let us remind ourselves of the analysis of figures published by the independent Institute for Fiscal Studies. It shows that taking into account all the changes to tax credits and benefits introduced since 2010, households in the UK will, on average, be a staggering £891, or £17 a week, worse off this financial year.
Catherine McKinnell
The hon. Gentleman is chuntering from a sedentary position. Does he wish to intervene?
Stephen Williams
If you are going to quote from independent reports, you should not quote—
Stephen Williams
The hon. Lady should not quote from reports selectively. Perhaps she should go on to say that the Institute for Fiscal Studies says that the top decile of income earners has been hit hardest by the combination of Government tax changes.
Catherine McKinnell
I suggest that the hon. Gentleman is quoting selectively in leaving out the fact that the greatest impact is on the bottom decile of earners. When you take the cuts and changes overall, those at the bottom bear the greatest proportional brunt.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
I want to support what my hon. Friend has said. The Chancellor’s own distributional analysis shows that the cumulative impact of tax, tax credit and benefit measures mean net reductions in income for the poorest 4% of households. That is not selective analysis—your own Chancellor’s analysis shows that 40% of the poorest households will be affected.
Catherine McKinnell
It is the hon. Gentleman’s own Chancellor who is quoting selectively from the figures. I thank my hon. Friend for that intervention.
The facts are clear, and beyond the facts is the reality facing households up and down the country. We see people from those households coming into our constituency surgeries week in, week out. We hear stories every day from families who are clearly struggling to make ends meet.
The reality of the Chancellor’s failing plan is bearing out, not just in the statistics but in the reality of people’s day-to-day lives. The cuts to tax credits and child benefit, the granny tax, the mummy tax, the appalling bedroom tax and the huge hike in VAT, which disproportionately impacts on the poorest, hugely outweigh any small benefit from the rise in the personal allowance.
Yasmin Qureshi (Bolton South East) (Lab)
My hon. Friend is making an excellent case about all the various cuts and how they are hitting the most vulnerable in our society. Do you think that the Government should be shedding tears for all those people who will be suffering from all the cuts?
The Second Deputy Chairman
Order. May I remind hon. Members that they are not asking the Chair of this Committee to answer questions or accusing the Chair of anything? The use of the word “you” addresses the Chair directly. It would be good practice to refer to “hon. Members” or “my hon. Friend” rather than using the word “you”, which makes things difficult.
Catherine McKinnell
Even some mild empathy from the Chancellor for those bearing the brunt of his catastrophically failing economic plan would be welcome to people up and down the country, who feel that he is extremely out of touch with the reality that they face.
To put the issue into context for Government Members, who have willingly voted through this year’s changes, I should say that a two-earner couple with children are losing on average £1,869. The average single parent in work will lose £1,226. A two-earner couple with no children will be £672 worse off, while a one-earner family with children will lose an average of £4,000 in 2013-14. Even worse, this is happening at the same time as 13,000 millionaires are getting a tax cut from this Government worth an average of £107,000. Worst of all, but not surprising given this Government’s shocking attitude towards women, is research showing that 94% of the cuts to household budgets will directly hit women, while 85% of those on incomes over £150,000—so 85% of those who are benefiting from the Government’s tax cut—are men.
Mr Robin Walker (Worcester) (Con)
The hon. Lady is asking for an analysis of what the change in tax rate would do to the Government’s revenues. That is exactly what the previous Labour Government failed to deliver when they made their change. Does she not regret the fact that the Labour Government, in their 13 years in power, continued to levy a top rate of 40% and then made their change to the top rate so late in the day that it failed to raise any additional revenue either under their Government or, because they had not undertaken such a behavioural study of what might happen, under the Government who followed?
Catherine McKinnell
I do not follow the hon. Gentleman’s logic that that justifies a non-assessment at this stage. He knows very well that there has been a huge intake from the 50p tax rate which this Government fail to acknowledge. He also knows that we suffered a catastrophic international financial crisis in 2008 to which the Labour Government responded by ensuring that those who could bear it most would take the highest burden, therefore introducing the 50p tax rate. This Government took the first opportunity to abolish it, without even allowing enough time for proper analysis of its effect to take place.
The Exchequer Secretary to the Treasury (Mr David Gauke)
The hon. Lady says that there was a huge intake from the 50p rate of income tax. What is her evidence for that?
Catherine McKinnell
HMRC’s report, “The Exchequer effect of the 50 per cent additional rate of income tax”, but I will go into that in more detail in due course.
The Prime Minister went on record and said in this Chamber that the 50p tax rate was cut because it did not raise any money—the Minister seems to have just made the same assertion—but page 39 of HMRC’s report makes it clear that it resulted in a yield of about £1.1 billion, which is hardly a sum to ignore in these straitened financial times. However, what stands out most from HMRC’s assessment—this point was also raised when we debated last year’s Finance Bill—is the number of times that the words “uncertain” and “uncertainty” appear; I nearly lost count, but it is a staggering 30 times. The Chancellor decided to give a tax cut to his millionaire pals before we had a clear picture of the impact of the 50p rate.
That is not just the view of the Opposition. Robert Chote, chairman of the Office for Budget Responsibility, stated:
“This is a judgement based on not even a full year’s data, based in terms of how people have responded to the 50p rate, in particular in terms of those self assessment tax-payers.”
The Institute for Fiscal Studies said:
“By giving out £3 billion to well-off people who pay 50p tax…the Government is banking on a very, very uncertain amount of people changing their behaviour and paying more tax as a result of the fact that you’re taxing them…There is a lot of uncertainty, a lot of risk on this estimate.”
In its report on the 2012 Budget, the Treasury Committee concluded:
“The costs and benefits of reducing the additional tax rate to 45p are both highly uncertain, and could be significantly more or less than the cost included in the Budget. We recommend that HMRC publish in due course a comprehensive assessment of the effect on the Exchequer of the new 45p rate.”
We agree. We need a full and proper assessment of what effect the top rate tax cut has had on tax receipts and we need to be sure that the Government continue to estimate what the gain would be if the additional rate were returned to 50%. We need, as the IFS has previously suggested, to get a clear understanding of whether the short-run response to this tax cut has been symmetric to the introduction of the 50p rate. Will people continue to use the avoidance techniques that the Government clearly believe they employed to avoid the 50p rate, or will some or all of that activity come to an end as a result of the new 45p rate? The Government should commit to our amendment’s request for such a review, if they genuinely seek to maximise revenue to the Exchequer and not to give a tax break to their millionaire friends.
Stewart Hosie (Dundee East) (SNP)
The hon. Lady is making a good case, particularly on the uncertainty about the reduced revenue yield, but even if the Government and the Red Book are correct and the loss of yield will be only £540 million over the next five years, I am sure she will agree that if £540 million is going spare it would be better to invest it in productive capacity for the future, rather than simply give it away in a tax cut that proves that we are not all in this together.
Catherine McKinnell
The hon. Gentleman makes an extremely strong point, and one that I have made repeatedly. This might seem like small change to the Chancellor, but it could make a very big difference to some of the people affected by his failing economic plan.
I am sure, given the concerns recently expressed by apparently senior Liberal Democrats, that Lib Dem Members will join us in calling for a commitment from their Conservative colleagues in the Government. Indeed, only last month a member of the Liberal Democrat tax working group stated:
“While the Treasury’s own figures about the 50p are highly questionable, the politics of cutting tax for the very rich make no sense; there is no reason why a 50p rate shouldn’t be part of a solution for tough times.”
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
I agree with many of the hon. Lady’s points. Plaid Cymru will fight the next Westminster election on a pledge to reintroduce the 50p rate. Will the Labour party do the same?
Catherine McKinnell
We have made it perfectly clear from day one that we do not support the cut to the 50p rate now, and we call on the Government to analyse the impact of the introduction and premature removal of the 50p rate. When we come to publish our next manifesto, we will review the state of the economy and whether a 50p rate would be the right response. I hope that Members of other Opposition parties, as well as Liberal Democrats, will support our amendment, because it would help to establish whether the 50p rate would bring in the additional Exchequer revenue that was anticipated—but if the Government refuse to back it today, we will never know.
The President of the Liberal Democrats, the hon. Member for Westmorland and Lonsdale (Tim Farron), said:
“Cutting the top rate was a stupid thing to do. It probably raised up to £3bn a year. We should pledge to restore the 50p rate at the next election. It’s not enough to be fair, you have to be seen to be fair.”
Their current, or former, Treasury spokesman—I can never work out which he is—Lord Oakeshott—
Catherine McKinnell
Okay. I am pleased that that has been clarified for the record. Other hon. Members will feel the same.
Lord Oakeshott said:
“In such hard times, we should never have rolled over when the Tories wanted to cut the 50p rate unless we got a mansion tax in return. At the next election, both the mansion tax and a 50p rate should be at the forefront of Lib Dem tax policy.”
I have news for him. Liberal Democrats have had the opportunity to vote for the mansion tax, and today they have the chance to vote for their 50p rate. They do not need to wait for the next manifesto. They can make it happen today. Lord Oakeshott’s is an interesting view, however, given the Liberal Democrats’ decision to vote against their own mansion tax policy twice in as many months. I would join him, however, in urging his party colleagues not to roll over for the Tories on this issue, but to support our amendment.
We are obviously disappointed that our amendment to clause 16 was not selected for debate. The clause introduces schedule 3, which provides for the cap on 11 named income tax reliefs for amounts greater than £50,000 or 25% of an individual’s income. This policy was first announced in 2012. Like many others, the Opposition are pleased that this provision no longer includes the original proposal to limit tax relief on charitable giving. In one of the several U-turns on last year’s omnishambles, the Chancellor was forced to back down on this ill-thought-through policy, which threatened the charitable sector with a cut of up to £500 million in income per year. A powerful campaign backed by more than 1,000 charities was given the very simple title, “Give it Back, George.”
Several concerns about clause 16 remain, however, particularly about its potential impact on entrepreneurialism and small businesses. The Association of Accounting Technicians believes that the restriction of small reliefs on losses runs counter to the Government’s apparent commitment to encourage new business start-ups. It stated:
“In the current economic climate, start-up businesses are likely to operate at a loss in their early years, therefore our view is that an imposition of an arbitrary cap will be a further obstacle to entrepreneurship… Furthermore, existing legislation already prohibits relief for ‘artificial losses’”.
That means that any genuine losses sustained in starting or developing a business should be relievable, in accordance with existing legislation, in a way that enables the entrepreneur to recover tax previously suffered as quickly as possible in order to help to fund their new venture.
The Chartered Institute of Taxation shares similar concerns, describing the cap as a “blunt instrument” that could have an
“adverse effect on genuine businesses and the UK economy”
and saying that
“it gives the wrong message to entrepreneurs thinking of setting up a business. The net effect could be to reduce the tax take rather than increase it.”
It has drawn particular attention to concerns that the cap will catch owners of genuine commercial businesses who happen to incur a loss, instead of a profit—for example, where a new business is being established; where a business is weathering economic conditions and concentrating on simply surviving until the climate has improved; and where there has been an exceptional level of business expenditure, such as on the purchase of a major item of machinery or the recruitment of additional staff in anticipation of expansion.
The Institute of Chartered Accountants in England and Wales has said that the measure
“will hit small businesses by restricting loss relief for commercial losses. The measure will reduce cashflow, hamper business growth and could lead to small businesses that are experiencing difficulty in the current economic climate going bust”.
Surely even this Government would not want that outcome as a result of a Budget measure. I would therefore greatly welcome hearing from the Minister that the Chancellor might just be for turning on this issue.
Catherine McKinnell
Is the Minister seriously blaming the 50p tax rate for stagnating growth? If so, can he explain why, although the Government removed the 50p rate in this year’s Budget, the Office for Budget Responsibility has downgraded its growth forecast for each of the next three years?
Mr Gauke
We know what the big issues are with growth. We are having to deal with the aftermath of the financial crisis, the eurozone crisis, high commodity prices and the terrible fiscal situation we inherited from Labour. Having an uncompetitive top rate of income tax does not help, a point that previous Labour Governments recognised until we got to the fag end of the previous Government when, as a political ploy, the then Prime Minister put the rate up to 50p. It is striking how the Opposition will not confirm that they will return to a 50p rate.
Mr Gauke
The hon. Gentleman refers to dementors, and I am afraid that he is living in the world of fairy tales and Harry Potter with his economics. It is this Government who are taking people out of income tax and this Government who are providing support to low earners. The fact is that a 50p rate was not effective.
We heard many speeches about a tax cut for millionaires and so on. The hon. Member for Newcastle upon Tyne North made it pretty clear that she disliked clause 16 and schedule 3, which introduce a cap on reliefs. Such reliefs exist for good reasons and can encourage certain activities and behaviours that benefit both our economy and wider society, such as entrepreneurship and investment, which help to drive growth. We are committed to supporting such activity, but that support should not be limitless, especially at a time when the priority is to balance the public finances. In the past, some individuals have been able to offset unlimited reliefs against their income to reduce their income tax bills to zero. Those are often very wealthy individuals who can end up paying a lower tax rate than the people they employ to clean their offices. That is simply not right and some individuals have been able to do that year after year.
It is right and fair that we should seek to prevent such activity by limiting uncapped reliefs. That is what clause 16 and schedule 3 do: they cap the use of previously unlimited income tax reliefs at £50,000 or 25% of an individual’s income, whichever is the greater. The cap came into effect on 6 April this year. The changes will affect only around 7,500 individuals and more than 90% of the revenue will come from those with an income of more than £150,000—that is, those who pay the additional rate of income tax. The limit is expected to raise about £200 million a year, significantly more than the cost of reducing the 50% rate down to 45%.
One question that has been asked is whether the provision will hurt start-ups and SMEs. Some 90% of trading losses set against general income in a tax year are less than £15,000 a year, well below the threshold for the cap. Business loss reliefs are not intended to subsidise businesses that have no chance of success. We have a generous regime, but we do not believe that it should be without limit. Unlimited reliefs mean that some people, often with high incomes, can pay little or no income tax year on year. We do not believe that that is fair. There will be no limit on trade or property losses set against profits from the same trade or property business in another year and business loss reliefs are not intended to subsidise established businesses that make losses year after year.
Catherine McKinnell
Can the Minister provide reassurance that he has taken on board the concerns raised by a number of accountancy organisations, whose opinions are very reputable, that the change will not only counteract the clamping down that the Government are correctly introducing but hamper the growth of genuine small businesses that are struggling? I would say that those businesses are struggling because of the Chancellor’s failing economic plan.
Mr Gauke
Of course, we have consulted on this policy and have listened very carefully to the representations we have received. If we are serious about raising revenue in a way that does not damage the economy, the cap on reliefs is a sensible approach. It is a matter of fairness and I would have thought that hon. Members from all parties would agree that it is wrong for us to have a system whereby people can drive down their tax bill year after year to very low rates despite being high earners. That is exactly what this measure is about.
The measure demonstrates that as a Government we are doing more to raise money from the wealthy. In Budget 2010, we increased higher rate capital gains tax; in Budget 2011, we tackled avoidance through disguised remuneration, which was opposed by the Opposition; in Budget 2012, we raised stamp duty on high-value homes; in the autumn statement 2012, we took action to reduce the cost of pensions tax relief; and in Budget 2013 we announced further measures to tackle offshore tax evasion by high earners. Under this Government, the richest now pay more in income tax than in any year under Labour.
Amendment 1 requests a review, and HMRC published a thorough and very well-researched report at Budget 2012 that showed the effect of the additional rate of income tax. Those matters were debated at considerable length last year and the report shows that the rate was not raising the money that the previous Government intended it to raise. It is illogical to maintain a tax rate that is not effective at raising revenue from high earners and that risks damaging growth. We have found better ways of raising money from the wealthy that raise more money but do less damage to the economy.
We always keep tax rates under review, but I note the inclusion of a request for a review in the amendment. It seems to me that the purpose of the amendment is not just to enable us to have another debate on the 50p rate today but to enable the Labour party to find an escape route from its policy. Until a few days ago, it was against getting rid of the 50p rate. Labour will not answer the question, however, of what it will do at the next election. Its holding position is clearly that it will have a review. The Labour party knows that to go into the next election campaigning for an increase to the 50p rate would simply underline that it is anti-enterprise. It knows such an increase would damage the economy and is trying to find an escape route. Despite all the bluster in all the speeches we have heard today, Labour will not confirm that that is the policy it supports. It is all about posturing, not about practicality. That is why they did not have a 50p rate when they were in government and why they are trying to slip away from it now, hoping that no one will notice. I recommend that clauses 1 and 16 and schedule three stand part of the Bill and we hope that they will have all-party support.
Catherine McKinnell
I thank the Minister for his response and the completely fictional rewriting of HMRC’s report on the impact of the 50p rate of tax, which showed very clearly that it brought in additional revenue of about £1.1 billion. Who knows how much more it might have brought in had the Government not abolished it at such an early stage, before there was even the opportunity to collect the data that would have given a picture of the longer-term impact?
We will press amendment 1 to a vote, and we are asking for a proper review of the impact of the 50p rate of tax so that members of the public can know the truth about the amount of revenue it would have brought in had this Government not opted to give a tax cut to millionaires while letting ordinary people bear the brunt of the Chancellor’s utterly failing economic plan.
Question put, That the amendment be made.
Finance (No. 2) Bill
Catherine McKinnell Excerpts(11 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
It is a pleasure to serve under your chairmanship, Ms Primarolo. I rise to speak in support of the Opposition amendments to clauses 203 to 212, which relate to the Government’s proposed general anti-abuse rule and the wider issue of corporate tax avoidance and its impact. I stress “abuse” because people use the terms “avoidance” and “abuse” interchangeably. However, we need to be clear that this is about an anti-abuse rule, rather than a general anti-avoidance rule.
Before turning to the clauses and our amendments, I want to put on the record our deep concern at the delay in the publication of the final guidance notes on how the general anti-abuse rule, or GAAR, will operate. The guidance was initially expected to be published alongside the Finance Bill on 28 March but was published only on Monday—two hours before Second Reading and just two days before we consider the GAAR-related clauses in the Bill this evening. It is clearly important that the recently formed GAAR advisory panel sought to get the guidance right and to amend and improve it appropriately. That is a view backed up by the Economic Affairs Committee in the other place, whose report last month on the draft Finance Bill stated:
“Our witnesses stressed the importance of the guidance from HMRC and the Advisory Panel on how the GAAR would apply so as to minimise uncertainty. We wholly agree. We recognise that progress is being made in drafting this guidance but are concerned that our witnesses felt it was far from acceptable as it stands.”
We therefore welcome the fact that amendments were made, but surely it is vital that Members have sufficient time properly to consider the final guidance, in advance of the GAAR provisions being considered in this House. The Treasury Committee has already raised directly with the Chancellor the question of Members’ ability properly to scrutinise the Bill within the timetable provided by the Government. It described it as
“an important issue of principle going to the heart of Treasury Ministers’ accountability to Parliament.”
I am therefore keen to put my deep concerns about this issue on the record. Sufficient time has not been provided for Members to consider the guidance and any amendments required to the primary legislation as a result.
At a time when living standards are being squeezed, Government borrowing is up, growth forecasts have been downgraded again, the public services upon which people rely are being cut or threatened across the country, and ordinary people are being asked to pay the price of the Chancellor’s economic failure, there is understandable anger about the unfairness and injustice of people working hard and paying their fair share of taxes, while they hear almost daily about the complex lengths to which a small but significant number of multinational corporations will go in order not to do so.
Kelvin Hopkins (Luton North) (Lab)
My hon. Friend will have noticed that The Times reported today that the International Monetary Fund is so worried about the direction of Government economic policy that it fears for the long-term future of our economy. The Government are wrong and they have to change.
Catherine McKinnell
I am pleased that my hon. Friend has raised that issue and reiterated the difficulty the Chancellor faces in pursuing, with such a one-direction approach, his clearly failing economic policies. He refuses to change course, even though the economy clearly shows that his approach is not working, as does the impact on ordinary people up and down the country. Instead, he is ploughing on for political reasons—because he simply cannot lose face by changing direction.
Let me return to the principal issue. It is right to raise the impact of tax avoidance on public services, which are suffering as a result of the tax gap.
Stephen Phillips
If it is so important to impose an anti-abuse rule such as that which the Government propose to introduce, can the hon. Lady explain to the House why the Labour Government, who were in power for 13 years, did absolutely nothing in that regard?
Catherine McKinnell
That is clearly untrue. The Labour Government had a proud record of tackling tax avoidance at every level. We introduced endless targeted measures that brought in an additional £16 billion of revenue. We introduced the disclosure scheme, which, as the Minister will say, has been highly successful, which this Government are building on and which brought in an additional £12 billion of revenue. I shall take no lessons from those on the Government Benches about tackling tax avoidance, because although the Government talk tough the action is yet to be seen on the ground.
Clearly it is unfair and wrong that companies can avoid tax on profits that have been generated from economic activity in the UK. I am sure that we can all agree on that. The profits have been generated by hard-working UK tax-paying consumers and businesses with what appears to be one rule for those at the top and another for everybody else.
There will sometimes be good reasons for companies to pay little or less tax. Some firms invest large sums in research and development, assets and infrastructure. That must be celebrated and acknowledged, but people are rightly entitled to ask what is going wrong when a company can make sales of £1.2 billion and describe itself to investors as profitable yet report no profit in the UK. It totally undermines the concept of a level playing field when good British companies pay their fair share on profits generated in this country whereas others seem to get away with not doing so.
As we all know from our constituency postbags, people are angry about the devastating consequences of tax avoidance not just on the UK and our public services but on developing countries, with multinational giants using tax havens and artificial corporate structures to shift profits offshore and away from the places where they were generated.
We have heard much tough talk from the Government about their apparent determination to tackle tax avoidance. Before us today we have the coalition’s flagship policy on this issue, the general anti-abuse rule. Announced in the 2012 Budget and building on the 2011 report by Graham Aaronson, QC, the GAAR will apply to income tax, national insurance contributions, corporation tax, capital gains tax, inheritance tax, petroleum revenue tax, stamp duty land tax and the new annual tax on enveloped dwellings. I welcome the statement on page 4 of the guidance that was finally published, which suggests that the GAAR
“rejects the approach taken by the Courts in a number of old cases to the effect that taxpayers are free to use their ingenuity to reduce their tax bills by any lawful means, however contrived those means might be and however far the tax consequences might diverge from the real economic position.”
That is a significant advance on the current situation, but, in the Treasury’s words, the GAAR is intended to address
“artificial and abusive avoidance schemes but without creating uncertainty for business investment”
and will attack
“only those schemes that are the intended target and not a broader spread of business arrangements.”
The Budget 2013 policy costings documents suggested that the GAAR
“would be highly targeted on abusive avoidance that has abnormal features”
and goes on to suggest that the people affected are likely to be those involved in “highly contrived tax avoidance”. Mr Aaronson believes that the GAAR is
“clearly intended to apply only to egregious, or very aggressive, tax avoidance schemes”.
Indeed, clause 204(2)(b) refers to the use of “contrived or abnormal steps” to obtain a tax advantage. Those are definitions that I would say—many would agree with me—are highly subjective and require greater clarity in the final guidance. As the Chartered Institute of Taxation pointed out before the guidance was published, how does one interpret “abnormal” and to what extend does the term “contrived” cover what many tax experts would think—rightly or even wrongly, in many people’s view—is simply tax planning? Page 23 of the final guidance, published on Monday, simply states:
“The words “contrived” and “abnormal” are not defined, and therefore will be applied in their normal sense.”
Kelvin Hopkins
Richard Murphy, in particular, has estimated that the tax gap is at least £120 billion and according to some estimates it is much larger than that. The official figures really show only a fraction of the truth.
Catherine McKinnell
There are varying views on the tax gap and how it is calculated. Clearly, it is difficult to calculate accurately, because we are effectively calculating something that does not exist. It is tax that HMRC has been unable to collect, so it will always be an estimate. I use the HMRC figure because it is the minimum—it is what it believes and it is a conservative estimate. The Tax Justice Network calculates the gap at £120 billion. Whatever the actual sum, the GAAR and the £60 million and £85 million that it is intended to bring in are simply a drop in the ocean, and many people have described it as that. It is tinkering around the edges of what is legal.
There has been extensive discussion about the proposed GAAR’s strengths and weaknesses, both in this House and elsewhere. I acknowledge that the Government have taken steps in response to consultation submissions to reduce some of the ambiguity of the earlier GAAR proposals. For example, they have attempted to define the so-called “double reasonableness test” so that we can have a better understanding of how to assess, in HMRC’s words, whether arrangements can
“reasonably be regarded as a reasonable course of action”.
Again, the word “reasonable” is highly subjective and open to interpretation. Many, including the Opposition, still believe that the GAAR is too narrow and that, as it tackles only the most egregious schemes, cannot be regarded as general at all.
Other concerns have been raised about the chair, the panel and the manner in which they will be appointed. The chair has been appointed and will appoint his panel, and it is they who will interpret what they believe to be reasonable. What a tax expert considers to be reasonable might be regarded differently in the eyes of a member of the public. Indeed, many tax experts will differ on what they believe to be reasonable tax planning, as opposed to something egregious that would fall under the GAAR. The concern is that the GAAR is so narrow in tackling only the most egregious schemes that it could hardly be considered general at all and should perhaps be called the AAR instead. As has been mentioned, it also risks tacitly legitimising any tax planning or avoidance that does not fall within its remit, making it even harder to tackle the avoidance problem. Those arguments should be seriously considered. The problem was neatly summed up by the former president of the Association of Revenue and Customs, Graham Black, who stated that the GAAR is a
“Trojan horse, which suggests tough action whilst actually facilitating avoidance.”
A further issue, raised by the Institute of Chartered Accountants in England and Wales, is the international legality of the GAAR in relation to the UK’s double tax treaties, particularly with about 100 non-OECD countries where the GAAR could effectively and unilaterally override the UK’s international obligations. There remain serious concerns that there is no specific penalty regime for the GAAR, so it would be helpful if the Minister, in addition to addressing the concerns I have already set out, could tell us how he intends to ensure that this GAAR is not just a toothless tiger.
I am keen to emphasise that we are willing to support the Government in introducing the GAAR, but for the reasons I outlined we are not convinced that this version is up to the job. One of our key concerns should surely be the fact that there appear to be no arrangements to monitor, determine or measure whether the GAAR is actually working as intended or whether, as we fear, it fails in its aims. HMRC’s recently updated impact note on the GAAR simply states:
“Consideration will be given to evaluating how effective the GAAR has been at discouraging as well as stopping abusive avoidance schemes.”
However, the Select Committee on Economic Affairs in the other place made a clear recommendation for an independent post-implementation review after five years. The Committee stated:
“It would be for consideration whether such a requirement should be built into the legislation, or failing that, a firm Ministerial commitment should be made in the House of Commons at the time the legislation is being considered.”
That time is now, I suggest to the Minister.
Like the Association of Accounting Technicians, the Opposition agree that there should be such a requirement, but like the Chartered Institute of Taxation we believe the review should take place before the five years suggested by the Economic Affairs Committee. Given the seriousness of the problem, the ever-increasing pressure on the Government’s finances and the result of the Chancellor’s failing economic plan, we believe we need an earlier review of the success or otherwise of the Government’s key policy for tackling tax avoidance. Our amendment 8 proposes a maximum two-year gap between Royal Assent to the Bill and the review. I look forward to hearing from the Minister whether he is prepared to commit to such a review, particularly in light of the concerns expressed at the beginning of my submission about the lack of time afforded by the Government’s publishing the guidance so late for proper scrutiny of the legislation.
Perhaps the key concern about the GAAR relates not to its implementation but to the Government’s tendency to promote its provisions as some sort of panacea for dealing with the problem of tax avoidance. My right hon. Friend the Member for Oldham West and Royton (Mr Meacher) raised that concern. I spoke earlier of the justifiable anger about the impact of the problem, particularly of corporate tax avoidance, both on the UK and on developing countries. In continuing to talk up the potential impact of the GAAR, the Government are failing to communicate that it will not deal with many of the issues that members of the public are concerned about. Indeed, the Economic Affairs Committee, which provided valuable scrutiny of the Bill and the GAAR, stated in its report that
“Ministers should make every effort to explain the aims of the GAAR and the reasons why it cannot apply in many of the ways public opinion would prefer, so that unrealistic expectations are banished.”
The Chartered Institute of Taxation commented:
“The Government should be careful not to overstate the effects of the GAAR, raising expectations which will later be disappointed. Many of the examples of ‘tax dodging’ highlighted by the media and campaigners would not be caught by the GAAR. It is important to be clear from the outset what the GAAR will, and will not, achieve.”
The ICAEW stated that
“the GAAR is aimed at countering abusive arrangements and will not fix everything. There remains also uncertainty as to what it will and will not catch.”
The Association of Accounting Technicians remarked:
“We do not see the GAAR as a bulwark against the perceived and real abuse of the UK tax system by multinational corporations. The only way to tackle the growing concern that the UK and many Governments have is by bringing international law up to date, making it fit-for-purpose for the 21st century…The AAT supports Lord MacGregor (Chair of the Economic Affairs Committee) in his demand that the Government make it clear to the public that the GAAR is ‘narrowly focused’ and will not meet ‘public expectations’ of bigger levies on international firms.”
The impact note supports that view in terms of the revenue that the Government expect from the measure.
The Opposition agree with all those comments. Indeed, we think the Government should go further on this critical and pressing issue, which is why we have tabled further amendments. The time for tough talk on tax avoidance is over. We and particularly the developing world need real concrete action now.
Earlier, I outlined the impact of tax avoidance on ordinary UK taxpayers and good British businesses who are paying their fair share but see others going to great lengths to avoid doing so—thus contributing to the tax gap and undermining a level playing field for firms. I briefly touched on the devastating impact of tax avoidance overseas, and I welcome the Chancellor’s confirmation in this year’s Budget that he intends to build on Labour’s legacy by meeting the target of spending 0.7% of gross national income on overseas aid. However, we know that aid alone will not be enough.
Developing countries desperately need to be able to raise more tax revenues to invest in reducing hunger and becoming more self-reliant. Aggressive tax avoidance activity is so significantly reducing the ability of developing country Governments to tackle issues such as hunger, and to invest in the vital infrastructure that we all take for granted, that the OECD estimates those countries lose three times more to tax havens than they receive in aid each year.
Fiona O'Donnell (East Lothian) (Lab)
Does my hon. Friend agree that the measure is a gift for the Chancellor to satisfy the lack of enthusiasm among many of his Back Benchers for 0.7%?
Catherine McKinnell
Indeed. That very thought was going through my head. We must be serious about the impact we can make as a country to support developing countries. We should do everything we can, not just giving aid and making sure that it is utilised in the best way, but enabling developing countries to support themselves as best they can. The Enough Food for Everyone IF campaign states that
“dealing with developing countries’ corporation tax alone could raise enough public revenues to save the lives of 230 children under the age of five every day.”
That is a powerful statement and a powerful tool is within our reach.
The Opposition believe that the first step to tackling the issue, and to creating a fair taxation system, is to put an end to tax secrecy. We need concrete proposals from the Government to demonstrate how they intend to put the issue at the top of the G8 agenda, starting with the requirement suggested by our amendment that HMRC should work in conjunction with other G8 countries to bring forward measures to require multinational groups to publish a simple, single figure for the amount of corporation tax they pay. That is the purpose of our amendment 4. Yet, while the issue of tax avoidance and tax transparency can clearly only be properly dealt with at an international level, we believe the UK should be leading the way, demonstrating its determination to take meaningful action on tax transparency here at home. Therefore our amendment 5 would ensure that commitment was there, regardless of progress at an international level.
Tax transparency should not be restricted to the UK and other G8 or OECD countries; it is needed now, more than ever, in the developing world. The Prime Minister and the Chancellor have frequently stated their commitment to championing tax transparency during the UK’s presidency of the G8. They are on record as being committed to ensuring that developing countries also benefit from any reforms, yet with the exception of a relatively small pot of money for capacity-building work, the measures to combat tax avoidance in the Bill before us do nothing to assist poorer countries. So although the Government are determined that Labour’s disclosure of tax avoidance scheme requirements cannot be extended to include subsidiaries of UK companies operating in developing countries, the Opposition believe that the Government should at least commit to reviewing how a requirement for UK companies to report their use of tax schemes that have an impact on developing countries could be enacted. Surely it is the least that the Government can do.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
My hon. Friend has made very strong arguments. Will she join me in commending the work of organisations such as ActionAid, Global Witness and the Tax Justice Network, who have done excellent work in exposing a number of examples of corporate tax avoidance in countries such as Zambia, particularly resource-rich countries, and the devastating impacts those are having? If we did not have those stories out there, we would not be aware of the scale of the avoidance that is going on and the impact that it is having in those very poor countries.
Catherine McKinnell
I thank my hon. Friend for that intervention, which is powerful in itself, but very much reinforces the argument that we on the Front Bench are making today: we have the means within our grasp to make a difference to that situation. I hope that the Minister will provide some reassurance today, and that we shall get some Liberal Democrat support for our amendments, which seek to make a real difference on the ground. [Interruption.]
Returning once again to an amendment tabled by the Opposition last year—and I might say amendments tabled by Liberal Democrat representatives last year but which were withdrawn at the last minute—we believe that changes to the controlled foreign company rules introduced by the Finance Act 2012 should be properly monitored for their impact on developing countries. Many charities have been concerned that the CFC rule changes will make it easier for UK companies to avoid paying tax in developing countries in which they own subsidiaries. While the Government have estimated the potential loss to developing countries at £1 billion, which one would think would be enough, ActionAid believed it could be as high as £4 billion a year. So what we really need is for the Government to undertake a proper assessment of the impact of the changes on the overall tax take of developing countries since last year, and our amendment asks for that to take place.
In conclusion, we will support the Government’s legislation, brought forward today, to introduce a GAAR. However, we believe, along with my right hon. Friend the Member for Oldham West and Royton (Mr Meacher), who has tabled his amendments as a suggested alternative to the GAAR, that the Government’s GAAR has many potential flaws.
The Exchequer Secretary to the Treasury (Mr David Gauke)
Does the hon. Lady support the new clauses tabled by her right hon. Friend the Member for Oldham West and Royton (Mr Meacher)?
Catherine McKinnell
We support our amendments that we have tabled, and I have presented very clearly the reasons why we support them. I will go on to say why. We support the GAAR and we welcome its being put in place, but we want to see how effective it will be and we will continue to monitor it. We hope that the Government will accept our proposal to come back and report on progress within two years, so that we can continue to monitor its effectiveness and rectify, hopefully, some of the flaws that we see will hinder its effectiveness in tackling this problem. So we call on all—
Stephen Doughty
In terms of who will be supporting which amendments, was my hon. Friend not surprised a moment ago to hear comments from a sedentary position from one of the Liberal Democrat Ministers—in fact an International Development Minister—saying that she doubted their support? Having read previous Liberal Democrat policies on this area, I have to say that over the years they have been fairly progressive and very extensive. Was my hon. Friend not surprised to hear those comments?
Catherine McKinnell
I am very shocked to hear of those comments. I missed them at the time. If the Minister wants to explain her position or the Liberal Democrat Front-Bench position on these amendments, I will be glad to hear it.
Catherine McKinnell
Does the right hon. Member for Hazel Grove (Andrew Stunell) wish to intervene?
Andrew Stunell
With the permission of the Chair, in a minute or two I hope to be able to tell the Committee fully.
Catherine McKinnell
Excellent. I am grateful for the right hon. Gentleman’s intervention. We look forward to clarification of the Liberal Democrats’ position on the issue, and we hope it does not go the same way as their mansion tax vote went earlier, when they voted against their own policy for the second time.
I call on all right hon. and hon. Members to support our amendment 8, which would monitor the impact of the GAAR and ensure that the Government take genuine action towards securing the tax transparency and fairness that the world needs in this 21st century. We also seek to test the will of the House by pressing our amendment 6 to a vote, to determine whether the House will commit to ensuring that we do all we can in our power to tackle tax avoidance that is damaging not just to the UK, but to developing countries.
I finish by reiterating briefly concerns that I have expressed on several occasions in the Chamber and elsewhere about the huge number of challenges facing HMRC, highlighted recently by yet another scathing report from the Public Accounts Committee. The very body on which the Government rely to tackle tax avoidance is being seriously undermined by devastating budget cuts of £2 billion over this Parliament and the loss of 10,000 staff. These cuts will be a false economy if they hamper HMRC’s ability to collect the billions of pounds in avoided tax, and all the tough talk, strategies and moral indignation in the world will not deal with the problem of tax avoidance if HMRC simply does not have the capacity and resources it requires to do the job.
Andrew Stunell
I strongly support the general anti-avoidance rule and its introduction. Some would say that it is long overdue. Bearing in mind what the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) has just said, how important and urgent it is and how long-standing the problem has been, one has to say that it was overdue in 2010, so it is good that it is in place now. I commend Ministers on the Front Bench for including it in the proposals coming to the Committee now.
I shall spend a minute or two commenting on what my hon. Friend the Member for Amber Valley (Nigel Mills) said in his speech a little while ago, making it clear that there are some risks and some dangers, particularly of retrospection. The Minister will know that we have been in correspondence about one particular series of events which has left constituents of mine at a severe disadvantage, as they see it, because of the retrospective application of an HMRC ruling to them.
What I want to say to my hon. Friend is that one thing that the general anti-avoidance rule will do is put everybody in this country on notice about their tax affairs so that they cannot be caught by surprise, or perhaps even subterfuge or a recycling of policy, in the way that my constituents have been. I will continue to write to the Minister about the case facing my constituents, but a general anti-avoidance rule puts everybody on notice and makes any possibility of an excuse disappear. We should welcome that.
Finance (No. 2) Bill
Catherine McKinnell Excerpts(11 years ago)
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Catherine McKinnell (Newcastle upon Tyne North) (Lab)
We have had a surprisingly good debate despite what was, frankly, a disappointing and lacklustre Budget. I use the word “surprisingly”, because the lacklustre nature of the Budget was no more evident than in the opening speech made by the Exchequer Secretary to the Treasury.
Hon. Members on both sides of the House have powerfully put the case for securing growth in our economy, and I especially want to commend several of the contributions made by Labour Members. My hon. Friend the Member for Islwyn (Chris Evans) made a powerful speech about aspiration that included a poignant reminder of the words of Harold Wilson that it does not matter what the rate of employment is because to a person who is unemployed, that rate is 100%.
My hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) made a characteristically forceful and insightful speech about the impact of the Chancellor’s failing plan on economic development in the north-east, which is a region close to my heart. He reflected on the double-dip, double-debt and double-downgraded Chancellor.
My right hon. Friend the Member for Holborn and St Pancras (Frank Dobson) reflected on the banks simply not paying their fair share, while my hon. Friend the Member for Luton North (Kelvin Hopkins) gave a colourful insight into the Bill’s historical context. My hon. Friend the Member for Bolton West (Julie Hilling) reflected on her memory of Budget day and a Chancellor who simply looked lost as to what to do about his flatling economy and failing plan.
My hon. Friend the Member for Corby (Andy Sawford) made a passionate speech about the real impact of the Chancellor’s failure. The amounts involved under the bedroom tax might be worth just half a bottle of claret to the Chancellor, but to the people affected, they make the difference between heating and eating.
My hon. Friend the Member for Glasgow North East (Mr Bain), like other hon. Members, talked insightfully about the Chancellor’s campaign against the poor and the divisive nature of his economic policies. My hon. Friend the Member for Edinburgh East (Sheila Gilmore), with her insightful wit, put Government Members to shame for their failure even to show up today to defend their Chancellor’s Budget. We have just heard my hon. Friend the Member for Swansea West (Geraint Davies) reflecting on the divisive nature of the Chancellor’s failing plan.
We heard good speeches from the few Government Members who bothered to attend the debate—[Hon. Members: “Three.”] I am reminded that we heard three speeches from Government Members, and I was surprised by how few of them turned out to support their Chancellor’s Bill. The Exchequer Secretary claimed in his lacklustre speech that the Bill will inject energy into our economy, but it has not injected any energy into Government Back Benchers, so it is even less likely to inject any energy into our bumbling economy that is staggering under the weight of the Chancellor’s complacency.
The emptiness of the Government Benches has been stark. For most of the time, we have seen only the Minister, his Parliamentary Private Secretary and a token Liberal Democrat. Are Government Members too ashamed to defend their downgraded Chancellor? Even the Chief Secretary to the Treasury has not shown up today.
It is a shame that the hon. Member for Cities of London and Westminster (Mark Field) is not in the Chamber because he made a compelling speech in which even he lamented, to use his words, the Chancellor’s “sleight of hand” in manoeuvring to bring his borrowing down to just under £121 billion. That represents a rate of deficit reduction of not 1%, nor even 0.1%; at that rate, it would take 1,000 years to reduce the deficit. He acknowledged that debt will not fall in this Parliament, so the Chancellor should at least focus on the long term, instead of quick-fix gimmicks. That was sound advice.
The hon. Member for Redcar (Ian Swales) defended the Government’s failing plan, and suggested that a VAT cut would simply benefit the well-off. Has he even noticed the Chancellor’s tax giveaway to millionaires? The hon. Member for Macclesfield (David Rutley) proudly declared that the Chancellor’s plan was a continuation of Thatcher’s legacy, and told people to cheer up and stop moaning. He should try telling that to the 2.5 million people who are unemployed.
Deep down—perhaps it is evident from their poor attendance—even Government Members know that the Chancellor’s Budget failed to deliver what is needed to get us out of this economic mess. Let us consider the situation facing the Chancellor as he composed his Budget last month. What were the key economic indicators to which any genuinely in-touch Chancellor would want urgently to respond? Before we consider the current economic situation and this year’s Budget, let me take the House back briefly to the Chancellor’s first Budget—the June 2010 so-called emergency Budget—which, according to him, was necessary to deal decisively with the country’s record debts and produce a credible plan to deal with the record deficit. Right hon. and hon. Members may recall that the Chancellor used that emergency Budget speech to predict that the UK economy would grow by 1.2% in 2010, 2.8% in 2012, and 2.9% in 2013. He was dreaming. As a result of his failure, we have had a double-dip recession and the economy is stagnating, with just 0.8% growth since the 2010 spending review, compared with 5.3% forecast at the time. He consistently blames factors beyond his control, but only three G20 countries have grown more slowly than the UK in the same period.
The independent OBR has halved its predictions for 2013, anticipating growth of just 0.6% this year, compared with the 1.2% forecast in December, a mere four months ago. The most recently published figures suggest that industrial production in February was down 2.2% on the year before, while the UK’s trade deficit has widened to £9.4 billion following a worrying 4.7% fall in exports to non-EU countries. Indeed, over the past two and a half years, lack of confidence created by the Chancellor’s failing plan has seen business investment fall by £3 billion, compared with the OBR’s forecast of a £24 billion rise. Of the G20 nations, only Italy and Saudi Arabia have experienced a sharper fall in investment in that period. As a consequence of the Chancellor’s economic failure, Government borrowing has risen, not fallen, with the coalition set to borrow £245 billion more than the forecast in autumn 2010. [Interruption.] I am astounded that Ministers shout that we would be borrowing more; they are borrowing more.
The Chancellor’s promise to balance the books by 2015 will not be met, and the national debt will not fall until 2017-18 at the earliest, which has resulted in the downgrading of Britain’s triple A credit rating by Moody’s. More recently, Fitch has put the UK on negative watch—the very cover that the Chancellor used for his accelerated spending cuts in 2010. What does that economic failure mean for ordinary people up and down the country? Who is paying the price for the downgraded Chancellor’s economic plan, which lies in tatters? The most recent figures, published on Budget day, show that unemployment has risen again, and the trends behind the employment figures are increasingly worrying. Long-term unemployment remains far too high, and the risks have become dangerously entrenched while youth and female unemployment is up again.
Ministers regularly claim—and Government Members have done so again this afternoon—that the coalition has helped to create more than 1 million private sector jobs, but about 200,000 of those were created as a result of the reclassification of further education and sixth-form colleges in the private sector. Half the jobs that have been created since 2010 are part time, and almost 1.4 million people who want full-time work can only find part-time work. People who are in work have found that their wages have simply not kept pace with inflation. There is also the deeply worrying phenomenon of falling productivity, with more people apparently producing less. Is it any wonder that we have seen a disturbing rise in so-called zero-hours contracts, with recent media reports suggesting that almost a quarter of larger employers are recruiting staff in that way?
This is the reality for many people in this country—not for the Chancellor’s millionaire pals, but for the millions of ordinary people in this country who are facing the reality of unemployment and, for those in work, squeezed living standards, under-employment and increasing insecurity. The truly startling but unsurprising reality, confirmed by the OBR, is that people will be worse off in 2015 than they were when this Government came to power.
What was the Chancellor’s response to this dire situation on 20 March? A package of measures genuinely and urgently to kick-start our flatlining economy, boost confidence, stimulate investment and create jobs? No. A recognition that his plan has completely and demonstrably failed? Again, wrong. What this country urgently needed was a Budget with the X factor. Instead, we have a one-direction Chancellor who clearly believes that it is impossible to admit that he got it wrong and to change course. We got a more of the same Budget from a more of the same Chancellor, who would rather continue down the same path no matter what long-term damage it does to our economy and to local communities than come clean with the British public.
Of course, there were some welcome measures. The Opposition have consistently called for a tax break for small firms taking on new workers and the Chancellor is now set to introduce a scheme. Let us hope that it has a better success rate than his previous policy which, at the last count, has created 70,000 jobs, which is to be welcomed, but which is just a little shy of the original prediction of 800,000. On tax avoidance, the Government are consulting on how to clamp down on abusive payroll services based in tax havens, as well as confirming their intention to strengthen the tax disclosure provisions introduced back in 2004 by the Labour Government. Again, those are both areas where the Opposition have been calling for urgent action for some time.
Despite all the tough talk on tax avoidance, we continue to get a series of mixed messages from the coalition and a lack of real action. We repeatedly hear the Chancellor and the Prime Minister claiming to be leading on international tax avoidance action at the G8, yet days ahead of the meeting the Exchequer Secretary boasted that the UK has moved ahead of Ireland, the Netherlands and Switzerland in “tax competitiveness”. I wholeheartedly agree with the sentiments expressed by the hon. Member for The Cotswolds (Geoffrey Clifton-Brown), who is not in his place at present. He rightly pointed out that the UK needs to be careful of promising competitive tax rates if companies get away with not even paying them. He also rightly pointed out that we need to analyse what impact tax avoidance has on developing countries. We will introduce amendments to that effect.
Perhaps the most mixed message of all is the coalition’s incredible decision, announced in last year’s omnishambles of a Budget and confirmed in this year’s Budget document, to give some of the wealthiest people in this country an average £100,000 tax cut this month. A Chancellor who claims that he finds tax avoidance “morally repugnant” is determined to carry on with his game of “Who wants to bung a millionaire?”, reducing the 50p rate of income tax because the “behavioural response” was “larger than expected”. No doubt he will have phoned a few friends last weekend to remind them of his good news. This means, in effect, that top earners have been so nifty at shifting their income to minimise their tax liability that this Government, who talk tough on tax avoidance, are rewarding them by cutting the rate. Liberal Democrat colleagues will be telling themselves that this indefensible decision does not matter and that everything is okay because of the much-trumpeted increase to the personal allowance. But they have not quite owned up to the fact that families on average will be £891 worse off in this tax year, and cuts to tax credits and benefits have been introduced since 2010.
Indeed, the small rise in the personal allowance is hugely outweighed by the cuts to tax credits and child benefit, the bedroom tax, the granny tax and the increase in VAT, which the Liberal Democrats campaigned against so vociferously before it was announced in June 2010. The straight fact is that the dire economic situation in which we find ourselves is of the Chancellor’s making and that of the coalition Government, but the brunt is being borne by millions of ordinary people and local businesses—
Catherine McKinnell
The dire economic situation demanded an urgent response from the Chancellor. Indeed, the director general of the British Chambers of Commerce, John Longworth, said:
“We are at an unprecedented moment in our economic history, and the government should be doing everything in its power to get the economy moving. Many of the Chancellor’s measures are positive but may come too late, particularly for smaller and medium-sized companies. We need urgency, scale and delivery today.”
We agree, but what we got from the Chancellor and what we have before us this evening is a bit of tinkering around the edges and more of the same. It is just not good enough and Britain deserves better. That is why the Opposition will vote against this inadequate Budget from an inadequate Chancellor who is increasingly out of touch and totally out of his depth.
HMRC Closures
Catherine McKinnell Excerpts(11 years, 1 month ago)
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Catherine McKinnell (Newcastle upon Tyne North) (Lab)
It is a pleasure to serve under your chairmanship, Mr Benton. I commend the hon. Member for Isle of Wight (Mr Turner) on securing this afternoon’s extremely timely and important debate. His record of assiduously standing up for his constituents and their interests is well known to the House. The issue of HMRC closures is clearly of particular importance to the people living on the Isle of Wight, given its geographical isolation from the mainland. He set out clearly and carefully the potential impact of HMRC’s proposals on his constituents. I look forward to hearing the Minister’s reply and how he intends to ensure that such problems and issues are mitigated and addressed.
The debate is timely: we heard only two weeks ago about HMRC’s proposals to change the way in which it supports customers who need extra help. I use the word “customers”, because that is the language deployed by HMRC and, no doubt, the Minister will use it in his reply, but as the Public Accounts Committee has frequently articulated, those who come into contact with HMRC have little choice about whether they do so. Many of those people—an estimated 1.5 million—find dealing with HMRC difficult because they have a disability or a mental health condition; they have low literacy or numeracy skills; they do not speak or read English; they do not have the confidence or capacity to deal with what can be a very complex situation; or because of a combination of any or all of the above. Ensuring that such people have access to the best possible support and advice in their dealings with HMRC is, of course, something that we all wish for, and we on the Opposition side of the House have regularly advocated that.
Mr Mark Williams
I want to add something to the mix of problems that the hon. Lady identified. In my constituency, we have a problem with broadband: 20% of my constituency is not broadband-enabled. The assertion is made that a lot more of the transactions and discussions can take place over the internet, but that simply is not available for many of my constituents. The Government are doing some sterling work to change that, but a solution for my constituents is some way off.
Catherine McKinnell
I thank the hon. Gentleman for raising that issue, which is very important, not only for areas without access to good broadband that allowed online dealings with HMRC not to end in utter frustration —even when people have broadband, it may not be sufficiently fast—but for constituents who do not even have computers or have access to them. I will mention later a concern in my constituency, which is that many public services, such as libraries and community centres, are struggling, and some are set to close, but many provide the only access that some people have to a computer. Although we would love to live in a digital age, we are not there yet.
We heard from the hon. Member for Isle of Wight, in his excellent contribution, about the 10-week consultation that was launched on 14 March, and the proposal to close every one of the 281 inquiry centres that provide face-to-face advice for customers. The centres are apparently to be replaced by “more accessible”, “targeted” and “tailored” services for people who need extra help in engaging with HMRC, either all the time, or in response to a particular life event, such as a bereavement. It is proposed that the new service will include specialist expert help over the telephone by a new team, and face-to-face support delivered by a mobile team of advisers, who can meet customers at suitably convenient locations in the community, or in their home.
That issue is particularly pertinent to me, not only in my capacity as shadow Exchequer Secretary, responding to the debate, but because I represent the esteemed people of Newcastle upon Tyne North, and HMRC proposes to trial or pilot the new idea on them. From 3 June to 31 October, the pilot will run throughout my region of the north-east, and 13 inquiry centres will be closed in the process. For the record, those centres comprise Alnwick, Bishop Auckland, Hexham, Darlington, Durham, Middlesbrough, Morpeth, Newcastle, Stockton, Sunderland and—although I, and many proud Yorkshiremen and women, might quibble over the Minister’s geographical knowledge of the north-east—Bridlington, Scarborough and York. Apparently, depending on the outcome of the consultation and the pilot, HMRC states that it will look to introduce the new service across the UK in February 2014, resulting in the closure of the remaining inquiry centres between March and May next year—including the one in the Jobcentre Plus in Newport, on the Isle of Wight.
The proposal will clearly also have a direct impact on the 1,300 HMRC staff employed in inquiry centres across the country, although I understand the intention is that many of them will be redeployed either within HMRC or to other parts of the civil service, and that is to be welcomed. As I stated earlier, I fully support the notion of providing a better service to the most vulnerable people with whom HMRC comes into contact. I welcome the fact that HMRC has said that it is working with TaxAid, Tax Help for Older People, the Low Incomes Tax Reform Group, Citizens Advice, Gingerbread, the Child Poverty Action Group and Age UK as part of the consultation on what additional support may be required and how it might be delivered. However, I want to probe the Minister on exactly how he thinks that HMRC will be able to improve its performance in that area, given the context in which the Department is operating.
I have previously told the Minister—indeed, only last month in this Chamber—that serious concerns remain about the customer service provided by HMRC. The National Audit Office report on HMRC’s customer service performance, published in December, revealed genuinely troubling findings about the way in which HMRC treats some of its customers. To remind hon. Members, 20 million telephone calls went unanswered by HMRC last year, costing customers £33 million in call charges; that is in addition to the estimated £103 million cost of customers’ wasted time. As I have stated previously, that is particularly worrying for people on low incomes who cannot afford to sit waiting on the telephone, and for small businesses that could be making much better and more profitable use of their time, which is particularly important in the current economic climate.
The Public Accounts Committee report on HMRC customer service published earlier this month was equally scathing, describing the Department as having an “abysmal record” in this area. Those concerns have been echoed by eminent professional bodies, such as the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales, whose members’ surveys have found significant concerns regarding the customer service performance of HMRC, which often fails to meet its basic responsibilities.
I acknowledge that there appears to have been some recent improvement in HMRC’s handling of post, but I would be grateful if the Minister could clarify the current position on its call-handling performance. According to the answer to a parliamentary question I received from the Minister only last month, the percentage of calls not handled—in other words, unanswered—by HMRC had gone up from 25.6% last year to 28.6% in this financial year to date. Given that we are now only days away from the end of the financial year, will the Minister confirm whether that fall in performance has continued, and if it has, what specific measures he has put in place to ensure that it does not fall further?
That point is, of course, pertinent to this debate, not only because of the concerns raised by the hon. Member for Isle of Wight, but given the recent words of the Chair of the Public Accounts Committee, my right hon. Friend the Member for Barking (Margaret Hodge):
“Just how the department is going to improve standards of customer service, given the prospect of its having fewer staff and receiving a higher volume of calls, is open to question. HMRC plans to cut the number of customer-facing staff by a third by 2015. At the same time, the stresses associated with introducing the Real Time Information System, Universal Credit and changes to child benefit are likely to drive up the number of phone calls to the department…Since our hearing it has also been announced that HMRC is to close all of its 281 enquiry centres which give face-to-face advice to customers. This will undoubtedly put even more pressure on phone lines.”
That is also relevant because HMRC’s consultation document appears to suggest that anyone who requires a face-to-face appointment with HMRC staff under the new system can obtain one only once they have spoken to at least two helpline advisers— and then a face-to-face appointment will be offered at the discretion of HMRC staff.
Catherine McKinnell
I would welcome a guarantee from the Minister today that HMRC will significantly increase its call handling and customer service performance —perhaps beyond the relatively low targets it sets for itself—before the new service is introduced.
Of course, the proposals that we are discussing today are simply out for consultation. Indeed, HMRC itself has stated:
“No final decision will be made until we have consulted on and piloted the new service, and fully assessed the findings of the consultation and the pilot.”
It has also said:
“We plan to close our Enquiry Centres as the new service is introduced in 2014. This is subject to our making a formal assessment of how the closures affect our customers, the local communities they serve and our staff—as well as to the outcome of a pilot of the new service in the North East of England.”
However, I question the extremely tight time scales and the nature of the process. HMRC’s consultation ends on 24 May, yet it proposes to introduce the pilot in my region, thereby closing the existing inquiry centres, on 3 June—five working days later. It would be a genuinely impressive improvement in HMRC’s response times if it were able to process and adequately respond to all the consultation submissions it receives in such a short period. What will happen to the inquiry centres in the north-east if the pilot does not turn out to be a success? Will they re-open? Indeed, what measures will HMRC use to determine whether the north-east trial delivers what is intended? We often hear that Government pilots are “doomed to succeed” and I very much suspect that that is the case in the present instance. Does the Minister share my concern that HMRC staff have apparently already been told that it is “highly likely” that all 281 centres will close before the outcomes of either the consultation or the pilot are even known?
I understand the rationale behind HMRC’s proposals, based as they are on the decline in the number of people using inquiry centres over recent years from more than 5 million in 2005-06 to around 2.5 million in 2011-12. HMRC also states that it has conducted detailed research, which
“confirms that inquiry centres no longer meet the needs of our customers”.
Will the Minister address the concerns of the PCS union that that research was flawed? Did those conducting research on behalf of HMRC really not give people the option of selecting “speaking to someone in person”, when asking whether customers would prefer to deal with the department “by phone, post or online”?
It is not only PCS that is raising concerns about the proposals. The director of tax at Berg Kaprow Lewis, David Whiscombe, has said:
“No doubt many taxpayers would be happy to deal with HMRC online or via call centres if either were reliably available. But there is a swathe of taxpayers who are uncomfortable with these methods including numbers of the elderly, less literate or less articulate sections of the population for whom face-to-face contact delivers the only sensible option.
For HMRC to disregard them is arrogant, insensitive and, dare I say it just plain stupid”.
Jane Moore, tax faculty technical manager at ICAEW, commented:
“I'm disappointed because I think a lot of people could still make use of the Enquiry Centres. For the last few years I don't think the Revenue has done enough to publicise them or provide a comprehensive service.”
Those are worrying concerns being expressed by experts in the field.
Finally, I would like to mention an important concern in addition to those that I have raised already, and those raised by the hon. Member for Isle of Wight. It was briefly addressed when the hon. Member for Ceredigion (Mr Williams) raised it. HMRC states that it will be able to provide its new tailored service to those customers who need most support in a number of venues, including local libraries and community centres. However, as I have said, hundreds of libraries, community centres and other local facilities are either closed or facing closure as a result of the cuts that the Government have dished out to local government funding.
Those cuts are being targeted at areas such as northern cities, and many of the London boroughs with the highest needs. In such places there are likely to be more of the type of people for whom HMRC states it wants to provide a better service. What discussions is the Minister having with his colleagues in the Department for Communities and Local Government about the impact of their funding decisions on the venues from which HMRC hopes to be able to provide its new service? I am sure we would all agree that there is little point in HMRC offering face-to-face advice in community facilities if those facilities no longer exist.
Mr Gauke
I am not in a position to answer that specific question. I am sure that my hon. Friend is closely informed of the job opportunities available on the Isle of Wight. I made a general point that HMRC will show considerable willingness to deal with staff in the best way possible. If one looks at the scale of the reduction in the number of people working for HMRC over a long period—since its formation in 2005—compulsory redundancy has been necessary on a very limited number of occasions. HMRC has a good record of ensuring that its staff are well looked after.
Concerns were raised that the closure of the inquiry centres marks the end of HMRC’s dedicated face-to-face advisory service. I can reassure hon. Members that that is simply not the case. A face-to-face service is about people, not bricks and mortar. What is important is that HMRC provides an accessible and flexible, face-to-face service that meets the needs of customers and can be tailored to the specific needs of particular locations, including the Isle of Wight. That is what HMRC proposes to do, only it will do it where it is most convenient for customers, whether that is in their local community, place of work or even, if they so wish, in their own homes. A modern face-to-face service is not about maintaining a patchwork network of buildings set up in the 1950s, when the needs and expectations of customers have changed. Inquiry centres are not universal; large parts of the UK are not even served by them.
The use of the centres has fallen sharply in recent years: visitor numbers have halved, from more than 5 million in 2005-06 to 2.5 million in 2011-12, and some inquiry centres are now open just one day a week, because local demand is so low. I shall address the Isle of Wight specifically. My hon. Friend quoted some numbers on the usage on the Isle of Wight. HMRC’s management information system shows that the Isle of Wight inquiry centre had 7,032 visitors in 2005-06, but since then the number has fallen: in the 2011 calendar year, it was 4,763; in the 2011-12 financial year, it was 3,622; in the 2012 calendar year, it was 3,298; and the projected number of visitors for the 2012-13 financial year is 2,886. There is a clear trend. The number is going down.
Catherine McKinnell
What does HMRC analyse as being the reason for the decline? Is it entirely because people contact it in a different way—over the internet, telephone and so on? Does the projected number take into consideration the significant changes pending for universal credit, the real-time information system, child care and so on?
Mr Gauke
As far as we can see, the driver for the fall in the number of people using inquiry centres is that people prefer to use other means of communication. There are always particular challenges within the tax system that might cause an increase in demand and phone calls. Steps are taken to reduce some of that demand from time to time.
In that context, it is worth turning to the research, which the hon. Lady touched on, that helped guide HMRC in its decision. It was undertaken by an independent agency, adhering to strict industry guidelines, and its findings confirm that face-to-face support works best for some HMRC customers who need extra help. It also says that any service for customers who need extra help must be as flexible and as accessible as possible, which is why HMRC is introducing specialist, expert over-the-phone help and working closely with the voluntary and community sector. A face-to-face service is an important part of the proposal, but it is worth underlining that the inquiries of the 2.5 million or so who visit HMRC centres are satisfied over the telephone. They use the inquiry centres to phone contact centres, which leads us to the important issue of ensuring that contact centres provide an adequate service.
I shall take this opportunity to respond to the hon. Lady’s questions. The number of call attempts handled for February this year was 91.8%, which is considerably higher than it has been at any time since HMRC’s formation. I remember that the number was 45% for 2010-11, and I think it was about 75% for the previous years, as it has been subsequently. HMRC’s ability to handle calls has therefore increased, which is welcome progress, and that, to be honest, is what we should expect from HMRC—progress on the standards.
To elaborate on the point I made a moment or so ago, HMRC’s analysis of inquiry centre use shows that 84% of the centres’ customers did not need a face-to-face meeting and were able to get the help they needed over the phone or online. The 400,000 customers who did need face-to-face advice had to travel to their nearest inquiry centre to make an appointment, and if there was no appointment free at that time, go back on another day to take up their appointment. The service is not particularly convenient even for those who do have a centre nearby.
HMRC’s research, which I referred to a moment ago, shows that up to 1.5 million customers need extra help with their tax and benefits affairs. Many just need help for a specific event in their lives—for example, when they approach retirement, deal with the death of a family member or declare new income for the first time—and others may have low literacy or numeracy skills, or difficulties coping with their affairs as a result of a mental health condition. Most of the 1.5 million people who need extra help do not currently use an inquiry centre. HMRC has researched the needs of those customers and that research has helped in the design of the new service.
The new service will provide specialist expert help over the phone for those who need it, and its advisers will take the time to sort out issues if they can. Customers will be able to phone from home and arrange a call-back if they cannot afford the call themselves, or they may use a free phone at a local Jobcentre Plus. Customers needing extra help will be quickly identified and put straight through to a trained adviser who has more time, as well as the skills, knowledge and empathy needed to handle the inquiry at a pace that suits the customer.
If the adviser cannot sort out issues over the phone, face-to-face support, delivered by a mobile adviser, will be arranged at a place and time convenient to the customer. It might be at a library or a local authority location close to the customer’s home, but I must reassure my hon. Friend that it will not involve the Isle of Wight ferry service. If someone needs a home visit, HMRC will arrange for a local home visitor to contact them and arrange a convenient appointment time between 8 am and 8 pm every working day. That is much more convenient than being constrained to a fixed location that is potentially difficult to access and often open for only one day a week. Extra help will also be delivered through voluntary and community sector organisations, such as Citizens Advice and TaxAid, with additional funding from HMRC.
The new service will be not only better but more cost- effective. Customers will save an estimated £12 million a year, through such things as reduced travel costs, and from April HMRC will convert its 0845 numbers to 03 numbers, making calling HMRC cheaper for all customers.
The current network of 281 inquiry centres is unsustainably expensive. The average cost of an appointment across the network has risen from £106 in 2009-10 to £152, and in some inquiry centres it is up to £500. By comparison, it costs an average of £3 per phone call and just 9p per online transaction. Members will appreciate that that expense is just not sustainable in the current economic climate. The new service will save HMRC up to £13 million a year.
HMRC will reinvest some of the savings from the closure of the inquiry centre network into the new face- to-face service and the voluntary and community sector support. To ensure that the phones are answered when people call, HMRC is investing £34 million in its contact centres. HMRC has also worked extremely hard to make big improvements to its customer service following the Public Accounts Committee report, which was touched upon by my hon. Friend the Member for Isle of Wight and the hon. Member for Newcastle upon Tyne North. As a result, it currently answers more than 90% of the call attempts it receives each week.
In designing the new service, HMRC has worked closely with a number of voluntary sector partners, including Citizens Advice, as well as tax charities such as TaxAid and Tax Help for Older People. On 14 March, HMRC launched a public consultation on how the new service would be implemented. The consultation focuses on the following: how a new service would be delivered in practice and whether refinements are needed for particular customer groups; the impact that closing inquiry centres would have on local communities, customers and diversity groups; the impact of the new service on the voluntary and community sector; and the support needed for customers to make the transition to other channels. The public consultation will enable staff also to feed in their views, and a summary of the responses will be published by the end of summer 2013.
A pilot of the new service in what I should perhaps describe as the greater north-east of England, will involve closing 13 inquiry centres and testing the new service between 3 June and 31 October 2013. That will help in gathering more information to ensure that the service is absolutely right for the customer, and a decision on whether to roll out the service nationwide will be made in December 2013. If the roll-out proceeds, the new service is expected to be launched between February and May 2014.
In conclusion, HMRC is making the changes in order better to meet the needs of the 1.5 million customers who need more help with their tax and benefits. HMRC is modernising its approach to break free from the outdated network of bricks and mortar and to provide a more flexible and accessible face-to-face service for people who really need it, including on the Isle of Wight. The proposals will target help at those who need it most, in a way that is better for them and more cost-effective for both them and the taxpayer. As a responsible employer, HMRC is taking all the right steps to minimise the impacts that the changes will have on its staff.