Review of effects on public finances

Finance (No. 3) Bill – in the House of Commons at 6:23 pm on 8th January 2019.

Alert me about debates like this

Votes in this debate

  • Division number 289
    A majority of MPs voted against carrying out a review of the effectiveness of the changes made to entrepreneurs’ relief.

34A (1) The Chancellor of the Exchequer must review the revenue effects of this Schedule and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) The review under sub-paragraph (1) must consider—

(a) the expected change in corporation tax paid attributable to the provisions in this Schedule, and

(b) an estimate of any change, attributable to the provisions in this Schedule, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.”

This amendment would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of Schedule 5.

Amendment 21, in schedule 6, page 221, line 26, at end insert—

“13 The Chancellor of the Exchequer must review the expected change to payments of Diverted Profits Tax and any associated changes to overall payments made to the Commissioners arising from the provisions of this Schedule, and lay a report of that review before the House of Commons within 6 months of the passing of this Act.’

This amendment would require the Chancellor of the Exchequer to review the effect on public finances of the diverted profits tax provisions in the Bill.

Photo of Anneliese Dodds Anneliese Dodds Shadow Minister (Treasury)

As my hon. Friends have set out a number of times already today, this is a Finance Bill that continues the Government’s previous programme of austerity for the many while the very best-off people are protected. This Conservative Government chose to tie the hands of this House with regard to amending the Bill, so there are very few means we can adopt to have an impact on any of these measures. None the less, new clauses 2 and 4 would require the Government to at least review their regressive policy approach. I realise that I need to compress my remarks, so I will speak briefly to each of those new clauses and then to new clause 26, which pushes in the same direction, and new schedule 1, which in many respects exemplifies this Government’s slipshod approach, particularly to tax policy making.

New clause 2 would require a review of the likely efficacy or otherwise of the Government’s very minor changes to entrepreneurs’ relief set out in the Bill. Overall, it has been estimated that the revenue forgone through tax reliefs amounts to the same as all the revenue raised through corporation and council tax, business rates, fuel duty and stamp duty. A full £2.7 billion of that forgone revenue comprises entrepreneurs’ relief.

The official Opposition are committed to properly reviewing tax reliefs as forgone revenue, to ensure that they are appropriately targeted to achieve public policy outcomes. No such analysis has been conducted by this Government, including of entrepreneurs’ relief, despite the fact that there is little evidence that it promotes entrepreneurialism or productivity to any large extent. Indeed, just 6,000 people receive entrepreneurs’ relief on gains of more than £1 million. Independent bodies such as the IFS and the Resolution Foundation have thus been deeply critical of it. At the very least, we need to know whether the Government’s reforms in the Bill are anything more than cosmetic. That is what new clause 2 asks for.

Beyond the apparently limited changes to entrepreneurs’ relief, the Bill includes a number of cases where those with the broadest shoulders are exempted from their contribution to taxation. I will just mention three. First, a proportional rather than absolute value is used to exempt non-residents from the anti-enveloping rule, which means they will be less likely than residents to be subject to capital gains tax. That is a farce, given that the measure was meant to ensure a level playing field. Secondly, the Bill has a new discriminatory trading exemption for capital gains tax that is available only to non-UK investors. Finally, we see the imposition of longer investigatory time limits for offshore tax affairs for income and inheritance tax, but not for corporation tax, thus privileging those who can incorporate and large multinational corporations.

New clause 4 is an attempt to highlight the systematic bias in the Government’s approach by contrasting the level of interest paid on penalties incurred by tax avoidance promoters with the interest payable on student loans. I am sure that many Members have seen the research released by the TUC yesterday, which highlighted the fact that households are now subject to record levels of debt. The research indicated that, excluding mortgages, average debt per household shot up by £886 last year to a new peak of £15,385.

Peculiarly, some people have tried to criticise that analysis by pointing out that it includes student loan debt, but surely we should all be deeply concerned by the fact that so many young people face such a mountain of debt, which is what it feels like. As I am sure many Members have heard from their constituents, we now have a situation where former students work incredibly hard all year and try to pay off their loan, but it is larger at the end of the year than it was at the beginning because of the interest rate of 6.1%. Let us compare that with the current interest rate on late payment of penalties for promoters of tax avoidance schemes. That interest rate, I am sure Members will be interested to hear, is 3.25%. It is essential that the Government look into that carefully. We will not press new clause 4 to a vote, but we hope the Government will look into that in much more detail than they have up to now.

Under this Government, there is often one rule for the very best-off and another rule for everyone else. That is what we see when it comes to the loan charge, which is covered by new clause 26. The activities targeted by the loan charge were a form of tax avoidance, but the Government’s approach to dealing with them has been deeply unfair.

Photo of Anneliese Dodds Anneliese Dodds Shadow Minister (Treasury)

I do not believe I can, as I have been told that I have to proceed quickly.

For many years, the Government failed to take action, before clamping down purely on taxpayers and doing little to nothing to the enablers of this form of tax avoidance. I hope the Minister will be clear about this. He has talked about the promotion of defective schemes. When taxpayers are described as having done something illegal, which is what HMRC has said about the behaviour of those subject to the loan charge, why will the Government not say that those who promoted those schemes also promoted something illegal? They use this language about defective systems. I am sorry, but that is pusillanimous. Those who were unwittingly led into schemes that are now described as illegal must themselves be able to take action against those who wrongly advised them.

I hope that the Minister will look at that very carefully and accept the new clause. If he does not, I hope that he will accept my backstop, to coin a phrase, and have a meeting with me. I am glad he has intimated that he may be willing to do so to talk about how we can better help people who have ended up in a very difficult situation—some of them with their eyes wide open, but many of them not realising the impact of these schemes.

Photo of Nicky Morgan Nicky Morgan Chair, Treasury Committee, Chair, Treasury Committee

I rise to speak briefly—I know time is short in this debate—about new clause 26. For the avoidance of doubt among those on the Treasury Bench, I will not be supporting the new clause, but, as Chair of the Treasury Committee, I want to put on the record some concerns about the loan charge on behalf of the many individuals who have contacted the Committee and of the Committee members who have expressed concerns about it. I hope that Ministers will listen and engage with MPs across the House on this issue.

The Committee has raised concerns about the loan charge in evidence sessions with my right hon. Friend the Chancellor, and with HMRC and the Chartered Institute of Taxation. As Anneliese Dodds said, it is right that people should pay their fair share of tax on their earnings, and we do not support anything that seeks to get around that. It is right that HMRC should act swiftly and firmly to close down such avoidance schemes.

However, tax law sets out time limits within which HMRC can open inquiries and make tax assessments. Normally, those time limits take account of whether a taxpayer has taken reasonable care to comply with their tax obligations, has been careless or has deliberately decided not to comply. They are seen as valuable taxpayer protections, giving a degree of certainty that takes appropriate account of taxpayer behaviour.

It is certainly concerning to me—I am not sure I can speak on behalf of the whole Committee, but I think it is fair to say that I speak on behalf of many of its members—that HMRC’s contractor loan settlement opportunity requires people who want to put their affairs straight to waive those protections, with the threat of the loan charge looming over them. It is not clear why it is necessary for that settlement opportunity to pressure people into paying tax for years that HMRC calls “not protected”—years where HMRC is out of time—even though it may have had the information it needed to open inquiries or raise assessments at the proper time.

Photo of Dame Cheryl Gillan Dame Cheryl Gillan Conservative, Chesham and Amersham

I support the way in which my right hon. Friend is addressing new clause 26, on which I find myself in a similar position to her. Although we want people to pay the correct taxes, I have constituents who may face losing their homes over this, after entering into what they thought were perfectly legal and allowable arrangements. Does she agree that the Treasury must address that?

Photo of Nicky Morgan Nicky Morgan Chair, Treasury Committee, Chair, Treasury Committee

I very much agree with my right hon. Friend. It will probably turn out that most of us have constituents who are affected in that way. There are some who perhaps did know what they were doing when they entered into these tax arrangements, and some who clearly did not. It is absolutely right that the correct tax is applied, but, equally, it cannot be right that people are facing serious situations that will undermine their financial security but also their mental health.

Photo of John Redwood John Redwood Conservative, Wokingham

Is my right hon. Friend aware that not only did quite a few people take advice, but they notified the Revenue of what they were doing and no objections were made at the time?

Photo of Nicky Morgan Nicky Morgan Chair, Treasury Committee, Chair, Treasury Committee

Yes, I absolutely agree with my right hon. Friend. That was raised in the Westminster Hall debate led by my fellow Committee member, my hon. Friend Mr Baker.

I say to the Minister that it is troubling to hear that tens of thousands of people who want to settle with HMRC before the 5 April deadline have yet to receive calculations from HMRC. It is impossible for them— I think it would be for most of us—to settle large bills within a matter of months if they do not know what they will be asked to pay, let alone if they cannot start to make arrangements for how to pay them. These individuals need to know how much they have to pay, and I ask Treasury Ministers to step in and make clear what will happen to those people if they do not hear from HMRC by 5 April.

I will leave that with Ministers. I hope they can tell that there are MPs on both sides of the House who are concerned about this. By working together, we can make sure that the right tax is paid, but also that people are treated fairly.

Photo of Kirsty Blackman Kirsty Blackman SNP Deputy Leader, Shadow SNP Spokesperson (Economy)

I am aware that we are fairly short of time, so I will not rerun many of the things I said in Committee—I am sure the Minister and those on the Opposition Front Bench will be delighted to hear that.

I want to highlight a few of the SNP amendments and new clauses in this group. We have a couple of new clauses asking once again whether the Government’s provisions will do what they intend. For example, we want them to review the changes to entrepreneurs’ relief. We also want them to look at the changes in relation to emergency vehicles, because we are particularly concerned about the potential rural impact. Those who have emergency vehicles in rural areas may have more cause to use them outside work time than people who use them in cities. We felt that that issue was not drawn out enough in Committee or in the information the Government provided previously.

New clause 17 is about Brexit analysis. It is important to note that, since the Brexit vote in June 2016, over $1 trillion has been pulled from UK equity funds, which is obviously a really large number. In any changes or preparations the Government carry out in relation to Brexit, therefore, they should note the impact on the economy, which, according to the Bank of England, has cost individual families £900 each so far, and there is also the impact on financial services, for example, which have historically been very strong in the UK.

New clauses 15, 11 and 14 again ask the Government to provide information through consultation reports. It is important that the Government tell us the consultation they did on the draft clauses they brought forward. On the ones they did not bring forward, why did they not do so?

On that point, I should mention that the Government have included a new schedule in this group. That is a relatively unusual thing for the Government to do at this stage, given that they could have included the schedule in the original Bill or brought it forward in Committee. Because the new schedule was not brought forward in the initial stages, the explanatory memorandum provided by the Government does not include details about it. It would have been helpful if it had been considered at an earlier stage or if the Members who sat through the Bill Committee had been notified that it was likely to come forward. Presumably, the Government knew about it before the Christmas recess, and it did not just appear out of the ether. That process could be improved.

The main thrust of my contribution in the short time I have remaining is about the removal of the link between the personal allowance and the minimum wage. I understand that the Government have removed it on the basis that the personal allowance has now reached £12,500 and that they therefore believe they do not need to keep the link. I understand why they are making that case, but if that link had been kept, with the Government required to do a review if the personal allowance threshold was set at less than £12,500, future Governments would have continued to be bound by it. That would have meant that the protection the Government felt was necessary for people on the lowest incomes would still be there in the future. I understand that the Government do not intend to reduce the personal allowance, but that protection could have been left in place without the law causing any problems. That is something I am concerned about.

It is particularly concerning when the living wage the Government have put in place is not a real living wage, but a pretend living wage. It also does not apply to anyone under 25, which is an issue the SNP has raised over and over again. Just because someone is 24 does not mean that their living costs are less than they would be if they were 26—they could have the same number of children and live in exactly the same accommodation. However, the Government believe that it is okay to pay them less just because they are under that age threshold. That is exacerbated by the fact that the minimum wage increases the Government have introduced this year increase by a higher percentage—not just a higher monetary value—the minimum wage received by those who are over 25. The gap is widening: those who are over 25 are getting a bigger increase in the minimum wage, while there is a smaller increase for the younger age groups. The Government need to take seriously the fact that they are saying apprentices are worth pennies, frankly, and that 16 and 17-year-olds are worth far less than people under the age of 25. We raised our concerns in Committee in relation to the removal of the number. I do not think it would have cost the Government anything to leave in the link to protect future generations.

Photo of Anne Main Anne Main Conservative, St Albans

I wanted to have more time to be able to say what a great job the Government have been doing: a 43-year low for unemployment rates, 1,000 jobs a day created and bringing in the personal allowance upgrade even earlier. We do not have time to go through all that, but I believe that getting people into work and out of poverty is the way forward for many families.

The Government were absolutely right to target business rates as a way of helping the high street and small businesses, with a cut of 33% in rates for businesses with a rateable value of under £51,000. In areas like mine with high property values, however, it is not having the impact the Chancellor might have hoped. The new rate simply provides a cliff edge that penalises successful businesses in areas that are plagued by high property values. We must devise a system that helps small businesses and pubs to thrive, not just those with a low retail value. I recently met pub owners in my constituency who have been hit extremely hard by business rates. I have cut out an awful lot of my speech, but I am pleased to say that I have secured a Westminster Hall debate on this matter next Tuesday. I look forward to exploring the matter further with a Minister. Pubs in areas such as St Albans are seeing massive hikes in business rates, not the help that was intended.

Time is pressing, but I want to touch on new clause 26 tabled by Sir Edward Davey. I have serious concerns about the retrospective nature of the tax being collected. Several of my constituents have raised cases with me and I am extremely concerned about how the process has been handled. Many make the case that this was not illegal tax evasion; they were advised to use the scheme as a way of keeping more of their own money. It is worth remembering that these people are not employees. They take on more risk, with no sick pay, maternity pay or other forms of support offered to an employee. I want to give a couple of personal examples, because I think that is key and we have so little time.

One of my constituents, who worked as an IT professional in the FinTech industries, is being pursued for £900,000 by HMRC for the loan charge. He is extremely worried—many are on the brink emotionally—and this has put him and his family under considerable stress. He had been advised that what he had done was lawful and he considered it to be so. He told me, worryingly, that he tried to settle the case with HMRC for about £700,000, but that that had been rejected. Many people who find themselves in tax difficulties manage to make negotiated settlements with HMRC. It appears that this particular group of people are being treated very unfairly and are being left in the very difficult situation of not knowing exactly how much they owe or how quickly they have to pay.

Photo of Colin Clark Colin Clark Conservative, Gordon

Other colleagues will be aware that the oil industry had a lot of contractors who were using what effectively turned out to be disguised schemes. Does my hon. Friend agree that there is a duty on HMRC? We have heard today from another hon. Member that customers should not be unduly disadvantaged if they have not managed to settle their claim to date, because after 5 April it will be significantly more.

Photo of Anne Main Anne Main Conservative, St Albans

Exactly. I have also been advised by a former constituent, who, despite no longer living in the UK, is being pursued by HMRC for thousands of pounds of unpaid tax. Another person was advised that this mechanism truly was lawful and it has come as a huge shock to his financial planning that he is left in this position.

There are reportedly over 1,000 people being pursued for unpaid tax. No one is disputing that people should pay tax that is due. The issue is the way it is being requested. People have been badly advised. They have never been able to check whether anything they were doing was illegal, because they were being advised that it was not illegal at the time. It is a loophole that has now been closed.

Photo of Anne Main Anne Main Conservative, St Albans

It will have to be very quick, because I am aware other people need to speak.

Photo of Luke Graham Luke Graham Conservative, Ochil and South Perthshire

My hon. Friend is making a very valid point. One of my constituents, an IT contractor, was advised by his own accountant. A review would be very helpful in ensuring that people receive proper advice, so that laws can be followed and taxes collected.

Photo of Anne Main Anne Main Conservative, St Albans

My hon. Friend is exactly right. There are many versions of that story. I have constituents who say that HMRC was made aware of these arrangements but no objection was raised until many years later. That has to be fundamentally wrong. What more due diligence can anyone do?

I will conclude, because I know the right hon. Member for Kingston and Surbiton wishes to speak. The huge pressure and distress—even suicidal thoughts—that this measure has put in people’s minds is totally unacceptable. I say to the Minister: if we do nothing else tonight, can we accept new clause 26? There is a clear ambiguity in the law that applied at the time—perhaps clarity has been provided now. The fact that people cannot negotiate a reasonable settlement even though they acted in good faith at the time, and are being pursued to the point of the destruction of their careers, homes, family lives and marriages, is completely unacceptable. We clearly need a review, and I hope the Minister takes that on board and accepts new clause 26. If it is pressed to a vote, I shall vote for it.

Photo of Edward Davey Edward Davey Liberal Democrat Spokesperson (Home Affairs)

I thank Mrs Main for her passionate speech. I also thank Nicky Morgan, who chairs the Treasury Committee, and right hon. and hon. Members from across the House, who have campaigned as a Parliament against this measure and supported new clause 26. It is my wish to divide the House on the new clause if the Minister does not accept it.

Let me make it crystal clear from the start that I support the Treasury’s aim of closing tax loopholes and stopping tax avoidance. The introduction of loan charges in the Finance Act 2017 to stop future abuse was correct, and the review my new clause proposes would not seek to prevent the Treasury from stopping that abuse from the 2016 Budget announcement. Instead—somewhat inelegantly, due to the rules of Finance Bill debate—new clause 26 aims to focus the minds of Treasury Ministers on the gross unfairness of the way the 2017 Act went about closing an unacceptable tax loophole.

I believe that the review envisaged in the new clause would reveal the unfairness of the retrospective nature of the current loan charge legislation in two ways. First, it would show how that retrospective nature is even more severe than non-retrospective but backward-looking proceedings for the recovery of lost tax elsewhere in our tax legislation. Secondly, it would show that the test of reasonableness included in proposed new section 36A, if applied to the loan charge, would in fact prevent any retrospective tax collection from the loan charge.

Let me remind the House why the Treasury should, after the review, ditch the retrospective nature of this measure, delay April’s implementation and amend the charge so it focuses only on payments made after 2016. It is because the loan charge, as introduced, offends against the rule of law. It is the sort of taxation that led the barons to rebel against King John and gave birth to Magna Carta. It is simply not acceptable for a Government to introduce a law that makes illegal something someone did years ago, when that action was considered legal. That is a clear principle.

Photo of Ruth Cadbury Ruth Cadbury Labour, Brentford and Isleworth

I thank the right hon. Gentleman for giving way— I realise time is short—and for tabling new clause 26, which I, too, support. Does he agree that it is unreasonable for people to be expected to have kept records going back 20 years when they were reassured at the time that the scheme was legitimate?

Photo of Edward Davey Edward Davey Liberal Democrat Spokesperson (Home Affairs)

The hon. Lady is absolutely right, and I thank her for her support. Let us remember that these people—our constituents—were given professional tax advice and behaved in a way they thought was right and lawful at the time.

Photo of Tommy Sheppard Tommy Sheppard Shadow SNP Spokesperson (Cabinet Office), Shadow SNP Spokesperson (Scotland), Shadow SNP Spokesperson (House of Lords)

I fully support the right hon. Gentleman’s comments and will vote for new clause 26 if it is pressed to a Division. I wonder whether he will reflect briefly on my concern that some people who support the Government’s position have implied that, in seeking justice and fairness for our constituents, we in some way condone tax avoidance. In fact, the opposite is the case—we say that there should not be tax avoidance or evasion. The real culprits in this are not the individuals who were conned and duped by professionals into taking out these schemes and now face bankruptcy, but the firms that designed and sold them the schemes in the first place, some of which are still operating.

Photo of Edward Davey Edward Davey Liberal Democrat Spokesperson (Home Affairs)

The hon. Gentleman is right on all the points he makes. When my hon. Friend Stephen Lloyd tabled the early-day motion that got cross-party support when this campaign was getting going, those were exactly the points he made. We all condemn tax avoidance and support the Treasury, but this retrospective approach to taxation is simply unacceptable.

Photo of Crispin Blunt Crispin Blunt Conservative, Reigate

I congratulate hon. Members and hon. Friends on their speeches and wholly agree with them. It is grossly unfair that one of my constituents, a contractor between 2004 and 2006, is expected to repay tax from this period. It goes against the whole principle of fairness and surely would not survive any challenge in the European Court of Human Rights.

Photo of Edward Davey Edward Davey Liberal Democrat Spokesperson (Home Affairs)

Indeed. HMRC knew about these tax schemes for years and took no action. They were widely used—as we have heard, right hon. and hon. Members from around the House have constituents affected—and widely advertised and yet were ignored by the tax authorities. People could only take some public sector positions if they agreed to be paid via these schemes, and it emerged ahead of the Westminster Hall debate that even some HMRC contractors were paid through such a scheme.

Photo of Wes Streeting Wes Streeting Labour, Ilford North

I am grateful to the right hon. Gentleman for tabling the new clause. I found HMRC’s answers to the Treasury Committee wholly unsatisfactory. There remain serious questions to be asked of the promoters of these schemes, of the employers, including public sector employers, who promoted them to contractors, and also of HMRC. If people were given tax advice and followed it, and if HMRC was aware of these schemes but did not take action in any previous tax year, how on earth could any reasonable person have concluded that they were doing anything wrong?

Photo of Edward Davey Edward Davey Liberal Democrat Spokesperson (Home Affairs)

I totally agree, and I am grateful for the hon. Gentleman’s intervention.

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

It is not often that I agree with the right hon. Gentleman, as he knows, but I strongly agree with him on this issue. Retrospective legislation is bad in principle. This is an unjust provision, unreasonable and unfair, and I urge the Government to take note of the arguments put forward.

Photo of Edward Davey Edward Davey Liberal Democrat Spokesperson (Home Affairs)

Having taken that wonderful intervention, I bring it to the House’s attention that Mr Bone has signed my new clause. It is bringing the House together at a time when elsewhere it is divided.

I end on what this loan charge and its retrospective nature have meant for our constituents. It has caused misery. It has affected people’s lives, their health, their families. It has caused gross misery. Some people believe they will have to go bankrupt if they are forced to pay, or that they might lose their homes, and that is why the House is united against this retrospective action. I really hope that the Minister will get to his feet, accept the new clause, go ahead with the review and bring it back before the end of the tax year, so that the House can see it and vote on it.

Photo of Bambos Charalambous Bambos Charalambous Opposition Whip (Commons)

I rise to speak in support of new clause 2. I was staggered to learn that entrepreneurs’ relief costs the Treasury an estimated £2.7 billion, and this to allow people selling companies worth up to £10 million to keep half the money they would otherwise pay in capital gains tax.

I was even more surprised to learn that this tax relief was concentrated among a few very wealthy individuals, with 6,000 people making gains of over £1 million and averaging £450,000 in tax relief each. This relief is only benefiting the very wealthy and should be reviewed as to its effectiveness. If it is scrapped, the £2.7 billion could be used to fund schools buckling under the pressure of funding cuts and provide huge investment in special educational needs and children and adolescent mental health needs. It could also go some way to funding children’s services and social care in local authorities and policing.

This is not the only area where the Government are giving away money that could otherwise be put to better use. Under amendment 22, in the name of Kirsty Blackman, the Government are being asked to review the expected effects on public health of the changes made to the Alcoholic Liquor Duties Act 1979. The Alcohol Health Alliance has stated that the Government’s own figures show that alcohol duty cuts from 2013-14 have cost the Treasury £4 billion, which is the equivalent yearly cost of employing over 100,000 teachers. The figure is expected to rise to £9.1 billion by 2024. Considering the pressures on budgets as a result of austerity, that is not an insignificant amount.

The freeze on duty on beer, spirits and cider for 12 months from February 2019 is in effect a cut, as it is not keeping in line with inflation. Indeed, it has not done so for six of the last seven years. Cheap alcohol has a tremendous effect in causing damage to people’s health, the economy and wider society. Alcohol is the leading risk factor in respect of the deaths of people aged 15 to 49. In England alone, there are more than 1 million hospital admissions and 24,000 deaths related to alcohol every year. That is a clearly an impact that the Government need to consider when they set duties on beer, spirits and cider. Cuts in alcohol duty have a double effect. They reduce revenue for the Treasury, which in turn reduces the amount of funding for the NHS, while simultaneously increasing demand and costs in the NHS by encouraging the consumption of cheap alcohol. I therefore ask the Government to review the impact of the alcohol duty freeze on public health.

Let me now say something about new clause 26, tabled by Sir Edward Davey. When it comes to collecting taxes from individuals, the Treasury, via HMRC, has been brutal in its demands from contractors who have been paid through loans. I should make it clear that I have no time for tax dodgers and tax avoiders, and that I believe the disguised remuneration scheme was used by some people colluding with businesses to avoid paying tax. That is wrong and tax avoidance should be dealt with severely. However, I have met a number of people at my local surgeries and heard their stories of being mercilessly pursued for alleged unpaid taxes going back many years, and it is clear to me that HMRC has adopted a “shoot first and ask questions later” approach.

Photo of Liz Twist Liz Twist Labour, Blaydon 7:45 pm, 8th January 2019

Does my hon. Friend agree that the stories we hear from our constituents suggest that some of them are not only afraid of losing their homes and livelihoods, but are actually having suicidal thoughts because of the pressure that is being put on them to pay the money?

Photo of Bambos Charalambous Bambos Charalambous Opposition Whip (Commons)

That is an excellent point, which I was about to make myself. While the large accountancy firms have gone unpunished for creating tax avoidance schemes for big banks, those individual contractors are bearing the brunt of HMRC’s powers. I have been informed by the Loan Charge Action Group of suicides, bankruptcies and relationship breakdowns as a result of the stress involved in their dealings with HMRC. The group has said that many of the people being pursued by HMRC unwittingly signed up to loan-based schemes, but the promoters of the tax avoidance vehicles have not been targeted.

I ask the Minister to reconsider these measures and to ensure that people are not punished when they should not be.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

Given the limited time that is available to me to summarise a debate that has covered a large number of amendments and new clauses, I shall confine my remarks principally to the issue that has been raised most frequently, which relates to new clause 26. The new clause requires the Government to lay before the House a report reviewing the effects of changes made by clauses 79 and 80 no later than 30 March 2019. While I should note that such a report will come too soon for the measures to have had a real effect, the Government of course remain committed to setting out the rationale for their policies as well as their impact, and in that spirit we will not oppose the new clause.

I do, however, echo many of the comments made by Members about what these schemes are truly about, which is gross aggressive tax avoidance. The way in which disguised remuneration typically works is that, instead of an employer’s paying an employee by way of a salary in the normal way, which attracts PAYE income tax and employees’ and employers national insurance, the payment is made as a loan. Typically, those so-called loans, which are not really loans at all—there is no intention of ever repaying them—are routed out via an offshore trust in a low or no-tax jurisdiction, and then routed back to the United Kingdom to be received by the end recipient. That is extremely unfair. It is unfair to our public services, because we have a duty as a Government to collect the tax that is due to fund them, and it is unfair to the vast majority of taxpayers who do the right thing, which is not to get involved in aggressive tax avoidance schemes in the first place and to pay their fair share of tax.

One issue that has been raised on a number of occasions is the question of whether HMRC’s loan charge arrangements are themselves retrospective. They are not retrospective because, critically—this is where I take issue with Sir Edward Davey—at the time when they were entered into they were defective. No matter how far we go back, the scheme typically—I have described the way it works—was defective. It did not work then, it does not work now and the tax is due.

These schemes have been taken through the courts on many occasions. A scheme used to the benefit of Rangers Football Club was taken to the Supreme Court—the highest court in the land—and was found to be defective.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

I will not, simply because I have two minutes and 30 seconds left and I want to cover some of the other issues raised this evening.

However, as I have said, the Government will accept this new clause. It is absolutely right that, when HMRC deals with the public, it has a strict duty of care, a duty of proportionality and a duty to be as sympathetic as it can be relevant to the circumstances of those with whom it is dealing. In my dealings with HMRC, I have made those points forcefully clear. As the right hon. Gentleman will know, HMRC has recently come forward to say that those earning £50,000 or less—which is over twice the average national salary of somebody working in our country—will automatically be granted, without requirement for additional paperwork, a minimum of five years’ time to pay as an arrangement to settle their affairs. Of course for those who come forward before April there is effectively in most cases no penalty as such; they will simply be required to pay that tax which was due in the past—and it was always due in the past—plus the interest that is rightly applied.

I have less than a minute left and want to say a little about amendment 12, tabled by Kirsty Blackman, on the national minimum wage lock. She will know that, because we have increased the personal allowance now to £12,500 for every year of the forecast period, there will be no necessity for that lock to be in place. She makes the point that there could be a projection beyond that point. That will be a matter for a future Government of course and it is not for this Parliament to bind its successors.

I conclude on the suggested entrepreneurs’ relief review and new clause 2, which Anneliese Dodds spoke to. We had a review that was published in December 2017, which reported on this particular matter, and it showed that a third of those using entrepreneurs’ relief went on to reinvest in new businesses and half of those who were aware of entrepreneurs’ relief said that it significantly influenced their decision to enter into an entrepreneurial activity. It is an important element of the business tax landscape and we will of course, as we do with all taxes, keep that relief under review.

In the six seconds I have left, I urge that the House accepts the Government new clauses and, with the exception of new clause 26, rejects the Opposition amendments.

Five hours having elapsed since the commencement of proceedings on the programme motion, the debate was interrupted (Programme Order, this day).

The Deputy Speaker put forthwith the Question already proposed from the Chair (Standing Order No. 83E), That the clause be read a Second time.

The House divided:

Ayes 289, Noes 312.

Division number 289 Finance Bill — New Clause 2 — Review of Effectiveness of Changes to Entrepreneurs Relief

A majority of MPs voted against carrying out a review of the effectiveness of the changes made to entrepreneurs’ relief.

Aye: 289 MPs

No: 312 MPs

Ayes: A-Z by last name


Nos: A-Z by last name


Absent: 45 MPs

Absents: A-Z by last name

Question accordingly negatived.

The Deputy Speaker then put forthwith the Questions necessary for the disposal of the business to be concluded at that time (Standing Order No. 83E).