Data-gathering from money service businesses

Finance Bill – in a Public Bill Committee at 2:00 pm on 24th October 2017.

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We come to the dénouement of the Finance Bill in Committee. I hope the Government Whip liked my use of English—very evocative. I call Peter Dowd to move amendment 43.

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury

I beg to move amendment 43, in clause 69, page 91, line 16, at end insert—

“(1A) In Schedule 23 to FA 2011, after paragraph 65, insert—

‘66 (1) No later than 30 September 2020, the Commissioner shall undertake a review of the exercise of the powers under this Schedule in relation to relevant data holders specified in paragraph 13D.

(2) The review shall consider in particular the number of appeals in relation to Data-holder Notices.

(3) The Chancellor of the Exchequer shall lay a report of a review under this paragraph before the House of Commons within one month of its completion.’”

This amendment would require HMRC to review the exercise of its data-gathering powers in relation to money service businesses.

With this it will be convenient to discuss clause 69 stand part.

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury

It is a pleasure to serve under your stewardship, Mr Walker, notwithstanding the fact that you have just stolen my joke. I asked my daughter, who studied French, what the French for “dénouement” and “ambience” was, but she did not find that very amusing.

Clause 69 extends bulk data-gathering powers, which were given to HMRC in the Finance Act 2011, to money service businesses such as Western Union. The clause continues the Government’s plans to rapidly expand HMRC’s powers to collect bulk data from third parties. In the Finance Acts of 2011, 2013 and 2016, the powers were extended to merchant acquirers and in 2016, to collect bulk data from providers of electronic stored-value payment services, also known as digital wallet transactions.

The powers are part of the Government’s strategy to tackle the hidden economy and reduce the tax gap. All Members agree that people operating within the hidden economy evade tax and gain an unfair competitive advantage over law-abiding, tax-paying individuals and businesses. Under anti-money laundering legislation, money service businesses are already required to conduct due diligence checks on customers, in certain circumstances at least. HMRC supervises the majority of money service businesses for compliance with that legislation, so it can request limited information from them as part of its supervision for anti-money laundering purposes. It can also use any information obtained for tax compliance purposes but cannot currently request that information with the original intention of checking the tax position of their customers. This clause would change that by requiring money service businesses to become data holders, to collect data from their users, and to pass that data on to HMRC when requested.

It is important to be clear about how a money service business would hand over a customer’s data to HMRC. First, HMRC would issue a notice to the data holder requiring it to provide HMRC with information. The data holder can respond and, if it rejects the notice, can appeal to the tribunal. The tribunal then makes its ruling. Under these provisions, any money service business that does not comply will be issued with a financial penalty. Similarly, HMRC has the power under this measure to apply directly to a tribunal for approval at a hearing without notice being given to the data holder—effectively going over its head.

At no point in the process is the individual or the business who used the money service business and whose information is being passed to HMRC notified, as I understand it. It seems that the clause is not open to individual appeal at any point in the judicial process. In fact, it rests solely on the shoulders of the money service business to appeal when necessary.

The Opposition fully support measures to clamp down on the hidden economy—on individuals and on businesses using unsavoury and slippery practices to avoid paying their fair share of tax—but we are talking about third parties collecting massive amounts of data to hand over to HMRC. Money service businesses are effectively being asked to pick up the slack for HMRC, which, in our view, is increasingly underfunded and under-resourced. I have said it before, and I will say it again: Government statistics show that since 2010, there has been a 17% reduction in HMRC staffing levels. The Minister needs to address the resources available to HMRC to crack down on the hidden economy. It appears that once again the Government are ambitious in the powers they wish to give themselves—through the back door, some would say—but not so enthusiastic about funding and resourcing their commitments.

The Minister will be aware that although most money service businesses keep records of due diligence checks on customers, they do not have the time—or, I suspect, the inclination—for the pretty onerous task of sifting through the data to provide HMRC with individual records. I therefore find it unlikely that they would refuse or appeal a notice, which is the supposed judicial check on this broad, sweeping power. What does the Minister think is a reasonable notice period for a money service business to process and respond to HMRC? Does he accept that there may be hidden costs for money service businesses that have to comply with these measures?

In the Government’s consultation, there was much debate about the substance of the information that would be transferred between money service businesses and HMRC. According to the Information Commissioner’s Office,

“it is clear that some of the information that may be provided to HMRC for the purposes of extending data gathering powers to money service businesses will constitute personal data in instances where the customer is an individual, a sole trader or a partnership… It will therefore be an important data protection obligation for the MSBs under the scope of the proposed legislation to provide their customers with privacy notices… The minimisation of the collection of personal data of individual consumers is an important privacy protection principle in financial transactions.”

I suspect the Minister will need to consider those concerns as part of a wider discussion about the scope of HMRC’s powers.

The privacy group Liberty has raised concerns that the practice of bulk data surveillance is suspicionless surveillance and constitutes a disproportionate interference with article 8 of the European convention on human rights, as enshrined in the Human Rights Act 1998: the right to respect for private and family life. Liberty’s concern is that bulk data surveillance inverts the traditional relationship between suspicion and surveillance that exists in UK law, because suspicion comes first to justify subsequent surveillance.

In the light of these concerns, our amendment calls for a review of the exercise of schedule 23 powers, with a particular emphasis on how they relate to data protection. The Government have the right to ensure that HMRC has the necessary powers to tackle the hidden economy, but they are also obliged to ensure proper judicial oversight and the protection of people’s rights.

I am reaching my dénouement. The Minister’s case for new bulk data-gathering powers rests on the need for third parties to help HMRC to catch customers who participate in the hidden economy, which costs the Treasury £6.2 billion a year, as I recall. However, he has rejected our attempts to introduce a register for offshore trusts, our calls to crack down on tax avoidance by removing the exemption for offshore trusts in the Government’s deemed domicile proposals, and any meaningful attempt to bring transparency and accountability to non-doms who abuse the UK tax system. I will not call it a double standard; that is not a fair assessment.

However, the Government are demanding all this information from money service businesses customers to ensure that they are not participating in the hidden economy—yet at the same time rejecting any sort of information being held on offshore trusts, which are used to shelter hundreds of billions from the UK Exchequer. As I said last week, there needs to be careful consideration of the balance between individual liberty and the powers of the state. Over the past few years, we have seen multiple Finance Bills whereby Government give HMRC sweeping data-gathering powers, from merchant banking to digital wallets. I believe there is a rational concern that though these powers can tackle criminality, they can also impede an individual’s right to privacy. Any Government need to ensure that the balance is struck fairly and proportionately—and we are not convinced that this does so. Otherwise, there is a real fear that, increasingly, only those who can afford to secure their financial privacy, or to shelter and shield their wealth and financial transactions from the state, will have any privacy. The Government should give more thought to that.

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

It is a pleasure to serve again under your chairmanship, Mr Walker.

Clause 69 will extend HMRC’s data-gathering powers to money service businesses, allowing it to better identify and take action against businesses and individuals operating in the hidden economy. Money service businesses, or MSBs, are entities that provide money transmission, cheque cashing, or currency exchange services. They provide valuable financial services that are relied upon by many tax-compliant customers. However, these services are vulnerable to exploitation by those who want to disguise their income. Under the clause, data provided by MSBs to HMRC will allow HMRC to better identify non-compliant customers who are exploiting MSB services to hide their income and operate in the hidden economy.

The hidden economy is made up of those businesses that fail to register for tax, and individuals who fail to declare a source of income that should be taxed. By hiding their activity from HMRC, those operating in the hidden economy deprive the Government of vital funds to run public services. That places an unfair burden on the vast majority of people and businesses who pay their fair share of tax. Hidden economic activity also disadvantages compliant businesses. HMRC’s operational experience shows that non-compliant businesses and individuals can exploit the services offered by MSBs to disguise or dispose of undeclared income. They can do this, for example, by cashing a cheque for undeclared work. HMRC’s data-gathering powers allow it to collect data from certain third parties. Following public consultation and a Government response in 2016, the clause extends those powers to MSBs. It does that by introducing MSBs as a new category of data holder from whom HMRC may require data. MSBs are defined under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

“Credit institutions”, or, practically, banks and building societies, are excluded. The term MSB is generally taken to mean a business that provides money transmission, cheque cashing or currency exchange services without transacting through a bank account or providing general banking services. The clause is intended to cover those businesses. Supporting regulations will be made at Royal Assent, using an existing power to make regulations contained in schedule 23 of the Finance Act 2011. Those will provide detail of the types of data that can be requested. A draft of the regulations was published for consultation last year and regulations will subsequently be laid before the House, subject to the negative resolution procedure. The clause does not impose any additional record-keeping requirements on MSBs. HMRC cannot request data that an MSB does not hold. That is an important point and relates to the concern raised by the hon. Member for Bootle.

HMRC will work collaboratively with MSBs to minimise the administrative burden of complying with the new law. MSBs can appeal against a data notice issued by HMRC on the grounds that it is unduly onerous, or if they consider that the notice asks for data that is outside the scope of relevant regulations. HMRC can request data necessary to detect and quantify hidden economy tax risks. That includes information needed to identify an MSB’s customers and records that the MSB is required to keep under money-laundering regulations. It also includes data about aggregate customer transactions. HMRC will not request data on individual transactions.

The hon. Member for Bootle raised an important point—what data can HMRC request under these provisions? The answer is aggregated data, which will not include data on the value of individual transactions made by customers.

The hon. Gentleman also raised the important issue of privacy, and the proportionality of these measures. The measure is not an invasion of privacy; the clause is carefully drafted to minimise any impact on the privacy of individuals and businesses, and HMRC will not be able to monitor the value of individual transactions made by customers through an MSB. It is already a requirement for MSBs to collect the data under many circumstances for anti-money laundering supervision purposes, so these new powers will allow HMRC to gather the data for tax compliance purposes. They do not allow for the collection of any data that MSBs do not already hold.

The hon. Member for Bootle also raised the issue of data safety, and whether we could handle this amount of information. HMRC takes its responsibilities to safeguard the security of customers’ information and commercial data provided by third parties extremely seriously. HMRC’s data-handling processes and the Government’s arrangements are constantly reviewed and updated to minimise the risk of shared data becoming corrupted, misused or lost. Receiving and using data is fundamental to the way that HMRC collects tax and tackles non-compliance, and it already possesses large amounts of sensitive data and keeps that safe.

I welcome the opportunity to debate amendment 43, which proposes a review of the exercise of HMRC’s data-governing powers in relation to MSBs no later than September 2020, with a particular focus on the number of appeals in relation to data holder notices. As I have said, MSBs can appeal against a data notice issued by HMRC if it is unduly onerous, or if it asks for data that are outside the scope of the relevant regulations. Therefore, there is already a mechanism in place for independent scrutiny through a tribunal, whose records are already available to the public. In addition, this measure has already involved consultation and engagement with the relevant sector. Proportionality has been a key consideration, and HMRC will work closely with MSBs to ensure that requirements are reasonable and to minimise the burden and the cost, so there are already adequate safeguards in place, and a review is not necessary. I therefore ask the Opposition to withdraw amendment 43.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North 2:15 pm, 24th October 2017

I want to respond briefly to what the Minister said. It is a pleasure to serve under your chairmanship yet again, Mr Walker, possibly for the last time during this Committee.

I have always had a concern about the money service industry, particularly since many of my constituents send money to family members overseas. There are large immigrant minorities from every part of the world in my constituency. Some of the transactions have been insecure—we have seen companies where money has been lost, and I have long thought that there ought to be a much higher degree of regulation of that industry.

There is obviously an issue around charges. I suspect that charges vary widely and are often very high. It seems to me that what we really want is at least a state company doing this business, either instead of or alongside these organisations, which would be properly regulated, have fair charges, and be open and transparent, apart from personal secure information about transactions, which my hon. Friend the Member for Bootle talked about. Bringing the state actively into that area would be a great advance. Perhaps I speak from a left position that might not find favour with the Government, but we ought to look forward to a much more regulated industry with a strong state sector in the future.

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

To reply briefly to the hon. Gentleman’s point: the issue of MSB ownership and state involvement is probably slightly beyond the scope of this Bill, but his points are noted. If he continues to work very hard, who knows what might happen? Much to our horror and dread, the state may end up owning just about everything in this country, if he and his merry men and women have their way.

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury

I have accepted previous assurances provided by the Minister and we have withdrawn amendments appropriately, in good faith and good spirit. The issue under discussion goes beyond the technicalities and reaches into the very nature of a state that does not interfere in people’s affairs where it has no business to do so. That is not to say that the state has no business interfering; it does so with tax collection, which helps maintain the balance of society. It would not be appropriate for me to withdraw the amendment, because I think that many members of the Committee would like to err on the side of caution and accept it, even though they will not do so. We will therefore leave it hanging and I have no doubt that we will return to the issue of privacy at a future date.

Question put, That the amendment be made.

The Committee divided:

Ayes 9, Noes 10.

Question accordingly negatived.

Clause 69 ordered to stand part of the Bill.

Clauses 70 to 72 ordered to stand part of the Bill.

New Clause 1