I beg to move amendment 22, page 14, leave out lines 7 to 10 and insert—
““(1A) Where this Chapter applies to any living accommodation—
(a) the living accommodation is a benefit for the purposes of this Chapter (and accordingly it is immaterial whether the terms on which it is provided to any of those persons constitute a fair bargain), and
(b) sections 102 to 108 provide for the cash equivalent of the benefit of the living accommodation to be treated as earnings.””
With this it will be convenient to discuss the following:
Government amendments 23 to 26.
Clause stand part.
Clauses 8 and 9 stand part.
Amendment 2, in clause 10, page 15, line 29, after “omit”, insert
“, except in the case of a low emissions vehicle,”.
Amendment 3, in clause 10, page 15, line 38, at end add—
“(3) For the purposes of this section, a “low emissions vehicle” means any car first registered on or after
Clauses 10 to 12 stand part.
That schedule 2 be the Second schedule to the Bill.
Clause 13 stand part.
Government amendment 27.
Clauses 14 and 15 stand part.
Amendment 180, in clause 16, page 24, line 35, at end add—
“(2) The Chancellor of the Exchequer shall undertake a review of the impact of the abandonment by HMRC of its valuation check service for Small and Medium-sized Enterprises, including its associated impact on employee share ownership schemes, and report to Parliament within six months of the passing of this Act.”
Clause 16 stand part.
Government amendment 28.
That schedule 3 be the Third schedule to the Bill.
Clauses 17 and 18 stand part.
New clause 1—Review of income tax treatment of workers providing services through intermediaries—
“The Chancellor of the Exchequer must conduct a strategic review of the impact on workers defined as providing services through intermediaries of their treatment for income tax purposes, including the differential impact on different types of worker, and must publish the report of the review within six months of the passing of this Act.”
New clause 3—Tax treatment of workers employed through intermediaries—
“The Chancellor of the Exchequer must, within six months of the passing of this Act, publish a report on the impact of the current system of employment through intermediaries on the treatment for tax purposes of the employment income of workers employed through an intermediary or umbrella company, including the role of intermediaries and umbrella companies.”
New clause 10—Employee share schemes: value for money—
“The Chancellor of the Exchequer shall, within six months of the passing of this Act, publish a report giving HM Treasury’s assessment of the value for money provided by each type of employee share scheme.”
It is a great pleasure to speak on the Government measures in this group. I will say at the beginning of my remarks that, as I mentioned to Mr Speaker earlier, and as you will have no doubt noted, Mrs Laing, I am somewhat incapacitated by a back strain. I will of course take interventions, but with your permission, I will remain standing during those interventions—bobbing up and down will be a little discomforting. May I have your permission?
Please—[Interruption.] No, do not sit down. I was about to say that if the Minister had not made that point I was going to offer my permission. Having once been in the dreadful position of standing at that Dispatch Box on crutches with a broken leg, I know that although it is possible to stand still, going up and down is exceedingly difficult. I am sure the whole House has every sympathy for the Minister and will concur in giving him permission to remain on his feet.
Thank you, Mrs Laing. I am grateful for those remarks.
The measures I will outline ensure the simple, clear and fair tax treatment of employment income and benefits, strengthen incentives to choose the cleanest cars and vans, and ensure that those who have used artificial arrangements to avoid paying tax pay their fair share. Given the number of measures selected for debate, I will briefly set out how I will speak on them today. I will first discuss clauses 8 to 11, concerning company car taxation and the van benefit charge. I will then outline clause 7 and clauses 12 to 17, which address tax treatment of income and certain benefits. Finally, I will outline clause 18, which addresses disguised remuneration schemes.
I turn first to clauses 8 to 11. Clause 8 will increase the appropriate percentage for conventionally fuelled cars by three percentage points in 2019-20; it will also widen the tax advantage of ultra-low emission cars over conventionally fuelled cars in 2019-20 compared with previously announced plans. As a result of the changes, in 2019-20 a basic rate taxpayer driving a popular ultra-low emission company car will be £113 better off. Clause 9 makes a minor technical update to ensure the legislation works as is intended in 2017-18 and 2018-19. The update applies to a small number of rare company cars. It is estimated that exposure to nitrogen dioxide is linked with 23,500 deaths annually in the UK, costing approximately £13.3 billion.
As was announced in the autumn statement in 2015, clause 10 retains the three percentage point supplement for diesel company cars until 2021. That will support the UK’s transition from diesel cars to cleaner, zero and ultra-low emission cars. As a result, a basic rate taxpayer with an average ultra-low emission company car will save an additional £150 in 2016-17, compared with an employee who has an average diesel company car.
Clause 11 retains the van benefit charge for zero-emission vans at 20% of the rate paid by conventionally fuelled vans for 2016-17 and 2017-18, rather than increasing it to 40% and 60% as currently planned. That means that a basic rate taxpayer who drives a zero-emission van will save £126 in 2016-17 and £258 in 2017-18. Together, clauses 8 to 11 will incentivise business and employees to take up the cleanest cars and vans. That will help to ensure that the market for those new technologies becomes established in the UK, and to support the UK’s carbon emission and air-quality targets.
In anticipation of what we will hear from the Opposition, let me turn to amendments 2 and 3 to clause 10. The amendments would require the exemption of diesel cars from paying the supplement if they achieve the same level of nitrogen dioxide emissions as petrol cars. I appreciate that hon. Members want to incentivise people to purchase the cleanest cars, but the amendments would only introduce confusion and uncertainty. They are not linked to the wider regulatory programme to achieve the latest air quality standards, even when cars are driven on our roads. Clause 10 retains the supplement until 2021 when those new standards will be mandatory for all new cars. That approach is transparent and easy to understand, and it will give consumers confidence that all new diesel cars are comparable to petrol cars. Our approach incentivises people to purchase the cleanest cars, and in anticipation of what will be said later, I hope that Labour Members will not press the amendments to a vote.
Let me consider those clauses that clarify and simplify the tax treatment of income and certain benefits, and ensure fairness in the tax system. Clause 7 will clarify how the cash equivalents of certain taxable benefits are calculated, and ensure that fair bargain does not apply to those taxable benefits in kind where the level of computing the value of the benefit is set out in statute. The Government have made minor technical changes in amendments 22 to 26, which ensure that the legislation works as intended.
Clause 12 and schedule 2 will provide clarity that all income from sporting testimonials for an employed or previously employed sportsperson will be taxable. However, we are aware that careers in sport can be short, so we have also introduced an exemption for the first £100,000 of income received from a sporting testimonial that is not contractual or customary. The Government believe that that is a fair compromise, and the vast majority of employed sportspersons who have testimonials will not be impacted. Clause 13 introduces a statutory exemption for certain benefits costing up to £50 that employers provide to their employees. That will simplify the tax treatment of those benefits and reduce the administrative burden for employers. To ensure that the exemption is not misused, a £300 annual cap will apply in certain circumstances. That sensible and simplifying measure will reduce burdens on employers and HMRC alike.
Clause 14 will ensure that no individual or business can obtain an unfair tax advantage through claiming tax relief on home-to-work travel and subsistence expenses. It is an established principle in the UK that people are not able to claim tax relief on the cost of ordinary commuting, and the vast majority of workers are not able to do so. Individuals who are engaged through intermediaries—such as umbrella companies and their employers—currently benefit from that relief and the cost of commuting from home to work, simply because of the way they are engaged to work.
Has the Minister considered whether this measure will have a disproportionate impact on rural communities where travel is much more expensive and sometimes an overnight stay is necessary when undertaking those roles?
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.
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?
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 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.
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?
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.
It is a pleasure to serve under your chairmanship, Sir Roger.
I will follow what the Minister helpfully did by giving a preview of where I am going, as I think that might help the Government, but I will do it seriatim numerically. I want to probe clause 7 a little. We broadly support clauses 8 to 11, which relate to vehicles, although we have tabled two amendments to them. The Minister helpfully—in terms of procedure, if not policy—indicated that the Government were not minded to accept amendments 2 and 3. If the Government, in spite of my silver tongue, maintain that position, I will in due course seek to press amendment 2 to a Division. We broadly support clauses 12 and 13. We also broadly support clause 14, on travel expenses for workers, but I wish to probe the Government on it and ventilate some issues. We broadly support clause 15. I want to run clause 16, on employee share schemes, around the block. There are a number of share option schemes under various guises and the situation is arguably getting a little out of control. The Opposition broadly support clauses 17 and 18.
Clause 7 relates to taxable benefits. It seeks to amend 2003 legislation to clarify the concept of a fair bargain. This is, as I understand it—I am not an accountant—where an employer provides some kind of benefit in kind, which is in some circumstances provided at a cost to the employee and in some circumstances is not. Where benefits of goods or services are provided at a cost, HMRC wishes to know whether the cost of the benefits provided is below market rate. Clause 7 goes to that issue, but it appears to cover vans and cars as well as other things and of course we will be dealing with vans and cars in other clauses. As the Minister has a bad back, I will try to avoid putting him in a situation where he feels that he has to intervene. I have every sympathy with him as I have suffered from a bad back for decades. If he catches your eye, Sir Roger, when we come to closing this part of the Committee proceedings, I hope that he will be able to explain and differentiate for those of us who are not accountants how vans and cars come into the benefit-in-kind provisions under clause 7. Having had a company car for many years with two different employers, I understand how they come in under subsequent clauses—that is not to say that I know the whole regime, but I am broadly familiar with that territory—but not under clause 7. Will the Minister tell us, therefore, to what extent the Treasury has found that there has been a misuse of the original rules, thereby necessitating the clarifications under clause 7—Government amendments 22 to 26? The explanatory notes, which the Minister will know are my lodestar in these matters, refer to “uncertainty”. I hope the Minister can explain from whence that uncertainty comes, so that we can be a little clearer on that.
I will now come on to meatier matters on cars and vehicles. We are all aware that the use of the tax regime to encourage certain behaviours and discourage others is well known to have an effect when it comes to the purchase and use of vehicles, unlike in some other areas where the efficacy or otherwise of tax reliefs is not so clear. As I look around the Chamber, I can see that there are not many Members present who will remember the campaign for lead-free petrol, but I remember it and supported it. In the bad old days, lead was added to petrol as a mechanism for increasing its octane rating and therefore its power output. Initially, when the excise regime was the same for leaded and unleaded petrol, unleaded cost more. The then Conservative Government, under some pressure from the campaign for lead-free petrol and others, wisely changed the excise regime so that unleaded petrol at the pump, with a lower excise duty than leaded petrol, cost less, which meant that many motorists made the switch within a period of about two years. That was achieved by using excise levers to change behaviour in the use of vehicles.
In recent years, we have also seen the explosion in the United Kingdom of the purchase and use of diesel vehicles. That was started under a Labour Government who were trying to cut CO2 emissions, because, mile for mile, diesel engines generally emit lower CO2 per mile driven. That policy succeeded, but it was always contradictory, because there was also a 3% loading—in other words more tax payable—for those who had a diesel-powered company car in contradistinction to a petrol-powered company car.
Clause 8 increases quite markedly the percentage of the purchase price, which is then counted as taxable income for somebody who is provided with a company car. For low-emission vehicles, or those with 76 to 94 grams of CO2 per kilometre—I hope that, when we leave the European Union, we will not revert to imperial—the appropriate percentage goes from 19% to 22%. Under clause 8, the range goes up 3% each time, with a delay, as the Government have announced, for two years. Broadly, that looks to us like a tax-raising measure—there is nothing wrong with that as Her Majesty’s Revenue and Customs is about levying taxes so that the Government have sufficient income to provide the service that our constituents want.
I hope the Minister will be able to give us an estimate of how much the increase in those bandings in clause 8 will bring to the Exchequer and tell us whether it will have any effect, positive or negative, on the types of vehicles purchased. Most people—I concede not everybody —would agree that a vehicle purchased with lower CO2 emissions per kilometre is generally less dirty and more socially acceptable than a vehicle with higher CO2 emissions per kilometre.
As I understand it, clause 9 is, in part, a correction of problems in the Finance Act 2015—I confess that I am not sure whether it was the second Finance Act of that year—in relation to vehicles that cannot emit CO2. For most of us, that probably means electric cars as they are the most common vehicles, although there may be other types of vehicles. As it is a correction, there will not be the two-year lead-in that the Government, generally and quite properly, wish to have so that manufacturers and purchasing managers for fleet operators can plan. Will the Government tell us a bit about how that error crept in? I know that these things happen, but a little explanation of how the error arose would be helpful. I think provisions were overlooked and omitted in the 2015 Act, which led to this correction in clause 9.
Clause 10 gets us on to the much meatier issue of the appropriate percentages for diesel cars. I think that it was always the case—I may be corrected on this—that there was an additional 3% to be paid as a benefit-in-kind assessment for those who had diesel-powered company cars in contradistinction to petrol-powered ones. As I understand it, the Government had enacted a provision abolishing that 3% loading—I am not sure why because I was not in the House then—and clause 10 abolishes the abolition, so that the 3% loading continues. Overall, that seems to Labour to be a good thing to do given the increasing evidence that is emerging of the particularly deleterious effect of diesel vehicles—not just diesel cars but many, many commercial vehicles which, because of their size and weight, tend to do far fewer miles to the gallon. That is a particular problem in certain parts of the country as it has an effect on air quality.
Let me talk about the number of vehicles that this measure will affect. The Library has been very helpful in this matter. As always, I am most grateful to my excellent researcher, Imogen Watson, who has done a huge amount of work on this with a great deal of help from the Library. The latest figures that the Library could find—any mistakes that I make at the Dispatch Box are of my making—show that about 313,000 company cars are replaced each year, but those figures go back to 2012-13. That is around 14% of total car sales, which is a considerable drop compared with 30 years ago when it was nearer 50%. Because of the ratcheting of the tax regime on company vehicles, however, that proportion has lessened.
As we now know, diesel cars are particularly noxious, and there are, in fact, standards—Euro 6—that came in for new type approvals from September 2014 and for all new cars from September 2015. When sold in the UK, new vehicles have to be compliant with Euro 6, unless a subsequent Government decided to change that—and I rather suspect they would not. Regardless of the UK leaving the EU, one would expect Euro 6 to continue to apply in this country. If a Euro 7 were to be introduced by a post-Brexit European Union, it is likely, I suggest, that the UK would then comply with that, because our manufacturers would have to do so in order to sell in the continental market. At the moment, as I say, we are on Euro 6. The standards of Euro 6 are set out in terms of grams per kilometre. I confess that I do not understand all the science, but while the metrics for petrol and diesel are the same under Euro 6, the targets that the vehicles have to reach are somewhat different.
The 3% surcharge for loading, which the Government wish to retain and we support, will somewhat discourage fleet managers from allowing company cars to be diesel, even though those cars will get more miles to the gallon. I believe that the Minister referred to an estimate of 23,500 deaths per year brought about by poor air quality—he will correct me if I am wrong. No one knows for sure, but I see the Minister nodding helpfully. That is a shocking figure. From memory, I believe the number of road traffic collision fatalities each year to be in the order of 2,750—I stand to be corrected again, but that is the rough order of magnitude—so it is apparent that that is not much more than a tenth of the premature deaths caused by air quality.
To the interested observer, it appears that the UK has quite rightly invested huge amounts in passive and active safety to cut down on the number of road traffic collisions and on their severity—whether or not there are fatalities—yet when it comes to air quality, while we have been a member of the EU, we have been in breach of EU legislation. In this case, the EU does make rules for the UK, and we have been in breach of these air quality standards for years.
The World Health Organisation has ambient air quality guidelines, with which I am sure the Minister and his ministerial colleague are intimately familiar, that are based on micrograms per cubic metre. There are two ways of measuring these standards: one is the annual mean and the other is the 24-hour mean, which shows the peaks. There are two broad categories of particles about which there is concern: PM10, which is particles of less than 10 micrometres in diameter, and PM2.5, which—surprise, surprise—is for particles of less than 2.5 micrometres in diameter. These are very small, and it is these fine particles of less than 2.5 that are considered by many to be much more damaging to health than the PM10 particles. They are found in dust, dirt, soot, smoke and liquid droplets.
Without detaining the Committee at great length, let me explain that a large number of cities in England, Wales and Scotland—I have no figures before me for Northern Ireland—have an air quality that consistently breaches the WHO guidelines on the annual mean. The annual mean recommendation for PM2.5, the smaller particles, is less than 10 micrograms per cubic metre. In Birmingham, just down the road from my beloved constituency in Wolverhampton, it is 14 micrograms—well above the 10 limit. In Leeds, it is 15; in London 15; in Stoke-on-Trent, where I used to work and just up the road from Wolverhampton, 14; and in Glasgow, I am afraid, it is 16—well above the 10 limit. This is very bad news.
Frankly, London has a shocking record. The former Mayor of London, now Boris Johnson, bears considerable responsibility for not having done enough in this regard. In January 2016, London breached the annual air quality limit in eight days. If we think of this as an annual allowance, London used it all up and more within eight days of the start of the year. Under EU rules, sites are allowed to breach the hourly limits of 200 micrograms of nitrous dioxide per cubic metre of air 18 times in a year. Call these what we will—I think they are legislative guidelines from the EU—they allow for certain peaks, exceptional circumstances and so forth, but having 18 of them in eight days means that they were not exceptional circumstances for the city of London, but everyday circumstances. During that particular period, this was happening on average more than twice a day.
We have already mentioned the 23,500 estimated annual premature deaths, but there are huge financial costs as well. Of course the loss of life will be the key indicator for all hon. Members, but the costs are estimated at between £15 billion a year on the basis of Scottish Government sources and £20 billion a year in a report in February this year by the Royal College of Physicians and the Royal College of Paediatrics and Child Health. It is now estimated that England’s air and water are sufficiently polluted in 96% of sensitive habitats to pose risks to their ecosystem. This is a cost to farmers as well because of the ground level ozone produced by nitrogen oxides reacting with other atmospheric pollutants to lessen crop yields. This is a huge problem.
Amendments 2 and 3 are designed simply to address this problem in a small way. They deal with company cars rather than all cars and they are intended to encourage manufacturers to act in a certain way. Under the amendments, if a vehicle with a diesel engine meets the same Euro 6 standard as a petrol engine, the same tax regime should apply to it. Dozens and dozens of hon. Members who were, of course, paying attention earlier, will remember that I referred to Euro 6, which used the same measurement yardsticks for both types of vehicle but provided different points on them for diesel and petrol vehicles. For carbon monoxide, for example, it stipulates 1 gram per kilometre for petrol and 5 for diesel, while for nitrous oxide emissions—the key problem—it is 0.06 for petrol and 0.08 for diesel. As I understand it, the PM2.5 or less particles principally come from such emissions.
The amendments thus provide a very small but important and symbolic step for the Government, who could move towards lessening the appalling—and, arguably under EU rules—illegal air quality in the 38 cities of the United Kingdom that are in breach of the WHO’s recommended regulations for PM2.5 levels, and in the 10 UK cities that are in breach of the PM10 WHO guidelines. This is literally killing people, so I urge the Government to rethink this measure. Accepting amendments 2 and 3 would not transform air quality, but it would be a step towards that and it would be an important symbol, showing that the Government took this issue seriously.
I have to say to the Ministers that the mood music from both the present Government and the coalition Government has not exactly suggested that they have taken air quality from vehicle emissions very seriously. The fact that vehicles can be bought in one part of the United Kingdom and driven in another—quite properly, given that we are still, at the moment, a United Kingdom—requires measures to be taken principally at Westminster or national level, whatever the Scottish Parliament or the Welsh Assembly might wish to do in order to improve air quality, and, unless we were to be incredibly draconian, to be taken through a Finance Bill rather than some kind of diktat.
Clause 11 is entitled “Cash equivalent of benefit of a van”, and I hope that the Minister will be able to tell us where the Government are going with their vans. I may have misunderstood, but where they seem to be going is towards discouraging people from buying electric vans, and, if I have understood correctly, that does seem a bit odd. At present, the charge for zero-emission vans is 20% of the benefit-in-kind tax that would apply to vans that emit carbon dioxide. If I understand clause 11 correctly, the Government will gradually abolish that differential, so that over five or six years the 20% will become 40%, 60%, 80%, 90%, and then 100% by 2022-23. Someone who wants to buy a van in 2022-23 will say, “If I buy an electric van, I shall have to pay as much benefit-in-kind tax as I would if I bought a diesel or petrol van.”
If I have understood correctly, that does seem a rather odd way to deal with benefit-in-kind vehicle taxation. Perhaps the Financial Secretary will either explain that I have misunderstood, or explain the Government’s thinking. Many of us would conclude that they are going in the wrong direction in environmental terms, and that the differential should, prima facie, be maintained.
Clause 12 deals with sporting testimonial payments. As the Minister said, careers in sport can be short. In my experience, that is sometimes the case in politics as well. According to the Chartered Institute of Taxation—and I thank the institute for its help—the arrangement whereby the £100,000 on which, as the Government have clarified, tax is not payable if it is income from a testimonial obtains when the testimonial is neither contractual nor customary. For those of us who are lawyers, like the Financial Secretary, “contractual” is a fairly straightforward term, but “customary” is a bit woolly. It is the kind of word that lawyers and accountants like, because they can make a living charging people for interpreting it so that they can plan their affairs. Again, I may be wrong, but I cannot see a definition of “customary” in the Bill, and I urge the Financial Secretary to have another look at that. Perhaps, either today or later, he will also give us an indication of how much revenue has been missed by the Exchequer in the last five years from testimonials that are contractual or customary, in which case we would expect them to be liable to income tax.
Clause 13, entitled “Exemption for trivial benefits provided by employers”, concerns rewards for services. The Chartered Institute of Taxation has helpfully suggested that it would be useful to everyone if the Financial Secretary could clarify the difference between a reward for services and a reward for “particular services”. They appear to be very similar, but the Government and HMRC must think that there is a difference. I hope that the Financial Secretary will be able to clarify that difference today, if he cannot do so in the Bill.
Clause 14 is entitled “Travel expenses of workers providing services through intermediaries”. This is a difficult issue for all of us, because it involves questions of equality between those who are workers but not necessarily employees, and those who are employees. I should explain to those who are not familiar with the terrain that there are people who are workers for tax purposes, and indeed for minimum wage purposes, but who are not employees.
Successive Governments have attempted to prevent employers—de facto employers—from getting around the law by using devices that lessen the amount of tax that is payable. It is difficult to clamp down on the overnight costs and travel costs of workers who are employed by various organisations, because people are very inventive. However, it is quite common for people working on building sites as skilled workers hundreds of miles from home to have been engaged through an agency, or to be self-employed, and, if they have been engaged through an agency, to have their travel expenses and the cost of their overnight accommodation paid week by week. Clause 14 is an attempt to clarify and clamp down on what the Government consider to be a misuse of the arrangements, or, if not a misuse, a lack of equality between those who might be described as “true” employees and non-employee workers.
I declare an interest as a proud member of the trade union Unite, which is affiliated to the Trades Union Congress, as is the Union of Construction, Allied Trades and Technicians, which is strong throughout Britain but particularly in Scotland. UCATT believes that the Government’s estimate that 430,000 workers will be affected by the changes in the Bill is, in fact, a gross underestimate, and that when travel expenses and overnight accommodation become assessable for the purposes of income tax or national insurance, some of its members in the construction trade who are employed by umbrella companies could be more than £3,300 a year worse off.
Having met representatives of the Freelancer and Contractor Services Association, I wrote to the Financial Secretary twice about its proposals, and he helpfully replied on both occasions. I thank him for that, but I still think that the Government ought to have another look at the position. The FCSA made three proposals. The first concerned a radius allowance: a person’s main address would have to be a certain distance further away from the place of work than the average commute, which, apparently, is 16.7 miles a day. I do not know whether you were aware of that, Sir Roger; I was not. The second concerned the 24-month rule, which is the yardstick according to whether an employment position is regarded as temporary. The third proposal would, I suppose, hurt some people, including, possibly, politicians: the removal of food and drink costs from eligibility for subsistence expenses. We did that in this place some time ago, when food and drink was removed from what used to be called the additional costs allowance, and quite right too.
The Scottish National party has tabled new clause 1, and my hon. Friends and I have tabled new clause 3. It will not surprise Members to learn that I prefer new clause 3. While both new clauses call for a review and an assessment by the Chancellor of the Exchequer of this whole area of the tax system, new clause 3 also includes umbrella companies, which, arguably, are a growing problem or, at least, a growing phenomenon.
Labour supports clause 15, which deals with taxable benefits and PAYE. Clause 16 deals with employee share schemes, of which there are currently about five. The Minister helpfully referred to the issue of productivity. One of the justifications for having employee share ownership schemes is that they will encourage people to work harder for their company and be more committed to it. Of course we want people to be committed to the company where they work hard, unless they have a terrible employer.
“Interestingly, despite the fact that increased productivity has been repeatedly used by previous governments as a rationale for using share schemes, none of the companies or advisers we spoke to told us that they used a share scheme primarily as a way to improve productivity, albeit some accepted that this could be a by-product of participation.”
In a written parliamentary reply on
New clause 10 relates to the value for money of employee share schemes. Given the uncertainty as to the efficacy or otherwise of such schemes, the new clause calls for a report from the Chancellor of the Exchequer giving the Treasury’s assessment of the value for money provided by each type of employee share benefit scheme. I hope that the Minister will accept the new clause and, if not, rather than simply saying that the Government keep these matters under review— which of course they do, and that is good—acknowledge that a specific report on this matter would be helpful. Clause 17 relates to securities options. It is also unclear what effect those options have, but we broadly welcome them.
Clause 18 deals with employment income provided through third parties. Most of this is fairly technical stuff. That does not mean that we should not scrutinise it, but I understand that there will be a consultation on this. Perhaps the Minister could provide a little more detail on that. Will he address the question of lower-paid individuals in small businesses, some of whom feel that these proposals are retrospective because they refer to pre-2011 arrangements? We in this House are always wary of anything that smacks of retrospectivity.
I rise to speak to amendment 180 and new clause 1, and to indicate our support for the Opposition on amendment 2. Rob Marris gave his reasoning behind amendment 2 with such typical eloquence that I have nothing of any substance to add to his remarks, other than to say that we will support the amendment when it is pressed to a vote.
Earlier, I raised a point of order with the Speaker, who encouraged me to say a few words at the beginning of my speech in this debate, so I hope you will indulge me, Sir Roger. We have just had an extraordinary and historic statement from the Prime Minister, in terms of the economy and Government finances, that served merely to clarify the fact that there is no clarity. We know that we face great challenges that will be relevant to much of the Bill, yet we do not know the detail of what the Treasury and its Ministers plan to do or how their actions are likely to affect the measures in the Bill.
I am particularly concerned about how some of these provisions will affect small business people in my constituency and other small businesses, in different legal guises, throughout the whole of the UK. At Prime Minister’s questions just before the referendum, I raised the case of two of my constituents who ran small businesses, Thomas and Elke Westen, who are of German descent. They have now left the country, such were their feelings about the way in which the immigration debate had been handled. They had been hoping to build their businesses and to engage in share ownership schemes, and I know that at least one of them had been engaged as an intermediary and would therefore have been affected by this Bill. So although my remarks tonight on the amendment and the new clause could apply to many people, I have a particular concern about those people in our society who want their small businesses to contribute to productivity but who are feeling disadvantaged because of the wider ramifications of Brexit.
Amendment 180 deals with the impact of HMRC’s abandonment of its valuation check services for small and medium-sized enterprises. I am aware of the Minister’s earlier words of comfort and his opinion that this was not a matter of great significance because the service was poorly used. He suggested that it was of little consequence that it had been abandoned by HMRC in the past few weeks.
Given the reduction in the number of people employed by HMRC, and the level of satisfaction with the service it provides, does the hon. Gentleman agree that it is understandable that many businesses turn to professionals whom they employ themselves rather than relying on HMRC?
I entirely agree with the hon. Gentleman, but the smallest enterprises—those employing perhaps their first or second employee and engaging in some kind of share ownership—are not in a position to pay a professional company £1,000 or £2,000 for the necessary valuation service, which was provided at no cost by HMRC. Organisations such as ProShare, which I think is based at University College London, have said that they are aware of a number of small businesses being discouraged from engaging in small-scale share ownership schemes precisely because the assistance that they were once afforded has been removed. If the demand for such services was so low, only a few people would have been needed to deliver them. The cost to the Government cannot therefore have been very great, so it seems somewhat perverse to abandon the service at a time when people are seeking to expand the number of share ownership schemes in society.
The hon. Member for Wolverhampton South West, for reasons that defy all understanding, did not think that our new clause 1 was dramatically superior to his new clause 3. No doubt he will attempt to convince the Committee of that argument later. New clause 1 proposes a review of the income tax treatment of workers providing services through intermediaries. We believe that this is particularly relevant in Scotland. The hon. Gentleman suggested earlier that the average return journey to and from work was 16.7 miles. Well, try telling that to people who live on the Isle of Skye and have to commute to places such as Fort William and Inverness. Try telling it to people who have to hop from island to island, such as the health workers who travel on ferries to service the islands and often need to stay overnight. Their situation is not remotely close to the average of 16 miles to travel to work.
A recent article in The Times Educational Supplement pointed out the proposal’s likely negative impact on the many aspects of the education sector that rely on people on particular types of contracts who do not enjoy the benefits of full-time employment. The Minister argued calmly, as he always does, that the change is a simply a matter of ensuring a level playing field. If he wanted a level playing field, he would be ensuring that workers employed through intermediaries benefit from sickness pay, holiday pay and many of the other advantages of full-time employment. They do not get those same benefits and cannot be compared with people in traditional forms of employment.
Indeed, I suspect that part of the problem is that the Government have misunderstood the needs of the modern labour market. People are no longer employed either in traditional ways or entirely self-employed in the way it is traditionally understood. Flexibilities in the labour market have developed in many ways over the past 10 or 20 years. Many such flexibilities play to and enable local economies, such as rural areas in Scotland or Northern Ireland, and specialist sectors, such as oil and gas, which need to import specialist services. These people might be based not in Scotland, but down here near London and may have to fly to provide their services. The proposal might have impacts that have not been thought through by the Government.
Does the hon. Gentleman agree with UCATT, which says that such workers should be directly employed if possible? For example, UCATT has obtained agreements on behalf of workers to get employment rights in workplaces such as the Olympics or Hinkley Point. While there is a place, as the hon. Gentleman says, for employing specialist workers on oil rigs, for example, not permanently but through an intermediary, the starter for 10 or opening position should be to try to have direct employment so that people get the full panoply of rights.
I agree with the hon. Gentleman that it would be better for some in this community to achieve traditional forms of employment, but that is not the situation for the in excess of 1 million people in the UK who fall into this category.
Despite the Minister’s warm words, we intend to press new clause 1. It relates to a matter of some real import for the communities and the economy of Scotland. I have indicated that we are simply speaking to amendment 180, which we will not press, and we will support the Opposition’s amendment 2.
I rise to speak briefly on these amendments and new clauses. Roger Mullin was absolutely right to mention HMRC. Successive Governments have consistently understaffed HMRC, consistently arguing that they would make it more efficient or whatever. When I was first elected to this House 19 years ago, I remember going to my local VAT office and being told that every member of staff collects five times their salary. Being a logical sort of person, I wrote to the then Chancellor of the Exchequer and suggested that it was a good idea to employ more staff to collect more revenue for the Government. I received a letter back not from the Chancellor and not even from a junior Minister but from a civil servant, suggesting that HMRC was to save money by cutting staff. It was so irrational that it was just nonsense. That kind of nonsense has continued ever since—reducing the number of offices, making things more remote and so on. I was also not terribly impressed by the idea of having a benefits-distributing service—tax credits—going through HMRC rather than through the Department for Work and Pensions. I was not the only Opposition Member who was uneasy about that change.
I want to discuss new clause 3 and the tax treatment of workers employed through intermediaries and support my hon. Friend Rob Marris on the Front Bench. It has long occurred to me that intermediaries and private agencies make lots of money out of both the public purse and the people they employ. That could be overcome if we instituted a substantial public ownership programme for agencies, particularly when the public sector is involved. If there was a local authority or NHS agency for nurses, the money would either go into the pockets of the staff employed through the agency or would be saved in public spending by the health service—everyone would benefit. However, the people who would lose would be in the private sector, which could not make profits out of employing people in this way. In that way, staffing and taxation could be properly regulated. There would be no cheating, irregularities or tax fiddles, because it would all be within the publicly accountable public sector.
I have considerable sympathy with my hon. Friend on organisations such as agencies that deal with supply teachers. As he will remember from his background in education, that function was commonly done by the local education authority before, sadly, a Labour Government started changing things. LEAs were then gutted by the current Government and their predecessor. Will my hon. Friend concede that in certain areas, such as construction or oil rigs, there is a role for specialist agencies and that it would be rather Stalinist to look at nationalising them or having them run by national Government bodies, as he appeared to suggest?
In the public sector, not everything that was in the past was bad. Some people say that we cannot go back to the past, but a succession of Governments have gone back to the 19th century in the way they run the economy, and neoliberalism was invented then. Since then, we have had social democracies and managed economies that worked well, but that has all been thrown away and we have gone back to the 19th century. Some things from the past that we can return to might actually improve things. I suggest that public agencies for temporary staff would be a good thing.
I might even debate with my hon. Friend that such a proposal could be employed in the private sector as well, because the staff involved would at least be properly protected, the companies would know that they are not being ripped off, and the Treasury would know that it is getting a fair deal through collecting its proper taxes. We could even have them properly organised with the trade unions, ensuring that they are properly paid and so on. We could go back to a splendid world of active social democracy. My hon. Friend’s new clause does not go quite that far, but I support it.
I must say to my hon. Friend that I am quite in favour of a world of active social democracy. I am unsure whether my definition is quite the same as his if he seriously suggests that construction agencies should be run by some kind of state body—that is a step too far for me. I also caution my hon. Friend that, having got his way last Thursday, he is pushing his luck somewhat on this somewhat Stalinist approach.
My hon. Friend suggests that my proposal is Stalinist, but we are talking about a world in which we had several splendid democratically elected Labour Governments after the second world war that did wonderful things. Nobody would call them Stalinist. They submitted themselves to the electorate every five years and were sometimes defeated—sometimes even in this House—so I do not think “Stalinist” is the right word.
I do think, however, that there should be a bigger role for the public sector in regulating employment, making sure that people are properly paid and securely employed, even if they are temporary staff, that taxes are fully paid and that private sector agencies do not rip off both the public purse and employees. I will leave that suggestion with my hon. Friend. I hope that he will bring forward even more radical proposals along the lines that I have suggested.
I shall be brief, as I know nobody wants a lengthy debate tonight. I have a couple of specific points to make about reviewing the income tax treatment of workers who provide services through intermediaries. We are asking for a review. I understand the Government’s point that they feel that their approach is sensible for the majority of workers and that it is levelling the playing field for the majority of people, but there will be unintended consequences on specific issues and in specific areas, and they are going to be a major problem.
We have mentioned that this will have a disproportionate impact on rural communities. That is partly because of geography, as those communities are further away and it is more difficult for people to make cheap travel arrangements to go there and for people to find reasonably priced overnight accommodation. That will have a disproportionate financial impact. We do not want specialist contractors to choose not to go to a rural community on the basis that it will disproportionately cost them money, as that will mean our rural communities will lose out; they will not have the ability to get whatever it is that needs to be done in that community because the contractor will choose to go somewhere cheaper. That is a major issue, particularly in the oil industry, as has been said, and in the whisky industry. The whisky industry may have specialist contractors that need to go to rural locations in order to do things, and we do not want those areas to be disproportionately affected.
One big issue for rural communities is that the Brexit scenario means that they will lose out on huge amounts of European funding, and we do not want them to be further negatively impacted by this regime, so we are asking for a review. I understand that studies have been done and predictions have been made, but we all know from last week that predictions can go horribly wrong. We do not know how this will work in practice. The Government know how much it currently costs, but they do not know what impact there will be on workers’ behaviour when this is introduced. We therefore want the Government to look at this in a few months’ time to see whether it has had that negative effect, particularly on rural communities.
The last thing I want to say is that the reduction in net income has a disproportionate effect on those on lower incomes, so this is a regressive measure. I wonder whether that could be looked at in any review to see whether contractors doing lower-paid jobs are less likely to choose to go to rural communities on that basis.
Some of those lower-paid workers may be working for umbrella companies, and a difference between the wording in new clause 3 and in new clause 1 is that Labour’s new clause 3 mentions umbrella companies. New clause 1 refers to “different types of worker”. Does the hon. Lady envisage that concept as including those who are engaged through intermediary or umbrella companies?
Absolutely we do. When we talk about “intermediaries” and “different types of worker”, we mean all those who will be impacted by this change in the taxation measures.
I am grateful for the various points made in this debate. I will not repeat everything I said in my opening remarks, but I will try to address the questions raised, and we have had plenty of those. Perhaps I should begin by saying how pleased I was to see Rob Marris join us, as one never knows these days who will be on the Labour Front Bench. Given the considerable work that he clearly put into his speech—not forgetting the considerable work put in by Imogen Watson—it would have been a great pity were he not to have been on the Front Bench to ask those questions, so I am delighted to see him.
The lengths people will go to in order to avoid attending a parliamentary Labour party meeting are clearly considerable.
Let me address the lengths the hon. Gentleman went to. I will also try to address the other points raised in the debate, and I will run through this in clause order—at least I will attempt to do so. Let me start by discussing clause 7, as he asked about the extent to which there have been problems and uncertainty with the tax law it addresses. There has been some uncertainty about the application of the current tax law in respect of fair bargain from a number of employers and advisers. This clause has been introduced to put the matter beyond doubt. It will give employers certainty about when fair bargain should not be applied to benefits in kind, and these issues have been recently rehearsed by the Court of Appeal. He raised a particular issue as to why there was special provision for cars and vans. Company cars and vans are a particularly valuable benefit, so the codes specify how to calculate the value to apply so that a fair and equitable tax treatment results. We have these provisions because this benefit is particularly valuable.
There may be a bit of to-ing and fro-ing on this for clarification, and this may well be due to my ignorance, but is this to do with the sale, possibly at an undervalue, of a van or a car, in contradistinction to one that is supplied as a benefit in kind—the classic sales rep’s company car? Is clause 7 talking about a different scenario, such as a potential sale with it undervalued—or how does it overlap?
No, it is not talking about that. I hope that provides some clarity.
On clause 8, we were asked why the Government were imposing tax increases on drivers of low-emission cars. The company car tax system encourages people to choose the most fuel-efficient cars while ensuring that the benefit is fairly taxed. It is fair that all company car users, including those in zero-carbon and low-carbon cars, make a fair contribution to the public finances. The tax differential between ultra-low emission and conventionally fuelled cars will be widened in 2019-20 compared with previous plans announced at Budget 2013. If Members so wish, I could provide examples of that.
The question put is, “Why are the Government increasing rates on conventionally fuelled cars by three percentage points after years of two-percentage-point increases?” People also ask about the impact on the type of cars purchased. These increases ensure that the taxation of company cars continues to reflect changes in emissions technology. The rate increase, together with the extra incentive of ultra-low-emission vehicles, promotes the continued move to the cleanest cars. In 2013, there were 1,900 company ultra-low-emission vehicles, which was about 0.1% of the company car fleet, whereas in 2015 there were more than 8,000. That supports the Government’s approach. Over the course of this Parliament, increases in company car tax rates have broadly maintained revenues in real terms, in the face of continued improvements in new car fuel efficiencies, and this will support the move to cleaner, zero-emission and ultra-low-emission cars.
If I may, I will write to the hon. Gentleman and provide him with those details.
On clause 11, the Government will review the van benefit charge support for zero-emission vans, again in the light of market developments, at Budget 2018. This clause is keeping the level at 20%—it is not increasing it as planned—and the review occurs before any further increase beyond 20%. I hope that reply is helpful to the hon. Gentleman. As for what the impact will be on the sales of zero-emission vans, extending the van benefit charge support for zero-emission vans will continue to reduce barriers to the uptake of new vehicle technologies. The Government’s enhanced capital allowances scheme for zero-emission vans and the plug-in van grant that helps with the up-front cost of buying a new ultra-low-emission van will also help to reduce barriers to the uptake of these new technologies. Together these incentives will help sales of zero-emission vans. This in turn will help the development and manufacture of clean vehicle technologies in the UK, consistent with the Government’s wider plans to promote economic growth. However, it is not possible to estimate precisely the impact on sales at this stage.
The hon. Gentleman made a point about EU air quality requirements and whether we should be doing more. The Government are committed to improving air quality, reducing health impacts and complying with legal obligations. Last December, DEFRA published the Government’s plan to achieve these aims. Under this plan, by 2020 the most polluting diesel vehicles will be discouraged from entering the centres of Birmingham, Leeds, Southampton, Nottingham and Derby. The Mayor of London has responsibility for London and his own plans for reductions. I accept that the hon. Gentleman’s amendment is well intentioned, but no vehicles would currently be caught by it and we are instead pursuing these aims more effectively elsewhere.
Maybe I missed it, and I apologise in advance if I did, but when the Minister referred to stuff going through DEFRA and so on, I understood the milepost to be 2020, but 2020 seems an awfully long way away given that we should have been complying with this air quality stuff in about 2011 or 2012. It seems to be a case of kicking the can down the road while literally tens of thousands of people are dying prematurely. That is worrying.
I understand why the hon. Gentleman raises that point, but no vehicles would currently be caught by the amendment. It is a question of finding the most effective means by which to do this. As I have said, last December DEFRA published the Government’s plans to achieve these aims and I accept that further work needs to be done, but we have set out a realistic and achievable target, and by 2020 the most polluting diesel vehicles will be discouraged from entering a number of cities.
The Minister says that no vehicles would be caught. My understanding of what he means by that is that no vehicles that are currently manufactured would be able to take advantage of the measure set out in amendments 2 and 3. The Minister is, I think, nodding, which is helpful. That is precisely the point of the amendments; it is to drive the market.
I appreciate that that is the intention of the amendments, and of course the hon. Gentleman would be the first to accept that it would require some time for that to take effect, but there are other measures elsewhere that the Government are taking that I believe achieve those objectives more effectively.
There is a proposal to build a railway line that would take 5 million lorry journeys off our roads every year, transforming current levels of emissions, particularly in towns. This has widespread support apart from in the Department for Transport and the Government. Will the Government look seriously at the scheme and see it as a positive way forward?
This Government are committed to a very substantial investment in our railways—the biggest rail building programme since Victorian times. As a Government, we have great ambitions; we intend to spend £60 billion on transport infrastructure over the course of this Parliament.
Turning to supporting testimonials, a point was raised about the definition of “customary”. To reassure the hon. Member for Wolverhampton South West, I point out that HMRC is committed to working with external bodies in the production of guidance on this, which will cover issues such as the definition of “customary”. He also asked about the numbers of testimonials that fall within the contractual or customary categories, or fall outside that. No figures are available, as employers have not had to report this to HMRC. It is worth pointing out that contractual and customary payments are treated as earnings and it is therefore not possible to disaggregate them from the PAYE system.
A number of points were raised on clause 14. It was asked whether this change would disadvantage rural communities. Workers in rural communities who are contracted directly cannot claim travel and subsistence on their ordinary home to work commute. This change equalises the tax treatment of workers employed through employment intermediaries with that of other workers. It addresses an imbalance in our tax system, ensuring that it is fair. It is a long-standing principle of the tax system that tax relief is not allowable for the expense of ordinary commuting—travelling from home to a permanent workplace. I made that point earlier.
In terms of whether it would reduce contractors’ ability to travel, creating a skills shortage or reducing flexibility and preventing growth, where businesses wish or need to recruit workers living some distance away, the Government expect businesses to pay a wage sufficient to attract workers without any special tax subsidy being necessary. This forms part of the Government’s plan to move to a high-wage economy with businesses meeting the costs of paying their workers a wage which does not require a top-up from the state. I should also make the point in this context that this change puts supply teachers —an example that I think was used in the course of the debate—who are engaged through an intermediary on the same terms as other supply teachers who are contracted directly or through an agency. Like other workers, supply teachers not engaged in this way would not receive tax relief on their travel and subsistence expenses on regular home to work travel.
Prior to the last general election, the Labour party said that it would stop umbrella companies exploiting tax relief. It stated this both in its published plan to tackle tax avoidance and subsequently in Parliament, and that is exactly what this change does, so I hope our measures in this area will have cross-party support.
Kirsty Blackman made a point about the impact on the Scottish oil industry. Employees with a permanent workplace at an offshore oil or gas installation are already exempt from income tax where they are provided with transfer transport, related accommodation, subsistence or local transport. These changes will not affect that exemption.
The only time in my life I had to operate through an umbrella company and would have been caught by these changes was when it was at the requirement of the Government because of the way in which they had constructed a contract. Do they intend going through every Department of the UK Government to ensure they no longer contract in this way?
The Government have done considerable work in recent years to ensure that Departments do not engage in arrangements that drive down the tax bill in a way that is not the intention of Parliament.
On clauses 16 and 17 and the issue of the withdrawal of the valuation check service, the Government believe that the impact will be negligible on employee share ownership. The Government do not expect the withdrawal of these services to have an impact on the take-up of employee ownership schemes. The valuation service has not been withdrawn for the most relevant two employee ownership schemes, including enterprise management incentives, company share option plans, savers who earn share option schemes, share incentive plans and the employee shareholder status.
This rather raises the question raised by the hon. Member for Wolverhampton South West as to why we have so many different schemes. Well, each of the tax advantage share schemes has a specific policy objective, reflected in the specific qualifying conditions. Share reward schemes are greatly valued by both companies and employees, and the Government believe that these schemes can have a positive impact on productivity.
Finally, on clause 18 and the concerns that this is retrospective legislation and that it is too complex, let me be clear that the changes introduced here are relatively straightforward. More complex proposals that were announced at the Budget will instead be legislated for in Finance Bill 2017, after the Government have consulted on the technical detail over the summer. One of the main purposes of the consultation will be to ensure that genuinely innocent arrangements are not affected. On the suggestion that the legislation is retrospective, the Government expect those who have avoided tax to pay their fair share. The Government intend to legislate for the new charge in Finance Bill 2017, following the consultation that I have just mentioned. The public and tax practitioners will be able to comment on that consultation.
Normal hard-working people do pay their taxes. They are paid a salary; they are not paid in loans. It is not right that those who use these schemes receive remuneration without paying tax on it. All affected scheme users will have the opportunity to repay their loans or to pay tax on them before the changes come into effect. This is in addition to the previous settled opportunities which closed in 2015.
I hope those points of clarification are helpful to the House. I hope, therefore, that the Government clauses and amendments can be supported, and I urge hon. Members proposing their own new clauses or amendments not to press them. If not, I urge my hon. Friends to oppose them.
Amendment 22 agreed to.
Amendments made: 23, page 14, line 10, at end insert—
“(4) In a case where the cash equivalent of the benefit of the living accommodation is nil—
(a) subsections (2) and (3) do not apply, and
(b) the full amount mentioned in subsection (1)(b) constitutes earnings from the employment for the year under Chapter 1.””
Amendment 24, page 14, leave out lines 13 to 16 and insert —
““(1A) Where this Chapter applies to a car or van, the car or van is a benefit for the purposes of this Chapter (and accordingly it is immaterial whether the terms on which it is made available to the employee or member constitute a fair bargain).””
Amendment 25, page 14, line 35, at end insert—
“( ) In section 120 (benefit of car treated as earnings)—
(a) in subsection (2) after “case” insert “(including a case where the cash equivalent of the benefit of the car is nil)”, and
(b) after subsection (2) insert—
“(3) Any reference in this Act to a case where the cash equivalent of the benefit of a car is treated as the employee’s earnings for a year by virtue of this section includes a case where the cash equivalent is nil.”
( ) In section 154 (benefit of van treated as earnings)—
(a) the existing text becomes subsection (1) of that section, and
(b) after that subsection insert—
“(2) In such a case (including a case where the cash equivalent of the benefit of the van is nil) the employee is referred to in this Chapter as being chargeable to tax in respect of the van for that year.
(3) Any reference in this Act to a case where the cash equivalent of the benefit of a van is treated as the employee’s earnings for a year by virtue of this section includes a case where the cash equivalent is nil.””
Amendment 26, page 14, leave out lines 37 to 39 and insert—
““(1A) Where this Chapter applies to a loan—
(a) the loan is a benefit for the purposes of this Chapter (and accordingly it is immaterial whether the terms of the loan constitute a fair bargain), and
(b) sections 175 to 183 provide for the cash equivalent of the benefit of the loan (where it is a taxable cheap loan) to be treated as earnings in certain circumstances.”” —(Mr Gauke.)
Clause 7, as amended, ordered to stand part of the Bill.
Clauses 8 and 9 ordered to stand part of the Bill.