CUSTOMS TARIFF (ESTABLISHMENT) (EU EXIT) REGULATIONS 2020
TAXATION CROSS-BORDER TRADE (SPECIAL PROCEDURES SUPPLEMENTARY AND GENERAL PROVISION ETC.) (EU EXIT) REGULATIONS 2020
CUSTOMS TARIFF (ESTABLISHMENT AND SUSPENSION OF IMPORT DUTY) (EU EXIT) (AMENDMENT) REGULATIONS 2021
Jesse Norman Excerpts(3 years, 2 months ago)
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The Chair
Before we begin, I remind Members about the social distancing requirements. Spaces available to Members are clearly marked. Mr Speaker has asked that Members wear masks in Committee, except when speaking. Hansard colleagues would be grateful if you could send any speaking notes to hansardnotes@parliament.uk. I will now call the Minister to move the first motion, and speak to all three instruments. At the end of the debate, I will put the question on the first motion, and then ask the Minister to move the second and third motions formally.
The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That the Committee has considered the Customs Tariff (Establishment) (EU Exit) Regulations 2020 (S.I., 2020, No. 1430).
The Chair
With this it will be convenient to consider the Taxation Cross-border Trade (Special Procedures Supplementary and General Provision etc.) (EU Exit) Regulations 2020 (S.I., 2020, No. 1439) and the Customs Tariff (Establishment and Suspension of Import Duty) (EU Exit) (Amendment) Regulations 2021 (S.I., 2021, No. 63).
Jesse Norman
It is a pleasure to serve under your chairmanship, Mr Hollobone. The Customs Tariff (Establishment) (EU Exit) Regulations 2020 were laid before the House on 16 December as part of a package of tariff legislation that came into force at the end of the transition period, and ensured that the UK had a fully functioning customs regime at the beginning of the year. The Customs Tariff (Establishment and Suspension of Import Duty) (EU Exit) (Amendment) Regulations 2021 were laid on 21 January and came into force the following day, as I will explain. The Taxation Cross-border Trade (Special Procedures Supplementary and General Provision etc.) (EU Exit) Regulations 2020 were also laid on 16 December last year, and came into force at the end of the transition period.
Under section 8 of the Taxation (Cross-border Trade) Act 2018, it is the Treasury’s responsibility to set the tariff of the United Kingdom. To that end, the Customs Tariff (Establishment) (EU Exit) Regulations 2020 have two main functions. First, they set the specific tariff rates that will apply to each good imported into the UK from countries with which we do not have a preferential trading arrangement. Secondly, they establish a system to ensure that goods that arrive in the UK are properly classified by a commodity code, both to identify what the good is and to enable the correct rate of tariff to be charged.
The Government announced on 19 May 2020 that those tariffs—called the UK global tariff, or UKGT—would replace the EU’s common external tariff at the end of the transition period. The UKGT duly came into force at 11 pm on 31 December. It is the UK’s first independent tariff schedule since 1973. Importantly, the UK global tariff was created in consultation with a wide range of individuals, charities, businesses, business representative organisations and public organisations. Many factors were considered in setting the tariff, including the interests of domestic consumers and producers, the desirability of external trade and productivity, and existing levels of competition.
The UKGT strikes a balance between those, tailoring the schedule to the UK economy. It is a simpler, more liberal tariff schedule than the one we previously applied, and it is in pounds, not euros. Nuisance tariffs of less than 2% have been removed, and a banding structure has been put in place to round tariffs down into set bands. Many inputs to production have been liberalised in order to support UK manufacturing by keeping costs down. Many products that have low or non-existent levels of UK production have been liberalised, such as pistachios—of which the UK does not, as far as I am aware, have a substantial crop—from 1.6% to 0%, and cotton yarn, from 4% to 0%.
Simply put, now that the UK is no longer part of the European Union, there is no reason to keep tariffs on things that it does not produce unless we, as a Government, have our own grounds for doing so. Around 100 environmental goods have been liberalised in order to promote the deployment of renewable energy generation and energy efficiency, carbon capture and a circular economy through recycling and reducing single-use plastics. That supports the UK’s ambition to reach net zero by 2050, and flags the Government’s willingness to use trade policy in order to help us deliver on environmental and climate change objectives.
Overall, the UKGT almost doubles the number of tariff lines that have zero import tariffs relative to the EU’s common external tariff, with a little under 50% of tariffs now set at 0% compared with 27%, as was previously the case. Crucially, the tariff rates above 0% in the UKGT apply only to those countries with which we do not have preferential trading arrangements. As right hon. and hon. Members will be aware, we have agreed a trade and co-operation agreement with the EU—the first zero-tariff, zero-quota trade agreement that the EU has ever reached. That discharges a Government manifesto commitment.
Beyond that, we have already secured trade agreements with 64 non-EU countries, worth £216 billion of trade in 2019. That accounts for 97% of the value of trade with non-EU countries that we set out to secure agreements with at the start of the trade continuity programme. No other country has ever negotiated so many trade deals simultaneously. The effect of that, combined with other trade agreements and other trade measures, is that the UKGT ensures that 91% of trade has been coming into the UK tariff free, on World Trade Organisation terms or through preferential access, from January this year.
I have highlighted that the UKGT tariffs that we have implemented are specifically designed to suit UK interests and will provide a stable basis for our global trade going forward. The other statutory instruments under consideration are more technical in nature. The Customs Tariff (Establishment and Suspension of Import Duty) (EU Exit) (Amendment) Regulations 2021 were introduced after the initial package of tariff legislation was laid. The technical modifications in that statutory instrument relate to discrepancies found within the trade remedies regime. A disparity existed for a very limited number of goods between what was being put into practice at the border and what was in the legislation laid on 16 December. That has now been corrected. Given the nature of the disparity, it was deemed appropriate to bring the changes into force as soon as possible.
Finally, the Taxation Cross-border Trade (Special Procedures Supplementary and General Provision etc.) (EU Exit) Regulations 2020 set out continued simplified arrangements for imported goods that are subject to “special customs procedures”, such as cases where the good is imported for a processing operation or is imported on a temporary basis. That also allows those goods to be released from those procedures without the need for a further declaration or duty payment. That category includes pallets, containers and railway carriages imported under the temporary admission procedure, as well as equipment imported under the same procedure for military exercises in the UK. The instrument also makes a minor technical modification to the 2018 Act that provides the legal basis for applying the tariffs set out in the continuity trade agreements, which may in some cases be higher than the UKGT rate. The modification allows traders to choose the UKGT rate if it is more beneficial to them.
The UK global tariff is a simpler, easier-to-use and generally lower tariff regime than the common external tariff that it replaces. It is a regime that has been specifically tailored to the UK economy, and will provide a stable basis for our global trade. I commend the statutory instruments to the Committee.
The Chair
Members will be disappointed to know that we have only until 6 o’clock to debate the measures.
Jesse Norman
I thank the right hon. Member for Wolverhampton South East for his questions and for his highlighting of certain specific items on which he wants some discussion and feedback.
The right hon. Gentleman asked about areas in which there have been dramatic changes and ones in which there have been no changes. As he has said, there are many areas in which there has been very little change indeed. To give an example, I have talked about the reduction in pistachios and cotton from 1.6% to 0%, which is irrelevant, as we do not produce pistachios in this country. There are also goods—spanners and wrenches, for example—for which the tariff has been reduced from 1.7% to 0%. I am sure that is important for anyone in the car repair trade, and it is part of the overall structure of the approach, which, as he has mentioned, is to liberalise in order to reduce inputs to production costs.
Of course, the right hon. Gentleman is right to flag the fact that in other areas the tariff arrangements are larger. It is worth mentioning that there will be a difference between tariff arrangements that govern goods that enter under these arrangements, and those that enter under a free trade agreement. For example, a finished car that arrives from South Korea, with which we have an FTA, can enjoy a 0% tariff, whereas a similar vehicle arriving from Thailand would have a 10% tariff.
The right hon. Gentleman also asked about the consumer impact. Again, the point of this approach is, in part, to keep production costs low, and the hope is that, by and large, the effect of that will be to lower prices for consumers. There are other areas in which it has been important for the global tariff to reflect the balance between producers and consumers. For example, in certain agricultural tariff areas, although the level overall has been simplified—the levels have been reduced in some cases, and the numbers simplified—there are key areas in which the tariffs remain, broadly speaking, what they were before.
The right hon. Gentleman asked about free trade agreements. Of course, it is true that in many cases the effect of these free trade agreements is to replicate trading arrangements that we enjoyed with the EU countries beforehand, but those agreements still need to be negotiated. The good news is that we start from a very high position of previous alignment with those countries, which has certainly facilitated the process.
The right hon. Gentleman also asked about non-tariff barriers. I can only admire his ingenuity in crowbarring a discussion of non-tariff barriers into the debate about this statutory instrument, which is explicitly about a UK global tariff. It is as though we have separated out black and white and, although we are debating white, he wants to discuss black. Nevertheless, I am of course happy to discuss it. He mentioned shellfish. He will be aware that the Government have put in place a £23 million fund designed to support seafood businesses across the UK that may have experienced a verifiable loss during the movement of goods to the single market. The Government have also committed to a £100 million investment to rejuvenate the industry and coastal communities across the UK. The Government take those issues seriously.
In the case of musicians, as the right hon. Gentleman knows, the Government made a very comprehensive set of suggestions to the EU. Unfortunately, we have not been able to negotiate those as we would have liked, but that is not through any fault on this side of the equation. I will not speculate on why it is, but it is certainly nothing to do with tariffs and nothing to do with the Government’s position, which remains to support our musicians in their employment, where we can, as much as possible. That is evidenced by the £1.6 billion of cultural support funding that we have provided.
As for the legal basis, as the right hon. Gentleman will be aware, these instruments have been introduced on the basis that I described in my speech: the first SI under the made affirmative procedure, and the second and third as described in the explanatory memoranda. However, if he wants any further discussion on that, I am happy to write to him.
Mr McFadden
Can I just ask a question on that final point about the legal basis? The reason I ask is that we are now seven weeks on, and we are debating a set of SIs that are designed to ensure continuity after the end of the transition period. From a legislative point of view, how long can this go on for? In theory, could we come here after six or nine months and say that we need the statutory instrument to ensure continuity after the end of the transition period? In other words, how long after the fact can Parliament debate laws that have effectively come into force—in this case, seven weeks before we have debated them? Is this endlessly elastic, or is there a cut-off point at which the process—the mountain of secondary legislation needed to adapt to this—has to be done and dusted?
Jesse Norman
I think it is worth saying that much of the legislation, as the right hon. Member will know, has taken the form of negative statutory instruments, via the negative procedure, and they have not been prayed against, and one must therefore assume that they are acceptable to Members across the House. On the basis of the rules that he described, it is not infinitely extendable. Under sections 51 and 52 of the 2018 Act, the Treasury may make regulations that come into force before being debated in Parliament, but that is provided only if the debate occurs within 60 days after coming into effect. That has been the legal basis of the operation since 1 January until today.
Question put and agreed to.
TAXATION CROSS-BORDER TRADE (SPECIAL PROCEDURES SUPPLEMENTARY AND GENERAL PROVISION ETC.) (EU EXIT) REGULATIONS 2020
Resolved,
That the Committee has considered the Taxation Cross-border Trade (Special Procedures Supplementary and General Provision etc.) (EU Exit) Regulations 2020 (S.I., 2020, No. 1439).—(Jesse Norman.)
CUSTOMS TARIFF (ESTABLISHMENT AND SUSPENSION OF IMPORT DUTY) (EU EXIT) (AMENDMENT) REGULATIONS 2021
Resolved,
That the Committee has considered the Customs Tariff (Establishment and Suspension of Import Duty) (EU Exit) (Amendment) Regulations 2021 (S.I., 2021, No. 63).—(Jesse Norman.)
Draft Scottish Rates of Income Tax (Consequential Amendments) Order 2021
Jesse Norman Excerpts(3 years, 2 months ago)
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The Chair
Before we begin, I remind Members to observe social distancing and to sit only in the places that are clearly marked. I also remind Members that Mr Speaker has stated that masks should be worn in Committee, other than when Members are speaking. Hansard colleagues would be grateful if Members sent their speaking notes to the Hansard email address.
The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That the Committee has considered the draft Scottish Rates of Income Tax (Consequential Amendments) Order 2021.
It is a delight to see you in the Chair, Mrs Miller. This statutory instrument makes a small technical but consequential amendment to section 7 of the Finance (No. 2) Act 2005, “Charge to income tax on lump sum”. It ensures that Scottish taxpayers, like those in the rest of the United Kingdom, pay income tax on the pension lump sum at the highest rate they pay income tax in the year in which the lump sum is received. It provides certainty that they will be taxed correctly on their social security pension lump sums and it eliminates ambiguity from the existing legislation, and therefore limits the risk of a legal challenge.
Colleagues will be aware that people who reach state pension age have long been able to defer the receipt of their pension pay-outs. Pensioners can decide to take their deferral amount as a higher weekly payment. Alternatively, those individuals who reach state pension age before 6 April 2016 can choose to take their deferred pension as a one-off lump sum when they finally claim.
The lump sum is made up of the pension that the individual did not claim during the deferral period plus interest at 2% above the Bank of England base rate. It is taxed at the highest rate that applies to an individual’s other taxable income, after reliefs and allowances have been deducted. However, the value of the lump sum itself is not taken into account when calculating the individual’s other taxable income.
After the devolution of further Scottish income tax powers to Scotland, the Government laid a statutory instrument that took into account Scottish rates of income tax when calculating income tax due on pension lump sums. When the Scottish Parliament introduced new income tax rate bands for non-savings and non-dividend income for the 2017-18 tax year—the starter and intermediate rates—this legislation was further amended to take account of the introduction of those new rates.
However, Her Majesty’s Revenue and Customs have identified that the wording of that last change in the legislation is potentially ambiguous, because it refers only to the highest Scottish tax rate to which a Scottish taxpayer is liable. As such, this wording could be interpreted as suggesting that there is no need to take into account the Scottish taxpayer’s savings or dividend income, as tax on those forms of income is not devolved.
This would mean that Scottish pensioners could end up paying less income tax on their pension lump sums in comparison with their counterparts across the rest of the UK, because their incomes would be incorrectly calculated and the tax due would be less. This of course was not what was intended by the legislation, but the ambiguity surrounding the wording could leave the Government, in principle, open to a costly legal challenge, and that would be a waste of taxpayers’ money.
It is important to say that HMRC’s self-assessment calculator takes into account people’s total taxable income and is taxing the lump sum at the correct rate as intended, including savings and dividend income. As a result, pensioners have always been correctly charged tax at the appropriate rate on these lump sums when they file their tax returns, no matter where they live in the UK. The statutory instrument will go a step further to clarify the current legislation, and ensure that the legislation matches the tax calculation, but it is important to say that it will not alter the tax position of anyone claiming a social security pension lump sum. With that, I commend the instrument to the Committee.
Jesse Norman
I am grateful to the hon. Member for Houghton and Sunderland South for her comments, for her party’s support and for her proper view that this is a sensible and helpful piece of legislation. I do not think there is any reason to think there is a lack of co-ordination between HMRC and the Scottish Government or their counterparts where tax is devolved. I do not think this arises from that. In this case, it was the interaction of the different systems and the possibility of legal parsing out of any expected order that created the ambiguity. For that reason, as soon as it was recognised that there was a potential for this change, the Government decided to correct a possible, rather than an actual, misinterpretation. It already exists in the HMRC calculator, and of course I will make sure that guidance appropriately reflects it, but I believe it already does.
Question put and agreed to.
Draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2021
Draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2021
Jesse Norman Excerpts(3 years, 2 months ago)
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The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That the Committee has considered the draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2021.
The Chair
With this it will be convenient to consider the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2021.
Jesse Norman
The draft regulations set the national insurance contributions limits and thresholds, as well as the rates for a number of national insurance contributions for the 2021-22 tax year. They make provision for a Treasury grant to be paid into the national insurance fund, if required.
As right hon. and hon. Members will be aware, national insurance contributions, or NICs, are a key element of the nation’s welfare safety net, helping to support workers through ill health, unemployment and old age. They allow people to make contributions when they are in work in order to receive contributory benefits when they are not working. NICs receipts go towards funding contributory benefits, as well as to the NHS.
As announced in November and in line with previous years, the Government are using the September consumer prices index, or CPI, figure of 0.5% as the basis for setting all national insurance limits and thresholds, and the rates of classes 2 and 3 national insurance contributions for 2021-22. If I may, I will first outline the specific changes to the class 1 primary threshold and the class 4 lower profits limit.
The primary threshold and lower profits limit indicate the point at which employees and the self-employed start to pay class 1 and class 4 national insurance contributions, respectively. Those thresholds will rise from £9,500 to £9,568 per year. The rates of classes 1 and 4 NICs are unchanged by the draft regulations.
Increases to the primary threshold and lower profits limit do not affect eligibility for state pension. That is determined by the lower earnings limit for employees, which will remain at £6,240 in 2021-22, and payment of class 2 NICs for the self-employed, to which I will come shortly.
The upper earnings limit, the point at which the main rate of employee NICs drop to 2%, is aligned with the higher rate threshold for income tax. The upper earnings limit threshold will increase from £50,000 to £50,270 per year. Similarly, the upper profits limit is the point at which the main rate of class 4 NICs drops to 2%. That will also increase from £50,000 to £50,270 per year.
As well as class 4 NICs, the self-employed also pay class 2 NICs. The rate of class 2 NICs will remain at the weekly rate of £3.05, due to the rounding rules that require the calculation of the CPI increase to be rounded to the nearest five pence. The small profits threshold is the point above which the self-employed must pay class 2 NICs. That will increase from £6,475 to £6,515 per year.
Class 3 NICS allow people voluntarily to top up their national insurance record. The rate of class 3 will increase in line with inflation, from £15.30 to £15.40 per week.
The secondary threshold is the point at which employers start paying employer NICs on their employees’ salary. That threshold will increase from £8,788 to £8,840 per year. The threshold at which employers of people under 21, and of apprentices under 25, start to pay employer NICs on those employees’ salary will increase from £50,000 to £50,270 per year. The rate of employer NICs is unchanged by the regulations.
The regulations also make provision for a Treasury grant of up to 17% of forecasted annual benefit expenditure to be paid into the national insurance fund, if needed, during 2021-22. A similar provision will be made in respect of the Northern Ireland national insurance fund. The report by the Government Actuary’s Department, or GAD, laid alongside the re-rating regulations, forecasts that a Treasury grant will not be required in 2021-22. However, in view of the economic challenges created by the covid-19 pandemic, the Government consider it prudent to make the maximum provision at this stage.
I trust that that is a useful overview of the changes we are making to adjust contributions to the Exchequer in line with inflation, and I commend the draft regulations to the Committee.
The Committee is also considering the Tax Credits, Child Benefit and Guardian’s Allowance Regulations 2021. As hon. Members know, the Government are committed to delivering a welfare system that is fair for claimants and taxpayers alike, while providing a strong safety net for those who need it most. The regulations will ensure that tax credits, child benefit and guardian’s allowance increase in line with the consumer prices index, which had inflation at 0.5% in the year to September 2020.
Overall, this proposed legislation makes changes to the rates, limits and thresholds for national insurance contributions, and provision for a Treasury grant, and also increases the rates of tax credits and guardian’s allowance in line with prices. These are important and necessary steps, and I hope that colleagues will join me in supporting the regulations.
Jesse Norman
I am very grateful to the hon. Lady for her comments, and I am grateful to the Opposition for supporting these measures. I think it would be worth making a couple of points in response. The first is that there is a difference between the process we are going through now, which is the standard upratings that are part of the normal fiscal cycle, and policy interventions that may be added or adopted on top of that. At the moment, we are involved in the process of the plumbing, rather than the specific policy interventions. As you will know, Mr Mundell, those policy interventions come through fiscal events; they certainly do not come in secondary legislation, for reasons that you might understand.
In relation to universal credit, on which the Government have received many petitions and inquiries, as the hon. Lady will be aware, the statutory uprating is separate from the uplift that the Chancellor has previously given. It is part of the normal review of underlying tax credit rates, which has to be undertaken every year—it is a normal part of the process—to assess whether they have retained their value in relation to prices. By upgrading them, we will ensure that they retain their real value. Again, it is separate from policy interventions, and the Chancellor and the Treasury keep all taxes under review. We will continue to do so in relation to both the benefits and the tax side of the equation.
Question put and agreed to.
Draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2021
Resolved,
That the Committee has considered the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2021.—(Jesse Norman.)
HMRC Powers and Safeguards
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The Financial Secretary to the Treasury (Jesse Norman)
On 22 July 2019, I announced a comprehensive package of measures that HMRC was taking to maintain and develop public trust in its operations (HCWS1785). Today, HMRC has published a major part of this package, a report on its evaluation of the implementation of powers introduced since 2012: https://www.gov.uk/government/publications/evaluation-of-hmrcs-implementation-of-powers-obligations-and-safeguards.
I asked HMRC to engage with stakeholders, including taxpayers and their representatives, and I am very grateful, in particular, to the 16 external stakeholder organisations that have offered constructive challenge to HMRC throughout the evaluation.
Alongside changes that HMRC is already introducing, the evaluation has highlighted further opportunities for improvements that will build and maintain public trust in the tax system. HMRC is making a number of commitments as a result of the evaluation. These include commitments to improve communications with taxpayers about powers, obligations and compliance enquiries; to update and clarify guidance on taxpayers’ rights and obligations; to increase awareness of HMRC’s internal decision-making and governance processes; and to make further improvements to taxpayers’ customer experience. The commitments are designed to ensure that HMRC consistently meets the high standards that taxpayers expect, including those who do not have a tax agent, and especially when people may need extra support.
All but one of the measures that I announced in my July 2019 statement have now been delivered by HMRC. They have created the new professional standards committee, published responses to the 2019 and 2020 adjudicator's reports, and published new principles regarding help for taxpayers who may need extra support.
HMRC has also expanded the range of data published regularly to include new data that will help taxpayers to understand how HMRC approaches compliance work and how it uses relevant powers, and to assess the effectiveness of HMRC’s safeguards for taxpayers.
On the final measure I announced in my July 2019 statement, HMRC continues to take forward a range of actions to improve taxpayer experience. It has reviewed and improved over six hundreds of HMRC’s most commonly used letters and factsheets, simplifying the language used. It has put processes in place to keep letters under review, and to respond where further areas for improvement are identified. Last year HMRC also set up a new Extra Support Team to improve its identification of, and assistance to, taxpayers who may need additional help during compliance checks. HMRC has already responded to over 1,000 referrals and provided training to nearly 12,000 caseworkers.
HMRC has also made substantial progress in other areas. In particular, it is continuing to strengthen the guidance available to taxpayers to help them understand better the compliance check process, in order to reduce any stress involved and to build greater confidence and trust in HMRC. In December, HMRC launched a series of bitesize YouTube videos on key aspects of this process, and it is also trialling a new introductory pack which taxpayers will receive when a compliance check is opened.
HMRC’s programme of work on powers and safeguards is an important contribution towards the vision that the Government set out in July 2020 for a trusted and modem tax administration system. HMRC will implement the commitments in this report and continue to work with taxpayers, tax agents and their representatives, to maintain and develop public trust in their operations.
[HCWS762]
Draft Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2021
Jesse Norman Excerpts(3 years, 3 months ago)
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The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That the Committee has consider the draft Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2021.
It is a pleasure to see you in the Chair, Dr Huq. The order freezes the business rates multiplier at its current rate for the coming year. This is instead of an annual increase in the business rates multiplier in line with the retail price index.
If I may, I will start by explaining the context of the order. The multiplier is effectively a tax rate used to calculate business rates. There are two kinds of multiplier: the standard multiplier, which applies to businesses with a rateable value of over £51,000, and the small business multiplier, which applies to businesses with a rateable value of up to £51,000. Historically, these multipliers would rise in line with the preceding year’s retail price index inflation figure. On this basis, they were due to increase to reflect the September 2021 RPI figure, which was 1.1%.
At the 2016 Budget, the Government announced they would switch to uprating the multiplier in line with the consumer prices index measure of inflation instead of RPI. As Members will recall, the following year the Government brought forward this implementation date from April 2020 to April 2018. The switch from RPI to CPI is worth about £6.5 billion to businesses over the next five years, and the benefit only grows with time.
This year, in recognition of the impact of the covid-19 pandemic on businesses, the Government have gone a step further. This order provides the statutory legislation that will allow the Government to freeze the inflationary increase for business rates for the financial year 2021-22 at the same rate as that for the financial year 2020-21. This means that the small business multiplier next year will be 49.9p rather than 50.1p, and the standard multiplier in 2021-22 will be 51.2p rather than 51.4p. This measure provides relief to millions of small businesses at this most difficult time and beyond, by saving firms an estimated £575 million over the next five years.
The measure contained in this order applies to England. However, the Government will provide the devolved Administrations with equitable funding. In addition, they will fully compensate local authorities for the income that they will lose as a result of this measure.
It is important to say that this is only one part of the Government’s efforts to support businesses during the present crisis. In 2020, they provided a business rates holiday worth around £10 billion for eligible retail, hospitality and leisure businesses. Businesses have been recipients of a large proportion of the £280 billion of economic support that the Government have provided in response to the crisis. That includes the coronavirus job retention scheme, which has paid millions of workers’ wages, VAT deferrals, loans and grants. In addition, the Government are considering options for further support in response to the crisis, through business-related reliefs.
Of course, efforts to support small firms with business rates did not begin with the crisis. Before the pandemic struck, the Government were in the process of rolling out a series of major reforms to business rates, worth over £14 billion over the next five years. They included doubling small business rate relief from 50% to 100% for the smallest businesses in England and changing the standard multiplier threshold—steps that mean that nearly 700,000 small businesses pay no business rates at all. Combined with the business rates holiday for retail, hospitality and leisure, this means that half of all ratepayers will have paid no business rates in 2020-21.
In addition, we continue to listen closely to business owners who have voiced concerns about the fairness of the business rates system. As a result, the Government are conducting a fundamental review of business rates and greatly welcome the wide variety of responses generated by the call for evidence to the review launched last year, to which the Government will respond in due course.
British businesses are the beating heart of our economy. It is only right that we do what we can to support them through this difficult time. As I outlined earlier, this statutory instrument is one part of a much wider package of support. The order will give more certainty at a difficult time and underlines the Government’s commitment to firms large and small. That is why I commend the order to the Committee.
Jesse Norman
I thank the hon. Member for Houghton and Sunderland South for her questions and her speech, and I thank the Opposition for their support for this measure.
The hon. Lady will be aware that the Government have tried to build longevity into their policy making where they have been able to do so. That was one of the reasons why the furlough scheme was extended to the end of April. In relation to a long-term plan, she will also be aware that the Government will come forward with further plans at Budget.
In relation to business rates, I think the hon. Lady will be aware that we have done a fundamental review of the regime. We will come forward with further announcements on that in due course. It has been looking not just at the surface; it has been looking deep. She complained that the measures are one size fits all, but the fact that we have a separate rate for small businesses precisely reflects the fact that we treat those businesses differently from larger businesses. The fact that we have segregated retail, leisure and hospitality shows that we are targeting those areas, but I take her comments in good heart.
The hon. Lady asked whether we will redeploy the £2 billion that is being repaid. Of course, as she will be aware, this money goes into the consolidated fund at the Treasury, from which we are able to draw the £280 billion of support—more than 130 to 140 times the amount she discussed—for the economy as a whole. We will continue to redeploy that money to support the economy as a whole. Of course, that comes alongside all of the longer-term measures that I have already outlined in support of businesses facing business rates.
Question put and agreed to.
Exiting the European Union (Value Added Tax)
Jesse Norman Excerpts(3 years, 3 months ago)
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The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That the Value Added Tax (Miscellaneous Amendments to Acts of Parliament) (EU Exit) Regulations 2020 (S.I., 2020, No. 1312), dated 18 November 2020, a copy of which was laid before this House on 19 November, be approved.
Mr Speaker
With this we will take the following motion:
That the Value Added Tax (Miscellaneous Amendments to the Value Added Tax Act 1994 and Revocation) (EU Exit) Regulations 2020 (S.I., 2020, No. 1544), dated 18 December 2020, a copy of which was laid before this House on 21 December, be approved.
Jesse Norman
These two statutory instruments are part of a package of measures connected to the UK’s exit from the EU. They make a number of consequential and necessary changes in order to ensure that the VAT system continued and continues to operate, as required, following the end of the transition period. They have been designed to ensure fairness, to protect against double taxation and avoidance, and to make certain that existing reliefs continue to apply following the UK’s departure from the EU. Both instruments took effect at the end of the transition period.
The Value Added Tax (Miscellaneous Amendments to Acts of Parliament) (EU Exit) Regulations 2020 make three changes to the VAT Act 1994 and one change to the Taxation (Cross-border Trade) Act 2018. The first change applies to the VAT treatment of aircraft handling services. Until the end of the transition period, the VAT Act included a VAT zero rate for handling services supplied to aircraft operating on international routes. These included landing and housing fees, security and fire services. This zero-rate band also applied to the handling and storage of goods carried in those aircraft, but only at a customs and excise airport. However, suppliers could previously rely on EU legislation to zero-rate their services at non-customs and excise airports. This instrument therefore provides for the continued application of the relief in UK legislation following the end of the transition period.
Secondly, this instrument includes a new VAT zero rate for the handling services supplied to international trains. These include network track access, shunting and storage, station and guard services, light maintenance services and the handling and storage of goods carried on the trains. The measure aligns the VAT treatment of international trains with that of qualifying ships and aircraft. For ships and aircraft, services for which the zero rate applies can be carried out only at a port or airport, but for international trains these services could be supplied at various other sites along a rail route. The instrument therefore provides a power for the Revenue and Customs commissioners to specify those sites in a notice. That will ensure that the relief applies appropriately to trains.
Thirdly, the instrument makes a change that allows those supplying pension fund management services to funds established in the EU to recover the VAT that they incur.
Finally, the instrument removes a change made in the Taxation (Cross-border Trade) Act 2018 to the VAT treatment of certain travel services. The change is no longer necessary because the subsequent Value Added Tax (Tour Operators) (Amendment) (EU Exit) Regulations 2019 included a revision of the VAT treatment of such services.
Let me turn to the second instrument to be debated: the Value Added Tax (Miscellaneous Amendments to the Value Added Tax Act 1994 and Revocation) (EU Exit) Regulations 2020. This legislation includes four changes to the Value Added Tax Act 1994 and the revocation of an instrument laid in 2019 in connection with EU exit.
First, the legislation makes changes to the DIY house builders’ scheme to place self-builders in Northern Ireland in the same position as those in Great Britain. The DIY house builders’ scheme allows people who construct their own dwellings—a relevant residential or charitable building—or make a residential conversion to claim back the VAT on certain building materials, including VAT incurred on imports. Under the Northern Ireland protocol, materials bought by self-builders in Northern Ireland from suppliers in an EU member state may be subject to VAT in Northern Ireland. The instrument ensures that a DIY house builder in Northern Ireland can recover VAT charged on materials bought from a supplier in an EU member state.
Secondly, the instrument allows HMRC to obtain information in relation to VAT owed by businesses and individuals in member states. Similar legislation applied to the whole of the UK until the end of the transition period, reflecting the requirement for mutual co-operation between member states in connection with VAT. The retention of the legislation, particularly in respect of Northern Ireland, is a requirement of the withdrawal agreement.
Thirdly, the instrument contains measures to prevent unscrupulous businesses from avoiding import VAT. Under the Government’s commitment to unfettered access, goods in free circulation in Northern Ireland that are moved to Great Britain are relieved from duty and VAT on entry. However, UK customs legislation contains a provision to remove the duty relief if it is found that goods have been routed from an EU member state via Northern Ireland to Great Britain in order to avoid import duty. The instrument ensures that, if the customs provision is triggered, the VAT relief will no longer apply as well. It also prevents double taxation for businesses that make exempt supplies and move goods from Great Britain to Northern Ireland.
Finally, the instrument revokes the Finance Act 2011, Schedule 23 (Data-gathering Powers) (Amendment) (EU Exit) Regulations 2019, which were laid in the event of a no-deal scenario and are therefore no longer required.
The instruments provide a number of significant and necessary changes to ensure that the VAT system continues to operate as required following the end of the transition period. They will ensure fairness, protect against double taxation and avoidance, and make certain that existing reliefs continue to apply. I hope colleagues will join me in supporting this legislation, which I commend to the House.
Jesse Norman
I am grateful to all right hon. and hon. Members who contributed to the debate, which has been constructive and useful. I am also grateful to the Opposition for their support for this measure, and to the Scottish National party.
The hon. Member for Ealing North (James Murray) asked about the assessment of the impact of these measures on the income tax—I think he means VAT—base. Of course, being a diligent soul, he will undoubtedly have carefully cosseted the tax impact and information note and seen that no significant impact is expected from this, because the VAT will have been recovered in any case by a VAT-registered business, or would have been recovered otherwise. This set of measures in many ways merely restores the status quo. He asked a question that was indirectly raised by the hon. Member for Strangford (Jim Shannon), about, as it were, potential confusion in Northern Ireland. The trader support service is functioning, in relation to advising on imports, extremely well overall. It has been heavily supported by the UK Government, as the hon. Member for Ealing North will know, and offers what is in effect a globally unique facilitation and intervention.
The hon. Member for Glenrothes (Peter Grant) was very free in accusing the Government of incompetence, as is the way with his party. Knowing that he would wish to be competent himself, I encourage him to read the tax impact and information note. He will know that these measures are already in the protocol and are therefore already, as it were, incorporated via the protocol in UK law. No new impacts are expected from the legislation, as those tax impact and information notes set out.
My right hon. Friend the Member for Wokingham (John Redwood) asked whether VAT rules will be administered and enforced by the UK Government. They will, through Her Majesty’s Revenue and Customs. He rightly raised wider concerns about Northern Ireland and some of the events we have seen in the last few days. I would refer him and all Members to the comprehensive remarks made by the Chancellor of the Duchy of Lancaster yesterday in response to the urgent question on the topic. He also asked whether there would be easy movement. He will know that we have put in place unfettered access for Northern Irish exports into Great Britain and a very comprehensive set of measures to support and facilitate imports into Northern Ireland and to reduce any possible administrative burden.
Jesse Norman
The right hon. Member for East Antrim (Sammy Wilson) wishes to intervene, so I invite him to do so before I come to his remarks.
Sammy Wilson
I thank the Minister for giving way, and I hope he will address some of the points I raised. It is right that HMRC will be in charge of the collection of VAT, but one of the problems appears to be that, while we have the trader support service in Northern Ireland—which in most cases, but not always, has been helpful in giving advice to businesses there—many businesses in GB have not had the same level of information. One of the reasons why some of those businesses are saying that they are not going to sell to Northern Ireland is simply that they believe that the processes are so complicated, and they have no support by either having that clarified or being assured that the customs declarations and all the other paperwork will not be as complicated as they think it will be.
Jesse Norman
It is very easy to overstate the complexity of the issues involved. In the cases that the right hon. Gentleman mentions, the Northern Irish partner has full access to the trader support service, and the Great British partner has a comprehensive amount of guidance online, so the two come together. Inevitably, people will take some time to get used to what is, after all, a change in the arrangements. He is right to pick up the point about the effectiveness of the TSS. I do not think there is a suggestion that the support that businesses have been given in terms of information is anything less than comprehensive.
The right hon. Member for East Antrim asked about do-it-yourself builders. I can confirm that no further information will be required from do-it-yourself house builders, who will file a single VAT return. Obviously, they will be subject to the same proof of payment as they would have been before. In general, the point of this scheme is that without it, they would not be able to deduct acquisition VAT as they could prior to the end of transition period. Through this scheme, they can continue to recover the same VAT as they could before, therefore it is thoroughly to be welcomed.
The right hon. Member for Orkney and Shetland (Mr Carmichael) asked about VAT RES. I am very sorry, but that was in the wrong debate. If he had held his horses, he could have raised that in the next debate, or he could have raised it—equally inappropriately—in the previous debate, which I see he was down to speak in. The good news is that my hon. Friend the Exchequer Secretary will address these issues comprehensively in the debate to follow.
On the issue of small exporters, exports are zero-rated in relation to the UK, and they are not the principal topic of the legislation that we are discussing. The right hon. Member for Orkney and Shetland will be aware that there are measures coming from the EU in July, as I understand it, in relation to these matters that will to some extent—we wait to see the detail—mirror the facilitations that have been put in place, and they will hopefully support exporters from his constituency into the EU.
My hon. Friend the Member for North West Durham (Mr Holden) again raised the question about jobs and revenue. He will see that the tax information impact note does not expect there to be a significant material difference with regard to these issues, but there might, of course, have been some impact had we not put the facilitations in place and therefore these preserve the status quo, and rightly so.
I have already touched on some of the issues relating to the confusion over VAT that was raised by the hon. Member for Strangford). As he knows, in relation to imports, we have the Trader Support Service and, in relation to exports, there is comprehensive guidance available for anyone seeking to export.
Question put and agreed to.
Resolved,
That the Value Added Tax (Miscellaneous Amendments to Acts of Parliament) (EU Exit) Regulations 2020 (S.I., 2020, No. 1312), dated 18 November 2020, a copy of which was laid before this House on 19 November, be approved.
Resolved,
That the Value Added Tax (Miscellaneous Amendments to the Value Added Tax Act 1994 and Revocation) (EU Exit) Regulations 2020 (S.I., 2020, No. 1544), dated 18 December 2020, a copy of which was laid before this House on 21 December, be approved.—(Jesse Norman.)
Madam Deputy Speaker (Dame Rosie Winterton)
I am suspending the House for a few minutes to enable the necessary arrangements for the next business to be made.
Non-domestic Rates: Billing Authorities
Jesse Norman Excerpts(3 years, 3 months ago)
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The Financial Secretary to the Treasury (Jesse Norman)
Local Government is responsible for the administration of non-domestic rates in England. As part of this function, billing authorities will shortly begin preparing to issue annual rates bills to businesses. Nevertheless, as authorities will be aware, my right hon. Friend the Chancellor of the Exchequer will make the Budget statement on 3 March 2021. The Budget will set out the next phase of the Government’s plans to tackle the virus, protect jobs and support business. Billing authorities in England should therefore consider issuing business rates bills after the Chancellor has set out his plan at the Budget.
The Government recognise the crucial work local authorities continue to do to support the pandemic response; by their taking this action, they believe it is in the public interest to avoid any potential confusion for businesses and to avoid the cost of having to re-bill businesses in light of any measures that may be included in the Budget.
[HCWS756]
Double Taxation Convention: United Kingdom and Germany
Jesse Norman Excerpts(3 years, 3 months ago)
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The Financial Secretary to the Treasury (Jesse Norman)
A protocol to the Double Taxation Convention with Germany and a joint declaration were signed on 12 January. The protocol will give effect to certain OECD/G20 base erosion and profit shifting recommendations that protect tax treaties against avoidance activities, ensuring that the UK’s double taxation agreement with Germany meets the minimum OECD/G20 recommended standards. The text of the protocol and joint declaration are available on HM Revenue and Customs’ pages of the gov.uk website and will be deposited in the Libraries of both Houses. The text of the protocol will be scheduled to a draft Order in Council and laid before the House of Commons in due course.
[HCWS743]
Oral Answers to Questions
Jesse Norman Excerpts(3 years, 3 months ago)
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Rachael Maskell (York Central) (Lab/Co-op)
The Financial Secretary to the Treasury (Jesse Norman)
Since their introduction, the coronavirus job retention scheme and the self-employment income support scheme have been available to those unable to go to work because of caring responsibilities arising from covid-19, such as caring for a home schooling child or caring for a vulnerable individual. Those who are unable to work from home and have been told to shield have also been eligible for these support schemes, as well as for statutory sick pay and employment and support allowance.
Rachael Maskell [V]
The Chancellor has let the financial burden of covid-19 fall on women. They have undertaken twice as much home schooling as men. One in five have had to cut their hours. Some 78% of working mothers have not been offered furlough and 71% of those who asked for it have been refused. Will the Chancellor recognise that once again women have disproportionately paid the price of the inequality in his policies? Will he undertake an immediate equality impact assessment and set out in his Budget how he will offer redress for these widening gendered inequalities?
Jesse Norman
The truth is that this pandemic has had a desperately difficult effect for the whole of the UK economy, and for families and people across our country and regions. It is appropriate to recognise the totality of the difficulty we find ourselves in. It is true that many women have found themselves in the position of either caring for home schooling or vulnerable individuals. They are supported and protected through the schemes we have put in place. Of course, over and above those schemes, we have also put in place significant amounts of support for remote education, laptops and councils to help vulnerable individuals.
James Murray (Ealing North) (Lab/Co-op) [V]
Earlier this month, the shadow Chancellor successfully called on the Chancellor to make it clear that working parents and others can be furloughed owing to childcare responsibilities. Most employers will want to do the right thing, but where an employer is refusing to follow the guidance and offer a parent furlough for childcare reasons, can the Minister tell me who the parent should report that to and what action will be taken?
Jesse Norman
As the hon. Member will know, furlough is an arrangement reached between companies and their employees. Her Majesty’s Revenue and Customs and the Government do not have direct involvement in that. What they say is that where an agreement can be reached between the two sides we will support them, as laid out in one of the most generous schemes available in any country around the world. As I said, that is just one part of a much wider panoply of support for people at risk through the pandemic.
Stephen Kinnock (Aberavon) (Lab)
The Financial Secretary to the Treasury (Jesse Norman)
The self-employment income support scheme is one of the most generous in the world and has received claims from almost 2.7 million people so far, totalling more than £18.5 billion. The amount of the scheme grant is determined based on the applicant’s average profits from self-employment in the previous three tax years, as reported through their tax returns. By calculating the grant on an average of three years of profits, the scheme supports people who saw a dip in profits for any reason, including pregnancy.
Stephen Kinnock [V]
The Chancellor likes to claim that the UK offers one of the most generous support schemes for self-employed people in the world, but self-employed women who have taken maternity leave in the past few years are not supported generously at all—in fact, they have received a lot less financial support than their peers who have not taken maternity leave. The charity Pregnant Then Screwed reported that around 75,000 self-employed women have been subject to— [Inaudible.]
Jesse Norman
If I may just say, the hon. Gentleman is wrong. We are not talking about a claim that is not validated by third parties; it is understood internationally that the scheme is one of the most generous in the world. He will be aware that the issue is subject to legal challenge, which limits what I can say, but I can tell him that the Government are well aware that some self-employed people found that their eligibility for the scheme was affected if they had taken time out of their trade in 2018-19, which is why, in June last year, the scheme’s eligibility criteria were revised to ensure that people in that situation were able to claim self-employment income support.
Alison Thewliss (Glasgow Central) (SNP) [V]
Since the beginning of the pandemic, the UK Government have consistently failed to prioritise support for women on maternity leave. Despite the issue being raised by me and a host of others repeatedly in this House, the UK Government were taken to judicial review last week by Joeli Brearley and the tireless campaigners at Pregnant Then Screwed. Do the UK Government now accept that it is not a sabbatical, sick leave or a holiday—it is maternity leave? Will they end their discrimination against 75,000 self-employed mothers?
Jesse Norman
I am not sure whether the sound system was working but, as the hon. Lady will know from my previous remarks, the issue is subject to legal challenge so I cannot discuss it. I will say, though, that I met maternity groups as part of the excluded in early December, and we have taken steps to remedy the situation, where we have been able to do so, in relation to those who took time out in the year 2018-19.
Andrew Griffith (Arundel and South Downs) (Con)
Mike Kane (Wythenshawe and Sale East) (Lab)
The Financial Secretary to the Treasury (Jesse Norman)
The self-employment income support scheme was designed to target support at those who most need it while protecting the taxpayer against error, fraud and abuse. The Government recognise that some of the rules and criteria that have been vital to ensuring that the scheme worked for the vast majority have meant that, in some cases, people were not able to qualify. This is one reason why the Government put in place a much wider £280 billion support package, including increased levels of universal credit, bounce back loans, tax, deferrals, rental support, mortgage holidays, self-isolation support payments and other business support grants.
Alex Norris [V]
It is understandable that, as support schemes were constructed at short notice, there would be gaps in them. It is less understandable why, a year later, those gaps have not been better closed. Many of my constituents are among the millions who have been excluded from support schemes so far, so, as we approach that anniversary, what message does the Minister have for them?
Jesse Norman
The message would be that the Treasury is doing everything it can to protect jobs, families and livelihoods in the face of the worst pandemic crisis that we have experienced in recorded history. It is important to say that, in the case of this scheme, we have spent considerable time engaging with groups that have brought forward potential ways of addressing some of the gaps in support that may exist. As I mentioned, we have had meetings in December and evaluated suggestions all the way through last year, including a concrete suggestion in relation to the directors income support scheme, so we are heavily leaning into this issue.
Mike Kane [V]
I want to raise the case of my constituent, Teresa McGeough, who is a newly self-employed special educational needs expert. She has not been eligible for any financial assistance during the pandemic. Does the Minister think that the Government are doing enough to help people such as Theresa and others?
Jesse Norman
As I have said, the Government are doing everything they can and have been working round the clock for a year to address the full needs of the country across all the different aspect of our economy and society, including through support for the self-employed.
Abena Oppong-Asare (Erith and Thamesmead) (Lab) [V]
The self-employment income support scheme’s third grant closes this Friday. The crisis has not ended, but the Chancellor has not provided many details on the future of the scheme. Will the Minister explain why he thinks it is right that employees can be furloughed until 30 April but self-employed people have no clarity about the future of support beyond the end of this week?
Jesse Norman
I think that it is well-understood that the Chancellor will be setting out further plans in the March Budget. It is normal for this time of year for different decisions to be consolidated into that important fiscal event for well-known reasons.
Stephen Hammond (Wimbledon) (Con)
Chris Grayling (Epsom and Ewell) (Con) [V]
The Financial Secretary to the Treasury (Jesse Norman)
I thank my right hon. Friend for his question, which tempts me into indiscretion. He may be aware of this, but HMRC publishes annual estimates to illustrate the impact of changes in tax rates in a document sexily entitled “Direct effects of illustrative tax changes”. It is worth saying, however, that these estimates are themselves uncertain, because of different levels of behavioural response to tax changes, the potential for wider macroeconomic impacts and, of course, the interaction with other measures.
Christian Matheson (City of Chester) (Lab)
Scott Benton (Blackpool South) (Con) [V]
Jesse Norman
As my hon. Friend says, and I thank him for it, the temporary reduced rate of VAT was introduced to support the cash flow and the viability of over 150,000 businesses and to protect 2.4 million jobs in the hospitality and tourism sectors. It was extended in September and extended again, and will now run until 31 March of this year. But the relief comes at a significant cost, and while the Government keep taxes under review, we have no current plans to extend it further. I remind my hon. Friend that there are many other aspects of our financial support that may be of assistance to his constituents.
Ian Levy (Blyth Valley) (Con) [V]
Covid-19: Limited Company Directors
Jesse Norman Excerpts(3 years, 3 months ago)
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The Financial Secretary to the Treasury (Jesse Norman) [V]
I congratulate the hon. Member for Midlothian (Owen Thompson) on securing this debate, on his contribution, and on his tenacity and commitment in persisting with a debate on Burns night, when I am sure he has plenty of other distractions. I also thank the hon. Member for Brighton, Pavilion (Caroline Lucas) for her contribution.
Let me start by assuring colleagues across the House that I absolutely recognise the difficulties faced by their constituents, and constituents across the country of MPs from every political party, who are company directors. However, as colleagues will no doubt be aware, this is not a simple matter to resolve, for reasons that I will outline.
More widely, I think colleagues will be aware of the support that the Government have provided to individuals and businesses throughout the pandemic and the guiding principles behind how that money has been distributed. At every stage of the crisis, we have sought to support as many people and businesses as we can as rapidly as possible. To that end, we have provided a wide-ranging package of financial support worth some £280 billion. Its measures include, notably, the furlough scheme, which has protected the jobs of almost 10 million workers, while the self-employment income support scheme has so far provided grants to almost 3 million people. Let me remind the House that those ineligible for assistance from one scheme may still be able to receive help from one of the many other sources of support that are in place. Businesses may be eligible for loans and cash grants, along with tax cuts and deferrals for firms in sectors that have been hardest hit by the pandemic. We are also providing extra help to the families and individuals worst affected by this crisis with a wide-ranging package of welfare measures worth over £7 billion.
The furlough and self-employment schemes have been designed with two overriding principles in mind: the need to target support at those who need it most, and the need to safeguard taxpayer funds against fraud, error and abuse. As the hon. Member for Midlothian has recognised, it is an obligation—a duty—on the Government to keep fraud, error and abuse to a minimum, and that is what we have sought to do. This approach has meant that the vast majority of those who have requested help have been able to obtain it, while the taxpayer has been protected.
But it is important to say that the Government recognise that some people do not qualify for either support scheme, and this group includes some company directors. Let me turn to the specific situation facing this group. Directors who pay themselves a salary through a PAYE scheme are eligible for the coronavirus job retention scheme—that is, the furlough scheme. However, as Members will be aware, and as the hon. Gentleman has acknowledged, many directors pay themselves in large part through dividends while taking a small salary. Directors can claim from the furlough scheme on their salary, but dividends are not covered by this scheme, nor by the self-employment income support scheme. This is because income from dividends is a return on investment in the company rather than wages. Under HMRC’s current reporting mechanisms, which it inherited from many years before this pandemic crisis struck us, and which have been designed to meet the needs of a tax system operating in normal times, it is not possible to distinguish between dividends derived from an individual’s own company and dividends from other sources.
According to some external estimates, there are just over 700,000 active company directors, so if HMRC was to provide financial support to the 3.3 million people who typically declare dividend income on their tax returns, more than three quarters of those grants could potentially go to unintended recipients. This would be an irresponsible and unfair use of taxpayer money. By the same token, to seek to identify directors by means of proxies and assumptions would be an extremely onerous, imperfect and almost certainly inequitable method.
The Government continue to work closely with a range of organisations to explore how these schemes can support directors better, as well as others who have found themselves ineligible for the main income support schemes. It is quite wrong to suggest that we have not engaged. Indeed, we welcome any proposal that constructively seeks to address gaps in support that may exist, but as we consider these options it is vital that we always bear in mind the need to protect taxpayers from fraud and abuse, which can escalate very rapidly once it is allowed to creep into the system.
Throughout the past few months, I and my colleagues in the Treasury have been exploring proposals from some of these organisations to see whether they can provide a viable solution to the gaps in coverage and, in particular, the issue facing directors. As has been mentioned by both hon. Members, these include the directors income support scheme, which has been suggested by the Federation of Small Businesses and others. I am very grateful for the care and support that have gone into drawing up the proposal and ask the House to recognise that we take it extremely seriously. I have met its supporters. I and my officials have had detailed conversations about the scheme and have sought further information and ideas on critical areas and potential concerns. This continuing engagement has taken some weeks. At this time, however, although I and my officials by no means rely on the suggestion that the scheme intrinsically involves dividends—we recognise the construction of the scheme and the structure it represents; dividends are a means by which directors can be paid, but they are not intrinsic to the approach being taken in the scheme—I and my officials do not believe that as framed it overcomes the fundamental issues of protecting taxpayers’ money and safeguarding it against fraud and abuse.
I have raised those concerns with the FSB and the other members of the DISS group, and I and Treasury officials remain ready to engage with them on the issue. In addition, as the hon. Members mentioned, my team is reviewing the targeted income grant support just received, as proposed by the gaps in support all-party parliamentary group. As I have said, we very much remain open to other constructive suggestions.
The hon. Member for Brighton, Pavilion asked what was happening with Northern Ireland and whether the Government regarded the directors of small companies as less trustworthy than others. The answer to the latter question is of course not. We make no judgment about trustworthiness. This is a structural feature of concern about the nature of the support we seek to offer and how this particular scheme addresses that concern. As for her question about Northern Ireland, I cannot comment on that. The scheme has been proposed by Invest Northern Ireland under the Northern Ireland Executive and, as far as I am aware, it is not in any way connected to the HMRC scheme. We look to see how it will work and how it will address the needs that might exist and the concerns that might arise. We are not in a position to replicate the scheme in England and Wales, for the reasons I have described.
As this crisis has evolved, we have continued to adapt and refine the targeting of our support so that it can reach more people. Let me reiterate that our guiding principle has been to help as many people and businesses as possible through the pandemic. We have protected the livelihoods of many millions of people around the country and provided vital support to those who require it most.
Mr Deputy Speaker (Mr Nigel Evans)
We have all had to adapt during the covid pandemic, and tonight may well be a piece of history in that the entirety of a debate has been held in the Chamber of the House of Commons when none of the participants were present. That is quite incredible. I thank the half a dozen people who kept me company for the last half hour, which was amazing. Happy Burns night. I suspect that quite a few drams will be drunk virtually this evening, if not virtually drunk. None the less, happy Burns night everybody.
Question put and agreed to.