With this it will be convenient to discuss the following:
Clauses 8 to 15 stand part.
Government amendment 4.
Clauses 48 to 51 and 124 to 127 stand part.
Government motion to transfer clause 127.
Clauses 128 and 129 stand part.
Government amendment 10.
That schedule 1 be the First schedule to the Bill.
Government amendments 11 and 12.
That schedule 2 be the Second schedule to the Bill.
Government amendment 57.
That schedules 16 to 18 and 27 to 29 be schedules to the Bill.
New clause 1—Review of international best practice in relation to tax avoidance and tax evasion—
‘(1) The Chancellor of the Exchequer must, within two months of the passing of this Act, commission a review of international best practice by Governments and tax collection authorities in relation to—
(a) the prevention and reduction of tax avoidance arrangements, and
(b) combatting tax evasion.
(2) A report of the review under subsection (1) must be laid before the House of Commons within six months of the passing of this Act.
(3) In this section, “tax avoidance arrangements” mean arrangements broadly comparable in their effect to arrangements in the United Kingdom which have the obtaining of a tax advantage as the main purpose, or one of the main purposes, of the arrangements.”
Before I say something about this group, I wish to comment on the maiden speech and on the retirement speech that we just heard. It was a real honour to be here in the Chamber for the maiden speech by my hon. Friend Trudy Harrison. She told us what inspired her, but she also reminded many Conservative Members of how she inspired us to make the journey up to her beautiful constituency in the knowledge that we were supporting an outstanding woman who is rooted in and passionate about her community. She was generous about her predecessor, which was nice to hear. I had many friendly dealings with Jamie Reed when he was a Labour shadow Health Minister and I was in the Department of Health, so I welcome her comments. It was a wonderful maiden speech and I look forward to many more speeches from her in the future, and I wish her and her long-suffering family well for the weeks ahead. She spoke with conviction about the contribution of nuclear power, but I think that in the forthcoming campaign it will be girl power to the fore.
It is always nice to hear Members reflect on their time in this House and the way they have served. As Mr Smith noted, he has had a nice bookending, with a Finance Bill debate at the start and a final contribution on Treasury matters. Of course, he also paid tribute to his constituents. I am sure that in these circumstances one has a bit less time than one thought to do a round of goodbyes, but I am sure he will continue to be active in his community. I congratulate him on his speech and thank him, on behalf of the whole House, for his service to it.
This group deals with the taxation of employment income, and contains some clauses addressing tax avoidance and evasion. There are a number of clauses and schedules in this group, including a new clause from Kirsty Blackman, but I am going to focus my remarks on clause 7 and schedule 1, which refer to workers’ services provided to the public sector through intermediaries and which might be of interest to Members. I will, of course, address any other areas in the course of the debate.
Clause 7 and schedule 1 reform the off-payroll working rules—also known as the intermediaries legislation, or IR35—for individuals working in the public sector. The tax system needs to keep pace with the different ways in which people are working. As the Chancellor set out at both the autumn statement and the spring Budget, the public finances face a growing risk from the cost of incorporations. Indeed, the Government estimate that by 2021-22 the cost to the Exchequer from people choosing to work through a company will be more than £6 billion. A not insignificant part of that cost comes from people who are working through their own personal service company but who would be classed as employees if it were not for that company. The off-payroll working rules are designed to ensure that where individuals work in a similar way to employees, they pay broadly the same taxes as employees. However, non-compliance with these rules is widespread, and Her Majesty’s Revenue and Customs estimates that less than 10% of those who should operate these rules actually do so. As a result, more than £700 million is lost each year across the economy, of which about 20% relates to non-compliance in the public sector. This is neither sustainable nor fair, and we believe that public authorities, in particular, have a responsibility to taxpayers to ensure that the people working for them are paying the right amount of tax.
It is right that individuals doing the same job should be taxed in a similar way, regardless of whether or not they are working through a company. The changes being made by clause 7 and schedule 1 address this non-compliance in the public sector. They move responsibility for determining whether or not the off-payroll working rules apply, shifting it to the public authority that the individual is working for, from
To provide certainty and clarity where it is needed, HMRC has worked extensively with stakeholders to develop the new digital “Check employment status for tax service”, which public authorities can use to help implement the changes. That service has been live since last month, and it has now been used many thousands of times—more than 273,000 times—to assist people in applying the off-payroll rules.
People have told me that no matter what information they have put in, they have always been told that they have to pay more tax than they were expecting. Concerns have been raised with me about that online tool and its shortcomings, and about the fact that HMRC is always asking people to pay a level of tax that they think is wrong or too high.
Given where we are in this Parliament, the best thing the hon. Lady can do is to send details on that, immediately and before Dissolution, so that HMRC can look at the factual issues. I am surprised by what she says, but let us ask HMRC to look at the practical issues she raises—while we are off doing other things, it can perhaps look at those if she supplies the information in the next few days. HMRC has worked with the Cabinet Office Crown Commercial Service to produce guidance for public authorities and has supported them to implement the changes.
Government amendment 10 is a technical one to ensure that the reform only applies to the public sector, as set out in the Government’s original announcement.
In conclusion, the Government believe it is essential to ensure that public funds are used correctly and that those in receipt of them are paying the correct amount of tax. The changes being made by clause 7 and schedule 1 will improve compliance with the tax rules, raising a substantial amount of revenue by 2021-22. I therefore ask Members to support this clause and schedule, along with clause 8, schedule 2, clauses 11 and 48, schedule 16 and clause 127.
I wish to discuss the issues raised in this group, including by my new clause 1. The Minister has covered the IR35 issues in some detail, but the Scottish National party still has real concerns about these changes. Just the other day somebody told me that they are no longer bidding for public sector contracts as a result of the tax changes made on IR35. That is a real concern, which we have raised before, particularly in the context of rural communities. In some of our most rural communities, people such as teachers, doctors and nurses are employed through intermediaries, and for very good reasons; it is sometimes difficult to get people to come to some of the most rural parts of Scotland. We are concerned that this move is going to have a real disadvantageous effect, particularly for rural communities that rely on teachers, doctors and other individuals working in the public sector who are employed through intermediaries. I understand that it is already having an effect, but it would be interesting, and I would very much appreciate it, if the Government let us know what difference it has made, not only to the tax take, but to our communities. Having read through the Government’s document on the impact of the tax changes, called OOTLAR—the overview of tax legislation and rates—I do not think they have recognised the impact the changes could have on communities, so it would be interesting to see what that impact is. The change has already been made and people are now working under it, so I imagine that within six months or so we will be able to see the outcomes and whether or not there is a disadvantage.
New clause 1 is on tax avoidance, which the Scottish National party has spoken about at length in this Parliament, and about which we will continue to speak at length. Tax avoidance is a real concern and contributes to the UK tax gap, which is £36 billion. Back in 2014, Credit Suisse published a report suggesting that larger countries such as the United Kingdom struggle to get people not to avoid tax. Smaller countries are much better at it—I am just pointing that out. The new clause would require the Chancellor of the Exchequer to review within two months international best practice in relation to the prevention and reduction of tax avoidance arrangements and combating tax evasion, and to publish a report of the review. We are asking for that because we do not think that the United Kingdom is the best place in the world at tackling tax avoidance. It is certainly not the best place in the world at all the different ways of tackling tax avoidance; we could learn a huge amount from what different countries are doing. The new clause would be a sensible way forward, so I hope the Government are keen to accept it.
Something else we have mentioned in relation to tax avoidance is the protection of whistleblowers. Some whistleblowers tend towards having poor health as result of their whistleblowing. It is really important that people are encouraged to come forward if they see problems, and that we are making it as easy as possible for them to do so, because we need people to be whistleblowers. We need them to tell us where practice is going wrong and where tax dodging is happening. We would support the Government in any action they take to encourage whistleblowers and to create a better environment in which they can come forward.
Lastly, there has been talk of the possibility of the United Kingdom becoming a tax haven after Brexit. We absolutely reject the notion that after Brexit the United Kingdom should reduce all taxes to nearly nothing. For a start, that just does not work if we want to have public services such as the NHS—
I hope everybody present is supportive of the NHS, but I get why my hon. Friend has the impression that some people are not. We need our NHS to continue to be supported, and for that we need taxes to continue to come in.
Does the hon. Lady agree that the focus should be on maximising the tax take? A reduction in tax rates can actually lead to an increase in the tax take.
I agree that the focus should be on maximising the tax take, but I would go about it in a slightly different way by trying to encourage companies and individuals and by encouraging the economy to grow. I would try to get people back into more productive jobs in order to increase productivity. The Government have mentioned increasing productivity, which is something we have been pretty good at doing in Scotland in recent times; our productivity increase has been significant and much higher than the productivity increase south of the border. Those are the measures I would start with to grow the economy.
Well, we have plenty of time. I am grateful to the hon. Lady for giving way. Does she not agree that by reducing taxes, particularly corporation tax, in this country, we are more likely to attract inward investment and new companies from around the globe to this country, thereby producing the taxes to pay for our public services?
I do not believe that there is a huge amount of evidence for that. When companies are looking at where to base their headquarters and their staff, corporation tax does not feature all that high up the list. They are looking for good infrastructure, schools and support for individuals in the community. Corporation tax is not at the top of the list, so I would do other things first to try to encourage inward investment, if it were me who was in government and making those decisions.
Mr Hoyle, that is the end of my comments on this group.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8 ordered to stand part of the Bill.
Clauses 9 and 10 disagreed to.
Clause 11 ordered to stand part of the Bill.
Clauses 12 to 16 disagreed to.
Clauses 17 and 18 ordered to stand part of the Bill.
Clauses 19 and 20 disagreed to.
Clause 21 ordered to stand part of the Bill.
Clauses 22 to 44 disagreed to.
Clauses 45 to 47 ordered to stand part of the Bill.