Finance Bill

Pat McFadden Excerpts

Report stage & Report stage: House of Commons & Report: 1st sitting & Report: 1st sitting: House of Commons
Wednesday 1st July 2020 Commons Chamber

Brought up, and read the First time.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

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

[Mr Deputy Speaker (Mr Nigel Evans)]

With this it will be convenient to discuss the following:

New clause 1—Loan charge: report on effect of the scheme—

“(1) The Chancellor of the Exchequer must commission a review, to be carried out by an independent panel, of the impact in parts of the United Kingdom and regions of England of the scheme established under sections 20 and 21 and lay the report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) business investment,

(b) employment,

(c) productivity, and

(d) company solvency.

(3) A review under this section must consider the fairness with which HMRC has implemented the policy, including whether HMRC has provided reasonable flexibility around repayment plans with the aim of avoiding business failures and individual bankruptcies.

In this section “parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and “regions of England” has the same meaning as that used by the Office for National Statistics.”

This new clause would require a review of the impact of the scheme to be established under Clauses 20 and 21.

New clause 31—Restricting the loan charge to cases where taxpayer knew loan was taxable—

“(1) In Schedule 11 to F(No.2)A 2017 (employment income provided through third parties: loans etc outstanding on 5 April 2019) in paragraph 1(1)—

(a) at the end of paragraph (b) omit “and”; and

(b) at the end of paragraph (c), insert—

“, and

(d) if the relevant year is 2015/16 or an earlier tax year, one of the conditions 1 to 3 is met.”

(c) After paragraph 1(1), insert—

“(1A) Condition 1 is that—

(a) P submitted a return in accordance with section 8 of TMA 1970 for the relevant year,

(b) the loan or quasi loan was not accounted for in the return as income, and

(c) P knew that the loan or quasi loan should have been accounted for as income in the relevant year.

(1B) Condition 2 is that P has not been issued with a notice under section 8 of TMA 1970 for the relevant year.

(1C) Condition 3 is that P has been issued with a notice under section 8 of TMA 1970 for the relevant year but that notice is or has been withdrawn under section 8B(2) of that Act.”.

(2) In Schedule 12 to F(No.2)A 2017 (trading income provided through third parties: loans etc outstanding on 5 April 2019) in paragraph 1(2)—

(a) at the end of paragraph (a)(ii) omit “and”; and

(b) at the end of paragraph (b), insert—

“, and

(c) if the tax year in respect of which the loan or quasi loan should have been accounted for as income (or otherwise treated as a receipt of a revenue nature for income tax purposes) (“the relevant year”) is 2015/16 or an earlier tax year, one of the conditions 1 to 3 is met.”

(c) After paragraph 1(2), insert—

“(2A) Condition 1 is that—

(a) T submitted a return in accordance with section 8 of TMA 1970 for the relevant year,

(b) the loan or quasi loan was not accounted for in the return as income (or otherwise treated as a receipt of a revenue nature for income tax purposes), and

(c) T knew that the loan or quasi loan should have been accounted for in the return as income (or otherwise treated as a receipt of a revenue nature for income tax purposes).

(2B) Condition 2 is that T has not been issued with a notice under section 8 of TMA 1970 for the relevant year.

(2C) Condition 3 is that T has been issued with a notice under section 8 of TMA 1970 for the relevant year but that notice is or has been withdrawn under section 8B(2) of that Act.”.

This new clause provides that, in respect of loans made in 2015/16 tax year and any earlier tax years, the loan charge applies only if the taxpayer submitted their tax return and deliberately did not declare the loan to be income. The clause also extends this protection to taxpayers who were not required by HMRC to submit tax returns.

New clause 35—Review of Off-Payroll working (IR35) legislation—

“(1) The provisions of section 7 and Schedule 1 of this Act do not have effect unless the Treasury has conducted a review of Off-Payroll working (IR35) legislation and has laid a copy of the report of that review before both Houses of Parliament.

(2) A review under (1) must include assessment of—

(a) impact on individuals’ livelihoods,

(b) impact on individuals’ employment rights, and

(c) relevant business practices.

(3) Any review under (1) must be carried out no later than 31 December 2025.”

This new clause would provide that the IR35 provisions of the bill would not take effect unless the Treasury has conducted and published a review of off-payroll working legislation.

Amendment 16, page 2, line 23, leave out clause 7

Amendment 55, in clause 20, page 15, line 6, at end insert—

“(3A) An amount paid, treated as paid or due to be paid under a qualifying agreement is also a qualifying amount if—

(a) the amount is referable (directly or indirectly) to a qualifying loan or quasi-loan,

(b) the tax year in which an amount representing the loan or quasi-loan should have been accounted for as income (or otherwise treated as a receipt of a revenue nature for income tax purposes) (“the relevant year”) is 2015/16 or an earlier tax year, and

(c) one of the conditions 1 to 3 is met.

(3B) Condition 1 is that—

(a) the person to whom the income tax liability the agreement referred to in subsection (2) relates (“P”) submitted a tax return in accordance with section 8 of TMA 1970 for the relevant year, and

(b) the loan or quasi loan was not accounted for in the return as income (or otherwise treated as a receipt of a revenue nature for income tax purposes).

(3C) However, condition 1 is not met if P knew that the loan or quasi loan should have been accounted for in the return as income (or otherwise treated as a receipt of a revenue nature for income tax purposes).

(3D) Condition 2 is that P has not been issued with a notice under section 8 of TMA 1970 for the relevant year.

(3E) Condition 3 is that P has been issued with a notice under section 8 of TMA 1970 for the relevant year but that notice is or has been withdrawn under section 8B(2) of that Act.”.

This amendment is consequential on the new clause “Restricting the loan charge to cases where taxpayer knew loan was taxable”. It provides that a prior settlement with HMRC can be unwound unless the worker failed to account for a 2015/16 tax year (or earlier) liability in his or her tax return deliberately despite knowing that the loan should have been included as income.

Amendment 17, page 85, line 2, leave out schedule 1.

Amendment 20, in schedule 1,  page 97, line 15, leave out “2021-22” and insert “2023-24”

This amendment and 21 to 36 and 57 seeks to delay the introduction of the IR35 changes until the tax year 2023-24.

Amendment 21, page 97, line 17, leave out “2021” and insert “2023”

Amendment 22, page 97, line 21, leave out “2021” and insert “2023”

Amendment 23, page 97, line 23, leave out “2021” and insert “2023”

Amendment 24, page 97, line 25, leave out “2021” and insert “2023”

Amendment 25, page 97, line 26, leave out “2021” and insert “2023”

Amendment 26, page 97, line 38, leave out “2021” and insert “2023”

Amendment 27, page 98, line 4, leave out “2021-22” and insert “2023-24”

Amendment 28, page 98, line 8, leave out “2021” and insert “2023”

Amendment 29, page 98, line 12, leave out “2021” and insert “2023”

Amendment 30, page 98, line 30, leave out “2021” and insert “2023”

Amendment 31, page 98, line 34, leave out “2021” and insert “2023”

Amendment 32, page 98, line 37, leave out “2021” and insert “2023”

Amendment 33, page 98, line 40, leave out “2021” and insert “2023”

Amendment 34, page 98, line 44, leave out “2021” and insert “2023”

Amendment 35, page 98, line 45, leave out “2021” and insert “2023”

Amendment 36, page 98, line 47, leave out “2021” and insert “2023”

Amendment 57, page 97, line 36leave out ‘2021’ and insert ‘2023’

New clause 12—Assessment of impact of provisions of this Act—

“(1) The Chancellor of the Exchequer must review in parts of the United Kingdom and regions of England the impact of the provisions of this Act and lay a report of that review before the House of Commons within one month of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) GDP

(b) business investment,

(c) employment,

(d) productivity,

(e) company solvency,

(f) public revenues

(g) poverty, and

(h) public health.

(3) A review under this section must consider the following scenarios—

(a) the Job Retention Scheme, Coronavirus Business Interruption Loan Scheme, Bounceback Loan Scheme and Self-employed Income Support Scheme are continued are continued for—

(i) six months,

(ii) the next year,

(iii) eighteen months,

(iv) the next two years; and

(b) the Job Retention Scheme, Coronavirus Business Interruption Loan Scheme, Bounceback Loan Scheme and Self-employed Income Support Scheme are ended or changed in any ways by a Minister of the Crown other than as specified in (a).

(4) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

“regions of England” has the same meaning as that used by the Office for National Statistics.”

This new clause would require a review of the impact of the Bill in different possible scenarios with respect to the continuation of the coronavirus support schemes.

New clause 18—Review of changes in Act—

“(1) The Chancellor of the Exchequer must review the effect of the changes in this Act in each part of the United Kingdom and each region of England and lay a report of that review before the House of Commons within two months of the passing of this Act.

(2) A review under this section must consider the effects of the changes on—

(a) business investment,

(b) employment, and

(c) productivity.

(3) A review under this section must consider the effects in the current and each of the subsequent four financial years.

(4) The review must also estimate the effects on the changes in the event of each of the following—

(a) the UK leaves the EU withdrawal transition period without a negotiated comprehensive free trade agreement,

(b) the UK leaves the EU withdrawal transition period with a negotiated agreement, and remains in the single market and customs union, or

(c) the UK leaves the EU withdrawal transition period with a negotiated comprehensive free trade agreement, and does not remain in the single market and customs union.

(5) The review must also estimate the effects on the changes if the UK signs a free trade agreement with the United States.

(6) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and “regions of England” has the same meaning as that used by the Office for National Statistics.”

This new clause requires a review of the impact on investment, employment and productivity of the changes made by the Act over time; in the event of a free trade agreement with the USA; and in the event of leaving the EU without a trade agreement, with an agreement to retain single market and customs union membership, or with a trade agreement that does not include single market and customs union membership.

[Mr McFadden]

It is a pleasure to be facing my old sparring partner from the Treasury Committee of some years ago across the Dispatch Box. In this debate we will cover a number of amendments dealing with IR35 or off-payroll working, through to the loan charge and the impact of this Finance Bill on the crucial issue of jobs.

On IR35, we have always said that we need an approach that brings together the consideration of tax and employment law and that levels up protections for the self-employed, as well as dealing with the current implications of the tax system, which sometimes boosts bogus self-employment. The Chancellor has already hinted at changes to the tax regime for self-employed people as a consequence of the help given to them through the current crisis. Some contractors have raised concerns about being treated like an employee for tax purposes but not for employment rights purposes. Given the huge ongoing labour market difficulties caused by the current crisis, I would like to ask the Minister what consideration the Government have given to the timetable for their proposed changes and, in particular, what their attitude is to the amendments before us tonight calling for a delay in the roll-out of the IR35 changes to the private sector, so that we can get the balance between tax and employment rights correct.

Many Members have also received representations about changes to the loan charge. We have supported attempts to deal with tax avoidance, but also expressed concern for those advised into such arrangements, by either employers or the promoters of such schemes. We will continue to press the Government to review how the promoters of disguised remuneration schemes have been tackled—or not tackled, as the case may be—by HMRC and ensure that those who promote such schemes are held to account.

[Sir Edward Davey]

I agree with what the right hon. Gentleman has been saying. Would he support the option of the House having a vote tonight on new clause 31, which relates to the loan charge? There are many people watching our deliberations who hope that this House will express a view on the loan charge, and I am told that at the moment that is not likely to happen. Will he confirm from the Front Bench that the Labour party would like a Division on new clause 31?

[Mr McFadden]

The matter of what is voted on is of course, a consideration for the Speaker. I do not always get to decide what is voted on in this House.

New clause 26, standing in my name and those of my hon. Friends, focuses on the issue of jobs and does so for the very good reason that that is the principal economic challenge facing us right now. If there was any doubt about that, we need only look at the news over the past 24 hours—1,700 jobs lost at Airbus, up to 5,000 job losses announced by the owners of Upper Crust, 4,500 at easyJet a couple of days ago, another 4,500 at Swissport, and many more around the country that do not make the front page of the national news. These are not just numbers. Every one of them is a human story of a livelihood taken away and a family wondering how they will pay the bills and what the future will hold for them.

Across the country, the claimant count measure of unemployment is up by 1.5 million since the start of the year. In addition to those out of work and the estimated 9 million on furlough schemes, it is estimated that up to 8 million employees are working fewer hours than usual. These stark figures show us that we are facing the jobs challenge of a generation. It is decades since young people leaving school, college or university graduated into a labour market such as this.

Giving my age away, I remember, as a young teenager growing up in Glasgow, attending the people’s march for jobs. Unemployment back then was around 3 million. The vocabulary of it infused the times—“signing on”; “the Girocheque”. It even gave birth to the great band UB40, named after the unemployment card that people got for signing on. The damage caused by that mass unemployment affected not just the city where I grew up, but the Black Country that I now represent, and many similar communities across the country. Long-term social and economic pain was caused by far too many people facing a life on the dole, and we must never go back to those days. If we have learned anything from that experience of the 1980s, it is that the cost of not acting is greater than the cost of acting, and we must do everything we can now to prevent mass unemployment. That is the challenge facing us.

At the start of this crisis we called for wage support to help people through. The furlough scheme and the self-employed furlough scheme were the right and necessary things to do, but as lockdown is eased, and support from those schemes starts to be withdrawn from next month, we can see the danger facing the economy. The danger is that businesses that have been just about hanging on start to let people go, caught between having no income and facing rising employment costs. This is the moment that the Government need to act to preserve jobs, jobs, jobs.

[John Redwood (Wokingham) (Con)]

I agree with the right hon. Gentleman about the importance of jobs. Is he worried that the reform the Government have in mind might mean that a self-employed person working on their own in one of our constituencies could lose a contract to a foreign company, because the big company undertaking the contract might think that was safer?

[Mr McFadden]

I am not sure about the part of the right hon. Gentleman’s intervention that referred to foreign companies, but the turbulence of the labour market right now does pose a danger to contractors. The Government have already recognised that to some degree in the delay announced for this measure.

Withdrawing support schemes at the same pace for all sectors does not recognise that some sectors are in far more difficulty than others, and that is particularly true for any sector based on the idea of people gathering closely together. Many sectors such as transport, aviation, sport, theatre, music, and others, are global British strengths, but right now they are on their knees. Dropping the social distancing rule from two metres to one metre is not enough when, in some cases, any kind of social distancing is impossible. Let us take live music, for example, which is based on the very opposite of social distancing. The break-even point for many venues and events is often being 80% to 90% full, and the change to one metre will not make that much difference to them. We need an approach that takes into account the different impact on different sectors.

If there was already a sectoral problem in withdrawing employment support, there is also now a geographical one, because Leicester is entering its second period of lockdown. Our thoughts go out to the people and businesses there who, like the rest of the country, have made great sacrifices over the past few months. We cannot yet know how long that second period of lockdown in Leicester will last. It could be a few weeks, but equally, it might be longer. Neither can we know whether Leicester will be the only place to go into another lockdown. Other cities may follow, and there has already been speculation about where those might be. How can it be right to withdraw employment support on a national basis when we are no longer in a single national position on the easing of lockdown?

We are asking people and businesses in Leicester today, and possibly other cities in the days and weeks to come, to shut down for a second time, and they should not be penalised for doing so. Will the Minister consider as a matter of urgency flexibility in the unwinding of the furlough and other support schemes, to take account of the new development of at least one, but possibly more, local lockdowns? Let me now turn to the future, and the jobs that might be created. The Government announced their back-to-work plan yesterday.

[Jim Shannon]

Something that concerns me—and I know that it also concerns the right hon. Gentleman and many other Members—is the fact that manufacturing as a proportion of the UK’s GDP has fallen from 30% in 1970 down to 10% today, which is perhaps why our economy has not grown as it should have. I understand that if we do not get that figure up from 10% to 15%, we will not have a manufacturing base for the future. Does he share my concern that if we do not retain, restore and increase our manufacturing base—including in the aerospace sector, for companies such as Bombardier in my constituency—it will not have a future?

[Mr McFadden]

There is no MP from the west midlands who does not care about our manufacturing base. It is a vital part of our economy. It may be true that we make less than we used to, but it is also true that we make more than we think, and we should never be dismissive of the activity and the creativity of making things in this country.

The Government announced their back-to-work plan yesterday, praying in aid President Roosevelt and the new deal. First, the Prime Minister wanted to compare himself to Churchill. Now it is Roosevelt. We have to wonder why he seems so uncomfortable with just being himself. Let us look at the comparison. F. D. R.’s new deal did indeed rescue the United States from the great depression. Millions of workers were hired, 255,000 miles of roads were built, as were 40,000 schools and almost 1,000 airports—major infrastructure projects that modernised the United States and stood the test of time, all at a cost of around 40% of pre-depression United States GDP. By contrast, what the Prime Minister announced yesterday was around 1% of the cost of the new deal—one cent on the dollar, if you will. He has taken the old political maxim, “Under-promise and over-deliver”, and turned it on its head.

I know that the Minister likes a good book. One of the shorter, but nevertheless hugely illuminating, studies of Roosevelt’s approach comes in Doris Kearns Goodwin’s book on leadership. In it, she sets out Roosevelt’s watchwords behind the new deal. I will leave the House to make its own judgment on the comparison between this and the Prime Minister. First, “Strike the right balance of realism and optimism”—not everything has to be claimed to be the biggest or the best in the world. After the events of recent months, systems that just worked would be an improvement. We then have, “Infuse a sense of shared purpose and direction”, “Lead by example”, “Forge a team aligned with action and change”, “Bring all stakeholders aboard”, “Set a deadline and drive full-bore to meet it”, “Address systemic problems. Launch lasting reforms”, “Be open to experiment”, “Adapt and be ready to change course where necessary”, and “Tell the story directly to the people”. That was Roosevelt’s approach, and I will leave it to others to judge whether the Prime Minister’s approach falls short not only in scale but also in spirit.

[Sir Edward Davey]

Like the right hon. Gentleman, I have read books about F. D. R. I have studied F. D. R. The Prime Minister is no F. D. R.

[Mr McFadden]

Quite.

Infrastructure expenditure is, of course, welcome, and we support it. It makes sense to do this when interest rates are historically low.

[Sir Mike Penning (Hemel Hempstead) (Con)]

There are people in our constituencies whose lives are being destroyed every day because the loan charge has been applied to them retrospectively. Forget what Mr Speaker might say—will the Labour party support new clause 31 if it is called? If not, why not?

--- Later in debate ---

[Mr McFadden]

On the loan charge, as I said, we have always supported cracking down on tax avoidance and we support action against those who enabled the scheme. New clause 31 makes a connection between people’s tax treatment and what they knew; I believe we have to explore that principle as a matter of taxation and think carefully about how to proceed. I look forward to the debate on that later.