Finance Bill
David Gauke Excerpts(11 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 3—Sixth form colleges (exemption from VAT)—
‘In Schedule 9 to the Value Added Tax Act 1994 (Exemptions), in Group 6 (Education), the following shall be added at the end of Note (1) (description of eligible body)—
“(g) a sixth form college”.’.
New clause 10—VAT: review—
‘No new Order shall be made under section 30(4) or 31(2) of the Value Added Tax Act 1994 unless the Chancellor of the Exchequer has fully reviewed the impact of any such Order on jobs, living standards and businesses, making reference to the HMRC Consultation “VAT: Addressing Borderline Anomalies”, and placed a copy of the review in the Library of the House of Commons.’.
New clause 12—Rate of VAT—
‘(1) In section 2(1) of the Value Added Tax Act 1994 (Rate of VAT) for “20 per cent.” substitute “17.5 per cent.”.
(2) Subsection (1) shall have effect from Royal Assent and shall expire at such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.’.
Government amendment 17.
Government new schedule 1—‘Categorisation of supplies.
Government amendments 18 to 20.
Mr Gauke
A number of VAT measures are to be debated today. To help the House, let me outline how I intend to deal with them. I will first address new clause 4, which relates to VAT on face-value vouchers, before turning to Government amendment 17 and new schedule 1, which address VAT anomalies. I am also conscious that a number of new clauses have been tabled by other right hon. and hon. Members, which I will respond to more fully later in the debate. I will also address amendments 18 to 20, which are consequential amendments dealing with VAT anomalies.
New clause 4 is a Government change to protect revenue. It guards against the possibility of widespread VAT avoidance by the use of so-called single-purpose face-value vouchers. Because of the seriousness of the threat, I announced the change by way of a written ministerial statement on 10 May. Following a decision by the European Court of Justice in May, we need to amend our legislation as it relates to single-purpose face-value vouchers, such as phone cards, so that VAT is due when such vouchers are issued.
We need to act with immediate effect to prevent a loophole due to the mismatch between the ECJ decision and current UK legislation. This could occur because individuals could argue that VAT cannot be collected on redemption by virtue of the Court’s decision, and it cannot be collected on issue by virtue of UK legislation. Therefore, the new clause protects around £200 million of revenue a year and guards against avoidance that could otherwise run into hundreds of millions of pounds.
The changes made by new clause 4 will remove single-purpose face-value vouchers from the UK’s VAT regime. For face-value vouchers more generally, normal VAT rules will apply and they will be taxed when they are first sold. There is also a transitional rule to ensure the taxation of vouchers that were issued before 10 May but used to pay for goods and services after that date, other than where that would lead to double taxation.
It might be helpful to hon. Members if I provide a little background to the new clause. As I have said, the issue arose in connection with a recent decision of the European Court of Justice concerning the VAT treatment of cross-border supplies of single-purpose vouchers, in this case phone cards supplied by a business in the UK to customers in other member states. Most member states tax single-purpose vouchers when they are issued, but in the UK the issue is disregarded and VAT becomes due only when the vouchers are used to obtain the underlying goods or services. This treatment is welcomed by UK businesses, because it delays the point at which they have to account for VAT, so creating a cash-flow advantage and an absolute saving on those vouchers that are issued but never redeemed.
However, in the case before the European Court of Justice, the business concerned complained that the difference in treatment between the UK and some other member states caused double taxation, because VAT was due in the member state where the card was sold to the final consumer and again in the UK when it was used to pay for telephone calls. The Court found against the UK’s approach in such a way that, until UK law was changed, suppliers of single-purpose face-value vouchers could have escaped VAT altogether. In the current market, that would have led to a tax loss of £200 million a year. In addition, if UK law had not been changed there would have been the risk of widespread avoidance involving the use of single-purpose vouchers, which could have led to a significant loss of tax.
To give an example, a car manufacturer could have issued a face-value voucher for a new car of £15,000, which the customer could then redeem at his local dealership. UK law said that there was no tax on the issue of the voucher, and the Court of Justice of the European Union said that there was no supply at redemption and, therefore, no tax. That may be an extreme example, but it illustrates the problem that could arise in a variety of retail scenarios.
The changes that new clause 4 make would remove single-purpose face-value vouchers from the UK’s VAT regime. For face-value vouchers more generally, this means that normal VAT rules will apply, and such vouchers will be taxed when first sold. There is also a transitional rule to ensure the taxation of vouchers that were issued before 10 May but used to pay for goods or services after that date, other than when that would lead to double taxation, but the Court’s definition of what constitutes a single-purpose voucher allowed us to retain the UK’s treatment for most vouchers.
The Court took the view that a single-purpose voucher is one that can be used to obtain goods or services of only one type, and which are subject to a single rate. Single-purpose face-value vouchers that are for one type of good or service form only a small proportion of the overall market for face-value vouchers, because most face-value vouchers can be exchanged for a range of goods or services. For example, a cinema voucher may be exchanged for tickets as well as for confectionary. Both the entry to see the film and the confectionary make suppliers liable to standard-rate VAT, but as they cannot be said to be of the same type the voucher is not caught by the judgment. We therefore expect the change to affect a relatively small number of businesses, and I hope that that explanation is helpful to the House.
In conclusion on face-value vouchers, the new clause is a proportionate response to the significant risk of tax loss arising from the use of single-purpose vouchers. It is carefully targeted against the risks and retains the VAT treatment for the great majority of vouchers sold in this country, and I commend it to the House.
Amendment 17 and new schedule 1 relate to the categorisation of suppliers for the purposes of value added tax. New schedule 1 would implement the changes announced at the Budget, which have been refined in the light of consultation, to address anomalies and loopholes in the area of VAT liability. The VAT system contains a number of anomalies along the borderlines of VAT exemptions and VAT zero rates, and addressing some of those anomalies and loopholes is precisely what the Chancellor announced at the Budget.
The Government announced at the Budget that they were introducing a number of measures to address some of those VAT anomalies, reducing uncertainty, costs for business and for HMRC, and raising revenue. On Budget day, we proposed a number of measures and launched a consultation to engage stakeholders and to listen to their ideas. The measures that we announced proposed to clarify the treatment of catering to ensure that all hot takeaway food is taxed, and to clarify the meaning of “premises” in the context of whether food is consumed on or off a supplier’s premises.
We proposed also to tax sports nutrition drinks to ensure that all sports drinks receive the same tax treatment, and to remove self-storage from exemption in order to ensure that all suppliers of storage receive the same tax treatment and to counter avoidance.
Mr Gauke
I certainly will, although at this point I am just setting out what we set out at the Budget. I will turn to each individual measure in more detail in a moment and happily give way to my hon. Friend at that point.
We propose to remove the anomaly whereby approved alterations to certain listed buildings are zero-rated while alterations to other buildings and repairs to and maintenance on all buildings are standard-rated. We included transitional arrangements for alteration works to listed buildings which had been contracted before the Budget, and we wanted to put beyond doubt the fact that VAT applies to the rental of hairdressers’ chairs.
Finally, we proposed to ensure that holiday caravans are taxed consistently at the standard rate of VAT. The proposal, as set out in the consultation document, was that all the changes would take effect from 1 October via secondary legislation, supported by anti-forestalling provisions in this Bill. The consultation was opened on 21 March, and overall HMRC received some 1,500 responses. Owing to the volume of interest in the consultation, we decided to extend it, and since it has closed we have reflected fully on the points made during the process.
As the House will be aware, in two areas—hot food that is cooling down naturally and static holiday caravans—the Budget proposals created a high degree of business uncertainty, so the Government wanted to let people know our preferred course of action as soon as possible; we did that on 28 May. Last Thursday, we published a consultation response document and tabled the new schedule setting out our approach to all the measures on which we consulted. We stand by the rationale for removing anomalies, but have made several refinements, including those we announced on 28 May. They are intended to improve the policy and reflect the practical concerns raised in the consultation.
Diana Johnson (Kingston upon Hull North) (Lab)
HMRC produced a document on the impact of the caravan tax, but can the Minister provide enlightenment on the impact of the 5% VAT imposition? There are no figures now on how many jobs will be lost and by how much demand for static caravans will decrease, and I was hoping that the Treasury had worked that out.
Mr Gauke
Clearly there is a substantial difference between 20% VAT and 5% VAT. We set out our estimates in relation to the 20% rate, and some of the concerns that people took from what HMRC set out were, I think, somewhat greater than the reality warranted, because the impact set out and the assumption regarding the reduction in demand related solely to that element to which the change from zero-rated to standard-rated applied. On many caravans that are sold, the VAT is recovered—VAT already applies to an element of the price of a static caravan: that of the fixtures and fittings.
We do not think the impact of the 5% rate is likely to be substantial. In the usual course of business there are tax changes—national insurance contributions and rates are the subject of regular fluctuations—and in many cases the VAT change may well be absorbed. In addition, we have given industry much more time by deciding not to implement the change until April next year. Caravan manufacturers will have the opportunity to sell more caravans in advance of next year’s summer season—the information we have is that spring tends to be the busiest period. The overall impact on the industry is therefore unlikely to be significant.
Before discussing each of the anomalies and saying more about static caravans, I would like to give the House a little bit of history about the VAT system. As I am sure all hon. Members know, the VAT system was introduced in 1973 and amendments and adjustments were being made as early as 1974. The then Labour Government added confectionary, soft drinks, ice cream, potato crisps and certain other savoury snacks—
Mr Speaker
Order. My ears pricked up when the Minister suggested he might furnish the House with what he gently described as “a little bit” of information about VAT. In offering to the House—in a public-spirited fashion, I am sure—a potted history of the value added tax system, I am sure that he will have regard to the new clause that he is presenting.
Mr Gauke
I certainly will, Mr Speaker. I did say I would give a little history and, following your guidance, I will focus on the little.
I hope it helps the House if I explain that, in the almost 40 years in which we have had VAT, there have been changes from time to time. There were changes in the VAT on building alterations in 1982 and 1984, on hot takeaway food in 1984 and on newspaper and magazine advertising in 1985—I could go on, Mr Speaker, but let me move on.
Nigel Mills
My hon. Friend refers to the marketing of such things as sold hot. Will he confirm that a baker who markets something as freshly baked would not fall foul of this provision, given that presumably when something is freshly baked it is hot? I think that the intention is that, say, a freshly baked sausage roll that is cooling down would not be subject to VAT, but if that marketing term were used it could perhaps be caught by the provision.
Mr Gauke
The final details as to what exactly will or will not constitute marketing something as hot will be set out in the HMRC guidance. However, I take on board my hon. Friend’s perfectly reasonable point that something that is presented essentially as fresh, but cooling, is different from something that is clearly presented as hot at the point at which one purchases it.
Stephen Gilbert (St Austell and Newquay) (LD)
I am tempted to ask my hon. Friend whether he knows how many different chocolate eyes a gingerbread man must have to go from being zero-rated to standard-rated. The answer is on HMRC’s website.
On packaging, new schedule 1 uses the wording:
“whether or not the packaging was primarily designed for that purpose”.
There is some ambiguity as to whether a simple paper bag might be caught by that definition. Can the Minister assure us that people will be able to get their pies and pasties in a paper bag from the bakery without their being standard-rated?
Mr Gauke
The purpose of that wording relates to packaging that is specifically designed for the retention of heat. For example, hon. Members will all have experience of a paper bag with a foil interior that is used for such purposes. I do not think that a simple paper bag would fall into that category. In most people’s experience, pasties and suchlike are generally left on shelves rather than contained within bags while in the shop. I hope that that provides some clarification.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
We have arrived at this change after 20-odd years in which, through various legal challenges, we have come to our current conclusions on this aspect of VAT. Can the Minister assure us that we are not facing another 20 years of litigation in order to get these finer details clarified?
Mr Gauke
One can never rule out the fact that some people will be litigious and try to take a creative view of any particular guidance. However, we believe that we have reached the right position after much consultation and discussion with the industry and with hon. Members, many of whom have been very engaged in the matter. I look around the House and see at least two Members who have been in my office to make representations on this point. We believe that we have reached a position that is sustainable and fair, and that is what we are putting to the House in the new schedule. The additional criteria will ensure that hot food will generally be taxed at the standard rate of VAT, but if food that would be zero-rated when cold is bought when it happens to be cooling down, but is not yet cold, it will still be zero-rated provided that it does not meet any of the criteria that I set out. These changes will add further tests to make the relief less open to abuse and provide a level playing field for all businesses supplying their customers with hot food.
Turning to the issue of holiday caravans, which we have touched on briefly, the VAT zero rate was originally intended to apply to the sale of caravans used only for residential purposes. To achieve that objective, the rules drawn up in the 1970s applied tax only to the sale of smaller caravans that could legally be towed on UK roads by a typical family car. However, over the years, an increasing number of large caravans have been used for holiday purposes. Those caravans inadvertently benefit from the VAT zero rate that was intended for residential caravans. That has led to widespread inconsistency in the VAT treatment of the sale of holiday caravans.
Under the current legislation, any caravan wider than 2.55 metres or longer than 7 metres is zero-rated as a residential caravan. The Government propose to replace the definition of a zero-rated caravan based on size with a new definition based on whether the caravan has been designed for residential use. To achieve that, we propose a new test that links the zero-rating with British Standard 3632, which indicates that the caravan has been designed and manufactured for continuous, all-year-round occupation and is therefore suitable for residential accommodation.
We consulted on whether the additional criteria should be added to ensure that the zero rate applies only to caravans intended for residential use. Given the reaction to the proposal, we decided that rather than having a single dividing line between a zero rate of VAT on residential caravans and a rate of 20% on static holiday caravans, static holiday caravans should be subject to VAT at the reduced rate of 5%. Static residential caravans—those that meet BS 3632, or early equivalents in the case of second-hand sales of older caravans—will remain zero-rated, as per the Budget proposal. We do not intend to restrict the zero rate further by adding additional criteria.
Diana Johnson
I wonder whether it is sensible to make decisions on tax policy based on manufacturing standards. Manufacturing standards will change and no doubt get better, so is that a sensible way of operating tax policy?
Mr Gauke
In this particular circumstance, the manufacturing standard provides a better definition or borderline than the size criteria that I set out. It was put to us in the consultation that it would be very easy for manufacturers to do a bit more here and there, and that a static caravan that was once not BS 3632-compliant suddenly would be. When we investigated that, we concluded that it was quite expensive and difficult to meet BS 3632. Genuine residential caravans meet that standard, but non-residential, holiday vans do not. It seems to be an effective borderline. Of course these matters will be kept under review, but we think that this is a sensible conclusion and one that the industry recognises. The evidence that the industry has put to us is that BS 3632 adequately distinguishes between residential caravans and static caravans.
It is worth pointing out that BS 3632 caravans tend to be more expensive and are built to a higher specification. For those reasons, they tend to be used more in the residential market than in the holiday market. It is worth coming back to the intention of the 1970s definition for zero-rated caravans.
We recognise that static holiday caravans fall in a grey area between residential property and temporary holiday accommodation, which have different tax regimes. We have therefore produced the fair compromise of a 5% VAT rate. The argument was sometimes made to us that static holiday caravans should be treated like a second home, on which VAT is not paid. However, council tax is paid on a second home, which is not the case with static holiday caravans. Imposing the council tax regime on static caravan homes would have placed a significant burden on their owners and holiday parks, so we believe that we have made a fair compromise. As I said earlier, to give the industry more time to adjust, the measure will be delayed until 6 April 2013. All the other measures that we are discussing today will proceed as planned on 1 October this year.
Catherine McKinnell
My hon. Friend the Member for Kingston upon Hull North (Diana Johnson) asked about the impact that the current proposals will have on the industry. Will the Minister confirm that the Treasury has not yet calculated that impact?
Mr Gauke
We assessed what the impact would be if VAT was at 20%, and obviously 5% is a quarter of that, so one can draw correlations. Most industries supply VAT-inclusive durable goods at a profit, so it is reasonable to apply VAT in this case. The impact that we originally set out in the tax information and impact note at the time of the Budget will be significantly lessened by the change to the 5% rate, particularly bearing in mind that there is already a full 20% rate on a fair proportion of static caravans because of the durable goods contained within them.
Andrew Percy (Brigg and Goole) (Con)
We can partly assess what the impact will be from what manufacturers themselves have said, which is that they do not expect the 5% rate to have an impact of any great severity on them. However, it is important to recognise that there needs to be stability, so an assurance that the Government will not raise the rate in future would be welcome, as would an undertaking that there will be an assessment of the rate after a year or two to see whether it has had any impact. Generally, the industry has welcomed it.
Mr Gauke
My hon. Friend is right to say that the industry has welcomed the change to our policy. As we would expect, it does not anticipate the 5% rate to have a significant impact on it. As far as the stability of the rate is concerned, the standard wording is to say that all decisions are for the Chancellor and all taxes are kept under review, but I do not anticipate that the Government will return to this issue in any great hurry. I am sure my hon. Friend will be pleased about that. Were we to do so, I have no doubt that he would make strong representations once again. I hope he will take some comfort from that.
Diana Johnson
The National Caravan Council has said that the caravan industry is fragile after the problems that it experienced in 2008. Based on the figures in the KPMG report, there would have been 6,000 job losses if the imposition of the 20% rate had gone ahead. Am I right to assume that with the 5% rate, the Treasury is working on the assumption that the impact will be a quarter of that number, which means 1,500 job losses?
Mr Gauke
Perhaps it will help the hon. Lady if I run through the situation. We have to raise a certain number of taxes, and VAT probably does less harm to the economy than almost any other tax that one could mention, whether it be employers’ national insurance contributions, which reduce the number of jobs, or corporation tax, which reduces investment. There is an issue with any tax.
On this particular policy, however, we are talking about a 5% rate on 80% of the price of a caravan, the other 20% being standard rated already, and on 85% of sales, the other 15% being standard rated already—or rather the purchaser being able to recover input taxes on it. There is then an elasticity of demand, and the 5% rate might result in a 5% reduction in demand, but of course that involves various assumptions and some uncertainty. As my hon. Friend the Member for Brigg and Goole (Andrew Percy) said, however, much of the industry does not think it will have a significant impact.
Simon Hart (Carmarthen West and South Pembrokeshire) (Con)
I wish to reinforce that point. The site operators, of which, as the Exchequer Secretary knows, there are many in south and west Wales, would also come to the same view—although not ideal, they thoroughly understand the situation and recognise it as one they can manage for the foreseeable future. They much welcome the news that it will not be revisited in the foreseeable future.
Mr Gauke
My hon. Friend is absolutely right. Tax is but one of the various factors that will have an impact on demand, and VAT is but one tax. I shall not dwell on it, Mr Speaker, but I should mention that the Government are putting in place a much more competitive corporation tax regime, which will be to the advantage of caravan manufacturers and many others.
I shall touch briefly on alterations to listed buildings. The reaction to our announced changes to VAT on approved alterations to listed buildings demonstrated the need for the measure on the grounds of simplification alone. The consultation and media coverage have highlighted the huge uncertainty over whether an item of building work is an alteration or a repair. The purpose of the measure is to avoid the need for such discussions by applying the same VAT liability to all alterations, repairs and maintenance. Repairs and maintenance to all buildings, including listed buildings, have always been liable to VAT, and alterations to non-listed buildings have been since 1984. The Budget announcement changes none of that, although a zero rate currently applies to alterations to protected buildings—mostly listed dwellings but also scheduled monuments and listed buildings used for charitable and other residential purposes.
For listed buildings, the borderline between alteration and repair or maintenance is a major source of confusion. The Budget announcement has no impact on the repair and maintenance of listed buildings, which have always been liable to VAT, so there will be no change to the VAT treatment of repairs to thatched roofs or steeples, contrary to what has been reported in the press. The Budget decision also reflects our view that grants can provide a more flexible mechanism than VAT for providing specific financial support for the heritage sector. We have increased the funding for the listed places of worship scheme and broadened its scope so that churches and other listed places of worship can claim grants to offset the impact of VAT on their alterations, repairs and maintenance.
The Budget proposal for alterations to listed buildings includes transitional arrangements, and, following the consultation, we have decided to make these more generous. As with the Budget proposal, the transitional arrangements will cover cases where written contracts had been entered into before Budget day 2012 or, in the case of the first grant of buildings that have been substantially reconstructed, where 10% of the work had been completed before Budget day. We have now agreed that they should also apply where listed building consent had been applied for before the Budget, and the transitional arrangements will be extended so that, where a project qualifies, zero rating can apply until 30 September 2015. These extensions will mean that the zero rate will continue to apply for most alteration projects where work was close to starting at the time of the Budget announcement.
Let me turn to the Budget proposal for self-storage.
Catherine McKinnell
I apologise for interrupting the Minister’s flow, but I want to take him back to listed buildings. He spoke about grants being available to churches for alterations and repairs. However, my understanding is that there is concern that what is proposed is more of a rebate or reclaim of tax spent, rather than a grant that would be available before the alterations and repairs are undertaken. Will he clarify what the position will be?
Mr Gauke
The first point to make is that the increased funding for the listed places of worship scheme was entered into after consultation with the Church of England, which led for other religious groups in this matter, and I understand that they are satisfied with the arrangements that have been reached. The listed places of worship scheme, which the previous Government set up, has been extended to allow recovery costs relating to VAT for both repairs and alterations. It offers church groups, for example, an opportunity to recover the costs they would otherwise incur, but is now much more generously funded, and a much greater proportion of VAT costs will be able to be reclaimed. Indeed, VAT costs should be able to be reclaimed in full for the time being, such is the scale of the support we have made available for the listed places of worship scheme.
It is perhaps worth pointing out that we always made it clear that we would increase the listed places of worship scheme, because of the increased costs that were going to be placed on churches, but after further discussions, with the Church of England in particular, we realised that the amount we had initially said would be adequate was not adequate, and we increased it. However, to deal with the hon. Lady’s specific question, what is proposed is indeed a reclaim arrangement. That is how it will work, and that is how it worked in the last Parliament as well.
Catherine McKinnell
Will the Minister clarify, therefore, whether he has received any expressions of concern about churches, which often rely on fundraising to undertake works, having to raise additional money, which they will then have to reclaim from Her Majesty’s Revenue and Customs, or about the additional burden that this will place on what are already quite stretched resources?
Mr Gauke
I understand the point the hon. Lady raises. The Church is satisfied with the arrangements. She is suggesting that in order to fund a project, a church group would need to fund the cost, plus 20%. That is not how it should work, because the scheme will be sufficiently flexible to ensure that a church group will have the funding in time, so that it does not have to raise an additional 20% or so. I have had considerable conversations with Church representatives on this issue, and I am not getting representations that they are concerned about that point.
Catherine McKinnell
I have just one last question about this issue. Has HMRC undertaken any assessment of the additional bureaucracy and administrative costs that will result from all churches having to engage in the process?
Mr Gauke
The advantage of the way in which we have introduced this measure—through the listed places of worship scheme—is that there is already a mechanism in place for providing grants for repairs. That is something we inherited, and although I cannot say this about everything we inherited, it is quite helpful. We anticipate that there will be a monthly repayment process through the listed places of worship scheme. With regard to the hon. Lady’s concern about cash flow, the main point to make is that the Church is content with the arrangements.
Jim Shannon (Strangford) (DUP)
I thank the Minister for his clarification on that matter. I understand that if churches want to reclaim VAT in such circumstances, such a claim will have to apply to work on the footprint of the original construction. When work is done not only to the old part of the church but also to the new, will it be possible to differentiate a claim so that the work done on the old part and that carried out on the new extension can be treated differently?
Mr Gauke
The arrangements that will be in place following the legislation will mean that repairs and alterations will be chargeable for VAT. However, the listed places of worship scheme will apply to both types of work. It has been the case for some time that repairs involved the payment of VAT. The listed places of worship scheme will enable people to reclaim the VAT costs relating to those repairs. An extension—which is an alteration, rather than a repair—will now have VAT charged to it, but it will be possible to reclaim it through that same scheme. The scheme is now more generously funded than it was before the Budget, which means that a higher proportion of the costs that the churches would have incurred will now be able to be reclaimed. We have taken steps that the churches have widely welcomed.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
I am sorry to have missed the beginning of the Minister’s remarks on this subject. I was actually checking up on certain aspects of a similar issue in my constituency. He said that the Church of England was content with the arrangements, but I hope that he will accept that it is not just the Church of England that is involved. I have a lot of churches, places of worship and listed buildings in my constituency, and I have been contacted by a church that was in the advanced stages of preparing to carry out work that could be seriously affected by the proposals. Will the Minister guarantee that, if the funding for the scheme does not meet the requirements, he will look again at the level of funding provided? Will he also monitor the scheme closely to ensure that no extra bureaucracy is introduced that could delay projects that would otherwise go ahead?
Mr Gauke
The hon. Gentleman is absolutely right to say that not just the Church of England is involved. I said earlier, however, that the Church of England had led on behalf of all the churches on this matter. On his second point, we have made the transitional rules more generous for churches that were close to commencing work at the time of the Budget. I obviously cannot comment on the specific case in his constituency without knowing all the details, but I think that he will find that many cases in which plans had reached an advanced stage will benefit from the transitional rules. He mentioned the funding for the scheme. We believe that this is a generous settlement, but we will of course keep such matters under review. He also mentioned bureaucracy. The scheme is organised by the Department for Culture, Media and Sport, but the Treasury will also take a close interest in it. The two Departments have worked together very effectively on this matter, and we are keen to ensure that the scheme works in an adequate way. I would underline the point that the representations that we have received from the churches suggest that they are happy with the arrangements.
Mr Frank Field (Birkenhead) (Lab)
The Minister says that the two Departments are now working closely together on the scheme. Was there a similarly close working relationship when the Treasury was thinking up the proposal? Did the DCMS know about the proposal and approve it—before it was modified, of course?
Mr Gauke
The right hon. Gentleman is attempting to draw me into dangerous, and perhaps more interesting, territory. All I would say to him is that all decisions are for the Chancellor, although of course the Department for Culture, Media and Sport was involved at an appropriate level.
The Budget proposal for self-storage changed the liability of supplies of facilities for self-storage from exempt to taxable. Following consultation, we planned to avoid creating a competitive advantage for those larger operators with more expensive facilities. These businesses can partially mitigate the impact of the change by using the capital goods scheme to claim back some of the VAT they had previously paid on the purchase of these facilities, whereas smaller businesses with less expensive facilities cannot. We will therefore make a separate provision by statutory instrument to amend the capital goods scheme so that self-storage providers affected by the measure whose individual capital items are worth less than a £250,000 threshold for the scheme can opt into it and have the same input tax recovery benefits as larger providers with capital items that would already qualify for the scheme.
We also propose to ensure that the storage of live animals will remain exempt, as the original proposal might inadvertently have applied VAT to stabling, and we propose to introduce an anti-avoidance provision so that if the storage is used by a third party with the permission of the person who contracts for the storage, it is taxed in the same way as if it were self-storage. This will prevent someone from avoiding taxation by getting a third party to contract with the supplier. We have revised the exclusion for storage facilities provided to persons connected with the supplier so that it is more directly targeted on facilities that are subject to the capital goods scheme. This fine-tuning reflects the benefit of consulting and listening to what respondents say, but it does not undermine the rationale for the measure.
For hairdressers’ chairs, the schedule provides a clearer description of the services typically provided under a chair rental agreement and excludes services that could legitimately be provided with a simple supply of a right over land. The schedule also reflects a change to make it clear that the supply of a whole building to a hairdresser will not become taxable unless it is supplied along with other goods or services.
Finally, regarding the measure to apply VAT to all sports drinks and to clarify the definition of premises for the purposes of determining whether food is consumed on or off the suppliers’ premises, we are proceeding as planned in the Budget.
Nigel Mills
I am grateful to the Minister for giving way to me again. On the sports drink issue, I am sure he will remember the old milk advert suggesting that if children did not drink their milk, they would end up playing for Accrington Stanley rather than Liverpool. The gap between those two teams might be a bit less nowadays, but the idea was that milk improves physical performance. Will my hon. Friend confirm that an ordinary pint of milk will not be caught within these provisions?
Mr Gauke
I confirm that I remember the adverts and that milk will not be standard rated for these purposes. I refer my hon. Friend to the remarks the Chancellor made in respect, I think, of the 2010 Budget—that everyday essentials will not become standard rated. However great the advance of Accrington Stanley and the decline of Liverpool, that will remain the case.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
Will the Minister provide a bit more clarity, as I believe the industry has been extremely concerned about the definition of a sports drink as opposed to sports nutrition products? I understand that some drinks would not be caught within the definition, but that some products legitimately used by athletes—by weight-lifting participants, for example—would be. Given the concern about it, further clarification from the Minister would help.
Mr Gauke
The broad point is that sports drinks—such as Lucozade and others—are standard rated and have been for some time, and that sports nutrition drinks marketed as such will now become standard rated. We believe that that is fair. These products can be distinguished from a pint of milk or a milk drink not designed or marketed for sports nutrition purposes. Nothing in the consultation responses calls us to query the rationale for the measures or to amend the draft legislation other than through a minor amendment to tidy up the wording.
Catherine McKinnell
Can the Minister reassure me that his proposal will not lead to the same riddles and illogicalities that arose from the original pasty tax proposal, meaning that the same product marketed or packaged in a different way could end up attracting a different rate of VAT? Will he also tell us what consultations he has had with the industry?
Mr Gauke
We have completed a period of consultation and received a number of representations. In recent days, I have met representatives of GlaxoSmithKline and listened to their concerns. As for the hon. Lady’s first question, when products are aimed at different markets but clearly targeted at particular consumer groups, I think it reasonable to view them in the light of some of the competing products that are aimed at exactly the same market. Our research suggests that most sports drinks are clearly targeted at particular markets, and their VAT treatment will follow from that.
Catherine McKinnell
The Minister has not really explained why the Government should want to target a sports industry or sports-related products for tax purposes when much more unhealthy products might remain tax-free. Will he clarify that?
Mr Gauke
If the Opposition are setting out the principle that whether or not VAT applies should depend on the healthiness or otherwise of the products involved—which brings us back to hot food—we may have to engage in a slightly different debate, and I am not sure that either of us wants to go in that direction.
Catherine McKinnell
I am happy to clarify the fact that I am not setting out any particular policy position on whether sports goods or health products should be targeted for tax. However, the Minister appears to be saying that although the milk that is marketed for general consumption is VAT-free, if it is marketed for sports-related consumption it will be subject to VAT. Will he explain that policy?
Mr Gauke
VAT is charged on all beverages. Typical sports drinks which are consumed primarily to rehydrate or quench thirst are already taxed accordingly at the standard rate, but some sports drinks companies have won court rulings that their products are not beverages because of their nutritional content and because they are not designed to quench thirst. The changes that we are introducing will ensure that all sports drinks are subject to the same VAT treatment whether they are consumed for rehydration or for nutritional purposes, because they are targeted at much the same group, and we think it only right to apply the same approach to consumers. The argument for the zero-rating of food is that it should apply to everyday essentials, but it is difficult to apply that argument to sports and nutritional drinks.
Julie Hilling (Bolton West) (Lab)
I am desperately trying to understand what the Minister is saying will happen to sports and nutrition products. Is he saying that all drinks will now be subject to 20% VAT? What about other nutritional products that are not sold in liquid form?
Mr Gauke
Let me try to be helpful to the hon. Lady—not for the first time during our deliberations, I hope. We propose that drinks aimed at the sports nutrition market will be standard rated. We are not applying the same approach to meal-replacement drinks. There is a clear distinction between them, as one is more closely aligned to food than to sports drinks.
Catherine McKinnell
I thank the hon. Gentleman for that clarification. I do not have the full details of the intricacies of that particular debate, but I know that what I am proposing is our policy and we support it. We are going to vote today for this measure to reduce VAT to 17.5%.
Catherine McKinnell
That is an interesting question, coming from a Minister who has just justified a temporary delay of the rise in fuel tax that is apparently to be paid for by underspends that are not quantified by the Government, who are in a much better position to provide detailed costings to the House but cannot for their own tax reductions. We have said all along that the Government’s current policies are costing the taxpayer more. Borrowing is increasing, not reducing—the Government are borrowing £150 billion more over the spending period—and the benefits bill is sending the economy backwards, not forwards.
Catherine McKinnell
I have just answered it. I would be grateful if the Minister could similarly provide detailed costings as to where the Government’s tax reduction for the fuel relief is going to come from. If he were able to do that, we could certainly provide detailed costings of our tax proposal. The point is that the reduction to 17.5% will put money back into people’s pockets, get the economy moving and get growth back into the economy. That will help to bring down borrowing, which is increasing at the moment.
Catherine McKinnell
As I said, it is the Government’s job to work out the cost of any tax changes or spending commitments, and they have not even been able to provide answers as regards their own fuel duty reduction.
Mr Gauke
As the hon. Lady says that it is the Government’s job, let me tell her—I do not want to keep her in suspense —that her policy of reducing VAT to 17.5% would cost £12 billion to £13 billion a year. Does she dispute that number, and can she explain how she is going to pay for it?
Catherine McKinnell
If our policy turns the trajectory of the economy around from one of recession to one of growth, then clearly it will pay for itself and bring down the benefits bill, which is currently going up.
Julie Hilling
I thank the hon. Gentleman for that intervention. Clearly, I do not believe that £30 million is anywhere near the sum needed to compensate. Of course, the Government have also said that those people will get lottery and Government grants, but hang on a minute: is that not just taking with one hand and paying back with another? The change has been a huge blow to many communities that have been working for years and years to raise enough money to rescue old buildings and convert them for use by the whole community, only to now have to find another 20%.
The Government have tried to say that we should not worry too much about the heritage tax as it is really about charging millionaires who live in listed buildings and who get their indoor swimming pool tax-free, but there is no evidence for that. They conclude on the basis of a review of 105 applications that the majority of the work covered by the relief is
“not necessary for heritage purposes”,
but as nearly 30,000 listed building applications are made a year, that does not seem to me to be good evidence. From a sample of 12,049 applications, only 34 were for swimming pools. Perhaps we could deal with the problem in a slightly different way rather than imposing the heritage tax on all buildings. Indeed, 50% of those who live in listed buildings are in socio-economic groups C1, C2, D and E—supervisory, clerical, junior management, administrative, skilled workers, semi-skilled workers and unskilled workers. People in those groups are not usually millionaires.
That implementation of VAT will not raise a great deal of money in the scheme of things, but will be another blow to the construction industry and run the risk of more of our heritage buildings going to rack and ruin. Of course, once VAT is put on something it can never be returned to zero.
Skip taxes seem to have been introduced and then withdrawn. I think they probably have been withdrawn—who would know? The Government seem to be introducing a self-storage tax, however. Self-storage is often used by people in transition, such as those who are selling or buying houses or those whose homes are undergoing renovation. It is also used by people who have downgraded or moved to a different community and therefore have to live in much smaller accommodation. It is usually in a prime location so that customers can come and go as they choose, changing their winter wardrobe for their summer wardrobe or taking goods in or out of storage. Removals and storage providers have storage facilities as an ancillary part of the business and are therefore frequently in more remote places, as the location of the property does not need to attract customers. One reason for putting VAT on self-storage was to level the playing field for removal companies, even though they have different purposes. The effect will be that ordinary people will be hit again. Businesses that use self-storage to store documents and so on will be able to reclaim the VAT, but the ordinary person will not.
I think we still have a hairdressers tax. That will mean that self-employed hairdressers who rent a chair in a small salon will have no choice other than to register for VAT and decide whether to charge their customers VAT at 20% or to absorb the cost themselves. Of course, that will particularly hit females aged between 16 and 46—the very people whom the Government say they want to encourage to be entrepreneurs, start up their own businesses and pay into society.
The situation with sports nutrition is another unholy mess. If I have got this right—I hope that the Minister will correct me if I have not—sports drinks will become VAT-able, but sports nutrition products will not. If the Minister wants to intervene, I am happy for him to do so.
Julie Hilling
Does that mean that it will be exempt if a liquid product is made into a solid and people are just advised to drink water with it? What about weight-management products? More than 20% of the products in the sports nutrition category are for weight management. If they are slimming products, they are zero-rated, but they could also be considered to be sports nutrition products. We could have a bizarre situation in which men and women who exercise hard, follow a balanced diet and use sports nutrition products to help them get into shape would pay VAT, whereas those who skip meals, sit on the sofa and take magic slimming products would not.
It seems odd that we are making that tax change in Olympic year, when we are encouraging people to get fit, but it is typical of this Budget. It is a shambles that will create more anomalies than it will resolve. With all the U-turns—even though we welcome some of them—it is still totally confusing. Even after listening to the Minister this afternoon and spending many weeks on the Bill Committee, I am still not clear what the Budget says.
Secondly, the Budget rewards millionaires and punishes ordinary people. It punishes the squeezed middle and the battered base, which my hon. Friend the Member for Gateshead (Ian Mearns) frequently mentions. The VAT changes all hurt people who lead ordinary lives. They all hit hard-pressed businesses and do absolutely nothing for jobs and growth. The millionaires still get their tax cut, but they are not paying the tax that is due. If the rest of us decided not to pay our taxes, could we have a tax cut too? Or does that apply only to the very rich, who can also avoid their tax by paying accountants a great deal of money?
Charlie Elphicke
I want to speak briefly about new schedule 1. In my constituency is A and S Self Storage, run by Diana and George Pelly, which is a small family-run storage business. My concern is about how the new measure will work and I hope that Ministers will take on board some of my points.
The mischief that the new schedule seeks to attack is the business whereby big companies exercise the option to tax on a piece of land, build a storage facility and later disapply the option to tax, giving themselves a tax advantage. The Treasury have applied VAT on all self-storage and my concern is that some 250,000 people in the UK use self-storage and will find from September onwards that their bills will suddenly go up by 20%. I hope that the Government will consider this a little further and think whether there is a better way to deal with the real mischief, which is the abuse of the option to tax.
My other concern is that the revenue raised will disproportionately benefit larger businesses that can claim back costs under the capital goods scheme, rather than the smaller businesses, which cannot. Effectively, it will disproportionately benefit the four big players in the self-storage industry at the expense of smaller businesses such as A and S Self Storage. I hope that Ministers will consider that point.
The Exchequer impact is also in question. The Exchequer says that the measure will raise money, but the Self Storage Association’s brief states:
“In its calculations the Government has not taken into account the significant reclaim of VAT under the CGS rules, which Deloitte have calculated to be £43m based on the detailed results of their survey…According to Deloitte many operators, particularly the largest ones, could accelerate CGS recovery under existing VAT law.”
I want to plead for caution on the part of Ministers and ask them to consider carefully the question of tackling the underlying abuse, which is the business of disapplying the option to tax. I appreciate that many Members will find that exceptionally dull, as it involves highly technical VAT law, but my principal concern is that it is a hard thing to raise VAT across the board for 250,000 people when one really wants to target the few people who are playing the system to get more tax money for their businesses at the expense of everyone else and of the UK Treasury.
Mr Gauke
It is a great pleasure to respond to the debate. I thank my hon. Friends the Members for Truro and Falmouth (Sarah Newton), for Brigg and Goole (Andrew Percy), for St Austell and Newquay (Stephen Gilbert), for Amber Valley (Nigel Mills) and for Dover (Charlie Elphicke) for their remarks. In many cases it has been a pleasure to work closely with them on some of the Budget measures that we have discussed. I thank my hon. Friend the Member for St Austell and Newquay for his kind remarks. I am grateful for the courteous and constructive way in which he engaged with us, and I am grateful also to my hon. Friend the Member for Truro and Falmouth and, although he is not here, to my hon. Friend the Member for Camborne and Redruth (George Eustice), who were very involved in these matters. [Hon. Members: “He is here.”] I am delighted to see that he has joined us. Even if I did not know he was here, I would have said something nice about him. He can assess my sincerity on that basis.
My hon. Friend the Member for Dover made a point about the capital goods scheme. I think he was otherwise engaged earlier today, but I confirm to the House that we are making a separate provision by statutory instrument to amend the capital goods scheme so that self-storage providers affected by the measure and whose individual capital items are worth less than the £250,000 threshold for the scheme can opt in to the scheme and have the same input tax recovery benefits as larger providers with capital items that would already qualify for it. My hon. Friend can note that within two minutes of his making a request, the Government have acceded to it. I hope he is pleased with that.
I want to pick up on some of the points made and say a word or two about some of the new clauses. I think the point that the right hon. Member for Birkenhead (Mr Field) is addressing in new clause 3 is the funding of sixth-form colleges, as opposed to whether they are charged for VAT. Sixth-form and further education colleges are under the control of local authorities and have always been funded differently from schools or academy schools. I think he has in mind a refund scheme along the lines of that for academies.
Sixth-form colleges have never been able to receive VAT refunds against expenditure on their non-business activities, but the basic funding principle for sixth-form colleges is that their VAT costs are taken into account within their up-front funding allocation. Thus funding for sixth-form colleges includes cover for various costs, including VAT, on top of the direct costs of teaching. The right hon. Gentleman has put his argument on the record. Essentially, he argues for additional funding for sixth-form colleges. That must be assessed in light of the current fiscal situation.
New clause 10, which requires an assessment of the impact of the VAT borderline changes, is virtually identical to new clause 3, which was debated and defeated in the Committee of the whole House on 18 April, and to amendment 200, which was withdrawn in the Public Bill Committee on 21 June. Given that the amendment was debated and defeated the first time and withdrawn the second time, I suggest that the Opposition withdraw new clause 10 on this occasion.
On new clause 12, the Opposition have tabled an amendment to return the rate of VAT to 17.5% until
“such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.”
This would be very costly. I know that the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) was keen not to provide a cost to the House, but the proposal would cost £12 billion to £13 billion. That would substantially erode our fiscal credibility, and if credibility is lost and interest rates rise, the impact on the fiscal position would be severe. We would expect this to have a negative effect on the UK economy. If the Opposition believe that the answer to our current problems is more borrowing, they should stand up and say so. If the solution that the economy needs is a bigger gap between what we raise in tax and what we spend, let me give the hon. Lady the opportunity to say that now.
Catherine McKinnell
Is the Minister aware that the overall borrowing that the Government are engaged in is £9 billion higher now than was planned in October 2010, so the Government’s own economic strategy is resulting in higher, not lower, borrowing?
Mr Gauke
I am not sure whether the hon. Lady welcomes that. Does she support more borrowing or not? The Institute for Fiscal Studies has made its position clear on what would happen if we pursued the policies that the Opposition advocate or have advocated—that moves around a bit. It stretches the Opposition’s credibility if they think that their approach means that borrowing now would be lower. I think the sincere position of the Opposition is that we should have a bigger fiscal stimulus—we should be borrowing more now in order to pump money into the economy. Is that their position?
Catherine McKinnell
The Opposition’s point is that the Government’s own plans are resulting in more borrowing. The alternative is to give a 2.5% VAT cut to households to stimulate demand in the economy and get the economy out of the double-dip recession that it is in and back into growth, which will ultimately bring borrowing down.
Mr Gauke
So when borrowing is higher than we plan it to be, it is a disaster, but when borrowing is higher because the Opposition would bring that about through a deliberate policy, that would be a fiscal stimulus. I am not entirely clear where they are trying to go with this. We know why the public finances are more difficult than we had anticipated. It is to do with the eurozone, the increase in commodity prices and the fact that the economy took a bigger hit than anyone had previously realised, but a discretionary fiscal loosening of £12 billion or £13 billion, which is what the Opposition are about to vote on, would be taking a huge risk with our credibility.
It is worth making the point that if we do that, we lose our fiscal credibility and we are likely to see long-term interest rates rise. That will result in our paying out more in debt interest. A one-point rise in interest rates would mean £7.5 billion in additional debt interest payments by 2016-17, and an increase for the average mortgage borrower of £1,000 per year. Is that what the Opposition want? Do they think that would help?
Sheila Gilmore
The Minister should accept that he has given a partial quotation from his own Office for Budget Responsibility. He is fond of saying that the recession has been deeper than previously thought. Yes, the OBR did say that, but it also said at exactly the same time that the climb out of that recession had been faster than had previously been thought. That was a result of the economic stimulus measures that the previous Government put in place.
Mr Gauke
The OBR was very clear about the reasons why the economy did not grow as quickly as it had predicted. That was not because of the measures that we had taken to clamp down on borrowing. It was because of the factors that it set out. Now, at a time when we see other countries without fiscal credibility facing enormous difficulties, the Opposition want a discretional fiscal loosening of £12 billion or £13 billion a year. That is not responsible opposition. That is not a responsible policy and it is not a policy that this Government will pursue. I urge the Opposition not to press new clause 10.
I note that the Opposition are also opposing the VAT measures in total. That would be an additional cost of £210 million. These are measures that will remove anomalies. We have listened to the concerns raised by hon. Members and others to improve what we initially set out.
Catherine McKinnell
Can the Minister clarify how much the U-turns that the Government are legislating for today will cost and whether the £210 million has been factored into them?
Mr Gauke
After the changes we have announced, the Budget remains fiscally neutral. The reality is that the £70 million we are talking about has to be compared with the policy of cutting VAT, which would cost between £12 billion and £13 billion, and the £210 million for refusing to go ahead with the VAT changes we have announced. I am afraid that that simply underlines the fact that, once again, the Labour party has no fiscal credibility, will not face up to the challenges in the public finances and remains unfit for office.
Mr Gauke
I beg to move, That the Bill be now read the Third time.
The Bill proposes wide-ranging reforms of the tax system to reward work and promote growth. It supports business and growth, creates a fairer, more efficient and simpler tax system, and builds on our commitment to improving the tax policy-making approach. However, it should be seen against the fiscal backdrop that we inherited.
Before I discuss the Bill in more detail, let me remind Members of the challenges that we face. When we came to power, we were confronted by the largest peacetime deficit that the country had ever seen. One pound in every four was borrowed. Members will recall—[Interruption.]
Mr Deputy Speaker (Mr Nigel Evans)
Order. I am finding it rather difficult to hear the Minister.
Mr Gauke
Members will recall that the independent Office for Budget Responsibility revealed that the underlying damage to the economy and our challenge in repairing it was much greater than anyone had thought. It was therefore vital for us to take decisive action to restore the economic stability that was needed for recovery, and the Bill is part of that. In order to address the enormous debts that we inherited, confront Britain’s problems and get the economy moving, the Government have undertaken a sustained programme of deficit reduction.
As I said earlier, the Bill supports business and growth. It implements milestones for the corporation tax roadmap, overhauls the controlled foreign companies regime, and introduces the patent box.
Mr Alan Reid (Argyll and Bute) (LD)
My hon. Friend mentioned the controlled foreign companies regime. I support the Government’s efforts to ensure that all the tax that must be paid in the UK is paid in the UK, but, as he knows, concern has been expressed about the possibility that by introducing these rules the Government will inadvertently harm small developing countries which may lose tax revenue. I hope that they will ensure that there is no such side effect.
Mr Gauke
We debated that in the Committee of the whole House. The purpose of the CFC rules is to protect the UK tax base, as has always been the case, but the Government have a proud record of supporting developing countries, and we have a firm commitment to meeting our international obligations on that front. This country also has a proud record of building capacity in developing countries and improving their ability to collect taxes. In many developing countries, the UK has already made a substantial contribution, and we will continue to do so.
Both the patent box and the CFC changes form part of the Government’s wider plans, which will help UK businesses to operate in an increasingly globalised world. I am sure all Members agree that those measures are essential to restore medium and long-term growth.
Despite the challenging economic backdrop that the Government inherited, we have made significant progress. We have already introduced a further cut in the rate of corporation tax that will give us the lowest rate in the G7, the fourth lowest rate in the G20, and the lowest rate that this country has ever known. By next year, the Government will have cut corporation tax by 6%, helping to make the UK the most competitive country in the G20. According to the OBR’s assessment of the Budget, the reduction will increase the level of business investment by about 1% by the end of the forecast period. That is equivalent to an increase in the total amount of business investment of £3.4 billion between now and 2016.
Many businesses have seen that we are, as promised, open for business. WPP and others have recently announced that they are considering returning to the UK, or that they wish to set up business here. I am delighted to say that Rowan and Lancashire have already come here, and once the CFC rules are in place in 2013, we shall be looking for more businesses to follow them. Following the Bill’s publication in March, one of the big four advisory firms announced that it was engaged in discussions with between 10 and 15 multinational companies that were considering locating substantial operations in Britain as a result of corporate tax reforms. The CBI has commented that these much-needed changes
“will help make the UK a more attractive place for companies to invest, do business and create jobs.”
The Government aim to create a tax system that is easy to understand and with which it is easy to comply, and the Bill contributes to that. It provides real help for families and business. It raises the personal allowance to £8,105—which, curiously, was not mentioned very frequently in Committee—and, combined with the further increase of £1,100 next year, will mean a tax cut for 24 million people and 2 million people being taken out of income tax altogether.
Sheila Gilmore
The Minister was waxing lyrical about simplification, and I was wondering whether he has reconsidered his view as to whether the proposed child benefit reform creates simplification or complication.
Mr Gauke
If we do not want people earning £20,000, £25,000 or £30,000 a year to be paying for benefits to go to much wealthier households, the alternative would be an extension of the tax credit system. That would have placed a much greater burden both on households and the Government. Of the available alternatives, we have gone for the simpler option.
We are deferring the 3p per litre duty increase that was planned for August to January next year. Action by this Government to reduce the deficit and rebuild the economy is already benefiting businesses and families and keeping mortgage rates low. As hon. Members know, this Government have also had to make difficult decisions so we can tackle the deficit left to us by the previous Administration. They include withdrawing child benefit from households earning more than £50,000. That is a fair way to make savings, so we can meet our targets to cut the deficit.
We are also taking steps to ensure that the wealthy pay their fair share too. The Budget package ensures that the wealthiest will pay five times more than the cost of reducing the additional rate of income tax. The introduction of a new higher rate of stamp duty land tax of 7% on properties sold for more than £2 million will raise over £1 billion in the next five years. At the same time, this Government are also tackling avoidance, as demonstrated in the Bill. The new SDLT enveloping entry charge rate of 15% will deter those seeking to put their high-value property into corporate structures to avoid tax. Also, debt buy-back measures will raise over £500 million from banks that try to avoid paying the tax due, and the introduction of the UK-Switzerland agreement will ensure we can address the tax loss from those who put their money into Swiss banks to evade tax.
There has been extensive scrutiny of this Bill, including about 44 hours in Public Bill Committee. From looking at some of the new clauses tabled for today, I am happy to see that the Opposition continue to stick to their same theme on this Bill, which is to ask for reports, rather than focusing on policies. We have seen 34 Opposition-requested reports over the last 10 weeks, but no real policy alternatives. Yesterday, we were discussing Groucho Marx, and I wonder if the Opposition ever needed to be reminded of the quote:
“The problem with doing nothing is that you never know when you are finished.”
In order to make progress with Government business in good time, we agreed with the Opposition, through the usual channels, to programme parts of this Bill.
It is a delight to see my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) once again in his usual place. As he rightly said yesterday, this legislation is the body, soul and guts of this Budget.
I thank all who participated in Committee and on Report.
Fiona O'Donnell
It is very generous of the Minister to give way. Would he also like to reflect on the comment made by the hon. Member for North East Somerset (Jacob Rees-Mogg) that a good government is one that take tough decisions and stick to them? Does the Minister think that could be said in respect of their handling of this Bill?
Mr Gauke
This Government have taken tough decisions to bring the deficit down, and we are sticking to that plan even though some Opposition Members would rather give up on deficit reduction and continue to borrow in the same unsustainable way that we borrowed up until 2010. This Government remain determined to stick to that plan. I thank the hon. Lady for giving me the opportunity to underline that point.
I thank all those who have been involved in every stage of this Bill, including both Front Benchers and Back Benchers engaged in this matter, not to mention various others. I wish briefly to mention a couple of Treasury officials. First, I congratulate Mr Edward Troup, who, as announced earlier this week, has accepted the post of tax assurance commissioner and second permanent secretary at Her Majesty’s Revenue and Customs. His wealth of experience and enthusiasm will be a great asset for HMRC, but a sad loss to the Treasury. I also thank Jamie Miller, who has been the Bill manager for this Bill, and indeed has served on the past six Bills over the past four years. Despite that, he has remained remarkably cheerful, notwithstanding the provocation that all of us have given on that front.
In conclusion, this is a good Bill that builds a stronger and more balanced economy. It will strengthen the UK, making us more competitive and more ready to face the challenges ahead, and I commend it to the House.
Extra-statutory Concession (A19)
David Gauke Excerpts(11 years, 10 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
Her Majesty’s Revenue and Customs is today publishing a consultation document on extra-statutory concession (ESC) A19.
The document sets out HMRC proposals to introduce changes to ESC A19 over the course of the next year and seeks the views of taxpayers to inform any future changes.
ESC A19 allows HMRC, under certain prescribed circumstances, to forgo the collection of tax arrears where they arose because of HMRC’s failure to act on information provided by the individual, their employer or the Department for Work and Pensions (DWP).
Following discussions with taxpayer representative bodies over the last year, it is clear that more can be done to make ESC A19 easier for customers and their representatives to understand and to ensure that the concession remains fit for purpose following the introduction of the national insurance and PAYE Service (NPS). In response to those discussions, HMRC has proposed a revised version of ESC A19 and would now like to seek wider public opinion on this revised version to help test its thinking in this area.
In particular the consultation seeks to:
improve the clarity of ESC A19 so that it is more user-friendly and easily understood by taxpayers;
help HMRC bring greater objectivity to ESC A19; and
help HMRC align ESC A19 with the HMRC charter and ensure that it continues to be available in appropriate cases.
The consultation document is available on the HMRC website at: http://www.hmrc.gov.uk/consultations/index.htm.
Finance Bill (Programme) (No. 2)
David Gauke Excerpts(11 years, 10 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
Let me briefly respond to the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson). As hon. Members know, we have already scrutinised the Budget and the Finance Bill for eight weeks, including in Committee of the Whole House and in the Public Bill Committee, where our discussions were thorough and detailed. Indeed, the hon. Lady played a very large role in those discussions. Before that, in December 2011, the Government published over 400 pages of draft legislation and received about 450 comments on it. That demonstrates our commitment to improving the way in which policy is developed. In order to make progress with Government business in good time, we have agreed through the usual channels to programme this debate on Report. I commend the motion to the House.
Question put and agreed to.
Finance Bill
David Gauke Excerpts(11 years, 10 months ago)
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Jacob Rees-Mogg
We have already discussed this. By and large people pay the taxes that they are supposed to pay, as Parliament has laid down. If they evade tax, the full force and might of the law can and should come down upon them.
I conclude on the crucial point of defending the Government on a decision that, though it has not been immediately well received, will be welcomed by the electorate, because the electorate admire Governments who govern effectively through the tough times. They do not admire Governments who are loose and lazy with their money. They admire ones who are willing to take the tough decisions. We should oppose all the amendments in the group and stick with the Budget as it was—a very fine and good Budget, in which the right decisions were made.
The Exchequer Secretary to the Treasury (Mr David Gauke)
We have had an interesting debate that has addressed what are perhaps two of the most controversial issues in the Budget: the change to age-related allowances and the reduction in the 50p rate of income tax. The debate has lasted three hours, but at one stage I thought we might finish early, until we heard the tour de force from my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg). I hope that I will have time to respond to the various comments that have been made. We heard the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) quote Groucho Marx, which I suppose is an improvement on other Marxes who might have been quoted, although I was reminded of the other Groucho Marx line:
“I’ve had a perfectly wonderful evening, but this wasn’t it”,
at least until I heard the speech from my hon. Friend.
The changes the Government have made to the rates and thresholds of income tax will provide a competitive platform for our tax system while also ensuring fairness. The measures in the Bill will reduce the additional rate of income tax in 2013-14 to 45p, increase the personal allowance to £8,105 and simplify the working of age-related allowances. I will discuss each of the amendments in turn, but it is important first to set out why the Government have taken this approach.
The fact is that the 50p rate of income tax has not raised the revenue it was intended to raise. It is currently the highest statutory income tax rate in the G20. When we came to power we inherited an economy that the previous Government had driven into a parlous state, with regard to not only the state of the public finances but our overall competitiveness. The fact is that the 50p rate came in only at the fag end of the Labour Government, who for 13 years had kept the 40p rate, and when they brought in the 50p rate they declared that it was temporary. There was a reason for that: they recognised that the 50p rate would damage our competitiveness. The hard evidence backs up that claim. The report by HMRC sets out that the 50p rate is distortive, damaging to international competitiveness and an economically inefficient way of raising revenue.
In short, the 50p rate is a failed policy. We were told that it would raise over £2 billion and, given the crippling deficit we were left, that was not something we could just wave away as if it did not matter. However, higher taxes are worth while only if they raise more revenue, and the analysis by HMRC shows that at best the yield would be £1 billion, and at worst it may raise nothing at all. That is because the behavioural response has been substantially larger than expected.
Chris Heaton-Harris
One part of HMRC’s gaming for this actually did not look at how much extra money would come in as a result of the incentive to pay the lower level of tax. Surely it would have been worth while doing that so that we could prove to some of those who do not understand simple economics that it would be worth while.
Mr Gauke
HMRC’s analysis, which is a good piece of work, showed through two different mechanisms that the reality was that the amount being raised was somewhat less than had been predicted. The fact is that the behavioural response was much greater.
Let me say a word or two about that. To start with, HMRC estimates that as much as £18 billion worth of forestalling took place in 2009-10, of which about two thirds, up to £11.3 billion, has been estimated to unwind in 2010-11, but this forestalling was not factored into the original revenue calculations. Furthermore, HMRC estimates that between one third and one half of the behavioural effect comes from genuine reductions in income. We have heard this evening that this is all about tax avoidance, that tax avoidance increases when we increase the rate and that we can be sure we will get the benefit of it as we unwind, but the reality is that between one third and one half of this was simply the result of less economic activity, because people reduced their hours and participation in the UK labour market and moved elsewhere.
Kelvin Hopkins
The Minister has said it: the amount raised from the increase in tax declined because the economy went into relative decline as a result of the Government’s policies. The fact is, however, that all this is about the feebleness of our tax-collecting system—the laws governing it and HMRC, which has been shown to be soft on big companies, in particular, and soft on the rich when it comes to tax collection. Light-touch regulation: that is the poison.
Mr Gauke
I strongly disagree, but before I turn to tax avoidance let us remember that between one third and one half of the reduction is because of less participation in the labour market. It is not because of the decline in the economy; we are talking about people moving elsewhere, people retiring earlier and people working fewer hours because it is not worth their while, in their opinion, to work as hard as they would otherwise do. Let us not forget that when someone moves from this country to Switzerland, we miss not just the difference between 45p and 50p, but everything, the whole 50p, and not just that bit above £150,000, but the first £150,000. That is the consequence of a tax rate that drives people out of the country and does not attract them here.
Thomas Docherty
Can the Minister tell me two premiership footballers who have left the country because of this tax rate?
Mr Gauke
No I cannot, but I know that, for example, the Arsenal manager remarked that the 50p rate put him at a disadvantage. Earlier, the hon. Gentleman mentioned Ipswich Town and whether its players deserved a tax cut or pensioners did, and I have to say that on last season’s performance one or two looked as if they could qualify for the age-related allowance, but that is not at the heart of my argument.
The point is that we have to be competitive, and we want to attract talent to the UK, but having a higher rate than France, Italy and Germany is not competitive.
Sheila Gilmore
Generally, when changes are made and we want to assess their impact, we carry out properly independent research. On the changes to housing benefit, for example, the university of Sheffield has been commissioned to produce reports, but what research into our short experience of the 50p tax rate was carried out that gives rise to the conclusions mentioned? Do we have some research that we can look at, or is there just speculation that people might have retired or might have gone to Switzerland?
Mr Gauke
The hon. Lady asks what research we have. I am holding it in my hand: the document produced by HMRC, which sets out a thorough analysis. I urge her to read it and to see that it is far from speculative; it is a thorough piece of work, which shows that as a result of the 50p rate total income fell by between £2.9 billion and £4.4 billion and GDP was between 0.2% and 0.3% lower. There has been not just a loss of tax revenue, but a loss to the whole economy through lower productivity and lower economic activity.
Justin Tomlinson (North Swindon) (Con)
If Labour Members felt that the 50p rate was so good, why did they introduce it as only a temporary measure?
Chris Ruane (Vale of Clwyd) (Lab)
If it is such a sensible, logical and scientifically researched conclusion that reducing the tax rate from 50% to 45% is such a good thing, why do the great British public not believe it?
Mr Gauke
I do not know whether the great British public have reached that conclusion. Perhaps some of them believe some of the arguments put by the Labour party, but if they do I have to point out some of the weaknesses. In the Committee of the whole House, the hon. Member for Pontypridd (Owen Smith), who previously spoke for the Opposition on this issue, said that he considered the taxable income elasticity calculations in the report to be “smoke and mirrors”. We would call them analysis and economics.
Ian Mearns
I am grateful to the Minister and Ipswich Town supporter for giving way. Does he agree with the general thrust of the argument put forward by his colleague, the hon. Member for North East Somerset (Jacob Rees-Mogg)? It was that tax avoidance is not at all morally repugnant and it should be encouraged as long as it is legal.
John Hemming
I am a Government Back Bencher who is not massively enthusiastic about the reduction in the top rate; I think that the Laffer curve peak would be at a higher rate than is thought. However, will the Minister comment on the fact that the Labour party seems to have forgotten that it did nothing to close the transparent fiddles, which are so resented, when people have paid 1% or 2% in tax? Those transparent fiddles have been around for years and Labour did nothing to close those gaps.
Mr Gauke
My hon. Friend makes an important point. If we are talking about unfairness in the tax system as far as rates are concerned, I should say that the much greater unfairness is when wealthy individuals are paying very low rates of income tax—lower rates than are paid by the vast majority of people working in this country.
Let me say a word or two about avoidance. In the Budget, we announced a package of measures that will yield more than £1 billion and protect more than £10 billion in revenues over the next five years. Our approach to tackling stamp duty land tax avoidance and the banking scheme closed down in February demonstrate that we are prepared to move quickly and take radical action where necessary. We are introducing strategic changes to address the underlying loopholes in the tax system, as can be seen in clause 22, which is about the treatment of manufactured overseas dividends. More generally, the Government have been active in their response to tax avoidance schemes and can and do act as soon as they become aware of abusive schemes. We have provided HMRC with additional financial support and we remain absolutely committed to tackling tax avoidance.
Amendment 1 asks us to leave out the additional rate for 2013-14. It is exactly the same amendment as was tabled in the Committee of the whole House. I will not repeat every point that I made then, but as my hon. Friend the Member for Amber Valley (Nigel Mills) said, that might well leave us with just a 40p rate rather than a 45p rate. There is an alternative interpretation, which would mean that no income tax was charged for earnings above £150,000. I say that with some nervousness. I hope that I have not overexcited my hon. Friend the Member for North East Somerset; I think that even he would accept that that was below the revenue maximising point.
When the 50p rate was introduced, the right hon. Member for Edinburgh South West (Mr Darling), the then Chancellor, explicitly stated that it was a temporary measure. We are announcing the cut to 45p now to provide stability for investment decisions and certainty for employees and the self-employed. That is why my right hon. Friend the Chancellor set out the rate for 2013-14 this year.
It is right that we take these measures to improve competitiveness, and our doing so has been widely welcomed. This matter must be viewed in the context of the personal allowance increase, which shows that we are committed to a fairer tax system that provides greater reward for work while supporting the public finances. This year there is a £630 increase in the personal allowance, as introduced by clause 3. That represents the second step in our commitment to increase the personal allowance to £10,000 on top of last year’s increase of £1,000. We have also announced a further increase of £1,100 next year—the largest ever increase in cash terms. The Government are taking 2 million people out of income tax, we are providing a tax cut to 24 million people, and we are well on course to meeting our target of a personal allowance of £10,000.
Let me turn to the second subject that we have debated—age-related allowances. Amendment 23 seeks to leave out clause 4, which introduces a phased withdrawal of age-related income tax personal allowances. Those will remain in place until the income tax personal allowance for those born after 5 April 1948 aligns with or overtakes these levels. At that point, the clause guarantees that older people will receive the higher allowance. Amendment 23, like others tabled by Opposition Front Benchers, is a repeat of an amendment tabled in the Committee of the whole House. The Government have committed to increasing the personal allowance above the rate of inflation. Next year, the personal allowance will increase by £1,100—£840 above inflation—and so from 2013-14 everyone born after 5 April 1948 will receive the same personal allowance of £9,205. This will take a further 880,000 people out of tax altogether. Similarly, everyone born after 5 April 1938 will continue to receive the age-related allowance that they currently receive instead of moving on to the higher age-related allowance, which will be maintained for those born on or before this date. There will be no new recipients of age-related allowances from next April.
One of the Government’s key objectives for the tax system is to make it simple and straightforward for people to understand. Clause 4 helps to provide for a simpler system while ensuring that nobody will lose out in cash terms as a result. It will help to make sure that people get the allowances to which they are entitled and pay the right amount of tax, and make the system simpler for Government to administer, thereby minimising costs to the taxpayer.
Ian Lavery
It has been mentioned a hundred times tonight that no one will lose out in cash terms. Will there be any losers in this?
Mr Gauke
Nobody will lose out in cash terms; that is the point.
Age-related allowances are complex and hard for older people to understand, as the Public Accounts Committee confirmed in a 2009 report. The same report also stated that too much emphasis is placed on older people having to prove their eligibility, resulting in erroneous claims and potential overpayments of tax. Furthermore, in March this year the Office of Tax Simplification published its interim report on its review of pensioner taxation in which it highlighted no fewer than nine complexities with the age-related personal allowance.
Half the people aged over 65 in 2013-14 will pay no income tax at all and are therefore unaffected by these changes. Those who will now not receive an age-related allowance will benefit from a £1,100 increase in the personal allowance, which represents the largest cash increase ever. At the same time, those who are affected by the withdrawal of age-related allowances will still see the total deductions they pay reduce significantly because we have retained the exemption from national insurance contributions for those of state pension age.
It is important to consider these changes to age-related allowances in the context of the wider support that the Government offer to pensioners. Only 40% of pensioners benefit from age-related allowances, about 50% are unaffected by the changes made by the clause because they pay no tax and will continue to pay no tax, and the remaining 10% have incomes above the taper limit for age-related allowances and are therefore unaffected by these measures.
Let us also remember that the triple lock ensures that each year, the basic state pension will be uprated by the highest of these: inflation, earnings or 2.5%. This April, the basic state pension increased by the consumer prices index inflation rate of 5.2%. That meant that there was an increase of £5.30 a week in the full basic state pension—the largest ever cash increase in the basic state pension. Under the previous Government’s plans, the basic state pension would have increased by only 2.8% from this April—an increase of only £2.85 per week. That means that the full basic state pension is £127 a year higher in 2012 than it would have been under the previous Government’s plans. Next year, a full basic state pension is forecast to be £130 a year higher than under the previous Government’s plans, and the year after that, it is forecast to be £133 higher.
Each year, more than 11 million pensioners will benefit from the introduction of the triple lock. An existing pensioner with a full basic state pension will gain more from the triple lock in each of the next three years than they will lose from the freeze in age-related allowances. The Institute for Fiscal Studies has said:
“Our analysis shows that they have lost considerably less from recent tax and benefit changes than any other demographic group. And over the past decade and more pensioner incomes have risen faster than those of the working age population.”
To conclude, the Government are making changes to ensure that there is a fair and competitive tax system. Some of them are controversial, but we should look at the evidence, not the Opposition’s rhetoric. The 50p rate is not sustainable. The introduction of the triple lock on state pensions means pensioners continue to be better off. These changes are good for our long-term tax revenues, good for our economy and good for the UK as a whole. I ask the Opposition to seek leave to withdraw the amendment.
Rachel Reeves (Leeds West) (Lab)
It is good to have plenty of time to wind up for the Opposition. We will press for a vote on amendments 1 and 23 this evening, because as today’s debate has confirmed for anyone who was still in any doubt, this is not only an omnishambles of a Budget, as my hon. Friend the Member for Livingston (Graeme Morrice) said, but a flawed and unfair Budget.
We have heard contributions about the hardships that the Government’s economic failure and unfair austerity measures are causing for our constituents. My hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier) talked about the cuts beginning to bite. She rightly said that pensioners are the victims and millionaires are the victors from the Budget. My hon. Friend the Member for Wansbeck (Ian Lavery) said that the tax cut for millionaires is worth more than the money that most of our constituents take home in a year. The hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) spoke about a tax cut for the mega-rich that leaves a bad taste in the mouth.
Instead of taking serious steps that might repair the damage that has been done, the Chancellor and his Ministers have turned from their failed experiment in expansionary fiscal contraction and resorted to the notorious Laffer curve. As my hon. Friend the Member for Brent North (Barry Gardiner) said, they are testing that economic philosophy to its limits. It is their latest excuse for an economic policy that rewards those who are already very wealthy and is the last refuge of a Government who have lost any sense of purpose beyond the protection of privilege.
The argument that cutting tax for the very richest is the only way of improving the economic prospects for the rest of us was made by the hon. Members for Amber Valley (Nigel Mills) and for Dover (Charlie Elphicke). They were suggesting that cutting taxes for the rich is what makes them work harder, but that cutting benefits for the poor is what gets them out of bed in the morning. They were saying that although these policies will hurt their constituents, they will vote for them anyway. I am sure that their constituents will sit up and take notice.
It is the same old Tories dusting down the same old trickle-down theories. They did not work in the 1980s and they will not work today. As my hon. Friend the Member for Edinburgh East (Sheila Gilmore) said, the Government seem to think that if they cut taxes for the richest, somehow the rest of us will be the beneficiaries. Nothing could more clearly demonstrate the Government’s perverse priorities than the fact that, when ordinary families are going through the toughest times in living memory, clause 1 of chapter 1 of part 1 of this Finance Bill gives a £3 billion tax cut to the richest 1% of the population, and the rest of the Bill is peppered with dubious means of making other, far less fortunate people in society pay for it.
Among those means, the largest and most flagrant is the abolition of the age-related allowance. The Government call it a tax simplification; we call it a tax grab from pensioners with occupational pensions of little more than £5,000 a year. As my hon. Friend the Member for Wansbeck said, it will cost pensioners £83 and people coming up to retirement £323.
May I just say how disappointing it was—
Mr Gauke
Clause 8 introduces a new income tax charge that will be used to withdraw child benefit from a claimant or their partner who receives income of more than £50,000. The charge will reduce the cost of child benefit to the Exchequer while protecting those on low incomes. This measure, like so many others, is a consequence of the previous Government’s profligacy. We are having to make these decisions because of the budget deficit that we inherited—the largest in peacetime history. Unfortunately, it is the British people who have to pay for the debt left by the last Administration. Without addressing the deficit we will face sterner economic conditions, so we are having to ask for more. However, we will do that in a way that is both fair and reasonable, and this measure will ensure that those on low incomes will remain unaffected and those with the broadest shoulders will bear the greatest burden.
Although reconsidering the universality of child benefit was never our first choice, it is the position we have been left. I recognise that many people are concerned about the change and believe that child benefit must somehow be sacrosanct. However, it simply is not fair that an individual who earns £15,000, £20,000 or £25,000 should pay for benefits for those earning £80,000, £90,000 or £100,000. When a Government need to raise revenue, it makes sense to turn to a measure with a broad base and significant numbers of recipients who do not rely on the additional payment that they receive. Child benefit is just such a payment. The steps that we are taking will raise £1.8 billion for the Exchequer by 2014-15.
Mr Leigh
What conceivable political point is there in a Conservative Government attacking 1 million of our own people—hard-working people on middle incomes and families in which someone, usually a woman, wants to stay at home to look after a child? What are a Conservative Government doing?
Mr Gauke
Speaking as a Conservative, I consider that all the British people are our people.
By raising £1.8 billion by 2014-15, we will ensure that those with the broadest shoulders bear the greatest burden. That was why my right hon. Friend the Chancellor announced that we would seek to withdraw child benefit from higher rate taxpayers. We always said that we would consider ways to implement the measure, but we have been clear that a complicated new means-testing system, which is what would happen if we extended the tax credits system in the way that some have proposed, would not be a sensible way forward. Instead, we should look to existing systems and processes to ensure that we can achieve our goal.
Clause 8 withdraws financial gain from child benefit from families in which one partner has an income of more than £60,000, and reduces the gain if one partner has an income of more than £50,000. It does so in the most efficient and pragmatic way possible, applying a tax charge on those high earners using existing processes. That charge will apply to an individual in receipt of child benefit, or to their partner if they are married or in a civil partnership or living as if they were married or in a civil partnership—a point that the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) made. That is an existing definition of partners within social security legislation and means that other adults living in the household will not affect the liability.
The changes will not affect those receiving child benefit who have income under £50,000, or whose partner does. Some 85% of families receiving child benefit, or 7 million families, need not be troubled by the changes. If an individual or their partner has income of more than £50,000, the charge will be tapered depending on their income. The equivalent of 1% of the child benefit award will be charged for every £100 increase over £50,000 in adjusted net income. Child benefit will be withdrawn in full only at an income of £60,000. Furthermore, the thresholds between which the taper will operate will not depend on the number of children.
The changes will take effect from 7 January 2013, and the individuals affected will include information relating to the charge on their self-assessment returns for the first time for the tax year 2012-13. The first payments of the charge will be due by 31 January 2014 if a taxpayer chooses to pay in a lump sum. Those affected will be able to opt out of child benefit payments—that answers a question that my hon. Friend the Member for Mid Bedfordshire (Nadine Dorries) asked. Some may wish to do so, although Her Majesty’s Revenue and Customs will set out clearly the options and implications. For example, if an individual’s income were to fall below £60,000, they may revoke their election not to receive child benefit, and payments would be resumed.
Mr Stewart Jackson
If my hon. Friend is going to consider the efficacy of different policies, will the Treasury undertake to consider alternative sources of funding as a corollary to this change, such as a cap on the number of eligible children?
Mr Gauke
My hon. Friend and other hon. Members have made the case for a cap on the number of children receiving child benefit. I hear his point about an alternative policy, but we must ensure that the child benefit regime provides support for those who need it most. The policy for which we are legislating maintains that principle—those on the lowest income will retain support.
The Government strongly discourage anyone from not registering for child benefit on the birth of their child, even if they decide to opt out of receiving payments. The child benefit system does not process only child benefit, and failing to register can affect state pension entitlement and make it less straightforward for the child to receive a national insurance number when they turn 16. It is therefore important that children remain registered.
Amendments 21 and 22 would allow those on the taper who have opted out of child benefit retrospectively to receive the payment. I am pleased to confirm that HMRC will apply the legislation as it is to enable such a claim to be made. I can therefore reassure the hon. Member for Kilmarnock and Loudoun that the amendments are not necessary. As I have said, the legislation provides a claimant whose income, or whose partner’s income, is more than £50,000 with the opportunity to elect not to be paid child benefit, so they are not liable for the high income child benefit tax charge. A claimant who has elected not to be paid child benefit can subsequently revoke that election and ask HMRC to reinstate payment of child benefit.
The payment of child benefit would then normally be made from the first pay day after the revocation has been received by HMRC, and not from the date when child benefit was first stopped. That is because it would make no sense to pay arrears of child benefit to those whose income, or whose partner’s income, is more than £60,000. However, the legislation provides for retrospective revocation when a claimant discovers that, contrary to their original expectations, they do not have an income of £50,000 or above. That retrospection will be limited to two years after the end of the tax year to which the original election applies. That means that child benefit can be paid for up to that two-year period.
When a child benefit claimant or their partner has income of between £50,000 and £60,000, the decision whether to elect to receive child benefit is not so clear cut, because the amount of the tax charge is dependent on their income. HMRC recognises that a couple might be nervous about making an election if a later decision to revoke the election would apply only to future payments, leaving them worse off. The legislation provides HMRC with the power to issue directions as to how the election process will be administered. I hope I have cleared up that point.
Let me try to deal with the few remaining points. Draft guidance is being prepared over the summer, during which time HMRC will consult external representatives, including the Social Security Advisory Committee and the HMRC benefits and credits consultation group. The directions will confirm that an election that has been made by a claimant whose income or whose partner’s income is between £50,000 and £60,000 can be revoked retrospectively, to the point at which the child benefit ceased.
I have dealt with this point on the state pension, but it is possible to be registered even if people are not receiving cash. I have also dealt with the point on the definition of partners used in the Bill. As for the argument that the measure is complicated, we have looked at alternatives, but we think the measure is the best available to us. On the principle of individual taxation, HMRC is committed to protecting confidentiality. For taxpayers who are unable to discuss their incomes with each other, HMRC will develop a process with appropriate security checks so that they can answer yes or no to simple questions about the income of their partner.
As I have said, the Government have had to make difficult decisions. The measure means we can continue to provide child benefit, and so, in a sustainable manner, protect those who need it the most. We accept that this is not an ideal situation, but the budget deficit left by the previous Administration is the challenge we must overcome if we are to avoid a far worse predicament. I urge the Opposition to withdraw their amendment.
Cathy Jamieson
In the very short time available, I want to say that we will press amendment 24 to a Division, although I accept what the Exchequer Secretary said about amendments 21 and 22 not being necessary. The only other point I would make is that it seems odd for him to say that he did not want a more complicated means-test system and then to introduce an extremely complex taxation system. It does not make any sense, and does not pass the test of competence or the test of fairness.
Question put, That the amendment be made.
VAT (Anomalies)
David Gauke Excerpts(11 years, 10 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
HM Revenue and Customs (HMRC) is today publishing its summary of responses to the consultation “VAT: Addressing Borderline Anomalies”. The consultation, launched on 21 March 2012, closed on 18 May 2012 and nearly 1,500 responses were received. The Government have set out some amendments to the initial proposals and further details are contained within the response document.
The changes to the VAT rules will be enacted through a new schedule to be introduced at the Report stage of the Finance Bill.
The summary of responses document is available on HMRC’s website and copies have been placed in the Libraries of both Houses.
Tax-advantaged Employee Share Schemes
David Gauke Excerpts(11 years, 10 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
The Government have today published two separate consultation documents on changes to tax-advantaged employee share schemes.
The first contains the Government’s initial response to the recommendations published by the Office of Tax Simplification (OTS) on 6 March 2012 in its review of approved employee share schemes. The Government intend to take forward many of these recommendations, including one of the OTS’s main proposals—that self-certification by businesses should replace the current HMRC scheme approvals process. The Government welcome views from interested stakeholders on the design of detailed proposals in this area.
The document also requests further evidence on potential costs, benefits and other impacts of the majority of the OTS’s supplementary recommendations, to help inform future decisions on whether to proceed with these.
The second document published today seeks views on a proposed extension to the enterprise management incentives scheme to benefit academic employees of qualifying companies. This consultation was first announced at Budget 2012.
These consultations will close on 18 September 2012.
Electronic copies of both documents have been placed in the Libraries of both Houses.
Oral Answers to Questions
David Gauke Excerpts(11 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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.
Chris Evans
A constituent of mine has had a nightmare experience trying to get through to HMRC: he phoned several times throughout the week, but never spoke to an adviser and kept getting an engaged line. His is just one of many cases involving HMRC in my constituency office at the moment. With 10,000 HMRC staff being laid off, how do the Government hope to clamp down on tax avoidance when they obviously cannot collect taxes in the first place?
Mr Gauke
The first point to make is that the numbers of front-line staff dealing with tax avoidance and tax evasion are increasing over the course of this Parliament, in contrast with what happened during the last Parliament. There has been improvement in contact centre performance in the number of calls that get through, but more progress is needed. HMRC is deploying staff more flexibly and conducting small-scale pilots to see whether the private sector can provide additional capacity. HMRC is determined to improve performance.
Jo Swinson (East Dunbartonshire) (LD)
My elderly constituent Mr George Robertson is concerned about the amount of money that has been wasted because of a catalogue of errors over two years by HMRC helplines and administration. They wrongly issued cheques for overpayments to Mr Robertson, despite his correctly informing them that, in fact, he owed money; and when the saga was eventually “resolved” in April, they got it wrong again. Will the Minister look into that case and the wider lessons that need to be learned, so that HMRC becomes more accurate and cost-efficient?
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
15. What representations he has received on the treatment of different savoury products for the purposes of levying VAT.
The Exchequer Secretary to the Treasury (Mr David Gauke)
HMRC is shortly to publish on its website a summary of the responses to its consultation, “VAT: Addressing borderline anomalies”. The response document will contain a list of those who contributed to the consultation.
Chi Onwurah
As I am sure you know, Mr Speaker, Newcastle is the home of the Greggs pasty, so I was hopeful that the Chancellor’s latest U-turn but one would have resolved the great savouries shambles, but now I learn that he has turned his wrath on the pretzel sellers of Newcastle, including Auntie Anne’s in Eldon Square. Could the Chancellor possibly focus on bringing growth to the economy, rather than confusion to our eating habits?
Mr Gauke
I am sure the hon. Lady is aware that Greggs welcomed what we said about hot food. None the less, there has been an anomaly in the tax system whereby some hot foods have been treated differently from others. We are seeking to remove that anomaly and that is exactly what we are doing.
Kevin Brennan (Cardiff West) (Lab)
16. What recent estimate he has made of the effects of his fiscal policies on the rate of growth in output.
Stephen Williams (Bristol West) (LD)
Embarrassing revelations about celebrities’ tax affairs usually bring a flurry of people to their tax accountants, asking them to check whether their affairs are all in order. Will the Treasury ask HMRC to encourage people to come forward voluntarily now and confess to what they may be up to, rather than wait for an investigation into their tax affairs?
The Exchequer Secretary to the Treasury (Mr David Gauke)
My hon. Friend makes a very good point, and I hope that all those who have engaged in aggressive tax avoidance schemes consider whether it is the right thing to do and reconsider their affairs.
Simon Hughes (Bermondsey and Old Southwark) (LD)
Following the exchanges about tax avoidance and the Government’s very robust position, can one of the Treasury team tell us how soon we will have in place a system that targets not just celebrity individuals but all high-worth individuals, so that they all pay a decent share of tax to the nation?
Mr Gauke
HMRC already has in place a particular team that focuses on high-net-worth individuals; under this Government, we have also introduced a team that deals with not just the very top but the next band; and we are looking to introduce a general anti-abuse rule that will address tax avoidance—aggressive tax avoidance—more widely. This Government remain absolutely determined to ensure that people pay their fair share.
Statutory Residence Test and Reforms to Ordinary Residence
David Gauke Excerpts(11 years, 11 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
In June 2011, the Government consulted on introducing a statutory residence test and reforming the concept of ordinary residence.
On 6 December 2012, the Government announced that legislation would take effect from April 2013, rather than April 2012 in order to give the time to consider the detailed issues raised in consultation.
The Government are today publishing their response to the 2011 consultation together with draft legislation to be included in Finance Bill 2013. This sets out the changes that will be made to the statutory residence test following consultation and confirms that ordinary residence will be abolished as announced at Budget 2012. It also contains further consultation questions on which the Government invite comments. The document is available on the HM Treasury website at:
http: www.hm-treasury.gov.uk/consult_statutory_ residence_test.htm
The Government remain committed to their timetable of introducing the statutory definition of tax residence and reforms to the concept of ordinary residence in Finance Bill 2013.
Anti-avoidance
David Gauke Excerpts(11 years, 11 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
The Government are committed to tackling tax avoidance to ensure the Exchequer is protected and fairness is maintained for the taxpayer.
Anti-avoidance provisions in clause 208 of the Finance Bill 2012 are being introduced to close tax avoidance schemes involving arrangements to acquire interests in offshore “excluded property” trusts, which are not subject to inheritance tax (IHT) charges. The schemes take advantage of this special treatment with the effect that UK domiciled individuals avoid IHT charges which would normally be due when they transfer assets into trusts.
Clause 208 may not be fully effective in deterring some variants of these schemes, particularly those involving arrangements using onshore vehicles. It may also inadvertently apply to some arrangements not made for tax avoidance purposes, especially those entered into prior to its introduction.
I am announcing today that amendments will be introduced at Report with the aim of ensuring that the new provisions: do not affect existing arrangements and are effective in stopping avoidance schemes involving the acquisition of interests in settled property; target the intended schemes correctly; and protect significant amounts of revenue. The amendment and provisions in clause 208 will have effect from today.
Details of the amendment are being published on the HM Treasury website today.
Double Taxation Convention (United Kingdom and the Principality of Liechtenstein )
David Gauke Excerpts(11 years, 11 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
A new double taxation convention with the Principality of Liechtenstein was signed on 11 June 2012. The text of the convention 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.