Anti-Avoidance (Tax Policy)

David Gauke Excerpts

Monday 6th December 2010 Written Statements

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The Government are fully committed to tackling tax avoidance and will take necessary steps to protect the Exchequer and maintain fairness in the tax system.

At the June Budget the Government set out their commitment to improving predictability and stability in the tax system in “Tax policy-making: a new approach”. In that discussion document, the Government announced that they will adopt a more strategic approach to the risk of avoidance. By building in sustainable defences to avoidance we will reduce the need for frequent legislative changes and limit the cases when the changes are introduced with immediate effect.

However, there will still be occasions where the Government need to introduce immediate changes to legislation in order to address significant avoidance risks. The Government’s response to these risks will be balanced with their commitment to improving predictability and stability in the tax system. The Government will shortly publish a draft protocol that will set out the circumstances in which they will consider changing legislation with immediate effect. This will be published alongside the Government’s response to the consultation on improving tax policy making on 9 December.

It is within this context that the Government are announcing today a number of changes to legislation to tackle tax avoidance. Some of these have immediate effect.

Group Mismatches

The Government are introducing legislation taking effect from 6 December to counter tax avoidance schemes that aim to reduce a group’s liability to corporation tax through asymmetrical tax treatment of intra-group loans or derivatives (group mismatch schemes).

The legislation amends section 418 of the Corporation Tax Act 2009. Section 418 was introduced to block schemes that involve the provision of intra-group finance through the use of convertible securities. In the schemes the debtor company claims tax deductions for larger amounts than the credits on which the creditor company is chargeable. The amendments ensure that section 418 will apply where:

a company connected with the creditor company is or may become entitled or required to acquire shares in a company; or

amounts are taken into account under the loan relationship rules in determining the chargeable profits of a controlled foreign company.

Because of repeated avoidance in this area, and following the issue of a discussion document in March, HMRC has today published a technical note containing draft legislation to tackle group mismatch schemes using a principles-based or generic approach. This legislation will come into force from the date of Royal Assent to Finance Bill 2011, following further consultation on the detail.

Derecognition

The Government are introducing legislation taking effect from 6 December to counter tax avoidance schemes involving accounting derecognition. This follows consultation on a technical paper published by HMRC on 6 July.

The proposed legislation amends sections 311 and 312, and sections 599A and 599B, of the Corporation Tax Act 2009. This legislation addresses avoidance schemes under which, in accordance with generally accepted accounting practice (GAAP), amounts that are taxable under the rules on loan relationships and derivative contracts are not fully recognised in a company’s accounts. In such cases, a company’s corporation tax computations must be prepared on the assumption that all such amounts were fully recognised. The legislation currently applies only where a number of specific conditions are met, and has been amended on a number of occasions since its introduction in 2006, in response to new avoidance schemes that purport to circumvent the conditions.

As a result of persistent avoidance using derecognition schemes, the Government are announcing that the legislation will now apply as a general rule, without reference to specific conditions, wherever a company is a party to tax avoidance arrangements and, in accordance with GAAP, amounts are not fully recognised in its accounts. In addition, a company will be denied a debit for a loss arising on derecognition of a loan relationship or derivative contract, again where the company is party to tax avoidance arrangements.

Further details are contained in a draft explanatory note published on HMRC’s website today, together with the proposed draft legislation.

Disguised Remuneration

As confirmed at the June Budget, the Government will introduce legislation to tackle arrangements involving trusts or other vehicles used to reward employees, which seek to avoid or defer the payment of income tax or national insurance contributions (NICs), including to provide a tax-advantaged alternative to saving beyond the annual and lifetime allowances available in a registered pension scheme.

A further announcement will be made shortly.

Functional Currency—Investment Companies

Draft legislation will be published on 9 December 2010, alongside other draft clauses for Finance Bill 2011, to counter avoidance involving changes in the functional currency of an investment company. The legislation will take effect for accounting periods beginning on or after 1 April 2011. This will ensure that when a UK resident investment company changes its functional currency no foreign exchange gains or losses arising from loan relationships or derivative contracts will be brought into account for tax purposes in the first period of account using the new functional currency.

At the same time, investment companies will be able to elect, prospectively, for a different functional currency for tax purposes than the currency used in the accounts.

VAT Supply Splitting

Draft legislation will be published on 9 December 2010, alongside other draft clauses for Finance Bill 2011, to counter avoidance relating to the supply of services where arrangements have been made for the supply of printed matter that is ancillary to those services to be made by a different supplier.

The VAT Act will be amended to withdraw zero-rating from printed matter where it is ancillary to a differently rated service, and where, if the service and printed matter had been supplied by a single company, the printed matter would not have been zero-rated.

The legislation will come into force from the date of Royal Assent to Finance Bill 2011, following consultation on the detail.

General Anti-Avoidance Rule

As announced in the June 22 discussion document “Tax policy making: a new approach”, HMRC engaged informally over the summer with a range of interested parties to consider whether there was a case for a general anti-avoidance rule (GAAR) in the UK. Those discussions showed that there was some support for such a rule, but it was clear that there were also concerns that a rule would generate uncertainty about the tax treatment of business transactions and about how that uncertainty could be managed in practice.

I am setting in train a study programme to establish whether a GAAR could be framed to meet the objectives of deterring and countering tax avoidance in a fair way, while providing certainty, retaining a tax regime that is attractive to business and minimising compliance costs for businesses and HMRC and, if so, how the provisions of the GAAR might be framed.

This study will be led by Graham Aaronson QC, supported by a small group of experts. The membership of the group is being finalised, and details will be announced in January. The group will complete its study by 31 October 2011, informing Ministers of its conclusions and, if applicable, providing model provisions and explanatory notes. The Government will consider the outcome of this work as part of the Budget decision-making process, taking account of the impact on certainty for taxpayers as to the tax treatment of transactions and the implications for HMRC in terms of costs and other priorities. The Government would not introduce a GAAR without further formal public consultation.

I will place a copy of the terms of reference for the group in the Library of the House.

Disclosure of Inheritance Tax Avoidance

HMRC are today publishing a document in response to the consultation on bringing IHT on transfers of property into trust within the disclosure regime (DOTAS). The Government will, as planned, bring such transfers within DOTAS, but will make some changes to its implementation as a result of the consultation. The necessary regulations, taking into account those changes, will come into effect on 6 April 2011.

Tax Rates

David Gauke Excerpts

Thursday 2nd December 2010 Written Statements

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

Following decisions announced at the June Budget and the release of retail and consumer prices data for September, the Government have today confirmed 2011-12 rates and thresholds for income tax, national insurance contributions (NICs), and tax credits. The limit for individual savings accounts (ISA) for 2011-12 has also been confirmed.

A note containing this information has been deposited in the Libraries of both Houses and is available on the HM Treasury website at:

http://www.hm-treasury.gov.uk/tax_autumn_updates.htm.

There is a statutory obligation on the Treasury to make an order to replace the existing amounts of income tax rate limits and personal allowances for the following tax year. The 2010 indexation order has been made today and sets out the indexed amounts of income tax rate limits and personal allowances for 2011-12. In the case of the personal allowance and basic rate limit, this order will be over-ridden by the Finance Bill next year that will legislate for the changes announced at Budget 2010.

The relevant regulations and orders for NICs and tax credits will be laid in spring 2011.

National Insurance Contributions Bill

David Gauke Excerpts

Tuesday 23rd November 2010 Commons Chamber

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the Bill be now read a Second time.

The Bill before us consists of two parts. The first part introduces a 1% increase in the rate of national insurance contributions from April next year, as announced by the previous Government, although let me assure my right hon. and hon. Friends that we will reverse the impact of this jobs tax through an increase in the employer national insurance threshold. We have already announced the increase in the income tax personal allowance.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

I thank the Minister for giving way. What is the net impact on employers of the 1% increase offset by the increase in threshold? What is the impact on individual businesses?

[Mr Gauke]

Compared with the plans that we inherited, the impact of the increase in threshold will be such that employers will pay £3 billion less in employer’s national insurance contributions. The overall reduction of the burden on employment will be £6 billion as a consequence of the overall package.

[Mr David Hanson (Delyn) (Lab)]

Will the Minister confirm, however, that about £1.4 billion is not being compensated for by the threshold? I want us to be clear. He says that he has offset the threshold, but he has offset only about £3 billion, not the whole amount of the rise.

[Mr Gauke]

The fact is that the Labour party would have raised the full amount. We are offsetting £3 billion, which will be most helpful for employers whose employees earn under £20,000. The package is good for employment and, given the fiscal mess that we inherited, I am very proud that this Government are able to reform national insurance contributions exactly as we set out in our manifesto at the general election, and in the coalition agreement.

As far as we can deduce it, the Labour party’s position is that it wants to do more to reduce the deficit by raising taxation and it does not believe in increasing VAT, which will bring in £13 billion a year. We can assume only that it would favour greater increases in national insurance contributions than it had already set out.

We are not going to take any lectures; this Government have managed to reverse a very painful and damaging policy that would have meant employers’ contributions rising for every single employee paying national insurance—and in a way that would have damaged jobs in this country.

[Mike Gapes (Ilford South) (Lab/Co-op)]

Is the Minister aware that the proposals in the Bill discriminate against many areas—in London, in particular—with above-average unemployment? Will he explain to people in my constituency, where according to the Library there is already 6.6% unemployment, why on earth the national insurance contribution holiday does not apply to them?

[Mr Gauke]

The hon. Gentleman brings me on to the second part, to do with the national insurance holiday, which applies on a regional basis. If I can develop my arguments, I will turn in some detail to the precise point that he has set out.

[Stephen Pound (Ealing North) (Lab)]

rose—

[Mr Gauke]

I will give way to the hon. Gentleman, but before I do, may I congratulate him on his long-delayed but much-deserved promotion to the Labour Front Bench?

[Stephen Pound]

That is extremely generous of the Minister. All I can say is that if he was surprised, imagine how I felt.

The Minister just gave the figure for receipts following on from the increase in VAT. Are his figures based on current patterns of consumption or on an anticipated level of consumption? Most economists would say that the VAT increase will depress demand and reduce consumption.

[Mr Gauke]

The sums are based on the assessment made by the independent Office for Budget Responsibility at the time of the Budget. I hope that that provides some clarification to the hon. Gentleman.

Part 1 of the Bill provides for changes, which the previous Government announced in two instalments, to national insurance contributions from next April. Initially, a 0.5% increase in rates was announced in the 2008 pre-Budget report. That was then changed to a 1% increase in the pre-Budget report of the following year.

I am sure that Members will remember that reversing the most significant impacts of those rate rises was a key issue at the general election. The Federation of Small Businesses said that the policy would cost 57,000 jobs. Thirty business leaders supported our campaign to reverse the policy. When the letter from those 30 business leaders—many other business leaders followed shortly—was published, Tony Blair apparently considered that for Labour the game was up. Thankfully, he was right, and we now have in place a Government who are determined to bring down the deficit but also to put in place conditions favourable to private sector-led growth.

In June, we announced our plan to reverse the most damaging aspects of Labour’s jobs tax. There was a choice how best to do this—for example, we could have cancelled the rate and threshold rises—but we have chosen the option that best protects low earners. In the emergency Budget, my right hon. Friend the Chancellor confirmed that national insurance contribution rates would rise by 1%, that the personal allowance would increase by £1,000 from next April, and that the employer national insurance contribution threshold would rise by £21 a week plus indexation. The reform of employer national insurance contributions is exactly as set out in the 2010 Conservative party manifesto.

The Bill sets out how these rises will apply to the main rates of class 1 national insurance contributions. The employer rate will rise from 12.8% to 13.8% and the employee main rate will rise from 11% to 12%. The 1% increase will also apply to class 1A and 1B contributions that are paid on benefits in kind and pay-as-you-earn settlement agreements. The same 1% rise will apply to class 4 contributions paid by the self-employed, which will rise from 8% to 9%. Taking into account the increase in the personal allowances and employer threshold, the net effect of these changes will reverse the damaging £6 billion-a-year net increase in the cost of labour planned by Labour Members. Our package of measures entirely reverses this increase.

Compared with the plans that this Government inherited, no changes are being made to the rates. More than £3 billion a year is being returned to employers through the threshold increase, and even more to individuals through the increase in the personal allowance. Our actions will mean that some 880,000 low earners in the UK will be taken out of income tax altogether.

[Mr Love]

The hon. Gentleman mentions low earners. Of course, the thing that the Conservatives did not put in their manifesto was that they would raise VAT. They talked about national insurance being a tax on jobs, but is it not correct to say that the rise in VAT will destroy more jobs than the national insurance increase would have done?

[Mr Gauke]

No. We agree with the view of Tony Blair and, apparently, the previous Chancellor of the Exchequer that VAT is the right tax to raise if one wants to get a substantial sum of money. The hon. Gentleman will find that most economists take the view that in terms of the impact on jobs, increasing employers’ national insurance contributions is far more damaging than any increase in VAT.

As a result of the package of measures that we are putting in place, employees earning under £35,000 a year will pay less in income tax and national insurance contributions overall, and employers will pay less national insurance on employees earning under £20,000 a year. As well as the 880,000 low earners taken out of income tax, almost 1 million low earners will no longer pay national insurance contributions, while the number of low earners for whom employers pay no national insurance contributions will rise by about 650,000. It is also worth mentioning that people who will now be exempt from paying national insurance will retain the same entitlement to contributory benefits. However, tackling the deficit remains the priority, and the benefits to low earners could be achieved only through the increase in national insurance contribution rates included in the Bill. This decision is fair and progressive, and it will help to support the poorest and most vulnerable in society.

Let me turn to part 2 of the Bill. In the June Budget, my right hon. Friend the Chancellor announced an employer national insurance contribution holiday for new businesses in countries and regions with a high dependency on the public sector. This holiday will apply across Wales, Scotland and Northern Ireland and many regions of England—the north-east, the north-west, Yorkshire and the Humber, the west midlands and east midlands, and the south-west. Those areas have a higher proportion of jobs in the public sector than the rest of the country, and as we take the much-needed steps to rebalance our economy, it is vital that they benefit from additional support.

[Mr John Baron (Basildon and Billericay) (Con)]

There is no doubt that one welcomes this package of measures, which will help the lower paid in particular. However, will my hon. Friend revisit the Government’s decision to exclude businesses in the south-east from the national insurance holiday? Otherwise, it could be seen to discriminate against local entrepreneurs there and hit the areas that need higher employment.

[Mr Gauke]

I understand my hon. Friend’s point, but the fact is that we have limited resources and have inherited a legacy in which the private sector is relatively strong in some areas, such as his constituency and mine, but much weaker in others. At a time when we cannot rely on massive public spending, and when the public sector will have to find economies, it is perfectly reasonable that we have adopted the approach of focusing on areas where there is high dependence on the public sector.

[Stewart Hosie (Dundee East) (SNP)]

I am very supportive of the proposal in general terms, but when the Government came to their decision on it, did they consider extending it to existing businesses with very small work forces of one or two people as opposed to simply new starts, and did they consider what the cost of that might have been?

[Mr Gauke]

The focus of the policy has always been on start-up businesses. It is an attempt to encourage new businesses to be set up, given where we are in the economic cycle and the need to encourage private sector growth. That is why the Conservative party’s policy before the general election was focused on start-ups. After the election we considered how best to introduce the policy, and came to the view that we should include the regions where the private sector was at its weakest.

[Penny Mordaunt (Portsmouth North) (Con)]

If the scheme cannot be extended to an entire region, does the Exchequer Secretary accept that there will be pockets of that region, such as my constituency, that would benefit massively from it? The area has historically had very low new business start-up rates and would benefit from what I think is an excellent scheme. When I asked his Department about the costs of administering the scheme in such areas, it said that they would be prohibitive, but I cannot understand why that would be. Can he elaborate on that?

[Mr Gauke]

If we were to choose precisely where the policy applied on a much more closely defined geographical basis, we would have difficulties such as distortive behaviour, problems in enforcing the policy, the bureaucracy that may be involved, the need to establish where a company’s principal place of business was, and the difficulty of policing the scheme. Also, labour markets tend to be somewhat larger than constituency or even local authority areas. My hon. Friend is right to highlight the circumstances in Portsmouth, but there are neighbouring seats with a very low level of public sector employment and quite a high level of private sector employment. Such labour market flexibility can exist.

[Mr Andrew Tyrie (Chichester) (Con)]

I take my hon. Friend’s points about the limited resources, the risk of bureaucracy and the difficulty of policing the scheme, but Robert Chote, while he was still at the Institute for Fiscal Studies, described the regional relief scheme as

“complicated…prone to avoidance and oddly targeted.”

I have had a number of representations to that effect. What assurance can my hon. Friend give that the scheme will not be accompanied by an enormous amount of extra regulation and a much higher compliance burden?

[Mr Gauke]

My hon. Friend raises a fair point. We are determined that in administering the scheme, Her Majesty’s Revenue and Customs will adopt a light touch as much as possible. The problems of bureaucracy and avoidance would be much greater if we tried to drill down to constituency or local authority level as opposed to regional level. I assure him that our assessment is that gains for participating businesses will greatly outweigh any administrative costs that they may face.

[George Hollingbery (Meon Valley) (Con)]

It occurs to me that this is a particularly prescribed aspect of the Bill with three particular areas identified. Will the Minister consider taking powers to himself that allowed him not just to exclude areas, but to keep a register of those he felt could be excluded, therefore allowing some flexibility? Should labour markets deteriorate markedly in certain areas, he could then revisit his decision and decide to support certain areas.

[Mr Gauke]

What we must bear in mind is that we have limited resources. If we were to extend this measure to every part of the country, the cost would increase by around 70%—in other words, £660 million over the course of three years. For the reasons that I set out, it would be difficult to drill this down to very precise areas.

[Mr Love]

rose—

[Mr Gauke]

I must make some more progress.

If we are to move to a model of economic growth founded on private sector enterprise and investment, it is important that we encourage the formation of new business. For that reason, the holiday applies only to businesses that have been set up since 22 June, the date of the Budget. To ensure affordability, the holiday is limited to the first 10 employees taken on in the first 12 months of business. For each of those workers, the holiday will last for a single year, unless the closing date for the scheme—5 September 2013—is reached before the 12 months is up.

[John Cryer (Leyton and Wanstead) (Lab)]

I have listened very carefully to the Minister. Some 40% of the people in employment in my constituency work in the public sector. I represent some of the most deprived wards in London, which means some of the most deprived in the country, yet my constituency will be excluded from the holiday, whereas certain leafier parts, outside London and the south-east, will be included.

[Mr Gauke]

A labour market is not restricted to particular constituencies. The fact is that the private sector is much stronger in London and the south-east and East Anglia, and it is right that we focus this help at a regional level.

[Charlie Elphicke (Dover) (Con)]

I welcome this measure. It is just the thing to spur on the private sector. In evidence to the Treasury Committee, Alan Clarke said that it was a “particularly encouraging measure”. Mr Whiting, of the Chartered Institute of Taxation, said that it was a

“worthwhile experiment for the small, new business with new employees.”

This is just the sort of measure to encourage the private sector that the House should be passing.

[Mr Gauke]

I am grateful for that intervention. We have to build this private sector recovery. This measure is a useful contribution, particularly to those regions where the private sector is not as strong as elsewhere. It is a transitional measure, scheduled to end in three years. We are committed to monitoring and evaluating its effectiveness over that period to ensure its success.

It is not our intention for this policy disproportionately to benefit businesses that employ highly paid staff. For that reason, the maximum amount that an employer can profit from any single employee is limited to £5,000. That cap ensures that the policy will not distort European Union markets and that it complies with state aid legislation. We do not expect any significant competitive disadvantage to arise either for existing businesses or for new businesses in regions where the holiday does not apply. The Bill also makes provision for the administration of this measure. Businesses benefiting from the holiday can withhold the employer contributions from the monthly payments they make to HMRC. If the payment cannot be withheld, the businesses can apply to HMRC for a refund. That will help to minimise employers’ costs as well as the costs of delivery.

The Government expect that hundreds of thousands of businesses will benefit from the measure over the next three years. In the Budget, we estimated that new businesses would save hundreds of millions of pounds worth of national insurance contributions during the lifetime of the scheme, giving them the ability to hire more staff, expand their business or invest in the recovery.

[Jeremy Lefroy (Stafford) (Con)]

The Government correctly emphasise the importance of the voluntary sector, and it is likely that there will be a surge in the number of charities that are set up. I declare an interest as a trustee of Stafford Works, which is a new charity. Will the Minister confirm whether charitable trusts and companies are included in the scope of part 2 of the Bill?

[Mr Gauke]

A charitable entity that is located in one of the relevant regions and that carries on a trade, vocation or business will benefit. That is likely to apply to, for example, shops that are run by charities. Such entities must meet that criterion to benefit, but not all charities will necessarily do so.

[Mr Hanson]

Will the Minister tell the House, for the sake of clarity, how many businesses have to date applied for the holiday?

[Mr Gauke]

At this early stage, we have had around 1,000 applications, but we expect more as awareness of the policy becomes greater and as businesses contact their professional advisers. We are keen to publicise the policy, and I encourage hon. Members for any of the relevant regions to notify businesses in their areas. The Government and our policy aim to help businesses and those who want to start a business and get it going. In contrast, the previous Government increased such taxes. Start-up and existing businesses throughout the country faced rising taxes and employers’ national insurance contributions, which was a particularly deeply damaging tax.

The Bill is an important part of the Government’s plan to reduce Labour’s taxation, help those on the lowest incomes, and support private enterprise and employment in the parts of the country that need them most. It is a simple and important Bill, and I commend it to the House.

[Mr David Hanson (Delyn) (Lab)]

I am grateful to the Minister for his exposition of the Bill. We will test aspects of it in Committee and at other stages in its passage. As he said, it divides effectively into two parts. The first part is the increase in national insurance contributions by 1%, which we will support because we want to ensure that we protect services and support our economy. The second part introduces a three-year regional national insurance holiday for new employers. As the Minister said, many businesses will qualify for their first 10 employees in their first year of business; I shall return later in detail to the question of the regions and areas that will not qualify.

Let us first consider the national insurance contributions. The Minister rightly said that this policy was set out both in the Labour manifesto and elsewhere in the period before the general election in May. My right hon. Friend the Member for Edinburgh South West (Mr Darling), the then Chancellor, announced in the pre-Budget statement on 9 December 2009 that the previous Government would increase national insurance contributions by 1% to protect public services. We had a choice, and we were straight about it both before and during the election. Raising national insurance contributions was a tough decision, but we ensured that we would protect those earning less than £20,000 a year.

The Conservatives condemned that national insurance rise throughout the election, but—surprise, surprise!—they have now decided to go ahead with it. In the Conservative manifesto, which I have come to recognise is not worth the paper it was written on, the party committed itself to raising the thresholds for national insurance by £24 a week, the upper earnings limit by £29 a week, and the secondary threshold at which employers start paying national insurance by £21 a week. I look forward to seeing the details in the secondary legislation.

My intervention on the Exchequer Secretary showed that although the Government are raising the thresholds, there is still a shortfall of about £1.4 billion in employer national insurance contributions. The Labour party was open about that in the run-up to, and during, the general election, but the Conservative party was not. In my view, this is all smoke and mirrors.

[Mr Gauke]

Page 8 of our manifesto stated that we would

“raise the secondary threshold at which employers start paying National Insurance by £21 a week.”

The secondary legislation will increase the secondary threshold at which employers start paying national insurance by £21 a week, so we are doing exactly what we said in the manifesto.

[Mr Hanson]

But there were no caveats about a shortfall in the Budget proposals of about £1.4 billion. I think it is smoke and mirrors—and, as my hon. Friend the Member for Edmonton (Mr Love) said, it is coupled with the increase in VAT from next year. The VAT rise will impact more than three times as much as the increase to national insurance contributions would have done, and will affect 250,000 jobs.

--- Later in debate ---

[Mr Hanson]

I have said what I have said. We were open and honest during the election campaign, and we will support the rise proposed in the Bill, because we expected to do that. During the election campaign, the Economic Secretary and the Exchequer Secretary attacked the NIC rise without proposing the alternative that they have seen through in practice.

Let us put that aside, because the key issue before the House is the payment holiday. We do not believe that it is being proposed fairly, honestly or openly, and we do not believe that it will help the poorest and most deprived areas of the UK, which in great part are excluded from the scheme. Of the top 12 most deprived local authorities on the economic deprivation index, no fewer than seven will be excluded from the payment holiday. The seven boroughs of Hackney, Newham, Tower Hamlets, Islington, Barking and Dagenham, Haringey and Lambeth are excluded from the scheme.

In his written statement on 6 September, the Exchequer Secretary said:

“The Government are determined that all parts of the UK benefit from sustainable economic growth”.—[Official Report, 6 September 2010; Vol. 515, c. 1WS.]

If we are having a holiday from national insurance contributions, I do not understand how excluding those areas from the payment holiday will do that.

I want to challenge the Government’s logic. They claim that the reasoning behind the policy is that areas outside London, the south-east and the east are more reliant on public sector employment. Will the Exchequer Secretary confirm that that is his logic?

[Mr Gauke]

indicated assent.

[Mr Hanson]

The Minister has confirmed that. Tomorrow’s business leaders who want to start businesses in the constituencies of Oxford East, of Luton North, of Lewisham East, of Canterbury, of Southampton, Test, of Eltham, of West Ham, of North Thanet, of Hackney North and Stoke Newington, of Tooting, of Islington North, of Dulwich and West Norwood, and of Brighton, Kemptown will miss out. I mention those constituencies specifically because they are in the top 10% in the country with the highest percentage of public sector employment.

As the hon. Gentleman knows, there are 650 constituencies. His policy is supposed to help compensate for possible loss of employment in the public sector. Those concerns have been reflected today, and I pay tribute to the hon. Members for Portsmouth North, for Meon Valley and for Basildon and Billericay, who have defended their constituencies and raised their concerns about how the policy will be applied.

If there is to be a holiday, it can be applied in different ways. It could be applied regionally, as the Minister has done, or on the basis of unemployment levels or regional levels of public sector employment per constituency, instead of the blanket regional approach that the Minister has chosen.

Departmental Expenditure Limits (HM Revenue and Customs)

David Gauke Excerpts

Tuesday 23rd November 2010 Written Statements

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

Subject to parliamentary approval of the supplementary estimate, the HM Revenue & Customs total DEL will be decreased by £500,000 from £3,706,842,000 to £3,706,342,000. Within the total DEL change, the impact on resources and capital are as set out in the following table:

Terrorist Asset-Freezing etc. Bill (Ministerial Correction)

David Gauke Excerpts

Tuesday 23rd November 2010 Written Statements

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

On 15 November the Financial Secretary to the Treasury reported to Parliament on the operation of the UK’s Counter-Terrorist Asset Freezing Regime for the period July to September 2010.

During the Second Reading of the Terrorist Asset-Freezing etc. Bill, I responded to the right hon. Member for Leicester East (Keith Vaz) about figures published in the report. My response appears on 15 November, Official Report, column 708.

The explanation I gave of the figures was incorrect. For the purpose of transparency and to ensure the report is correctly interpreted in the future I would like to clarify that explanation.

As of 30 September 2010, a total of 205 accounts containing just under £290,000 of suspected terrorist funds were frozen in the UK.

Of that £290,000 approximately £140,000 was frozen under the UK’s domestic terrorist asset freezing regime, which is mandated by UNSCR 1373 and implemented by the legislation which the Bill is intended to replace. The remaining £150,000 was frozen under the UN al-Qaeda and Taliban asset-freezing regime.

Financial Services and Markets Act 2000 (Regulated Activities)

David Gauke Excerpts

Friday 19th November 2010 Written Statements

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It has been brought to the Government’s attention that the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2010 (“the 2010 Order”), which came into force on 24 February 2010 has unintentionally had a number of potential adverse consequences for the tax and regulatory treatment of some types of debt securities.

The Government intend at the earliest practicable opportunity to make the necessary amendments in secondary legislation to restore the legal position in respect of the potentially affected debt securities. This will rectify the potential problem going forward.

Action will also be taken to ensure that no unintended consequences arise for the potentially affected debt securities regarding regulatory or tax treatment between the coming into force of the 2010 Order on 24 February 2010, and the date on which the remedying amendments come into force.

HMRC has confirmed that it will take no action to establish or collect any tax liabilities that may arise from these unintended consequences. The Government will introduce, as necessary, legislation in the next Finance Bill to restore previous expectations about the way that potentially affected debt securities are taxed, subject to an opt-out to ensure the retrospective application of new legislation does not increase tax liabilities.

Oral Answers to Questions

David Gauke Excerpts

Tuesday 16th November 2010 Commons Chamber

[Mr David Ward (Bradford East) (LD)]

5. What the evidential basis is for his Department’s estimate of the additional tax revenue to accrue by 2014-15 from expenditure on measures to address tax evasion and avoidance, and fraud and debt.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

Her Majesty’s Revenue and Customs routinely measures and monitors various performance matrix, including yield-to-cost ratios and a number of statistical models. These were used as part of the spending review process to estimate the effect of investing resource to support its compliance strategy. On the basis of this analysis, HMRC estimates that the additional expenditure of £900 million over the spending review period will result in an extra £7 billion of yield per year by 2014-15.

[Mr Ward]

I thank the Minister for his answer. I guess that Members from both sides of the House would welcome the £900 million sprat that is being used to catch a £7 billion mackerel. However, I understand that the £42 billion gap caused by avoidance, evasion and fraud still exists. Are the Government doing enough, and do we need to do more?

[Mr Gauke]

The hon. Gentleman is absolutely right to highlight that issue. We think that the number is very high and that it is possible to find savings in HMRC’s budget. However, there have been specific proposals for where HMRC has identified that it could recover large levels of yield, and this Government have been happy to provide the funding to do that.

[Kerry McCarthy (Bristol East) (Lab)]

I am sure that the Government will be aware of the growing public outrage at the fact that a company such as Vodafone seems to have been able more or less to decide the size of its own tax bill, and, in doing so, is rumoured to have avoided a sum as high as £6 billion. Do the Government agree that we need far more transparency and accountability when it comes to such backroom deals with large companies, or are we now entering a world where only the little people pay their taxes?

[Mr Gauke]

This Government are determined to crack down on tax evasion and tax avoidance, but the Vodafone deal was a matter for HMRC, and it is right that the Government are not involved in such negotiations. I hope that the hon. Lady will not be aligning herself with those involved in campaigns to close down Vodafone shops. The fact is that companies should pay the correct amount of tax, but she should not believe everything she reads.

[Mr David Ruffley (Bury St Edmunds) (Con)]

Tax avoidance and tax evasion would be less prevalent if we had a simpler and fairer tax system. I wonder whether my hon. Friend would consider following the policy of the noble Lord Lawson, which was to abolish complicated tax breaks in order to finance lower marginal rates.

[Mr Gauke]

My hon. Friend makes an excellent point. As a Government, we are cutting the rate of corporation tax, from 28% to 24%, which is the lowest rate that we have ever had in this country.

[Mr Chuka Umunna (Streatham) (Lab)]

8. What steps he is taking to review the regulation of credit rating agencies.

--- Later in debate ---

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

Her Majesty’s Revenue and Customs is currently reviewing options for delivery of the tax inquiry services that it provides through its network of inquiry centres, contact centres and online services over the next spending review period. HMRC is committed to providing services that are cost-effective and also meet the needs of its customers.

[Katy Clark]

We have already seen a reduction of 25,000 staff and 200 collection offices, which must result in a worse service to the public. We are also seeing cuts in the amount of money spent on dealing with tax avoidance and evasion. The Minister’s colleague mentioned an extra £900 million, but we have been told that that is not additional money, and that less money is actually being spent on dealing with tax collection. Is it not time that we prioritised not only giving a better service, but collecting more tax?

[Mr Gauke]

That money is new investment to tackle tax avoidance and evasion. It is specific, targeted funding. As for the service that is provided, it is right for HMRC’s service to adapt to the way in which customers change their behaviour. We have seen a 40% reduction in the number of people using inquiry centres over the last four years, and HMRC should of course adapt to that.

[Andrea Leadsom (South Northamptonshire) (Con)]

Recent press reports have suggested that there are many so-called zombie households in the United Kingdom, in which families have got themselves into so much debt that they rely on interest rates remaining low to stay afloat. Does my hon. Friend agree that our policies to keep interest rates low, and to enable the Bank of England and the Monetary Policy Committee to keep them low, are key as we go through a critical period in our recession?

[Mr Speaker]

A sentence from the Minister in reply will suffice, as the question is about tax inquiry services. We are grateful to him.

[Mr Gauke]

Let me put it this way: we would have a lot more inquiries if taxes were going up, which is the policy the Opposition advocate.

[Mr Peter Bone (Wellingborough) (Con)]

14. What assessment he has made of the effects on his Department’s ability to reduce the deficit of the reduction in the UK’s EU budgetary rebate; and if he will make a statement.

--- Later in debate ---

[Nic Dakin (Scunthorpe) (Lab)]

15. What mechanism he plans to use to ensure that households which include one or more higher rate taxpayer cease to receive child benefit payments.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

From January 2013 Her Majesty’s Revenue and Customs will withdraw child benefit from higher rate taxpayers using PAYE and self-assessment systems. The vast majority of claimants will continue to receive child benefit, and will not be affected by this change.

[Nic Dakin]

Earlier this year, the Prime Minister said he wanted this Government to be the most family-friendly Government we have ever had in this country. How does this proposal support a family where one partner stays at home to look after the children while the other partner earns over £45,000 a year?

[Mr Gauke]

It does families and everyone else in this country no good if we do not get to grips with the fiscal crisis. If the Opposition are saying households paying higher rate income tax should continue to receive child benefit while those who do not earn so much contribute towards that, it once again shows that they are not getting to grips with the scale of the crisis.

[Richard Graham (Gloucester) (Con)]

Does the Minister agree that the logic of the policy outlined by Opposition Members is that any child from Prince William and Catherine Middleton would benefit from child tax benefit, whereas the poorest of my constituents would not?

[Mr Speaker]

Members really should not refer to members of the royal family in questions. That is strongly to be deprecated, and it certainly should not happen again. I ask the Minister to give a very brief reply.

[Mr Gauke]

My hon. Friend is perhaps getting a little ahead of himself. I think all we should say is that should that happy eventuality occur, I am sure he or she will get by without child benefit.

[Diana Johnson (Kingston upon Hull North) (Lab)]

16. What estimate he has made of the cost to the Exchequer of redundancy and retraining requirements arising from implementation of proposals contained in the comprehensive spending review.

--- Later in debate ---

[Stephen Timms (East Ham) (Lab)]

The White Paper last week stated that HMRC will be taking on new responsibilities in collecting and processing real-time pay data for the calculation of universal credit. How much has been allocated for the IT to deliver that change?

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The response to the consultation on real-time information—the next stage of it—will be published shortly. We will outline the details in that, but additional sums have been identified as part of the spending review process to pay for the real-time information project.

[Mr Aidan Burley (Cannock Chase) (Con)]

T6. More than 20% of my constituents in Cannock Chase are employed by manufacturing centred small businesses. Will the Chancellor assure them that the small business tax review will simplify and reduce taxes for small businesses rather than complicate and increase them?

--- Later in debate ---

[Mr Gauke]

The intention is to strengthen HMRC’s capability to collect taxes. If that involves making use of private sector expertise to collect additional debt, which is the intention, that is surely a good thing that should be welcomed by all parties.

[Mr John Redwood (Wokingham) (Con)]

Given that the Irish Government have said that they neither want nor need a bail-out, will the Chancellor support them at ECOFIN and put off those people in the EU who seem to want to make a crisis out of a problem?

Terrorist Asset-Freezing etc. Bill [Lords]

David Gauke Excerpts

Monday 15th November 2010 Commons Chamber

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a pleasure to be able to conclude today’s Second Reading debate. This is a most important Bill that covers issues of national security and civil liberties. These are significant issues that deserve full scrutiny and I would like to thank all hon. Members for their eloquent contributions.

My hon. Friends the Members for West Suffolk (Matthew Hancock) and for Hexham (Guy Opperman) brought experience and expertise to the debate. My hon. Friend the Member for Cambridge (Dr Huppert) spoke in a way that I am sure his predecessor, David Howarth, would approve of. He raised a number of questions in regard to the Joint Committee on Human Rights, which I shall address in detail in a moment.

The right hon. Member for Leicester East (Keith Vaz) made a memorable speech—[Laughter.] Well, at least I will remember it. He noted that he was somewhat suspicious of anything that had cross-party support from both Front Benches. I imagine that he did not experience that very often when he was a Minister. I should like to thank the hon. Member for Dwyfor Meirionnydd (Mr Llwyd) for highlighting his concerns about knee-jerk legislation and making a similar point to that of the right hon. Member for Leicester East. The hon. Member for Upper Bann (David Simpson) brought to the debate the experience of his part of the United Kingdom, Northern Ireland, which has suffered so much from terrorism over many years. He asked a number of questions that I hope to be able to respond to later.

A number of issues have been raised in the debates over the course of this year, and I am pleased to say that the Government have responded to the concerns raised in the House earlier this year and to those raised in the public consultation exercise on the previous Government’s draft legislation. We introduced legislation as soon as possible, to ensure that Parliament has sufficient time to scrutinise the legislation properly and still meet the 31 December deadline to avoid a gap in the regime and the unfreezing of assets. The Bill before the House today is a significant improvement on the current asset- freezing regime, because it strengthens civil liberties safeguards without undermining the effectiveness of the UK’s asset-freezing regime in disrupting terrorism.

Let me address in more detail the striking of the right balance between national security and liberty in the context of the Bill. I shall deal first with the national security element of that balance. Let me be clear that, while it is true that the asset-freezing regime has an impact upon human rights, it is the Government’s view that the interferences set out in the Bill are necessary in the interests of national security and public protection. We have recently been reminded of the very real threat posed by international terrorism.

To achieve our objectives, the Government must have the right tools to combat terrorism in the UK and overseas. It is not sufficient for us to be reactive, and to be able to deal with an atrocity only after it has happened. We must be able to act preventively, to disrupt terrorist plots in their planning stages. Hon. Members will acknowledge that one of the most effective ways of doing this is to limit terrorists’ access to finance. We know that terrorists need finance to carry out attacks, to maintain their infrastructure, training, equipment and recruitment, and to promote their message of hate. In order to contain the threat that these extremists pose, the Government need to be able to act quickly to freeze the funds and finances of those involved in terrorism who are considered to present a real threat to the general public. The Government believe that the UK’s asset-freezing regime is the right means to achieve that.

There is no question but that the asset-freezing regime has proved a valuable tool for disrupting and preventing terrorist financing. The £140,000 of currently frozen assets could be used to devastating effect were they to be released. The right hon. Member for Leicester East made the point that the total amount that has been frozen is perhaps surprisingly small, but it is worth remembering that disproportionate damage can be done with a small amount of money. As we have heard, the 7/7 attacks cost less than £10,000.

[Keith Vaz]

We clearly understand that it takes only a small amount of money in certain circumstances, but will the Exchequer Secretary clarify those figures for us? Is he saying that £140,000 is frozen at the moment? Does he know the total amount that has been frozen since the previous Government introduced the original legislation, or would he be able to write to me with the number or place it in the Library so that Members will all know it?

[Mr Gauke]

The current figure is £140,000, as I said. The figure that the right hon. Gentleman talks about is £290,000, which as I understand it is the amount that has been frozen in total. He asked earlier about the 205 accounts referred to in the written ministerial statement. That does not necessarily mean that 205 people are involved, and it is worth pointing out that 24 people in the UK are subject to asset freezes under the legislation that the Bill will replace.

[Keith Vaz]

I think the fault is perhaps in the drafting of the written statement. It states:

“As of 30 September 2010, a total of 205 accounts containing just under £290,000”

were frozen. It would be helpful if, perhaps through the next such statement, we could know the current figure. That is where my figure comes from.

[Mr Gauke]

The right hon. Gentleman’s comments are helpful, as always, and I am sure they have been duly noted.

It is right to point out that asset freezing is a preventive tool, and that people can be subject to a freeze only if the legal test is met—in other words, if they represent a terrorist threat and so the freeze is necessary for public protection. The Treasury must have reasonable grounds to suspect their involvement in terrorist activity. I will return to that point in greater detail when I turn to the comments of the Joint Committee on Human Rights. It is also worth pointing out that 21 of the 24 persons in the UK subject to these measures have been charged with, or convicted of, terrorist offences.

Asset freezing is not just an effective domestic tool, it is necessary. The UK has an international obligation to freeze the assets of terrorists, and the Government are content that the Bill’s provisions remain fully compliant with international standards and are sufficiently robust to meet the needs of the police and security services, who are engaged in a day-to-day battle to maintain the security of the general public.

The right hon. Gentleman asked one or two questions about complaints. Any person who is not satisfied with a decision taken by the Treasury may request a review of the decision, and if after that review they are still unsatisfied, a complaint regarding the handling of the case can be made under the Treasury’s official complaints procedure. A senior official not directly connected with the case will then take the review decision. A designated person may appeal against their designation through the courts, and in the case of any other decision, such as on licensing, applications can be made to the High Court for the decision to be set aside.

The right hon. Gentleman asked what happens to people whose freezes have been revoked. As he pointed out, the revocation of a freeze does not show that the system is failing to work or that the imposition of a freeze in the first place was wrong. Circumstances can change, so it may no longer be necessary to maintain a freeze even though it was necessary when it was imposed. When a freeze is revoked, the individual concerned is notified, the revocation is brought to the attention of the financial sector and the outside world and the restrictions on their financial activity are removed.

One concern that has understandably been raised is whether the system is well targeted on terrorism. My hon. Friend the Member for Cambridge made that point. Terrorism, for the purposes of the Bill, is defined in clause 2(2) as involving one or more of

“the commission, preparation or instigation of acts of terrorism…conduct that facilitates the commission, preparation or instigation of such acts, or that is intended to do so”,

or conduct that supports or gives assistance to persons believed to be involved in such conduct.

To respond to the point made by the right hon. Member for Delyn (Mr Hanson) about organised crime, the Bill contains very specific powers designed to meet our UN obligations to freeze the assets of terrorists. They are not intended to be used against organised criminals unless they are also involved in terrorism, and the Government have other powers to deal with organised crime.

I turn to the very important issue of civil liberties, because we have to get that right and ensure that the balance is correct. As my hon. Friend the Financial Secretary set out, the Bill does not simply reintroduce the previous regime, which the Supreme Court quashed. We have introduced additional safeguards and made changes to ensure that the regime operates in a clearer and more transparent manner. Those changes reflect the civil liberties concerns that were raised in Parliament during the passage of the emergency legislation and in the public consultation exercise conducted over the spring and summer. We do not believe they will undermine the effectiveness of the regime or continued compliance with international best practice.

I shall highlight the key elements of those changes. We are introducing more targeted prohibitions, to limit the impact of asset freezing on innocent third parties. There is provision to ensure that the regime does not catch the payment of state benefits to the spouses or partners of designated persons, and so does not have the draconian impact on family life about which the Supreme Court was concerned. The establishment of an independent review function will ensure that there is proper independent scrutiny of the asset-freezing regime.

As the Financial Secretary highlighted, during the Bill’s passage in the other place the Government introduced significant further safeguards to raise the legal test for freezing assets for more than 30 days from reasonable suspicion to reasonable belief, and to strengthen judicial oversight by ensuring that there is a full merits-based review of designation decisions. Those are important new safeguards that will make the asset-freezing regime significantly fairer, more proportionate and more transparent, and I welcome the endorsement that they have received from hon. Members today. However, we have also heard in today’s debate, and read in the report of the Joint Committee on Human Rights, some calls for the Government to go further and introduce more civil liberties safeguards. I wish to respond to those points.

One concern that has been raised is that reasonable belief is still too low a threshold for freezing assets, and that the Government should be able to do so only on the balance of probabilities—in other words, if someone is more likely than not to be involved in terrorism. It has even been argued that asset freezes should be imposed only in cases of criminal charge or conviction. I shall reiterate why the Government do not agree with, and cannot support, those proposals.

To meet our UN obligations and protect national security, asset freezing must be preventive: that is, it must be capable of being used at an early stage to disrupt and prevent terrorist attacks. Setting the legal test higher than reasonable belief would make it more difficult to use the asset-freezing tool in a preventive manner, and therefore make it less effective because the level of evidence needed may rule out the use of asset freezing when it could be most useful.

[Dr Huppert]

Does the Minister genuinely think it appropriate to freeze people’s assets when the Treasury believes that it is more likely that they are not involved in terrorism than that they are so involved?

--- Later in debate ---

[Mr Gauke]

I reiterate that it is necessary to have a tool available to use at an early stage, for preventive reasons. The asset freezes imposed on those suspected of involvement in the transatlantic plane bomb plot in 2006 provide a good example of the value that preventive asset-freezing can have for national security. It is important that we preserve that element of asset-freezing. In the Supreme Court, Lord Rodger spoke of the nature of intelligence and the need, sometimes, to act on information that is fragmentary and not certain. For the same reason, the Government cannot support limiting asset-freezing to those charged with, or convicted of, a terrorist offence.

Although a significant majority of those in the UK whose assets have been frozen have been charged or convicted of a terrorist offence, limiting freezing to such people would have two significant drawbacks. First, preventing the Treasury from freezing assets when it reasonably believes that someone is involved in terrorism and when it considers that asset-freezing is necessary to protect the public, but when a person has not been, or could not be, charged, would incur a significant cost for national security. Secondly, limiting freezing in that way would severely curtail the Treasury’s ability to freeze the assets of international terrorists or terrorist groups operating overseas. Many such persons and groups operate in countries where they will not be prosecuted, perhaps because the country does not have the capability or the will to prosecute terrorists.

[Dr Huppert]

I understand the Minister’s point about those not in Britain, but what about those who are, and hence subject to our controls? Given that the threshold for powers of arrest is reasonable suspicion, does he agree that anyone who has enough evidence to freeze assets would also have enough evidence to arrest?

[Mr Gauke]

Given the flexibility that we need, I believe that we have struck the right balance by allowing an interim arrangement on the basis of reasonable suspicion followed by a longer-term arrangement on the basis of reasonable belief. Sometimes, it is a question of timing and we may need to act first on freezing assets and subsequently to make an arrest—we must remember that after all, the vast majority of those in the UK who have been subject to a freezing order have gone on to be arrested. For example, if we limited the Treasury’s freezing powers to those charged or convicted, we could prevent the UK from co-operating with international partners when we are trying to prevent funding getting to international terrorists and terrorist groups. For those reasons, the Government remain convinced that the legal test as set out in the Bill—reasonable suspicion for an interim period of 30 days and reasonable belief for a final designation—strikes the right balance.

My hon. Friend the Member for Cambridge mentioned the role of the courts, which has also been raised by civil liberties groups. They have called for a mandatory court involvement in asset-freezing. They want freezing decisions either to be made by the courts or to be approved by them mandatorily, but the Government do not support those proposals. Decisions to freeze assets are national security measures taken on operational advice from law enforcement and intelligence agencies, and fall squarely within the remit of decisions that Ministers should and do make on other matters, such as prescription, deportation and exclusion. Ministers are accountable for their designations both to Parliament and to the courts.

We also do not believe that mandatory court approval for asset freezes is the right approach. Only a very small minority of asset-freezing cases—around 10% of current cases—concern people in the UK who have not been prosecuted for a terrorist offence. The remaining 90% of cases concern either individuals in the UK who have been prosecuted or individuals and groups overseas. Mandatory court approval would therefore add no value in those 90% of cases. Indeed, it might even be unhelpful. For example, overseas terrorist groups who do not currently challenge asset freezes would nevertheless have their designations subjected to mandatory court scrutiny.

My hon. Friend also mentioned written reasons. We heard today that the JCHR recommends that an express requirement to provide reasons for a designation, subject to public interest requirements of non-disclosure, be written into the Bill. The Committee’s reasons for that were eloquently put, but the Government are not convinced that an express obligation on the Treasury to provide reasons for a person’s designation is necessary. It is already a requirement of the basic principles of administrative law to provide reasons for a designation where possible, subject to public interest requirements. If this Government or any other were to write into a Bill all the Treasury’s obligations under administrative law, such a Bill would be considerably longer. I do not see that as desirable. The time available for parliamentary scrutiny should not be spent debating unnecessary provisions. I should also make it clear that there will be times when the Government cannot divulge the case against a person or the reason for a designation, such as when sensitive intelligence has been relied on for a decision and there is an obvious case for withholding information. None the less, where possible, the Government disclose information when that can be done without, for example, damage to a pending prosecution or to national security. There is no sensible reason to go beyond that and write such a requirement into the Bill.

The JCHR also sought to convince hon. Members that the Government should accept the principle set out in the House of Lords in the case of AF on the use of special advocates and closed-source material. It said that that principle should apply to asset-freezing provisions. I am sure that hon. Members have read Hansard and are aware of the debate on that in the other place. I can but restate the points that the Government made then. First, the courts have not considered whether AF applies in asset-freezing cases, and it is not the role of the Government to prejudge what the courts would say. Secondly, the Supreme Court will consider the wider application of AF (No. 3) in January 2011 when it hears the Tariq case. Thirdly, the Government are committed to ensuring that any challenge to a Treasury decision is heard fairly. Finally, the application of AF (No. 3) is part of a wider debate on the use of special advocates and intelligence material, and we have already announced that we will be considering the use of special advocates and closed-source evidence as part of a Green Paper next year.

There will be plenty of opportunity for the JCHR and other interested parties to relay their views as part of the consultation that informs that Green Paper. It is right and proper that the Government give all parties the option of commenting on such an important mechanism without prejudging the outcome.

The final matter raised by the JCHR is the question of transparency and accountability. The Bill strengthens transparency and accountability in two ways. First, we are enshrining in legislation the Treasury’s existing practice of presenting quarterly reports to Parliament on the operation of the powers in the Bill. That will guarantee transparency on the quarterly operation of the regime. Hon. Members will note that the most recent quarterly report was laid today. Secondly, we have written into the Bill that the operation of the regime should be independently reviewed nine months after the Bill is passed and every 12 months thereafter.

The JCHR maintains that the provision in the Bill for an independent reviewer does not go far enough and that the independent reviewer should be more independent of the Government—the right hon. Member for Delyn made that point in the debate. I am sure that that will be debated further in Committee, but the Government cannot accept the JCHR position. We are committed to effective scrutiny of the asset-freezing regime and the independence of the reviewer will be a principal objective of any appointment, but for Parliament to approve the independent reviewer would be a significant departure from standard practice. The appointment of the reviewer by the Government reflects the long-standing principle that Ministers are directly accountable to Parliament and the public for those whom they appoint and for the operation of the regime.

[Mr Hanson]

I tend to agree with the Minister, as I indicated in my discussions, but can he tell the House whether the reviewer for this piece of legislation is likely to be the same one as is currently in post, which is Lord Carlile, who is soon to be replaced by David Anderson QC?

[Mr Gauke]

I am grateful for the point that the right hon. Gentleman makes. The final decision on that is still to be made, so if he will just be a little patient, he will receive the answer in due course.

[Dr Huppert]

The Government have recently started taking the approach that independent people can be scrutinised by a Select Committee to check that they are sufficiently independent. Could we go down that route to check the independent reviewer?

[Mr Gauke]

I am on the record many times as arguing why Parliament should have a significant role in a number of public appointments, but in this area we have arrangements whereby Ministers take responsibility and are accountable. We will ensure that the independent reviewer is free to examine any aspect of the regime, and his or her findings and recommendations will be released in full to Parliament. We also think that the Treasury has to have sight of the independent reviewer’s report prior to its being laid before Parliament, but that is only for the entirely sensible and understandable process of ensuring that no material detrimental to national security is inadvertently released. To answer the question specifically, Ministers have to take responsibility on this and we are not inclined to move away from that position.

I wish to address a point made by the hon. Member for Cambridge about ensuring that a designated person has reasonable expenses and is not left in desperate hardship. There is a requirement in law for the Treasury to implement asset freezes proportionately, taking full account of the human rights of a designated person and their family. My hon. Friend the Member for Hexham asked whether a designated person is able to fund their appeal—there was concern that that might not be the case. The Treasury has issued general licences to enable any legal aid payments to be made to a designated person’s solicitors where they are eligible for legal aid and to allow third parties to pay a designated person’s legal expenses. Where a designated person wishes to use their own funds for legal expenses, an individual licence can be applied for. The asset freeze does not, therefore, hinder a designated person from challenging their designation or any other decision, such as to impose particular licence conditions.

I wish also to pick up on the points raised by the hon. Member for Upper Bann. He raised the concern about decisions being taken not to publicise a designation and asked whether there is a danger that third parties are not aware of the designation—that is a perfectly fair point. The offences in the Bill apply only where a third party is aware, or should be aware, of the designation; if they do not know, and have no reason to know, no offence will be committed. I hope that that provides some reassurance to him. Where a designation is not publicised, financial institutions will still be informed, as that helps to ensure that funds are frozen. I reassure him that decisions not to publicise are rare and are always taken for very good reasons, and that the designated person will be told.

I also wish to pick up on the hon. Gentleman’s point about whether someone could be subject to a 30-day freeze on the basis of suspicion and then be subject to another such freeze after the first one is dropped. Freezes cannot be continually retained on the basis of reasonable suspicion by dropping a freeze after 30 days and then reimposing it as the new interim freeze based only on reasonable suspicion arising from the same or substantially the same evidence—clause 6(3) makes specific provision on that. A new interim freeze could be made if there is significant new evidence that significantly contributes to a fresh reasonable suspicion on the Treasury’s part. Without such new evidence, a freeze could be maintained after the 30 days only if there was reasonable belief that the person is involved in terrorism.

I shall now deal with the questions raised by the right hon. Member for Delyn about the overall counter-terrorism review and its relationship with this Bill. This is a stand-alone Bill and it is not intended to be further amended by the counter-terrorism review. The Government have already considered civil liberties safeguards for this Bill and introduced amendments at Committee stage in the other place, as I have mentioned. There is no intention to amend the Bill further.

In conclusion, today’s debate has been about the balance between national security and safeguarding civil liberties. I am convinced that the Bill strikes the right balance between both. It is effective and fair, it takes the necessary steps to prevent the raising and use of funds for terrorist purposes and it sets the terrorist asset-freezing regime in primary legislation for the first time. I commend the Bill to the House and look forward to further discussion in Committee.

Question put and agreed to.

Bill accordingly read a Second time.



Terrorist Asset-Freezing etc. Bill [Lords] (pROGRAMME)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Terrorist Asset-Freezing etc. Bill [Lords]:

Committal

1. The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

2. Proceedings in the Public Bill Committee shall (so far as not usbpreviously concluded) be brought to a conclusion on Thursday 25 November 2010.

3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

4. Proceedings on consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on consideration and Third Reading.

Other proceedings

7. Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed.—(Angela Watkinson.)

Question agreed to.



Terrorist Asset-Freezing etc. Bill [Lords] (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Terrorist Asset-Freezing etc. Bill [Lords], it is expedient to authorise—

(1) the payment out of money provided by Parliament of any expenses incurred by

the Treasury or any other Minister of the Crown in consequence of the Act; and

(2) the making of payments into the Consolidated Fund.—(Angela Watkinson.)

Question agreed to.

Double Taxation Convention (South Africa)

David Gauke Excerpts

Thursday 11th November 2010 Written Statements

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

A protocol to the double taxation convention with South Africa was signed on 8 November 2010. After signature, the text of the protocol was deposited in the Libraries of both Houses and made available on HM Revenue and Customs’ website. The text of the protocol will be scheduled to a draft Order in Council and laid before the House of Commons in due course.

Housing Revenue Account Subsidy (Wales)

David Gauke Excerpts

Wednesday 10th November 2010 Westminster Hall

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to serve under your chairmanship, Mrs Brooke. I congratulate the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) on securing this debate and presenting his case with such eloquence and detail, although I am grateful to him for not providing the breakdown of every local authority for every year since 1999.

I am pleased to have this opportunity to discuss the Government’s policy on the housing revenue account subsidy system and its financial consequences in Wales. Housing policy, as we heard from the hon. Gentleman, is governed by the same primary legislation in England and Wales, and the public spending framework is also similar. However, it is important to remember that housing policy itself is a devolved matter.

The HRAS system in Wales is based on notional income and expenditure on council housing, which is derived from information provided by local authorities. If the overall HRAS system is in surplus once all local authority expenditure has been totalled, the surplus is collected by the Welsh Assembly Government and given directly to Her Majesty’s Treasury as annual managed expenditure.

I recognise that the existing centralised system is seen as complex and opaque and is therefore unpopular with local authorities across Wales, a point made by the hon. Gentleman. That is why the Welsh Assembly Government launched a review of the HRAS system last December. My colleagues in Government and I look forward to the outcome of the review. As he said, there is certainly potential to improve the current system, and any recommendations will be duly considered as part of our wider reform agenda.

It might be helpful for me to touch briefly on the example of England, about which we have heard a little bit. As part of the spending review, we announced that we will be ending the current HRAS system in England and introducing a new self-financing model for council housing that will abolish the annual centralised subsidy and replace it with a more transparent system that gives greater power to local councils and authorities.

As in many areas of public service provision, we seek to devolve responsibility away from the centre so that communities have more of a say in what goes on in their local area. The measure will enable councils to keep their rental income and use it to maintain homes for current and future tenants, providing new opportunities and incentives for authorities to plan for the longer term. That approach will allow councils better to meet the housing needs of their specific areas. Decisions will be made based on local knowledge and priorities, not a central Government formula. Details of the new system will be introduced this autumn as part of the localism Bill.

In principle, it would be feasible to construct a similar solution for Welsh authorities, if that is what they wish to propose. However, there are some differences between the HRAS systems in England and Wales that will need to be bottomed out. As I said, it is a devolved matter. Any decision on the future of the Welsh HRAS system will be made by the Assembly Government, subject to agreement by HM Treasury. I note some of the hon. Gentleman’s criticisms of the Welsh Assembly Government—not all coalitions work as harmoniously as others do. His points are very much on the record.

It might be helpful for the hon. Gentleman to know that, earlier this week, my right hon. Friend the Chief Secretary to the Treasury wrote to Jane Hutt, the Welsh Finance Minister. He offered officials to work with Welsh colleagues on developing a similar reform to the Welsh HRA subsidy system, with the same protections provided for the position of the Exchequer.

[Guto Bebb]

I am obviously delighted to hear that because this is an important subject. Although I have made the point that stock transfer has been a way of dealing with the matter and providing a more local approach, it is fair to say that there is a cross-party feeling in Wales that the issue should be dealt with. It is part of the localism agenda and the Minister’s comments are very welcome.

[Mr Gauke]

I am grateful to my hon. Friend for his comments. Indeed, I have a lot of sympathy with what he has said about stock transfer. If there is a consensus within Wales, from the position of the UK Government, the Treasury is keen to engage. As I said, Treasury officials are available to work with their Welsh counterparts to find a way in which we can move forward in this area. Yes, there are differences between the English and the Welsh system, but we are keen to consider the matter and engage in a positive way.

I thank the hon. Member for Carmarthen East and Dinefwr for securing today’s debate. He has raised some important points and I am grateful to him and my hon. Friend the Member for Aberconwy (Guto Bebb) for their contributions. It is incredibly important to address the issue of housing needs across Wales—and the UK more generally—and the Government are keen to do so. I look forward to seeing the proposals for reform of the HRAS system that the Welsh Assembly Government are currently putting together and, as I mentioned earlier, the Treasury is keen to engage in that process. I hope that, through working in partnership with the Welsh Assembly Government, we can find a solution that meets the needs of local authorities in Wales set out by the hon. Gentleman. I also hope that we can deliver similar protection to the Exchequer as that achieved by the reforms we have undertaken in England, which have been assessed by the Office for Budget Responsibility as being fiscally neutral. In that context, I would like to say that this has been a useful debate. I am grateful to the hon. Gentleman for securing it and I hope he feels that it has enabled us to make some progress in this area.

Question put and agreed to.