Universal Credit Project Assessment Reviews

Debate between Stephen Timms and David Gauke

Tuesday 5th December 2017 Commons Chamber

[The Secretary of State for Work and Pensions (Mr David Gauke)]

Let me deal first with the motion. The challenge for any Government—and, one would think, for any aspiring Government—is to strike the right balance between transparency, and encouraging candid evaluation and debate. There is a reason why project assessment reports commissioned by the Infrastructure and Projects Authority, and formerly the Major Projects Authority, have not been released by Governments. The Public Accounts Committee has already recognised that there is a need to protect information that is commercially sensitive, and for there to be a safe space for candid evaluation and debate. The assessments we are discussing represent an important period of reflection and, by their very nature, are useful only if everyone involved is able to offer their views freely and frankly to evaluate fairly the project on which they are working. Ultimately, this is about protecting the interests of the taxpayer.

Successive Governments have continued to improve project delivery. The PAC supported the creation of the Major Projects Authority, and its objectives of strengthening project assurance and improving the transparency of information on the costs, risks and performance of major Government projects. The PAC recognised the challenges that the Government face in improving project delivery within government. Supporting all that is the rigorous scrutiny of individual projects by the National Audit Office, with full access to all papers.

Parliament has consistently directed the Government to manage projects professionally, more efficiently and effectively, and with due consideration for commercial imperatives. Consequently, I hope there is a consensus that the disclosure of information beyond the existing well-established and robust transparency policy that the PAC supports must not undermine the integrity and validity of the review process, risk weakening our commercial negotiating position, or expose us to possible legal challenge.

[Stephen Timms]

The Secretary of State refers to the National Audit Office, which he will know at one stage characterised the universal credit project as having a “good news” culture in which staff were not allowed to acknowledge and draw attention to problems. Does he agree that that should not have prevailed? Will he reassure the House that that culture has been dealt with?

[Mr Gauke]

I very much agree about the importance of a culture in which problems can be identified and passed up the command chain, with that system understood across the board. Clearly, when that does not happen, something needs to be addressed. When I entered this House in 2005—the right hon. Gentleman was a Minister at the time—we were wrestling with the problems of the tax credit fiasco, which was causing misery for vast numbers of people. If Members want an example of a project that failed because there was not a willingness to identify problems early, that is it.

The Infrastructure and Projects Authority’s policy that review reports remain confidential is founded on the position that an effective and trusted system of assurance in government is in the public interest, and that the premature disclosure of review reports undermines that public interest. Those considerations must be balanced with the desire for transparency and parliamentary scrutiny. In exceptional cases, sharing information with a Select Committee, in confidence, can be appropriate.

The motion refers to a number of reports, many of which date back some years, as my hon. Friend the Member for South Cambridgeshire (Heidi Allen) pointed out. To disclose those papers without subsequent reports showing how well universal credit has progressed would give a partial picture. In line with the motion, I will provide, by the time the House rises for the Christmas recess, the reports directly to the Work and Pensions Committee. Let me point out to the shadow Secretary of State that her motion does not require us to publish these reports or to lay them before the House. Specifically, it says that those reports should be provided to the Committee. In those circumstances, it is acceptable for us to do so. As is customary, I will need to consider redacting any appropriate material, such as the names of junior officials and information that is commercially sensitive. I wish to emphasise that it is the Government’s view that this is an exceptional request that will be agreed to on an exceptional basis, and does not set any precedent for future action. Against that background, I shall provide the reports to the Select Committee on a confidential basis. In those circumstances, I hope and expect that the documents will not be disclosed further.

Universal Credit

Debate between Stephen Timms and David Gauke

Thursday 23rd November 2017 Commons Chamber

[Mr Gauke]

My hon. Friend is right to draw attention to Citizens Advice, with which we have strongly engaged. Indeed, I spoke to its chief executive yesterday, and I have a meeting with her—the chief executive—later today. We will continue to work closely with Citizens Advice, and I am keen to ensure that, when it comes to universal support, we continue to work closely with Citizens Advice because it provides people with a huge amount of practical support and help.

[Stephen Timms (East Ham) (Lab)]

The Secretary of State’s characterisation of the tax credits system is wrong, but I welcome the helpful steps he announced today to start clearing up the problems he inherited. Will he make available large-print versions of the documentation about these changes? Does he accept that, if someone who is paid weekly and has no savings loses their job, denying them any income at all for five weeks will cause a serious problem that offering a loan does not resolve?

Universal Credit Roll-out

Debate between Stephen Timms and David Gauke

Wednesday 18th October 2017 Commons Chamber

[Mr Gauke]

That astuteness demonstrates why my hon. Friend should become my right hon. Friend sooner rather than later.

It is a very revealing point. There is no real attempt to fix this. This is about pausing it and wrecking it.

[Stephen Timms (East Ham) (Lab)]

Has the Secretary of State seen the survey of 105 local councils, which showed that of claimants who claim universal credit, over half of the council tenants are in rent arrears compared with only 10% of those on the old housing benefit? Does that not show that this system needs to be paused and fixed?

[Mr Gauke]

Part of the issue is that that is not comparing like with like. The right hon. Gentleman will understand that the selection of people who will be on universal credit will be of a different group than the housing benefit population as a whole. [Hon. Members: “Why?”] The reason is that in many cases, going on universal credit involves a change of circumstances, and that change of circumstances may in fact be a reason why people are in arrears. [Interruption.] May I just make this point? I know that the right hon. Gentleman has concerns about how we address the issue of the early period, so I will say a little bit more about it. We are seeing improvements in payment timeliness, and people are getting more support early so the reasons for increased rent arrears will not necessarily apply.

I want to make this point about what universal credit does. The work done within universal credit to give people the support to prepare for work can be too easily missed from debate.

Oral Answers to Questions

Debate between Stephen Timms and David Gauke

Monday 9th October 2017 Commons Chamber

[Mr Gauke]

We are ensuring that sufficient resources are available in jobcentres. It is worth pointing out that we have made significant progress on universal credit timeliness this year—as I have mentioned, more than 80% of new claimants received their full payment on time, and more than 90% received part of their payment—and we expect to build on that positive trend. I am sure that my hon. Friend will join me in welcoming universal credit roll-out to Torbay next May.

[Stephen Timms (East Ham) (Lab)]

The problem is that “on time” means after a six-week delay, and that delay, as the Secretary of State knows well, is causing immense hardship up and down the country. Last week I met Maria Amos, who came within an inch of suicide because she had to live literally on nothing but water for six weeks, irreparably damaging her health. The Secretary of State can choose to ignore organisations such as Citizens Advice, but will he at least take some notice when Sir John Major calls for a pause?

[Mr Gauke]

What I would say—this is exactly the point I made earlier—is that I do not believe that anybody should be left without any support for six weeks when they do not have savings or an alternative source of income, which is why it is important that advances are available within the system. The majority of claimants now make use of advances. We need to ensure that that is properly communicated to claimants. I will certainly do that, as I am sure will all Members of this House.

--- Later in debate ---

[Stephen Timms (East Ham) (Lab)]

I am very grateful, Mr Speaker. Apart from shocking delays, Citizens Advice highlights two big problems with universal credit. One is that it is too complicated; people cannot understand it. The second is that when there is a problem, there is nobody there to help people. I am glad that the Secretary of State is meeting Citizens Advice, but will he have anything to say to them on those two specific problems?

[Mr Gauke]

The personalised support available in jobcentres to people claiming universal credit is much more advanced than that which we have had in the past. In terms of complexity, universal credit is a much simpler system than that which has existed up to now, with six different benefits, leaving us in the absurd position in which people were unwilling to take a job that required them to work more than 16 hours because they would move from one benefit system to another, knowing that their hours might fall in the future, so they would move back to a different system. That complexity has discouraged people from working more hours and we should all seek to tackle that. That is exactly what universal credit does.

Budget Changes

Debate between Stephen Timms and David Gauke

Monday 21st March 2016 Commons Chamber

[Mr Gauke]

My hon. Friend puts it very well. This is a Government, and this is a Chancellor of the Exchequer, who have turned round the economy. We are in a position to be growing strongly compared with our international competitors, and we are bringing the public finances under control, having inherited the mess that would did in 2010.

[Stephen Timms (East Ham) (Lab)]

The Chancellor made no effort to justify the cut in disability benefits in the Budget statement, beyond saying that it would save a lot of money. Yesterday, we heard from the former DWP Secretary that the Chancellor’s view is that people claiming disability benefits will never vote Conservative so there is no reason for restraint in cutting their benefits. Will the Financial Secretary respond to that allegation?

[Mr Gauke]

That was not even the allegation. The reality is that, if we look at spending on disability living allowance and personal independence payments, it has gone up since 2010 by £3 billion—that is not a Government who are cutting at the expense of disabled people.

Tax Avoidance and Multinational Companies

Debate between Stephen Timms and David Gauke

Wednesday 3rd February 2016 Commons Chamber

[Mr Gauke]

I will come on to transparency, but let me first return to this Government’s record on changing domestic law and leading the way in updating the international system.

This Government have led internationally on the G20 and OECD base erosion and profit-shifting project, making the international tax rules fit for the 21st century. My right hon. Friends the Prime Minister and the Chancellor of the Exchequer, in particular, took on highly prominent roles in initiating those discussions and taking them forward through the G20 and the OECD. The outcome will be to level the playing field among businesses, give tax authorities more effective tools to tackle aggressive planning, and help us better align the location of taxable profits with the location of economic activities and value creation. This is a major step forward in addressing the underlying causes of aggressive tax avoidance.

We have been at the forefront of implementing this agenda, acting swiftly to change the rules on hybrid mismatches and country-by-country reporting. Because we consider it important not to rely solely on international rules, we have also legislated domestically to introduce a world-leading measure to address the contrived shifting of profit from this country—the diverted profits tax. The diverted profits tax targets companies that divert profits from the UK, principally those with substantial activities in the UK who are trying to avoid creating a UK permanent establishment. Under our rules, those companies either declare the correct amount of profits in the UK and pay the full amount of corporation tax on them, or risk being charged a higher amount of diverted profits tax at a rate of 25%. By the end of this Parliament, the diverted profits tax will raise an extra £1.3 billion, both directly and as a result of associated behavioural changes. The tax is already having that effect, and multinationals will pay more corporation tax as a result.

[Stephen Timms (East Ham) (Lab)]

Of course, the diverted profits tax was referred to as the Google tax. My hon. Friend the shadow Chancellor has alleged that under the terms of the deal Google will not pay a penny. Is he right about that?

[Mr Gauke]

The purpose of the diverted profits tax, which came into effect in April, is to ensure that companies stop diverting their profits and pay corporation tax like everybody else. I repeat that I cannot talk about the Google case beyond information that is in the public domain, but if this tax is effective in driving companies to stop diverting their profits, it is a success.

Oral Answers to Questions

Debate between Stephen Timms and David Gauke

Tuesday 9th December 2014 Commons Chamber

[Mr Gauke]

We are confident that the measure will be effective in targeting multinationals that use aggressive tax planning and contrived structures to avoid UK tax. The diverted profits tax will be charged at 25% and will raise more than £1 billion over the scorecard period.

[Stephen Timms (East Ham) (Lab)]

The current corporation tax rate is the lowest in the G7 and there are good reasons why that is the case. However, on small business Saturday last weekend, many of us were reminded of the heavy burden of business rates. Would it not be better, instead of reducing the corporation tax rate further, to use the same money to reduce business rates?

Changes to the Budget

Debate between Stephen Timms and David Gauke

Monday 11th June 2012 Commons Chamber

[Mr Gauke]

I am grateful to my hon. Friend for his characteristically helpful intervention.

[Stephen Timms (East Ham) (Lab)]

The Minister is now telling us that the Government do not need the money that would have been raised by the measures that he has scrapped, so why were they announced in the first place?

[Mr Gauke]

Let us put this into context. In the last year of the forecast period, the Budget measures that we announced in March would have resulted in an additional £1.14 billion for the Exchequer. As a consequence of these changes, that figure will now be £1 billion. These are relatively small items, but we have listened to the specific cases that have been made on the three elements. We had already made it clear that we wanted to consult carefully with charities and philanthropists on one of them. We have listened to the arguments and we have made changes. In the overall scope of the public finances, however, they will not make a significant difference.

Bank Account Fraud

Debate between Stephen Timms and David Gauke

Tuesday 15th November 2011 Westminster Hall

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a pleasure to serve under your chairmanship, Mr Gale. I congratulate the right hon. Member for East Ham (Stephen Timms) on securing the debate.

I sympathise with the right hon. Gentleman’s constituents, whose experiences he described so vividly. He knows that it is difficult for the Government to comment on specific cases, but it is clearly unacceptable that individuals who have been victims of fraud—that seems to be the case that he set out—should be systematically denied access to a bank account. As far as I am aware, there is no legal or regulatory reason for this to happen.

As the right hon. Gentleman said, the consequences in this day and age of someone being denied a bank account are considerable, and I entirely agree with him that that should not lightly or accidentally be denied. It is worth making the wider point that the Government want to ensure that we improve levels of financial inclusion, as indeed did the Government in which he served with such distinction. We believe that banks should serve the economy, and we are committed to improving access to banking and the transparency of financial products for consumers.

Having access to appropriate banking services is an important element of modern life, and it can help to alleviate some of the problems faced by low-income families. A bank account enables individuals to make and receive payments through a variety of channels, have a more secure place to keep money and reduce the cost of household bills. The number of individuals without bank accounts has fallen in recent years, but the Government remain keen to see the situation improve further, and in particular to identify groups who may have specific difficulties in accessing a bank account.

While the situations described by the right hon. Gentleman are clearly invidious, it is not clear how many individuals are affected by this sort of difficulty. This is the first time that I have personally been made aware of this issue. As far as the Treasury is aware, it is not widespread. The right hon. Gentleman may have identified a growing problem that we need to look at. His industry and dedication as a constituency MP have highlighted not one but two cases that happen to have occurred among his constituents.

The issue falls within the remit of the Financial Secretary to the Treasury. He is not available to attend the debate, but he will be asking officials to investigate how this matter may have arisen and how many consumers may be affected. We will write to the right hon. Gentleman to explain the findings, and I am grateful to him for highlighting this particular issue. Clearly, we need to understand whether the problem is widespread.

The right hon. Gentleman set out four points, and I shall try to respond as best I can. I will take his first and third points together. He asked whether individuals should be informed if they are going to be denied a bank account and, if so, whether they should be provided with a reason. Those are eminently sensible and reasonable points. Consumers have the right to ask for a reason if they are denied a bank account, as set out in the Money Advice Service’s guide to bank accounts, which is available on its website. Consumers may also complain to the specific firm if they are unhappy with the outcome, and they can take their complaint to the Financial Ombudsman Service.

The decision to offer a bank account is ultimately a commercial decision. Current account providers are not obliged to provide a specific reason for not offering an account. However, it is worth highlighting the Financial Services Authority’s principle that financial institutions are required to treat their customers fairly, which is relevant in these circumstances.

The right hon. Gentleman questioned whether consumers should be denied a bank account where there has been no allegation of wrongdoing. Again, decisions as to whether to offer a bank account are a commercial matter for the financial institution concerned, and the Government do not intervene in such decisions. However, there is no legal or regulatory reason for victims of fraud to be denied a bank account. The circumstances that he set out appear to be of some concern.

The fourth question asked by the right hon. Gentleman was whether consumers should be given the opportunity to challenge the refusal of an account. If consumers are unhappy with the decision taken, they may complain to the specific firm concerned, and if they are unhappy with the outcome, they can take their complaint to the Financial Ombudsman Service. I reiterate the point that if a financial institution, or more specifically a bank, has been in breach of the FSA principle of treating customers fairly, the individual customer can raise that with the bank and with the Financial Ombudsman Service. If the explanation that is given to a customer is wrong—for example, if there is misleading information about how CIFAS works and its impacts—without wanting to be drawn too much into specific cases, it seems there is a case that the customer is not being treated fairly.

[Stephen Timms]

Part of the difficulty arose when the banks to which an application was made simply said to Miss Dolor, “You do not meet the criteria for an account.” I do not know whether that meets the terms of providing an explanation, but it clearly did not shed any light on the matter for her. If she had been told that she had been registered in such and such a way with CIFAS, she would have understood what was happening. The whole process was opaque. Does the Minister agree that some effort should be made to provide some illuminating information rather than a kind of stonewall response? It might meet the letter of the requirement, but in practice it does not help the customer at all.

National Insurance Contributions Bill

Debate between Stephen Timms and David Gauke

Thursday 13th January 2011 Commons Chamber

[Stephen Timms]

Will the Minister give way?

[Mr Gauke]

I will give way on that point, but the central point I want to make is that all Labour Members fought the last election—indeed, the right hon. Gentleman was the Minister responsible—on a policy of increasing national insurance contributions throughout the entire country, which would have done harm not just to the Thames Gateway, east London and Walthamstow, but across the country.

[Stephen Timms]

I am grateful to the Minister for giving way. On 6 January, the Prime Minister spoke—I think at No. 10—about

“nurturing small clusters of innovative companies and web start-ups, as we are in the new Tech City—our own Silicon Valley—in East London.”

Why is the Minister not contributing to this nurturing of start-ups in east London? This is his one opportunity.

[Mr Gauke]

The Government are doing a great deal to help London. We need only consider the transport infrastructure as well as the fact that we are protecting investment in Crossrail, in upgrading the tube and in Thameslink. We are taking a number of steps. I think it is astonishing that Labour is complaining about the fact that some businesses will not receive a reduction in their national insurance contributions when its policy at the last general election was that businesses should be paying more.

It is very helpful to look at the well-remembered interview with the shadow Chancellor on the “Today” programme on 4 January, when he said that we need to get the structural deficit eradicated and that there was no argument about that. He recognised the existence of a structural deficit and did not particularly differ from the Government’s position on the size of the structural deficit. There was a disagreement on timing—I think he disagreed with his own policy on timing, but he disagreed with the Government’s, too. He said that the balance between public spending cuts—we do not know which of our proposed public spending cuts the Opposition support—and tax rises should be 60:40. I think that the proportion for tax rises was 40%, although it was not entirely clear.

The shadow Chancellor was asked by Evan Davis:

“In principle you would like VAT not to go up and instead, at some point, not now, National Insurance to go up by more?”

The shadow Chancellor’s response was, “Yes.” He said that that was the Labour party’s argument at the general election and that it was still its argument now, because national insurance is a better tax. That is the Opposition’s position—they want to increase employers’ national insurance contributions. They oppose all the cuts and they oppose our VAT increase, but they want to increase national insurance contributions. Yet when we have a Bill in this House that provides a reduction in national insurance in some areas, their biggest complaint is that they want to do it in more areas. How incredible is that? How lacking in coherence is that policy?

--- Later in debate ---

[Mr Gauke]

I recommend to the hon. Gentleman the radio programme “More or Less”, which recently pointed out that the national insurance contributions increase would have raised only a quarter of the tax revenue that the VAT increase will raise.

[Stephen Timms]

Has the Minister received representations from the Department for Communities and Local Government about the inclusion of the Thames Gateway area in this incentive?

[Mr Gauke]

Not that I am aware of, but as the right hon. Gentleman knows, tax is a matter for the Treasury. I must say that the Thames Gateway would have been hit by a much greater jobs tax if the Labour party were in power.

Both today and in earlier debates, I have understandably been asked about take-up and whether there is a plan, if take-up is lower than expected, to expand the holiday to cover the whole of the UK. Let me reiterate to the House and Opposition Members that this is not just about cost; it is also about the policy rationale for the holiday, which is to target incentives on new businesses in regions with high levels of public sector employment. In their evidence to the Committee, representatives of the Federation of Small Businesses and the British Chambers of Commerce made it clear that the south-east is more resilient than the rest of the UK and that new business formation would not be harmed significantly because the holiday would not be available there. I should also mention to the House, and particularly to the right hon. Member for Delyn that all new and existing businesses in the south-east will benefit from the increase in the employers’ national insurance contributions threshold, which I assume the Labour party will oppose when we bring it forward, and from the reduction in corporation tax rates, as compared with the increase that Labour was going to bring in for small businesses.

Oral Answers to Questions

Debate between Stephen Timms and David Gauke

Tuesday 21st December 2010 Commons Chamber

[Mr Gauke]

Within the comprehensive spending review we have given priority to school funding. The pupil premium will help the poorest, which is indicative of the Government’s values in looking to the long term, looking at fairness, and ensuring that young people have an opportunity that they did not necessarily get under the previous Government.

[Stephen Timms (East Ham) (Lab)]

10. What recent discussions he has had with his Irish counterpart on measures to reduce budget deficits.

Oral Answers to Questions

Debate between Stephen Timms and David Gauke

Tuesday 16th November 2010 Commons Chamber

[Stephen Timms (East Ham) (Lab)]

The White Paper last week stated that HMRC will be taking on new responsibilities in collecting and processing real-time pay data for the calculation of universal credit. How much has been allocated for the IT to deliver that change?

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The response to the consultation on real-time information—the next stage of it—will be published shortly. We will outline the details in that, but additional sums have been identified as part of the spending review process to pay for the real-time information project.

PAYE Contributions

Debate between Stephen Timms and David Gauke

Wednesday 8th September 2010 Commons Chamber

[Mr Gauke]

My hon. Friend is absolutely right. As the Government, we are seeking to address the short-term issue, which is the overpayments and underpayments. We cannot just brush them to one side or park them for another year; we need to address them. However, we must also look at the longer-term solution, and that, as my hon. Friend rightly says, means moving towards a much more up-to-date system so that the information is more up-to-date and we are able to respond accordingly.

[Stephen Timms (East Ham) (Lab)]

I understand that tax experts were briefed last week and told that a small number of notifications would be sent out in the next few weeks as the start of a process over the coming months, so why was the House not told, still less the public, what was intended? Why did HMRC’s website initially say absolutely nothing at all? Why has that arrangement, which was set out to a few experts last week, apparently now been abandoned and replaced, if we are to believe the reports over the weekend, with a headlong rush, whereby 6 million new calculations will be sent out in the next few weeks? Where is the plan for handling that huge exercise?

The Minister will have seen the questions that I tabled yesterday, but let me put four of them to him specifically. He has told us that HMRC will consider writing off demands when taxpayers can demonstrate that they provided all the necessary information to calculate their tax correctly. What exactly will they have to show, and how can they do so? If a problem arises because the employer, rather than the employee, has made a mistake, can he confirm that the employer will be held liable for the tax that is due?

Crucially, if people are required to pay more tax for a past year, their net income for that year will be reduced. In many cases, that will mean that they would have been entitled to more benefits—pension credit, housing benefit and council tax benefit—than they were actually paid. Can the Minister confirm that the rule will be changed so that those higher amounts will be paid to those individuals or offset against the extra tax that is due?

Anecdotal evidence suggests that HMRC call-response times have become much worse over the past few months, with many more people not being able to get through. Can the Minister confirm that the deadline for tax credit renewals has been extended from 31 August as a result? Clearly, sending out all those notifications will hugely increase the demand on those call centres, so how will that extra demand be managed? The press reports all refer to tax paid over the past two years. Does the Minister intend that, in due course, HMRC will look at earlier periods as well, or is the exercise limited to those two years?

Of course, it is a good thing that the previous Government’s investment has provided a system that is better able, in particular, to keep track of tax obligations, when people change their jobs or have multiple sources of income, but it is the Minister’s job now to ensure that the extra information that he has is used fairly.

[Mr Gauke]

I think we now know why Labour Members did not table an urgent question on this matter.

The right hon. Gentleman asked many questions—although there was not a word of apology for a tax system that is clearly encountering some difficulties—and I will endeavour to answer them all. First, there has been no change of plan. We have pursued the same proposal all along, namely to write to 45,000 to 50,000 taxpayers. We will use the information and the lessons learned from this relatively small sample to guide how correspondence will be undertaken with the remaining taxpayers affected. Let me reassure him that his fears about that are wrong. He also expressed concern about the public not being informed about the exercise, but we made great efforts to inform them over the weekend immediately after the decision was taken to proceed with writing those first letters to affected taxpayers.

The right hon. Gentleman referred to a concession that may be available, and he may recall that the A19 concession is available in circumstances where all the information has been provided to HMRC and it has had the opportunity to address it. We have looked into this. The A19 concession, which is well established—he will remember it from his time in the Treasury—does not apply that often in practice, and I do not want people to build up their hopes that it will offer some kind of panacea; that would be unfair on taxpayers.

The right hon. Gentleman questioned whether employers have made mistakes. In some circumstances, employers will have made the mistake that caused the overpayment or underpayment, but the principle remains the same—we have to collect the right amount of tax.

The right hon. Gentleman asked about means-tested benefits. In some cases, because net income was higher in a previous year, certain means-tested benefits would not have been available in that year, so sums are now having to be paid back. In those particular cases where tax underpayments are being recovered through the tax coding system, the corresponding fall in the net income for the taxpayer will increase the availability of means-tested benefits in that relevant year.

The right hon. Gentleman asked about the extension of tax credit renewals’ deadline, and I can confirm that it has been extended to provide additional time for claims. I have to point out to him, however, that the idea that call centres are under strain and that it is difficult to get through to HMRC is not entirely a new phenomenon: it is a long-standing problem. Let me take this opportunity to say to taxpayers who are understandably concerned about their position that they should wait until they receive a letter before contacting HMRC, as only then will it be able to deal effectively and efficiently with their concerns. Nevertheless, he raises a legitimate issue about call centres. We are providing additional staff—there is additional capacity now and there will be after the tax credit renewal process has been completed. We are taking steps to ensure that HMRC is able to deal effectively with those calling in with concerns.

Finance Bill

Debate between Stephen Timms and David Gauke

Monday 12th July 2010 Commons Chamber

[Stephen Timms]

I think it would still be difficult, complex and cumbersome. A judgment will have to be made about whether it is the right thing to do—effectively, the benefit of reducing avoidance would have to be worth the additional complexity. I am sure that this debate is still to come.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

Before responding to amendment 11, I would like to thank my hon. Friend the Member for Lincoln (Karl MᶜCartney) for making his maiden speech earlier. He is rightly proud to represent that fine constituency, and I am sure that his constituency will be rightly proud of him. I hope he represents his constituency for many years to come. I will deal with the issues he raised about capital gains tax—as already noted, he shows great independence of mind on this point—when I respond to a later grouping of amendments.

I am very pleased to see the right hon. Member for East Ham (Stephen Timms) back at the Dispatch Box. It is good to see him returned here and I hope he is returning to good health. He is certainly a formidable person to face on the other side of the Dispatch Box, as he has great expertise and experience in this particular subject. He was a highly popular and effective Minister, performing the same role as I now perform. His are big shoes to fill and I am sure that there will be plenty of disagreements in the months ahead, but it is none the less a great pleasure to see the right hon. Gentleman back, well and in good form.

Amendment 11 seeks the publication of a report assessing corporation tax avoidance and evasion and setting out measures to ensure the payment of tax before the reduction in the main rate of corporation tax can be applied. The Government are committed to a competitive corporation tax rate, which will show that the UK is open for business and encourage growth. The amendment is narrowly focused on the role of evasion and avoidance, so I shall explain later and in more detail our reasons for the more general changes proposed.

Terminology was a large part of the debate on the matter. As we have heard, tax evasion occurs when someone acts against the law. Tax avoidance involves compliance with the letter but not the spirit of the law, and it is right that the Government seek to minimise that. Tax planning is a case of acting in both the spirit and the letter of the law. There is a distinction, although there will be occasions when the line is a little blurred.

The Government are committed to tackling robustly avoidance and evasion, which undermine the effectiveness of the tax system, distort competition and increase the burden of taxation on those who do comply with the spirit and letter of the law. The emergency Budget clearly sets out the Government’s strategic approach to reducing tax avoidance and evasion. As a number of my hon. Friends have pointed out, some matters relate to how we make tax law, and to ensuring that tax law has as much clarity as possible. At the time of the Budget, we produced a well-received publication setting out a more deliberative and consultative way to make tax law.

There is also a strong case for a more simplified tax code. Too many allowances and reliefs and too much complication within the tax system provide opportunity for tax avoidance, which we seek to address. We will address long-standing avoidance risks, and I have announced an informal consultation on the introduction of a general anti-avoidance rule. I appreciate that there are arguments on both sides, some of which we heard from the right hon. Member for East Ham. We will ensure that we make changes in the law in a way that prevents increasing complexity and reduces the need for frequent legislative revisions. We will also ensure that we build in sustainable defences against avoidance opportunities when undertaking policy reform. The Government have already closed specific loopholes to prevent the avoidance of corporation tax, and clauses 8 and 9 protect about £200 million of tax revenues per year.

The Government fully support the type of transparency for which the hon. Member for Hayes and Harlington (John McDonnell) calls in his amendment. As others have pointed out, that form of transparency already exists. The right hon. Member for East Ham pointed out that HMRC has published an assessment of corporation tax avoidance and evasion, although it deals with not just corporation tax but tax across the board. In December 2009, HMRC published the document, “Measuring Tax Gaps 2009”, which estimated the overall tax gaps across HMRC’s regimes for the first time. Alongside that statistical release, HMRC also published estimates of the tax gap by behaviour, including avoidance and evasion, as well as the actions being taken to reduce the gap. As we have heard, HMRC’s estimate for the tax gap as a whole is £40 billion, and the definition includes evasion and avoidance, debt and legal interpretation—as my right hon. Friend the Member for Wokingham (Mr Redwood) pointed out, there are sometimes disputes between two parties, both acting in good faith.

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[Stephen Timms]

I beg to move amendment 49, page 1, line 6, at end add—

‘(2) In section 2(2)(a) of the Finance Act 2010, after “companies”, add “not meeting the condition in (c) below”.

(3) At the end of section 2 of the Finance Act 2010 add—

“(c) 26 per cent. on profits of companies whose taxable profits will be increased by more than 1 per cent. as a result of changes in investment allowances.”.’.

It is a puzzling feature of the Budget that, on the one hand, the Chancellor is gambling on a big increase in investment, and basing his Budget arithmetic on the belief that investment will grow in each of the next three years at a rate that has been achieved in only one year in the last 40. That is an heroic assumption about investment growth, and if it proves to be untrue, the Budget gamble will fail. At the same time as banking on that huge increase in investment, he has announced that he will drastically cut the incentives for investment. The rates of capital allowances will be reduced from 20% to 18%, and the annual investment allowance will be cut by three quarters, from £100,000 to just £25,000. It is hard to see how the forecast growth in investment can be reconciled with such a big cut in investment allowances. The Budget was billed as Britain being open for business, yet it will clearly reduce the prospects for growth, as the Office for Business Responsibility confirmed in its two projections, before and after the Budget. Indeed, the International Monetary Fund, in its projections last week, also downgraded its growth forecast for the UK economy as a result of the Budget.

We have here a collision of conflicting objectives, which we highlight in the amendment. We propose a lower rate of corporation tax for companies that lose out from the reduction of allowances above a certain threshold. The Institute for Fiscal Studies pointed out before the election that the losers as a result of the Conservatives’ approach would be those making big investments and earning modest profits, notably

“in the manufacturing and transport sectors”,

and that the gainers would typically be in the financial sector.

We do not yet know what the legislation on allowances will say. The Chancellor said in his Budget speech that the change in the rate of capital allowances and the lower annual investment allowance would not take effect until 2012. Will the Minister confirm that the coalition Government are planning no reduction at all in investment allowances in the current financial year? Will the changes announced by the Chancellor in the Budget be in the Finance Bill later this year or will they be delayed until next year’s Finance Bill? I hope that the Minister will also comment on the principles underlying our amendment. How can it make sense to reduce so drastically the incentives for investment in a period in which the Budget depends so heavily on an unprecedentedly large and sustained increase in investment?

[Mr Gauke]

As I have already explained, the Chancellor or the Exchequer set out a business tax package in the Budget that included rate cuts and reductions in allowances that are good for business and growth overall. Amendment 49 proposes that clause 1 be amended to reduce the main rate of corporation tax to 26% for those companies whose tax bill will increase by more than 1% as a result of the reduction in investment allowances. That is a somewhat complex mechanism, but it provides an opportunity to raise the matter of capital allowances.

As part of a package to improve the UK’s competitiveness, it was announced that from April 2012 there would be reductions in the rates of writing-down allowances for plant and machinery and a reduction in the annual investment allowance. The Government will reduce the main rate of corporation tax to 26% that year—2012—and by that reduction, alongside changes to allowances, we will achieve the results that the amendment seeks. Furthermore, by not implementing the changes to allowances for two years, but reducing corporation tax rates next year, we are giving companies a full year to benefit from the reductions in rates, alongside current levels of allowances. Further reductions in the main rate of corporation tax follow in later years and capital allowances remain broadly in line with average rates of economic depreciation. To answer the shadow Minister’s questions, no changes are made to the so-called investment allowances in this Finance Bill and none is planned for the next financial year.

[Mr Gauke]

As I said a moment ago, the changes to capital allowances will take effect from 2012, and we believe that there is a substantial benefit for the UK economy in reducing the corporation tax rate. Indeed, it is a direction of travel that our predecessors followed when they reduced the rate from 30% to 28%, but we do not think that that went far enough. The point was raised in earlier debates that the UK has lost its competitive advantage in having a relatively low rate of corporation tax, as a number of other countries have cut their corporation tax rates much further than we have over the last 13 years. We believe that the lower rate sends a very clear signal that Britain is open for business and it is a demonstration of the direction of travel in which we are going. Assessment of the impact of Budget measures on investment over the next few years suggests an increase in investment of £13 billion.

The Budget thus provides a set of proposals and a set of reforms to corporation tax that will encourage further investment. As I say, it is a sign that Britain is open for business and a sign to investors and businesses throughout the world that the UK is a good place in which to do business. We believe that the package as a whole is well balanced and that it will aid a private sector recovery, partly funded through reforms to capital allowances and partly through the bank levy, as we debated earlier. Legislation is not required for the changes in capital allowances in this Finance Bill or indeed in next year’s, but we have set out a clear sense of direction that has been welcomed by business groups as a whole. We therefore urge the shadow Minister not to press the rather complicated amendment 49. It will not make any difference, because we will legislate to this effect in any event—without the complicated mechanism in the amendment. I urge him to withdraw it.

[Stephen Timms]

I am disappointed by that response. I am disappointed that my hon. Friend the Member for Brent North (Barry Gardiner) did not get an answer to the telling point that he put to the Minister. There is a real issue about how this large increase in investment is supposed to be achieved at exactly the time that incentives for investment are being reduced. Nevertheless, I shall not press the amendment to the vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

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[Mr Gauke]

In the Budget, my right hon. Friend the Chancellor announced a programme of measures aimed at improving the competitiveness of the UK economy, including four annual 1% reductions in the main rate of corporation tax, down to 24% in 2014, and a reduction in the small profits rate to 20% from April 2011, in contrast to the previous Government’s plan to increase it to 22%. That will reduce the tax rate for some 850,000 companies. The Budget also included, from April 2012, a reduction in the capital allowances main rate from 20% to 18%, a reduction in the special rate from 10% to 8% and a reduction in the annual investment allowance to £25,000. Despite that, investment allowances will permit more than 95% of businesses to offset completely their annual plant and machinery expenditure. As I said in our debate on amendment 49, by delaying these changes to allowances for two years but reducing the corporation tax rate next year, we are giving companies a year’s advantage.

We have been asked why we are legislating for the 1p cut in the main rate this year. This is the usual convention as the corporation tax main rate is usually set a year at a time. The right hon. Member for East Ham (Stephen Timms) is right to say that there was an exception in 1984, when four years were done together, but the usual convention is to do these things a year at a time. A distinction has been made between the mainstream rate and the small profits rate. The right hon. Gentleman, who was a distinguished Treasury Minister for several years, may have forgotten that payers of the corporation tax main rate are within the quarterly instalments payment regime and so require advance notice of the rate, as they might be making payments of corporation tax liability before 1 April of the relevant year in which profits fall in the next financial year. Payers of corporation tax at the small profits rate do not require advance notice, as they have until nine months after the end of the accountancy period to pay their tax.

Both main and small profits corporation tax rates have traditionally been set in this manner, and what we are doing is consistent with the usual approach. The right hon. Gentleman asked about deferred tax assets, but they are not the reason why we are doing this; we are simply following the usual convention.

Opposition Members have asked whether business can have faith in what this Government do, but they should give us some time and they will see exactly what we will do: we will follow through on these promises. No great concerns about this issue have been raised with us. On deferred tax assets, when I was in opposition, I received representations not from a bank but from a major manufacturer who made the point that the right hon. Gentleman has made, but that is not what has driven our thinking regarding the timing in this area.

[Stephen Timms]

The Minister says that it is normal practice to do what the Bill does, but as far as I know, there has been only one occasion since this tax was introduced when a series of reductions was announced, and those reductions were all legislated for in the 1984 legislation. I am not sure what precedent he is referring to that suggests that the way things are being this time is the normal way, as that is not the case.

[Mr Gauke]

The usual approach has been that the Finance Bill sets the small companies rate in-year, just as it sets the rate for income tax; the preceding year sets out the large companies rate. The right hon. Gentleman is right that there is a precedent for doing it another way, but we do not believe that business has any concerns that we will fail to follow through on our promises. There is an argument for doing it the other way, but we are pursuing the approach that has been adopted for a number of years.

Why cut corporation tax? As I have explained in debates on amendments to the clause, this package of measures takes real strides towards restoring the UK’s tax competitiveness, and will support economic growth in this country. It does so in a sustainable way that provides business with a clear direction on our long-term aims—a 1% cut every year for four years clearly demonstrates our position in making the UK open for business. No other legislative changes are proposed in the Finance Bill, although the small profits rate of corporation tax will reduce from 1 April 2011 from 21% to 20%, instead of rising to 22%, as the previous Government intended. I find it somewhat strange that those who were proposing to raise that tax are now outraged that we are not legislating to reduce it, or are calling for us to reduce it even further.

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[Stephen Timms]

Will the hon. Gentleman comment on my question about whether it is an explicit aim of the Government that the UK rate of corporation tax should continue to be the lowest in the G7?

[Mr Gauke]

Of course, our proposals go beyond that. The explicit aim of this Government is to have the best corporate tax environment within the G20. That is considerably more ambitious, and we think that it will help to lead to the UK developing a stronger private sector that will lead us to recovery. The Bill and the clause represent a step in the right direction that will benefit the UK economy very strongly.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.

Schedule 1

Rates of capital gains tax

[Stephen Timms]

I beg to move amendment 30, page 6, leave out lines 13 to 16 and insert—

‘(3) The rate of capital gains tax in respect of gains accruing in a tax year to—

(a) the trustees of a settlement is 28%, and

(b) The personal representatives of a deceased person is 18% for the first £10,000 of gains and 28% thereafter.’.

The Government have decided to raise the rate of capital gains tax for people paying higher rate income tax. We are not going to object to that; indeed, we are interested to know why a higher rate has not been adopted. The rate will be left at 18% for people paying basic rate tax, but the higher rate of 28% will apply to all trusts. Some people with low incomes have their interests represented by trusts, and there is a case that it would be unfair for them to pay the higher rate. However, it has been agreed that the rate of income tax on discretionary trusts will be 50%, so I accept that it is logical to apply the higher rate of capital gains tax to them as well, although I have no doubt that that this is a question to which the House will want to return in future debates.

Amendment 30 applies to one specific situation that has been drawn to our attention by the Low Incomes Tax Reform Group—that is, the position of so-called estates in course of administration, to which the Bill as drafted would apply, in every case, a capital gains tax rate of 28%. In the case of the majority of estates of people who have died and who paid basic rate income tax prior to their death, those people, had they still been alive, would have been entitled to realise at least some capital gains at the lower rate of 18%. The Bill, however, applies a rate of 28% to any taxable gain.

The most common problem that the Low Incomes Tax Reform Group had in mind was a case in which a house increases in value between the point of the owner’s death and the point at which it is sold. Under the Bill as drafted, the whole of any such gain would be taxed at 28%, even if there was no other income or capital gain accruing to the estate at all.

I acknowledge that this is a relatively straightforward problem to identify but rather more difficult to solve. The amendment suggests that to remedy pragmatically what could, as I hope I have set out, otherwise be unfair, the first £10,000 of gains in a year should always be charged at 18%, rather than 28%, with gains above £10,000 being charged at 28%. I accept that that is not an ideal solution, because wealthy estates would benefit as well as the estates of people with low incomes. If the Exchequer Secretary has a better solution, I would be interested and eager to hear it, but I hope that he will recognise that there is a potential unfairness in relation to the estates of people with low incomes that realise capital gains after the individual’s death, typically when the estate includes a property.

If the Exchequer Secretary feels unable to accept the amendment, will he agree to reflect on the matter and consider whether it might be possible to address what would certainly be an unfairness in some cases in the next Finance Bill later in the year?

--- Later in debate ---

[Mr Gauke]

The amendment would set the capital gains tax rate at 18% for personal representatives of the deceased for the first £10,000 of gains, while retaining the 28% rate for gains above that level and for trustees. I am grateful to the shadow Minister for the explanation of the thinking behind it. As he said, the matter was raised by the Low Incomes Tax Reform Group. The Institute of Chartered Accountants in England and Wales made a similar point, stating that it would be appropriate to tax the personal representatives of a deceased person in the same way as basic rate taxpayers because it is a completely different situation to that of a trust.

We believe that the treatment of personal representatives in the Bill is appropriate. The amendment would add complexity and could give rise to unfair results or avoidance opportunities. The function of personal representatives is very similar to that of trustees. They have a duty to realise the assets of the deceased person on behalf of the heirs or legatees, and it should be their primary objective to complete their duties as quickly as possible so that the assets of the estate are distributed to those people without undue delay.

The amendment could provide an incentive for personal representatives to hold on to an asset while it appreciated, so that they could sell the asset and pay tax at 18% on the gain, rather than passing the asset directly on to an heir or legatee with a potential liability of 28%. There is no reason to give that sort of incentive to increase the value of a legatee’s inheritance by reducing the capital gains tax due.

I appreciate the manner in which the shadow Minister raised the matter and identified the problem. Quite fairly, he was somewhat tentative about the potential solution set out in the amendment, which I appreciate was of a probing nature. As I understand it, it is possible for personal representatives to pass assets to the heirs, so they could pay at 18% on the gains if appropriate. I will reflect further on the right hon. Gentleman’s points, but as I believe he recognises, amendment 30 has its weaknesses. It could give rise to avoidance opportunities and some unfair results, and consequently I urge him to withdraw it. However, I am grateful for his comments on the amendment.

[Stephen Timms]

I am happy not to force a vote, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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[Mr Gauke]

The assumption is that there is an ongoing gain—that we will gain more in income tax as a consequence of the rise in the CGT rate.

The reason why there is no yield this year has suddenly dawned on me. We do not get the receipts for capital gains tax through self-assessment immediately; it is only in future that CGT will be paid through the self-assessment process.

[Stephen Timms]

The Minister has made the point, however, that most of the gain is in fact income tax, which surely would score in the coming year?

[Mr Gauke]

I think we will see more of that behavioural effect as time goes by, but I am not sure that that will come through immediately. In some cases, it will depend on when the additional income will be crystallised or realised. I think that is the explanation, but if I have anything to add I will write to the right hon. Gentleman.

[Mr Gauke]

I will write to my hon. Friend to explain further why there is no yield in the current year, but I am very grateful for his expertise in this matter.

Questions were also asked about serial entrepreneurs who cannot claim entrepreneur’s relief and defer gains under the enterprise investment scheme. People can now choose between claiming entrepreneur’s relief and paying capital gains tax at 10% or deferring a tax charge by reinvesting under the EIS and paying 18% or 28% when the postponed gain comes into charge. If they claim entrepreneur’s relief they can still invest in EIS companies. The CGT deferral relief will not be available, but income tax relief under the EIS could still be available if the conditions are met. Serial entrepreneurs who have used up their lifetime limit of entrepreneur’s relief will be able to claim the EIS deferral relief on gains above the limit. Allowing individuals to claim both entrepreneur’s relief and deferred gains will be highly complex and is inconsistent with the aim of simplifying the tax system.

The right hon. Member for East Ham also asked whether Her Majesty’s Revenue and Customs is planning any extra education about the changes for customers and their advisers. HMRC will talk to representative bodies about what extra guidance is required. It will see what practical help it can give to agents generally through the “working together” agent network, and it will look at working with the media and interest groups to raise awareness among individuals who may be affected by the changes.

This is a reform that protects the Exchequer while ensuring that those on lower incomes are protected and the recovery is safeguarded. We have acted in a way that is in the spirit of the coalition agreement. I do not think any Member on the Government Benches would want to raise taxes beyond a level that would maximise revenue—revenue that is, after all, used to fund a substantial increase in the income tax threshold, taking 880,000 people out of income tax. If we had raised the level further, or if we had raised it by less, we would not have been able to do so much in that particular area. Consequently, we believe that 28% is the right level. We do not intend to return to this matter, and I ask that schedule 1 be agreed.

[Stephen Timms]

I do not propose to press this to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 1 agreed to.

To report progress and ask leave to sit again.—(Mr Newmark.)

The Deputy Speaker resumed the Chair.

Progress reported; Committee to sit again tomorrow.