My Lords, I will not pretend that speaking at the tail end of the Back-Bench speakers is a pleasure. I have clearly upset the Chief Whip in some unknown way. When I saw my place on the list, I contemplated the pleasure of an early night, but I want to use the opportunity of this debate to talk about something that was omitted from this Budget and is the cause of much distress to a large number of individuals.
Before I get to that, however, I should like to congratulate the Government on their economic stewardship over the past eight years. I will not repeat what my noble friends have said, but the highlights of the economy are record levels of employment—the lowest rate of unemployment since 1975; rising real wages; solid growth, even in the face of Brexit uncertainty; and, of course, no sign of the recession that the Treasury’s “Project Fear” promised us if we dared to vote to leave the EU. As an optimistic Brexiteer, I am hopeful that our exit from the EU will open prospects for economic growth that will outperform the cautious OBR forecasts, but I fear that whatever Brexit deal has apparently been concluded today will cast a long shadow over that; I shall save my views on that for another debate.
The underlying message of the Budget is that, even with the cautious OBR forecasts, the economy is doing well. The Chancellor had room to reduce the deficit and see the total debt burden on a downward path. At the same time, he reduced the burden of taxes on individuals and increased spending, particularly on the NHS. The Budget may not have set many pulses racing, but it was unashamedly good news.
I will not go on about how well the Government are managing the nation’s finances, much as my noble friend Lord Bates might like me to do so. I want to devote the rest of my remarks to a little-noticed change first launched in the 2016 Budget, the impact of which is now being felt. This concerns the 2019 loan charge, which is part of the attack on tax avoidance. It came to my attention during the Finance Bill Sub-Committee of the Economic Affairs Committee, which is ably chaired by my noble friend Lord Forsyth of Drumlean. This year we are looking at making tax digital for VAT and HMRC powers, and we issued a call for evidence on that basis. Our reports on both aspects will be available shortly for those of you who I know cannot wait.
What the sub-committee did not expect was a deluge of evidence from individuals and their advisers about the impact of the 2019 loan charge. The loan charge is expected to produce over £2.5 billion of tax revenue, with the largest part this year and next. It is thus not an insignificant part of the fiscal arithmetic underpinning the Budget. The legislation is in the Finance (No. 2) Act 2017. It is highly technical and I will not weary noble Lords with the details. In summary, some taxpayers worked as contractors rather than employees and received income in the form of loans that were not taxed. The legislation treats these loans as income received on
When the provisions were debated in the other place in Committee, there were approximately two Hansard columns of general commentary by the Financial Secretary and his opposite number on the theme of tax avoidance. The actual legislation was not scrutinised in detail and the impact on the individuals affected was not explored. The upshot was that the provisions found their way into law with ease. I remark—as I have before in your Lordships’ House—that the expertise of this House as a revising Chamber could be put to extremely good use if we were allowed to cover finance Bills.
That aside, what is now becoming very apparent is the profound impact on the individuals caught by these provisions. None of us has much sympathy with tax avoidance schemes. We probably feel little sympathy for all those famous names now facing big bills from film schemes or other exotic schemes which do not work to shelter large amounts of income from taxation. The loan charge is not like that. It deals with ordinary people earning ordinary levels of income. At the lower end are people on the minimum wage; for example, low-wage employees made redundant and immediately re-employed via agencies who put them into companies which operated these schemes. There are some who earned higher amounts; for example, IT contractors who chose to work under contract rather than as employees. But the people caught up are not the ultra-rich. They all entered into schemes that were cleverly marketed and appeared to have HMRC approval, which of course they did not. These schemes are not illegal, as the Financial Secretary has often said; they just do not work for tax purposes.
It is easy, with the benefit of hindsight, to say that if something looks too good to be true it probably is, but the tax returns were often not challenged by HMRC at the time, which led many to believe they were in the clear. A demand for tax on 20 years’ income has come as a massive and unsustainable shock to many. I have no doubt that many people were foolish. What is very clear from the cases I have seen, however, is that the individuals concerned have spent the money on living expenses. They would find it difficult to pay one year’s worth of tax, let alone 20 years’ worth. Faced with HMRC’s demands, many now face losing their homes. Some will opt for bankruptcy. The Government knew this when the legislation was enacted. Their December 2016 impact statement chillingly stated:
“The Government anticipate that some of these individuals will become insolvent as a result”.
That is now coming to pass.
It has been reported that some people are suicidal and that personal relationships have often been destroyed. The financial demands appear overwhelming. HMRC has some arrangements in place for deferred payment but this will often not mitigate the extraordinary impact of the debts now being created. I hope there is a beating heart somewhere in the Treasury that will understand the personal misery and havoc that this legislation is creating. It is clear that the individuals have obtained an unwarranted tax and national insurance advantage, but is the cure worse than the disease?
I know my noble friend the Minister has a strong sense of right and wrong. My only request to him is to go back to the Treasury after this debate and judge for himself whether what is being done is fair.