Charter for Budget Responsibility

Debate between Stewart Hosie and David Gauke

Wednesday 20th July 2016 Commons Chamber

[Mr Gauke]

I do not think the hon. Gentleman gives the Government the credit we are due for what we are doing on infrastructure. I understand the argument that we need to do more to improve our infrastructure, but let us remember what we have done: more than a quarter of a trillion pounds has been invested in infrastructure since 2010, the average annual investment in the last Parliament was 17% higher than in the preceding one and we have set out plans to invest more than £100 billion in infrastructure by the end of this Parliament.

We are taking measures on infrastructure, but we must put those in context. We also have to ensure that we have sound public finances. The immediate response to the shock of leaving the European Union has to be to work closely with the Bank of England as it carries out its role of providing stability and confidence in our economy. Monetary policy should be the first means of response to an economic shock such as this. We will use the summer period ahead to assess the situation, based on the economic data, and come the autumn we will report back to the House, setting out how we will respond on spending and taxation.

Let me be clear with the House: we continue to believe in fiscal responsibility. This country should not, as it did in the earlier part of this century, make itself vulnerable to economic shocks by letting public spending get out of control. As the Chancellor has made clear—and, indeed, as the previous Chancellor, my right hon. Friend the Member for Tatton (Mr Osborne), made clear—our target to reach a surplus by 2019-20 should not be sought in the economic circumstances we now face.

As hon. Members know, our fiscal plans to reach a surplus always came with a clear caveat: if our economic circumstances were to alter significantly and the independent Office for Budget Responsibility were to forecast less than 1% real growth on a rolling four quarter on four quarter basis, that target would be reviewed. With expert forecasters suggesting that we are highly likely to see that risk to our growth crystallise in the time ahead, we have announced that we will no longer seek to bring the budget into balance by 2019-20. As the Chancellor has said to the House, that does not mean that we can go forward without a clear framework for achieving fiscal balance over an appropriate timeframe. We will address that issue in the autumn statement.

I hear the argument that we should go for growth, but fiscal responsibility does not preclude our achieving economic growth. As has been pointed out in this debate, the UK has grown pretty well as strongly as any other major western economy over the past six years, even though we have undertaken a period of getting the public finances under control. The idea that there is a straightforward tension between economic growth and fiscal responsibility simply is not true. Indeed, it is by pursuing a policy of fiscal stability that we have maintained the confidence not just of the markets, as a consequence of which our gilt rates are lower than they would otherwise be, but of the general public, who know that in the end, if we keep borrowing and keep borrowing and keep borrowing, they will have to pick up the tab.

[Stewart Hosie (Dundee East) (SNP)]

For the sake of completeness, the Chief Secretary will probably want to thank the central Bank for its quantitative easing programme—flooding the market with money by buying Government gilts—because that is a substantial reason for the very low yields the market is seeing.

[Mr Gauke]

I understand the point that the hon. Gentleman is making about gilt yields, but none the less the Government’s credibility because of our determination to address the public finances—with a degree of pragmatism on timing that I fully acknowledge—has helped to ensure that the UK has not been drawn into a sovereign debt crisis or indeed anything like one. That is a significant achievement for this country.

Finance Bill

Debate between Stewart Hosie and David Gauke

Monday 27th June 2016 Commons Chamber

[Mr Gauke]

I will say a little more about clause 14, but I believe that this is a matter of fairness. For the vast majority of people, home-to-work costs do not have tax relief, and it is right to apply the same rules across the board. If there is a difference in treatment just because an arrangement is made through an umbrella company or other form of intermediary, clause 14 will put those workers on the same terms as everybody else. That underpins the Government’s commitment to ensure that the tax system is fair and treats all individuals who are doing the same thing in the same way.

[Stewart Hosie (Dundee East) (SNP)]

I understand the Minister’s argument, but this measure will offer a disincentive to many people who have chosen to go down the contracting or self-employed route. Does he share our concern that that may act as a disincentive to entrepreneurship, given that being a contractor or self-employed could be the first step to forming another business and employing other people?

[Mr Gauke]

I understand where the hon. Gentleman is coming from but I do not share his concerns. It does not seem justifiable that simply by arranging affairs in a particular way through an intermediary, somebody should benefit from tax relief for travel-to-work costs in a way that someone else does not. All Members recognise how important it is that we have an entrepreneurial economy, and that the importance of the self-employed in our economy is considerable. It does not seem, however, that there is a strong case for saying that a difference in tax relief should apply, which is why we have come forward with these measures. In recent years there has been a substantial increase in the number of workers engaged through an employment intermediary, and while many play a legitimate role in the labour market, increasingly some market themselves—at least in part—on the basis that they allow individuals and businesses to maximise their income through claiming tax relief on home-to-work travel expenses. The increase in the use of intermediaries means that large numbers of individuals are claiming tax relief that the majority of workers cannot claim, even when they hold very similar jobs.

We estimate that this change will save the general taxpayer more than £150 million this year, and more than £600 million by 2019-20. That will ensure fairness for all individuals and businesses, regardless of the structure through which workers are employed. In that context, amendment 27 is a technical amendment to correct a point in the original draft and ensure that the legislation fully reflects the Government’s original announcement.

New clauses 1 and 3—perhaps I may anticipate the arguments that we will hear from the Scottish National party in a moment—would require the Chancellor to publish a report on the impact on workers who provide services through intermediaries, and their treatment for tax purposes, within six months of the Bill being enacted. Those reviews would be completely unnecessary because those who provide services through intermediaries are taxed as either employed or self-employed. Some others operate as owner-directors of their own limited companies, and the tax treatment of the income and expenses of those individuals will depend on their employment status for tax purposes.

The Office of Tax Simplification carried out a review that considered the employment status and taxation of individuals working through intermediaries, and it published its report in March 2015. The Government accepted 17 of the 27 recommendations, and committed to consider a further six more. More recently, the Government have received the OTS’s review of small companies and accepted, or will consider further, nearly all its recommendations, including the recommendation that the OTS continues to develop the design of a look-through system of taxation for small businesses to simplify their tax affairs, and a new simple business model that would protect the assets of the self-employed. Following these recommendations, the Government have now formed a cross-government working group on employment status. The group will examine the advantages and challenges of an agreed set of employment status principles and a statutory employment status test. Given the volume and range of work done in this area recently, I would argue that an additional review is unnecessary. I therefore urge Members to reject new clauses 1 and 3.

[Stewart Hosie]

We understand the argument the Government are making against a review, but given that the Minister suggests that this will save the taxpayer—or, to put it another way, cost individuals £600 million over the lifetime of this Government—will he be prepared at least to concede that should the tax yield go up dramatically, taking yet more from the self-employed and contracting community, he might want to revisit the decision he is taking today?

[Mr Gauke]

No, I do not think the Government will be persuaded by that. Were that to be the case, it would suggest that the use of tax relief in these circumstances was even more widespread than we had anticipated. The problem we face is one of fundamental unfairness. I make no criticism of those making use of intermediaries in these circumstances—they are making use of the law as it stands—but it is an unfair outcome. Essentially, where two people are performing identical roles, one is able to gain the benefit of tax relief and the other is not simply because of the way in which they have structured their arrangements. I believe the approach we have taken in this clause is the right one.

Clause 15 makes changes to allow for the extension of voluntary payrolling to include non-cash vouchers and credit tokens. The change will enable businesses to benefit from reduced reporting obligations to HMRC and provide a simplified system for employers. Clauses 16 and 17 and schedule 3 make a number of changes to simplify and clarify the rules for employment-related securities and options. Employment-related securities and securities options are commonly used by companies to reward, retain or provide incentives to their employees. Remuneration in the form of shares would generally be liable to income tax and national insurance contributions. However, if they are rewarded under one of the four types of tax advantage share schemes, the shares acquired are exempt from income tax and national insurance contributions.

Share-based reward programmes are greatly valued by both companies and employees. The Government want to make sure the relevant legislation is as simple and clear as possible. To that end, clause 16 introduces schedule 3, which builds on the Government’s response to the OTS report on employee share schemes by simplifying and clarifying this area of tax legislation. In addition, clause 17 puts beyond doubt the tax treatment of non-tax advantaged securities options, given some uncertainty in the current legislation.

The Government are introducing amendment 28 to schedule 3 to ensure that the trading activities requirements to receive the tax advantages of an enterprise management incentive scheme will continue to apply where a company is controlled by an employee-ownership trust.

If I may anticipate what we are likely to hear, and before I move on to clause 18, I will briefly address amendment 180 and new clause 10, which relate to clause 16. Amendment 180 proposes a review of the impact of the withdrawal by HMRC of its valuation check service for small and medium-sized enterprises, including associated impacts on employee share ownership schemes. This is unnecessary. HMRC continues to operate a service for employee shareholder status and the tax advantage schemes most relevant to SMEs. HMRC has only withdrawn valuation checks for income tax and PAYE that are not part of these recognised employee ownership schemes. HMRC was considering valuations for less than 0.05% of the relevant SME population. As these taxpayers were using professional firms, the vast majority of cases submitted were acceptable. As such, the service added little value and was seen as providing poor value for money for the taxpayer. I therefore hope the House will reject amendment 180.

New clause 10 proposes that within six months of the passing of the Act the Chancellor should publish a report giving an assessment of the value for money provided by each type of employee share scheme. An HMRC-commissioned report conducted by Oxera considered the effect of tax advantage employee share schemes on productivity. This is publicly available. Owing to the difficulty of drawing conclusive outcomes from such studies, in 2012 the Office of Tax Simplification recommended that it would not be a good use of taxpayer money to produce further reports on the links between share ownership and productivity. As with all reliefs, however, the Government will continue to keep these schemes under review and will continue to publish regular statistics on the estimated take-up and costs of each scheme. For these reasons, I urge Members to reject new clause 10.

Let me conclude my opening remarks by addressing clause 18. The Government want to ensure that companies and individuals who have used, or continue to use, artificial arrangements to disguise their income, pay their fair share. These avoidance schemes involve income being funnelled through a third party, with the money often then given to the individual in the form of a loan that is never repaid. In 2011, the coalition Government successfully introduced new legislation to tackle the schemes in use at that time. Many of those who used the schemes before 2011 have still not settled. In addition, the tax avoidance industry has been selling new schemes that are even more artificial and contrived. At Budget 2016, the Government announced changes to address these issues. Clause 18 is the first part of that package.

Clause 18 addresses one type of these schemes by disallowing a relief in the current rules that the schemes exploit where there is a tax avoidance motive. It also withdraws a transitional relief and makes three minor technical clarifications to the current rules to ensure they work as Parliament intended. The reforms make it clear that everyone must pay their fair share. I will not take up any more time for the moment.

Budget Changes

Debate between Stewart Hosie and David Gauke

Monday 21st March 2016 Commons Chamber

[Mr Gauke]

I entirely agree with my right hon. and learned Friend that it is the long-term approach that he took as Chancellor of the Exchequer that we are now taking forward so that we can secure prosperity and economic security for the British people.

[Stewart Hosie (Dundee East) (SNP)]

We are shortly to hear a statement from the Department for Work and Pensions, and if rumours are correct, it will announce a substantial change to the Budget announcements that we heard only last week. That is likely to result in either substantial extra borrowing or a requirement for substantial extra taxes or, potentially, the shredding of the fiscal charter rules. In any case, there is likely to be a substantial change to last week’s Budget. It is not good enough to announce that in a quick statement; surely it should require a supplementary corrective Budget. Let me ask the Minister whether his right hon. Friend the Chancellor has pencilled in a date for a summer Budget—and if he has not, may I suggest he does so now?

[Mr Gauke]

As the hon. Gentleman says, there will be a statement from the Secretary of State for Work and Pensions, and we also have two further days of Budget debates. As for changes to the fiscal position, in view of the oil price changes of recent months, I think we should look at the consequences for Scotland if it had been independent.

HMRC and Google (Settlement)

Debate between Stewart Hosie and David Gauke

Monday 25th January 2016 Commons Chamber

[Mr Gauke]

My right hon. Friend raises an important point. Our international tax system is based largely on that set up in the 1920s, but the world has moved on and the way multinational companies operate has changed significantly. That is why, some years ago, led by my right hon. Friends the Prime Minister and the Chancellor, we encouraged the OECD to establish the BEPS project. We are now seeing the first signs that that is working—that companies are changing their behaviour and the tax system is becoming better suited to the modern world.

[Stewart Hosie (Dundee East) (SNP)]

First, the diverted profits tax, set at 25%, came into effect last April. May we have the Minister’s assurance that the Google deal does not cover any of the period when diverted profits tax should have applied? Secondly, the rules on disclosed evasion are clear: tax should be paid at 100%, plus interest, plus a 30% penalty. May we have his assurance that that was rightly not applied in this case? Finally, given the difficulty the Netherlands got into with the Starbucks deal and Luxembourg got into with the Fiat deal, when the Commission insisted they recoup between €20 million and €30 million extra, should the Google deal not be put to Commissioner Vestager to ensure that it complies with state aid rules?

[Mr Gauke]

The United Kingdom does not engage in special deals with any taxpayer. When accusations to that effect were made before, Sir Andrew Park, a retired High Court judge, investigated them on behalf of the National Audit Office and concluded that in every case he had investigated the settlement was reasonable and the overall effect of the arrangements was good. For the very reasons I set out, I cannot comment on the individual matter beyond what is in the public domain. I do believe that there is an important principle here—that tax should be collected on the basis of the law, and that a Department that is independent from Ministers should be able to make the assessment of the right level of tax due under the law without politicians interfering in operational matters. I hope that that has the support of Members of all parties.

National Insurance Contributions (Rate Ceilings) Bill

Debate between Stewart Hosie and David Gauke

Tuesday 3rd November 2015 Commons Chamber

[Mr Gauke]

The proposition of the independence movement was much more optimistic about receipts than the OBR at the time of the referendum. Most important of all, the United Kingdom is more easily able to absorb a volatile oil price than an independent Scotland would be—a point that I would have thought anyone looking at this fairly had to accept.

[Stewart Hosie]

I will not be tempted by the Minister, however generally he put it, other than to say that he is wrong and that the UK Government’s barrel price for gas was higher than that used in Scotland. That is not the point. I completely understand the technical answer that the Minister has just given, but will he please answer the specific question: does this pose a threat to the contributory principle which applies to many of the benefits that people in the UK receive?

[Mr Gauke]

Let us be clear that the OBR’s projections for oil prices—those are the ones that the Government use—were much, much more cautious than those of the independence movement. The black hole that would be the finances of an independent Scotland, had the SNP succeeded in obtaining independence, would have been very considerable, and it is about time that those who campaigned for independence were straightforward with the British people and the Scottish people about what has happened.

The Bill makes no change to the structure of national insurance contributions that would undermine the contributory principle. I am happy to make that explicit to the hon. Gentleman. I hope that is helpful to the House, and I hope the House will support the Bill before us.

Question put and agreed to.

Bill accordingly read the Third time and passed.

Scotland Bill

Debate between Stewart Hosie and David Gauke

Monday 29th June 2015 Commons Chamber

[Mr Gauke]

The Isle of Man has different constitutional arrangements. What we are proposing is consistent with the conclusions reached by the Smith commission.

The hon. Member for Dundee East (Stewart Hosie) made a number of technical points about how that will work. I accept that a number of details will need to be worked out as part of the fiscal framework. There is a need to agree the methodology for estimating how much VAT is generated by Scotland and by the rest of the United Kingdom. The UK and Scottish Governments will also need to agree the operating principles, including mechanisms for verifying that the methodology has been applied correctly, how many adjustments might be carried out and arrangements for audit and transparency, including publication of results. It is worth pointing out that other countries operate similar systems and could provide a reasonable starting point from which to build.

Again, those considerations will be part of the fiscal framework, and I think that it is agreed on all sides that it would not be helpful to provide a running commentary on it. Of course, there have already been meetings with the Deputy First Minister and the Chief Secretary to the Treasury on some of those points. All I will say to the hon. Member for Dundee East is that the UK Government are determined to work constructively, as I am sure the Scottish Government are, to ensure that we reach an agreement that is fair and reflects the appropriate assessment that should be made.

[Stewart Hosie]

I thank the Minister for that answer; it is genuinely helpful, as he always is. However, will he confirm for the Committee that the agreement will be reached in good time for the Scottish Parliament to consider it fully before any legislative consent motion has to be passed?

[Mr Gauke]

It is kind of the hon. Gentleman to say that I am being helpful. In the spirit of continuing to be helpful, let me say that I certainly hope that that will be the case, but of course agreements will require both parties to act in a co-operative way, which I have no reason to doubt will be the case.

With those remarks, I hope that the Committee will support clause 15 and that I have said enough to persuade the Labour party not to press new clause 20.

Question put and agreed to.

Clause 15 accordingly ordered to stand part of the Bill.



Clause 16

Tax on carriage of passengers by air

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