Cerberus Capital Management: Purchase of Distressed Assets

Peter Dowd Excerpts

Wednesday 22nd February 2017 Westminster Hall

[Peter Dowd (Bootle) (Lab)]

It is, as ever, a pleasure to serve under your stewardship, Mr Owen.

Hon. Members have already made excellent points in the debate, particularly the hon. Member for East Lothian (George Kerevan), who I know has been interested in this matter for some time and has a great deal of knowledge of it. I appreciate that he has enabled us to have the opportunity to consider this matter and that he has shared his thoughtful views, which were, as always, penetrating.

This matter has its origins in the financial crisis. I do not want to regurgitate the debate about the origin of that crisis, but increasingly it is apparent that it is not simply about the claims, for example, that the last Labour Government “maxed out” on the country’s credit card—a hackneyed claim, if ever there was one, and one that does not go to the heart of why this situation has occurred.

The 2008 crisis almost brought down the world’s financial system; it took huge taxpayer-financed bail-outs to shore up the industry. In that regard—this relates to the last point that the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin), the Scottish National party spokesman, made—it is important that taxpayers get value for money when assets are sold. The process must be as open and transparent as possible, and it must stand up to scrutiny at the time and thereafter, especially when public services across the board are under such strain. The Government ought not to sell on assets when the people at the other end of the process are going to be treated unfairly and unjustly at some point. That is not acceptable. As has been said, the Government have a duty of care.

I will concentrate my comments today on the here and now, as other Members have covered the pertinent background and context of this matter, for which I am grateful. I will not repeat what they have said, other than to say that issues about on-selling, the plight of customers, business models, tax avoidance, the cost to the taxpayer, the regulatory issues and—fundamentally—the duty of care to people and businesses have gone completely and utterly out of the window.

The Government’s response to the Public Accounts Committee’s 24th report of this Parliament was sandwiched in between the PAC’s reports on “Universal Credit and fraud and error”, and the “UnitingCare Partnership contract”, and those reports do not exactly show Government management in those policy areas to be particularly competent either. I believe that the PAC’s report on this matter is a good place to start, as it is the current Government who made the decision to dispose of this £13.5 billion of mortgages and loans to Cerberus.

As you know, Mr Owen, in Greek mythology Cerberus was the three-headed “hound of Hades” who guarded the doors of hell, to stop the dead from leaving and the living from getting in. That is a metaphor for this organisation; it stops people from leaving. It gets them by the throat and they are trapped forever, and that is not acceptable. I am not sure what to make of that name for a company, but it is well worth leaving that in the air for people to ponder on for a moment.

As hon. Members will be aware, we have been led to understand that the sale of these assets represented the Government’s largest ever financial asset sale, and we have been told that it was “value for money”. I would expect the Government to claim nothing less, so there is no surprise in their making that statement. However, it prompts the question: what evidence have the Government given to support that assessment? The answer is, “Very little”.

If the Government’s claims stack up, why are they so reluctant to accept certain recommendations set out in that PAC report, not least those on the issue of transparency? Why have the Government rejected the recommendations regarding the setting up of an independent panel of valuation experts for all major sales, to review and challenge valuations in advance of all large asset sales and the reliability of the organisations that those assets are going to? If that had been done in this instance, we might not be in this situation. Surely such an evaluation would vindicate the Government’s position that what they did was correct, above board and transparent, and that no one is any worse off for the decision they took. However, that has not happened.

Similarly, the Opposition find it difficult to understand why, if the Government are committed to tackling tax avoidance and evasion, they rejected the PAC’s recommendations that Government Departments should be required “as far as possible” to discount gains from tax avoidance that may be factored into bids, and that the Treasury should produce unambiguous guidance, for both selling Departments and potential bidders, on how tax will be taken into consideration as part of a sale or a contract award. The Government have done nothing about those recommendations either, and their answer to the PAC’s report is incredibly vague. It goes around and around in a circle, and no one can break into it.

Nevertheless, the Government are proud of their enormous financial asset sale, claiming, as I have said, that it was a good deal for the taxpayer. I am not convinced about that, and it certainly was not a good deal for the end users who were on the receiving end of it.

It is true that the National Audit Office said that some aspects of the sale were conducted appropriately, but the NAO also raised a number of key concerns about the Government’s approach. Mortgage holders who are worried about the future will not have been reassured by anything that the Government have done, and the NAO pointed out:

“While the mortgages and loans are currently owned by FCA-licensed entities, they, like any…mortgage, could be sold in the future to an entity which is not regulated. If…customers needed to seek redress, they would have to do so under the Consumer Rights Act”.

That is not right. The Government have a duty of care, but they did not seem to care, as they wanted these assets off the books.

It does not stop there. The NAO criticised other aspects of the sale, saying, for example, that UK Asset Resolution Ltd’s

“limited competitive tendering in the procurement process for its financial adviser was not good practice.”

That refers to the sale of assets, which was not done under appropriate good practice. Similarly, the financial advising company involved—Credit Suisse—also acted as financing bank to the bidder. The NAO said of that:

“Due to a potential conflict of interest, this had not been permitted under previous sales.”

So I ask the Minister—what of that? Or is that detail unimportant?

When it comes to people’s lives and businesses, and for example to public sector staffing, we should note that, according to the NAO:

“UKAR identified an alternative sale option which had a higher…valuation.”

So the assets might have gone to someone more appropriate, but UKAR

“did not have enough staff capacity to run multiple transactions concurrently”.

There is something wrong with that situation, and it goes to the heart of the duty of care not only to the taxpayer but to the people affected by this matter, who in effect got a double whammy.

The Government have a lackadaisical attitude to this matter; indeed, it borders on the insouciant. Surely, given that there was such value for money for the taxpayer, it is not unreasonable to ask how it can be that our hospitals and schools are in a state of crisis and starved of funding, because they are being affected by this as well. When Opposition Members hear the phrase “value for money”, which has been rammed down our throats time after time in relation to this matter, we ask, “Which values?”, and, “For whom?”

This week, NHS trusts posted a massive deficit of almost £1 billion at the end of the third quarter, and yet we are told that this sale is value for money. Meanwhile, social care is in crisis, with 1.2 million elderly people needing care, but we are still told that this is value for money. Selling off assets not in the interests of the many, not in the interests of the taxpayer and not in the interests of the people sitting behind us in Westminster Hall today, but just to fund a failed deficit reduction programme, is not acceptable. It is a false saving.

Finally, the Government say that they will learn lessons from these reports, and I applaud them for that. The question is, when will they share those lessons with the rest of us and prevent this dreadful scam from ever happening again?

[Danny Kinahan (South Antrim) (UUP)]

Will the hon. Gentleman give way?

Value Added Taxation

Peter Dowd Excerpts

Tuesday 21st February 2017 General Committees

[The Chair]

We now have until 9.55 am for questions to the Minister. Although I may allow the shadow Minister some leeway, I remind hon. Members that questions should be brief. Subject to my discretion, it is open to a Member to ask related supplementary questions.

[Peter Dowd (Bootle) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Davies. I thank the hon. Member for North East Somerset for his presentation and the Minister for soldiering on with a cold or virus.

Reference was made to “Time to decide”. I think that was 23 June last year, actually. That is symptomatic, in that many hon. Members are exercised by the fact that the Government are in assent on this matter and for so long have been all at sea—I think mid-channel might be where they are. Of course, the European Scrutiny Committee showed its exasperation on this matter and wagged its finger at the Government for not being able to debate this in due time to tease out many of these very important issues. However, we are where we are.

I think that in the last Committee of this nature that I was at, I raised the fact that we are now, in the light of the referendum, just going through the motions; I think we are all going through the motions. Before the hon. Member for North East Somerset got up and spoke, I thought, rather quaintly, that some Members do not grasp that, but clearly everybody is now beginning to grasp it.

On a more positive note, we have before us a framework in relation to the operation of a VAT system that simplifies things by reducing bureaucracy and so on. No one can disagree with that, but within a couple of years we will not be a member of the EU. We will not be in the single market, I suspect, or in the customs union and all the other institutions, so the debate that we are having, to some degree or another, will all be pretty obsolete. Unless the Government can push this along in the next two years—so pretty sharpish—it is pretty pointless, but of course by that time we will, I assume, have gained complete sovereignty over our tax affairs. We will not be beholden to the Commission—presumably. We will be able to have whatever VAT rate we want—presumably. We will be able to be as flexible as we want with the rates—presumably. Conservative Members, who wear subsidiarity as an amulet, will even be able to get rid of the descriptive name of the tax and call it something other than VAT. I am sure that Members will have their own monikers and acronyms ready: WOT, the “We’re off” tax, or GOT, the get-out tax. I suspect that it will be the legacy of some Conservative Members to get rid of the last vestige of European colonialism. It will be similar to when the Irish painted their red postboxes green.

Anyway, VAT arrangements will still exist. The bottom line is that we need certain assurances that over the next two years there will not be more loss of tax from the VAT regime as a result of aggressive tax avoidance or evasion, especially given that Her Majesty’s Revenue and Customs’ ready reckoner indicates that a 1% change to the standard rate is worth about £5.7 billion. We really have to keep our eye on that. As we move into this transition, we have to keep our eye on that. We have to put markers down in relation to green tax as well. I am talking about commitments not to put too much tax on green issues. We do not want tax hikes by the back door.

On the tampon tax, my hon. Friend the Member for Dewsbury (Paula Sherriff) and many women’s groups have fought hard to abolish the tax, and we need to push on and get an unambiguous commitment from the Government.

[The Chair]

Order. We will have a debate after the questions. I was prepared to give the hon. Gentleman some latitude but I ask him to crack on. I do not want him to use up his debate material during the questions. He might want to save it up for the debate.

[Peter Dowd]

I have raised the issues of tax avoidance and the green tax. On the optimism about getting the measure through, do we believe that we will be able to introduce it within the next two years? How long is a piece of string in relation to this matter? I hope that we do not have to hold our breath for too long.

[Jane Ellison]

I will make a general point and then respond with a bit more detail on fraud. I could not disagree more with the shadow Minister, although I thank him for his kind words on the state of my voice—I apologise to colleagues. It is certainly not the case that the vote to leave the European Union makes the debate “obsolete” and our participation in and engagement with the agenda pointless. For a start, there are UK businesses that have EU subsidiaries that will continue to be affected by the VAT rules within the EU, so it is important that the rules work well and are subject to sensible reform. The UK has always been a good influence for pragmatic reform in all such regards.

The precise arrangements under which we operate outside the EU will be subject, as we all know, to detailed and complex negotiation once article 50 has been triggered, but the EU will remain a major trading partner. We are leaving the EU; we are not leaving Europe. It will be an extremely important commercial relationship. The extent, therefore, to which the direction of travel on EU VAT rules aligns with our own priorities regarding simple and pragmatic regulation that is not burdensome to small businesses is, and will remain, extremely important.

Before we came into the debate, I asked my officials about how we will influence policy once we are outside the EU. The reality is that there are people who are not in the EU now who will influence and have a view about the EU’s VAT proposals. Equally, the OECD does a lot of work in that respect. There is a broad alignment of direction of travel between that organisation and the EU, and to that extent we are an important influence within the OECD. I reject the idea that the debate is obsolete and that our interest ceases once we are outside the EU. It remains the case that we need the rules to function sensibly and in a way that is as unburdensome as possible and addresses fraud, to which I now turn.

No system will be entirely fraud-free, and the concern for the UK and member states more generally about any move to a new system is that any change could introduce a new type of VAT fraud. In all aspects of the tax system, we have to consider where people might look to exploit the gap created by a change. In the UK, the level of VAT fraud attributable to criminal attacks on cross-border trade has fallen from a peak of between £2.5 billion and £3.5 billion in 2005-06 to between £500 million and £1 billion in 2014-15. The Commission has done various studies, and the one from 2013 estimates that such supplies amount to about €184 billion-worth of VAT for the UK alone, in terms of intra-EU supplies. Any change to the VAT rules on intra-EU supplies that would introduce a new type of fraud has, therefore, the potential for huge losses and it is important that we tread carefully. Within any proposal for a definitive VAT system, that will be an area for great scrutiny. We welcome the Commission’s engagement with us and its acceptance that member states will need to work very closely together to explore and evaluate.

[Peter Dowd]

I was trying to make a point about the obsolete nature of this debate. Would the Minister agree that there is a big difference between having a debate when a member of the European Union, with access to the single market and so on, and when outside the Union? We have been discussing it for several years; we are moving out and the EU know that, so this debate is to some extent pretty obsolete.

[Jane Ellison]

Without rerunning the referendum campaign, those issues were explored. I do not accept the basic premise, for the reasons I have given. Many businesses will continue to trade within the EU and have EU subsidiaries. The EU will remain a hugely significant trading partner and, as with all our trading partnerships around the world, we would look to bring UK influence to bear in a way that would support our own economic goals. There is a mutual benefit in having rules that work for everyone. We will also be a major trading partner for many EU members when we are outside the EU. Those are also important trading relationships. To that extent, there is mutual interest in making sure that we continue to move in a broad direction of travel and that we bring UK influence to bear.

When I was Europe Minister in the Department of Health, my experience was that the UK perspective on regulation, particularly with regard to the burden on business, was always felt to be a pragmatic and valuable contribution. I have no reason to think that that will change afterwards, albeit that relationships are clearly going to be in flux over the coming period of negotiation.

[Peter Dowd]

I take the Minister’s point, but the first sentence in the document is:

“This action plan sets out the pathway to the creation of a single EU VAT area.”

That is in the context of the single market. Does the Minister not agree that she is putting her head in the sand in the way that she is continuing to discuss this matter?

[Jane Ellison]

I am not sure I can add a great deal more. No, I do not have my head in the sand. I am being practical, as many of us now have to be. As Ministers, many of us are engaged on a day-to-day basis with the practicalities of how we move forward.

To reiterate, when we are outside the EU, it is probably going to remain our most important trading relationship. Therefore, it is vital that we continue to be good EU members while we are in, and that we continue to be engaged, practical and positive once we are out.

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[Jane Ellison]

I will reflect and try to understand what was just said.

[Peter Dowd]

Just a final question from me. The Minister also did not answer the question from the hon. Member for Wycombe about the tampon tax. Although the Government have legislated to get rid of the tampon tax, depending on whether we are in or out of the Union, does the Minister believe that we will be able to implement a zero rate on the tampon tax before we leave the Union? What is the real possibility of that happening?

[Jane Ellison]

We have taken the House’s instructions very seriously. There was not just the debate on Report last year, to which I responded; this has been a live debate probably for my adult lifetime, and there have certainly been a lot of debates in the House in recent years, so we have been actively pursuing this issue. I recently detailed in a written answer some of the extensive engagement we have had at ministerial level and through letters at official level.

While we are in the EU, both sides continue to be bound by existing rights and obligations, and EU law allows for a reduced rate of not less than 5% to be applied to those products. We apply the lowest reduced rate, but we cannot apply a zero rate until there is an EU legislative change. We continue to push for it and to engage on the issue very actively, but the EU legislation can be initiated only by the Commission, and to date it has not provided the proposal that it was planning to bring forward before the EU membership referendum. We continue to push for the proposal, and we have tried to find ways of accelerating the prospects of a change, but it is likely that it will feature only as part of the VAT rates review that we anticipate will happen towards the end of this year. We will continue to keep the House updated, and no doubt we will return to the issue in the debates on this year’s Finance Bill.

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[Peter Dowd]

I have nothing further to add to this debate.

[Kirsty Blackman (Aberdeen North) (SNP)]

I have a few things to add to our debate. First, I want to talk about the Scottish context, particularly on VAT for police and fire. It has previously been said that there cannot be changes to VAT for police and fire because of European regulations, and that there cannot be a change within what is classed as one member state.

In Scotland, our police and fire services are paying £35 million a year in VAT that we believe we should not be paying. We have made that case on a number of occasions, but the UK Government have refused to make changes to the system, despite allowing both the London Legacy Development Corporation and Highways England a derogation in terms of their VAT, which has not been the case for the Scottish police and fire services. If we are leaving the European Union, which it seems we are, will there be changes in that regard?

The other thing to consider is that if we go forward on the basis of what has been provided today—the document that has been put forward by the EU—there is a suggestion that there will be more flexibility for member states regarding what they can and cannot zero-rate. So if we continue with these regulations, would there be a possibility that the UK Government could more easily zero-rate the police and fire services than they have so far been willing to do? That is a specific point about the Scottish context.

I will also mention sanitary products. Again, this document mentions a couple of options for the future, option 1 and option 2, both of which involve changes around some of the derogations; option 2 in particular involves changes of that kind. We have this historical situation whereby the derogations were created when we first joined the European Union and they make little sense in today’s context. Some things that are luxury products—I consider them to be luxury products—currently have a derogation, and there are some things that I would consider essential products, such as sanitary products, that do not. I am not just talking about products for the absorption of blood but those for the absorption of urine or breast milk, which I have pressed the Minister on previously.

Those products should have a zero rate of VAT, because they are necessary. There are strange contextual issues around products used for the absorption of urine, but a number of people have got to pay VAT on them even though they are absolutely necessary products for them. It is really important that the Government consider this issue as we go forward.

I will put both those things in context. I disagree with the hon. Member for Bootle, who said that this debate is almost irrelevant; the opposite is actually true. What we need to do, as current members of the European Union, is ensure that decisions taken around VAT are as favourable as possible for the UK. We need to go into those negotiations and make our position clear, which is why I am taking the time today to speak about those things that I think are really important, so that the Minister is aware, when he goes into those negotiations, that I think they should be key priorities.

The wider context is that we will be outside the EU and we will have less of a seat at that table than we do currently. The Minister has mentioned the seat that we have around the OECD table, but when it comes to the single EU VAT area the likelihood is that it will take some time to create it and that we will lose our seat at the EU table before it actually comes into force. So we need to make our voice heard as clearly as possible right now, so that future regulations are positive for us.

One of the reasons I think this issue is really important is that if Members look at the top of page 8 of the papers we have been given they will see that the second paragraph says:

“better cooperation with international organisations and non-EU countries over VAT should make it possible to extend the EU system of administrative cooperation to non-EU countries, particularly to ensure effective taxation of e-commerce.”

[Peter Dowd]

I do not understand why people do not get this point, but does the hon. Lady agree that the Commission will not discuss anything in this whole debate about post-Brexit issues with us? It just will not do that. Does she accept that?

[Kirsty Blackman]

In the context of the article 50 negotiations that we will have, I think that the Commission will say to us, “No, we’re not very keen to discuss some of the ongoing future framework.” However, we are currently a member state. We have not yet triggered article 50 and while the article 50 negotiation period is happening, we have two years as an EU member state. The Commission does not have the ability to exclude us from negotiations about how things will develop in the future. So if the Government and the UK fail to do what I am suggesting, there will be a huge issue regarding how the UK gains access to things such as the single market in the future.

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[Peter Dowd]

I repeat what I said earlier: this action plan—not a future action plan or one we would like—sets out the pathway to the creation of a single EU VAT area. Does the hon. Lady not understand that we are not going to be in a single EU VAT area?

[Kirsty Blackman]

We will not be in a single EU VAT area because we will not be an EU member state. However, the paragraph that I have just read out says that it should be

“possible to extend the EU system of administrative cooperation to non-EU countries, particularly to ensure effective taxation of e-commerce”,

so we will be involved as a third country. Given the way the EU does trade deals, it will look to ensure that there is as much equivalence and commonality as possible in a number of areas. We therefore need to make the case for the industries, sectors and products that we think are important. Ensuring that our voice is as loud as possible in these negotiations will benefit us as a country.

The likelihood is that the EU will look to include some commonality or equivalence in relation to VAT systems in a post-Brexit deal with the UK. The EU is a much bigger entity than the UK, so we need to think carefully about how the EU is currently structured and what it is currently doing to ensure that it is as favourable as possible for us when we become a third country and try to make a trade deal with it.

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[Jane Ellison]

I thank hon. Members for their contributions. I particularly thank the hon. Member for Aberdeen North, who spoke for the Scottish National party, for her wide-ranging contribution. I note that she made a bid with regard to police and fire services to add to the Treasury’s £30 billion and counting of VAT bids. We have explored the issue of the VAT incurred as a result of the changed arrangements, so she will be familiar with the point that I am going to make. That issue was in the business case for the changed arrangements. The Scottish Government were warned repeatedly that that would be the result of the way that they restructured emergency services, so it is surprising that the SNP keeps raising the issue as if the change was somehow imposed from the outside. The Scottish Government were alerted at the time. Our position on that remains unchanged, but as I said, I will add it to the list of things for which people want to see relief, along with the others that she mentioned.

I agree with the hon. Lady more—I think we both perhaps disagree slightly with the shadow spokesman for the Labour party—on her point that it remains very much in our interests to continue to engage with this debate. I will not speculate or second-guess the outcome of our Government’s negotiations or where the EU Commission is going on this, but there is a mutual interest in smooth and competitive trading arrangements. European markets account for around half the UK’s overall trade and foreign investments; around 3.5 million jobs. We will therefore continue to engage extremely actively and constructively while we are in the EU. However, it remains the case that even once we are outside it, the EU VAT system is influential. It is in our interests to ensure, to the extent that we can, that it is aligned with OECD and other international work, to take up the point made by my hon. Friend the Member for Wycombe that this debate is wider than the EU.

We will remain engaged and there is mutual benefit, not just because of businesses that have EU subsidiaries. Because of the cross-border nature of trade, there is mutual advantage in making sure that arrangements make sense, both within and without the EU. I reject the counsel of despair from the Opposition Front Bench that there is no point in doing this—there is every point.

[Peter Dowd]

I am surprised the Minister has taken that view. It is a complete distortion. We are talking in the context of the document before us. This debate is specifically in relation to the document before us. It has taken years to get to this position. We are only two years from leaving the EU, and the idea that this has to do with post-Brexit negotiations is complete and utter tosh. Does the Minister agree that there is a difference between trying to saddle us, in relation to post-negotiation deals, with this and trying to deal with this specific issue? The two are completely different and the Minister should know that.

[Jane Ellison]

The Minister does know that, but the point I am making is that we are obviously in the EU until we are not. It continues to be in our interest to influence debate. I think I have engaged very directly with the shadow Minister’s point. The point I have been trying to make is that this is a broader challenge than just within the EU. The international direction of travel on VAT remains important. The extent to which, for example, better co-operation is enshrined within new systems will provide better information on which we can help to shape policies around supplies across borders.

The OECD is already looking at ways to improve international co-operation, so there is every reason to continue to engage with this agenda. It is nonsense to say that it is irrelevant, even though we will be outside the EU in due course. The extent to which we have a degree of alignment in objectives and that direction of travel between the EU and other major trading blocs, and international trading and economic organisations such as the OECD remains fundamentally important because they have at their heart the desire to find some key principles around which we can all agree that will facilitate trade, less fraud and lower burdens on business across the piece.

I end where I began by saying that this is an important issue on which we will continue to engage while we are in the EU, and continue to influence in a number of different ways once we are outside it.

Question put and agreed to.

Oral Answers to Questions

Peter Dowd Excerpts

Tuesday 17th January 2017 Commons Chamber

[Jane Ellison]

There are a number of things. I reflected on them during the Opposition day debate on this subject when, as Labour Front Benchers will remember, I accepted their motion. We have of course learned a number of lessons, including on how Ministers monitor colleagues’ views about the way in which we deal with their concerns on behalf of their constituents. HMRC has confirmed that it is not planning a contract of this nature for this particular operation, but it will have more to say when it responds both to the PAC and to the report.

[Peter Dowd (Bootle) (Lab)]

Given the NAO’s excoriating report on Concentrix’s failure to achieve savings targets, performance targets, serviceable staffing levels, sufficient levels of training, call handling accuracy, proficient contract management and competent decision making—while, unbelievably, increasing its commission almost threefold—would not the Chancellor’s time be better spent concentrating on getting a modicum of efficiency into HMRC, rather than popping off to Davos for a winter sojourn?

[Jane Ellison]

First, I want to say that many tens of thousands of people work for HMRC. It would do their morale a power of good if people in this House reflected on their current excellent performance and the improvements they have made on customer service compared with two years ago. I want to compliment them publicly on the improvements they have made.

We have accepted that mistakes were made on Concentrix, and that is the reason why the agreement was terminated. We will reflect on that further when we respond to the National Audit Office report.

Corporate Tax Base

Peter Dowd Excerpts

Tuesday 20th December 2016 General Committees

[The Chair]

We have until 10 am for questions to the Minister. I remind Members that they should ask questions, not make statements. There will be a chance for debate following the questions.

[Peter Dowd (Bootle) (Lab)]

It is a pleasure to serve under your stewardship, Mr Hanson. If I may, I will set out a series of questions, which the Minister can pick up if she wishes.

First, in the light of paragraph 1.3 of the European Scrutiny Committee’s report, which indicates that the Commission has formally withdrawn its 2011 proposal for the introduction by Council directive of a common consolidated corporate tax base, or CCCTB—it almost sounds like the acronym for a children’s programme—and the fact that seven other national Parliaments have given a reasoned opinion why the proposal fails to adhere to the subsidiarity principle, as the hon. Member for Mid Dorset and North Poole indicated, does the Minister acknowledge that the issue is in effect a dead duck, and that scrutiny and debate of it is therefore perhaps a little academic?

Secondly, does the Minister acknowledge, as noted in paragraph 1.3 of the report, that the question of the UK introducing these newly proposed directives is academic, given that they are provisionally lined up for implementation on 1 January 2019 and 1 January 2021 respectively—unless, of course, Brexit does not mean Brexit?

Thirdly, the European Scrutiny Committee’s report also highlighted that the Government had

“completely failed to provide either any substantive analysis or its view on whether the proposals are compatible with the principle of subsidiarity.”

The Minister referred to that, but the Committee specifically said that the Government had not provided any information. Why is that?

Fourthly, in paragraph 1.7 of its report, the European Scrutiny Committee expressed surprise that the Government had acquiesced to the ECOFIN conclusions of 6 December 2016 about an EU corporate tax system, given their apparent view—as set out by the Minister’s predecessor, the right hon. Member for South West Hertfordshire (Mr Gauke), in response to the hon. Member for Luton North (Kelvin Hopkins) on 29 March—that the CCTB would undermine our sovereignty and

“risk harming the competitiveness and growth prospects of the Single Market.”

Does the Minister agree with that conclusion of the European Scrutiny Committee?

Finally, given that the issue is academic for two reasons—namely that the Government will not sign up to the CCTB and we will be virtually out of the EU by the time any progress is made on the issue—what alternative do the Government have when it comes to tackling profit shifting and unintentional double taxation across Europe and beyond?

[Jane Ellison]

I should perhaps say in anticipation that if I cannot respond to any questions from colleagues, I will of course write to them. I hope that satisfies hon. Members.

I will deal with the points raised. There was a general question about subsidiarity. We do not believe that either the CCTB or CCCTB are necessary for the internal market to function effectively, so we do not accept the assumptions that appear to underpin the Commission’s proposal. At present, we are therefore not convinced that the proposal is consistent with subsidiarity.

The hon. Member for Bootle mentioned ECOFIN’s conclusions. They were high level in nature and do not commit the UK to anything. The Government have made our reservations about the proposals clear. As directives on direct tax, the files require the unanimous approval of member states before they can be agreed. We will continue to engage constructively. As I said, as can be seen from our co-operation on the OECD project and the substantial number of measures we have passed since 2015 alone, we are clearly very supportive of the intended direction of travel. However, we will not sign up to anything that unduly restricts our sovereignty over direct tax, as the current version of the file does.

The legal base was also mentioned, which I touched on. Article 115 of the treaty on the functioning of the European Union provides for EU legislation that directly affects the single market. While we think that it might be possible to make the case that that article is an acceptable legal base, we have broader reservations about whether the proposals can achieve their objectives, as I have set out.

The shadow Minister asks what is envisaged as we go forward; that question quite reasonably arises whenever we debate EU matters. He mentioned the timing, which clearly relates to when we will leave the EU. UK companies that operate in the EU and meet the conditions of the CCCTB would need to understand and operate under its rules if it were to come into effect. The amount of profit allocable to UK activities will remain the same.

From the perspective of double taxation relief, our rules and treaties should continue to operate as they do now. In fact, we have double taxation treaties in place with all of our European partners—as the hon. Member for Kirkcaldy and Cowdenbeath knows; we debated this on Friday—so we are not dependent on EU laws alone on such matters. Those are already in place and will continue to operate as they do now, so we do not think that that is too much of a material concern. I think I have touched on all the key points. Subsidiarity was mentioned, but I think I have alluded to it sufficiently.

--- Later in debate ---

[Peter Dowd]

Some of the questions being asked today are crucial, but as I said in my questions, I fear we are in a period of transition before we leave the European Union, and thus many of our discussions are in danger of being more focused on theological, almost philosophical, and academic questions about European Union issues. There is a danger that we are fighting a battle that has been fought and, depending on one’s perspective, lost. We must move on. I recognise that it is important to scrutinise these issues, but there is a danger that we are scrutinising the past. Issues relating to the corporation tax base, or what we want to do in the context of Europe and the world, must be done in the context of the future, not the past.

When I read the document, I had a sense of fear or concern about some issues and I wanted to tease these out in my questions—for example, the ECOFIN issue. The danger is that in trying to tease out these issues, we are not dealing with what we will do from here on in, and are concentrating on the past. It is important to realise that the 2011 directives are toast; they are gone. The two alternative proposals will not come into effect because we will not agree to them, so they are academic. It would be best to concentrate our efforts on how we deal with corporation tax as a partner of Europe, not a member of it. Much as I think that is regrettable, we are where we are, and we need to move the debate on to post-Brexit, not rehash old debates and arguments that we have had many times. We need to move on.

--- Later in debate ---

[Jane Ellison]

I thank colleagues for their contributions, which included a typically thoughtful speech from the hon. Member for Bishop Auckland. I will not detain the Committee too long in drawing some closing thoughts together. I thank the members of the European Scrutiny Committee for recommending this debate. The Government will continue to respond to these important debates, allowing parliamentary scrutiny of EU proposals. I take the point that the hon. Member for Bootle made, but I would not go as far as to say that this is all a pointless exercise.

[Peter Dowd]

I understand where the Minister is coming from, but I want to be clear: I was not trying to say that this is a pointless exercise—it is absolutely crucial that we have scrutiny of these matters. The point I was trying to make was that much of the scrutiny focused on what happened in the past, not what will happen in the future. We are having debates and discussions about things that are not really going to take us forward. That is the point I was trying to make—not that it was pointless, but that the scrutiny is the wrong scrutiny.

[Jane Ellison]

A fair point, and I welcome the clarification, but I would still slightly disagree. The debates we have been having about the challenges of international taxation and multinationals, which were laid out eloquently by the hon. Member for Bishop Auckland, are ongoing. They have taken place in the context of the G20 and the OECD, and will continue to take place in the EU. We will continue to have those debates after our exit from the EU because, as people have said, we are leaving the EU, not Europe, and we will continue to have very important relationships. It is important that we engage with this direction of travel, because this is hardly going to be an overnight process.

There was a slight implication in the contribution from the hon. Member for Bishop Auckland that compared to the OECD, the EU was a model of speedy progress; that is where I would sound my only note of scepticism. It is clear that we will be engaging on these matters for a long time to come, in a range of international forums, so the debates that we have are useful. They have been echoed in other countries. Other people have expressed issues and concerns, as we have as a country, and there have been other reasoned opinions offered.

Commercial Financial Dispute Resolution Platform

Peter Dowd Excerpts

Thursday 15th December 2016 Commons Chamber

[Peter Dowd (Bootle) (Lab)]

The hon. Member for Dumfries and Galloway (Richard Arkless) has summarised most of the things that I would have referred to. I thank the hon. Member for East Lothian (George Kerevan) for bringing the issue before us. I also want to touch on one or two points made by the hon. Member for Wycombe (Mr Baker) about the Austrian school. As he said, the system is not adequate to deal with the task of resolving complaints. My right hon. Friend the Member for Delyn (Mr Hanson) gave a passionate exposition of his constituents’ concerns.

I am pleased that we are debating this issue. It has been the subject of cross-party engagement, particularly in the work of the all-party parliamentary group on fair business banking and that on alternative dispute resolution, which is chaired by the hon. Member for Henley (John Howell). I suspect that RBS’s use of global restructuring is the most glaring example of how poor corporate governance and weak regulation can produce dreadful outcomes for individuals and businesses. Many of the small business owners affected have lost not just their businesses but their health. Under the current financial regulatory system there is a huge imbalance of power between small businesses and their financial services providers, as many Members have mentioned, and that imbalance needs to be redressed. When problems arise between businesses and their banks, as happened with RBS and the GRG, the dispute resolution options open to businesses are inadequate. RBS announced in November that it was establishing a new complaints review, but any ad hoc dispute resolution mechanism based on the internal mechanisms of the bank is clearly insufficient.

The failures of RBS were fundamental. Its actions were not just the result of a few rogue employees; apparently, those actions were RBS’s explicit policy. Employees were strongly encouraged to push small businesses into the GRG. Restructuring was required of companies, along with interest rate uplifts. Many claim that once small businesses were in the hands of the GRG, they were, to use a phrase, turned over for every penny that could be found. There was no great secret in the bank about what was taking place. Ostensibly, the fact that project “dash for cash” was in the system was celebrated, as the hon. Member for Edinburgh West (Michelle Thomson) said. The intention could not have been more obvious, and it had little to do with assisting businesses that were in trouble.

The motion usefully highlights the fact that we cannot say that this was a problem at just one bank. The issue went beyond that; it was systemic, and we can point to the wider failings of the banking sector that led us here. The catastrophic failure of the system in 2008 made that clear. Poor regulations, excessive borrowing and incentives within banks all helped to drive the crash. Of course, the cost to the taxpayer was immense. On the IMF estimate, the UK bail-out scheme cost, at its peak, £1.2 trillion.

The lessons that should have been learned are clear. Banks have to be regulated well in the public interest and in the interests of the taxpayer. A laissez-faire approach is inappropriate for a sector of the economy as uniquely privileged as banking. Since 2008, British banks have placed themselves on a more solid foundation, building up reserves and conducting regular stress tests, and closer monitoring has been adopted by the appropriate authorities. That is quite right.

RBS’s novel approach to many small businesses shows graphically and in a historic way how things can go wrong. Poor management, avarice and hubris took the place of prudent management at the top of the bank, and other people’s money was used imprudently on the basis of hubris. The management were reduced to shoring up the balance sheet by almost any means necessary, and mechanisms must be in place to stop that happening.

Since the financial crisis, a consensus has grown up that a failure of regulation and regulators helped to drive the crash. Efforts have been made at a national and international level, but there have been troubling signs since the election last year that the Government may be going a bit cold on the necessary work. The proposals of the Vickers commission have been, as John Vickers has said, largely ignored, and the inquiry into banking culture has been scrapped.

I know that the Minister is in listening mode, and I hope that he listens today. There are challenges ahead, and we must have mechanisms in place to deal with them. To leave small businesses without even the protections available to consumers is to leave them very vulnerable, and we all know what happens to small businesses when they are left in such a vulnerable position. I do not want to harp on about banking failure, but nor should we go into amnesiac mode to save a few blushes. It is absolutely vital that we get the proper processes and mechanisms in place.

When there are disputes, it is essential that they can be resolved speedily and effectively. Ad hoc dispute mechanisms go only so far, so we need systematic arrangements. In previous cases, small businessmen have had to rely on expensive and inaccessible court procedures to obtain redress, and that is not appropriate. It is not enough, as the motion states, to establish ad hoc compensation schemes after the event. They lack the authority to secure public confidence, so we have to go further. It is much better to have the appropriate procedures in place before the event, and before things begin to go wrong. The motion rightly insists that the Government follow the advice of the Treasury Committee and establish an effective dispute mechanism for financial services.

I will bring my comments to a conclusion. It is essential that the malpractice in RBS is not allowed to recur. As has been said, the taxpayer still owns a huge share—73%—in the bank. The Office for Budget Responsibility now believes, on Treasury advice, I understand, that the stake may never be sold, or will not be sold for a considerable period. It is absolutely right that we should expect any bank to treat its customers fairly. The failures at RBS and its treatment of its customers would be totally unacceptable at any institution. At the moment, there is a wider case for at least considering the establishment of effective regulatory mechanisms, and not only such mechanisms, to change the governance and structure of our banking system. It is now pretty clear that RBS will not be sold for the foreseeable future, so it is perhaps time to conduct a full review of all the options for the future of RBS, including whether any alternatives would deliver better value for money for business and the economy. The key is to have a robust, independent and systematic resolution platform.

Savings (Government Contributions) Bill

Peter Dowd Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 12th December 2016 Commons Chamber

[Peter Dowd (Bootle) (Lab)]

I thank my hon. Friend the Member for Harrow West (Mr Thomas) for his indefatigable pursuit of the issues he has raised today, particularly on the role of credit unions. He is supported by other Members, such as my hon. Friend the Member for Walthamstow (Stella Creasy). No reasonable person could disagree with anything articulated by my hon. Friend the Member for Harrow West in his usual coherent, cogent and reasonable way. He has the support of Labour Front Benchers and of many other hon. Members in the Chamber.

My hon. Friend is in line with organisations such as StepChange Debt Charity, which welcomes the concept of Help to Save, but feels that the Government have not gone far enough in their commitment to facilitating saving. It says that only one in seven people eligible for the scheme are likely to take it up, and it supports the payroll deduction concept suggested by my hon. Friend.

Before I deal with the Opposition new clauses and amendments, I will first summarise our overall view. Although we fully support any measure that will encourage people to save, particularly young people and those on lower incomes, we feel that the proposed lifetime individual savings account will do little to help those two groups. In the Public Bill Committee, we heard a raft of expert evidence in support of that view, with many experts citing their concern that this may be simply another product in an overcrowded market. The products are not necessarily complicated per se, but the market is.

The Opposition will not stand in the way of the Bill, but we want to make a number of reasonable changes to ensure that the proposed ISA and right-to-buy scheme proposals do what they say they will do. Those with low incomes are already struggling to make it through the week, and they have seen the Government drastically cut in-work benefits. I do not see how people will meet the minimum threshold, particularly given the reports showing that half of UK adults have set aside less than £500 for emergencies. Some families will simply not be able to save £50 every month, as was raised by Scottish National party Members in Committee.

On the impact review of auto-enrolment, the Opposition’s wider concern is that the new savings scheme will interfere with and perhaps even have a negative impact on the automatic enrolment of people into pensions. Do the Government really want to gamble that, with 6.7 million people already auto-enrolled across 250,000 employers, they will not reach their target of 10 million by 2020? The Opposition new clauses and amendments are designed collectively to address the concern expressed across the board, including by the pensions industry, the trade union movement, Select Committees of this House and the Office for Budget Responsibility, which is that the lifetime individual savings account poses a threat to traditional pension savings and, most significantly, to auto-enrolment.

It is self-evident that automatic enrolment, which was mandated by the previous Labour Government, is an outstanding initiative that, as time passes, is starting to achieve the objective set for it. Hence our new clause 2, which proposes to place a duty on Her Majesty’s Revenue and Customs to review the impact of lifetime ISAs on automatic enrolment annually. Auto-enrolment is one of the few success stories in the pension landscape, and it is widely acknowledged in all sectors to be right. We fear that, intentionally or not, the Government’s policy may put the wider landscape in jeopardy and be a dangerous path to follow. Pensions history suggests that this will only be recognised in years to come. We want the Government to review the situation and the impact on the auto-enrolment scheme annually to ensure that the introduction of lifetime ISAs does not have a negative impact on the success of automatic enrolment.

Similarly, not all employees will be auto-enrolled until February 2018, and the increase in minimum contributions to 8% will not be completed until April 2019. The level of drop-outs is relatively low among younger people, but we do not want anything whatsoever to jeopardise the maximum possible number of people enrolling or to provide any incentive for them to opt out. That is not an unreasonable position to take, given the implications of getting things wrong. We have therefore tabled amendment 6 to delay the commencement of the Bill until the end of April 2019, when all firms will have been auto-enrolled and the increase in minimum contributions to 8% will have been completed. The simple truth is that many people cannot afford to pay into both a pension and a LISA. In fact, many can do neither. The Work and Pensions Committee has warned the Government:

“Opting out of AE to save for retirement in a LISA will leave people worse off.”

Government messages on the issue have been mixed. The DWP has been very clear that the LISA is not a pension product, but the Treasury has proffered an alternative view.

New clause 3 is on independent financial advice. If the Government cannot get their position on the lifetime ISA clear, how will ordinary people in the street be clear about it? Compared with those of other pension plans, the benefits of the LISA are relatively confusing and unclear when set in the context of the wider market. That is why we have tabled the new clause, which would place a duty on the Secretary of State to make regulations that ensured that all applicants for a lifetime ISA

“have independent financial advice made available to them”.

In other words, the new clause’s purpose is to ensure that those opening a lifetime ISA for retirement savings receive independent financial advice.

Advice is crucial in purchasing any expensive product, in particular one involving post-retirement income. The advice would be offered automatically—through an opt-in service, for example—and the service provider would sign a declaration outlining the advice the applicant had received. Any provider would have to confirm the status of the applicant, whether they were enrolled in a workplace pension scheme, whether they had signed a declaration of financial advice and whether they planned to use the lifetime ISA for a first-time residential purchase.

Independent financial advice does not have to be expensive. In fact, to give an example, the Government could mandate a robo-advice scheme, which is an online platform where an individual can get independent financial advice. Given the putative simplicity of LISA that the Minister has championed, experts inform me that having a robo-advice scheme would be a reasonable course of action, although such a scheme would need safeguards. First, it should be backed up by accredited financial advisers. Secondly, the Government should take steps to ensure that no one company has the contract, something that is all the more important to avoid a repeat of the Concentrix scandal.

The Opposition believe that it is only right that anyone considering a lifetime ISA be given the opportunity to see its benefits compared with those of other schemes on the market. New clause 3 would ensure that people could make an informed choice with the benefit of independent financial advice. It would enable parity in the quality of advice for all those entering the scheme and mean that much-needed oversight and education about the benefits of the scheme would be in situ.

It goes almost without saying that a pension is perhaps one of the most important purchases a person makes. That issue has exercised the minds of many people in government, in the regulatory sector and in the products sector. The history of mis-selling has left a long, deep shadow across the financial products sector. We must take that into account—we cannot ignore it. With so many bodies from across numerous industries outlining their concerns that there is a risk that people will save into a lifetime ISA when it is not the most beneficial retirement savings option, I cannot see a reasonable argument against ensuring that applicants receive independent financial advice before opening an account.

Millions of people have lost confidence in much of the sector to some degree or other. As witnesses in Committee alluded to, that is partly why when people are saving they do so in cash ISAs. They are not sure about stocks, shares and other products and so put their savings into products that give them a return of 0%, 0.1% and so on—up to 1% if they are lucky. We must create an environment in which people save and feel confident that they will get a reasonable return on their investment, especially if that investment is for their later years. That, too, is perfectly reasonable.

On new clause 4, the Opposition recognise that many people want to own their own home, and would encourage people to do so if that is what they wish, but we are concerned that the Government’s housing policy will only inflate housing prices further, and that the lifetime ISA will make things even more difficult in a housing environment that is already strained because of the limited numbers of houses being built nationwide. I will not even mention the huge cost of housing, particularly in London and the south-east. The average figure nationally is as much as £250,000 and over £500,000 in the capital. That is why new clause 4 would require the Government to conduct a review, within a year of the Act coming into force, of the potential impact of the lifetime ISA on house prices in the UK. It would also require that the review be made publicly available and be laid before both Houses of Parliament.

Evidence received in Committee, from the likes of Martin Lewis of MoneySavingExpert.com, acknowledged the potential popularity of the lifetime ISA but highlighted concerns about its potential impact and argued that unintended consequences of the scheme were a possibility and a concern. Worryingly, fewer homes were built in the last Parliament than under any other peacetime Government since the 1920s. The lifetime ISA might help to overheat a market already short of capacity. The Government’s priority should be to try to mitigate, not to add to, the problem. I do not consider that an unreasonable point either.

People are increasingly chasing a product in a market that has low supply levels. As I indicated in Committee, it so happens that that product is housing. The facts speak for themselves: the Government are almost two years through their five-year housing plan—not counting the previous five years—and still falling badly behind on their targets. If I recall correctly, the OBR’s assessment suggests a 0.3% inflationary effect on the housing market from products such as lifetime ISAs. If there are 100,000 house transactions a year, at £750 a time, that will add about £70 million a year to prices. If we are to implement policies that will affect an already overheating sector, it is important that we take into account their overall impact.

New clause 5 calls for a distributional analysis. As mentioned earlier, the Opposition’s underlying concern about the lifetime ISA is that it will do little to help those on low incomes to save. That is why we would like the Government to produce, within six months of the Act coming into force, an analysis of the distribution of benefits of lifetime ISAs and Help to Save accounts, including of the distributional effects between households at different income levels, genders, people with disabilities, and black and minority ethnic groups.

We should not forget that the Government’s huge cuts to universal credit will see 2.5 million people in working families lose as much as £2,000 a year, even after the Chancellor’s recent minor adjustments. It is difficult to imagine that such families will have a spare £50 a month to put into a Help to Save account. I made a point earlier about the low take-up. Those who can afford to save are generally better off, so the lifetime ISA will deliver subsidies to those who least need them. Meanwhile, the danger is that the Help to Save measure, which is specifically for universal credit and tax credit recipients, might encourage those on low incomes to save money when it is not, at that point, necessarily in their best interests. According to the Women’s Budget Group,

“Incentives to encourage saving—via the ‘Help-to-Save’ and ‘Lifetime ISA’ measures”—

are

“likely to disadvantage women”

and tend to represent

“a move away from collective provision of welfare”.

It is concerned

“that in the future such individual accounts are used to provide an income during periods of caring, illness or disability…As women are both less likely to have funds to save and more likely to require time out for caring, they would be significantly disadvantaged by such an individualized approach as opposed to a collective system that enables redistribution.”

New clause 6 feeds into the overall debate about whether the lifetime ISA and Help to Save measure will be good value for money, particularly if they do not help those on low incomes and minority groups to save. We welcome the sensible measures to address the thorny issue of the low retirement savings of the less well-off, and anything that puts money into the pockets of middle and low earners is welcome, but I wonder how that aim sits alongside the Conservatives’ planned cuts—they are more like a heist—to universal credit. According to the OBR, the various pensions and savings policies introduced since 2011, including the lifetime ISA, will create a £5 billion lacuna in the public finances.

It is therefore imperative that the scheme benefits everyone in society, not disproportionately those who are already in a position to get on the housing ladder and save. It would be a real shame if the beneficiaries of the scheme were limited to those who were already able to afford to save and afford the deposit for a house. Given that the two policy announcements come at more or less the same time as cuts to tax credits, the juxtaposition of an investment of £1.8 billion in housing support for those in a better position to afford to buy against the significant cuts for those in lower-paid work will be seen at the very least as insensitive, and by some as crass and unfair.

--- Later in debate ---

[Peter Dowd]

I echo the Minister’s sentiments about the scrutiny the Bill has received. I am grateful to the witnesses who came to our sessions, as well as for all the written evidence, informal information and contact that we received.

Of course, the provisions are in two parts: the lifetime ISA and Help to Save. No one has any objection to helping people to save; it is a question of how to do it. We are not convinced that the Bill will help people to save. We do not think that there is sufficient evidence to back up what the Minister said and we do not think that it sorts out the problem with the shortage of housing. It sets aside £1.8 billion by 2019-20, there are questions about its value for money, and we think that it complicates the market and might introduce a Trojan horse. Not everybody is convinced about it.

I am not sure that Help to Save does the business for those on a low income. It comes in the wake of major cuts to tax credits and only puts a little drop back into a very big ocean. The Government should listen to what many people, including our witnesses, have said. Nevertheless, we accept that we need to help people save for the future, and all the information that has been provided to us sets the scene for continued future debates. I thank the Minister for her helpfulness and civility throughout the process.

Draft Bank Levy (Double Taxation Relief) (SIngle Resolution Fund Levy) Regulations 2016

Peter Dowd Excerpts

Thursday 8th December 2016 General Committees

[Peter Dowd (Bootle) (Lab)]

It is a pleasure to serve under your stewardship, Mr Flello. This is one of those technical pieces of legislation with which Committees such as this deal daily, but which belie the importance of the provenance of the issue before us. Given that, I want to explore the issue in a little more detail.

I appreciate that we are dealing with regulations that give clarity to an element of the tax position of certain affected banks, as set out in regulation 5(1), while they do business in Europe. However, given the context and history in the background, it would be remiss not to remind ourselves why we are in this position: it is the result of the cataclysmic banking crisis. I say that not to rehash old arguments about the cause of the financial crisis and its dreadful effects on the economy and the lives of so many people, but to ensure that we do not simply wave this legislation through without contextual comment and certain questions being asked. Coincidentally, it also comes the day after the £500 million fine announced by the European Commission in relation to the Euribor case. We owe it to the taxpayers who picked up the bill to look at the context. It is important to do so because of the effect that the financial crisis is still having on people’s lives almost a decade later; many people’s lives and many businesses have been blighted. We agree that the single resolution fund serves a significant stabilisation purpose in the wake of the bank recovery and resolution directive, which only very few people could object to—for example, those who have been in some sort of political and economic solitary confinement for the past 10 years.

Looking to the future, we are unable to escape the fact that Brexit informs virtually everything we do in economic terms. In that respect, how this will ultimately play out in the light of the Brexit process is moving from delphic to opaque. We hope that, in the not-too-distant future, it will move to somewhere between recondite and abstract. On that note, perhaps the next time the Financial Secretary chats to the Prime Minister, she can remind her that there are nine flags in the European Union, if I remember correctly, that are red, white and blue, including the French tricolour. I think that is worth a mention over a cup of tea—and a mince pie, at this time of year.

I have to say that I was not inspired in any comforting way about the pathway to a post-EU nirvana by the comments made by some Members in yesterday’s debate, but we are where we are. That was clear from yesterday. We live in hope rather than expectation on that one and we need to be grateful for small mercies as things are moving along.

Double tax treaties are a key part of tax law for multinational activities. The simple principle is that no one should be required to pay tax twice in two different jurisdictions in relation to the same asset or profit. Of course, the problem is making sure that some tax is paid somewhere, and that that does not simply become a way of forum shopping, as it has become known, which means picking the jurisdiction with the lower rate of tax or the more benign system. For example, different jurisdictions tax derivatives contracts in different ways, so banks will look to the more benign treatment, which is unsurprising.

The purpose of double taxation treaties or arrangements is to allocate the liability to tax in given situations. As we know, the majority of such treaties follow the OECD model treaty. Such treaties will become a big part of our legal culture post-Brexit—in all situations, not just with tax—so the regulations are very important.

Specifically on the matter before us, at first examination there is little about the regulations that is controversial. That was almost implicit in the statement and the presentation from the Minister. If the aim is to implement EU legislation, there is little to be done. In other words, we must implement its principles, but we do not need to go further than implementing the core provision. However, the Government have some leeway on the precise form of the implementation of EU legislation, so I have some specific points to raise about the regulations, and in so doing I seek reassurances from the Financial Secretary—if not today, then subsequently.

First, we must ensure that no individual treaty permits a bank to direct its profits towards a benign tax regime instead of facing its tax liabilities in the United Kingdom. That raises the question of how the Government propose to deal with potential forum shopping by banks under the regulations, as I mentioned earlier. In addition, what tax avoidance measures are in place beyond what some—although not everybody—consider to be the relatively weak scheme governing the abuse of tax avoidance under the Finance Act 2013?

Secondly, there is good reason to believe that HMRC is underpowered in its personnel, and thus in its ability to investigate the practical implementation of measures of this sort. The Opposition are committed to investing in HMRC to make it fit to represent Britain in the new post-Brexit world. A key part of that will be negotiating bilateral treaties, and it is vital that we can protect our public finances, which means not allowing tax credits or reliefs to allow tax income to go offshore. Given that, how will the Government ensure that HMRC is in appropriate condition to ensure that the regulations are not abused?

Thirdly, regulation 5(3) relates to the calculation of the levy and its tax credits. There must be concern about the calculation of a bank’s equity, which is taken to mean its assets, as opposed to its liabilities, for the purposes of its balance sheet. It should be remembered that in the financial years before it fell into insolvency, Lehman Brothers Inc. was found to have deliberately understated the toxic assets on its balance sheet by entering into the infamous Repo 105 trade, by which it transferred $50 billion off its balance sheet temporarily while being contractually obliged to buy back those assets a few years later. By using such transactions, banks are able to mis-state their equity and liabilities too easily, which is important. Can the Minister guarantee that banks will not be able to do the same thing in relation to these regulations? Moreover, how will we prevent banks from juggling their assets between jurisdictions so as to reduce their liability to tax?

Fourthly, in relation to regulation 7, on determining assets and UK assets, there must be concern that the reference to UK generally accepted accounting principles—so-called GAAP—will permit the sort of fair value or mark-to-market accounting that permitted Enron to overstate its profits by fixing an entirely artificial market value for its derivatives and similar transactions. Can the Minister guarantee that such accounting treatment will not permit banks to understate their liabilities to tax in the United Kingdom?

Fifthly, there is concern that reference to “permanent establishment” in regulation 7(4) could allow a bank to use non-permanent entities to book its activities. One example, Citibank, had more than 2,000 subsidiary entities in 2008, and it is usual practice for banks to have multiple subsidiaries through which they seek to achieve regulatory arbitrage by booking assets in benign jurisdictions. Against that backdrop, is the Minister confident that the regulations will achieve the orderly raising of the levy against the banks? Do we think the regulations will do the job for which they are intended?

Sixthly—Members will be happy that I am coming towards my conclusion—in the brief policy paper from HMRC, the section on the Exchequer impact was blank, with reference to the Office for Budget Responsibility including the impact of the regulations in its autumn forecast. I was unable to find that impact in the OBR’s forecast, but I possibly did not look hard enough. Perhaps the Minister could help.

Finally, in relation to the monitoring and evaluation section of the same policy paper, a little more detail on the review mechanism and timetable would be welcome in due course. However, notwithstanding my observations and questions, we support the Government’s approach to ensuring that, in effect, relief exists so that double taxation does not put UK companies at a competitive disadvantage where there is imbrication between the bank levy and the single resolution fund levy. The question of ensuring equity or, as the policy paper puts it, a level playing field across borders on taxation for UK companies, and in this case banks and financial services, is self-evident, but the UK taxpayer should not be expected to provide largesse for those who want to have their cake and eat it.

Civil Service Compensation Scheme

Peter Dowd Excerpts

Friday 2nd December 2016 Commons Chamber

[Chris Stephens (Glasgow South West) (SNP)]

Welcome, Madam Deputy Speaker, to part 2 of the SNP Partick Thistle supporters’ day. Part 1 was led superbly by my hon. Friend the Member for Paisley and Renfrewshire South (Mhairi Black), who gave a tour de force.

I want to discuss the civil service compensation scheme. May I take this opportunity to refer to my entry in the Register of Members’ Financial Interests and to my position as chair of the Public and Commercial Services Union parliamentary group? I also thank the House staff for their excellent briefing on the issue, which I recommend to all Members.

We are finally getting to discuss this issue in the Chamber. After at least three business questions, a point of order, early-day motion 310, which, as of yesterday, has been signed by 109 Members, including representatives from seven political parties and two independent Members, and many requests for a debate, it is a pleasure finally to represent the voice of those who contribute to our public services and who find themselves, through no fault of their own, losing out financially.

On 22 September, the Government set out their formal response to the consultation on the civil service compensation scheme, including proposals that radically reduce that compensation. The issue will affect thousands of loyal civil servants, whose jobs are now at risk as departmental budgets continue to be cut and hundreds of Government offices are earmarked for closure. Areas affected include Her Majesty’s Revenue and Customs and the Equality and Human Rights Commission, which are experiencing cuts.

[Peter Dowd (Bootle) (Lab)]

There are thousands of civil servants in my constituency, 750 of whom are residents. Is the hon. Gentleman aware of suggestions that civil service managers are encouraging staff to take redundancy on current compensation terms to help with the downsizing of the civil service, or lose out under the new proposals?

[Chris Stephens]

The hon. Gentleman is correct to highlight that issue, because that is exactly what is happening. It takes away from our efforts, because we are both opposed to HMRC office closures, but the Government are forcing people to go on older terms rather than the new, drastically reduced terms.

For the benefit of those watching these proceedings, let me provide some background. The civil service compensation scheme is a statutory scheme that provides compensation for loss of office for reasons including compulsory and voluntary redundancy. In July 2009, the then Labour Government set out proposals to reform the scheme in order to control costs and to address elements that may be age-discriminatory. In broad terms, the existing scheme provided severance for those under 50 and early retirement for those aged 50 to 60. The civil service unions opposed the proposed changes on the grounds that they represented a reduction in terms for most members; that they did not adequately compensate those faced with compulsory redundancy; and that they compared unfavourably with other public sector schemes.

In February 2010, the Cabinet Office announced a modified set of proposals on which it had reached agreement with five of the six civil service unions. That agreement limited the maximum payment on compulsory redundancy to three years’ pay, where that led to a payment of no more than £60,000, and to two years’ pay for high earners. Additional protection was provided for those who were closest to retirement. The civil service compensation scheme was amended accordingly. The largest trade union, the Public and Commercial Services Union, opposed the changes and applied for a judicial review. On 11 May, the High Court ruled in favour of PCS and the amendments to the scheme were quashed, with the exception of certain changes designed to address elements that were considered to be age discriminatory.

On 6 July that year, the Conservative-Liberal Democrat coalition Government said that they would legislate to cap payments at 12 months for compulsory redundancy and 15 months for voluntary redundancy. They hoped to negotiate a permanent and sustainable agreement with the civil service unions, at which point the caps would be withdrawn. The trade unions objected to the proposed caps because they were less than those in other public sector schemes, where a limit of two years’ pay was normal.

The current announcement about changes to the civil service compensation scheme comes just five and a half years after the then Minister Francis Maude imposed changes to the civil service compensation scheme in December 2010, promising that those changes were fair, affordable and right for the long term. It is hard to see what has changed so radically since then to justify this fresh attack on civil servants’ terms and conditions.

The changes can be summarised as follows. There is currently one month’s salary per year of service, but after the proposed changes there will be three weeks’ salary per year of service. There is a cap of 21 months’ salary for voluntary redundancy and voluntary exit, but there would be a cap of 18 months’ salary for voluntary redundancy and 15 months’ salary for voluntary exit if the trade unions were not to accept the offer that has been put to them. There is a cap of 12 months’ salary for compulsory redundancy, but the Government propose to change that to nine months’ salary. There is employer-funded access to the early pension option when individuals reached the minimum pension age of 50, but access to that option will now start at age 55.

The Government propose to cut the cash compensation payment, which means that they will reduce the rate at which compensation accrues for each year of service from one month’s salary, as it is currently, to three weeks’ salary. That will affect those with short and medium service, cutting redundancy payments by 25%. The Government also propose reducing the cap on payments, as I have said, which will drastically reduce payments, for some by as much as 30%.

In addition to changes to compensation payments, the Government propose restricting employer-funded access to early pension. That option is currently given to staff in voluntary redundancy situations who have reached minimum retirement age, which is 50 in the classic and premium schemes and 55 in the nuvos and alpha schemes. Staff are offered a compensation payment based on their salary and length of service, or they are offered the option to take their pension, with the employer buying out any actuarial reduction resulting from drawing the pension early. Cabinet Office statistics show that the average value of compensation for the 50 to 54 age group will fall dramatically, by more than 50%, under the new proposals. That demonstrates the profound impact that the reform could have.

Early access to pension has been a popular alternative to the cash lump sum compensation payment for those with long service who are nearing retirement, because it provides a level of security. That is important, because it has been shown that those aged over 50 often find it harder to get a new job, and that if they do, it may be for fewer hours and/or lower pay. We are all concerned, therefore, that restricting that option will create hardship and distress. In some cases, it will result in people relying on benefit payments.

[Chris Stephens]

My hon. Friend makes an excellent point. It is clear that the civil service is reducing. Her Majesty’s Revenue and Customs, for example, is now half the size it was 10 years ago, which is important to note when it is dealing with tax avoidance and all those other issues.

[Peter Dowd]

In the light of what the hon. Gentleman has said, is this policy not just another kick in the teeth to loyal civil service staff? Over the past few years, they have had substantial pay restraint, huge job cuts and a tax on pensions, on top of the previous changes to the compensation scheme, which he mentioned a few moments ago.

[Chris Stephens]

I agree with the hon. Gentleman. He is being moderate when he says that the policy is a kick in the teeth. It certainly is, and we need to remember that these civil servants deliver precious public services every day, and they deserve to be treated better.

--- Later in debate ---

[The Deputy Leader of the House of Commons (Michael Ellis)]

I congratulate the hon. Member for Glasgow South West (Chris Stephens) on securing this debate, and I welcome the opportunity to respond to his concerns. I know that, in his role as chair of the PCS parliamentary group, he takes a close interest, as do I, in matters relating to the civil service. I, too, greatly value and appreciate the work of the civil service. Now more than ever, the work of the civil service is vital to delivering the best service to the public and to allowing us to meet the challenges and opportunities that lie ahead.

To provide the best service for the public, the civil service needs to be ready to meet challenges and opportunities. The Government must therefore ensure that the civil service can recruit and retain the best people, but we must also ensure that there is an efficient and cost-effective compensation scheme in place to support civil servants when exits are needed.

As the hon. Gentleman set out, important steps towards this goal were taken during the last Parliament. My noble Friend Lord Maude, in his then role as Minister for the Cabinet Office, introduced important reforms to modernise redundancy arrangements in the civil service. A revised civil service compensation scheme was launched in December 2010, when my noble Friend Lord Maude set out his hope and intention that it would be a fair settlement for the long term.

In the years since 2010, however, it has become apparent to the Government that the reforms did not fully deliver on their aims. For example, we were concerned that the 2010 compensation scheme provisions for early access to pensions were no longer appropriate. These provisions allowed staff aged as young as 50 to retire and draw all their civil service pension without any reduction for early payment. This was often very expensive for the employer, and it is increasingly out of line with the Government’s wider aim of responding to very welcome increases in longevity by encouraging longer working lives.

More widely, the Government’s view was that, even after the 2010 reforms, the civil service compensation scheme was simply too expensive, when considered against the background of the current economic situation. We of course recognise the need to provide good financial support to bridge the gap into alternative employment or retirement—we of course recognise that—but the Government also have a duty to balance that against the wider financial situation and the interests of the taxpayers who ultimately fund the scheme.

The 2010 compensation scheme terms were becoming increasingly out of line with those the Government believe should be available more broadly across the public sector. For example, we have made it clear that we do not believe it is appropriate to pay six-figure compensation payments within the public sector, and we are legislating to put a stop to that. We are also embarking on reforms to compensation schemes across the main public sector workforces, so it is right that the civil service scheme is consistent with those wider reforms. For all those reasons, it was clear that further reform of the civil service compensation scheme was needed.

[Peter Dowd]

With public services under absolute stress and strain—many are at breaking point—what is modern and efficient about cutting wages, numbers and training, and massive negative restructuring, in the light of the chaos in the civil service that is about to unfold with Brexit?

[Michael Ellis]

The hon. Gentleman should not underestimate the skills of the civil service. In fact, the challenges and opportunities that lie ahead can and will be adequately dealt with by our excellent civil service, which we value greatly.

Oral Answers to Questions

Peter Dowd Excerpts

Tuesday 29th November 2016 Commons Chamber

[Peter Dowd (Bootle) (Lab)]

The south-west’s productivity has drifted down since 2010 and, according to the House of Commons Library, the UK overall has seen the widest productivity gap with the G7 since 1991, when the data series began. What plans, if any, does the Chancellor have to pursue his predecessor’s so-called “Fixing the foundations” productivity plan? Or is that another failed policy that this Chancellor is trying quietly to jettison?

[Mr Hammond]

No, and if the hon. Gentleman looks at the document we published last Wednesday, he will see that it contained a specific reference to “Fixing the foundations”, which is the base document setting out the Government’s agenda for addressing productivity issues. Of course, the key announcement in last week’s autumn statement was an additional £23 billion of borrowing specifically targeted at the highest-return investment projects; this is designed to raise Britain’s productivity by raising the productivity performance of our regional cities, in particular, and our regions more generally, to that of London and the south-west.

[Peter Dowd]

It is six years late. The productivity gap has widened for both the south-west and the country, and so has the gap in earnings and wages. According to the Institute for Fiscal Studies, the outlook for wages is “dreadful”, with workers likely to earn less in real terms in 2021 than they did in 2008, and with the biggest losers being lower-income families, with the poorest third likely to see incomes drop. So in tandem with action on the productivity crisis, what are the Chancellor’s plans for action on the wages crisis?

[Mr Hammond]

First, if the hon. Gentleman that if he looks at real household disposable incomes, he will see that the picture is rather brighter, and they present a much more real picture of what people in the economy are experiencing. He is right to say that real wages are a reflection of productivity performance, and the only way sustainably to raise real wages is to raise the productivity performance of this economy. So rather than whinging about whether something was done this year, last year or six years ago, and perhaps with a careful eye on the performance of the previous Labour Government in this area, he might care to welcome the announcement made last week as an appropriate initiative to try to raise the UK’s productivity performance, and raise real wages and living standards over the long term.

Savings (Government Contributions) Bill (Fifth sitting)

Peter Dowd Excerpts

Tuesday 1st November 2016 Public Bill Committees

[Jane Ellison]

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

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

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

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

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

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

[Peter Dowd (Bootle) (Lab)]

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

[Jane Ellison]

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

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

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