Annual European Union Finances Statement
David Gauke Excerpts(8 years, 5 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
I am today laying before Parliament, “European Union Finances 2015: statement on the 2015 EU budget and measures to counter fraud and financial mismanagement” (Cm 9167). This is a routine annual publication. It is the 35th in the series. The statement gives details of revenue and expenditure in the 2015 European Union (EU) budget, recent developments in EU financial management and measures to counter fraud against the EU budget. It also includes an annex on the use of EU funds in the UK.
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Oral Answers to Questions
David Gauke Excerpts(8 years, 5 months ago)
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Philip Davies (Shipley) (Con)
2. What estimate his Department made of the potential cost to the public purse of a HM Revenue and Customs regional hub being based at (a) Leeds and (b) Bradford.
The Financial Secretary to the Treasury (Mr David Gauke)
HMRC announced the planned locations of its future regional centres based on a number of key principles that will enable it to deliver more for less. In addition to cost, HMRC has taken account of the quality of local transport links, the local labour market and future workforce supply and the need to retain the staff and skills it needs to continue its transformation. The changes will reduce HMRC’s estates costs by around £100 million a year by 2025.
Philip Davies
Does the Minister accept that basing the HMRC regional hub in Bradford would be cheaper for the taxpayer, that there is a suitable location available in Bradford but not in Leeds, and that an effective northern powerhouse does not mean basing everything in West Yorkshire, in Leeds? Will he think again about that matter?
Mr Gauke
My hon. Friend is, as ever, a doughty advocate for the interests of his constituents. The point I would make to him is that this is a regional centre for the whole of the Yorkshire and Humber area. To retain as many members of staff as possible and reduce redundancy costs, HMRC’s assessment is that Leeds is a better location for those working in York, Sheffield and Hull from where there is a direct train service to Leeds.
Jo Cox (Batley and Spen) (Lab)
3. What steps his Department is taking to enable councils to retain receipts from business rates.
The Financial Secretary to the Treasury (Mr David Gauke)
The Government have announced a radical reshaping of the state. By the end of the Parliament, local government will retain 100% of business rates to fund local services. The Government will shortly begin consultation on those reforms.
Jo Cox
My local authority, Kirklees, estimates that it will lose in excess of £30 million a year as a result of this policy and the changes to the local government grant. By comparison, Westminster Council’s income will increase tenfold. When will the Government provide clarity for councils such as mine on the redistributive element that will mean it will be able to plug that very significant shortfall in funding?
Mr Gauke
The devolution of business rates will retain the system of top-ups and tariffs that currently exist, so there will be no immediate loss to any local authority as a consequence of devolution. The point is that it devolves power to local authorities so that they have stronger incentives to boost growth. Local authorities that grasp that opportunity will see their business rates revenue increase.
Stephen Hammond (Wimbledon) (Con)
Does my hon. Friend agree that the point about last week’s announcement was that it was a defining moment for local authorities? Those local authorities that accept the principle of devolution of business rates can incentivise strong local business growth, and secure a local economy that is strong and that has jobs for its constituents. That is the key point.
Nic Dakin (Scunthorpe) (Lab)
What consideration has been given to doing something about business rates to support the steel industry in line with the outcomes agreed at the steel summit, which was chaired by the Secretary of State for Business, Innovation and Skills?
Glyn Davies (Montgomeryshire) (Con)
4. What assessment he has made of the potential effect of the national living wage on wage growth.
Sir David Amess (Southend West) (Con)
12. What plans he has to raise the personal allowance during this Parliament.
The Financial Secretary to the Treasury (Mr David Gauke)
The Government are committed to raising the income tax personal allowance from £10,600 to £12,500 by the end of this Parliament. This is alongside our commitment to raise the higher rate threshold to £50,000. More than 30 million individuals will benefit from these changes. The summer Budget 2015 confirmed that the personal allowance will increase to £11,000 in 2016-17, and to £11,200 in 2017-18.
Sir David Amess
In the light of what my hon. Friend has said, will he reassure me that, as the economy continues to recover and grow, the Government will follow the sound Conservative principle of allowing people to keep more of the money they earn to spend as they wish?
Mr Ranil Jayawardena (North East Hampshire) (Con)
15. What fiscal steps he is taking to help people to keep more of the money they earn.
The Financial Secretary to the Treasury (Mr David Gauke)
The Government have committed to raise the personal allowance to £12,500 and the higher-rate threshold to £50,000 by the end of this Parliament. In the summer Budget, the Government took the first steps towards meeting those commitments by increasing the personal allowance to £11,000 and raising the higher-rate threshold to £43,000. In 2016-17, 29 million people will pay less tax after those changes, and 570,000 will be taken out of income tax altogether.
Mr Jayawardena
Will the Minister outline what measures have already been taken to help married couples to keep more of what they earn? Would he consider helping stay-at-home parents further by increasing the marriage allowance for all taxpayers?
Mr Gauke
Since 2015-16, married couples and civil partners have been able to transfer 10% of their personal allowance to their spouse. The Government expect this to benefit up to 4 million couples by up to £212. This will increase in proportion to any increases in the personal allowance, which the Government have committed to raise to £12,500.
Philip Boswell (Coatbridge, Chryston and Bellshill) (SNP)
Given that the ratio of savings to household debt has gone down from 11.8% in the first quarter of 2010 to less than 5% today, and that the downward trend appears likely to continue, why are the Government not taking steps to reverse that trend?
Mr Gauke
The Government are delivering one of the biggest increases in living standards that we have seen for many years. We have record levels of employment, we are providing economic security and we are one of the strongest growing economies in the G7. That is helping household finances up and down the country.
Henry Smith (Crawley) (Con)
19. Will the Minister tell us what measures will be taken to ensure that parents in my constituency and up and down the country who are returning to work do not have to spend every penny they earn on childcare?
Mr Gauke
My hon. Friend makes an important point. From September 2017, the Government are doubling the free childcare entitlement from 15 hours to 30 hours a week for working families with three and four-year-olds. That will be worth up to £5,000 per child. From early 2017, tax-free childcare will also be introduced, providing support worth up to £2,000 a year per child for working parents.
Bob Blackman (Harrow East) (Con)
T1. If he will make a statement on his departmental responsibilities.
Draft Double Taxation Relief and International Tax Enforcement (Guernsey) Order 2015
Draft Double Taxation Relief and International Tax Enforcement (Jersey) Order 2015
Draft Double Taxation Relief and International Tax Enforcement (Canada) Order 2015
Draft Double Taxation Relief and International Tax Enforcement (Kosovo) Order 2015
David Gauke Excerpts(8 years, 5 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Guernsey) Order 2015.
The Chair
With this it will be convenient to discuss the draft Double Taxation Relief and International Tax Enforcement (Jersey) Order 2015, the draft Double Taxation Relief and International Tax Enforcement (Canada) Order 2015 and the draft Double Taxation Relief and International Tax Enforcement (Kosovo) Order 2015.
Mr Gauke
I am already tempted to say I give way, but let us see what progress I make, Mr Davies.
The four draft orders before the Committee deal with amendments to our double taxation arrangements with Guernsey and Jersey, the detailed arrangements for Canada and, for the first time, a double taxation agreement with Kosovo.
Let me begin with Guernsey and Jersey. We have agreed short protocols with Guernsey and Jersey, amending the territorial definition of the UK for the purposes of those DTAs. The protocols substitute a modern definition of the UK that includes the continental shelf. That means that the UK would not lose its right to tax activities such as oil and gas operations carried on in the North sea if those activities were transferred to a company resident in Guernsey or Jersey. We have made those changes to head off potential arrangements to get around changes that we made in the Finance Act 2014 that apply to such operations. At the same time, both Guernsey and Jersey wanted to amend their own territorial definitions, and those arrangements have also been accommodated in the protocols.
The Double Taxation Relief and International Tax Enforcement (Canada) Order 2014 was considered in Committee in 2014. The order related to a protocol that amended the UK-Canada double taxation agreement and introduced, in paragraphs 6 and 7 of article 23, provisions that allow disputes to be settled by arbitration. The arbitration provisions broadly follow the OECD model provisions. The exchange of notes that we are debating today sets out rules and procedures that apply to the arbitration process. For example, the notes make it clear that the rules that apply to taxpayer confidentiality shall also bind those involved in the arbitration process. They also provide for a “final offer” method of arbitration, in which the panel is required to choose the position taken by one of the tax authorities.
Arbitration is an extension of the mutual agreement process, which allows the two tax authorities to consult each other to resolve disputes between themselves. When an issue cannot be resolved through discussions, the taxpayer can require that the matter goes to arbitration and the tax authorities are then bound by the decision. Users of UK double taxation agreements, especially companies, welcome arbitration as providing a solution in difficult cases. The possibility of arbitration also encourages tax authorities to reach a solution themselves within the two-year period after which the case is eligible for arbitration. The process can thereby eliminate the double taxation that can arise if cases are unresolved. Fortunately, such cases are not common, and in the case of Canada are rare. Inclusion in the double taxation convention sends a positive message and aids similar inclusion in other conventions.
Turning to Kosovo, this is the first time there has been a comprehensive agreement with Kosovo, replacing the 1981 agreement with the former Republic of Yugoslavia, which Kosovo and the UK had agreed would continue to apply. Kosovo approached us in 2011 with its proposed draft and we have been able to agree a text in two rounds which reflects changes to both countries’ domestic law and which largely follows the OECD model tax convention. The agreement provides for zero withholding taxes on dividends, interest and royalties, with a measure protecting our taxing right over distributions from real estate investment trusts. That represents a significant reduction to withholding rates in the current treaty and will provide improved incentives for UK investors and businesses operating in Kosovo, to the benefit of both economies.
The agreement also updates the provisions of business profits and exchange of information to the latest OECD standards, as well as introducing an assistance in collection article. Finally, we secured agreement to a measure on arbitration to augment the mutual agreement process and our anti-treaty shopping measures, which allow both countries to ensure that the treaty’s provisions cannot be exploited. This is the first time since Kosovo’s independence in 2008 that it has signed a tax treaty with a country outside of eastern Europe and the Balkans. For the UK, it represents a further update to our treaty network in the region—Members may recall that we debated and approved new treaties with Croatia and Bulgaria last month.
I hope that those explanations are helpful, but I will be happy to answer any questions that hon. Members may have. I commend the orders to the Committee.
Mr Gauke
I thank the hon. Member for Wolverhampton South West for his questions. First, he asked whether I could say a little more about the definitions for Guernsey and Jersey. As with all tax treaties, the DTAs with Guernsey and Jersey provide that the UK can tax an enterprise resident in the other territory only if it is operating in the UK through a permanent establishment. The DTAs with Guernsey and Jersey did not include the continental shelf within the definition of the UK. That means that, under the terms of the DTA, the UK currently has no taxing rights over Guernsey and Jersey enterprises operating on the UK continental shelf, whether they have a permanent establishment there or not. The changes made by these orders ensure that companies cannot exploit that feature of the treaties to circumvent the effects of the bareboat chartering rules introduced in the Finance Act 2014. That was an attempt to deal with a particular area of the tax system that was being exploited. The orders are an attempt to be consistent with those rules and to avoid any loophole being exploited.
On the issue of the impact assessment, let me make this point. DTAs remove barriers to cross-border trade and investment, so the effects of a specific agreement will depend on the extent to which activities change as a result. Concluding a DTA is therefore not a zero-sum game—I have made that point before, and the hon. Gentleman accepts it—because possible negative short-term revenue effects are offset in the longer term by increased activity. Given the long timescales, complex and shifting interactions with domestic law, large and unpredictable behavioural effects and the lack of a sensible comparator, it is not possible to produce meaningful estimates of the revenue effects of double taxation agreements, and successive Governments have never attempted it.
I hope there remains a consensus in the House that trade is a good thing. We wish to remove trade barriers and to encourage trade between countries, as that is a source of wealth creation that benefits all participants. DTAs help to remove a potential barrier to trade, which is the risk of double taxation. That is why successive Governments have been supportive of steps, such as those we are taking today, that ensure a large DTA network.
The hon. Gentleman mentioned pendulum arbitration, which is sometimes called “final offer” arbitration or baseball arbitration, particularly in the US, where it is used for setting players’ salaries in cases of dispute. This method or arbitration involves a panel having to choose the position taken by one of the tax authorities. The alternative is a reasoned decision, by which the panel can come up with its own preferred solution. The UK has traditionally followed the latter method—reasoned decisions—as set out by the OECD, but “final offer” arbitration, which Canada favours, has several attractions. Not only is it likely to be quicker, simpler and cheaper than reasoned decision arbitration, but it encourages the two sides to take reasonable positions in their discussions, which decreases the likelihood that arbitration will be required. There is no particular significance in one trade agreement taking one approach and a different agreement taking another. These are matters for negotiation and a case can be made for either approach when arbitration is undertaken.
Rob Marris
Let me put this to the Minister on a pendulum arbitration basis: will he say which he thinks is preferable? All or nothing—give me a reasoned answer.
Mr Gauke
I think probably the best answer is that it depends. It would be fair to say that I am unsure whether it is possible to split the difference between the two, so one either has to use pendulum arbitration or a reasoned decision. That is the default option, but some of our treaties do have “final offer” arbitration and we are prepared to consider it.
As for the five-year provision on termination, a five-year minimum life for a tax treaty given by the termination clause is a provision common to most of our treaties. It ensures that the products of often complex and lengthy negotiations can stand for a minimum period of time. Those who have served in these Committees before will be aware that we often replace very old treaties. These are not things that can be knocked out in a fortnight, so some kind of minimum period of time is helpful.
I hope that those comments and clarification are helpful and that the Committee will support the orders before us.
Question put and agreed to.
Draft Double Taxation RElief and international Tax Enforcement (Jersey) Order 2015
Resolved,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Jersey) Order 2015.— (Mr Gauke.)
Draft Double Taxation RElief and international Tax Enforcement (CAnada) Order 2015
Resolved,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Canada) Order 2015.—(Mr Gauke.)
Draft Double Taxation RElief and international Tax Enforcement (Kosovo) Order 2015
Resolved,
That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Kosovo) Order 2015.—(Mr Gauke.)
Autumn Statement (Measures with Immediate Effect)
David Gauke Excerpts(8 years, 5 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
As part of “Spending review and autumn statement 2015”, the Government have announced a number of measures which will have immediate effect.
Loans to Participators: trustees of charitable trusts
The Government are introducing legislation to exempt loans or advances made by close companies to trustees of charitable trusts from the tax charge under the loans to participators rules where the loans are applied only to the purposes of the charitable trust. This ensures that transactions which do not fit the policy rationale of the rules are not caught. The change will have effect for all loans or advances made on or after 25 November 2015.
Reform to the related party rules in the intangible fixed assets regime
The Government are introducing legislation to confirm how the corporation tax rules for intangible fixed assets apply to partnerships with corporate partners. This ensures the related party commencement rules will apply as they are intended to apply. The change will be effective immediately but only in respect of debits and credits accruing on or after 25 November 2015
Capital Allowances and Leasing: Anti-Avoidance
The Government are introducing legislation countering two types of avoidance involving capital allowances and leasing. The first involves artificially lowering disposal values, allowing businesses to claim excess capital allowances, and the second involves transferring entitlement to tax deductible lease payments in return for receiving a payment that is not taxed as income. The legislation will have effect for relevant transactions that take place and agreements entered into on or after 25 November 2015.
Further details on the measures listed above are contained in the draft legislation, explanatory notes and tax information and impact notes published on the gov.uk website.
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HMRC Office Closures
David Gauke Excerpts(8 years, 5 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
I am delighted to be able to respond to this debate, because protecting the country’s tax revenues is a key part of the Government’s long-term economic plan, and because we have already made great steps in modernising the way in which tax is collected.
The changes announced on 12 November are an important part of HMRC’s operational modernisation programme, designed to create a modern, efficient organisation that continues to protect this country’s tax revenues. Modernising and improving the efficiency of HMRC, enabling it better to tackle evasion, drive down avoidance and improve compliance, has been a key Government objective since 2010.
We have made substantial investments to achieve that aim, not least the provision of an added £800 million in the summer Budget, which will help HMRC to recover an additional £7.2 billion. As a result, we have succeeded in driving down the tax gap as a percentage of total liabilities from 7.3% in 2009-10 to 6.4% in 2013-14. This fall represents an additional £14.5 billion in cumulative tax collected. Over the last Parliament, HMRC secured about £100 billion in additional compliance yield, including a record level of £26.6 billion in 2014-15. We have also made important cost reductions to the operational side of HMRC, and I make no apology for that. HMRC cannot be immune from the requirement that its resources are spent wisely.
David Simpson
I thank the Minister for giving way. It was friendly fire for the SNP, but it did not accept it.
The Minister will acknowledge the disappointment in Northern Ireland about the fact that 10 offices are closing. We do not have the full numbers for those who will lose their job or when the redundancies will happen. Further to the comment by the hon. Member for North Down (Lady Hermon), we are vulnerable at the best of times, but with the land border this will make it even worse.
Mr Gauke
First, this is about offices, not about staff. On the numbers of people likely to be employed—for example, in Northern Ireland—it should not be taken that because offices are closing, the total number of staff employed by HMRC in Northern Ireland as a whole will be reduced. Of course, HMRC is aware of the specific issues with smuggling and is determined to address them. Let me reassure the hon. Gentleman about numbers of staff. It should not be taken from the announcement of office closures that there will necessarily be a reduction in staff in Northern Ireland at all.
Mr Jim Cunningham (Coventry South) (Lab)
Does the Minister not realise that when offices are closed, that has an effect on staff? With the best will in the world, there will be redundancies. Can he give us the numbers of staff affected? More importantly, I have schoolteachers in my constituency who want to sort out their pension problems. They use the HMRC hotline but they cannot get through—nobody responds to them. What is the Minister going to do about that?
Mr Gauke
The point I am making is that of course the closure of offices has an impact on some of the staff working in those offices. To answer the hon. Gentleman’s first question, by 2027, when the process will have been completed, approximately 4,000 of the existing 58,000 people employed by HMRC will not be within reasonable daily travel distance to an HMRC office. I want to be completely straightforward with the House of Commons. That is the scale by 2027.
On customer service, I agree that HMRC’s standards need to be high, and there have been times in recent months when they have not been at an acceptable level. I am pleased that performance is significantly better than it was in April, May and June this year. It is still not as high as we would like it to be, but it is above the average standard over the past six or seven years. We still have further to go.
In order to ensure a high level of customer service and to make sure that we bring the yield in, it is important that HMRC’s resources are deployed efficiently and effectively, and it is important that we ensure that services can be delivered in the most efficient way possible.
Sir Simon Burns (Chelmsford) (Con)
On staff numbers, my hon. Friend will be aware that the office in Chelmsford will be closing and will be based in Stratford in east London—20 or 25 minutes’ train journey from Chelmsford. Can people who work in Chelmsford take some reassurance from what my hon. Friend has said that the redeployment of staff from Chelmsford to Stratford is a viable proposition?
Mr Gauke
Yes, I think I can provide that reassurance to my right hon. Friend. An organisation that can make better use of technology and improve the way it works will find that there are some activities that it currently performs for which it requires large numbers of staff, but that it will not necessarily need those staff members in future. There are, however, a number of things that HMRC does that will mean that it requires those staff members. HMRC will become a more highly skilled organisation. It will need highly talented people to be able to ensure that we get the money in. My right hon. Friend provides a good example. There may be people currently working in, for example, Chelmsford who have skills that HMRC needs. They will be able to work in Stratford. I can point to other examples of similar circumstances throughout the United Kingdom.
Philip Davies (Shipley) (Con)
I do not disagree with the overall picture that my hon. Friend paints, but the decision to base the regional hub for Yorkshire in Leeds rather than in Bradford is crass. If it can be shown that locating the regional hub in the Bradford district will be cheaper for the taxpayer and offer better value for money, and that the calibre of the staff could be accommodated in and attracted to that base, will my hon. Friend give a commitment to revisit this decision and look at what the Bradford district can offer?
Mr Gauke
I welcome the fact that my hon. Friend supports the view that we should move to a smaller number of regional centres. I am conscious that there are different views on locating the hub in Leeds and Bradford. HMRC’s analysis is based on the fact that it has large numbers of staff who live and work in, for example, York, Harrogate or Sheffield. Returning to the point made by my right hon. Friend the Member for Chelmsford (Sir Simon Burns), if those people are to be redeployed, it is substantially easier for them to go to Leeds, because there is a direct train service to Leeds, than it would be for them to go to Bradford, for which they would have to travel into Leeds and change, and their commute could then be beyond what would constitute reasonable daily travel. In fact, I should have said Hull rather than Harrogate, but there are similar points as regards staff living in Harrogate, and in Doncaster, in that it is easier to get to Leeds than to Bradford. As always, I am more than happy to listen to the arguments made by my hon. Friend the Member for Shipley (Philip Davies), and by others. Indeed, I am to have a meeting with Bradford MPs over the course of the next week or two to hear the arguments that they wish to put.
Several hon. Members rose—
Ian Paisley (North Antrim) (DUP)
On a very specific point, the Minister will be aware that there is a special investigations unit in Northern Ireland dealing with serious and organised crime gangs and extra-special tax affairs of certain individuals. That unit, which was based at Moira house, is faced with closure. Where will it now be based to deal with these specific issues for Northern Ireland?
Mr Gauke
There are a handful of specialist centres around the United Kingdom as a whole, but the intention with Northern Ireland is to work out of one main office in Belfast.
I welcome the fact that HMRC’s expenditure on its estates fell from £371 million in 2010-11 to £255 million in 2014-15, and that these plans will generate further savings of £100 million a year by 2025.
Several hon. Members rose—
Mr Gauke
Let me just make this point and then I will take plenty of interventions.
That will allow HMRC better to concentrate on its core task of revenue collection. Yes, there are savings for HMRC in reducing its estate costs, but it has made it very clear to me that regardless of what the spending review settlement will be tomorrow, it would move in this direction because it believes that the best way in which it can deliver services and collect tax is through regional centres. That is the important point.
Neil Gray (Airdrie and Shotts) (SNP)
I pay tribute to the staff of HMRC, who do a very tough and challenging job in collecting the taxes that pay for our vital public services. The Minister has mentioned his recent concerns about customer service, and I have had constituency correspondence from HMRC confirming that that has not been adequate to date. Can he explain, in specific terms, how cutting office numbers, thereby removing the local knowledge and memory of staff, increases the quality of customer service that people can expect?
Mr Gauke
It might be helpful to the House if I set out a little history in terms of how HMRC has operated. When it was formed in 2005, it had 572 offices spread all over the country. That is an inefficient way of doing business in the 21st century. Reorganising that network of offices was a policy priority even then, and that is why, following several reorganisations, the number was reduced to 393 in 2010.
It now stands at 170 offices, ranging in size from 5,700 people to fewer than 10. That is a start, but it is still not enough in terms of finding efficiencies.
The changes announced last week represent the next stage of HMRC’s estate transformation programme. Over the next 10 years, the department will bring its employees together in 13 large modern offices, equipped with the digital infrastructure and training facilities they need to work effectively. The new high-quality regional centres will serve each and every region and nation in the United Kingdom, creating high-quality skilled jobs and promotion opportunities in Birmingham, Belfast, Bristol, Cardiff, Croydon, Edinburgh, Glasgow, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Stratford.
Several hon. Members rose—
Mr Gauke
Let me just make this point and I will then give way.
There are significant advantages to such a system. The new offices will have the capacity to host multiple lines of businesses and have senior jobs on site. They will offer employees the opportunity to build their careers and skills in one office, and encourage upskilling. They will be in locations with strong transport links and close to pipelines of talent. They represent the way in which business is done in the 21st century.
Mr Jim Cunningham
The Minister has been very generous in and good about giving way. He mentioned that 4,000 employees may be affected by 2027. Is he saying that he can redeploy all those employees?
Mr Gauke
To return to that point, I gave the statistic that 4,000 of the current 58,000 people employed by HMRC will be outside a reasonable daily travel distance by 2027, as HMRC has acknowledged. I am afraid that there will have to be redundancies for those people, assuming that they are still working for HMRC, over the course of that period. I would make the point that the vast majority of HMRC staff—I recognise that this is difficult for those who are not in such a position—will clearly be able to work in the regional centres I have mentioned.
David Mowat (Warrington South) (Con)
Does the Minister agree that the current level of customer service in HMRC is unacceptable? The speech of the hon. Member for Livingston (Hannah Bardell) would have made sense were it not for the fact that, currently, about 40% of calls are never answered. It is not even that they are answered after 40 minutes; they are never answered. Does he agree that regional centres enabling us to flex the number of staff must form a coherent approach to getting calls answered, which cannot be done with 190 centres?
Mr Gauke
My hon. Friend makes an important point. I am pleased to be able to tell him that the numbers are not quite as bad as that at the moment—80% of calls are getting through—but we need to ensure that quality is higher. The point is that it is easier to provide flexibility when there are fewer centres.
For example, people can be moved from processing jobs. As I said earlier, some processing jobs will not be necessary in future, but a lot of the compliance jobs will be necessary. If we want people to continue to work for HMRC by upskilling them—moving them out of processing jobs by getting them involved in more highly skilled compliance work—that will be easier to deliver if they are already working in the same building, with the same people and with training facilities. That is why it is absolutely the right measure to ensure that there are opportunities for existing staff.
Several hon. Members rose—
Rebecca Pow (Taunton Deane) (Con)
I believe that 3,000 extra staff were laid on to help to handle phone calls at weekends, and I welcome that. May I put in a bid for the Minister to reassure us that we will still have human beings at the end of the telephone in this great new system, which I fully support?
Mr Gauke
Yes, there will be human beings. It is true that, following the problems earlier this year, HMRC brought in an additional 3,000 people to work on the telephones. Those people have been trained up and are now deployed. That explains why there has been a significant improvement in performance over the past few weeks, although there is still more work to do.
Kelly Tolhurst (Rochester and Strood) (Con)
I commend the Government on making it a priority to clamp down on tax evasion. That contributed to the collection of an extra £11.9 billion in the last tax year. The Anchorage House site in Chatham in my constituency has long played a key role in closing the tax gap. Will my hon. Friend meet me to discuss the future of the large number of dedicated and skilled workers?
Mr Gauke
I am certainly happy to meet my hon. Friend. I have had a request from my hon. Friend the Member for Rochford and Southend East (James Duddridge) to discuss this matter. Again, I am happy to meet him and I suspect that my hon. Friend the Member for Southend West (Sir David Amess) would also like a meeting. I am happy to meet them. I think that HMRC is right to move in this direction, although I appreciate that it creates certain issues. Some of the constituents of my hon. Friend the Member for Rochester and Strood (Kelly Tolhurst) will have the option to work in the Maidstone office, which will stay open for four years longer than the Chatham office. I am sure that a number of them will take that up.
Chris Stephens
The Minister has been most generous. Many MPs and tax experts support the view that a visible and local HMRC presence is essential to maintaining confidence in the tax system. Does he not believe that the measures that have been announced by HMRC will open the way for more tax avoidance?
Mr Gauke
No, I do not. As I have made clear, the number of HMRC officers has been falling since its creation in 2005, including over the past five years, and we have seen the closure of inquiry centres, as has been touched on, but HMRC’s success in dealing with tax avoidance and evasion over that period has been marked and has improved. The truth is that HMRC deals with tax avoidance and evasion principally through sophisticated data analysis and by bringing together highly skilled people. The more that we can do of that, the bigger the difference we will make.
Bob Stewart (Beckenham) (Con)
If HMRC requires visibility, is any consideration being given to mobile offices in vans, like mobile libraries? For example, Northern Ireland has one big office in Belfast, but it could send vans down to Armagh, Enniskillen or Londonderry.
Mr Gauke
HMRC’s “needs enhanced support” service was brought in as a partial replacement of the inquiry centres. My hon. Friend raises an interesting point about HMRC’s presence. However, it has a strong record in dealing with avoidance and evasion, there has been a substantial increase in prosecutions and it is hard to open a newspaper without reading reports of the wealthy facing significant tax bills because HMRC is successfully closing down tax avoidance schemes. That shows that HMRC is reducing this behaviour.
Mr Mak
I am heartened by the Minister’s confirmation that reducing the tax gap and protecting tax revenues remains a key priority. Will he confirm that the progress in that area has been strong since the Government took office, resulting in more than £57 billion extra tax revenue being collected compared with 2005-06?
Mr Speaker
Of whom—I know that the Minister will find this helpful—there are no fewer than 19. I point out very gently, because the Minister has been generous in taking interventions, that his speech, probably as a result of that, is significantly longer than that of the person who led the debate. I am sure he would not want that to be the case.
Mr Gauke
I certainly would not, Mr Speaker.
HMRC has done this the right way and told staff first. It has kept people fully abreast of its proposals for a number of months, and it has held events up and down the country to ensure that it works with staff. As I said earlier, this is a locations announcement, not a workforce announcement, and the Department’s policy is to keep redundancies to an absolute minimum.
Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)
Will the Minister give way?
Mr Gauke
I will not. I have listened to Mr Speaker and I take his words very seriously. I will make progress.
I say to the hon. Member for Livingston that the changes that HMRC is talking about, such as trying to find efficiencies through centralisation, are not unique to HMRC or the UK Government. The Scottish Government have also brought forward proposals to rationalise their estates. They brought forward proposals to close up to seven of Police Scotland’s 10 control rooms, and we hear of plans to close regional fire stations, following the consolidation of local fire authorities into one national body. There have been cuts to the number of court buildings across Scotland, and the number of incorporated colleges was cut by almost half. I am sure that the Scottish Government had good reasons for doing that, but so do we, and it is right that we take such steps.
In conclusion, if we want HMRC to do its job effectively, we must ensure that it is fit for the challenge. We must be willing to modernise, find efficiencies, target resources, and make long-term strategic decisions. That is precisely what HMRC is doing by transforming itself into a smaller, more highly-skilled organisation, with modern, digital services, and a data-driven compliance operation that will deliver more for the taxpayer at lower cost. What would the opponents of change prefer? Do they want to rely on a structure that in many respects dates from before the internet era, or to pump in more money without examining where it is going? It is surely right that HMRC carries out efficiencies, targets its resources, and concentrates on delivering for the British taxpayer. That is the policy it has embarked on, and it is already increasing revenue yield and closing the tax gap. That is the policy that the changes will help achieve, and I urge the House to reject the motion.
Draft Small and Medium Sized Business (Credit Information) Regulations 2015
Draft Small and Medium Sized Business (Finance Platforms) Regulations 2015
David Gauke Excerpts(8 years, 6 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move,
That the Committee has considered the draft Small and Medium Sized Business (Credit Information) Regulations 2015.
The Chair
With this it will be convenient to consider the draft Small and Medium Sized Business (Finance Platforms) Regulations 2015.
Mr Gauke
It is a great pleasure to serve under your chairmanship, Mr Nuttall, I think for the first time.
I am pleased to introduce the draft regulations. The Government are committed to ensuring that small and medium-sized enterprises can access the finance that they need to grow and to create jobs. The major four banks account for 80% of SMEs’ main banking relationships, but the Government believe that such high concentration levels are bad for business. We are determined to see a significant change in competition in the UK SME banking market.
The two sets of draft regulations represent the final two legislative flagship measures to improve competition in the SME lending market. They will remove major structural barriers to entry to the SME lending market: the lack of availability of credit information, a lack of understanding of alternative finance providers and a tendency on the part of most SMEs to give up when declined for finance. It might be helpful if I provide some detail on the need for the draft regulations, which are linked and complement each other. I will focus first on the credit information aspects.
A lender needs to know the creditworthiness of an SME in order to lend to it. The major banks have access to those data, particularly current account data, which gives them a comparative advantage in assessing the risk of a borrower. The control of information on the creditworthiness of SMEs by existing providers is a barrier to entry in the lending market. Lack of access to the data limits the ability of challenger banks and alternative finance providers to assess credit risk accurately in absolute terms and relative to those lenders that hold the relevant information.
That barrier can be removed through the sharing of credit information by lenders. In the UK, data are shared through private credit reference agencies, but certain data—current account data in particular—are shared through closed user groups and not on an equal basis. That puts newer lenders without access to the full range of data at a disadvantage in taking well informed credit decisions. The Office of Fair Trading, the Competition Commission, the Bank of England, the “Boosting Finance Options for Business” review headed by Tim Breedon, and numerous think-tanks and informed commentators have all highlighted the lack of SME credit information as a barrier to competition in the SME banking market and in SME lending in particular.
The draft regulations will open up the closed groups that have access to certain types of information, which will level the playing field between providers, allowing alternative finance providers and challenger banks accurately to conduct SME credit risk assessments and to make it easier for SMEs to seek a loan from a lender other than their bank. More available data should also enable a better understanding of the SME sector, which will further stimulate competition and innovation in SME lending, improving the cost and quality of services offered.
The finance platforms draft regulations will also have a major impact on SMEs’ ability to access more and better finance and on the ability of challenger banks and alternative finance providers to compete effectively. Survey data show that many small businesses approach only the large banks when seeking finance. A large number of such applications are rejected. For first-time SME borrowers the rejection rate is about 42%. When applications are declined, a large number of smaller businesses cancel their plans, rather than exploring alternative options. Other finance providers with different business models might be willing to lend to such businesses, so that represents a market information failure, with borrowers looking to borrow and lenders willing and able to lend, but an inability on the part of both to identify each other.
Under the new legislation, designated banks will be required to offer any SME that they decline for finance the chance to have their details shared with an online platform that can help to match them with other finance providers. This will help to put together the alternative finance providers and challenger banks that may not be aware of the SMEs seeking finance, and the SMEs seeking finance that may not know about alternative providers and challenger banks. That will help to facilitate more lending to SMEs that are looking to grow and expand.
Challenger banks and alternative finance providers have been very supportive of both proposals, as have the UK’s major business groups, including the Federation of Small Businesses and the Confederation of British Industry. The major banks and the British Bankers Association have also been supportive.
Together, the policies have the potential to create a significant change in the market for SME finance. However, for that to happen, it is essential that SMEs have confidence in how their data are being used and that the necessary protections are in place to safeguard the quality of those data. The Government have ensured that SME protections are key elements of the policy design and have provided those protections in a number of ways.
I will start by outlining the protections afforded to SMEs under the draft credit information regulations. First, data will be shared only where the terms of products allow data to be shared with credit reference agencies. That reflects the existing framework for the sharing of personal data in the UK and is line with the Data Protection Act 1998.
Secondly, the finance provider requesting access to the information from the credit reference agency must gain the express permission of the SME to do so and can only access the information for the purpose of undertaking a credit assessment.
Thirdly, the vast majority of SMEs—sole traders, small partnerships and unincorporated bodies—have the right to action in respect of any incorrect data held about them by a CRA. That allows for a complaint to be made to the CRA seeking correction, for a complaint to be made to the Financial Conduct Authority or the Information Commissioner, and ultimately, for a court to order the CRA to rectify, block, erase or destroy any incorrect data. Those rights are enshrined in the Data Protection Act and the Consumer Credit Act 1974.
However, there is a difference in protections based on whether the CRA in question is FCA-regulated. CRAs that mainly handle business data do not need to be regulated by the FCA, as the provision of commercial credit data is an unregulated activity. The credit information regulations will modify both the Data Protection Act and the Consumer Credit Act to ensure that the protections apply to data held by all designated CRAs.
Fourthly, the draft regulations will extend the right of action in respect of any incorrect data provided under the draft regulations to all SMEs, including companies. That will allow a court to order the CRA to rectify, block, erase or destroy any incorrect data held on any SME.
Finally, the draft regulations will extend the remit of the Financial Ombudsman Service, so that any micro-business with a dispute with any designated CRA can seek a Financial Ombudsman Service decision, which replicates the situation in other areas of the regulated financial sector.
I turn to the protections provided to SMEs under the draft finance platforms regulations. First, data will be provided to finance platforms only with the SME’s agreement, and finance platforms will be able to provide those data only to finance providers on their lending panel, in anonymous form. Finance providers will then make expressions of interest through the platforms, and SMEs will have the choice to allow specific finance providers to see their details and begin a bilateral conversation. That process will ensure that the business seeking finance remains protected and in control throughout the process.
Secondly, mirroring the draft credit information regulations, the draft finance platforms regulations will extend the remit of the Financial Ombudsman Service so that any micro-business with a dispute with any designated finance platform can seek a Financial Ombudsman Service decision. Together, those provisions are a welcome strengthening of the protections for SMEs, and they have been welcomed by SMEs and business groups.
I turn to the issue of designation and identifying the banks, CRAs and finance platforms upon which the obligations contained in the draft regulations will fall. The Government have already announced that they intend to designate the Royal Bank of Scotland, Lloyds, Barclays, Santander, HSBC, Allied Irish Bank, Bank of Ireland and Danske Bank. That decision was made on the advice of the Bank of England, based on market share and the importance of those banks in the SME lending market in both Britain and Northern Ireland. Capturing those banks achieves the policy objective of opening up competition in SME lending without imposing the burden of sharing data on smaller credit providers.
The Government have not yet announced which CRAs or finance platforms will be designated under the draft regulations. The British Business Bank is currently undertaking a due diligence process on CRAs and finance platforms that have expressed an interest in becoming designated, and it will advise the Treasury on designation later in the autumn. The due diligence process will ensure that any designated CRA or finance platform has the required systems and processes to ensure that the obligations and policies within the draft regulations can be carried out, while providing the necessary protections for SMEs. That help will ensure that these policies are successful and have a significant positive impact on the SME lending market.
I hope that my words have assured the Committee that the draft regulations are needed and will have a positive impact on the SME lending market by providing improved outcomes for the UK’s SMEs when they access finance. The draft regulations will create a level playing field between finance providers and will make small businesses aware of alternative finance options, while maintaining and strengthening protections for our smallest businesses, meaning that the small businesses that are so vital to the UK economy will be able to have confidence when accessing finance and continue to get the finance they need to grow and expand. I hope that the regulations will have the support of the Committee.
Mr Gauke
I thank the right hon. Member for Enfield North and the hon. Member for Wolverhampton South West not only for their questions but for their support for the draft regulations. We have had a productive discussion, and I hope to respond to their questions. Before I do, let me reiterate that, together, the draft regulations will generate a significant change in competition in the market for SME finance ,which could improve not only the amount of finance available to SMEs but the cost and quality of services offered to small firms.
As I set out in my opening remarks, there is a large body of evidence that there are market failures in the SME lending market. The draft regulations will help to remove the barriers to entry identified in that evidence; increase competition in a highly concentrated market that is dominated by the four largest banks; and remove information market failures that prevent SMEs from seeking finance and prevent alternative finance providers and challenger banks from knowing of each other’s existence.
I stress, particularly in the context of the first point raised by the right hon. Member for Enfield North, that the regulations are about providing opportunities to businesses seeking finance, so that they do not just go to one place, get rejected and give up, but choose to go to other providers. That is an important option available to businesses. Of course, it is ultimately for businesses to determine how much they wish to borrow, but the way of protecting businesses from over-borrowing is not to have a position whereby they cannot access finance at all. That is an important point.
The shake-up of the lending market for SMEs will improve the ability of our small and medium-sized businesses, which are so vital to UK growth, jobs and opportunity, to access the finance they need to grow, expand and continue to have a significant positive impact on the UK and its economy.
In light of some of the questions that have been asked, it might be helpful if I provide a little more information. The hon. Member for Wolverhampton South West raised a point about overall credit conditions. On an annual basis, the growth rate of net lending to SMEs continues to ease. It was 0.6% in June 2015, up from minus 2.8% in June 2014. Across all SMEs, 67% of applications in the 18 months to quarter 1 of 2015 were successful. That is up from 59% in the same period to quarter 1 of 2014. For small businesses, successful credit applications fell slightly in quarter 2, but the trend over the past few years has been improving.
It also might be helpful for the Committee to have a bit of information about SME finance application rejection rates. The rate for new money is 35%. For new money for first-time borrowers, it is 45%. For renewals it is 2%, with an overall rejection rate of 24%. To break it down in another way, loans are at 33% and overdrafts are at 18%. It would be difficult to provide information on rejections on the basis of the loan application not meeting the bank’s risk criteria. I can understand why the hon. Member for Wolverhampton South West asked that question—I am not sure I can provide that information, but I hope what I have said is helpful to him.
On the provision of data through public bodies, I would argue that the UK is a best practice example throughout Europe of data sharing by CRAs. A register remains an option that can be considered if the current system and the regulations are not effective, but our proposals are part of our desire to ensure that data are properly shared.
A question was asked about the purpose of the Bank of England accessing the data, and whether that would constitute overload. That access should give the Bank of England a much fuller understanding of the regional and sectoral allocation of credit, of the type of small and medium-sized businesses that are getting credit and of the risk profiles of different small and medium-sized businesses. We believe that that access will be helpful to the Bank of England.
On encouraging RBS and Lloyds bank to lend to SMEs, the regulations do just that. They apply to both RBS and Lloyds, which will share the data through the CRAs. That is how the UK system works.
Rob Marris
Will the Minister say what the Government and their predecessors have been doing for the past five and a half years, before these regulations to get RBS and Lloyds to lend to SMEs?
Mr Gauke
The best way of ensuring that our banking sector, including RBS and Lloyds, is in a position to lend to SMEs has been to look at the overall situation of the economy and to ensure, for example, that we have had lower interest rates than we might otherwise have had, and that we have not had to increase interest rates prematurely. That has been part of ensuring that we have good lending conditions. We have had policies such as funding for lending, which was designed to help banks across the piece. We must remember that although RBS and Lloyds are publicly owned, operational decisions are not made by Ministers. That has never been the Government’s approach.
The challenge for banks in recent years has been that we needed them to ensure that their balance sheets were restored and that, to some extent, they moved on from a period of risky lending to ensure that they were more secure, while at the same time ensuring that a flow of finance was available to SMEs in particular. The Government have sought to maintain that balance throughout the past five and a half years but, in truth, there was never an option of simply telling RBS and Lloyds to lend merrily without due regard to the risks. I am not saying that the hon. Member for Wolverhampton South West is suggesting that.
Rob Marris
The Minister is right, that is not what I am suggesting. He mentions interest rates, which the Bank of England sets. It sets the tone for the whole market and does so independently. We have had low interest rates since before the coalition Government came in, and the Bank of England’s interest rate has not changed.
On operational stuff, the Minister must distinguish between strategy and tactics. It is right for a major shareholder, such as the Government in those banks, to set the tone not of individual lending decisions—yea or nay—to an SME, but of the risk matrix used by the institution. On a strategic level, the Government could influence that as a shareholder, but they have apparently abdicated responsibility and failed so to do, thereby hurting SMEs.
Mr Gauke
To be clear about interest rates, decisions are of course for the Bank of England’s independent Monetary Policy Committee. None the less, the policy of addressing the need to reduce our deficit, for example, helped to ensure that we did not see a premature increase in market rates, which may well have fed through into bank lending.
I do not intend to digress too much on to the policies on RBS and Lloyds over the past five and a half years, other than to restate my earlier point that RBS and Lloyds had to decide how to achieve the objectives both of ensuring that their finances were on a sound footing, and to some extent deleveraging, and of providing support to small businesses. The Government supported the meeting of both objectives. Those financial institutions found themselves in a difficult situation—I do not suggest that we detain the Committee with a lengthy discussion of why they were in that position, but none the less they were.
The implementation guide, which the hon. Member for Wolverhampton South West mentioned, has been completed by the CRAs, banks and the Treasury. It has not yet been published, but it is being used to help banks and CRAs implement the credit information policies. I believe it should be published shortly, but I cannot be more precise.
On the point about Handelsbanken and designations being based on market share, not being designated will help Handelsbanken to compete more effectively with the largest banks. It will benefit from the regulations; I do not think they will be to its disadvantage.
The definition of a finance platform is in section 7 of the Small Business, Enterprise and Employment Act 2015. As the hon. Member for Wolverhampton South West will of course appreciate, it is normal legislative drafting practice not to repeat such a definition in the regulations made under the Act; but for those studying the debate and scratching their heads, I am happy to clarify that point.
On the question of why the provision of credit data on companies is not a regulated activity, the Government legislate for activities to be regulated under the regime set out in the Financial Services and Markets Act 2000 only when there is evidence that it is required. There is no such evidence in the case of providing data on companies. Regulating the activity under the regime in question would not solve the problems I mentioned earlier, but we believe that the regulations will.
The hon. Member for Enfield North—
Mr Gauke
Apologies; the right hon. Lady raised a point about voluntary and compulsory schemes. The voluntary systems were not 100% effective, which is why we are regulating today for the sharing of data. Other voluntary schemes, such as postcode lending, have been successful and do not require a legislative option. It is a question of being pragmatic as to which voluntary arrangements are working and which are not.
I will check to see whether there are any further points I can add in answer to the questions asked by the hon. Member for Wolverhampton South West.
Joan Ryan
Will the Minister say a few words about how monitoring of the voluntary scheme will continue? In relation to the rationale for intervention, there were 50 responses to the consultation on the matters that the Government want to regulate, which does not sound like many when we think how many SMEs there are. Will the Minister go back to SMEs and others to discuss where lending is or is not happening under the voluntary scheme? Will he go to lenders other than the main banks, to assess their view of the information that we get from that scheme?
Mr Gauke
I suppose the first point to make is that SMEs understandably, and perhaps rightly, tend to be focused on their business and do not necessarily always respond to Government consultation. That might explain the numbers. All I can say to the right hon. Lady is that all such matters must be kept under review. When voluntary arrangements work, so be it, but when there is evidence that they do not, the Government are willing to take action, as we have seen.
As I said, I will deal in writing with any points that I have inadvertently failed to address in response to questions raised today. I hope that this debate has been productive, that it has provided right hon. and hon. Members with some comfort on any concerns that they have, and that the Committee will join me in supporting the regulations.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Small and Medium Sized Business (Credit Information) Regulations 2015.
DRAFT SMALL AND MEDIUM SIZED BUSINESS (FINANCE PLATFORMS) REGULATIONS 2015
Resolved,
That the Committee has considered the draft Small and Medium Sized Business (Finance Platforms) Regulations 2015.—(Mr Gauke.)
National Insurance Contributions (Rate Ceilings) Bill
David Gauke Excerpts(8 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read the Third time.
We have now reached the final stage of this House’s deliberations on this Bill, which implements our manifesto commitment not to increase national insurance contributions—NICs—for employers and employees. On Second Reading, hon. Members were reminded of the Government’s strong record of significantly reducing the burden of NICs on employers. At Budget 2011, my right hon. Friend the Chancellor of the Exchequer announced a £21-a-week above-inflation increase to the employer NICs threshold. In 2014, we introduced the employment allowance to support businesses and charities across the UK by reducing their employer NICs bills by up to £2,000 every year, and this has already benefited more than 1 million employers. The Government are now going further; hon. Members will recall that the Chancellor announced at the summer Budget that this would be increased to £3,000 from next April. From April 2015, the vast majority of employers employing under-21s were lifted out of employer NICs. This NICs exemption will be extended to cover apprentices who are under 25, supporting employers to provide young people with valuable workplace skills. The Bill enacts the Government’s commitment to provide certainty on NICs rates for the duration of this Parliament. Hon. Members will be aware that the commitment contained in the manifesto was not to increase the main rates of income tax, VAT or NICs. The Finance Bill contained measures to deliver that commitment for income tax and VAT, and this Bill delivers on that commitment for NICs.
Let me now deal with the detail of the Bill. First, it provides that the rate of class 1 NICs paid by employees and employers must not exceed existing rates. Secondly, it has been the convention that the level of the upper earnings limit for NICs is aligned with the level of the higher rate threshold for income tax. This Bill formally limits increases to the UEL so that its annual equivalent amount cannot exceed the level of the HRT for income tax. Both the restriction on NICs rates rises and changes to the UEL come into force on Royal Assent of this Bill, and apply until the start of the tax year following the date of the first parliamentary general election to take place after Royal Assent.
This Bill provides certainty for employers and employees: that the NICs rates that affect millions of employees and employers across the UK will not rise for the duration of this Parliament; and that the UEL will not exceed the HRT for income tax.
John Redwood (Wokingham) (Con)
My hon. Friend will agree with me that more jobs would be a very good thing and that better-paid jobs for people are a very good thing. He is saying that there will not be any increases but he is presumably not ruling out cutting taxes on jobs, because the less we tax, the more jobs we might have.
Mr Gauke
To be very clear, this is a cap, not a freeze. I am grateful to my right hon. Friend for allowing me to make that point.
I thank the hon. Members who have participated in our debates on this Bill, both on the Floor of the House on Second Reading and in Committee. The Bill has not detained the House for any great length of time, but I am grateful for those contributions. The Bill demonstrates the Government’s commitment to provide certainty on tax rates for the duration of this Parliament, and I commend it to the House.
Mr Gauke
With the leave of the House, Madam Deputy Speaker, I want to respond to the points raised by right hon. and hon. Members in this short debate. Before I do so, may I reiterate the main purpose of the Bill? It introduces the final aspect of the five-year tax lock, which is further proof of the Government’s commitment to provide certainty on tax rates for the duration of this Parliament and the commitment to low levels of taxation made in the Conservative manifesto for the general election in May, which resulted in a Conservative majority in that election. The commitment was that the rates of income tax, VAT and NICs would not increase. The Finance Bill introduced legislation to deliver that commitment for income tax and VAT, whereas this Bill delivers on the commitment for NICs. The benefits are that it provides certainty for employers and employees that for the duration of the Parliament NICs will not rise and the upper earnings limit will not exceed the higher rate threshold for income tax.
We have heard the argument that it is not necessary to legislate in this regard, but I remind the House that it was a Conservative manifesto commitment to legislate and we are fulfilling that commitment. Concerns were also raised that the measure might restrict flexibility for future Governments, and the comment made by my right hon. Friend the Member for Wokingham (John Redwood) about the circumstances that might apply in such cases was very good. I do not think that anybody would advocate in the teeth of a recession that we should put these rates up. Fiscal credibility is very important, of course, and our determination in that regard will be demonstrated at the spending review on 25 November. It is important that we bring borrowing down, but we do not believe we should do that by putting up national insurance contribution rates, which is what the Bill prevents us from doing.
Future funding for contributory benefits, should NIC receipts prove insufficient, is a matter for the Chancellor and a decision to be made at the relevant fiscal event based on the latest projections available at the time and taking into account the NIC rate ceilings that we are introducing. The Government Actuary recommends a working balance of one sixth of benefit expenditure for the national insurance fund and there is provision to top up the national insurance fund from the Consolidated Fund to maintain the balance at that level. For the 2015-16 tax year a top-up of £9.6 billion has been provided for in legislation.
Let me point out, though, first, that this Government are committed to meeting our commitments in terms of the state pension and spending on the NHS. Secondly, the hon. Member for Dundee East (Stewart Hosie) raises concerns that the projections might not be accurate. These projections in relation to national insurance contribution rates are made by the Office for Budget Responsibility, an independent body. I can understand why the hon. Gentleman might have concerns in general about projections for tax revenues, given that he fought a referendum not that long ago assuming that the tax revenues from North sea oil would be very much more substantial than they have turned out to be. In those circumstances, I can understand his sensitivity to the fact that receipts might not be what had been anticipated. However, this is based upon an independent assessment and, in the round, is nothing like the fiscal risk that the Scottish National party was offering the Scottish people just over a year ago.
George Kerevan (East Lothian) (SNP)
Has the Treasury Minister forgotten that the North sea oil revenues go to HM Treasury and that the recent fall in income from the North sea proves the point to the Treasury that its forecasts can be wrong?
Mr Gauke
The proposition of the independence movement was much more optimistic about receipts than the OBR at the time of the referendum. Most important of all, the United Kingdom is more easily able to absorb a volatile oil price than an independent Scotland would be—a point that I would have thought anyone looking at this fairly had to accept.
Stewart Hosie
I will not be tempted by the Minister, however generally he put it, other than to say that he is wrong and that the UK Government’s barrel price for gas was higher than that used in Scotland. That is not the point. I completely understand the technical answer that the Minister has just given, but will he please answer the specific question: does this pose a threat to the contributory principle which applies to many of the benefits that people in the UK receive?
Mr Gauke
Let us be clear that the OBR’s projections for oil prices—those are the ones that the Government use—were much, much more cautious than those of the independence movement. The black hole that would be the finances of an independent Scotland, had the SNP succeeded in obtaining independence, would have been very considerable, and it is about time that those who campaigned for independence were straightforward with the British people and the Scottish people about what has happened.
The Bill makes no change to the structure of national insurance contributions that would undermine the contributory principle. I am happy to make that explicit to the hon. Gentleman. I hope that is helpful to the House, and I hope the House will support the Bill before us.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Common System of VAT (Vouchers)
David Gauke Excerpts(8 years, 6 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chair
It may be helpful to the Committee if I briefly explain how we intend to run this afternoon’s proceedings. The whole thing must last no longer than two and a half hours. Therefore, we will conclude at 7 pm at the latest. First, a member of the Committee who is also a member of the European Scrutiny Committee may, if he wishes, make a five-minute statement explaining why the European Scrutiny Committee has decided to refer the documents for debate. I understand that Mr Mackinlay intends to do that.
There will then be up to an hour of questions to the Minister who may, if he wishes, start with a brief introductory statement, during which time he may not be intervened upon, rather like a statement to the main Chamber. There is then an hour of questions, which, if I wish, I can extend by a further half hour to make it a total of an hour and a half—as long, it says on my note, as it remains edifying. I hope it will be thoroughly edifying. Finally, the remainder of the two and a half hours that the entire procedure takes up is available for a formal debate of the documents on the basis of the motion that the Minister will, by then, have moved.
The Financial Secretary to the Treasury (Mr David Gauke)
On a point of order, Mr Gray, it was my understanding that the Minister was permitted a 10-minute statement, but I will obviously take your guidance. I am keen to anticipate as many of the questions that the Committee no doubt has as fully as I can in my opening remarks, therefore saving the Committee any trouble. I will be guided by you.
The Chair
Knowing the charm and eloquence in which you habitually engage, I am sure that the Committee would be delighted for you to provide a 10-minute statement. If you ask for it, we could, no doubt, agree to 15 minutes, although I think 10 minutes will do. First, does a member of the European Scrutiny Committee wish to make a brief explanatory statement about why it has referred the documents to this Committee?
Mr Gauke
It is a great pleasure to serve under your chairmanship, Mr Gray. I thank my hon. Friend the Member for South Thanet for his opening remarks. I am pleased to have the opportunity to discuss the Government’s views on the EU Commission proposal on the VAT treatment of vouchers.
Vouchers in that context are the various types of token, paper and electronic card that we are all familiar with. Examples are book tokens, gift vouchers, luncheon vouchers, electronic in-store cards, mobile phone top-ups and internet-based purchase codes. Some vouchers are issued by the business that will redeem them, whereas others are issued by one business and redeemed by another, with reimbursement made behind the scenes.
The vouchers in question are those where a payment has been made and the voucher represents an entitlement to collect goods or receive services. Sometimes, the payment is made by someone else—a friend or relative, or a business—so the beneficiary may not have made a payment. We often call such vouchers “face value” vouchers, although nowadays the voucher’s value may not be physically written on them, particularly electronic vouchers. Neither discount vouchers nor traditional payment systems are affected by the Commission’s work in this area.
The interaction between “face value” vouchers and VAT systems is complex. EU law has failed to keep up with developments in the sector and developments in technology in particular. As a result, rules in member states differ considerably, which has led to many instances of double and non-taxation, and businesses find it difficult to trade vouchers across borders.
The key problem with vouchers is knowing how much VAT to charge. Generally we expect VAT to be charged when a payment is made. That works fine for CD tokens, for example, but for some gift vouchers no one knows how much VAT to charge until they are used to buy something, because almost all retailers sell goods subject to a variety of VAT rates.
The simple answer might be to apply VAT when the voucher is redeemed but, when a voucher is sold through a distributor, the retailer will sell it at a price below its face value to enable the distributor to take a cut. Therefore, the amount the customer pays is often different from what the redeemer receives. As a result, it can be difficult to identify the correct tax base. If we tax all distribution and redemption at the VAT standard rate, we end up collecting too much VAT.
Last year, the UK retail voucher market was worth about £5 billion. UK business leads the EU in developing such opportunities to facilitate business promotion. In the single market, we need harmonised VAT rules to permit effective cross-border voucher distribution. To trade effectively, businesses need rules that are consistent and easy to understand. The current rules for vouchers do not provide that. Each member state seems to have a different set of complex rules that businesses have to learn. Such differences also lead to double or non-taxation. The Government therefore support the initiative to identify some common VAT rules for vouchers.
On the specific details, the Commission’s proposal puts “face value” vouchers into two distinct groups: single-purpose vouchers and multi-purpose vouchers. SPVs are vouchers for which the information needed to apply tax is known when the voucher is issued, such as a CD token. MPVs are the more complex type of vouchers, such as a gift voucher, where the tax cannot be applied at the outset because it is not known what goods or services will be supplied until the voucher is used.
There is general agreement among member states that VAT on SPVs should be charged as if the sale of the voucher is the sale of the underlying goods and services that will be supplied when the voucher is used in the shop. VAT is therefore collected at each stage of distribution. That is how we currently treat SPVs and we fully support the work achieved in respect of them.
It has proved much harder, however, to determine the correct VAT treatment for MPVs. The Commission’s initial scheme was rejected by member states because it was too confusing and unpopular with businesses, who would have had to have shown their margins. Instead, member states examined alternatives. The solution on the table would require the shop to account for VAT on the face value as a default, but would allow the use of the actual payment details where they are known.
The Government are inclined to support that approach because, in the majority of cases, it would ensure that the correct amount of VAT was paid. It is also the approach taken in the UK with many MPVs. Although we think the issue is manageable, there would be an impact on some high street retailers where vouchers are issued and redeemed by the same party, particularly where the distribution is undertaken by intermediaries acting in their own names. We think that that will impact on about 6% of vouchers sold, but the businesses mostly affected will be the half dozen or so large high street chains.
Those few large high street retailers would probably want to adapt their systems. They already account for VAT using a special scheme. They might wish to renegotiate their arrangements with distributors so that they share the burden of collecting VAT more equally. The new scheme allows for businesses to make adjustments where the correct amount of VAT is known. It is also possible for the adversely affected retailers to change their arrangements with intermediary businesses to make it easier for them to identify the correct amount of VAT. We do not think that private consumers would pay any more VAT under the revised approach.
As I have explained in my letter to the Committee, we hope to make some changes before final agreement. Although the Government are minded to agree the revised approach to collecting VAT on sales involving vouchers, there is one aspect that we are keen to discuss with other member states: the VAT incurred by intermediaries that buy and sell vouchers in their own name and that will not, under the current text, be entitled to deduct the VAT on their costs. However, those charging a commission will be able to deduct the VAT incurred on costs, and one can imagine the practical impact of that as one person being able to deduct the VAT on the costs of his van while another could not. We believe that the intermediaries that sell vouchers should be treated as a special case so that their tax position is the same as other intermediaries, and we are continuing to press for those changes to the text.
Finally, having examined many possibilities for changes to the VAT rules, the majority of EU member states agree that the text on the table offers the best compromise against a background of it being impossible to please all businesses if we seek a common rule to avoid double and non-taxation. At the same time, most member states will have to accept at least some changes to their existing rules. Eleven member states agree with us on VAT deductions for certain distributors, as does the Commission. The only exception to that general common position is Germany, which has recently argued the need to distinguish tickets from vouchers for reasons of absolute clarity. We see that as an unnecessary level of detail and note that no other member state has supported Germany on that point. Tickets are outside this area of work, but are treated under VAT rules in the same way as SPVs. We hope that, if all member states can agree the text, Germany will be persuaded that the advantages of agreement outweigh its concerns.
I have set out the broad state of play on the Commission’s proposal on vouchers. Working groups are continuing in Brussels, and we expect that the matter may come to ECOFIN next year. With those remarks, I look forward to any questions from the Committee.
The Chair
With the Minister having explained the matter so clearly, we have an hour for questions. I remind Members that they should be brief and, crucially, include a question. At my discretion, they can ask supplementaries, if they wish.
Rob Marris (Wolverhampton South West) (Lab)
It is a pleasure to serve under your chairmanship, Mr Gray. In past years, you and I have spent many years working constructively, I think, together in this room.
The area is particularly complex. I hope the Minister will confirm whether I have understood the proposal correctly—it is quite possible that I have not—but when we boil it down, it is that single-purpose vouchers would be subject to VAT when they are issued and multi-purpose vouchers would be subject to VAT when they are redeemed. That is what I pick up from the papers. Incidentally, the papers are one of the few places outside church where one hears the word “redeemer” used.
Rob Marris
I understand that the Commission considered four options. One, perhaps unusually for the Commission, was to do nothing. One was what it is pleased to call—I confess that this is a new one on me—the “soft law” approach, which most people would call guidelines. Another was to legislate, and the fourth option was a ban. Which of those four—to do nothing, the guidelines, to legislate or a ban—was the preferred option of Her Majesty’s Government?
Mr Gauke
The first of the UK Government’s objectives was to address a level of inconsistency and confusion that exists under the status quo, so we were not in favour of the do-nothing approach. Equally, we see vouchers as having a role to play. Within the UK, we have one of the bigger markets, as one might expect—although it is perhaps bigger than one would expect based on the proportion of our economy. We would not therefore favour banning vouchers; that would be a very draconian approach.
To get the type of clarity that we think we need, we concluded that guidelines would not be sufficiently strong. Therefore, of the four options, we favour legislating and hope that we can reach agreement among all member states so that the Commission’s proposals can go forward in a legislative form, although, as I said, we have highlighted a couple of areas where we think they can be improved on.
Geraint Davies (Swansea West) (Lab/Co-op)
In the case of multi-purpose vouchers that are issued, for example, in Britain but redeemed in Germany, what account is the Exchequer taking of changes in exchange rates, in terms of the tax take?
Mr Gauke
The hon. Gentleman raises an important point. The reason why we think we need to make progress in this area is that, in itself, this area is complex. When one takes into account the potential cross-border nature of transactions, the need for greater clarity becomes all the more important.
If we want to facilitate cross-border trade—as the Government do, and there is cross-party consensus on that—addressing the VAT treatment of vouchers is an important factor. I have set out the principles of how the Government think that this should work; if we are looking at MPVs, the measure should apply at the end of the transaction as such. That principle would apply, notwithstanding any changes in the exchange rate.
Geraint Davies
In the case of a voucher worth €1when it was originally issued, but €1.20 or €0.80 when it was redeemed, would there be any bearing on the tax situation? Presumably if the voucher is redeemed in Germany, the tax is paid in Germany, is it not?
Mr Gauke
In terms of the principle, if the supply is in Germany, the voucher is subject to German VAT, for example. The exchange rate is essentially not an issue here; the issue is the VAT payable at the point of the transaction, which, in the case of MPVs, is at the end of the process, as it were—at the final point in the shop. That is the rate of VAT that has to be paid.
Geraint Davies
To put it simply, let us say that somebody had a pack of 240 PG tips with a 50p voucher on it and they redeemed that in Germany. Although perhaps it would not be accepted at all, if it was, the amount would be translated into euros and the tax would be paid on it, so it would have a different value than anticipated. I am asking whether that poses any problems.
Rob Marris
I have two further questions, if I may. As the Minister is aware, article 30a—I think it is a draft—defines “voucher”. It defines “single-purpose vouchers”, “multi-purpose vouchers” and “discount vouchers”. Are Her Majesty’s Government satisfied with those definitions?
Rob Marris
As the Minister said, this is a matter of considerable complexity. Were the proposals to go ahead—with, as the Minister mentioned, some fine tuning—would complexity for business increase or decrease? Which is the likely assessment?
Mr Gauke
It would be fair to say that there is some complexity in the current system because of inconsistency. The hon. Gentleman asks whether the draft directive will disrupt businesses because they will have to deal with a new regime. I would argue that it will not cause major disruption to businesses here. The most likely to be affected would be large, high street chains. High street shops that issue vouchers through distributors to other businesses would be most affected. Those that issue vouchers direct to their customers would be least affected.
Whether a business will be affected significantly will depend on the balance between the two types of operation within the same business. Some high street retailers issue both types of voucher. Some distributors might want to change their business model from buying or selling vouchers to arranging the sale of vouchers. That is quite possible.
Officials have had wide-ranging discussions with UK businesses on the changes. Although there may be some changes and disruption, the general feedback that officials have received from businesses is that they would welcome certainty on the matter in the future. Again, I make the point that, for the first time, VAT law would have a specific provision for VAT treatment of vouchers, which would mean that EU member states would have the same rules, making cross-border trading using vouchers far easier. Businesses would no longer have to set up different systems for different countries.
To give a topical example, the provisions would also make the collection of VAT on mobile phone roaming charges far simpler. The new rules would allow the UK to make changes to our law to make it easier to collect the right amount of tax on what the customer pays when using a voucher. Yes, there will be some disruption to and impact on high street retailers but, on balance, if an agreement can be reached, this is a favourable change.
Craig Mackinlay
To try to put into context the type of transaction that might be caught, I am thinking particularly of business-to-business transactions. I am not quite sure whether there is a voucher, but there must be one somewhere along the line. A reverse charge could come into play for some voucher that represents goods that could be redeemable elsewhere.
The rules for business-to-consumer transactions are obviously different. I would have thought that the most relevant example relates to the new digital services one-stop-shop rules that have applied since 1 January. I am thinking about an Apple iTunes or Google Play voucher, which I assume could be used on a computer in Germany to get a service delivered in Germany. The string of transactions could be complicated, but I am trying to understand how that might work under the scheme. I would assume that the German supplier of an iTunes service—whatever it is—would then be deemed to come under the German one-stop-shop arrangements.
I am also thinking about unusual transactions such as a restaurant discount voucher. Many companies in the UK offer diners the opportunity to join for a certain amount a year what is almost a club that allows a discount in restaurants. That would not cause difficulties in the UK, because I would imagine that joining the club is a chargeable supply, as is actually paying the reduced amount in a restaurant. It is just VAT. However, I am struggling to get my head around how it would work across borders. I am sorry to cause difficulties, but I want to understand how things might work in transactions, which makes the issue rather more important.
Mr Gauke
In part, I would go back to the principles that I set out in my opening remarks. As for business-to-business transactions for promotion purposes, to the extent that the reverse charge applies, that would operate as normal. The one-stop shop referred to by my hon. Friend is for business-to-consumer transactions only. There are some issues relevant to the one-stop shop, but I do not think that anything in particular arises as consequence of VAT on vouchers; the two things stand by themselves. To clarify an earlier remark, discount vouchers, to which the hon. Member for Wolverhampton South West referred, were removed from the proposal by member states, so the measure applies to face-value vouchers only. I hope that that is clear.
Resolved,
That the Committee takes note of European Union Document No. 9926/12 and Addenda 1 and 2, a draft Council Directive amending Directive 2006/112/EC on the common system of value added tax, as regards the treatment of vouchers; welcomes the objective of harmonised VAT rules for vouchers to support a smooth operation of the Single Market and fewer possibilities of double and non-taxation; and further notes that the Government is keen that any solution ensures that the right amount of tax is collected on what the customer pays, in line with the principles of taxation of consumption.—(Mr David Gauke.)
National Insurance Contributions (Rate Ceilings) Bill (Second sitting)
David Gauke Excerpts(8 years, 6 months ago)
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The Chair
We now begin line-by-line consideration of the Bill. Please ensure that all electronic devices are turned off or switched to silent mode. It is unseasonably warm today—very pleasant. If Members want to remove their jackets, they should feel free to do so.
Clause 1
Main and additional primary percentages
Question proposed, That the clause stand part of the Bill.
The Financial Secretary to the Treasury (Mr David Gauke)
It is a very great pleasure to serve under your chairmanship, Mr Bailey. I welcome all hon. Members to their places. Progress was brisk and efficient at our evidence session this morning and if it were up to me, that momentum would continue, but of course it is not up to me.
Clause 1 specifies that the class 1 contributions payable by employees at the main primary percentage shall not exceed 12%. Class 1 contributions are payable at 12% on earnings between £155 and £815 a week. For earnings above £815 a week, the additional primary percentage shall not exceed 2%. The provisions in clause 1 will apply to any tax year that begins after the day on which the Bill comes into force before the next election.
Rob Marris (Wolverhampton South West) (Lab)
It is a pleasure to serve under your chairmanship again, Mr Bailey. You commented on the weather. Of course, you and I know that that the weather in West Bromwich and in Wolverhampton is always lovely, especially at this time of year.
Through clause 1 the Government are limiting their room for manoeuvre. I am aware, as are all hon. Members, that there was a commitment by the Conservative party in the general election not to freeze but to put a cap on national insurance contributions at both rates. That was also the policy of my party, so I think that we will have a fairly brisk afternoon.
However, the Bill, as primary legislation, puts restrictions on Government, which, as I suggested to the Minister in the evidence session this morning, creates a measure of uncertainty. When some things are restricted, like this and other tax measures, such as the 1,300 tax reliefs, of which the Audit Commission says that only about 200 are tracked properly, it can create uncertainly by a kind of ripple effect—if one is being certain in one sphere but saying nothing about this other sphere, whatever it may be in terms of the tax regime, perhaps one has plans to change that.
Do the Government currently have any plans to change, in any way, the regime for national insurance contributions, whether in terms of the upper earnings limit or the percentage rates at which it is levied? There are different rates, of course, depending on the different classes, including class 3A, which runs out at the end of next March. Are there any proposed changes to the regime?
Mr Gauke
I am grateful for the hon. Gentleman’s comments and I am encouraged, as I am sure you are, Mr Bailey, by the consensus, at least on being brisk this afternoon.
As for future plans for national insurance contributions, of course, all taxes—and for these purposes, we count national insurance contributions as a tax—are kept under review. Any announcements are made by the Chancellor in Budgets and autumn statements. I have nothing to add to what has previously been said in Budgets and autumn statements. As was touched upon in our evidence session this morning, the Office of Tax Simplification is looking at national insurance contributions and their alignment with income tax. It has examined that in the past, and it and the Government believe that it would be helpful to draw out some of the related issues in quite a complex matter.
Rob Marris
I appreciate that consultation is ongoing and evidence is still being gathered, but is the Government’s preferred option at this point to have such an alignment?
Mr Gauke
The Government’s position is very much an open one. There is no preferred position as such. Clearly, the matter has been raised on numerous occasions over many years. I suspect that all parties have looked at this issue to a greater or lesser extent. The Office of Tax Simplification has made recommendations in the past on this matter, and we think that it would be beneficial for it to continue to look at the subject with a view to developing potential ideas and then, after that further investigation, for us to have an informed debate on whether to take the proposals forward. The Government do not have a predetermined position, but we think that it would be beneficial to the general debate for the OTS, which is a respected organisation that has already done good work in this area, to take the matter forward.
In short, we do not have further proposals other than those that we previously set out—not least, of course, the cap. The hon. Gentleman is right to say that the Bill provides for a cap, not a freeze.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Secondary percentage
Question proposed, That the clause stand part of the Bill.
Mr Gauke
Like clause 1, clause 2 is a simple provision and I do not intend to detain the Committee for long in explaining it. The rate of secondary class 1 contributions payable by employers for employees who are not under the age of 21 is 13.8%. It is payable on earnings above £156 per week. The clause simply provides that the rate shall not exceed 13.8%.
Rebecca Long Bailey (Salford and Eccles) (Lab)
Again, as this is part of the Government’s policy to cap national insurance contributions for this Parliament, we do not oppose it in principle, but I hope that the Minister will address a few issues.
The national insurance fund is used almost exclusively to pay for contributory benefits. However, one portion, as we discussed this morning in the evidence session, is used for the NHS. Will the Minister assure us that the Government are not tying their own hands should there be another economic crisis? There could be a danger in such circumstances that the Chancellor may decide to reduce public spending further, just at the point when a stimulus is needed.
Economists the world over warn that the global economic situation is becoming increasingly precarious, and the Minister will no doubt be acutely aware that the Opposition have concerns that the Government are not taking sufficient measures to increase our financial resilience. I ask the Minister, in the words of Keynes: if the facts change, will the Chancellor change his mind? Alternatively, if the Government are committed to keeping this framework in place regardless, what contingency plans exist to protect the fund if unemployment starts to rise and receipts from national insurance consequently fall?
On Second Reading, the point was made that the Chancellor’s spending plans are predicated on,
“a forecast rise in revenue yield from NICs”.—[Official Report, 15 September 2015; Vol. 599, c. 941.]
However, should this yield be less than forecast, whether due to unforeseen circumstances, simple miscalculation or, indeed, economic policy failures, what will the Government do? Will further cuts be imposed on public expenditure, or will borrowing rise and the Chancellor simply change his targets once again?
I was grateful for the Minister’s response this morning when he confirmed that NHS funding would not be cut directly as a result of any impact that the Bill has. However, in the same way as the Bill provides an assurance to the market that the Government will keep their promise on national insurance, it would be prudent to legislate for the promise on the NHS. I trust that the Minister has listened diligently to my concerns and I look forward to his response.
Mr Gauke
I am grateful to the hon. Lady for her questions. She asked whether we are tying our hands in these circumstances. To the extent that we are not putting up the employers’ rate of national insurance contributions, for which the clause provides, or the employees’ rate, for which clause 1 provides, we are making it clear that we do not believe that that would be the right thing to do.
The hon. Lady draws me on to hypothetical ground when she asks what would happen if there were a crash, but even on a Keynesian analysis, I do not think anyone would particularly advocate, as an immediate response to an economic downturn, increasing employers’ or employees’ national insurance contributions. I do not claim to be an expert on Keynesian orthodoxy, but I do not think that that would constitute an orthodox Keynesian response to a downturn.
On the hon. Lady’s points about the impact on the national insurance fund, let me repeat the assurances that I gave this morning. There is no question of the fund not being able to fund pensions or the NHS. The Government will introduce the new state pension from 2016, which will make pensions affordable and improve the sustainability of the national insurance fund in the long term and provide the right support for private saving.
The Government Actuary recommends a working balance of one sixth of benefit expenditure for the national insurance fund, as we heard this morning. There is provision to top up the national insurance fund from the Consolidated Fund to maintain the balance at that level. For the 2015-16 tax year, a top-up of £9.6 billion has been provided for in legislation. The future funding of contributory benefits, should NICs receipts prove insufficient, is a matter for the Chancellor and that decision would need to be made at the relevant fiscal event, based on the latest projections available at the time, and taking account of this Bill. I hope that that provides some reassurance that there is flexibility.
It is not the case—nor is this an argument that a future Government would make—that, if the national insurance fund were lower than we expected, we would not honour our commitments on the NHS and on the state pension. I have to make the point that, when it comes to ensuring that we can have a properly funded NHS and properly funded pensions, we need to make sure that the economy is on a sound footing, and that the public finances are strong. That means that we have to make choices, and, in some cases, difficult choices about public finances. That includes, for example, identifying savings in the welfare budget, but, Mr Bailey, that would be taking me away from clause 2.
Mr Gauke
Tempting though that is, I should return to the clause. I hope that those points of clarification are helpful to the Committee and that clause 2 can stand part of the Bill.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
Upper earnings limit
Question proposed, That the clause stand part of the Bill.
Mr Gauke
This clause provides that the upper earnings limit for any tax year for the duration of the Parliament shall not exceed the weekly equivalent of the income tax higher rate threshold proposed for that tax year. The class 1 upper earnings limit is the point at which an employee transitions from paying class 1 contributions at the main rate of 12% to paying class 1 contributions at 2%. Since April 2009, this point has been aligned with the higher rate tax threshold.
Mr Gauke
I am sorry if we are detaining the hon. Lady. I am sure she has many useful things to do this afternoon, so I will not detain her longer than I have to. I come back to the point that we debated this morning. It was a manifesto commitment that we would legislate for this and it is similar to the argument on rates that we have just had on clauses 1 and 2. It underlines our commitment.
I suspect that, had the Bill contained just clauses 1 and 2, and not dealt with the upper earnings limit alignment, the hon. Lady would have been one of the first to identify an apparent lacuna in the legislation and would say that there was nothing to stop us increasing the 12% band of national insurance contributions above the point at which the higher rate threshold came into place. Indeed, I think that that was Labour party policy in 1992, so it is not an immaterial issue or one that has never been considered in public debate.
To be consistent with the capping of the employees’ NICs rate, it is right to set out the threshold and the fact that that is tied in with the higher rate threshold. That has been the practice for some years now and we wish to maintain it.
Rebecca Long Bailey
On highlighting a lacuna, several need to be highlighted and we will take the same approach as the Government to the Bill. If they are going to legislate for every single pre-election promise, surely they should apply the same sort of legislation to every manifesto pledge. They are certainly not doing that.
As my hon. Friend the Member for Wolverhampton South West rightly said this morning, while the Government might be providing assurances to the market on this issue, they are certainly not providing any assurances on all their other pre-election promises because they are not legislating for them in the same way.
Mr Gauke
Again, I come back to the central point. The Conservative party, and indeed the Labour party, made pledges during the last general election campaign not to increase rates. We wished to underline our commitment to the British people by announcing during the election campaign that we would legislate for this. It further emphasised our commitment on this issue.
Having set out that we would legislate on rates, it is also right that we legislate on the way in which the national insurance thresholds currently tie in with the income tax thresholds, which is at the point where the upper earnings limit meets the higher rate threshold. It was logical to include clause 3, which meets exactly the same objective as clauses 1 and 2. We made a commitment that we would not increase the 12% band above the point at which higher rate income tax would be paid, and I think—I am sure I will be corrected—that the Labour party made the same commitment. Given that we are legislating in the Bill on rates, it made sense also to address that threshold point. That is why the clause is part of the Bill, and why I hope the Committee will support it.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clauses 4 and 5 ordered to stand part of the Bill.
Mr Gauke
On a point of order, Mr Bailey. I am not sure whether it is appropriate or necessary to make a point of order at this point, but I think I should. I thank you for your guidance over the last 21 minutes. You have demonstrated all the skills we needed this afternoon, and I am grateful for that. I also thank Mr Rosindell for his assistance this morning.
I thank all hon. Members for their participation in our proceedings. They can report back to the Whips that they have served on yet another Bill Committee, and I hope they feel that this has been a day well spent.
I thank the Whips—the Lord Commissioner of Her Majesty’s Treasury, my hon. Friend the Member for Central Devon, and the hon. Member for St Helens North—for their assistance. I also thank Opposition Members, including the Front-Bench spokespeople, the hon. Members for Wolverhampton South West and for Salford and Eccles, for their constructive engagement with the Bill.
This is the second Bill that some of us have completed in recent days. It has taken considerably less time than the Finance Bill, for which I, for one, am very grateful.
May I conclude by thanking the Clerks, the Hansard reporters, the police and the attendants, as well as the officials from Her Majesty’s Revenue and Customs and the Treasury, for their assistance with this short but important Bill? I look forward to discussing these issues again—no doubt at some length—on Third Reading.
Rebecca Long Bailey
Further to that point of order, Mr Bailey. I reiterate the thanks the Minister has expressed. I also thank him for what has, as always, been a lively and engaging debate. It has been a pleasure.
Oral Answers to Questions
David Gauke Excerpts(8 years, 6 months ago)
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Caroline Ansell (Eastbourne) (Con)
13. What plans he has to raise the personal allowance during this Parliament.
The Financial Secretary to the Treasury (Mr David Gauke)
The Government are committed to raising the income tax personal allowance from £10,600 to £12,500 by the end of this Parliament. That is alongside our commitment to raising the higher-rate threshold to £50,000. More than 30 million individuals will benefit from those changes. This year’s summer Budget confirmed that the personal allowance will increase to £11,000 next year and to £11,200 in 2017-18.
Caroline Ansell
I thank the Minister for that answer. Raising the personal allowance is one of the most powerfully progressive things that we are doing in moving towards a lower tax, higher pay society. Income tax cuts will mean that nearly 5,000 people in my constituency will be lifted entirely out of paying income tax. Does that not show that Conservatives are on the side of working people?
Mr Gauke
My hon. Friend is absolutely right. Those working 30 hours a week on the national minimum wage will be taken out of income tax altogether and kept out of income tax. That contrasts with the position in 2010 when people earning just £6,500 were paying income tax. Those people have recently seen an increase in their marginal rate from 10% to 20%.
Joan Ryan (Enfield North) (Lab)
Raising the personal allowance is not a panacea; it will do nothing to address the deep levels of poverty among the working poor. Is the Minister concerned at all at recent Office for National Statistics figures showing that 6 million jobs pay less than the living wage?
Mr Gauke
The best way to address poverty is to ensure that we have a strong economy—jobs growing, increasing productivity, making sure that we have the business investment that we need. This Government are delivering a pro-business approach that is good for job creation, which is why there are more people in work than we have seen ever before.
Karl Turner (Kingston upon Hull East) (Lab)
T1. If he will make a statement on his departmental responsibilities.