Office of Tax Simplification: Unapproved Employee Share Schemes
David Gauke Excerpts(11 years, 4 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
The Government launched the Office of Tax Simplification (OTS) in July 2010 to provide independent advice on simplifying the tax system.
The OTS has today published the final report of its review of unapproved employee share schemes, commissioned by the Government on 5 July 2011.
The Government asked the OTS to carry out a two-stage review of employee share schemes. The first stage of the review looked at the four tax-advantaged schemes. This was completed in March 2012 and the Government gave their response at Budget 2012. Following consultation, autumn statement 2012 announced a package of simplifications, most of which will take effect during 2013.
The OTS has now completed the second stage of its review, focused on unapproved schemes (those that do not benefit from tax advantages). The Government will make their initial response to this report in the Budget, on 20 March 2013.
Electronic copies of the report have been placed in the Libraries of both Houses.
Corporate Tax Avoidance
David Gauke Excerpts(11 years, 4 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
I congratulate my hon. Friend the Member for Redcar (Ian Swales) on securing the debate, and I thank him and the other 19 Members who participated— 14 Government Members and five Opposition Members. Time is short, but I will make a few remarks before my hon. Friend concludes the debate. I will begin by putting into context the problem that we face on tax avoidance, and then I will lay out in some detail the actions that the Government are taking. I will also try to respond to some of the concerns that right hon. and hon. Members have raised.
As I am sure all Members will understand, it would not be right for me to discuss individual examples of alleged tax avoidance. I therefore do not intend to respond to accusations made this evening against specific businesses. However, I do want to point out that the vast majority of UK taxpayers, whether they be businesses or individuals, pay the tax that is due on time. They do not try to dodge, avoid or delay paying their tax. Large businesses, which are the subject of our discussion tonight, pay about 60% of all taxes in the UK, or more precisely, they write the cheques. The Government are fully committed to ensuring that everyone contributes to reducing the deficit by paying their fair share of tax, and we are determined to clamp down on the minority who engage in tax avoidance.
As other Members have pointed out, tax avoidance not only damages the public finances but undermines the perception of fairness in the tax system and is anti-competitive, which in turn risks harming genuine investment by those who play by the rules. At a time when we all have to tighten our belts, it is particularly unacceptable for some taxpayers to manipulate the system and act to reduce their tax liability in a way that is contrary to Parliament’s intention. It is for that reason that where HMRC finds tax avoidance, it takes action.
It is important that those who should pay do pay. It is also important that we have a competitive tax system. Our intention is to have the most competitive tax system in the G20. That is the best route to economic prosperity. Foreign direct investment plays an important role in that. It is worth pointing out that approximately half our total corporation tax receipts in 2011-12 that came from large businesses was from foreign-owned companies. The Chancellor recently announced a further cut to the main rate of corporation tax, so that by 2014 it will reach 21%—the lowest it has ever been and the lowest in the G7. Having set a competitive rate, we aim to ensure that all businesses, including multinational companies, pay the right amount of tax by taking action internationally and domestically.
Mr Gauke
I do not think the right hon. Gentleman sets out a practical approach by proposing that we should deny those companies markets and engage in protectionism. We have to ensure that all businesses pay the tax due under the law in this country.
There are two ways we can look at this: domestically and internationally. Internationally, it is clear that our tax system, as with all other major economies, works within internationally agreed OECD guidelines—we have heard a number of hon. Members make that point. I know that there are concerns about whether the current corporate tax rules adequately capture the profits generated by multinational companies in the jurisdictions where the economic activity is located. We take those concerns seriously. Reform in this area will require concerted international action. This is an issue that all countries face. We need to work with others to develop the appropriate solutions. We are doing just that through the OECD, on the erosion of the tax base and the shifting of profits to lower-tax rate jurisdictions.
Two months ago the Chancellor issued a joint statement with the German Finance Minister calling for concerted international co-operation to strengthen international tax standards. Following that statement, the UK, together with France, offered voluntary contributions, equivalent to €150,000 each, in order to make rapid progress in achieving concrete results. The OECD’s work is vital in helping to promote a better way of dealing with profit shifting and the erosion of the corporate tax base at the global level, and it will be reporting to the G20 Finance Ministers on progress in February. I should also mention that only last week the Prime Minister wrote to G8 leaders calling for international action to tackle tax evasion and aggressive avoidance. He suggested that the issue should be at the heart of the forthcoming summit’s agenda. We agree that more needs to be done in this area internationally. I hope that the fact that the Chancellor and the Prime Minister have intervened on this issue will reassure Members that it is very much a priority for this Government.
As far as domestic action is concerned, we have strengthened HMRC’s capability in this area. It is worth pointing out that since March 2010 HMRC has collected £14.8 billion in additional compliance revenue through its large business service. In particular, £1.5 billion has been raised since 2010 through increased efforts in tackling transfer pricing. We want to build on that success, which is why we have announced additional sums. In the autumn statement we announced a further £77 million in new investment by the end of 2014-15 for HMRC to expand its anti-avoidance and evasion activity. Together with the package we announced in the October 2010 spending review, we expect to see additional yield, rising from £13 billion a year when we came into office to £22 billion a year by the end of 2014-15. Some of the money we announced recently will be focused on tackling tax avoidance by multinationals.
Let me deal quickly with the point about HMRC staff. The point was made that staff numbers had fallen. The big fall, from around 94,000 to 65,000, occurred under the last Government. Yes, there will be a fall in the total number of staff from 65,000 to 55,000 during this Parliament, but the number of staff who deal with tax evasion—the tax inspectors—is going to go up. The number of people working on enforcement and compliance will go up by 2,500, in contrast to the 10,000 reduction that we saw during the last Parliament.
I should also point out HMRC’s success in other areas, including its litigation strategy. Over the past two years, 85% of tax avoidance cases in the courts and tribunals have gone in HMRC’s favour. We have also taken legislative measures to deal with a whole range of corporate tax avoidance arrangements. Indeed, just before Christmas we closed down a further corporate tax avoidance scheme that sought to exploit tax rules to generate artificial loss relief from a property business. HMRC had become aware of the scheme only a week previously.
We are also bringing in a general anti-abuse rule, following the advice of Graham Aaronson’s committee. He is a distinguished tax QC, and his committee comprised a number of distinguished figures from the tax world. They recommended measures that focused on the abusive end of the matter. We believe that that will not have the disadvantages of the proposals suggested by the right hon. Member for Oldham West and Royton (Mr Meacher), which would create uncertainty for ordinary taxpayers. Also, his proposals contain an exception for any arrangements specifically permitted by legislation, and much avoidance is built on that. His proposals would therefore be defective in some respects. I think that we have struck the right balance, and that the concerns expressed by some of my hon. Friends are unfounded. It is right that we should focus on abuse of the system.
Mr Gauke
I really do not have time to give way, I am afraid. I have to say that the right hon. Gentleman’s speech did him no credit. Some of his wild conspiracy theories will not do his reputation much good.
With more time, I would have liked to address a number of other issues, including EU policy on VAT. My hon. Friend the Member for Redcar will be pleased to hear that, from 2015, the process will be much more to his liking. I want to underline that the Government are committed to dealing with tax avoidance, be it domestic or international. We are taking the necessary legislative steps and giving HMRC the necessary resources. We are determined to address the matter, as I am sure the whole House is.
Income Tax and Corporation Tax (Anti-Avoidance)
David Gauke Excerpts(11 years, 4 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
The Government are committed to tackling aggressive and artificial tax avoidance to ensure the Exchequer is protected and fairness is maintained for the taxpayer.
In December, Her Majesty’s Revenue and Customs (HMRC) were notified of an avoidance scheme that seeks to generate loss relief from a property business which could then be used by corporate users of the scheme to reduce their corporation tax profits.
On 21 December the Government acted swiftly to tackle this scheme. It made a public announcement that targeted anti-avoidance rules will be introduced in the next Finance Bill. These rules will have effect from the date of that announcement (21 December 2012). The text of the public announcement is provided below.
The Government are extremely disappointed that this scheme has been designed and is being sold despite the Government making it clear that we will take swift action to prevent schemes like this being used by those who want to escape paying the tax they owe. The Government do not accept that these arrangements have the effect that is sought, but to remove any doubt prompt action has been taken to protect the Exchequer.
The legislation will have effect for both income tax and corporation tax purposes from 21 December 2012 and will protect significant amounts of revenue.
Draft legislation and further details of this measure were published on HMRC’s website together with the public announcement.
The text of the announcement:
“Anti-avoidance: trade and property business deductions
The Government is today announcing that it will introduce targeted anti-avoidance rules (“TAARs”) to the income tax and corporation tax provisions governing the relationship between rules prohibiting and allowing deductions from profits of a trade or property business. The TAARs will have effect from today’s date (21 December 2012).
The Government is acting today because HMRC was recently notified of an avoidance scheme that seeks to exploit the rules in relation to a property business to generate artificial loss relief for use by companies to reduce their corporation tax profits. The Government does not accept that the scheme has the effect intended but to remove any doubt, prompt action is being taken to protect the Exchequer.
The provisions in sections 31 and 274 of the Income Tax (Trading and Other Income) Act 2005 and sections 51 and 214 of the Corporation Tax Act 2009 govern the relationship between rules prohibiting and allowing deductions. They provide that certain business expenditure incurred by trades and property businesses, that would otherwise be disallowable, can be deducted from business profits.
Legislation will be introduced in Finance Bill 2013 to amend all of the above sections to include a TAAR. The TAAR will apply where a permissive rule would otherwise allow a deduction in calculating the profits of a trade or property business for an amount which arises from tax avoidance arrangements. The effect will be that the rules prohibiting a deduction take precedence over those allowing a deduction.
Tax avoidance arrangements are those to which the person is party and the main purpose, or one of the main purposes, is the obtaining of a tax advantage. The term “arrangements” will be widely defined.
The amendments will apply to amounts which arise directly or indirectly in consequence of, or otherwise in connection with, arrangements which are entered into on or after 21 December 2012, or any transaction forming part of arrangements which is entered into on or after that date, except where the arrangements are, or any such transaction is, pursuant to an unconditional obligation in a contract made before that date.”
Cornwall (Government Funding)
David Gauke Excerpts(11 years, 5 months ago)
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Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
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The Exchequer Secretary to the Treasury (Mr David Gauke)
I am grateful for the opportunity to speak again under your chairmanship, Mr Gray, and to discuss the issues raised by my hon. Friend the Member for North Cornwall (Dan Rogerson). I congratulate him on securing this debate. He has been a vociferous campaigner for all things Cornish—the Cornish economy, the Cornish language and, more recently, the Cornish pasty. I am pleased to discuss Government funding for Cornwall today.
I will turn specifically to funding in my hon. Friend’s region shortly, but first I should like to talk more generally about the way in which Government funding is allocated throughout the UK, and to describe the changes we are making to encourage growth at national and regional levels. The 2010 spending review set out how the Government would carry out the UK’s deficit reduction plan over four years, and included fixed departmental budgets. We protected spending on the NHS, schools, and overseas aid, and we chose to prioritise fairness and social mobility, to focus on spending that promotes long-term economic growth, to reform public services, to shift power away from central Government to local level, and to improve value for money.
Some of those decisions at national level will have a significant impact in Cornwall. Having enjoyed a splendid holiday in my hon. Friend’s constituency a couple of years ago, I know that tourism is of considerable importance to Cornwall, although he is right to point out that its economy is much more than merely tourism; it is more diverse than that. We invested in the “Great” campaign, which was launched to deliver long-term trade and tourism benefits throughout Great Britain, and I am sure that Cornwall will benefit significantly from that.
The most important decisions for Cornwall have been those on local authority expenditure in the region—a point that my hon. Friend raised. Local authority expenditure is split between grants from central Departments, which are set in the spending review, and localised expenditure, which is largely funded by council tax. I am sure my hon. Friend will be pleased to note that during the current settlement period, Cornwall’s reductions in spending power have been smaller than the average in England. Spending power in the county fell by minus 3.3% in 2011-12 and minus 2.9% in 2012-13, compared with an average of minus 4.5% and then minus 3.3% for councils in England. I want to turn to the point my hon. Friend raised about the damping mechanism.
Dan Rogerson
I did not use all the time I might have done, so I hope that we can continue our discussion a little further. The problem for some areas such as Cornwall is that historically the council was run by independents who took a firm view on keeping the old rates down, so historically the area has low council tax, compared with counties such as Surrey. The Government are seeking to limit the impact of council tax rises—they have extended proposals for that through the Department for Communities and Local Government—but our base is already low, so there is an impact from that as well as the central grant.
Mr Gauke
My hon. Friend raises a fair point, and has put it on the record. I recognise that councils that have, over many years, shown greater determination to control their costs have less fat that can be cut than other authorities where that has not been the case.
On the damping mechanism, it is right that the Government must balance the interests of places with growing and declining needs, and Cornwall is an area with growing needs. Damping has been used to avoid steep jumps in council tax and demands on areas with declining needs. DCLG has consulted on a new funding system from 2013, and the Government have indicated that we want to move away from damping. My hon. Friend referred to rurality, and asked whether that is taken sufficiently into account. Again, DCLG has consulted on changes to the formula, and he will be aware that it will publish the draft local government finance settlement for 2013-14 for consultation shortly. It will set out funding amounts for each authority, and I am sure that my hon. Friend will be interested to read it. It will shed some new light on damping. I hope that he finds that helpful.
The formula exists for a reason—to strike a balance between the needs of areas with growing and declining populations—and it seeks to make an assessment that strikes that balance. We will say more about that shortly.
Dan Rogerson
Another area that the National Audit Office highlighted in its report on academy schools, particularly the early academies that were set up under the previous Government, is the generous settlement they were given, perhaps to encourage people to take a new step. However, as the number of academies has risen, there is an issue with that funding, which is perhaps over-generous compared with that for maintained schools. The report acknowledges that gap and the need for convergence, and the Minister’s ministerial colleague, Lord Hill, talked to us about that. The issue is the direction of travel, because the damping effect will be difficult to achieve.
Mr Gauke
All I would say about that is that the Department for Education is also looking at the school funding formula in the light of some of those issues, and I am sure that Education Ministers will respond in due course.
Until now, the main local authority grant from central Departments has been a formula grant distributed by DCLG through local government finance settlements. In line with our priority of encouraging growth, from April 2013, we will replace the current fairly complex formula grant regime with a business rates retention scheme to help provide a stronger local growth incentive. Councils that succeed in growing their local economy will have a direct boost to their coffers. Quite simply, the rationale behind the change is that we want to give individual councils, including those in Cornwall, every opportunity to promote growth. We want them to use their influence in planning, their investment in skills and infrastructure, and their relationship with local businesses to create the right conditions for local economic growth. This year’s local government finance settlement from April 2013 will be the first under the new arrangements.
The new scheme incorporates strong protections as well as incentives. There will be a safety net for places that, in any year, see their income from business rates fall by more than 7.5% below their baseline funding level. Following consultation, we have strengthened the incentive by ensuring that the maximum levy will be capped at 50p in the pound. That will mean that at least 25p in every pound of growth will be retained locally, and shared between billing authorities and any major precepting authorities. Recent economic analysis, carried out by DCLG, suggests that the proposals could deliver a £10 billion boost to gross domestic product by 2020. Obviously, that figure covers the whole UK, but the change will, I am sure, mean real benefit in Cornwall.
Having set out how the system works and the improvements that we are making, I shall quickly discuss the measures announced in this year’s autumn statement. Then I shall deal specifically with Cornwall. The autumn statement from my right hon. Friend the Chancellor of the Exchequer contained measures to do three things: first, to protect the economy; secondly, to promote growth; and thirdly, to ensure fairness. As part of that statement, we have had to ask all areas of Government, including local authorities, to go further. For most areas of Government, that means an additional top-slice of 1% in 2013-14 and 2% in 2014-15. However, recognising that local authorities are already receiving a funding reduction from holding down council tax in 2013-14, and to support them in transforming services to meet future reductions, we took the decision to exempt local government from the top-slice in 2013-14.
However, looking towards long-term economic stability, we needed to be wary. Local government spending accounts for about one quarter of all public expenditure, so we have asked local government to join other Departments in absorbing the 2% cut to departmental expenditure limit grants in 2014-15—that is £447 million—and prepare for further reductions. The savings made thus far on administration, property costs and IT services across Whitehall have proven that significant savings can be found, and those savings will have a significant impact for the whole UK, because it was through them that we were able to announce a number of measures that will have positive impacts across the UK, including in Cornwall.
Dan Rogerson
I am grateful to the Minister for setting out the approach that the Treasury is taking in negotiation with other Departments. He is right to point out that local government is doing all that it can to achieve the targets, which are quite challenging. He refers to the potential reduction in future years of 2%. In line with the concept of fairness, which is at the heart of what the coalition is trying to do across income levels, is the geographical issue also being considered, so that those local authorities that have been more disadvantaged, as he acknowledged earlier, might feel slightly less of that pain than those that have been over-funded historically?
Mr Gauke
Again, I am inclined to refer my hon. Friend to the DCLG announcement to be made very shortly on the local government formula, and the consultation that will follow. I have no doubt that he will look closely at that. I do not think that he will have too long to wait before he has the opportunity to do so.
It is worth pointing out that the difficult decisions that we have made enable us to take a number of steps that will benefit the country as a whole, including Cornwall and the rest of the south-west. For example, the further increase in the personal allowance will benefit 2.1 million people in the south-west, lifting an additional 20,000 people out of income tax entirely; and 1.2 million pensioners will benefit from an additional £2.70 a week increase in the state pension. The significant temporary increase in the annual investment allowance from £25,000 to £250,000 will help businesses across the south-west.
We announced £300 million of additional investment in empty homes and affordable homes across England. I know that housing is an important issue in Cornwall, and my hon. Friend has raised it. That announcement is in addition to more than £150 million of planned investment to build more than 9,000 new affordable homes in the south-west and return about 500 empty homes to use across the south and south-west.
We will invest further in flood defences—another point raised by my hon. Friend—and, significantly for households and businesses in Cornwall, we are cancelling the fuel duty rise planned for January 2013. That will help the owners of the 3.5 million motor vehicles in the south-west, saving a typical driver £40 a year and a haulier £1,200 a year. However, as my hon. Friend mentioned, that is not the only good news for motorists in and around his constituency. The autumn statement announced a number of key infrastructure projects, one of which involves the £30 million that we will contribute towards a 2.6 mile dualling of the single carriageway section of the A30 between Temple and Higher Carblake, which will include changes to junctions.
Dan Rogerson
I am grateful to the Minister for giving way again. He is being extremely generous, as was the Treasury with the project that he describes, although I have to acknowledge that half the costs will be funded locally, through local authorities. That is an excellent example of what he was talking about earlier: £30 million is coming from central Government and £30 million from local government. He also raised the issue of fuel duty. Again, I welcome the Government’s decision on that. I understand that they are also having discussions with the European Union in relation to what it has done for islands, such as the Isles of Scilly in the constituency of my hon. Friend the Member for St Ives (Andrew George), and whether rural parts of mainland Britain could also benefit from a further reduction—
Dan Rogerson
A 5p reduction. That would have a huge impact, particularly on small businesses in my constituency. I urge the Minister to redouble his efforts to secure that.
Mr Gauke
My hon. Friend is right to say that we are having further discussions with the European Commission about that. Obviously, we will update the House as soon as we are able to do so. However, I do not want to leave the A30 just yet—not a comment that people often make. The scheme to which I referred, and for which I know my hon. Friend has campaigned long and hard, will relieve congestion and improve journey times. It will also attract business growth and inward investment to Cornwall by improving links to the rest of England. The Government welcome the commitment from Cornwall council, to which my hon. Friend alluded, to deliver and part-fund the scheme on behalf of the Secretary of State. Its drive in taking the scheme forward demonstrates how much of a priority it is to the council and to Cornwall generally. Work on the scheme is set to start in 2014-15, subject to the completion of planning processes and funding agreements, and the road is due to be open to traffic in 2016. I am sure that it will bring real benefits to the area.
My hon. Friend may feel that my contribution took a long time to reach Cornwall, and I am sure that is a feeling that many motorists will at times sympathise with. However, it is important for us to look at the national context of spending and the impacts that decisions made at that level will have in each region. I hope that my comments have been useful in laying out the Government’s position.
Andrew George
I know that my hon. Friend the Member for North Cornwall (Dan Rogerson) raised, while I was still in Committee, the issue of health funding and the principle of parity. Cornwall has received more than £200 million less over a six-year period than the Government themselves have said it should receive—than its target funding. I know that the Minister has deferred to each Department when he has answered questions on these issues, but as for his opinion, does he think that such a distance between what is allocated and what the Government say that a local area should get is acceptable?
Mr Gauke
Of course, as a Government, we are committed to ensuring that there is a fair funding system. As a constituency MP, representing a Hertfordshire seat, I know that often one can look at particular areas, including health funding, where there are disparities between what one might expect—what one might see as the right amount for one’s area—and the national average, and that can be deeply frustrating for Members for Parliament and for our constituents. My hon. Friend the Member for St Ives (Andrew George) makes the case well for Cornwall. Of course, as a Government, through all Departments, including the Treasury, we will look at what we can do to ensure that we have a funding system that is fair.
I am conscious of the time, so I will conclude. I congratulate my hon. Friend the Member for North Cornwall on securing the debate, on his work in relation to the A30, and on raising the points that he has raised today. Of course, as a Government, we want to ensure that we have a fair funding formula, whether that be for health, education or local government. That is something that we recognise across Government, including in the Treasury. On the specific issue of damping that my hon. Friend raised, I think that more information will be available to him very shortly.
Treasury
David Gauke Excerpts(11 years, 5 months ago)
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Chris Evans (Islwyn) (Lab/Co-op)
14. What the average waiting time for calls to Her Majesty’s Revenue and Customs helplines was in (a) the last 12 months and (b) the previous 12 months.
The Exchequer Secretary to the Treasury (Mr David Gauke)
The average waiting time for a customer calling HMRC’s helplines in the past 12 months was four minutes and 19 seconds. In the preceding 12 months, it was four minutes and 13 seconds.
[Official Report, 26 June 2012, Vol. 547, c. 153.]
An error has been identified in the oral answer given to the hon. Member for Islwyn (Chris Evans).
The correct answer should have been:
The Exchequer Secretary to the Treasury (Mr David Gauke)
The average waiting time for a customer calling HMRC’s helplines in the past 12 months was four minutes and 56 seconds. In the preceding 12 months, it was four minutes and 54 seconds.
Double Taxation (Brunei Darussalam)
David Gauke Excerpts(11 years, 5 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
An agreement amending the double taxation arrangement with Brunei Darussalam was signed in London on 11 December 2012.
The text of the agreement has been deposited in the Libraries of both Houses and made available on HM Revenue and Customs website. The text will be scheduled to a draft Order in Council and laid before the House of Commons in due course.
Oral Answers to Questions
David Gauke Excerpts(11 years, 5 months ago)
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Penny Mordaunt (Portsmouth North) (Con)
5. What consideration he has given to the introduction of transferable tax allowances for married couples.
The Exchequer Secretary to the Treasury (Mr David Gauke)
The Government’s commitment to introducing a proposal to recognise marriage through the tax and benefits system remains firm. We want to show that we value commitment, so we will consider a range of options and advance proposals at the appropriate time.
Penny Mordaunt
With the introduction of the tapered removal of child benefit with one parent earning between £50,000 and £60,000, will the Minister give further consideration to how we can support families at this difficult time?
Mr Gauke
My hon. Friend is right to highlight the fact that we have introduced a range of measures that will have an impact on all parts of society, including the highest earning 10% to 15% through the child benefit changes. Of course, we look to do whatever we can to support families. That includes providing free early learning for three and four-year-olds and extending the 15 hours a week of early years education and care from 2012-13 to all disadvantaged two-year-olds.
Steve McCabe (Birmingham, Selly Oak) (Lab)
Is cutting maternity pay part of the Government’s strategy to support stable families?
Sheila Gilmore (Edinburgh East) (Lab)
6. What assessment he has made of the effectiveness of the funding arrangements which he agreed with the Secretary of State for Work and Pensions for the Work Programme.
Stephen Gilbert (St Austell and Newquay) (LD)
11. What steps he is taking to discourage tax avoidance by wealthy people.
The Exchequer Secretary to the Treasury (Mr David Gauke)
In seeking a fair contribution from the wealthy, the Government’s first priority is to tackle those who avoid or evade tax. The autumn statement contained a number of new measures to ensure that, including repatriating £5 billion in unpaid tax from Switzerland and new investment in Her Majesty’s Revenue and Customs to enable it to expand its anti-avoidance activity, in particular the specialist unit that supervises the compliance of affluent individuals.
Stephen Gilbert
People in Cornwall expect the wealthiest to pay their fair share of tax, so I welcome the Government’s planned offshore tax evasion strategy, which is much needed to track down funds that have been squirreled away and undertaxed. Will it cover British overseas territories as well as Crown dependencies, and what is the Minister’s assessment of the potential revenue?
Mr Gauke
Yes, it would. My hon. Friend gives me an opportunity to highlight the progress we have made in particular with the Isle of Man in ensuring there is much greater exchange of information. The net is closing in on those who wish to evade their taxes. Whether in Switzerland, Liechtenstein or the Isle of Man, it is becoming ever harder for them to evade paying taxes.
Katy Clark (North Ayrshire and Arran) (Lab)
Does the Minister think that HMRC losing an extra 10,000 staff will make it harder or easier to tackle tax avoidance and evasion?
Nigel Adams (Selby and Ainsty) (Con)
Does the Minister have any explanation as to why Labour never introduced a general anti-abuse rule when in government?
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
The Government’s shares for rights scheme is not only unpopular with the business community, but the head of the Institute for Fiscal Studies warned in the Financial Times today that it will
“foster a whole new avoidance industry”,
and the Office for Budget Responsibility believes the tax avoidance loophole it will create could cost up to £1 billion. Does the Minister agree with the OBR estimate? If so, why is he pressing ahead with a policy that is unpopular with business and could cost the taxpayer £1 billion?
Mr Gauke
First, it is not unpopular with business. Business groups have welcomed it, and the fact is that some aspects of our employment law can stand in the way of job creation. The OBR estimates that within the scorecard period this policy will cost £80 million in 2017-18. We believe it is the right move in order to ensure we have a more competitive environment.
Natascha Engel (North East Derbyshire) (Lab)
12. If he will take steps to open up dark pool trades on the UK equity markets to greater transparency.
The Economy
David Gauke Excerpts(11 years, 5 months ago)
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Emily Thornberry (Islington South and Finsbury) (Lab)
The autumn statement showed that this Government’s handling of the economy has been a profound failure. It shows what happens when a Government do not have any plan for jobs and growth. If they do not have a plan for jobs and growth, they come back after two and a half years and say, “Actually, we need another five years,” and if they still do not have a plan for jobs and growth, they will come back after another two and a half years and again say they need another five years, and so it will go on, because borrowing is up and debt is up and economic growth is down. The Government have wasted two and a half years. People simply do not buy it any more. The Business Secretary said that the Government’s credibility hinges on whether or not they eliminate the deficit. After the autumn statement it is clear that the credibility of this Government, supported by the Liberal Democrats, is in tatters.
I want to talk about the poor, because my poor constituents believe they are being punished for the failure of this Government and their reckless welfare reform. I also want to talk about the rich and how they are being let off the hook—again, that is because of the Government’s failure to make sure we collect all the tax we are owed. Why did the Government, when they first came into office, cut the number of tax inspectors by 7,000? The ambition was to cut the number of tax inspectors to an all-time low of 56,100. I remember that I wrote to the Chancellor in November 2010 saying that that would be counter-productive. When the Government are cutting the staff who prevent tax avoidance and evasion, how can my constituents believe that tackling it is a priority? Indeed, in answer to a parliamentary question, the Government admitted that every new tax inspector brings an additional £600,000 a year into the Exchequer.
Emily Thornberry
The Economic Secretary shakes his head, but I am just quoting what was said in the Government’s answer to a parliamentary question. He is welcome to intervene if he wishes to correct me.
Mr Gauke
As the hon. Lady has invited me to make this point, I will do so. If someone looks at the number of people working for Her Majesty’s Revenue and Customs in enforcement and compliance—not the other areas; there are a lot of processing jobs—they find that under the previous Government’s plans it fell by 9,000, whereas under this Government’s plans it will increase by 2,500.
Emily Thornberry
The fact is that 7,000 jobs have gone under this Government’s plans, and the gap between what we collect and what we are owed is estimated to be £35 billion, which is twice the housing benefit bill. Independent research commissioned by the Public and Commercial Services Union reckoned that the real figure was more like £120 billion, which is six and a half times the housing benefit bill. Whatever the true sum, the fact is that without a sufficient number of tax inspectors we cannot ensure that the rules apply to everyone. Everyone should pay tax; it should not just be for the little people. Paying one’s taxes should not be some sort of charitable gesture, and I have little understanding as to why it was seen as appropriate for this Government to continue to cut back on tax inspectors. If we are to have rules, they need to be applied. The Exchequer Secretary says that there were many processing jobs, but presumably people in that job need to make sure that the sums add up, that everything has been claimed that should have been claimed and that everything has been paid that should have been paid. Without that essential processing we will never know whether or not tax avoidance has been taking place—this is not just about major companies; it happens throughout the system. At a time like this, we need to make sure that everyone plays by the rules. If everyone does that and if the rules apply to us all and we have a fair society, we have the very one nation that Labour Members have been talking about.
Of course, the rules also apply to those who claim benefits and of course if someone can work, they must work. That is what unites this whole House. What does not unite this House is the language used by Government Front Benchers—the language of “scroungers”. Such language is simply offensive, as the highly eloquent maiden speech by my new hon. Friend the Member for Middlesbrough (Andy McDonald) so well set out. Such language is a smokescreen that covers up a great deal of what this Government are actually doing. Although they talk about scroungers and those who stay in bed, keep the curtains closed and do not go out to work—the remarks are highly offensive—they do not address the issue, which is that many, many people who are out of work want to work, but the fact of the matter is that people cannot go from welfare into work if the work is not there.
Furthermore, many of the changes that this Government are making and announced in the autumn statement will affect those very people who work. I want to go on to address the issue of not just those who are poor and not working, but that of those who are working in my constituency and are dependent on benefits. Sometimes I feel as though I live in a different world where Government Members believe that only those who are out of work claim benefits. In fact, many people who work depend on benefits. Surely that is a conundrum. Many people meet me on the street and say, “How can the welfare benefit bill be going up if a million additional people have got work?” The truth is self-evident. Many people who are now working work part-time or are self-employed rely on housing benefit and tax credits, the very things that the Minister will be cutting as a result of the autumn statement. Let us use the terms that he uses, such as the strivers. Those very strivers are having their support system cut away by this Government. Even in the hon. Gentleman’s offensive terms, that cannot be justified.
I want to talk specifically about housing benefit because the issue affects my constituents particularly. I hear Government Members say, “Why should it be that people on average earnings receive less than people on benefits?” That has a certain ring to it and I know that the Conservatives are out of touch, but surely some of them must know someone who rents a flat and who understands that housing benefit goes not to the tenant, but to the landlord. It is because rents have gone up so much in London and the south-east that the housing benefit bill continues to rise. In the past two years, private rents in London have gone up by 25%, according to London Councils. In those circumstances, how can it be justified to attack housing benefit, to put an arbitrary cap on housing benefit, or to believe that housing benefit should be the same level in London as it is anywhere else in the country? How can that be fair?
It is not the fault of my poor constituents that their rent is high. It is the fault of my Government and of Conservative Governments who did not build enough housing. There was a time when Conservative and Labour Governments used to compete with each other as to how much affordable housing they could build. In the 1970s, four fifths of the housing budget was spent on building new homes and one fifth on housing benefit. Now it is completely turned on its head and we continue to pay the price of failure. We must build more housing and we must not simply dance on a pin, analysing what affordable housing means.
The Minister represents a party that defines affordable housing as costing 80% of market rent. He and his party should get some sort of George Orwellian prize for double-speak. Eighty per cent. of market rent in my constituency could not be afforded by ordinary people in my constituency. I went on to the Rightmove website this morning and looked at the prices of three-bedroom flats in my constituency. Does the hon. Gentleman know how much the rent for a bog-standard three-bedroom flat in my constituency would be? Four hundred pounds a week. How much is the housing benefit cap? Three hundred and forty pounds a week. There was only one flat on Rightmove that was under the amount of the cap so how can people in my constituency, who will be subjected to the housing benefit cap, afford to continue to live in Islington?
There is an argument that the poor should not be living in Islington, but I respectfully disagree. My constituency should be a mixed constituency and should have rich and poor. Generations of poor people who live in my constituency should be allowed to continue to live there. Furthermore, the housing benefit cap is one atrocious measure that this Government have introduced, but we wait for the next, which is universal credit. There will be a cap of £500 a week for a four-bedroom flat in my constituency. There were 69 that were under the £400 current housing benefit—
The Exchequer Secretary to the Treasury (Mr David Gauke)
This has been a passionate and thoughtful debate. I begin by congratulating the three hon. Members who made their maiden speeches this afternoon—all three were of the highest standards. The hon. Member for Rotherham (Sarah Champion) spoke with great pride and passion for her constituency. The hon. Member for Croydon North (Steve Reed) brought his local government expertise to the debate, and his understanding of the area he represents was most impressive. He also spoke movingly about his predecessor, Malcolm Wicks. The hon. Member for Middlesbrough (Andy McDonald), who is the first Middlesbrough-born Labour MP, spoke with great pride about his constituency. I imagine that being the MP for one’s home town must bring a particular pleasure to delivering a maiden speech and representing one’s constituency. He also spoke warmly of his predecessor, Sir Stuart Bell. I congratulate them all and wish them well in the House of Commons. I am sure they will make many further eloquent and passionate speeches from the Opposition Benches over the years ahead.
I also thank a number of my hon. Friends for their contributions. My hon. Friend the Member for Macclesfield (David Rutley) spoke about how it is necessary to get growth in the economy and discussed ways of achieving that. My hon. Friend the Member for Spelthorne (Kwasi Kwarteng) made a strong and persuasive critique of the previous Government’s record and, indeed, of the level of borrowing under them.
My hon. Friend the Member for Dudley South (Chris Kelly) set out some of the benefits for businesses in the autumn statement, highlighting in particular the corporation tax cuts and the annual investment allowance, which will benefit many west midlands businesses. My hon. Friend the Member for Bristol West (Stephen Williams) made the point that it is right to reduce the deficit, even though it is taking longer than we had envisaged.
My hon. Friend the Member for North Swindon (Justin Tomlinson) welcomed the cancellation of the fuel duty rise, which was due in January, and set out the case for greater tax transparency. He was absolutely right to raise that and this Government are taking steps to ensure that people understand the tax they pay.
My hon. Friend the Member for Burnley (Gordon Birtwistle) spoke about apprenticeships, of which there are 1 million more as a consequence of the Government’s actions. He talked about help for businesses in the north-west, including in the aerospace industry. He also spoke about the annual investment allowance.
My hon. Friend the Member for South Dorset (Richard Drax) made a strong and passionate speech calling for lower taxes. My hon. Friend the Member for Mid Norfolk (George Freeman) set out the steps that the Government are taking to turn around the economy, and drew a parallel with the steps taken by Margaret Thatcher’s Government in the 1970s and 1980s.
I will not go through the list of all the right hon. and hon. Members who contributed to the debate, but I thank them all. In particular, I acknowledge the speech by the former Chancellor, the right hon. Member for Edinburgh South West (Mr Darling). As ever, he brought great expertise to these matters. I did not agree with everything he said, but I thought that his was a far better response to the autumn statement than some that we have heard from Opposition Members, not least the shadow Chancellor.
The right hon. Member for Edinburgh South West said that we live in difficult times. When there is clearly major disagreement between the parties in government and the Opposition about the correct response to the difficulties, we should all acknowledge that growth is lower than we would like it to be and lower than the independent Office for Budget Responsibility anticipated, but we should also acknowledge that there are encouraging factors in the economy. We should all welcome the fact that private sector employment has grown significantly in recent months. The fact that the deficit is falling in every year of this Parliament is to be welcomed. It would be regrettable if the Labour party sought to undermine the Office for Budget Responsibility in making its independent assessment of the public finances.
These are clearly difficult times, not just for the UK economy, but elsewhere. Growth in the UK economy next year has been revised down from where we had hoped it would be, but it is still likely to be greater than the growth in Germany, France and the eurozone. The key question is why growth is lower. The analysis of the Office for Budget Responsibility is very clear: it is because of the uncertainties created by the crisis in the eurozone, because commodity prices are rising more than we would have liked and because the damage done to the economy by the crash of 2007-08 was greater than had been realised.
The answer from the Labour party, essentially, is that we could solve all those problems simply by borrowing more. Very few Labour Members say that explicitly, although the hon. Member for Great Grimsby (Austin Mitchell) was happy to say that that is the right approach. The Labour party says that borrowing is higher than we would like, which it is, but its solution is to borrow more. That makes no sense at all.
It is also not the case that the high level of borrowing that we inherited—a record amount outside wartime—was purely to do with bailing out the banking sector. The shadow Chancellor may not accept this, but the International Monetary Fund tells us that the structural deficit before the crash was 5.2% of GDP—a hugely dangerous level. Any Government who ignored that and failed to address it would be taking the most enormous risk with the country. It is vital that we have fiscal credibility. We could not have gone on as we were. Had we not taken action and gone further than was set out in the plans of the right hon. Member for Edinburgh South West, we would have faced great difficulties. We could not dismiss the risk of the UK being sucked into a sovereign debt crisis, and it would have been complacent of us if we had done so.
The Government have acted to bring the deficit down, but at every step we have been opposed by the Labour party. Most of us did not come into politics to raise VAT, but it was necessary to do that and we also had to take steps to reduce departmental spending—again, that was opposed by the Labour party. We had to reform the welfare system and find £18 billion of cuts, including the introduction of a welfare cap, and we had to make changes to the child benefit system that hit the top 10% or 15% of households. The Labour party opposed all that and, as far as we can see, will not touch a penny of the welfare budget. That is not a great surprise given its record in office. In real terms, the welfare bill increased by 40% in 13 years. Before Labour Members say that that was a response to the crash in 2007-08, half of that increase—20%—occurred before the crash. In the good times the welfare bill was rising out of control.
Kwasi Kwarteng
What does my hon. Friend think about the fact that spending between 1997 and 2007 doubled in nominal terms—it went up more than 50% in real terms—and that the welfare bill more than doubled in that time?
Mr Gauke
My point is that we could not continue in that way. The difficulty with the Labour party’s record is that it believes most problems can be solved by throwing money at them. We have run out of money and cannot afford to do that. That is why we are taking difficult decisions and the welfare uprating will be 1%—we now know that the Labour party will oppose that. We must get welfare spending under control. That measure will save £2 billion, and if one looks at other measures introduced in the autumn statement, one sees that working households—including those in the lowest decile—will gain in 2013.
Mr Gauke
I will press on because we are running out of time. If all measures to be introduced next April are taken into account, all working families gain, including those in the lowest decile. It is the right thing to do. We have raised the personal allowance yet further and cancelled Labour’s increase in fuel duty next January. Each time the average car is filled up, the motorist will pay £5 less fuel duty than they would have done had we implemented the Labour party’s plans.
As the Prime Minister and Chancellor have said, we face a global race and must make ourselves more competitive. That means moving from current spending to capital spending, which is why we will be spending £9 billion more on capital in this Parliament than the Labour party would have done. Do Labour Members support that switch from current spending to capital spending? That is why we can afford—and why it is necessary—to reduce corporation tax from 28% to 21%. The Labour party allowed our tax position to become uncompetitive.
There is competition for investment. Businesses can choose where they locate and invest. To ensure they choose this country, we need improved infrastructure and to control public spending. We must reform welfare and public services and we need competitive taxes. The Government are prepared to take difficult decisions but the Labour party consistently ducks those decisions and opposes every spending cut and reform. It opposes getting to grips with welfare spending and panders to every group, and the country will recognise that at the next election.
Question put and agreed to.
Resolved,
That this House has considered the matter of the economy.
Finance Bill 2013 and Tax Policy Update
David Gauke Excerpts(11 years, 5 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (Mr David Gauke)
The Government consulted on a number of tax policies, following their announcement in Budget 2012. Today the Government are publishing the response to these consultations alongside draft legislation to be included in Finance Bill 2013. This fulfils our objective to confirm the majority of intended tax changes at least three months ahead of publication. Draft legislation will be open for technical consultation until Wednesday 6 February 2013.
Details of the clauses published today are set out in the overview of legislation in draft document, which also includes tax information and impact notes for each measure. All publications will be available on both the HM Treasury and HM Revenue and Customs (HMRC) websites.
The Government are publishing draft legislation on policies announced at Budget 2012, including:
A general anti-abuse rule, to target abusive tax avoidance schemes;
Corporation tax reliefs to encourage investment in the production of animation, high-end television and video games;
An “above the line” R&D credit to encourage investment in research and development.
A package of property tax policies including a new annual residential property tax to be payable by certain non-natural persons that own interests in dwellings valued at more than £2 million, and an extension of the capital gains tax regime to non-residential non-natural persons disposing of interests in UK residential property valued at over £2 million. The capital gains tax (CGT) will be payable only on gains accruing on or after 6 April 2013. For consistency, the Government are considering extending the CGT regime to also apply to disposals of high-value residential property by UK NNPs. The Government would welcome views on the impact and implementation of this potential change by 18 January.
Introducing a statutory residence test, abolishing ordinary residence and eliminating the concept of “ordinary residence” for tax purposes as far as possible.
The Government will also publish draft legislation for policies announced in the 2012 autumn statement.
In addition the Government are also announcing a number of new measures for Finance Bill 2013. This includes draft legislation to:
Give HMRC the power to implement a special accounting scheme for air passenger duty that will allow eligible operators to submit annual returns.
Make changes to the carbon price floor legislation to clarify the tax point, taxable person and the treatment of auto-generators and combined heat and power stations.
Exempt universal credit from income tax.
To clarify the tax treatment of banks’ tier 2 regulatory capital instruments, as announced by the Financial Secretary to the Treasury on 26 October. This clarification will ensure that the coupon on tier 2 capital which is already in issue or yet to be issued will be deductible for the purposes of a bank computing its profits for corporation tax purposes. This will provide banks and investors with certainty.
Make amendments to allow the Finance Act 2003 inheritance tax measures on the treatment of open-ended investment companies (OEIC) and authorised unit trusts (AUT) to work in the way that was originally intended.
Amend the restrictions on when companies resident in the European economic area can surrender losses from their UK branches as group relief from corporation tax in the UK.
Introduce further minor simplifications to the remittance basis rules as they affect exempt property where such property is lost, stolen or destroyed and works of art on public display, and clarify the interaction between the time limits for the exempt property rules.
Ensuring that conditions imposed by a statutory body by which one company will leave a group at a pre-determined date will not prevent claims to corporation tax group relief. This targeted legislative amendment to the group loss relief rules will not remove the current loss-buying avoidance protection.
Ensure that a consistent time limit for repayment applies for all overpaid tax. This legislation will also correct an anomaly relating to time limits for loss relief.
In addition the Government are also introducing today draft secondary legislation to:
Clarify the tax treatment of new core tier one regulatory capital instruments which building societies have developed to ensure compliance with regulatory capital requirements under the forthcoming capital requirements directive IV. As building societies are mutual organisations their constitutions prevent them from issuing ordinary share capital in the same way as other companies. This change to secondary legislation will ensure that these new instruments, which will perform a similar function to ordinary share capital, will also be taxed in the same way as ordinary share capital.
The Government have also tabled one further related written statement today:
Draft legislation for Finance Bill 2013: Measures with effect on 11 December.
Finance Bill 2013
David Gauke Excerpts(11 years, 5 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (Mr David Gauke)
The Government are announcing today measures that will have effect from 11 December 2012 or shortly afterwards and will be included in Finance Bill 2013.
Further details have today been published on both the HM Treasury and on HM Revenues and Customs (HMRC) websites, together with the draft legislation and tax information and impact notes.
The following measures will take effect from today:
Debt cap: Group treasury company election
Legislation will be introduced to ensure that only the financing expenses and financing income-related to treasury activities are included in the election. If a company’s activities are all or substantially all treasury activities and its assets and liabilities relate to those treasury activities then its financing income and financing expenses can be included in the election. If a company’s treasury activities are not all of its activities then the election will only apply to its financing expenses and financing income that relate to the treasury activities.
The legislation amends section 316 Taxation (International and Other Provisions) Act 2010 and will take effect for periods of account of the worldwide group beginning on or after 11 December 2012.
Corporation Tax: Deferral of payment of exit charges
The Government are amending legislation to address the way in which HMRC collects corporation tax charges levied on unrealised profits or gains when a UK resident company that is registered in a European economic area (EEA) territory transfers its place of effective management to another EEA state (often described as an “exit charge”). This follows a decision by the Court of Justice of the European Union. The amendment will offer such companies the option to defer payment of the exit charge over a period of time provided that certain conditions are met. The change is intended to protect public finances, support businesses with cash-flow issues, and ensure UK law remains compatible with EU law.
The legislation will have effect to permit companies to submit claims for deferral of exit charges that fall due from 11 December onwards.
VAT forestalling road fuel
Draft legislation sets out the Government’s intention to impose an open market value (OMV) on supplies of road fuel made by taxpayers to employees and other connected persons where fuel is supplied at less than the OMV.
The draft legislation will apply from 11 December. However until the date of Royal Assent to Finance Bill 2013 affected taxpayers should declare output tax according to the invoiced value. After Royal Assent, to the extent that the amount charged is less than OMV and any part of the fuel has not yet been made available, these amounts will become incorrect and taxpayers will need to correct the under-declaration of output tax in the usual way. How to make corrections is explained in notice 700/45, which is available on the HMRC website.
In addition, the following measures will come into effect on 1 January 2013 and will be included in Finance Bill 2013:
Annual investment allowance (AIA)
To encourage investment and exports as a route to a more balanced economy, the Chancellor announced on 5 December 2012 a temporary increase to the AIA to support investment in the economy.
Legislation will be introduced to temporarily increase the AIA limit on qualifying expenditure that effectively receives 100% relief from £25,000 to £250,000. The AIA is available to most businesses, regardless of size. The increase in the AIA will apply to qualifying expenditure incurred between 1 January 2013 and 31 December 2014. This measure supports investment by accelerating the rate of relief on investment in qualifying assets.
Bank Levy
The Government have set out their intention that the bank levy should raise at least £2.5 billion each year. The full bank levy rate will increase from 0.105% to 0.130% from 1 January 2013 to restore expected yield for future years and to offset the benefit of corporation tax rate cuts to banks. The half-rate for chargeable equity and long-term chargeable liabilities will be increased from 0.0525% to 0.065%.
UK Swiss Remittance basis
Legislation will be introduced to ensure that, where levies are made under the terms of the Swiss UK tax cooperation agreement, those levies are not treated as remittances for UK tax purposes. To ensure that policy objectives behind the original agreement are delivered in full, this legislation will be effective from 1 January 2013, which is the date that the agreement is expected to come into force.
Amendments to Controlled Foreign Companies (CFC) rules
The Government are introducing legislation to prevent a potential loss of tax by amending the new CFC rules and limiting double taxation relief (DTR) in order to close avoidance and planning opportunities. In line with the new CFC rules the legislation will affect CFCs with accounting periods beginning on or after 1 January 2013.
Part 9A Taxation (International and Other Provisions) Act 2010 (TIOPA) will be amended to ensure that the new CFC rules apply to profits from all finance leases, including those made by way of a hire purchase or similar contract.
Part 9A TIOPA will also be amended to ensure that throughout the new CFC rules, questions of accounting treatment where accounts have not been prepared under either UK generally accepted accounting practice or international accounting standards are considered by reference to international accounting standards.
Part 2 TIOPA will be amended to limit the amount of DTR that can be claimed as a credit by a UK company or given by deduction to a UK company. The limitation will apply when one or more UK companies form part of an arrangement whereby a loan is made from one CFC to another CFC, where the latter is the ultimate debtor in relation to that loan. Where one or more UK companies form part of a conduit in such an arrangement the DTR will be limited to the corporation tax due in respect of the UK corporation tax profits that arise from that arrangement. The new limitation will apply to a UK company that derives profits from such an arrangement which involves CFCs with accounting periods beginning on or after 1 January 2013.
In addition the Government are introducing legislation to amend section 236(4) TIOPA with effect from 1 January 2013 to ensure the arbitrage rules do not apply merely as a result of the application of another territory’s CFC rules that are similar to those within part 9A TIOPA.
The Government have also tabled related written statement today:
Draft legislation for Finance Bill 2013 and tax policy update.