Clause 52

Finance Bill – in a Public Bill Committee at 1:15 pm on 11th June 2009.

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Exemption for certain non-domiciled persons

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I beg to move amendment 177, in clause 52, page 24, line 13, leave out ‘£100’ and insert ‘£500’.

You will recall, Mr. Hood, that we had an extremely lengthy debate on all these matters a year ago, and that I had the opportunity to raise every issue I could conceivably think of—and many that I had not previously thought about—with regard to the topic. I do not intend to go over all that ground again, especially as it has been touched on in our discussions on schedule 27, but I have tabled this specific amendment. Yet again, I cannot claim its original authorship, because representations were made to me by the Chartered Institute of Taxation’s Low Incomes Tax Reform Group on that specific point, so it seemed reasonable to raise the issue and have a short discussion on it.

You will recall, Mr. Hood, that a year ago, we touched on the fact that non-doms are always portrayed in the media as extremely wealthy, but of course there are some who are not wealthy. Just before we broke for lunch, the point was made that fruit pickers from Poland, for example, or people doing jobs that pay only the minimum wage or a small amount above it would nevertheless be classified as non-doms. The amendment concerns the tax they would be eligible to pay on interest on money in their bank accounts. Because of sterling’s decline against the euro, people who live elsewhere in Europe, or who are paid in euros, might be able to accumulate even more money than normal. Anyone working hard and applying themselves, even if earning a relatively small amount of money, could build up a reasonable balance without it being regarded as large by any normal person’s standards, and they would be eligible to pay interest on that balance. The point was well made by the hon. Member for Fareham that that might be seen as unreasonable, although that is a subjective view.

The other point that the hon. Gentleman made was about practicalities: for someone eligible to pay £20 of tax on a balance of £100, in terms of additional interest, it seems to be quite an administrative burden to recoup a rather small amount of money. The amendment therefore proposes that the clause should specify £500 for interest payments, rather than £100, which would give people just a little more of a cushion, with regard both to practicality and to giving people an opportunity to save a small but reasonable amount of money. That would be more workable and reasonable.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

I wish to speak briefly to oppose the amendment. To raise £100 a year in a standard, current or gold service account seems trivial but, in the low interest-rate economy in which we now live, it would need an ongoing balance of around £20,000. It is in part a function of the low interest-rate economy—which will be with us for at least the tenure of this Finance Act—that that seems a sensible de minimis level. I understand the rightful concern that we do not want anything too pettifogging, with too many different rules. In this context, the difference between a minimum of £100 and one of £500 might seem trivial, but it would require a six-figure sum in a current account to raise £500 a year, as interest rates tend to be below 0.5 per cent., even for the most generous basic savers accounts.

The hon. Member for Taunton is absolutely right that we should encourage those non-domiciles who are not well off. In my own central London constituency, there are significant numbers of people—perhaps spouses, ex-spouses or relatives of wealthy investment bankers—who are non-domiciled but are not as well off as the general image suggests. It is fair that they should have a reasonable day-to-day balance of a few months’ living expenses under their belts—perhaps as much £10,000 or £15,000 a year—well within the constraints that the Government and Treasury have in mind. If there were significant increases in interest rates in the foregoing 12 months I hope that the Treasury would return to this and raise that minimum threshold. At this juncture, £100 is a relatively sensible one to have in place.

Photo of Stephen Timms Stephen Timms Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills)

I am with the hon. Member for Cities of London and Westminster on this one in the debate we have just heard. The hon. Member for Taunton is absolutely right that a lot of foreign workers on low incomes come to the UK and might well fall within the remittance regime—people working in agriculture or construction—and it was never our intention to bring low-paid workers into self-assessment in that way, still less so when there is no tax involved. The clause introduces an income tax exemption on overseas income, which effectively removes the obligation to file a self-assessment return from anyone who has foreign employment income of less than £10,000 in any tax year, as we were discussing a moment ago.

People might also have small amounts of income from bank accounts or other investments overseas in addition to their foreign employment income. That would again trigger an obligation to file a self-assessment return and, again, that was not the intention. The change here is that people with overseas bank interest of less than £100 in any tax year will still be able to take advantage of the tax exemption. I should clarify the fact that the clause requires that the foreign income must be subject to a foreign tax. That does not mean that the person must actually have paid tax on the income in a country other than the UK. It could well be that the income in question is liable to a tax rate of 0 per cent. or could be covered by overseas personal allowances, in which case no tax would be payable on it but it would still count as subject to a foreign tax in this clause.

I think that the hon. Member for Cities of London and Westminster is right: an investment income of £100 in the current environment does equate to a significant capital saving. That is set at the right level in the current  environment to ensure that the people who are the target of this measure will not be brought into self-assessment. An investment income of £500 would mean a significant capital sum. The clause deals with individuals on low incomes who come to work in the UK in the sort of situations that we have discussed. I am not aware of any evidence of a need to increase the threshold, and I am confident that nobody will be prevented from taking advantage of the tax exemption and the administrative relaxations that it delivers. I accept that we should keep the matter under review, as circumstances might change and the threshold might need to be raised, but the £100 level is right for now.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am happy to have had the opportunity to make my point and to have heard the entirely valid arguments made by the two other contributors during our brief discussion. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The principle of the clause—the introduction of a £10,000 exemption—was discussed at length last year. There were various proposals at that time, one of which was tabled by the hon. Member for Taunton to change the exemption from £2,000 to the value of the personal allowance. The then Financial Secretary said that that would be far too expensive and that we should not do it, but the Government have clearly had a change of heart. Concerns were also raised a year ago about the administrative burden that such a low level would place on Her Majesty’s Revenues and Customs, but again we were assured that that was not a problem. However, here we are a year later, and there has been a sea change in the Treasury’s approach, with the introduction of a £10,000 exemption for earned income. To make sure that the Minister will not claim that I grudgingly welcome the measure, I will say that I wholeheartedly welcome it. It is a very sensible measure and one that the Government, had they listened to the representations of people such as the Low Incomes Tax Reform Group last year, would have included in the previous Finance Bill.

The Minister made a comment earlier about interest income being subject to tax. Will that also apply to employment income? The LITRG raised the issue in its representation this year, which takes us back to 828B(2)(b) which states that

“all of that amount is subject to a foreign tax.”

The Minister’s earlier reassurance in response to the amendment tabled by the hon. Member for Taunton that personal allowances and zero-rate bands will be taken into account is helpful, and applies to employment income as well as interest income. I would be grateful if the Minister could place that on record.

Is the issue raised by the LITRG something that the Government will determine on a territory-by-territory basis where income for a territory is subject to tax, or will there be a blanket exemption? If it is to be determined on a territorial basis, it would be helpful to have a list of jurisdictions where the Government believe that up to £10,000 of income has been subject to tax. That list of countries will need to be made known to migrant workers who are here on a temporary basis, as they need to be told what is and is not appropriate. A blanket exemption,  however, would be administratively easier for migrant workers, as it would avoid having to communicate to them a list of exempt companies.

I would therefore like the Minister to clarify two points. First, will he clarify what is involved in being subject to foreign tax, and will he confirm that his explanation on the £100 investment income also applies to employment income? Secondly, is it a blanket exemption, or will it be applied on a territory-by-territory basis? Perhaps he could just round that off by saying why he now thinks that £10,000 is appropriate, whereas last year it was seen as being a necessary cost to the taxpayer.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I wish to speak briefly to the clause. I am reliably informed—I admit that I did not conduct this research in the Derby Gate Library myself—that in the drafting last year, schedule 7 ran to 55 pages, or 22,989 words, and there were 160 pages of explanatory notes and more than 100 Government amendments wrestling with this difficult area to try to get a grip on it and make it workable in practice. Even then, the Institute of Chartered Accountants in England and Wales described the Government’s efforts as

“incomprehensible, unworkable and likely to be undermined by poor compliance.”

On that basis, I am extremely grateful that the Government have listened to representations made by members of this Committee and others who do their best to ensure that the Government’s policies work in practice. I am extremely flattered that the general direction that the Liberal Democrats have been taking in respect of tax thresholds is being adopted incrementally by the Government, and that the intellectual argument is being won. It is important that, wherever possible, people on low incomes are given the most incentive to work and contribute to our economy. I am sympathetic to what the Government have finally managed to achieve and interested to know whether the Minister will take this consultative, wide-ranging approach in future and take on board any of the other suggestions made by Opposition parties.

Photo of Stephen Timms Stephen Timms Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills) 1:30 pm, 11th June 2009

My right hon. Friend the Member for Liverpool, Wavertree, who was then the Financial Secretary, agreed that there should be a discussion with the Low Incomes Tax Reform Group and others, and that discussion has proved to be fruitful. Of course, we always listen to suggestions made by hon. Members in this Committee and elsewhere. I shall take the remarks that have been made as a warm welcome for the changes in the clause.

This is a useful reminder that the remittance basis of taxation does not affect only wealthy people, as we have discussed. The LITRG and TaxAid pointed out that, as a result of the changes made last year to the remittance basis rules, many people on low incomes could be required to file a self-assessment return. The clause removes that obligation from any individual whose foreign income solely comprises overseas employment income of less than £10,000 and overseas bank interest of less than £100 in any tax year, all of which is subject to tax in the country where the income was earned.

To respond to the specific points raised by the hon. Member for Fareham, yes, the observations that I made in the context of investment income apply equally to  employment income. The exemption is a blanket exemption rather than a territory-by-territory exemption.

I gladly express gratitude to all those who have made representations on the subject, and I hope that the Committee will be content to add the clause to the Bill.

Question put and agreed to.

Clause 52 accordingly ordered to stand part of the Bill.

Clause 53 ordered to stand part of the Bill.