Draft Double Taxation Relief and INternational Tax Enforcement (Turkmenistan) Order 2016

Jane Ellison Excerpts

Thursday 17th November 2016 General Committees

[The Financial Secretary to the Treasury (Jane Ellison)]

I beg to move,

That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Turkmenistan) Order 2016.

Good morning, Mrs Gillan, and colleagues. The draft order deals with a first-time double taxation agreement with Turkmenistan. Currently, Turkmenistan is honouring the treaty between the UK and the Soviet Union. Following an approach from Turkmenistan, we agreed to enter into negotiations for a replacement treaty.

Turkmenistan recognises that a modern treaty would benefit its growing economy, which also offers important opportunities for UK business. We recognise that ex-Soviet states will want to renegotiate treaties to reflect their own circumstances and opening economies. The Turkmen approach followed the OECD model approach in most respects. This, together with a fairly conventional tax system, enabled us to reach an agreement in two short rounds in 2011 and 2012. We have ended up with an agreement that we can be pleased with. It contains none of the provisions favoured by some capital-importing countries such as source state taxation of services and gains on shares, which do not form part of our preferred approach. We have agreed our anti-treaty-shopping measures and confirmation of the availability of benefits for UK pension schemes and charities. The treaty also contains the latest OECD exchange of information article.

Withholding rates are higher than our preference and show an increase over the rates provided for in the Soviet Union treaty. However, they do provide for a reduction on the domestic rates levied by Turkmenistan and reflect a reasonable compromise for a treaty with a developing nation. Turkmenistan has already completed its ratification procedures, and approval of the order today would permit the provisions of the agreement to take effect from 1 January next year. I hope my explanation has been helpful and I commend the order to the Committee. I am happy to try to answer any questions that hon. and right hon. Members might have on its provisions.

--- Later in debate ---

[Jane Ellison]

I will try to answer as many questions as I can; there was quite an array. We are straying into more general concerns on the relationship between the UK and developing countries and double taxation agreements. I am familiar with the private Member’s Bill that is being proposed. Let me say a few general words; I will try to cover some of the specifics, but I may have to take up the shadow Minister’s invitation to write to him if I cannot cover all the questions.

The UK enters into double taxation agreements because they are mutual agreements. Countries are not pressured to sign them; they are signed because they are in the interests of both countries and are increasingly recognised to be so. I understand there is NGO concern and we will no doubt come to debate that a bit further in due course, but I do take the issue seriously. I have signed a couple of double taxation agreements myself in the past few months and I take the opportunity to talk to the people I am signing them with about what they see as the advantages for their country.

Although I welcome the scrutiny of NGOs, I sometimes think that their concerns are perhaps a little misplaced. These are mutually negotiated agreements entered into freely by both countries and the negotiating capacity of many of the countries we are dealing with, even developing ones, is very considerable. Occasionally, I worry that that is a little understated or underestimated by those with such concerns. I reassure the hon. Member for East Lothian that we take the issue very seriously.

The Government are engaging with Turkmenistan to promote and protect British interests and values. It is a Foreign and Commonwealth Office human rights priority country and it is a key objective to encourage the Turkmen Government towards democratic reforms and to implement their international human rights commitments and obligations, as well as to improve the investment climate for UK businesses. Those things go very much hand in hand. A country that respects human rights, the rule of law and all those things is a good place in which to do business. Doing business in a country often drives development and drives the opportunities to advance British values—those two things are very closely linked. We are supporting and encouraging Turkmenistan’s contribution to regional prosperity, stability and security, including in respect of UK objectives in Afghanistan and the wider region.

A number of questions touched on the scope for further commercial engagement. There is plenty of scope for further UK commercial engagement in Turkmenistan, particularly in the oil and gas sector, and this agreement will help our efforts to promote those increased commercial opportunities in a more transparent investment climate. Transparency of investment climates is often at the heart of the benefits of such agreements.

On the economic and revenue effects, my right hon. Friend the Chief Secretary has previously informed the House that it is difficult to provide sensible estimates of the revenue effects of DTAs. It might be that in a particular case there is a short-term revenue gain or loss, but even then it would be hard to quantify. Such agreements are essentially strategic and are not meant to achieve a particular short-term outcome, so concluding one is not a zero-sum game.

It is possible that short-term revenue effects will be augmented or balanced by longer-term increases in activity as companies and others respond to a more favourable business climate and the greater certainty that a DTA can provide but, because of such movement over time, the effects are hard to quantify. The complex and shifting interaction of the laws in our country and the laws of the country in question also makes it difficult to give meaningful estimates. Successive Governments have not tried to give such estimates, so we are not unique in not trying to estimate the impact other than to say that by signing the agreement both countries believe it is in their mutual long-term interest—we would not be doing it otherwise.

That brings us to impact assessments. We have not produced an impact assessment because DTAs impose no obligations on taxpayers, rather they give UK residents relief from foreign tax in prescribed circumstances and provide relief from UK tax for non-residents in comparable situations. That is not new. There was a written ministerial statement in March 2011, after impact assessments were introduced, in which my predecessor gave details on exceptions from the requirement to publish an impact assessment, and secondary legislation enacting double taxation treaties was listed among those exceptions. We have taken a consistent position because of the nature of where the impact is felt.

By governing the taxation of cross-border income flows and eliminating double taxation, tax treaties promote international trade and investment. That long-term picture leads to sustainable tax revenues. One reason such treaties are important in financing development is the certainty they give.

NGOs often bring up the difference between the OECD and the UN models, and we cleave more closely to the latter. This treaty follows the OECD model, not the UN model, however the models are similar in nature. The treaty does not include an arbitration article, as Turkmenistan does not include such articles in its treaties—that is one variation.

I have mentioned the opportunities that the treaty offers for businesses operating overseas. I can give the assurance that the treaty with Turkmenistan prevents UK businesses from being disadvantaged in comparison with competitors from countries that have treaties in place. Of course, we are not the only country with which Turkmenistan, and indeed other countries, is looking to update its agreements, particularly given the different circumstances in which it finds itself today compared with its time as part of the USSR.

A question was asked about the Double Taxation Treaties (Developing Countries) Bill, which is due to have its Second Reading on 16 December. I look forward to debating that private Member’s Bill further, and I hope to give further assurances because I am aware of the interest of ActionAid. In the case of one country on which that NGO is particularly focusing, I have had useful discussions with the chairman of the all-party group for the country in question and I am further investigating to try to assure myself that the concerns are misplaced.

I think I have dealt with many of the questions, but we will go back to see whether I have missed any specific ones. A question was asked about our capacity to collect tax. The UK is a leading nation in supporting capacity building in other tax systems. I am proud of the work we do in supporting capacity building in tax administration. We have the wherewithal to offer good support, where that is needed. HMRC undertakes a major piece of work as part of the Department for International Development’s wider programme of capacity building in partner countries.

I think I will leave it there. I know that a question was asked about the number of people from the UK and the number of businesses in Turkmenistan. I do not have that detail to hand, but I am very happy to write with as much as we know about that. Clearly part of the DTA’s purpose is to encourage that very exchange from business to business. I will write to Members whom I have not been able to satisfy with my answers.

Question put and agreed to.

Small Charitable Donations and Childcare Payments Bill

Jane Ellison Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 15th November 2016 Commons Chamber

[Kirsty Blackman (Aberdeen North) (SNP)]

I rise to speak to new clause 4, which stands in my name and that of my hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin), although I shall touch on the other new clauses in the group.

New clause 1, which would require HMRC to present an annual report, is reasonable and sensible. I was surprised by the amount of discussion we had in Committee and elsewhere about the possibility of charities using such a scheme for fraudulent purposes. Perhaps I was being naive as that had not crossed my mind a great deal, but apparently people are genuinely concerned about it. If the Government were to take on board Labour’s proposal in new clause 1, it would help to allay the fears of the general public about how charities are acting. I think that only a very small minority of charities are set up to act fraudulently, and the publication of such information would help to ensure that the public are aware of that.

New clause 2, not dissimilarly from a number of measures that we discussed in Committee, deals with the matching requirement. I will come on to that later. I understand why Labour Members have tabled new clause 3, which addresses local organisations that, unfortunately, are caught by some aspects of the way in which the Bill is written. I appreciate that that is an issue, so my colleagues and I will support Labour Members if they press it to a vote.

New clause 4 relates to the matching requirement and the associated threshold. When the first draft of the Bill was introduced in the previous Parliament, the Government supported a different matching requirement from what was eventually approved. During the consideration of that Bill, they also changed the proposals on the matching requirement so that they could edit it in the future, if necessary. That was a result of pressure by charities and organisations that had raised concerns about the arbitrary nature of the level that was chosen for the matching requirement.

I appreciate that the Government have moved on this in the past, but charities are now asking them to move further. As the hon. Member for Salford and Eccles (Rebecca Long Bailey) said, the National Council for Voluntary Organisations, the Charity Finance Group, the Institute of Fundraising and the Small Charities Coalition produced a paper saying that it was vital that the matching requirement was changed or removed. That is why we have brought the proposal before the House. Although we discussed this in Committee, we still feel that the Government need to look at it, while appreciating that they have the power to do so outwith this Bill.

If the Government do not accept the new clause, I would very much appreciate it if they considered the proposal in the future. This is not just about the SNP; our proposal is widely supported, including by the Labour party and by charities across the UK such as the Churches Legislation Advisory Service and the Charity Tax Group. If fears can be allayed about fraud, in particular, it would be reasonable for the Government to take some steps towards change. I do not want to talk for long, but I would appreciate it if the Government would seriously consider taking up this proposal. If they do not agree to the new clause, I hope that they will at least commit to looking at it at some point in the future.

[The Financial Secretary to the Treasury (Jane Ellison)]

I appreciate the spirit in which the new clauses have been spoken to, because we are all here for one purpose, which is to make sure that the Bill works as well as possible for the benefit of as many charities as possible. In responding to this short debate, I will try to offer evidence of the reasons why we cannot, or do not think that it is right to, accept the new clauses.

New clause 1 would require Her Majesty’s Revenue and Customs to publish every year an analysis of the number of penalties imposed; the circumstances giving rise to the imposition of those penalties; an assessment of the number of charities set up with the primary purpose of accessing the small donations scheme; and an assessment of the efficacy of the matching rule in preventing fraud. That relates to the general debate that we have had throughout the Bill’s progress about how we prevent fraud and a minority of people from exploiting the rules.

New clause 2 would require the Chancellor to undertake a review of the matching rule—the same is true, as we have just heard, of new clause 4—in consultation with the charity sector, and to lay a copy of the report by the end of the 2017-18 tax year.

New clause 3 seeks a power to prescribe by regulations an exemption for certain charities from the connected charities provision. The shadow Minister, the hon. Member for Salford and Eccles (Rebecca Long Bailey), is right to say that we debated that proposal in Committee and that I undertook to reflect on it. I will tell her where I have got to shortly. The new clause would require the Treasury to consult the scouts, guides, military cadet groups and other organisations before publishing draft regulations on or before 31 October 2017.

[Mr Jim Cunningham (Coventry South) (Lab)]

On consultation, the Minister has mentioned the scouts and a number of other organisations, but has she considered consulting the Brethren? I am sure that she will recall that, during the last Parliament, the Brethren lost its charity status for a while and there was a large number of debates on it.

[Jane Ellison]

Obviously, I was not in this post at the time, but I recall someone in my constituency drawing my attention to that. As I will come on to say, the consultation process leading up to the Bill was exhaustive, but I also hope to reassure the House that the ongoing consultation with people who have an interest in the issue is significant on the part of HMRC and the departmental team led by the Under-Secretary of State for Culture, Media and Sport, my hon. Friend the Member for Reading East (Mr Wilson), who has responsibility for civil society. It is fair to say that we have a good, constructive and ongoing dialogue with the charity sector and those affected by the provisions, but I acknowledge that there was a slightly different concern in relation to the group mentioned by the hon. Gentleman.

New clause 4 proposes that an assessment be put before the House within six months of the passing of the Bill, and it centres on the gift aid matching requirement and its impact on charities of different sizes. We debated similar amendments in Committee and, although I accepted that they were well intended, I decided that they were unnecessary, so it will probably not surprise the hon. Member for Salford and Eccles and the hon. Member for Aberdeen North (Kirsty Blackman), who spoke on behalf of the SNP, that I will make some of the same points again today, but I hope to build on what I said in Committee.

New clause 1 concerns fraud—a vital issue that we have discussed a number of times and that we take very seriously. I am grateful to Opposition Members for giving us the opportunity to return to this important subject. I welcome, as I did in Committee, the fact that we have a cross-party consensus on protecting the gift aid small donations scheme from fraudulent attack. Opposition Members have raised on several occasions the efficacy of the matching scheme as a deterrent against fraud, and they asked us on Second Reading and in Committee to prove that the matching rule prevents fraud. At each stage, particularly in the debate on the matter in Committee, I drew the House’s attention to a few examples of the shocking abuses of charitable status that have resulted in criminal convictions this year alone. Sadly, I have a reasonably extensive list of quite recent events, but I sense that I do not need to persuade people that fraud does happen in a minority of cases.

I am not sure exactly what further evidence Opposition Members would like me to provide. As I said in Committee, the Government are, in essence, being asked to prove a negative. That is a risky proposition, and I will illustrate why. If the suggestion is that the Government should adopt a wait-and-see approach, remove all the protections and then attempt to close the loopholes when fraudulent attacks take place, I cannot agree that that is the right approach. Opening up the scheme to abuse would be irresponsible, could waste a large amount of public money and—probably most importantly—could cause untold damage to the reputation of our fantastic charity sector. I cannot recommend that course of action to the House.

To be clear, we know that the majority of charities are honest. They are run by dedicated and trustworthy people—the sort of people whom we all know in our constituencies. For the fraudsters, however, nothing is sacred. It is a sad fact that if they are presented with an opportunity, they do not hesitate to exploit it. I gave examples on Second Reading and in Committee of fraudulent activity seen by HMRC, and I am sorry to say that, as I have mentioned, further examples are easily provided. It is not just HMRC and the Treasury that recognise that fraud in the charity sector is a problem; there is wide acknowledgment in the sector that fraud is a costly issue, particularly because of the reputational damage it causes. Some Members may be aware that last month saw Charity Fraud Awareness Week and the launch of a new “Charities against fraud” website, which is a joint initiative between the Charity Commission and the Fraud Advisory Panel to help trustees and volunteers to recognise the risks and take action to prevent fraud in charities.

There is also recognition from charity umbrella bodies that charity fraud can be incredibly damaging. The Charity Finance Group noted in its guide “Countering Fraud”, which was published during Fraud Awareness Week:

“Fraud is a problem that can affect any charity from the very large to the very small. Falling victim to fraud can undermine a charity’s reputation, damage donor confidence and reduce a charity’s ability to help its beneficiaries. On occasion fraud has even led to the forced closure of a charity.”

The Government will not tolerate the abuse of charitable status, for the reasons so eloquently expressed by the Charity Finance Group. The Government will continue to take action to tackle and disrupt the dishonest minority who attempt such fraud.

I am simply not convinced that it would be helpful to publish an annual report detailing the compliance activity that HMRC has undertaken. Indeed, I fear that doing so could have the unintended consequence of assisting the very people whom HMRC is attempting to weed out. HMRC’s operational performance in this and every other respect is, quite rightly, the subject of independent scrutiny by the National Audit Office and Parliament, through the Treasury Committee and the Public Accounts Committee. For that reason, I believe that new clause 1 is unnecessary, and I hope that the hon. Member for Salford and Eccles might consider withdrawing it.

[Kirsty Blackman]

None of us has suggested, at any stage of the proceedings on the Bill, removing all the anti-fraud measures. In fact, we were quite clear and measured in everything that we moved; it was about an assessment. New clause 1 is about responding to our concerns about the actual level of fraud and providing us with the relevant information to enable us to have a much more knowledgeable debate next time the matter comes up—specifically around the level, the percentage and the money that is involved—rather than about removing the measure entirely.

[Jane Ellison]

I understand that point, but my real concern is that the matching rule is the only remaining condition on this particular scheme. Obviously, there are other aspects to wider gift aid, but on the scheme that is the subject of this Bill, we are down to a simple last remaining condition that we believe helps to avoid the scheme being exploited fraudulently. I just do not accept the premise that it is sensible to remove it, to see what happens and then to come back to Parliament and say, “We removed it and, as we thought, it was exploited, so now we have to close that loophole again, but in the meantime we have lost public money and, more importantly, charities have lost their reputations.”

[Susan Elan Jones]

I accept that the Minister may want to keep the matching rule to some extent, but what is so sacred about 1:10?

[Jane Ellison]

I will say a little about that. As other hon. Members have said, there was movement on this during the passage of the original legislation. The figure is reasonable and strikes a sensible balance. A ratio of 1:10 is an easy one for those administering this to remember. If hon. Members accept that the matching rule is sensible in principle, I am prepared to say that it is something we would anyway keep under review in the normal course of events. The civil society Minister and I were saying to each other on the Front Bench a moment ago that, given hon. Members’ interest in this, we will keep an eye on it in particular and draw it out in the ongoing dialogue that we naturally have with charities. However, I cannot accept that removing it entirely is a good idea. These things are kept under constant review, and both the Treasury and the civil society parts of Government have a very good relationship with the charities sector, so we will have plenty of opportunities to continue to have such a dialogue with charities and to understand where this comes in. In a few moments, I will say a little more to demonstrate that it is not the barrier that some hon. Members have suggested it is.

Let me turn to new clauses 2 and 4. New clause 2 is a request for a review of the matching rule in consultation with the charity sector. As I have said, the Government have already undertaken a full review of all aspects of the gift aid small donations scheme, including the matching rule, and the Bill is a result of that review. However, I will always be happy to keep an eye on this issue. The Government’s review was comprehensive and open, and it was carried out in full consultation with the charities sector and, indeed, with anyone with an interest in the scheme or in charity tax reliefs more generally. Some hon. Members will recall that, as I have said, back in 2012, the Government committed to reviewing the operation of the scheme after three years, so the Government have made good on that promise.

We recognise how important the scheme and the promised review were to charities. We listened to the sector, and that is why we announced in the autumn statement last year that we would bring forward the review of the scheme to December 2015. To inform the review, HMRC published a call for evidence in December, seeking charities’ views about the operation of the scheme, including its eligibility rules and processes. The call for evidence asked five questions about the scheme’s eligibility criteria, including two questions specifically about the gift aid matching requirement. The call for evidence closed on 2 March. HMRC received 197 responses from charities, representative bodies and other interested parties. The Government reviewed all the submissions and published a response on 20 April.

In the responses document, which is available on the Government’s website, we explain that the vast majority of—indeed, almost all—the respondents to the call for evidence did not identify the matching rule as a major barrier to accessing the scheme. The Government recognise that many of the responses reflected the experience of charities already successfully using the scheme and may not therefore be representative of the sector as a whole. We take that point, so HMRC has supplemented the data provided by charities with an analysis of its own data. As I explained in Committee, the data showed that 92% of charities claiming gift aid for the tax year 2014-15 claimed on donations of £500 or more, entitling them to the maximum small donations allowance at that time of £5,000. HMRC’s analysis also showed that 98% of charities claiming gift aid in 2014-15 claimed sufficient amounts to receive a small donations allowance of at least £1,000.

The Government also considered data produced by the charity sector. A survey carried out by the National Council for Voluntary Organisations, the Charity Finance Group, the Institute of Fundraising, the Small Charities Coalition and the Association of Independent Museums found that just 5% of respondents claimed no gift aid at all, and only 10% did not feel that their charity claimed enough gift aid to make the small donations scheme worthwhile.

Following the call for evidence, HMRC published a further consultation on reform options on 20 April, which was yet another opportunity for stakeholders to put forward reform ideas for consideration. That consultation closed on 1 July this year. It received 46 responses. Again, interestingly, the matching rule was not raised as an issue by the vast majority of respondents.

Quite simply, none of the available data, whether produced by the Government or the sector itself, support the assertion that the gift aid matching rule is a significant barrier to accessing the small donations scheme. The Government have already collected data on the matching rule, carried out a full objective review of the whole scheme and consulted the charity sector. That is why we believe that repeating the consultation process again, so soon after the last consultation, would not produce a different outcome, and why, therefore, I urge the hon. Member for Salford and Eccles not to press new clause 2 to a Division.

As I have said, given the clear interest in the House, we will continue to take a keen interest in this matter, and will listen to the views of the charity sector. The civil society Minister and I are already talking about how we can do more to publicise some aspects of the scheme, and in particular how to get those that do not take advantage of the small donations scheme at the moment to do so. There is a charities day on 16 November, about which we will say a little more later; that will be an opportunity to say and do more to promote the scheme to that small minority not already using it.

I appreciate that in tabling new clause 4 the hon. Members for Aberdeen North and for Kirkcaldy and Cowdenbeath (Roger Mullin) are seeking to understand the differential impact that abolishing the matching rule would have on charities of different sizes. I have already set out why we do not support the removal of the gift aid matching rule, but I have to tell Opposition Members that it is simply not possible to provide them with the level of analysis that they are seeking. Although HMRC holds data on charitable tax reliefs, it quite rightly collects and retains only those data that are necessary to support its function of administering gift aid and other reliefs. Size and turnover are not relevant for gift aid purposes; HMRC therefore does not routinely collect data on the size or types of charities claiming gift aid or small donations top-ups.

As I explained in Committee, HMRC is transparent with the data it holds, and publishes a national statistics package every year that provides a wealth of information about the take-up and use of charitable tax reliefs, including the gift aid small donations scheme. Hon. Members may also be interested to know that HMRC makes many of its datasets, including those relating to charitable reliefs, available—suitably anonymised, of course—to academics and other individuals who approach it with a suitable research proposal. I can tell the House that a number of organisations have recently made use of HMRC’s charities data for research purposes. That is a good example of open government and open data being put to good use.

I hope I have reassured the hon. Member for Aberdeen North that where HMRC possesses data, those data are transparent and, where appropriate, open to outside scrutiny. New clause 4 is not appropriate, because it would require, in legislation, the Government to do something that we simply cannot do. On that basis, I hope the hon. Lady will consider not pressing the new clause to a Division.

Let me turn finally to new clause 3. As I have explained in previous debates, the connected charities rules are intended to protect the gift aid small donations scheme from abuse. They work in conjunction with the community buildings rules to deliver fair and broadly equal outcomes for charities structured in different ways. Without the connected charities rules, larger charities would be faced with a perverse incentive to splinter into artificial groups of smaller charities to increase their entitlement to small donations allowances. New clause 3 would grant the Treasury the power to exempt specific named charities from the connected charities rules. It would also require the Treasury to publish draft regulations, following consultation with the scouts, the guides and others.

The new clause is unnecessary. As we have heard, the Government have just concluded a full and open review of all aspects of the gift aid small donations scheme. That review included the gift aid matching rule and the connected charities rules. In that very open consultation, many representations included the scouts and other uniformed groups. The Government listened to the representations from the uniformed groups. They told us that they welcomed the gift aid small donations scheme, but were unable to benefit fully from the current community buildings rules because most of their fundraising, as Members will know, takes place outside in their local community. The Bill will therefore relax the community buildings rules to allow donations collected outside the building to be counted for community buildings purposes. As discussed on Second Reading and in Committee, this will help bob-a-job work and so on that is done outside the scout hut or other building.

The intention is to allow groups such as the scouts to benefit more fully from the scheme without the need to specifically exclude them from the connected charities provision. We debated a similar amendment in Committee and had a thorough and thoughtful debate on the implications of the Bill for the youth groups in question. The shadow Chief Secretary raised a number of good points and I undertook to reflect on them and look at them more closely. Having done so, I confirm to the House that a scout hut is an eligible community building and there is no requirement for the building to be rented out or for access to be granted to other community groups. That means that the scouts and other similar uniformed groups will benefit from the changes contained in the Bill. Whether it is bag-packing at the local supermarket or bucket collections at the local fete, donations in the local community will count for the small donations scheme. The Bill’s provisions already deliver the outcome Opposition Members seek. I therefore suggest that new clause 3 is unnecessary and I hope the hon. Lady will withdraw it.

[Rebecca Long Bailey]

With the leave of the House, I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

New Clause 3

Regulations on local branches and groups

‘(1) The Small Charitable Donations Act 2012 is amended as set out in subsections (2) and (3).

(2) After section 5(1) (general provisions on meaning of “connected”), insert—

“(1A) This section is subject to the provisions of regulations made under section 5A (regulations on local branches and groups).”

(3) After section 5, insert the following—

“5A Regulations on local branches and groups

(1) The Treasury shall by regulations prescribe organisations in which local or regional branches or groups may not be considered to be connected for the purposes of sections 4 and 5.

(2) The Treasury shall publish the first set of draft regulations made under subsection (1) no later than 31 October 2017.

(3) Before publishing draft regulations under this section, the Treasury shall consult—

(a) the Scout Association;

(b) the Guide Association;

(c) the Combined Cadet Force Association; and

(d) such other organisations as appear to the Treasury to be relevant.”—(Rebecca Long Bailey.)

This new clause requires the Treasury to identify organisations with local or regional branch or group structures in order that those local and regional branches or groups can be separately eligible under the scheme, and to consult certain organisations about the regulations in draft.

Brought up, and read the First time.

Question put, That the clause be read a Second time.

--- Later in debate ---

[Rebecca Long Bailey]

Opposition amendments 1 and 2 relate to the types of payment eligible for the gift aid small donations scheme. Amendment 1 would extend the range of payment methods to include cheques and electronic communications—that is, texts. The Bill itself extends the methods to include contactless payments. Amendment 2 would give the Treasury powers to prescribe by regulations other methods of payment comparable to contactless payments in the future. I will keep my remarks on these two amendments relatively brief as we had an extensive debate on this issue in Committee, although I did not push it to a vote.

Currently, cash donations under £20 are considered eligible for the scheme. The Bill brings contactless payments into the scheme, and we support that measure. However, the charity sector has said that it would be more beneficial for other types of payment, particularly cheques, to be eligible as well. When this was discussed in Committee, the Minister said that amending the Bill in such a way was

“contrary to the stated policy intention of the scheme.”––[Official Report, Small Charitable Donations and Childcare Payments Public Bill Committee, 18 October 2016; c. 10.]

I want to take this opportunity to disagree.

The intention of the scheme is to allow charities to get a gift aid-style top-up on donations made in situations where it is infeasible, but not impossible, to get a gift aid declaration. I would argue that donations made by text are a prime example of such a situation. The Minister has said that receiving gift aid declarations on donations via SMS is a straightforward process: the donor simply needs to reply to a follow-up text message giving their name and address and confirming that they are a taxpayer. It might be straightforward, but people tend to be wary of disclosing personal information. I certainly would not feel comfortable sending my address and other details to an unknown number.

The hon. Member for Amber Valley (Nigel Mills) helpfully alerted us to paragraph 1.8 of the Treasury consultation “Gift Aid and Digital Giving”. I am sure that the Minister has had time to check it out, but I can remind her that the document states:

“Individual donations online or by text are often small. In these cases for the donor it may not seem worthwhile to go to the trouble of filling out a Gift Aid declaration for a small additional amount to go to the recipient charity.”

It is therefore clear that getting a gift aid declaration via text is not as straightforward as the Minister would have us believe.

Similar situations can arise with cheques, as detailed in Committee by my hon. Friend the Member for Redcar (Anna Turley). Elderly people in particular often send cheques in the post, making it impossible for charities to track them down and get a gift aid declaration—it is probably not worth it if it is a small amount. Amendment 1 would simply allow such donations to be eligible for the scheme. I hope the Minister will offer some movement on this area as I simply cannot see the logic in saying that extending payments in that way would somehow encourage charities to move away from traditional gift aid claims.

Amendment 2 would allow the Treasury to make regulations to tweak the legislation to allow types of payments similar to contactless payment to come under the scope of the scheme. It was argued in Committee that technology is moving forward at an incredibly fast pace and that next year people might be using a new type of card or gadget to donate to charity. The Opposition are convinced by that line of reasoning and the amendment would simply give the Government the power to make changes to allow Oyster cards, for example, to come within the scope of the legislation without having to create a brand-new Bill. It is not often the Opposition’s desire to give the Government more powers, but it would be worthwhile in this scenario.

In conclusion, the Opposition strongly support the move to include contactless payment, but we do not see the logic in singling it out when the sector is saying that other payment methods would provide a greater boost to the scheme. I look forward to the Minister’s response. I will be pushing amendment 1 to a vote should she not see fit to accept it.

[Jane Ellison]

As we have just heard, amendment 1 would extend the gift aid small donations scheme to include donations made via cheque, online or SMS. Amendment 2 would give the Treasury the power to amend the Small Charitable Donations Act 2012 through secondary legislation to include other unspecified methods of payment in future. As the shadow Minister said, we debated this area in some detail both on Second Reading and in Committee, so I am afraid that I will be making many of the same points.

When I opened the Second Reading debate, I told the House that it is a Government priority to maximise the gift aid claimed by charities on eligible donations. It is worth reflecting on that because during the Bill’s passage through the House we have quite rightly focused on the gift aid small donations scheme, but the scheme—important though it is—forms just one part of the package of generous tax reliefs the Government use to support our charity sector. Gift aid was worth over £1.3 billion to the charity sector last year—a significant amount—but we want to see gift aid claimed on even more eligible donations, and we want charities to claim gift aid because it is a much more beneficial scheme and has many advantages for charities over the longer term. The shadow Minister said that she was not seeking to undermine gift aid, but it is worth reminding ourselves that it is the more beneficial scheme, so we want to encourage people to take it up.

One reason is that gift aid is not capped—relief can be claimed on individual donations worth hundreds or thousands of pounds. There is no annual limit—charities can claim on as many eligible donations as they are able to solicit. The act of obtaining a gift aid declaration provides charities with the opportunity to build a relationship with their donors, leading to a more sustainable and resilient funding stream.

[The Parliamentary Under-Secretary of State for Culture, Media and Sport (Mr Rob Wilson)]

Exactly.

[Jane Ellison]

As the Minister for civil society indicates from a sedentary position, that is absolutely key to the long-term health of many charities.

We fully accept that there are situations in which, with the best will in the world, charity fundraisers cannot stop donors to ask them to complete a gift aid declaration. The gift aid small donations scheme is therefore intended to be used for those small, low-value, spur of the moment donations when contact between donor and charity is fleeting and it is not practical or feasible to solicit a gift aid declaration. Those will primarily be the small cash donations that the small donations scheme was originally designed to cover, but we also accept, following discussions with the sector, that this should also apply to contactless donations. However, the Government are not persuaded that this is the case with other methods of donations such as those made by text, online or by cheque, and I set out reasons for that on Second Reading and in Committee.

--- Later in debate ---

[James Duddridge (Rochford and Southend East) (Con)]

I was about to rise to congratulate the Minister, as this seems like a really good initiative, but why apply this for only just that tax year? Given that someone is able to donate to an organisation and do it within a tax year, why not roll this over into future tax years to extend this provision? Perhaps I am being uncharitable to her, as this is a good provision, but it could be even better.

[Jane Ellison]

I strongly suspect that there are technical reasons why that would be difficult, but I am happy to take my hon. Friend’s suggestion away, look at it and respond properly to him. In the spirit of simplification, he seeks to make it ever easier to make these donations. As a result of the way Her Majesty’s Revenue and Customs operates—within tax years—I could foresee difficulties with this approach, but I will look at it and write to him with a bit more detail.

There are more things we can do to make things easier for charities, and the Government are constantly looking at ways of achieving that—we have just heard another suggestion from my hon. Friend. I am pleased to tell the House that we have a very good track record of simplifying gift aid processes for charities. For example, in 2013 we introduced Charities Online to help charities to claim gift aid even faster, and 95% of charities now use this service. Instead of having to fill in paper forms and post them back to HMRC, charities can claim their repayments online and have them paid directly into their bank account. Under the old paper system it could take up to three working weeks for charities to receive their repayments, whereas most claims are now paid within five working days. I am sure hon. Members would agree that that is a welcome boost for charities. Just last year, HMRC introduced a new, shorter model gift aid declaration to make it easier for donors to understand their obligations under the scheme, and it worked in close collaboration with the Charity Retail Association to simplify and clarify the Government’s guidance on the retail gift aid scheme. Earlier this summer, the Treasury published a consultation exploring ways of simplifying the gift aid donor benefits rules, and we looked carefully at the responses received before publishing a response.

Of course, we will keep looking for ways to simplify and improve gift aid, but these are questions about the wider gift aid scheme, not the gift aid small donations scheme. My hon. Friend might be pleased to note that one reason I foresaw difficulties with his proposal is that people’s tax status can change from year to year—for example, when they move from work into retirement—and this would make things difficult. I hope that that response is helpful, but I will follow up with him in more detail.

Amendment 2 would grant the Treasury the power to amend the Small Charitable Donations Act 2012 in the future in the event that new donation technology develops. Members who were present at the original Bill discussion reminded us in Committee that they had made points about future-proofing the scheme in terms of technology at that time. My hon. Friend the Member for Amber Valley and the hon. Member for Clwyd South (Susan Elan Jones) are nodding. It is an interesting point, which we have debated.

The Government have consulted fully on the changes to the scheme, and as part of the consultation that we have just undertaken, the extensive nature of which I outlined earlier, HMRC officials went out and met charities and other groups to discuss contactless donations and other technological developments. They considered methods of donation that are not currently in use but might be in the pipeline. I understand that there was no suggestion from the stakeholders that there are other imminent technological developments in the pipeline that would be suitable for the small donations scheme. In any event, we have deliberately drafted the definition of “contactless payment” quite widely.

As I explained to my hon. Friend the Member for Amber Valley in Committee, the definition in the Bill would cover donations from, for example, Oyster cards, as the shadow Minister mentioned, or other smart cards. It would also cover new payment services similar to Apple Pay and Android Pay. We believe that the definition in the Bill is sufficient to cover most of the technological developments that we are likely to see in the reasonably foreseeable future.

[James Duddridge]

My hon. Friend will not be surprised that I expressed some degree of sympathy with amendment 2, given that I raised some of these points. I am reassured about the extension of contactless payments, particularly to Oyster cards, as was mentioned from the Opposition Front Bench. However, I do not support the amendment because of its wording. It refers to “comparable method”. The shadow Minister used the word “similar”, and my hon. Friend the Minister used the term “unspecified”. That is all unclear. There will be further technological changes and we will probably look back and say, “Wasn’t there a formulation that we could have used to include this new technology?” The wording of the amendment is not satisfactory and unfortunately I cannot offer a suggestion to improve it.

--- Later in debate ---

[Jane Ellison]

My hon. Friend makes a fair point. Learning, perhaps, from the time when the predecessor Bill was before the House, we have tried to look ahead, consult widely, and future-proof this Bill against forms of payment that are not yet widely used. It is sensible to try to provide a definition of those, rather than leaving the Bill overly vague. We have done a sound job of future-proofing the Bill as much as is reasonably possible.

I fully accept that at some future stage, perhaps some years from now, a new donation method could be developed which would not be covered by the current definition. We cannot know whether that future method might have implications for other parts of the Bill. That is why I am nervous about writing a woolly definition into the Bill. If and when there is a new donation method not foreseen or covered by the Bill, it is important that the Government come before the House with primary legislation, explain their decision and allow Parliament to scrutinise the proposed changes properly. As this Bill has proceeded relatively uncontroversially through the House, it would be hard to argue that the scrutiny of it and the attention that it has allowed us to focus on the scheme and on gift aid more widely have not been a good thing. The Bill demonstrates that we keep matters under review and that, when there is a case for change, we come back before Parliament and engage in a full and proper debate.

Gift aid is hugely beneficial for charities and we want as many charities as possible to benefit from gift aid on the eligible donations that they receive. I have given an undertaking that the Treasury will work with the Minister for civil society to publicise the charities day on 16 December and to look more widely at what we can do to make sure that take-up continues to grow. The small donations scheme is a separate scheme intended to bridge the gap caused by small, fleeting donations. It is not a replacement for or an alternative to gift aid, and if charities can obtain a gift aid declaration, they should do so because it is in their best interests, for reasons that I have touched on.

This Bill will improve the gift aid small donations scheme. Separately the Government are taking action to improve the wider scheme, and I hope that that action will address a number of the concerns raised in the debate by hon. Members. The small donations scheme is not the right vehicle to bring about the changes that have been suggested and that the shadow Minister is seeking. I hope that, having heard these reassurances, she will withdraw her amendments.

Question put, That the amendment be made.

--- Later in debate ---

[Jane Ellison]

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

It is a pleasure to move the Bill’s Third Reading. I thank all right hon. and hon. Members who have taken the time to scrutinise and engage with the Bill so constructively during its passage through this House. It is a short and technical Bill, but it is nevertheless important and it delivers real benefits to our vibrant charity sector and for working families.

I am very pleased that during its passage through this House, the Bill has received broad cross-party support and provided an opportunity for Members on both sides of the House to highlight and champion the wonderful work that local charities do right across the country. On Second Reading, we heard from the hon. Member for Aberdeen North (Kirsty Blackman) about the volunteers in her constituency shovelling snow to keep the pavements clear in winter. My hon. Friend the Member for Rochford and Southend East (James Duddridge) spoke of the work done by a charity in his constituency to help people living with HIV/AIDS. We heard about the work of animal welfare charities, including Waggy Tails Rescue in Mid Dorset and North Poole, and of course I took the opportunity to mention Battersea Dogs and Cats home in my constituency.

It is not just charities that will benefit from the reforms to the gift aid small donations scheme. As several hon. Members pointed out, community amateur sports clubs will also be able to access top-up payments sooner, and we heard examples of local sports clubs in Taunton Deane, Chippenham and Congleton that could benefit. The small donations scheme is a good thing for charities. It allows them to claim a gift aid-style top-up payment of 25p in the pound when it is not practical or feasible to obtain a gift aid declaration from a donor.

The Small Charitable Donations and Childcare Payments Bill will make it even easier for charities to access those top-up payments by removing entirely two of the existing eligibility criteria. The Bill will also simplify and clarify the rules, ensuring that the scheme remains fair and delivers broad parity of treatment for charities structured in different ways. We are reforming the community buildings rules to make the scheme much more generous for local charities that operate out of community buildings. I sought to reassure the shadow Chief Secretary to the Treasury, the hon. Member for Salford and Eccles (Rebecca Long Bailey) about organisations such as scouts and guides by confirming the eligibility in their case. In Committee and again on Report the Opposition Front-Bench team tabled probing amendments on that point and others, and we have had a couple of thorough debates. I reiterate what I said earlier to the House: a scout hut is an eligible community building, so scouts and other uniformed groups will benefit from the changes in the Bill. I hope that all Members here will join me in supporting this enabling reform. We have heard from some Members about their yesteryears in the scouts, and anything that helps scouts to continue with “bob a job” and all their other community fundraising schemes can only be a good thing.

We are also taking action through this Bill to future-proof the gift aid small donations scheme by extending eligibility to contactless donations, so that charities can continue to benefit from the scheme for many years to come. The message that the Bill sends is clear: the Government want a strong, vibrant and resilient charity sector and we will do all we can to support it through the tax system.

In addition to celebrating the work of our charities and sports clubs, the Bill’s passage through the House provoked an important wider debate about the threats that the sector faces, and particularly the importance of a robust regulatory regime to protect the reputation of charities from the dishonest minority who seek to abuse charitable status. It is not necessarily a pleasant issue to have to contemplate, but we have had an important debate. It is good that we are continually pushed to think about how we can protect our charities further. The sector is one of our great assets. It is very important, and we need to do all we can to protect it. I have argued consistently that the Bill strikes the right balance between simplifying the gift aid small donations scheme, making it easier for charities to claim top-up payments and protecting the Exchequer from abuse and charities from reputational damage.

During the Bill’s passage through this House, hon. and right hon. Members have expressed some concern about take-up of the gift aid small donations scheme. As my hon. Friend the Member for Reading East (Mr Wilson), the civil society Minister, told the House on Second Reading, last year 21,300 charities benefited from the small donations scheme, claiming a total of £26 million of Government support. That is a lot of charities, but we accept that it is fewer than forecast. That is why we are simplifying the scheme by removing two of the main eligibility criteria and relaxing the community buildings rules.

I can also tell the House today that once the new rules take effect, HMRC will undertake a broad communications exercise to promote greater awareness of the gift aid small donations scheme. I have also asked what targeted activity can be undertaken. I encourage charity sector bodies and representative groups to work with the Treasury and HMRC to make the reformed scheme a success. I thank them and the officials concerned for the constructive approach that they take and the work that is done to bring this legislation to the House.

Let me say a quick word about the tax-free childcare portion of the Bill, which makes a small number of minor and technical, but important, amendments to the tax-free childcare scheme. That fact has not limited the interest shown in the scheme during the debates, and tax-free childcare continues to enjoy cross-party support. A number of speakers have looked forward to being able to use the scheme for their own children, and such a prospect draws ever closer as the scheme is set to commence next year.

For many, this will be the first time they will be able to access Government support with childcare costs as tax-free childcare will be available to all working parents, regardless of whether they are employed or self-employed. HMRC is about to begin inviting parents to test the new service in trials. As in bringing forward these changes, HMRC will again listen to parents to ensure that it provides the best possible service. The responses made in the Bill, with the minor and technical changes, will help HMRC to ensure that it is quick and easy for working parents to access the support they need with their childcare costs.

The Small Charitable Donations and Childcare Payments Bill is a short and, it is fair to say, uncontroversial, yet important Bill. Its passage through the House has seen thoughtful and constructive challenge that has allowed us to debate a number of important principles, as well as to praise some of the vital charities that are forces for good in our communities and our wider society. The Bill is therefore a positive Bill. We are making life easier for small charities and for working parents, and I commend it to the House.

HMRC Contract: Concentrix

Jane Ellison Excerpts

Monday 14th November 2016 Written Statements

[The Financial Secretary to the Treasury (Jane Ellison)]

HM Revenue and Customs (HMRC) has concluded discussions with Concentrix regarding the negotiated early exit of its contract to investigate fraud and error in the tax credits system.

As previously announced to the House, HMRC acted quickly to address the unacceptable level of customer service that tax credits claimants faced when contacting Concentrix and as a result, HMRC took back a significant number of cases. All 181,000 cases HMRC took back from Concentrix have been finalised. As of 13 November HMRC has completed around 28,500 of the approximately 32,500 requests for review of Concentrix decisions (known as mandatory reconsiderations) and will continue to handle any new cases as they arise.

On 14 September, the House was informed that HMRC would not be extending its contract with Concentrix beyond its scheduled expiry date in May 2017. On 26 October, the House was further updated that HMRC had entered into discussions with Concentrix on a negotiated early exit from the contract. Those discussions have now concluded and the chief executive and permanent secretary of HMRC has decided to bring the contract to an early close.

As a result of the contract ending, around 250 Concentrix staff have transferred to HMRC following completion of appropriate checks and HMRC has put in place a programme of induction and training. All these new staff are to receive formal training and support from team members, their managers and from subject experts. Managers will also receive bespoke management training to assist them in supporting teams.

The latest estimated saving to the Exchequer from reducing fraud and error as a result of this contract is £193 million. The amount paid to Concentrix over the life of the contract is approximately £32.5 million.

The £32.5 million overall cost of the contract includes the following:

HMRC has paid approximately £15.3 million in 2016-17 with respect to work completed or work in progress at the end of the contract.

As part of this, HMRC has applied the provisions of the contract that allow for reductions in payment when Concentrix has not achieved the required levels of performance against the indicators. For 2016-17, HMRC reduced payments to Concentrix by £1.9 million, and over the lifetime of the contract payments to Concentrix were reduced by a total of £3.5 million.

HMRC has paid approximately £500,000 towards some of Concentrix’s exit costs from its subcontracts.

Tackling error and fraud in the tax credits system remains a priority for the Government, and HMRC will continue to bear down on this. However HMRC recognises that the service provided to tax credit claimants deteriorated in recent months, which is why HMRC has negotiated an early exit from this contract. The National Audit Office has announced a wider examination of the contract, and HMRC will be working with them on their report.

[HCWS251]

Savings (Government Contributions) Bill (Fifth sitting)

Jane Ellison Excerpts

Tuesday 1st November 2016 Public Bill Committees

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

I beg to move amendment 10, in clause 6, page 3, leave out lines 36 to 39 and insert—

‘(2) This Act comes into force on the day after the establishment of an Independent Pensions and Savings Commission.’

This amendment would delay the commencement of the products until an independent pensions and savings commission is established.

The amendment would delay the commencement of the products until an independent pensions and savings commission was established. The Scottish National party has long called for the establishment of an independent pensions and savings commission to look at the crisis in saving for retirement. Following the success of the Turner commission, we should recognise that we need a standing commission to help us steer a long-term, sustainable path for pensions and savings. The Cridland commission is looking at the state retirement and pensionable age, which we welcome, but all such matters should be looked at holistically.

A commission of experts, free from political influence, could focus on all aspects of pensions and savings, with a view to delivering a universal pensions and savings system that enables dignity in retirement. Such a commission is needed to minimise politically motivated changes to pensions and savings, with the aim of eliminating complexity and perverse incentives. We have voiced our legitimate concerns that the Bill risks undermining pension savings and redirecting consumers to products that will not confer the greater level of benefits that pension savings offer. We need to pause and consider what we are seeking to achieve with pensions and other savings products, while making sure that we build confidence in pension savings in particular.

Malcolm McLean of Barnett Waddingham, the pensions consultant, who is a former head of the Pensions Advisory Service, said:

“Much of pension policy seems to be dictated by political expediency rather than the needs of consumers… Political time horizons are too short. Pension policy is controlled by a government whose agenda is short-term, yet pensions are a long-term issue.”

Chris Noon, a partner at the consultancy Hymans Robertson, also commented on the need to free pensions from the political system, saying:

“Political temptation to raid pensions in hard times is too great. We need less meddling and more long-term thinking. We need to get the best brains together to work out how we deal with longer term, intergenerational issues.”

[The Financial Secretary to the Treasury (Jane Ellison)]

Good morning to you, Mr Wilson, and to the rest of the Committee.

As we have just heard, the amendment concerns the date from which the Bill will come into force as an Act. The hon. Gentleman has outlined his reasons for wanting a delay. The amendment would provide that the Act will not come into force until the day after the establishment of the independent pensions and savings commission he has just described.

Over the course of our deliberations in Committee, we have discussed why the schemes in the Bill are really positive steps for savers, so I will not go through those arguments at length again. The fundamental point is that we want both the lifetime individual savings account and Help to Save to become available to people as soon as possible. A delay would not be fair to the people who could have benefited from them. For example, delaying the lifetime ISA for a year would mean that people would miss out on the chance to save up to £4,000 into such an ISA and get a bonus of up to £1,000.

[Ian Blackford]

Will the Minister confirm that anyone who has the opportunity to enrol in an auto-enrolment pension is going to be better off doing that than investing in an ISA? That is one of the issues we are trying to determine with the amendment.

[Jane Ellison]

To some extent, we are returning to a debate we had during last week’s proceedings. The products in the Bill are not designed to be an alternative to pensions. The Government could not have been clearer in expressing our strong support for auto-enrolment and pensions saving more generally. Help to Save is very much a product directed at people for whom there is very little choice available in the savings products that are currently on the market.

[Ian Blackford]

I apologise for coming back to this, but it is critical. My real worry is that there is nothing that will prevent someone from taking out a LISA and perhaps not taking out an automatic enrolment pension, when the latter would be best for their financial interests. My real concern with the LISA and its consequences is that we will end up with savers putting money into products that are, in this case, not fit for purpose.

[Jane Ellison]

That takes us back to territory we have covered. I do not doubt the hon. Gentleman’s sincerity in putting forward his concerns, which he has expressed during debates on other amendments, but as I say, the Government are completely committed to auto-enrolment. We want to have a robust, functioning pension system, but there is also a need for complementary products.

[Kelvin Hopkins (Luton North) (Lab)]

I am strongly persuaded by the hon. Member for Ross, Skye and Lochaber. Indeed, I wish I had thought of his amendment before he did, but there we are. Is the Minister not concerned by all the issues raised in the evidence sessions last week about possible complexities and indecision by people who do not know whether to invest? A commission would clarify things for everyone, including us and the Government.

[Jane Ellison]

I rather take issue with that point. Commissions and reviews by nature tend to look at the broad sweep of policy and how policies interact; they could never offer specific advice for each individual. That is why we have the various advisory services—the Money Advice Service and its successor organisation—and why the Financial Conduct Authority will consider and offer advice on each individual product. Even making the slightly optimistic assumption that every member of the population would read such a commission’s outpourings, it would be unlikely to offer individual advice. I accept the general point that such things can often offer policy guidance in the long term, but that does not alter the fact that we want individuals to take advantage of the advice services that are available and to be guided by what the FCA says about individual products.

Most of the people who gave evidence to the Committee stressed that they saw the lifetime ISA as complementary to pensions. Help to Save is in much more of a standalone category. In all cases, everyone emphasised the Government’s commitment to auto-enrolment. I bring the Committee back to the figures that I gave last week: the rate of opt-out from auto-enrolment is around 9%, which is not just lower than originally expected, but lower than the amended figure.

[Kelvin Hopkins]

I thank the Minister for her answer, but does she not accept that an objective and disinterested arm’s length body such as a commission would be preferable to either private financial advice, which may involve vested interests, or Government advice? I can see strong arguments for what the hon. Member for Ross, Skye and Lochaber says.

[Jane Ellison]

I give way to my hon. Friend the Member for Macclesfield.

[David Rutley (Macclesfield) (Con)]

I thank the Minister for her contributions on this important point. Does she not recall that during the evidence sessions last week, Martin Lewis—I think it was him—and others said that some of the issues about confusion can be dealt with by prompting people during the sales process? That is the appropriate place to ensure that the right questions are asked. Does she agree that that is where the focus needs to be?

[Jane Ellison]

Yes, I do. That is exactly right. I remind the Committee of the independent Financial Conduct Authority’s remit in this regard. Its role is to regulate the providers of policies to ensure, as is its ordinary remit, that they are transparent to consumers about the products that they are offering and that those products are sold with suitable safeguards in place. That is in addition to the Government publishing factual information about the lifetime ISA on gov.uk and working with the Money Advice Service and its successor to ensure that appropriate information is available. I reiterate that if we want individuals to be well informed, those are the mechanisms by which an individual, with their individual circumstances, will be informed. I genuinely do not think that a commission is the way to look at advising each individual, because by its very nature, it cannot look at each person’s affairs, life and aspirations and say what is right for them. We need to give people individual advice.

[Ian Blackford]

I am very grateful to the Minister; she is being generous with her time. The whole point about a pensions and savings commission is not to look at each individual and give advice, but to ensure that we bring Government policy together and look holistically at all the issues affecting pensions and savings, deal with the fact that we have had so many gimmicks like these and get something that is right for the long term for those who wish to save for their pensions.

--- Later in debate ---

[Jane Ellison]

I do not accept that these are gimmicks. I do not think the hon. Gentleman means what he said about Help to Save. If we can help thousands of families to save money for a rainy day and stave off disaster, to which they are all too susceptible at the moment, that would be a very good thing, and all of us on the Committee could take pride in that.

[Ian Blackford]

To clarify, I am talking about the LISA. I have not made any reference to Help to Save in this regard. I am specifically addressing what I see as the shortcomings of the LISA.

[Jane Ellison]

Indeed, and we have debated that in previous sittings. The thrust of the hon. Gentleman’s argument is that the Government do not consult and are not reviewing things, and that Governments—I suspect he means Governments of all colours—have tinkered with these things. I do not accept the broad point. We have done consultations on Help to Save and the lifetime ISA came out of an extensive consultation on pension tax relief. It is worth noting that there was no clear consensus from that. It is not as if the truth is out there, and if we just have an enormous commission, we will come to one point of view that everyone agrees with. In this area, there is a lot of debate and contention, and therefore we are trying to find a way through that goes with the grain of human nature and common sense. That is why having the lifetime ISA as a complementary product to auto-enrolment or people’s other pension arrangements makes sense.

I will finish the point about Government reviews, because it is worth getting it on the record. We already hold all savings policy under review, particularly through the Budget process. Our commitment to reviewing policy is also evident in the review of the state pension age, which will be informed by the independent report led by John Cridland, and the upcoming review of automatic enrolment in 2017. The Government are not walking away from the important job of scrutinising how things land in reality, but I am not persuaded that the reasons the hon. Member for Ross, Skye and Lochaber advanced for a delay are right in the context of these two products and this Bill.

[Ian Blackford]

Does the Minister accept that the Turner commission was a force for good and for change in pensions and savings in this country? Out of the Turner commission, we effectively got auto-enrolment, about which there was cross-party consensus in the House. That is what we seek to achieve by taking these issues away to a commission. That would create the circumstances in which we could all work together to improve the pensions and savings landscape in this country.

[Jane Ellison]

Let me try to wind this debate up on a note of consensus. Where we can achieve consensus on important long-term reforms—auto-enrolment is a very good example—it is wise to do so, but we are debating apples and pears here. The debate about what is the right way to go in the pensions and savings landscape over the next several decades is separate from, albeit related to, the Bill and the two products that we want to bring in to augment the available landscape of products for individuals in this country.

[Kelvin Hopkins]

I want to reinforce the point that the hon. Member for Ross, Skye and Lochaber made. The Turner commission was extremely valuable, because there was serious resistance from the Treasury. It was only because the Turner commission put its case so well and measured this so carefully that we got some positive change. Commissions can be extremely useful. As the Minister said, some of these issues are contentious.

[Jane Ellison]

I do not disagree that commissions can be useful; of course they can. A very good example has been cited. Neither am I arguing that we should not review things and seek, where we can with long-term things such as this, to get a degree of cross-party consensus. I referred to the review we have committed to on automatic enrolment. I am simply making the point that that debate is not relevant to the Bill. Delaying Help to Save for a year would mean people on low incomes missing out on the chance to save up to £600 in a Help to Save account and, of course, to benefit from a Government bonus.

As I say, we are debating two slightly separate issues. I think we all agree that these sorts of commissions and profound examinations of big issues often give rise to important things that achieve a degree of consensus, enabling us to move forward. However, that is not a relevant reason to delay the Bill, and that is why I reject the amendment. We heard in the evidence from StepChange that having £1,000 of rainy-day savings reduces the chance of falling into problem debt by 44%. Help to Save is a product that we have to get on with and not delay further.

I stress that we take an open approach to making pensions and savings policy and that we have approached these policies in an open and transparent way, as I have said. We will consult on the new financial guidance body later this year and, during the course of that consultation, there might well be a relevant moment to come back to some of the wider issues such as how we help individuals to make the right decisions for them. I have mentioned the automatic enrolment review, which will take place next year.

Those are better vehicles through which to have the debate we have just had and to get across some of the points that have been made, not all of which we would necessarily contest. I reject the amendment simply because it is not particularly relevant to the Bill. There is no need to delay the introduction of these two important schemes to establish a further commission.

Question put, That the amendment be made.

--- Later in debate ---

[Kelvin Hopkins]

I thank the hon. Lady for that useful intervention, with which I strongly agree. I hesitate to say this, because I said it before, but it has been calculated that 50% of the population are not functionally numerate—they do not understand percentages and that kind of thing—so advice of this kind is vital for the ordinary citizen. I hope that the Government see fit to accept the new clause, and that we can move on.

[Jane Ellison]

I will try to observe your stricture, Mr Wilson, and not go over ground that we have already covered.

The Government do not disagree with the intention that everyone should get good advice before they take out a pension, and I certainly would not argue with the fact that for many of us, however well-informed we might like to think ourselves, such things can be confusing. The reason I will ask that the clause be withdrawn is simply that the solution it presents is not correct. Also, there are things in place to steer people, which I will touch on.

It is worth reminding the Committee about the definition of advice and guidance. “Advice” is financial advice involved in the provision of a personal recommendation for a specific product. It takes into account the wider circumstances of the person to whom the advice is given, and must be suitable for them. The definition also mentions regulated products. That is at the heart of the matter. I give a commitment that the Government will ensure that clear and accessible information about the lifetime ISA and Help to Save is available, so that potential customers can make an informed choice about whether the accounts are right for them.

Our impact assessment, which was based on a costing certified by the independent Office for Budget Responsibility, shows that our costings do not assume that people will opt out of workplace pensions to save into a lifetime ISA. However, as I have outlined, it is ultimately the role of the independent Financial Conduct Authority, not the Government, to set the regulatory framework for providers that will offer the lifetime ISA, including setting out any suitability tests that should apply. The FCA will consult on its regulatory framework shortly. It will ensure that providers are transparent to customers about the product, and that the products are sold with suitable safeguards in place.

I recognise the importance of individuals making an informed choice about whether Help to Save is right for them. Some may well be the same people who stand to benefit enormously from auto-enrolment. I have stated our commitment to that a number of times. We know that the Help to Save target audience may have less experience of financial products than the population on average. That is why we have already committed to work with interested parties to ensure that the right support and information are available, so that eligible people can decide whether the account is right for them. That will involve information and support from Government and the account provider, but we are also keen to explore a role for local organisations that are well placed to support the target population, such as local charities, advice bodies, social housing providers and the Churches, many of which have very good outreach and advice provision for people suffering from financial exclusion.

While we want to ensure that people have the information that they need, we must ensure that opening an account is as straightforward as possible. Requiring the account provider to give financial advice to every applicant makes the account application process more complex and time-consuming, and risks discouraging eligible people from opening an account. Countless studies show that the more hurdles there are to opening an account online, the more people are likely to fall away. Getting the balance right is really important.

[Peter Dowd (Bootle) (Lab)]

I completely acknowledge that. The Minister referred to more hurdles being put in people’s way. Does she agree that many people out there wish some hurdles had been put in their way to prevent them from buying things that they did not want, instead of something that they would have preferred?

[Jane Ellison]

I totally accept that point. I suspect that some of us on the Committee would put ourselves in that category, casting their mind back over the years. The point is that the regulatory landscape today is very different from what it was; the hon. Member for Luton North made that point in one of our debates last week.

The Government are fully committed to providing advice. The Treasury sponsors the Money Advice Service, which has started to play a greater role in co-ordinating financial education programmes in schools. We have seen a lot more progress on that. We have the 10-year financial capability strategy, led by the Money Advice Service and supported by industry, which aims to improve financial capability across the nation. We see many different bodies going into schools and working with young people. There is always more to do, but I genuinely think that we are looking at a very different landscape from that of some decades ago. While we would never be complacent, that is why we want to take all the measures that I have mentioned to provide advice and information.

We have to find a balance in ensuring that people can access accounts that could greatly benefit them and their family. It is worth reiterating that with Help to Save, people’s money is not locked away. If individuals change their mind or decide the scheme is not for them, they are free to close their account and withdraw their savings, free of charge. I want to end with that reminder. We have designed the product with maximum flexibility in mind for a group of people whose current financial exclusion we should be ashamed of as a nation. We want to do something about that.

[Ian Blackford]

I am disappointed that the Minister has decided to reject the new clause, because it is about ensuring that those applying for the LISA or Help to Save have appropriate advice, which is important to them. We have talked about ensuring that people are aware of the other choices that they have, particularly auto-enrolment. The new clause is about ensuring that we do not end up in a situation where there could be any dubiety about the potential for mis-selling. This is not about the regulator; it is about ensuring that consumers are given all available information at the point of sale. On that basis, I seek to press the new clause to a vote.

Question put, That the clause be read a Second time.

--- Later in debate ---

Question proposed, That the Chair do report the Bill to the House.

[Jane Ellison]

With your indulgence, Mr Wilson, I want to take a moment to thank you and Committee members for the constructive debates that we have had while considering the Bill. I have listened carefully to the points made, and tried to answer them as fully as possible, but I will reflect on the wider points made and am happy to continue to discuss them. It is important that we get the Bill right, so that our constituents understand the benefits of both the lifetime ISA and Help to Save accounts and can reap the rewards of the Government bonus. I greatly appreciate the flexibility that Members have shown in withdrawing some of their amendments along the way. Where people did not withdraw amendments and we had votes, our disagreement was in most cases not with the amendment’s intent, but simply with the immediate point in hand.

May I also put on the record my thanks to the Bill team from Her Majesty’s Treasury and Her Majesty’s Revenue and Customs, who have supported me in these debates, and to Hansard, which has faithfully recorded our words and provided an important service to us and the public, as it always does?

Question put and agreed to.

Bill accordingly to be reported, without amendment.

Savings (Government Contributions) Bill (Third sitting)

Jane Ellison Excerpts

Thursday 27th October 2016 Public Bill Committees

[Kelvin Hopkins]

I agree with the hon. Gentleman that there is a serious problem for the self-employed. There is a lot of bogus self-employment, with employers forcing their employees into self-employment. If we counted only genuine self-employment, there would be far fewer self-employed people. We could then make sure that people are paying into the system through taxes and national insurance contributions. They could also be enrolled in a compulsory state system of earnings-related savings. I agree that there is a problem with the self-employed and I am glad that the Government are reviewing the problem, but we have to go far further into that than we are discussing today.

What my hon. Friend the Member for Bootle said is sensible, practical and reasonable. The Government should just accept his argument and say, “Of course, we want a review of the impact on the automatic enrolment and pension savings and we want to have proper advice for people applying for lifetime ISAs.”

When I was investing in my middle years—rather than my later years, as I am now—people gave me advice. People came to my door and talked about their savings schemes. I did not understand what they were talking about, even though I used to teach statistics and am mathematically qualified and could understand logic. It became clear to me that the people coming to my door did not understand the instruments either. They were selling something because they had been told to sell and they were on commission: “Just sell it, get the signature on the bit of paper, come away and we will give you 5%.” When they did not understand, I thought it was even more terrifying. No wonder we had mis-selling on a gigantic sale. Billions are now having to be paid back, and no doubt billions have been lost for ever and will never be paid back because many people died before compensation was thought about.

We have a problem. We have to make things automatic, simpler, with a state-managed system involved. We also need to ensure that, if there is any kind of subsidy for pensions in old age, it should go to the poor and not to the better-off like me. The gulf between rich and poor in our country has widened. We have a serious problem of poverty in old age and we have to deal with that through the state. I hope to persuade my own party to adopt a policy of that kind, as and when we become the next Government.

[The Financial Secretary to the Treasury (Jane Ellison)]

It is a pleasure to be here with you and the Committee, Mr Chope. I thank everybody for their attention at the very good witness sessions on Tuesday, when we heard from some very interesting people who were good enough to give up their time to come and inform our deliberations.

I will say a general word around lifetime ISAs when speaking to clause 1 and will come on to new clause 2. However, I should say first that there is much about the spirit of the new clauses and amendments proposed with which I agree, as I think we all would. When I come to speak on them, it will be to demonstrate that they are unnecessary or would not work as intended. I do understand the spirit in which they are tabled. I also note, as we all have, that there are areas of significant consensus across the Committee, particularly around auto-enrolment, the success it has been and the wish to see it go from strength to strength.

I will come to that in a moment, but I will first introduce the broader product. We believe the lifetime ISA is a positive addition to the savings landscape. That was a view substantiated by a number of the experts we heard from on Tuesday. It will support younger people to save for a first home and to supplement their long-term savings by topping up individual contributions with a generous 25% Government bonus of up to £1,000 a year.

In 2015, the Government held a full consultation on pension tax relief, which is the background to how we came to the lifetime ISA. The outcome was clear: there was at that time no consensus for fundamental reform to the pension tax system. In some ways, some of the comments that we have heard in speeches this morning reflect the fact that there is still a desire among some people for a fundamental redrawing of the landscape, but the reality is that that is a debate for another time and place. We are in Committee to deal with this Bill, but I acknowledge that that other debate is ongoing.

Throughout the course of the consultation, young people indicated that they wanted more ways to save flexibly for the future. At Budget 2016, therefore, the Government announced the introduction of the lifetime ISA, which has been welcomed by insurers, ISA providers and other industry experts, as we heard on Tuesday. Although some people had some concerns, I think it is fair to say that there was a broad degree of welcome from people across the sector. They see the lifetime ISA as a valuable new vehicle to help young people save.

[Ian Blackford]

Does not the Minister accept that all the generous bonus will do, in effect, is compensate those who have gone into the LISA for the fact that, in contrast to a pension where people are putting pre-tax income in, the money is coming out of post-tax income, so on a zero-sum basis it comes out more or less the same? Anyone going into a pension can expect to get employer contributions, so anyone saving in a pension will be better off. For the life of me, I cannot understand, given the cross-party consensus about supporting and strengthening auto-enrolment, why on earth she wants to muddy the water so that people might be seduced into this product when they should be investing in a pension.

[Jane Ellison]

This perhaps goes to the nub of the disagreement we have in Committee: the Government do not see it as an either/or. The hon. Gentleman is very much positing the product versus pensions as an either/or, but we have been quite clear that the lifetime ISA is a complement, and we heard that from witnesses. I also think that, while acknowledging the consensus to protect auto-enrolment, and indeed to encourage people to save with the pension products appropriate for them, to jump from that to the assumption that the lifetime ISA is, by its nature, going to undermine everything else is a jump too far. I would reject some of his language. Later, I will come on to some points to support my assertion.

The clause itself sets out the defining characteristic of the lifetime ISA: a Government bonus will be paid by Her Majesty’s Revenue and Customs where a qualifying addition is made to a lifetime ISA in a relevant period. “Lifetime ISA”, “qualifying addition” and “relevant period” will be defined in regulations, which will also provide that the Government bonus will be 25% of all qualifying additions made to the account. I confirm that those new regulations will be brought to the House for debate ahead of the launch of the new account in April 2017. Further detail on the lifetime ISA is set out in schedule 1.

New clause 1 seeks to place a requirement on the Government to conduct an annual review of whether the lifetime ISA has had any impact on workplace pensions, and in particular automatic enrolment, as we heard from the shadow Minister. The Government are absolutely committed to automatic enrolment, which will help 10 million people to newly save or to save more into pensions by 2018.

The lifetime ISA is designed to be a complement to automatic enrolment and workplace pensions, not a replacement. We are clear about that language, and we will continue to be. The aim of the lifetime ISA is to support younger people to purchase a first home and to supplement their long-term savings, not to choose between the two. The reality is that some of the youngest people who take out this product will be able to take the money out at 60, but that will not be their retirement age. We are talking about people saving for a later phase of their life, perhaps the last phase of their working life, or to do something in their later years that they always wished to do but did not have the chance to do when they were younger.

The Government’s different policies on employer contributions to a pension and a lifetime ISA reflect all that, which goes to the point made in an intervention. Employers have a statutory obligation to contribute towards pensions under automatic enrolment. They also have a direct incentive to do so through relief on national insurance contributions. The cost of that to the Exchequer was £13.8 billion in 2014-15, which is a powerful demonstration of the Government’s commitment to retain strong incentives in the system. Neither is the case with the lifetime ISA.

We have already conducted an impact assessment, published alongside the Bill, and we clearly do not expect that people will opt out of their workplace pension in order to pay into a lifetime ISA instead. The help to buy ISA already provides a 25% bonus to support people to purchase a first home, but the launch of that did not lead to a surge in opt-outs. I accept that it is a slightly different product, with a different timescale. Nevertheless, there is real-world evidence that it did not lead to that.

--- Later in debate ---

[Ian Blackford]

I agree with the Minister about us all being satisfied by the opt-out rate being lower than anticipated. The real challenge will come in the next few years, as rates going into the auto-enrolment scheme increase. That is why it is important we keep the primary focus on auto-enrolment, to ensure that as contribution levels increase, we do not inadvertently see an increase in the opt-out rate, with people perhaps switching to the LISA.

[Jane Ellison]

I entirely accept the hon. Gentleman’s broad point. He assumes the worst will happen, whereas I have good evidence to show that that is not a reasonable assumption. I will go on to show that we are keeping these things under constant review across the broad piece of pensions and savings.

The lifetime ISA, like all Government policies, will be kept under review to ensure that it is meeting its objectives. We already publish a wide range of details about the take-up of Government-supported savings accounts such as ISAs, and we intend to take a similar approach with the lifetime ISA. Similarly, national statistics and other information such as the Office for National Statistics wealth and assets survey set out information on the savings held across a range of different household types. It is quite granular information.

As the hon. Member for Ross, Skye and Lochaber said earlier, we have a legislative commitment to review certain aspects of auto-enrolment in 2017. In addition, we have the discretion to conduct wider review activity. We recognise that broader challenges and questions have been raised by stakeholders in connection with the review—for example, questions of inclusion and adequacy. It is important we look at the scope and the right sequencing of review activity. The Government are currently scoping the review and hope to update further on that by the end of the year. Of course, the debate we are having in this Committee will inform those deliberations. Because of that, we consider publishing an additional review of the scheme’s operation to be unnecessary in terms of its interaction with the product we are discussing in this clause. I therefore urge the hon. Member for Bootle not to press new clause 1.

New clause 2 seeks that the Government provide in regulations that independent financial advice is made available to all customers making an application for a lifetime ISA. I think we all agree with the thrust of the debate on the new clause. We have all seen victims of mis-selling and want to ensure that our constituents go into every financial decision with the best information available. The Government want people to have the information they need to make important financial decisions and we will achieve that by providing clear factual information on gov.uk, as well as working with the Money Advice Service and its successor to ensure they make appropriate and impartial information available.

New clause 2 would require all individuals to take out financial advice before they open a lifetime ISA. I want to demonstrate that that is not practical, however well intentioned it is. Financial advice is relatively expensive. The point has been made that we do not want to disadvantage younger people and basic rate taxpayers who want to take advantage of this product. Our impact assessment and all the work that we have done indicate that the vast majority of people who take up the product will be basic rate taxpayers.

Research carried out by Unbiased shows that the average cost of financial advice for customers is £150 per hour and the average advice process takes around eight hours. That totals £1,200. Even if we assume that that is the upper end of estimates, it is still £200 more than the maximum annual bonus that an individual could receive from the lifetime ISA. That would create a significant barrier to all but the wealthiest individuals opening a lifetime ISA, and I know that that is the opposite of the Opposition’s intent.

[Kelvin Hopkins]

If there was a simple state office where people could obtain such advice from an objective, publicly employed adviser rather than a private financial adviser, would that not be an efficient and relatively cheap way of providing good, reliable advice?

[Jane Ellison]

I think we would all agree on the broad point about wanting people to have access to financial advice whatever their income, but we are dealing with this Bill. The Government will consult and take soundings on the successor to the Money Advice Service and the other advice services that will be brought together, and I am sure that we will have a good debate about that in due course. The hon. Gentleman may wish to contribute those broader thoughts to that debate.

Let me turn to the current regulatory framework around the LISA. It is worth saying that it is not the Government’s role to set that regulatory framework. The hon. Member for Luton North talked about the different regulatory landscape at the time when he was being sold products—not particularly well, apparently. We are all thankful that that landscape has changed greatly since those days, and rightly so, but it is the role of the independent Financial Conduct Authority to regulate the providers of ISAs, and it will likewise set the appropriate framework for the lifetime ISA.

The FCA will consult on the regulatory regime for the lifetime ISA throughout the autumn and will, as is its ordinary remit, ensure that providers are transparent to customers about the products that they are offering and those products are sold with suitable safeguards in place. We heard in some of the evidence sessions on Tuesday about how the industry wants to get advice right. Everyone has been scarred by what has happened in years past. As I said to the hon. Gentleman, we will consult later this year on the scope of the new financial guidance body, as a complement to the industry’s advice. We heard people such as Martin Lewis talk about the common-sense advice that people need to hear, and that is also an important part of the landscape from which people can seek guidance. I am sure that Martin Lewis and others will contribute to the debate about the new advice services.

I reassure the hon. Member for Bootle that information about the lifetime ISA will be available so that potential customers can make informed choices about which financial products to use. We want people to understand what the right choices are for them, but it would not be appropriate for the Government to require advice to be provided, as that would create a significant financial barrier to individuals accessing the lifetime ISA. It is the independent FCA’s role, not the Government’s, to set the regulatory framework for ISAs. For those reasons—not because I disagree with the spirit of his new clause but because I do not think it would work in practice—I encourage him to withdraw new clause 2.

I conclude my remarks about clause 1 by saying that the lifetime ISA will benefit many young people by supporting them to save flexibly for the long term. It is designed to complement the pension system, not replace it. The clause makes provision for the fundamental feature of the lifetime ISA: the Government bonus. We think that is a positive product for young people, and we do not want them to lose out on, for example, a year’s worth of saving and the compound interest on that because of the delay that has been called for. I therefore ask Committee members to support clause 1.

[Peter Dowd]

I welcome some of the Minister’s comments on both new clauses, and the spirit in which she made them. In the spirit of trying to move on, we will not push new clause 1 to a Division. We acknowledge that the Minister has said that there will be reviews of some fashion, though maybe not statutory reviews; we will take that away and consider it, and may come back to the question of reviews. Our concerns in relation to auto-enrolment can be appreciated. It has been a good product, to use the jargon, and we do not want to lose that. However, again, in the spirit of moving on, we will pull away from the new clause.

We will push new clause 2, on independent financial advice, to a vote, because this House has to lay down a marker when it comes to people’s future and making a significant investment in a product. The lifetime ISA is a significant investment, whatever way we look it. Importantly, it is also a significant investment by taxpayers; that has to be taken into account. If somebody wants a lifetime ISA, and rightly understands that the Government will put a lump sum towards it, it is not unreasonable for us to say that we expect that person to take independent financial advice.

[Peter Dowd]

It is, and that is why I am trying to push that message home. To some extent, we need to draw a line in the sand.

[Jane Ellison]

Given that some of the debate on new clause 2 has been about the concern that the product would be insufficiently attractive to people on lower pay, the practical nature—not the spirit—of what the hon. Gentleman proposes would essentially be regressive, and make the product less attractive to those on lower incomes, whom we wish to attract.

[Peter Dowd]

I completely understand that. The Bill is full of principles: we want people to save and to have pensions, to have the Government cough up towards that, and the individual to put money in personally. There is a whole series of things that we say must be part of the process in principle. For us, there is also the principle at stake of seeking independent financial advice. That is not unreasonable.

--- Later in debate ---

[Kelvin Hopkins]

I rise to support my hon. Friend’s new clause. Many of us have long been concerned about the massive rise in house prices. I will give a simple example. When I bought my first house in Luton in 1969, house prices were three times average earnings. Now in Luton, they are 12 times average earnings.

Millions of people are seeing the possibility of home ownership disappearing. Owner-occupation is in decline; it is becoming a smaller sector, and we are seeing an opening up of major social divisions between owner-occupiers and renters. For owner-occupiers, equity will cascade down the generations, and their children and grandchildren will stay in the owner-occupied sector because they will inherit the equity. Those who are not in the sector and do not have sufficient income will remain outside the sector, as will successive generations after them—unless they win the lottery or become extremely wealthy for some other reason, but that will apply to only a small number. The great majority of people will find it very difficult to become owner-occupiers if they do not have equity handed down by their forebears.

Adding extra cash to help people who are already likely to be in a position to buy their own home will simply increase house prices further and take home ownership even further away from those who do not have equity and are unlikely to be able to afford a home. We have to see some action by Government over time at least to stabilise house prices, so that more people can get into owner-occupation, and so that those who aspire to be a homeowner have a realistic prospect of becoming one.

I support what my hon. Friend said. We have to build many more houses. The only way to stabilise house prices is to raise supply, not increase demand, which would just push house prices up. It is not the price of houses that is increasing, but the price of the land on which they are built. The cost of building a house does not increase by that amount; it is the land on which it is built. There is a case for land value taxation and doing something about the price of land.

It is a mad world. In 1969, I thought becoming an owner-occupier was a bit of an adventure, but I could afford it on one income—mine, which was not massively high, because I was a trade union research officer. Nevertheless, I could afford to buy a three-bedroom house with a garage and gardens back and front—a nice, typically British home, which we might all aspire to. If I were trying to buy the same house now, with the same sort of income, in the same town, I would have great difficulty. On my generous parliamentary salary, I might stand a better chance, but not on the salary that I had at the time, so I think my hon. Friend the Member for Bootle is absolutely right, and I support his new clause 3.

[Jane Ellison]

The Committee is enjoying the autobiographical journey to Luton North through the ages.

[Kelvin Hopkins]

I used to be a teacher—I taught economics years ago—and I always found that using examples kept the class alive and entertained them. It also helped them to understand the points that I was making.

[Jane Ellison]

To that end, he has succeeded magnificently; everyone looks thoroughly engaged, which is not always the case in Bill Committees, it is fair to say.

Before I speak about schedule 1 and new clause 3, I have a couple of points to make. I do not intend to go into a wide discussion about house building. We all agree that we need to build more houses. Earlier this month, the Government unveiled a £5 billion package at the Conservative conference, which will make substantial progress and build on the progress already made.

The help to buy ISA is often unfairly criticised. In a way, those myths then transfer across to criticism of the lifetime ISA, so it is worth putting on the record that the take-up of the help to buy ISA has been high; there have been more than 650,000 of them to date. Where people have used help to buy to buy a home, that home has been worth on average £167,250, which is well below the scheme’s property price cap of £250,000, or £450,000 in London. That underlines the fact that we expect the majority of those who use the lifetime ISA to be basic rate taxpayers.

I will turn to schedule 1 and then make a point or two about new clause 3, because I hope to show the shadow Minister that I can respond to his substantive concern. The schedule sets out some of the detailed rules of the lifetime ISA. It is a long schedule, so I propose to provide only an overview.

Regulations made under paragraph 11 of the schedule will set out who is eligible for a lifetime ISA by specifying who “the investor” is. We intend to provide in regulation that a new account may be opened only by a person aged under 40, and that payments to a lifetime ISA may only be made until an account holder reaches 50. That is to reflect the fact that the scheme, as discussed, is designed to support younger people in getting into the habit of saving. Draft regulations have already been published for consultation, and they will be considered and debated by the House before the product is launched.

Paragraphs 7 and 8 of schedule 1 concern withdrawals. Account holders will be able to withdraw sums from their lifetime ISA at any time; that is consistent with normal ISA rules. Such withdrawals will not be subject to a withdrawal charge in the circumstances set out in paragraph 7, which include account holders purchasing their first home after saving in a lifetime ISA for 12 months or longer, or reaching a specified age, which regulations will set at 60.

Regulations will also set out detailed rules for the processes to be followed when a withdrawal is made to buy a first home. We intend to consult with industry experts to ensure that those regulations are simple to apply and that they meet our objectives for the scheme. Officials have been working hard and openly with industry experts for some months to ensure a product that works well. There will also not be a withdrawal charge when an account holder dies or becomes terminally ill, or when savings are transferred to another lifetime ISA.

--- Later in debate ---

[Peter Dowd]

To start with, I telegraph the fact that we will not pursue this matter. However, it is important to get on the record the fact that where Government policy has an effect on house prices, it is important—given the current state of the housing market, which is overheating due to lack of supply—to have that logged and noted, however marginal the effect appears to be. I am not suggesting that the Minister has brushed that point aside, but it is our responsibility to bring that effect to account.

The Minister quoted some figures on seeking advice for particular products, but 0.3% inflation on housing is a fair old amount of money. If that is 100,000 transactions a year of around £750, that is the best part of £70 million-odd a year added to house prices by this policy alone. If we are to introduce policies that add to an already overheating sector, it is important that as a nation, a Government and a Parliament, we take into account their impact. That additional £750 for that person is £750 not going somewhere else in their budget. I only say that to try to get that issue into the smorgasbord of issues that we have to take into account. I will not be pursuing the matter.

Question put and agreed to.

Schedule 1 accordingly agreed to.

Clause 2

Government contributions to Help-to-Save accounts

Question proposed, That the clause stand part of the Bill.

[Jane Ellison]

The Prime Minister has set out the Government’s mission to build a country that truly works for everyone, not just the privileged few. Clause 2 introduces the Help to Save product, and we can be extremely encouraged that it speaks directly to that mission. Evidence from the Joseph Rowntree Foundation cited in the House of Commons Library briefing paper shows that between a quarter and a third of households have said that they are unable to make regular savings for rainy days. According to the family resources survey, a household with less than £25,000 in income is twice as likely to have no savings as a family with more than £50,000. We heard from the debt charity StepChange in its written submissions—this point was amplified in its contribution to the evidence session—that access to a £1,000 savings pot can reduce the likelihood of the average family falling into debt by almost half.

Faced with that evidence—and the evidence we all know from our constituency surgeries of people living fragile financial lives, where one thing going wrong can tip them into debt or other problems—it is only right that we provide a strong incentive and reward for working households on lower incomes to build a savings buffer.

Help to Save will support up to 3.5 million people on lower incomes who are just about managing but may be struggling to build up their savings. It will help them develop their financial resilience and ability to cope with unexpected financial pressures. Clause 2 sets out the main characteristic of Help to Save: the Government bonus or contribution, which will be paid by the paying authority. The bonus will be paid at 50% of the highest balance achieved in the account. Over the four-year maturity period of the account, an eligible individual can save up to £2,400 and earn a Government bonus of up to £1,200. We intend that HMRC will pay any bonus amounts due and that that will be passed to eligible individuals by the account provider. Schedule 2, which we will consider shortly, makes further provision in relation to Help to Save accounts and the Government bonus.

Help to Save will meet a real need and will support many of those who are just getting by, helping them to build their financial resilience and supporting their ability to cope with financial shocks.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Schedule 2

Help-to-Save accounts: further provision

[Dr Whiteford]

I beg to move amendment 6, in schedule 2, page 16, line 31, at end insert—

‘(1A) The conditions specified under sub-paragraph (1) shall not include the condition that the individual be over 25 years old if that individual meets all other specified conditions relating to the working tax credit.’

Currently those aged under 25 only qualify for Working Tax Credits if they work at least 16 hours a week. This amendment would ensure any individual aged under 25 would qualify for a Help-to-Save account if they met other specified criteria.

In relation to later amendments to the schedule, I declare an interest as a member of the North East Scotland Credit Union. I tabled the amendment with my hon. Friend the Member for Ross, Skye and Lochaber. In contrast to the LISA, the Help to Save product offers genuine benefits for low and middle-income savers. All our amendments today seek to strengthen it and address some of the limitations that have emerged in the written and oral evidence.

Currently, the under-25s will not qualify for Help to Save unless they are in receipt of the disabled element of working tax credit, or they are responsible for children and are working 16 hours a week or more. Many young adults under 25 who are in full-time work could benefit greatly from Help to Save. The amendment would ensure that those under 25 could qualify for a Help to Save account on the same basis as those over 25 if they meet the specified criteria.

We know that the under-25s need some encouragement to save. As we heard from the Minister, having some savings can be incredibly advantageous; it cushions them against unexpected financial shocks and prevents them having to use the excruciatingly expensive payday lenders and getting into problem debt when they face unplanned costs.

Help to Save is probably a more realistic way for people to save for a first home than the LISA. Extending it to more young people in that age group can only help to incentivise early saving and improve financial literacy. It seems wrong to deprive young adults who are already working more than 30 hours a week of the opportunity to benefit from this scheme just because of their age.

[Jane Ellison]

The amendment would ensure that individuals aged 25 or under would be eligible for an account if they meet the conditions relating to working tax credit eligibility. It is worth making it clear that under-25s will be eligible to open accounts if they meet the relevant criteria for working tax credit or universal credit. A person under 25 is eligible for working tax credit if they work a minimum of 16 hours a week and have a child or a disability.

Our intention is for eligibility for a Help to Save account to be determined by people passporting from working tax credit and universal credit. That is a well established way of targeting support to people on lower incomes. The Government recognise that some people of working age with lower incomes may not be eligible for Help to Save, but passporting is the simplest and most effective method available for determining and notifying eligibility; it is fundamental to the efficient operation of the scheme.

In particular, passporting means that people will not be required to complete a means test to prove that they are eligible for an account, or to contact the Government. It avoids the need to develop bespoke systems to determine eligibility that would be an additional cost to the Government and could deter many savers. That is why we will resist the amendment and I ask the hon. Member to withdraw it.

[Dr Whiteford]

I would rather press the amendment to a vote.

Question put, That the amendment be made.

Savings (Government Contributions) Bill (Fourth sitting)

Jane Ellison Excerpts

Thursday 27th October 2016 Public Bill Committees

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

I will be brief in supporting the amendment in the name of the hon. Member for Bootle. Including credit unions as providers is critical, given the vast number of savers who use community credit unions to build up incomes for later life. Many credit unions set up local pay-in points such as shops or community centres and are increasingly important, given the withdrawal of the banks from many of the communities that credit unions represent. Therefore I wholly support the amendment.

[The Financial Secretary to the Treasury (Jane Ellison)]

I echo the comments that have been made about credit unions. I am sure that many of us, on both sides of the Committee, have credit unions in our local area. There is an excellent one in Wandsworth, which I do what I can to support with publicity and signposting for constituents. I certainly place on the record our admiration for the credit union movement. As the shadow Minister, the hon. Member for Bootle, said, there will be a meeting. His colleague the hon. Member for Harrow West made a very good speech on Second Reading, and I am glad that that meeting will take place.

This debate is about who provides the Help to Save product. We were clear in our consultation that the options for delivery were to engage a single provider to guarantee nationwide provision, or to open the opportunity to offer the account to a wider range of providers on a voluntary basis. Although we are keen to explore the potential for credit unions to be involved and we of course acknowledge, as I have done, the valuable work that they do in our communities, we believe that they could not guarantee the nationwide provision of accounts that we seek.

Appointing National Savings and Investments as the scheme provider, which we have obviously made public, does involve our funding it for nationwide account provision, but it also means that we can work with a single provider to ensure that accounts are easily accessible to all eligible people, and it removes what could be the significant administrative and compliance costs associated with allowing a range of providers to offer accounts. Those could include costs associated with approving providers, checking for multiple account opening, checking and paying bonus claims from different providers and ensuring that each provider is operating the account correctly.

An option whereby we funded NS&I to provide accounts while we also allowed other providers to offer accounts on a voluntary basis would not provide value for money in this environment. A product such as this operates very much at the value-for-money end of the market. However, I am clear that we should not rule out the option for a range of providers, including credit unions, voluntarily to offer accounts in the future if that would deliver national coverage, and I reassure the Committee that the Bill has been drafted to accommodate different models of account provision, should that situation arise. In the meantime, we will work with the credit union sector to explore further options for Help to Save that work for it.

The hon. Member for Bootle has indicated that he will not seek to press the amendment to a vote, and with those points and that clarification in mind, I urge him to withdraw it.

[Peter Dowd]

I thank the Minister for those words. I think it would be inappropriate to take up the Committee’s time pursuing the amendment any further at this stage, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Ian Blackford]

The amendments would allow Help to Save to provide for top-up monthly payments above £50 as long as the average monthly payment in every two-month period was £50. Many people in the target group will have fluctuating incomes. Allowing people to save a maximum of only £50 per month will reduce applications from people who may have, say, £20 spare one month and £70 spare the next.

A survey by StepChange revealed that 34% of respondents

“would prefer to be able to pay in an average maximum of £50 per month.”

The amendments would allow Help to Save account holders to save an average of £50 per month over the course of the account period. That would allow account holders to overpay to catch up following lower payments in previous months and maximise bonus payments. I hope that the Minister will look favourably upon the amendments as a way of strengthening the Bill.

[Jane Ellison]

The amendments are about the scheme rules on monthly deposit limits. They would provide that rather than the maximum monthly deposit being set at £50, a saver could add an average of £50 per month to their account, calculated over a two-month period. That would allow individuals to make additional catch-up payments to their Help to Save accounts in the event that they did not use their full £50 deposit allowance in a preceding month.

We consulted on whether individuals should be able to pay in excess of the £50 monthly deposit limit to catch up on either unused monthly allowances or withdrawals. Respondents were clear that that would add complexity to the scheme for savers and account providers, and given the objectives of the scheme and our desire for the product to be straightforward and simple, it was vital that the account rules were kept as simple as possible to ensure that the scheme was easy to understand and accessible to the target group. Having an average monthly deposit limit would complicate the simple position that we propose in relation to account limits.

I entirely understand the spirit in which the amendments were tabled, but we consulted on this issue and the feedback that we received was that that was not the most straightforward way to proceed for the target group. It may also help the Committee to know that the Office for Budget Responsibility forecasts that on average people will deposit £27.50 into their accounts each month. That suggests that a £50 monthly limit is adequate. We have actually raised that limit from the £25 limit that was proposed for the Saving Gateway scheme—a scheme that, as some Members will know, contained elements similar to Help to Save. Quite a lot was learned from it, because it was piloted.

[Peter Dowd]

The Committee heard evidence from Joseph Surtees of StepChange that

“When it was introduced in the Budget, the potential eligibility for the scheme was 3.5 million, but the impact assessment says that it will probably only reach about 500,000”

and asked

“how do we get…to the 3.5 million figure?”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 28, Q49.]

Does the Minister agree that, if we are to get a higher level of engagement, the scheme may need to be more flexible, as suggested by the hon. Member for Ross, Skye and Lochaber?

[Jane Ellison]

It is certainly fair to say that we want to look at all aspects of how we grow the scheme and reach as many eligible people as possible. At this stage, we disagree about offsetting greater flexibility against perhaps great simplicity, and how we balance the two. Because of the way we have structured the Bill and its consequent regulations, there is quite a lot of flexibility built into the scheme in the future. We have the £50 monthly limit in the schedule, but there are ways that we might be able to return to the product and look at it in the future. I come down on the side of simplicity in this argument, and that is why we have proposed what we have—notwithstanding the evidence we heard on Tuesday.

The Saving Gateway, which was essentially the partial forerunner of this scheme, had a proposed limit of only £25. Given the OBR’s forecast that £27.50 will be the average deposit, doubling the limit from Saving Gateway effectively allows for people to make almost twice that average deposit. In effect, the upper limit offers the flexibility that the hon. Member for Ross, Skye and Lochaber proposes. It is also worth noting that the four-year duration of an account will allow savers to dip in and out of saving when they can afford to put money aside. Savers will still earn an attractive Government bonus even if they are not in a position to save the full amount each month. With those points in mind, I hope that the hon. Gentleman will consider withdrawing the amendment.

[Ian Blackford]

I thank the Minister for her remarks, but I am both a little surprised and a little disappointed. I thought the Government were in favour of freedom and choice and what we seem to have here is a Government who are trying to shut down freedom and choice. The Minister talks about complexity; I cannot see why giving consumers the choice of being able to get to £50 over an average will bring additional complexity. I think that this is really just a software issue for those who are going to be providing the scheme, so I do not accept that argument. We will be pressing the amendment to a vote, because it is the right thing to do. This is about growing the market for Help to Save, and the amendment has been put forward with a genuine desire to help the Government make this policy more attractive. The Minister talks about coming back to the scheme in the future, but I think we should put that flexibility in today. On that basis, I wish to press the amendment.

Question put, That the amendment be made.

--- Later in debate ---

There are big challenges in encouraging people on lower and average incomes to save, and we need to make it easier. What I have outlined is one way for the Government to push that forward.

[Jane Ellison]

The amendment is about auto-enrolling individuals into Help to Save accounts. I understand the motivation, and given the evidence from StepChange the Government do not doubt the sincerity of the intention and the desire to help people to save. However, we have concerns, and I shall explain why we cannot support the amendment.

The amendment would provide for arrangements allowing employers or benefit paying bodies to divert money from employees’ pay or benefits into a Help to Save account, unless they chose to opt out. To return to an earlier debate about auto-enrolment, we all believe that it has been a huge success in pension saving. However, while there is a strong case for auto-enrolling people into long-term pension savings, we do not think that is the case for the rainy-day savings that Help to Save is designed to support.

We want a decision to save into an account to be an active choice made by eligible individuals at a time that is right for them. Given the focus on rainy-day savings, we think that many will want to use the account flexibly, putting aside what they can afford each month rather than committing to a fixed amount being deducted from their salary or tax credit payments. For those looking to make regular payments into a Help to Save account, a standing order that they control will be the best option. That is because many people who are eligible for Help to Save could well have more than one job or other changes in circumstances over the four-year period when they have an account. The target group for a Help to Save account is disproportionately more likely to have a series of different jobs or more than one job at the same time.

Nevertheless, an employer that wants to offer payroll deduction into a Help to Save account to its employees is perfectly free to do so—nothing in the legislation would stop them. The Government are aware of successful voluntary workplace savings schemes and we are keen to explore the role that employers and other local organisations can play to support people in getting access to Help to Save, but we have no intention of making that a statutory requirement at a time when we are still working with businesses to roll out and embed automatic enrolment into workplace pensions—particularly given the forthcoming rises in contribution rates. We think that that must remain the priority for employers. That takes us back to an earlier debate about the support we all give to auto-enrolment, and the desire not to confuse that picture.

I hope that, with those points in mind, the hon. Lady will withdraw her amendment.

[Dr Whiteford]

I take on board the Minister’s concern, particularly for people who may be in multiple employment; that is a fair point. I am not sure that the arrangement would not be hugely beneficial for employers too, or that they would be all that resistant. The amendment is intended as an enabling provision, but in the interest of making progress, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Ian Blackford]

That is not the point that I made, which was about when payments are in the pension pot. We are arguing that the pots should be protected under the Help to Save scheme. Given that a key purpose of the Help to Save scheme is to promote long-term financial resilience, it would be counterproductive if creditors could take the money saved, or even the bonus, to satisfy existing debts. That would result in creditors benefiting from public money intended to help low-income families build precautionary savings. At the very least, the bonus should be protected. For the absence of doubt, there is a precedent for that in the 1999 Act, which states that approved pension arrangements do not form part of the bankrupt’s estate.

[Jane Ellison]

The amendment seeks to prevent creditors from accessing the Government bonus in the event that the account holder is subject to insolvency proceedings or a third-party debt order. Obviously I appreciate that the objective is to protect the account holder, but the Government also need to consider what is fair to creditors by not providing people with an opportunity to shelter from debt proceedings when a creditor has a legal right to be repaid.

I am aware that it has been argued that a special case should be made for ring-fencing the Government bonus to avoid taxpayers’ money being used to repay debts, but I underline that the scheme rules mean that account holders will be entitled to a bonus on the highest balance achieved in the account. That represents an asset for the account holder, and it should be treated as such in any insolvency proceedings.

It is worth noting that there was a Government policy change that meant that, from October 2015, the minimum debt on which creditors can ask the court to declare an individual bankrupt rose to £5,000 from £750, ensuring that people with low-level debts are taken out of that. This measure is consistent with Government policy in other areas—that is the point my hon. and learned Friend the Member for South East Cambridgeshire made—such as the rules around when funds to pay creditors can be deducted from benefit payments.

[Kelvin Hopkins (Luton North) (Lab)]

I concede that there is some worth in what the hon. Member for Ross, Skye and Lochaber was saying, but my concern is that if all sorts of accounts were protected from insolvency prosecutions, people might pile all of their cash into those accounts while knowing that they were going to go bankrupt or behaving in a financially irresponsible way. That protection would not help creditors.

[Jane Ellison]

A fair point—I certainly acknowledge what the hon. Gentleman says. What we propose in the Bill around creditors and insolvency is consistent with Government policy in other areas. For those reasons, I urge the hon. Member for Ross, Skye and Lochaber to withdraw the amendment.

[Ian Blackford]

I am flabbergasted that some Government Back Benchers do not even understand their own legislation. The amendment would put Help to Save on the same footing as pension pots, and I will certainly press it to a vote.

Question put, That the amendment be made.

--- Later in debate ---

[Dr Whiteford]

I beg to move amendment 1, in schedule 2, page 20, line 21, at end insert

“which must be paid no later than six calendar months beginning with the calendar month in which the account is opened”.

This amendment would reduce the time before the holder of a Help to Save account would receive a government bonus to six months.

I will be extremely brief. This amendment is very simple: it would reduce the amount of time before a Help to Save account holder receives their Government bonus to six months, which simply reflects the reality of the timeframe in which people on lower incomes are likely to have to dip into their savings to cover unexpected costs. Again, the amendment builds on research by StepChange, whose users are the target group for the product. According to StepChange, more than three quarters of people in the target income band will need to dip into savings more than once in a year, and a significant proportion will need to do so within six months. Two years is probably too long for them to see the full benefit of the bonus. A more frequent bonus payment will make the product more attractive to the people it is aimed at.

[Jane Ellison]

The amendment would require the Government to pay the bonus on Help to Save accounts within six months of the account opening. On Second Reading, hon. Members expressed concerns about the bonus being paid after two years and on maturity, and not more regularly. The Government are not requiring people to lock their money away in Help to Save. People will still have full access to their savings and will be paid a bonus on the highest balance obtained. Even if people are able to save for only six months, they will still be entitled to receive a bonus at the two-year point and on maturity.

We have said a number of times that the purpose of Help to Save is to support rainy-day saving over a four-year period to help people to build a buffer against unexpected financial shocks or changes in circumstances. In light of that objective, we have looked carefully at how frequently we should pay the bonus.

Similar accounts in the Saving Gateway pilots run by a previous Government ran for 18 months. Published research shows that participants had different views on account duration, but many were in favour of extending the period. Additionally, there is peer-reviewed research by US academics on individual development accounts, a similar savings scheme in the US that also provides match funding to help people on low incomes to save. The research concluded that 19 to 24 months is the optimal time period to embed a savings habit.

[Kelvin Hopkins]

I am somewhat persuaded by the hon. Member for Banff and Buchan. In the American case, is that the convenient time period for those organising the scheme, or is it the optimal time period for the saver?

[Jane Ellison]

My understanding—I have not read the detailed research, although I suspect I will before Report—is that it is what people who were in the scheme fed back about how they felt. That is certainly the case with the Saving Gateway research, which was published in the Journal of Economic Psychology, and I will certainly read it before we get to the next stage of the Bill. Research was published on the Saving Gateway pilot showing that participants were generally in favour of extending the period. We have the right focus there.

[Kelvin Hopkins]

I remember that when people on lower or ordinary incomes were paid monthly instead of weekly, it was sometimes felt that that was uncomfortable, and that short timescales were better for those on low incomes than those on high incomes.

[Jane Ellison]

We risk straying slightly off the point, but there has been a lot of debate about weekly and monthly pay in the discussions about the many changes to the welfare system in recent years. Universal credit, which like many other benefits is moving to a monthly-by-default payment, is subject to the same argument about striking the right balance. We think that paying the bonus at two years and on account maturity strikes the right balance, because it gives people enough time to build up their savings and develop a saving habit, while allowing them to access the bonus within an appropriate timescale.

The Government bonus is designed to provide support and a real incentive to those building up their savings over a long period, rather than supporting or incentivising short-term spending. A bonus of up to £600 after two years is an attractive target to save towards, and will encourage people to keep saving, if they can. We do not believe that smaller bonus amounts paid at more frequent intervals would provide the same incentive for regular saving over the long term.

Given the rainy-day nature of the scheme, Members may be concerned to ensure that savers can access their bonus early if they face an unexpected cost or change in circumstances, and I stress that savers can access their money at any time and still earn a bonus on their savings. The four-year duration of the account allows people to start saving again, so they can earn an additional bonus. While I recognise the strong views on this issue, the motivation behind the amendment, and that no one solution will work perfectly for all savers, I think—in light of the argument I have made and some of the evidence I have cited—that we have got the balance right in this regard. I ask the hon. Member for Banff and Buchan to withdraw her amendment.

[Dr Whiteford]

I am disappointed that the Government have not taken on board a simple and straightforward amendment. I am minded to push the amendment to a vote, simply because many Members expressed concern about this matter on Second Reading, and the amendment could be made fairly easily.

Question put, That the amendment be made.

Concentrix

Jane Ellison Excerpts

Wednesday 26th October 2016 Commons Chamber

[The Financial Secretary to the Treasury (Jane Ellison)]

During the past few weeks, there have been a number of debates in this House about the quality of service provided by Concentrix in helping HMRC to counter fraud and error in our tax system. This is an important opportunity to debate the issue again, and I hope to go a little further in providing the House with information.

It is right that we have debated the issue because during the past few months it has become clear that Concentrix, despite the best efforts of the majority of its frontline staff, was failing to meet the standards we expected and, indeed, that we had specified in its contract. This meant that many of the people whose tax credits were being investigated—we have heard about them in the speech by the hon. Member for Salford and Eccles (Rebecca Long Bailey) and in interventions, and they include my constituents—have been caused needless frustration and distress in resolving their cases. I suspect we will hear more examples as the debate unfolds. I intend to address the specific points in the motion, but as the hon. Lady accurately speculated, I may need in due course to write to her about aspects of the contractual arrangements, for reasons that may become obvious as I go through my speech.

[Frank Field (Birkenhead) (Lab)]

Before the Minister leaves the human suffering aspect of this debate, may I welcome the speed with which she has responded to the letter and memoranda of cases that I, like other Members, have submitted to her? If we are not only talking about learning lessons from the contract, may I ask how we can quickly get compensation to the people who have been adversely affected? Will she give an undertaking today—she may have such an undertaking in her speech— that people whose benefits have been cut by Concentrix will be informed of the hardship fund that she has established so that they can quickly apply for help?

[Jane Ellison]

The right hon. Gentleman is right to anticipate that I will touch on that issue. I will reflect on his point. I do not know about the arrangements for being proactive in telling people, but there are arrangements in place. When I get to that point, he can let me know if he does not think they are adequate.

Given that so many hon. Members on both sides of the House have made such efforts to support their constituents during recent weeks—the human aspects of this issue are absolutely uppermost in our mind today—I should bring the House up to date on the action taken to rectify the situation. As I informed the House last month, we decided on 13 September not to pass any new cases to Concentrix. Instead, it was intended that it should concentrate on resolving outstanding cases. HMRC staff stepped in to reinstate a quality customer service, such as making sure that people could once again get through on the phones. We know how critical it is for people to be able to get through and have their voice heard.

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

On 14 September, when the Minister answered an urgent question in the House, she told all our constituents to phone the number they were given. One of my constituents phoned the line that day and waited for ages to get through, only to be told, “Because of all the complaints you’ve been making, we’re getting sacked”, and the phone was put down. Does she agree that that added further to the already deep distress that people were feeling, and that it is not acceptable?

[Jane Ellison]

Of course it is not acceptable—not at all. I would add that, as hon. Members may be aware, the opening hours of the MPs’ phone line have for some weeks been extended to cope with the larger number of calls coming through that route.

[Louise Haigh]

In her response to that urgent question, the Minister reassured the House that queries would be dealt with within four working days. We know that that simply is not the case, and many of my constituents have been waiting for weeks to hear back from Concentrix or HMRC about their tax credit award. Will she update the House about the deadline for dealing with these cases?

[Jane Ellison]

I will come on to that, but the hon. Lady has provided me with an apt moment to be clear about what I said on that day. I said that once we had established the facts of the case, people should be paid within four working days. Clearly, some cases are complex and need further details to be provided. In response to the urgent question, I said that once we had established the facts, an automated process would authorise payment to be made within four working days. That is the timeline to which HMRC is working.

As I have said, it is absolutely critical that we get the right information, establish the facts and get payments started again. To that end, HMRC took back from Concentrix 181,000 incomplete cases, and staff have been working hard to resolve them. I can update the House by saying that 178,000 of the 181,000 cases have already been finalised, which represents 98% of them. HMRC has already written to the people concerned in the other 2% of cases, and it should conclude those cases by the end of this month. I want to place on the record my thanks to HMRC staff for their efforts in that regard. HMRC staff are also taking on reviews that are requested of any decision made by Concentrix.

[Chris Law]

It is startling that 98% of cases have been resolved within four weeks. Is there any evidence whatsoever that there were grounds to pursue people over their tax credits in those 98% of cases, or was this a bogus fishing expedition, as all of us in the House are likely to believe?

[Jane Ellison]

It is important to recognise that when a case is resolved, it means that a conclusion has been reached based on the facts. I cannot give the House the breakdown of cases in which payments have been reinstated, cases in which there was in fact an error in the claim that had to be corrected, or indeed cases—a very small number of them—in which claims were fraudulent. The point is that the cases have been resolved according to the facts provided and in the knowledge of the person concerned. We may be able to provide a breakdown at some point, but I am not in a position to do so today.

[Kate Green]

The House would find it especially helpful to know to what degree Concentrix was steered by the Government towards looking for undeclared partners, and to what degree the contract incentivised Concentrix to jump to conclusions?

[Jane Ellison]

I will come on to that.

[Sammy Wilson]

rose—

[Mark Durkan (Foyle) (SDLP)]

rose—

[Jane Ellison]

No. I really must make some progress—you may not indulge me too much more, Mr Speaker, if I give way again—but I will see whether I can take further interventions later.

As hon. Members should be aware, anyone who wishes to challenge any changes made to their tax credits has a right to request a mandatory reconsideration of their case. As of the start of this week, HMRC had received more than 26,000 such requests. Staff have already reviewed and resolved more than three quarters of them, and they are up to date with the Concentrix reviews. As I have said, that means that the cases have been resolved in accordance with the facts; it does not necessarily mean that there was a problem in each case. However, at least such cases have been resolved, and closing the remaining cases will of course be a priority.

That gives the House a sense of the necessary steps being taken to fix the immediate problem: restoring quality customer service, resolving people’s claims and checking that the right decisions have been made. But I know that hon. Members have been worried about people falling into hardship if their claim has been incorrectly withdrawn or reduced due to errors. That has quite rightly been the source of many of the questions we have been asked. I reassure Members that a system is in place to support anyone who contacts HMRC in such circumstances. They will be helped to request a review of the decision taken—the so-called mandatory reconsideration that I have just mentioned. Those in hardship will then receive a payment of £100, normally on the following day, while their review is being handled.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

On that specific point, my constituent Katy Holness successfully challenged an erroneous Concentrix investigation. HMRC wrote to her saying that she would have £100 compensation but warning her that that £100 might in itself trigger an overpayment. What does the Minister say about that?

[Jane Ellison]

It is very difficult for me to comment on a specific case, but if the hon. Gentleman writes to me with the details I will ask HMRC to comment on it. We held a further drop-in on 19 October, and if the House feels it would be useful to hold another such Member drop-in for cases such as that to be resolved face to face, I am very happy to arrange one. If hon. Members are aware of people in hardship—I know many are—they can bring that directly to our attention. In fact, I am grateful to all those Members who have already taken action of that kind and attended the various drop-in sessions I have organised in the House. I remind everyone that there is a special hotline for MPs to raise issues and seek information, and we have allocated extra staff to make that service available over extended opening hours. We will address any such cases with the greatest of urgency.

We are making some progress towards at least putting an end to the distress and worry that some people have regrettably faced in recent times. Mechanisms are in place to make sure that anyone in hardship as a result of uncertainties or mistakes will be supported. Those two things have been our top priorities.

[Maria Eagle]

Will the Minister tell us where the duff information that has been acted on by Concentrix has come from? One of the key things about these cases is that the information upon which people’s claims have been cancelled has been almost universally poor and nonsensical. Where have those data come from?

[Jane Ellison]

Most of the data that both HMRC and Concentrix are working from are the sort of data Members would expect companies and HMRC to be using in this regard. Concentrix makes some reference to credit data. Because there are so many tax credit claims, a lot of the work on pointing to where there might be errors is based on the history of where there have been substantial errors over time, and those individuals and people—

[Sammy Wilson]

Will the Minister give way?

[Mark Durkan]

Will the Minister give way?

[Jane Ellison]

Not just at the moment—I must make some progress.

Particular individuals in particular circumstances are more prone to error. Over the years that tax credits have been running quite a substantial picture has built up of where error is more likely to exist.

[Sammy Wilson]

Will the Minister give way?

--- Later in debate ---

[Jane Ellison]

No, I am sorry, I am going to make some progress.

We have been working—[Interruption.] The hon. Member for Garston and Halewood (Maria Eagle) says the information is duff, but there are a lot of cases of error, and some of fraud, in the system. It is not the case that all the information is, in her word, duff—far from it. I will come on to mention the figures involved, but all right hon. and hon. Members know that there are times when people give the wrong information; that is mostly because of error, but sometimes because of fraud.

[Sammy Wilson]

Will the Minister give way?

[Jane Ellison]

I will just make a bit more progress, then I will bring the hon. Gentleman in.

We are working hard to address the wider issues, many of which have been alluded to. I will move on to the three main points in the motion. We agree that Concentrix’s performance fell below the standards required in its contract. I do not want to ignore the millions of pounds’ worth of savings it has helped to deliver for the taxpayer, which might not otherwise have been achieved, but when the level of customer service is so far below what we expect, it is right that we take action.

First, then, as set out under the terms of the contract, payment to Concentrix will be cut in response to its failure to adhere to the standards required. Secondly, as HMRC announced on 13 September and I confirmed the following day, its contract will not be renewed beyond its end date in May 2017, nor will any further procurement exercise for tax credit checks be taken forward at that time. Thirdly, I can confirm that HMRC is in discussion with Concentrix to agree a negotiated early exit from the contact.

[Several hon. Members rose—]

[Jane Ellison]

I will take some interventions, but before I do I must say that, as the House would expect, while those commercial discussions are ongoing I cannot provide full details of the negotiated early exit; however, I expect it to be finalised shortly.

[Several hon. Members rose—]

[Jane Ellison]

I will give way to the hon. Member for East Antrim (Sammy Wilson), because he has been waiting a long time.

[Sammy Wilson]

Although Members accept that cases of hardship have been created, does the Minister also accept that in a written answer to the House she indicated that Concentrix was meeting its 75-day service level, had an average answer time of six minutes for phone calls and was making decisions within 23 days, and that of the 660,000 appealed cases that went to HMRC, only 280, or 0.6%, were upheld? Does she accept that not all of the blame goes on Concentrix, which in many ways met its targets but is now being made a scapegoat?

[Jane Ellison]

I have said, both in reply to the urgent question on 14 September and in my opening remarks today, that front-line Concentrix staff have been working hard to resolve these issues. The problems of a contract like this, and of getting through on the phone, are never usually the fault of the person you finally get through to. It is right to say that people have been working hard. I suspect the hon. Gentleman represents many of the people who work there.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

I also welcome the statement that we are terminating the contract with Concentrix. That is absolutely the right thing to do. I have a number of constituents who have suffered these problems. Mr and Mrs Young from Malton provided evidence that they were married. Despite that, Mrs Young was identified as unmarried and living in Whitby on her own. Members of Parliament have the emergency hotline—I have used it—and people can get emergency hardship payments. Does the Minister welcome that and should we make it more publicly known that those measures are available for people in hardship?

[Jane Ellison]

That is exactly right, and today’s debate is timely as it allows us to focus on that. I am now going to give way to the hon. Member for Sheffield, Heeley (Louise Haigh), who has done so much work on this matter.

[Louise Haigh]

I am grateful to the Minister for giving way—she is being very generous. As we have heard, the contract altered last year. Will she confirm how the contract was altered last October, and that it was altered because Concentrix was unable to make enough money out of it before then?

[Jane Ellison]

If the hon. Lady will forgive me, I will write to her on that. As commercial discussions are ongoing it would be best to write on something as detailed as that, and I am happy to do so.

[Rebecca Long Bailey]

I thank the Minister for giving way, as I know time is precious. I appreciate that she cannot divulge the terms of the ongoing negotiations for the termination of the contract, but will she commit to coming back to the House to make a statement as soon as those terms are finalised? Will she provide the information that she can obtain—for example, when the dispute process was first examined and the outcome of that process? We are at the very end of a contractual process, and simply want to know what the timeline was.

[Jane Ellison]

Again, those are matters I will return to, in part because there will be a number of examinations of this situation—the National Audit Office has already talked about the work it will do. I will come on to that.

[Several hon. Members rose—]

[Jane Ellison]

I will take one more intervention. I have not taken one from—

[James Berry (Kingston and Surbiton) (Con)]

Will the Minister give way?

[Jane Ellison]

Well, I have not taken one from my hon. Friend, but I will take one from the Scottish National party and then I will progress to the end of my speech.

[Neil Gray (Airdrie and Shotts) (SNP)]

I understand, with the challenges coming from the Opposition Benches, why she wishes to outsource blame purely to Concentrix, but this Government wrote the contract to incentivise Concentrix’s behaviour and, as confirmed by the Economic Secretary last week in Westminster Hall, sent the personal data to Concentrix to investigate—

[Mr Speaker]

Order. We are tremendously grateful to the hon. Gentleman, but I feel that he has surely concluded his intervention.

[Jane Ellison]

Far from saying that this is all Concentrix, I think there are lessons to be learned all round. I should signal now that, because I think there are lessons to be learned all round—for HMRC, for Ministers and certainly for Concentrix—the Government do not intend to divide the House on the Opposition’s motion. I want this to be an exercise in understanding the problems and learning the lessons. I will take one more intervention, for balance from my hon. Friend the Member for Kingston and Surbiton (James Berry), and then move on to the end of my speech.

[James Berry]

I have two Concentrix cases from single mothers, one of whom was required to disprove a relationship she plainly never had with a former tenant of her house, evidence she could not possibly provide. Does my hon. Friend agree that what is important now is that the Concentrix contract has been ended and a system for investigating mistakes and a hardship fund have been put in place? That is what is important.

[Jane Ellison]

My hon. Friend rightly brings us back to the human factor. He is right to highlight that the heart of what we want to do is to get people back in payment, where they should be, and to relieve hardship. I will now move quickly towards the end of my remarks. Mr Speaker has been very indulgent.

Among the discussions happening at the moment, HMRC has agreed to the transfer of Concentrix staff to HMRC. Concentrix has begun consulting its staff on this point and anyone transferring to HMRC will be supported through further training to help us deliver a quality public service.

It is also right, as the motion suggests and the shadow Minister challenges, that we look long and hard at what went so wrong with Concentrix’s performance. Not only do we owe that to all those who were caused worry or distress as a result of these failures, but it is also of huge importance that we learn from what happened and prevent any similar issues arising in any future contracts across government. That is why HMRC will be looking at how the contract with Concentrix was managed. It accepts it has lessons to learn. It has given evidence to one Select Committee already and will be giving evidence to at least one other—learning lessons and undertaking analysis of the claims.

Members will be keen to see an unbiased, independent assessment. As has been alluded to already, the independent National Audit Office, which scrutinises public spending, has announced it will be conducting an inquiry into the Concentrix contract. HMRC will work and co-operate with the NAO very closely to support that inquiry. The investigations will undoubtedly include, as the motion suggests, a consideration of the knock-on effects that may have been caused to other services provided by HMRC. As I have outlined, HMRC has needed to deploy extra staff to address the problems encountered, but I reassure the House that it is currently managing the increased workload effectively. Again, that is a testament to the efforts of its staff. It is also a reflection of the flexibility HMRC possesses. It is a large organisation capable of moving staff around quickly and dealing with peaks of demand, which it is accustomed to handling at various points in the year.

During the debate we have touched a number of times on the point about mitigating suffering. As I set out, our first course of action is to ensure that we get people’s tax credit claims back on track. HMRC is working hard to get the information needed from claimants to put anyone entitled to tax credits back into payment, including paying any arrears to which they are entitled. In parallel, HMRC is taking forward any requests for reviews of Concentrix’s decisions. Indeed, many decisions have been overturned. I have made inquiries and it is fair to say that, largely, they have not been due to original errors, but have followed the provision of additional information that has been obtained through the process of the mandatory review. So many of these problems have been caused because people did not, or were not able to, respond to the first timetable they were given. They have now provided that information—the hon. Member for Garston and Halewood (Maria Eagle) asked about this earlier—and we have been able to reassess their claims.

We have also made it a priority to address urgent cases of hardship through the usual mechanisms, but I will look at the point made by the Chair of the Work and Pensions Committee. If anyone has been caused undue distress or financial loss following errors or wrongdoing by Concentrix, they should contact HMRC. Such complaints will be taken very seriously, with a thorough examination of all the evidence. Where mistakes have been made, HMRC will not only make sure claimants are now being paid correctly, but pay compensation where appropriate.

It may be helpful for colleagues to know that I have asked to be told on an ongoing basis the issues that Members are bringing up with HMRC. Someone used the phrase “early warning signal”. Members’ complaints—Members from both sides of the House have been assiduous in representing their constituents—are a very good early warning signal for when things might not be right.

In conclusion, it is undoubtedly the case that there remains too much fraud and error in the tax credits system. It is a complicated system and it is very easy for many honest people to get it wrong. Error and fraud stood at £1.37 billion in 2014-15, so it is right that the Government—any Government—are determined to spend taxpayer money sensibly and sustainably, and take action to address that. We want to ensure that those who are entitled to tax credits get them, but, as we all know, it is vital we prevent overpayments that will then need to be paid back. We have all seen the enormous distress that this causes to vulnerable people. Often, just through not supplying the right information and getting muddled up about a form, people end up owing a lot of money, and that causes a lot of distress.

Progress is being made. Error and fraud in the tax credit system are now close to their lowest levels since its introduction in 2003. We are not going to take a step back in our efforts to ensure we have a fair tax system that tackles non-compliance in all its forms. We announced an extra £800 million in funding last year to do so, but that has always got to be balanced by the need to keep providing both the financial support and quality customer service that people, whatever their income level, are entitled to. On this occasion, the balance was not appropriate. It is for that reason we have taken the action I have outlined to put the situation right. We want to support people who are struggling with their claims and we want to reinstate payments to those who are entitled to them.

I am sure that many of the comments that have been made so far, and will be made in the debate that follows, will be fair. I will not agree with all the points made, but there has been much fair comment. For that reason, we will not oppose the motion. Above all, we want a fair outcome for everyone affected and we want to learn important lessons to ensure this sort of thing does not happen again. We must ensure that these important public services work for the most vulnerable in our communities.

[Several hon. Members rose—]

--- Later in debate ---

[Mhairi Black]

It is also worth remembering that the number people were asked to phone was an 0845 number, so it cost an absolute fortune. I think that anyone in the Chamber would find it cost a fortune, so imagine how much pressure that will put on someone who already qualifies for tax credits, but has been told that they will not be receiving them.

When we in the office did get through, we were told that people had to apply for mandatory reconsiderations, only to discover that the contract also delegated extensive decision making powers to Concentrix, including the processing of mandatory reconsiderations. So this private company has to investigate itself to find out whether it made the correct decision. We should bear in mind the fact that the contract states that it should be paid only on the basis of results. The entire contract has been a shambles; it has been ludicrous from the start.

As if all that were not bad enough, during the evidence session with the Select Committee, Concentrix admitted that 90% to 95% of all mandatory reconsiderations were upheld. The company was openly admitting that it got it right only 5% of the time. These are the people who have applied for an appeal. How many people have had their benefits stolen from them who have not gone for a mandatory reconsideration?

[Jane Ellison]

It is kind of the hon. Lady to let me intervene. It is worth saying that often the reason the mandatory reconsideration succeeds is that the information previously requested has been supplied to that timetable. It is not fair to say that the reason is because the previous decisions were always wrong. Sometimes the information requested has at that point been supplied and then the correct claim can be instated.

--- Later in debate ---

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

I apologise for the state of my voice, but it is important that I speak in this debate on behalf of the many constituents who have contacted me about, and who are suffering as a result of, this scandalous Concentrix shambles. I commend the Opposition Front-Bench team for calling the debate, and particularly my hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey) for her forensic analysis of what the Government could have got right when enforcing this contract and the problems that have led us to this point. I also commend my hon. Friend the Member for Sheffield, Heeley (Louise Haigh), who has done so much work to drive the debate forward. I also thank the staff in my office. We all have fantastic constituency staff who do so much to assist our constituents, and I particularly want to thank Shira, Lily and Ruba for the work they have done in dealing with a number of distressing cases involving individuals who have been in deep hardship and have been greatly upset. As my hon. Friend the Member for Stretford and Urmston (Kate Green) said, the people affected have often been single mothers. I also thank Citizens Advice and other local advice charities, which have been faced with a deluge of these cases.

I wish to reflect on a few of these cases. In one, a single mother had a long-standing claim suspended after Concentrix said that she was living with another named woman in her rented property. It was suggested that a third woman was also living at the property, but both were actually previous tenants of the home, one from as far back as 2010. The information had come from the electoral register, even though my constituent had lived in the property only since 2014. The claim was eventually reinstated. Another case involved a single mother and homeowner who had her claim suspended after Concentrix said that she was living with “a couple”. She is the sole owner of the property and had provided evidence to demonstrate that. Again, the claim was eventually reinstated.

The citizens advice bureau referred the case of another single mother to us. Her award was stopped pending an investigation. She was left with no income and we had to refer her to food banks, which is a deeply distressing experience for anyone. Her son is diabetic and requires a specialist diet, so that contributed to her stress and unhappiness. Again, that claim was eventually reinstated. A further case involved a single mother in work who had both her tax credit claims stopped after she was told by Concentrix that her half-brother, who had once sent post to the property, was in fact her partner. That case has not been resolved and she has been without money since August. I have two to four such cases, and I question some of the assurances that we have heard about how long it takes to resolve these cases. I have written to the Minister about a number of cases and we are contacting the helplines. I hope that she will assure us that she will fast-track some of these deeply distressing cases.

[Jane Ellison]

I am happy to give that assurance. Once again, I urge Members with particularly long-running and difficult cases to get in touch, and I will make sure that HMRC prioritises them.

[Stephen Doughty]

I thank the Minister for those comments, which will provide some reassurance. We will certainly follow up cases with her office.

All the cases have common themes, one of which is their impact on single mothers and families with complex needs, often including children with health problems. These people are suddenly being left without food and money. Individuals with mental health issues are facing additional stress and anxiety. People have contacted me in desperation, by every possible means. Often they had not realised that their MP was the person to go to, but I have been contacted on Twitter and on Facebook, and by email and by phone. These people have been through the agony and desperation of not being able to get through on the helplines and, in some cases, they have found that the phone has been put down on them, as I outlined earlier. Obviously that is completely unacceptable, and I am glad that the Minister recognises that.

We need to deal with the problem of the final responses that people receive. Those responses often do not explain why the claims were stopped or reinstated, leaving constituents unsure about whether the same thing will happen again, and they do not give an apology. I appreciate what the Minister has said today, but we need to apologise directly to the individuals and families who have been affected. I have talked about the long delays, but an inability to speak to someone directly about the situation creates frustration and distress. We have heard examples of people receiving contradictory and confusing correspondence, and that adds to the pressure and concern that they experience. We have had to refer many constituents to food banks, which causes deep distress to anybody who has to go through it. These people, through no fault of their own, have found themselves in that terrible situation at the end of these erroneous investigations.

Oral Answers to Questions

Jane Ellison Excerpts

Tuesday 25th October 2016 Commons Chamber

[The Financial Secretary to the Treasury (Jane Ellison)]

In negotiating double taxation treaties, the UK’s objective is to reach an agreement that allocates taxing rights on a basis that is acceptable to both countries.

[Patrick Grady]

Restrictive tax treaties inhibit the ability of developing countries to spend money on public services, such as schools and education. Research from ActionAid shows that, along with Italy, the UK has the highest number of such treaties. Is the Minister willing to work with the Department for International Development to change that?

[Jane Ellison]

I disagree with the hon. Gentleman. In fact, double taxation treaties help developing countries. They often remove uncertainty about the way in which businesses choose to make investments, and they open up the route to fairer and more open trade. The majority of the UK’s double taxation treaties are based on the OECD model double taxation convention, and we work very closely with countries to reach mutually acceptable treaties.

[Mr Sharma]

What plans does the Minister have to carry out assessments of the impact of the UK’s tax treaties on developing countries, and will her Department offer poorer countries the opportunity to renegotiate treaties that do not do enough to support their development?

[Jane Ellison]

As I have said, there is a rolling programme of renegotiation to make sure that treaties reflect modern standards. More broadly, the UK has a very proud record on capacity building in this area. We lead international efforts to support developing countries in tax capacity building. One example is that DFID funds the Global Forum, the World Bank and the OECD to provide technical assistance to partner countries. We can be proud of that record.

[Charlie Elphicke (Dover) (Con)]

In negotiating double taxation regimes with developing and advanced nations, will the Minister look at transfer pricing in terms of establishment provisions so that we can broaden the tax base and stop the likes of Apple, Amazon and Google gaming our tax system?

[Jane Ellison]

The UK is committed to ensuring that UK companies pay a fair share of tax in the countries in which they operate. On all the wider aspects of international tax fairness, I reiterate that the UK has taken a very strong stance across the board on a number of issues. I am always happy to speak to my hon. Friend about this issue because he is very much an expert, and I would welcome his views on all such issues.

[Gordon Henderson (Sittingbourne and Sheppey) (Con)]

3. What fiscal steps he is taking to support the manufacturing industry.

--- Later in debate ---

[Christina Rees (Neath) (Lab/Co-op)]

10. What steps his Department is taking to compensate people affected by incorrect withdrawal of tax credits as a result of errors by Concentrix.

[The Financial Secretary to the Treasury (Jane Ellison)]

If anyone feels their tax credits have been incorrectly withdrawn owing to errors by Concentrix, they should urgently contact Her Majesty’s Revenue and Customs, which will review all complaint cases and will, and indeed does, pay redress where appropriate.

[Christina Rees]

Labour welcomes the cancellation of the Concentrix contract and the fact that it will be administered in-house by HMRC staff. Will the Minister reassure the thousands of single parents and families, many in my Neath constituency, that their tax credits erroneously stopped by Concentrix will be reinstated immediately so their children can be kept safe and warm and not go unfed as winter approaches?

[Jane Ellison]

The hon. Lady is absolutely right to draw the House’s attention to the importance of prioritising vulnerable claimants. HMRC held a further drop-in for colleagues recently, on 19 October; it was attended by 15 Members, and a number of complaints and issues were raised, which we are on the way to resolving.

On restarting claims, the key is to get the right information. HMRC has taken back a vast number of cases, and I will say more about this tomorrow. The priority is to get the right information, to get claims started again as soon as the facts are established.

[Helen Jones (Warrington North) (Lab)]

When the Minister wrote to me after I asked a previous question, she said:

“Amounts to be paid to the supplier are reduced if actual performance fails to meet standards set in the contract.”

Does that include penalties for withdrawing tax credits when they should not have been withdrawn?

[Jane Ellison]

The terms of the contract between HMRC and Concentrix are obviously in the public domain, and it is right that when performance is not as per the contract there are associated deductions, but I will be in a position to give the House more information about the contract in tomorrow’s Opposition day debate.

[Hannah Bardell (Livingston) (SNP)]

A number of my constituents have been affected by this issue, not least a frontline police officer who had her benefits withdrawn, which meant her childcare could not be paid and she was potentially not going to be able to go to work. Luckily, my office intervened and we were able to get her benefits, but what is the Minister going to do to compensate people for upset and unjust treatment?

[Jane Ellison]

There are two points here. First, as I have said, if people feel their tax credits have been incorrectly withdrawn because of errors they should contact HMRC, which will review that and redress can be made. Secondly, customers can ask for mandatory reconsideration if they do not feel that their circumstances have been correctly identified. Sometimes that is because people do not send through the right information.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

11. What assessment his Department has made of the potential effect on the economy of the UK no longer having access to the single market.

--- Later in debate ---

[Suella Fernandes (Fareham) (Con)]

T2. Kevin Lancaster and Simon Davis started their business, Aqua Cooling, from scratch in Fareham in 2000, and it now generates £1.7 million in profit and is a leading industrial cooling firm. Last week, the Institute of Physics awarded Aqua Cooling its business innovation award for its innovate application of physics to generate jobs and profit. Will the Chancellor join me in congratulating Aqua Cooling and outline what the Government are doing to support research and development, so that other self-starters like Kevin and Simon can grow their businesses?

[The Financial Secretary to the Treasury (Jane Ellison)]

I think that all Treasury Ministers would be delighted to congratulate Aqua Cooling on the innovation award it has won. As has been said, the Government have committed to supporting research and development in British businesses, providing one of the most generous R and D tax credit schemes in the world to UK small business. I am delighted to say that it was claimed by more than 18,000 small and medium-sized enterprises in 2014-15.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

T7. Why does the Chancellor believe that corporation tax receipts collapsed in September 2016 to their lowest level since 2009? Why does he believe borrowing will overshoot the Office for Budget Responsibility’s forecast by an extra £17 billion this financial year?

--- Later in debate ---

[Nigel Huddleston (Mid Worcestershire) (Con)]

T5. . Will the Chancellor provide an update on what the Government are minded to do about air passenger duty, in response to impending APD changes in Scotland?

[Jane Ellison]

The Government are reviewing the potential options to support regional airports, following the discussion paper that was published last year, and of course we will set out full details of our response in due course. We received 53 responses to the consultation. They were good, constructive, valuable responses and we are looking carefully at them.

[Derek Twigg (Halton) (Lab)]

What is the Chancellor’s assessment of the effect of inflationary pressures on the prices of goods and food over the next 12 months?

Savings (Government Contributions) Bill (Second sitting)

Jane Ellison Excerpts

Tuesday 25th October 2016 Public Bill Committees

[Jeremy Quin]

You would not stand against the principle of doing this, but you would like to do more things— I hear that.

[Jane Ellison (Battersea) (Con)]

Q I have just a brief comment. Does Mr Davies have any modelling or research that he has done to support his concerns around the interaction of these products and auto-enrolment? It would be useful if we could have that.

Bryn Davies: The short answer is that I do not and would not pretend that I did. If I were the only person saying this, I would be worried, but there is a broad swathe of opinion, not least including at least one Member in your own party, expressing these fears, so I do think they need to be taken seriously.

[The Chair]

Order. If there are no further questions, I thank the witness. Will he now make way for the next panel, please? Thanks very much.

Examination of Witness

Calum Bennie gave evidence.

Small Charitable Donations and Childcare Payments Bill

Jane Ellison Excerpts

Committee Debate: House of Commons
Tuesday 18th October 2016 Public Bill Committees

[The Chair]

Before we begin, I have a few preliminary announcements. Members may, if they wish, remove their jackets; I see some have already done so. I remind Members that no refreshments other than the water provided may be consumed during Committee meetings. Will all Members ensure that their mobile phones, pagers and iPads are off or turned to silent?

Not everyone is familiar with the procedure of a Public Bill Committee, so it might help if I briefly explain how we will proceed. The Committee will first be asked to consider the programme motion on the amendment paper, for which debate is limited to half an hour. We will then proceed to a motion to report any written evidence. We will then begin line-by-line consideration of the Bill.

The selection list for today’s sitting is available in the room. It shows how the clauses, amendments and new clauses have been grouped together for debate. Where a group includes the words “clause stand part”, that means Members should make any remarks they wish to make about the content of the clause during the course of the debate. Clause stand part debates begin with the Chair proposing the question that the clause stand part of the Bill. There is no need for the Minister or any other Member to move that a clause stand part of the Bill. A Member may speak more than once, depending on the subject under discussion.

Ordered,

That—

(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 18 October) meet at 2.00 pm on Tuesday 18 October;

(2) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Tuesday 18 October.—(Jane Ellison.)

Resolved,

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Jane Ellison.)

Clause 1

Meaning of “eligible charity”

Question proposed, That the clause stand part of the Bill.

[The Financial Secretary to the Treasury (Jane Ellison)]

It is a pleasure to serve under your chairmanship, Mrs Moon. I am grateful to all Members for being here to examine the Bill in detail and to many Members for their participation in the good and constructive debate we had on Second Reading. I welcomed the Opposition’s pledge to support the principles of the Bill, and I hope that today we can submit the Bill to further constructive scrutiny.

I will give a little bit of general background information before specifically addressing clause 1. The Bill makes a number of amendments to the Small Charitable Donations Act 2012. I know there are Members present who served on the Committee responsible for considering that Bill. The changes will ensure that the gift aid small donations scheme operates effectively and flexibly for a greater number of charities and community amateur sports clubs. The Bill also makes minor and technical changes to the tax-free childcare scheme, to improve parents’ experience.

The reforms to the gift aid small donations scheme are intended to simplify and increase access to it, particularly for new and small charities. We heard more about that on Second Reading. That will be achieved by removing a number of eligibility criteria to allow more small and new charities to benefit sooner, which I will discuss in a moment; reforming the community buildings rules to allow more charities to benefit from the important work they carry out in their local communities; simplifying the rule specifying the total top-up payment that charities and CASCs are entitled to claim, which will ensure fairness and parity of treatment between charities that carry out similar activities but are structured in different ways; and future proofing the scheme by allowing contactless donations to be eligible for top-up payments.

Clause 1 substantially simplifies the gift aid small donations scheme by removing two of the existing eligibility requirements, enabling smaller and new charities to access top-up payments much sooner. A number of charities have voiced support for that. Currently, a charity must have been registered for at least two full tax years and have claimed gift aid in at least two of the previous four tax years without a gap of longer than a year. However, the Government are keen to encourage take-up of the scheme, particularly among small and newer charities. Removing the two-year registration requirement will help to achieve that by allowing the up to 9,000 new charities that apply for recognition by Her Majesty’s Revenue and Customs each year to receive top-up payments as soon as that recognition is granted.

During the Government’s review of the small donations scheme, we heard about the difficulties faced by small charities making irregular or intermittent gift aid claims. The Government therefore consulted on relaxing the gift aid history requirement to only one year, rather than two. However, after listening to the views of the sector, we decided to go even further. Clause 1 removes the two-in-four-year gift aid history requirement entirely, which is a significant simplification for charities. The reforms are a good thing and have been widely welcomed by the charity sector.

The Charity Tax Group commented that relaxing the gift aid history requirement

“will hopefully widen access to the scheme, particularly among smaller charities.”

The Charity Finance Group said:

“The Bill is scrapping these rules and this means that more charities will be eligible and will reduce complexity.”

The removal of the two-year rule and the gift aid history requirement is a meaningful and significant simplification of the gift aid small donations scheme. It will make the scheme more accessible to smaller and new charities. I hope that the clause stands part of the Bill.

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

It is a pleasure for me, too, to serve under your chairmanship, Mrs Moon.

As the Minister outlined, clause 1 amends the meaning of “eligible charity” for the purposes of the gift aid small donations scheme, removing the requirement for a charity to have been registered for at least two full tax years before it can access the scheme. The provision also removes the two-in-four-year claims rule, which dictates that a charity must have made a successful gift aid claim in at least two of the previous four tax years with no more than two years’ gap between claims. Those measures will simplify the scheme and allow newly formed charities to access the Government top-up payment.

I am pleased that the Government have taken heed of responses to their consultation on reform to the scheme and scrapped the two-in-four-year claims rule fully. The initial proposal was to replace the rule with the requirement that charities must have made a successful gift aid claim only in the previous tax year. I understand that respondents felt that that could disqualify some charities that are currently eligible for the scheme but did not claim gift aid in the previous tax year for a variety of reasons. In the light of that change, the measures are welcomed by the Opposition and the industry. We are happy to support them. However, I have one concern on which I hope the Minister can provide some reassurance.

The requirement for a charity to have been registered for two years is arguably a way of ensuring that charities are not set up for the purposes of claiming a top-up from the Government illegitimately. The Opposition have tabled a new clause about anti-fraud measures, which we will debate later, so I will not digress too much. However it would be helpful if the Minister would assure me that the Government have carried out an assessment of whether removing the two-year rule poses an increased risk of fraud. Other than that small but important point, the Opposition are happy to support the clause.

[Jane Ellison]

I thank the Opposition Front-Bench spokesperson for those points, for her support and for her specific question. By removing the two-year rule, we want the scheme to be more flexible and generous, but we want to ensure that there are some safeguards.

We debated the balance between flexibility, generosity and safeguarding charities on Second Reading. That is why, as the Government made clear in the original impact assessment, the lack of evidence that a cash donation has been made makes the gift aid small donations scheme vulnerable to fraud. We must continue to protect against that but—as we will come to later—that is one of the reasons why the Government are retaining the gift aid matching requirement, which provides sufficient protection while getting the light-touch regulatory balance right. I will say more about that later. I hope that my response is sufficient and that the clause stands part of the Bill.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Meaning of “small donation”

[Rebecca Long Bailey]

I beg to move amendment 1, in clause 2, page 2, line 1, leave out lines 1 to 6 and insert—

“(a) in the heading after “small”, delete “cash payment” and insert “donation”

(b) in sub-paragraph (1) omit the words “in cash”;

(c) after that sub-paragraph insert—

“(1A) The gift must be made—

(b) by cheque;

(c) by electronic communication; or

(d) by a contactless payment.”

(d) in sub-paragraph (3) after the definition of “cash” insert—

““cheque” means a written order instructing a bank to pay upon its presentation to the person designated in it, or the to the person possessing it, a certain sum of money from the account of the person who draws it;

“electronic communication” means a payment made via the internet or text message;””.

This amendment would extend the range of methods by which payments can be made under the Gift Aid Small Donations Scheme.

--- Later in debate ---

[Susan Elan Jones (Clwyd South) (Lab)]

It is a pleasure to follow the hon. Member for Amber Valley and other colleagues. It was a great joy to be here in 2012 when the first Bill on small charitable donations appeared. It is lovely to see that contactless donations have made it into this Bill. I am speaking in favour of amendments 1, 2 and 3 because it is important that we expand the methods available.

The recent briefing from the main charitable organisations—the Charity Finance Group, the Institute of Fundraising, the National Council for Voluntary Organisations and the Small Charities Coalition—has made it clear that, although the scheme has been welcome, it is not reaching the number of charities that it could. The briefing said:

“Only one quarter”

—or 21,300—

“of the charities that could have used the scheme”

—it puts that number at 84,000—

“are using it.”

Clearly, we need to do everything we can to support the development of the scheme, particularly with a new generation of donors, and to encourage and to support the new philanthropists who may be giving by text donation or in other forms.

At the Bill Committee last time around, I was intrigued by a great debate initiated by the hon. Member for Foyle (Mark Durkan). It was possible to include euros in the scheme at the time, although it was not possible to include contactless donations. I am glad that the situation regarding contactless payments has been remedied, but I cannot see the sense in saying that, in one of our great abbeys, churches or cultural buildings, the euro, dollar, yen or whatever may be included in the scheme, but not a simple, humble cheque written in sterling. To me, that does not make any sense. I hope that the Minister considers that point.

Another related point is that this scheme works rather well for churches—I presume it also works well for other faith groups—because many small churches are part of larger denominations. Often the denomination, the diocese or whatever is registered in terms of gift aid. My slight fear, and why I think we need to look at how we can enhance and expand the scheme, is about whether we have the same reach for other small charities, because with a small church or perhaps another small faith group, the registering—the formal bit, the gift aid stuff—has already been sorted out at a higher, larger level. I question whether the scheme always has the same reach for some of the smaller charities in other sectors.

I welcome the positive move on contactless donations but hope, in the same spirit, that the Minister can extend the scope of the proposals, as my hon. Friend the Member for Salford and Eccles and other hon. Members have suggested. It would be truly dreadful if we had to wait another four years to come back to the issue and to thank the Government for including these methods in the scheme.

[Jane Ellison]

I thank colleagues for that debate; some points were made by veterans of the previous Bill Committee and I will try to respond to them.

Clause 2 is about amending the meaning of “small charitable donation”. Amendment 1 would extend the gift aid small donations scheme to include donations made by cheque, online or by SMS. Amendments 2 and 3 would extend the scheme to include SMS donations.

The scheme was introduced to address a specific problem. That is at the heart of the debate. It is intended to allow charities and community amateur sports clubs to claim a gift aid-style top-up payment when it is not practical or feasible to collect a gift aid declaration, such as with street collections. It is not simply a lighter-touch alternative to gift aid. I think this is probably at the heart of our debate. The scheme exists to provide a similar outcome in situations where charities cannot realistically obtain a gift aid declaration, but the Government are clear that, if a charity can get a gift aid declaration and claim gift aid, it should do so. There are obvious reasons for that, as colleagues will appreciate. For example, there is no cap on gift aid, whereas there is on this scheme. For that reason, the Small Charitable Donations Act 2012 restricted the scope of the gift aid small donations scheme to small donations in cash—coins and notes. Although I understand entirely the motivation behind the amendments, they are actually contrary to the stated policy intention of the scheme.

[Anna Turley (Redcar) (Lab/Co-op)]

I am struggling to understand why the way in which money is donated matters, given that there is a cap on the amount that can be donated anyway. I do not understand why whether a donation is made in cash or by contactless affects the integrity of the purpose of what we are trying to do.

[Jane Ellison]

We are keen to extend the scheme to cover contactless as well as cash payments, but as those who were here in 2012 will know, the scheme augments what we expect charities to raise through gift aid donations and covers means such as bucket collections that it is just not feasible to do gift aid on. The scheme is capped. We actually want charities to claim as much as possible under gift aid, which is not capped and allows them to form a long-term relationship with donors, as many of us probably know from charities that we give to. From the simple point of view of a charity, a wholesale switch to claiming through this scheme rather than gift aid would move it away from such long-term relationships and limit what it could claim. The scheme is meant to be a complement to gift aid, not an alternative or a lighter-touch version of it, and it would be to many charities’ disbenefit if that were the case.

As I explained on Second Reading, the small donations scheme was never intended to cover methods of donations for which well-established and well-used processes for claiming gift aid already exist, such as donations made by SMS or online. It may help if I explain in a bit more detail the processes for claiming gift aid on electronic donations. As the Minister for Civil Society, the Under-Secretary of State for Culture, Media and Sport, my hon. Friend the Member for Reading East (Mr Wilson), outlined on Second Reading, there is a simple and well-established process that allows charities to solicit gift aid declarations from donors who make SMS donations. I take the point that the hon. Member for Aberdeen North made about the way people respond to that, but it is a pretty straightforward and well-established process none the less. The donor sends a short code word to a six-digit number—for example, “Dog” to 606060—to donate a set amount through their phone bill. A reply is then sent to the donor thanking them for their donation and asking them for their name, house number and postcode and confirmation that they are a UK taxpayer. Once the donor provides that information, the charity can claim gift aid.

I think that is a straightforward process, and I hope that hon. Members would agree that, in circumstances such as that, where a donor provides a charity with a ready means of making direct contact—their mobile phone number—it is feasible for the charity to solicit a gift aid declaration, and indeed many charities regularly do so.

[Kirsty Blackman]

Does the Minister not recognise that people generally see text messages as the same kind of thing as putting money in a bucket? They do not want to hang around or have to give their name and address. The two things are really parallel.

[Jane Ellison]

I have been stressing the point that this scheme was intended to work where it is not practical to establish such a relationship—where someone is passing in the street, is in a rush or whatever, and throws something into a bucket. That is not the same as an SMS donation. Yes, the motivation for an SMS donation might be quite instantaneous—perhaps someone has seen an advert or a documentary, or there is an appeal on the television, or whatever—but in terms of someone’s ability to respond to the gift aid query that follows, the relationship has been established, because they have given their mobile phone number. That is not comparable with a person rushing past someone with a bucket outside the supermarket and throwing something in, where that person is already on their way and cannot be pulled back to fill in a form.

[David Warburton (Somerton and Frome) (Con)]

Given that the Government have not included SMS or internet donations in the Bill, can the Minister tell us what the Government are doing to help the charities that benefit more from those kinds of donations?

--- Later in debate ---

[Jane Ellison]

Of course. If my hon. Friend will let me, I will go through the process for claiming gift aid. I have talked about how that can be done via SMS, but let me talk about how it is done online and how it can be made even easier. Online donations require donors to take the time to enter their name and payment details. The only additional information needed for a gift aid declaration is an address. Donors are then encouraged to tick a simple box to add gift aid at the point of donation. Most of us would agree that in those circumstances it is entirely practical for a charity to ask a donor to complete a gift aid declaration. Many fundraising websites have invested substantial effort in making the process for adding gift aid as simple and straightforward as possible. I am sure it will continue to get even more simple and straightforward; we have all seen the astonishing simplification of the online charitable giving world over the past few years, and we have every reason to think that it will continue to progress.

The Government want to make it even easier for donors to add gift aid to donations made through digital channels; indeed, we recently published consultation draft regulations intended to achieve that. Work is already taking place on gift aid and to make it simpler to make an online donation.

[Nigel Mills]

Has the Minister had a chance to look at the consultation issued by the Treasury in 2013 on ways of improving gift aid donation? At paragraph 1.8 it set out all the reasons why there was such difficulty in getting a gift aid donation on an SMS donation, and it was looking to consult on ways to improve the situation. The Treasury view seems to have hardened since that consultation, which recognised the difficulties, but the fundamental issues that it raised—getting someone to pay to send a second text message and to type in details on their screen while they are out and about—have proven very hard to tackle, and the take-up has been nothing like as high as for other methods of donation.

[Jane Ellison]

I understand my hon. Friend’s point, but I think it relates to how we can make giving under the gift aid scheme even easier; I do not think it is as germane to the issue of how to improve the small charitable donations complement to gift aid. However, I hope what I have to say about contactless will be closer to what he wants to hear. I confess that my familiarity with paragraph 1.8 of the document he mentions is not as great as his own, but I will familiarise myself with it when I get back to the Treasury.

As I said, draft regulations about making gift aid donations through digital channels easier are out for consultation; I am sure Members will have a look at them. As for contactless donations, Members may ask how they differ from other forms of electronic donation. The difference is, quite simply, speed. On Second Reading, the Minister for Civil Society used the example of commuters passing through the ticket barriers of a tube station to demonstrate just how quick contactless technology is—we are all familiar with the Oyster scheme, for example. That speed of transaction means that donations collected using dedicated contactless collection terminals have a lot of the same practical issues as bucket collections. Individuals can donate as they pass by a fundraiser without having to stop and talk—it is almost instantaneous. Fundraisers therefore do not have the opportunity to engage donors and solicit gift aid declarations. That is not the case with other methods of electronic donation, as I have explained. A lot of work is going on, as the Minister for Civil Society said in the debate. Big charities are already showing significant advances in technology: their terminals replicate the simple cash payment as nearly as we can imagine, and we expect to see them in use pretty quickly—they are already being trialled.

As for cheques, I understand that they remain a popular method of payment, particularly among older people, but writing a cheque is not an instant process. The payer needs to write the date, the payee’s name and the payment value, both in words and numerals, and then sign it. Our contention is that, if a donor has the time to stop and write a cheque, it is not unreasonable to suggest that he or she also complete a gift aid declaration. We are all familiar with those small envelopes with the simple form on them; they have only a fraction of the number of items to fill in that a cheque has. Moreover, by writing a cheque the donor is already providing some of their details to the charity, so the additional information needed for a declaration is relatively small. We believe that it is entirely feasible to obtain a gift aid declaration in those circumstances.

[Alison Thewliss (Glasgow Central) (SNP)]

Perhaps I can suggest a scenario that may help the Minister. If an elderly person in their home sees something on television for a charity and they then sign a cheque and put it in the post, with no details about how to contact them on it, how does the charity get back to that person?

[Jane Ellison]

I understand the point, but I am not entirely clear how adding cheques to the scheme would help. I want to stress that, if we make changes that encourage charities to switch to claiming under this scheme, essentially moving away from trying to claim under gift aid, that will severely limit—cap—the amount they can claim and it will also prevent them from forging a relationship with the donor. I accept that there might be circumstances, like that one, in which claiming under gift aid might be more difficult, but the answer is not to include cheques in the scheme. The scheme has always been about trying to replicate the instantaneous cash-collection type of situation.

[Anna Turley]

I am still a bit confused. I appreciate the point about trying to keep people focused on gift aid as the preferred means of donation, but the whole purpose of the Bill—its raison d’être—is to ensure that the scheme

“operates effectively and flexibly for the greatest number of charities and Community Amateur Sports Clubs”,

and we have heard that only a quarter of the charities that could use the scheme are doing so at the moment. Surely, therefore, we should be encouraging more charities to use it, rather than pushing them towards gift aid only. This scheme is much more accessible and more suited to small and locally based charities.

[Jane Ellison]

We want the charities to use both methods, and there is evidence that many do. The scheme was always envisaged as a complement to gift aid, so it is not an either/or.

I totally accept that there is always more to be done in getting charities to claim gift aid. In the Second Reading debate, the Minister for Civil Society talked about the charities day that is coming up and I mentioned that HMRC has an outreach team, which has already delivered more than 600 sessions with charities, talking about how they can make the most of what is on offer. Of course we want to see donations maximised. It is true, as my hon. Friend the Member for Amber Valley said, that we have not yet reached the point we wanted to, but the Bill takes us a good way in the right direction.

We do not want to incentivise a switch to this scheme from gift aid. In any case, there is a matching requirement, so any charity would have to do gift aid to access this scheme. We will perhaps debate that matching requirement later. It is important. We mentioned it briefly in terms of the assurance process.

The Government’s position has always been clear. The scheme was introduced to provide a payment similar to gift aid when charities cannot obtain a gift aid declaration. If a charity can claim gift aid, it should do so, because that is more beneficial to them in the long term, for the reasons I have touched on. Robust processes exist to allow charities to claim gift aid on electronic donations and the Government will shortly introduce legislation to make doing that even easier. I hope, therefore, that Members will not press their amendments to a vote.

[Nigel Mills]

This is just a technical question. Does the definition of contactless include Oyster cards? Donations can be made using an Oyster card, by registering to pay a penny a journey, and unused funds can be donated to various charities around London. Would that fall within the definition of contactless or has it accidently been excluded?

[Jane Ellison]

We believe that the definition of contactless payment is wide enough to cover most likely developments but I am more than happy to look into that further before the next stage of the Bill.

Clause 2 amends, as we have discussed, the meaning of “small charitable donation”, enabling charities to claim top-up payments on donations received using contactless technology. Confirmation comes, as if by magic, for my hon. Friend: can the definition include Oyster cards? Yes it can.

As my hon. Friend knows, because he was one of the people discussing it, the matter was raised during the passage of the 2012 Bill. The gift aid small donations scheme was devised only four years ago, when contactless payment technology was in its relative infancy. At the time, the Government promised to look at the issue again during our three-year review of the scheme, and that is what we have done. I hope that the answer I have just given about Oyster cards shows that we are trying to future proof that aspect of it, as my hon. Friend predicted we would need to do.

The changes made by the clause reflect the fact that there is a clear trend away from cash transactions generally in society. They are declining, while contactless payments are increasing. We accept that, unlike other methods, such as cheques, text messages and online giving, which require donors to stop and actively engage with their chosen charity, contactless donations share many of the same limitations. People can just tap to donate and walk away without stopping to fill in a gift aid declaration. Indeed, in some of the situations in which we find bucket collections, it is almost impossible to stop and give a gift aid declaration. Contactless technology could be extended to augment bucket collections in busy tube stations—I imagine we would be less than popular if charities cause great queues to form in busy tube stations—so it is easy to envisage situations in which this measure would be useful. Accordingly, clause 2 amends the scheme, allowing charities to claim top-up payments on contactless donations of £20 or less.

Although the take-up of contactless technology among charities is relatively low, we have had feedback from the sector and have seen demonstrations suggesting that the cost of the technology is likely to decrease. Therefore, we anticipate that the take-up will increase. It is important, as the new technology develops—it is developing at a fast rate—and as the charity sector innovates, that the legislation continues to reflect the realities of the way charities are fundraising.

Clause 2 will allow charities to claim top-up payments on donations made using credit and debit cards, as well as services such as Apple Pay and Android Pay. The scheme will therefore become more flexible, and the charity sector will have more opportunities to claim top-ups on small donations of £20 or less. Including that measure in the scheme will not impose any significant extra burdens on charities that choose to use the technology. Charities will not be compelled to use contactless payments if they do not wish to do so.

Clause 2 will without doubt future proof the gift aid small donations scheme, as was discussed in 2012. It will ensure that charities continue to benefit in years to come as contactless technology expands. I commend the clause to the Committee.

[Rebecca Long Bailey]

I welcome the Minister’s comments. From the contributions from Members on both sides of the Committee, it is clear that there is an issue in relation to some charities being able to avail themselves of the gift aid scheme for the donations. If the Minister will not accept these amendments, will she consider launching a Government review of the gift aid scheme as a whole within the next six months to address the issues that have been raised today?

[Jane Ellison]

I reiterate the comments I have already made. This is about how we make this scheme, which was always designed to be a complement to gift aid, work. We are separately consulting on some changes to regulations around gift aid, which are designed to make it easier. We are seeing an evolution in the way people are able to donate. The question is whether the amendments are suitable for this scheme, which was always meant to deal with the issue of cash or cash-like transactions—instantaneous donations, bucket collections and donations from people walking by in the street.

I am unpersuaded that a review in six months’ time would add anything to the information we have before us today. It goes without saying that all these things remain under constant review, and this small donations scheme is no exception. It is kept under review in the Treasury—the Treasury keeps charity and tax law under review—and the team there has regular meetings with key stakeholders. The Minister for Civil Society also has extremely regular contact with stakeholders, and I look forward to having contact with charities on charity taxation.

I hope to persuade the hon. Lady that there are already data out there. HMRC publishes a national statistics package every year, which contains an absolute wealth of data, including on the total amount claimed under the gift aid small donations scheme. That is a transparent approach and it allows interested parties to monitor constantly the take-up and the effectiveness of charitable tax reliefs. Of course there is more to do to encourage charities to take up such measures, but the answer lies more in the things I mentioned—the outreach I talked about and the work being done by the Minister for Civil Society—than in some of the changes that have been proposed today.

[Kirsty Blackman]

I appreciate the fact that the Government have consulted on the gift aid small donations scheme and received a variety of responses. Does the Minister not feel that charities and charitable organisations have largely spoken with one voice in calling for the methods under the scheme to be increased, at least a bit? I understand that things are under review, but do the Government not accept that it might be better to listen to people on this matter? I acknowledge that they have listened with regard to some of the other things they are doing.

[Jane Ellison]

Picking up on the hon. Lady’s last point, the Government have listened. There is always a bit of scepticism in politics—I think we have all felt it—on whether things change as a result of consultations, but the consultation in question was really open. We consulted and asked for ideas and, as a result the responses we received, made further liberalisations in the regime. I think that we have listened and that I have given good reasons why we do not want to go in the proposed direction for this scheme because of the nature of what it was designed to do. We are looking to future proof it for contactless payments.

On gift aid more generally, as I said, changes are already being proposed and there is a lot more we can do to increase charitable take-up. I am unpersuaded that the issues being advanced in this debate are the ones that will aid take-up without having unforeseen consequences. Perhaps we will debate those issues later in our discussions of other clauses.

[Susan Elan Jones]

I have a quick question about texts. The Minister spoke about the issue being people engaging with a chosen charity, but I am not sure that it is. For example, one might give to an appeal for a dog that appeared on the television, but the charity might be a wider animal charity. The donor might be drawn to a very specific appeal, not to wider support for the charity. As donors, consumers and even voters are much more fluid in their loyalties, can the Minister not see a case for the support running with the donation, not necessarily the institution it is going to?

[Jane Ellison]

I understand entirely the point being made, but that takes us into issues relating to the motivation and behaviour of people as they give to charity. I think that relates more to the gift aid scheme itself than to the scheme at hand.

--- Later in debate ---

[The Chair]

With this it will be convenient to discuss clause 4 stand part.

[Jane Ellison]

Clause 3 will simplify the small donations scheme, making it easier for charities to operate while ensuring that the scheme delivers its original policy intention. It is about issues relating to community buildings. The clause also makes certain of the community building rules requirements more flexible, to give more charities the opportunity to benefit from the scheme. Clause 4 ensures that, for “connected charities” running charitable activities in community buildings, the rules retain the flexibility to claim top-up payments under the gift aid small donations scheme in the way that best suits their circumstances.

To explain the background, when the gift aid small donations scheme was introduced in 2013, the core principle was that each charity should be entitled to one allowance to top up their gift aid claims in circumstances in which asking a donor to complete a gift aid declaration was really not practical. As we have just discussed, that might be during a bucket collection or church service. The intention was also, most definitely, that the rules should operate as equitably as possible and not give manifestly unfair results when similar charities doing similar things in a similar way just happen to be organised differently. For example, the rules treat “connected charities” as if they are one charity for the purposes of the gift aid small donations scheme. It might help if I explain that, put simply, broadly charities are connected when they are controlled by the same people and have similar objectives. In that way, a charity is entitled to one allowance. For example, the head office and the regional offices could together register as one single charity, or each office or local branch could register separately. I am sure that everyone agrees that that is a fair and necessary rule.

Charities that regularly carry out charitable work in local communities are able to claim community buildings allowances in addition to the one core or main allowance. We want to ensure that, where a charity has a presence and is engaged in valuable charitable activities in our communities, such as in a church or village hall, it may claim a top-up allowance in respect of the local donations. Again, I do not think that anyone would argue that that was unfair. However, we have come to realise that the rules as cast do not always give the outcome that the Government want, or deliver on the intent of the scheme.

Some charities are able to claim many more allowances than others simply by virtue of the way in which they are structured, which is different, even though they might be carrying out similar activities in a similar way to the others. That disparity is acknowledged by the overwhelming majority of charities that can benefit from double allowances, as is the need to rectify the problem to restore the original policy intent.

The changes made by clause 3 will therefore make it clear that charities may claim one allowance, currently set at £8,000, or a community buildings allowance for each community building, with a maximum allowance for each building being £8,000. For example, therefore, a charity with three community buildings will, assuming that it has collected enough donations, be able to claim a top-up on £8,000 in respect of each of those community buildings. It will not, however, be able to collect an additional allowance in respect of any donations collected by its head office. That change will remove the scope for some charities to be able to double-claim allowances.

In making the change, we are adopting the approach that many respondents to the consultation suggested both as a way to ensure equity of treatment, and as a simplification of the scheme. In addition to simplifying the operation of the rules, the clause also makes the community buildings rules much more flexible and generous. At the moment, only donations actually made in the community building while charitable activities are being carried out count towards the community buildings allowance—that is, the amount of donations on which top-up payments may be claimed.

The Government, however, recognise—as I am sure we all do—that many charities carry out charitable activities in a community building, but collect donations to fund that valuable work outside the building itself, such as in collection tins in the local area. One hon. Member at least was taken back to his bob-a-job days with the scouts by our debate, but that is a perfectly good illustration of what we are talking about.

--- Later in debate ---

[Rebecca Long Bailey]

I shall try to keep my comments brief. Clauses 3 and 4 relate to the community buildings rule. Additional top-up payments may be made to those charities that meet and collect small cash donations in a community building. Every charity is entitled to an £8,000 a year allowance. Charities that carry out charitable activities in one or more community buildings can claim additional top-up payments of £8,000 per building subject to certain criteria. As the stewardship comprehensive guide to the scheme explains:

“A community building is a building, or part of a building, to which the public or a section of the public have access at some or all of the time.

So, a building which is kept locked other than at the times that Sunday services are held will qualify, provided that the public have access to it when it is open for public worship. Equally, if a church rents space in a local community centre on a Sunday morning, for the purpose of Christian worship, provided that the public have access to it, the use by the church on a Sunday will mean that the parts of the community centre used exclusively by the church will qualify as a community building.”

The community building is eligible if the charity carries out charitable activities on six or more occasions in the tax year with a group of at least 10 people. Clauses 3 and 4 would make a series of changes to the rules governing community buildings. Clause 3 would allow a charity to claim up to £8,000 from small donations raised anywhere, or up to £8,000 from donations collected from each community building it has. In the latter case, donations would include those made in person in the local authority area in which the community building is situated. Clause 4 affects the rules for connected charities making claims under the scheme where one or more of the charities run charitable activities in a community building. The House of Commons Library briefing paper summarised the change, stating that a group of charities will be entitled to claim

“up to £8,000 small donations made in the local authority area in which each community building is located.”

Alternatively it would be able claim

“up to £8,000 small donations made anywhere in the UK.”

As the first would generally be more beneficial, that would be the default option. The Opposition are very happy to support these changes to the rules governing community buildings. However, the Charity Tax Group has raised one point. It has called for a review of the requirement for there to be at least six events a year in a community building, and that they must be attended by at least 10 people. The group said that the rule is “arbitrary” and “impractical” for many charities, especially those in isolated community buildings or that have peaks in use, for example. Could the Minister use this opportunity to address the Charity Tax Group’s concerns about that rule? Other than that point I have no further comments.

[Jane Ellison]

The issue is really about the balance that we are trying to achieve. It is about trying to ensure that we keep a light touch in terms of what we ask of people claiming under the scheme. We feel that a reasonable balance is struck by the requirement that charities must carry on their charitable activities six times a year and, as the hon. Lady said, to be attended by at least 10 people. Most charities that are regularly active in most communities should be able to meet the requirements. It is not so generous that it is easy to contrive to meet it, and this is the issue. There will be other opportunities, in our debate on the Bill, to talk about striking that balance, but it is important to remember that protecting our precious charities means ensuring that we do not allow the rules to be so easily circumvented that abuse is widespread and that charities and the sector attract criticism for it.

We feel that this is a reasonable balance to strike. It is a light-touch requirement, but it is important to ensure that people do not contrive to work around it.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clause 4 ordered to stand part of the Bill.

Clause 5

Childcare payments

Question proposed, That the clause stand part of the Bill.

[Jane Ellison]

We now change tack slightly. The second issue addressed by the Bill is childcare payments. Clause 5 will make a number of minor, technical amendments to the Childcare Payments Act 2014, which introduced a new Government scheme to provide tax-free childcare. We had a broader debate about childcare on Second Reading, but I make it clear to the Committee that these are technical amendments to ensure that the scheme works for the benefit of parents who claim financial support for their childcare costs. I will first explain how the tax-free childcare scheme will work and then explain the changes and why they are needed.

Tax-free childcare will support working parents and help with the costs of childcare, enabling them to go out to work or to work more. Parents will be able to set up a childcare account online, deposit money into their account and receive a 20% top-up from the Government to pay their childcare providers. For every £8 a parent pays towards their childcare costs through the account, the Government will provide a top-up of £2. Parents will be able to receive up to £2,000 of support towards childcare costs of up to £10,000 per child per year, up to the age of 12. That support will be doubled for parents of disabled children, who are entitled to up to £4,000 top-up on childcare costs of up to £20,000 per year, up to the age of 17.

Tax-free childcare is digital by default. Parents first apply for and then use their childcare account online, although non-digital routes will of course be provided for those unable to use the default digital form. HMRC will check a parent’s eligibility for tax-free childcare. Parents will then be able to open and pay into a childcare account for each of their children, and the Government will top up the account. Parents can then use their childcare account to pay for a regulated childcare provider.

We are ensuring that childcare accounts are as simple as possible for parents to operate, because we do not want to add to their burdens. Once HMRC has confirmed that a parent is eligible, the parent is entitled to use the scheme for a three-month entitlement period. Each quarter, parents must confirm their circumstances and that they still meet the eligibility requirements, with a quick online declaration for all their children at the same time. Tax-free childcare will be trialled with more than 1,000 parents later this year and gradually rolled out from early next year.

[James Heappey (Wells) (Con)]

I speak as a father. My wife and I take advantage of exactly this scheme. Digitising the process once the employer has put it in place is very helpful, but will the Minister look at digitising the process that the employer follows to get the childcare vouchers registered initially? Most employers are still using the paper mechanism for that, which delays the system somewhat.

[Jane Ellison]

I note my hon. Friend’s point and will ensure that it is looked at. It relates to a different aspect of the childcare provision that the Government provides, but he neatly illustrates the point that we do not want the process for getting support for childcare to be onerous. Tax-child childcare, which is designed to be digital by default, is a move forward.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

Will the Minister set out what conversations she is having with colleagues in the Department for Education about ensuring adequate places for children? She may be aware that the Public Accounts Committee has raised concerns about the number of childcare places available to parents. It is all good and well to put schemes in place to help parents, but we need to make sure that there are places for children to take up.

[Jane Ellison]

Although not directly germane to the Bill, I am happy to draw the hon. Lady’s remarks to the attention of colleagues in the Department for Education. I suspect that they have already noted the PAC’s reports—I think most of us as Ministers would take great note—but I will of course ensure that they see the point she has made.

To reassure the Committee, HMRC has been user-testing its systems with parents with regard to tax-free childcare. Over 400 parents have been consulted so far. That allows HMRC to improve the services it offers to parents. As a result of that user testing, the first change that the Bill proposes relates to the quarterly reconfirmation process. HMRC has the power to change the length and entitlement period to make parents’ online journey as simple as possible. At the moment, they can change the standard three-month period by up to one month, so entitlement periods of between two and four months can be set. The one-month rule does not allow reconfirmation dates for all of a parent’s children to always be aligned—for example, where a parent applies for a childcare account for an additional child at a later date, or if a new household is formed. If the application is made in the middle month of their existing entitlement period, then alignment for reconfirmation is not possible.

Let me give the Committee an example. Helen is returning to work after maternity leave for her second child, Jenny. She already has a childcare account for her first child, Iain. Her current entitlement period for Iain runs from January to March. She is returning to work on 15 February. Whether the first entitlement period for Jenny is shortened to two months or lengthened to four months, it will not align with that for Iain. Therefore Helen is faced with two online reconfirmation journeys a quarter instead of only one. This amendment to the Childcare Payments Act will allow entitlement periods to be varied to between one month and five months. That will allow HMRC to always give parents such as Helen a single reconfirmation for all her children.

I am taking the second and third changes made to the Childcare Payments Act by this clause together as they are very similar in nature. Both allow HMRC to set out what online forms parents should use when querying HMRC decisions. The first does this for ordinary review requests; the second does it for requests made outside the normal time limits. Parents can query any HMRC decision that adversely affects them, for instance a decision that they are not eligible or a decision to impose a penalty on them. If they remain unhappy after the review they can appeal to an independent tribunal. As I have set out, tax-free childcare is a digital-by-default system. Parents apply to open childcare accounts, and then use those accounts, via online forms set out by HMRC for that purpose.

These amendments give HMRC the power to specify in regulations the online forms to be used by parents when requesting a review of any HMRC decisions. That will allow tax-free childcare to be consistently digital by default across the full service. Regulations under these powers will provide the same safeguards for those unable to interact digitally with HMRC as in-scheme regulations. The safeguards allow those unable to interact digitally to get the same service through other means, which is important. The safeguards are in regulation 22 of the Childcare Payments Regulations 2015.

In conclusion, these are minor, technical amendments to the Childcare Payments Act 2014 that will allow HMRC to improve parents’ experience and the consistency of tax-free childcare. I therefore urge the Committee to accept that the clause should stand part of the Bill.

[Rebecca Long Bailey]

I will keep my comments brief. Clause 5 relates to the Government’s tax-free childcare scheme and makes minor changes to the Childcare Payments Act 2014, which is the legislative basis for the scheme. First, it would allow HMRC to vary the entitlement period in certain cases by two months rather than one, as currently stated in the legislation. The entitlement period refers to the period of time after which parents must confirm that they still meet the eligibility criteria. Typically this must be done quarterly; however, HMRC can vary that in certain cases. Clause 5 changes this variable amount to two months, to

“enable alignment of eligibility periods for additional children when parents already have another child in the scheme.”

We certainly welcome these proposals.

The other change relates to parents who want to apply for a review of a decision made by HMRC that affects them, or who wish to do so outside the usual time limits. Normally that must be done within 30 days of being notified of the decision, although that timeframe can be extended. The clause also allows regulations to be made to specify the form and manner of such applications. I believe that the Government’s intention is to allow such applications to be made digitally, but perhaps the Minister will confirm that.

These are technical changes, and the Opposition do not oppose them. However, we have significant concerns about the tax-free childcare scheme more broadly. I will not say more about that now as we are debating the finer points of the Bill, but we will perhaps revisit that at a later stage.

[Jane Ellison]

I will of course draw the hon. Lady’s wider comments about childcare to the attention of the relevant Ministers.

[Kirsty Blackman]

I feel that as someone who is likely to be using the tax-free childcare scheme for eight or nine years, it is sensible for me to make some comments. The current childcare voucher scheme is quite cumbersome—particularly given the paper methods that are used—and difficult for people to access, so I am pleased that the Government have listened to comments about the need to change how parents can access the scheme and ensure that there is consistency. I am pleased that the Government have piloted online access and listened to parents about making changes to that.

I have a couple of questions. First, I would like to check that the Minister is committed to ensuring that during the scheme’s roll-out, which I understand will happen next year, it is kept under constant review and feedback from parents is looked at. A relatively small group of 400 or 1,000 parents may not cover all the circumstances that we might see once the scheme is completely rolled out, so it would be useful if the Government were to continue in listening mode, and I would very much appreciate that assurance.

My other question relates to the conversations about the scheme with the Scottish Government. At the SNP conference at the weekend, announcements were made about changes that the SNP Government will make to some of the ways in which parents in Scotland can access childcare. What discussions have the UK Government had with the Scottish Government about how this Government’s new tax-free childcare scheme will link into the Scottish Government’s consultations on and proposed changes to the types of childcare that parents can access with their free hours? The Scottish Government are looking at making changes to the flexibility of the free hours that are provided to parents in Scotland and the settings that parents can access with that childcare provision. How will that scheme in Scotland link to the tax-free childcare scheme? Have the UK Government had any conversations yet about that with the Scottish Government? If not, will they commit to doing so?

[Jane Ellison]

I thank the hon. Lady for her comments. Of course we want the tax-free childcare scheme to work for parents. It is designed to make their lives easier, and that must be central to the way we approach the roll-out, which will be gradual, robust and extensively trialled with a variety of parents, to ensure that we replicate as many different circumstances as possible, as she said.

On the hon. Lady’s second point, we always deal with issues that relate to the devolved Administrations as appropriate. I will look at her broader point about how different childcare policies interact, but I do not think that that is directly relevant to the clause. In general terms, I reassure her that we are always assiduous in ensuring that where there are issues of interaction with the devolved Administrations that pertain to Bills, those are sorted out at official level ahead of proceedings such as these.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Clause 6

Extent

Question proposed, That the clause stand part of the Bill.

[Jane Ellison]

Clause 6 provides that the Bill extends to England, Wales, Scotland and Northern Ireland. Both the gift aid small donations scheme and the tax-free childcare scheme apply to the UK as a whole. The Small Charitable Donations Act 2012 included a provision to make the gift aid small donations scheme an excepted matter for the purposes of the Northern Ireland devolution settlement. A legislative consent motion was approved by the Northern Ireland Assembly in November 2012, providing consent for the UK Parliament to amend schedule 2 to the Northern Ireland Act 1998, to make the scheme an excepted matter. No legislative consent motion is required from the Northern Ireland Assembly.

Following a legislative consent debate in 2014, schedule 2 of the Northern Ireland Act 1998 was amended to make the childcare payments scheme an excepted matter for the purposes of the Northern Ireland devolution settlement, so the scheme applies in Northern Ireland in the same way as in the rest of the UK. No legislative consent motion is required from the Northern Ireland Assembly.

The Childcare Payments Act 2014 at section 74 defines the extent as England and Wales, Scotland and Northern Ireland. In the view of the UK Government the provisions of the Bill are not within the legislative competence of the Scottish Parliament or the National Assembly for Wales, so that no legislative consent motions are required.

Question put and agreed to.

Clause 6 ordered to stand part of the Bill.

Clause 7

Commencement

Question proposed, That the clause stand part of the Bill.

[Jane Ellison]

The clause simply provides that the changes to the gift aid small donations scheme will take effect from 6 April 2017. This will allow charities to benefit from the changes at the earliest opportunity. Changes to the tax-free childcare scheme will take effect two months after the Bill receives Royal Assent.

Question put and agreed to.

Clause 7 ordered to stand part of the Bill.

Clause 8

Saving and transitional provision

Question proposed, That the clause stand part of the Bill.

[Jane Ellison]

Clause 8 makes minor technical changes to ensure that a charity that has merged with another before 6 April 2017 does not inadvertently lose an opportunity to claim top-up payments for an earlier tax year as a consequence of the removal of two of the eligibility criteria from that date.

I explained earlier that the Bill makes changes to the eligibility criteria for claiming top-up payments under the small donations scheme. I explained that currently charities must have a gift aid history before they can claim under that scheme; in other words, they must have made a successful claim in two out of the previous four tax years.

Currently, if a new charity has taken over the activities of one or more charities, it may apply to HMRC for the gift aid history of the old charity to be taken into account for the purposes of the small donations scheme. If certain criteria are met—the old and new charities having similar purposes, for example—HMRC will issue a certificate that allows the new charity to claim top-up allowances on the strength of the old charity’s gift aid history. In other words, those rules ensure that when a new charity takes over an old charity it is not automatically denied access to the gift aid small donations scheme because it cannot meet the eligibility requirements.

As Members have heard, the Bill will abolish the two-in-four eligibility criterion and the need for new charities to have a successful gift aid history, so the merger rules will largely become redundant from 6 April next year. However, a charity may have taken over the activities of an old charity before April 2017 and want to take advantage of the merger rules to claim top-up payments under the scheme for an earlier tax year.

The changes made in clause 8 therefore retain the merger rules in their current form for cases in which a charity has taken over the activities of another, or more than one other, before 6 April 2017. The time limits for making an application to HMRC for the merger provisions to apply mean that a merger could take place before 6 April 2017, but either the charity has not made its application before that date or the charity has made its application but it has not yet been accepted by HMRC. The transitional provisions included in the clause will ensure that applications may still be made by a charity, and accepted by HMRC, in respect of mergers before 6 April next year.

The practical implications of the clause are obviously time-limited, because they apply only to mergers pre-April 2017. Nevertheless, without the clause, some charities that merged before that date may unexpectedly lose their entitlement to top-up payments.

Question put and agreed to.

Clause 8 accordingly ordered to stand part of the Bill.

Clause 9 ordered to stand part of the Bill.

New Clause 1

Abolition of Gift Aid donations threshold

“(1) The Chancellor of the Exchequer must carry out an assessment of the impact on charities and Community Amateur Sports Clubs of amending the Gift Aid Small Donations Scheme so as to remove the 10% Gift Aid donations threshold that must be met in order to access the Gift Aid Small Donations Scheme, including an assessment of the differential impact on different sizes of charities and Community Amateur Sports Clubs concerned.

(2) The Chancellor of the Exchequer must lay a report of the assessment before the House of Commons within six months of the passing of this Act.”—(Kirsty Blackman.)

Charities and CASCs must make Gift Aid exemption claims on donations received in order to make a claim under the Gift Aid Small Donations Scheme. The total Gift Aid donations must be at least 10% of the amount of the small donations on which top-up payments are claimed. The new clause would require the Chancellor to assess the impact of abolishing this requirement.

Brought up, and read the First time.

--- Later in debate ---

[Rebecca Long Bailey]

New clauses 1 and 2 both get to the most important issue for the charity sector: the so-called matching requirement. The requirement is that to make a claim under the small donations scheme, a charity must receive a certain amount of gift aid donations in the same tax year. The total of eligible donations on which a charity can claim a top-up payment is restricted to an amount between equal and 10 times the net donations on which gift aid is claimed for the year.

New clause 1 would require the Government to carry out a review of the impact of abolishing the matching requirement within six months of the passing of the Bill, and Labour’s new clause 2 would require the Government to conduct a review into the efficacy of anti-fraud measures designed to regulate the gift aid small donations scheme, with particular reference to the matching requirement. On Second Reading, the Minister said that the requirement is

“to protect from fraud the small donations scheme, which has substantially fewer record-keeping requirements than gift aid—an important factor that was looked at when the scheme was first designed back in 2012. It is by retaining the rule that donations under the scheme must be matched with gift aid donations that we best can do that.”—[Official Report, 11 October 2016; Vol. 615, c. 215.]

However, as far as I am aware, she did not produce any evidence that the matching requirement is an effective anti-fraud measure.

As we have heard, the sector says that the requirement is a huge barrier for many small charities. They would like it to be significantly reformed, if not scrapped entirely. For instance, the Churches’ Legislation Advisory Service has suggested extending the requirement to 20:1. Given the Government’s reasons for not proposing any amendments to the requirement, the Opposition think that we should simply have a chance to see the evidence that the requirement works.

We agree, of course, that preventing fraud in the scheme is of paramount importance, but if the measure is simply adding a layer of red tape and is not effective, the Government should review it. The Charity Finance Group has highlighted the fact that only 275 reports of suspicious activity were shared between HMRC and charity regulators in 2015, which represents a rate of one suspicious activity per 500 charities. The group considers that to be a sign that fraud in the scheme is not of a high enough level to justify the effects of the matching requirement. That might well be the case, or it could be that the requirement is an effective caveat to the scheme, but we would only know that if there was a publicly available assessment of the effectiveness of all the measures in the scheme designed to combat fraud and of where the requirement sits within that. I can see no reason why the Government would not want to carry out such an assessment, and I hope that the Minister will accept our new clause 2, or work with us to table a Government amendment on Report that deals with any issues or concerns with our wording.

Finally, I would welcome the Minister’s comments in response to evidence produced by the Charity Finance Group, which welcomes the intention behind our new clause but believes that the Government should focus on increasing punishments for those who commit abuse and providing more opportunity for charities to report on suspicious organisations.

[Jane Ellison]

As the hon. Member for Aberdeen North said, new clause 1 would require the Chancellor to lay before the House an assessment of the impact of removing the gift aid matching requirement within six months of the passing of this Act. New clause 2 would require the Chancellor to publish an assessment of the efficacy of the scheme’s anti-fraud provisions in the same period.

I should start by saying that I welcome the cross-party consensus on the importance of protecting the gift aid small donations scheme, and charitable tax reliefs more generally, from abuse. Indeed, I completely agree with the shadow Minister, the hon. Member for Salford and Eccles, who said on Second Reading:

“We must make sure that any loosening of the rules for access to Government grants or tax reliefs does not provide a further incentive for tax avoiders, albeit a small minority, to set up a charity.”—[Official Report, 11 October 2016; Vol. 615, c. 220.]

She was exactly right to draw our attention to that. The Government also agree with the hon. Member for Bootle (Peter Dowd), who said during his closing remarks on Second Reading that

“it is vital that sufficient safeguards are in place to prevent fraud when Government funding or tax breaks are provided, as in this case, to the charity sector. I think that sentiment would get cross-party support.”––[Official Report, 11 October 2016; Vol. 615, c. 247.]

Indeed, I think that sentiment does have cross-party support.

Let me say a little about fraud in the charity sector, which is relevant to the new clause. None of us likes to contemplate it or talk about it, but sadly it exists. As the Under-Secretary of State for Culture, Media and Sport, my hon. Friend the Member for Reading East (Mr Wilson), said on Second Reading,

“it is an unfortunate fact that unscrupulous individuals seek to exploit charitable status for criminal purposes.”––[Official Report, 11 October 2016; Vol. 615, c. 250.]

It might shock colleagues to hear that the “Annual Fraud Indictor 2016” document produced by Experian, PKF Littlejohn and the University of Portsmouth’s Centre for Counter Fraud Studies estimates that fraud costs the charity sector about £1.9 billion each year. The report also states:

“Fraudsters are fast, inventive, adaptable and willing to quickly exploit new opportunities.”

I am sure hon. Members will therefore agree that it is vital the Government make sure that any initiatives, no matter how well intentioned, have suitable safeguards in place to limit opportunities for abuse, particularly when those initiatives involve spending public money. Indeed, both the hon. Member for Salford and Eccles and the hon. Member for Bootle made exactly that point on Second Reading.

The gift aid matching requirement provides a deterrent for those who would seek to exploit the small donations scheme. A number of hon. Members have raised concerns about the matching requirement; we have heard them again today. A few hon. Members, including the shadow Minister and the hon. Member for Clwyd South, cited a survey by the National Council for Voluntary Organisations and others that suggested that the matching rule acts as a barrier to claiming from the gift aid small donations scheme, with 50% of respondents with an income under £10,000 wanting the matching rule to be removed or reduced. However, it is worth drawing the Committee’s attention to the fact that the same survey also found that only 5% of respondents claimed no gift aid at all, and just 10% felt that they did not claim enough gift aid to make claiming top-up payments worthwhile. Similarly, the Government’s own assessment found that 92% of charities claiming gift aid for the tax year 2014-15 claimed on donations of £500 or more, entitling them to the maximum small donations allowance, which at that time was £5,000. That is interesting evidence that for the vast bulk of charities, the matching rule is not a barrier.

[Anna Turley]

I would put the burden of evidence and proof back on the Minister. This provision has existed for three years now. Does she have any evidence of its benefit or usefulness, either in promoting the use of gift aid or in reducing fraud? If there is none, then given the clear objection from the sector, I really do not see any benefit to it whatever.

[Jane Ellison]

First, I would argue that the matching rule has become more relevant because of the provisions in the Bill to simplify the scheme, for example the end of the two-in-four rule. Secondly, I have been sat here musing as I have listened to Members making their points about the need for me to prove that the rules are necessary. I cannot see how that can be done without first relaxing them and then having to report to the House that there had been large amounts of fraud, public money had been wasted and so on. In other words, the only way to prove it is to prove a negative.

--- Later in debate ---

[Susan Elan Jones]

I am a bit concerned, because when we were here a few years ago the example we cited was the Cup Trust, where there was wide-scale evidence of fraud. We asked whether it was registered for gift aid and the answer was yes. I am concerned about linkage.

I appreciate that we are looking at is a review to do with gift aid six months after the Act comes into law, but in view of the changes made last time when we were told initially it had to be same for same—we ended up with something vastly different and vastly better—will the Minister look at those arguments? Even if the Government’s view is that there has to be some sort of matching, it need not necessarily be set at the current level. That is our big concern.

[Jane Ellison]

Two arguments are being advanced. One is that there should be no matching requirement at all. I am afraid I reject that for the reasons I have given, and I will try to provide more evidence. I understand the point that the hon. Member for Clwyd South makes and I understand that there was movement during the passage of the previous Bill with regard to the ratios. With all of these things it is sometimes about trying to strike a reasonable balance, and I think 1:10 is a reasonable number. It is an easy number from an administrative point of view and it keeps matters much more straightforward for the charities in question. I am glad however that she supports the principle that there should be a matching rule to avoid fraud. I will say a bit more about why we think that is important.

The Government’s own assessment found that 92% of charities claiming gift aid for the tax year 2014-15 claimed on donations of £500 or more. That would have allowed them to claim the maximum small donations top-up allowance, which at the time was £5,000.

It is worth adding that while the 8% of charities claiming on less than £500 of donations would not have benefited from the maximum small donations allowance because of how the matching rule operates, the vast majority would have been entitled to a proportion of that allowance. In fact, 98% of charities claiming gift aid in 2014-15 claimed sufficient amounts to receive a small donations allowance of at least £1,000. I submit to the Committee that with 98% of charities claiming enough to get an allowance of at least £1,000, the rules are not proving a barrier; they are being used and people are managing quite well with them. The figures do not support the assertion that the matching rule is a major barrier. Indeed, I think most people would say that it strikes the balance of reasonableness.

As I have said, the Bill is a simplification measure—it removes the two-year registration requirement and the gift aid history requirement—and leaves only the matching rule as the link between the gift aid small donations scheme and the wider gift aid scheme. The Government have always been clear that a link to gift aid is necessary to allow HMRC to carry out effective compliance activity. I ask hon. Members on both sides of the Committee to support that principle.

[Steve Double (St Austell and Newquay) (Con)]

Does the Minister agree, in response to the concerns raised by the SNP spokesman, that the Government have done an awful lot to simplify the gift aid claiming process for charities? I speak as someone who has been involved in operating gift aid claims for charities for many years. The process now is incredibly simple in its online form, so it is not the burden that perhaps it was in the past.

[Jane Ellison]

I think that is right, and I thank my hon. Friend for that intervention. We are really trying to make this as simple and straightforward as possible, but we need some safeguards. That is why the matching rule is important. I would suggest that requiring HMRC to publish a detailed analysis of compliance activities and the efficacy of anti-abuse rules could be unhelpful. I would hate us inadvertently to provide a roadmap for fraudsters. If there was a requirement to publish that information, it would provide valuable information to that dishonest minority whom the Government are trying to root out.

I would like to reassure the Committee that HMRC works with charity regulators to ensure that charities are properly regulated, the abuse of charities is properly and robustly dealt with, and the tax reliefs claimed are used for charitable purposes. If a charity is suspected of fraud, HMRC will share that information with the Charity Commission, which can consider further action, including removal from the charities register. We have made it easier to report fraud. I hope that it goes without saying that all tax policy remains under constant review, and this scheme is no exception. The Government will of course continue to monitor the effectiveness of the small donations scheme, as they do with all charitable tax relief.

We are very keen to make sure that the good name of all those charities that do wonderful work at international, national and local level is not abused. I will give the Committee just one example. In May this year, three individuals were jailed for a total of 22 years for defrauding HMRC of £5 million in fictitious gift aid claims. I am afraid that there are more examples of large sums of money where that is true. Those people are out there and, as the report I cited earlier pointed out, they are very quick to spot loopholes, however well intentioned.

HMRC publishes a comprehensive national statistics package, to which I alluded earlier, which allows anyone to scrutinise the efficacy of the Government’s support for charities. However, requiring in legislation that the Government publish separate assessments within six months of the passage of the Bill is both arbitrary and unnecessary and, for the reasons I explained, in the case of one of the reviews it is likely to be impossible to prove what it seeks to prove. I therefore urge hon. Members not to press their new clauses to a vote.

[Kirsty Blackman]

Regarding the new clause that I tabled, I have asked the Government to undertake an assessment of the differential impact on charities of different sizes. As I have tried to make clear, both on Second Reading and today, my concern is particularly about the very smallest charities, some of which find that this is a barrier. I am slightly bothered by some of the conversation both today and on Second Reading. Perhaps I am naive, but I do not think that charities generally set out to defraud the Government. That is pretty unusual, and it bothers me how much of this conversation has been slanted towards concern about issues relating to fraud. I appreciate that some people try to commit fraud, but they are a small minority. It is only in relation to the largest amounts of money that we should be particularly concerned about that.

[Jane Ellison]

I want to clarify my remarks, which were principally centred on the fact that there are people out there who are fraudsters and who would seek to exploit loopholes in charity law and in gift aid rules. My comments were not focused so much on charities themselves being defrauders, although there have been one or two examples of this. Predominantly, this is about people exploiting charity law and the reliefs available in the same way that they exploit other loopholes.

[Kirsty Blackman]

I am really grateful for that clarification. I was concerned about the tone of some of the conversation that had been taking place. In relation to the new clause that I have tabled, I am asking the Chancellor of the Exchequer to look at the differential impact on different charities of removing the 10% matching requirement. The Government have made it clear, and it has been suggested by charities, that this could be changed to a different level of matching requirement.

The Government have accepted that this is a relatively arbitrary figure. It is good because it is a nice round number, but that is not necessarily helpful, particularly for the smallest of charities. I would very much appreciate it if the Government would consider accepting new clause 1, which looks at an assessment, and which would help those very small charities which most need this matching requirement to be removed.

Question put, That the clause be read a Second time.

--- Later in debate ---

[Rebecca Long Bailey]

The hon. Gentleman makes a very good point, and that is why I would welcome a review by the Minister of the proposal in the new clause. We need to catch more than what is simply on paper at the moment; the provision needs to go beyond the scope of local scout groups, for example. There are many other organisations that would benefit from being included individually in the ways I have proposed and I welcome comments on this point by the Minister. I also point Members to a note that they received this morning from the Charity Finance Group, which makes some helpful suggestions on this very point.

[Jane Ellison]

The new clause is designed to exempt scouts, guides and military cadet groups from the connected charities provisions of this Bill. We believe the new clause is not necessary.

The connected charities rules are intended to protect the gift aid small donations scheme from abuse and they work in conjunction with the community building rules to deliver fair and broadly equal outcomes for charities structured in different ways.

Without the connected charities rules, large charities would have a perverse incentive to splinter into groups of smaller charities to increase their entitlement to small donations allowances. I am sure none of us would want that to happen. However, it is important to make it clear that while connected charities are entitled only to a single shared £8,000 small donations allowance, they are still entitled to an £8,000 allowance for each of their community buildings.

--- Later in debate ---

[Jane Ellison]

I am fairly certain that the hon. Lady’s example will benefit from the Bill. At the moment, that is a good example of where a charity probably does not do fundraising in its premises, if it has a local office. If it fundraises in the local area through quizzes or events or whatever, it will now be entitled to claim against its community building for any activity in the local area. I will obviously double-check, but I think exactly that charity will benefit from the provisions in the Bill, for the very reasons the hon. Lady gives: they are people who have a base, but it is not usually the place where they fundraise. By contrast, when the original debate took place, the focus was on churches and cash donations within church buildings.

As I said at the outset, the new clause is unnecessary because the provisions in the Bill allow for what it proposes. The hon. Lady has neatly illustrated why we would reject it: it carves out a few selected charities, but we want the provisions to benefit a very broad range of charities, some of which are not named in the new clause.

Clause 3 achieves what Opposition Members are seeking to achieve but in a fairer way. It does not carve out a few selected charities, wonderful though they are, to benefit, but looks at how churches and other connected groups can claim more against their activities in a local area. The new clause is unnecessary and I hope that the hon. Lady will withdraw it.

[Rebecca Long Bailey]

I thank the Minister for her comments. Before we complete today’s proceedings, I would like to draw her attention to comments made by the Charity Finance Group this morning. It stated that “Scouts and so on often cannot claim under community building rules, because buildings have to be open to the public or a section of the public, some or all of the time. Their huts or barracks are often closed and unless they open up their buildings to the public during their activities or rent out part of their building for community activities, they will not benefit from this rule.”

To address that and deal with some of the issues we have just discussed, the Charity Finance Group has made a suggestion that HMRC could develop regulations and criteria to define local groups for the purposes of the Act, as it has done with other aspects of the gift aid regulations. Would the Minister give serious consideration to that proposal?

[Jane Ellison]

I am happy to reflect on the points made.

[Rebecca Long Bailey]

I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Bill to be reported, without amendment.