Treasury
Jane Ellison Excerpts(7 years, 2 months ago)
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Jane Ellison
As well as offering some kind words about me relating to my previous role, the right hon. Member for Leicester East rightly drew our attention to the Government’s work on prevention. I shall not be drawn into talking about that too much—as a former public health Minister, I could talk on that for some time—but I remind him of the national diabetes prevention fund and the related work, and the £16 billion a year from the public health budget that we give to local government.
[Official Report, 9 March 2017, Vol. 622, c. 1043.]
Letter of correction from Jane Ellison:
An error has been identified in my closing speech during the Budget Resolutions debate on 9 March 2017.
The correct response should have been:
Jane Ellison
As well as offering some kind words about me relating to my previous role, the right hon. Member for Leicester East rightly drew our attention to the Government’s work on prevention. I shall not be drawn into talking about that too much—as a former public health Minister, I could talk on that for some time—but I remind him of the national diabetes prevention fund and the related work, and the £16 billion over the settlement period from the public health budget that we give to local government.
Budget Resolutions
Jane Ellison Excerpts(7 years, 2 months ago)
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The Financial Secretary to the Treasury (Jane Ellison)
We certainly have covered a lot of ground in today’s debate; indeed, we have strayed internationally, as well as covering an awful lot of domestic policy. Before I address some of the key themes, I wish to stress again the central point made by my right hon. Friend the Secretary of State for Communities and Local Government when he opened the debate. Our ability to provide public services is entirely dependent on our ability to pay for them. Indeed, the right hon. Member for Leicester East (Keith Vaz) said in his speech that before we talk about spending, it is important to talk about how we would raise the money. That is the last thing we have heard from the Opposition today.
Key to this debate is the fact that if we do not live within our means, deal with the deficit and get debt falling, we simply will not be able to continue to fund the public services that we all care about on both sides of the House; of course, the generations to follow will then suffer. We have seen how debt has been left for others to deal with, which is why at the heart of the Budget and our economic policy is our continued resolve to restore the public finances to health, increase our economic resilience and secure our public services for the future. At the heart of our aims is the work to bring down the deficit. We have made great strides, and in doing so we have been able to bring what we spend and what we raise further into line. That is how we can afford public services.
We have already cut the deficit by almost two thirds, but the work is not done. We are also on course to get debt falling as a share of GDP by 2018-19. We are, though, the first to acknowledge that there is no quick fix, no silver bullet and, contrary to assertions by Opposition Members, no magic money tree. That is why we are sticking to the spending plans we have set out and why we are taking a systematic look at how we can become ever smarter in how we spend taxpayers’ money, including by conducting an efficiency review that aims to get more value for money and to save £3.5 billion. As my right hon. Friend the Secretary of State said earlier, we are looking forward to benefiting from the insight and expertise that Sir Michael Barber can bring to bear on the process.
We all have to acknowledge that this work is part of a longer-term challenge. There are many pressures on services in advanced economies around the world, and if we do not grapple with the issue of how we pay for things, we just cannot tackle them. We heard quite a lot from the shadow Minister, the hon. Member for Worsley and Eccles South (Barbara Keeley), about social care. We made a significant announcement in the Budget statement about a £2 billion injection of extra cash—[Interruption.] Opposition Members say from a sedentary position that it is not enough; I return to my previous point: we have heard so much from them about where they would spend more, but we have heard absolutely nothing about how they would pay for it. They have a few gimmicky ideas, to which I shall come—I am going to address one of them head on—but their answer really is the magic money tree. We have made new money available, and further details have been announced today about how it will be allocated. That is real money made available very quickly—£1 billion is being made available for the new financial year starting in just a few weeks—and it is really important that we do that.
Nevertheless, we acknowledge that there is a longer-term challenge. As I said, all advanced economies face pressures as populations become older and the rise in complex and chronic conditions continues. As well as offering some kind words about me relating to my previous role, the right hon. Member for Leicester East rightly drew our attention to the Government’s work on prevention. I shall not be drawn into talking about that too much—as a former public health Minister, I could talk on that for some time—but I remind him of the national diabetes prevention fund and the related work, and the £16 billion a year from the public health budget that we give to local government.[Official Report, 13 March 2017, Vol. 623, c. 1-2MC.] All Members have acknowledged what the sugar levy and other work are doing to turn the sugar tide.
I also draw the right hon. Gentleman’s attention to page 35 of the Budget book—our consultation on the damage that white cider can do. We are consulting on the alcohol by volume duty rates because we have heard from many charities, particularly those working with the homeless, about the impact of the abuse of white cider, in particular, on the health of homeless people and many young drinkers and the increase that it provokes in the frequency of visits to A&E.
Barbara Keeley
Surely the key point is that we are almost abandoning prevention. Some 1.2 million older people live every single day with unmet care needs. There is no prevention when a frail older person who needs care does not get it, and this money goes nowhere to helping with that.
Jane Ellison
I disagree with the hon. Lady about prevention. We can do a lot on prevention, particularly with older people. With this new money, we can have more care packages. For example, falls prevention, which is delivered in the community or at home, is one of the most valuable ways to keep people out of accident and emergency. But we are not in any way downplaying the challenges of dealing with these pressures. We are not burying our heads in the sand. It is a matter not just of common sense but of responsible government that we must face up to the question of how to secure our social care system for the long term. He is not in his place, but the right hon. Member for North Norfolk (Norman Lamb), my former colleague in the Department of Health, talked about that, and there are areas of great agreement across the House about some of those challenges. That is why we announced that we will publish a Green Paper by the end of the year in which we will set out our proposals to put spending on a sustainable footing.
The hon. Member for Worsley and Eccles South said from the Opposition Front Bench that this was about the long grass. I will not embarrass her by reading out the very long list of times that the last Labour Government attempted to grapple with this issue over 13 years.
Jane Ellison
No, I am not going to take another intervention—I will take the same time that the hon. Lady took.
The list is very long. Labour said in its 1997 manifesto that it would tackle this issue; there was a royal commission in 1999, a Green Paper in 2005 and the Wanless review; it was said that the issue would be resolved by the 2007 comprehensive spending review, and there was another Green Paper in 2009—13 wasted years. I am afraid that Opposition Members provoked me to embarrass them. Their long grass was very long indeed.
We are injecting not just new money into social care but an extra £425 million into the NHS to help A&E departments triage patients more effectively and to support local NHS organisations as they reform and improve for the long term the way services are provided to patients. By putting more money into social care and those specific parts of the NHS—triage and capital for A&E—we are addressing some of the very issues that Simon Stevens has talked about recently as immediate challenges of dealing with pressures in the system.
My hon. Friend the Member for Harrow East (Bob Blackman) asked about STPs. The investment that we set out will make a real difference by supporting regions with the strongest plans that are ready now to deliver their long-term visions. We will revisit STPs in the autumn to see whether there are further areas with strong cases for investment, but the NHS obviously also has a part to play in looking at how it can, for example, dispose of unused land and reinvest that money. I give my hon. Friend that assurance.
Let me talk a little about education and skills. We have already taken action to fundamentally reform and improve school education, with the result—this is never acknowledged by the Opposition—that 1.8 million more children are in good and outstanding schools compared with 2010. The simple fact is that vastly more children are getting a good or outstanding education. In this Budget, we further galvanised our schools with £320 million of investment in new schools and £216 million for the maintenance of existing schools.
My right hon. Friend the Secretary of State for Communities and Local Government spoke compellingly about the sweeping reforms that we have introduced to put technical skills at the heart of our education system. I sense great cross-party consensus that that has been an undervalued part of our education system. That will give young adults a chance to develop new talents that will stand them and, of course, our country and economy in good stead as we work towards the high-skill, high-wage and hi-tech economy that will help us to be competitive in a global marketplace.
I have spoken about the importance of controlling our public finances, investing carefully in our public services and ensuring that our spending is sustainable. Alongside that, I want to make a few remarks about the importance of ensuring that our tax system is sustainable. We cannot talk about one side without talking about the other. The flipside of how we invest in public services is how we fund them. Let me address two issues.
First, a number of hon. Members have mentioned business rates. It is right that we update them to reflect today’s property values, but we recognise that this has meant a sudden jump for some. I thank my hon. Friend the Member for Richmond (Yorks) (Rishi Sunak) for his excellent speech. I am familiar with some of the pubs in his beautiful constituency. He mentioned the importance of supporting pubs. That was part of the £435 million package of support that the Chancellor outlined yesterday. He has been working on that with the Secretary of State for Communities and Local Government to help businesses manage the steepest increases following the business rates revaluation.
Secondly, there has been much discussion in this debate of the changes we have made to national insurance contributions, and I will respond directly to some of the points made. Let us be clear that the contributory benefits funded by national insurance contributions are very different from employment rights. Much of this debate and the public discourse has criss-crossed between those two important, but distinct, subjects. National insurance pays into a fund that pays out to the NHS and contributory benefits—principally the state pension, but also parental pay. We have announced that we are looking carefully at maternity and paternity rights.
Jane Ellison
No, we have said that it is 20% of the fund, but the vast majority of the national insurance fund pays towards the state pension, which, as has been made clear, is now available to the employed and the self-employed. That is part of an important and necessary step to level up what benefits people get. It is also important and necessary to level the playing field when it comes to what people pay in.
The Prime Minister has asked Matthew Taylor to look at the important issue of employment rights. We will get the Taylor review later this year and will return to look at those important issues. Whether people are self-employed or an employee, if they do a similar job, get a similar wage and receive similar benefits, they should pay a similar tax. That is actually recognised by Labour’s shadow Work and Pensions Secretary, the hon. Member for Oldham East and Saddleworth (Debbie Abrahams).
I really hope that the hon. Members for Ilford North (Wes Streeting), for Bristol East (Kerry McCarthy), for Bootle (Peter Dowd), for Cardiff South and Penarth (Stephen Doughty) and for Feltham and Heston (Seema Malhotra) are not disowning the self-employment review and commission that was launched last November by the hon. Member for Oldham East and Saddleworth, who said that one of the five principles of Labour’s self-employment commission was that self-employed NICs should rise towards employee levels. She went on to say:
“We cannot expect employees to continue to pay more into the system while offering equality of entitlements across employment status.”
I realise that Labour’s Front Bench rotates with dizzying speed—[Interruption.]
Jane Ellison
Thank you, Madam Deputy Speaker. They don’t like it up ’em!
I realise that the Labour Front Benchers rotate with dizzying speed, but I suggest that Labour Members look at the self-employment commission that they launched only last November. The majority of people who are affected by the change will be better off from the combined changes to national insurance contributions. Only someone with profits of more than £16,250 will have to pay more and, as some hon. Members have remarked, the new state pension is worth an extra £1,800 of pension entitlement to those who will now be on it. That is something that the Federation of Small Businesses, among others, has campaigned for.
It is obvious from the critique we have been offered by those on the Opposition Benches that, while they have a plethora of suggestions about how to raise taxes and raise spending, they have absolutely no coherent alternative economic policy. That was clearly in evidence yesterday, in the response we heard from the Leader of the Opposition, and the fact that there are so many former Front Benchers sat behind today’s Front Benchers is also testimony to it. We need to get spending and revenue-raising in balance; that is the mark of a responsible Government, and that balance is what allows us to safeguard the services we all value for the future.
Beer Duty
Jane Ellison Excerpts(7 years, 2 months ago)
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The Financial Secretary to the Treasury (Jane Ellison)
I thank colleagues from all parties in the House for what has been a typically vivid and enthusiastic debate. It has been wonderful to hear so many fantastic pubs and breweries—both large and small—getting a name- check today in the House, which they deserve. I will not repeat them all, because there were so many mentions of people’s local star businesses, but I pay tribute to all of them. Debates such as this one are so valuable, because they allow Members to bring real colour to a debate about duty by demonstrating the impact that duty has had or could have on businesses in their own area.
I particularly thank my hon. Friend the Member for St Austell and Newquay (Steve Double) for opening this debate on behalf of our hon. Friend the Member for Gower (Byron Davies). I know that my hon. Friend the Member for St Austell and Newquay and others here are advocates for the important role that pubs can play; we have heard today about pubs’ community role, as well as their wider economic role.
I congratulate both the all-party group on beer and the all-party group on save the pub for the work they do. Of course, the all-party group on beer is led by my hon. Friend the Member for Weaver Vale (Graham Evans), who took us through his own extensive history of pubs. However, bearing in mind that he was born in 1963, I hope that his experience of Boddingtons in the 1970s came very much at the end of that decade and not at the beginning.
I noted that my hon. Friend the Member for St Austell and Newquay said that it was important that this sector was not overlooked. I can reassure the pub and brewing industries that their interests are never overlooked in Parliament; they have fantastic advocates in Parliament, who are passionate and articulate champions, and they come from up and down the country and from all parties. As a result, industry concerns are regularly brought to the attention of Ministers. I myself have taken part in debates such as this one as a Back Bencher; I responded to similar debates as the Minister with responsibility for public health; and now I am responding to this debate today as the Minister with responsibility for tax.
I will try to respond to as many of the issues raised this morning as I can without repeating some of the points that others have made. As I am sure Members will realise, I cannot pre-empt anything that my right hon. Friend the Chancellor will announce tomorrow. [Interruption.] I will resist all blandishments on that front.
Turning to beer duty rises, the Government of course recognise the importance of the UK pubs sector and its contribution to promoting responsible drinking. I mentioned my previous role as Public Health Minister. In that role I made the case for pubs as advocates of responsible drinking. That was not always the most straightforward thing to do, because there is always a balance in reconciling the undoubted problem our country has with alcohol in some regards against the fact that we love our pub and brewing industry. Actually, pubs are very much the answer in that regard. They bring together those two ambitions: they encourage people to drink responsibly while at the same time doing all the other good things they do, such as providing employment and contributing to community life.
As we have heard, the sector’s footprint covers every constituency across the country. If I am allowed one namecheck, it is for the fantastic Sambrook’s Brewery in my constituency. Along with other Members, I managed to get one of my local ales into the Strangers Bar. I know that many of us have taken that opportunity over recent years. We appreciate the contribution that all breweries—large and small—make to local economies and the wider beer market. The rise in the number of small breweries has increased diversity and choice in the beer market and promoted consumer interest in a much larger range of beers, which has benefited all brewers and the industry as a whole.
We have heard about the action taken on the beer duty escalator since 2013. My right hon. Friend the Member for Tatton (Mr Osborne) deserves the praise he has been given for that. A pint of beer is 10p cheaper than it would have been had the beer duty escalator not been ended in 2013. That has disproportionately benefited pubs, given that two thirds of the alcohol sold in pubs is beer. The British Beer and Pub Association—it stays closely in touch with Members and briefs them—feels that the action taken since 2013 has increased confidence. I heard that in person from the head of a well known brewery who came in as part of the delegation led by my hon. Friend the Member for Weaver Vale last week. As my hon. Friend the Member for Devizes (Claire Perry) said, when we talk to people involved in the industry, we can hear the impact that confidence has. Sometimes it is hard to put an exact figure on its impact on a particular part of our economy, but I have heard that from people.
The BBPA estimates that more than £1 billion is being invested by brewers and pub owners each year, and that impacts on employment decisions across the supply chain. I draw the House’s attention to the ways in which the Government have supported the innovative domestic brewery industry other than by duty cuts and freezes. The shadow Minister noted them in his contribution, and they include supporting the employment of younger people through some of the changes made there, boosting research and development for small and medium-sized enterprises and reducing corporation tax on company profits from 28% in 2010 to 19% from April. In 2020, it is moving to 17%. Cutting the tax on profits encourages reinvestment and innovation.
Toby Perkins
Does the Minister recognise that there is a real debate about the value of a reduction in corporation tax on the profits that businesses make as compared with the fact that we have the largest corporate property tax in all of Europe? We are expecting businesses that often are not making a profit to see their business rates tax bill go up and up.
Jane Ellison
The hon. Gentleman brings me to the next section of my speech, which is about business rates. I am not surprised that colleagues across the House have raised that issue. We recognise that business rates can represent a high fixed cost for some businesses. I will not rehearse all the facts about the 2017 revaluation. I think we all acknowledge that there was a long gap between revaluations, but I emphasise that for those who face an increase in business rates as a result, there is a £3.6 billion transitional relief scheme. It will support them by capping and phasing in rises in bills. The Chancellor has already said that he is working with the Secretary of State for Communities and Local Government to provide additional support for the hardest hit businesses.
As the hon. Member for City of Chester (Christian Matheson) and others have said, pubs are valued for business rates around the idea of a fair maintainable turnover. An approved guide on the valuation of public houses for business rates has been agreed between the Valuation Office Agency and all five bodies representing pubs, including the British Beer and Pub Association and the Association of Licensed Multiple Retailers. That formula has been agreed, and that is a welcome step that provides more certainty for pub operators over their business rates bill.
It is also worth noting that in the Budget 2016, the Government announced a £6.7 billion business rates reduction package to benefit all ratepayers. I draw the House’s attention to the switch of the annual indexation of business rates from the retail prices index to the main measure of inflation, the consumer prices index, from April 2020. That will represent a cut every year from 2020. In 2020-21, that benefit will be worth £370 million, and it will grow significantly thereafter.
I will turn to a number of the issues raised by Members. A number of people have made the case—I am familiar with it and recently had the chance to hear it in person from industry representatives—that duty cuts boost Exchequer revenues. It is fair to say that even if we allow for other additional tax revenues, the industry analysis we have seen shows that duty cuts still have a net cost to the Exchequer. For example, because the public finances assume an increase by RPI each year, the duty changes from Budget 2013 onwards are estimated to have reduced total alcohol duty receipts by £800 million for 2016-17. That implies that to make up for that, Government would have to raise taxes in other areas of the economy, cut spending elsewhere or increase the deficit. I put it on record that cuts and freezes have a real impact on how the public finances account for things.
A number of Members have raised the issue of lower duty rates on low-strength beer. I recognise some of the challenges around the point at which that line is drawn and around brewing to that level. High-strength beer is taxed more than the equivalent low-strength product, but the 2.8% threshold is set by European Union law and is being reviewed by the Commission at the moment. In the industry meeting, we explored the impact and discussed where the threshold should be.
Members have rightly discussed the challenge around the on-trade and the off-trade and discussed how pubs can encourage responsible drinking. Current rules do not permit the Government to apply a different tax treatment to the same product. We cannot tax alcohol sold in shops at a different rate to alcohol sold in pubs, but we recognise the role that pubs play in promoting responsible drinking. In 2014, we took action on very cheap alcohol by banning sales below duty plus VAT in England and Wales.
Liz McInnes
I appreciate the point that the Minister is making about different rates of tax, but is it not true that minimum pricing for alcohol would apply only to alcohol sold in supermarkets and retail outlets, and not to alcoholic drinks sold in pubs? Is that not correct?
Jane Ellison
I suspect that is a debate for another time. It is certainly a debate in which I took part in my previous role. If the hon. Lady will forgive me, I will stick to the topic of the debate, lest we get drawn into minimum unit pricing, as it is a complex issue.
My hon. Friend the Member for Faversham and Mid Kent (Helen Whately) spoke about the long history of the brewing industry in her constituency. She is another strong advocate for the brewing industry, and she rightly mentioned beer exports, which were worth £531 million in 2015, up 10% on the previous year. I reassure her that no duty is payable on exported alcohol, so the link between duty cuts and exports is not a direct one, although I take her point about general confidence within the industry.
The issue of high-strength alcohol has been challenged. I think the House is unanimous in wanting to tackle excessive alcohol consumption and the related health harms associated with the strongest products. The question is how we do that, but the point has been well made and the Government are of course reflecting on that.
I hope I have covered most of the points raised. I have not been able to respond to the whole thrust of the debate, although more will be said tomorrow in the Budget. The debate has been a valuable opportunity to discuss the issues, and it has been interesting to see so much common ground.
Jim Shannon
In my contribution I talked about alcopops—I know that might be a separate issue—and the advantage that high-street supermarkets have over the pubs. Do the Government intend to address that imbalance, the unfair advantage that high streets have over pubs, and the control of the alcohol that is sold?
Jane Ellison
Again, that is perhaps for a wider debate, but, as I recollect from my time as Public Health Minister, the industry was rightly praised for the extent to which it stepped up to address issues with certain products. A lot of alcopop products have been phased out by some producers who decided to change their portfolio. One or two speakers referred to the bigger chains and the fact that they have tried to shift their portfolios as they recognise the challenges that certain products pose, especially for younger drinkers. It is worth putting on the record a recognition of the industry’s actions in that regard, although there is always the challenge to do more.
I hope that I have been able to reassure Members on some issues. In opening the debate, my hon. Friend the Member for St Austell and Newquay said that the industry wanted to make sure it was not overlooked, and I can reassure him that it is not. Its voice is rightly heard loud and clear across the House and within Government. We have regular meetings and dealings with the industry and we listen very carefully to all the points made.
Peter Dowd
I take the point that the Minister makes about the industry not being overlooked, but it is important to put this in context. For example, according to the industry, the business rates rise will put a 15% increase on pubs’ costs and 23% on restaurants’ costs. That is an additional £300 million to £500 million a year. The Minister should perhaps give more consideration to that.
Jane Ellison
If the shadow Minister thinks that the Government have not given consideration to business rates in recent weeks, he has not been looking at the newspapers. Of course it is an important issue and we have given consideration to it. Many establishments in different parts of the country will gain from the business rates revaluation. More businesses will see their rates cut or frozen than will see an increase. For those that see an increase, transitional relief is available, so it is important for people to look at that. No doubt people will look at the impact of that fiscally neutral revaluation in their own areas.
To return to my previous point, the industry’s voice is rightly heard loud and clear in Government. It has powerful advocates in all parties in this House. The debate has been constructive and has brought out important issues. I have heard all hon. Members’ contributions today and will take them as representations ahead of tomorrow’s Budget.
Draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2017
Draft Tax Credits and Guardian’s Allowance Up-rating etc. Regulations 2017
Jane Ellison Excerpts(7 years, 2 months ago)
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The Financial Secretary to the Treasury (Jane Ellison)
I beg to move,
That the Committee has considered the draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2017.
Jane Ellison
It is a pleasure to serve under your chairmanship, Mrs Main.
I am in Committee to introduce the changes that we are making in the two areas covered by the two sets of draft regulations. I will speak first to the changes being made to the disability elements of tax credits, as well as the guardian’s allowance, and then to the draft regulations on the rates, limits and thresholds that govern national insurance contributions. Many of the changes are being made to the rates in line with inflation, as measured by the consumer prices index, which put inflation at 1% in the year to September 2016.
The draft Tax Credits and Guardian’s Allowance Up-rating etc. Regulations 2017 provide for an increase in line with inflation to the disability elements of tax credits. That means that we are maintaining the value of support for disabled children in receipt of child tax credits and disabled workers in receipt of working tax credit. I should add that the rise in rates covers the new element for disabled children who were born on or after 6 April this year, regardless of the two-child limit for claims of child tax credit. The regulations also increase the guardian’s allowance in line with inflation. That is to sustain the level of support for children whose parents are absent or deceased.
As hon. Members know, an aim of the Government has been to reform the welfare system over a number of years, not only to bring the country’s public finances under control and to act responsibly to set our public services on a long-term and sustainable path, but to address a point of fundamental fairness for British people by ensuring that work always pays. In that spirit, we set about reforming the welfare system. We looked, for example, at the fact that between 2008 and 2015, the rise in how much people got in child tax credits had far outstripped any rise in what people were earning—an increase of 33% in the rate of the child element of child tax credits, versus only 12% in earnings growth. On a number of occasions, we have spoken about our determination to address the trend of benefits going up faster than salaries. The Welfare Reform and Work Act 2016 therefore legislated to freeze the majority of working-age benefits and tax credits for the following four years.
The disability elements of tax credits and the guardian’s allowance are exempt from that freeze so that we may provide support to those who face the additional costs of disability and care. The exemption should be seen as part of a wider commitment that we have demonstrated in government to support the most vulnerable in our welfare system. Spending on disability benefits has risen by more than £3 billion in real terms since 2010. It will remain higher in each year to 2020 than in 2010.
As the Committee knows, ultimately universal credit will replace the system of tax credits as a much more effective way of providing means-tested support for working-age people who are in or out of work. Universal credit is a significant reform that has at its heart the proposition that work should always pay.
The draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2017 will make changes to the rates, limits and thresholds for national insurance contributions and make provision for a Treasury grant to be paid into the national insurance funds if required. I will provide a brief outline of the detail of the changes, which will take effect from 6 April 2017. On class 1 national insurance contributions, the lower earnings limit or the level of earnings at which employees start to gain access to contributory benefits will rise in line with inflation. The primary threshold, which is the level at which employees begin to pay class 1 national insurance at 12%, will also rise with inflation.
The upper earnings limit, which is the level at which employees start to pay class 1 contributions at 2%, is being raised from £827 to £866 a week. That reflects the Government’s commitment to align the limit with the UK’s higher rate income tax threshold, which is being raised from £43,000 to £45,000 for the 2017-18 tax year. I might return to that point about the higher rate income tax threshold in more detail.
As the Chancellor announced in the autumn statement, the levels at which employers and employees start to pay class 1 national insurance contributions are being aligned. To do that, the secondary threshold, where employers start to pay, is being increased from £156 a week to £157 a week. That will be the same as the primary threshold for employees from 6 April 2017. That will make it easier for employers as they will no longer have to operate two similar thresholds at slightly different rates. That was recommended by the Office of Tax Simplification in a report some time ago.
Finally for the employed, the level at which employers of people under 21 and of apprentices under 25 start to pay employer’s contributions will keep pace with the upper earnings limit and rise from £827 to £866 a week. That maintains our commitment to reduce the cost of employing young apprentices and young people. That above-inflation increase, which will maintain alignment with the upper earnings limit, means that employers will pay national insurance only for the highest earning apprentices and under-21-year-olds.
To move on to the self-employed, the level at which they have to pay class 2 contributions will rise with inflation to £6,025 a year. The weekly rate of class 2 contributions will also rise in line with inflation to £2.85. Self-employed people who earn above the lower profits limit also pay class 4 national insurance contributions at 9%. That threshold will rise with inflation.
Above the upper profits limit, the self-employed instead pay 2%. Like the upper earnings limit for the employed, that limit for the self-employed will rise from £43,000 to £45,000 a year. For those making voluntary class 3 contributions, the rate will increase in line with inflation from £14.10 to £14.25 a week.
Let me draw the attention of hon. Members to two reports that have been published alongside the regulations. The report made under section 40 of the Tax Credits Act 2002 contains the numbers of tax credit awards, inquiries, penalties imposed, and prosecutions and convictions for tax credit offences made in tax year 2015-16. The report made under section 41 of the 2002 Act shows the rate of all non-frozen tax credits other than the childcare element in relation to inflation.
Finally, I note that the regulations make provision for a Treasury grant of up to 5% of forecast annual benefit expenditure to be paid into the national insurance fund, if needed, during 2017-18. That is a routine measure that does not impact on the Government’s overall fiscal position. A similar provision will be made in respect of the Northern Ireland national insurance fund.
I hope that that is a useful overview of the changes we are making to bring rates of support and contributions to the Exchequer in line with inflation. I commend to the Committee the draft regulations on tax credits and the guardian’s allowance, as well as those on social security contributions.
Oral Answers to Questions
Jane Ellison Excerpts(7 years, 2 months ago)
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Dr Tania Mathias (Twickenham) (Con)
The Financial Secretary to the Treasury (Jane Ellison)
As hon. Members will know, although national insurance contributions are primarily used to fund state pensions, a proportion of NICs is already allocated directly to the NHS, but beyond that, the Government do not have any plans to ring-fence national insurance contributions to fund health and social care.
Dr Mathias
I thank the Financial Secretary for that answer, but with a view to the long-term sustainable financing of health and social care, will she look into this as a means of depoliticising the debate and ensuring long-term funding for health and social care not just for today, but for decades to come?
Jane Ellison
I understand my hon. Friend’s core point. The Government have taken action to ensure that the NHS has the funding it needs by increasing its annual budget by £10 billion above inflation by 2020-21. We are mindful of the long-term challenges. The issues were recently highlighted by the Office for Budget Responsibility, which laid them out quite starkly in its latest fiscal sustainability report. On depoliticising the debate, I would say that backing the NHS’s own plan for its own future in the way we have done is the best way of doing that.
Andy Burnham (Leigh) (Lab)
Back in 2010, to meet the rising costs of social care I proposed a compulsory care levy on all estates. From memory, the Conservatives produced an election poster with gravestones on it and called it a death tax. I read in The Times today that Ministers are now considering exactly the same proposal. Can this possibly be true?
Sir Hugo Swire (East Devon) (Con)
There is, however, an emerging consensus that we need to better integrate our social care and health system. We already have the better care fund and the Chancellor’s prudent management of the economy, but if he has any wriggle room in the forthcoming Budget may I ask him whether we can have some transitional relief for social care until we can work out the best model?
Jane Ellison
The Government have been very clear on a number of occasions that we recognise the pressures in the system and additional money has been made available through the social care precept. We are well aware of the pressures in the system and, as my right hon. Friend says, the long-term need for more integration—the Chief Secretary has already referred to the better care fund—but his point is well made.
Diana Johnson (Kingston upon Hull North) (Lab)
How can it be right that the local authorities under the most pressure in terms of social care can raise the least amount through the council tax precept, when that precept is the basis of the Government’s social care policy? East Riding Council, next to my own, can raise 56% more than Hull even though it has less demand.
Jane Ellison
As the hon. Lady knows, the better care fund, which we have already referred to, adjusts for that. We are responding to the pressures, which we acknowledge, in the social care system in a range of ways.
Chris White (Warwick and Leamington) (Con)
Graham Evans (Weaver Vale) (Con)
The Financial Secretary to the Treasury (Jane Ellison)
I thank my hon. Friend for his question and note the constructive meeting we had just yesterday with representatives from across the beer and pubs sector. In addition, the Treasury has received representations from several other organisations and individuals with suggestions for what should be in the Budget, including measures on beer duty.
Graham Evans
My hon. Friend will be aware of the great contribution that the great British pub and great British beer make to local economies, employing nearly 1 million people and contributing £10 billion in tax. The Government have a proud record: in the last three years, we have scrapped the hated beer duty escalator and cut beer duty for three consecutive years. Will she seriously consider continuing the good work by cutting beer duty?
Jane Ellison
As the Chancellor just said, I will take that as a Budget representation. Of course we recognise the contribution of the beer and pubs industry across the UK—I am particularly aware from my previous job of the role pubs play in promoting responsible drinking— but it is worth noting that the public finances assume that alcohol duties rise by retail prices index inflation each year, meaning that there is a cost to the Exchequer from freezing or cutting alcohol duty rates. As I say, however, we consider all representations carefully.
Mr Ben Bradshaw (Exeter) (Lab)
When considering beer duty, will the Minister maintain, or at least not further erode, the differential with cider duty? Labour’s lower cider duty has led to a fantastic renaissance in both cider drinking and orchard planting in England, but if the differential is narrowed any further I am afraid it will do untold damage to our cider makers.
Jane Ellison
I am well aware of the sensitivities around the duty bands, on which we have received a number of representations, and of the renaissance not just in the industry to which the right hon. Gentleman refers but, for example, in respect of the number of microbreweries and the flourishing investment in that area. There have been a number of good news stories in this sector in recent years.
Mr David Burrowes (Enfield, Southgate) (Con)
Jane Ellison
I am extremely well aware of the points my hon. Friend makes, not least, as I say, because of the role I last held in government. We look carefully at all these things, particularly the issue of white cider.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Maria Caulfield (Lewes) (Con)
The Financial Secretary to the Treasury (Jane Ellison)
The UK’s wine industry benefited from a duty freeze at Budget 2015, which means that the price of a typical bottle of wine is 7p lower since the end of the wine duty escalator in 2014.
Maria Caulfield
The English wine industry is going from strength to strength, particularly in Sussex. I have five award-winning vineyards in my constituency. The Wine and Spirit Trade Association estimates that a 2% reduction in duty would not only boost the industry but generate an extra £368 million for the Treasury. Will that be considered in the Budget next week?
Jane Ellison
I heard those arguments directly from the Wine and Spirit Trade Association, alongside representatives from the all-party parliamentary wine and spirit group, recently. The issue of English and Welsh wine was raised, and I listened carefully to their Budget representations.
Stephen Timms (East Ham) (Lab)
Robert Neill (Bromley and Chislehurst) (Con)
The Financial Secretary to the Treasury (Jane Ellison)
It is worth noting that the SDLT reforms in the 2014 autumn statement reduced the tax for the vast majority of homebuyers and that all transactions up to £937,000 now pay the same or less in SDLT. As a London MP, I am obviously aware of the phenomenon to which my hon. Friend refers, but from the available data we do not yet have a clear consensus on the market impact of the higher rates of SDLT for additional residential properties or those at the upper end. We will continue to look carefully at that.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
Charlie Elphicke (Dover) (Con)
Jane Ellison
My hon. Friend raises an important point, and at Budget 2016 the Government announced new measures to better enable Her Majesty’s Revenue and Customs to tackle just such activity. The measures are forecast to raise £875 million in total by 2021. Over the past year, HMRC has already seen a more than tenfold increase in online non-EU businesses applying to register for VAT.
Peter Kyle (Hove) (Lab)
A week before the election, the Chancellor’s predecessor came to Sussex and pledged support for infrastructure improvements to the rail line between London and Brighton. He commissioned a £100,000 study that has never been released. When will the Government release the south coast and London main line upgrade programme report?
Robert Jenrick (Newark) (Con)
Estate agents report that the number of transactions of so-called “prime properties” in London and elsewhere fell by 50% last year and that at the beginning of this year the situation is even worse than it was the year before. If it were proven that tax revenues had fallen as a result of policy, would the Chancellor be willing to review and change it?
Jane Ellison
As we have mentioned, it is not really clear that there is a consensus on what the data are saying. However, as with all taxes, we keep this one constantly under review.
Kirsty Blackman (Aberdeen North) (SNP)
Oil and gas received only a passing mention in the industrial strategy and was classed as a low priority for the Brexit negotiations. Will the Chancellor commit to actually doing something to support the future of the oil and gas industry in next week’s Budget?
Finance Bill 2017
Jane Ellison Excerpts(7 years, 3 months ago)
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The Financial Secretary to the Treasury (Jane Ellison)
Finance Bill 2017 will be published on Monday 20 March.
Explanatory notes on the Bill will be available in the Vote Office and the Printed Paper Office and placed in the Libraries of both Houses on that day.
Copies of the explanatory notes will also be available on gov.uk.
[HCWS485]
Value Added Taxation
Jane Ellison Excerpts(7 years, 3 months ago)
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The Financial Secretary to the Treasury (Jane Ellison)
It is a pleasure to serve under your chairmanship, Mr Davies. Good morning, colleagues. I am pleased to be here to discuss the European Commission communication on an action plan on VAT, “Towards a single EU VAT area—Time to decide”, which my hon. Friend the Member for North East Somerset outlined. I apologise that it has taken so long to schedule this debate and, indeed, has spanned two Ministers. We are here now, and we will have a chance to look at these issues and cast our minds ahead to the new challenges, as circumstances are very different from when the debate was first called for.
The action plan on VAT provides an update on progress and identifies the next steps to be taken to improve the system. As we have heard, the Commission’s Green Paper on the future of VAT, published back in December 2010, launched an EU-wide consultation on the future of VAT in the EU. The subsequent White Paper in 2011 set out the Commission’s vision of a simpler, more efficient and robust VAT system that is tailored to the single market. The White Paper was presented to this Committee in an explanatory memorandum in December 2011 and the Committee debated it in 2012. The Commission’s communication, published in April last year, is the continuation of that work.
Like the preceding Green and White Papers, the action plan contains no legislative proposal, but sets out the Commission’s vision for the future of VAT—in the Commission’s words:
“A VAT area that can support a deeper and fairer single market, and help to boost jobs, growth, investment and competitiveness. A VAT area that is fit for purpose in the 21st century.”
The overall approach in the plan is aligned with the UK’s approach of reducing burdens on business and developing a practical and workable system. The plan identifies the areas in which the Commission feels that further reform is necessary and presents a range of ideas for future EU work.
The ideas are grouped under four headings, as has been mentioned. Under the heading, “Recent and ongoing policy initiatives”, the plan highlights the shortcomings of the current EU VAT system in dealing with cross-border e-commerce. It outlines the Commission’s intention to present legislative proposals that would modernise and simplify VAT rules for cross-border e-commerce, and highlights the Commission’s intention to produce a package of legislative proposals this year, with the aim of improving the VAT environment for small and medium-sized enterprises to facilitate growth and encourage cross-border trade.
Under the heading “Urgent measures to tackle the VAT gap”, the plan proposes improvements to co-operation between EU member states and between EU and non-EU countries. It suggests that such changes would improve the efficiency of tax administrations and improve levels of voluntary compliance and co-operation between businesses and tax authorities. The plan also identifies potential measures to improve co-operation between tax administrations and customs law enforcement bodies and to strengthen tax administrations’ capacity in the fight against fraud, which I know has been at the forefront of the Committee’s thinking over the past few years.
The plan then focuses on moving towards a robust single European VAT area. As has been alluded to, the current VAT system is technically a temporary one. As members of the Committee know, when VAT was first established the aim was for goods to be taxed in the country of origin. At that time, however, an origin-based system was not possible for technical and political reasons, so transitional systems were adopted. Various attempts have been made to move towards an origin-based VAT system, but all have been unsuccessful. The Commission’s 2011 White Paper concluded that the origin principle remained unachievable and confirmed that the destination system would instead be pursued. The action plan committed the Commission to produce a legislative proposal for a definitive VAT system based on that principle this year.
The final section of the plan focuses on moving “Towards a modernised rates policy”. Parliament has a particular interest in that and in some of its implications. It highlights the constraints of the existing VAT directive in limiting member states’ freedoms to set VAT rates. Those rules were designed for a VAT system based on the origin principle and were therefore intended to guarantee the neutrality of the system. Given the agreement to pursue a final system based on the destination principle, the plan highlights that there is now an opportunity for member states to be given greater autonomy in setting rates.
The plan outlines two possible options that would give member states that additional flexibility. The first involves extending the current range of reduced rates legally applied in any member state to all member states; the list of goods and services eligible for the reduced rates would then be regularly reviewed. The second involves removing the existing reduced rate list and granting member states much greater rate-setting power.
The Commission has recently produced a number of the proposals that were trailed in the plan. In the context of the digital single market initiative and the May 2016 conclusions on the plan, the Commission published a proposal on e-publications in December last year. That was presented to the European Scrutiny Committee in explanatory memorandum 38344. Helpfully, that proposal has generated some discussion on VAT rates more generally and on the level of flexibility and autonomy that should be enjoyed by member states in setting domestic rates. That is important in the context of the wider rates review trailed in the action plan, which is expected by the end of the year. That is specifically relevant to the UK’s pursuit of the legal changes necessary to allow the introduction of a zero VAT rate on women’s sanitary products. We explored that issue in detail during Report stage of last year’s Finance Bill, and I know that Members across the House feel strongly about it.
As Members will be aware, the Government broadly welcome the action plan, most of which follows the UK approach to reducing the burdens on business and developing a system that is practical and workable, as seen in a number of the changes in the digital single market proposals presented to the European Scrutiny Committee in explanatory memorandums 38341/2/3, and specifically the introduction of a threshold for cross-border supplies of digital services and the “soft landing” easements for small businesses.
Of course, these and any other legislative proposals emerging as a result of the action plan are and will be subject to scrutiny in the normal way. They will also be subject to negotiation, and the unanimous agreement of member states will be required before any legislative changes can be made. As always, the key will be in the details of further work and proposals. The plan provides a basis for member states to explore the future of the EU VAT system and, in particular, a basis for a way forward on key UK priorities on simplification and on VAT rates.
The Chair
We now have until 9.55 am for questions to the Minister. Although I may allow the shadow Minister some leeway, I remind hon. Members that questions should be brief. Subject to my discretion, it is open to a Member to ask related supplementary questions.
Peter Dowd
I have raised the issues of tax avoidance and the green tax. On the optimism about getting the measure through, do we believe that we will be able to introduce it within the next two years? How long is a piece of string in relation to this matter? I hope that we do not have to hold our breath for too long.
Jane Ellison
I will make a general point and then respond with a bit more detail on fraud. I could not disagree more with the shadow Minister, although I thank him for his kind words on the state of my voice—I apologise to colleagues. It is certainly not the case that the vote to leave the European Union makes the debate “obsolete” and our participation in and engagement with the agenda pointless. For a start, there are UK businesses that have EU subsidiaries that will continue to be affected by the VAT rules within the EU, so it is important that the rules work well and are subject to sensible reform. The UK has always been a good influence for pragmatic reform in all such regards.
The precise arrangements under which we operate outside the EU will be subject, as we all know, to detailed and complex negotiation once article 50 has been triggered, but the EU will remain a major trading partner. We are leaving the EU; we are not leaving Europe. It will be an extremely important commercial relationship. The extent, therefore, to which the direction of travel on EU VAT rules aligns with our own priorities regarding simple and pragmatic regulation that is not burdensome to small businesses is, and will remain, extremely important.
Before we came into the debate, I asked my officials about how we will influence policy once we are outside the EU. The reality is that there are people who are not in the EU now who will influence and have a view about the EU’s VAT proposals. Equally, the OECD does a lot of work in that respect. There is a broad alignment of direction of travel between that organisation and the EU, and to that extent we are an important influence within the OECD. I reject the idea that the debate is obsolete and that our interest ceases once we are outside the EU. It remains the case that we need the rules to function sensibly and in a way that is as unburdensome as possible and addresses fraud, to which I now turn.
No system will be entirely fraud-free, and the concern for the UK and member states more generally about any move to a new system is that any change could introduce a new type of VAT fraud. In all aspects of the tax system, we have to consider where people might look to exploit the gap created by a change. In the UK, the level of VAT fraud attributable to criminal attacks on cross-border trade has fallen from a peak of between £2.5 billion and £3.5 billion in 2005-06 to between £500 million and £1 billion in 2014-15. The Commission has done various studies, and the one from 2013 estimates that such supplies amount to about €184 billion-worth of VAT for the UK alone, in terms of intra-EU supplies. Any change to the VAT rules on intra-EU supplies that would introduce a new type of fraud has, therefore, the potential for huge losses and it is important that we tread carefully. Within any proposal for a definitive VAT system, that will be an area for great scrutiny. We welcome the Commission’s engagement with us and its acceptance that member states will need to work very closely together to explore and evaluate.
Peter Dowd
I was trying to make a point about the obsolete nature of this debate. Would the Minister agree that there is a big difference between having a debate when a member of the European Union, with access to the single market and so on, and when outside the Union? We have been discussing it for several years; we are moving out and the EU know that, so this debate is to some extent pretty obsolete.
Jane Ellison
Without rerunning the referendum campaign, those issues were explored. I do not accept the basic premise, for the reasons I have given. Many businesses will continue to trade within the EU and have EU subsidiaries. The EU will remain a hugely significant trading partner and, as with all our trading partnerships around the world, we would look to bring UK influence to bear in a way that would support our own economic goals. There is a mutual benefit in having rules that work for everyone. We will also be a major trading partner for many EU members when we are outside the EU. Those are also important trading relationships. To that extent, there is mutual interest in making sure that we continue to move in a broad direction of travel and that we bring UK influence to bear.
When I was Europe Minister in the Department of Health, my experience was that the UK perspective on regulation, particularly with regard to the burden on business, was always felt to be a pragmatic and valuable contribution. I have no reason to think that that will change afterwards, albeit that relationships are clearly going to be in flux over the coming period of negotiation.
Peter Dowd
I take the Minister’s point, but the first sentence in the document is:
“This action plan sets out the pathway to the creation of a single EU VAT area.”
That is in the context of the single market. Does the Minister not agree that she is putting her head in the sand in the way that she is continuing to discuss this matter?
Jane Ellison
I am not sure I can add a great deal more. No, I do not have my head in the sand. I am being practical, as many of us now have to be. As Ministers, many of us are engaged on a day-to-day basis with the practicalities of how we move forward.
To reiterate, when we are outside the EU, it is probably going to remain our most important trading relationship. Therefore, it is vital that we continue to be good EU members while we are in, and that we continue to be engaged, practical and positive once we are out.
Mr Steve Baker (Wycombe) (Con)
To level-set people’s expectations, when in the process of the next few years do we expect to regain sufficient control over VAT so as to be able to end, for example, the hated tampon tax?
Jane Ellison
On Report of the Finance Bill last year, we included provisions to legislate by this spring or by the time that we had left the EU, whichever was legally possible and feasible. We have continued to engage with the Commission at official and ministerial level quite extensively since that debate. We are not likely to be in a position to move this spring, for the reason I spelled out in my comments, but we have given a commitment. We have the same view on this matter in all parts of the House; we want to deal with this long-standing anomaly. I am sure Members of all parties would also support the fact that we are equally committed to abiding by the rules for as long as we are in the club. We will not, and cannot, act outside the rules—that would be counterproductive to a negotiation in good faith—but we have included legislative provisions to move on this matter as soon as we are legally able. The clock is ticking on it. We are not moving towards a distant and unsighted point—we have a sense of the backstop date.
Kate Green (Stretford and Urmston) (Lab)
I have two questions. The Minister said a few moments ago that she looked forward to European Union alignment, after we have left, with our own VAT successor system, but that is surely the wrong way round. We will want to look at the opportunities to align our systems with a very large trading bloc sitting on our doorstep. First, to what degree does the Minister accept that the Government will wish to continue down a route of as much harmonisation as possible post-Brexit between our VAT system and whatever is developed in the European Union?
My second question is a prosaic one on behalf of my constituents who are trying to understand how their travel arrangements and holidays in the European Union might be affected after Brexit. Does the Minister envisage it will be possible to reclaim VAT paid in European Union countries as consumers leave the European Union to return from their holidays to this country?
Jane Ellison
On the first point, I did not express a specific aspiration about harmonisation. I said there was a clear national interest in continuing to engage with the EU. As I said before, the OECD and the EU are moving broadly in the same direction around VAT systems. There is therefore a wider interest in the UK’s continuing to pursue some of its key objectives around simplification and making the arrangements less burdensome, particularly for smaller businesses. The precise aspects of VAT arrangements are, as with so many things, a matter for the detailed negotiations ahead, once article 50 has been triggered.
It is reasonable to say that we would look to have arrangements in future that allow us to continue to trade easily and successfully with all our major trading partners, of which the EU will be an incredibly important one. It remains the case that it is sensible for us to stay engaged with the debate, but the detail of all of those things once we are outside the EU, including issues around things such as harmonisation, are for the negotiations. We cannot be clear yet, but I assure the Committee that the Government will seek the best deal, obviously. It is clear that, after we have left the EU, VAT will continue to be a major contributor to the Exchequer. In the UK we estimate we will raise £120 billion this year, which is important revenue for the Treasury.
Although the exit from the EU will offer the UK greater flexibility, it is important to manage expectations just a little. Colleagues might be interested to learn that requests for reliefs have already been flooding into the Treasury in anticipation of our leaving the EU—to date, a total of more than £30 billion—so the ready reckoner is already ticking over. Colleagues will have done their mental arithmetic and realised that £30 billion is rather a large proportion of the estimated £120 billion that we hope to raise this year. That is on top of the range of zero and reduced rates that have already been applied, estimated to be slightly less than £45 billion in 2016-17.
The issues around future rates for us outside the EU and all other issues have to be carefully considered, not only in terms of our trading relationship with the EU, but in terms of our domestic policy and economic and budgetary constraints. As with all such things, it is a complicated picture, but we will continue to engage with the debate. It is worth putting on the record that UK officials are not only engaged but making an extremely positive contribution to the wider debates on the technical policy-making areas, and we will continue to do that to good effect.
Mr Rees-Mogg
May I take it from the answer given to the hon. Member for Stretford and Urmston that there is at least the possibility that we will get back duty free when we have left the European Union? It would be a wonderful gift to the British people and would increase their joy when they travel.
Jane Ellison
It seems unusual for a Government Minister to draw attention to the fact that she did not answer a question, but since I did not answer that question, I made no such speculation or comment. As I have said, all these matters are for the negotiations ahead and a range of different outcomes are possible.
Mr Rees-Mogg
I merely asked if it were possible, and the answer, being answerless, indicates that it must at least be possible.
Peter Dowd
Just a final question from me. The Minister also did not answer the question from the hon. Member for Wycombe about the tampon tax. Although the Government have legislated to get rid of the tampon tax, depending on whether we are in or out of the Union, does the Minister believe that we will be able to implement a zero rate on the tampon tax before we leave the Union? What is the real possibility of that happening?
Jane Ellison
We have taken the House’s instructions very seriously. There was not just the debate on Report last year, to which I responded; this has been a live debate probably for my adult lifetime, and there have certainly been a lot of debates in the House in recent years, so we have been actively pursuing this issue. I recently detailed in a written answer some of the extensive engagement we have had at ministerial level and through letters at official level.
While we are in the EU, both sides continue to be bound by existing rights and obligations, and EU law allows for a reduced rate of not less than 5% to be applied to those products. We apply the lowest reduced rate, but we cannot apply a zero rate until there is an EU legislative change. We continue to push for it and to engage on the issue very actively, but the EU legislation can be initiated only by the Commission, and to date it has not provided the proposal that it was planning to bring forward before the EU membership referendum. We continue to push for the proposal, and we have tried to find ways of accelerating the prospects of a change, but it is likely that it will feature only as part of the VAT rates review that we anticipate will happen towards the end of this year. We will continue to keep the House updated, and no doubt we will return to the issue in the debates on this year’s Finance Bill.
Kate Green
Irrespective of Brexit, what is the Minister’s assessment of the likelihood that the European Union and its component member states will be able to develop and introduce a modernised VAT system, as the Commission hopes? What difficulties does she envisage for the other member states in reaching agreement on doing so?
Jane Ellison
As I said, this would be a very major change to the EU VAT system. To give colleagues a sense of perspective, it would affect about €600 billion of member states’ VAT revenue, which is a lot of money. We estimate that between 3.2 million and 3.7 million EU firms are involved in cross-border trade. Although this Committee in particular has expressed a degree of frustration at the speed at which events move, it is right that the Commission, member states and business stakeholders work together and take time to assess the impact. Any change has to strike the right balance, in terms of both preventing fraud and of simplicity and ease of operation. Inevitably, there is sometimes an offset between those two ambitions. We probably feel that the Commission’s medium-term timeline looks a bit optimistic, but we continue to monitor these events very carefully and influence them.
The Chair
If no more Members wish to ask questions, we now proceed to the debate on the motion.
Motion made, and Question proposed,
That the Committee takes note of European Union Document No. 7687/16, a Commission Communication on an action plan on VAT: Towards a single EU VAT area—Time to decide; and agrees with the Government that it provides a basis for a way forward on key UK priorities on VAT simplification and on VAT rates.—(Jane Ellison.)
Jane Ellison
I thank hon. Members for their contributions. I particularly thank the hon. Member for Aberdeen North, who spoke for the Scottish National party, for her wide-ranging contribution. I note that she made a bid with regard to police and fire services to add to the Treasury’s £30 billion and counting of VAT bids. We have explored the issue of the VAT incurred as a result of the changed arrangements, so she will be familiar with the point that I am going to make. That issue was in the business case for the changed arrangements. The Scottish Government were warned repeatedly that that would be the result of the way that they restructured emergency services, so it is surprising that the SNP keeps raising the issue as if the change was somehow imposed from the outside. The Scottish Government were alerted at the time. Our position on that remains unchanged, but as I said, I will add it to the list of things for which people want to see relief, along with the others that she mentioned.
I agree with the hon. Lady more—I think we both perhaps disagree slightly with the shadow spokesman for the Labour party—on her point that it remains very much in our interests to continue to engage with this debate. I will not speculate or second-guess the outcome of our Government’s negotiations or where the EU Commission is going on this, but there is a mutual interest in smooth and competitive trading arrangements. European markets account for around half the UK’s overall trade and foreign investments; around 3.5 million jobs. We will therefore continue to engage extremely actively and constructively while we are in the EU. However, it remains the case that even once we are outside it, the EU VAT system is influential. It is in our interests to ensure, to the extent that we can, that it is aligned with OECD and other international work, to take up the point made by my hon. Friend the Member for Wycombe that this debate is wider than the EU.
We will remain engaged and there is mutual benefit, not just because of businesses that have EU subsidiaries. Because of the cross-border nature of trade, there is mutual advantage in making sure that arrangements make sense, both within and without the EU. I reject the counsel of despair from the Opposition Front Bench that there is no point in doing this—there is every point.
Peter Dowd
I am surprised the Minister has taken that view. It is a complete distortion. We are talking in the context of the document before us. This debate is specifically in relation to the document before us. It has taken years to get to this position. We are only two years from leaving the EU, and the idea that this has to do with post-Brexit negotiations is complete and utter tosh. Does the Minister agree that there is a difference between trying to saddle us, in relation to post-negotiation deals, with this and trying to deal with this specific issue? The two are completely different and the Minister should know that.
Jane Ellison
The Minister does know that, but the point I am making is that we are obviously in the EU until we are not. It continues to be in our interest to influence debate. I think I have engaged very directly with the shadow Minister’s point. The point I have been trying to make is that this is a broader challenge than just within the EU. The international direction of travel on VAT remains important. The extent to which, for example, better co-operation is enshrined within new systems will provide better information on which we can help to shape policies around supplies across borders.
The OECD is already looking at ways to improve international co-operation, so there is every reason to continue to engage with this agenda. It is nonsense to say that it is irrelevant, even though we will be outside the EU in due course. The extent to which we have a degree of alignment in objectives and that direction of travel between the EU and other major trading blocs, and international trading and economic organisations such as the OECD remains fundamentally important because they have at their heart the desire to find some key principles around which we can all agree that will facilitate trade, less fraud and lower burdens on business across the piece.
I end where I began by saying that this is an important issue on which we will continue to engage while we are in the EU, and continue to influence in a number of different ways once we are outside it.
Question put and agreed to.
Oral Answers to Questions
Jane Ellison Excerpts(7 years, 4 months ago)
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Maria Caulfield (Lewes) (Con)
The Financial Secretary to the Treasury (Jane Ellison)
The Government absolutely recognise the key role that small businesses play in the economy, which is why, for example, at the autumn statement we announced an additional £400 million for the British Business Bank to help growing firms to access finance. Of course, we have taken a number of other steps, including introducing the seed enterprise investment scheme.
Craig Tracey
Does the Financial Secretary agree that independent retail stores, such as Chalk & Linen in my constituency, add greatly to the character and vitality of our towns and high streets, and that the Government should do all they can to support them?
Jane Ellison
As a former co-chair of the all-party parliamentary group on retail, I could not agree more that independent retail, and retail generally, is a vital sector. My hon. Friend is right that we want to support independent retailers on our high streets, which is why, from April, 600,000 of the smallest businesses—occupiers of a third of all properties—will not have to pay business rates as part of the £6.7 billion business rates package that will kick in over the next few years. I hope that he agrees that that is a helpful bit of support for key local businesses.
Maria Caulfield
I recently attended my local chamber of commerce’s breakfast meeting in Seaford, and I met many small businesses that are pleased that the economy is doing so well and is being so expertly led by this Government. However, they have some concerns about the introduction of quarterly tax returns and the impact that would have on the costs of small businesses. They suggest the introduction of a threshold for the smallest businesses. Will the Minister consider that?
Jane Ellison
I, too, have a good relationship with my local chamber of commerce; we get vital feedback from our chambers of commerce. Of course, we are not introducing quarterly tax returns; my hon. Friend is referring to the “making tax digital” project. Although the Treasury Committee recently said that the long-term future can, and probably should, be digital, we understand that we need to look carefully at the consultation responses and at the concerns of small businesses. Of course, we have already exempted a number of the smallest businesses from the threshold, but we are looking carefully at the consultation responses and at the Select Committee’s report. We do not recognise the figure from the Federation of Small Businesses on the cost, and we have not seen the assumptions that underpin it; if I am to address those concerns, seeing those would be helpful.
Dame Rosie Winterton (Doncaster Central) (Lab)
Small businesses in Doncaster face a worrying skills shortage. Will the Minister support those businesses by impressing on her colleagues in the Department for Education the need for a speedy decision on Doncaster’s university technical college, to give the go-ahead for the money? Will she have a word, please?
Jane Ellison
I am very happy to raise that issue with colleagues. More broadly, the Government absolutely support the skills agenda, which we have made a real priority. If we are to close the productivity gap in this country, investing in skills and high-quality apprenticeships is clearly key. We have taken a lot of action in that regard.
Helen Goodman (Bishop Auckland) (Lab)
The most useful thing that the Treasury could do for small manufacturers in my constituency would be to announce an objective of staying in the customs union. Up to now, the Treasury has been a beacon in saying that it wants decisions based on analysis, not on rhetoric and ideology. Can the Minister assure the House that that is still under consideration?
Jane Ellison
Again, these are issues that we are looking at carefully; the Chancellor has had a series of roundtable meetings with different sectors and industries in recent months, as have all of us Ministers. We are looking carefully at what those detailed issues are. Of course, much more will be said on this and discussed in the House later today, but we are clear that we want to understand the detailed issues that businesses face so that as we move forward to make our future outside the European Union, we can resolve the practical issues that businesses will face in a way that helps the British economy.
Mr Alan Mak (Havant) (Con)
Access to capital is vital for small businesses in my constituency and across the country, and a refusal from a big bank should not be the end of the line. Will the Minister continue to support the bank referral scheme, which helps so many small businesses to access alternative sources of finance?
Jane Ellison
Absolutely we will. The Government’s finance platform referral policy helps small and medium-sized enterprises whose finance applications have been declined by their bank to explore alternative options. It requires the major banks to refer SMEs that are rejected for finance—with their permission—to finance platforms. We can do a range of other things to support the good point that my hon. Friend makes. I encourage all Members with SMEs in their area that have had finance applications rejected to refer them to some of these schemes, because they are making a difference.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
Many small businesses in the Northern Isles are in the tourism sector. Given the Chancellor’s reported comments at the weekend, will the Government look again at the opportunities presented by the tourism industry’s proposals for a lower rate of VAT on that sector?
Jane Ellison
The House will not be surprised to learn that the Treasury is receiving a number of suggestions as to what might happen to VAT when we are no longer members of the EU, and I am aware of the pressure from and representations made by the tourism industry. I am meeting the Northern Ireland Affairs Committee tomorrow; this is likely to be one of the issues on its mind. Of course we look at these issues carefully, but we are still members of the EU, and all our legal obligations and so on remain while that is the case.
Nusrat Ghani (Wealden) (Con)
Alex Cunningham (Stockton North) (Lab)
The Financial Secretary to the Treasury (Jane Ellison)
The Government absolutely recognise the significant contritibution that the chemicals industry makes to the UK economy, and of course the complex supply chains between the UK and the EU. The hon. Gentleman will have heard the Chancellor’s words just now about the importance we attach to getting the best possible market access, and the Prime Minister is talking about that this morning. We are looking at a comprehensive range of analysis to inform our position as we go into those negotiations but, as the Prime Minister is laying out, clarity and certainty are one of the industry’s big asks.
Alex Cunningham
The Chemical Industries Association’s Brexit manifesto shows how the chemical industry could help to sustain and enhance the UK as a location for future investment in jobs while playing a leading part in addressing global environmental challenges. Has the Minister read the manifesto? What is she doing to reassure the chemical industry that its very specific needs are at the forefront of her mind as the Government develop their strategy?
Jane Ellison
Rather than just reading the manifesto, Ministers have actually been meeting the chemical industry. The Under-Secretary of State for Exiting the European Union, my hon. Friend the Member for Worcester (Mr Walker), met the Chemical Industries Association on 17 November. All these issues were explored in some detail and a good, productive conversation was had.
Sir Julian Brazier (Canterbury) (Con)
I welcome my hon. Friend’s typically constructive approach, but does she recall the clinical trials directive that destroyed much of the pharmaceutical industry in this country overnight, including Pfizer’s site in east Kent?
Jane Ellison
As I recall, the original directive did have some negative effects, but it was improved on in subsequent negotiations to ensure that it did not have the same effect.
Dr Rosena Allin-Khan (Tooting) (Lab)
Voters partly backed leave on the basis of the £350 million economic boost that our NHS is still waiting for. Where, therefore, is the democratic mandate for this Conservative version of hard Brexit—leaving the customs union and the single market—that the Chancellor himself has accepted damages the economy and that puts jobs in my Tooting constituency at risk?
Mr Speaker
No, the hon. Lady does not need to add anything. I am sure that she meant to mention it in her question. It was an error of omission—only a matter of time.
Jane Ellison
Of course. As colleagues across the House will realise, getting the best deal for Britain means getting the best deal for all our major companies and industries. That, in turn, allows us to carry on investing the record amounts that we have in the NHS to date.
Jane Ellison
My hon. Friend makes a fair point. A discussion about the REACH regulation was on the agenda when the Under-Secretary of State for Exiting the European Union met the chemical industry and, of course, it will continue to form part of our discussions.
Philip Boswell (Coatbridge, Chryston and Bellshill) (SNP)
Gerald Jones (Merthyr Tydfil and Rhymney) (Lab)
The Financial Secretary to the Treasury (Jane Ellison)
The independent National Audit Office has in fact published its report on HMRC’s contract with Concentrix today. HMRC senior managers will attend a Public Accounts Committee hearing on 25 January, at which the report will be discussed.
Gerald Jones
Given the report released this morning, which the Minister mentioned, and the fact that the whole debacle has caused undue stress to thousands of people across the country, including in my constituency, what specific lessons has she and the Department learned?
Jane Ellison
There are a number of things. I reflected on them during the Opposition day debate on this subject when, as Labour Front Benchers will remember, I accepted their motion. We have of course learned a number of lessons, including on how Ministers monitor colleagues’ views about the way in which we deal with their concerns on behalf of their constituents. HMRC has confirmed that it is not planning a contract of this nature for this particular operation, but it will have more to say when it responds both to the PAC and to the report.
Peter Dowd (Bootle) (Lab)
Given the NAO’s excoriating report on Concentrix’s failure to achieve savings targets, performance targets, serviceable staffing levels, sufficient levels of training, call handling accuracy, proficient contract management and competent decision making—while, unbelievably, increasing its commission almost threefold—would not the Chancellor’s time be better spent concentrating on getting a modicum of efficiency into HMRC, rather than popping off to Davos for a winter sojourn?
Jane Ellison
First, I want to say that many tens of thousands of people work for HMRC. It would do their morale a power of good if people in this House reflected on their current excellent performance and the improvements they have made on customer service compared with two years ago. I want to compliment them publicly on the improvements they have made.
We have accepted that mistakes were made on Concentrix, and that is the reason why the agreement was terminated. We will reflect on that further when we respond to the National Audit Office report.
Carol Monaghan (Glasgow North West) (SNP)
Derek Thomas (St Ives) (Con)
The Financial Secretary to the Treasury (Jane Ellison)
I thank my hon. Friend for that point, which I am happy to discuss. It is worth putting on record that VAT is projected to raise £138 billion for the public finances this year. We have one of the highest thresholds in the EU, but I am always happy to listen to colleagues. I know that the concerns of the tourism industry are to the fore in the minds of many colleagues.
Patricia Gibson (North Ayrshire and Arran) (SNP)
Louise Haigh (Sheffield, Heeley) (Lab)
It is simply not good enough to throw Concentrix under the bus. Today’s National Audit Office report finds that HMRC was at fault in the writing of the contract, in failing to monitor it, and in intervening to make things worse after a poor performance in summer 2015. Who at HMRC will be held accountable for the gross failings of this contract from beginning to end?
Jane Ellison
The hon. Lady and I have debated this issue. We are looking at the significant criticisms in the report. We have accepted a number of the criticisms that have been made about the handling of this matter, but a lot of money has been saved by addressing error and fraud in the tax credits system. HMRC will respond in more detail at next week’s PAC hearing, and I will be considering the report in detail.
Huw Merriman (Bexhill and Battle) (Con)
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
Changes to the rateable value for solar panels for organisations mean that business rates for organisations with solar rooftop installations, such as schools, hospitals and SMEs, could increase dramatically—six to eightfold—in April. Do the Government recognise the huge damage that this will cause to organisations that have installed panels in good faith, as well as the solar panel industry?
Jane Ellison
The installation of solar panels is only one of the factors that determines the rateable value. That said, a £3.4 billion transitional relief scheme will support businesses facing an increase in business rate bills, while businesses with solar panels will also benefit from the £6.7 billion package—the biggest ever—to reduce business rates.
Dr James Davies (Vale of Clwyd) (Con)
Bill Esterson (Sefton Central) (Lab)
When the Chancellor considers the effect of bringing in quarterly reporting, will he look at the figures showing that only 25% of our smaller businesses have maintained electronic accounting records and that 38% lack basic digital skills? Will he listen to what the Chair of the Treasury Committee said when he described this as a potential “disaster”?
Jane Ellison
I always listen to what the Chairman of the Treasury Committee says. I am considering the Committee’s very useful report carefully. Of course, it acknowledged that the digitisation of the tax service represents the direction in which we should be travelling, but we are looking carefully at the possible impacts on small businesses, many thousands of which we have already exempted through our existing announcements.
HMRC Estate
Jane Ellison Excerpts(7 years, 4 months ago)
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John McDonnell (Hayes and Harlington) (Lab)
(Urgent Question): To ask the Chancellor of the Exchequer to make a statement on the National Audit Office report, published today, on the Government’s management of the HMRC Estate.
The Financial Secretary to the Treasury (Jane Ellison)
HMRC’s transformation plans will allow it to become a more efficient and effective tax collector fit for the digital age. HMRC’s large estate is ageing and not delivering the best value for money for the taxpayer. The NAO has confirmed that savings of £80 million per year will be made by 2025.
The size of HMRC’s estate has been reducing since 2006, and the NAO report published today shows that HMRC has made some effective changes since 2010, while reducing staff numbers by a quarter and saving the taxpayer over £350 million pounds. However, HMRC wants to keep up the momentum to provide a better service at a reduced cost. As it announced in 2015, that means taking forward big reforms of how the estate works, which will see over 170 small offices consolidated into 13 larger regional offices, an approach which is used across government. This brings with it a whole range of advantages, from efficiently sharing resources and quality digital infrastructure to better support and career opportunities for the staff who can more effectively share expertise. For the public, what this really means is a better, more modern service run by fewer staff costing about £80 million a year less by the time the changes take effect.
The report out today suggests that the costs of bringing about this transformation are likely to be higher than was first forecast. Of course, certain aspects of the programme could not be definitively made at the start. There is a wide range of factors behind that, from rising property costs and changes to the programme, for example to help staff to adjust and to ensure a smooth transition for customers, so the programme costs are of course updated to reflect that. I therefore thank the NAO for its timely report.
The strategy to modernise the service that HMRC provides to taxpayers is the right approach and reflects the way taxpayers now interact with it. It is a plan to say goodbye to the days of the manual processing of tasks that can be done more easily with today’s technology. In short, we remain fully committed to taking forward the changes to the HMRC estate that will help us to bring a better tax service for the people of this country.
John McDonnell
In reality, the report is damning of the Government’s plans to close 170 offices. We on the Opposition Benches have warned consistently that the Government’s proposals will have a detrimental impact on HMRC’s ability to provide advice and to tackle tax evasion and tax avoidance.
The NAO report confirms our fears. First, it called the original office closure plan unrealistic. The estimates of the costs of the move increased by 22%, which is £600 million extra. It forecasts a further 5,000 job losses and finds that the costs of redundancy and travel have tripled from £17 million to £54 million. It also says that HMRC cannot demonstrate how its services can be improved and has not even produced a clear programme business case for the planned closures.
As we predicted, this is an emerging disaster. Even the Government now accept that there is a tax gap of at least £36 billion, yet these plans will do nothing but hinder the effort to tackle tax evasion and avoidance. Some 73% of the staff surveyed said that the plans would undermine their ability to provide tax collection services, while 50% said they would actually undermine their ability to clamp down on tax evasion and avoidance. Will the Minister now call a halt to the planned office closures, end the job cuts at HMRC and come back with a realistic plan to resource HMRC fully in its vital tax collection role?
Jane Ellison
The shadow Chancellor is right that HMRC’s tax collection role is vital. At the heart of many of the changes made since the original estimates and planning for this part of the transformation are measures to better support staff and put more things in place to support their move. It is interesting that he makes no mention of the potential benefit to staff of the move. Of course, some will not be able to make the move, but the vast majority will live within an hour’s journey and will be supported, including through the one-to-one conversations which happen with staff ahead of any move.
The shadow Chancellor’s comments do not accurately represent what the NAO said. It has actually recognised that HMRC’s move to regional centres is central to its strategic aim to increase tax revenue, improve customer service and make cost savings. The move to regional centres has never been just about cost savings or buildings; it is partly about how people work in those buildings. Ultimately, we will have an opportunity to change how we work. In 1982, my first job after leaving school was in an old tax office. Some of those offices are over 100 years old and some have not changed since I was working in one as a school leaver. It is absolutely right that we commit to making sure that staff can work in a modern environment.
All staff will be offered the chance to move, and for those who cannot, there will be one-to-one, bespoke support, and some of them will go to other Departments, so some of the comments we have heard are absolute nonsense. [Interruption.] There is a lot of chuntering from the Opposition Front-Bench team, but they are not listening to the facts and they have not read what the NAO actually said. This is a major programme, and it is right that the overall costs be periodically reviewed, but HMRC is not looking to make any significant changes to its overall strategy. We want its staff to work closer together in regional centres and specialist sites in a modern, flexible and high-quality working space.
Lastly, on tackling tax evasion and the tax gap, no Government have done more than this one. It is absolute nonsense to say that HMRC’s capacity to tackle those two issues is diminished; far from it—the UK’s tax gap is one of the smallest in the world and at its lowest ever level. In the summer Budget, we gave HMRC an extra £800 million to tackle tax evasion, and it has done that extremely well, such that once again we have reached record levels of compliance with regards to money from anti-tax evasion measures. I therefore rebut entirely the shadow Chancellor’s points in that regard.
Sir Nicholas Soames (Mid Sussex) (Con)
Will my hon. Friend take it from me that in my experience dealing with constituents and corporations in my constituency who have made inquiries to HMRC, its response times and how it handles cases have improved immensely over the past few years, and that in respect of its seeking to deal with tax evasion and avoidance, there is absolutely no doubt that it has raised its game considerably?
Jane Ellison
I thank my right hon. Friend for his comments, and I am glad that he has put on the record his appreciation for staff. He is absolutely right. In the past six months, call waiting times have averaged less than five minutes and customer service has improved to the best levels in years. This is something that HMRC management keep under constant review. It is absolutely right that we seek to provide the best service possible, but we cannot do that in un-modernised offices. For example, we must recognise that investing in the most up-to-date digital infrastructure is unrealistic across an estate of more than 150 offices. We need to bring people together in an environment that is fit for the future both for staff and customers.
Stewart Hosie (Dundee East) (SNP)
The NAO has actually said that
“HMRC’s original plan has proved unrealistic”,
that
“suitable property will not be available…within the time frame set out”,
that
“HMRC now estimates it may lose up to 5,000 staff”,
which will require recruitment while it simultaneously carries out redundancies, and that the plans were
“over-optimistic…and carried too high a risk of disruption”.
These are very similar warnings to those expressed in respect of the outturn failings in 2009 of the strategic transfer of the estate to the private sector—STEPS—programme. Given how clear and stark the warnings are, would it not make more sense to pause this, rip it up and start again?
Jane Ellison
No, that is not right; I cannot agree with the hon. Gentleman. The factors driving the programme—the reasons we want to transform HMRC into the most modern and digital tax authority in the world—all still stand. We have always been open about the fact that this is an ambitious transformation, and as with any major programme, a number of which are running at the same time, it is right that it be looked at regularly. Of course HMRC will respond in detail to the NAO report, but the principle driving the plan stands good, for all the reasons I have talked about—it is better for customers, better for staff and better for the taxpayer.
The hon. Gentleman mentioned the STEPS programme, but the NAO report noted how much better HMRC had been managing it. There were problems with the programme, which was initiated under the last Labour Government, but the report compliments HMRC on the way it is managing it and got some of the private finance initiative costs under control, and so on. It is right that we constantly re-evaluate programmes of this importance, but I do not agree with the thrust of his question. It is also worth noting that while Scotland accounts for 8% of the UK’s population, 12% of the HMRC workforce will remain there, so Scotland remains a very important part of the HMRC estate.
Mrs Anne-Marie Trevelyan (Berwick-upon-Tweed) (Con)
It is good to hear the Minister make the point that the telephone answering is improving. On the Public Accounts Committee, we have been looking at this on an ongoing basis, and we have probably had more information on it from MPs across the House than on any other issue. We support the programme, but with the digital world moving forward will the Minister set out how we will make sure that the staff on the end of the phone have the right qualifications to support businesses and individuals who need information?
Jane Ellison
I thank my hon. Friend for her comments. Given her membership of the PAC, it is important and nice to have them on the record. Much work has gone into improving customer service levels. At the moment, they are very good and improving and remain a key focus. She made a point about supporting staff with training and so on. That will be much easier in regional centres. For example, at the moment we have a large number of offices, and owing to the nature of the tasks being undertaken and the number of people working in them, it is not possible to provide easy and effective training programmes or to plan career progression in the way it is when a large number of people are concentrated together. As is reflected across both Government and the private sector, we can do a lot more for people when we can concentrate a different range of skills so that people have a chance to plot a career within the same office. That goes to the heart of how we intend to improve the service to customers.
Chris Bryant (Rhondda) (Lab)
The trouble with all this talk of regional centres is that this is exactly what has happened in every other Department. In constituencies such as mine and across the whole of the south Wales valleys, it feels as if the Government have just said, “No, we’re not interested. Everything’s going to Cardiff. Forget about it.” May I urge the Minister to think again? The Treasury and the whole of Government have a social responsibility, particularly to areas such as Rhondda and the valleys, to ensure they have a local presence.
Jane Ellison
I cannot agree with the hon. Gentleman’s comments about the motivation. As I said, there is a balance to be struck between the service to customers, how we support staff and how we serve the wider taxpayer interest. Yes, across Government there has been a move towards more modern and—in some cases, perhaps—more centralised services. There is a balance to be struck, but there is a robust programme of support in place for staff who cannot move, and to help them extra money has been put into the transitional costs associated with transport, for example. HMRC is working with other Government Departments to make sure that where we can, we take advantage of the high skills people have, to move them to other Departments where their skills can be used.
Nigel Mills (Amber Valley) (Con)
The Minister noted that there were some compliments in the NAO report on how HMRC has moved to a more realistic plan for this project, and is now managing the existing estate better than before. Will she set out how HMRC will build on this progress to make sure that the skills are enhanced as this complicated project goes forward?
Jane Ellison
Of course. My hon. Friend is right to say that. As I have said, HMRC will respond in detail to the NAO report, and I will be pleased to discuss that with him. One of the NAO’s recommendations is precisely what he has drawn our attention to—that there should be an iterative process of learning from every part of the move, ensuring for example that experience from the first regional centre to be opened is reviewed and lessons learned from it. This is a long programme of change; it is not an overnight transformation. It is absolutely right to review it at every stage so that we learn as we go along.
Sue Hayman (Workington) (Lab)
You are proposing to close a very modern office in Workington. The NAO report says that the average distance between offices that are being closed and the regional offices is 18 miles, with most within 50 miles. However, Workington has been paired with Liverpool, which are 142 miles apart according to Google maps—a journey of three hours. To me, the situation is completely unacceptable. The workers in Workington cannot transfer down to Liverpool, and I cannot see how they can be reskilled to work in equivalent jobs in Workington. I would love to know your suggestions on that. As I say, this is just unacceptable.
Mr Speaker
I have no plans to close that office. To my very great life impoverishment, I have to admit that I am not aware of having been to Workington to date, and I certainly would not take it upon myself to presume to close something that I have not even visited.
Jane Ellison
I think we all recognise that you are busy enough, Mr Speaker, without taking charge of HMRC’s regional transformation programme as well.
The hon. Lady has written to me about this matter, and I have said that I am happy to meet her to discuss it, perhaps allowing more time for discussion. She has cited the average figure that appears in the NAO report, but we of course accept that the move is going to be much less easy for some people, perhaps even impossible. We will support those people. With a view to providing suitable jobs in other Government Departments, the HMRC HR department is working closely with the Department for Work and Pensions. A lot of work is being done to support staff into other jobs, but we accept that not everyone will be able to move. I have written to the hon. Lady once on her specific points about Workington, but I will write to her again about what is happening in her area.
Philip Davies (Shipley) (Con)
HMRC is planning to have a regional centre in Leeds, but it has not identified a site, and any site proposed will be incredibly expensive, crowding out private sector investment in Leeds. Just a few miles up the road in the Bradford district, a site is readily available, and it would be much cheaper for the taxpayer than it would be in Leeds, and it would help the local economy in the Bradford district as well. I urge the Minister to use this NAO report to pause, look again at these proposals and make sure that a regional centre in Yorkshire is not in Leeds, but in the Bradford district where many people in HMRC already work.
Jane Ellison
As my hon. Friend knows, I am familiar with all the localities that he mentioned. I know that Bradford was disappointed not to be the site chosen for the regional centre, but it is equally true that with a railway station in Shipley, my hon. Friend’s constituents are merely 10 minutes from Leeds on the train. I hope that it will prove to be a realistic project for his constituents to move to Leeds if they want to. I shall reflect on what my hon. Friend said and will write to him if I can provide further detail. HMRC has provided detailed responses, explaining the criteria used to select locations and thus explaining why Leeds was chosen over Bradford. I know that there has already been a good deal of correspondence on this issue.
Ms Margaret Ritchie (South Down) (SDLP)
The Minister will be aware that some HMRC offices have already closed in Northern Ireland, not only causing consternation to the staff who have had to be redirected to Belfast, but preventing accessibility for local businesses and ordinary people who are trying to deal with their tax affairs. In view of the NAO report, will the Minister please pause any further closures, as they simply cause chaos and upheaval?
Jane Ellison
I am not sure that I recognise the description of chaos and upheaval, given what I have said about improved average customer service times at the moment. There are good standards now, which does not align with what the hon. Lady said. I recognise that changes of this scale can be extremely difficult for the people affected by them, but I would like to pick up one point about how people interact with HMRC. We live in a different world from the one that obtained when the estates were last looked at on this sort of scale. The vast majority of taxpayers, both individuals and businesses, interact with HMRC digitally or on the phone. We have to adjust to the way the world is now rather than what it was like some decades ago.
Mr David Nuttall (Bury North) (Con)
I want my constituents to get the best possible service from HMRC, particularly when they have a problem and things go wrong. Given that HMRC has about 58,000 employees, will my hon. Friend at least consider the feasibility of HMRC allocating at least one named employee for every constituency, so that each MP has someone permanently in place to contact within HMRC?
Jane Ellison
We have had the experience of working through recent challenges in respect of the Concentrix contract and the fallout from it. I have looked personally at how HMRC interacts with Members of Parliament. I have not looked at the specific idea that my hon. Friend mentions, but I shall reflect on what he said. I am looking to ensure that, as colleagues found while resolving issues, the resources allocated to MPs were effective in helping them to get results quickly in some of the most difficult cases. I shall reflect further on my hon. Friend’s points because I want to make sure that HMRC serves colleagues of all parties as effectively as possible.
Sammy Wilson (East Antrim) (DUP)
This modernisation and improvement programme in Northern Ireland has led to the closure of offices in towns that already have high unemployment, to frustration among people who have difficult cases and to a loss of expertise, especially in border areas where criminal evasion of tax is widespread. How does that fit in with the Government’s commitment to spread economic growth, to provide better service to customers and to reduce tax evasion?
Jane Ellison
It is worth noting on the broader point that employment in our countries is at an all-time high. We would always want to retain expertise within HMRC, but there will always be people leaving any large organisation and people being recruited and trained up simultaneously. I refer the hon. Gentleman to what I said earlier: it will be much easier to support people who want to join the organisation to become highly skilled and professional and to plot a career in HMRC, so that they can have long-term, fulfilling careers in a variety of different areas, under the new modernised structures.
Diana Johnson (Kingston upon Hull North) (Lab)
The Minister has said a number of times that there will be a better service for customers in these regional centres, but I note that the NAO report says that HMRC has not demonstrated that. Can she reassure me on how she has reached the conclusion that the service will be better, more efficient and more effective for customers?
Jane Ellison
I did note that point, but I am not sure that I agree with how the hon. Lady has expressed what I said. Let me provide one example. Many HMRC local offices are in very old buildings. As I said, some are over 100 years old and many are from the 1950s. Then there is the latest digital infrastructure, and many more taxpayers are interacting with HMRC digitally, through more than 7 million personal tax accounts. As anybody knows, it is difficult to bring an old office up to modern standards with the right digital infrastructure. If we want to make sure that staff can make the best use of modern computer systems and put them at the service of customers who increasingly interact digitally, it is much better to do so in newer buildings that have been bought for the purpose and where we have planned that sort of arrangement from the start.
Hannah Bardell (Livingston) (SNP)
The Minister speaks of saving money and of modern offices. The HMRC offices at the Pyramids business park in my constituency are high-tech and high-end, with highly skilled staff, and there is plenty of further space. It would save the Government £70 million to keep that estate and develop it. Will the Minister meet me to discuss the details and perhaps consider retaining the hub in West Lothian, rather than moving it to a city centre where rents will be more expensive?
Jane Ellison
I have had a number of conversations with, in particular, some of the hon. Lady’s colleagues who are based in Scotland, and I am, of course, always happy to meet any parliamentary colleague to discuss anything. No change in the plan for that regional centre is envisaged, but some of the challenges relating to West Lothian have been brought to my attention.
Louise Haigh (Sheffield, Heeley) (Lab)
Sheffield staff are already commuting considerable distances to their HMRC office because of previous office closures. Does the Minister not agree that HMRC can ill afford to lose 5,000 experienced staff at this time?
Given that HMRC has struggled to find suitable property in the suggested locations, may I ask the Minister to reassess the proposed locations on grounds of cost, ability to retain experienced staff and impact on customer service? Will she reassess them on the basis of evidence, rather than simply deciding which location in each region is easiest for Whitehall civil servants to get to?
Jane Ellison
I am pretty certain that that was not the rationale for the choice of locations. Very careful discussions took place. I will, of course, read the report and reflect on it, as will we all, and, as I have said, HMRC intends to respond in detail, but a great deal of thought went into choosing the regional centres. I acknowledge that some people will not be able to move because the distances will be too far to travel, and we certainly want to retain experienced staff. Those who will not be able to move will have a number of different levels of experience, but if we can retain their skills and ensure that they are at the service of the taxpayer through other Departments, we will obviously try to do so.
Liz Saville Roberts (Dwyfor Meirionnydd) (PC)
HMRC Porthmadog is earmarked for closure, and in all likelihood the Welsh language unit will be centralised in Cardiff, four hours away. Will the Minister meet me to discuss how these services can best be provided in a region where 71% of the population can speak Welsh and where Welsh is the working language of a county administration?
Jane Ellison
We have considered that issue, and we intend to work on it with other Departments. As I have said, I am always happy to have a conversation with colleagues—[Interruption]—not in Welsh! I will write to the hon. Lady, because the Welsh language has been raised with me before, and I know that it has been thought about in some detail.
Imran Hussain (Bradford East) (Lab)
It is not very often that the hon. Member for Shipley (Philip Davies) and I find ourselves on the same page, but on this occasion we certainly are, because he made an excellent point in defending Bradford. In closing offices in that city, HMRC would be turning its back on a skilled and diverse workforce, access to leading universities and one of the best MBA programmes in the United Kingdom, all of which would help it to achieve its aim. Will the Minister therefore reconsider and take a more sensible approach?
Jane Ellison
I assure the hon. Gentleman and the House that, as a Bradford girl, I would never do anything to harm Bradford. Equally, however, as a Bradford girl, I make the extremely short commute between Bradford and Leeds many times a year. I do not think we would wish to lose any experienced staff or expertise from the Bradford office, but the commute from Bradford to Leeds is possibly one of the shortest that any transferring HMRC staff would have to make.
Chris Stephens (Glasgow South West) (SNP)
Obviously, there will be an economic impact on many towns and cities that will lose their largest employer, but has an equality impact assessment been made in respect of staff, particularly those with disabilities, who have been asked to move 100 miles away?
Does the Minister not believe that the loss of local expertise will apply not only to tax evasion but to non-compliance with the national minimum wage, which, according to statistics, is on the increase in this country?
Jane Ellison
As the hon. Gentleman will know, we announced more investment in tackling non-compliance with the national minimum wage in the autumn statement. In fact, activity in that regard has been stepped up considerably, as I said when answering a parliamentary question this week. He may wish to refer to Hansard for the statistics. As for his wider point about losing expertise, of course we do not want to do that. We want to do as much as we can to help people to move, because it takes a long time for them to reach their highest level of skill, and we want to retain them when they are at the peak of their professionalism. I will write to him about the equality impact assessment.
Geraint Davies (Swansea West) (Lab/Co-op)
Will the Minister think again about the location of the Wales tax centre? Will she consider siting it not in Cardiff but in the Swansea Bay city region, where property prices and other costs are lower, urban deprivation is much lower in European Union terms and skills are abundant because we have two universities? That was the logic of siting the headquarters of the Driver and Vehicle Licensing Agency in Swansea. As the biggest urban footprint in Wales, we need all the support we can get, and it is very costly in Cardiff.
Jane Ellison
The hon. Gentleman has neatly illustrated the challenge involved in deciding on locations as part of such a programme. He has made the case for Swansea, but other Members have made the case for their areas. It is always necessary to assess against a set of objective criteria, because every area will rightly have its advocates in Parliament.
Mr Gregory Campbell (East Londonderry) (DUP)
Is the Minister aware that it will be feared throughout the United Kingdom, but particularly in Northern Ireland, that a policy that the Minister has presented as regionalisation will actually become centralisation and that a very small number of offices with a large number of employees will not adequately service the needs of the community?
Jane Ellison
Of course I am aware of that, but at the heart of HMRC’s wider transformation programme, which will enable it to become the best digital tax authority in the world, is a desire to do more for customers: to collect more tax, to serve people better and to bear down constantly on customer waiting times. Indeed, all HMRC’s programmes—not just the estates transformation programme—are designed to achieve that end.
Tom Brake (Carshalton and Wallington) (LD)
Does the Minister accept that the closures will have a devastating impact on some communities, that £150 million less will be available to tackle tax avoidance as a result of HMRC’s failure to plan the move properly and that HMRC is even less effective at saving money than at collecting it from slippery global corporations?
Jane Ellison
I think that, for the most part, what the right hon. Gentleman has said is just a political points-score. The facts simply do not bear it out. Since 2010, HMRC has secured more than £130 billion in additional compliance revenues, and in 2014-15, as I said earlier, the United Kingdom’s tax gap fell to its lowest-ever level of 6.5%.
Ian C. Lucas (Wrexham) (Lab)
In Wales, the facts are that the Government are creating one national centre in Cardiff, the most expensive site in the country; that the office in Wrexham is not small, given that it employs 350 people; and that the alternative site proposed by HMRC is in Liverpool, but that has not yet been identified. This is a shambolic policy. It is ill-conceived, and it is being badly implemented. The Minister should listen to my colleagues from Wales—she has heard from many of them today—and reconsider the policy, because it is very bad indeed.
Jane Ellison
I note the hon. Gentleman’s criticisms but cannot agree with the thrust of his points. HMRC will respond in detail to this report. This is a programme over a period of time and we will learn from each move. I do not recognise the description the hon. Gentleman just gave, but I do understand the point made, especially about some of the larger offices, and I realise that until the site in Liverpool is identified things are a bit more unsettling for his constituents who work in the Wrexham office than they might otherwise be.
Stuart C. McDonald (Cumbernauld, Kilsyth and Kirkintilloch East) (SNP)
Cumbernauld tax office already ticks all the boxes in terms of what HMRC apparently seeks in a regional centre: it is the right size and has experienced staff and an excellent location. So what on earth is the point of closing it, disrupting staff and damaging communities?
Jane Ellison
I have had a number of conversations specifically about the Cumbernauld site, and I will write to the hon. Gentleman with the detail, but there are a lot of different factors that go into choosing where to centre, some of which I touched on in my response to the urgent question. Inevitably, I cannot touch on them all, but much of this will come out in our response to the NAO report.
Susan Elan Jones (Clwyd South) (Lab)
I think that the Minister would be outraged if people living in villages, towns and small cities all suddenly stopped paying tax, yet suddenly our civil service is being centralised in a few cities. Please will she reconsider these points? This is totally outrageous for people in north Wales.
Jane Ellison
I am not entirely sure I recognise the point being made. Most of our taxpayers, whether businesses or individuals, now interact with HMRC on the phone or digitally. The number of people who make personal visits, and expect to be able to make a personal visit to a local office, is dramatically lower than a generation or two ago. It is right that we pursue this modernisation programme, but it is also right, as the NAO has reminded us in this timely report, that we review the programme at every stage to make sure we are getting everything right and we learn from each iteration.
Chris Evans (Islwyn) (Lab/Co-op)
I am sorry, but I have to disagree with the Minister on customer service, having seen my wife wait for half an hour for someone at HMRC to answer the phone over Christmas and given that a previous NAO report has shown that three in 10 people give up before being answered, as the average waiting time is 47 minutes before somebody picks up the phone. As the Minister will know, this was only resolved when HMRC recruited an additional 2,500 members of staff to deal with this crisis at the end of 2015. Is she confident, even though an NAO reports says that for every pound saved by this change £4 will go on telephone bills, that it will not cause a decline in customer service?
Jane Ellison
The focus on customer service is vital. At the heart of the wider transformation programme, not just the estate transformation programme, is the desire both to make sure HMRC is the most effective tax collector that it can be and to deal with customer service. So that is central to all the questions I ask of HMRC and it asks of itself.
On the specific point, I am sorry to hear the hon. Gentleman’s wife waited for that long. I am concerned about the number of people who wait so long. Although they are a small proportion of the customers who ring HMRC, because of the large numbers who do so, it is still quite a lot of people, and it is an issue I have specifically been discussing with senior HMRC customer service managers, with a view to addressing it further.
Patrick Grady (Glasgow North) (SNP)
Given that the Department for Work and Pensions is also conducting an estate review and is threatening to close eight job centres in Glasgow, what discussions is the Minister having with ministerial colleagues about the cumulative impact of the Government’s shrinking of their estate? What impact is that going to have? How many HMRC employees are going to find themselves without a job and without a local job centre to go to?
Jane Ellison
The last question is difficult to answer because ultimately individuals will decide what is right for them at the time when the facts of a possible move are known. A great deal of support is being put in place to help them either make the choice about moving or move to other jobs. I have had the chance to speak not just to managers managing this programme, but people affected by it on the frontline, when some of them attended an event in London a few months ago. The HMRC human resources department is working closely with the DWP because there are some opportunities for people to move between Departments. However, on the specifics of the hon. Gentleman’s local office, I am afraid it is not easy to give an answer until more is known about what the actual move would be and the numbers affected.
Tom Elliott (Fermanagh and South Tyrone) (UUP)
The vast majority of staff in the HMRC office in Enniskillen in my constituency will be closer to two hours’ journey time from the proposed new location than one hour. Does the Minister not see merit in the NAO report suggesting she should step back from the proposals?
Jane Ellison
As I have said, it is the nature of responding to an urgent question that one has not had a chance to look at the whole report and reflect on it, but HMRC will of course respond to it. Its chief executive is coming to the Public Accounts Committee fairly imminently and I imagine this is likely to be raised by the Committee. Of course we will look at this report—it is important, and we will look at what it says—but the central reasons that drive these plans still stand: modernising our estate, providing a service to the customer that reflects modern life and making sure the working environment for staff and the career progression open to them are the best they can be.
Corporate Tax Base
Jane Ellison Excerpts(7 years, 5 months ago)
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The Financial Secretary to the Treasury (Jane Ellison)
It is a pleasure to serve under your chairmanship, Mr Hanson. Thank you for getting us all together for this special, festive debate on an important subject: the draft directives for a common corporate tax base and a common consolidated corporate tax base. The motion proposes that the directives do not comply with the principle of subsidiarity, and I will set out the Government’s position later in my remarks.
This debate takes place in the context of the decision made by the British people to leave the EU. The Government are clear that until the UK leaves the EU, it remains a full member and is subject to the same rights and responsibilities as other member states. That includes paying into the budget, attending working parties and voting on draft legislative proposals.
The scrutiny provided by the European Scrutiny Committee is clearly of importance. Recognising that importance, I apologise up front for issuing the explanatory memorandums after the deadline. My hon. Friend the Member for Mid Dorset and North Poole generously said that the Government might have been expected to have a bit more time, given that the holiday period takes up some of the time before the eight-week deadline. I apologise that the EMs came out after the deadline, but we have worked hard to hold this debate before the Christmas recess and to give the Committee a valuable opportunity to discuss the proposals. As the Committee is aware from my hon. Friend’s opening remarks, the proposals would represent a significant shift in how corporation tax was calculated and paid.
The draft directives come in two parts. The common corporate tax base would be mandatory for large companies with a turnover exceeding €750 million, and would mean a number of changes to the way the tax base is calculated. That includes a super deduction for research and development expenditure, and an allowance for equity financing. The second part, which includes consolidation, uses the same bases as the Commission’s 2011 proposal to allocate profits around the EU: workforce, sales and fixed assets.
In general, the Government are receptive to the themes underpinning the proposals. The House has discussed countering international tax avoidance on many occasions, and the focus on that and tax simplicity, capital mobility and so on is welcome. The Government are receptive to multilateral action being taken to achieve those objectives, provided that that action is effective and proportionate. For example, our work at the OECD during its base erosion and profit sharing project has helped us to tackle international tax avoidance by multinationals, and that could not have been achieved by the UK acting unilaterally. More recently, as the Committee will remember, there has been the anti-tax-avoidance directive. It built on those principles and was agreed by the UK earlier this year. We just do not think that the proposed directives meet the high bar that proposals must reach before we can agree to something that limits the UK’s ability to shape its own tax policy; that is the critical point.
As the European Scrutiny Committee notes in its report, the Government do not agree that the directives will help to counter tax avoidance, which is one of the directives’ stated objectives. Tax avoidance is a global issue, so limiting tax reform to the way a firm’s tax is calculated within the European Union cannot solve the problem. Also, the tax avoidance measures in the draft proposals go no further than the ones the UK has already agreed at the OECD—measures that we are already implementing. We have serious concerns, for obvious reasons, about rules that rely on an exploitable formula for allocating profits and taxing rights to member states.
We do not believe that the UK should give up its sovereignty over how the tax base is calculated. Direct tax sovereignty gives us the ability to react quickly and decisively when change is needed, including to achieve domestic objectives or counter identified avoidance or abuse of tax rules.
Finally, on the legal base of the new proposals, article 115 of the treaty on the functioning of the European Union provides for EU legislation that directly affects the single market. It is possible to make a case that that article is an acceptable legal base for these proposals, but the Government have broader reservations. In line with the European Scrutiny Committee, we do not believe that a common consolidated corporate tax base is necessary for the internal market to function effectively. Harmonising 28 bespoke tax regimes and effectively designing a single regime that can cope with different accounting standards and various international tax treaties is too ambitious, and risks detracting from more achievable goals that could actually help the functioning of the single market, such as dispute resolution.
Let me be clear: the UK will not give up member state sovereignty over our tax base without a sensible reason to do so, and we are not convinced that the proposed directives include such a reason. We are therefore not convinced that the proposal is consistent with subsidiarity. I hope that the Committee will support the motion, which the Government endorse.
The Chair
We have until 10 am for questions to the Minister. I remind Members that they should ask questions, not make statements. There will be a chance for debate following the questions.
Peter Dowd (Bootle) (Lab)
It is a pleasure to serve under your stewardship, Mr Hanson. If I may, I will set out a series of questions, which the Minister can pick up if she wishes.
First, in the light of paragraph 1.3 of the European Scrutiny Committee’s report, which indicates that the Commission has formally withdrawn its 2011 proposal for the introduction by Council directive of a common consolidated corporate tax base, or CCCTB—it almost sounds like the acronym for a children’s programme—and the fact that seven other national Parliaments have given a reasoned opinion why the proposal fails to adhere to the subsidiarity principle, as the hon. Member for Mid Dorset and North Poole indicated, does the Minister acknowledge that the issue is in effect a dead duck, and that scrutiny and debate of it is therefore perhaps a little academic?
Secondly, does the Minister acknowledge, as noted in paragraph 1.3 of the report, that the question of the UK introducing these newly proposed directives is academic, given that they are provisionally lined up for implementation on 1 January 2019 and 1 January 2021 respectively—unless, of course, Brexit does not mean Brexit?
Thirdly, the European Scrutiny Committee’s report also highlighted that the Government had
“completely failed to provide either any substantive analysis or its view on whether the proposals are compatible with the principle of subsidiarity.”
The Minister referred to that, but the Committee specifically said that the Government had not provided any information. Why is that?
Fourthly, in paragraph 1.7 of its report, the European Scrutiny Committee expressed surprise that the Government had acquiesced to the ECOFIN conclusions of 6 December 2016 about an EU corporate tax system, given their apparent view—as set out by the Minister’s predecessor, the right hon. Member for South West Hertfordshire (Mr Gauke), in response to the hon. Member for Luton North (Kelvin Hopkins) on 29 March—that the CCTB would undermine our sovereignty and
“risk harming the competitiveness and growth prospects of the Single Market.”
Does the Minister agree with that conclusion of the European Scrutiny Committee?
Finally, given that the issue is academic for two reasons—namely that the Government will not sign up to the CCTB and we will be virtually out of the EU by the time any progress is made on the issue—what alternative do the Government have when it comes to tackling profit shifting and unintentional double taxation across Europe and beyond?
Jane Ellison
I should perhaps say in anticipation that if I cannot respond to any questions from colleagues, I will of course write to them. I hope that satisfies hon. Members.
I will deal with the points raised. There was a general question about subsidiarity. We do not believe that either the CCTB or CCCTB are necessary for the internal market to function effectively, so we do not accept the assumptions that appear to underpin the Commission’s proposal. At present, we are therefore not convinced that the proposal is consistent with subsidiarity.
The hon. Member for Bootle mentioned ECOFIN’s conclusions. They were high level in nature and do not commit the UK to anything. The Government have made our reservations about the proposals clear. As directives on direct tax, the files require the unanimous approval of member states before they can be agreed. We will continue to engage constructively. As I said, as can be seen from our co-operation on the OECD project and the substantial number of measures we have passed since 2015 alone, we are clearly very supportive of the intended direction of travel. However, we will not sign up to anything that unduly restricts our sovereignty over direct tax, as the current version of the file does.
The legal base was also mentioned, which I touched on. Article 115 of the treaty on the functioning of the European Union provides for EU legislation that directly affects the single market. While we think that it might be possible to make the case that that article is an acceptable legal base, we have broader reservations about whether the proposals can achieve their objectives, as I have set out.
The shadow Minister asks what is envisaged as we go forward; that question quite reasonably arises whenever we debate EU matters. He mentioned the timing, which clearly relates to when we will leave the EU. UK companies that operate in the EU and meet the conditions of the CCCTB would need to understand and operate under its rules if it were to come into effect. The amount of profit allocable to UK activities will remain the same.
From the perspective of double taxation relief, our rules and treaties should continue to operate as they do now. In fact, we have double taxation treaties in place with all of our European partners—as the hon. Member for Kirkcaldy and Cowdenbeath knows; we debated this on Friday—so we are not dependent on EU laws alone on such matters. Those are already in place and will continue to operate as they do now, so we do not think that that is too much of a material concern. I think I have touched on all the key points. Subsidiarity was mentioned, but I think I have alluded to it sufficiently.
Helen Goodman (Bishop Auckland) (Lab)
It is a pleasure to serve under your chairmanship, Mr Hanson. I have two questions for the Minister. First, I am not clear whether her primary objection is on principle, or because she dislikes the content of the proposed instrument. Will she engage in a thought experiment with me? Were member states to come together around a table and all agree to move together and change their corporate tax bases in the way that is proposed here, but not through an EU instrument, would she be happy to sign up to that? Does she object on principle, or does she dislike the content of the proposal? Secondly, what consideration has the Minister given to the impact on the Government’s Brexit negotiations of adopting this stance on this instrument?
Jane Ellison
I thank the hon. Lady for her questions; they were good, as I would expect. As I said, the UK will not give up member state sovereignty over our tax base without very good reason, and we are not convinced that there are such reasons in the directive. On some measures, such as the ATAD measure to which I referred, we have come together and been able to agree something.
Having direct control over our tax base enables us to respond to events in our own jurisdiction. We have debated tax a lot over recent years, and it has become apparent to all of us in this House that the challenges we face are global. Leaving aside the timeline issue, it is quite hard to envisage a situation in which there would be a sufficiently compelling reason—the hon. Lady set out a hypothetical situation—to give up direct control over our tax base, given the global challenge we face with some of these tax issues.
We are working very well domestically, with almost 30 measures passed since 2015—some of them are yet to come into effect, and others are already working—and have co-operated through the OECD. For those reasons, we do not see this proposal as compelling enough to cause us to give up something as important as direct control over our tax base.
Chris Philp (Croydon South) (Con)
It is a pleasure to serve under your chairmanship for the second time, Mr Hanson. I sympathise with the points made by my hon. Friend the Member for Mid Dorset and North Poole and the Minister, but I have two questions.
On the question of sovereignty over taxation, does the Minister agree that the UK being a signatory to the OECD BEPS arrangements she referred to entails an implicit loss of sovereignty, because we are making an international agreement? Does the sovereignty argument not apply equally there?
My second question is on European taxation. The Minister made some powerful points about the global nature of taxation and said that acting at a European level alone may not be fully effective. Does she think that European Union member states adopting these proposals would prevent some multinationals—I am thinking particularly of companies such as Amazon and Google—from effectively running their European sales via Dublin and Luxembourg in order to benefit from very low rates of taxation and avoid paying tax in member states where sales and staff are located? I fully accept the reasons the Minister gave, but what assurance can she give the Committee that we will successfully clamp down on those tax-planning—I will not say evasion—measures if we cannot do so via this instrument? What other channels could we use to avoid that happening?
Jane Ellison
They are indeed good questions. The latter point is something to which we have all given a great deal of thought. I might write to my hon. Friend the Member for Croydon South with further reflections, if that is all right. He is right to say that these issues exercise us all, but they are not purely European issues. Indeed, some of the challenges with famous companies’ taxation arrangements actually have their roots in the US tax code, more than EU taxation, but I might write to him with a more thought-out response.
On my hon. Friend’s first question, it is true that we have agreed files in Europe that impact on direct tax. As he said, the UK has been actively participating in multilateral action through G8, G20 and the OECD to reform international tax standards and prevent tax avoidance and aggressive tax planning by multinationals, as part of the Government’s objective to align the taxation of profits with economic activity, which relates to his second point.
We have supported EU-level action where appropriate but are keen to ensure that it fits with the way multinational enterprises are taxed globally. We fully supported the European Commission’s work to implement the recommendations from the BEPS project through the anti-tax-avoidance directive, but the crucial point is that those actions are targeted at particular issues, and the degree of co-ordination required between countries’ tax regimes is limited to the extent necessary to address them. We feel that agreeing a common consolidated tax base at EU level is a more fundamental change in the way companies are treated. For the reasons I laid out in my opening statement, it goes too far for us to agree that it is the right way to proceed.
The Chair
If there are no further questions, I call the Minister to move the motion.
Motion made, and Question proposed,
That the Committee takes note of European Union Document No. 13730/16 and Addenda 1 to 3, a Proposal for a Council Directive on a Common Corporate Tax Base; further takes note of European Union Document No. 13731/16 and Addenda 1 to 3, a Proposal for a Council Directive on a Common Consolidated Corporate Tax Base; considers that the proposals do not comply with the principle of subsidiarity for the reasons set out in the Twenty-third Report of the European Scrutiny Committee (HC 71- xxi); regrets that because of the inflexibility of the deadline for providing a Reasoned Opinion over the Christmas period it has not proved possible in the time available for the House to serve a Reasoned Opinion in accordance with Article 6 of Protocol No. 2 annexed to the EU Treaties on the application of the principles of subsidiarity and proportionality; and instructs the Clerk of tile House to forward this motion and the Reasoned Opinion recommended by the European Scrutiny Committee to the European Commission by way of political dialogue.—(Jane Ellison.)
Jane Ellison
I thank colleagues for their contributions, which included a typically thoughtful speech from the hon. Member for Bishop Auckland. I will not detain the Committee too long in drawing some closing thoughts together. I thank the members of the European Scrutiny Committee for recommending this debate. The Government will continue to respond to these important debates, allowing parliamentary scrutiny of EU proposals. I take the point that the hon. Member for Bootle made, but I would not go as far as to say that this is all a pointless exercise.
Peter Dowd
I understand where the Minister is coming from, but I want to be clear: I was not trying to say that this is a pointless exercise—it is absolutely crucial that we have scrutiny of these matters. The point I was trying to make was that much of the scrutiny focused on what happened in the past, not what will happen in the future. We are having debates and discussions about things that are not really going to take us forward. That is the point I was trying to make—not that it was pointless, but that the scrutiny is the wrong scrutiny.
Jane Ellison
A fair point, and I welcome the clarification, but I would still slightly disagree. The debates we have been having about the challenges of international taxation and multinationals, which were laid out eloquently by the hon. Member for Bishop Auckland, are ongoing. They have taken place in the context of the G20 and the OECD, and will continue to take place in the EU. We will continue to have those debates after our exit from the EU because, as people have said, we are leaving the EU, not Europe, and we will continue to have very important relationships. It is important that we engage with this direction of travel, because this is hardly going to be an overnight process.
There was a slight implication in the contribution from the hon. Member for Bishop Auckland that compared to the OECD, the EU was a model of speedy progress; that is where I would sound my only note of scepticism. It is clear that we will be engaging on these matters for a long time to come, in a range of international forums, so the debates that we have are useful. They have been echoed in other countries. Other people have expressed issues and concerns, as we have as a country, and there have been other reasoned opinions offered.
Helen Goodman
Will the Minister tell us which other countries have been resistant? She said there were seven.
Jane Ellison
No, I said several. I think I am right in saying that Ireland has offered a reasoned opinion, and there has been debate in other countries as well. On the issue of direct tax and sovereignty in particular, the UK is not taking a stand-alone point of view.
I want to address the points made by the hon. Lady about wider co-operation and competitive corporation tax. My main reason for pushing back against the points she made is that although it is true that UK corporation tax was 28% in 2010 and will be 17% by the end of this Parliament—we have already legislated for that—the backdrop to that is our active engagement and, indeed, leadership in international forums to address some of the issues that we are all concerned about to do with multinational tax avoidance and aggressive planning.
Our mantra is that taxes should be competitive and fair, but paid. The Chancellor has been clear about the path that we have set for this Parliament to the figure of 17%, and that it is right in the circumstances. We have no plans to go further at this time, but as I mentioned, we have brought forward a number of measures—about 30 since 2015 alone.
On one hand, it is true that we have set the most competitive corporation tax in the G20, but on the other, we are extremely proactive in international forums in leading on measures to clamp down on international tax avoidance. We shall continue to do that post-Brexit, within the OECD and with European partner countries. That is a balancing point to put against the slight implication in what the hon. Member for Bishop Auckland said that we are in a race to the bottom. We want to be competitive, but also to make it clear that taxes must be paid. The measures that we have passed underline how seriously we take that.
While we remain in the EU, the Government will continue to engage with EU tax files, championing the approach to business tax that encourages investment in jobs and growth, places proportionate administrative requirements on business, and ensures that businesses large and small pay their fair share of tax. As I said, that will happen through the tackling of avoidance. We will also scrutinise proposals to ensure that they are proportionate and effective; proportionality, and questions as to effectiveness, are obviously germane. We will not compromise member state sovereignty when it comes to direct tax.
I hope that what I have said provides an update for members of the European Scrutiny Committee on the Government’s stance on these matters, and that I have sufficiently reassured the hon. Member for Bishop Auckland that we will continue to be engaged. I welcome the interest in these important issues. I will review the Hansard report of the debate, and if there are any matters that I did not deal with in sufficient detail, I shall write to hon. Members. It was a good debate. We will continue to debate and engage with some of the issues raised by the hon. Member for Bishop Auckland beyond our membership of the EU, because we are, and want to continue to be, a leader in international forums in ensuring that businesses can operate in a fair and competitive environment, that the taxes that are due are paid, and that—as we have already sought to do, and are continuing to do—we use reasonable ways of clamping down on aggressive international tax avoidance and evasion.
Question put and agreed to.