PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT GENERAL COMMITTEES

Public Bill Committee

FINANCE (NO. 3) BILL

(Except clauses 5, 6, 8, 9 and 10; clause 15 and schedule 3; clause 16 and schedule 4; clause 19; clause 20; clause 22 and schedule 7; clause 23 and schedule 8; clause 38 and schedule 15; clauses 39 and 40; clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 and schedule 18; clauses 68 to 78; clause 83; clause 89; clause 90; any new clauses or new schedules relating to tax thresholds or reliefs, the subject matter of any of clauses 68 to 78, 89 and 90, gaming duty or remote gaming duty, or tax avoidance or evasion)

First Sitting

Tuesday 27 November 2018 (Morning)

CONTENTS Programme motion agreed to. Written evidence (Reporting to the House) motion agreed to. CLAUSES 1 AND 2 agreed to. Adjourned till this day at Two o’clock.

PBC (Bill 282) 2017 - 2019 No proofs can be supplied. Corrections that Members suggest for the final version of the report should be clearly marked in a copy of the report—not telephoned—and must be received in the Editor’s Room, House of Commons,

not later than

Saturday 1 December 2018

© Parliamentary Copyright House of Commons 2018 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 1 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 2

The Committee consisted of the following Members:

Chairs: †MS NADINE DORRIES,MR GEORGE HOWARTH

† Afolami, Bim (Hitchin and Harpenden) (Con) † Lewis, Clive (Norwich South) (Lab) † Badenoch, Mrs Kemi (Saffron Walden) (Con) † Reynolds, Jonathan (Stalybridge and Hyde) (Lab/ Black, Mhairi (Paisley and Renfrewshire South) (SNP) Co-op) † Blackman, Kirsty (Aberdeen North) (SNP) † Smith, Jeff (Manchester, Withington) (Lab) † Charalambous, Bambos (Enfield, Southgate) (Lab) † Sobel, Alex (Leeds North West) (Lab/Co-op) † Dodds, Anneliese (Oxford East) (Lab/Co-op) † Stride, Mel (Financial Secretary to the Treasury) † Dowd, Peter (Bootle) (Lab) † Syms, Sir Robert (Poole) (Con) † Whately, Helen (Faversham and Mid Kent) (Con) † Ford, Vicky (Chelmsford) (Con) † Whittaker, Craig (Lord Commissioner of Her † Jenrick, Robert (Exchequer Secretary to the Majesty’s Treasury) Treasury) † Keegan, Gillian (Chichester) (Con) Colin Lee, Gail Poulton, Joanna Dodd, Committee Clerks † Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con) † attended the Committee 3 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 4

Kirsty Blackman (Aberdeen North) (SNP): I beg to Public Bill Committee move amendment (a), leave out— “(b) at 11.30 am and 2.00 pm on Thursday 29 November”. Tuesday 27 November 2018 The Chair: With this it will be convenient to discuss the following: (Morning) Amendment (b), after “Tuesday 11 November;”insert— “(1A) The Committee shall hear oral evidence in accordance [NADINE DORRIES in the Chair] with the following Table— Finance (No. 3) Bill Date Time Witness Thursday Until no later HM Treasury; HM (Except clauses 5, 6, 8, 9 and 10; clause 15 and 29 November than 12.15 pm Revenue and Customs schedule 3; clause 16 and schedule 4; clause 19; Thursday Until no later Office for Budget clause 20; clause 22 and schedule 7; clause 23 and 29 November than 1.00 pm Responsibility schedule 8; clause 38 and schedule 15; clauses 39 and 40; Thursday Until no later The Institute for Fiscal clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 29 November than 3.30 pm Studies and schedule 18; clauses 68 to 78; clause 83; clause 89; Thursday Until no later The Chartered Institute clause 90; any new clauses or new schedules relating to 29 November than 5.00 pm of Taxation” tax thresholds or reliefs, the subject matter of any of Amendment (c), at end insert— clauses 68 to 78, 89 and 90, gaming duty or remote “(4) The Committee recommends that the programme order of gaming duty, or tax avoidance or evasion) the House [12 November] should be amended in paragraph 7 by substituting ‘18 December’ for ‘11 December’.” 9.25 am Kirsty Blackman: It is a pleasure to make the first The Chair: I have the usual preliminary announcements. substantial speech in this Finance Bill Committee—the You may remove your jackets. I remind you that only first of many, I am sure. water may be consumed during Committee sittings. Once again, the Scottish National party has tabled an Will you please ensure that you switch your mobile amendment to the programme motion. It has concerned phones to silent mode as I have just done? Document me for a long time that Finance Bill Committees do not boxes with your names on are provided at the back of take evidence and I think it would be better for the the Committee Room. This will be our room for the quality of debate if they did. This year, there are specific duration of this Committee, and it will be locked between issues relating to the lack of consultation on the draft sittings, so if you wish to leave your papers here rather clauses and to the tight timescale for considering the than carrying them around, please do. Bill. I raised in Committee of the whole House my The Committee will consider the programme motion concerns about the fact that paper copies of the Bill on the amendment paper, for which debate is limited to were published on a Wednesday and we had to debate half an hour, and then proceed to a motion to report them on the Monday, which did not give us enough any written evidence. We will then begin line-by-line time given that the House was in recess. External consideration of the Bill. I will first call the Minister to organisations have also raised concerns about the lack move the programme motion in the terms agreed by the of time for scrutiny, particularly for the unusually high Programming Sub-Committee and then call Kirsty number of clauses that were not consulted on in draft Blackman to speak to amendment (a). There will be a form. Glyn Fullelove of the Chartered Institute of single debate on the motion and selected amendments. Taxation, whom I quoted in Committee of the whole Motion made, and Question proposed, House, has been a particular critic of the process. That— The SNP asks that, on Thursday, instead of having (1) the Committee shall (in addition to its first meeting at two normal sittings as planned, we take evidence from 9.25 am on Tuesday 27 November) meet— the Treasury, Her Majesty’s Revenue and Customs, the (a) at 2.00 pm on Tuesday 27 November; Office for Budget Responsibility, the Institute for Fiscal (b) at 11.30 am and 2.00 pm on Thursday 29 November; Studies and the Chartered Institute of Taxation. They (c) at 9.25 am and 2.00 pm on Tuesday 4 December; all know more about the legislation than we do, so it (d) at 11.30 am and 2.00 pm on Thursday 6 December; would be incredibly useful to hear from them. (e) at 9.25 am and 2.00 pm on Tuesday 11 November; I must also point out that the Government have (2) the proceedings shall be taken in the following order: included several clauses to make changes to previous Clauses 1 to 4; Clause 7; Clauses 11 to 13; Schedule 1; legislation that was deficient. If Government legislation Clause 14; Schedule 2; Clause 17; Schedule 5; Clause 18; is deficient, I contend that more consultation must be a Schedule 6; Clause 21; Clauses 24 to 26; Schedule 9; good thing. Clause 27; Schedule 10; Clause 28; Schedule 11; Clauses 29 to 31; Schedule 12; Clauses 32 to 35; Anneliese Dodds (Oxford East) (Lab/Co-op): Given Schedule 13; Clause 36; Schedule 14; Clause 37; that, as I understand it, the Committee in the other Clauses 43 to 45; Clauses 48 to 51; Schedule 16; Clause 52; Schedule 17; Clauses 53 to 60; Clauses 63 House is taking evidence on elements of the Bill, surely to 67; Clauses 79 to 82; Clauses 84 to 88; Schedule 19; the hon. Lady agrees that we should be afforded that Clauses 91 and 92; new Clauses; new Schedules; remaining opportunity in this House. proceedings on the Bill; (3) the proceedings shall (so far as not previously Kirsty Blackman: Absolutely. It is odd that the House concluded) be brought to a conclusion at 5.00 pm on of Lords is more democratic than this place in relation Tuesday 11 December.—(Mel Stride.) to the Bill. 5 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 6

The Finance Bill Committee should take evidence. I dozen times since 1929 when Winston Churchill introduced know that it is a long-standing convention that it does it. It has been used six or seven times, including three not, but having served on the Public Bill Committee on times by the Government in less than that period in the Taxation (Cross-border Trade) Act 2018 and heard years. That is a substantive and significant change. The the evidence taken, I know how useful it was for Committee Minister kindly responded to my letter about that and members and how many of them referred to it in indicated that it was not necessarily a significant change, subsequent debate. It was an incredibly useful exercise but it is. If we as a Committee—as a House—have done and the legislation that came forward was better as a something only six or seven times in the best part of result. 90 years, changing that convention is significant. For As I flagged up in last year’s Finance Bill debates, it is that reason as well, we need to take a step back and very good that external organisations have submitted decide that perhaps we need evidence sessions to tease written evidence, but I guarantee that the majority of out some of those important things. hon. Members in this Committee have not read it all It would also give assurance to the House, to Back-Bench because of how little time we have had. Allowing us to Members and to the public in general that we take those question witnesses on the evidence that they provide on matters seriously and that it is not business as usual—that the Finance Bill Committee would be incredibly useful. just because we have done something for years or decades, The Government might not accept that this year, but we do not carry on doing it regardless. It would send a can we consider taking evidence in future years? I am message that, in these turbulent times, the House takes not the only one calling for this. The “Better Budgets” the country’s finances seriously. report produced by the Chartered Institute of Taxation Therefore, we should seriously consider taking evidence. and various other organisations called for the Finance After all, we are all open to public scrutiny in one Bill Committee to take evidence two and a half years fashion or another—in fact, there is no doubt that we ago, so external organisations have requested it, not just welcome it, and I do not suggest that the Government the SNP. do not welcome it too. If we do not object to that scrutiny, why do we not institutionalise it, do what Peter Dowd (Bootle) (Lab): It is a pleasure to serve other Committees have done in the past and take evidence? under your chairmanship, Ms Dorries. I hear what the Let experts in their field challenge us, and let us challenge hon. Lady says. Some of us have not been in the House them. for a great deal of time. I sat on the Housing and Planning Bill Committee, which lasted for 20 sittings, Kirsty Blackman: One of the Government’s arguments with a marathon sitting just before Christmas three against taking evidence is the fact that the Bill is split years ago. We heard a great deal of evidence that between the Committee of the whole House and the Bill significantly informed the debates. Some members of Committee, but does the hon. Gentleman agree that we this Committee might have been on that one. Interestingly, in the Bill Committee tend to consider the more technical some of the evidence we took proved to be absolutely amendments on which we most need evidence to make spot on, because the Government subsequently ended good legislation? up changing some of their housing policies. The Government made the same argument at the time: “No, Peter Dowd: That is a perfectly fair point. Inevitably, we have thought this through. We have consulted”, but when we get into Committee, the clauses that we discuss the ability to hear from experts who live and breathe are very technical and it is those technical clauses for these issues was beneficial. which we need some evidence. It was the same on the Criminal Finances Bill, which At the end of the day, we have had written evidence covered a pretty niche area. The job of Parliament is to from the Chartered Institute of Taxation on clauses 7, scrutinise legislation, so we need the tools to do that. 11, 81 and several others, which I read with great Whichever party is in control, it has the full back-up of interest. Some of the comments were very pertinent. It the civil service, who are themselves experts and, to would have been a good opportunity to tease out some their credit, know their work, but it is important that of the issues in those clauses in more detail. As I said, the Opposition are able to get independent assessment none of us are concerned about challenge—that is why and adjudication of what the Government tell us. That we came into Parliament. We are here to be challenged, does not mean I do not believe a word that Ministers and that is the nature of our democracy. say—I believe everything they say. It is just that we do Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op): not necessarily get the full facts. I have found it very My hon. Friend has hit the centrality of the issue. The useful in the past to have evidence sessions, and the failure to move the amendment of the law resolution Government should give serious consideration to that. means that this Bill Committee becomes much less of a I think this is the fourth Finance Bill I have sat on in political conversation and more of a technical one. We the past two years, although my recollection is not what can see on the programme motion the amendments that it used to be. We have also had the customs Bill, which is have been ruled out of order—reasonably, by applying also a finance Bill, so we have had effectively five the rules that the Government have put on the Committee. finance Bills in a short period of time and in a time of It has not been permitted for us to have a political incredible turbulence and change. There might not be a conversation about different approaches to income tax, convention or a tradition to take evidence in Finance and if the Committee cannot have the political analysis, Bills, but there comes a time when we think, “This is as we should surely have the technical one, which has to good a time as any to take evidence because the involve experts. circumstances have changed substantially.” We have also had what amounts to movement on the Peter Dowd: My hon. Friend has a laser-like focus. In convention in relation to the amendment of the law. As that regard, the Government cannot have it both ways. everybody knows, it has been used only about half a They cannot tell us that, on the one hand, we are 7 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 8

[Peter Dowd] would be deciding who to invite, and we could be sitting in this Committee for months. I think it is quite clear dealing with all these technical issues and we should not that most people understand the key points of the be dealing with those wider issues, hence the amendment Budget, because lots of information has been produced. of the law, but in the same breath tell us that we cannot When I was in opposition and the Labour party was in have any face-to-face consultation or oral evidence. government, I probably made a similar speech to the I give credit to the Government in so far as they have one made by the Opposition spokesman. The Minister consulted pretty widely on these matters, but I have will probably make the same speech that Labour Ministers been involved in lots of consultations that have been made when we raised the same point. The only point of paper exercises. I do not mean that lightly—they have having additional information is that it helps the Opposition been genuine attempts at consultation where people in tabling amendments. That is the only reason normally have written in to express this or that view—but during stated. the process, I have certainly been in situations where we have decided, in the light of the evidence that we have Jonathan Reynolds: The process of the Bill is not just and of the information provided to us through that to review what the Government have done, but to have a consultation process, that we were going to say, in an contested conversation about the impact of those changes open and transparent fashion, “Okay, let’s stop. We and what the benefits might be. For example, all of the have all this consultation. We’ve read it. We’ve listened evidence produced for this Budget and many others to it. Why don’t we just tease it out a bit more with some would say that the Government’s substantial cuts to of the people who have taken the time to write back to corporation tax will cost this country a lot of money. us?” Organisations have indicated to us that they would That is not a widely accepted point on the Conservative welcome evidence sessions.The hon. Member for Aberdeen Benches. They would say that, by reducing the tax rate, North has indicated some people we could see, but there the revenue has gone up. No experts would sign off on are lots more. Frankly, we could have three days of that, but that is surely the conversation we should have evidence sessions, which would not be a bad thing per in this Committee, as politicians, based on the evidence se. The idea that we focus it down to one day, with the submitted. That is the right balance between the two. organisations that hon. Lady has identified, is not, in the grand scheme of things, a difficult process, issue or Sir Robert Syms: I hear what the hon. Gentleman onus. I exhort the Government to listen carefully to says, but the reality is that we have had a Budget, which what we have said in the genuine spirit of trying to make is a big event. We then had three or four days of debate this a better Bill. There may be agreement and we may on the Floor of the House. We then debated the Finance have a better Bill where there is no agreement. I exhort Bill on the Floor of the House. This Committee will run the Government to listen carefully and accede or for a number of sittings. It will then go back to the acquiesce—not capitulate—to our request. Floor of the House. This will have more debate than most other Government motions. I suspect that by the Sir Robert Syms (Poole) (Con): I have just a few end of the process we will be even better informed than points about where we are going. There are a number of we were before, as the serried ranks of the Treasury events in Parliament that get quite a lot of public come in and feed paper to the Minister. interest; the Queen’sSpeech is normally one and the Budget I served on one of the coalition Government’s Finance is another. People make representations to the Treasury Bill Committees, and on two or three under the previous in advance of the Budget, but afterwards the Financial Labour Government, dealing with substantive issues Times and almost every insurance company, bank and such as when we took away all the tax relief on banks accountancy firm produce reams of information on when they lost billions of pounds—had we not done so, what changes have occurred. The one sure thing about they would never pay tax again. There were substantial the Budget is that a number of trees will be cut down, to changes made in the Finance Bill after the financial supply information to the great British public on what crash. We did not take evidence then, because it was a changes have already occurred. Actually, I do not think time for action, not debate. I look forward to hearing that this is one of those Committees that needs to take Ministers get on with the job of dealing with this lots of information, because most of us will have lots of Committee and with matters that are important to information already. business and individuals in this country. One could substitute vested interests for the point about experts, because there are an awful lot of vested 9.45 am interests in this country. As a large Committee of the Bambos Charalambous (Enfield, Southgate) (Lab): I House of Commons, we sometimes have to navigate have served on one other Public Bill Committee, which our way through that, so we could sit for months was on the energy price cap. We heard lots of evidence listening to vested interests on a whole range of subjects from many companies about the benefits or disbenefits and not actually make any decisions. The purpose of of having an energy price cap. I see no difference this Committee is to look at what the Government have between that Bill Committee and this one. I do not see done, maybe make some decisions and then report back why we should not hear evidence from experts who can to the House. advise us on what happens, as we do in other Bill Kirsty Blackman: On that point, is the hon. Gentleman Committees. It does not make sense to have one rule for seriously suggesting that both the Treasury and HMRC one situation and a different rule for another. have vested interests other than trying to make good law? Sir Robert Syms: We could have a general rule that Sir Robert Syms: Out in the big wide world, there are every single Committee of the House should take evidence an awful lot of people who would come to this Committee, on every single mater, but the problem is that Committee given the chance. The biggest difficulty we would have sittings would then last considerably longer. They would 9 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 10 need to be staffed up and we would have difficulty First, in line with the new approach to tax policy getting Members to serve on the Committees and listen making set out in the Government’s 2010 framework, to all that evidence. Ultimately, governing is about the Government already undertake extensive consultation taking decisions.There has to be a balance in understanding with stakeholders before legislating in the Finance Bill. what points of view people take. We can sit here endlessly listening to advice, but we have to make choices. Kirsty Blackman: On that point, does the Minister not accept that this year that “extensive consultation” has not been as extensive as it has been in previous Kirsty Blackman: Wecannot sit hear endlessly listening to years, and nor as extensive as it should be? advice, because the Committee has to end by 11 December. We are talking about one day of taking information Mel Stride: I do not accept that. As I will argue, there from people so that we can be better informed in the is a process that we go through, which starts with the debates that we will have up until 11 December, at Budget announcement. We then go into formal which point this Committee will end, because that is consultation, which is applied to a number of measures what the House has decided. within the Bill. We also of course publish draft clauses—I think that was on 6 July this year. I believe that around Sir Robert Syms: Members of the Committee have a 226 pages of draft legislation were published at that mandate to scrutinise the Government. If we take one time out of a total Bill length of 315 pages. It is day out of that scrutiny, we are reducing our ability to considerable. We have received written evidence, the Bill question the Minister on some very important matters. will go through this Committee, it was considered by Personally, I would like to take all the time to question Committee of the whole House, we will then have the Minister on why decisions have been taken, and I Report stage, and we will examine amendments all the am sure I will get very good answers. way through. The level of scrutiny received by a Finance Bill is well in excess of most Bills that come before the The Financial Secretary to the Treasury (Mel Stride): House. It is a pleasure to serve under your chairmanship, My second point, which was raised by the hon. Ms Dorries, and a pleasure to serve on my third Finance Member for Aberdeen North, relates to the fact that the Bill Committee—I think that it is the fourth such Committee Bill was considered in Committee of the whole House. for the hon. Member for Bootle, but it is reassuring to Were the amendments to prevail, any evidence session see broadly the same team arrayed. We were a fairly in this Committee would not capture the important jovial and decent lot in the last Committee, so I am issues debated in Committee of the whole House. The pleased to be serving alongside them again. The hon. Committee should be aware that Committee of the Member for Bootle said that he always believes everything whole House is, I would argue, where the more important that the Minister says, which is a fine start to our measures are considered, and they are put to the whole deliberations over the coming weeks. My hon. Friend House rather than simply the members of this Committee. the Member for Poole said that I was probably dusting off the previous Labour Government’s speech from Jonathan Reynolds: The Minister referred to the historical when they were faced with the same questions. Indeed I state of affairs for scrutinising Finance Bills. My hon. have, so I hope that will be acceptable to Opposition Friend the Member for Bootle said that the change this Members. time has been the failure to move the amendment of the Amendments (a), (b) and (c), tabled by the hon. law resolution. This is only the sixth or seventh time Member for Aberdeen North, seek to revise the programme that has happened since 1929. By convention of the motion by introducing a day of oral evidence and British constitution, that has happened only very close extending the time spent in Committee. It is of course to or on either side of an election to tidy up the statute important that the provisions of the Bill receive sufficient book and get measures through before Parliament parliamentary scrutiny. The Government’s tax policy prorogues. Is this the Government’s established state of making framework ensures that that occurs, and I do affairs? Will we conduct Finance Bills in this way under not think that evidence to a Public Bill Committee a limited technical scope by failing to move that amendment would effectively further that aim. of the law resolution? The amendments would introduce a day of oral evidence from, among others, the Institute for Fiscal Mel Stride: I am not going to be drawn into what may Studies, the Chartered Institute of Taxation and the or may not happen in future—the usual channels and Office for Budget Responsibility. Let me be clear that I the Government of the day take those decisions—other agree that effective parliamentary scrutiny of this and than to say that this is not a unique occurrence. As the any other Finance Bill is crucial, and I am always open hon. Gentleman recognises, this has happened in the to considering how that can be improved. However, for past. Indeed, the very argument that just because it has the following reasons, I am not persuaded by the merits not happened in the past does not mean it should not of delaying the Committee in order to allow oral evidence happen now, which is being applied to the seeking of an to be taken. We accept that any additional evidence additional day, could also apply to the amendment of sessions would certainly increase the amount of scrutiny the law resolution. It has happened in the past and this of the Bill, but that is not the same as saying that, in the is not the first time with a Finance Bill. In fact, the two I absence of such sessions, the scrutiny of the Bill would have taken through the House to date have been subject be insufficient—as my hon. Friend the Member for to those provisions. Poole has set out, there has been very considerable The IFS, the OBR and others produce analysis of scrutiny already—or indeed that additional days of Budget measures before or after the event. They also evidence would provide a proportionate response to the typically give oral evidence to the Treasury Committee need for scrutiny. on the Budget as a whole before the Committees on the 11 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 12

[Mel Stride] Question put, That the amendment be made. The Committee divided: Ayes 8, Noes 10. Finance Bill. Oral evidence at a Public Bill Committee Division No. 1] will replicate that analysis while limiting its scope to those parts of the Bill not selected for the Committee of AYES the whole House. Blackman, Kirsty Lewis, Clive Finally, the programming of business is a matter for Charalambous, Bambos Reynolds, Jonathan business managers and the usual channels. Those channels Dodds, Anneliese Smith, Jeff establish the programme motion that was agreed by the Dowd, Peter Sobel, Alex Programming Sub-Committee, which is made up of Government and Opposition Members. They were not NOES persuaded that oral evidence sessions would be beneficial Afolami, Bim Lamont, John and, I am afraid, neither am I. As such, I urge the Badenoch, Mrs Kemi Stride, rh Mel Committee to reject the amendments. Ford, Vicky Syms, Sir Robert Jenrick, Robert Whately, Helen Kirsty Blackman: The Minister’s argument does not Keegan, Gillian Whittaker, Craig make sense in relation to the things that are most important being discussed in the Committee of the Question accordingly negatived. whole House. I would contend that clause 1 is probably the most important in the Bill given that it allows Main Question put and agreed to. Government to charge income tax for future years. I Resolved, suggest that the ones discussed in the Committee of the That, subject to the discretion of the Chair, any written evidence whole House are the most political, as they are agreed received by the Committee shall be reported to the House for between the usual channels, and ones where the Opposition publication.—(Mel Stride.) tend to think they might be able to get a win out of the Government, as was adeptly proven last week with the number of amendments accepted by the Government. Clause 1 I take the opportunity to say that I am pleased about that, because our amendments are not often accepted—I INCOME TAX CHARGE FOR TAX YEAR 2019-20 am quite chuffed about that one. Question proposed, That the clause stand part of the The Public Bill Committee debates are on the more Bill. technical aspects. This is less political and less likely to be chewed over by the Financial Times on its front page because it is immensely technical. The tax code has The Chair: With this it will be convenient to discuss changed significantly and increased massively in the the following: past few years. There is a huge volume of tax legislation Clause 3 stand part. and lots of it is incredibly technical. The stuff we are Clause 4 stand part. discussing in the Public Bill Committee is immensely technical and I disagree with the Minister on how external organisations have raised concerns about how Mel Stride: Clause 1 provides the charge for income few of the draft clauses were consulted on. tax for 2019-20, clauses 3 and 4 set the main, default and savings rates of income tax for 2019-20. Income tax Mel Stride: The hon. Lady is absolutely right that this is one of the most important revenue streams for the Committee will debate a number of technical clauses. Government, and raised nearly £181 billion last year. Surely if they are technical, does that not lend itself to The power to charge income tax is legislated annually in an examination based on written evidence based on, for the Finance Bill, and is central because it allows for example, approaching me with written questions or income tax to be collected in order to fund the vital discussions or indeed a meeting, or perhaps a meeting public services on which we all rely. Clause 1 grants this that I can facilitate with officials present to get into the power for 2019-20. Clause 3 keeps the basic, higher and detail, rather than a broad brush quick day with various additional main rates of income tax at the same level as advisers and organisations that we quiz? last year for England, Wales and Northern Ireland. Clause 4 keeps the basic, higher and additional rates of Kirsty Blackman: The Minister makes a slightly circular default and savings rates of income tax at the same level argument. He suggests that questioning him would help as last year for the whole of the United Kingdom. us to improve the legislation and that questioning external experts who have to apply tax changes would be less We are supporting working people by increasing the useful. tax-free personal allowance and the point at which people pay the higher rate of tax to £12,500 and £50,000 Peter Dowd: Does the hon. Lady agree that there is an respectively. Keeping rates the same alongside increasing issue? The Labour party tabled a number of amendments, the personal allowance and higher rate threshold means 10 or 11 of which were ruled out of scope. I do not people can keep more of what they earn. By April 2019 criticise that at all. There is no criticism— we will have cut taxes for 32 million people and taken 1.74 million of the lowest-paid out of income tax altogether 9.56 am since 2015. Clause 1 ensures that the Government can Half an hour having elapsed since the commencement collect income tax in the tax year 2019-20 in order to of the proceedings on the motion, the Chair put the fund key spending commitments. Clauses 3 and 4 ensure Question necessary to dispose of these proceedings (Standing that the rates of income tax remain unchanged and Order No. 83C (9)). make sure that hard-working people keep more of what 13 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 14 they earn and that those who earn the most continue to (2) The condition in this subsection is, prior to 6 April 2019, pay their fair share. I commend the clauses to the the Chancellor of the Exchequer has laid before the House of Committee. Commons a review of the Commissioners’ effectiveness at applying General Anti-Avoidance Principles with reference to corporation tax collection.”. 10 am This amendment requires a review of the effects of HMRC’s Kirsty Blackman: I hope the Minister can answer my effectiveness in applying General Anti-Avoidance Principles with question in the positive. In the clauses, the devolved and reference to corporation tax collection. reserved aspects are split. They are considered separately, Amendment 11, in clause 2, page 1, line 7, leave out which makes a huge amount of sense. I asked the from “tax” to end and insert Minister earlier whether he would consider doing that “may be charged for the financial year 2020 if the condition in in future years for all clauses, particularly those similar subsection (2) is met. to clause 5. I am not expecting a positive, definite (2) The condition in this subsection is, prior to 6 April 2019, answer that he will do that in future years, but will he the Chancellor of the Exchequer has laid before the House of commit to considering splitting the devolved and reserved Commons a review of the current UK tax gap in respect of aspects on income tax in future years, so that the House corporation tax applying globally agreed avoidance measures to can better scrutinise legislation? multinationals with UK-domiciled subsidiaries.”. This amendment requires a review of the effects of the current UK tax Mel Stride: I thank the hon. Lady for her question, gap in respect of corporation tax applying globally agreed avoidance which we touched on in the Committee of the whole measures to multinationals with UK-domiciled subsidiaries. House. She will be aware that clause 3 is subject to the Clause stand part. English votes for English laws process because non-savings earnings are devolved to Scotland, so that clause only applies to Northern Ireland, Wales and England, while Peter Dowd: In speaking to amendment 8, I will also clause 4 on the savings and dividend rates applies UK-wide. speak to amendments 9, 10 and 11, each of which we I understand her point and we will be happy to look at will press to a vote. that in the future. As things stand, we support where we Clause 2 enacts the continued charging of corporation are at the moment in the division of those particular tax. As the explanatory note says, the clause clauses. “charges corporation tax for the financial year beginning 1 April 2020 Question put and agreed to. ...Parliament charges CT for each financial year. This clause charges CT for the financial year beginning 1 April 2020. The rate Clause 1 accordingly ordered to stand part of the Bill. of CT for the financial year 2020 was set at 17% in Finance Act 2016 Part 2 section 46.” Clause 2 As I indicated earlier, it is vital to hold the Government to account on the matter of their treatment of corporation CORPORATION TAX CHARGE FOR FINANCIAL YEAR 2020 tax. The Government have offered huge tax breaks to big business even during their continued programme of Peter Dowd: I beg to move amendment 8, in austerity,which only two weeks ago the special rapporteur clause 2, page 1, line 7, leave out from “tax” to end and described as causing “misery”. It is important to set insert that context in relation to our amendments. The “may be charged for the financial year 2020 if the condition in Government have slashed—that is the word—the amount subsection (2) is met. of corporation tax paid, with a commitment to continue (2) The condition in this subsection is, prior to 6 April 2019, to cut big company taxes further. By 2020, 11% will the Chancellor of the Exchequer has laid before the House of have been cut from the main rate. Commons a review of the corporation tax receipts of The main rate of corporation tax applies to companies multinational companies with UK-domiciled subsidiaries in relation to their publicly available UK-based revenue.”. with profits over £300,000—these are not small family This amendment requires a review of the effects of corporation tax businesses, but big corporations of the sort that we have receipts of multinational companies compare with their UK-based all come to know, because they play a significant part in revenue. our economy. There is no criticism of that, but there is a balance to be drawn. The Chair: With this it will be convenient to discuss The main rate started at 28% in April 2010. It was the following: reduced by the former Chancellor to 26% in April 2011 Amendment 9, in clause 2, page 1, line 7, leave out and then was reduced again to 24% in 2012 and 23% in from “tax” to end and insert 2013, before reaching 20% in 2015. It was cut further, to “may be charged for the financial year 2020 if the condition in 19%, in 2017 with a view to reaching 17% by 2020. As of subsection (2) is met. last year, the Institute for Fiscal Studies found that, (2) The condition in this subsection is, prior to 6 April 2019, compared with 2010, those cuts were denying the country the Chancellor of the Exchequer has laid before the House of £16.5 billion a year in tax revenue. That will increase if Commons a review of the corporation tax receipts of technology the Government stay in power long enough to push the companies with UK-domiciled subsidiaries in relation to their rate down to 17% by 2020. publicly available UK-based revenue.”. This amendment requires a review of the effects of corporation tax The Government have already been criticised by tax receipts of technology companies compare with their UK-based experts about the matter, which to some extent takes us revenue. back to our debate about the ability to tease out the Amendment 10, in clause 2, page 1, line 7, leave out issues. For example, Bill Dodwell, the former head of from “tax” to end and insert tax policy at Deloitte—not a company considered to be “may be charged for the financial year 2020 if the condition in particularly socialist—said: subsection (2) is met. “Nobody seems to welcome the cut to 17 per cent.” 15 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 16

[Peter Dowd] heart of the Government’s failure on the issue. In fact, the economic statistics centre of excellence and the The British Chambers of Commerce has called for a centre for macroeconomics at the National Institute of pause to the corporation tax giveaways.When corporations’ Economic and Social Research published a study this own trade associations are making that point, it indicates year of Britain’s very poor productivity. That brings us that something might not be quite right. If it is important to the point that the hon. Gentleman raised, because that we are all in this together, we must all be in it one would assume that as a result of the tax cuts, more together on this matter too, and corporations should would be invested and productivity would rise—but not be outside that. that has not happened. The Government have argued We seek to take stock of the Government’s policy, that those corporations now receiving significant sums which many people describe as corporate welfare, in the in tax cuts would invest in our economy and drive their context of eight painful years of austerity for some of business models forward, thus increasing UK productivity. the poorest in our society and following numerous Unfortunately, the 2018 paper shows that the billions of criticisms of the corporation tax policy by those who pounds of giveaways have not had a positive productivity will benefit from it. Will the Minister help us to understand effect. To deal with the point raised by the hon. Member the Government’s position by addressing those criticisms for Hitchin and Harpenden, that paper says: in turn? Perhaps the Government might wish to introduce “Average annual…productivity growth was 2.5 percentage points a review of corporation tax changes since 2010, so that lower during the period 2011-2015 than in the decade before the … we can get to the bottom of this important matter. financial crisis in 2007. We find that several years on from the financial crisis stagnation remains widespread across detailed After all, in eight years under the Government, corporation industry divisions, pointing to economy-wide explanations for the tax giveaways are likely to amount to hundreds of puzzle.With some exceptions,labour productivity…lost…momentum billions of pounds, while the number of people in in those industries that experienced strong growth before the poverty has risen to 14 million. A review of the matter crisis. Three fifths of the gap is accounted for by a few industries would also help us to compare the Government’s actions that together account for less than one fifth of market sector with Labour party policy, which is to reverse the cuts value added. In terms of why we observe continued stagnation, and invest the money elsewhere. we find that capital shallowing has become increasingly important in explaining the labour productivity growth gap in service sectors, Let us have a review to tease out the issues, because as the buoyancy of the UK labour market has not been sufficiently £16.5 billion works out at more than £25.5 million per matched by investment…The collapse in labour productivity constituency in the UK. The combined total cut from growth has been more pronounced in the UK than elsewhere” the constituencies of Conservative members of this notwithstanding those major cuts in corporation tax. Committee amounts to £228 million; it is important that the figures are put in context, because that translates Anneliese Dodds: Does my hon. Friend agree that to a lot of schools and hospitals that they are prepared there is a contradiction in Government policy? They to sacrifice. appear to believe that cutting corporation tax rates will Along with the important matter of what has happened lead to a higher activity rate and a higher investment to corporation tax since 2010, we must also draw a link rate—as he said, that has not been the outcome—but between the Government’s cuts to corporation tax and when it comes to social security, the assumption appears their wider programme. In our view, there has been to be that cutting the rate of income that people can economic mismanagement, but we are not necessarily take home by having a high taper rate, for example, will here today to talk about that. necessarily lead to a higher work rate. Actually, the evidence shows that the vast majority of people on Bim Afolami (Hitchin and Harpenden) (Con): The social security want to work and there is no evidence hon. Gentleman asserts figures such as £16.5 billion, that they do not want to. The psychological approach but does he accept that the tax rate has a dynamic effect to corporations—that if they give them more corporate on the amount generated for the Exchequer? It is all welfare, they will work harder, although the evidence very well to cite a number as a static figure and say, does not indicate that that is the case—seems to be very “Actually, Labour party policy will double the amount different from the approach to social security recipients, we get,” but does he accept that there is a relationship where the view is that if they reduce their income they between the rate and the amount that the Exchequer will work harder, when actually most people want to generates because of increased economic growth? work. Peter Dowd: I do not want to introduce Gilbert and Peter Dowd: The hon. Gentleman makes a fair point, Sullivan, but the point is that it is a topsy-turvy world which I will address later in my remarks, and which we where cash for corporations equals productivity, when can tease out across the Committee if we want. it does not, and cuts to welfare equal productivity, when For Members who do not know, labour productivity they do not. It is not as simple as that and I am afraid is calculated by dividing output by labour input. Output that the Government’s rather one-dimensional approach refers to gross value added, which is an estimate of the does not work. That report shows that the billions volume of goods and services by an industry, and in handed to those big companies by the Government aggregate for the UK as a whole. Labour inputs are have not had the required effect on business investment measured in terms of workers, jobs—“productivity jobs”— to drive up productivity.The facts are there for everybody and hours worked, or “productivity hours”. to see. No doubt, if we had had some experts here, we The cuts to corporation tax have done nothing to could have teased that out a bit more. improve our productivity. The hon. Member for Hitchin and Harpenden may wish to listen to that point, so I Bim Afolami: The hon. Gentleman has focused on will repeat it: the cuts to corporation tax have done domestic business investment, but would he not accept nothing to improve our productivity. That strikes at the that having an attractive corporation tax regime and 17 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 18 providing a business-friendly climate also helps with as £5.8 billion tax in 2016 by booking profits in overseas foreign direct investment? Britain is still a world leader entities. It reported that that represented almost a quarter in that. of the tax underpaid by large corporations last year. In addition to an apparent avoidance of tax, they also get Peter Dowd: Yes, but there is not necessarily a causal a tax reduction. It is a great life if you can get it: do not link there. The reality is—[Interruption.] Let me tease pay tax and get rewarded with another tax cut. If only that out. The evidence does not suggest that, as I have we could all do that, although I suspect none of us tried to point out. The German economy is 35% more would want to. productive, because investment in it is significantly better Sadly, the situation does not seem to have improved than investment in this country’s economy.We are having under the Government’s plans, despite the warning a debate at the moment about the question of uncertainty signs. The Times reported two weeks ago that HMRC is in relation to Brexit, which is probably having a more now chasing £28 billion in unpaid taxes from multinationals. significant effect than the hon. Gentleman suggests. The Government’s response was to give them some The bottom line is that the idea that cutting corporation more. It is a bizarre approach when they owe £28 billion, tax per se will lead to growth in the economy has not or when HMRCis chasing £28 billion. I assume colleagues proven to be the case. The economy is still flatlining, in HMRC do not simply go around chasing £28 billion despite those cuts to corporation tax. The best part of for the fun of it, and instead do it because there is a half a billion pounds is still sitting in corporate bank requirement and we need the tax, and importantly accounts not being invested, despite corporate tax cuts. because companies should pay their fair share. That represents a 50% increase in avoidance over four years. Jonathan Reynolds: This is exactly the sort of conversation While the Government give corporations tax cuts, the that we should have, and exactly what the Finance Bill corporations appear to say, “Thank you very much; we should talk about. International competitiveness is not will carry on doing what we usually do and avoid our only an issue of tax rates; I think we all agree on that. taxes.” We absolutely recognise that the tax rates on corporate taxation are part of that, but there is at the minute a The problem stems from transfer pricing, which refers very poor argument for the UK’s being such an outlier to the charges made between different parts of a among developed nations and continually cutting its multinational business for goods, services or intangible rate of corporation tax for diminishing returns, as my assets, including intellectual property, for example. Tax hon. Friend has said, when our public services are in rules provide that transactions between connected parties dire need, our infrastructure needs are huge and our should be taxed as if they were on arm’s length terms. skills base is being eroded. All of those impact on In recent years, multinationals have been accused of competiveness as well. It is the balance that we have to arranging their transfer pricing to minimise their tax get right. liabilities in jurisdictions such as the United Kingdom, which accounts for billions of missing tax in the UK. 10.15 am The Conservative party not only wants to give the Peter Dowd: My hon. Friend makes an important wealthiest a tax break but it does not seem too bothered point: we have to have a balance. The massive cuts in if they give it to others such as corporations that do not corporation tax—sequentially, over several years—have necessarily need it. Of course, as my hon. Friend the not had the required effect. If they did, there is an Member for Oxford East said, that rule applies only to argument to be had, but they have not. There does not powerful interests and not to the working single mother appear to be any evidence that that is the case, so it begs who pays in full every single month. the question why. If the Government are trying to make a rational case for it, they have singularly failed and it is Bim Afolami: The hon. Gentleman uses the word time to have another look. “corporations” pejoratively and then mentions the hard- The Government once had a plan to tackle, for working single mother. Does he accept that the hard- example, productivity in 2016 when they tried to maintain working single mother might also run a small business? that there was an agenda beyond austerity, but that has Why did the Labour manifesto commit to increasing not been the case. Sadly, the plan was not to reverse the corporation tax on small businesses as well as on corporation tax cuts and invest in the economy, but multinationals? simply to push on. As a result, the plan was roundly criticised. The Business, Innovation and Skills Committee Peter Dowd: I started my comments by welcoming said the role that corporations play in our economy. My use “we question whether the document has sufficient focus and clear, of the word “corporations”was not in any sense pejorative. measurable objectives to be called a ‘plan’. This broad and I have said nothing “pejorative” about corporations. I expansive document represents more of an assortment of largely may have talked pejoratively about those corporations existing policies collected together in one place than a new plan that avoid their tax and I think most other people for ambitious productivity growth.” would, too. Those corporations have a responsibility, That plan was the best attempt so far and it has singularly and not just legally, to pay tax. I am not suggesting they failed. That is whywe will continue to press the Government are evading tax in that sense, but morally they are part on the true cost of corporate giveaways both in terms of of our community. They are part of one of the most the tax forgone and their effectiveness. stable countries in the world, with a rule of law next— Amendment 8 requires a review of the effects of [Interruption.] I am absolutely shocked that the hon. corporation tax receipts of multinational companies Gentleman is laughing at my assertion that we have one compared with their UK-based revenue. That is a perfectly of the best processes for the rule of law in this country. I reasonable approach in the round—it is not just one- am sure he did not mean to laugh when I was praising dimensional. The Financial Times reported last year the British constitution—I accept that he did not really that multinational companies avoided paying as much mean it. 19 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 20

[Peter Dowd] to restore a level playing field in our tax system—the digital services tax is a drop in the ocean. What estimate At the end of the day, the bottom line is that I have has the Minister made of the total corporation tax lost not at any time been pejorative, and nor would I wish to to HMRC through avoidance by technology companies? be pejorative, about corporations that play their part in What steps has he taken to work with other nations to society, that pay their taxes, that treat their workers deliver a comprehensive response? How many meetings properly and that treat their customers as their first port has he had with the European Union since the Budget? of call. I would not be pejorative about those corporations, As the Minister knows, the European Union’s approach but I will not stop criticising corporations that do not is much more comprehensive. A Commission press pay their fair share of tax. release set out its approach to digital taxation—it is To get back to the point, that is why the Government therefore directly relevant to amendment 9. It demonstrates appear to be winding down the diverted profits tax that the EU’s plans are far more developed than the rather than ramping up the pressure on companies that UK’s. It is therefore important that we listen to them. do not pay their way. The review demanded by The press release states: amendment 8 would strike at the heart of the problem. “The Commission has proposed new rules to ensure that For too long, the Government have sat idly by and digital business activities are taxed in a fair and growth-friendly watched the UK being fleeced by many big companies way in the EU. The measures would make the EU a global leader and the public are saying that enough is enough. in designing tax laws fit for the modern economy and the digital age”, On amendment 9, the Government’sblind spot in respect which is what amendment 9 seeks to do. It continues: of companies paying their share extends in particular to technology companies. It was reported in The Guardian “The recent boom in digital businesses, such as social media companies, collaborative platforms and online content providers, this year that Amazon had halved its corporation tax has made a great contribution to economic growth in the EU. But despite posting record profits. The article speaks directly current tax rules were not designed to cater for those companies to the amendment by saying: that are global, virtual or have little or no physical presence. The “The company, which has been locked in a race with Apple and change has been dramatic: 9 of the world’s top 20 companies by Alphabet to be the world’s first trillion-dollar business, revealed market capitalisation are now digital, compared to 1 in 20 ten that pre-tax profits at its UK business tripled from £24m in 2016 years ago. The challenge is to make the most of this trend, while to £72m last year. ensuring that digital companies also contribute their fair share of tax. If not, there is a real risk to Member State public revenues: The figures were reported by Amazon UK Services, the company’s digital companies currently have an average effective tax rate half warehouse and logistics operation that employs more than two-thirds that of the traditional economy in the EU…Today’s proposals of its 27,000-plus UK workforce, in its annual financial filing to come as Member States seek permanent and lasting solutions to Companies House. ensure a fair share of tax revenues from online activities” The company almost halved its declared UK corporation tax as urgently as possible. Like the European Union, we bill from £7.4m in 2016 to £4.5m last year. It received a tax credit of £1.3m from the UK authorities in 2016, and last year paid are seeking to create an initiative £1.7m tax on its profits.” “to reform corporate tax rules so that profits are registered and taxed where businesses have significant interaction with users I do not have the evidence to hand, because time does through digital channels. This forms the Commission’s preferred not permit me to go into all the details, but it would be long-term solution.” interesting to know how many of those 27,000 people I would like the Government to consider a number of are on tax credits themselves because the pay they get European Union proposals as part of the review,including from that company is pretty low.There is an unacceptable an interim tax on certain revenue from digital tax triple-whammy for taxpayers. No. 1 is that some of activities. The Government could take that issue into those companies’ employees get tax credits because they account as part of the review, too. I hope they will look do not get paid enough; No. 2 is that the companies are at it as well. getting a corporation tax cut; and No. 3 is that they avoid paying their taxes where they can. Will the Minister guarantee that Amazon will pay a 10.30 am full and reasonable share of tax on its operations next Having set out those proposals as briefly as I could—they year? I suspect that he is not likely to commit to that offer a potential way forward as part of the review suggestion even if he wanted to. What about other under amendment 9—it is clear that the EU is already companies? Google paid only £50 million last year, far ahead of the Government in developing its thinking despite total sales of £5.7 billion, which is worth repeating. on this matter, which is critical for our tax base. I hope Meanwhile, Facebook paid only £15.8 million in that the Committee will support our amendment to corporation tax, despite collecting a record £1.3 billion push the review forward. Should the Government fail to in sales. Its accounts show that while it increased its UK support it, that will show that they are not as committed income by more than 50% in 2017, its pre-tax profits to tackling tax avoidance as they would like us to increased by only 6% to £62.7 million. The Silicon believe. They would be open to accusations that it is a valley-based company’s UK taxable profits were reduced paper-thin exercise in public relations. by a £444 million charge for unexplained “administrative Amendment 10 would require a review of HMRC’s expenses”, which is scandalous. “effectiveness at applying General Anti-Avoidance Principles with The Chancellor said that he would introduce a digital reference to corporation tax collection”. services tax in response to that flagrant attempt to Members may not be aware of the background to the undermine our tax base. Oddly, though, the tax seemed general anti-avoidance principles mentioned in the to bring in only £5 million in the first year and £275 million amendment, so I will quote from the House of Commons in the second. Perhaps the Financial Secretary could tell Library note, whose summary provides sufficient us where the rest is. That seems a pretty pathetic attempt background to inform the debate: 21 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 22

“UK tax law is specifically targeted rather than purposive: in and are not particularly productive. Those civil servants tackling the exploitation of loopholes in the law, governments are incredibly productive. There are various figures on have legislated against individual avoidance schemes as and when the amount spent on chasing tax avoidance: if we put in these have come to light. Often the response to this legislation has £1, we might get £9 or £10 back—more according to been the creation of new schemes to circumvent the law, which in turn has seen further legislative action – an ‘arms race’ between certain studies. We need investment in the system, so my the revenue authorities and Parliamentary counsel on one side, hon. Friend’s assertion is absolutely spot on. Resourcing and on the other, taxpayers aided and abetted by the legal should be considered as part of the review of corporation profession. tax proposed in the amendment. Over the past twenty years many commentators have suggested For too long, the Government have asked HMRC to having legislation to counter tax avoidance in general: by providing pay the cost of a financial crisis that it had no part in, certainty for both sides as to the tax consequences of any transaction, by implementing cuts in the very Department we need a ‘General Anti-Avoidance Rule’.” to support if we are to put an end to some of these We support the adoption and implementation of a avoidance gains. The impact of the Government’sausterity general anti-avoidance tax rule to strengthen HMRC’s agenda was recognised by the National Audit Office, ability to tackle tax avoidance wherever it occurs and which published a report suggesting that the quality of whoever does it. Amendment 10 would measure the services provided by HMRCto personal taxpayers collapsed rule’s effectiveness in tackling corporation tax avoidance in 2014-15 and in the first seven months of 2015-16. specifically.As I have outlined, corporation tax avoidance Between 2010 and 2014-15, HMRC cut personal tax remains a serious issue that needs to be addressed if we staff from 28,000 to 15,000, which has almost certainly are to restore and expand our tax base. A review such as had an impact on the functioning of HMRC. The NAO the one proposed in the amendment could look at how analysis indicates that the quality of services deteriorated, the general anti-avoidance principles might be strengthened, which I do not think is a surprise to anyone. That gives particularly in regard to corporation tax avoidance. a sense of the impossible pressure that HMRC is being The current guidance on the GAAR published by put under and the difficulty of delivering on tax avoidance HMRC makes it clear that corporation tax is under its under the Government’s agenda. purview. The question then is whether that principle can Finally, amendment 11 requires be strengthened or more regularly applied to prevent abuse of our own taxation rules. We must look at what “a review of the effects of the current UK tax gap in respect of corporation tax applying globally agreed avoidance measures to the general anti-avoidance rule is itself, particularly the multinationals with UK-domiciled subsidiaries.” section on HMRC’s application of it, which is the scope of the amendment we have tabled. I will spare the In respect of corporation tax, there has been some Committee any more substantive detail on what that debate about what the tax gap in question is. I start by section refers to. I think people will— referring Members to HMRC’s own analysis of the tax gap, published this year. That analysis says: Clive Lewis (Norwich South) (Lab): Thank you for “The estimated total tax gap for Corporation Tax was £3.5 billion that. in 2016-17 (£3.4 billion in 2015-16). This equates to 10.6% of the overall tax gap in 2016-17…The Corporation Tax gap for large businesses in 2016-17 is estimated at £1.1 billion. This represents Peter Dowd: People will thank me for it—I am sure 5.3% of total theoretical liabilities, the same as in 2015-16. There that is the case—but I exhort people to read that detail, has been an upward revision to the 2015-16 estimate since the which will give them an insight into a way forward. 2017 edition of ‘Measuring tax gaps’ by around £0.1 billion due The question that a review would fundamentally seek to more recent data becoming available”. to ask is whether the section of the GAAR that I There are around 170,000 mid-sized businesses in the referred to but will not quote from is strong enough in UK, defined as the smallest businesses previously managed providing HMRC tax officials with the basis for pursuing by the Large Business Service and the largest small and corporation tax avoidance. The review would also look medium-sized enterprises that were reorganised into the at its relationship to the other sections of the guidance mid-sizedbusinessdirectorate.Corporationtaxonmid-sized in meeting that aim. businesses is about £0.1 billion higher than in 2015-16, A related matter is whether the hollowing out of and the corporation tax gap for small businesses is HMRChas had an impact on its effectiveness in preventing estimated at £1.6 billion for 2016-17, which is equivalent avoidance and evasion, and we cannot ignore that. My to 8.8% of total theoretical corporation tax liabilities. constituency, as you are well aware, Ms Dorries, is home Those figures demonstrate the Government’s failure to to a significant number of HMRC staff, and they have apply proper enforcement measures against corporation been impacted, as everywhere has, by the Government’s tax avoidance: even on their own Department’s analysis, hollowing out of HMRC. This matter should be considered billions are slipping through the net every year. A as part of the review proposed by our amendment. The review would be a first step towards ensuring that we effective resourcing of HMRC needs to be reviewed as applied the proper rules against multinationals with well. UK-domiciled subsidiaries, for example, and that those multinationals were paying their fair share. Bambos Charalambous: Does my hon. Friend agree A recent survey by ActionAid showed that eight out that we need more senior HMRC inspectors to go after of 10 of British citizens want the Government to get on the corporations that are avoiding tax and that without and deal with this issue. The Government are, in effect, investment in HMRC we will not be able to recoup the upsetting 80% of the country with their inaction on this taxes that are necessary to fund this country’s economy? matter. Quite a significant number of people believe action has to be taken. I therefore call on the Minister Peter Dowd: My hon. Friend makes a fair point. This to get on with it, accept our amendments and follow is not about the production of civil servants for the sake our proposal in dealing with tax dodgers at the corporate of it, just having them in a job where they do very little level once and for all. 23 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 24

Kirsty Blackman: I will speak relatively briefly on I am concerned that the changes to HMRC offices clause 2 and the amendment. To begin with, it is clear will result in more issues being overlooked. If the that the SNP supports clause 2 and we are not going to Government think they are doing a good job, they argue against the Government having the ability to should not be scared to come forward with as much charge corporation tax next year. It is quite important information as possible about this. That would achieve they do that for a number of reasons. One is that, of all two things. First, it would allow them to be transparent the taxes levied upon businesses, corporation tax is one and allow us to scrutinise them and ask the necessary of those better liked by them. It depends not just on questions, particularly about the tax gap and tax avoidance fixed assets, like business rates, but on the profit businesses issues. Secondly, it would mean that people who were are making, so they feel less unhappy about paying as it thinking of coming here to avoid tax would have that is more of a fair tax than some of the others. It is only a information and would see that the UK was not a good fair tax, however, if it is charged and if the companies place for that. are paying the corporation tax they are due to pay. 10.45 am As for the asks being put forward from the Opposition Front Bench on this, the Government should not be At this stage of our debate, I am not making a point scared of publishing more extensive data than they do about the rates of corporation tax that the Government currently on the tax gap, particularly around corporation are setting. My point is that whatever rate they choose, tax in this instance. If the Government were to do that, they need to collect everything that is owed, because they would be incredibly transparent and, if they are as these are significant sums of money. People who commit good at collecting corporation tax as they suggest, that £2,000-worth of benefit fraud are rightly chased for it, would dissuade other people from trying to dodge the but these corporations can owe millions of pounds. tax in the first place. This would be both transparent That could make a significant contribution to the and good for scrutiny, while also dissuading those who Exchequer, so the Government need to look at it. are looking to see where they can dodge the system. If The SNP supports Labour amendments 8, 9, 10 and people knew that corporation tax was difficult to dodge—if 11, but we will be happy to support clause 2. the Government put forward that information—they would be less likely to try and dodge it. Mel Stride: I thank the hon. Members for Bootle and for Aberdeen North for their wide-ranging contributions On the issue of multinational corporations and what to the important debate about corporation tax. As we a small minority—by far a small minority, not all of know, clause 2 brings in the corporation tax charge for them—do in trying to not pay the tax they owe in 2020, the rate of 17% having been set in part 2 of the certain countries, the Government have made great play Finance Act 2016. of trying to be global Britain and saying that after Brexit this is going to be, apparently, an outward-looking The hon. Member for Bootle referred to slashing tax country. Where better to start being global Britain than for big businesses.It is a typical Opposition characterisation by making multinational agreements on improving the of our tax policy to say that the largest companies are tax system? That would be good for everybody. being treated to corporate welfare, as he put it, but tax cuts apply right across the board, including to the Every country benefits if more of the tax owed by smallest businesses in our country. Given that we are corporations is taken. Coming together with other countries reducing tax to 17% by 2020 for both small and large across the world and making that something that the businesses, the Opposition’s proposal to increase it to UK Government set out to do in this new global Britain 26% for large businesses and 21% for smaller businesses landscape would be really good. This is about not just would represent overall tax increases of 50% and 25% the Government trying to make trade deals and seeing respectively. what we can do to benefit us, but trying to make these multinational agreements where everybody would benefit. Anneliese Dodds rose— Companies looking to avoid tax would know it would be incredibly difficult to do that because countries Mel Stride: I see that the hon. Lady is itching to across the world would come together. If the Government intervene. want to lead the world in anything, I suggest that reducing tax dodging is an area where they should try Anneliese Dodds: Does the Minister acknowledge and think about doing so. that we are talking about profitable businesses and not The comments from Opposition Front Benchers about about unprofitable businesses, of which unfortunately HMRC staff were incredibly important. The SNP has there are a large number in many parts of the country? I consistently made the case against HMRC offices being am pleased to hear him acknowledge that Labour’s tax closed on the basis that expertise is being reduced. I plans include a differential rate for small businesses, but raised this issue during consideration of the Taxation surely he must acknowledge the sunk cost in what his (Cross-border Trade) Act 2018. Wecan see where expertise Government have done. Through their cuts to central is being reduced in areas such as Border Force, which Government funding, they have forced local authorities previously had immigration-related staff and HMRC- to rely more on business rates and council tax, so the related staff, who dealt with tax issues. Due to the fixed costs that all businesses pay have gone up. Government’spolitical priorities, the two were put together. They particularly looked at immigration-related staff Mel Stride: The hon. Lady correctly identifies that and improving Border Force’s capacity in that regard, Labour’s position is for small businesses to pay 21% in rather than looking at improving capacity with regard corporation tax. Given that we are taking it down to to HMRC staff. In that instance, the Government chose 17%, her party’s policy would result in the tax bill for not to increase the capacity to crack down on tax hard-pressed companies on high streets rising by some dodging and tax avoidance in relation to customs. 25% for smaller businesses—a pretty extraordinary and 25 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 26 hefty increase—and by some 50% for larger businesses. Peter Dowd: There is always a danger in these situations One has to ask what the effect of those tax increases of comparing apples and pears. This is to compare the would be. They would not drive productivity, as the largest economy in the world—the United States—which hon. Member for Bootle would have us believe, but do has 50 states and different levels of tax, with this country. quite the reverse: they would increase the costs on On the other hand, the comparison is with the Republic businesses, increase the pressures to drive up prices for of Ireland, with a population of about 4 million and a their products and, critically, reduce returns to investors. gross domestic product significantly below ours. We need The hon. Gentleman mentioned the importance of reasonable comparators. I am sure the Minister will agree investment in our country, but we cannot increase that that those are likely to be our European neighbours. by driving up corporation tax rates. Would the Minister agree that he is missing the point? As the hon. Members for Oxford East and for Aberdeen We have a contention, which I laid out and will not North rightly said, business rates are a fixed cost that repeat. The issue is to address the amendments. Our cannot be avoided, irrespective of whether a business is argument is that the amendment requires a review of profitable, but we are driving those rates down. In the the effects of corporation tax receipts on multinational last Budget, because of the prudent stewardship of our companies compared with their UK-based revenue. We economy, we were able to announce a 30% reduction in make our assertions on the basis of independent evidence rates for retailers at or below the rateable value of and say we should let the Government do that, through £51,000. That will take a huge amount of pressure off institutional mechanisms. Does the Minister not agree about 90% of the high street retailers in our country. that that would be a sensible way forward and we can then have these debates again? Jonathan Reynolds: I am extremely grateful for Minister’s courtesy. The Government would have a strong case if Mel Stride: I shall come to the issue of the amendments those big reductions in corporation tax had produced a momentarily. I would just say in conclusion to this commensurate increase in corporate investment. Surely debate on tax that it is a dangerous position for the the question for the Government is this: how come this Opposition to adopt. They are telling large businesses country still has a lower rate of corporate investment and entrepreneurs and the 5 million small businesses up than France, which has a corporation tax rate of 38%? and down the country that a significant tax hike is in How come it has a lower rate of corporate investment theirs and the economy’s best interest when it clearly is than Germany, with its corporation tax at 31%? not. The clause introduces the ability further to relieve On UK inward investment, if as a minimum we that element of taxation. simply matched the bottom rate in the G7, that would The hon. Members for Bootle and for Oxford East mean corporation tax rising to 24%. The point surely is spoke at some length about avoidance. The Government the diminishing return from driving it down and relying have an exemplary record on clamping down on avoidance, on business rates and employer’s national insurance evasion and non-compliance. There have been 100-plus instead. The balance is wrong for the UK economy. measures since 2010, bringing in and protecting some £200 billion in revenue, a vital amount of money for our public services. Mel Stride: I draw the hon. Gentleman’s attention to As the Committee will be aware, we have one of the the position of the Office for Budget Responsibility on lowest tax gaps in the world at 6% for 2015-16, the cutting corporation tax rates. It makes a clear link last year for which figures are available. That compares between cutting the level of corporation tax and a very favourably with the record of the last Labour commensurate increase in the level of business investment. Government—in 2005-06, the figure was well above 7%. That is the view of that independent organisation and The difference would fund every policeman and woman the information is there for all to see. in England and Wales. We recognise that bringing in tax The hon. Gentleman raises the issue of the level of receipts is extremely important. investment in the UK economy. In fact, it is 30% higher On HMRC staffing, 28,000 full-time equivalents in than it was in 2010, albeit we have been pulling ourselves HMRC are engaged in tax inspection. We have invested out of the financial difficulties we entered at that time. an additional £2 billion in HMRC since 2010 for that He raises the issue of inward investment. It seems clear purpose. The fruits are already being seen in near and obvious to me that the lower the level of corporation record lows in the tax gap. tax, the more attractive that is to companies overseas, who look at those businesses. He suggested earlier that The hon. Member for Bootle urged us to work closely our rate was very low compared with others. America with the EU on tax avoidance. The Committee of the has just reduced its corporation tax rate from 35% to whole House debated clauses 20, 23 and 19 on control just 21%. of foreign companies, exit taxation rules and certain anti-hybrid rules, all of which emanate from the EU anti-tax avoidance directive. Wehave been in the vanguard Jonathan Reynolds: It is 25%. of the base erosion and profit shifting project, as the Committee will know, to clamp down on avoidance. Mel Stride: I will be a little more generous even than The hon. Members for Bootle and for Aberdeen the hon. Gentleman and say I believe it is 26%. Whatever North mentioned digital businesses.Weneed to understand the interplay between the rates, the corporation tax rate the important point that, when we look at profits generated has been substantially slashed, to use the expression by companies through digital platforms and the interaction adopted by the hon. Member for Bootle. The Irish of UK consumers with them, we are not referring Republic has a rate of just 12.5%, which has been a big specifically to avoidance—the hon Member for Bootle driver of the differential investment between the Irish may have suggested that. We are looking at the current Republic and Northern Ireland. international tax regime and whether it is fit for purpose 27 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 28

[Mel Stride] something. I understand that the GAAR panel has given 12 opinions, but there are only nine on the website, in taxing that form of profit generation. The current although in any case that seems a relatively small number regime basically assigns taxation rights to the jurisdiction of decisions taken. Does he not feel that it would be when there is economic activity in that jurisdiction, as appropriate to review the GAAR panel’s operations at defined by the buildings, where the intellectual property this stage? rests, whether people are employed, where the risks are taken, where the management is domiciled and so on. Mel Stride: I do not, for the reasons that I have given. We want to move to a situation where we are able to tax On the matter of how many references there have been, those businesses because of the profit generation—the nine in total have supported HMRC’s position. That value generation—that they are creating, as I have said, if the hon. Lady has information that suggests described. there have been 12 referrals, I will look into what might be a further three and what the status of those was. Kirsty Blackman: It would be useful if, after this meeting, the Minister could write to us with details of Anneliese Dodds: I received notice that there were countries with which he or his team have had discussions. 12 in a ministerial response to a written question that I Anyother information about the nature of those discussions tabled. That might indicate that the panel did not would be incredibly useful. so that we can be sure that support HMRC in three cases. If that is the case, it the Government are taking this seriously on a multinational would be enormously helpful for us to know why. level. As the Minister knows, when the panel was created, Mel Stride: I would be very happy to do that. The considerable concern was expressed about the variety of hon. Member for Bootle specifically asked me what its membership. The individuals themselves are obviously meetings I had had about the digital service tax measure. upright, knowledgeable people of good standing, but I have had personal interactions with a number of they come from a restricted group of people, many of countries. I attended the OECD meeting in Paris some whom have been involved in devising some of the tax months ago where I furthered and put forward the schemes that the panel might be required to look at. UK’s position, which is broadly that we should work on a multilateral basis with the OECD and the EU so that Mel Stride: The hon. Lady makes an entirely reasonable we come to a collective agreement. The value of doing request for that information. As I indicated, I am happy that is not limited to the fact that we would iron out any to provide it to her. In fact, divine inspiration has just risks of double taxation that would result from going arrived—I have an answer; I knew it was lost somewhere on a unilateral basis. However, we have also made very in my mind. There have, in fact, been 12 opinions, all of clear, as the Chancellor announced in the Budget, that which have been supportive of HMRC. If she would we will unilaterally bring in just such a tax by 2020 in care for any further information, I am happy to provide 1 the absence of multilateral arrangements. I would be it outside the Committee. very happy to write to the hon. Lady with further detail Amendment 11 would make the clause contingent on on her specific question. a review of how the application of globally agreed Amendments 8 and 9 seek to make the clause contingent measures to combat avoidance by multinationals would on a report on how the corporation tax receipts of impact the tax gap. HMRC publishes annual updates multinational companies and technology companies on its tax gap analysis. The corporation tax gap is compare with their respective UK-based revenue. Like estimated to have declined from 12.4% of total theoretical most countries, the UK taxes companies on their UK liabilities in 2005-6, under the previous Government, to profits and not their UK revenues to reflect their ability 7.4% in 2016-17. to pay.Therefore, the proposed report would have limited relevance to policy. However, the Government have not Peter Dowd: I have a quick question. There is a been complacent about taking action within the rules of cumulative effect of the Minister saying to us that there the international corporate tax system, as I have described. have been reviews on this and reviews on that. The Amendment 10 seeks to make the clause contingent phrase used is, “We keep these things under review.” I on a review of HMRC’s effectiveness in applying the completely accept that the Government do that, but general anti-avoidance principles in relation to corporation —I think I have asked about this before—it would be tax collection. The Government apply a wide range of helpful to find out what the process is for keeping such anti-avoidance measures, as I have set out, bringing in things under review, other than a Sir Humphrey-type some £200 billion since 2010. The general anti-abuse approach, which is to just say, “We keep these things rule, or GAAR, has been operational since 2013. Although under review,” so we all sit down and think, “That was a the GAAR works principally as a deterrent, it has good answer,” and forget to ask the next question. enabled HMRC to counteract the tax advantages that people try to gain by using abusive arrangements. An Mel Stride: I think the hon. Gentleman has described additional review of the GAAR’s effectiveness would the process beautifully. I would add to his observation not add significant value. The GAAR advisory panel that we do have more formal methods of engagement provides an important safeguard by ensuring that HMRC’s than that which he describes. We publish tax information decisions on GAAR cases are informed by its independent impact notes for every single tax measure and there is opinion. the process that we debated earlier for how taxes and the measures in a Finance Act are scrutinised over time, 11 am and so on. Anneliese Dodds: On that point, the current incarnation To conclude this fairly lengthy debate, I urge the of GAAR is focused on abuse rather than avoidance, as Committee to reject the amendments and I commend the Minister mentioned. I wonder whether he can clarify the clause to the Committee. 1.[Official Report, 3 December 2018, Vol. 650, c. 5MC.] 29 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 30

Peter Dowd: I thank the Minister for his response and (2) The condition in this subsection is, prior to 6 April 2019, those hon. Members who intervened to try to tease the the Chancellor of the Exchequer has laid before the House of matter out. He has not told me, or anybody on this side Commons a review of the corporation tax receipts of technology of the Committee, anything that suggests that the companies with UK-domiciled subsidiaries in relation to their publicly available UK-based revenue.”—(Peter Dowd.) Government take the matter of corporation tax and the This amendment requires a review of the effects of corporation tax need for reviews as seriously as we do, or that gives receipts of technology companies compare with their UK-based revenue. reassurance to the public out there. While everybody Question put, That the amendment be made. else is receiving a pay rise—just about—after 10 years, potentially on a sustained level, the Government have The Committee divided: Ayes 8, Noes 10. said that, eventually, they will invest in the NHS, but as Division No. 3] those things begin to come through, people are still not AYES convinced that corporations, which many of them work Blackman, Kirsty Lewis, Clive for, are playing by the rules. Charalambous, Bambos Reynolds, Jonathan The Minister has not said anything that convinces us Dodds, Anneliese Smith, Jeff to the contrary; hence our amendments. If he is convinced Dowd, Peter Sobel, Alex of his argument—I have no reason to believe otherwise—he needs to convince not just Government Members, but NOES Opposition Members and the great British public. Some Afolami, Bim Lamont, John 80% of people do not believe that large corporations Badenoch, Mrs Kemi Stride, rh Mel are playing fair by the system. Either they are wrong, in Ford, Vicky Syms, Sir Robert which case the Government should tell them so, or they Jenrick, Robert Whately, Helen want an eye kept on this issue, which our amendment Keegan, Gillian Whittaker, Craig would do. I have no doubt that we will come back to this matter Question accordingly negatived. in the next Finance Bill, when the Minister and I might Amendment proposed: 10, in clause 2, page 1, line 7, or might not be here in Committee. No matter what the leave out from “tax” to end and insert Government think, it is not going away—it will come back to haunt the Finance Committee year in, year out. “may be charged for the financial year 2020 if the condition in I exhort the Minister to listen to that. subsection (2) is met. (2) The condition in this subsection is, prior to 6 April 2019, Mel Stride: If it is in order, Ms Dorries, I will give the the Chancellor of the Exchequer has laid before the House of Commons a review of the Commissioners’ effectiveness at hon. Member for Oxford East an additional piece of applying General Anti-Avoidance Principles with reference to information on the issue of referrals to the panel. There corporation tax collection.”—(Peter Dowd.) were nine cases rather than 12; there were 12 opinions This amendment requires a review of the effects of HMRC’s on those nine cases, all of which supported HMRC. effectiveness in applying General Anti-Avoidance Principles with That might explain how I had a figure of nine while the reference to corporation tax collection. 1 hon. Lady was focused on 12. Question put, That the amendment be made. Anneliese Dodds: How can there be more than one The Committee divided: Ayes 8, Noes 10. opinion about an individual case? Division No. 4]

Mel Stride: I shall write to the hon. Lady on this AYES matter and any others that she wishes to inquire about. Blackman, Kirsty Lewis, Clive Question put, That the amendment be made. Charalambous, Bambos Reynolds, Jonathan The Committee divided: Ayes 8, Noes 10. Dodds, Anneliese Smith, Jeff Dowd, Peter Sobel, Alex Division No. 2] AYES NOES Blackman, Kirsty Lewis, Clive Afolami, Bim Lamont, John Charalambous, Bambos Reynolds, Jonathan Badenoch, Mrs Kemi Stride, rh Mel Dodds, Anneliese Smith, Jeff Ford, Vicky Syms, Sir Robert Dowd, Peter Sobel, Alex Jenrick, Robert Whately, Helen Keegan, Gillian Whittaker, Craig NOES Afolami, Bim Lamont, John Question accordingly negatived. Badenoch, Mrs Kemi Stride, rh Mel Amendment proposed: 11, in clause 2, page 1, line 7, leave Ford, Vicky Syms, Sir Robert out from “tax” to end and insert Jenrick, Robert Whately, Helen “may be charged for the financial year 2020 if the condition in Keegan, Gillian Whittaker, Craig subsection (2) is met. (2) The condition in this subsection is, prior to 6 April 2019, Question accordingly negatived. the Chancellor of the Exchequer has laid before the House of Commons a review of the current UK tax gap in respect of Amendment proposed: 9, in clause 2, page 1, line 7, corporation tax applying globally agreed avoidance measures to leave out from “tax” to end and insert multinationals with UK-domiciled subsidiaries.”—(Peter Dowd.) This amendment requires a review of the effects of the current UK tax “may be charged for the financial year 2020 if the condition in gap in respect of corporation tax applying globally agreed avoidance subsection (2) is met. measures to multinationals with UK-domiciled subsidiaries. 1.[Official Report, 3 December 2018, Vol. 650, c. 5MC.] 31 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 32

Question put, That the amendment be made. NOES Afolami, Bim Lamont, John The Committee divided: Ayes 8, Noes 10. Badenoch, Mrs Kemi Stride, rh Mel Ford, Vicky Syms, Sir Robert Jenrick, Robert Whately, Helen Division No. 5] Keegan, Gillian Whittaker, Craig AYES Question accordingly negatived. Blackman, Kirsty Lewis, Clive Charalambous, Bambos Reynolds, Jonathan Clause 2 ordered to stand part of the Bill. Dodds, Anneliese Smith, Jeff Ordered, That further consideration be now adjourned. Dowd, Peter Sobel, Alex —(Craig Whittaker.) 11.12 am Adjourned till this day at Two o’clock.

1.[Official Report, 3 December 2018, Vol. 650, c. 5MC.] PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT GENERAL COMMITTEES

Public Bill Committee

FINANCE (NO. 3) BILL

(Except clauses 5, 6, 8, 9 and 10; clause 15 and schedule 3; clause 16 and schedule 4; clause 19; clause 20; clause 22 and schedule 7; clause 23 and schedule 8; clause 38 and schedule 15; clauses 39 and 40; clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 and schedule 18; clauses 68 to 78; clause 83; clause 89; clause 90; any new clauses or new schedules relating to tax thresholds or reliefs, the subject matter of any of clauses 68 to 78, 89 and 90, gaming duty or remote gaming duty, or tax avoidance or evasion)

Second Sitting

Tuesday 27 November 2018 (Afternoon)

CONTENTS

CLAUSES 3, 4 AND 7, AND 11 TO 13, agreed to. SCHEDULE 1 agreed to. Adjourned till Thursday 29 November at half-past Eleven o’clock. Written evidence reported to the House.

PBC (Bill 282) 2017 - 2019 No proofs can be supplied. Corrections that Members suggest for the final version of the report should be clearly marked in a copy of the report—not telephoned—and must be received in the Editor’s Room, House of Commons,

not later than

Saturday 1 December 2018

© Parliamentary Copyright House of Commons 2018 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 33 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 34

The Committee consisted of the following Members:

Chairs: †MS NADINE DORRIES,MR GEORGE HOWARTH

† Afolami, Bim (Hitchin and Harpenden) (Con) † Lewis, Clive (Norwich South) (Lab) † Badenoch, Mrs Kemi (Saffron Walden) (Con) † Reynolds, Jonathan (Stalybridge and Hyde) (Lab/ † Black, Mhairi (Paisley and Renfrewshire South) Co-op) (SNP) † Smith, Jeff (Manchester, Withington) (Lab) † Blackman, Kirsty (Aberdeen North) (SNP) † Sobel, Alex (Leeds North West) (Lab/Co-op) † Charalambous, Bambos (Enfield, Southgate) (Lab) † Stride, Mel (Financial Secretary to the Treasury) † Dodds, Anneliese (Oxford East) (Lab/Co-op) † Syms, Sir Robert (Poole) (Con) † Dowd, Peter (Bootle) (Lab) † Whately, Helen (Faversham and Mid Kent) (Con) † Ford, Vicky (Chelmsford) (Con) † Whittaker, Craig (Lord Commissioner of Her † Jenrick, Robert (Exchequer Secretary to the Majesty’s Treasury) Treasury) Colin Lee, Gail Poulton, Joanna Dodd, Committee † Keegan, Gillian (Chichester) (Con) Clerks † Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con) † attended the Committee 35 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 36

Amendment 22, in clause 7, page 5, line 2, at end Public Bill Committee insert— ‘(8) The Chancellor of the Exchequer must review the effect of Tuesday 27 November 2018 the provisions in this section on the vehicle hire sector and lay a report of that review before the House of Commons within (Afternoon) six months of the passing of this Act.’ This amendment would require the Chancellor of the Exchequer to review the impact of clause 7 on the UK vehicle rental sector. [Ms NADINE DORRIES in the Chair] Clause stand part. Finance (No.3) Bill Peter Dowd: I hope everybody had a refreshing lunch (Except clauses 5, 6, 8, 9 and 10; clause 15 and and that not too much claret was drunk. schedule 3; clause 16 and schedule 4; clause 19; clause 20; clause 22 and schedule 7; clause 23 and The Financial Secretary to the Treasury (Mel Stride): schedule 8; clause 38 and schedule 15; clauses 39 and That is enough. 40; clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 and schedule 18; clauses 68 to 78; clause 83; clause 89; clause 90; any new clauses or new schedules Peter Dowd: That is a nice start to the afternoon. I relating to tax thresholds or reliefs, the subject matter will turn to amendment 17 to 19 and 22 which, I must of any of clauses 68 to 78, 89 and 90, gaming duty or say at this stage, we will also push to a vote unless we remote gaming duty, or tax avoidance or evasion) have the acquiescence, capitulation or otherwise of the Minister after he has heard my words of wisdom. I 2 pm hope he has even more divine intervention and inspiration Clauses 3 and 4 ordered to stand part of the Bill. this afternoon from his officials telling him to agree with me. Clause 7 Clause 7 introduces further reforms to optional remuneration arrangements for cars and vans.The measure OPTIONAL REMUNERATION ARRANGEMENTS: seeks to make two changes to the current regime, as ARRANGEMENTS FOR CARS AND VANS outlined in the Treasury’spolicy paper.First, it is designed to “ensure that when a taxable car or van is provided through Peter Dowd (Bootle) (Lab): I beg to move amendment 17, OpRA, the amount foregone, which is taken into account in in clause 7, page 5, line 2, at end insert— working out the amount reportable for tax and National Insurance ‘(8) The Chancellor of the Exchequer must review the effect of contributions purposes, includes costs connected with the car or the provisions in this section on the motor vehicle industry in van (such as insurance) which are regarded as part of the benefit parts of the United Kingdom and regions of England and lay a in kind under normal rules”. report of that review before the House of Commons within six Secondly, this measure is also expected to months of the passing of this Act. “adjust the value of any capital contribution towards a taxable (9) In this section— car when the car is made available for only part of the tax year.” “parts of the United Kingdom” means— I imagine that the Treasury’s line is that this seeks to (a) England, ensure that the value of this benefit is connected only to (b) Scotland, cost, but we are concerned that these changes may (c) Wales, and further complicate pre-existing optional remuneration (d) Northern Ireland; arrangements that are already in place for employers “regions of England” has the same meaning as that and employees to utilise company cars and vans. That used by the Office of National Statistics.’ in turn may be a deterrent, as some employers may This amendment would require the Chancellor of the Exchequer to review the impact of clause 7 on the automotive industry, broken down consider that it is too much hassle or too bothersome, by nations and regions. and that there is too much red tape, when it comes to offering such a scheme. Similarly, employees may decide The Chair: With this it will be convenient to discuss that the risks and liabilities of taking up the offer of a the following: company car or van scheme may be too high, and that Amendment 18, in clause 7, page 5, line 2, at end under these circumstances both rentals and automotive insert— sales may fall. ‘(8) The Chancellor of the Exchequer must review the effect of To put it as succinctly as I can—I accept that I am the provisions in this section on the availability and uptake of prone to being succinct, which is a fault of mine—the optional remuneration arrangements relating to cars and vans Opposition do not believe that it is in the interest of our and lay a report of that review before the House of Commons economy, which is heavily reliant on the automotive within six months of the passing of this Act.’ sector for jobs, or that of workers, to make it harder for This amendment would require the Chancellor of the Exchequer to them to use a company car or van through an optional review the impact of Clause 7 on the uptake of optional remuneration schemes relating to cars and vans. remuneration scheme. That is why we have tabled Amendment 19, in clause 7, page 5, line 2, at end amendment 17, which would amend page 5, line 2 of insert— the Bill and insert: ‘(8) The Chancellor of the Exchequer must review the effect of “The Chancellor of the Exchequer must review the effect of the provisions in this section on tax receipts and lay a report of the provisions in this section on the motor vehicle industry in that review before the House of Commons within six months of parts of the United Kingdom and regions of England and lay a the passing of this Act.’ report of that review before the House of Commons within six months of the passing of this Act” This amendment would require the Chancellor of the Exchequer to review the revenue effects of Clause 7. as linked to the nations. 37 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 38

I accept that Government Members must recognise Peter Dowd: Yes. That links to others issues. For the clear link between automotive sales and their use as example, my hon. Friend the Member for Ellesmere company cars or vans in optional remuneration Port and Neston (Justin Madders) is having issues with arrangements.Work vehicles makea significant contribution the car factory in his constituency, where 200 jobs are to the automotive industry’s more than £82 billion threatened. These issues are all linked. When the industry annual turnover and £20.2 billion of value added. is under threat, or there is a potential threat, even if it is not actually visible, we must take steps to ensure it does Bambos Charalambous (Enfield, Southgate) (Lab): not appear on the horizon. Our proposal would help Does my hon. Friend agree that further complicating that process. the optional remuneration arrangements for employees For example, the west midlands has by far the largest who wish to use a company car or van could have an number of motor vehicle manufacturing employees of effect on the automotive sector as a whole? That would any UK region or country. There are 54,000 employees be terrible. in the industry working in the west midlands. That is about one third of all motor industry employees in Peter Dowd: It would be. That goes to the heart of the Great Britain. We have to take into account the fact that point. We want to tease this issue out and have a review. if fewer companies offer optional remuneration I know we have raised a million and one issues for arrangements, that could directly affect jobs in that review, but that is as much as we can do in the current region. The Government’s job is to plan and—they said climate. That is what we want to do: we want to tease all this in their industrial strategy—to ensure we are prepared these matters out. for all eventualities. Our proposal helps with that preparation. Anneliese Dodds (Oxford East) (Lab/Co-op): Does The second-largest region for automotive manufacturing my hon. Friend agree that a review would enable us to is the north-west, where my constituency is located. It tease out some of the matters that were presented to us employs 24,000 people and accounts for 7% of the total and to explore some of the expert information that has industry and 1% of all employment. I recognise that a been provided to us? For example, the Institute of slowdown in automotive sales could be related to a fall Chartered Accountants in England and Wales tax faculty in the use of company cars and vans, and could cost said that the clause will lead to a tax charge so, for workers their jobs. Members from Scotland, where the example, emergency repairs will be initially paid for or automotive industry accounts for around 4,000 jobs arranged by an employee and then met by the employer. and 2% of the total UK manufacturing sector, and If we had a review, we could look into that matter and Members from Wales, where the automotive industry others in more detail. accounts for 9,000 jobs, feel the same. Similarly, any fall in the sale of rental cars and vans used in optional Peter Dowd: That organisation is always helpful, and remuneration arrangements will have an impact on it points us in the direction that the Government should foreign direct investment into the UK, as there are now go in. That goes to the point I am making. no British-owned mass car manufacturers operating in Many proposals have come back to bite us, so we the United Kingdom. It comes back to the point made need a proper review to see how they are bedding in. by an hon. Member about foreign direct investment. We For example, according to the Society of Motor do not want to put it off. Manufacturers and Traders, the automotive industry employs 168,000 people directly in manufacturing, and Clive Lewis (Norwich South) (Lab): Given the sounds more than 856,000 are employed across the wider industry. being made by the car makers Nissan over Brexit It accounts for 12% of total UK exports of goods, and uncertainty, it would be a most foolish approach if invests £3.65 billion each year in automotive research those safeguards were not taken, and if there were no and development. More than 30 manufacturers build in proper impact assessment or analysis of the industry. excess of 70 models of vehicle in the UK, supported by 2,500 component providers and some of the world’s Peter Dowd: My hon. Friend is right. To some extent, most skilled engineers. The automotive industry represents that is part of the concern we have had about impact 1% of all employment in the UK and 7% of all assessments and financial reviews on industry generally manufacturing. It is also one of the few industries in the in relation to Brexit. This is part of the tapestry or United Kingdom that has had a huge productivity mosaic of issues that we always have to keep to the fore increase since the financial crisis. The manufacturing of if we are to protect jobs. All parties have said that they motor vehicles went from 5.4% of UK manufacturing want Brexit for jobs and the economy. We have said it in 2007 to 8.1% in 2017. Those figures do not, however, time after time, and this completely fits in with our reflect the role that the automotive industry play in policy of trying to protect jobs and our economy. Let us communities across the nations and regions of the UK, look to the future of how this might impact on an and the impact that a fall in sales or rentals relating to important part of our industry, rather than leaving it to optional remuneration might have. chance. The domestic automotive market is home to foreign Alex Sobel (Leeds North West) (Lab/Co-op): My volume car manufacturers, with other companies hon. Friend is making an excellent speech in support of specialising in commercial or luxury brands, including the communities around the country that are reliant on Honda, which has almost doubled production at the motor manufacturing, which include Tyne and Wear, Swindon plant—£240 million of investment into the Derby, Swindon and Merseyside. Does he think that the Burnaston site was announced in March 2017. Jaguar Government should undertake and publish a proper Land Rover invested £400 million in a new engine plant, impact assessment on the communities that will be equipment and the expansion of its design centre in affected by the changes outlined? 2015. In October 2016, Nissan announced that it would 39 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 40

[Peter Dowd] towards environmental friendly cars, which should be considered in the review on the impact of these changes produce two new models in Sunderland. Members on on the regions and nations. both sides of the Committee understand that uncertainty There is little doubt that the consumer and political in an industry such as the automotive industry, which backlash against diesel has been devastating. The demand plans 10 or 15 years in advance, can be disastrous and for new diesel cars in Britain nosedived by more than cost jobs. We need only to look at the current uncertainty one third in March, generally the top selling month of around Brexit, as I have indicated, to see that this is the year, pushing down the total registration by 15.7%. clearly the case. Large automotive companies express The number of vehicle registrations fell to 479,000 in concern on a daily basis. My colleague the hon. Member March, according to the Society of Motor Manufacturers for Oxford East receives regular representations from and Traders. Once comprising half the market, diesels companies in her area who are deeply concerned about now account for less than one third of sales, having the future of the industry in the UK, and any fall in use fallen by nearly 40%, from 101,000 in May 2016 to only of company cars will not add further confidence. 62,000 last month. I accept that Government Members may accuse me Companies that own and employees who lease diesel of scaremongering, but figures from Her Majesty’s cars under optional remuneration schemes would not Revenue and Customs showed that 940,000 employers have been shielded from this disruption, as it may not paid benefits in kind—tax on a company car—in 2016-17. be financially viable for businesses that have bought That was a 2% fall on the 960,000 recorded the new vehicles or have entered into an agreement with previous financial year. The decline is not isolated—the third parties to return or sell the vehicle for the first number of company cars has decreased over the last three years. That would mean that employers may be 10 years. stuck and unable to return diesel vehicles without facing an added cost. 2.15 pm If the Government have made a particular decision The issue is that there has not necessarily been a and there are unintended consequences, they should qualitative leap in the use of public transport. The not fall to those people affected by it. Employee car and muscle-bound transport system in this country is becoming van schemes will also be affected by the growing market even worse. It is not as if people have been coming out of electric vehicles. That is a welcome development. of cars and on to public transport, be it buses or trains. Although the Bill introduces a tax exemption for electric That has not necessarily happened. The amount of vehicle-charging points at work, it is clear that more money being collected by the Treasury from taxes related needs to be done to address that transition. We believe to company cars or vans through optional remuneration the Government should push on that even more. has increased by more than 24% year on year—some To return to my earlier point, if the Government £360 million—and we currently have some of the highest continue to amend the regulations and rules governing tax charges for company cars we have ever seen. The the optional remuneration schemes, they will inadvertently amount of national insurance contributions paid by deter any employees from taking up such schemes and employers who have company cars also increased. The employers from offering them. The situation is only amount of national insurance contributions paid by heightened by the fact that too many employees do not employers who have company cars also increased. understand or do not follow the Government tax changes Employers paid £630 million in 2016-17 compared to that govern those particular schemes. £600 million the previous year, up 5%. Benefit in kind, Take, for example, the reforms to optional remuneration tax and national insurance contributions were collectively arrangements introduced in the previous Finance Bill worth £2.48 billion to the Treasury compared to £2.09 billion last year. Research by OSV found that more than one in 2015-16, which is an increase of about 19% or quarter—27%—of company car drivers were not aware £390 million. of the tax changes the Government were making that Compare that with 2013, when benefit in kind and would affect their company car. A similar study by national insurance contributions were worth £1.75 billion Arval last year found that many small and medium-sized to the Treasury—some £730 million less—yet the number businesses were unaware of company car tax changes. of employees with a company car was exactly the same, While 70% of larger fleets with more than 50 vehicles at 940,000. It is worth giving those figures a bit of said that they were aware of them, that figure dropped thought. The record figure of £2.48 billion means that to 44% of medium-sized fleets with 10 to 49 vehicles, the average annual tax yield on a company car was and to 35% of small fleets with one to nine vehicles. £2,638 in 2016-17, compared with £2,166 in 2015-16. That ignorance of changes to company car and van That is a 22%, or £472, year-on-year increase. policy is deeply troubling. In some cases, it could easily At the start of the decade in 2009-10, a company car lead to employees finding in the coming months, without was worth, on average, £1,680 in benefit in kind, and any warning, that their net pay is below what they national insurance revenues to the Treasury were some anticipated, as a result of those changes. Given that £1.63 billion. That is £850 million less. The higher tax people are already hard pressed following a decade of take between 2015-16 and 2016-17 can in part be explained low wage rises—the lowest for two centuries—every by the increase reported in the taxable value over the penny counts, and the Government should take that same period. The taxable value of the company car into account when introducing such policies. benefit was worth £4.57 billion—up from £4.32 billion The onus to know about such changes remains largely the previous year—according to HMRC’s figures. on the employer, who has a responsibility to sign off, Similarly, the use of company cars and vans has been but although some businesses will have calculated and hit by the Government’s changes to diesel and the drive worked with their employees to help them understand 41 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 42 the financial implications of a company car or van It is telling that the changes have come about not where private use is allowed, explaining the option and because of a new onus to reform optional remuneration consequences of making a capital contribution to obtain schemes for the benefit of employees and employers, a better vehicle— but rather to clean up the mistakes made in the previous Finance Act. In practical terms, that is what has happened. Clive Lewis: Will my hon. Friend give way? The Opposition have consistently called for the Government to take a more considered approach to taxation, including Peter Dowd: Yes. the introduction of Public Bill Committee witness sessions, as mentioned both previously and today. Were these Clive Lewis: As I sit here listening to my hon. Friend concerns and those of the tax experts and advisers who describe the obscure way in which this tax is being have to implement the change taken seriously, Ministers implemented, I wonder whether it would it be fair to would not have to come back to the House to redo their call it a stealth tax. homework on every Finance Bill. This is my fourth Finance Bill—excluding the Taxation (Cross-border Trade) Peter Dowd: My hon. Friend makes a valid point. Bill—and that seems to be a regular occurrence. Instead, One could argue that it is a stealth tax, although I think Ministers should be able to get it right first time, not what the Government have introduced is more like an just in relation to consultation but in enabling us to help incompetence tax. I am not sure they know the them do their job. consequences of what they have unleashed, but I suspect my hon. Friend’s use of the term “stealth tax” is pretty The Chair: Order. You have made quite a few generalised apposite. remarks about consultation, Mr Dowd. It would be We all know that employers will have invested in appreciated if you could keep your speech to the points vehicles in good faith on the basis of those calculations, of the amendment. together with the comment from HMRC that that was the correct way to calculate charges. It is therefore to be Peter Dowd: Thank you, Ms Dorries. The Minister expected that they will feel let down and perhaps even considered the number of people who will be affected blindsided by these changes. The more I think about it, by the measure—1 million—to be rather small. The the more I think they will consider what the Government measure will have a disproportionate impact on van are introducing as a bit of a stealth tax. drivers and those who have company cars. The Treasury’s The ICAEW found that, where vehicles with allowed impact assessment shows that the majority are male private use are provided to employees under OpRAs, and, no doubt, from various backgrounds. The Opposition the clause will impose unexpected increases in tax and want to get these changes right, which is why we are national insurance charges on employees and employers pushing for the Minister to report back to the House respectively. The only way to avoid those charges will be after six months and to offer clear evidence as to why for the employer to dispose of the vehicle. That is likely they have had a negative impact on the number of to result in the employer receiving lower than expected employees able to use a company car or van under these proceeds if the vehicle is owned outright, or suffering schemes. financial penalties if the vehicle was acquired under an Given the lack of knowledge shown by small and ongoing contract. It may also upset the employer-employee medium-sized enterprise employers and employees when relationship, which might ultimately lead to both employee it comes to changes to optional remuneration schemes, and employer leaving the scheme entirely. it is hard to understand how the introduction of these That concern led the Opposition to table amendment 18, measures will not incur additional expense for both. In which we will press to a vote. The amendment seeks to fact, in its response to the consultation on the new insert the following subsection: measures, ICAEW found: “The Chancellor of the Exchequer must review the effect of “The new clause introduces additional costs which will change the provisions in this section on the availability and uptake of the cost model on which the acquisition finance model was optional remuneration arrangements relating to cars and vans based.” and lay a report of that review before the House of Commons The Opposition therefore have a healthy scepticism for within six months of the passing of this Act.” the Treasury’s figures on the revenue raised from these In effect, it would require the Chancellor to publish a changes, because it is clear that there will be an additional review of the impact of these changes on the number of cost. employees choosing to enter into optional remuneration In an effort to gain further clarity of the revenue arrangements. The amendment goes to the heart of the effects of this measure, the Opposition have tabled Opposition’s concern that the Government’s constant amendment 19, which we will invoke later. The measures tinkering and fiddling deters people from taking up in clause 7 are part of the Minister’s clean-up operation such schemes and, no doubt, other schemes. to fully implement the wholesale reform of optional That feeds into the wider criticism of the Treasury—and remuneration schemes introduced in the previous Bill. Ministers, I have to say—as backed up by the Chartered The reforms are aimed at targeting employers and employees Institute of Taxation, regarding the constant need to who might use salary-sacrifice schemes for the purposes rework and reform measures. The perception is that this of tax avoidance. With that in mind, the review should is happening all the time. That takes us back to the consider the changes in the context of wider Government point raised by the Scottish National party’s spokesperson reform of optional remuneration schemes and include about the need to tease out these issues in advance and the impact of the changes to this specific scheme on the put them into the domain. Let us tease them out and try total revenue. to get a little bit of sense out of the mix. This amendment Turning to the vehicle rental sector, an increasing goes to the heart of our concerns, and this tinkering and number of the company cars and vans offered by optional fiddling about just confuses things more. remuneration schemes are, in fact, rentals. That means 43 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 44

[Peter Dowd] already warned the Government that the measures come up short and will require further amendments. The that any changes to these schemes will have consequences institute first raised concerns about these defects when for the vehicle rental sector. That is why we have tabled the draft proposals were first published. When the Bill amendment 22, which would insert the following in was finally published, it was surprised that the defects line 2 of clause 7: remained—so much for having consultations and taking “The Chancellor of the Exchequer must review the effect of into account the concerns expressed by experts, as we the provisions in this section on the vehicle hire sector and lay a have been told comprehensively. report of that review before the House of Commons within The institute’s concern is that the proposed corrections six months of the passing of this Act.” to the provisions will create a new mistake by imposing 2.30 pm a tax charge when an employee pays for emergency repairs to a vehicle and is reimbursed by the employer. The vehicle rental sector contributes about £40 billion With that in mind, can the Minister assure Members a year to the United Kingdom’s economy. That takes that the concerns of these tax experts have been addressed, into account the operations of the industry; UK-made or actually taken into account? vehicles and engines it purchases; the activity of UK dealerships; and its impact on the used car market. The industry employs 52,700 people directly and contributes Kirsty Blackman (Aberdeen North) (SNP): Many of £23.9 billion from rental and leasing activities. Its the points that I was going to make have been covered contribution is higher than that of many other sectors by the hon. Member for Bootle. However, a few things because of the reliance on rapidly depreciating capital require to be dwelt on for more time or should be goods. Rental and leasing companies spent an estimated looked at from a slightly different angle. £30 billion on buying more than 1.8 million vehicles in When I first became aware of the Opposition’s 2017, including £5.4 billion spent on 304,000 UK-assembled amendments, I did not think that it was a tack that they cars, vans and trucks. That represents 70% of all vehicles should take. However, when I looked into the information assembled in the United Kingdom, which means that behind them and at the detail, I discovered that it is such companies were responsible for 83% of vehicles actually a very sensible tack to take, for a number of sold domestically. The industry also purchased reasons. I note the comments about the 4,000 Scottish 418,000 vehicles with UK-made engines. jobs that could be affected. It is important to note the By purchasing so many UK-made vehicles and engines, number of jobs that could be affected by any changes to the rental and leasing sector supports an extra 78,000 jobs this area, particularly through tweaks to the benefit-in-kind at manufacturing plants in Ellesmere Port, Sunderland, system. Oxford, Swindon, Bridgend and Dagenham, as well as I also point out the number of new car registrations, in the extended supply chain. That simply cannot be which the Society of Motor Manufacturers and Traders ignored. Most vehicle purchases are conducted through has on its website. There has been a 7.2% fall in the year motor dealers; in 2017, such activity contributed £1.6 billion to date, which is incredibly significant. If the Government to GDP, supported 25,400 jobs and raised £400 million are thinking about ensuring that companies have those in UK tax receipts. The rental and leasing industry is up-to-date cars with the lowest emissions, it is really estimated to have replenished 25% of its fleet in 2017, important that companies are incentivised to ensure supporting auctioneers and dealerships and contributing that their employees drive an up-to-date fleet, rather £1.7 billion to GDP. That equates to 28,200 jobs and than older cars. £469 million in tax receipts. The other thing to note is that registrations in October There is also a positive environmental angle to that 2018 were at their lowest level since 2013, which is activity.Oxford Economics estimates that carbon dioxide significant. We might expect low numbers when we were emissions across the British Vehicle Rental and Leasing coming out of a recession, but there has been a significant Association member car fleet averaged 114.6 g/km in drop in registrations over the past year. It is important 2017, which is 20% less than the emissions from an that the Government think about this wider context average car in use on UK roads. Not everything is when making these decisions. measurable, but researchers at Oxford Economics also It is particularly important to note the impact of confirmed that the opportunity to rent and lease those these changes on the industry, given the context of vehicles provides firms with the ability to access modern, Brexit and the concerns raised by the car industry. Now fuel-efficient vehicles, without the strain of up-front is not a good time to consider making changes that are capital outlays. That is a major benefit for small and likely to negatively impact the automotive industry, medium-sized enterprises and private customers, who particularly given the nature of its supply chains, which also gain more certainty about their costs going forward. are so integrated with European Union countries. There It is hard to estimate the extent to which the vehicle is the potential for those supply chains and those sector depends on company cars and van rentals as part manufacturing businesses and jobs to move wholesale of the optional remuneration scheme, but a number of to the EU, rather than the integrated supply chains that prominent experts have claimed that it is significant. we have now being maintained. It is important to note Amendment 22 would offer a clear picture of the that wider context when making any changes, because relationship between optional remuneration schemes the Bill will not act in isolation; it will have to operate in for car and van rentals and the vehicle rental sector, the context of whatever potential economic hit will reviewing the impact that those changes will have on come from Brexit. what is clearly a crucial sector for the UK economy. On the ICAEW’s comments about the potential for What is most baffling about the measures in clause 7 an accidental charge following emergency repairs, I is that a number of tax experts, including at the Institute agree with the hon. Member for Bootle that the Government of Chartered Accountants in England and Wales, have might need to amend the Bill further in order to make it 45 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 46 workable, so that it does what they intend it to do. If we especially as I have served on four Finance Bills since are not going to listen to the utmost experts on this 2016, and I only avoided one in 2017 because a general issue, what is the point in having the consultation? If we election was called. That seems to me to be too many are to have a consultation, it will be meaningful only if tax changes in any year, given that we still have all the the Government listen and actually make the suggested changes happening on a significantly more than annual changes. These people are the experts and negotiate the basis. I think the Government need to take a step back tax system on a daily basis, so they are the ones who can in some of these situations and have a much more highlight potential problems. wide-ranging look at the issues, particularly in relation To expand on that a little bit, I totally accept that to benefits in kind. Every single year there are changes protecting the Treasury is important in the changes in the benefits in kind legislation in the Finance Bill, being made, and that the Government are attempting to which every year we have stood up and debated. protect the Treasury from problems that it did not First, we need to look at the whole system of benefits necessarily foresee when it created the Bill in the first in kind and then make decisions about the entire system place. However, there are changes to the Finance Bill that are easily understood by people. People are much every year. As the hon. Member for Bootle said, this is more likely to comply if they can actually understand the fourth Finance Bill Committee that I have served the legislation. If there are constant changes, that makes on, and every year there seem to be different changes to it is much more difficult for people to jump through the benefit in kind issues. I understand that the Treasury is hoops they are supposed to jump through and to pay trying to protect itself, but if there is an immensely the correct tax that they are supposed to pay. complex tax system and it is changed every year, it is Secondly, in relation to the impact on the automotive difficult for people to comply with the legislation, even industry, I am particularly pleased that the Labour those who are trying to do so. I think that the Government party has put forward the amendment about the different need to think more carefully and do some sort of regions and nations of the UK. It is really important sensible review, as suggested by the Opposition, into the that we consider the differential impact, not least in the whole landscape of benefit in kind issues and then make context of Brexit. Areas where there is significantly changes in one go, so that they are easily understood more manufacturing, such as the north of England, are and can be complied with them. As I said earlier, there likely to be hardest hit by the economic shock resulting is no point having a tax system if people do not understand from Brexit. That is shown across the Whitehall analysis it and cannot pay the tax because they do not understand papers. If they are being hit by that, we do not want how they are supposed to comply with the system. them to be hit by other things. Doing that analysis on a That also has a knock-on effect on the automotive regional basis is really important. industry. If it is too difficult for employees to claim the relief that they are supposed to be able to claim, or to Mel Stride: I thank the hon. Members for Bootle have the benefit in kind accepted as such, as they are and for Aberdeen North for their contributions to the supposed to, it means that fewer companies will be debate. willing even to attempt to comply with the legislation. I Clause 7 makes two changes to ensure that the optional think that it is really important, in terms of the new remuneration arrangement—OpRA—rules for cars and vehicles and ensuring that the Government can collect vans work as intended. First, the clause addresses an the correct tax. anomaly in the OpRA legislation. Under current legislation, In relation to whether or not this is a stealth tax, I the value of any connected costs is not included when would certainly say that there are stealth changes being calculating the value of the amount foregone. That was made to these taxes, and not ones that have been widely not the original policy intention. It is important to note publicised or understood well enough by individuals that we are not looking at new measures as such; we are having to go through the system. If the only way to looking at closing loopholes and ensuring that the comply with tax changes is to ensure that you have a original legislation passed in 2017 operates as intended. very good tax lawyer or tax adviser in place, then I The clause ensures that the value of the amount forgone would suggest that the system is a bit too confusing. It includes any costs connected with the taxable car or should be easier for people to jump through the hoops van, such as servicing and insurance. The clause also that are in place, and constant changes by the Government ensures that the value of the deduction available for a are not helping. capital contribution is adjusted if a company car is I will speak briefly to the proposed amendment. The made available for only part of the tax year. Again, that explanatory notes, on pages 14 and 15, state that this brings the original intention of the legislation into was first proposed in the autumn statement 2016 and effect. put through a technical consultation. The Government are having to make changes in relation to the anomalies 2.45 pm that were raised. The Government decided to take I will turn briefly to the issue of consultation and action to protect the Exchequer at the first opportunity. stealth tax, which Opposition Members have raised. Although this was consulted on, the Government did There has been extensive consultation, both on the not see the potential pitfalls in the way they put forward original measure enacted in 2017 and on the draft the legislation. Therefore, either the consultation was legislation before us today. It is worth pointing out that, deficient or the Government’s ability to listen to the despite the extensive consultation, which I will go through consultation responses was deficient. There was certainly in some detail in a moment, neither of these issues were an issue with the process. raised as a potential problem, although they subsequently I am pleased that the Government have changed their emerged as such. The initial consultation, which ran for ways—or have said that they will—about the number of 10 weeks, was followed by a further technical consultation Finance Bills we are going to have in any given year, on the draft legislation, which ran for eight weeks. That 47 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 48 was for the 2017 legislation. Officials considered 259 written be making oversights in tax legislation and agree that, responses from employers, tax professionals and in fact, the process we have for scrutinising tax legislation representative bodies. There were 77 submissions from is therefore deficient? individuals. That led to 18 meetings with a wide range of employers, tax professionals and representative Mel Stride: I certainly accept the hon. Lady’scontention bodies, including two with the ICAEW. Officials had that oversights are never acceptable—of course they are face-to-face meetings with over 100 employers and not. As I set out, there was significant consultation and tax professionals. That illustrates that the level of scrutiny of both the policy measure and the detailed consultation that attended these measures was deep and legislation. Unfortunately, on this occasion the two comprehensive. issues being highlighted here did not come to the appropriate On the background to the rationale for making these attention in the drafting of the 2017 legislation. If the changes, optional remuneration arrangements involve hon. Member for Aberdeen North is saying that there an employer and employee agreeing that the employee was insufficient scrutiny, I do not believe that was the will give up an amount of salary in exchange for a case, given the large amount of scrutiny applied in this benefit in kind, or take a benefit in lieu of a cash circumstance. allowance. The Finance Act 2017 introduced changes to The changes are expected to affect a small proportion remove the resulting tax and NICs advantages. Where of the 1 million or so individuals who are provided with the provision of a car or van available for private use is a company car or van for private use. The average cost made through OpRA, the amount of earnings forgone of the changes for those affected has been estimated at is compared to the cash equivalent of the car or van between £120 and £140 a year in extra tax. There will benefit—the amount of benefit in kind deemed to have also be a slight increase in national insurance contributions been derived from use of the vehicle. The greater of for employers, in line with the original policy intent. those two values is reportable for tax and national The Exchequer yield from the changes is estimated to insurance purposes. be negligible, but by stopping the growth of separate Under the original car and van benefit charge legislation, arrangements, significant amounts could be protected. connected costs such as servicing and insurance are The hon. Member for Oxford West and Abingdon regarded as being part of those benefits. However, suggested that the issue of emergency repairs needed to during the introduction of the OpRA rules in the be looked at in greater detail. That is already covered by Finance Act 2017, an oversight meant that the legislation the legislation. As the explanatory notes state, the clause was not clear that connected costs should be included “does not affect the operation of sections 239(1) and (2) in when calculating the amount forgone. That meant that relation to other payments or benefits. For example, should an connected costs could be disaggregated from the calculation, employer reimburse an employee for costs incurred (such as artificially lowering the calculation of the amount forgone replacing a tyre), the exemption in section 239(2) will still apply.” and giving those individuals an unintended tax advantage. HMRC will also ensure that that is reflected clearly in This legislation corrects that, ensuring that when a the guidance. taxable car or van is provided through OpRA, the amount forgone includes costs connected with the car Peter Dowd: I want to bring some of the points I or van, which are regarded as part of the benefit in kind raised to the attention of the Minister again. He talked under the normal rules. The second change in the about consultation. Let us not take the totality of the legislation ensures that the value of the deduction available automotive industry, because it is a big industry. What for a capital contribution is adjusted if a company car is about Arval, which is a leasing company? Did the made available for only part of the tax year. Government think, “We are going to make changes to Where an employer provides an employee with a car leasing and rental arrangements, so let’s consult those that is available for their private use, there is a taxable companies directly affected”? Were any of those companies, benefit in kind—the car benefit charge. The car benefit many of which are quite big businesses, consulted on charge is based on the original list price of the car and the measures? the amount of emissions it produces. Some employees make a capital contribution towards the cost of the car. Mel Stride: As I said, there were 259 written responses That sum is deducted from the list price and reduces the from employers, tax professionals and representative car benefit charge. The normal rules for calculating the bodies, 77 from individuals, and 18 meetings with a car benefit charge automatically adjust the deduction wide range of employers, tax professionals and allowed for capital contributions on a pro-rata basis if representative bodies, including two with the ICAEW. the car is made available for only part of the tax year. Officials had face-to-face meetings with more than Similar adjustments were not included in the OpRA 100 employers. There was pretty extensive engagement. rules for calculating the amount forgone. This means The Government are constantly liaising very closely that currently the amount deductible for capital with industry. I know that the Exchequer Secretary contributions where the car is available for only part of recently met, for example, the chief executives of Vauxhall the year, and provided through an OpRA, is overstated. and Jaguar Land Rover in Ellesmere Port, and discussed The effect is that the comparison of the amount forgone a variety of important issues. The measures in the Bill under OpRA to the modified cash equivalent of the car were not raised on that occasion, but if the suggestion is or van benefit charge is not made on a like-for-like that we are not close enough to industry and to businesses, basis. These changes reinstate the original policy intention I can assure the hon. Member for Bootle that we are. and ensure fairness. The hon. Gentleman talked about the potential impact of the measures on the tax yield. I will use his figures— Kirsty Blackman: The Minister said that an oversight always a slightly risky thing to do, but I will on this was made in relation to the legislation as drafted. Does occasion. [Interruption.] That may be unfair. He suggested he share my concern that the Government should not that the tax yield per company car is, on average, £2,638. 49 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 50

It is estimated that in the order of 10,000 individuals of “taking advantage” of the tax loophole was maybe an the 1 million company car users in the UK will be unfortunate phrase. I do not want to pick him up on affected by the ironing out of the deficiencies in the that point, but it is important to note that the vast 2017 legislation—10,000 individuals will be adversely majority of people affected by this entered into these impacted by now having to pay the correct tax rather arrangements with the best intentions, and I do not than being able to rely on the deficiencies in order to suspect that they were in any way trying to find any legitimately avoid that tax. That equates to about loopholes. They would have been advised of these £20.6 million of forgone taxation, if every single one of arrangements by their employers or by leasing or rental those 10,000 were, as a consequence of the changes, to companies, and I do not think it would have been on the drop having a company car. basis of, “Here’s a tax dodge; here’s a tax loophole; go Of course, there are two points to make here. One is down this path.” It is important that we try to put that that the vast majority will not do that, so it will be a into context. figure well below £20 million per year, and the other is that it will be offset by the additional taxation brought Mel Stride: I will briefly respond to those comments. in by those who will no longer be absolving themselves I congratulate the hon. Gentleman, because he is about of taxation as a result of the deficiencies in the 2017 Act. to tease out from me, as he likes to term it—his term With regard to the impact on tax that the hon. Gentleman “teasing out”has gone into the parliamentary lexicon—the raises, I suggest that that underpins the Treasury’s view specific issue of consulting leasing companies and that the impact will be negligible. listening to their views, which we also feel is important. The Government have already published a tax The draft legislation was subject to technical consultation information impact note on clause 7, in line with normal between 6 July and 31 August 2018. One of the written practice. As set out in that note, as I have already said, responses we received was from the British Vehicle clause 7 simply corrects two anomalies in the existing Rental and Leasing Association, so we certainly had legislation. These changes affect only a very small number input from it. of people who have been taking advantage of the On the hon. Gentleman’spoint about those 10,000 people loopholes, so it will not have a significant impact on any affected, I think two things. First, I certainly accept, of the areas addressed by the amendments. I therefore and I think I said so in my remarks, that this was not tax call on the Committee to reject the amendments tabled. avoidance, but a deficiency in the way the tax legislation I commend the clause to the Committee. has been brought into effect. In no way am I casting any aspersions on the activities of those who have benefited Peter Dowd: I want to pick up on a couple of points. from that deficiency. Secondly, this is not about going We keep coming back to the fact that the Minister out and taking money off 10,000 people —I think that seems to brush aside the woeful lack of consultation was the expression the hon. Gentleman used. It is just aimed specifically at leasing companies. They are the about ensuring that the tax rules we introduced in 2017, ones dealing with this day in, day out. They are the ones which operate effectively for the vast majority of taxpayers, who draw up the contracts. They are the people who the apply to everybody, rather than almost everybody. Government should be going to. I do not know whether the Government have been to those particular companies, 3 pm but in future maybe that is something they should Question put, That the amendment be made. consider. If they have, and if I were to have conversations The Committee divided: Ayes 9, Noes 10. with those companies in future, I would check that they were aware that the Government did discuss this with Division No. 6] them because, if that is the case, they appear to have been asleep on the job. I do not know whether that is AYES the case, but I am sure we can check with them; I am Black, Mhairi Lewis, Clive certainly happy to check with them. Blackman, Kirsty Reynolds, Jonathan Charalambous, Bambos That goes to the heart of the issue about consultation. Smith, Jeff It is happening time after time that the Government are Dodds, Anneliese Dowd, Peter Sobel, Alex rushing through this legislation, and having huge amounts of tax legislation is complicating things as time goes by. The Bill before last, I think—I have lost track of them—was NOES the largest Finance Bill we had ever had. I think that Afolami, Bim Lamont, John was before the election. It was an attempt to ram Badenoch, Mrs Kemi Stride, rh Mel through a whole load of proposals that, fortunately, the Ford, Vicky Syms, Sir Robert Opposition at that point were able to stop. Jenrick, Robert Whately, Helen I do not think 10,000 people being affected by this is Keegan, Gillian Whittaker, Craig a small number. It may be a small number in proportion to the number of people who could have been affected Question accordingly negatived. by it, but 10,000 people affected is a fair old whack. I Amendment proposed: 18, in clause 7, page 5, line 2, at am sure that if I were standing here saying that Labour end insert— was going to take £150 or £200 off 10,000 people, the “(8) The Chancellor of the Exchequer must review the effect of gasps of outrage from Conservative Members would be the provisions in this section on the availability and uptake of palpable. optional remuneration arrangements relating to cars and vans The other thing worth noting is that I think an awful and lay a report of that review before the House of Commons lot of people entered into these arrangements in the within six months of the passing of this Act.”—(Peter Dowd.) best of good faith, and the Minister talking about them Question put, That the amendment be made. 51 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 52

The Committee divided: Ayes 9, Noes 10. Stride, rh Mel Whately, Helen Division No. 7] Syms, Sir Robert Whittaker, Craig

AYES Question accordingly negatived. Black, Mhairi Lewis, Clive Clause 7 ordered to stand part of the Bill. Blackman, Kirsty Reynolds, Jonathan Charalambous, Bambos Clause 11 Dodds, Anneliese Smith, Jeff Dowd, Peter Sobel, Alex BENEFICIARIES OF TAX-EXEMPT EMPLOYER-PROVIDED PENSION BENEFITS NOES Peter Dowd: I beg to move amendment 14, in Afolami, Bim Lamont, John Badenoch, Mrs Kemi Stride, rh Mel clause 11, page 7, line 39, at end insert “but only if the Ford, Vicky Syms, Sir Robert requirement in subsection (3) is met. Jenrick, Robert Whately, Helen ‘(3) The amendment made by subsection (2) may only have Keegan, Gillian Whittaker, Craig effect if the Chancellor of the Exchequer has laid before the House of Commons a forecast of the effect on the public revenue of that amendment coming into effect in the tax year 2019-20 Question accordingly negatived. and subsequent tax years.’” Amendment proposed: 19, in clause 7, page 5, line 2, at This requires a review of the revenue implications of the provisions of end insert— this clause to be reported to the House of Commons before this section can have effect. “(8) The Chancellor of the Exchequer must review the effect of the provisions in this section on tax receipts and lay a report of that review before the House of Commons within six months The Chair: With this it will be convenient to discuss of the passing of this Act.”—(Peter Dowd.) the following: Question put, That the amendment be made. Amendment 15, in clause 11, page 7, line 39, at end insert “but only if the requirement in subsection (3) is The Committee divided: Ayes 9, Noes 10. met. Division No. 8] ‘(3) The amendment made by subsection (2) may only have effect if the Chancellor of the Exchequer has laid before the AYES House of Commons a report of a forecast of the effect of that amendment coming into effect on pension benefits to which the Black, Mhairi Lewis, Clive exemption in section 307(2) of ITEPA 2003 applies.’” Blackman, Kirsty Reynolds, Jonathan This requires a review of the effect on pension benefits of the provisions Charalambous, Bambos Smith, Jeff of this clause to be reported to the House of Commons before this Dodds, Anneliese section can have effect. Dowd, Peter Sobel, Alex Amendment 16, in clause 11, page 7, line 39, at end insert “but only if the requirement in subsection (3) is NOES met. Afolami, Bim Lamont, John ‘(3) The amendment made by subsection (1) may only have Badenoch, Mrs Kemi Stride, rh Mel effect if the Chancellor of the Exchequer has made a statement Ford, Vicky Syms, Sir Robert to the House of Commons detailing discussions between Her Jenrick, Robert Whately, Helen Majesty’s Government and the Charity Commission regarding Keegan, Gillian Whittaker, Craig the provisions of this section.’” This requires a statement to the House of Commons on discussions Question accordingly negatived. between the Government and the Charity Commission on this clause. Clause stand part. Amendment proposed: 22, in clause 7, page 5, line 2, at end insert— Peter Dowd: The explanatory notes state: “(8) The Chancellor of the Exchequer must review the effect of “This clause will amend the tax exemption which provides for the provisions in this section on the vehicle hire sector and lay a employer paid premiums into life assurance products and employer report of that review before the House of Commons within contributions to certain overseas pension schemes to be paid free six months of the passing of this Act.”—(Peter Dowd.) of tax. Currently, premiums and contributions are only exempt Question put, That the amendment be made. from tax if the beneficiary is the employee or a member of the employee’sfamily or household. This clause will allow the beneficiary The Committee divided: Ayes 9, Noes 10. to be any individual or registered charity.” Division No. 9] The explanatory notes go on in some detail, and I exhort hon. Members to read them because they are AYES pretty important and give context to the clause. They Black, Mhairi Lewis, Clive state: Blackman, Kirsty Reynolds, Jonathan “The amended exemption will also allow employees to nominate Charalambous, Bambos a registered charity, which is consistent with existing government Dodds, Anneliese Smith, Jeff policy of providing tax relief on charitable donations.” Dowd, Peter Sobel, Alex We tabled a number of important amendments to the clause to ensure it does not create any unforeseen issues NOES with regard to charitable giving, which all parties have Afolami, Bim Jenrick, Robert long supported. Amendment 14 requires the Government Badenoch, Mrs Kemi Keegan, Gillian to review the revenue effects of the clause before it Ford, Vicky Lamont, John comes into effect. That is merely a matter of good 53 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 54 practice. It seems that the Government are no longer attention on the impacts of continued or further relief willing to provide the Opposition with the full information being introduced in the clause. If the measure introduced that we need properly to scrutinise the measures they in the clause had been in our manifesto platform, are introducing through Budget legislation, nor the revenue effects would have been included in the costings, legal means by which to amend them. and we ask the same of the Government. Let us put the Weare not asking for much—merely a simple statement figures in; that is what the amendment seeks to do. setting out the cost of any measures introduced. We Amendment 15 is an important one, which requires a were kind enough to perform that exercise for our review of the effects of the provisions of the clause on Conservative colleagues in our “grey book” ahead of pension benefits to be reported to the House of Commons the 2017 election, as they all know. It is a fantastic read, before the section takes effect. The precise impact of the I have got to say, and I am happy to sign any copies of provisions on pension benefits is unclear, and I hope the it. Unfortunately, the Government did not return the Minister can clarify that. As she will know, our current favour. pension system operates an “exempt, exempt, taxed” We are not alone in calling for such information. The system. The House of Commons Library explains that amendment reflects the advice of the Chartered Institute system well in its briefing on reform of pension tax of Taxation and the Institute of Government, whose relief. I will quote a bit of it, because it is important: “The tax treatment of pensions follows an ‘exempt, exempt, report, “Better Budgets: making tax policy better”, … states: taxed (EET) model’ Pension contributions by individuals and employers receive tax relief and employer contributions are exempt “we have heard that the exceptional processes around tax policy from national insurance contributions”, making—in particular, secrecy, more limited scrutiny and challenge, and it goes on, and the power of the Treasury—have led to an ever-lengthening tax code, beset by a series of problems: confusion for taxpayers, “but individuals are able to take up to 25% of their pension fund poor implementation, political reversals and constrained options.” as a lump sum on retirement.” That just about sums up what we have been saying I quote that only to give a flavour of the context. today. The report sets out 10 steps to make tax policy Under the previous arrangements for the tax-exempt better. Again, I ask hon. Members to look through it. It employer-provided pension benefit, some taxation would says, for example, that the Budget process should contain have been paid on employer contributions to certain fewer measures,and that those should be better thought-out overseas pensions systems, where the beneficiary was an and capable of being implemented efficiently by HMRC, individual or a charitable organisation which was not with politicians making informed decisions. It asks for: one of those listed in the original Income Tax (Earnings and Pensions) Act 2003. Those tax-exempt beneficiaries “Greater stability in the areas of the tax system where taxpayers— were listed on that legislation as follows: individuals and business—need to make long-run decisions. A tax system that commands public support—and is robust enough to “‘Retirement or death benefit’ means a pension, annuity, lump raise the money we need to finance the state we want.” sum, gratuity or other similar benefit which will be paid or given to the employee or a member of the employee’s family or household We are particularly interested in step 9, in relation to in the event of the employee’s retirement or death.” this amendment: The amendment poses a question about the impact “Enhance Parliament’s (and the public’s) ability to scrutinise on the overall pensions benefits if taxation is not being tax proposals…Parliament needs to do a better job at scrutinising paid because of the exemptions the clause introduces, Finance Bills”. and asks whether an analysis of that impact has been That theme continues throughout the report. It sets out done and, if not, why the Treasury has not looked into in some detail—I will not go into that now—the issues the matter. The clause makes a broad reference to around the unclear value for money, which is also overseas pension schemes, and it would be helpful if the repeated time and again in the Public Accounts Committee Minister listed which schemes the clause would affect, report for 2015-16. and specified where they are actually based overseas. We believe that the amendment, which requests a The overseas element is important, especially in the Government analysis of the cost of these new relief light of the Government’s decision not to uprate the proposals, would help the Government to progress towards state pensions of British overseas residents, which, in enhancing parliamentary scrutiny of the measures that many cases, leaves many older people abroad destitute. they are introducing, as described in the report that I The current system of pension taxation clearly has mentioned. After all, we know that the clause will have many inequalities, which means that the way that taxation some revenue effects as it would introduce a tax relief, is applied to pension benefits tends to favour the wealthiest. under certain circumstances, where there was not one Top rate tax payers only have to contribute 60p of every before. It is also in the Government’s interest, surely, to £1 saved. Meanwhile, those on low incomes have to pay provide such a figure, as that would show the impact of 80p for every £1 saved. That is a factor in the pensions their attempts to boost charitable donations, for example. system. The Government may, of course, be attempting to support additional revenue streams for charities, but we 3.15 pm must consider the wider aims of charities. The impact of taxation on pension benefits was The original intention of the big society, for example, touched on by the House of Commons Library, which was to slash formal public expenditure as part of the stated: proposal—whether it did is a matter of conjecture—but “People with annual incomes of over £50,000 accounted for there is a question about how the Government plan to 11% of income tax payers, but over half, 52%, of private pension contributions attracted tax relief. The 1% of income tax payers pay for the measures introduced in the clause. I note with incomes of £150,00 and above accounted for 15% of pension that the Chancellor is currently unable to pass any tax contributions attracting tax relief. Conversely, while those earning increases for fear of the immediate loss of support from less than £20,000 a year are 40% of taxpayers, they account for the Brexiteers, but it is important that we focus our just 7% of personal pension contributions.” 55 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 56

That demonstrates the urgent need for review of the Peter Dowd: If the Government decided to listen to impact of tax relief on pension benefits, along with a us and undertake such a review, they would have the wider distribution analysis of this measure. We also ability to tease out—to use that phrase—to check, to seek more information on exactly which schemes this put into the mix all these important issues. We do not would benefit and where they are based. claim to have absolute authority on how this should be Amendment 16 requires a statement to the House of done, which is why we think wider consultation and an Commons on discussions between the Government extensive review are absolutely appropriate. We all want and the Charity Commission on the clause. We would the £1 that someone gives to a charity to go to the like to be absolutely certain that the introduction of tax charity, and not be siphoned off in some fashion. incentives for the donation of employee-provided pension What procedures does HMRC already have in place benefits would not lead to an increase in pressure being for instances in which a nominated beneficiary turns placed on older people, or widen opportunities for out not to be a registered charity, but the person who fraudulent activity in nominating a charity to receive nominated it assumed that it was? It is an important such benefits. question, and it surely presents ethical issues if someone This is not an insurmountable issue, but it requires chooses to donate their benefits on the basis of fraudulent the Treasury and the Charity Commission to enter into information. That is not what we want. Clearly, in the a discussion to ensure that no additional risks are event of their passing on that information, it would not created, not necessarily by design, but by omission. We be changeable. Does HMRC plan to apply tax in those have seen a fair amount of that recently. circumstances? This will be made all the more difficult by the Kirsty Blackman: Will the hon. Gentleman clarify Government’srepeated attacks on the Charity Commission, that when he says Charity Commission, he also means which has been attacked time and again. Six years of OSCR, which is the relevant body in Scotland? cuts have led it to repeatedly warn that its ability to properly regulate the charity sector is being limited. We must take that factor into account. As reported by Peter Dowd: Yes, I agree to that point of clarification. Devex, the news website for the global development That is the intention. The Charity Commission and the community: Scottish body would no doubt recognise the seriousness of this problem, and in their strategy for dealing with “The commission has a staff of 290 and a budget of £21 million, and while budgets have declined, the number of charities it fraud, they make the following point: oversees has grown by around 5,000 since 2009. The charity “The commission continues to see, and has to act on, serious income it regulates has jumped from £52 billion in 2010, to more problems arising in charities in relation to poor financial management than £74 billion in 2017.” and inadequate financial controls, accounting and record keeping. Former Charity Commission board chair William In 2010-11, out of 1,912 completed compliance assessment cases, the proportion involving serious concerns about fraud, theft and Shawcross wrote in a 2014 report that, other significant financial and fundraising issues increased from “our funding position remains unstable, a matter which has been 16% the previous year to 26%.” recognised by many in the charitable world and which I have Figures for subsequent years can be found in the raised with Government. We cannot absorb unending cuts to our budget and may have to consider alternative sources of commission’s annual publication “Tackling abuse and funding.” mismanagement”. The commission goes on to say: What assessment has the Treasury made of the impact “The National Fraud Authority in its annual fraud indicator of this measure on the struggling, underfunded commission? report of 2012 estimated annual losses of £1.1 billion, or 1.7% of annual charity income during 2010-11.” I hope that this matter was discussed with the Chancellor when the clause was prepared. I do not expect so, but I There is therefore a problem, because that is cash not hope that it was. going where it was intended. The impact of fraud and financial crime on a charity, particularly smaller charities, Finally, it is clear that the measure could represent can be significant, going beyond financial loss and the yet another injection into some private schools that impact of the financing of a charity’s planned activity. operate as charities under Charity Commission guidelines. These crimes cause distress to trustees, and so on, and That has been recently confirmed by the House of have an adverse effect on the charity. It is important to Commons Library, which stated: deal with them, says the Charity Commission. “The Government has stated that there are about 1,300 independent schools which are registered as charities and that there is a great If the Treasury is going to offer tax incentives for variation in size of school across the sector: There are approximately charitable donations, it is vital that the proper safeguards 2,300 independent schools in England, ranging in size from the are in place to ensure that tax forgone does not act as an very small…Many of them are very small…The fees range from incentive to other risks. For example, from my £20k per year in a prestigious day school…to far smaller understanding, the Charity Commission holds the only amounts…Similarly, quality varies from world-leading education centralised list of registered charities; therefore a clear to some small, poorly-resourced schools”. procedure for HMRC and the Charity Commission to What assessment has the Treasury made of the amount communicate would be necessary to guarantee tax of tax that will be forgone owing to the nomination of exemption. That is important. those particular schools?

Bambos Charalambous: My hon. Friend is making an Clive Lewis: I thank my hon. Friend for his scintillating excellent speech and raising some excellent points. Does speech, which is so full of detail and which I think he agree that there is a need for further transparency on everybody appreciates. Far be it from me to be a class how these proposals were put together by the Treasury? warrior, but given yet another tax giveaway to the Does he agree that there is a case for a public register of independent schools,which he mentioned, manyOpposition charities that benefit from this tax exemption? Members would say that it is high time that those 57 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 58 independent schools had their charitable tax status they might wish for it to go to a charity.The Government ended, and that omitting them from this measure would are being big hearted—dare I say big societied—with be a good start to that process. the clause, in that they want the individual who goes to meet their maker to leave some of their resources to a The Chair: Order. The amendment is not about that. charity that is dear to their heart. My guess is that Cats Protection and various dog Peter Dowd: In relation to the amendment, it is charities will be the biggest beneficiaries of the clause, important to ensure that, where charitable donations but it will come down to either an employer making a are given—whomsoever they are given by and to—the judgment depending on what their employee wanted, giver knows, in good faith, that the cash that they give or, in the process of probate, a solicitor taking a decision will go towards genuine charitable purposes. That is the that a particular charity should get that money. In most key issue. Whether the definition of “charity” is open to cases, we probably are not talking about multi-millionaires, debate in relation to any organisation is another matter. and sadly, not enough people have sufficient pension or The key, and the point I think my hon. Friend is trying death benefits. We are probably talking about small to make, is that charities really ought to be charities. sums of money. The simplest solution, given that there We hope that a statement on the discussions between is already quite a wide definition, is to widen that the Charity Commission and the Chancellor would definition a little more to allow someone who cares address some of these issues. It continues to be a big passionately about heritage or pets or some inner-city issue in this country that people who can afford to pay regeneration scheme to direct the money to their cause their taxes should pay their taxes. It is important that rather than to Her Majesty’s Treasury. anybody who gives to a charity can rest assured that I am a bit worried about Treasury Ministers being so their charitable donation, won through their hard work, generous in introducing the clause, but it probably will be used with the best intentions. Our amendment makes sense on better regulation terms—on reducing would, in all good faith, ensure that. some of the red tape when people end up dying. It will give a little more scope for people to dispose of the Kirsty Blackman: The Committee will be glad to hear money that they have earned, because they have worked that I will speak only briefly. I am happy to support the all their lives for that pension, and when they die, I Opposition’s amendments. I want to focus on think it not unreasonable that they should leave it to the amendment 16, which deals with the communication cause that they particularly want to support. that is needed between HMRC and the charities regulator. 3.30 pm That is incredibly important. Weneed such communication I do not see this as some kind of evil tax evasion, or for individuals to be assured that their money will go to even a secret plot to subsidise public schools. It actually the right place and that the correct tax exemptions exist allows people who might not have relatives—or might for that. have relatives whom they do not think deserve their Amendment 16 would require the Chancellor to make money—but who want to give something so to do, a statement to the House which will allow them to feel that, after their death, a “detailing discussions between Her Majesty’s Government and good cause will be looked after. I congratulate the the Charity Commission regarding the provisions of this section.” Chancellor and his Ministers on being so big-hearted If the Minister is minded not to accept the amendment, and generous, and such nice people. which is very sensible and the provisions of which it would be easy for the Government to carry out, is he Mel Stride: I thank the hon. Members for Bootle and willing to write to Opposition Members about the for Aberdeen North for their contributions, as well as discussions between the charities regulators in England my hon. Friend the Member for Poole for his and Scotland and the Government, the nature of those congratulations, which should largely be for me, because discussions and the advice the Government have received I am the Tax Minister and this is, after all, a tax from charities on the potential impact of the clause? measure, but we will leave it at that. Will he also cover the eloquent point made by the Clause 11 makes changes to modernise the tax exemption hon. Member for Bootle about ensuring that protection for premiums paid by employers to provide their employees from fraud is built into any changes that are made with retirement and death benefits in life assurance under the clause? products or certain pension schemes. Employers can If the Minister is minded to accept the amendment, provide death benefits for an employee through a life that would be grand. If he is not, will he commit to assurance policy or a retirement benefit through pension contacting us with those details so that we are aware of schemes. The employee will receive a pension out of the discussions the Government have had and we can be those payments when they retire, or they can name a both comforted that our constituents who decide to beneficiary to receive any payment of retirement benefit give their benefits to charity can do so knowing they are after they die. less likely to be the victims of fraud as a result, and Currently, most premiums or contributions paid by aware that HMRC is across the issue and ensuring that employers into these schemes are exempt from income people do not unintentionally become victims as a tax. However, for certain types of scheme, as we have result of the changes? been discussing, this is the case only if the beneficiary is the employee, a member of the employee’s family or a Sir Robert Syms (Poole) (Con): I must admit that I member of their household. “Family” and “household” am a little surprised by the clause, because it looks to cover spouses, civil partners, parents, children and their me like the Treasury is giving away money. These days, spouses or civil partners, and dependants, domestic many people are in pension schemes and, when they die, staff and the employee’s guests. The premiums paid by there is some money. That might go to a relative, but the employer for these schemes are treated as a taxable 59 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 60

[Mel Stride] to claim tax relief such as gift aid. Employers will need to check with the charity that it is either registered or benefit in kind, if the eventual beneficiary is not covered recognised as a charity for UK tax purposes when it is by this definition, such as a charity or a friend. The named as a beneficiary. changes made by this clause make the exemption fairer I hope that explains the position and that the hon. by extending it to cover premiums for policies where the Member for Bootle might consider withdrawing the beneficiary is any individual or a charity. The legislation amendment. will apply to premiums paid from 6 April 2019. I will deal with amendments 14 and 15 together. Peter Dowd: I beg to ask leave to withdraw the Amendment 14 would require a review of the revenue amendment. implications of the provisions of the clause, to be Amendment, by leave, withdrawn. reported to the House before this change can have effect. Amendment 15 would require a review of the Clause 11 ordered to stand part of the Bill. effect on pension benefits of the provisions of the clause, to be reported to the House before this change Clause 12 can have effect. These amendments are unnecessary. As with other tax measures, the Government have TAX TREATMENT OF SOCIAL SECURITY INCOME already published a tax information impact note for this measure. This shows that the changes are expected to Peter Dowd: I beg to move amendment 2, in have a negligible impact upon the Exchequer. Premiums clause 12, page 9, line 7, at end insert— paid by employers to almost all UK pension schemes ‘( ) The Chancellor of the Exchequer must review the revenue and overseas pension schemes are already covered by effects of the provisions in this section and lay a report of that separate tax exemptions, which apply regardless of who review before the House of Commons within six months of the the beneficiary is. Therefore, the change introduced by passing of this Act.” the clause applies only to certain niche overseas pension This amendment would require the Chancellor of the Exchequer to schemes and employer-financed retirement benefit schemes. review the revenue effects of Clause 12. The hon. Member for Bootle asked for specific examples of which schemes fell within the scope of this particular The Chair: With this it will be convenient to discuss measure. I am afraid that we are unable to provide that clause stand part. information, because it depends what the terms and conditions state within each scheme. Peter Dowd: I know people are going to be terribly In essence, this is a welcome change, but it affects a disappointed that this is my last contribution today. small number of schemes and a relatively small number Other colleagues must have an opportunity to have of individuals. As a result, our assessment, supported their say. The disappointment is palpable, but I must by the Office for Budget Responsibility, is that the push on. revenue implications are negligible. I think that answers The clause deals with the tax treatment of social the question raised by the hon. Gentleman on what the security income. Again, I refer to the explanatory note, impact will be on the Exchequer and whether this has which provides a helpful introduction to the clause: been taken into account. It certainly has been looked at “The Scottish government is introducing five new social security and agreed upon by the Office for Budget Responsibility. payments: young carer grant; best start grant; funeral expense The impact on pension benefits will therefore also be assistance; discretionary housing payments; and carer’s allowance relatively minor. This change simply ensures that the supplement.” benefits-in-kind rules apply in the same way across It goes on: pension schemes and life assurance policies. I therefore “The government is also confirming the tax treatment of urge him not to press his amendments. another four social security benefits: the council tax reduction Amendment 16 would require a statement of the scheme, discretionary housing payments and the flexible support House on discussions between the Government and the fund, overseen by the UK Government, and the discretionary Charity Commission on this clause. HMRC does, of support scheme, overseen by the Northern Ireland Executive.” course, liaise with the Charity Commission and others, Furthermore: wherever appropriate, so such a statement would not be “Social security benefits are administered by a number of necessary. However, it might be helpful if I explain the different UK government departments and the devolved position in relation to charities. The exemption will administrations. The tax treatment of social security benefits is legislated for within income tax legislation. The tax treatment of apply only where the beneficiary is recognised by HMRC new benefits should be confirmed when each one is introduced.” as a charity for UK tax purposes. These will include The note continues: charities registered with the Charity Commission in England and Wales, the Office of the Scottish Charity “The Scottish government’s fiscal framework underpins the powers over tax and welfare that are devolved to Scotland through Regulator and the Charity Commission for Northern the Scotland Act. This states that ‘any new benefits or discretionary Ireland. The hon. Member for Aberdeen North asked payments introduced by the Scottish Government will not be whether I might write to the Committee with further deemed to be income for tax purposes, unless topping up a benefit information on discussions that may have been held, which is deemed taxable such as Carer’s Allowance’.” and I would be happy to do that. In the first instance, it This, in part, relates to social security changes made might be helpful if she were to write to me, setting out by the Scottish Government, which is a matter for exactly what she would wish me to respond to. Scotland to decide. We also note that this ensures that Not all charities need to be registered in England and some new social security payments are not subject to Wales. Some are exempt or excepted from registration, additional taxation, which is a sensible approach that but most charities will be recognised by HMRC in order will make the finances of many on the lowest incomes 61 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 62 as simple as possible. We would, however, like to query at zero and going up the scale. We hope that a proper the decision to make the carer’s allowance supplement review of the revenue effects of this measure would be taxable. made available for the purposes of good practice alone. The equality impact assessment for the clause suggested I continue to refer Members to the “Better Budgets” that the carer’s allowance supplement will be confirmed report helpfully provided by the Institute for Government as taxable. That is a supplementary payment to carer’s and the Chartered Institute of Taxation. The report allowance, which is a taxable benefit paid by the UK states that Government. The majority of recipients of care allowances “the Treasury and HMRC should publish the evidence base are women, so more women than men will receive the behind measures and the assumptions on which costings are carer’s allowance supplement in Scotland. In effect, it based, and ensure that these are appropriately detailed.” looks as though the only additional social security Clearly, that was not the case with this measure. I payment being denied the tax exemption is the one that have already spoken to the Committee on this point, will primarily affect women. Perhaps the Minister will but it is essential that the Government begin to change elaborate on why that is the case. It appears to stem their behaviour towards the scrutinising of legislation, from the fact that the UK carer’s allowance is itself especially when it places further burdens on women. taxable—a UK Government decision that is likely to These proposals have already taken their toll and will have the very same gender impacts. continue to do so, unless we stand up and do something The Women’s Budget Group has demonstrated on about it. numerous occasions that women are already disproportionately affected by the Government’s policies 3.45 pm in relation to the years of austerity. Its research shows Kirsty Blackman: This is a process question for the that 86% of the austerity burden was and is being borne Minister about going forward and ensuring that we by women. That is eight long years during which our scrutinise legislation in the best way. It would have been mothers, sisters and daughters have borne the brunt of helpful if, in the explanatory notes, there had been some those cuts, and now here we are with yet another comment provided by the Scottish and Welsh Governments measure that will disproportionately affect women more because both measures involve making changes that than men. A member of the Women’s Budget Group, affect devolved benefits. Dr Angela O’Hagan, helped put this into context when Given the devolved and reserved aspects of many of she said: the matters we are discussing, I again make the case for “Budget processes have increasingly become the conduit for a geographical split in the changes that the clause discriminatory policies, such as the UK Government’s rape clause makes. There could have been specific Scottish, Welsh, and the cumulative attacks on welfare income especially among poorer women and women of colour. It is essential that external RUK or whole UK sections, which would have made voices such as UK Women’s Budget Group are engaged and effective scrutiny easier. I emphasise that it would have heard, and that the Government’s budget processes are opened up been incredibly helpful to have that. I suggest for next to closer scrutiny for their impact on equalities groups and their year’s Finance Bill that, if the Government make changes potential to advance equality through more effective allocation of of this nature, they could make both changes to ensure public finances and more equitable means of raising government the most appropriate scrutiny. revenue.” I am happy to support the Opposition amendment. I suggest that had the Government allowed more The hon. Member for Bootle made a powerful case scrutiny of the clauses and sought consultation as per about the gendered impact of the social security changes the normal procedure before they came to office, these of recent years and the fact that women have been issues might have been ironed out during the Bill’s disproportionately hit by them. We do not want to see development. Instead, these negative gender impacts those changes exacerbated by a tax system that amplifies are squirreled away in policy papers on particular and the issues faced by women as a result of the Government’s specific clauses after it is too late to do anything about policies on social security. I am comfortable supporting them, with the right properly to amend already denied the Opposition’samendment and I plead with the Minister to the Opposition by the Government through their to consider making the changes that I have requested refusal to table an amendment of the law resolution. for future years. I hope the Minister will explain why this discrepancy has been included in the Bill and make moves to rectify Anneliese Dodds: It is an enormous pleasure to be in it immediately. Time and again, we have called for an this Committee with you in the Chair, Ms Dorries, and equality impact assessment of the Budget to flag these to make my first brief speech here. I would like clarification matters up, and every time that has been denied by the from the Minister on the specific issue of tax treatment Government, who appear to want to slip these inequalities of council tax reduction schemes. Subsection (5) on through. We will continue to hold them to account on page 8 of the Bill refers to “a” council tax reduction every single one. scheme, stating that The amendment also relates to the matter of the “Payment under a council tax reduction scheme” Government’s behaviour regarding consultation and is exempt from income tax. However, page 26 of the would require a review of the revenue effects of the explanatory notes refers to clause. In the policy paper on the clause, the Government list the Exchequer impact as negligible. We have heard “the” council tax reduction scheme. that several times today, so will the Minister enlighten I am sure that colleagues will know that there is no us as to what “negligible” means in cash terms? It is not longer one council tax reduction scheme across the UK, necessarily going to be “negligible” on an individual since central Government decided to top-slice that form basis for those affected by this proposal. It would be of social security and devolve the design of it to different helpful to have a band of figures starting, presumably, local authorities, albeit with the stipulation that the 63 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 64

[Anneliese Dodds] The changes made by clause 12 ensure that such payments are taxed appropriately, and that that is clear protection should be maintained for older people. Only in legislation. The clause clarifies and confirms that a very small number of local authorities still provide such payments are exempt from tax, with one exception— full council tax relief, including council tax relief for the carer’s allowance supplement—which is taxable. low-income families. I am enormously proud that Oxford That is in accordance with “The agreement between the City Council is one of those. Scottish Government and the UK Government on the Central Government have washed their hands of Scottish Government’s fiscal framework”, which states: responsibility for this benefit. They have refused to “Any new benefits or discretionary payments introduced by the provide figures on take-up, for example, in response to Scottish Government will not be deemed to be income for tax parliamentary questions that I have tabled. They have purposes, unless topping up a benefit which is deemed taxable also refused to provide figures on the number of low-income such as Carer’s Allowance.” people now being taken to court because they cannot Amendment 2 would require the Chancellor of the pay council tax, because they are no longer provided Exchequer to review the revenue effects of the clause with the relief. I am not cavilling over semantics when I and lay a report of that review before the House within ask the Minister to make crystal clear that the exemption six months of the passing of the Bill. Such a review is from income tax provided in the Bill will apply to all unnecessary. The Government have already published a council tax reduction schemes, not to some particular tax information and impact note for this measure, and version of those schemes that the Government might our assessment, supported by the OBR, is that the wish to focus on. Exchequer effects are negligible. Related to that, I heard a very worrying rumour that On the carer’s allowance supplement, which was the Government might seek spuriously to argue that introduced in Scotland in 2018, as a general rule benefits funds spent on council tax relief for families by local are taxable if they replace lost income. The carer’s authorities should not be counted in central Government’s allowance has therefore always been taxable. The vast assessment of local authorities’ expenditures, because majority of those receiving the supplement have income they are, in theory, discretionary.I disagree fundamentally below the personal allowance and would therefore not with that position, because it would penalise those be expected to pay any income tax. That is an important authorities that support the worst off. It would be point in respect of the point made by the hon. Member helpful if the Minister confirmed that, just as I hope he for Bootle. I will not dwell on each payment covered by will confirm that council tax relief for families is viewed the clause, but I reiterate that eight of these payments as legitimate in the Bill, and for income tax purposes, it are exempt from taxation. HMRC has not and will not will be viewed as legitimate expenditure when it comes collect any tax from these payments. to the allocation of central Government support for As the tax information and impact note sets out, the local authorities. taxation of the carer’s allowance supplement is expected to have negligible Exchequer effects because, as I have said, the vast majority of those carers receiving the Mel Stride: I start by addressing the specific points additional payment do not earn sufficient income to raised by the hon. Members for Aberdeen North and pay any income tax at all. However, any income tax for Oxford East. On the explanatory notes and the receipts from that will of course go to the Scottish value or otherwise of a specific reference to input from Government. the Scottish Government, I will certainly be happy to look at that in the future. I assure the hon. Member for The Committee will also know that taxable social Aberdeen North that there were significant discussions security income is aggregated and reported to HMRC on these measures between the Treasury and Scottish through self-assessment after the end of the tax year. officials in the appropriate manner. On the technical This is an important point in the context of the amendment. point raised by the hon. Member for Oxford East That income will not need to be reported until January 2020. around “the” scheme versus “a” scheme, the information A review would therefore be impractical only six months I have is that the scheme came into force in April 2013. after the Bill’s passing. I therefore ask the Committee to However, I will look into her specific question about reject the amendment. I commend the clause to the whether the measures apply to “a” scheme or “the” Committee. scheme. I am afraid that I do not immediately have an answer to that, but I will get back to her as soon as Peter Dowd: We will not push the amendment to a I can. vote. However, I push the case to the Government that, Clause 12 clarifies and confirms the tax treatment of while these amounts of money may be negligible to the nine social security benefits. The income tax treatment Treasury or to HMRC, if the measure affects a particular of social security benefits is legislated for in part 10 of woman who is already under the stresses and strains of the Income Tax (Earnings and Pensions) Act 2003, helping a relative, it is important that we give them as which provides certainty about existing benefits and much latitude as we possibly can. Whether we like it or needs to be updated when new benefits are introduced. not, this will be perceived as a continued attack on For example, the Scottish Government are introducing women who continue to be the biggest assistants to five new payments following the devolution of powers, relatives—yet again, it is an attack on those people who including the young carer grant, the discretionary are doing a caring role. housing payment and the carer’s allowance supplement. Other payments covered by the clause have been in Mel Stride: Once again, divine inspiration has arrived operation elsewhere in the UK for some time, such and I can confirm that the CTR is a reference to as the council tax reduction scheme and the flexible multiple schemes—so it is “a” rather than “the”. The support fund, but are not yet covered clearly in legislation. measure therefore covers all those schemes. 65 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 66

Peter Dowd: I beg to ask leave to withdraw the Mel Stride: Clause 13 and schedule 1 introduce amendment. provisions, with effect from April 2019, to tax non-residents Amendment, by leave, withdrawn. on the gains they make on UK commercial property and to extend the charge on residential property. That Clause 12 ordered to stand part of the Bill. levels the playing field between UK resident and non- resident investors in UK land and buildings. The modern Clause 13 OECD model tax treaty gives the jurisdiction in which land and buildings are located the primary right to tax income and gains from those land and buildings. DISPOSALS BY NON-UK RESIDENTS ETC Historically, non-residents have not been subject to UK Question proposed, That the clause stand part of the tax on the gains they make on UK land and buildings. Bill. That has been the policy of successive Governments over several decades. The Government have steadily The Chair: With this it will be convenient to discuss revised the UK’s approach in recent years. In 2013, we the following: introduced a targeted tax on gains relating to property Amendment 23, in schedule 1, page 147, line 34, at within the charge of the annual tax on enveloped dwellings. end insert— In 2015, the Government went further and brought in certain non-residents’ gains on the sale of residential 21A The Treasury must by regulations require that a list of persons not resident in the United Kingdom whose gains are brought into property owned directly. charge by the changes made to TCGA 1992 in this Schedule be Those 2013 and 2015 changes were a substantive published on a public register.” reform to the taxation of non-residents investing in UK This amendment would require a public register of those subject to property. Now that the charges have been in place for capital gains tax as a result of the provisions in Part 1 of Schedule 1. several years, it is the right time to take a more Amendment 24, in schedule 1, page 147, line 34, at comprehensive approach. Clause 13 achieves that by end insert— extending a charge to the gains made by non-residents 21A The Chancellor of the Exchequer must review the revenue on commercial property and expanding the scope of the effects of the changes made to TCGA 1992 in this Schedule and lay a existing residential charge by removing the carve-out report of that review before the House of Commons within six for widely held companies. To ensure that transactions months of the passing of this Act.” that are essentially sales of UK land are taxed, and to This amendment would require the Chancellor of the Exchequer to reflect the commercial reality of many large property review the revenue effects of the changes to capital gains tax as a result transactions, the clause introduces a charge on indirect of the provisions in Part 1 of Schedule 1. disposals of UK property. That charge will apply to Amendment 34, in schedule 1, page 147, line 34, at gains made on the disposal of an interest in an entity end insert— that derives 75% of its value from UK land. 21A The Chancellor of the Exchequer must review the expected The Government recognise that these reforms are revenue effects of the changes made to TCGA 1992 in this Schedule, along with an estimate of the difference between the amount of tax extensive, and recognise the value that investment in required to be paid to the Commissioners under those provisions and UK land and buildings brings to the United Kingdom. the amount paid, and lay a report of that review before the House of The clause implements the rules in a way that minimises Commons within six months of the passing of this Act.” disruption and avoids unintended consequences. Non- This amendment would require the Chancellor of the Exchequer to resident companies will pay corporation tax on all the review the effect on public finances, and on reducing the tax gap, of the chargeable gains they make on UK land and buildings, changes made to capital gains tax in Schedule 1. creating a single cohesive set of rules. Those taxpayers Government amendment 1. who are exempt from UK tax on the gains that they Amendment 29, in schedule 1, page 167, line 47, at make for reasons other than their residence, for example end insert— pension funds and qualifying charities, will continue to be exempt. Steps have been taken, using principles currently applied to UK funds, to ensure that these and PART 2A other investors are not disadvantaged where they invest in UK property via funds. REVIEW OF EFFECTS ON PROPERTY PRICES In legislating for this policy, the clause restates, in a 118A (1) The Commissioners must, within three months of the simplified form, the main charging provisions for the end of the tax year 2019-20, provide information to the Treasury on the basis of the exercise of their functions in relation to the taxation of capital gains. Other than implementing the changes made in this Schedule about the effects of the changes policy, this makes no changes to the existing law. It on the matters specified in sub-paragraph (2). significantly and permanently simplifies the legislation (2) Those matters are— and aids taxpayers’ interpretation of the law. (a) residential property prices in the United Kingdom, and Government amendment 1 will remove a redundant subsection of the Corporation Tax Act 2009. That (b) the proportion of residential property in the United Kingdom owned by persons not ordinarily resident subsection currently ensures that corporation tax is not in the United Kingdom. charged on gains that are subject to capital gains tax. (3) The Chancellor of the Exchequer must, within six months As I have set out, clause 13 will introduce a single of the end of the tax year 2019-20, undertake a review of the cohesive set of rules charging companies corporation information supplied in accordance with sub-paragraph (1) and tax on all the chargeable gains they make on UK land lay a report of that review before the House of Commons.” and buildings, which means that this subsection is no This amendment would require the Chancellor of the Exchequer to longer required. review the effects of the changes in Schedule 1 on residential property Amendment 23 would require a public register of prices and foreign ownership of residential property. those subject to capital gains tax as a result of schedule 1. That schedule 1 be the First schedule to the Bill. The categories of person who will be brought into scope 67 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 68

[Mel Stride] shall speak first about that main and very significant problem with the clause and schedule, before moving on by clause 13 and schedule 1 are absolutely clear. I have to describe the amendments in relation to them. set that out to the Committee today and it is set out in In an ideal world, we as the Opposition would have detail in the schedule. The Government do not, as the sought to remove the trading exemption for enveloped amendment would require, identify specific individuals structures to avoid capital gains tax. Indeed, that is or companies that are brought within the scope of what some of the amendments that we had tabled set particular tax charges; it would be inappropriate to out to do. I completely understand why they were ruled do so. out of order. There is absolutely no criticism of the decision to do that. I am sure that it was because of the 4 pm restrictions imposed on us because of the Government’s Amendments 24 and 34 would require a review of the failure to table an amendment to the law resolution, revenue effects of the changes to capital gains tax as a which my hon. Friend the Member for Bootle has result of the schedule and the impact on reducing the already referred to. However, that trading exemption tax gap. The OBR-certified Exchequer impact for the threatens to emasculate this measure. measure was updated and published in table 2.2 of I am sure that members of the Committee will be Budget 2018. Like all tax changes, the fiscal impact of aware that almost all the measure’s projected yield is this clause and schedule will be monitored and subject expected to derive from non-resident companies when to revaluation where appropriate. In addition, HMRC they dispose of UK commercial property such as offices, already publishes annual updates on its tax gap analysis, factories, warehouses, shops, hotels, leisure facilities which will reflect the effect of capital gains tax changes. and agricultural— Amendment 29 would require a review of the changes made by schedule 1 in relation to residential property The Chair: Order. Amendments 26 and 27 were not prices and foreign ownership of residential property. selected because they are charging, not because of a The intent of the measure is to level the playing field lack of an amendment of the law resolution. between UK and non-UK-resident investors in UK property.The impact on the market was carefully considered Anneliese Dodds: I am grateful for the clarification. I in the design of the policy and will be monitored am sorry if I got the situation wrong, and it is helpful to following implementation of the measure. The OBR have heard that. However,I understand that it is appropriate made no adjustment to its property price forecasts as a for me to discuss the substantive matters in the clause, result of the policy. even if we do not have amendments tabled on them. Other hon. Members have done that, so I will continue The Government therefore reject the amendments, to do so before I move on to my amendments, if that is and I commend the clause to the Committee. acceptable. I am sorry if I mischaracterised the position and the decisions that were taken. Anneliese Dodds: I am grateful to the Minister for that explanation. As he stated, this clause and schedule The Chair: That is fine. are intended to perform a variety of functions to level the playing field—the number of times that he used that Anneliese Dodds: To continue with reasons why the phrase was interesting—between UK and non-UK residents trading exemption is illegitimate to our mind, as I when it comes to the payment of corporation and mentioned before, the yield that has been described as capital gains tax on gains from disposals of interest in arising from the measure is expected to derive from UK land. They include, as he mentioned, the removal non-resident companies disposing of the whole range of the charge to tax on ATED-related gains, with of different types of UK commercial property that I ATED standing for the annual tax on enveloped dwellings. listed. Unlike residential property, most of which is As was mentioned, these changes follow on from the owned by individuals, almost all major UK commercial imbalance in the tax treatment of the disposal of interests property is held by large corporates or collective investment in property by individuals as against companies, artificial schemes or trusts. or otherwise, which has been gradually rectified over Those large corporate investors in property are sometimes recent years. known as property envelopes, which reflects the fact Part 3 of the Finance Act 2013 introduced ATED as that the companies’ principal purpose is to operate as a a principle and the concept of enveloped dwellings so synthetic wrapper for owning land. Since the property that there would be a capital gains tax charge on non-natural envelope has full title to the land, any individual or persons who had owned properties worth more than othercorporateowningthepropertyenvelope—forexample, £500,000, subject to a range of exemptions. That was by owning its shares—is the ultimate or indirect owner followed three years ago by the extension of capital of the underlying land. gains tax on gains arising on the disposal of UK Typically, when selling the property, the ultimate residential property interests by certain non-resident owners do so indirectly, by selling their interests in the persons, including individuals, trustees and closely held property envelope, rather than by a direct sale of the companies. However, that was not accompanied by a property itself. That form of disposal is often known as levelling of the playing field in relation to non-residential an envelope disposal, since the property envelope has property wealth—land and commercial property—until full title to the land, and the transfer of its shares to a now, although for reasons that I will explain, these new owner is tantamount to a conveyance of the property measures are wanting in their current form, in particular to new ownership. There are often tax reasons for that because they involve a so-called trading exemption, to form of conveyance, since the transfer of shares, rather which I note the Minister, unless I misheard him, and he than land, does not attract any stamp duty land tax charge, is normally very clear, did not refer in his comments. I which results in a substantial saving for the purchaser. 69 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 70

Recognising that situation, the consultation on the deal with instances where the infrastructure disposed of is in use proposed measures proposed charging non-UK residents as part of an ongoing trade being disposed of alongside it in the capital gains on disposals of their interest in property arrangement.” envelopes in the same way as if they had sold the actual Surely, that exemption will undermine the overall land. The consultation document proposed that a property intent of the measure. First, the main target of the envelope would be defined as a property rich entity if it legislation is enveloped disposals of commercial property had UK property assets that represented 75% or more made by non-residents. Almost all commercial property of the value of the entity’s total assets, as the Minister will, as I mentioned before, by definition, be used in a mentioned. Given that the vast majority of high-value trade. The examples of commercial property given in UK commercial property is owned through a property the consultation document—offices, shops, industrial envelope, that element of the rules, which I will refer to units and hotels—are all examples where the property is in future as the anti-enveloping rule for ease of discussion, used in a trade, yet these disposals will be outside the is critical to the measure securing significant yield. scope of the new rules, provided that the sale is an In response to the consultation responses that the enveloped one, and that the trade continues under its Government received, the draft legislation includes an new ownership. exception to the charge on disposals of property envelopes That is in clear contrast to the situation for UK if the property owned in that envelope is being used in residents. An equivalent disposal made by a UK resident an ongoing trade that continues after the disposal takes is chargeable to tax, unless it meets specific conditions place. In effect, that means that non-residents who laid out in those substantial shareholding exemption make a disposal of shares in a property envelope will rules—the SSE rules, which the consultation response not be subject to any charge, provided that the property referred to. The original consultation document was is being used for a trade. clear that non-residents would be able to benefit from That condition will be met if the property is being the substantial shareholding exemptions in the same used as an office, a factory, a warehouse, a shop, a hotel, way as UK companies. However, the response document, a leisure facility, in a farming trade or for any other as I just described, goes further than that: it grants a similar commercial purpose—I am sure the Committee blanket exemption available only to non-residents and gets my drift. As such, the exception is surely entirely in circumstances much wider than the SSE. contrary to the stated rationale for the measure, which Frankly,I very much doubt that many property envelopes is to ensure that non-residents are taxed on gains from or large investors involved in them would go to the the disposal of commercial property in the same way as lengths of requiring ongoing trades in their ownership—say, UK residents. Again, I remind the Committee that the a popular hotel—to close while they are selling that Minister used the phrase “having a level playing field” commercial property, just so that they can have the joy several times in his remarks. Commercial property will, of paying stamp duty land tax. If the Government almost by definition, be used in a trade. think otherwise, perhaps they can enlighten us, but I I am sure that the entire Committee will be scratching think the chances of that are fairly slim. That appears their heads and asking why the change occurred. Well, to be what would be necessary in order for them to be there were 120 respondents in all to the consultation, a caught by this measure. Perhaps the Minister can enlighten number of which focused on one question only, many us, if I have got that wrong. of which came from the most significant actors in this This trading exemption undermines any claim that arena, namely the big four and large property concerns, the measure creates a level playing field with comparable including representatives from the real estate and collective UK businesses, and also provides an avoidance opportunity investment scheme sector. that, worryingly, even UK businesses could exploit, if The Government response to the consultation states: they arrange for their UK property to be held through “Many respondents were concerned by”— chains of offshore envelopes. That is surely something that our Government cannot stand by and facilitate, yet what they described as— they seem to be doing so—albeit unwittingly, I am sure. “the ‘cliff-edge’ nature of the 75% property richness test. They noted that fluctuations in the value of property and other assets The Government’s stated reason for making this change could lead to cases where an entity strayed in and out of property is to help smaller investors, but if that is the aim, surely richness. Some were concerned that real-estate rich trades such as it would be more appropriate to include an explicit retail and hotel chains and utility companies could fall to be small-investor exemption that would not apply to larger property-rich, or that investors in these trades might be concerned capital gains. that they were, and be forced to go to lengths to explore the rules and test their situation, often finding that there was no impact. To ameliorate this, a number of respondents asked for a trading 4.15 pm exemption to make it simple for smaller investors to understand when the rules did not apply to them. They noted that the main We therefore believe that this trading exemption is policy aim was to tax UK land, not interests in retailers or utility very concerning. Our hands are tied, but it is important companies.” for the Minister to explain whether he shares our The Government response went on to say that, characterisation of this exemption and its potential damage to the overall intent, as he has described it, of “the government will agree to add a trading exemption. When a disposal is made of an interest in an entity that is trading both levelling the playing field. before and after the disposal, as for connected parties under the That is the most significant lacuna in this measure, Substantial Shareholdings Exemption rules, then it will not be but our amendments would deal with other weaknesses, considered to be an indirect disposal of an interest in UK land”— specifically our amendment 23 on a public register, That is, it will not be treated as an enveloped disposal. amendment 24 on revenue effects and amendment 29 “Although the government does not intend to provide a specific on property prices and ownership. I will also mention exemption for infrastructure, a trading exemption should also the SNP’s amendment 34, which we support. 71 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 72

Amendment 23 would require the Treasury to require that on capital gains tax and corporation tax on UK that a list of persons not resident in the UK whose gains property gains, but it turns out that is the TIN for the are brought into the charge by the changes made in this following clause, which we are just about the debate, schedule should be published on a public register. I and its schedule—clause 14 and schedule 2. I then thought that in discussion of this amendment the Minister thought the relevant TIN might be that concerning would state that the Government were due to introduce corporation tax on UK property income of non-UK a register of foreign-owned property. He did not, but I resident companies, but that actually refers to measures appreciate that he took another tack in his rejection of regarding non-UK companies that own UK-resident the amendment. We still believe that it is necessary for property companies, so something very different. Perhaps the Government to provide that register, and believe it is the Minister can let us know which TIN we should be disappointing that the timetable for that register has reading for this measure, but above all—beyond whichever been pushed back. We have made it very clear that it TIN this Committee should be looking at—we surely would meet no opposition from us, so it could be need a much more thorough analysis of the revenue introduced far more expeditiously than, it would appear, effects of these measures, in order to analyse them the Government currently wish. properly; hence our request to the Committee in However, while we wait for that property register to amendment 24. be produced, we surely need to use every mechanism to Amendment 29 would require an examination by the ensure more transparency in this field. In that connection, commissioners of the impact of the measures that we it would help if the Minister explained more of his are considering here on both residential property prices Government’s thinking on one of the assumptions in in the UK and the proportion of residential property in the measure—that it is not intended to encourage onshoring the UK owned by non-residents. Clearly, there is a need to the UK, but to create a level playing field for offshore and a place for non-UK investment in UK property, and UK investors. That was in the context of not both residential and commercial; we absolutely accept accepting calls from respondents to the consultation for that. However, we need to understand far better how SDLTseeding relief as an incentive to encourage investors particular types of investment might have impacted on to move their property out of offshore jurisdictions and both housing prices and ownership. onshore. I agree that it would not be sensible to extend seeding relief in that manner. However, it would be The Minister referred to the OBR’s analysis, but it is helpful to understand what, if anything, the Government important that we have a wide sweep of evidence before intend to do otherwise to encourage onshoring. This is us on this matter, so I very much encourage colleagues surely something that the Government should be to look at the research by Dr Filipa Sa at the London considering more seriously, in a context where there are School of Economics. She has specifically considered clear indications that the high-end property market—and the impact of foreign investment in property on both indeed commercial market—in many areas is increasingly price and availability, and the evidence is startling. dominated by companies that are located offshore, Members will be well aware that the average English or sometimes as a route towards money laundering. Welsh house has almost tripled in value in the last 15 years, albeit with very significant variation between Private Eye and Transparency International UK have areas. Of course, alongside changes to social security led research in this area. Some of the data they have and the lack of measures to boost the supply of genuinely uncovered is alarming. Research by Transparency affordable housing, that has led to the housing crisis International UK has shown that in London alone, that we see today. over 39,000 properties have offshore owners, who in many cases are totally non-transparent. Even just looking The impact of foreign investment on prices is clearly at publicly available material, they find that over very significant in some specific areas, such as Kensington £4.2 billion-worth of London property has been bought and Chelsea, where the average—the average—house by individuals and companies who could legitimately be price was £1.3 million back in 2014; I bet it is far, far classified as posing risks of money laundering. We higher now. However, Dr Sa’s research shows that there believe that amendment 23 would help us some of the has been a trickle-down effect from rising prices in way towards the transparency that we require. London, such that there has often been an upwards trajectory elsewhere too, including in major cities such Our amendment 24, on the other hand, requires a as Manchester and Liverpool. Overall, Dr Sa’s research review of the revenue effects of the changes made to the suggests that if there had not been any foreign investment Taxation of Chargeable Gains Act 1992 in schedule 1, in residential property in England and Wales between and requires the Chancellor to lay a report of that 2000 and 2014, housing prices would be nearly a fifth review before this place within six months of the passing cheaper—19% lower—than they are now. of the Act. Dr Sa states: Will the Minister please indicate which tax information and impact note relates to these measures? He mentioned “Housing costs form a big part of households’ budgets and so OBR modelling in the Budget in his remarks, which was they are a concern for a large portion of the UK population. very helpful. However, I do not know whether other One of the issues on people’s minds”— colleagues have had this problem when they have been looking carefully at the different clauses in the Bill. The her words, not mine— tax information and impact notes on the list under the “is that foreign investors are buying properties with the purpose heading of Finance Bill 2018-19 under different dates of making money as opposed to creating a home to live in and on the Government website are not specifically then that this is pushing house prices up. mapped on to different clauses. It is quite difficult for This research shows that foreign investment in the UK housing the Committee to work out which TIN relates to which market does, indeed, play a part in the increase in house prices measure. Initially, I thought the relevant TIN could be that we have seen in the last two decades.” 73 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 74

None the less, she makes it clear that domestic demand owns 25% or more of the property envelope. Although is also outstripping supply and having an impact on that was proposed in the original consultation document—I price, as I am sure we are all aware as constituency MPs. accept that Government have not gone back on something Dr Sa has made reference to action being undertaken they said before—concerns have been expressed to me on this issue in a number of other countries, including that this could undermine the level playing field, which Australia, Switzerland and Canada, and it would be the Government have stated underlies their commitment helpful to know whether the Government considered to the measures. their examples in drawing up these measures, and if so, The objective of the 25% test is reasonable, to exclude whether they considered some of the potential issues those non-residents who might not have sufficient that there may be with the matters that we are examining information about their assets in the property envelope just now. Above all, it would be very helpful for the to know whether the 75% property richness threshold is House to be provided with evidence about the suggested met. As the response document states: impact of these measures specifically on the level of “If a person has 25% or more of the interests in an entity…it non-UK ownership of residential property and the would be expected that the investor has made that investment in price of that residential property, which is so prohibitive the knowledge of what the underlying assets and income sources for many people. of the entity are.” I move on to the SNP’s amendment 34. I am sure However, if someone makes a major monetary SNP Members will speak to it in a moment. However, I investment in an entity, they will also surely do so only will speak briefly in its support. It states: in the knowledge of those assets, even if that investment “The Chancellor…must review the expected revenue effects of results in their having less than 25% ownership of the the changes” entity. We can think of this in relation to an example. caused by these measures. Let us assume there are five investors each disposing of As the Committee knows—indeed, as we discussed their 20% stake in a UK property envelope. If the last week in the Committee of the whole House—there property increases in value by £100 million, each investor is a lively discussion about whether the Government’s would pretty obviously realise a gain of £20 million. current methodology for assessing the tax gap is the Existing law means that UK-resident investors will correct or appropriate one, given that it does not include each be chargeable on that gain of £20 million. However, tax lost due to legal loopholes but only considers tax the 25% ownership requirement for non-residents means lost due to a failure to stick to the letter of the law, and that non-resident investors will not be charged on any in addition it does not cover profit-shifting by multinationals. gain, even though the scale of the investment means None the less, it is important to investigate strict legal that it will have been made, surely, in full knowledge of compliance, and on that basis I am concerned about the the entity’s assets. That will mean that non-residents provision detailed in paragraph 11 of schedule 1—the will continue to have a significant advantage over UK so-called anti-forestalling clause. investors. Respondents to the consultation expressed concern that those seeking to avoid the changes could simply I would be grateful if the Minister could inform us shift their interest to jurisdictions that do not facilitate whether his Department has had any discussions on the UK taxation of UK property-rich entities, as is the case subject of whether there could be a limit on the gain with the UK-Luxembourg tax treaty. that could benefit from this exemption. Surely, anyone who ends up with a gain of £1 million or more would This would then result in double non-taxation of capital only have made their investment in full knowledge of its gains. Rather than follow suggestions made by respondents nature. If not, quite frankly, to use a phrase from my to the consultation, the measures simply aim to prevent part of the world, they have got far more money than actions contrary to the intent of existing treaties. sense. It is unclear to me whether this is sufficiently watertight to prevent such avoidance activity.I think the amendment Was that kind of limit considered previously? If not, from the Scottish National party might help us to test would the Minister consider coming back with a future that out. Is the concept of following the spirit and Bill to introduce it if there is widespread evidence of intent of tax treaties really enough to prevent those UK investors being taxed more than non-UK ones seeking to avoid tax using legal niceties and the exact because of the 25% limit? As mentioned, will he also wording of treaties? confirm whether such creative structuring—if we can We need more clarity on the issue before we can call that—falls within or outside the definition of the accept that the measure is sufficiently tightly drawn to tax gap? prevent current anomalies in the tax treatment of non-UK, Finally, I have one last question for the Minister. as against UK, residents. How, in particular, will the Given that concern was expressed by many respondents intent of the treaty be interpreted and by whom? I to the consultation that pension funds could be inadvertently believe we need more information about his matter. caught by the new system, could he provide more It seems to me, belatedly, that there could be some detail? I am aware of the different parts of the schedule, very creative avoidance undertaken when it comes to in particular those that refer to pension schemes and the the anti-enveloping rules, which to my mind would not need to exempt them. Will he provide us with more be caught by the Government’s definition of the tax information about whether they are completely watertight? gap. Perhaps the Minister can enlighten us, if I am I am sure many members of the Committee would wrong. not want to promote UK pension funds’ desire to invest The draft legislation that was published in July 2018, in the UK real estate market through offshore funds. alongside the response document, includes a minimum However, given that consultees raised that frequently, it ownership requirement before the anti-enveloping rule would be helpful to hear a little more than the Ministers can operate: the rule can apply only if the non-resident understandable assertion that they will not be covered. 75 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 76

4.30 pm assurances. If the Government do not take action soon on Scottish limited partnerships, they risk seriously Kirsty Blackman: I will speak relatively briefly. It is eroding that trust and may end up in a situation in always difficult to follow the hon. Member for Oxford which ministerial assurances, and particularly assurances East, who is leading for the Opposition on these measures. from Treasury Ministers, are not accepted because the I concur with her comments about the Labour Government have not followed through previously. amendments—the Scottish National party will be happy to support them. Foreign ownership of properties and The income tax, national insurance contribution and the impact on price is pertinent and relevant to the SNP capital gains tax gap sits at about £13.5 billion, which is proposal. a significant amount of money. If any changes are being made to those taxes, and particularly to CGT, it is On amendment 34, the explanatory notes are incredibly reasonable to ask about the impact on the tax gap, and difficult to follow. By the time we get to “ggg” in the reasonable for the Government to have those figures at explanatory notes, things become very difficult to refer their fingertips. They should be able to say not just what to. If there is another explanatory note of that length in the impact is on the total tax take from any changes, but future years, it would be useful if the staff could come also what the impact is on the tax gap. up with a better numbering system. As I say, it is difficult to refer to those sections when we are going If the Government are talking about cracking down around the alphabet for the third time. on tax avoidance, it is important that they prove to us that the tax gap is being reduced. It is not good enough The public register proposed by Labour is an interesting to just say, “We think this measure will reduce tax idea and, in principle, the Scottish National party is in avoidance.” The Government need to tell us by how favour. As I said, transparency is important when much they will reduce tax avoidance. They need to be encouraging everybody to pay the correct amount of clear on the impact of those changes before they tax, because if tax owed is publicly known—the calculation introduce them. of the tax gap is pertinent to this topic—people are more likely to pay. The Government should say clearly, I intend to push amendment 34 to the vote if we have “This is the amount of tax owed, this is how hard we are the opportunity to do so. I would be happy to support chasing it down and, as a result, this is the tax gap.” It the Labour party on their amendment. I would also like bothers me that the Government say regularly that the to seek further assurance and a clarification from the UK tax gap compares favourably with that of other Minister in relation to the pursuit of tax avoidance countries.It does not matter whether it compares favourably reduction measures, and a commitment from him that with other countries: any tax gap is a bad thing and, if the Government will follow through on the tax avoidance one exists, the Government clearly need to work to reduction commitments they make today. ensure that they are reducing it as far as possible. Given the issues that have been brought up by Opposition Mel Stride: I thank the hon. Members for Oxford Members and by many external organisations, it is clear East and for Aberdeen North for their contributions. I that the Government could do more to reduce the tax compliment the hon. Member for Oxford East on arraying gap. It is not good enough to say, “We are doing quite a a mass of highly technical questions on a very technical good job, and therefore we should stop here.” The area. I will do my best to answer her them, but I will Government need to be able to say, “We are doing the write to her accordingly if I am unable to do so. She best job on reducing the tax gap that we possibly can.” accurately mapped out the process that we have been On foreign ownership and the residential property going through for a number of years, moving into the price, I was disappointed that the Labour amendment space of the appropriate taxation of non-resident entities on landholdings was not accepted—I understand the when it comes to property transactions. She recognises, reasons why it was not allowed, but I would have been as I do, that it is the right direction of travel, and that it keen to debate it. There are specific Scotland-related is right to introduce the measures set out in clause 13, issues not so much about residential property—that is although she has several concerns about the detail. an issue in Scotland but not to the same extent as it is in The hon. Member for Oxford East dedicated a specific London—as about other landholdings.That is a significant section of her remarks to the issue of property-rich problem in the Scottish context. Foreign ownership of businesses and the trading exemption. She gave some those landholdings concerns a huge number of people examples where she felt that this would be an inappropriate in Scotland. exemption, around both the general principle of the Regarding the benefits of transparency, the SNP has exemption for trading purposes and the specific threshold called for measures to reduce tax avoidance, and the figure of 75%. She used the expression “cliff edge” to Government have talked a good game about things like refer to what there might be around that number. Scottish limited partnerships after a huge amount of On the basic principle, this measure seeks to avoid the pressure from the Scottish National party. However, we circumstances whereby a business—a significant are still waiting for action. If the Government say they supermarket chain, for example—might be sitting on a are doing positive things to reduce tax avoidance, they substantial amount of land and might even have banked need to follow through. Rather than just producing a some land for future development. However,the business’s consultation, they need to take the required action to principal purpose is the purchase and sale of a variety reduce the numbers of people who are abusing Scottish of goods, with that being the core of the particular limited partnerships. We need the Government to be business being looked at. Were a sale of that business seen to be serious in this regard, and to take the action under those circumstances to occur, it would seem they have promised to take. The House operates on appropriate that the investors in that business—where it trust, and throughout my time in this place, I have seen was consequently below the 75% threshold—would not a number of Opposition amendments withdrawn because fall within the measures due to the taxation measures ministerial teams from all Departments have given that we have been considering. 77 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 78

As to the specific figure of 75%, it is the same issue as actively engaged in the specific case of Luxembourg to the 25% threshold figure that the hon. Member for seek changes to those arrangements to make sure they Oxford East raised in relation to whether individual facilitate the measures we are looking at here. investors would fall within these measures, or whether With regard to TIINs, I must say that I do not have they would be expected to know or not know about the the same confusion as the hon. Member for Oxford property richness of the business in which they were East. I am not making a specific point, other than that I investing—we inevitably run into a generalised problem have not noticed it, but I will look at it again. The with figures, which is that we have to choose one. There relevant TIIN is the one entitled “Capital gains tax and will always be a debate about whether 75% is the right corporation tax: taxing gains made by non-residents on figure, or indeed 25%. However, a figure has to be UK immovable property”, which was last updated on applied, to make it scientific and rigorous. 7 November 2018. Then there is the question of what we have done to The hon. Member for Aberdeen North had several ensure that 75% and 25% are the right figures, as points to make,particularly about the tax gap.She suggested opposed to figures that we have just plucked out of the that there might be some complacency on the part of air. That leads us to the extensive consultation that has the Government, and that it might be assumed that, been undertaken in respect of the Bill, with some because we already have a world-beating tax gap level, 80 responses around the measures raised by the hon. we are not pushing forward with further measures. I can Member for Oxford East. As I would say of all tax reassure her that that is not the case. Indeed, the Bill measures, this one included, they are kept under continuous contains several measures that further bear down on the review by the Treasury, so it is quite possible that we will tax gap, of which this is one. It will build our tax base return to these matters in future legislation, specifically and further enhance our ability to raise tax, which of on the issue of thresholds. course is very important. The point I would make is The hon. Member for Oxford East spent some time that we have both the legislation, some of which I have referring to the amendments and the question of whether referred to, and several other practical measures that there should be a register of those who fall within the the Government are bringing in that are driven by HMRC scope of these capped measures. There is a basic principle —for example, making tax digital, which is an approach here that just feels right to me, which is that the Government to bearing down on the tax gap when it comes to the should not be in the business of holding up individuals operations of smaller companies in the United Kingdom. to the public as falling due for particular types of tax. I hope that has covered the majority of the issues Once you start moving into that kind of space, it feels raised, but I would be happy for the hon. Members for rather disproportionate and a little authoritarian, if I Oxford East or for Aberdeen North to write to me if may say so. It is right to resist that urge. they would like me to respond to any other issues. I was going to raise one other matter in that context, which is important, and that is that the hon. Member 4.45 pm for Oxford East referred—she very kindly did this for Anneliese Dodds: I am grateful to the Minister for me although I did not do so in my opening speech—to those comments, but I would like to clarify a few points, the implementation of a register of beneficial owners of so that we are not talking at sixes and sevens. In relation overseas entities owning or buying property in the UK. to the trading exemption, the point is not that it would We will bring that in by 2021, and the register will be the exempt certain categories of business as opposed to first of its kind in the world. That underscores the others, but that it would exempt those businesses that importance of transparency to this Government. are trading before and after the disposal, so it introduces a new concept that is not applied to UK-resident investors Sir Robert Syms: Is the amount of revenue raised in to the same extent. That is what is relevant, rather than this area more or less than was raised under the previous whether we are talking about a supermarket or not. Labour Government? That would be relevant to the property richness test, but the trading exemption is a separate element of the Bill Mel Stride: If I interpret my gallant and hon. Friend’s that I was trying to push on. question as relating to the specific issue of overseas In relation to the 25%, the Minister always valiantly holdings of UK land and properties and paying attempts to support his Government’s policies. He is CGT on the transactions they are in, I would be fairly right that a figure must surely be attached to any confident in saying that we will be raising more. Indeed, numerical proposition in a Bill. He tried to do that here through time and through dealing with the measures I and said that 25% had been arrived at. The suggestion identified earlier, I strongly suspect that the answer is was that any figure could be contested. Again, it is not yes. I am seeing nods of an inspirational kind from the specific value of that figure that is problematic, but over my left shoulder, so I can reassure him that is what the figure refers to. My contention was that the indeed the case. Government should focus not necessarily on the proportion The hon. Member for Oxford East also raised the of the gain, but on the value of the gain. His Government effect of these measures on the market and the suggestion have decided to focus not on the value but on the of a review to look at price effects. The Office for proportion. As I said, 25%—or rather, 20%—of a gain Budget Responsibility has already done such an analysis could be £1 million, which is a tremendously large and concluded that these measures would have a negligible value, but it could be a smaller proportion if it is effect on price. She also raised the issue of taxation just 20%. treaties, particularly Luxembourg, which is a fair point because there are instances when the international taxation Kirsty Blackman: Does the hon. Lady agree that treaties—the bilateral treaties between ourselves and having both of those in the Bill would be useful, so we other tax jurisdictions—do not quite fully accommodate could have the 25% figure or gains over £200,000, or the measures we are looking at here. I know we are any such figure as the Government deemed appropriate? 79 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 80

Anneliese Dodds: The hon. Lady is absolutely right. Kirsty Blackman: I am willing to try the patience of The Government are quite keen on double thresholds the Committee in this instance. in other contexts, so this is a case where a double Amendment proposed: 34, in schedule 1, page 147, line 34, threshold could be introduced if they were concerned at end insert— about protecting those small investors. One could have “21A The Chancellor of the Exchequer must review the both a measure related to the proportion of the gain expected revenue effects of the changes made to TCGA and one related to the value of the gain. That could be 1992 in this Schedule, along with an estimate of the very sensible. difference between the amount of tax required to be I am grateful to the Minister for his comments on tax paid to the Commissioners under those provisions treaties, but I was trying to get at whether he feels that and the amount paid, and lay a report of that review before the House of Commons within six months of the reference in the legislation—I cannot remember the the passing of this Act.”—(Kirsty Blackman.) exact term used in the explanatory notes, but it is This amendment would require the Chancellor of the Exchequer to something like referring to the “intent” or “spirit” of review the effect on public finances, and on reducing the tax gap, of the the tax treaty, rather than the letter—is sufficiently changes made to capital gains tax in Schedule 1. legally watertight. I am concerned that it would not be, because many people who have moved their tax affairs The Committee divided: Ayes 9, Noes 10. to Luxembourg to avoid tax are quite adept at reading Division No. 10] just the letter and not conforming with the spirit, when they want to. AYES Finally, in response to the question from the hon. and Black, Mhairi Lewis, Clive gallant Member for Poole— Blackman, Kirsty Reynolds, Jonathan Charalambous, Bambos Dodds, Anneliese Smith, Jeff Sir Robert Syms: I am not gallant. Dowd, Peter Sobel, Alex

Anneliese Dodds: I am a new Member and I am NOES always getting my fingers rapped about how to refer to Afolami, Bim Lamont, John other Members. I never want to upset anyone, so I hope Badenoch, Mrs Kemi Stride, rh Mel I have not upset the hon. Gentleman. Ford, Vicky Syms, Sir Robert If we look at the proportion of the commercial Jenrick, Robert Whately, Helen property market owned by non-UK investors, we see Keegan, Gillian Whittaker, Craig that there has been a change over time. We should surely consider that when we look at the impact or Question accordingly negatived. otherwise of Government policy, as well as the absolute Amendment made: 1, in schedule 1, page 164, line 16, amount of tax revenue that will go up since absolute at end insert— figures go up because of inflation and so on. I do not wish to try the patience of the Committee, so we will “108A In section 2 (charge to corporation tax), omit not press our amendments to a vote. subsection (2A).”—(Mel Stride.) Schedule 1, as amended, agreed to. Question put and agreed to. Ordered, That further consideration be now adjourned.—(Craig Whittaker.) Clause 13 accordingly ordered to stand part of the Bill. 4.54 pm The Chair: Ms Blackman, do you wish to move Adjourned till Thursday 29 November at half-past amendment 34? Eleven o’clock. 81 Public Bill Committee 27 NOVEMBER 2018 Finance (No. 3) Bill 82

Written evidence reported to the House FB02 Chartered Institute of Taxation (clauses 7, 11 and 81 (all in the area of employment taxes)) FB01 Association of Taxation Technicians (Clause 31 FB02a Chartered Institute of Taxation (clause 13 and and Schedule 12: Temporary increase in Annual Investment schedule 1: Disposals by non-UK residents etc) Allowance) FB02b Chartered Institute of Taxation (clause 25 - Intangible fixed assets: exceptions to degrouping charges FB01a Association of Taxation Technicians (Clause 14 etc) and Schedule 2: Disposals of UK land etc: payments on FB02c Chartered Institute of Taxation (clauses 29 to 34 account of capital gains tax) - capital allowances)

PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT GENERAL COMMITTEES

Public Bill Committee

FINANCE (NO. 3) BILL

(Except clauses 5, 6, 8, 9 and 10; clause 15 and schedule 3; clause 16 and schedule 4; clause 19; clause 20; clause 22 and schedule 7; clause 23 and schedule 8; clause 38 and schedule 15; clauses 39 and 40; clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 and schedule 18; clauses 68 to 78; clause 83; clause 89; clause 90; any new clauses or new schedules relating to tax thresholds or reliefs, the subject matter of any of clauses 68 to 78, 89 and 90, gaming duty or remote gaming duty, or tax avoidance or evasion)

Third Sitting

Thursday 29 November 2018

(Morning)

CONTENTS

CLAUSE 14 agreed to. SCHEDULE 2 agreed to. CLAUSE 17 agreed to. SCHEDULE 5 agreed to. CLAUSE 18 under consideration when the Committee adjourned till this day at Two o’clock.

PBC (Bill 282) 2017 - 2019 No proofs can be supplied. Corrections that Members suggest for the final version of the report should be clearly marked in a copy of the report—not telephoned—and must be received in the Editor’s Room, House of Commons,

not later than

Monday 3 December 2018

© Parliamentary Copyright House of Commons 2018 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 83 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 84

The Committee consisted of the following Members:

Chairs: MS NADINE DORRIES, †MR GEORGE HOWARTH

† Afolami, Bim (Hitchin and Harpenden) (Con) † Lewis, Clive (Norwich South) (Lab) † Badenoch, Mrs Kemi (Saffron Walden) (Con) † Reynolds, Jonathan (Stalybridge and Hyde) (Lab/ † Black, Mhairi (Paisley and Renfrewshire South) Co-op) (SNP) † Smith, Jeff (Manchester, Withington) (Lab) † Blackman, Kirsty (Aberdeen North) (SNP) † Sobel, Alex (Leeds North West) (Lab/Co-op) Charalambous, Bambos (Enfield, Southgate) (Lab) † Stride, Mel (Financial Secretary to the Treasury) † Dodds, Anneliese (Oxford East) (Lab/Co-op) † Syms, Sir Robert (Poole) (Con) † Dowd, Peter (Bootle) (Lab) Whately, Helen (Faversham and Mid Kent) (Con) † Ford, Vicky (Chelmsford) (Con) † Whittaker, Craig (Lord Commissioner of Her † Jenrick, Robert (Exchequer Secretary to the Majesty’s Treasury) Treasury) Colin Lee, Gail Poulton, Joanna Dodd, Committee † Keegan, Gillian (Chichester) (Con) Clerks † Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con) † attended the Committee 85 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 86

Public Bill Committee ‘PART 1A

REVIEW OF EFFECTS ON PUBLIC FINANCES Thursday 29 November 2018 17A The Chancellor of the Exchequer must review the expected revenue effects of the changes made to capital gains tax returns and payments on account in this in this Schedule, along with an estimate of the difference between the amount of tax required to be paid to (Morning) the Commissioners under those provisions and the amount paid, and lay a report of that review before the House of Commons within six months of the passing of this Act.’ [MR GEORGE HOWARTH in the Chair] This amendment would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of the changes made to capital gains tax in Schedule 2. Finance (No. 3) Bill That schedule 2 be the Second schedule to the Bill.

The Financial Secretary to the Treasury (Mel Stride): (Except clauses 5, 6, 8, 9 and 10; clause 15 and schedule It is a pleasure to serve under your chairmanship, 3; clause 16 and schedule 4; clause 19; clause 20; clause 22 and schedule 7; clause 23 and schedule 8; clause 38 Mr Howarth. I wonder whether it should be the Opposition and schedule 15; clauses 39 and 40; clauses 41 and 42; speaking to their amendments, as opposed to me clauses 46 and 47; clauses 61 and 62 and schedule 18; proceeding, though I am happy to do so. clauses 68 to 78; clause 83; clause 89; clause 90; any new clauses or new schedules relating to tax thresholds or The Chair: The lead question is clause stand part. I reliefs, the subject matter of any of clauses 68 to 78, 89 assumed that the Minister would want to speak. If he and 90, gaming duty or remote gaming duty, or tax prefers to wait, that is fine; the debate is open to those avoidance or evasion) who want to speak to amendments.

Mel Stride: I am happy to proceed as you suggest, Clause 14 Mr Howarth, and to respond briefly to the Opposition speeches later. DISPOSALS OF UK LAND ETC: PAYMENTS ON ACCOUNT The clause and schedule 2 introduce a requirement OF CAPITAL GAINS TAX on UK residents to pay capital gains tax through payments on account when disposing of residential property. They 11.30 am also amend a similar requirement for non-residents. Parts 1 and 2 of the schedule bring all the main rules Question proposed, That the clause stand part of the together in one place. Bill. For income tax, employees are taxed throughout the tax year as part of the pay-as-you-earn system. Self- The Chair: With this it will be convenient to discuss employed people pay their income tax liabilities in the following: instalments known as payments on account throughout Amendment 31, in schedule 2, page 171, line 18, at the tax year, making a balancing payment following the end insert— end of the tax year through the self-assessment system. ‘(4) The provisions in this paragraph may not come into effect In contrast, capital gains tax, which also forms part until the Treasury has published the results of any consultation of the self-assessment system, has traditionally been conducted by the Commissioners with representative bodies available only after the tax year has ended. That means concerning awareness of the provisions among those who will be that the taxpayer may pay their capital gains tax liability covered by them.’ up to 22 months after making the gain. As gains on This amendment would delay the commencement of the paragraph in residential property can be significant, we think it right Schedule 2 relating to the obligation to make a return in respect of a disposal to which the Schedule applies, until the Treasury has released that any capital gains tax due is paid soon after the details of HMRC‘s consultation with representative bodies concerning property is disposed of, to ensure that any liability is awareness of the provisions amongst those who may be covered by paid when the taxpayer is most likely to have the funds them. to do so. Amendment 32, in schedule 2, page 176, line 21, at The changes made under schedule 2 introduce new end insert— requirements on UK residents when they dispose of UK residential property on which capital gains tax is ‘PART 1A due, such as a second home or a buy-to-let property. The first requirement is that they must make a payment on account of their capital gains tax liabilities. In most REVIEW OF EFFECTS ON PUBLIC FINANCES cases, that will be payable within 30 days of the contract 17A The Chancellor of the Exchequer must review the revenue for the sale or disposal being completed. effects if the provisions in Schedule 2 were introduced from 6 April 2019, and lay a report of that review before the House of Commons The second requirement ensures that the payment is within six months of the passing of this Act.’ properly accounted for by Her Majesty’s Revenue and This amendment would require the Chancellor of the Exchequer to Customs. Taxpayers must submit a simple tax return review the revenue effects of the provisions of Schedule 2 if they were within the same 30-day window advising HMRC of the introduced in 2019/20. disposal and how much they are paying on account. Amendment 33, in schedule 2, page 176, line 21, at How much tax is paid will be calculated according to the end insert— gain made and any unused losses and allowances that 87 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 88 the taxpayer may offset at that time. It will work in much but payment will not be required until completion of the same way as completing a self-assessment return. the self-assessment in the January following, so this is If at the end of the tax year a person has no further about timing rather than the mechanics of how the income tax or capital gains tax liabilities due, they will capital gains allowance works. not then need to complete a full self-assessment return. We have listened to representations made during Sir Robert Syms: I understand that, but quite often consultation and therefore made changes to the legislation. when people sell a property, they have an amount of Reasonable estimates of valuations and apportionments money they have to pay, and they put it in a bank account will be permitted without penalty when the correct and sit on the money for a few months in order to sort amounts are unavailable in time. The changes will come out their tax return. Currently, they do not get much into effect for disposals from 6 April 2020. interest on the money anyway, but I wonder whether, The schedule also makes two changes to an existing rather than have a split payment, someone will be given reporting and payment-on-account scheme that applies a small discount for paying the whole sum in the year to non-UK residents disposing of UK property. First, it rather than splitting it until they do their tax return. It amends the scope of the scheme from 6 April 2019 to seems to me that people will be happy to pay, but that if include the new interests chargeable to tax that we there is a little incentive they might pay the whole amount. debated under clause 13. Mel Stride: The provisions of the clause change the Sir Robert Syms (Poole) (Con): I declare an interest: I regime such that they will be required to account for the have paid capital gains tax—a horrible tax—in the past. capital gains within 30 days. In a sense, this has been At the moment, there is an allowance for capital gains done by changing the rules rather than providing an tax, so when the form goes in, the allowance is taken off. incentive, I am afraid. I thank my hon. Friend for his Will the full allowance be taken off the first-stage interesting interventions. payment, or will the allowance taken off the payment Amendment 31 proposes that the changes come into be split? Let us say that I have a £30,000 capital gain; I effect only once we can guarantee awareness of them. might well take up all my allowance in the first-stage HMRC has engaged with stakeholders on the details of payment and pay a slightly larger second payment, or I the change and the draft legislation. The Members who could simply split the whole amount. There is also a tabled the amendment will be pleased to know that the cash-flow issue. Government published a summary of responses to their consultation on 6 July. Mel Stride: My understanding is that the capital Amendments 32 and 33 request a review of the revenue allowance will be applicable when the first payment is impact of the changes, including the impact on the tax made in full, subject to the capital gain being equal to gap. The latest estimates for the revenue impact of the or exceeding the allowance. If there is any adjustment measure, both with the original 2019 start date and the on a subsequent return, I imagine—I look to my delay to April 2020, were published at the Budget 2018. colleagues—that if the gain has been less than the capital allowance initially, or in other words there is some Alex Sobel (Leeds North West) (Lab/Co-op): The excess available, that might be available to any balancing transition from diesel and petrol to electric cars is vital payment made subsequently.The officials seem to confirm for us to meet our carbon budgets. Has the Treasury that to be the case. assessed the impact of the measure on the electric vehicle market, as well as the wider automotive sector? Sir Robert Syms: The capital gain might be split between two people. This is a slightly separate, tangential Mel Stride: I assure the hon. Gentleman that in these question, but let us say a husband and wife sell something tax matters—as with all tax matters—given our firm and the capital gain is split between them. I presume commitment to honour our climate change commitments, that will be two allowances and two split payments. Is we are in regular contact with car manufacturers and there a minimum amount for someone to have to fill in those producing electric vehicles, through my hon. Friend a form to put in? For a small capital gain—a few the Exchequer Secretary. hundred pounds—is there a de minimis amount or will As with all policy changes, the fiscal impact of the more bureaucracy be created for rather minor payments? measure will be monitored by HMRC, and the Office for Budget Responsibility may request for it to be Mel Stride: I wonder when my hon. Friend is about to reviewed as the new out-turned data becomes available. sell a house and is simply after some discounted tax The fiscal impact on taxpayer compliance has been advice. He is right that there will be an allowance for considered and is included in the overall costing of the each taxpayer under those circumstances. The sale of the measure. HMRC publishes annual updates to its tax property—let us say it is a property—will occur and, to gap analysis, which will reflect the effect of capital gains the extent that there are capital gains at or below the tax policy changes. I therefore urge the Committee to allowance for each of the two parties, that may be offset resist the amendments and I commend the clause and at that particular point. schedule to the Committee. The context of the clause is not so much the way the relief of the capital allowance works—it remains as Anneliese Dodds (Oxford East) (Lab/Co-op): It is a before—but the timing of the payment of the capital pleasure to serve on this Committee with you in the gains tax should there be any. It moves from what might Chair, Mr Howarth. I am grateful to the Minister for be a 22-month delay, given the capital gain might have his introductory comments and for his comments on been assumed at the beginning of a particular tax year our amendments. 89 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 90

[Anneliese Dodds] The Government’sresponse to the consultation maintains that where information needed to be obtained from As the Minister explained, the clause and schedule third parties for the purposes of calculating the capital extend, from 6 April next year, the existing capital gains gains tax that should be accommodated within the tax requirements in relation to reporting and payment periods required for marketing and conveying any such for non-UK residents who are disposing of UK property, property,and that estimated declarations could be corrected in order to include new interest that will henceforth be later, as the Minister mentioned. I am a little concerned taxed. They also introduce, on the same date the following by some of the ambiguity in the language used in the year, reporting and payment-on-account obligations for consultation response about what will happen if a taxpayer residential property gains for UK residents and UK cannot make the payment on time. This is a question branches and agencies of non-UK resident people. not of the amount of tax owed, but of the calibration of The measure has been quite a long time coming. Back when it will be paid. in 2015, the Government signalled their intention to introduce from April 2019 the requirement that capital 11.45 am gains tax on gains from selling or disposing of residential The document states: property be paid within 30 days of the disposal being completed. As the Minister intimated, that will be a “Any taxpayer who is concerned about their ability to pay should contact HMRC who will explore whether an alternative payment on account towards the person’s tax liability payment arrangement is appropriate.” for the tax year in which the disposal is made. However, the measure was deferred until 2020, and the consultation It would be helpful if we heard more about the legal on it undertaken earlier this year,as the Minister mentioned. basis and the practical arrangements for that discretion. As I understand it, there is already a payment-on-account I am sure that the Minister and his colleagues are aware scheme for non-UK residents, so these measures will of my concerns, which we have already discussed in this just extend that approach to UK residents, as well as Committee, about HMRC’s capacity as things stand, let expanding the range of taxable interest for non-UK alone in the event of a no-deal Brexit. I am concerned residents. that HMRC would not benefit from being overburdened with such requests for alternative payment arrangements. We have tabled two amendments. Amendment 31 Nor would it be fair, surely, to give taxpayers false hope would delay commencement of the provisions in paragraph of being provided with them when they might not be 3 of schedule 2 until the Government have released available. further details of HMRC’sconsultation with representative bodies concerning awareness of those provisions among Concerns have also been expressed about HMRC’s those who may be covered by them. The rationale for operation of other deferred payment approaches. The the amendment is that the proposed measures, as we Minister will remember my written question asking him have just discussed, introduce a new payment-on-account “what criteria are used by HMRC when deciding whether to agree scheme for capital gains tax on residential property that Time to Pay arrangements”— requires filing of a return far earlier than is currently arrangements that enable firms under temporary financial required, and far earlier than the potential 22 months to stress to defer the payment of tax. It would be interesting which the Minister referred, right down to 30 days after to find out whether HMRC will take a similar approach the disposal of that property. to requests for late payment of capital gains tax under During the consultation on the proposals, some the new arrangements, because its criteria for applying respondents expressed their concern that taxpayers, not time-to-pay arrangements are actually quite sensible: expecting that they needed to make such a return until “TTP arrangements are entered into on a case-by-case basis. the end of the tax year, might fail to inform their TTP is only agreed where HMRC is satisfied that the customer accountant and thus miss the deadline. Of course, in cannot pay their liability on the actual due date(s). doing so they would incur interest on non-payment. The customer offers the best payment proposals that they can Our amendments would enable details of HMRC’s realistically afford. If their ability to pay improves during the TTP discussions with representative bodies to be asked for in period then they must contact HMRC and increase their payments/ order to ensure that potentially affected taxpayers were clear the debt. forewarned of the new measures and therefore did not TTP is only agreed where HMRC believes that the customer fall foul of them and incur that interest on non-payment. will have the means to pay the taxes included in the TTP arrangement and any other taxes outside the arrangement which become due I understand why respondents to the consultation during the TTP period. might have been concerned by that. Their responses were summarised in the consultation response document The TTP period is as short as possible.” as concerning the fact that “taxpayers may not be aware of the new rules until after the end Sir Robert Syms: Another slight problem is that when of the tax year when they tell their accountants about their someone is selling a property, it is not unusual for them disposals, resulting in late filing penalties.” to renovate it or do some work on it. When they report Some of those making that argument pointed out that their CGT liability, they offset their legal fees, builders’ HMRC charges interest for those filing late, set at 3%. fees and other fees. The 30-day reporting window is quite That, of course, contrasts with the repayment interest tight. With my solicitor, I tend to get a bill long after I of 0.5%. I completely understand why there is a difference have forgotten that I owe it. in rates, but that difference surely adds some grist to the I am sure the Minister will pick up on this question mill of needing to ensure that all potential taxpayers are when he sums up, but is the 30-day period just for definitely made aware of the change. After all, 30 days reporting the possibility of CGT, or is it for reporting is not that long a period within which to act. the actual figures? It is quite a tight period to collect all 91 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 92 the bills, work out the profit or offset the allowance and on the effects on public finances of these provisions, as pay the right amount, given how people do business in requested in amendment 32. Amendment 33 from the this country. Scottish National party pushes in the same direction, so we also support that. Anneliese Dodds: I am grateful for that intervention, which underlines the fact that in practice some of the Mhairi Black (Paisley and Renfrewshire South) (SNP): calculations may be relatively complex. The response to It is a pleasure to follow the hon. Member for Oxford the consultation sets out the Government’s view that in East; we are also happy to support the Labour party’s practical terms it should normally be possible for those very sensible amendments. involved to come up with the appropriate figure, but if Our amendment would require the Chancellor of the not, an estimate would be acceptable. Exchequer to review the effect on public finances and While the hon. Gentleman was making his very relevant on reducing the tax gap of the changes made to capital point, I was wondering whether there might be room for gains tax in schedule 2. In 2016-17 the income tax, people to proffer a low estimate, which would obviously national insurance contributions and capital gains tax have a financial benefit, and then correct it later on. gap was 4.2%, or £13.5 billion—quite a significant Will HMRC genuinely have the capacity to understand amount of money for a Government to be short-changed whether such an estimate was bona fide—as he says, on. It seems only sensible, then, that the Chancellor informs evidence such as relevant bills may not have been fully us of how he expects these changes to impact that tax available at the time—or whether it was intended to gap. That would enable us to have a record of what the reduce liability? I agree that a specific reply from the intentions are and what he expects to be the conclusion. Minister to that pertinent point would be helpful. Only then can we coherently and clearly assess whether Clearly, in this case the length of time for any deferral the measure is working or not. Especially given how of capital gains tax beyond the 30-day period, up to unpredictable the current future is with Brexit and 22 months, would presumably need to be quite a bit things, it surely only makes sense to put this stuff down shorter than the length of time we are talking about in in writing—“Here’swhat we think is going to happen”—so relation to time-to-pay agreements. It would be helpful that we can then assess it. Ultimately, it cannot hurt to if the Minister confirmed that and whether his Department be more transparent, so I urge the Government to will be setting out criteria similar to those I have just accept the amendment. mentioned for time-to-pay agreements to guide HMRC on this matter. Were these matters covered in the existing consultation that occurred with interested parties and Mel Stride: I thank the hon. Members for Oxford just not reported in the Government’s response? East and for Paisley and Renfrewshire South for their Amendment 32 would require a review of the effects contributions; I will just pick up on the points that have on public finances if the provisions in this schedule were been raised. introduced from 6 April 2019. It would require the On the question of timing, both in terms of bringing Secretary of State to the measure before the Committee and the fact that it is “lay a report of that review before the House of Commons within coming in in 2020, I should say that we clearly consulted six months of the passing of this Act”. very carefully.The hon. Member for Oxford East mentioned Webelieve that the amendment is necessary—first, because consultation: we had an eight-week technical consultation, from what I can see there are two effective start dates in held between 11 April and 6 June 2018, and there were a the schedule and it is quite unclear why; and secondly, number of responses to that. because we need to understand the anticipated impact On the issue of the date when the change will come of the measures to a greater degree than is surely in, it is important to mention that this is a significant possible with the information supplied to us. change to the way the timing arrangements of this tax We have already had a little discussion about the operate. The hon. Member for Oxford East drew on my payment on account system. Arguably, it enables the observation that it is possible under the existing regime smoothing of outgoings for individuals and individual to have a 22-month delay between the sale of the asset businesses, and of revenue for HMRC, so to that extent concerned and payment of the tax. Of course, that is it can help with financial planning. However, we are the maximum delay, which would occur in the event surely talking about quite a different process when it that the asset was disposed of at the very beginning of a comes to the payment of capital gains tax. We are not tax year. In reality, the delay is likely to be shorter than talking about someone who is self-employed, who is that—as much as 12 months shorter if the asset is sold very unlikely to have payment just in one big lump sum; at the end of the tax year in question. it is likely to be in a number of different sums or continuous payments. Vicky Ford (Chelmsford) (Con): I want to raise an One could argue there is more of a rationale for issue about capital gains tax that was brought up by one payment on account in those regards than potentially of my constituents, who has taken the opportunity in here, aside from the fact that these measures will ensure retirement to travel overseas for a few years. They let more security of revenue for HMRC. Surely they could theirpropertyusinglettingrelief.Iunderstandaconsultation potentially have a revenue impact because, as the hon. has been started to review letting relief. They are concerned Member for Poole mentioned before, without this 30-day that the loss of letting relief may make them liable for limit individuals could be keeping that sum, effectively capital gains tax, which may mean they have to sell their earning interest on it and paying it later. family home despite the fact that they want to return to I appreciate what was said about the interest rate the UK. I will write to the Minister about that case, being low now, but that will not always necessarily be and I wonder whether he will look into it and write back the case. Surely it would be useful for us to have a review to me. 93 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 94

Mel Stride: If my hon. Friend writes to me about that that it is not possible to immediately complete the consultation, I will of course be very happy to respond information with absolute certainty within the 30 days— to her. perhaps because of third-party valuation issues, for The hon. Member for Oxford East also raised the example—it is possible, as I said earlier, to have a possibility of someone not filing the information as a balancing arrangement further on down the line in the consequence of the shortening of the time period. Part future. That could work either way: the Revenue might of the purpose of the change is to concentrate the owe the individual money or vice versa. That is facilitated requirement to file the paperwork at the time the asset is within the arrangements. sold, rather than leaving it in the distance. Where that I point my hon. Friend to the HMRC website where, requirement gets pushed into the distance, there is a should he have any more specific questions about how possibility of people forgetting about it. CGT operates, there is a user-friendly interface. He can One should also bear in mind that, in the case of a put in all the numbers and variables, and the website property, a number of professional advisers—particularly will provide him with the answers. solicitors—will be involved in the transaction. One would The hon. Member for Oxford East raised the time-to-pay expect them, in the natural course of events, to discuss arrangements. Clearly, where tax is due, the Revenue the tax implications of the transaction with the individual takes a measured and responsible approach towards those concerned. who find it difficult to pay any tax, perhaps for reasons of personal financial difficulty or otherwise. I know from conversations that those at a senior level at HMRC Sir Robert Syms: If someone has a number of properties, have always been very keen to ensure that it operates in a it is important that HMRC knows which they elect as sympathetic and responsible manner to negotiate the their main home. If, as in the case my hon. Friend the very difficult line between being sympathetic, responsible Member for Chelmsford mentioned, that has not always and helpful, where appropriate, and equally, making been their main home—if it started off as a second sure that we are all treated the same and that, where tax home or they rented it out, for example—the normal is due, individuals and companies actually pay it. approach is to apportion certain years in the property for which they are liable for capital gains tax. I am still a Another point that has been raised is HMRC capacity. little concerned about the 30 days. I have on occasions The premise of those concerns is the assumption that, gone back through all my files to see when I told to a significant degree, the changes might generate HMRC or my accountant, and it is possible to get into a lots of additional work for HMRC. I suspect the contrary, long, involved thing about what percentage of a property for the reasons that I have given. If, when the capital is liable for capital gains tax. gain is crystallised, there is a shorter period for people to hand in the paperwork as required, it means that they I am just a bit concerned that the window of opportunity will get on and do it, rather than delaying and discovering is too small. There are examples of people having that, as a consequence, they have to contact HMRC to multiple capital gains tax liabilities because they bought get involved in negotiations and discussions. themselves more than one home in a year. Getting all On the overarching point about HMRC and capacity, the information and the bills together sometimes takes as the hon. Lady will know, we have of course invested a little time—it can be easier to do that during the an additional £2 billion in HMRC since 2010. We have year-end process. I can understand the Treasury’s wanting 24,000 individuals or full-time equivalents in HMRC to get income in quickly, and many people would welcome who are focused on tax collection. The total head count that, but 30 days is pretty short if someone has to go of HMRC, which stands at around 70,000, is the highest through their strong boxes at home or contact their that it has been for some years. I commend the clause accountant or solicitor, who are often repositories of and the schedule to the Committee. information. I hope the Minister thinks about this issue a little more. Anneliese Dodds: I am grateful to the Minister for his comments. We on this side do not oppose the measures The Chair: Order. I do not want to discourage and are willing not to press our two amendments to a interventions, because they are a useful way of eliciting Division. I will, however, make two points. It would help information, but some of the interventions we have if the Minister provided some information on the criteria heard might have been better conducted as proper speeches. that would be used by HMRC for adopting deferred People should consider whether they might be better arrangements with individual taxpayers. Such criteria making a fuller case in a speech rather than an intervention. exist for time-to-pay arrangements, but none has been set I say that not to discourage interventions but, I hope, to out in relation to this clause, so it would be helpful to provide a bit of helpful guidance. know what they are. I agree with him that there needs to be a balance between sympathy and responsiveness, 12 noon to enable people to pay the tax that is due. On the other hand, there is the matter of equal treatment. Mel Stride: Thank you, Mr Howarth; I am sure the Committee has taken note of your guidance. I say to my Peter Dowd (Bootle) (Lab): I know that my hon. hon. Friend the Member for Poole that there is another Friend has been doing remarkable work on making aspect to that, and while 30 days is 30 days—not a year connections with the representative bodies, and visiting or more as has been the case under current arrangements— offices all around the country. My constituency has there are two points that I will make. about 2,700 members of HMRC staff. There seems to One is that, clearly, there is typically a moment of be incongruity between what the Minister says about exchange before property transfer completes, which is capacity and resource in HMRC and my experience an additional period of time in which paperwork is from speaking to my constituents. Does my hon. Friend brought together. The second point is that, to the extent feel the same in that regard? 95 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 96

Anneliese Dodds: I am grateful to my hon. Friend for Division No. 11] making that point. I do agree. Certainly judging by the conversations that I have had in a number of different AYES parts of the country where the consolidation programme Black, Mhairi Lewis, Clive for HMRC is occurring, there is enormous concern, Blackman, Kirsty Reynolds, Jonathan particularly about the expertise that is being lost by HMRC Dodds, Anneliese in some very important areas. Dowd, Peter Smith, Jeff I would hazard the argument, relating this to the previous point, that when one is talking about, for NOES example, tax officials having appropriate discretion to Afolami, Bim Lamont, John offer slightly different payment plans and so on to Badenoch, Mrs Kemi Stride, rh Mel individuals, one needs to have experienced staff who Ford, Vicky can make those kinds of decisions, but we are seeing Jenrick, Robert Syms, Sir Robert many such staff leaving. HMRC currently has the lowest Keegan, Gillian Whittaker, Craig morale, I think, among its staff of any Department. That reflects concern about the regionalisation programme, Question accordingly negatived. but also about other matters. Schedule 2 agreed to. As I mentioned, it would help if we were provided with the set of criteria for deciding to apply a slightly different approach and allow latitude beyond the 30 days. Clause 17 It would also help if we were given, perhaps in written form, more information in order to reassure us that, NON-UK RESIDENT COMPANIES CARRYING ON UK because the window is still open for a balancing payment PROPERTY BUSINESSES ETC to be made later, the issue that we were talking about Question proposed, That the clause stand part of the before does not arise. Bill. Obviously, the vast majority of taxpayers will wish to make a truthful and accurate return, but if that process The Chair: With this it will be convenient to discuss is manipulated, it could default in effect to what we have the following: already, so it would be useful to hear about some of the Amendment 39, in schedule 5, page 204, line 29, at anti-avoidance aspects of this measure. However, as I end insert— said, we are certainly willing to withdraw the Labour amendments. “PART 1A Mhairi Black: I appreciate everything that the Minister ANNUAL REPORT OF NON-UK RESIDENT COMPANIES said. However, I think that our amendment is as sensible 5A (1) The Chancellor of the Exchequer must publish details as it is transparent and therefore I still insist that it be of non-UK resident companies to which corporation tax is part of the Bill. chargeable due to the provisions of this Schedule. (2) The details published under sub-paragraph (1) must list the Mel Stride: May I say to the hon. Member for Oxford name of each such non-UK resident company. East that I will, of course, be very happy to write to her (3) The publication under sub-paragraph (1) must be on the criteria in relation to time-to-pay arrangements? published— Question put and agreed to. (a) in respect of the first such publication, within six Clause 14 accordingly ordered to stand part of the Bill. months of this Schedule coming into force, and (b) in respect of each subsequent publication, within 12 months of the date of the previous publication.” Schedule 2 This amendment requires an annual report on companies to which corporation tax is chargeable due to the provisions of this Schedule. RETURNS FOR DISPOSALS OF UK LAND ETC Amendment 35, in schedule 5, page 210, line 45, at Amendment proposed: 33, in schedule 2, page 176, line 21, end insert— at end insert— “PART 2A “PART 1A REVIEW OF EFFECTS ON PUBLIC FINANCES REVIEW OF EFFECTS ON PUBLIC FINANCES 34A (1) The Chancellor of the Exchequer must review the 17A The Chancellor of the Exchequer must review the expected revenue effects of this Schedule and lay a report of that review revenue effects of the changes made to capital gains tax returns and before the House of Commons within six months of the passing payments on account in this in this Schedule, along with an estimate of this Act. of the difference between the amount of tax required to be paid to (2) The review under sub-paragraph (1) must consider— the Commissioners under those provisions and the amount paid, and lay a report of that review before the House of Commons within six (a) the expected change in corporation tax paid months of the passing of this Act.”—(Mhairi Black.) attributable to the provisions in this Schedule, and This amendment would require the Chancellor of the Exchequer to (b) an estimate of any change, attributable to the review the effect on public finances, and on reducing the tax gap, of the provisions in this Schedule, in the difference between changes made to capital gains tax in Schedule 2. the amount of tax required to be paid to the Question put, That the amendment be made. Commissioners and the amount paid.” This amendment requires a review of the effects of this Schedule on the The Committee divided: Ayes 7, Noes 9. public finances. 97 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 98

Amendment 38, in schedule 5, page 210, line 45, at interest restriction, hybrid mismatch rules, carried-forward end insert— income loss restriction and the carried-forward capital loss restriction announced at Budget 2018. The businesses “PART 2A will now be taxed at the corporation tax rate and, in combination with clause 24, they will be eligible for the ANNUAL REVIEW OF EFFECTS OF THIS SCHEDULE loss relief rules available to companies and groups. The 34A (1) The Chancellor of the Exchequer must undertake an latest estimate by the Office for Budget Responsibility is annual review of the effects of the provisions of this Schedule on that the changes will raise £365 million over the next corporation tax receipts. five years. (2) The report of the review under sub-paragraph (1) must be Amendment 39 would require the publication of a laid before the House of Commons before— register of named individual non-UK resident companies (a) in respect of the first review, within 12 months of this who are charged corporation tax rather than income Schedule coming into force, and tax as a result of the measure. The Government do not (b) in respect of each subsequent review, within 12 months identify specific individuals or companies that are brought of the date on which the report of the previous within the scope of particular tax charges, and it would review was laid before the House of Commons.” be inappropriate to do so. Amendments 35 and 38 This amendment requires an annual review of the revenue effects of this would require a review of the impact of schedule 5 on Schedule, in each year following the Schedule coming into force. corporation tax receipts. The OBR certified impact of That schedule 5 be the Fifth schedule to the Bill. the measure on tax receipts is set out in table 2.2 of Budget 2018. It will be updated in table 2.2 of Budget 2019 before the schedule comes into effect on 6 April 2020, so New Clause 4—Comparative review of the expected the amendments are unnecessary. effects of Schedule 5— New clause 4 would require the Government to undertake “(1) The Chancellor of the Exchequer must a review of the expected effects of the provisions of Schedule 5 on payments to a review of the effects of schedule 5, specifically to consider the Commissioners, and lay a report of that review before the the effect of not bringing schedule 5 into effect and House of Commons within 6 months of the passing of the Act. increasing the corporation tax rate to 26%. If schedule (2) The review under subsection (1) must in particular 5 was not brought into effect, non-UK resident companies consider— with income from UK property would remain chargeable (a) the expected change in corporation tax receipts to income tax. In that situation, raising the corporation attributable to those provisions, and tax to 26% would create a clearly enhanced incentive for (b) the expected change in corporation tax receipts if— companies with a UK property business to set up offshore in order to benefit from paying the basic rate of (i) the provisions in Schedule 5 were not brought into force, an income tax. (ii) the rate of corporation tax were to be changed to I urge the Committee to reject the new clause, along 26%.” with the amendments, and I commend clause 17 and This requires a review of the effects of Schedule 5, and a comparison of schedule 5 to the Committee. the effects of that Schedule to an increase of the rate of corporation tax to 26%. Anneliese Dodds: I am grateful to the Minister for that explanation of the clause and schedule. As he Mel Stride: Clause 17 and schedule 5 provide that a explained, they set out new arrangements for non-UK non-UK resident company that carries on a UK property resident companies that carry on a UK property business business will be charged corporation tax, rather than or that have other UK property income. The clause and income tax as at present. The provisions will deliver schedule will shift those companies from the income tax equal tax treatment for UK and non-UK resident regime into the corporation tax regime. The Government companies that carry on UK property businesses. They appear to intend the measure to deliver more equal will prevent persons from using the existing difference treatment for UK and non-UK resident companies in in treatment to reduce their tax bill on UK rental receipt of similar income, and to prevent those that use property or land through offshore ownership. the difference to reduce their tax bill on UK property Until 1965 all companies were subject to income tax through offshore ownership. on their profits. When corporation tax was introduced The measures were subject to consultation from March in that year for UK resident companies and for non-resident last year and the Government released their response in companies trading in the UK through a UK permanent autumn 2017. In that Budget the Government announced establishment, other non-resident companies remained they would make the change in two years’ time, in 2020. chargeable under the income tax rules. From July 2016, I anticipate that in our discussion we will return to some non-resident companies that deal in or develop UK of the themes that characterised our discussion on land were brought within the UK tax net under corporation clauses 13 and 14. The measure seeks to align the tax, but for UK property businesses, two companies, treatment of non-UK investors with that of UK investors one domestic and one offshore, currently have different in the field of real estate. On Tuesday we discussed some rules for calculating tax from a UK property income, of the limitations that the Opposition believes there are even if their property businesses are otherwise identical. with the Government’s approach. The clause provides for a more coherent and fair tax regime by bringing the UK property business income of non-resident companies into the corporation tax regime 12.15 pm from 6 April 2020. The transition will mean that those We have tabled three amendments to this clause. companies will be subject to the recently implemented First, amendment 38 seeks a review of the revenue policies to combat tax avoidance, including the corporate effects of this measure within six months of Royal 99 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 100

Assent. It is similar to the SNP’s amendment 35. Secondly, which require sustainable public finances if they are to new clause 4 requires an analysis of the revenue effects be paid for. Those factors are often far more of a of this measure, compared with the revenue that would concern than the corporation tax rate, which is scaled to be raised if the corporation tax rate for large companies profits and therefore not a sunk cost. was 26%. Thirdly, amendment 39 requires the Chancellor Finally, amendment 39 requires the publication by to publish a list of non-UK resident companies that are Government of a list of those affected by the change, in subject to corporation tax under the change within six the absence of sufficient information from Government months of this clause coming into effect, and annually about the ownership of property by non-UK residents. thereafter. As we have discussed before in this Committee, although I shall now explain the reasoning behind each of these the Government have finally committed to introducing amendments.First, as mentioned, we seek a more thorough a register of foreign-owned property, the timetable for review of the revenue effects of this measure, because of that has been substantially delayed, even though we in the lack of information provided to us thus far. The the Opposition have indicated that we strongly support Government’s assessment suggests that the immediate the measure and would not oppose it. Therefore, it impact of the measure will be an additional £690 million could be brought in expeditiously.That is not happening, in 2019-20, but the measure will flip into a loss to the so we need to use every mechanism possible to derive an Exchequer of £310 million from 2020-21 and of £25 million understanding of the true size and impact of non-UK from 2021-22. No predictions are provided from 2022-23 property ownership. The amendment would help us in onwards. It would be helpful if the Minister could that endeavour. indicate the basis of those projections. Are they related I understand from the tax information and impact to his Government’s determination to press ahead with note for the clause and schedule that the measures are lowering corporation tax rates, even though the lowerings “expected to affect approximately 22,000 non-resident company theyhavealreadyundertakenhavenotresultedintheincrease landlords”. in business investment that we so desperately need? It would be very helpful to know who they are or, if not The gulf between corporation tax rates and income that, at least where they are located. HMRC will need to tax rates has become wider over recent years, and it is identify them anyway. It would not mean additional set to grow even more. Colleagues know that in the work, because I understand that HMRC will write to summer Budget 2015, the Government announced a them next summer to tell them about the change of tax reduction in corporation tax from 20% to 19% for the regime and let them know their new reference number financial years beginning 1 April 2017, 1 April 2018 and for corporation tax. 1 April 2019, with a further reduction to 18% from The response to a similar previous Opposition 2020. Then we had the announcement that that would amendment—the Minister has used a similar form of be accelerated, so that from 2020 the corporation tax words this time around—was that from the Government’s main rate will be down to 17%. point of view it is a matter of principle that those In the Government’s own tax information and impact subject to specific taxes should not be put on a register. note on that reduction in corporation tax, there was an However, is not clear to me how that differs in kind acknowledgement that that would have a negative impact from the Government’s commitment to a foreign-owned on revenue. The Office for Budget Responsibility analysis property register. Also, I gently draw the Government’s that was presented there rather contradicted the claim—we attention to the fact that we are talking about companies, have heard it in our debates on the Bill—that a reduction not individuals. I doubt whether any arguments about in rate will lead to an increase in tax take. That claim is privacy would apply to any extent. not supported by the TIIN for the reduction in the Kirsty Blackman (Aberdeen North) (SNP): It is a corporation tax rate. pleasure to take part in the debate with you in the Chair, I should mention that the OBR’s assessment that the Mr Howarth. It is good to take part in this interesting policy will reduce the size of the public purse includes debate on the changes that the Government propose. “a behavioural response to account for changes in the incentives Weare happy to support Labour amendments 39 and 38. for multinational companies to invest and to shift profits in and If it is pushed to a vote when the time comes, we shall out of the UK.” support new clause 4, but I make it clear that it is not our It also includes the impact of the measure on encouraging position that corporation tax should be changed in the incorporation, which we know is already occurring to a way the Labour party suggests. However, the new clause greater extent than one might have anticipated, or indeed asks for a review of the effect of the potential change desired. Forced incorporation has been identified by and we think it is reasonable that Opposition policies, as many tax experts as a significant problem. well as the Government’s, should be scrutinised. It is, I New clause 4 pushes in a similar direction by requiring think, fairly reasonable for us to support the review on Government to analyse the revenue that is likely to be that basis. lost as a result of this measure, in comparison with the Our amendment 35, as the hon. Member for Oxford situation that would have existed if the Government East said, is similar to one of the Labour amendments. had not cut corporation tax so extensively, but had Its aim is to have a review of the effect on public maintained a rate of 26%. That is, of course, Labour’s finances of the expected change, including in relation to policy, albeit with a differential rate for small businesses. the tax gap. I do not want to contradict the hon. Lady, We believe that that approach is sensible, especially but the Government have put out two sets of contradictory when many businesses are concerned about the sunk figures on the revenue implications for the Exchequer. costs that they face, from business rates to insurance The Government’s 29 October policy document links to premium tax, the apprenticeship levy and many more, the original numbers she cited. It gives a link to more as well as about factors such as the availability of skilled information and then provides figures contradictory to labour or the quality of local and transport infrastructure, those in the policy document. 101 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 102

[Kirsty Blackman] Mel Stride: I thank colleagues for their contributions. The hon. Member for Aberdeen North asked about the The policy document does not have the £690 million rationale for making this change, and whether it was figure; it predicts an increase of £700 million in 2020-21, simply to treat everybody equally—there is clearly a a reduction of £300 million in 2021-22, a reduction of point to that, but is it sufficient to justify the change? £15 million in 2022-23 and, crucially, a reduction of Equality of treatment has its merits, but, as I explained £20 million in 2023-24. The previous set of figures said in my opening remarks, there is the issue of bringing that the impact would be negligible in the fourth year. into the corporation tax regime those who hitherto have Now the Government are suggesting that there will be a been engaged in activities that fall due to income tax decrease in the amount of money coming into the rather than corporation tax. With that come all the Exchequer as a result of the change. Presumably, we anti-avoidance measures, including the corporate interest may imagine that the reduction will continue in future years, restriction, the hybrid mismatch regime,the carried-forward whereas the Government previously argued that their income loss restrictions and the capital gains and loss previous figures were correct, when they predicted not much restrictions that were set out in the recent Budget. That of an increase or decrease either way in future years. is quite an important point. I was slightly confused by the information that the Government provided, and it would be useful to have Kirsty Blackman: I thank the Minister for attempting clarity about which figures are correct, and why the to explain. Pulling those people into all those anti-avoidance policy document contains one set of figures but links to measures still results in a negative impact on the Exchequer. a different set on the website. Possibly a change needs to I contend that there may be no point in pulling them be made there, as the link to more information takes into these different measures if there is no positive people somewhere that does not give more information—it benefit to be had from doing so. contradicts the original information provided. I found it quite difficult to wade through that. Given what I Mel Stride: The latest OBR estimate is that the changes have outlined, it is even more important that our will raise £365 million across the forecast period, although amendment should be accepted. Weneed clear information I will come to the issue raised by the hon. Member for from the Government, and a clear idea of what revenue Oxford East about the timing of the figures. She referred effects are, or are not, expected. to the consultation that we carried out between March Another thing that was mentioned in an earlier and June 2017; we came back with our report on consultation document is the expectation that it will 1 December 2017. Draft legislation for the UK property cost HMRC £160,000 to make the changes necessary to income measure was published on L-day on 6 July, and put the new system in place. That also needs to be the technical consultation was run until 31 August 2018. teased out in the information provided. The amendment Responses were received from representative bodies from would reduce the effect on public finances, and that the property retail sector and accountancy firms. The would include any additional spend required by HMRC measure was consulted on pretty thoroughly. staff as a result of the suggested changes. On the timing issues raised by the hon. Lady, the way I am concerned that there is a lack of transparency in which the Office for National Statistics tax accounting about the conflict between the two sets of figures provided, treatment works means that increased corporation tax and that the Government have not been particularly receipts are scored in the year of implementation, but clear about their intentions behind the change.I understand the corresponding reduction in income tax receipts is that they feel that making the change would put everyone scored in a subsequent year. There is a mismatch between on a more level playing field, but surely they should do the moneys coming in under the CT arrangements and that only if they expect a change to have a positive the moneys that have been transferred into that regime, impact. There is no point in moving people from being which do not go into the scorecard until a year later. That liable for one tax to being liable for another tax to would largely explain the profile to which she referred. reduce the impact on the Exchequer, if that is the only predicted change. 12.30 pm Perhaps the Government want the extra money in With new clause 4, we seek to analyse the impact of year one, because they feel that Brexit will be such a not going ahead with the measure, assuming at the disaster that we could do with extra money in year one, same time that corporation tax was at the 26% rate that and they are willing to take the hit in future years. the Labour party is suggesting, were it to be in government. Given the potential impact on future years, the change In the absence of the measures, those currently under will not be revenue-neutral in future. If the Government the CT regime would be allowed to escape that regime think that it will be, it would be useful to know that. by going offshore. Putting up tax rates to 26% would simply increase the incentive for them to do precisely Having said all that, I am not clear about the that. Businesses facing a rate of 26% instead of our rate Government’s intentions behind the change; it would be of 19%, going down to 17%, would say, “Ah—there is good if they could explain the rationale behind what an element of treatment here that I can benefit from. I they are doing. I have looked at the explanatory notes will go offshore and I will fall within the income tax and they do not make it much clearer. The Government regime.” That would be the effect. may think that this system is fairer. If that is their view, The hon. Member for Oxford East also mentioned it would be useful for them to explain that. the register of the businesses that would come within I am not sure whether we will press the amendment the scope of the measure. She raised the figure of to a vote; that depends a lot on the Minister’s response, 22,000 businesses. There is a general principle about the information he provides and any follow-up information going out and publicly holding up those who fall within he commits to providing. the scope of particular taxes, but there is also an element 103 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 104 of proportionality. She raised the figure of £160,000, as In addition, it is not clear to me whether the figures the cost of making the technology changes that would that have been set out, whether that is one set or be required to introduce the measure. [Interruption.] I another, take into account the impact of coming within apologise—the hon. Member for Aberdeen North made the scope of anti-avoidance measures and so on. That that point. Perhaps I can unite the Opposition parties would obviously just be a projection in any case, but we by saying that clearly there has to be an element of surely need to have more information before we can proportionality when it comes to getting all this information take an informed view. together, then getting the register together and keeping it up to date, and asking the question, what is the Peter Dowd: On a slightly wider but, I think, pertinent particular value of doing so? point, in the Red Book for this year, corporation tax for 2019-20 is £60 billion and by 2023 it is £66 billion. Does Anneliese Dodds: The Minister is trying to suggest the hon. Lady find that her concerns about this specific that it would be a great cost, but I made it clear that thing are compounded by the uncertainty about, HMRC would have to compile a list of these individuals for example, the deal we will be debating in the not-too- anyhow in order to inform them of their tax liabilities. distant future? There would not be a collation cost. There may be a cost from other aspects of it, but not from the collation. Anneliese Dodds: I agree with my hon. Friend. When we are talking about this sector in particular, we must always bear in mind the impact not only on revenue but Mel Stride: The hon. Lady is right that HMRC will overall on investment and the need to ensure that high- be privy to the information, but there is a difference between quality infrastructure is provided. I know that that is being privy to the information and treating with individuals enormously important and something that the Minister and companies in terms of their tax return. Collating all is concerned with and working on. For the reasons I that information and presenting it in the form that she have set out, we will press amendment 38 to a vote. envisages is a distinct activity. On new clause 4, I say in response to the hon. I undertake to write to the hon. Member for Aberdeen Member for Aberdeen North that there may be some North about the online number that she discovered and agreement on some issues, but on corporation tax rates the numbers that were provided in the policy document. there is a difference to the extent that Labour feels that I wish I was so good that I just knew all the answers and we need to work with other countries to prevent a race was over the detail to that degree, but I will certainly write to the bottom. That is something we have already been to her on that, and on the cost of making the changes to doing. A race to the bottom is damaging, particularly the system. I am happy to have a look at the £160,000 figure when many businesses tell us that the corporation tax that she raised and see how it breaks down. rates do not drive their decision to locate in the UK; they may be one of a basket of factors, but other Kirsty Blackman: If possible, it would also be useful matters, particularly sunk costs, are important. Therefore, to know before we come back on Report whether the we are happy for our proposals to come under scrutiny Government expect the revenue impact for the Exchequer at every point, and we hope that in doing so we might to be negative in future years, beyond the four-year persuade the SNP to come to our view as well. timescale that is predicted. That makes a difference in terms of whether it is, as the Minister says, a good Kirsty Blackman: To be totally clear—I am sure the measure across the four years or a really bad measure hon. Member for Oxford East did not mean this—we across 10 or 12 years. do not support a race to the bottom either. Our manifesto position was that we supported no further reductions in corporation tax, which is slightly different from the Mel Stride: I think I am right in saying that over the Labour party position. longer term, in revenue terms the measure is likely to be broadly neutral. The OBR, of course, will only cast out In the spirit of trying not to take up too much of the across the scorecard period. It will not analyse the fiscal Committee’s time and the fact that amendments 35 and impacts beyond that, but if the hon. Lady would care to 38 are broadly similar and we have covered the ground write to me with any questions on that, to the extent of both amendments quite a lot during the course of that I can answer them of course I will do so. the debate—although the answers we received could have been clearer—we are happy not to press amendment I commend the clause and the schedule to the Committee. 35 and to support Labour party amendment 38. Question put and agreed to. Anneliese Dodds: I am grateful to the Minister for his Clause 17 accordingly ordered to stand part of the Bill. comments, but we will press amendment 38 to a vote. Amendment proposed: 38, page 210, line 45 [Schedule 5], Although I took on board his responses, I am concerned at end insert— that we have a lack of clarity about the revenue impact of a measure, which means that as a Committee it is “PART 2A difficult for us to make a judgment on it. When he tried to explain why there might be a negative amount on ANNUAL REVIEW OF EFFECTS OF THIS SCHEDULE some projections of the impact in subsequent years, he 34A (1) The Chancellor of the Exchequer must undertake an stated that that was due to the different timing of annual review of the effects of the provisions of this Schedule on reporting of corporation tax revenue and income tax corporation tax receipts. revenue. That would explain a difference for one year, (2) The report of the review under sub-paragraph (1) must be but not for subsequent years, so I am still concerned laid before the House of Commons before— about why there might have been a negative suggested (a) in respect of the first review, within 12 months of this figure into subsequent years. Schedule coming into force, and 105 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 106

(b) in respect of each subsequent review, within 12 months Amendment 42, in schedule 6, page 220, line 26, at of the date on which the report of the previous end insert— review was laid before the House of Commons.”— “13 The Chancellor of the Exchequer must commission a (Anneliese Dodds.) review comparing diverted profits tax against a Digital Services This amendment requires an annual review of the revenue effects of this Tax and lay a report of that review before the House of Schedule, in each year following the Schedule coming into force. Commons within six months of the passing of this Act.” Question put, That the amendment be made. This amendment would require the Chancellor of the Exchequer to The Committee divided: Ayes 8, Noes 9. review DPT against the Government’s proposed Digital Services tax. Division No. 12] Amendment 43, in schedule 6, page 220, line 26, at end insert— AYES “13 (1) The Chancellor of the Exchequer must commission a Black, Mhairi Lewis, Clive review on the matter specified in subsection (2). Blackman, Kirsty Reynolds, Jonathan (2) That matter is the effects on the public finances of the the Dodds, Anneliese Smith, Jeff provisions in this Schedule coming into effect in the tax year Dowd, Peter Sobel, Alex 2019-20 compared to previous or subsequent tax years. (3) The Chancellor of the Exchequer must lay a report of the NOES review under subsection (1) before the House of Commons within six months of the passing of this Act.” Afolami, Bim Lamont, John Badenoch, Mrs Kemi This amendment would require the Chancellor of the Exchequer to Stride, rh Mel review the impact of introducing this measure in 2019-20. Ford, Vicky Jenrick, Robert Syms, Sir Robert Amendment 45, in schedule 6, page 220, line 26, at Keegan, Gillian Whittaker, Craig end insert— “13 After section 105 insert— Question accordingly negatived. 105A Public register of diverted profits tax payments Schedule 5 agreed to. (1) The Commissioners must provide information to the Treasury listing those companies that have made payments pursuant to a charge of diverted profits tax, and the amounts of Clause 18 those payments. (2) The Treasury shall publish a register of companies paying DIVERTED PROFITS TAX diverted profits tax based on the information provided by the Commissioners under subsection (1), and shall make that register Question proposed, That the clause stand part of the available to the general public.” Bill. This amendment requires the publication of a public register of those companies that pay diverted profits tax. The Chair: With this it will be convenient to discuss That schedule 6 be the Sixth schedule to the Bill. the following: Amendment 46, in schedule 6, page 220, line 2, leave out paragraph 11. Mel Stride: Clause 18 makes changes that will ensure that the diverted profits tax continues to prevent This amendment removes the proposed extension of the review period to 15 months. multinationals from diverting profits from the UK to artificially and unfairly lower their tax bill. The Government Amendment 37, in schedule 6, page 220, line 26, at have created a tax system that rewards entrepreneurship, end insert— drives growth and is based on low corporation taxes, “13 The Chancellor of the Exchequer must review the but does not tolerate any company or person exploiting expected change to payments of diverted profits tax and any the rules to avoid paying their fair share. In 2015 we associated changes to overall payments made to the Commissioners arising from the provisions of this Schedule, and therefore introduced DPT, which counters aggressive tax lay a report of that review before the House of Commons within planning by multinationals. It is targeted at particular 6 months of the passing of this Act.” behaviours and arrangements, not at particular taxpayers This amendment would require the Chancellor of the Exchequer to or sectors. review the effect on public finances of the diverted profits tax provisions DPT has been a success. Every year, HMRC publishes in this Bill. statistics on the revenue that it has raised, and every year Amendment 40, in schedule 6, page 220, line 26, at they show that it has raised more than originally forecast. end insert— Last year alone, it raised £388 million—40% more than “13 The Chancellor of the Exchequer must review the in 2016-17. Clause 18 will ensure that DPT continues to expected revenue effects of the changes made to diverted profits prevent multinationals from exploiting our tax system tax in this Schedule and lay a report of that review before the and continues to raise money for our vital public services. House of Commons within six months of the passing of this Act.” When Parliament introduced DPT, it was intended that diverted profits would be subject either to DPT or This amendment would require the Chancellor of the Exchequer to review the effect on public finances on the provisions in Schedule 6. to corporation tax, but not both. Concerns have been raised by some commentators that the current legislation Amendment 41, in schedule 6, page 220, line 26, at does not make that clear. Clause 18 will put it beyond end insert— doubt by clarifying that diverted profits subject to DPT “13 The Chancellor of the Exchequer must review diverted are not also liable to CT. profits tax against its policy objectives and lay a report of that review before the House of Commons within six months of the When DPT is charged, companies are required to pay passing of this Act.” up front before they can lodge a dispute with HMRC This amendment would require the Chancellor of the Exchequer to during the DPT review period. DPT incentivises companies review DPT against its policy objectives. to agree adjustments to their CT return during the DPT 107 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 108 review period and thus pay the correct amount of aggressive tax planning. By contrast, DST is targeted at corporation tax on their diverted profits, thereby removing certain digital businesses. It is not focused on aggressive such profits from the DPT charged. That reduces the tax planning; it is designed to ensure that businesses pay likelihood of costly and time-consuming litigation, while an amount of tax in the UK that reflects the value they ensuring that companies pay the right amount of derive from UK users. The Government are still consulting corporation tax in the UK. Clause 18 will reinforce that on the design of the digital services tax, which is due to incentive by allowing taxpayers to formally amend their be legislated for in next year’s Finance Bill. I am not tax return to bring diverted profits under corporation convinced of the need to compare DPT with DST; nor, tax during the first 12 months of the review period. given that we are still consulting on the design of DST, ThearrangementstowhichDPTappliesareoftencomplex, do I see that any value in such an exercise. and in some cases the current 12-month review period is Amendment 45 would require the Government to insufficient to reach a resolution. At present, taxpayers publish a public register of companies paying DPT and are able at any point during the 12-month period to of the amounts that they pay. The Government believe provide HMRC with information that it must take into that we should continue to uphold the long-standing account in determining the final tax charged. Clause 18 policy that we do not disclose taxpayer information. will extend the DPT review period by three months, Taxpayer confidentiality helps to ensure that taxpayers ensuring that HMRC has enough time to tackle even the trust HMRC to protect their data appropriately. That most contrived and complex arrangements. The final trust encourages taxpayers to work with HMRC, increasing three months will be reserved for HMRCalone to consider its effectiveness in enforcing the law.Therefore confidential the arrangements and determine the right amount of information should be disclosed only when it is clear tax to be paid. that the benefits of doing so outweigh the disbenefits. Amendment 46 would remove the proposed extension We do not believe that such disclosure is warranted in of the review period. Because companies pay DPT up this instance. front, it is in their interest to resolve cases quickly Clause 18 and schedule 6 make amendments to ensure during the DPT review period. Furthermore, the time that DPT continues to prevent multinationals from available to a company to amend its tax return will pursuing aggressive tax planning that diverts profits, remain at 12 months. The extension of the review and hence tax, from the UK. I commend the clause and period is necessary to ensure that HMRC has enough schedule to the Committee. time to tackle complex tax-driven arrangements used by businesses in an attempt to unfairly reduce their UK tax bill. This modest extension provides no new power Anneliese Dodds: I am grateful to the Minister for his or relief for taxpayers. explanation of the clause and schedule. Colleagues will be well aware that DPT was introduced back in 2015, 12.45 pm following enormous pressure from campaigners, the Public Accounts Committee and the Opposition to Finally, we have become aware that in a limited ensure that large, multinational companies pay their number of cases, the current DPT legislation might fair share of tax. DPT focuses on two forms of tax allow DPT to be inappropriately reduced after the end avoidance. The first is where of the review period, which would undermine the purpose of the regime. To date, no tax has been lost as a “a company with a UK taxable presence uses arrangements consequence of this, and the changes made by the lacking economic substance to artificially divert profits from the UK.” clause would ensure that tax is not lost going forward. Amendments 37 and 40 would require the Government The second is where to lay before the House a report on the impact on the “a person carries out activities in the UK for a foreign company DPT revenue of the changes made by the clause. I am that are designed to avoid creating a Permanent Establishment” pleased to inform Opposition Members that we have and becoming taxable through that route. already prepared and published such an assessment as As the Minister set out, the Bill makes a number of part of the Budget process. We do not expect the clause changes to DPT. First, the changes attempt to ensure to have an Exchequer impact, because these changes that the rules work more effectively to prevent avoidance would protect yield that is already accounted for. arrangements giving rise to planning opportunities from Amendment 43 would require the Government to October this year. The changes clarify that diverted profits assess the effect of the clause on public finances by will be taxed under only DPT or corporation tax from 1 comparing this year with previous and subsequent tax April 2015 onwards; obviously, this is a retrospective tax. years. This is unnecessary. As I have already stated, we The measures also extend to 38 months the period in do not expect the clause to have any material impact on which HMRC can issue a preliminary notice stating that public finances. it intends to apply DPT in the first category of cases Amendment 41 would require the Government to —thatis,wheretaxpayersarebelievedtobeusingarrangements publish a report that reviews DPT against their policy lacking economic substance in order to expatriate profits. objectives. I do not believe that such a report is necessary. The Opposition will certainly support that change. As As I have said before, as part of their online policy mentioned, however, the measures also extend very maintenance, the Government keep all taxes under review. substantially—by 25%, from one year to 15 months—the More importantly, HMRC already publishes annual review period for HMRC to work with a company to statistics on the amount of revenue that DPT has raised. examine how much profit has been diverted. Amendment 42 would require the Government to Finally,the measures enable the amendment of corporate compare DPT with the recently announced digital services tax returns to include diverted profits during the first tax. As I have already said, DPT is not targeted at a 12 months of the review period, and to allow the particular sector but at multinationals that undertake inclusion of diverted profits on the corporation tax 109 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 110

[Anneliese Dodds] and the additional tax resulting from altered company tax practices. It is not clear to me whether that is just return of the affected party for the first 12 months of about the extra corporation tax or something else, so the review period, in cases where a foreign company is perhaps the Minister can illuminate it for us. believed to have attempted to avoid permanent It would also be helpful if we could understand why establishment through artificial methods. there has been such an increase in the projected number We have tabled a number of amendments to clause 18 of taxpayers coming under the measure. Anecdotally, and schedule 6. Amendment 45, as was mentioned, would many tax practitioners have told me that they do not think require a public register of firms that have paid the that it is necessarily covering the very biggest firms—many diverted profits tax. Colleagues will remember, I am had anticipated that it would do so—particularly digital sure, that when that tax was introduced, it was widely firms, but it is covering a large number of other firms. described by the Government as a Google tax. Indeed, To that extent, it seems to be quite different from the journalists were briefed by Government spokespeople initial prospectus, so can the Minister explain why, on using that term. The Minister has argued that DPT is this issue, George Osborne seems to have got things not targeted at any particular sector; that is not how it wrong? I admit that that was not an isolated occurrence, was described and promoted at the time. but it would be helpful if the Minister could explain it. It is not clear to the Opposition whether Google has George Osborne, when DPT was introduced, said actually been covered by DPT. Back in January 2016, that it would also act as a catalyst for the restructuring the then Chancellor of the Exchequer maintained that of companies that were seeking to avoid permanent DPT provided the context for HMRC’s £130 million establishment in the UK and to claim false economic settlement with Google. Of course, that was announced substance in low or no-tax jurisdictions to avoid UK to great fanfare, but very quickly there was a lot of concern corporation tax. We have not, from what I can see, had that it was actually a very poor deal for taxpayers, any evaluation of DPT’s impact in connection to that. I because Google’s settlement with HMRC in January 2016 have not heard of many significant changes in corporate coveredawhole10years,from2005to2015,andconstituted structure that can be specifically attributed to DPT. £117 million in back taxes and £13 million in interest. They may well exist, but we need to know about them in Fairly obviously, it was not the Google tax, DPT, that order to have an appropriate understanding of the led to that settlement, because it had applied for only a efficacy or otherwise of the measure. That is what is twentieth of the time for which the settlement was called for in amendment 41. Related to discussion around achieved—just six months of that time. Also, the so-called our previous amendment, if increased tax from alterations Google tax had not led to any appreciable unwinding of in corporate structure is counted as part of the revenue complex tax structures. Of course, we need to put the from DPT, surely it is important for us to know what £130 million settlement in the context of the then £4.6 those alterations in corporate structure are in the first billion-worth of UK sales by Google. I appreciate that place. I think that would be helpful for the Committee. that is comparing apples with pears, but it does put Amendment 42 requires a review of DPT’s effectiveness things in context. as against the Government’s proposed digital services In concluding the deal, HMRC accepted Google’s tax—DPT versus DST, as it were. Colleagues will, of claim that its UK staff only supported their colleagues course, be aware that DST has not been included in the in Ireland—something that the PAC discussed at length Bill; it is only being consulted on. Strangely, at the same and which I will not go into here. Suffice it to say that it time as saying that that tax would impel other countries is contested. Interestingly, that great radical Rupert to implement similar provisions by starting a conversation Murdoch stated that the tax payments by Google were on the merits of novel approaches to taxing digital “token amounts for PR purposes”. giants, the tax includes some weaknesses that, it seems Our amendment is designed to shine a light on which to me, do not apply to the European approach. It is set taxpayers have actually been subject to this tax, given at 2% of revenues, rather than at 3%. It also includes the the way in which it was presented when it was introduced, so-called safe harbour provision, which means that it is so that the public can judge its effectiveness for themselves. not paid by companies that do not indicate that they are It would also provide a first step towards the country- making profits. That is exactly how many of them have by-country reporting for multinational companies that avoided corporation tax, so how such a measure would the Government were forced to accept as a possibility catch many of those companies is unclear to me. through an amendment to the 2016 Finance Bill, although Our amendment would ask for an explicit comparison they have not yet enacted that. They have the power to of DPT with DST. That is surely necessary given that enact it through that amendment, but have not yet gone they embody fundamentally different assumptions about ahead with it. This amendment would at least take us a the appropriate basis for corporate taxation. DPT assumes step along the way. that transfer pricing is still alive and kicking, and a Amendment 40 would require a review of the diverted tenable basis for assigning taxing rights, while DST profits tax against its stated aims; that would include obviously uses a particular form of revenue as the the extent to which it has raised revenue for the Exchequer. taxable quantum, rather than profit. That is surely It is very similar to amendment 37 from the SNP. The necessary in a context where there are many discussions Minister intimated that the revenues coming from DPT ongoing at an international level about the appropriate were higher than forecast, and that does appear to be basis for corporate taxation, including whether there the case, but it would be helpful if the Minister could should be a greater focus on value derived from branding. delineate for us the different components of his I understand that has some support on the US side. Department’s assessment of the value of DPT. That is I will briefly describe our two additional amendments because, as I understand it, there are two components in the three minutes that remain. Amendment 46 removes to its reported value: the direct tax take from DPT itself the extension of the review period during which the 111 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 112 taxpayer can make representations to HMRC about Finally, as the Minister mentioned, amendment 43 why its assessment is invalid. Despite what the Minister would consider the impact of introducing the measures said, I do not think that we have been provided with within this specific time period as against another. sufficient evidence about why that is necessary. If there Again, we feel that we have not been provided with a is a problem with companies providing evidence towards sufficiently clear rationale for the timing, so it would be the end of that review period and HMRC is having helpful to learn more about the implementation schedule difficulty crunching that evidence, surely it would be set out within the Bill. more helpful for those companies to be required to Ordered, That the debate be now adjourned.—(Craig provide the evidence a bit earlier in the process. If Whittaker.) evidence being provided later on in the existing review period was causing problems for HMRC, surely that 12.58 pm would be one way of dealing with it. Adjourned till this day at Two o’clock.

PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT GENERAL COMMITTEES

Public Bill Committee

FINANCE (NO. 3) BILL

(Except clauses 5, 6, 8, 9 and 10; clause 15 and schedule 3; clause 16 and schedule 4; clause 19; clause 20; clause 22 and schedule 7; clause 23 and schedule 8; clause 38 and schedule 15; clauses 39 and 40; clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 and schedule 18; clauses 68 to 78; clause 83; clause 89; clause 90; any new clauses or new schedules relating to tax thresholds or reliefs, the subject matter of any of clauses 68 to 78, 89 and 90, gaming duty or remote gaming duty, or tax avoidance or evasion)

Fourth Sitting

Thursday 29 November 2018

(Afternoon)

CONTENTS

CLAUSE 18 agreed to. SCHEDULE 6 agreed to. CLAUSES 21 AND 24 TO 26 agreed to. SCHEDULE 9 agreed to. CLAUSE 27 agreed to. SCHEDULE 10 agreed to. CLAUSE 28 agreed to. SCHEDULE 11 agreed to. CLAUSES 29 TO 31 agreed to. SCHEDULE 12 agreed to. Adjourned till Tuesday 4 December at twenty-five minutes past Nine o’clock. Written evidence reported to the House.

PBC (Bill 282) 2017 - 2019 No proofs can be supplied. Corrections that Members suggest for the final version of the report should be clearly marked in a copy of the report—not telephoned—and must be received in the Editor’s Room, House of Commons,

not later than

Monday 3 December 2018

© Parliamentary Copyright House of Commons 2018 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 113 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 114

The Committee consisted of the following Members:

Chairs: MS NADINE DORRIES, †MR GEORGE HOWARTH

† Afolami, Bim (Hitchin and Harpenden) (Con) † Lewis, Clive (Norwich South) (Lab) † Badenoch, Mrs Kemi (Saffron Walden) (Con) † Reynolds, Jonathan (Stalybridge and Hyde) (Lab/ † Black, Mhairi (Paisley and Renfrewshire South) Co-op) (SNP) † Smith, Jeff (Manchester, Withington) (Lab) † Blackman, Kirsty (Aberdeen North) (SNP) † Sobel, Alex (Leeds North West) (Lab/Co-op) Charalambous, Bambos (Enfield, Southgate) (Lab) † Stride, Mel (Financial Secretary to the Treasury) † Dodds, Anneliese (Oxford East) (Lab/Co-op) † Syms, Sir Robert (Poole) (Con) † Dowd, Peter (Bootle) (Lab) Whately, Helen (Faversham and Mid Kent) (Con) † Ford, Vicky (Chelmsford) (Con) † Whittaker, Craig (Lord Commissioner of Her † Jenrick, Robert (Exchequer Secretary to the Majesty’s Treasury) Treasury) † Keegan, Gillian (Chichester) (Con) Colin Lee, Gail Poulton, Joanna Dodd, Committee Clerks † Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con) † attended the Committee 115 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 116

Amendment 42, in schedule 6, page 220, line 26, at Public Bill Committee end insert— “13 The Chancellor of the Exchequer must commission a Thursday 29 November 2018 review comparing diverted profits tax against a Digital Services Tax and lay a report of that review before the House of Commons within six months of the passing of this Act.” (Afternoon) This amendment would require the Chancellor of the Exchequer to review DPT against the Government’s proposed Digital Services tax. Amendment 43, in schedule 6, page 220, line 26, at [MR GEORGE HOWARTH in the Chair] end insert— “13 (1) The Chancellor of the Exchequer must commission a Finance (No. 3) Bill review on the matter specified in subsection (2). (2) That matter is the effects on the public finances of the the (Except clauses 5, 6, 8, 9 and 10; clause 15 and provisions in this Schedule coming into effect in the tax year 2019-20 compared to previous or subsequent tax years. schedule 3; clause 16 and schedule 4; clause 19; clause 20; clause 22 and schedule 7; clause 23 and (3) The Chancellor of the Exchequer must lay a report of the review under subsection (1) before the House of Commons schedule 8; clause 38 and schedule 15; clauses 39 and within six months of the passing of this Act.” 40; clauses 41 and 42; clauses 46 and 47; clauses 61 This amendment would require the Chancellor of the Exchequer to and 62 and schedule 18; clauses 68 to 78; clause 83; review the impact of introducing this measure in 2019-20. clause 89; clause 90; any new clauses or new schedules Amendment 45, in schedule 6, page 220, line 26, at relating to tax thresholds or reliefs, the subject matter end insert— of any of clauses 68 to 78, 89 and 90, gaming duty or remote gaming duty, or tax avoidance or evasion) “13 After section 105 insert— 105A Public register of diverted profits tax payments (1) The Commissioners must provide information to the Clause 18 Treasury listing those companies that have made payments pursuant to a charge of diverted profits DIVERTED PROFITS TAX tax, and the amounts of those payments. (2) The Treasury shall publish a register of companies 2 pm paying diverted profits tax based on the information provided by the Commissioners under subsection (1), Question (this day) again proposed, That the clause and shall make that register available to the general stand part of the Bill. public.” This amendment requires the publication of a public register of those The Chair: I remind the Committee that with this we companies that pay diverted profits tax. are discussing the following: That schedule 6 be the Sixth schedule to the Bill. Amendment 46, in schedule 6, page 220, line 2, leave out paragraph 11. Kirsty Blackman (Aberdeen North) (SNP) rose— This amendment removes the proposed extension of the review period to 15 months. The Chair: We have all waited through our lunch Amendment 37, in schedule 6, page 220, line 26, at break for this with eager anticipation. end insert— “13 The Chancellor of the Exchequer must review the expected change to payments of diverted profits tax and any associated Kirsty Blackman: And a very enjoyable lunch break it changes to overall payments made to the Commissioners arising was—not that the Committee is not enjoyable, too. from the provisions of this Schedule, and lay a report of that [Laughter.] I dug myself out of that one. I want to review before the House of Commons within 6 months of the speak both to Labour’s amendments and to our own, passing of this Act.” but I will not speak for long. This amendment would require the Chancellor of the Exchequer to I find Labour’s amendment 46, which would remove review the effect on public finances of the diverted profits tax provisions the proposed extension of the review period to 15 months, in this Bill. particularly interesting because I agree with Labour Amendment 40, in schedule 6, page 220, line 26, at Front-Bench Members that the Government have not end insert— adequately explained the effect of changing the review “13 The Chancellor of the Exchequer must review the period. More could have been done to provide the expected revenue effects of the changes made to diverted profits Committee with information about the reason for the tax in this Schedule and lay a report of that review before the extension and the decision-making process behind it. House of Commons within six months of the passing of this Act.” On that basis, I would be happy to support the Labour party, but that is not to say that the Government could This amendment would require the Chancellor of the Exchequer to review the effect on public finances on the provisions in Schedule 6. not come back in future years with reasonable information to justify the extension and set out the impact on the tax Amendment 41, in schedule 6, page 220, line 26, at take. end insert— Labour’s amendment 43 would require the Chancellor “13 The Chancellor of the Exchequer must review diverted profits tax against its policy objectives and lay a report of that of the Exchequer to review the impact of introducing review before the House of Commons within six months of the the diverted profits tax in 2019-20—something else that passing of this Act.” the Government have not adequately explained. We This amendment would require the Chancellor of the Exchequer to would like a little more information on matters such as review DPT against its policy objectives. the difficulties for organisations resulting from the tax’s 117 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 118 implementation and its impact on the Exchequer, because When looking at this backstop, we really have to look we need to balance those things when we make decisions at overall corporation tax revenue, which, notwithstanding on tax changes. the fact that the rate has been cut, has actually gone up. The Scottish National party’s amendment 37, which I therefore hope that the Government reject these reports— would require the Chancellor to review the effect on the Government have been far too reasonable in this public finances of the diverted profits tax provisions in Committee anyway—stick to their guns,and reject whatever the Bill, is broader than some of the specific requests the Opposition want. that have been made for individual pieces of information. I understand the Minister’s point that Her Majesty’s The Financial Secretary to the Treasury (Mel Stride): Revenue and Customs regularly provides information I will be brief, as I am conscious that the Committee is to the general public about the diverted profits tax, but I moving fairly slowly through the clauses, and we have think we could have been given a little more information quite a lot of the Bill still to cover. about the proposals’ expected effect on revenue and on The hon. Member for Oxford East mentioned the the tax gap. diverted profits tax and the digital services tax. Earlier Finally, I know that explanatory notes do not form on in her speech, in a different context, she used the part of a Bill, but the “Background note” sections are expression “comparing apples with pears”. I think that usually quite useful. However,I did not find the background is what we are doing here, and that lies at the heart of note on clause 18 useful in the slightest, because it does the objection to her amendment. not give a huge amount of information about the rationale behind the Government’s decision or behind Anneliese Dodds (Oxford East) (Lab/Co-op): The the individual changes being made to the diverted profits Minister knows that I have a lot of respect for him. tax. It simply says: However, that was exactly my point: the two taxes are “This measure supports that aim”— based on a fundamentally different view of what should the aim behind the diverted profits tax— be taxed. Obviously, a digital services tax would be “through amendments to close tax planning opportunities.” revenue based, whereas DPT is still profit based, and If it had given a little more information about what based on the arm’s length principle. Surely one should those amendments are and what they mean, the Minister therefore compare them in terms of their efficacy at would have avoided facing quite so many questions generating tax revenue, preventing avoidance, and so from the Committee. on. The fact that they are different does not mean that it is not legitimate to compare them. The Chair: Wealso eagerly await the words of Sir Robert Syms. Mel Stride: I understand what the hon. Lady says, Sir Robert Syms (Poole) (Con): I would have intervened, but the expression “preventing avoidance”, which she Mr Howarth, but you have provoked me into making a has just used, lies at the heart of the meaningful distinction. brief speech instead. DPT is about avoidance, as eloquently expressed by my Corporate tax structures are very complex. Even hon. Friend the Member for Poole, whereas the digital things like the movement of exchange rates or where services tax is not about avoidance at all; it is about products are produced can make a substantial difference reflecting the fact that the international tax regime is no to a company’s profit and loss account. As I understand longer fit for purpose when it comes to taxing certain it, the diverted profits tax is a backstop—I use the word types of digital businesses—those that operate through lightly—in the tax system. The reality is that the digital platforms, and that have a relationship with UK Government are trying to protect corporation tax revenue. users and generate value as a consequence. She mentioned Google specifically, but it covers search engines in general, Periodically, HMRC will challenge corporation tax certain online marketplaces and social media platforms. computations to see whether companies are paying the right amount of tax. DPT gives the Revenue a little The two taxes are so distinct. It is important to place more ammunition to get answers out of those companies on the record that the digital services tax is not an and to ensure that the tax paid is correct. I suppose that anti-avoidance measure; it is about redefining the way HMRC would randomly pick several companies, or in which those businesses pay their fair share of tax. more, and simply challenge some of the computations. Where they found that an accurate tax statement had Kirsty Blackman: To probe further the point made by not been put in, perhaps they would go back a number the hon. Member for Oxford East, does the Minister of months and issue a notice for payment. not agree that it would be valuable for the Committee to As the Minister pointed out, the companies could consider the two different types of taxation, and their still elect to pay via the corporation tax structure rather efficacy, so that in future when decisions are made on than this tax. I do not think that having a report on this tax matters we can work out which would be the best specific tax would draw very much information, because type of tax measure in any given situation? it will vary widely. There will be some years where quite a lot of back tax will be caught and captured, and a Mel Stride: It is important to review or consider all back payment might be picked up from a big company. taxes in relation to other taxes as a matter of course, In other years, all the tax computations will be fairly because they all have their own positive aspects, accurate and it will not pick up very much. My guess is distortionary effects, negative aspects, impacts on the that, instead of a straight line going up, as there is for economy that might not be desirable, and so forth. It is most taxes, such as VAT, there will be variation each important that we do that for all taxes. I say to the hon. year depending on which companies are challenged, Lady that, in the case of the digital services tax, we are and whether HMRC hits the jackpot or finds that the now consulting on the detail of how that might operate companies’ accountants know what they are doing. should we introduce it in 2020, in the event that there is 119 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 120

[Mel Stride] The hon. Gentleman also suggested that there might be variation because it would be, in some way, a reflection not a multilateral movement across the OECD or the of the compliance-mindedness of tax practitioners in European Union that allows us to work in conjunction different corporations at any one point. Surely that with other tax jurisdictions. In the case of the specific should improve over time, rather than fluctuate. There tax that we are considering in Committee, there will be may be other reasons for the variation, but I feel we still ample opportunity to look at it in the kind of detail that need to have a clear understanding of it. I know she will be keen on. The hon. Member for Oxford East raised the issue of Sir Robert Syms: My central point is that if HMRC the split, as I understood it, between the impact of DPT challenges a corporation tax computation, it does not as directly revenue raising through the additional have to do it every single year with the same company, corporation tax that is paid, and the deterrent effect because essentially it will come to an arrangement that protects revenues that otherwise would have been about what is acceptable—for at least a period of years. avoided. We publish annual statistics that show how Then it can go and look for the next company. I see it as much tax DPT raises directly and how much it raises a rolling process in which essentially there is a dialogue indirectly through corporation tax. This year,we published between HMRC and the accountants of the companies. a detailed note setting out the methodology that was Therefore, everybody knows quite where they stand, used to calculate the revenue raised by DPT, and I am and perhaps the companies will benefit as well. happy to provide the hon. Lady with either that information 2.15 pm or a signpost to where it can be found. Anneliese Dodds: I am grateful for that clarification The hon. Lady raised the specific issue of the three-month of the hon. Gentleman’s comments. I suppose on that extension that we have been considering in Committee. basis one would assume that the take would go down, if She made the point well: rather than extending the there was truly a deterrent action. It is not clear to me period by three months, why do we not stick to 12 months that that has occurred, but it would be interesting to and expect the corporation in question to speed up their have the analysis and review, so that we could see whether process? I think we would still be left with the problem it is so. That is what our amendments aim to do. that there would have to be a moment in time when that I took on board what the Minister said about the company could still provide information—HMRC would review period, but I am a little confused. As I understand be required to take it into account—which might be of it, the additional time provided for the review period a very complex nature. It would be very difficult for in the Bill is not of a different character from the rest of HMRC to make an immediate and reasonable judgment the review period. It is not a question of the additional at the last minute. I think that is what drives the importance three months being just for HMRC to deliberate. It is of separating the time available to the corporation in also a period during which the company can provide those circumstances from the additional time that is additional information—so, potentially, they can now available solely to HMRC to conduct its final review do that right up to the end of 15 rather than 12 months. without additional information suddenly appearing at Therefore it is unclear to me that HMRC will necessarily extremely short notice. I should also point out that the be helped—unless I am missing something, which I may 12-month process is already an accelerated process, and well be. typically we are—in circumstances where the additional three-month time period becomes pertinent—looking Mel Stride: To clarify, briefly, it is not as the hon. at very complex situations, which take time to consider Lady views it: the additional three months would be fully. solely for HMRC to carry out its deliberations, albeit On the basis of the extract that the hon. Member for that up to the 11th hour within the 12-month period Aberdeen North presented to the Committee, it seems further information could be provided by the company. to me that more information could have been given in the explanatory notes to make it absolutely clear what it Anneliese Dodds: I am grateful to the Minister for refers to. I will have a closer look at that outside the clarifying that. It was not completely clear to me from Committee. the material provided to us. I underline the points that have been made by the SNP in that regard: it would Anneliese Dodds: I am grateful to the Minister for his have helped us to understand the impact of some of the clarifications. I would like to accept his kind offer to measures if the explanatory notes had included a bit share with me and the Committee—I am sure other more of the thinking behind them. Members will be interested as well—the information In view of what the Minister has said, we are willing that he referred to, which sets out the different components to drop some of our amendments. However, we shall of DPT. I think that would be enormously helpful. want to vote on amendment 40, which is quite similar to The hon. Member for Poole seemed to suggest that the SNP’s amendment 37, and amendments 43 and 46. there would be two reasons for fluctuation across years. Question put and agreed to. I think he used the word “random” to describe HMRC’s Clause 18 accordingly ordered to stand part of the Bill. choice of which companies to investigate—they could be large or small. I would hope that it would not be a Schedule 6 random process, although I am not suggesting he was intimating that. I would hope that it was based on DIVERTED PROFITS TAX intelligence and that HMRC—I would like it to undertake Amendment proposed: 46, in schedule 6, page 220, line 2, more of this than it does at the moment—used some of leave out paragraph 11.—(Anneliese Dodds.) the data sources available to it to drive the process of This amendment removes the proposed extension of the review period determining which companies to look at. Hopefully to 15 months. that would not be a source of too much variation. Question put, That the amendment be made. 121 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 122

The Committee divided: Ayes 8, Noes 9. NOES Division No. 13] Afolami, Bim Lamont, John AYES Badenoch, Mrs Kemi Stride, rh Mel Ford, Vicky Black, Mhairi Lewis, Clive Jenrick, Robert Syms, Sir Robert Blackman, Kirsty Reynolds, Jonathan Keegan, Gillian Whittaker, Craig Dodds, Anneliese Smith, Jeff Dowd, Peter Sobel, Alex Question accordingly negatived. NOES Schedule 6 agreed to. Afolami, Bim Lamont, John Badenoch, Mrs Kemi Stride, rh Mel Clause 21 Ford, Vicky Jenrick, Robert Syms, Sir Robert PERMANENT ESTABLISHMENTS: PREPARATORY OR Keegan, Gillian Whittaker, Craig AUXILIARY ACTIVITIES

Question accordingly negatived. Anneliese Dodds: I beg to move amendment 47, in Amendment proposed: 40, in schedule 6, page 220, line 26, clause 21, page 13, line 35, at end insert— at end insert— “(7) The Chancellor of the Exchequer must review the revenue “13 The Chancellor of the Exchequer must review the effects of the preceding provisions of this section and lay a report expected revenue effects of the changes made to diverted profits of that review before the House of Commons within six months tax in this Schedule and lay a report of that review before the of the passing of this Act.” House of Commons within six months of the passing of this This amendment would require the Chancellor of the Exchequer to Act.”—(Anneliese Dodds.) review the revenue effects of the changes made by Clause 21. This amendment would require the Chancellor of the Exchequer to review the effect on public finances on the provisions in Schedule 6. The Chair: With this it will be convenient to discuss Question put, That the amendment be made. the following: The Committee divided: Ayes 8, Noes 9. Amendment 48, in clause 21, page 13, line 35, at end Division No. 14] insert— “(7) The Chancellor of the Exchequer must, within 3 months AYES of the passing of this Act, publish a list of additional non-UK Black, Mhairi Lewis, Clive resident companies that are classified as having permanent establishments as a result of restricting the application of Blackman, Kirsty Reynolds, Jonathan section 1143 of the CTA 2010. Dodds, Anneliese Smith, Jeff Dowd, Peter Sobel, Alex (8) The list in subsection (7) must be updated annually.” This amendment would require the Chancellor of the Exchequer to NOES publish a list of all additional permanent establishments created as a result of the changes made by Clause 21 three months after the passing Afolami, Bim Lamont, John of the Act and annually thereafter. Badenoch, Mrs Kemi Stride, rh Mel Clause stand part. Ford, Vicky Jenrick, Robert Syms, Sir Robert Keegan, Gillian Whittaker, Craig Anneliese Dodds: The clause focuses on attempts to wriggle out of triggering permanent establishment status by maintaining that economic activity is preparatory or Question accordingly negatived. auxiliary. Currently, certain so-called preparatory or Amendment proposed: 43, in schedule 6, page 220, line 26, auxiliary activities are understandably exempt from being at end insert— classified as indicating a permanent establishment. They “13 (1) The Chancellor of the Exchequer must commission a tend to be of low value and include storing products for review on the matter specified in subsection (2). the company involved, purchasing goods for it and (2) That matter is the effects on the public finances of the the collecting information for it. provisions in this Schedule coming into effect in the tax year Action 7 in the OECD’s BEPS—base erosion and 2019-20 compared to previous or subsequent tax years. profit shifting—process included a range of measures (3) The Chancellor of the Exchequer must lay a report of the to tighten up in the OECD’s model tax treaty section 5, review under subsection (1) before the House of Commons within including in this area. The model tax treaty includes a six months of the passing of this Act.”—(Anneliese Dodds.) far-reaching anti-fragmentation rule to prevent activities This amendment would require the Chancellor of the Exchequer to review the impact of introducing this measure in 2019-20. in a jurisdiction from being intentionally, artificially fragmented between different companies in a group Question put, That the amendment be made. merely so that those activities will not trigger permanent The Committee divided: Ayes 8, Noes 9. establishment status because they can be classified as Division No. 15] preparatory or auxiliary. The OECD rules prevent the preparatory and auxiliary AYES exemption from applying in situations where there is Black, Mhairi Lewis, Clive already a permanent establishment in the country, and Blackman, Kirsty Reynolds, Jonathan where the overall activity carried out both by the company Dodds, Anneliese Smith, Jeff concerned and by companies that are closely related to Dowd, Peter Sobel, Alex it are not preparatory or auxiliary.In both cases, however, 123 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 124

[Anneliese Dodds] group in 2015. That group is composed of a variety of experts looking at international tax law and a number the activities must constitute part of a so-called “cohesive of civil society organisations—I will not try to pronounce business operation”. In practice, the measure puts into their names because some are in Spanish and I would UK law what the UK has already signed up to via its get it humiliatingly wrong. ratification of the OECD’s multilateral instrument for In response to a call for evidence in relation to the amendment and updating of tax treaties, which is changes in the OECD tax treaty chapter 5, the group now sequentially being applied to our existing tax treaties, maintained that although an anti-fragmentation rule as we have discussed on a number of occasions just was proposed by the OECD, it was along the Committee corridor. “only in relation to pre-sales related activities, such as storage, We seek to amend the clause in a number of ways. display or delivery”, First, amendment 48 requires the Chancellor to publish as delivered by this clause. The group suggested that a list of all additional permanent establishments created was problematic and did not go far enough because: by the clause, and to do so annually. There is a serious “These proposed changes would therefore not affect other problem of accountability in our tax system. Those who types of structures which fragment functions such as manufacturing, have engaged in tax avoidance are not publicly held purchasing, design, marketing and customer support.” responsible. In response to the debate on Second Reading, It continued: it looks very clear what tax avoidance is and what it is “Moreover, the current proposals would have limited application not. It is behaviour that is legal, but although it may to services.” follow the letter of tax law, it does not follow its spirit. It felt that there was a particular problem for developing Contrary to what was argued in the previous debate countries—I appreciate that we are not in that situation. in the Chamber, individual savings accounts do not It said that for the countries it works with often there constitute tax avoidance because their creation was was also a particular problem from “stripped-risk contract intended and promoted by legislators. On the contrary, manufacturers”. It argued that, as an alternative to the artificial arrangements are tax avoidance, because policy BEPS anti-fragmentation proposals, makers, whether in the UK or elsewhere—such as for “One way to deal with this would be for the Commentary to the Dutch and Irish sandwiches—did not indicate that make clear that where decisions are made locally in a country by they wished their tax law to be used by those schemes to personnel of any group member or agent that affect the commercial exploit loopholes. risks borne by any group member, then that group member will be Relying purely on the spirit of the law or treaties, considered to maintain a ‘place of management’ within that country within the meaning of Paragraph 2 of Article 5.” rather than their letter, leaves our system open to tax avoidance, which is one of the many reasons the Opposition That is quite a different approach from assessing whether support the introduction of a general anti-avoidance fragmentation is occurring, and it would be helpful to rule—not just anti-abuse. We have talked about that in understand why the Government believe their approach this Committee. In any case, we must understand which is sufficiently stringent in the light of critiques such as firms profited from these forms of artificial fragmentation. that one.That is another reason whyI think our amendment Our amendment asks for that. is necessary. It is particularly important to have that analysis at a time when the US approach to corporate taxation and 2.30 pm determining where permanent establishment lies is in Mel Stride: The clause makes changes to ensure that flux. The corporate tax rate in the US is going down, foreign businesses operating in the UK cannot avoid but that problem is compounded by tightening up in a creating a taxable presence by splitting up their activities range of areas, including the adoption of many elements between different locations and companies. A non-resident of the BEPS process relating to permanent establishments. company is liable to UK corporation tax only if it has a It is important to assess the efficacy of measures put permanent establishment here—I shall use the abbreviation forward here in relation to what is occurring in the US, PE for permanent establishment. A PE may be a fixed where claims have been made that the situation will lead place of business, also referred to as a branch, or the to onshoring of activity. That remains to be seen, but it activity of an agent. We are mostly concerned here with will be useful to have an analysis so that we can perform branches. that assessment. As the hon. Member for Oxford East has outlined, Amendment 47 would require a review of the revenue certain preparatory or auxiliary activities, which are effect of clause 21. It is not possible to judge its likely normally low value, such as storing the company’s own efficacy without understanding the extent to which it products, purchasing goods or collecting information will promote the correct payment of corporation tax. I for the non-resident company, are classed as exempt note that some jurisdictions, such as Argentina, have activities and do not create a permanent establishment. included what appear to be more stringent requirements Some foreign businesses could artificially split their in their permanent establishment roles, going beyond operations among different group companies or between the OECD requirements. different locations to take advantage of those exemptions It is important that we properly understand the likely and so avoid being liable to corporation tax. impact of the proposed rules. There has been a debate To counter that, the OECD and G20 recommended about this issue at OECD level for quite a long period—since modifying the definition of permanent establishment. about 2013. There are very different views about whether The UK has adopted that change in its tax treaties, the the OECD approach is sufficiently stringent. It is important bilateral tax arrangements that divide up taxing rights to listen to some alternative views that were referenced between countries, with which the hon. Lady and I are when this particular action in the BEPS process was most familiar,having taken a series of pieces of secondary investigated, particularly from the BEPS monitoring legislation through this House on those matters. It has 125 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 126 given effect to that change through the BEPS multilateral “(1A) At the end of section 134 of CTA 2010, insert— instrument, as she pointed out, which entered into force ‘(2) The Chancellor of the Exchequer must review any for the UK on 1 October 2018. change, attributable to the amendments made to this Clause 21 replicates that treaty change in UK domestic section by section 24 of the Finance Act 2019, to law to make the change to tax treaties effective. It is payments of corporation tax. most likely to affect non-resident manufacturing and (3) A report of the review under subsection (2) must be laid distribution businesses that might try to structure their before the House of Commons by 5 April 2020.’” UK operations in order to minimise their UK tax This amendment would require the Chancellor of the Exchequer to review the revenue effects of this Clause, as far as they relate to footprint. The measure sends a signal that the UK section 134 of the Corporation Tax Act 2010 and report on those Government are determined to tackle tax avoidance by changes by the end of the tax year 2019-20. foreign multinationals. Turning to the two amendments tabled by the Opposition, amendment 47 would require the Chancellor The Chair: With this it will be convenient to discuss of the Exchequer to review the revenue effects of the the following: changes made by this clause within six months of the Amendment 52, in clause 24, page 14, line 4, at end Bill becoming law. I cannot support this amendment. insert— Information on revenue effects will not be available six “(1B) At the end of section 134 of CTA 2010, insert— months after the passing of the Act, given that the first ‘(4) The Chancellor of the Exchequer must review the accounting periods likely to be affected are those ending effects on the property market attributable to the on 31 March 2019, for which the filing date of company amendments made to this section by section 24 of tax returns will be 31 March 2020. the Finance Act 2019. The Government also cannot support amendment (5) A report of the review under subsection (4) must be laid 48, which would require publication three months after before the House of Commons by 5 April 2020.’” the passing of the Act of a list of all additional PEs This amendment would require the Chancellor of the Exchequer to created as a result of this measure. HMRC would not review the effects of this Clause, as far as they relate to section 134 of the Corporation Tax Act 2010, on the property market and report on know, as a company is not required to disclose, whether those changes by the end of the tax year 2019-20. a declared PE has occurred as a result of this measure or for some other reason. The information would be Amendment 53, in clause 24, page 14, line 7, at end available to HMRC only if it opened an inquiry into insert— every non-resident company that newly declared a “(2A) At the end of section 188CJ of CTA 2010, insert— permanent establishment. That, as I hope the Committee ‘(2) The Chancellor of the Exchequer must review any would agree, is impractical. It would not be an appropriate change, attributable to the amendments made to this use of inquiry powers and it would impose a significant section by section 24 of the Finance Act 2019, to burden on HMRC and the taxpayer for little revenue payments of corporation tax. benefit. The Exchequer impact assessment has scored (3) A report of the review under subsection (2) must be laid this measure as likely to have negligible yield. I therefore before the House of Commons by 5 April 2020.’” commend the clause to the Committee and invite Members This amendment would require the Chancellor of the Exchequer to review the revenue effects of this Clause, as far as they relate to section to reject the amendments. 188CJ of the Corporation Tax Act 2010 and report on those changes by Anneliese Dodds: I am grateful to the Minister for his the end of the tax year 2019-20. clarifications and comments. I think we would be willing Amendment 54, in clause 24, page 14, line 7, at end to withdraw the amendment, but I note that he did not insert— refer to the critique that I mentioned by the BEPS “(2B) At the end of section 188CJ of CTA 2010, insert— monitoring group on whether the definition of ‘(4) The Chancellor of the Exchequer must review the fragmentation coming within the OECD process was effects on the property market attributable to the sufficient. I do not want to detain the Committee on amendments made to this section by section 24 of that point any longer, but I ask him to bear that critique the Finance Act 2019. in mind as we go through any additional tax treaties; (5) A report of the review under subsection (4) must be laid I am sure we will come to some in the future with before the House of Commons by 5 April 2020.’” developing countries, because arguably this is a significant This amendment would require the Chancellor of the Exchequer to problem for them. It can be difficult for them to apply review the effects of this Clause, as far as they relate to section 188CJ of the Corporation Tax Act 2010, on the property market and report on even the conventions in the model tax treaty to capture those changes by the end of the tax year 2019-20. economic activity within their boundaries when they need to build up their tax base. Of course, we give many Clause stand part. of those countries development aid. As I said, I am willing to withdraw the amendment, Anneliese Dodds: The clause extends the definition of but I would be grateful if the Minister kept those points “UK-related company” for the purposes of group relief in mind. I beg to ask leave to withdraw the amendment. to include non-UK resident companies that are within Amendment, by leave, withdrawn. the charge to corporation tax. That change follows Clause 21 ordered to stand part of the Bill. previous announcements concerning the tax treatment of non-resident companies carrying out property-related Clause 24 business.

GROUP RELIEF ETC: MEANING OF “UK RELATED” I think it will be helpful to indicate exactly what COMPANY group relief relates to and why it is relevant. As I am sure the Committee is aware, group relief relates to the Anneliese Dodds: I beg to move amendment 51, in process whereby a so-called surrendering company that clause 24, page 14, line 4, at end insert— makes a corporate tax loss can pass certain kinds of 127 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 128

[Anneliese Dodds] On a related note, we surely need a review of the impact of the clause on the UK property market, as losses to another company in its group. The benefiting would be required by our amendments 52 and 54. It will company—the “claimant company”—can use the loss be particularly helpful if that review examines whether passed on to it to reduce its corporation tax liability. or not more non-EEA companies will be brought into Apparently, the claimant company often then pays the the scope of this kind of intra-group transfer. It seems surrendering company for the loss it received, up to the that that may well be the case. Currently, aside from value of the tax that was saved. That payment is not UK-resident companies, only EEA-based companies, counted for tax purposes. The surrendering company under certain circumstances, benefit from the ability to benefits from that arrangement, as it has access to those transfer loss, and thus tax incidence, across the group of funds from the claimant company rather than having to which they are a member. hang on to the loss for subsequent years. There is no It would also be helpful to understand whether the change to the circumstances of the claimant company—it new measures could help to incentivise more complex cancels out some of its corporation tax and just passes group structures that stretch beyond the UK and both that saving on to its fellow group member. into and outwith the EEA. There may be merits in the That regime was partially liberalised in 2016, albeit resultant diversification of risk, given the national that it was then counteracted by the introduction for specificities and risk profiles of different property markets large companies of a limit, which means that only in different countries and so on, but equally there could 50% of profits can be offset against losses carried be a risk of contagion from poorly regulated property forward. That ceiling applies across the group, not to markets in some non-EEA countries. Those countries individual firms. There are a number of stipulations are not currently within the scope of these measures but concerning the extent of common share ownership, will potentially be brought in by the Bill. which are intended to prevent the false creation of It would be helpful to be provided with a better groups in relation to group relief. It is necessary for one understanding of the broader implications of the proposals company to be the owner of three quarters or more of in the clause than is currently set out in the explanatory the other company’s share capital, or for a third company notes. That is why we tabled amendments 52 and 54. to own three quarters or more of the share capital of both companies involved, in order for them to be counted Mel Stride: The clause extends the definition of as part of a group for this purpose. UK-related companies for the purposes of group relief Other tests attempt to ensure that a genuine rather to include non-UK resident companies within the charge than a spurious group is involved. In addition, only to corporation tax. Non-UK resident companies are certain types of income loss qualify, including trading not simply those within the EEA but any company losses, excess interest charges and management expenses. anywhere in the world. Until now, both the surrendering company and the claimant company had to be resident in the UK or Anneliese Dodds: With this. carrying on a trade through a permanent establishment in the UK, although in some circumstances European Mel Stride: Yes. As the hon. Lady pointed out, clause 17 economic area-based companies have been able to act provides that a non-UK resident company that carries as surrendering companies. on a UK property business will be charged to corporation The Opposition have tabled four amendments to the tax, rather than income tax, as we discussed earlier. clause. Amendments 51 and 53 would require a review This will deliver equal tax treatment for UK-resident of the impact on payments of corporation tax of the and non-UK resident companies that carry on UK different elements of these proposals. Amendments 52 property businesses, including the application of anti- and 54 would require an examination of the proposals’ avoidance measures within the corporation tax regime, impact on property markets. as I pointed out. As I said, amendments 51 and 53 would require a However, under the current rules, non-UK resident review of the revenue effects of the clause, particularly companies within the charge to corporation tax are not on corporation tax. The measures in the clause appear able to make use of group relief, which, as the hon. to be part of a group of measures in the Bill that Lady described extremely well, is the mechanism by attempt to equalise the treatment of non-UK and which a company is able to surrender its tax losses to UK-resident property companies when it comes to taxation. another member of the group to relieve their taxable We have already discussed the fact that such companies profits. Group relief is available to UK-resident companies will be transferred into corporation tax and standard and helps to ensure that the tax charged reflects the capital gains tax. In many cases, although the measures economic reality of the entire group. concerned might be viewed as levelling the playing field, The clause will extend the definition of a UK-related they might also be viewed as causing risks to revenue, company for the purposes of group relief to include not least due to the reduced rate of corporation tax, non-UK resident companies that are within the charge which we discussed before lunch. to corporation tax. This change will also apply to Clearly, this change would benefit non-resident firms non-UK resident companies developing UK land that by enabling them more easily to plan when to pay were brought within the charge to corporation tax from corporation tax with the group of which they are a July 2016. The clause will ensure that the UK tax member. It would therefore to be helpful to have a regime does not discriminate against non-UK resident clearer indication than has already been provided of the companies. These changes come at a negligible cost to likely revenue effects of the clause. I am not saying that the Exchequer. that ease and greater facility, in terms of planning Amendments 51 and 53 would require a review of the corporation tax incidence, is necessarily a problem, but impact of the clause on corporation tax receipts. The it will potentially have a revenue impact. Office for Budget Responsibility’s certified assessment 129 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 130 of the impact of the clause on corporation tax receipts The rules contain an anti-avoidance provision which has been estimated together with clause 17 and schedule 5, applies when an asset leaves the group. That is often which we debated earlier. That is set out in table 2.2 of referred to as a degrouping adjustment or charge. The the 2018 Budget and will be updated in table 2.2 of the degrouping adjustment effectively removes the benefit 2019 Budget. of a previous tax-neutral transfer to ensure the full Amendments 52 and 54 would require an analysis of economic gain or loss made by the group is taxed. the effects of the clause on the UK property market. The chargeable gains tax code includes a similar set The impact on the UK property market was considered of rules, which were, however, amended in 2011 to in the design of the policy, but it is not expected to have refine the degrouping anti-avoidance rules where the any notable effect. The OBR did not consider that the sale of the shares in the degrouping company is exempt clause, nor clause 17 and schedule 5, would have any from a tax charge under the substantial shareholding impact on its UK property market forecast. exemption rules. The clause is a necessary element of levelling the The clause seeks to address concerns commonly expressed playing field between UK-resident companies and by stakeholders during the recent IFAregime consultation companies not resident in the UK. It provides for equal and those raised during the 2016 review of the substantial tax treatment so that companies in receipt of similar shareholding exemption. Part 8 of the corporation tax types of UK property income will face the same tax code is amended so that the degrouping adjustment will rules. I commend the clause to the Committee. not apply when a company leaves a group as a result of a share disposal that qualifies for the substantial 2.45 pm shareholding exemption. That exemption applies only to disposals of trading companies, or parent companies Anneliese Dodds: I am grateful to the Minister for of trading groups. In doing so, it aligns the clause with that explanation and for the clarifications. It is important the treatment in the chargeable gains regime. for the Committee to be aware that while this is part of a suite of measures to equalise tax treatment in terms of In summary, the clause makes a sensible change to tax responsibilities, obviously the measure also provides the degrouping rules in the IFA regime to align them some of the benefits of the UK tax system to non-EEA with the treatment elsewhere in the tax system. The firms.Doing so could potentially increase the attractiveness clause responds to legitimate business concerns that of the UK property market for those non-EEA firms, existing legislation is distorting how genuine commercial which might be a good thing, but might also have other transactions are structured. I therefore commend the consequences. That is all I wish to say in response. I beg clause to the Committee. to ask leave to withdraw the amendment. Amendment, by leave, withdrawn. Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op): Clause 24 ordered to stand part of the Bill. It is, as ever, a pleasure to serve under your chairmanship, Mr Howarth, and to follow the many valuable contributions of other members of the Committee. Clause 25 The clause that the Financial Secretary has just introduced forms part of a rather technical but important INTANGIBLE FIXED ASSETS: EXCEPTIONS TO DEGROUPING pack of items in the miscellaneous corporation tax CHARGES ETC section of the Bill. The provisions mark the latest Question proposed, That the clause stand part of the change in a long history of reforms to the intangible Bill. fixed asset tax regime, which I will also refer to as the IFA, which began in 2002. Intangible fixed assets refer Mel Stride: The clause amends the corporate intangible to items such as patents, copyright, brand recognition, fixed assets regime, which I will refer to as the IFA goodwill and other items of intellectual property. It is regime, to align the degrouping adjustment rules more clear that those types of assets, as opposed to tangible closely with the equivalent rules in the chargeable gains assets, have become increasingly important to modern code. The clause responds to concerns expressed during businesses and are likely to continue to do so, especially the Government’s consultation on the IFA regime, and for the tech industry. in previous consultations, that the IFA degrouping Typically,such assets could be moved within companies adjustment is distorting how genuine commercial that all belonged to the same UK group without incurring transactions are structured. The main criticism is that any new tax liability, by simply taking their existing tax there are two different tax treatments for intangible history with them. If one of the companies that received assets, depending on whether the chargeable gains code the assets was subsequently sold within six years, that or the IFA regime operates in respect of such assets. incurred the so-called degrouping charge. The clause The IFA regime provides corporation tax relief to will stop that charge being triggered if the company companies on the cost of their intangible assets, such as leaves as a result of a share disposal that would qualify patents or trademarks. The IFAregime, like the chargeable for the substantial shareholding exemption. gains regime, allows groups to transfer assets between In principle, the Opposition have no objection to the companies within the same group on a tax-neutral measure, which clarifies the intent of the legislation and basis. That prevents gains or losses arising on transactions prevents assets from being drawn into the regime between companies within the same corporate group unintentionally. The changes remove an artificial barrier and reflects the fact that the group can constitute a in the tax system that could have been acting as a single economic entity.Instead of recognising the market deterrent to merger and acquisition activity, given the value of the asset on transfer, the company acquiring disparity in treatment between chargeable gains assets the asset inherits the tax history and costs of the transferor. and those within the IFAregime, as the Minister explained. 131 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 132

[Jonathan Reynolds] money, against perhaps extending other types of relief available? How will the connection between intellectual However, we would like to raise some wider concerns property and goodwill be properly established? In particular, about the intangible fixed asset regime and how the new how will the valuation of intangibles be achieved for tax provisions will operate. Intangible assets will only grow purposes? What action is being undertaken with regard in importance, so it is vital we get the system right. We to anti-avoidance measures? must also consider the potential impact on foreign Continuing to attract business to the UK, as well as direct investment, especially at a time when our international strong inward investment, is critical as we contemplate competitiveness is under pressure as a result of us our departure from the EU.Therefore, we would appreciate leaving the EU. some clarity from the Government on these provisions. My questions to the Minister relate to what the We must assess their cost against the value of incubating impact of the changes might be on foreign direct investment the type of intellectual property-rich businesses that we and on merger and acquisition activity. I also want to would all like to see more of in the UK. Equally, we ask about the impact on the UK intellectual property must do everything that we can to protect the statute market, for two reasons. First, although we all want to book from any loopholes that may be exploited by see the best in Britain’s companies, we know that, unscrupulous companies seeking to avoid paying their unfortunately, certain operators seek to game the system, fair share. including by artificially shifting assets internally among subsidiaries, which is a time-worn tactic for unscrupulous Mel Stride: I thank the hon. Gentleman for his actors seeking to avoid their true obligations. The long contribution. He asked specifically what impact these history of transfer pricing shows us that, as do the measures may have on foreign direct investment. I would pitifully low corporation tax returns of some of the argue that they are relieving, in that they are facilitating most profitable multinationals operating in the UK. By the ability of companies in these circumstances to gain its very nature, transfer pricing—when companies make value from the transfer of their losses where they genuinely charges within a group for goods, services or indeed fall under the substantial share exemption, so the answer intangible assets—can be more easily exploited for that to that question is that this is a positive move in that purpose, as can be seen from the role of brand loyalties respect. in the transfer pricing arrangements of some famous The hon. Gentleman asked, more specifically, a series tax minimisation schemes. of questions relating to how we would ensure that Tax rules have fallen short, and still fall short, of avoidance was not entered into in a number of scenarios. always recognising such arrangements for what they I think that he referred specifically to transfer pricing, really are. Weknow that we suffer from a significant—and, for example, and one thinks of intangible asset elements some argue, underestimated—tax gap in the UK. As we such as royalty payments. He will be aware that we have often refer to in debates with the Government Front already clamped down on the making of royalty payments Bench, the tax gap has consistently fallen under Labour, through to low and no-tax jurisdictions. There is a lot of coalition and now Conservative Governments, but we activity in that space, albeit that in the context of what all know that the assessment does not truly cover such this clause, that is probably out of the scope of the practices. Therefore, it is imperative that we do not put measure that we are considering. any loopholes into the statute book that could be exploited. The hon. Gentleman asked whether we were introducing Can the Minister explain what action the Government a loophole, as he termed it. I think I can reassure him have taken to ensure that the measures cannot be that we are not. We are simply, as I think he said when undermined by tax avoidance? he summarised the clause at the start of his remarks, Secondly, the measure is important in relation to the ensuring that intangible assets are treated in the right consultation published alongside this year’s Budget to way when it comes to their transfer within and outside look again at so-called goodwill taxation. Goodwill is corporate groups. the sum paid for a business over and above its paper The hon. Gentleman made several points surrounding value, which often has a strong connection to intangible our intentions in respect of goodwill and its treatment. assets such as brand value, reputation and other items Tosupport UK investment in intangibles, the Government of intellectual property. Stakeholders have expressed are introducing a targeted relief for goodwill in acquisitions concern about the treatment of goodwill, which we ask of businesses with eligible intellectual property. We will the Government to consider as part of the overall IFA legislate for that change through an amendment on tax regime. Report, to allow for a further brief consultation on the Although we supported the restriction of that relief detailed design of the policy. The consultation will seek for anti-avoidance purposes in 2015, it has been reported to ensure that the proposed policy design achieves the to us that some people believe that some aspects of the Government’s objective to provide targeted relief for changes have had a dampening effect on commercial goodwill in the acquisition of IP-intensive businesses, transactions and the overall attractiveness of the UK as and mitigates any unintended consequences. a business location. Therefore, some further context Question put and agreed to. around the proposal in the 2018 Budget to reverse part Clause 25 accordingly ordered to stand part of the Bill. of those restrictions would be welcome. I seek some reassurance from the Minister as to his Clause 26 future plans for the treatment of goodwill and how precisely this relief will be used as a tool to attract CORPORATION TAX RELIEF FOR CARRIED-FORWARD further business activity to the UK. Is an estimate LOSSES available of the costs to the Exchequer at this stage? Question proposed, That the clause stand part of the How has this been assessed, in terms of wider value for Bill. 133 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 134

The Chair: With this it will be convenient to discuss discuss at length, the Opposition clearly have no issue that schedule 9 be the Ninth schedule to the Bill. with restricting excessive relief. However, this change appears to be a tidy-up measure on legislation that was Mel Stride: Clause 26 makes technical amendments only introduced in 2017, suggesting that the Treasury to the corporate loss relief rules introduced in 2017: does not quite have a grip on this properly. Clearly, we they ensure that the rules function as originally intended would all like to see any mistakes on the statute book or and protect revenue by preventing companies from in the tax code corrected, but could the Minister explain claiming excessive relief. When a company makes a loss, why this legislation needs correcting such a short time it can carry forward that loss and use it to offset its after its implementation? Should we perhaps anticipate taxable profits in future years. The Finance (No. 2) further changes to the original legislation? What Act 2017 reformed the UK’s loss relief regime. The consultation took place with stakeholders at the time? main effects of that reform were as follows. First, the It seems that we have always known there were issues amount of profit that can be relieved by carried-forward with this relief ever since it was first introduced, after losses is restricted to 50%, subject to a £5 million consultation in summer 2016, in the Finance (No. 2) allowance. Secondly, losses arising after 1 April 2017 Act 2017—perhaps the first Finance Bill for the shadow can be carried forward and set against different types of Chief Secretary, my hon. Friend the Member for Bootle, income and against profit of other members of the if he can segment them in his own mind— same group. The loss restriction ensures that companies cannot use carried-forward losses to reduce their tax bill to nothing in an accounting period in which they Clive Lewis (Norwich South) (Lab): Happy memories! make substantial profits. Legislation for the new loss relief rules needed to be sufficiently detailed to ensure Jonathan Reynolds: Yes, a classic. At the time, the that they were robust for the complex arrangements of Chartered Institute of Taxation warned that the legislation large companies operating across a diverse set of activities. had not been given proper due consideration. As it said The Government have since identified limited circumstances in its briefing: in which the rules are not functioning as intended. “From the time the proposals were announced at Budget 2016 The clause amends the way that companies calculate it was clear that the legislation would be voluminous and highly their relevant profits for the purposes of loss relief complex. As we highlighted in our response to the consultation (in August 2016) the timetable proposed was not sufficient to restriction. Specifically, the clause changes the way basic properly consider all of the issues and to produce clear and life assurance and general annuity businesses, or BLAGAB, workable legislation. calculate relevant profits. That will ensure that BLAGAB The unsatisfactory draft legislation published as part of Finance insurers use profits that are chargeable to corporation (No. 2) Bill 2017 was then removed from the pre-election Finance tax for calculating the amount of loss relief they can Bill, which caused more uncertainty for taxpayers. Although the claim. delay in enacting the legislation has allowed a period of further informal consultation, which has improved the legislation, it 3 pm inevitably led to a degree of uncertainty among those affected The clause also makes several minor technical and has also resulted in taxpayers having to consider draft legislation amendments to the loss reform rules in respect of the which is not yet in force,” deductions allowance, terminal loss relief, transfer of a but which will be retrospective once enacted. claim without change of ownership, oil and gas losses, “With regard to the short timetable, it is also worth noting that group relief and the transfer of deductions. Due to the these provisions are not anti-avoidance provisions”, £5 million allowance, 99% of companies are not financially which is when we tend to use a shorter timeframe for affected by the carried-forward loss restriction, and that introduction. will not be changed by these amendments.Some companies “Rather, the changes were proposed as part of a package will also benefit from the simpler rules for calculating intended to ‘simplify and modernise the tax regime’, although in their loss relief restriction. our view there are aspects of the changes which are very complicated The amendments to group relief for carried-forward and, in many cases, will involve a large number of detailed losses are effective from 1 April 2017, the amendments calculations, meaning that simplification will not be achieved.” to the calculation of relevant profits and BLAGAB That is probably true of much of what the Treasury profits are effective from 6 July 2018, and the other does, to be honest. The briefing also said: amendments are effective from 1 April 2019. This clause “Legislation for these new rules has, in our view, been introduces technical amendments to ensure that the ‘rushed’…and, in this case, the Government has not balanced its corporation loss relief rules work as intended, and to desires to raise some modest revenue with its duty to produce protect revenue by preventing companies from claiming legislation that can be followed with predictability and certainty.” excessive relief. I therefore commend the clause and Unfortunately, the Chartered Institute of Taxation’s schedule to the Committee. assessment that the timeframe was too short turned out to be exactly correct, and that is why we are obliged to Jonathan Reynolds: I shall speak briefly on this clause. revisit this legislation today.Continuous tweaks to matters As the Minister said, the clause seeks to restrict relief such as these do not help to instil confidence among for certain carried-forward losses and allow them to be businesses that rely on this framework. They need certainty used more flexibly. It then drills down into particular in their long-term operation, and endless rounds of details for specific business segments: for instance, insurers changes are not helpful, especially in an environment require special consideration due to the shock losses where Brexit is clearly causing significant wider uncertainty. they are uniquely exposed to. I should also be grateful to learn from the Minister Given the rather generous package of corporate support what preventive measures have been put in place to that the Government espouse and the ineffective corporation ensure that we will not go through the same legislative tax cuts, which we have already had an opportunity to process in another year’s time, with further nips, tucks 135 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 136

[Jonathan Reynolds] Clause 27 and schedule 10 make a number of technical amendments to the interest restriction rules. To ensure and fixes to defects. Finally, I would just like to know the rules are applied as intended, the schedule will whether an estimate is available of the cost up to now of clarify that real estate investment trusts are in scope of businesses having claimed this relief, which the Minister the interest restriction rules, but that they do not suffer himself has said may have been excessive, and which we a double restriction of financing costs where they are are today removing. highly leveraged. It will confirm that where a company holds a significant pension fund asset or a deferred tax asset, or where the company is reimbursed for certain Mel Stride: It is a perfectly fair question for the hon. variable operating costs, it is not prevented from applying Gentleman to ask why we are now having to revisit this, the alternative rules for public infrastructure. It will having consulted on it. He himself raised the issue of provide confirmation of how the rules deal with capitalised the large volume and the highly complex nature of the interest. original legislation. I think therein probably lies the answer. While we did consult extensively, this was a To ease the practical operation of the rules, the large volume and a highly complex area, and we have schedule will extend certain timings, in particular for subsequently discovered a deficiency with it, which we appointing a reporting company and for submitting an are now putting right, in a responsible way. interest restriction return, following an acquisition. The schedule will allow unused amounts and debt cap to be It is important to briefly enlighten the Committee as carried forward for a new holding company that is to the extent of the consultation that did occur, lest it be inserted into the group structure, but the shareholders imagined that we rushed this or did not properly look of the group remain substantially unchanged. To align into matters. The Government’s consultation ran for the rules more closely with the normal UK tax rules the 12 weeks,from 26 May to 18 August 2016. The Government schedule will require, where appropriate, employee received 79 responses from stakeholders, and from a remuneration that is not paid within nine months to be broad range of professions and industries. There was disregarded in the calculation of a group’s earnings, also a technical consultation on the draft legislation until it is paid. It will also amend the calculation of the itself. It is obviously right that we put these deficiencies group’s financing costs to ensure that it is not distorted right at the earliest opportunity. In answer to the hon. when a debt is released by a company that is connected Gentleman’s question about how much revenue may to the group but not in it. already have been impacted by the original issue, I do not have a precise answer. I am happy to look into it. I Finally, this schedule will allow HMRC to specify know that the Treasury sees this clause as something information that is reasonably required for risk assessment that is there to protect revenues in the future, rather purposes, which is to be included in the interest restriction than one that is about rectifying problems that may return. This clause and the accompanying schedule have arisen in the past. make amendments to ensure that the interest restriction rule continues to operate as originally intended. I commend Question put and agreed to. this clause and schedule to the Committee. Clause 26 accordingly ordered to stand part of the Bill. Schedule 9 agreed to. Jonathan Reynolds: We have before us in clause 27 another tweak to the 2017 legislation, which originally brought about this change. The clause is designed to Clause 27 bring about technical amendments to the corporate interest restriction rules. Again, the Opposition are CORPORATE INTEREST RESTRICTION supportive of any measure that aims to correct the tax Question proposed, That the clause stand part of the situation, which could potentially be exploited. These Bill. rules restrict the ability of large businesses to reduce their taxable profits through excessive UK interest. The explanatory notes tell us that this is part of the The Chair: With this it will be convenient to discuss Government’s policy to align the location of taxable that schedule 10 be the Tenth schedule to the Bill. profits with the location of economic activity—not before time, many people in the country would argue. Mel Stride: Clause 27 and schedule 10 make changes We are very much looking forward to seeing the to ensure that the corporate interest restriction rules Government rigorously apply this approach to the will continue to operate as intended, limiting the amount multinational companies in the UK, which mysteriously of interest expense and similar financing costs that a report profits quite unrelated to their tax bills. As my corporate group can deduct against its taxable income. right hon. Friend the Member for Barking (Dame Margaret The UK’s corporate interest restriction rules were Hodge) recently calculated, Facebook’s corporation tax announced at Autumn Statement 2016 and took effect bill represents just 0.62% of its revenue here, as it pays from 1 April 2017. These rules prevent groups from £7.4 million in corporation tax on sales of £1.3 billion. using financing expenses to erode their UK tax base, We are pleased that the Government have found the where these expenses are not aligned with the group’s time to tidy up the statute book by implementing the UK taxable activities. These rules are complex because measure before us today. Surely, the Minister must they operate at both the worldwide group and individual agree that there still appears to be one rule for big entity levels. As businesses have begun to apply them, companies, such as Facebook, and another for everybody HMRC has identified some technical amendments that else. Rather than arguments about things such as the are needed to ensure that the rules operate as intended tax gap, which addresses things such as how much and to address practical compliance issues. cash-in-hand has been paid for trade in services, this 137 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 138 imbalance is what the public really want to see addressed. avoidance by large companies seriously. I assure him If there is one thing that the whole Committee might that that is exactly what the Government are doing. We agree on, it is that we all welcome innovation and have introduced more than 100 measures relating to technology, and all the benefits they bring. However, avoidance, evasion and non-compliance since 2010. We part of what makes this country so lucrative for these have brought in and protected around £200 billion in big companies is our infrastructure, our legal system, that period. Of course, in this Committee we have our transport connections and our businesses, which debated at length both the diverted profits tax, which is want to be able to advertise on these platforms. It is not bringing in more than originally anticipated and is unreasonable for the likes of Facebook to contribute to aimed at exactly the businesses to which he refers, and that, just as every other business does. the digital services tax. We are even changing the way in The clause is clearly more modest than that, being, as which the tax regime operates in order to ensure that we I said, just a tweak to the 2017 legislation. It would have get a fair level of tax from those companies, whether been infinitely preferable to get this right first time. The they are the smallest businesses in the land or the explanatory note sets out in detail the consultation largest. process that was undertaken in relation to this legislation Question put and agreed to. between 2015 and 2016. That seems to have discussed Clause 27 accordingly ordered to stand part of the Bill. issues related to domestic implementation and, we must remember, will have been carried out at a cost to Her Schedule 10 agreed to. Majesty’s Treasury and, therefore, the taxpayer. Again I have to ask, what fell short in that process, so that we Clause 28 are discovering these defects in the Bill only one year later? Could the Minister provide some further insight DEBTOR RELATIONSHIPS OF COMPANY WHERE MONEY on the further engagement with affected businesses that LENT TO CONNECTED COMPANIES is mentioned in the explanatory notes? Question proposed, That the clause stand part of the Mel Stride: The answer to the hon. Gentleman’s Bill. understandable question as to why we have to revisit this matter in this Finance Bill is similar to that which I The Chair: With this it will be convenient to discuss gave in the context of the last clause—the complexity that schedule 11 be the Eleventh schedule to the Bill. and the volume of the legislation. We published the draft legislation originally, so that it could be considered. I think it is right that we are now coming forward to Mel Stride: Clause 28 is part of a package of changes make the necessary changes at this time. The hon. that the Government are making to the tax rules for Gentleman mentioned his aspirations that the corporate hybrid capital instruments, which are issued by some interest restriction would bite and be effective. For that, companies to raise funds. Further changes are made by I am sure he has looked at the amount that is scored for clause 88. Together, those changes ensure that hybrid this particular measure—it is one of the more significant capital instruments are taxed in line with their economic anti-avoidance measures that we have come forward substance and take into account forthcoming changes with in recent times. in financial sector regulation. The new rules cover issuances by companies in any sector and replace rules covering The hon. Gentleman also commented on the tax gap regulatory capital instruments issued by banks and and sought, perhaps, to characterise the tax gap as insurers with effect from 1 January 2019. being all about—I think he used the expression—cash- in-hand dealings, so as to suggest that it was not also Some companies raise funds by issuing instruments, about ensuring that large companies pay their fair share referred to as hybrid capital, that sit close to the border of tax. I assure him that we are constantly looking at between debt and equity. Hybrid capital instruments larger businesses. The tax gap is disaggregated in a way have features, such as provisions for write-down or that shows that. I reassure him that of the largest conversion to shares in certain circumstances, that may roughly 200 or 210 companies in the United Kingdom, affect their accounting and tax treatment. As a result, about 50% are under active investigation at any one instruments that a company uses to raise funds externally time. That does not mean in any way that any of them may be taxed on a different basis from instruments used have done anything wrong, but that we do look at larger to distribute those funds internally to other group companies very carefully. companies. Recent changes to financial regulation have highlighted that issue. Jonathan Reynolds: I was simply trying to make the In June 2018, the Bank of England finalised its point that the tax gap is a series of estimates by HMRC approach to setting a minimum requirement for own as to avoidance in different areas—yes, for large companies funds and eligible liabilities—MREL. The Bank set out as well as small. Surely, what the public really want how it would use its powers to require firms to hold a action on—the Chancellor himself referenced this in his minimum amount of equity and debt with loss-absorbing Budget speech—is the impact of very large technology capacity from 1 January 2019. That will allow the Bank companies internally charging vast amounts for intellectual to ensure that shareholders and creditors absorb losses property transactions within their groups and not reflecting in times of financial stress, allowing banks to keep their economic activity in a country the size of the UK. operating without recourse to public funds. For banking groups, funding that counts towards 3.15 pm MREL is usually raised from the capital markets by a Mel Stride: The hon. Gentleman makes an important holding company. The holding company passes on most point. I thank him for clarifying his comments on the or all of the funds raised to operating companies within tax gap. He asserts that the public expect us to take tax the group.The Bank of England requires those intra-group 139 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 140

[Mel Stride] Finally, and perhaps most critically, I refer to my earlier comments on transfer pricing in our discussions loans to include terms that allow them to be written off on clause 25. We all want to believe that this is a simple or converted into shares at times of severe financial measure that tidies up the statute book. However, we stress. That can result in the external and internal loans must all be mindful that the shifting of assets and loans being treated differently for tax, leading to unintended between UK subsidiaries has historically been abused tax volatility unrelated to the economic substance of by companies seeking to avoid tax. Have the Government the loans. done all due diligence possible to ensure that this clause In the changes made by clause 28 and schedule 11, is not open to such exploitation? Given the consequences our overall aim is to eliminate that unintended tax of getting it wrong, we all share a duty to ensure that no volatility by ensuring that external and intra-group loophole is left anywhere on the statute book. loans are taxed on the same basis if they have a qualifying link. A qualifying link arises when funds raised externally Mel Stride: The hon. Gentleman asks whether banks by a group are wholly or mainly lent within the group. are solely affected by the changes; they go beyond Clause 28 and schedule 11 will ensure that external banks but are most relevant to banks, driven as they financial instruments are taxed on the same basis as have been by the changing requirements of the Bank of intra-group loans to which they have a qualifying link. England and others on the operation of our financial That will eliminate the tax volatility that can arise if the service marketplaces.They are also driven by the importance terms of the intra-group instrument contain hybrid of hybrid capital debt and how it is valued as it comes features. That is expected to affect a small number of into the holding company, and the way debt might be companies, mostly in the banking sector, that raise valued as it is passed down in the companies beneath funds externally and lend them intra-group in circumstances the holding company at the top. that would otherwise give rise to a tax mismatch between those instruments. The hon. Gentleman asked about consultation and the importance of getting the proposals right; there has These changes will ensure that our tax rules eliminate been no public consultation on this clause due to time unintended and unnecessary tax volatility from financial constraints—one has to bear it in mind that the Bank of instruments issued by any company.I therefore commend England finalised the requirements for internal loss- this clause and schedule to the Committee. absorbing instruments only in June. That has not given us much time to consult. We have informally consulted with a small number of trusted advisers ahead of the Jonathan Reynolds: This clause changes the treatment Budget announcement. HMRC and HMT have worked of linked loan relationships in company groups. Put closely with the Bank of England and the Prudential simply, that means that where one company borrows Regulation Authority to ensure that alignment between funds externally and lends on to another company in the tax and regulatory rules is as close as possible. the group, no tax liability will be triggered by fluctuations in the value of the internal component of the loan. It Question put and agreed to. stands to reason that companies should be protected Clause 28 accordingly ordered to stand part of the Bill. from what might end up being double taxation. In Schedule 11 agreed to. reality, there is no economic exposure on the internal loan, whereas that does apply to the external arrangement, which remains within the scope of taxation. Clause 29 Although this appears to be a relatively straightforward measure, will the Minister elaborate on what has prompted its inclusion in the Bill? Is there an assessment of its CONSTRUCTION EXPENDITURE ON BUILDINGS AND impact on the Exchequer? An example has been provided STRUCTURES in the explanatory notes of the issuance of debt instruments by banking or insurance companies to meet regulatory Jonathan Reynolds: I beg to move amendment 57, in capital requirements. Are there companies outside the clause 29, page 17, line 8, at end insert— financial sector that could be affected by these regulations? “(14) No later than two months after the passing of this Act, I think he said most but not all. the Chancellor of the Exchequer must lay before the House of What engagement has taken place with the business Commons a report on the consultation undertaken on the community on these measures? We have seen from the provisions in this section.” two preceding clauses that unintended consequences This amendment would require the Chancellor of the Exchequer to can sometimes arise. If we are not vigilant of those first report on the consultation undertaken on Clause 29. time round, legislation will have to be revisited, with endless amendments in subsequent Finance Bills. The Chair: With this it will be convenient to discuss The Opposition strongly believe that one of the best the following: ways to make the UK an attractive place to do business Amendment 58, in clause 29, page 17, line 8, at end is to create a robust, consistent, transparent and well- insert— enforced corporation tax regime. Business prizes “(14) The Chancellor of the Exchequer must review the certainty—something that no one has been able to offer revenue effects of the relief that will be created as a result of the of late. We want to ensure that measures have been exercise of the powers in this section and lay a report of that taken with the proper consultation and with proper review before the House of Commons within six months of the justification, so that we do not endlessly increase the passing of this Act.” compliance burden of companies doing business in This amendment would require the Chancellor of the Exchequer to the UK. review the revenue effects of the changes made by Clause 29. 141 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 142

Amendment 59, in clause 29, page 17, line 8, at end not yet specify what “qualifying use” is. The allowance insert— is also a big-ticket item for the Exchequer. According to “(14) The Chancellor of the Exchequer must review the uptake the Red Book, by 2023-24 it will cost more than half a of the relief that will be created as a result of the powers in this billion pounds—£585 million—yet we cannot be 100% sure section by the groups set out in subsection 15. about that number because there is so much uncertainty (15) The groups that must be considered under the review in about what the exact scope will be. Labour’s subsection 14 are— amendment 58—I urge hon. Members to support it (a) companies with between zero and nine employees, when we press it to a vote—requests that the Government (b) companies with between 10 and 250 employees, and review the revenue effects of the relief so we can fully (c) companies with more than 250 employees. assess its costs. (16) A report of the review under subsection (14) must be laid As professional bodies have argued, it would have before the House of Commons no later than 12 months after the first exercise of the powers under this section.” made much more sense to do this process in reverse. The This amendment would require the Chancellor of the Exchequer to Government are only now seeking views on the relief, review the uptake of this relief among micro-businesses, SMEs and with a view to changing it via secondary legislation in large companies. 2019. Anyone who has had the pleasure of sitting on Amendment 60, in clause 29, page 17, line 8, at end any of the Brexit-related Delegated Legislation Committees insert— will agree that there is as large pile of statutory instruments “(14) No draft instrument may be laid under this section until to get through, so adding to that is a strange decision. the Treasury has carried out a consultation with stakeholders on Why did the Government not consult before they the qualifying arrangements for the relief that would be created drew up the legislation? A concern that stakeholders as a result of the powers in this section.” have raised with me is that businesses cannot have This amendment would require the Treasury to carry out a consultation confidence in the new relief during the consultation with stakeholders on the qualifying arrangements for this allowance. period as the detail is not yet known. That seems a Clause stand part. strange way to encourage investment. We believe that one of the problems that is likely to be revealed in the Jonathan Reynolds: I will speak to Labour’samendments consultation is the complexity of the measure. As tax to clause 29, which opens up the new section on capital professionals have warned, the relief will introduce allowances. It is always right and sensible to think about another type of asset classification for tax purposes. ways to promote business growth in the UK, but allowances The Office of Tax Simplification advised against that like the ones in these clauses are not free. The Committee when it reviewed capital allowances. Why are the must judge them in the context of what represents good Government contravening the recommendations of the value for money. We will talk about each of them as we report that they commissioned? Tax simplification has move through the clauses. generally been of considerable interest to Conservative Members, but they appear to be ignoring the review. These clauses also represent a significant round of Given the lack of consultation, will the Minister elaborate chopping and changing reliefs, but in our view businesses exactly how the conclusion was reached that the relief are really asking for certainty. The changes are many would cost £585 million? What evidence is there that it and varied, and the constant shifting of the goalposts will promote investment in productivity? creates costs and complexity for businesses. Given that I also urge hon. Members to support Labour’s the Government’s central case for reducing corporation amendment 57, which would oblige the Chancellor to tax is that they are trying to increase corporate investment, lay before the House a report on the consultation which has not happened, it seems strange to have a set undertaken on the provisions in this clause so that we of policies reducing and incentivising capital allowances can get as clear grasp of the concerns they are targeted to do exactly the same thing. I have spoken to a number at. Amendment 60 goes further and states that no draft of concerned stakeholders who have told me that there instrument can be laid under this clause until consultation has been little or no consultation on some of these is carried out with stakeholders on qualifying arrangements measures. for relief. It must work for all the businesses it is The lack of consultation on the allowance in clause 29, targeted at. in particular, is worrying. The initiative was announced In addition, amendment 59 would oblige the Government with immediate effect on the day of the Budget— to disclose how the take-up of the relief is distributed 29 October. Stakeholders have raised the valid concern among microbusinesses, SMEs and large corporations. that it remains framework legislation with none of the We must be able to assess whether this relief is of detail necessary for proper scrutiny—not just by the genuine value to small businesses or is yet another Opposition but by industry and the people whom the Bill poorly targeted giveaway. will directly affect. Presumably the Government did not preannounce the measure to ensure that no investment 3.30 pm decisions were delayed in anticipation of it, but they I also find it peculiar that the relief has been made must be clear about what business will be getting. available on overseas property. Why is the UK offering Immediate implementation is an important power in tax breaks for the construction of buildings and commercial the Treasury toolkit, but it is usually an anti-avoidance developments that might be located abroad? That seems measure. It is hard to see how that applies in the case of counter-intuitive to the purpose of this allowance. this allowance. It has simply generated more opacity The seemingly generous inclusion of the allowance is about what will qualify. in perpetuity. As the Bill reads, it appears that the We are talking about a big item of spend. Businesses allowance can get sold on for the duration of the need to be able to attach numbers to their construction building’s existence if the building is purchased by plans, and they need absolute clarity about what qualifies another business. That seems an unusual extension of a as expenditure and what does not. The regulations do relief, from a one-off measure to promote investment by 143 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 144 one particular company to an incentive to purchase the of the policy are outlined in the technical note published building by another company that may be in a quite on Budget day, which invites businesses to express views different position. on detailed aspects of this policy. Those are all issues that could have been covered in This legislative process will provide taxpayers with dialogue with the people whom this measure will affect. certainty that the allowance will come into force as soon I ask all colleagues to support Labour’s amendments as possible, while allowing the Government to consult today, which will reveal the conversations that took on important policy decisions. The new relief will provide place before this relief was decided and—crucially—what businesses with an additional £1.9 billion of tax relief in the real revenue effects will be. the next six years, growing to £2 billion annually by year 50. The allowance will be available to any Kirsty Blackman: I rise to speak very briefly on this unincorporated or incorporated business that builds a clause. The questions that have been asked by the new structure or a building, or that acquires one directly Opposition are incredibly useful and interesting ones; from a developer. The allowance will apply across all they have gone into this matter in some detail. Given sectors and sizes of UK trade, improving our collective the amendments that they have put forward, the SNP economic position as we go into 2019 and beyond. will be happy to support any of them that are pressed to Amendments 57 and 60 seek to commit the Government a vote. to carry out and lay before the House a report on the consultation with stakeholders on arrangements for the Mel Stride: May I address very directly the question allowance. The Government, however,have already invited that the hon. Member for Stalybridge and Hyde has stakeholders’views on the detailed aspects of the allowance, posed regarding consultation and the level of consultation and have made it clear to the public that a further before the announcement, which of course he recognises technical consultation will be issued on the draft secondary is in part at least due to the fact that on announcing this legislation. That is set out in the technical note, published measure we do not want to have forestalling in terms of alongside the 2018 Budget. businesses taking investment decisions? Amendments 58 and 59 seek a Government review of Indeed, with matters or measures of this kind, we the revenue effects and the uptake of the relief among have a number of things that we need to balance. As I different-sized businesses. The estimated revenue effects say, we need to ensure that businesses do not delay have been published in the Budget 2018 document. The investment; we also have to give businesses the certainty relief is expected to provide £1.9 billion of additional they need that the measures will actually be implemented; support over the next six years to businesses of all sizes. and we are of course consulting on the technical details, That figure has been subject to detailed challenge and including the very pertinent issue of the qualifying use to the scrutiny of the independent Office for Budget that he referred to. And we will of course consult on the Responsibility. draft legislation when it is brought forward. Amendment 58 requests that the Government lay a The hon. Gentleman asked about the figures and the report on the revenue effects before the House within cost of this measure,and how that cost has been established. six months of the enactment of the Bill. That would not The OBR will score these measures in the normal be technically possible, due to the time needed for manner. He also made the specific point about the businesses to make new claims and for the Government desirability of these reliefs being available to construction to carry out the necessary analysis. However, HMRC projects and other qualifying activities overseas. Of publishes annually the cost of capital allowances claimed course one should make the point that that would occur and the capital allowances available, split by asset type only where it was on the part of a company that fell due and by industry, in the “Estimated costs of the principal to the UK corporation tax charge, and would reflect tax reliefs” and “Corporation Tax Statistics” documents. exactly the same situation in reverse, were it to be, say, a Those publications will include the new allowance costs French business constructing something in the United as soon as sufficient data are available. I therefore urge Kingdom and in turn receiving reliefs from the French hon. Members to withdraw their amendments, and I tax authorities. So it is a kind of equality of treatment commend the clause to the Committee. in those particular respects. The UK was previously the only G7 economy that Jonathan Reynolds: To make an appropriate level of gave no capital relief on structures and buildings. The progress, with the leave of the Committee, I will not CBI’s recent report, “Catching the peloton”, asked the press all amendments save for amendment 59. I beg to Government to explore how the incentive regime could ask leave to withdraw the amendment. support investment in commercial buildings. [Laughter.] Amendment, by leave, withdrawn. I am assuming that this is some kind of sub-atomic Amendment proposed: 59, in clause 29, page 17, line 8, at particle that requires a Large Hadron Collider,or whatever end insert— these things are, to be built, with huge tax reliefs associated ‘(14) The Chancellor of the Exchequer must review the uptake with it. of the relief that will be created as a result of the powers in this The Government recognise the importance of providing section by the groups set out in subsection 15. tax reliefs for genuine business costs, supporting investment (15) The groups that must be considered under the review in and growth, and driving our future prosperity.Therefore, subsection 14 are— this relief will reduce the cost of doing business in the (a) companies with between zero and nine employees, UK, alongside our corporation tax reductions. (b) companies with between 10 and 250 employees, and The changes made by clause 29 will give the Government (c) companies with more than 250 employees. the power to introduce secondary legislation, as we have (16) A report of the review under subsection (14) must be laid discussed, to provide capital allowance on the costs of before the House of Commons no later than 12 months after the non-residential structures and buildings. Key features first exercise of the powers under this section.’—(Jonathan Reynolds.) 145 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 146

This amendment would require the Chancellor of the Exchequer to Amendment 64, in clause 30, page 17, line 35, at end review the uptake of this relief among micro-businesses, SMEs and insert— large companies. ‘(9) The Chancellor of the Exchequer must commission a Question put, That the amendment be made. review on impact of the amendments made by this section on the The Committee divided: Ayes 8, Noes 9. level of investment in plant and machinery included as special rate expenditure, where such plant and machinery was made Division No. 16] before April 2019. (10) A report of the review under subsection (9) must be laid AYES before the House of Commons by 1 April 2020.’ Black, Mhairi Lewis, Clive This amendment would require the Chancellor of the Exchequer to Blackman, Kirsty Reynolds, Jonathan review the effects of this clause upon business decisions to invest in Dodds, Anneliese Smith, Jeff eligible plant and machinery made before April 2019 and report on Dowd, Peter Sobel, Alex those changes by the end of the tax year 2019-20. Amendment 65, in clause 30, page 17, line 35, at end NOES insert— ‘(9) The Chancellor of the Exchequer must lay before the Afolami, Bim Lamont, John House of Commons a report on any consultation undertaken on Badenoch, Mrs Kemi Stride, rh Mel the provisions in this section. Ford, Vicky Syms, Sir Robert (10) A report of the review under subsection (9) must be laid Jenrick, Robert before the House of Commons within two months of the passing Keegan, Gillian Whittaker, Craig of this Act.’ This amendment would require the Chancellor of the Exchequer to Question accordingly negatived. report on any consultation undertaken on the provisions in this clause. Clause 29 ordered to stand part of the Bill. Clause stand part.

Jonathan Reynolds: The clause proposes reducing the Clause 30 special rate for qualifying plant and machinery assets from 8% to 6%. It is reassuring to see something in this SPECIAL RATE EXPENDITURE ON PLANT AND MACHINERY package of measures that raises some revenue, but it represents another small change to the way businesses Jonathan Reynolds: I beg to move amendment 61, in are asked to operate. It is more change, more complexity clause 30, page 17, line 35, at end insert— and less certainty, all at a very difficult time for British ‘(9) The Chancellor of the Exchequer must commission a business. I understand that this measure, as the Chancellor review on impact of the amendments made by this section on said in his Budget speech, has been introduced in part CO2 emissions from plant and machinery operated in the United to fund the buildings allowance outlined in clause 29, Kingdom. which we have just discussed. (10) A report of the review under subsection (9) must be laid One of the problems with a change like this is that before the House of Commons by 1 April 2020.’ businesses make their plans on the basis of what tax This amendment would require the Chancellor of the Exchequer to rates are when they make those decisions. As the Chartered review the effects of this Clause on CO2 emissions from plant and Institute of Taxation has warned, this gives the rate machinery, and report on those changes by the end of the tax year 2019-20. “an element of retroaction, as investment decisions may have been taken on the basis of an 8% rate of allowance” that is now being shifted to 6%. In its words: The Chair: With this it will be convenient to discuss the following: “Tinkering with rates and allowances in this way undermines the principles of stability and certainty and as a result reduces the Amendment 62, in clause 30, page 17, line 35, at end international competitiveness of the UK’s tax system.” insert— The Chartered Institute of Taxation also highlights the ‘(9) The Chancellor of the Exchequer must commission a potential flaw in the logic that people will be able to review on impact of the amendments made by this section on the balance off one cut against another: prices of— “The impact of this change in rate will be different for different (a) household heating and electricity, and businesses.” (b) insulation material. Any business that is unable to take advantage of the (10) A report of the review under subsection (9) must be laid new structure and buildings allowance will find that it is before the House of Commons by 1 April 2020.’ simply worse off. It is therefore concerning that no prior This amendment would require the Chancellor of the Exchequer to consultation took place regarding these measures, so we review the effects of this clause on the cost of heating, electricity and simply do not know the different ways in which businesses insulation material and report on those changes by the end of the tax year 2019-20. might be impacted, or what they will make of these various allowances. Amendment 63, in clause 30, page 17, line 35, at end insert— For that reason, the Opposition have tabled a package of amendments to dig deeper into what the impact of ‘(9) The Chancellor of the Exchequer must commission a review on impact of the amendments made by this section on the those changes will be. Amendment 65 prompts the automotive market in the United Kingdom. Government to present to the House a report on any (10) A report of the review under subsection (9) must be laid consultation that was undertaken with regards to this before the House of Commons by 1 April 2020.’ measure. As I have just stated, we have significant This amendment would require the Chancellor of the Exchequer to concerns about how little consultation was carried out review the effects of this Clause on the automotive market in the UK regarding any of these measures, and the potential and report on those changes by the end of the tax year 2019-20. problems that might arise in implementation, given the 147 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 148

[Jonathan Reynolds] Amendments 61, 62 and 63 would commit the Government to reviewing the impact of the rate reduction scope of what is being proposed. We need to know what on CO2 emissions from plant and machinery, the prices opinions were sought from the companies this will of insulation material, household heating and electricity, impact upon, and how those opinions were taken into and the automotive market. The Government have account, if at all. Further to that, amendments 62 and already published tax information and an impact note 63 call for specific reviews of how the special rates will for the reduction. I assure hon. Members that the impact on both the use of household insulation—which careful consideration of impacts is a standard process would be included as an integral feature—and the for all tax policy changes. automotive industry. Higher-emission vehicles would The Government’s commitment to meet the emissions attract the lower rate of relief, rather than the full relief reductions target has never been stronger. The Climate of 100% for lower-emission vehicles. Change Act 2008 provides a world-leading governance That brings me to the huge missed opportunity in framework, which already ensures that our overall progress this clause to promote business investment in green is robustly monitored and reported to Parliament. As technologies. If the Government are going to endlessly the hon. Member for Stalybridge and Hyde pointed tinker with this regime, why not do it to benefit green out, benchmarked against 1990, there has already been investment? Amendment 61, connected to this, would significant progress. The Committee on Climate Change oblige the Government to publish a review of the CO2 provides regular advice to the Government on how best emissions that result from investment in plant and to achieve our targets, and on the impact of existing machinery at the special rate. I urge Members to support policies. this amendment, which is critical to showing us the potential environmental impact of this change, and will allow us to assess what we can achieve by promoting 3.45 pm relief through investment in cleaner technology. The Office of Gas and Electricity Markets is the According to the Government’sown statistics, published Government regulator for gas and electricity markets. It in March 2018, carbon dioxide emissions from the takes account of all factors affecting electricity transmission business sector accounted for 18% of all emissions in networks and distribution, including which capital 2017. While there has been a laudable 41% drop in allowances it can claim as part of its normal cost with carbon dioxide emissions from the business sector since individual companies. Ofgem can provide information 1990, we all know that we have to do more, as quickly as on those markets, including through accessible factsheets, possible, to achieve the change that is so urgently needed and explanations of the work it does to protect consumer to avert climate catastrophe. I therefore urge all Members interests. to vote in favour of these amendments, to give us the Amendment 63 seeks a report on the effect of capital information we need to get a clear picture of the impact allowances on the automotive market. At the Budget, this will have on business, industry and the environment. the Chancellor announced a review of the effects of changes in the test procedures for new vehicle CO2, Mel Stride: Clause 30 makes changes to ensure that which will have a much more significant effect on new the capital allowances special rate is reduced from 8% to car sales than the writing-down rate. 6% from April 2019. The change will improve the Amendment 64 would require the Government to alignment between the rate at which the special rate review the impact of the rate reduction on the investment pool assets were written down for tax purposes and in special rate plant and machinery, where such assets depreciation in business accounts, which is part of the were made before April 2019. The rate reduction will rejoinder to the hon. Gentleman’s charge that we are improve the fairness of our capital allowances across introducing greater complexity. We are actually aligning various types of asset, which will improve the alignment those rates in a way that will inject some further with average accounts depreciation for the special rate simplification. assets. Furthermore, the independent Office for Budget The change made by clause 30 will provide businesses Responsibility estimated that the package of capital with the same amount of relief overall, but over a longer allowances measures is expected to increase overall period. Under the new rate, businesses will receive relief business investment by 0.4% by the end of the scorecard, on 50% of the cost of special pool assets within 11 years, which supports our economy as a whole. compared with eight previously. The vast majority of Amendment 65 would commit the Government to businesses will be unaffected by the rate reduction, reporting on any consultation on the provisions of this because expenditure on new special pool assets qualifies section. As the Government stated in “The new Budget for the annual investment allowance every year. The timetable and the tax policy making process” published temporary increase of the annual investment allowance last year: to £1 million for the next two years will further help businesses to bring forward their investment, and write “The government will generally not consult on straightforward it off in full in the first year. The change is expected to rates, allowances and threshold changes” raise £1.6 billion in revenue over the next six years. because they do not benefit from the process. I therefore The capital allowances package announced in the urge the Committee to reject the amendments. I commend 2018 Budget will provide around £1 billion of additional the clause to the Committee. support to businesses over the next six years. That change, combined with the new structures and buildings Jonathan Reynolds: I beg to ask leave to withdraw the allowance, will make our capital allowances system amendment. more balanced by moving the relief from an area in which the rate was relatively generous to an area in Amendment, by leave, withdrawn. which no relief was previously available. Clause 30 ordered to stand part of the Bill. 149 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 150

Clause 31 (c) any evidence that he is aware of that does not support the provisions of this section having a positive economic benefit.’ TEMPORARY INCREASE IN ANNUAL INVESTMENT This amendment would require the Chancellor of the Exchequer to ALLOWANCE make a statement on the evidence base for the temporary AIA increase. Amendment 71, in clause 31, page 18, line 4, at end Jonathan Reynolds: I beg to move amendment 66, in insert— clause 31, page 18, line 4, at end insert— ‘(3) The Chancellor of the Exchequer must, within 3 months ‘(3) The Chancellor of the Exchequer must commission a of the passing of this Act, lay before the House of Commons an review on the estimated impact of the provisions of this section analysis of the distributional and other effects of the provisions and Schedule 12 on the level to which businesses claim annual of this section and Schedule 12 on companies of different sizes.’ investment allowance. This amendment would require the Chancellor of the Exchequer to lay (4) The review shall in particular compare the estimated before the House of Commons an analysis of the distributional and impacts of increasing the annual investment allowance for— other effects of the provisions of this section on companies of different (a) the period specified in subsection (1), and sizes. (b) the period of three years beginning with 1 January Clause stand part. 2019. That schedule 12 be the Twelfth schedule to the Bill. (5) A report of the review under subsection (3) must be laid before the House of Commons within three months of the passing of this Act.’ Jonathan Reynolds: I am pleased that we have got on This amendment would require the Chancellor of the Exchequer to to this clause, which is one of the most substantial in report on the estimated impact of the provisions of this clause, and the Bill. As it stands, it will increase the annual investment compare them to the estimated impact of extending the temporary AIA allowance from a one-off £200,000 to a substantial relief for an additional year. £1 million for two years. To be frank, it feels like the limit has been increased The Chair: With this it will be convenient to discuss to try to lessen some of the damage that has been the following: inflicted on the country by the Government’s Brexit Amendment 67, in clause 31, page 18, line 4, at end negotiating approach, but the constant chopping and insert— changing of such an allowance risks mitigating the ‘(3) The Chancellor of the Exchequer must commission a benefits of the allowance entirely, because it presents a review on the impact of the provisions of this section and regime that is impossible for companies to plan around Schedule 12 on businesses able to claim annual investment as it is constantly shifting. By my count, the allowance allowance. has now changed five times in the 10 years since it was (4) A report of the review under subsection (3) must be laid introduced. before the House of Commons by 1 April 2020.’ The measure is not cheap; it carries a significant This amendment would require the Chancellor of the Exchequer to review the impact of the provisions of this section and report on that up-front cost. The Red Book that accompanied the impact by the end of the tax year 2019-20. 2018 Budget estimates that the cost of the allowance Amendment 68, in clause 31, page 18, line 4, at end will be up to £1.24 billion. Some of that is projected to insert— be recouped in the three years after it is introduced, but there is still £760 million of lost revenue after six years. ‘(3) The Chancellor of the Exchequer must commission a review on the costs and benefits of extending the increase in The structure of the allowance favours bigger businesses annual investment allowance beyond the period specified in to such an extent that it could penalise small businesses subsection (1). by making it impossible for them to spend even the (4) A report of the review under subsection (3) must be laid lower £200,000 allowance. These businesses are unlikely before the House of Commons within 3 months of the passing of to ever get near to the full £1 million allowance, but they this Act.’ face the ludicrous situation whereby their capacity to This amendment would require the Chancellor of the Exchequer to use even the pre-existing lower £200,000 allowance will review the costs and benefits of extending the increase in AIA relief be restricted. This is a complicated point but I will try to beyond two years. properly explain it. Amendment 69, in clause 31, page 18, line 4, at end The legislation has been quite poorly drafted, with a insert— disregard for small companies. The Opposition believe ‘(3) The Chancellor of the Exchequer must lay before the that, with just a simple change via an amendment, it House of Commons a report on any consultation undertaken on the provisions in this section and Schedule 12 within two months could be easily fixed. However,because of the Government’s of the passing of this Act.’ undemocratic approach, which we have talked about This amendment would require the Chancellor of the Exchequer to and which has prevented us from tabling substantive report on any consultation undertaken on the provisions in this clause. amendments, it is actually not possible for us to propose Amendment 70, in clause 31, page 18, line 4, at end anything other than a review. I will therefore use this insert— speech to urge the Minister to consult the Treasury on implementing a quite simple change to the legislation to ‘(3) The Chancellor of the Exchequer must make a statement to the House of Commons within 2 months of the passing of this prevent it from having the opposite effect to that which Act on the matters specified in subsection (4). was intended. (4) Those matters are— The annual investment allowance has been subject to (a) the results of any analysis undertaken by the Treasury numerous tweaks, which is often unhelpful in promoting regarding the provisions of this section and Schedule 12, a regime of certainty and stability.One particular problem (b) any evidence that he is aware of that supports the posed here is that the allowance has been designated for provisions of this section having a positive economic a very specific period—1 January 2019 to 31 December benefit, and 2020. However, many companies operate a different 151 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 152

[Jonathan Reynolds] package of amendments, which will give the Committee the information it needs to make the right call on this accounting period, typically in line with the tax year but substantial and significant change. in some cases with particular dates suited to their specific activities. The problem that this poses is that the allowance Mel Stride: I will deal with two points raised by the period will not match up with the accounting period. If hon. Gentleman before I speak more broadly to the a company’s tax year does not match the fixed timescales amendments under consideration and the clause itself. of this allowance, there needs to be what is called a On the issue of consultation, where we have an additional straddling calculation for the way the allowance is split relieving measure coming in, where one would consult over both timescales, because it will change. It will go on it well in advance, one would expect the market to from being an annual calculation to a daily one. The see the change coming and, therefore, forestall on activity legislation makes specific provision for this straddling as a consequence, in order to ensure that it benefited period. from the reliefs being brought in. For that reason, these kind of measures in general, and this one specifically, I might need a whiteboard to explain this to the would not be appropriate to the kind of consultation Committee, but I will try my best without one. I have that the hon. Gentleman has in mind. kindly been supplied with a real-world example by a professional body. Imagine if a company with a tax year The hon. Gentleman raised the specific issue of the that ended in March had spent £60,000 just after the way the straddling arrangements operate. Even in the allowance period had ended. Owing to the straddling absence of a whiteboard, he did a pretty good job of calculation, it would be entitled to relief on only £49,315 explaining the conundrum that he referred to. His example of that expenditure, even though the expenditure was is well made: one could end up in a situation with a well below the existing £200,000 allowance and clearly relatively limited relief available, because of straddling. lower than the new higher limit. Had the company However, the answer to that is that one would know incurred that expenditure evenly throughout the year, about it in advance and, therefore, adjust the arrangement or indeed before 1 January 2021, the full expenditure of one’s affairs accordingly. would have been relieved. I may have to put this in Clause 31 and schedule 12 will temporarily increase, writing to the Minister to make it clear. as we know, the AIA limit to £1 million from its current The simplest way to fix this issue would be to give level of £200,000 from 1 January 2019 for two years. small businesses the chance, if they wished, to opt out The AIA allows businesses to deduct the full cost of of the new limit, so that they did not get caught between qualifying expenditure up to a specified annual limit or the two periods. We know from HMRC’s own statistics cap, where anything above this will be relieved at 18% in that small businesses rarely ever get close to using the successive years. Where businesses spend more than the full allowance as it stands, let alone needing the new annual limit, any additional qualifying expenditure will £1 million threshold. It makes no sense to penalise them attract relief under the normal capital allowances regime, with a higher rate that they will never be able to utilise. entering either the main rate or the special rate pool, where it will attract writing-down allowances at the What consultation was undertaken regarding this main rate or special rate respectively.This change responds measure? This issue should surely have been caught at to a consistent ask from business groups such as the an earlier stage, or even pre-empted, given that it occurs Confederation of British Industry, Institute of Directors every time the allowance threshold and periods shift. and the British Chambers of Commerce. The increase will Given that the regime has been subject to many changes provide a timing benefit, giving businesses 100% first-year already,the Opposition have tabled amendments requesting relief on qualifying plant and machinery investments a package of reviews that would oblige the Government up the value of £1 million. to disclose the impact on businesses eligible to claim the allowance. The changes made by schedule 12 will increase the Our amendment 66 requests a review on the estimated current AIA amount for two years. It is expected to cost impact of the provisions on the level to which businesses £685 million over the scorecard, with positive returns to are claiming the allowance, assessing the take-up in the the Exchequer from 2021-24. This will provide an incentive different periods to see whether the increase in the for those businesses already spending up to the £200,000 allowance is really worth while. Amendment 68 drills threshold to increase or bring forward their capital down further into the costs and benefits directly, which expenditure on plant and machinery, by providing a is essential given the substantial amount of revenue cash flow benefit. involved in this change. Amendment 69 asks the Amendments 66 to 68 and 71 seek a review of the Government to put before the House a consultation on impact of this temporary increase. These reviews would the provisions within two months of the Bill’s passage. concern the number of businesses affected, the distributional This is essential so that we can hear directly from impact, and the cost and impact of extending the increase small businesses that will be affected by the point I just to three years. By definition, this clause has a positive raised. impact on businesses and business investment, enabling Weneed to understand, from a distribution perspective, more firms with qualifying plant and machinery expenditure who is taking up this relief and why. We need to know to claim 100% first-year relief. This also makes tax the details of who will use it and how it will benefit simpler for businesses making qualifying investments them, so that we can properly assess its impact. We also up to £1 million, which will not have to account for need to correct the change to the thresholds, which individual assets. seems reasonable, given that businesses have been affected Much of that information is also available in the tax by previous changes and will certainly be affected by information and impact note, and policy costings note, this one. I therefore urge all Members to vote for our published at Budget 2018. These notes include details 153 Public Bill Committee 29 NOVEMBER 2018 Finance (No. 3) Bill 154 on business impacts, including for companies of different The Committee divided: Ayes 8, Noes 9. sizes, and projected costs of the temporary increase. Division No. 17] The change has been limited to two years given our continued need to consider the right balance between AYES our fiscal, tax and spending objectives in order best to Black, Mhairi Lewis, Clive support the economy, while keeping debt falling and Blackman, Kirsty Reynolds, Jonathan increasing fiscal resilience. This means maintaining fiscal Dodds, Anneliese Smith, Jeff discipline, which involves decisions such as keeping this Dowd, Peter Sobel, Alex higher level of AIA temporary rather than permanent. I therefore urge Opposition Members not to press the NOES amendments. Afolami, Bim Lamont, John Amendment 69 would commit the Government to Badenoch, Mrs Kemi Stride, rh Mel publishing a report on consultation undertaken for this Ford, Vicky provision.Noconsultationwasundertakenforthistemporary Jenrick, Robert Syms, Sir Robert change. It is important that this increase begins promptly Keegan, Gillian Whittaker, Craig following any announcement or engagement, in the way that I suggested in my earlier remarks. Question accordingly negatived. Amendment 70 seeks a statement on the evidence Clause 31 ordered to stand part of the Bill. base for the economic impact of this change. Prior to the Budget, the Government received representations Schedule 12 agreed to. from a range of businesses and business groups calling Ordered, That further consideration be now adjourned. for this measure and outlining the positive impact an —(Craig Whittaker.) increase in the AIA amount would have on investment behaviour. Through this increase, the Government are 4.1 pm giving even more businesses access to 100% first-year relief.I commend the clause and schedule to the Committee. Adjourned till Tuesday 4 December at twenty-five Question put, That the amendment be made. minutes past Nine o’clock. 155 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 156

Written evidence reported to the House FB02d Chartered Institute of Taxation (clauses 50 to 52 —VAT) PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT GENERAL COMMITTEES

Public Bill Committee

FINANCE (NO. 3) BILL

(Except clauses 5, 6, 8, 9 and 10; clause 15 and schedule 3; clause 16 and schedule 4; clause 19; clause 20; clause 22 and schedule 7; clause 23 and schedule 8; clause 38 and schedule 15; clauses 39 and 40; clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 and schedule 18; clauses 68 to 78; clause 83; clause 89; clause 90; any new clauses or new schedules relating to tax thresholds or reliefs, the subject matter of any of clauses 68 to 78, 89 and 90, gaming duty or remote gaming duty, or tax avoidance or evasion)

Fifth Sitting

Tuesday 4 December 2018 (Morning)

CONTENTS

CLAUSES 32 TO 35 agreed to. SCHEDULE 13 agreed to. CLAUSE 36 under consideration when the Committee adjourned till this day at Two o’clock.

PBC (Bill 282) 2017 - 2019 No proofs can be supplied. Corrections that Members suggest for the final version of the report should be clearly marked in a copy of the report—not telephoned—and must be received in the Editor’s Room, House of Commons,

not later than

Saturday 8 December 2018

© Parliamentary Copyright House of Commons 2018 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 157 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 158

The Committee consisted of the following Members:

Chairs: †MS NADINE DORRIES,MR GEORGE HOWARTH

† Afolami, Bim (Hitchin and Harpenden) (Con) † Lewis, Clive (Norwich South) (Lab) † Badenoch, Mrs Kemi (Saffron Walden) (Con) † Reynolds, Jonathan (Stalybridge and Hyde) (Lab/ † Black, Mhairi (Paisley and Renfrewshire South) Co-op) (SNP) † Smith, Jeff (Manchester, Withington) (Lab) † Blackman, Kirsty (Aberdeen North) (SNP) † Sobel, Alex (Leeds North West) (Lab/Co-op) † Charalambous, Bambos (Enfield, Southgate) (Lab) † Stride, Mel (Financial Secretary to the Treasury) † Dodds, Anneliese (Oxford East) (Lab/Co-op) † Syms, Sir Robert (Poole) (Con) † Dowd, Peter (Bootle) (Lab) † Whately, Helen (Faversham and Mid Kent) (Con) † Ford, Vicky (Chelmsford) (Con) † Whittaker, Craig (Lord Commissioner of Her † Jenrick, Robert (Exchequer Secretary to the Majesty’s Treasury) Treasury) Colin Lee, Gail Poulton, Joanna Dodd, Committee † Keegan, Gillian (Chichester) (Con) Clerks † Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con) † attended the Committee 159 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 160

Amendment 76, in clause 32, page 19, line 23, at end Public Bill Committee insert— “(6) The Chancellor of the Exchequer must review the effect of Tuesday 4 December 2018 ending the first-year allowances on energy-saving plant or machinery or environmentally beneficial plant or machinery, on foreign direct investment in the energy technology and water (Morning) technology sectors and lay a report of that review before the House of Commons within one year of the passing of this Act.” This amendment would require the Chancellor of the Exchequer to [NADINE DORRIES in the Chair] review the impact of ending the first-year allowance on foreign direct investment in the energy and water technology sectors. Finance (No. 3) Bill Amendment 77, in clause 32, page 19, line 23, at end insert— “(6) The Chancellor of the Exchequer must review the effect of (Except clauses 5, 6, 8, 9 and 10; clause 15 and the provisions in this section on the United Kingdom’s ability to schedule 3; clause 16 and schedule 4; clause 19; comply with its third, fourth and fifth carbon budgets and lay a clause 20; clause 22 and schedule 7; clause 23 and report of that review before the House of Commons within six months of the passing of this Act.” schedule 8; clause 38 and schedule 15; clauses 39 and 40; This amendment would require the Chancellor of the Exchequer to clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 review the impact of Clause 32 on the UK’s ability to meet its carbon and schedule 18; clauses 68 to 78; clause 83; clause 89; budgets. clause 90; any new clauses or new schedules relating to Amendment 78, in clause 32, page 19, line 23, at end tax thresholds or reliefs, the subject matter of any of insert— clauses 68 to 78, 89 and 90, gaming duty or remote “(6) The Chancellor of the Exchequer must lay before the gaming duty, or tax avoidance or evasion) House of Commons a report on any consultation undertaken on the provisions in this section within two months of the passing of this Act.” Clause 32 This amendment would require the Chancellor of the Exchequer to report on any consultation undertaken on the provisions in this clause. FIRST-YEAR ALLOWANCES AND FIRST-YEAR TAX CREDITS Clause stand part. 9.25 am Jonathan Reynolds: It is lovely to see you again in the chair, Ms Dorries, as we reconvene for this Committee’s Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op): second week. It is particularly good to see the Minister I beg to move amendment 73, in clause 32, page 19, still here—I am never quite sure at the minute who will line 23, at end insert— turn up on behalf of the Government. “(6) The Chancellor of the Exchequer must review the likely effect of extending the first-year allowances on energy-saving I speak to Opposition amendments 73, 74 and 78 to plant or machinery or environmentally beneficial plant or clause 32, which focuses on first-year allowances and machinery to 2030 and lay a report of that review before the first-year tax credits. This measure would end the first-year House of Commons within six months of the passing of this allowance for all products on the technology and energy Act.” list and on the water technology list. Before I move on This amendment would require the Chancellor of the Exchequer to to why the Opposition feel strongly that the Government review the effects of extending first-year allowances to 2030. are wrong to end the first-year allowance, it is important to establish the extent of the allowance, its qualifications The Chair: With this it will be convenient to discuss and the logic behind its introduction. the following: Enhanced capital allowances legislation was introduced Amendment 74, in clause 32, page 19, line 23, at end in 2001 to encourage the use of energy-saving plant and insert— machinery, low-emission cars, natural gas and hydrogen “(6) The Chancellor of the Exchequer must review the likely refuelling infrastructure, water conservation plant and cost of extending the first-year allowances on energy-saving machinery construction projects and so on. Under the plant or machinery or environmentally beneficial plant or relief, businesses that pay income or corporation tax machinery to 2022 and lay a report of that review before the can claim 100% of the first-year capital allowance on House of Commons within six months of the passing of this investment in ECA qualifying items. In addition, adoption Act.” of ECA qualifying items improve a project’s building This amendment would require the Chancellor of the Exchequer to research establishment environmental and assessment review the cost of extending first-year allowances to 2022. method—the BREEAM rating—and contribute to an Amendment 75, in clause 32, page 19, line 23, at end improved energy performance certification rating. insert— To qualify, the item acquired must qualify as plant “(6) The Chancellor of the Exchequer must review the effect of and machinery and satisfy the following criteria: it must ending the first-year allowances on energy-saving plant or machinery or environmentally beneficial plant or machinery and not be second hand; the expenditure must have occurred lay a report of that review before the House of Commons within after 1 April 2001; and the plant must either be a listed one year of the passing of this Act. product or meet the energy saving or water conservation (7) A review under subsection (b) must consider the effect criteria specified by the Carbon Trust. Energy-saving on— technologies are things such as air-to-air energy recovery, (a) the energy technology sector, and automatic monitoring, boilers including biomass,combined (b) the water technology sector.” heat and power units, compressed air equipment and so This amendment would require the Chancellor of the Exchequer to on. Water conservation technologies include efficient review the impact on the energy and water technology sectors of ending showers, taps and toilets, energy-efficient washing machines first-year allowances. and more. 161 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 162

The Department for Business, Energy and Industrial than empowering businesses to do their part and invest Strategy describes enhanced capital allowances as different in energy-saving and water conservation technologies, it from standard capital allowances.It estimates that enhanced appears likely to deter them. We cannot see the logic of capital allowances are between 5.5 and 12.5 times greater that. If the Government are sincere in their desire to than ordinary capital allowance relief. This accelerated create a better-targeted and more effective relief, they cost saving further shortens the period of time and need to offer the Committee further details about the builds the business case for investment in energy-efficient supposed industrial energy transformation fund to replace equipment. first-year allowances. If the Committee is being asked It is clear that this allowance encourages businesses to endorse that change, let us have all the details first. to mitigate their environmental footprint and is designed to help the UK transition to a green and low-carbon The Exchequer Secretary to the Treasury (Robert economy. It is therefore disappointing that at a time Jenrick): It is a pleasure to serve under your chairmanship, when, as we have already discussed in this Committee, Ms Dorries. After two days in the reassuring embrace of the United Nations Intergovernmental Panel on Climate the Financial Secretary to the Treasury, the Committee Change has warned that climate change is at the point has a brief interlude. of becoming irreversible, the Government would choose Clause 32 will make changes to end, from April 2020, to end such an effective relief. first-year allowances for all products on the energy Despite the positive steps that national Governments technology list and the water technology list, including are taking all over the world to get citizens to recognise the associated first-year tax credit. The environmental and limit their personal carbon footprint, businesses first-year allowances aimed to encourage greater take-up clearly have a role to play, too. We feel that the best way of environmentally friendly technology.Capital expenditure is to incentivise businesses, making it worth their while by businesses on plant and machinery normally qualifies to use energy-saving and water-conserving technologies for tax relief by way of capital allowances. Environmental through tax relief. Taking away first-year allowances first-year allowances allow 100% of the cost of an with little notice would only further alienate business at investment in qualifying plant and machinery to be a time when we all need to do what we can to transition written off against taxable income in the year of investment, our economy to deal with the realities of climate change. providing a cash-flow benefit. The first-year tax credit Although in its policy notes the Treasury suggests provides a tax credit for loss-making businesses that that small and medium-sized businesses will be shielded invest in qualifying items. and the vast majority will be able to claim relief under The first-year allowance was introduced in 2001 for the separate annual investment allowance, it concedes products on the energy technology list, and in 2003 for that large businesses will face additional costs and some products on the water technology list. However, the level of disruption. Similarly, the Chancellor has stated allowances have made the tax system more complex, that the revenue saved will be used to fund the industrial and there is very limited evidence that they have driven energy transformation fund. However, details about the greater uptake of such technologies. A report by the fund remain scant, aside from the fact that it will Office of Tax Simplification found significant barriers targeted at smaller businesses and funded through the to accessing the allowances, including the administrative end of these first-year allowances. burden of making claims. Government analysis suggests From the Opposition’s perspective, the change appears that less than 25% of energy managers would increase to be little more than a rebranding exercise designed to investment in energy-saving technology because of the take an effective relief—first-year allowances—away and allowances, while fewer than 20% of manufacturers simply redirect that revenue into the Chancellor’s new report a positive impact on sales. fund. It is far from the radical industrial strategy that the UK needs to ensure that businesses and citizens are Kirsty Blackman (Aberdeen North) (SNP): The Minister equipped to deal with climate change and the evolving makes an interesting case, but it is what I would have energy market. expected as part of the report required by amendment 75. In the Budget, the Chancellor announced a consultation Will the Government accept the amendment and provide on a new business energy efficiency scheme, yet there us with the information in report form, rather than appears to be little mention of whether businesses were having the Minister stand up here and tell us? consulted about ending this vital relief. Opposition amendment 78 would therefore require the Chancellor Robert Jenrick: I will come to the amendment in a to report on what consultation has taken place. moment, but I hope I will be able to reassure the hon. The Government’s decision to end first-year allowances Lady and the hon. Member for Stalybridge and Hyde for energy-saving and water conservation technologies that we have already given the matter a great deal of raises a further question about the effectiveness of this thought and spoken to a number of stakeholders in the relief. Put simply, it is not broken, so the Government sector. Our actions are led by precisely the businesses need to explain why they are planning to scrap it. That that benefit from the existing reliefs. is certainly the sentiment behind Opposition amendments 74 For 99% of businesses, all plant and machinery is and 73, which would require the Chancellor to undertake already eligible for full relief under the annual investment a review of the cost of extending the allowance to the allowance, so the enhanced capital allowances provide end of this Parliament, and to 2030, respectively. no additional incentive. Smaller businesses such as those The reality is that the changes made by the Government to which the hon. Gentleman refers have little if any in clause 32 appear to be revenue-led. They put the reason to make use of those reliefs. The Government short-term priorities of the Treasury ahead of the UK’s therefore believe that there are better ways to support long-term obligation to tackle climate change. Rather energy efficiency. 163 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 164

[Robert Jenrick] available in the years ahead. Those could include, for example, investment in carbon capture and storage, or The changes made by clause 32 will end the first-year fuel-switching technologies. However, decisions on the allowances and the first-year tax credits from April scheme design, including eligibility and the technologies 2020. In answer to the hon. Gentleman’s question about that will be supported, will be subject to the consultation little notice, there is a significant amount of notice, with industry that I have just described. Establishing beginning with the Budget this year, and these first-year the scheme will fulfil our manifesto commitment to tax rates not ending until April 2020. That is the point establish an energy efficiency scheme for industry, and at which the industrial energy transformation fund will that has been widely welcomed, including by groups be available. Those rates will still be available until then, such as EEF, the manufacturers’ organisation; UK Steel which will give businesses the time they need to prepare and the Energy Intensive Users Group. Since the Budget, for change. The Government will look to lay secondary I have spoken to a number of heavy users of energy, legislation in 2019 and update the lists of eligible technology, including car manufacturers, who all welcome this measure. so that they can still be used and will be updated to include the most efficient technologies in the meantime. Clive Lewis (Norwich South) (Lab): Is the Minister There is no sense in which those measures will fall aware that some businesses are concerned that the behind with technological change. Government are ending one scheme without having To give some extra detail on some of the flaws with another in place? That causes uncertainty for business the current first-year allowance for energy technology, at a time when they need more certainty than they have we found very low levels of awareness, as I have already had for a long time. described. Manufacturers estimate that less than a quarter of their customers are even aware of the scheme, and it provided little additionality. As I have set out, fewer Robert Jenrick: I hear that concern, and that was the than 25% of energy managers reported that the scheme reason we chose not to end the scheme immediately. influenced their investment decisions, and fewer than The scheme will end in April 2020. Until then it will 20% of manufacturers reported that, if they did use it, it continue as it does today, and be regularly updated with made a positive impact on their sales and businesses. new technologies. If a company that makes use of it knows of a new technology that it wants to be part of Many tax advisers reported to us that their clients the scheme, it will be possible for that to be added. The decided to make claims after they had chosen to invest scheme will continue exactly as is until April 2020, by in efficient technology, so it did not have the impact that which time the new one will be in place. As a result of we would have hoped. Small companies are much less this year’s Budget, the annual investment allowance will likely than larger companies to benefit, and 99% of also go up to £1 million, so additional allowances will companies would already be able to make such investments be available to those businesses. under the annual investment allowance. A 2017 survey by the Federation of Small Businesses found that only a Amendments 73 and 74 would require the Government quarter of small business owners were even aware of the to publish a review of the cost of extending first-year scheme. allowances to 2030 and 2022. As set out in the policy costings document that we published alongside the Kirsty Blackman: Is the Minister not making the case Budget, ending the allowances will save £160 million by for more consultation in advance of any tax changes? 2021-22. As we announced in the Budget, savings from Clearly, this tax change did not achieve what the ending the allowances will be invested in an industrial Government thought it would. The consultations and energy transformation fund of up to £315 million. Our information asked for are even more vital if the Government primary motivation is finding a better way to help are making mistakes and not achieving what they had businesses be more energy-efficient—not saving money hoped. for the Exchequer, as was suggested—and we believe that our approach makes more efficient use of public funds. We anticipate that the average annual cost of Robert Jenrick: It is pretty clear from the evidence I extending first-year allowances would remain at around have just laid out that the current tax reliefs do not the same level until 2030. The figures are already known work. We are making the changes required to ensure and in the public domain, so I urge the Committee to that smaller businesses, through the increased annual reject amendments 73 and 74 because the information investment allowance, will have the allowance they need that they request is already available. to make these investments. We will now work closely with other businesses, through the design of the industrial Amendments 75 and 76 would require the Government energy transformation fund, and a full consultation on to publish a review of the impact of clause 32 on the that will be launched at the beginning of next year. We energy and water technology sectors. I hope that I have encourage the hon. Lady, businesses and other members already provided the Committee with an answer to of the Committee to take part in that consultation, as those points, removing the necessity of such reports. As we design the successor fund to these reliefs. I have set out, there is little evidence that the first-year The Government remain committed to increasing allowances lead to a greater uptake of environmental environmental efficiency, and the savings from ending technology, so the Government do not believe that such first-year allowances and tax credits will be used to fund reports would provide any significant additional the industrial energy transformation fund. That fund information. Furthermore, the Government support will help businesses with high energy use to cut their business investment in other, more efficient and dynamic energy bills and reduce their carbon emissions, by ways, through the increase in the annual investment supporting investment in energy efficiency and other allowance and the creation of the industrial energy innovative decarbonisation technologies that may become transformation fund. 165 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 166

Jonathan Reynolds: I am listening carefully to the Government to account for the changes that we make, Minister, but if the increase in the annual investment such as the ones in the Bill. That does not entirely allowance replaces the first-year allowances or mitigates answer the hon. Gentleman’s question on future targets. their loss, it seems that there is no fiscal incentive to The mechanisms in place are strong and will ensure invest in energy-efficient or climate change-relevant monitoring and reporting to Parliament of greenhouse technology. The Opposition believe that we should try gas emissions and of the Government’s responses. I to operate the policy as a fiscal instrument to direct therefore urge Members to reject amendment 77. investment into the technologies that we need, but I do Amendment 78 would require the Government to not see that described in the Minister’s answer. report on any consultation undertaken on the provisions in clause 32. The Government consult stakeholders on Robert Jenrick: I have described it; that is the rationale an ongoing basis to inform all their policies. The provisions for replacing the first-year allowance with the energy in clause 32 are no different. This includes, for example, transformation fund. Had we chosen simply to remove surveys of relevant manufacturers and a call for evidence the allowances and replace them solely with the increase on helping businesses to improve the way they use in the annual investment allowance, the hon. Gentleman energy, which was conducted by the Department for would be correct: 99% of businesses could proceed Business, Energy and Industrial Strategy.It would therefore broadly as they do today, but they would not have a not make sense to report further on the consultation specific incentive to choose environmental equipment, that the Government have already undertaken on first- plantandmachineryorenergyefficiencymeasures.However, year allowances. Her Majesty’s Treasury Ministers meet by coupling the increase in the annual investment allowance manufacturers regularly, as I have said. I have met with the transformation fund, we hope to shift the dial automotive manufacturers since the Budget and they in favour of technology that helps the environment. welcome the changes. Amendment 77 would require the Government to The legislation was not released in draft because this review the impact of clause 32 on the UK’s ability to is a simple abolition and does not constitute a measure meet its carbon budgets. I assure the Committee that that we would consult on normally.The Government stated there are already robust requirements to report on in the new budget timetable and the tax-making process, progress towards the UK’s emissions reduction targets. which was published last year, that they will generally not When the measures in the Budget and the Bill become consult on straightforward rates, allowances and threshold law, they will become part of that regime. changes because they do not benefit from that process. I The Climate Change Act 2008 provides a world-leading therefore urge Members to reject amendment 78. governance framework that ensures that progress towards The removal of the first-year allowances and associated carbon targets is robustly monitored and reported to first-year tax credits will allow the Government more Parliament. First, the Government are required to prepare effectively to support businesses to cut their energy bills and lay before Parliament an annual statement of emissions and reduce carbon emissions. It will enable us to redirect that sets out the total greenhouse gases emitted to and the funds to the industrial energy transformation fund, removed from the atmosphere across the UK, and the which has been widely welcomed. I hope Members who steps taken to calculate the net UK carbon account. are interested will take part in the consultation next Secondly,the independent Committee on Climate Change year so that we can ensure it meets the requirements of is required to prepare and lay before Parliament an industry and those who care about the environment. I annual report, to which the Government are required to therefore commend this clause to the Committee. respond, on the Government’s progress towards meeting Question put, That the amendment be made. the UK’s carbon budgets. I would expect the committee The Committee divided: Ayes 9, Noes 10. to take the changes made by clause 32 into account in their deliberations. Thirdly, the Government are required Division No. 18] to prepare and lay before Parliament a statement that AYES sets out performance against each carbon budget period Black, Mhairi Lewis, Clive and the 2050 target. Blackman, Kirsty Reynolds, Jonathan Charalambous, Bambos Clive Lewis: I thank the Minister for his patience. As I Dodds, Anneliese Smith, Jeff understand it, having requested an analysis from the Dowd, Peter Sobel, Alex Minister responsible for carbon budgets on whether the Government were going to take into account the recent NOES evidence from the Intergovernmental Panel on Climate Change on the 1.5° warming, the fourth and fifth Afolami, Bim Lamont, John Badenoch, Mrs Kemi Stride, rh Mel carbon budgets do not currently do that. I have been Ford, Vicky Syms, Sir Robert told that there will be no assessment of the 1.5° warming Jenrick, Robert Whately, Helen until after 2030 when the fifth carbon budget concludes. Keegan, Gillian Whittaker, Craig Was the Minister aware of that and will he comment on the fact that that could have a severe impact on our ability to be able to achieve the targets? Question accordingly negatived. Amendment proposed: 75, in clause 32, page 19, line 23, at 9.45 am end insert— Robert Jenrick: The IPCC will report in the usual “(6) The Chancellor of the Exchequer must review the effect of way. It will not necessarily update its methodology, but ending the first-year allowances on energy-saving plant or it will lay before Parliament its usual statement and the machinery or environmentally beneficial plant or machinery and Government will have to respond, as they have in every lay a report of that review before the House of Commons within case. The Committee on Climate Change will hold the one year of the passing of this Act. 167 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 168

(7) A review under subsection (b) must consider the effect business such as the one my hon. Friend describes could on— be part of that. The measure could enable the business (a) the energy technology sector, and to partner with the public sector and gain the capital (b) the water technology sector.”—(Jonathan Reynolds.) that it needs to develop, and will be able to take advantage This amendment would require the Chancellor of the Exchequer to of the allowance and invest early. There are now two review the impact on the energy and water technology sectors of ending opportunities for such a business to take advantage of first-year allowances. tax reliefs and public investment in order to grow rapidly Question put, That the amendment be made. and enter the market. The Committee divided: Ayes 9, Noes 10. Division No. 19] Peter Dowd (Bootle) (Lab): I do not deny the Minister’s point per se. Is there any implication that businesses AYES that have chargers could be subject to a rating revaluation, Black, Mhairi Lewis, Clive which would put the cost of their business rate up? Perhaps the Minister could clarify that important point. Blackman, Kirsty Reynolds, Jonathan Charalambous, Bambos Dodds, Anneliese Smith, Jeff Robert Jenrick: The hon. Gentleman makes a valid Dowd, Peter Sobel, Alex point and I will reply—the powers that be will return to me in a moment. NOES The changes made by clause 33 will extend the current 100% first-year allowance for expenditure incurred on Afolami, Bim Lamont, John Badenoch, Mrs Kemi Stride, rh Mel electric charge point equipment for a further four-year Ford, Vicky Syms, Sir Robert period until April 2023. That will encourage the increased Jenrick, Robert Whately, Helen use of electric vehicles by supporting the vital development Keegan, Gillian Whittaker, Craig and installation of charging infrastructure for such vehicles, to which drivers will look when deciding whether to buy them. Question accordingly negatived. Clause 32 ordered to stand part of the Bill. Sir Robert Syms (Poole) (Con): Will the Minister give way? Clause 33 Robert Jenrick: Perhaps I could reply to the hon. FIRST-YEAR ALLOWANCE: EXPENDITURE ON ELECTRIC Member for Bootle before taking a further intervention. VEHICLE CHARGE POINTS Peter Dowd: Providing inspiration arrives. Question proposed, That the clause stand part of the Bill. Robert Jenrick: Or not, as the case may be. We will have to write to the hon. Gentleman, I am afraid. He Robert Jenrick: After that excellent start, I will continue. has outfoxed our officials. Clause 33 extends the life of the first-year allowances for electric vehicle charge points until April 2023. In the Sir Robert Syms: Is the funding available to businesses UK, the continued use of high-emission vehicles creates also available to local authorities, because many of pollution and increases health issues. This measure was them put in charging points, or does that not apply to first introduced on 23 November 2016 to support the councils? transition in the UK to cleaner vehicles with zero or ultra-low emissions. The measure allows businesses that Robert Jenrick: I understand that this would apply invest in charge points to reduce their taxable profits by only to private businesses. Other interventions help the 100% of the cost of their investment in the year it is public sector,such as the charging infrastructure investment made. That provides accelerated tax relief compared fund, which local authorities can become involved in if with normal capital allowances, and so encourages greater they wish to develop infrastructure in their area. There investment in these assets. The allowance is currently were a number of wider measures in the Government’s due to expire in April 2019. The clause enables the Road to Zero strategy, including consulting on changes first-year allowance to continue as part of the Government’s to the planning system to ensure that new business and ambition for all new cars and vans to be zero emission residential properties, as well as public sector projects by 2040. such as new council offices, hospitals and so on, are built with the infrastructure in place to support these Bim Afolami (Hitchin and Harpenden) (Con): Yesterday vehicles. evening, for some light relief, I was going through The allowance will expire on 31 March 2023 for emails from constituents. One constituent runs a business corporation tax purposes and on 5 April 2023 for that installs electric charging points. Will the Minister income tax purposes. This extension is expected to have illustrate for the Committee how he thinks that business a negligible impact on the Exchequer. There are no will flourish as a result of these measures? anticipated costs to Her Majesty’s Revenue and Customs and neither will there be any significant economic impact Robert Jenrick: The Government have taken two nor any additional ongoing costs for businesses beyond measures, the first of which was in the last Budget. That the investment that will be generated. created an electric charge point investment fund— In conclusion, this extension will incentivise the use £200 million of public investment—which is designed of cleaner vehicles by encouraging companies to invest to spur an extra £200 million of private investment. A in electric vehicle charge points, giving confidence to 169 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 170 drivers to shift away from current combustion propelled charge points is the greatest concern when it comes to options in the knowledge that the further roll-out of achieving this shift. My hon. Friend the Member for charge points will continue and accelerate in the years Manchester, Withington and I were just talking about ahead, and reduce all the damage to the environment the local charge points in Greater Manchester, which and public health that follows. I commend this clause to we have both experienced. the Committee. A recent World Wildlife Fund report on accelerating the electric vehicle transition made some predictions Jonathan Reynolds: Having just passed clause 32, about how it might evolve. It said: which ended first-year allowances on the basis they “Private charging infrastructure will be in most homes and were little known about and ineffective, I cannot help many workplaces. The opportunity to charge at home rather than but comment how clause 33 extends the first-year allowance relying on public charging infrastructure is an attractive feature of for another technology for four years on the basis it will electric vehicles, and we assume that owners who are able to provide the incentives and drive Government policy in charge at home will do so when convenient (for example overnight). that direction. Forgive me for pointing out that there Workplace chargers are also likely to be required; evidence suggests that around 20% of electric vehicles currently make use of workplace are mixed messages from Ministers on these clauses. charging…In the 2040 scenario, 11 million home chargers and It is disheartening that this is one of the relatively few around 2.2 million workplace chargers are needed by 2030.” mentions of environmental issues in the Finance Bill. That last point is key in relation to the clause. Wewere all at Mansion House in June when the Chancellor gave a speech about how we would lead the way on Electric vehicle charging will be facilitated by a green finance, yet there have been no legislative measures combination of home and workplace charging, running to follow up on that promise. We still lag behind our to millions of stations. That is why it is essential to European counterparts on things such as mandatory grasp every chance to promote the installation of climate disclosure laws or sovereign green bonds, but we infrastructure in companies. We support this capital should welcome any measures we like the look of when allowance to help achieve that. However, although it is a we see them. positive move, it is a drop in the ocean of what needs to be done to encourage the use of cleaner vehicles. More Transport is a major source of emissions and we than half of new car registrations last year came from agree that we rapidly need to shift away from fossil fuels businesses, so ensuring that there is an attractive package towards electricity and renewable sources and, to a to encourage companies that are reliant on cars to use certain extent, hydrogen for heavier vehicles. Thankfully, electric vehicles is clearly fundamental to tackling emissions. electric vehicles are coming through the system quickly and are expected to move rapidly through their cost Will the Minister elaborate further on how this measure curves, getting cheaper and cheaper. I have been hugely will work for smaller companies? Our concern is that impressed by the electric vehicles I have experienced. smaller companies, which have vast competing spending Some estimates have cost parity for purchasing an priorities, may find it difficult to source the cash they electric vehicle as soon as 2022, after which buying an need to build charge points. We would also like to know electric vehicle will become cheaper than buying a fossil the Government’s long-term plans for the charging fuel powered car. infrastructure investment fund, which has recently changed The transition to a decarbonised, clean and smart its grant system for the installation of plug points. Will economy will offer the UK many advantages, particularly the Minister elaborate on what the take-up of the considering how tech-savvy and early adopting much of programme has been among small businesses? How is the UK population is. The Nissan LEAF is the most-sold the scheme being promoted to ensure the maximum electric vehicle in the world. I say with some local pride, possible take-up? as someone born in Sunderland, that Sunderland has My hon. Friend the Member for Bootle raised a key been the sole producer in Europe of the Nissan LEAF, issue about business rates. We must aim high to ensure creating over 50,000 vehicles. Of course, electric vehicle workplace charging infrastructure is as widespread as and hybrid production in the UK has provided a £3 billion possible. We should compare how this might evolve trade surplus. with the uptake of solar panels. A change in valuation With a growing list of countries setting a date to ban methodology meant that some institutions had a 400% combustion vehicles and modelling showing strong uptake increase in their business rates after they deployed solar curves, the global move to electric vehicles will be rapid. technology. That runs counter to everything we all want The first mover advantage to capture supply chains and to incentivise. Why would we penalise those who lead jobs in this coming market will be considerable. the charge? In such a generous package of capital allowance for businesses, it is difficult to see why any Government would build a tax disadvantage into the Alex Sobel (Leeds North West) (Lab/Co-op): Norway system for users of renewable or climate change-solving is planning to ban combustion vehicles by 2025—the technologies. That is not simply our view. That point incentives and the infrastructure in Norway are sufficient has been heavily put across by trade associations, including for that. We are not planning that until 2040. Does my the Solar Trade Association, which launched a fairly hon. Friend agree that there is a policy failure not just scathing attack on Budget 2018. on this measure but more generally in terms of building our electric vehicle infrastructure? In conclusion, the extension of the first-year allowance on workplace charging infrastructure is a step in the right direction, but these things cannot operate in isolation. 10 am The Government must take serious further action urgently Jonathan Reynolds: I agree with my hon. Friend, who to promote the transition to a greener economy.Although has taken a major interest in these issues both before this is a start, I hope the Minister can reassure us of the and during his parliamentary career. The availability of Government’s ambition to go even further. 171 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 172

Robert Jenrick: I hope I can reassure the hon. Gentleman including small-scale solar photovoltaic. We therefore on those points. The first point was about why we think it is right to protect consumers and to review the would choose to extend this measure at the same time as incentives as costs begin to fall. The Government—and bringing another to an end. We chose to bring the other indeed the Government before us—have made significant one to an end because the evidence was not there to interventions in this area. With those reassurances, I support its continuation. Having given the matter careful hope the hon. Gentleman will support the clause. analysis, we believed that there was a better way forward. Question put and agreed to. We are still at a very early stage in the process. It is Clause 33 ordered to stand part of the Bill. too early to assess the precise impact of this measure. We know that the total number of electric charge point connections has increased from more than 13,000 in Clause 34 November 2017 to more than 18,000 in October 2018—a 38% increase. Clearly, we would like that to accelerate QUALIFYING EXPENDITURE: BUILDINGS, STRUCTURES even further, because that is still a small number across AND LAND the whole of the country. We believe, anecdotally, that the measure is working and that it has been welcomed Jonathan Reynolds: I beg to move amendment 79, in by the industry, but it is too early to assess that precisely. clause 34, page 19, line 38, at end insert— We are placing an extension in the Bill to ensure it can “(4) The Chancellor of the Exchequer must lay before the continue and to give certainty to the market. We will House of Commons a report on any consultation undertaken on review this measure in time, as we have done with other the provisions in this section within two months of the passing of measures, to determine its effectiveness. If it is not this Act.” working correctly, we will take action accordingly. This amendment would require the Chancellor of the Exchequer to The hon. Gentleman asked why the Budget did not report on any consultation undertaken on the provisions in this clause. do more for the environment. Of course, I contest that. The Budget did set out a wide range of measures to help The Chair: With this it will be convenient to discuss the environment, from the new plastics tax, which will the following: be consulted on and legislated on in the next Finance Clause stand part. Bill—we hope it will be one of the world’s first plastic New clause 2—Review of changes to capital allowances— packaging taxes—to the measures already set out in the Finance Bill, such as this one and the vehicle excise duty “(1) The Chancellor of the Exchequer must review the effect of the changes to capital allowances in sections 29 to 34 and measure on taxis, which we brought into effect a year Schedule 12 in each part of the United Kingdom and each region early, and which has ensured that cities such as London of England and lay a report of that review before the House of and Manchester are seeing a great increase in low Commons within six months of the passing of this Act. emission taxis. (2) A review under this section must consider the effects of the We have already spoken about the industrial energy changes on— transformation fund, which we hope will put heavy (a) business investment, users of energy on a more sustainable path. These (b) employment, and things build on recent announcements, whether it is the (c) productivity. industrial strategy and its commitment to the environment (3) The review must also estimate the effects on the changes and to clean growth, or the Road to Zero strategy with if— respect to electric vehicles. Across Government, we are (a) the UK leaves the European Union without a negotiated taking a wide range of measures to support the environment withdrawal agreement and to help businesses and individuals to cut their (b) the UK leaves the European Union following a energy bills and lower carbon emissions. negotiated withdrawal agreement, and remains in the The hon. Gentleman asked about the electric vehicle single market and customs union, or charging infrastructure fund. This was announced at (c) the UK leaves the European Union following a the Budget last year, and we have now progressed the negotiated withdrawal agreement, and does not fund. We are in the final stages of selecting a fund remain in the single market and customs union. manager, and once they are appointed we expect the (4) In this section— fund to be formally launched and to start investing in ‘parts of the United Kingdom’ means— early 2019. I hope to be able to give the hon. Gentleman (a) England, and others more information on that very shortly so (b) Scotland, that businesses that wish to participate in it can start to access that £200 million and we can increase public and (c) Wales, and private investment in charging infrastructure very rapidly. (d) Northern Ireland; Small businesses, which the hon. Gentleman raised, ‘regions of England’ has the same meaning as that used by the Office for National Statistics.” will be able to claim under the annual investment allowances, which we have debated on a number of occasions. As I New clause 5—Aggregate effect of changes to corporation have said before, 99% of businesses will be able to claim tax and capital allowances— under the annual investment allowances, which is a “The Chancellor of the Exchequer must, within one year of considerable increase as a result of the Budget and will the passing of this Act, lay before the House of Commons an help businesses that want to invest in this area. analysis of the effect of the changes to corporation tax and capital allowances made under sections 25 to 28 and 29 to 34 of On solar, the feed-in tariff scheme has supported over this Act.” 800,000 small-scale installations, generating enough This new clause would require the Chancellor of the Exchequer to electricity to power 2 million homes. The scheme has review the aggregate effect of the changes to corporation tax and helped to drive down the cost of renewable electricity, capital allowances made under this Act. 173 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 174

Jonathan Reynolds: I regret to inform the Committee or new clause 5 to a vote, we will support it. What we that we are reaching the end of the section of the Bill are trying to do in new clause 2 is not dissimilar from relating to capital allowances. what Labour is trying to do in new clause 5—we are just The capital allowances regime clearly requires a holistic going about it in slightly different ways. Putting the two review by the Government. We all agree that we want to new clauses together would make a lot of sense, to make the UK a competitive and attractive place for encompass what we are both trying to achieve. businesses. As we contemplate our departure from the New clause 2 looks at clauses 29 to 34 and schedule EU, that requirement has never been more pressing. 12 to the Bill and provides for a review of the changes to Yet, these measures all come at a cost. The annual capital allowances. It asks for a number of reviews and investment allowance increase will cost £1.24 billion in for us to measure against a number of outcomes that we its first three years. By 2023-24, the buildings and hope the Government will seek through any changes construction expenditure allowance will cost over half a they make to capital allowances or through having a billion pounds. They need an assessment in the round capital allowances system in the first place. so we can aggregate these reliefs against the corporation The first review is of business investment. What tax reductions and see what the package really looks changes do the Government expect for business investment like, what the economic justification is for these changes, as a result of all the changes made to capital allowances? and whether that money should be reprioritised elsewhere. Any tax system tries to do three things: disincentivise With the UK becoming such an outlier among other undesirable behaviour, incentivise desirable behaviour developed countries in relation to corporation tax, with and get money for the Exchequer. It is important to an eventual rate of corporation tax well below the consider whether the legislation does any of those things average of OECD countries, we need to ensure that our in the way we would hope. Business investment is key; overall package of measures is properly targeted. That surely, the point of capital allowances is to incentivise is why Labour is moving new clause 5, which would good business investment. Therefore, it is reasonable oblige the Government to present an analysis in a year’s that the Government come back and explain to us the time of the full effect of these changes and the corporation potential changes they expect to business investment tax alterations. We need to understand what this package resulting from their legislative changes. looks like in the round, whether it is providing value for The second review is of employment. That is important; money, and what the real cost is to the taxpayer in the Government are never off their high horse about the aggregate. Only then can we make a judgment on whether level of employment they say we have. If they hope the this is the right and appropriate way to spend the changes will make a difference to employment levels, money, when the UK has so many other priorities after they should tell us how much change they expect so that eight difficult years of austerity. we can measure their performance against whether that That is why I urge Members to vote for new clause 5, has been achieved. We just heard that the previous tax which would obligate the Government to publish a allowances put in place for first-year allowances did not review in a year’s time. By then, we will be in a position have the desired effect, and the Government have to to see how these allowances have been taken up, as well change them. Therefore, it would be useful know what as to make some initial judgments on Britain’s business the Government expect to happen to the number of investment landscape post our exit from the European employed people as a result of their changes. We can Union. measure the Government against that and say whether Clause 34 will amend the Capital Allowances Act the measure has failed or has achieved what they intended 2001 to clarify that land alterations qualify for capital to achieve. allowances where plant or machinery is installed that qualifies for the same allowances. It helps to clarify the qualifications in place for businesses that seek to carry 10.15 am out such work. The Opposition have no particular The third review relates to productivity.The Government objection to ending the mismatch, but this is another have struggled to increase productivity rates, which are tidying-up measure. Will the Minister provide some not increasing nearly as fast as we hoped they would. insight on whether any further such measures are to Part of that is because companies are not making the come? How was the inconsistency brought to the appropriate investment—who can blame them, given Government’s attention? Is there any estimate of the that Brexit is on the horizon and they face economic cost associated with this measure? There should be uncertainty? If we want to increase productivity, we greater transparency and understanding of exactly where need to incentivise work; in manufacturing industries, such a measure has come from. If there has been for example, we need to incentivise the high-value products pressure from a particular sector, that needs to be clear. that are being created. It would be helpful if the Government Opposition amendment 79 calls for the Government to came back to us and explained what they hope to present to the House a report on any consultation achieve through the changes to capital allowances. I undertaken on these provisions. I call on Members to hope that they seek an increase in productivity, because vote for this amendment to provide proper transparency our productivity is pretty poor compared with similar on process to the House, so that the cost and benefit can economies. be properly scrutinised and we can assess the motivations New clause 2 asks the Government to estimate the for bringing about this change. effects on the changes as a result of Brexit. Next week may bring us a little more clarity about where things Kirsty Blackman: It is a pleasure to speak in this might go with Brexit—or at least rule out some of the Committee and to serve under your chairpersonship, options, leaving slightly fewer scenarios on the table. Ms Dorries. I want to focus my comments on new However, we are very close to Brexit, and companies do clause 2, but if the Labour party presses amendment 79 not know under which rules they will be expected to 175 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 176 operate. We therefore ask the Government to consider free trade agreement with China but no rules of origin their changes to capital allowances in the light of Brexit checks for goods travelling between the UK and in a no-deal scenario, the EU. “if…the UK leaves the European Union without a negotiated withdrawal agreement”, Vicky Ford: The Government negotiating team have but also offered briefings on this deal to every Member of the “if…the UK leaves the European Union following a negotiated House from every party. Establishing the answer to withdrawal agreement, and remains in the single market and those rules of origin— customs union, or…the UK leaves the European Union following a negotiated withdrawal agreement, and does not remain in the single market and customs union.” The Chair: Order. That has nothing to do with what we are discussing today. The Scottish National party’s position is that we should remain in the EU. That is what the people of Scotland voted for and what would be best for the Kirsty Blackman: I was just looking to wind economy of the whole UK and its jobs, productivity, up—[Laughter.] That is not entirely what I meant. business and investment. It is really important that the Weare seeking more information from the Government Government provide us with an economic analysis of about what they intend to achieve. It is incredibly what will happen with Brexit, but they also need to important to do this in the context of Brexit, and it is consider their policy changes in the light of the Brexit incredibly important that companies know what the options. Government are trying to achieve, so that they are For the avoidance of doubt, the SNP’ssecond preference aware of what they are being incentivised or disincentivised is to remain in the single market and the customs union. to do and what the Government’s changes to capital Our last preference is no deal—a very bad scenario that allowances are trying to encourage them to do. If more the Government should do everything possible to avoid. information could be provided to us and the general However, the deal that has been presented to us is public, that would be hugely appreciated. I hope that we wholly inadequate. We need to remain in the single can vote on this new clause when we come to the votes market and the customs union to ensure that we continue at the end. to have a successful economy. To look at the issue in the round, we ask for analysis The Financial Secretary to the Treasury (Mel Stride): to be done for each country of the UK—England, It is a pleasure to serve under your chairmanship, Wales, Scotland and Northern Ireland—and for each Ms Dorries. I thank the hon. Members for Stalybridge region of England, so that we know the differential and Hyde and for Aberdeen North for their contributions, impact on each. The published cross-Whitehall analysis and I will endeavour to pick up the various points that that explained the consequences of Brexit on each have been made. region was very illuminating, particularly with respect Since 1994, capital allowances have not been available to north of England issues. The north of England is one for most buildings and structures, including aqueducts, of the places that could see the biggest productivity bridges, canals, roads and tunnels. It has been long gains, because of its excellent levels of manufacturing, understood by HMRC—and by taxpayers—that nobody but if that part of the economy is the most drastically can claim plant and machinery allowances where the hit by Brexit, it will create real problems for the UK expenditure relates to an excluded structure or building. Government. Without increases in productivity feeding Specifically, nobody can claim capital allowances for through into the economy, we will all be poorer. expenditure on altering land for the purpose of installing an asset that is excluded from allowances. Expenditure Vicky Ford (Chelmsford) (Con): I would like to drill on buildings and structures is excluded in this way by down a little on the point about the customs union. As I sections 21 and 22 of the Capital Allowances Act 2001. read the withdrawal agreement and the future framework, To answer one of the specific points raised by the the Government have negotiated single market access hon. Member for Stalybridge and Hyde, doubt has been that is tariff-free and quota-free and that carries no cast on that principle by a recent tribunal decision, rules of origin checks. Effectively, the benefits of the which HMRC is appealing against. The purpose of the customs union are in that package. What more does the clause is to ensure that the law remains clear and that hon. Lady want? plant and machinery allowances can be claimed only in relation to alterations of land to install qualifying assets. The clause clarifies the legislation to provide certainty Kirsty Blackman: The other day, I was talking about going forward and to protect the Exchequer from potential the benefits of being in the customs union to a trade spurious and windfall claims for historical expenditure. expert, who explained to me in quite simple—but incredibly useful—terms the difference between being in a customs The clause should be read alongside the introduction union and not being in one. Within a customs union, of a new structures and buildings allowance, which in the starting point is the assumption that the appropriate time will become a very substantial relief that fills a tariff has already been paid on every good, whereas significant gap in our capital allowances system. Taxpayers outside the customs union the assumption is that that who alter land for the purpose of installing a structure has to be proved. Even without rules of origin checks, or building should claim this new allowance—we covered we would be starting from a different point of view. it when debating clause 29—and should not claim the However, I am not clear that the withdrawal agreement plant and machinery allowance. has agreed that there will not be rules of origin checks. I As I have said, the clause clarifies that expenditure on do not understand how the UK Government can say land alterations cannot qualify for capital allowances in their financial analysis paper that they will have a unless it relates to the installation of qualifying plant 177 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 178 and machinery.No expenditure on structures or buildings, business investment in its “Economic and fiscal outlook” as defined in sections 21 and 22 of the Capital Allowances report, in the box titled “The economic effects of policy Act 2001, will be counted as plant. This will apply to all measures”. capital allowance claims made from 29 October 2018 Finally,every year HMRCwill publish updated statistics onwards, but not to claims already in the system—to do breaking down corporation tax paid and capital allowances otherwise would be unfair. However, as this does nothing claimed. For those reasons, I urge the Committee to more than restore the commonly held interpretation of reject the amendment and new clauses, and I the law, we do not consider it to disadvantage any commend the clause to the Committee. company that has already incurred expenditure. If we did not make this amendment, there is a strong probability Jonathan Reynolds: Wewould like to press amendment 79 that some businesses might make spurious or windfall to a vote. claims, as there is no time limit for making a capital allowances claim. Question put, That the amendment be made. The Committee divided: Ayes 9, Noes 10. Amendment 79 seeks a legislative commitment by the Government to report on any consultations that are Division No. 20] undertaken on this measure. However, the measure AYES addresses a potential source of ambiguity in the capital allowances legislation and protects revenue that we Black, Mhairi Lewis, Clive need for our vital public services. That needs to be done Blackman, Kirsty Reynolds, Jonathan Charalambous, Bambos quickly to maintain a level playing field and to provide Smith, Jeff certainty for businesses incurring expenditure in this Dodds, Anneliese area. The Government’s view is that this measure is not Dowd, Peter Sobel, Alex best supported by consultation, which would delay this change. In any case, it restores the interpretation of the NOES law that HMRC and taxpayers commonly understood Afolami, Bim Lamont, John before the recent tribunal case. Badenoch, Mrs Kemi Stride, rh Mel Ford, Vicky Syms, Sir Robert New clause 2 aims to commit the Government to Jenrick, Robert Whately, Helen report on the impact of the capital allowances changes Keegan, Gillian Whittaker, Craig in the Bill, including under a number of different EU withdrawal scenarios, as well as on the impact on different Question accordingly negatived. parts of the United Kingdom. The Office for Budget Responsibility has provided its independent view of the Clause 34 ordered to stand part of the Bill. impact of these policies, in particular on business investment, in its “Economic and fiscal outlook” report, in the box titled “The economic effects of policy measures”. Clause 35 When available, HMRC will publish updated statistics on capital allowances claimed, split by asset type and by CHANGES TO ACCOUNTING STANDARDS ETC industry. Data on capital allowances claimed are based That the clause stand part of the on where companies are registered rather than where Question proposed, Bill. the activity itself takes place. Requiring businesses to provide the more detailed information that this report would require about the precise location of their expenditure The Chair: With this it will be convenient to discuss would represent a significant new administrative burden. that schedule 13 be the Thirteenth schedule to the Bill. On the impact of the policies in different EU exit scenarios, the capital allowances package in the Bill is Mel Stride: Clause 35 and schedule 13 amend various intended to boost business investment in all scenarios. parts of tax legislation to ensure that, despite changes The Government have already laid before Parliament a to the treatment of leases in accounting standards, the written ministerial statement under the title “Exiting legislation continues to operate as intended and does the European Union: publications”, representing cross- not give rise to unfair outcomes. Whitehall economic analysis on the long-term impacts The long funding lease regime, the corporate interest of an EU exit on the UK economy, its sectors, nations restriction rules, and certain other tax rules require and regions and the public finances. The document is taxpayers to distinguish between operating and finance available on gov.uk and from the Printed Paper Office. leases in order to determine their tax treatment. The tax Committee members will be aware that I also answered legislation has relied on accounting standards to make an urgent question at length on this very matter. that distinction, but changes to the international accounting New clause 5 is intended to commit the Government standards mean that from 1 January 2019 companies to assess the aggregate effects of the changes to corporation that lease assets will cease to distinguish between operating tax and capital allowances made under the Bill. However, and finance leases in their accounts. that information is already largely set out in the public That change will affect companies that prepare their domain. The independent Office for Budget Responsibility accounts using international accounting standards and certifies the Exchequer impact of all the measures in the the UK accounting framework financial reporting standard Bill, set out in table 2.1 and table 2.2 of Budget 2018. 101, but not the alternative UK accounting framework When they are announced, the OBR will also provide FRS 102. It is therefore necessary for us to amend the its independent view of the impact of these policies on tax legislation to ensure that it continues to operate as 179 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 180

[Mel Stride] to introduce carbon-capture techniques into the operations in relation to the relevant TTH assets intended, and that companies do not face different tax (‘post-acquisition qualifying investment’)”. outcomes depending on the accounting standards that This amendment, and amendments 86 and 87 incentivize capital they use. investment by new purchasers in job creation and emissions reductions. Combined, the amendments limit the TTH which may be claimed to an The clause will mean that for tax purposes lessees will amount equal to such investment. be required to continue to distinguish between operating Amendment 86, in schedule 14, page 269, line 3 at and finance leases, even where that distinction is no end insert— longer required for accounting purposes.That will maintain the status quo and avoid unfair outcomes. Additionally, “(c) the amount by which total post-acquisition qualifying investment exceeded the higher of excess the changes to the treatment of leases in the accounting decommissioning expenditure and the total TTH standards may lead to large tax adjustments on transition. amount as calculated for the first activation period To ensure that those adjustments do not lead to unfair under paragraph 35.” outcomes or an excessive administrative burden, the See explanatory statement for Amendment 85. adjustments will be spread over the weighted average Amendment 87, in schedule 14, page 269, line 40, at length of all leases held by a company following the end insert— adoption of the new accounting standard. “(c) provided that the total activated TTH amount may The clause will ensure that, despite changes to the never exceed the purchaser’s post-acquisition qualifying treatment of leases in some accounting standards, tax investment for the relevant TTH assets or TTH oil regimes that rely on those accounting standards continue fields.” to operate as intended. I therefore commend the clause See explanatory statement for Amendment 85. and schedule 13 to the Committee. That schedule 14 be the Fourteenth schedule to the Question put and agreed to. Bill. Clause 35 accordingly ordered to stand part of the Bill. Clause 37 stand part. Schedule 13 agreed to.

Clause 36 Robert Jenrick: Clause 36 and schedule 14 introduce a transferable tax history—TTH, as it has become known—mechanism, and clause 37 amends the petroleum OIL ACTIVITIES: TRANSFERABLE TAX HISTORY revenue tax rules for retained decommissioning costs. Both measures will apply to oil and gas companies 10.30 am operating on the UK continental shelf, and to transactions Question proposed, That the clause stand part of the that receive approval from the Oil and Gas Authority or Bill. relevant regulator on or after 1 November 2018. These measures are designed to encourage investment The Chair: With this it will be convenient to discuss in late-life oil and gas assets that are approaching the the following: point of decommissioning, prolonging the life of the Amendment 84, in schedule 14, page 260, line 15, basin and sustaining jobs across the UK, but in particular leave out sub-paragraph (d). in north-east Scotland. Decommissioning costs are generally The provision as drafted allows companies to transfer TTH worth incurred at the end of a field’s productive life, when double the value of anticipated decommissioning costs. This reduces the incentive for companies towards efficiencies in decommissioning costs taxable profits are not being generated. To provide tax and paves the way for decommissioning-related tax repayments far relief for those costs, oil and gas companies within the bigger than the companies are currently acknowledging. This UK’s ring fence tax regime can carry them back against amendment removes that provision. taxable profits generated since 2002. That prevents Amendment 81, in schedule 14, page 261, line 29, at decommissioning from being performed early for tax end insert— purposes, thereby helping to achieve the Government’s “(aa) assessing the impact on employment, skills and the goal of maximising economic recovery of oil and gas. Exchequer from the asset’s production life and When a new entrant without a history of taxable planned decommissioning phase, and” profits acquires an old field, there is a risk that the Amendment 89, in schedule 14, page 261, line 42, at decommissioning costs of the field will exceed the taxable end insert— profits generated by the new owner, preventing effective “(d) includes an assessment of the impact on the tax relief via the traditional carry-back mechanism and Exchequer from the amount spent on directly employed and contracted staff by the seller over the leaving the buyer in a worse position than the seller production life of the asset to date; and the impact would have been. That can make old fields unattractive on the Exchequer from the buyer’s plans for to new entrants and deter much-needed investment in employed and contracted staff up to and including this important industry. That is a growing problem in the decommissioning stage.” an ageing basin, but one that we now believe can be This amendment requires a decommissioning security agreement to resolved by our innovative TTH measure. include an assessment of the impact on the Exchequer from the amount spent on staff, in order for that agreement to be qualifying for the The change to the PRT rules addresses the increasingly purposes of this Schedule. common scenario of a seller retaining some or all of a Amendment 85, in schedule 14, page 268, line 40, at decommissioning liability after selling a field. The PRT end insert— system currently requires the seller to remain on the “(aa) the amount spent by the purchaser in post- relevant production licence to receive tax relief for any acquisition periods on new capital investment, major retained costs. However, doing so often requires complex maintenance work, retraining of redundant staff, tax structuring that serves no particular purpose other initiatives to reduce methane emissions or initiatives than to protect the seller’s tax position. 181 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 182

The changes made by these measures will create the Robert Jenrick: Yes, I will turn to that. As the hon. right environment for much-needed new investment in Lady knows—she participated in and attended at least our older fields. They will introduce a TTH mechanism one meeting I held in Aberdeen with the Oil and Gas that provides new investors with the certainty that they Authority and stakeholders—we have carried out a require about the tax relief they will receive for great deal of careful consideration and consultation decommissioning costs. That will allow new deals to with the industry, because TTH will succeed only if it proceed, injecting new energy into a basin that still has works for both the buyers and the sellers. Our sole 10 billion to 20 billion barrels of oil remaining. Initial objective is not to raise revenue for the Exchequer but to feedback from the industry has been extremely positive— extend the life of the basin and to create jobs and this change is already well received internationally and investment for an important part of the United Kingdom. is helping new deals to continue. The new investment encouraged by TTH will prolong the life of the basin, which has 10 billion to 20 billion TTH will allow companies selling oil and gas fields to more barrels left, helping to protect the hundreds of transfer some of their tax payment history to the buyers thousands of jobs I have already mentioned. We believe of those fields. The buyers will then be able to set the that the amendments would introduce counterproductive costs of decommissioning the field against the TTH to additional requirements and inhibit the use of TTH. I generate a repayment. It should be noted that that urge the Committee to reject them. They may be well should not be an extra cost to the Exchequer, as the intentioned, but they would be contrary to the objective repayment only replaces what would otherwise have of the measure. been made by the seller. It will level the playing field between sellers and buyers of oil and gas fields, encouraging Amendment 84 would limit the maximum amount of investment by providing new entrants with certainty on tax history that a seller can transfer under a TTH the tax relief available for their decommissioning costs. election. The TTH legislation currently caps the maximum The new investment into the basin as a result of TTH is amount of tax history that can be transferred under a expected to increase tax receipts from the sector by TTH election to double the decommissioning cost estimate £75 million over the scorecard period. agreed for a decommissioning security agreement. Decommissioning costs are inherently uncertain and The clause also makes changes to enable petroleum can increase significantly for reasons outside the control revenue tax relief when a seller retains a decommissioning of the operator and for reasons that were unknown at liability. A tax deduction will now become available the time of the sale. For that reason, they are typically to the buyer where the seller subsequently incurs subject to a very large range of accuracy. For fields still decommissioning expenditure or where the seller contributes years away from decommissioning, the range often includes to the buyer’s decommissioning costs. That will simplify a 100% cost increase. TTH has been designed to be the way that older oilfields can be sold to new investors compatible with this regularly accepted range of estimates and help to prolong their productive lives. Before turning and to ensure that the buyer cannot end up in a worse to the amendments, I thank all hon. Members, including position than the seller. the hon. Member for Aberdeen North, who participated in the discussions that led to this important measure, Kirsty Blackman: I agree with the Minister’s point which we believe will help the community around Aberdeen about fluctuations. Does he agree that the cost of hiring in particular, but also those across the country. boats has fluctuated massively over the past five years? If we had looked at this in 2010, we could not have Amendments 81 and 89 seek to amend the definition predicted the fluctuations in just that small but nevertheless of a decommissioning security agreement within the incredibly expensive area for oil and gas companies. TTH legislation in schedule 14. Decommissioning security agreements are specific commercial agreements that provide assurance to partners in a field for which funds Robert Jenrick: The hon. Lady speaks from her deep will be available for decommissioning. The proposed knowledge of this area. It is absolutely right that some changes to the definition would make the decommissioning costs have fallen, particularly since the fall in the oil security agreement required for a TTH election incompatible price, which has driven significant efficiencies in the with the industry standard decommissioning security sector, but other costs are rising. New technologies are agreement, which, in our opinion, would make TTH coming on board. Taking on a project that entails such elections impracticable and unworkable for the vast uncertainty while being tied to a single estimate of majority of our oil and gas fields, which rely on the decommissioning costs, without a wide range as we well-established and respected industry standard agreement. have allowed in the measure, would be a major disincentive TTH has been carefully designed to leverage estimates for a buyer coming in to one of these projects. of decommissioning costs, which are already used in Let me address the concern inherent in the amendments decommissioning security agreements, taking note of about disincentivising cost-reduction, or that the measure, the history of the agreements. The agreements are in providing such a wide field, would make it unlikely confidential and, as one might imagine,highly commercially for buyers to try to reduce the cost and therefore would sensitive and are typically shared only between the joint gain higher tax relief as a result. I think the buyer will venture partners and HMRC, in accordance with taxpayer retain a strong incentive to minimise total costs, as they confidentiality. will be liable for meeting the remainder of the decommissioning costs. The amendment is therefore Kirsty Blackman: Will the Minister tell us a little bit unnecessarily restrictive and would harm TTH. about the process that the Government went through in Amendments 85, 86 and 87 and schedule 14 would creatingtheBill,andtheworkdonebetweentheGovernment change the TTH activation mechanism to restrict and industry to ensure that the legislation works? decommissioning tax relief on a field, so that it could 183 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 184

[Robert Jenrick] modest additional receipts as a result, for industry, and for all those employed in north-east Scotland—I see the not exceed the level of new capital investment made by hon. Member for Aberdeen North nodding. I believe a purchaser. Decommissioning costs generally occur at this measure will be widely welcomed and well-received the end of a field’s life, when its reserves are exhausted by all stakeholders in the industry. and new capital investment will not result in further The best way to get new investment into our industry economic recovery of oil or gas reserves. For many is, as I described, to protect jobs and maximise the purchasers it would therefore not be practical to make economic recovery, and we believe that we have reached significant capital investment during the decommissioning that point with this measure. The Government take process. theirenvironmentalresponsibilitiesseriously,aswedescribed Furthermore, requiring the purchaser to match what when debating the previous clause. We have legally can be very high decommissioning costs with an equal binding commitments to reduce greenhouse gas emissions level of new capital investment could easily bankrupt under the Climate Change Act 2008 and the system of many of the smaller operators that we want to take part carbon budgets it sets out, as well as the Paris agreement in the industry. The best way to ensure that we get new that we ratified in November 2006. Nothing in this investment into the industry, to protect jobs and create measure takes away from our efforts elsewhere, but we new ones, and to maximise economic recovery of our want the UK oil and gas industry to continue to thrive. natural resources, is to have an effective TTH mechanism. It has been through a difficult period following a significant That is exactly what we believe we have achieved, as a reduction in the price of oil, and that price has fallen result of the deep consultation that we have conducted once more since the Budget. That industry makes an with industry, which I will explain in a moment. The important contribution to the UK economy, supports amendments would make TTH completely unattractive more than 280,000 jobs, and provides around half our and ineffective. I therefore urge the Committee to reject primary energy needs. To date, it has paid around them. £330 billion in production taxes. By introducing these In answer to the hon. Member for Aberdeen North, I changes for late-life oil and gas assets, we hope to will briefly summarise the steps that we have taken to encourage new investment in the UK continental shelf, consult with the industry since TTH was announced at and I commend the clause to the House. Budget 2017. Even prior to Budget 2017, the topic had been discussed with stakeholders for some time. We 10.45 am have built on numerous discussions held between July and December 2016, by issuing at the time of the Clive Lewis: It is a pleasure to serve under your Budget a discussion paper on tax issues affecting late-life chairmanship, Ms Dorries. I look forward to speaking oil and gas assets. We received 28 detailed responses and on behalf of the Opposition, and I draw attention to my then held an expert panel, working with the industry to entry in the Register of Members’ Financial Interests. I design the measure. I myself held two meetings in am particularly pleased to speak to our amendments to Aberdeen this year with the Oil and Gas Authority and the clauses and schedule that relate to transferable tax stakeholders. Draft legislation was published over the history, and I hope that the Minister will answer some summer on L-day, for technical consultation with the questions on the proposed measures. industry. We received further feedback as a result and As the Minister outlined, the clause creates a mechanism much of that has been incorporated into the final for companies that are buying equity in UK oil and gas legislation. Although there are always ways to take the fields to acquire the tax histories of the selling companies measure further, we believe we have reached a point and use them to reduce the future decommissioning where the industry is satisfied and welcomes the steps costs of those fields. The Government’s intent, as we we have taken. understand it, is to extend production from late-life oil and gas fields in the UK by encouraging their purchase Peter Dowd: Trade unions have argued that more from companies that are no longer willing to extract conditions need to be attached to TTH to bring it in line from them by companies that are. The Government with OGA and maximising economic recovery objectives, seek to achieve that by overcoming what they believe is and for broader commercial behaviours, which should a barrier to sales—namely the concern that new companies include minimum compliance with UK employment will not make enough profit from the field to pay for law—workers being paid and employers paying tax and future decommissioning costs. Transferable tax history national insurance.Did that form anypart of the discussions will allow the buying company to draw on the taxes with the industry and stakeholders? paid by the previous owners to claim the maximum tax relief possible for decommissioning. Robert Jenrick: I do not think we spoke specifically The Opposition believe there are a number of with trade unions but we did speak with a wide range of fundamental flaws to the proposals. Transferable tax industry stakeholders. To return to TTH, its purpose is history is fiscally irresponsible. It expands the very tax not to give an incentive to industry that it would not breaks that put the Exchequer on the hook for exorbitant ordinarily have. The owner or operator of one of those future decommissioning liabilities, which the Government fields would already be able to take advantage of those have set aside no money to pay for. It creates perverse tax reliefs to set aside decommissioning costs, but they incentives, providing a windfall for companies exiting would be difficult to sell on to a new operator. This the North sea, and it fails to ensure a long-term commitment measure will make it much easier for new entrants to from incoming buyers on workers’rights, capital investment enter the market, for fields to continue or be developed and emissions reductions for the benefit of the UK. It further, and for jobs to be created that would not also totally disregards the UK’srole in avoiding catastrophic ordinarily be created. We believe that this is a win-win climate change, and does nothing to address the urgent for all involved: for the Exchequer, which will make need for a just transition to a low-carbon economy. 185 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 186

With that in mind, amendments 81 to 89 seek to Moving on, amendments 81, 85 and 86 seek to incentivise ensure that no transfers are approved that increase capital investment by new purchasers in job creation taxpayer liability for decommissioning tax-related rebates. and emissions reductions—two crucial things that the They would also limit TTH transfers to current estimates Bill does not address. Exacerbating the problem is the for decommissioning costs, thus ensuring that transferable fact that no clear plan has been set out by Government tax history does not spiral and is no higher than estimated in the Bill to ensure a commitment to continued investment for current reliefs. The Bill currently allows companies and employment from incoming buyers. Will the Minister to transfer tax history that is worth double the value of tell us what plans he will put in place to ensure job anticipated decommissioning costs. The UK taxpayer is security? Will he consider making TTH transfers conditional already committed to footing the Bill for a staggering on maintaining employment levels? Similarly, will the £24 billion of the estimated £64 billion decommissioning Government consider limiting TTH claims to incoming costs in the coming decades, despite the massive profits companies’ investment in infrastructure, maintenance, made by oil and gas companies from the North sea. Do retraining and methane reduction? the Government expect the £24 billion decommissioning The irony of TTH becomes clear when looking at bill to double to £48 billion over the life cycle of TTH? that last point. The stated aim of TTH is to prolong the The UK cannot keep spending revenues that it knows it life of North sea assets, yet it has the potential to do the will have to pay back and that are derived from oil we opposite, reducing incentives for incoming companies cannot afford to burn, yet TTH doubles down on those fully to develop late-life fields. Currently, a new entrant policy failures. If that is not addressed now by ring-fencing to the North sea would have to ensure several years of a portion of oil revenue to prepare for those costs, our production to generate sufficient taxable profits fully to fiscal and environmental future will become hostage to carry back decommissioning losses. TTH removes that oil revenues. incentive. Rather than ensuring sufficient production, should the oil price dip, a company can simply claim The most staggering thing about this measure, which against transfer tax history. perhaps the Minister will confirm, is that the Government have set aside no decommissioning fund to deal with Far from ensuring stable future investment, the irony the consequences of these promises. As it stands, our is that TTH has the potential to subsidise the cost of an share of decommissioning costs is completely unfunded, early exit should the oil market turn against the companies, and a consequence of short-term priorities and incentivising thereby making UK jobs in that industry more, not less, investment decisions that have been taken regardless of vulnerable to market conditions. Amendments 81, 85 long-term fiscal planning and environmental exigencies. and 86 limit the TTH history that may be claimed to an Will the Minister explain the long-term fiscal strategy amount equal to such investment, ensuring that the for dealing with those costs when they inevitably land measure will not result in increased future liabilities for on the taxpayer in the not-too-distant future? the Exchequer. They will also act as a starting point for addressing issues of job security and the environment, The Government’s arguments appear to rest on the which I will come on to in more detail. assumption that additional decommissioning tax rebates Amendment 89 builds on ideas that the Committee will be compensated for by higher revenues from oil and has already discussed, and extends them to a gas fields,generated by increased investment and production decommissioning security agreement. It would require by buyers. There is, however, an alarming lack of evidence such an agreement to include an assessment of the to support that assumption, and detailed modelling of impact on the Exchequer of the amount spent on staff the long-term impact on decommissioning costs is in order for the agreement to qualify under the schedule. conspicuously absent. Indeed, it could be argued that The amendment seeks to encourage transparency and TTH reduces the incentives for the buying companies to accountability between the seller and the buying company, increase production and generate more revenues, so ensuring that the cost of staff, and expectations for staff have the Government considered the potential implications retention levels, are made clear, and I look forward to of that? It is perhaps unsurprising that the Government hearing the Minister’s response. have provided no data on how much additional There are a number of additional questions about the decommissioning rebate the Treasury might give away clause. The first expands on the issue of workers’ rights. due to TTH, and neither have they undertaken any Although the Government may argue that transferable analysis of what would happen in a future scenario in tax history is a way of protecting jobs by extending the which the oil price changes. Will the Minister commit to life of those assets, research by Oil Change International, conducting such analysis and present the results to the Platform and Unite, which represent those workers, House? found that major North sea tax cuts over the last In our view, the measure reduces the incentive 40 years have not led to higher employment, and neither for companies to move towards efficiencies and did tax rises reduce employment. Will the Minister say decommissioning costs, and paves the way for what the net flow of revenue has been between the decommissioning-related tax repayments that are far Treasury and North sea oil and gas companies over the bigger than those companies are acknowledging. The last three years? It seems clear that those companies clause is representative of the Finance Bill as a whole: it have used the raft of recent tax cuts not to create new fails to deliver for the people of this country who are so jobs—160,000 have gone in the last three years—but to desperately in need of investment in our public services, enrich their shareholders. and instead it favours tax cuts for the wealthiest How can the Government ensure that TTH will work corporations, with the taxpayer left vulnerable to huge in the interests of workers employed on those assets? potential payouts. Our amendment would remove that No clauses in the Bill provide safeguards for workers’ provision and ensure that runaway decommissioning jobs and workplace rights—it seems that the benefits costs will not become a taxpayer risk. of TTH will go to the private owners of oil and gas 187 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 188

[Clive Lewis] Ultimately, the policy is based on a gamble on the future oil price. Independent expert research commissioned by companies, and that the clause has been drafted in their Global Witness states that there could be a loss of over interests alone. We argue that it is the Government’s £3 billion in tax revenue for the Exchequer over 10 years, responsibility to promote the stability of jobs in the as compared with the tax take if TTH is not introduced. region, and to ensure they are protected once smaller Transferable tax history has an impact on the results businesses take over the running of those sites. Will the of investment decisions only when oil prices are relatively Minister commit to conduct an analysis of the stability low. When the prices are above $50 a barrel, the impact of and security of those jobs, including the impact of the and need for transferable tax history is less, or even nil, provisions, and to share that with the House? since the higher prices tend to mean higher taxable income Secondly,there is a huge concern about the environmental to the acquirer, who would generate enough new taxable consequences of TTH and the encouragement of further income on their own to cover decommissioning costs. exploitation of oil and gas in the North sea. The Transferable tax history effectively provides acquirers Government have yet properly to explain how the proposed with a hedge against lower oil prices. It jeopardizes policy fits with the UK’s commitment to the Paris future tax returns to incentivise investment in fields that climate agreement. Despite the continued claim that the are likely to be less efficient and with lower yields, UK is a global leader in taking action to meet those without any consideration of climate limits or guarantees targets, the Government’s policies continue to fall far on jobs. Why is the Exchequer willing to push that cost short of their green rhetoric. Climate science states on to the taxpayer, rather than on to the multinational clearly that to avoid global warming of more than 1.5°, companies that make vast profits from production every at least 80% of known oil and gas reserves must stay in year and are seemingly unwilling to share them with the ground. Every nation bears some degree of responsibility their own workers? for leaving a portion of its fossil fuel reserves untouched. Rather than assessing purely commercial viability, we 11 am should also assess how much remaining oil and gas in At some point, decommissioning-related tax breaks the UK can be exploited within the confines of the will exceed revenue from the dwindling field production, Paris climate agreement. It would therefore be helpful wiping out the remaining tax revenues available from to know if and how the Government intend to assess the North sea. In 2011-12, the Government collected the compatibility of TTH with that agreement. Do the £11 billion in taxes from the North sea. Current figures Government have a view on how much of the UK’s from the Office for Budget Responsibility project that it remaining 7.5 million barrels of discovered undeveloped will be £1.2 billion this fiscal year. At what point do the oil and gas resources can be equitably developed if we Government expect the UK to reach the tipping point? are to play our part in meeting the Paris goals? Historically, Conservative Governments decided to Ultimately, this issue ties into the Government’s wider privatise our oil and gas industries, and the tax take policy of maximum economic recovery, by which they from North sea oil was funnelled into tax cuts skewed have committed to extracting as much oil and gas as is to the wealthiest. We now have no say in how the profits commercially viable. Recent reforms, such as tax reduction are used, or how and when the oil and gas industry and the decommissioning relief deed, as well as the structures are to be decommissioned. By contrast Norway, proposal before us, are designed to make ageing marginal for example, created a sovereign wealth fund—the fields attractive to investment, even if that means reducing Government Pension Fund Global—built off the surplus the per barrel tax take or subsidising decommissioning revenues of the Norwegian oil and gas sector. Transferable costs to improve corporate returns. That approach is tax history continues with the opposite approach, by wholly inappropriate in a climate-constrained world, which Conservative Governments give huge tax cuts to and it is entirely inconsistent with the Paris agreement, the biggest corporations and encourage the exploitation which requires not only a moratorium on new exploration, of our natural resources, with no guaranteed long-term but the winding down of a substantial portion of current benefit to society as a whole. It tells us everything we projects. In short, we need sustainable economic recovery, need to know about that policy that the richest man in with Paris-compatible maximum-production targets, and Britain, Sir Jim Ratcliffe, is currently holding exclusive a strategy to determine which combination of oil fields talks with US oil major ConocoPhillips on acquiring can most safely, efficiently and equitably exhaust the assets in the North sea, and will benefit from those tax UK’s quota. breaks, despite his majority stake in Britain’s biggest privately owned company, INEOS. Kirsty Blackman: To clarify, is the Labour party The assumption underpinning TTH appears to be position now no longer to maximise economic recovery? that deals for late-life assets will not happen without financial support, and companies will abandon the Clive Lewis: I sat on the Bill Committee for the fields early rather than accept what they consider a low setting up of the OGA three years ago, and we put bid. Most other countries permit oil production on a forward amendments for sustainable economic recovery. use-it-or-lose-it basis. If a company is unwilling to I recall that the Scottish National party and the Conservative develop a UK oil field fully, would the UK not be better party favoured maximum economic recovery. That was to block early abandonment or re-award the permit to a difference of opinion between the two sides back then. someone prepared to invest in the continued production, Thirdly and finally,there are huge risks for the taxpayer. rather than bribing them with public money? Those risks are acknowledged by the Office for Budget The Government have many questions to answer, Responsibility, which concluded: starting with those mentioned today, to reassure us that “The underlying tax base is volatile and the behavioural response transferable tax history is a justifiable risk for our to these relatively complex tax changes is uncertain. We have economy and our environment. I hope the Minister can assigned this measure a ‘high’ uncertainty rating.” provide some answers. 189 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 190

Kirsty Blackman: It is not often that I will be found in not about oil extraction; it is about what is done with it Committee agreeing with clauses in any Government afterwards. Carbon capture and storage, for example, Bill—least of all in a Finance Bill. However, on clauses 36 has a major impact on reducing the emissions that are and 37, I agree with the provisions on transferable tax produced when oil and gas are used. We have been history and thank the Government for including them. pushing very hard on carbon capture and storage. If the I first raised the issue of transferable tax history on extracted oil is made into tarmac or plastic products, it the record in March 2016 in Westminster Hall. The would not cause the emissions that would be caused if it debate was led by the hon. Member for Waveney (Peter is put into a car or turned into heating oil. Aldous), the chair of the all-party parliamentary group The Government have taken steps on electric vehicles on the offshore oil and gas industry. It is an active and the Scottish Government are doing incredible things all-party group and does a huge amount of lobbying of to promote them. They are increasing insulation in the Government. I am sure the Chancellor is sick of houses,because domestic heating is a significant contributor hearing from us about things to make the industry more to climate change. A lot is being done in this space, and effective and maximise economic recovery, as we have it has been recognised that Scotland has the most been discussing. We have regularly proposed transferable ambitious climate change targets in the world. tax history since we first discovered that the industry All of our oil and gas fields will be decommissioned was concerned. at some point. That is how this works. It was always I will give a little background on the importance of going to be a time-limited industry, because eventually transferable tax history and the reasons why we have the oil and gas that can be recovered economically will called for it. There are smaller oil and gas fields around run out. Once an oil and gas field is decommissioned, the central ones. The decommissioning of the central oil there will be no jobs associated with it anymore, and and gas field results in secondary oil and gas fields, and there will be none of the anciliary services, so it reduces the smaller pools around the site, no longer being the amount of employment. A new player may come accessible without the building of significant new into the market and want to take on a field that is not a infrastructure. It is therefore important that, whenever major asset for a big oil and gas company—it would the Oil and Gas Authority takes decisions about which rather decommission the field because it has had enough assets can and should be decommissioned at a given of it and cannot be bothered with it anymore. Transferring time, it does so in the full knowledge of the knock-on the asset on to the new company means that, however impact. We need to ensure that we continue to have much technology it uses, jobs will be associated with the access, for example, to the small pools that are not asset—there will be no jobs if it is decommissioned. We economically viable now but are likely to be once the will still get the decommissioning spend and the jobs technologyhasimproved.Decisionsaboutdecommissioning associated with decommissioning—we will just get it must be taken with full knowledge of the knock-on later. The continuing jobs on the asset will be a good impacts. thing. The other thing that must be taken into account with Vision 2035 is the Oil and Gas Authority’s vision, decommissioning is the effect that removing assets might which has been picked up by the industry. It is still not have on future carbon capture and storage plans. It is talked about enough, particularly by parliamentarians. incredibly important that some pipelines are kept in We are doing our best to raise its profile, but more hon. place for the carbon capture and storage systems that Members could do more. Vision 2035 is about what we are currently in train to be viable. That is another thing want the oil and gas industry to look like in 2035. Hon. the Oil and Gas Authority must consider when it decides Members will understand that it is hugely important for whether a field is ready for decommissioning. the north-east of Scotland because of the significant One recent issue is that big operators that own a huge percentage of jobs supported by the oil and gas industry, number of oil and gas fields, some of which are reaching but it is important throughout the UK. A huge number the end of their economic life, must put in enhanced oil of companies throughout England provide widgets—I recovery mechanisms to get the rest of the oil out, tend to call goods widgets—that are used in oil and gas. which means working at higher pressures and temperatures. If we do not have a successful North sea operation, Big companies that have a huge number of operations those widgets will not be bought or used in the north. in the North sea and around the world will not want to Vision 2035 is about anchoring the supply chain. It is put in the necessary effort to maximise the recovery about a system where, once there is no viable oil and gas from the asset. It will think, “Actually, we are not fussed left in the North sea, we can continue to have oil and about this asset. Potentially we should just decommission gas jobs anchored in the north-east of Scotland and it.” throughout the UK. The only way we can do that is if Clive Lewis: When the deliberations were taking place we support the industry now and support the jobs that with the Government, was any consideration given to there are now. The Oil and Gas Authority states that the climate change, the Paris agreement and the sustainable North sea and the UK continental shelf are seen as a level of oil extraction? Was the fact that we will need to gold standard. If a technology is trialled and works in leave a substantial amount of oil in the ground— the North sea, other countries will be happy to roll out 80% by some estimates—to ensure we play our part in that technology if it suits their sea conditions, because tackling climate change and remaining within the they know it has been tested in one of the most rigorous Intergovernmental Panel on Climate Change targets regimes and by some of the best people—they will taken into account? know that the technology works. For us to continue to have a viable oil and gas Kirsty Blackman: The SNP position and the Government industry and a viable anchored supply chain, we need to position is to maximise economic recovery.Oil extraction ensure that we continue to be at the forefront of any does not have a particular impact on carbon levels. It is technological changes. What we are doing on enhanced 191 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 192

[Kirsty Blackman] the North sea. The amendments seek to create a two-tier system whereby new entrants to the industry will be oil recovery is genuinely world leading. There are few required to have different conditions around jobs and fields in the world that are at the supermature stage of capital investment, but the big oil companies that already the North sea, so we are doing some of the most operate a large number of assets in the North sea will amazing things with technology. We can see by the not be asked to make the changes that the Labour party increase in productivity in the North sea that technological will ask new entrants to make. It concerns me that that advances have been made. If the companies making the would create a two-tier system. widgets that improve production continue to be anchored I would be interested to see an assessment of how here in the UK, we will be able to export those technologies many jobs would be lost. I am concerned that the and the services that sit alongside them around the Labour party is giving up on the north-east of Scotland. world even when there is no recoverable oil and gas in As I said, a huge number of jobs are supported by this. the North sea. Many of the companies that I have spoken to in Aberdeen and Aberdeenshire are providing widgets and, Clive Lewis: Given the fact that this could see a yes, they are exporting them, but they are also exporting doubling in the current estimate of reliefs to about the people power and the services that go with them £48 billion—I know there is uncertainty about what through ongoing maintenance contracts, which are a that could be, but the legislation here is for that potential big revenue stream for the region. It is important that for TTH to double the current estimate of £24 billion to we do not talk only about the amount of money oil and £48 billion—can I be cheeky and ask the SNP this? If gas generates for the Exchequer through petroleum they did achieve independence, would they carry on revenue tax and the money that comes in because oil with this policy as a sovereign Government and bear the and gas comes out of the ground. We should also talk costs associated with it? about the wider impact on the economy, which can be felt particularly in the north-east of Scotland. Kirsty Blackman: In the event of independence, as When the oil price went down, we had a massive issue was laid out in our White Paper, “Scotland’s Future”, with house prices and redundancies in the north-east of the Scottish and UK Governments will have a negotiation Scotland. Very real change took place not just in those about what will happen to decommissioning tax reliefs. jobs directly involved with operating assets in the North We will do what we can to maximise economic harmony sea, but in those jobs working in supermarkets in Aberdeen in the North sea and create jobs for the long term. It is or in hotels. Wesaw the knock-on impact on the economy. incredibly important that those jobs are kept in the UK. It is important for the entire economy that we pursue The jobs could simply relocate if the Government do Vision 2035. not take action. They could do more to support the As I have said previously, and I think the Minister supply chain, which has been squeezed by the cuts that covered this, this has been a good example of the UK the bigger operators have had to make because of the Government and industry working together. I particularly reduction in the oil price. The Government could do thank Mike Tholen and Romina Mele-Cornish from more to ensure that the supply chain companies are Oil & Gas UK, who worked incredibly hard on this. provided with the support that they need. The Oil & Gas Romina had a particularly difficult time trying to explain Technology Centre is doing a very good job in that transferable tax history to a room full of MPs and regard. managed to get there eventually, but that was not an Access to finance is incredibly important so that easy task because it is quite complicated. If people do companies can begin to support and monetise the not understand particularly how decommissioning liabilities technology that they have created. They have incredible work, we have to explain that first before explaining reserves of intellectual property, some of which have why TTH makes a big difference, which I think it really not had the chance to be developed. I would rather not does. see the IP sold on to somebody else. I would rather the Regarding the amendments tabled by the Labour Government supported such development. party, there is a suggestion that companies will try to All the oilfields will need to be decommissioned inflatethecostof decommissioningorwillbedisincentivised eventually, but we want the jobs to be kept for the from reducing the cost of decommissioning as a result longer term. We are making a case for the maximum of TTH. I do not believe for a second that that is the economic recovery to be made from the fields. It is case; the point the Minister made in relation to the important to note that once a field is decommissioned, increase and potential fluctuation in decommissioning there are no longer any jobs associated with that field. If costs is well made, but the other thing is that companies we can prolong the life of that asset, we prolong a do not want to have to spend that money. They want situation whereby jobs and therefore money for the decommissioning not to cost a huge amount of money. I Exchequer are secured. That is incredibly important for am clear that when decommissioning is done, it must be the north-east of Scotland. I will not support the Labour done right, and the Oil and Gas Authority must be on party’s amendments; I will choose to abstain. However, top of that. I am not in favour of companies being able I will support the Government’s clause in relation to to drive down costs to the very furthest reaches. I want TTH. I thank them for taking action, although I would them to drive down costs, but I want the decommissioning rather they had taken it sooner. to be done properly and at the right time.

11.15 am Sir Robert Syms: In my lifetime, the greatest British I have an issue with the Labour party’s amendments. success story has been the development of North sea The Government are trying to level the playing field oil. As the Minister set out very clearly, billions of between new entrants and those already operating in pounds of taxation have been generated. Under successive 193 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 194

Governments we have had a tax regime that has been Robert Jenrick: I will briefly answer some of those balanced against the risk of the investment that companies points. There has been a misunderstanding about the have had to take. It is therefore perfectly sensible at this cost of the policy to the Exchequer. We believe, as is set stage of the maturity of the oilfields to use tax policy to out quite clearly, that over the scorecard period the ensure that the oilfields continue longer and continue to measure will raise £65 million of revenue for the Exchequer. create jobs and to support, as the hon. Member for Because of the nature of the oil and gas industry and oil Aberdeen North said, the worldwide oil services sector price fluctuations, that is a difficult assessment to make. based in Aberdeen. However, we see no evidence for the more outlandish I thank the Minister for what he is doing, which is estimates in the press of a £3 billion cost to the Exchequer. perfectly sensible. It will generate more tax revenue. I Neither did the independent OBR, which checked our hope we will oppose the amendments because they figures in relation to the measure and agreed that £65 million would make an intended simplification of the tax system was an appropriate estimate over the forecast period. more complicated. At the end of the day, we want We believe that the measure is fiscally responsible because people to continue to pump oil in the North sea and no additional tax relief will be due until the field is keep the jobs rolling. The Government’s policy supports decommissioned. That will enable more fields to be that. developed, and decommissioning costs will be as they always were. Robert Jenrick: In the few minutes that remain, I wish We see no evidence that the measure will disincentivise to thank the hon. Member for Aberdeen North for her efficiency savings and productivity increases. As the comments and her helpful exposition of the purposes of hon. Member for Aberdeen North said, there is a great this policy, which is to create jobs and wealth for the incentive on all parties to reduce the cost of whole country, and particularly for the area that she decommissioning. The industry has signed up with represents. We would be concerned, as the hon. Lady Government to a target of reducing the costs of said, if we created a two-tier system where new entrants— decommissioning by 35%. We would like them to go predominantly smaller and often innovative businesses even further in the years ahead, and there is a lot of that want to enter the market—had to live up to higher work going on to achieve that. We believe that the standards than the predominantly larger and more United Kingdom, particularly the area around Aberdeen, established businesses that they are trying to take on. could be a world centre for decommissioning, and we As she has done, I thank some of the stakeholders who are investing in facilities and training in that regard. We have helped us to develop this policy, including Oil & would like to work on that with the industry, because Gas UK, which has been excellent throughout the we see it as creating knowledge, new technology and preparation of this measure. jobs, which would then be exported to other fields around the world. Rather like my hon. Friend the Member for Poole, I am surprised by the Labour party’s position in this area. There has been a broad, cross-party consensus Kirsty Blackman: I am really pleased to hear the throughout my lifetime that North sea oil and gas are of Government make that commitment in relation to the benefit to the United Kingdom and an important asset world centre for decommissioning. We are talking about to the country. Political risk will deter new investment one of the first oil and gas fields to decommission on a into that field, if international companies that would mass scale. It is important that the lessons that we learn like to invest in the North sea oil and gas sector believe from that are used to improve and export the technology. that the Opposition in the United Kingdom are likely to increase their taxes, make those taxes more complex and disincentivise future investment. Robert Jenrick: I think I have answered those points. There was a misunderstanding about decommissioning Clive Lewis: We would like to put on record that we security agreements, which I hope I have answered. are not giving up on North sea oil. Rather, we have an Decommissioning security agreements are confidential appreciation for the climate emergency that is taking and commercially sensitive documents. Amendment 89 place, and we ask for a reassessment of how we can would not achieve the aim that the hon. Member for sustainably recover those assets. That is all we are Norwich South set out, because such agreements will asking for. not be in the public domain. The documents will be received by HMRC, and decommissioning costs are regulated by the Offshore Petroleum Regulator for The Chair: Mr Lewis, this is an intervention, not a Environment and Decommissioning. speech. 11.25 am Clive Lewis: Our amendments are simply about not exposing the Treasury to the vast costs that these companies The Chair adjourned the Committee without Question could unload on to the Treasury and the taxpayer. The put (Standing Order No. 88). Bill contains no protection for the taxpayer in that regard. Adjourned till this day at Two o’clock.

PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT GENERAL COMMITTEES

Public Bill Committee

FINANCE (NO. 3) BILL

(Except clauses 5, 6, 8, 9 and 10; clause 15 and schedule 3; clause 16 and schedule 4; clause 19; clause 20; clause 22 and schedule 7; clause 23 and schedule 8; clause 38 and schedule 15; clauses 39 and 40; clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 and schedule 18; clauses 68 to 78; clause 83; clause 89; clause 90; any new clauses or new schedules relating to tax thresholds or reliefs, the subject matter of any of clauses 68 to 78, 89 and 90, gaming duty or remote gaming duty, or tax avoidance or evasion)

Sixth Sitting

Tuesday 4 December 2018

(Afternoon)

CONTENTS

CLAUSE 36 agreed to. SCHEDULE 14 agreed to. CLAUSES 37, 43 TO 45, AND 48 TO 51 agreed to. SCHEDULE 16 agreed to. CLAUSE 52 agreed to. SCHEDULE 17 agreed to. CLAUSES 53 TO 56 agreed to. Written evidence reported to the House. Adjourned till Thursday 6 December at half-past Eleven o’clock.

PBC (Bill 282) 2017 - 2019 No proofs can be supplied. Corrections that Members suggest for the final version of the report should be clearly marked in a copy of the report—not telephoned—and must be received in the Editor’s Room, House of Commons,

not later than

Saturday 8 December 2018

© Parliamentary Copyright House of Commons 2018 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 195 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 196

The Committee consisted of the following Members:

Chairs: †MS NADINE DORRIES,MR GEORGE HOWARTH

† Afolami, Bim (Hitchin and Harpenden) (Con) † Lewis, Clive (Norwich South) (Lab) † Badenoch, Mrs Kemi (Saffron Walden) (Con) † Reynolds, Jonathan (Stalybridge and Hyde) (Lab/ † Black, Mhairi (Paisley and Renfrewshire South) Co-op) (SNP) † Smith, Jeff (Manchester, Withington) (Lab) † Blackman, Kirsty (Aberdeen North) (SNP) † Sobel, Alex (Leeds North West) (Lab/Co-op) † Charalambous, Bambos (Enfield, Southgate) (Lab) † Stride, Mel (Financial Secretary to the Treasury) † Dodds, Anneliese (Oxford East) (Lab/Co-op) † Syms, Sir Robert (Poole) (Con) † Dowd, Peter (Bootle) (Lab) † Whately, Helen (Faversham and Mid Kent) (Con) † Ford, Vicky (Chelmsford) (Con) † Whittaker, Craig (Lord Commissioner of Her † Jenrick, Robert (Exchequer Secretary to the Majesty’s Treasury) Treasury) † Keegan, Gillian (Chichester) (Con) Colin Lee, Gail Poulton, Joanna Dodd, Committee Clerks † Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con) † attended the Committee 197 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 198

Amendment 86, in schedule 14, page 269, line 3 at Public Bill Committee end insert— “(c) the amount by which total post-acquisition qualifying Tuesday 4 December 2018 investmentexceededthehigherof excessdecommissioning expenditure and the total TTH amount as calculated (Afternoon) for the first activation period under paragraph 35.” See explanatory statement for Amendment 85. [Ms NADINE DORRIES in the Chair] Amendment 87, in schedule 14, page 269, line 40, at end insert— Finance (No. 3) Bill “(c) provided that the total activated TTH amount may never exceed the purchaser’s post-acquisition qualifying (Except clauses 5, 6, 8, 9 and 10; clause 15 and investment for the relevant TTH assets or TTH oil schedule 3; clause 16 and schedule 4; clause 19; fields.” clause 20; clause 22 and schedule 7; clause 23 and See explanatory statement for Amendment 85. schedule 8; clause 38 and schedule 15; clauses 39 and 40; That schedule 14 be the Fourteenth schedule to the clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 Bill. and schedule 18; clauses 68 to 78; clause 83; clause 89; Clause 37 stand part. clause 90; any new clauses or new schedules relating to tax thresholds or reliefs, the subject matter of any of The Exchequer Secretary to the Treasury (Robert clauses 68 to 78, 89 and 90, gaming duty or remote Jenrick): If I may, I will conclude the remarks I was gaming duty, or tax avoidance or evasion) making earlier—[HON.MEMBERS: “Hear, hear!”]—to widespreadacclamation.Clause36willestablishtransferable Clause 36 tax history, which is widely supported across the industry and will help to protect and increase the number of jobs OIL ACTIVITIES: TRANSFERABLE TAX HISTORY in the oil and gas sector in the whole of the United 2 pm Kingdom and, in particular, in north-east Scotland. We see this as a great step forward for this important That the clause Question (this day) again proposed, national asset. We believe that it is fiscally responsible, stand part of the Bill. as was certified by the Office for Budget Responsibility. The Chair: I remind the Committee that with this we It will bring in revenues to the Exchequer of £65 million, are discussing the following: and reports to the contrary are misguided. Amendment 84, in schedule 14, page 260, line 15, Clive Lewis (Norwich South) (Lab): Given that we leave out sub-paragraph (d). know that the decommissioning costs could come to The provision as drafted allows companies to transfer TTH worth around £24 billion and that there is provision in the Bill double the value of anticipated decommissioning costs. This reduces the incentive for companies towards efficiencies in decommissioning costs to double that to £48 billion—I asked this question in and paves the way for decommissioning-related tax repayments far my opening remarks, but I will ask it again—what bigger than the companies are currently acknowledging. This money has the Treasury put aside specifically to cover amendment removes that provision. these costs for future Governments, a little bit further Amendment 81, in schedule 14, page 261, line 29, at into the future? end insert— “(aa) assessing the impact on employment, skills and the Robert Jenrick: Decommissioning costs will be covered Exchequer from the asset’s production life and by future Governments over the course of decades to planned decommissioning phase, and” come. We estimate that the costs will run into something Amendment 89, in schedule 14, page 261, line 42, at in the region of £24 billion, as the hon. Gentleman says, end insert— although, as I said in my remarks earlier, we are working “(d) includes an assessment of the impact on the closely with the industry to bring down those costs. Exchequer from the amount spent on directly We hope the UK will become a world-leading market employed and contracted staff by the seller over the for decommissioning and that we will see at least a production life of the asset to date; and the impact 35% reduction in those costs over time. The measure on the Exchequer from the buyer’s plans for before us will help the situation by increasing revenues employed and contracted staff up to and including the decommissioning stage.” to the Exchequer, which could be set against future This amendment requires a decommissioning security agreement to decommissioning costs if required. include an assessment of the impact on the Exchequer from the amount spent on staff, in order for that agreement to be qualifying for the Clive Lewis: We have said that the costs could be up purposes of this Schedule. to £48 billion—no insignificant sum of money. If we do Amendment 85, in schedule 14, page 268, line 40, at not ring-fence some of the petroleum revenues to pay end insert— for this, it will fall entirely on future Governments “(aa) the amount spent by the purchaser in post- further down the line, and nothing is being done now to acquisition periods on new capital investment, major prepare for that. That is a lot of money that could hit a maintenance work, retraining of redundant staff, future Government and a future Exchequer in goodness initiatives to reduce methane emissions or initiatives knows what economic conditions. to introduce carbon-capture techniques into the operations in relation to the relevant TTH assets Robert Jenrick: The hon. Gentleman is arguing that (‘post-acquisition qualifying investment’)”. we should ring-fence revenues from the oil and gas This amendment, and amendments 86 and 87 incentivize capital investment by new purchasers in job creation and emissions reductions. sector, whether through petroleum revenue taxation, Combined, the amendments limit the TTH which may be claimed to an the supplementary charge or whatever it might be in the amount equal to such investment. future. That is not what we have done in the past. It is a 199 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 200 peculiar argument to make when opposing the transferable Amendment proposed: 89, in schedule 14, page 261, tax history measure, which will increase revenue to the line 42, at end insert— Exchequer, extend the life of a number of fields and “(d) includes an assessment of the impact on the make decommissioning easier and more affordable Exchequer from the amount spent on directly in the future. With that, I commend clause 36 to employed and contracted staff by the seller over the the Committee and ask hon. Members to reject the production life of the asset to date; and the impact amendments. on the Exchequer from the buyer’s plans for employed and contracted staff up to and including Question put and agreed to. the decommissioning stage.”—(Clive Lewis.) Clause 36 accordingly ordered to stand part of the Bill. This amendment requires a decommissioning security agreement to include an assessment of the impact on the Exchequer from the amount spent on staff, in order for that agreement to be qualifying for the Schedule 14 purposes of this Schedule. Question put, That the amendment be made. OIL ACTIVITIES: TRANSFERABLE TAX HISTORY The Committee divided: Ayes 7, Noes 10. Amendment proposed: 84, in schedule 14, page 260, line 15, leave out sub-paragraph (d).—(Clive Lewis.) Division No. 23] The provision as drafted allows companies to transfer TTH worth AYES double the value of anticipated decommissioning costs. This reduces the incentive for companies towards efficiencies in decommissioning costs Charalambous, Bambos Reynolds, Jonathan and paves the way for decommissioning-related tax repayments far Dodds, Anneliese Smith, Jeff bigger than the companies are currently acknowledging. This Dowd, Peter amendment removes that provision. Lewis, Clive Sobel, Alex Question put, That the amendment be made. The Committee divided: Ayes 7, Noes 10. NOES Division No. 21] Afolami, Bim Lamont, John Badenoch, Mrs Kemi Stride, rh Mel AYES Ford, Vicky Syms, Sir Robert Jenrick, Robert Whately, Helen Charalambous, Bambos Reynolds, Jonathan Keegan, Gillian Whittaker, Craig Dodds, Anneliese Smith, Jeff Dowd, Peter Lewis, Clive Sobel, Alex Question accordingly negatived. Schedule 14 agreed to. NOES Clause 37 ordered to stand part of the Bill. Afolami, Bim Lamont, John Badenoch, Mrs Kemi Stride, rh Mel Ford, Vicky Syms, Sir Robert Clause 43 Jenrick, Robert Whately, Helen Keegan, Gillian Whittaker, Craig HIGHER RATES OF TAX FOR ADDITIONAL DWELLINGS ETC Question accordingly negatived. Question proposed, That the clause stand part of the Amendment proposed: 81, in schedule 14, page 261, Bill. line 29, at end insert— “(aa) assessing the impact on employment, skills and the Exchequer from the asset’s production life and The Chair: With this it will be convenient to discuss planned decommissioning phase, and”.—(Clive the following: Lewis.) New clause 10—Review of higher rate of tax for Question put, That the amendment be made. additional dwellings— The Committee divided: Ayes 7, Noes 10. “(1) The Chancellor of the Exchequer shall commission a review on the revenue effects of the amendments to FA 2003 Division No. 22] made in section 43. AYES (2) A report of the review under subsection (1) must be laid before the House of Commons before 29 October 2019.” Charalambous, Bambos Reynolds, Jonathan This new clause requires a review of the revenue effects of the provisions Dodds, Anneliese in clause 43, and for that review to report within 1 year of that clause Smith, Jeff Dowd, Peter becoming effective. Lewis, Clive Sobel, Alex New clause 11—Annual statement on effects of provisions of section 43— NOES “(1) The Chancellor of the Exchequer must make an annual Afolami, Bim Lamont, John statement to the House of Commons detailing how the Badenoch, Mrs Kemi Stride, rh Mel provisions in section 43 have affected instances in which land Ford, Vicky Syms, Sir Robert transaction returns are amended to take account of subsequent Jenrick, Robert Whately, Helen disposal of the main residence. Keegan, Gillian Whittaker, Craig (2) The statement must specify— (a) the number of such instances, and Question accordingly negatived. (b) such information as the Commissioners hold as to the characteristics (including income) of those concerned. 201 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 202

(3) The first such statement under subsection (1) must be made 2018 Budget, these changes are expected to have a before 29 October 2019, and each subsequent statement must be negligible impact on the Exchequer, so a review on the within twelve months of the previous statement.” revenue effects is not required. Her Majesty’s Revenue This new clause requires an annual statement on how the provisions in and Customs already publishes annual and quarterly section 43 have impacted the number of back claims of HRAD. statistics setting out transactions subject to the higher New clause 12—Review of higher rate of tax for rates of SDLTon additional properties and the transactions, additional dwellings— volumes and values reclaimed. “(1) The Chancellor of the Exchequer shall commission a New clause 12 seeks to require a review of the effect review on how the provisions of section 43 have affected of clause 43 on residential property prices. Clause 43 residential property prices. simply increases the time from disposal for people to (2) A report of the review under subsection (1) must be laid make a claim to 12 months and confirms existing practice before the House of Commons before 29 October 2019.” on the definition of “major interest”. Neither change is This new clause requires a review on how the provisions in clause 43 expected to have an impact on house prices and such a have affected house prices, and for that review to report within 1 year of report would not be of benefit to Parliament. I therefore that clause becoming effective. urge the Committee to reject the new clauses. The changes in the clause will help to ensure that the The Financial Secretary to the Treasury (Mel Stride): rules on the higher rates of stamp duty land tax are Clause 43 makes changes to ensure that the stamp duty easier to understand and more transparent. I commend land tax higher rates for additional dwellings rules are the clause to the Committee. easier to understand and more transparent. In April 2016, the Government introduced additional rates of SDLTfor those purchasing additional residential property Sir Robert Syms (Poole) (Con): I am glad I caught the such as second homes and buy-to-let properties. The hon. Member just as he was coming to his peroration. I rates are 3 percentage points above the rates of SDLT have a constituent who had a home in Malaysia, where ordinarily payable and are part of the Government’s he was working. He moved back to Poole to retire and commitment to support first-time buyers. The changes bought a flat. He was charged the higher rate of stamp reflect feedback from the public and industry specialists duty because the flat was classified as a second home about the key areas where the rules on the higher rates because he still owned a home in Malaysia. When I have proved challenging or do not work as well as they wrote to the Treasury, it said that that was because could. having a second home in Malaysia had an impact on the In general, purchasers buying their first property, British housing market, which I did not think was a replacing a main residence or buying an additional very convincing answer. property worth less than £40,000 will not be subject to Does this rule apply worldwide if one owns a home the higher rates. Someone buying their new home before outside the UK? In effect, if someone has a holiday they sell their old home, however, must pay the higher home outside the UK, they get charged higher stamp rates up front but can claim a refund when they sell duty when they buy a house in the UK. If they sell their their old home within three years of buying their new house in Malaysia, Spain or France within three years, home. When the old home is sold more than 12 months do they then get a reduced rate of stamp duty land tax? after the purchase of the new property, individuals are As an aside, it seems bonkers that we are charging required to reclaim the higher rates within three months people a higher rate on the basis that they have a home of the sale of the old property.The first change introduced halfway round the world, but that is the world we seem by the clause will increase that period to 12 months, to live in. giving taxpayers a longer period within which to reclaim the higher rates. The change will apply to all disposals of a previous main residence from 29 October 2018. Mel Stride: The central point is that if someone is UK tax resident, their income is taxed, albeit that some The second change addresses the term “major interest” of it may occur in other jurisdictions and perhaps be in relation to the higher rates of stamp duty land tax, subject to double taxation arrangements between that where some stakeholders have suggested that existing jurisdiction and our jurisdiction. None the less, my hon. legislation is unclear. The higher rates of stamp duty Friend’s assumption is correct that if someone has a land tax are intended to apply when someone buys or property overseas, it is effectively counted as if it were a already owns a major interest in a dwelling. “Major domestic property in the context of this clause. The interest” is used to ensure that the higher rates for easements that the clause introduces in terms of greater additional dwellings apply only to meaningful purchases time to put in an application for a rebate at the higher of residential property and not to minor interests—for rate apply equally whether one of the properties is example, a right of way or a right to light. This change overseas or here in the United Kingdom. confirms, in line with the Government’sexisting treatment, that an undivided share in land constitutes a major interest for the purposes of the higher rates. That also Anneliese Dodds (Oxford East) (Lab/Co-op): As the takes effect from 29 October 2018. Minister explained, the clause would change the parameters New clause 10 seeks to commission a review on the for claiming a refund on the additional dwelling SDLT revenue effects of the amendments to the Finance Act 2003 by quadrupling the time that claimants have to reclaim made by clause 43. It would require the Chancellor of the funds, potentially for up to a whole year after they the Exchequer to make an annual statement to the have sold their old home, if that is later than a year after House on those who have made a reclaim for the higher the filing date for the SDLT date for the new home—so rates. The new clause is not necessary; as is stated in the the second parameter stays the same, if that makes tax information and impact note published at the sense. It is quite a complex change to understand. 203 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 204

The “major interest” provision is also tightened to stamp duty, albeit with a 1% floor. It treats them as if make it clearer that a major interest in a dwelling they were individual purchases, which means that the includes an undivided share in a dwelling for the purpose overall purchaser is tax-benefited, because if they were of the higher rates for additional dwellings. I understand paying for all those properties in one block, they would that the Government have suggested that the extended trigger higher rates of stamp duty than just the individual time period is necessary to enable those who might find rates. it difficult to claim to do so—for example, those who For example, if five houses are bought for £1 million are elderly or vulnerable due to serious illness. overall, that gives us £200,000 per house. The amount In principle, the changes do not water down the of SDLTpayable on £200,000 is £1,500, which, multiplied Government’s initial stated commitment to charge by five, is £7,500. That is what would have been paid additional SDLT for those owning additional properties, under the scheme, although there is a 1% floor, so provided they are held on to for more than three years overall the amount of tax would be £10,000. If tax had and provided that they fall outside the multiple dwellings been paid on the £1 million overall, it would have been category, which I will come back to in a moment. None much more substantial, because it would be shifted into the less, given that the changes appear to be focused on a higher rate of stamp duty. It is peculiar that we seem the context for the provision of additional dwellings, as to have—unless I have missed some announcement against continuously occupied single dwellings, we feel from the Government—a continuation of that tax relief it is necessary to subject their effectiveness to review, in for multiple homes, yet an additional charge for just order to ensure that they do not water down the initial having one additional home. I have to say, I found the measure in any way. That is what new clauses 10, 11 and discussion raised by the hon. Member for Poole very 12 ask for. interesting. I wonder how many people who are in the situation that he described are aware of the situation. 2.15 pm New clause 11 asks for a review of the impact of Sir Robert Syms: I suspect that there are a lot of these measures on the number of back claims of higher people with holiday homes abroad who do not realise rates for additional dwellings, which I will call HRAD. that when they buy a property, they have to pay a higher Relatedly, new clause 10 asks for a review of the revenue rate of stamp duty land tax. effects of this new approach to exemption from HRAD. The reviews are surely desirable in a context where as Anneliese Dodds: I am very grateful for that intervention. many as nine out of every 10 additional property owners Furthermore, presumably it would be relatively difficult are in the top half of the wealth distribution, as was for the Exchequer to assure itself that that additional discovered by the Resolution Foundation, and where purchase had happened. This seems like quite a bureaucratic the proportion of adults owning multiple properties has system, but I am sure the Minister can explain to us risen substantially in recent years. exactly how it works and how it is ensured that it is In contrast, as I am sure the Committee will be aware, processed properly. home ownership has fallen precipitously among young It would also be helpful to consider the measures in people, with the chances of a young adult on a middle relation to the actions advocated by Labour, including income being a homeowner having fallen by more than enabling local authorities to treble council tax on empty a half over the last 20 years, according to the Institute properties after they have been empty for a year. Although for Fiscal Studies. The number of people under the age the Government have shifted a little in this area recently, of 45 who own their own home has fallen by 1 million councils unfortunately still have to wait 10 years—an since 2010. Of course, the number of new homes for incredibly long time—before they can levy that level of social rent has fallen by 80% since 2010. We really need premium. to understand the effectiveness or otherwise of the existing additional dwelling charge and whether or not We also need to consider the impact of these measures these measures would reduce it. on house prices, which, as the Minister intimated, is demanded by new clause 12. There is a desperate need It is also important to review these measures to for action to level the playing field for those seeking consider their impact in relation to other tax-focused housing for their families to live in continuously, as interventions that the Government are or are not making against those seeking a holiday home. Here again, the to enable sufficient access to continuously occupied Opposition seek to place a surcharge on second homes singular dwellings, especially in hotspots for holiday that are used as holiday homes, based on council tax and other additional homes. In this connection, it would banding, which could raise £560 million a year to help be helpful if the Minister explained how this measure tackle homelessness, as well as helping to level the squares with the continuation, as I understand it, of playing field between those who can afford additional multiple dwellings relief, which the Conservatives introduced homes and those trying to take their first step on to the in 2016, and which has received some press comments housing ladder. We surely need to understand the impact due to its use by certain individuals whom I am sure the of the clause in relation to other potential measures. Committee will be aware of. I will not add to their embarrassment here. The multiple dwellings relief enables Finally, while I have the chance, I inform the Minister not just a removal of the additional dwellings charge, that when one uses a particularly well-known search but an actual reduction in the stamp duty charge, where engine to try to find the very exciting HMRC stamp tax a transaction or a number of linked transactions include manual, it unfortunately finds the versions from 2010 freehold or leasehold interests in more than one dwelling. initially, rather than more up-to-date versions. That surely needs to be ironed out. The multiple dwellings relief is rather complicated to explain, but essentially it enables multiple simultaneous purchases to be counted separately for the purposes of The Chair: Mr Syms, do you want to speak? 205 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 206

Sir Robert Syms: No. (2) A report of the review under this section shall be laid before the House of Commons as soon as practicable after its completion.”. Mel Stride: I am sure that my hon. Friend will be This amendment would require the Chancellor of the Exchequer to tempted to speak by the time I have finished my remarks. review the viability of a public register of financial institutions in The hon. Member for Oxford East raised several resolution benefitting from the exemption from stamp duty for certain points. She sought an assurance that we are not watering financial transactions. down the measure. I can certainly give that assurance. Clause 48 stand part. For example, the three-year window will be the same for people to reclaim the higher rate where a property is not sold before a new property is purchased, albeit that we Mel Stride: Clauses 44 and 48 will simplify and are giving people more time to apply for that rebate. strengthen the current financial institution resolution The essence of the measure remains very much the regime by introducing an automatic exemption from same. stamp taxes on shares for public bodies and creditors whose interests are converted into shares, and stamp The hon. Lady pointed out that home ownership is duty land tax—SDLT—for certain transfers of land falling, particularly among young people. The Government arising from the exercise of resolution powers. are heavily engaged on that and have brought in various measures, as she will know, not least in the stamp duty Under the Banking Act 2009, the Government have area, with the stamp duty relief for first-time buyers. the power to exempt from stamp taxes on shares and None the less, the statistic that she quoted of there SDLT transfers of property, in the form of shares or being 1 million fewer homeowners under 45 than in land that arise from an exercise of resolution powers. 2010 is certainly something that we seek to address. I However, the current legislation requires the Government reassure her that, since the higher rates have been introduced, to pass secondary legislation exempting a defined set of more than 650,000 people have bought their first home, transfers. This introduces potential timing challenges and first-time buyers make up an increased share of the and creates additional complexity when resolving a mortgaged housing market. That is what the underlying failing financial institution. measure that we are debating is really all about: supporting The changes made by clause 48 avoid that by specifying first-time buyers and first-time home ownership. exempt transfers in primary legislation. The stamp taxes The hon. Lady also raised multiple dwellings relief on shares exemption will be limited to transfers of and gave a clear exposition of how it works by way of shares to a bridge entity or a public body that holds the her example of the £1 million and the five properties. shares temporarily while the institution is being resolved, The way she described it was entirely accurate. In other and to the transfer of shares in exchange for temporary words, there is a disaggregation, and then the appropriate certificates issued to creditors that demonstrate their level of stamp duty is applied to each one of those entitlement to the shares. The exemption does not cover properties at, in her example, the £200,000 level. However, the private sale and transfers of shares in a failing it is also the case each one of those properties in her institution to a private sector purchaser, where stamp example would attract the additional stamp duty charge taxes on shares will be charged as usual. in a situation in which more than one property is, of Similarly, the changes made by clause 44 specify necessity, owned by the same purchaser. SDLT transfers in primary legislation. This exemption The hon. Lady’s final point was about the potential will be limited to transfers of land to a bridge entity or impact of these measures on house prices. I go back to public body that holds the land temporarily while the my earlier remarks that this a change in the timing by institution is being resolved. The exemption does not which individuals are required to make reclaims at the cover the private sale and transfer of land of a failing higher rate; it is not a change to the window of opportunity institution to a private sector purchaser, where SDLT for doing so. As I set out, that in itself is not expected to will be charged as usual. change house prices. The changes will simplify and strengthen the process Question put and agreed to. of resolving a failed institution. In the event that a creditor is found to be worse off as a result of resolution Clause 43 accordingly ordered to stand part of the Bill. action, when compared with an ordinary insolvency, they are entitled to compensation, which would be paid Clause 44 by the Treasury. The changes will protect taxpayers by reducing the risk of the Government having to compensate creditors in order to prevent the “no creditor worse off” EXEMPTION FOR FINANCIAL INSTITUTIONS IN principle being violated. They were announced in the RESOLUTION autumn Budget 2017 and the draft legislation was subject Question proposed, That the clause stand part of the to consultation. Officials from the Treasury and HMRC Bill. have worked closed with officials from the Bank of England to develop the legislation. The Chair: With this it will be convenient to discuss Turning to the amendments that have been tabled, the following: amendment 90 seeks a review, within three months of Amendment 90, in clause 48, page 32, line 39, at end the enactment of the Bill, of the viability of establishing insert— a public register on the use of the exemption from “85B Review of possible register stamp duty—something that I have already raised—and (1) Within three months of the passing of the Finance would require a report of the review to be laid before Act 2019, the Chancellor of the Exchequer shall review the the House of Commons soon after its completion. The viability of establishing a public register on the use of the clauses do not create any tax exemptions for failing exemption from stamp duty established under section 85A. institutions themselves. The exemption would apply to 207 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 208 creditors of failing financial institutions who see their SDLT and stamp duty system, are somehow simpler to debt holdings bailed in for equity, to ensure that affected enact. I am frequently informed by businesses and creditors are not penalised inadvertently. The exemption individuals, as I am sure many of us are, that they balk also applies to the Bank of England, which may, in at the length and complexity of tax law, yet here we are certain circumstances, need to take temporary ownership adding to it when an alternative mechanism could perhaps of a failing institution’s assets, in order to protect financial have been found. In that connection, it would be helpful stability. to know whether the Office of Tax Simplification was The clauses will strengthen and add transparency to happy with the measure. the resolution process by providing further clarity for The Minister referred to the fact that the clause was affected creditors and the taxpayer. The register would transferring the tax treatment into primary legislation, impose an additional and unnecessary burden on the seeming to suggest that putting measures in place through Bank of England and provide no great benefit to the primary legislation was preferable to putting them in public. By creating an exemption from stamp taxes on place via regulation. I dare to say that I hope the shares and SDLT for certain transfers arising from the Minister will have discussions with his colleagues, who use of resolution powers, the Government are simplifying seem intent on avoiding the use of primary legislation and strengthening the UK’s resolution regime, and I when it comes to, for example, the UK’s withdrawal therefore commend the clauses to the Committee. process, and in whom we often see not even a willingness to use the affirmative procedure for secondary instruments, Anneliese Dodds: I am grateful to the Minister for his let alone primary legislation. explanation. As he intimated, clause 44 ensures that SDLT is not charged on transfers of land following the Mel Stride: Taking up the points made by the hon. exercise of certain resolution powers under the special Member for Oxford East, I will begin with her final resolution regime. It is paralleled by clause 48 for stamp point about why we have approached this by way of duty. As he has intimated, our amendment 90 would primary legislation rather than relying on existing powers require the Government to produce a review and potentially to make regulations. At the heart of that is our ability to introduce a register of financial institutions in resolution act quickly in the circumstances of the resolution powers that might benefit from the exemptions for SDLT and being brought into effect, to ensure that everything goes stamp duty for certain financial transactions resulting smoothly and we do not end up in a situation where from the measure. compensation might be due, where it could be shown We are asking for such a review to have a clearer that the measures we had taken had not been as effective understanding of which firms might be relieved of as they might otherwise have been under a normal SDLT and stamp duty in this manner. This is without insolvency process. That is why relying on a general prejudice to the function of the clauses, which we position in primary legislation would be preferable to a understand and support. In other words, we support number of exercises of secondary powers. the concept that the Bank of England should be able to The question of why we have made changes to the use its resolution stabilisation powers to manage failing Finance Act 2003 rather than the Banking Act and the financial institutions in an orderly manner and should associated question that the hon. Lady asked about as part of that, where required, be able to transfer whether the Office of Tax Simplification was content property, potentially including land held by that body, with our approach are highly technical and certainly to a temporary holding entity appointed by the Bank of not questions to which that I have a ready answer, I am England or to a temporary public body. In that context, afraid. I undertake to the Committee to go away and we agree that it does not make sense for SDLT or stamp ensure that I write to the hon. Lady with a full explanation duty to be paid. Weare willing to withdrawour amendment, on both those points. because of the general acknowledgment of the importance Question put and agreed to. of the measure. Clause 44 accordingly ordered to stand part of the Bill. 2.30 pm However, I have a question about clauses 44 and 48. Clause 45 The explanatory notes state that they will reduce “the need for specific regulations to be made under section 74 of CHANGES TO PERIODS FOR DELIVERING RETURNS AND the Banking Act 2009 to provide an exemption from a SDLT PAYING TAX charge on each exercise of certain resolution stabilisation powers under the Banking Act 2009.” Anneliese Dodds: I beg to move amendment 95, in Obviously, the same applies to stamp duty. In their clause 45, page 29, line 19, at end insert— words, this “(11) The Chancellor of the Exchequer must lay before the “will strengthen and simplify the process of resolving a failing House of Commons a report on any consultation undertaken on financial institution and help to uphold the ‘no creditor worse the provisions in this section. off’ principle by ensuring an exemption from SDLT”— (12) A report of the review under subsection (9) must be laid or stamp duty— before the House of Commons within two months of the passing “is available at the time of resolution announcement.” of this Act.” That appears to imply that it would have been possible This amendment would require the Chancellor of the Exchequer to report on any consultation undertaken on the provisions in Clause 45. to create measures as amendments to the Banking Act to achieve that end through regulation. I wonder why it is implied that specific banking regulations are viewed The Chair: With this it will be convenient to discuss as too onerous to create, whereas amendments to the the following: Finance Act 2003, which established the current English Clause stand part. 209 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 210

[The Chair] Indeed, there appeared to be significant concern among respondents to the consultation about the proposed New clause 13—Equality impact analysis of provisions reduction to the filing and payment window. The of section 45— consultation response stated: ‘(1) The Chancellor of the Exchequer must review the equality “Many felt it would be manageable for straightforward impact of the provisions in section 45 in accordance with this transactions—for example most purchases of residential property. section and lay a report of that review before the House of Many envisaged difficulties for more complex transactions where Commons within six months of the passing of this Act. the property purchased is subject to leases. Although only a small (2) A review under this section must consider— proportion of reportable transactions are likely to be affected, (a) the impact of those provisions on households at they amount to approximately 50,000 transactions every year.” different levels of income, That is clearly a very large number,and those transactions (b) the impact of those provisions on people with may be particularly concentrated in their effects among protected characteristics (within the meaning of the certain segments of the population. It is for that reason Equality Act 2010), that new clause 13 would require a full impact assessment (c) the impact of those provisions on the Treasury’s of the measure to be undertaken and to consider its compliance with the public sector equality duty impact on people with protected characteristics, people under section 149 of the Equality Act 2010, and with different incomes and people living in different (d) the impact of those provisions on equality in different regions. relevant parts of the United Kingdom and different regions of England. I note in the consultation document that, at least at (3) In this section— the time of the consultation, there was no HMRC facility for filing and paying SDLT simultaneously. It “relevant parts of the United Kingdom” means— would be helpful to understand from the Minister whether (a) England, and that facility is coming, as it would surely make the (b) Northern Ireland; system more efficient. “regions of England” has the same meaning as that used by the Office for National Statistics.’ I was also surprised to see in the consultation document This new clause requires the Chancellor of the Exchequer to carry out that more than 40% of the returns submitted on paper and publish a review of the effects of Clause 45 on equality in relation included errors. That is an incredibly high rate. It would to households with different levels of income, people with protected be helpful to know what has been done to deal with characteristics, the Treasury’s public sector equality duty and on a that problem, as that system clearly cannot be helping regional basis. either the taxpayer who has—presumably inadvertently, most of the time—made the error nor the HMRC Anneliese Dodds: I am grateful to be serving on this officer who has to try to rectify it. The very high usage Committee with you in the Chair, Ms Dorries; I do not of cheques, which need to be accompanied by the think I have said that before, and I apologise for that. correct 11-figure unique taxpayer reference number also This clause reduces the time limit that purchasers seems almost designed to create an inefficient and error- have to file an SDLT return and pay the tax due from ridden system. 30 days after the effective date of the transaction to It was stated in the consultation document that the 14 days. It applies to transactions to purchase land in shorter timescale would be accompanied by a number England and Northern Ireland with an effective date on of other measures to improve the effectiveness of SDLT or after 1 March 2019. Of course, since 2015 there has filing, but it is unclear to me whether and when those been a separate land and buildings transaction tax in new measures are coming into place. One such measure Scotland, and since earlier this year there has also been would be requiring all agents to file online, which does a different regime in Wales, where the relevant tax is the seem sensible, but I was intrigued to see in the consultation land transaction tax. document the claim that online filing may not be SDLT was introduced—we were just referring to the “reasonably practicable…because of remoteness of location, or relevant Act—in 2003, replacing stamp duty on land on grounds such as religious beliefs.” transactions. Data from SDLT returns are used by a It would be helpful if there were more joined-up thinking variety of actors, after being submitted to the Valuation across Government. For example, it is very difficult for Office Agency, to carry out activities such as valuations claimants of universal credit to receive it without using for the purposes of council tax and business rates. the online system. Surely more of them are likely to be This clause obviously has some similarities with clause 14, affected by living remotely than professional agents to the extent that it requires a faster turnaround for the involved in property transactions. It would also be payment of a tax, but clearly in this case it is payment of useful if the Minister could clarify why religious faith SDLTrather than capital gains tax. Many of the concerns might impact on an individual’s ability to use the internet expressed in relation to that change also apply in this and why that might be the case for those filing returns case. They include the question whether taxpayers and, for stamp duty and not for those attempting, for example, above all, their agents are likely to be sufficiently aware to claim universal credit. of the new deadline. As a result, with amendment 95, It was stated in the Government’s response to the we are asking the Chancellor of the Exchequer to consultation that they would look to potentially introduce “lay before the House of Commons a report on any consultation electronic payment at the same time as the reduction of undertaken on the provisions in this section.” the reporting period to 14 days, so can the Minister It appears that many taxpayers—some 85% of them, please inform us whether electronic payment will indeed according to HMRC’s figures—already submit their be available when this measure comes into play? return in line with the proposed new timetable. However, the remaining 15% may have reasons for failing to Mel Stride: Clause 45 makes changes to improve the submit so quickly and those surely should be examined SDLT filing and payment process. In answer to the hon. before we embark on this halving of the deadline. Lady’s question about whether we will provide facilities 211 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 212 on the site to pay simultaneously, we do not have plans the consultation that we published in the autumn of to do so. That is because the online service cannot be 2016, and we published draft legislation in July 2018 for combined with Bacs and CHAPS services at present. technical consultation. HMRC also held meetings with The hon. Lady made a more general point about the stakeholders, which included representative bodies from mistakes that are made in filing. As she knows, we the property and conveyancing industries. Their views consulted on the information being sought as part of on the information required in the return are reflected the process, and we will be applying various simplifications in the changes being made to make compliance with the as a consequence,most notably around complex commercial new time limit easier. lease arrangements. The information that we have hitherto New clause 13 would require a review of the equality sought in that respect will now no longer be sought. impact of clause 45. The new clause is not necessary That simplification, and others, should be beneficial in either, because the Government set out in the tax cutting down the mistakes that the hon. Lady referred to. information and impact note published on this change Currently, the purchaser of land, or the purchaser’s in July 2018. It is not anticipated that there will be any agent, must make a stamp duty land tax return and pay impact on groups with protected characteristics. Clause 45 tax due within 30 days of the effective date of the does not change anyone’s SDLT liability; it just brings a transaction—usually the completion date. The changes requirement to file a return and pay the tax closer to the made by clause 45 will reduce the time allowed to make date of the transaction. For that reason, direct impacts an SDLT return and pay the tax due from 30 days after on different types of households will be negligible, and the effective date of transaction to 14 days. That is in the type of analysis required by the amendment would line with other initiatives in recent years that bring tax not be meaningful. reporting and payment closer to the date of the transaction. Regarding other regions of the UK, Land and Property The hon. Lady referred, I think, to clause 14 on capital Services in Northern Ireland—an agency of the Department gains tax, where a similar approach has been taken. of Finance of the Northern Ireland Executive—was This is in line with these other initiatives. consulted and is content with the measures. The changes The measure will not change liabilities for the purchaser, will improve the SDLT filing and payment process, and but will lead to tax being paid earlier. The change I commend the clause to the Committee. applies to purchases of land situated in England and Northern Ireland where the effective date of the transaction Anneliese Dodds: I am grateful to the Minister for his is on or after 1 March 2019. This change will directly comments. However, I am sure the whole Committee is affect approximately 20,000 businesses, mainly agents, looking to the Government to ensure that the payment such as licensed conveyancers and solicitors. Each year, and reporting systems can be calibrated as soon as this will directly affect fewer than 500 individuals who possible. Surely, the very high rate of error is a terrible file their own SDLT returns without using an agent. waste of taxpayers’ and, indeed, HMRC’s time. I hope However, the impact on administrative burdens for he prioritises sorting that out and having the relevant businesses is expected to be negligible. discussions with the Bacs and CHAPS systems so it can The Government announced the change at autumn be dealt with. statement 2015 and consulted on it, as the hon. Lady described, in 2016. The Government confirmed at autumn 2.45 pm Budget 2017 that it would come into effect on 1 March. I underline yet again the contrast, which I note the To help purchasers and agents to comply with the new Minister did not mention, between the Government’s time limit, HMRC has worked with key representative apparent concern with the digital divide when it comes bodies to agree simplifications to the SDLT return, for to those who have sufficient resources to purchase a example, by reducing the amount of information required. home and are liable for stamp duty, and their concern These improvements will be in place when the new time when it comes to those with very low incomes who try limit begins.The measure will result in a yield of £60 million to access social security. None the less, in the light of in 2018-19—the year of implementation—and a small the Minister’s remarks, I beg to ask leave to withdraw ongoing yield in future years. the amendment. Amendment 95 would require a report on any consultation undertaken on the provisions in this section. Amendment, by leave, withdrawn. Clause 45 ordered to stand part of the Bill. Bambos Charalambous (Enfield, Southgate) (Lab): Clause 48 ordered to stand part of the Bill. What steps has HMRC put in place to make sure that the 20,000 businesses that are going to be affected are properly informed of the change, and know that it is Clause 49 coming? STAMP DUTY AND SDRT: EXEMPTIONS FOR SHARE Mel Stride: HMRC will, as a matter of course, issue INCENTIVE PLANS guidance on all major tax changes, and that will be available online. As part of the consultation, as I have Anneliese Dodds: I beg to move amendment 91, in outlined, a number of these organisations were consulted clause 49, page 33, line 2, at end insert— in detail, not just about the measures but to make sure “(c) after subsection (4) insert— that those businesses are ready and appropriately informed. ‘(5) Within three months of the passing of the Finance The amendment is not necessary. I can give the Act 2019, the Chancellor of the Exchequer shall Committee the information it requires now, because review the revenue effects if— it is already in the public domain. The Government (a) the provision of section 49(2) of that Act had published a document on 20 March 2017 in response to not been made, and 213 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 214

(b) the exemption under subsection (3) of this particular benefits. However, it is unclear whether section did not apply to a Schedule 2 SIP that contributions to a SIP are treated differently for tax and was not approved between the coming into social security purposes. force of the relevant provisions of the Finance Act 2014 and the passing of the Finance Some claimants of tax credits have received mixed Act 2019. messages about whether contributions to SIPs should (6) A report of the review under this subsection (5) be added back on to their gross pay for the purpose of section shall be laid before the House of Commons informing the Department for Work and Pensions about as soon as practicable after its completion.’” their income. Individuals do not have to declare their This amendment would require the Chancellor of the Exchequer to SIP contributions for the purpose of income tax, or at review the revenue effects if the tax exemption under section 95 of the least those contributions generally are not chargeable to Finance Act 2001 had not applied to self-certified share incentive income tax. There is a peculiar and potentially unfair plans. difference there. The Chair: With this it will be convenient to discuss That is compounded by the fact that tax becomes clause stand part. payable on some of the different types of shares within a SIP if an individual sells them within five years—for Anneliese Dodds: The clause makes a minor change example, if they have to switch jobs. Some individuals to ensure that existing stamp duty relief continues to have said that that is almost a form of double taxation apply to both non-approved and approved share incentive for people who claim social security. They suggest it is a plans. Our amendment 91 calls for a review of the bit of an anomaly, and I can see why. For people revenue effects of that measure compared with the affected in this way, they would be better off buying status quo, under which only approved plans are covered. their firm’s shares at market prices rather than taking The amendment is intended to give us a better handle part in a SIP in the first place. That is the situation with on the overall cost of SIPs and how that relates to their tax credits, but I cannot find any information anywhere benefits. about the treatment of these schemes for those claiming As I am sure Committee members know, SIPs have universal credit. been tax advantaged since 2001, when stamp duty and I looked at the IR177 document “share incentive what was then stamp duty reserve tax—it is now SDLT— plans and your entitlement to benefits” but that was were removed from the transfer of shares in a SIP from produced in January 2011, and there seems to have been trustees to an employee. The requirement for approval no amendment of it since then. There does not seem to was removed in 2014, but the appropriate corrections to have been any amendment to the SIP manual relating to legislation were not made. I note that the changes in the universal credit either, or at least not since November clause are required purely because of errors of omission 2015. Having gone through all the iterations of the back then, which perhaps highlights some of the issues manual, I did not wish to waste any more time searching the Committee has discussed. for a potentially non-existent needle in a haystack. SIPs avoid many of the problems with other share Will the Minister clarify whether contributions to incentive plans, not least by being provided to all employees SIPs are counted as income for the purposes of calculating rather than only to a subset. We have seen how share working tax credit or universal credit? If so, will the plans have been manipulated when they have been Department be looking at this issue? Might it be trying provided only to the top management of companies. to devise a different approach, given that individuals SIPs avoid that. Although so-called free shares can be will be affected by the counting of those shares as linked to the achievement of performance targets, they income if they leave a SIP scheme early? People on low cannot be allocated individually. They can be provided incomes may well have to switch jobs more regularly only to a particular business unit or to the whole than others do, so it would be helpful if he looked into company, so they cannot be manipulated by, for example, that. Perhaps he knows the answer already. If not, will very top management. he write to us? Some people would find that enormously Some categories of shares can be removed from helpful. employees who leave the firm through either voluntary resignation or dismissal within three years of their joining the SIP. That and the stake that SIPs create for Mel Stride: On the hon. Lady’s specific question employees in their company are viewed by some about the interaction of SIP contributions and the commentators as positive aspects of the plans. In addition, reporting of income, and the further interaction with there is a considerable cost saving for firms of up to working tax credits and universal credit, I do not know £138 for every £1,000 invested in SIPs by their employees. the answer,and I do not think my officials can immediately We must acknowledge, however, that the people who answer it. I will have a closer look at that and write to gain most from such schemes are those who are already her, as she requests. in a higher-rate tax band, who by my calculation gain Clause 49 makes a minor correcting amendment to around an additional third of the tax they would otherwise section 95 of the Finance Act 2001 concerning stamp pay, compared with a basic rate taxpayer. duty and stamp duty reserve tax exemptions for SIPs. In addition, SIPs have complex interactions with the Stamp duty and stamp duty reserve tax exemptions for social security system. I want to ask the Minister for SIPs were introduced in the Finance Act 2001. Until clarification in that respect. Information provided to 2014, share incentive plans had to be approved by SIP holders states clearly that a small number of HMRC before an employer could operate them. These people may be affected by the fact that, because of their were referred to as approved share incentive plans. The salary sacrifice—I suppose in practical terms that is Finance Act 2014 removed the requirement for HMRC what this is—for their SIP, they will not have paid to approve share incentive plans and replaced it with a enough national insurance contributions to qualify for self-certification process. All references to approved 215 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 216 share incentive plans should have been removed from I will provide some context about the ongoing challenges legislation, but a change to section 95 of the Finance presented by VAT.These appear to fall into two categories, Act 2001 was omitted. The clause changes the wording which I believe overlap: fraud, and the complications of section 95 of the Finance Act 2001 to ensure that it is that administering and reporting VAT poses for businesses. consistent with other provisions of the share incentive Tackling those challenges is impossible if they are considered plans code. No taxpayers should have incurred stamp to be mutually exclusive. Fraud continues to be a major duty on self-certified SIPs since the rule changed in issue for the Exchequer in collecting the level of VAT 2014, and this provision confirms and clarifies the that is owed, and VAT fraud costs the UK at least position. No changes are made to the existing exemptions £1 billion a year. available for share incentive plans. That was discussed at length in last year’s Finance Amendment 91 would require a review of the revenue Bill Committee, in October 2017, when the Government effects if the stamp duty exemptions for SIPs had not introduced a clause to place new obligations on fulfilment applied to self-certified share incentive plans from 2014. houses to help to tackle VAT fraud, which has, This provision is a minor technical change that brings understandably, worsened with the rise of online sellers the wording of the legislation back in line with its that obtain goods through third-party sellers based application. There will be no revenue impact as a result abroad. As my hon. Friend the Member for Bootle said of the correction. SIPs offer a combination of tax at the time: incentives to employers, and estimates for the cost of “Many small businesses find themselves outcompeted and the stamp duty exemptions for SIPs are not available. outpriced by overseas traders, which not only have lower operating The clause makes a minor correcting amendment to costs but artificially lower their prices by failing to pay VAT on exemptions for share incentive plans, and I commend it the goods they sell to UK consumers through fulfilment houses to the Committee. based here.”––[Official Report, Finance Public Bill Committee, 24 October 2017; c. 117.] That is something that we will all recognise. AnnelieseDodds:Iamwillingtowithdrawamendment91, given the Minister’s clarification, and I am grateful for My hon. Friend further highlighted that we will all his willingness to write to me about the issue that I have received casework from small businesses raised. I make the general point that it is important that “that found themselves severely disadvantaged when filling out their VAT returns when they were unable to obtain VAT receipts we consider these interactions between the social security from either their overseas supplier or the fulfilment business in system and the taxation system. It is particularly important question. In one case, the reason for the problem was simple: for people on low incomes that we always bear that in there were no VAT receipts because the seller had not charged mind. VAT, unbeknownst to that particular British business. The online Amendment, by leave, withdrawn. fulfilment house involved simply washed its hands of the matter and blamed a third-party seller that it supposedly has no control Clause 49 ordered to stand part of the Bill. or influence over.”––[Official Report, Finance Public Bill Committee, 24 October 2017; c. 117.] Clause 50 That flags just one of the multiple VAT issues that small businesses face. The Opposition believe that they need DUTY OF CUSTOMERS TO ACCOUNT FOR TAX ON more support in getting to grips with the tax if we are SUPPLIES ever to close the VAT gap. The situation has been worsened by the Government’s disaster-stricken attempts Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op): to transition to “Making tax digital”, which have thankfully I beg to move amendment 92, in clause 50, page 33, been delayed to next year to give businesses some chance line 11, at end insert— to adapt. “(9B) An order made under subsection (9) for the purposes of HMRC believes that there is a £3.5 billion VAT gap subsection (9A) must be accompanied by a statement by the resulting from mistakes made by businesses when they Treasury of the expected impact of that order on— submit VAT returns. Tax professionals, via the Chartered (a) the number of traders who are expected to benefit Institute of Taxation, said in written evidence to the from the reduction of a burden, and Treasury Committee’s VAT inquiry earlier this year that (b) the supply chain in respect of the description of goods HMRC must improve its VAT guidance and show a or services.”. greater willingness to provide rulings where businesses This amendment would require an order made under the new provision want certainty over VAT treatment. It also echoed the of Clause 50 to be accompanied by an impact statement. Opposition’s repeated warnings over the diminishing resources and capacity of HMRC, which has been The Chair: With this it will be convenient to discuss subject to a series of cuts resulting in staff reductions clause stand part. and office closures. That was admirably highlighted by my hon. Friend the Member for Oxford East in her Jonathan Reynolds: We now turn to the part of the summer tour of HMRC office closures, which was well Bill that addresses value added tax, which is always a received across the country. I should say that the cuts much-anticipated part of a Finance Bill. There is a lot were not well received, but the attention that she was to look forward to. Clause 50 relates to the duty of able to bring to them was. customers to account for VAT on supplies. It is designed The Chartered Institute of Taxation makes six to give the Government the flexibility to mend some recommendations to help address the VAT gap, which it items of anti-fraud legislation so that there does not estimates at a shocking £12.6 billion. I will focus on just end up being an undue burden on small businesses. It one today, which is its request that the Government works in conjunction with an order of the Value Added resist the temptation to Tax Act 1994, specifically section 55A, which aims to “introduce widespread changes that are disruptive to the majority prevent so-called missing trader fraud. of compliant businesses”. 217 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 218

[Jonathan Reynolds] Equally, we must be careful that making the changes does not have any impact on local supply chains, which That is tied to concerns around the clause, despite what is why we have tabled amendment 92, which would appear to be quite laudable intentions behind it. The oblige the Government to publish the impact on traders clause relates to so-called missing trader fraud. It is a who are expected to benefit from the reduction of the huge problem, and not only in the UK; it is perpetrated burden, as well as the supply chain, which comes into across the EU in several different ways. Europol estimates scope. That will enable us to quickly identify if an that the cost to the EU is about ¤60 billion. Fraud is undue administrative burden is having an impact on carried out in supply chains, sometimes by organised supply chains in turn. criminal gangs.They take advantage of the VATexemption My second question concerns how heavily the across borders, charge VAT in the UK when the product development and enforcement of such VAT rules are is sold on and subsequently disappear without relaying dependent on co-operation from the European Union. I it to the Exchequer. As referred to earlier, section 55A would be grateful if the Minister elaborated on how the of the Value Added Tax Act 1994 helps to prevent that plans to clamp down on missing trader fraud are evolving by making the customer,rather than the supplier,responsible in the light of our expected departure from the EU. for declaring the VAT on certain goods and services, Surely our departure from the customs union will prompt thus taking the benefit of VAT away from the seller. some sort of dramatic rethink. Many hon. Members present are veterans of the Bill 3 pm Committee on the Taxation (Cross-border Trade) Act 2018. From October 2019, construction services and works In my view, VAT was one of the most complex issues on existing buildings will be added to that list of goods that we dealt with there—the hon. Member for Aberdeen and services, given the prevalence of missing trader South is nodding. I would appreciate further information fraud in the sector. This is where it gets slightly more from the Minister about what consultation the Government complicated, unfortunately,so I will refer to the Chartered have entered into about the measure, what feedback was Institute of Taxation’s helpful advice on the matter, provided, and how concerns about the administrative which says that subsection (3) of section 55A states that burden on construction and building works businesses “the value of any ‘relevant supplies’ purchased by the customer will be addressed. over £1,000 must be aggregated along with its turnover from its We would also like to highlight that the making tax own business supplies for the purposes of the VAT registration threshold test (currently £85k of taxable supplies in a rolling digital implementation date for some businesses has 12 month period). Note that when construction and building been pushed back to October 2019, which will clash works supplies are included in s.55A, the Order amends the with the introduction of new mechanisms to integrate default position so that the £1,000 small value supplies limit will the changes. Has sufficient thought been given to how not apply…Clause 50 creates a power for the Treasury to modify the burden can be eased for those affected? the position on the inclusion of ‘relevant supplies’…in the turnover test for the VAT registration threshold...In effect this means that a Finally,I urge hon. Members to vote for amendment 92, decision can be made on whether the customer may exclude which would empower us and give us the information relevant supplies from the turnover test. The aim of the measure we need to help small businesses to cope better with is to prevent the anti-fraud provision from unintentionally pushing VAT collection. a small business over the VAT threshold.” The order that it works with in tandem extends the reverse charge mechanism. Again, the Chartered Institute Kirsty Blackman (Aberdeen North) (SNP): First, the of Taxation’s helpful explainer says: hon. Member for Aberdeen South (Ross Thomson) and I are two very different people. He is a lot taller, has “The reverse charge in this sector applies for business to dark hair and is a Conservative Member of Parliament. business transactions where the supply is subject to a positive VAT rate, the customer is registered for UK VAT and is required Lots of people have made this mistake over time. He to report through the Construction Industry Scheme…There is a also has very different views from mine on Brexit. nil threshold on sales, meaning all qualifying transactions are To follow up on some of the issues raised, I am impacted.” comfortable supporting the Opposition amendment; it makes sense to ask for this information. A couple of As we understand it, we see the logic in the clause. matters were raised during the debate. It is important Construction businesses may get drawn into declaring that reasonable VAT guidance is given to organisations. VAT in ways that are deemed unnecessary. However, we As we have previously discussed in Committee, people would caution against adding any further complexity can only pay the correct tax if they understand how the for businesses, given the warnings I mentioned earlier. tax system works. If they do not have the appropriate Therefore, it needs to be backed up by proper guidance guidance, it is difficult for them to ensure that they pay and advice through an adequately staffed and resourced the right VAT. HMRC. It is clear that the Government and HMRC are Even as someone who used to work in corporate law, falling short in the information that they communicate I found sifting through the changes to articulate them to the companies and organisations that are expected to to the Committee quite a challenge. It would be a big jump through these hoops. It would be useful if the ask for someone to try to do that while running a Government looked at that and ensured that they improve business day to day. Stakeholders have also raised the the information they are providing to companies and issue of complexity in the practical application, which organisations, so that they can better understand their particularly applies to making sure that those in the liabilities and how to comply with them. chain know where they are in it, especially where that Lastly, in relation to discussions around the Taxation relates to an end user for tax purposes, so it is clear who (Cross-border Trade) Act 2018, the hon. Member for is responsible for VAT accounting. Stalybridge and Hyde mentioned the changes from 219 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 220 making tax digital and the impact of that on companies sector supply chains. As announced at autumn Budget that are finding it more difficult to navigate the system. 2017, the Government are introducing a VAT reverse Another possible impact, depending on what happens charge for specified construction services, which is due with any withdrawal agreement, is that move from to come into effect from 1 October 2019. acquisition VAT to import VAT, which would also have This measure will help to tackle the problem of a significant impact on companies, because they would organised criminal gangs fraudulently creating or taking have to pay significantly more money to allow them to over companies in the sector to steal VAT and income do things differently. tax, known as missing trader fraud. Under reverse I was pleased that the Government moved on that charge accounting treatment, the customer, if VAT point after sustained pressure on them through the registered, is responsible for settling VAT with HMRC. passage of the Taxation (Cross-border Trade) Bill. I As a result, suppliers cannot get the tax due and hence appreciate that they agreed to put in place a deferment cannot steal it. However,there is currently an anti-avoidance scheme in the event of no deal; that is positive. However, provision in the primary legislation for VAT reverse we do not yet know what the deal will look like. Could charges, which requires businesses that purchase supplies we have more commitment from the Government about subject to a VAT reverse charge to include those purchases smoothing that path, if there is to be change from as part of their turnover for VAT registration purposes. acquisition to import VAT? Obviously I would rather there was no change and we Reverse charges apply only to supplies to other VAT- all stayed in a customs and VAT union, with common registered businesses.Therefore, this provision was designed VAT as the preferred option. If there is to be any to prevent fraudsters from avoiding reverse charges, change, will the Government reassure us that companies especially on mobile phones, by instead charging VAT that will be provided with as much support as they can, to small unregistered businesses before going missing. in order to make that change without the cash-flow The current anti-avoidance provision has the effect of impact suggested by organisations such as the British making unregistered businesses purchasing supplies covered Retail Consortium? by the reverse charge registrable for VAT sooner. The construction sector has many businesses legitimately Mel Stride: Before I get into more general points on trading close to, but below, the VAT threshold. The the clause, I will turn to some specific issues raised by current anti-avoidance provision could therefore push Members, starting with the hon. Member for Aberdeen some legitimate small businesses over the VAT threshold North. I entirely take her points about the distinction and increase the burdens placed upon them. Clause 50 between her and my hon. Friend the Member for Aberdeen will amend the VAT Act to allow future VAT reverse South. The differences are quite stark in all respects, charge statutory instruments, including one for the though I am not sure to whose benefit that is. construction sector,to waive this anti-avoidance provision. The hon. Lady is entirely right to suggest that we That means that unregistered businesses will not have to need good guidance on these issues. I should point out add purchases of construction supplies subject to the that a primary focus of the proposed change is to reverse charge to their turnover for the purposes of ensure that we do not, under the existing arrangements, VAT registration, thereby limiting the impact of the have a number of construction companies falling due to reverse charge on small businesses. VAT and going over the threshold. That does bring Disabling this provision in the construction sector unwanted complexity for those who would not otherwise will not have an impact on the effectiveness of the be in that situation. It is worth bearing in mind that the reverse charge, because builders are unlikely to be involved reason behind the measure is trying to avoid drawing in the sort of supply chains that feature in large-scale ever more businesses in that sector into the VAT regime. missing trader fraud in construction. However, the The hon. Lady also reminded us of the discussions Government do not wish to remove the provision in its that we had at length on the Taxation (Cross-border entirety, as it may be beneficial for other sectors subject Trade) Bill, when most of us were all together. to missing trader fraud. Amendment 92 would require that, whenever the Peter Dowd (Bootle) (Lab): Happy days. Treasury makes use of the Government’s proposed new power to disapply the anti-avoidance provisions in Mel Stride: Happy days. I thank the hon. Member for section 55A(3) of the VAT Act, it would also publish a Aberdeen North for her positive comments about the statement setting out the number of traders expected to position that the Government have taken on acquisition benefit from being relieved of the burden to register for VAT as opposed to import VAT, and extending that—at VAT as a result, and the impact of the VAT reverse great cost to the Exchequer, of course—to all external charge and the disapplication of the anti-avoidance trading arrangements, whether with the EU27, as they provisions on the supply chain in the sector that they will become, or the rest of the world. target. The Government have closely considered the It is worth making a general comment on the VAT amendment, but ultimately deem it unnecessary.Whenever gap, which featured prominently in the contribution a Treasury order is made to require the use of a VAT from the hon. Member for Stalybridge and Hyde. That reverse charge in a particular sector, HMRC publishes a gap has fallen from 12.5% under his party in 2005-06 to tax information and impact note as a matter of course. 8.9% on the latest figures. That is a pretty significant This note will highlight the scale of the reverse charge’s drop in relative terms across that period. Clause 50 amends expected impact in terms of numbers of traders who the anti-avoidance provisions in section 55A(3) of the will be affected and whether the anti-avoidance provisions Value Added Tax Act 1994, which will enable effective will apply, and outline how the changes will help to implementation in October 2019 of the VAT reverse disrupt fraudulent supply chains operating in that sector. charge to combat missing trader fraud in construction This publication is more than sufficient for the purposes 221 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 222

[Mel Stride] Tax Act 1994, introducing new section 51B, 51C and 51D and new schedule 10B. These clarify the VAT rules sought by amendment 92. I urge the Committee to for postage stamps and set out new rules for the VAT reject the amendment, and I commend clause 50 to treatment of vouchers issued after 1 January 2019. the Committee. Question put, That the amendment be made. Members of the Committee will be familiar with The Committee divided: Ayes 9, Noes 10. tokens—for example, those used in the purchase of books—but the world of vouchers has expanded Division No. 24] significantly in recent years. The UK vouchers market is AYES now estimated to be worth about £6 billion a year. As Black, Mhairi Lewis, Clive well as the traditional use of vouchers as Christmas presents, vouchers now play a large part in business Blackman, Kirsty Reynolds, Jonathan Charalambous, Bambos promotion programmes and staff incentive schemes, Dodds, Anneliese Smith, Jeff which rely heavily on complex distribution systems using Dowd, Peter Sobel, Alex electronic, plastic and internet-based products, as well as the traditional paper voucher. Some businesses issue NOES and redeem their own vouchers, whereas others issue vouchers to be redeemed by others. VAT law has been Afolami, Bim Lamont, John Badenoch, Mrs Kemi Stride, rh Mel slow to adapt to these changes. This new law modernises Ford, Vicky Syms, Sir Robert the rules and introduces a simpler system. Jenrick, Robert Whately, Helen Keegan, Gillian Whittaker, Craig Anneliese Dodds: The Minister is extolling the virtues of vouchers and noting how innovative many of the Question accordingly negatived. company schemes that use them are, but why are the Clause 50 ordered to stand part of the Bill. Government still committed to removing individuals’ capacity to benefit from childcare vouchers? Clause 51 Mel Stride: I think that issue may be outside the TREATMENT OF VOUCHERS scope of the clause, tempted though I am to be drawn Question proposed, That the clause stand part of the into the issue of childcare and vouchers. The hon. Lady Bill. will have noted the delay that we implemented in that respect, to make the transition that little bit easier for The Chair: With this it will be convenient to discuss some of those who might have been impacted. the following: That schedule 16 be the Sixteenth schedule to the The clause transposes new EU law, which we pressed Bill. the European Commission to introduce, to help combat tax avoidance. The new law has to be in place by New clause 8—Review of Schedule 16 provisions on 1 January 2019 and the Provisional Collection of Taxes voucher circulation and distribution— Act 1968 will give the measure effect until Royal Assent “(1) The Chancellor of the Exchequer must commission a of this Finance Bill. review of the expected impact of the provisions of Schedule 16 on the circulation and distribution of vouchers in— From a VAT perspective, vouchers are unexpectedly (a) the United Kingdom, and complex. That is because, for one payment, a buyer gets (b) the European Union. two things: a voucher and an underlying good or service. (2) A report of the review under subsection (1) must be laid Without special rules, we risk taxing twice: once for the before the House of Commons within 3 months of the passing of voucher and a second time for the underlying supply. this Act.” Gift vouchers could be used to buy products with This new clause requires a review of how the provisions in Schedule 16 different VAT rates. It is therefore often difficult to affect voucher circulation and distribution. apply VAT at the time the gift voucher is bought. New clause 9—Review of potential divergence of VAT Furthermore, gift vouchers are now often sold at a treatment of vouchers— discount to the face value, via distributors to businesses, “(1) The Chancellor of the Exchequer shall commission a which give them away for free in business promotion review that will consider the potential public revenue, and other or staff incentive schemes. It is then not always clear to impacts, if domestic law regarding the VAT treatment of the shop accepting the voucher exactly what has been vouchers were to diverge from European Union law. paid. (2) A report of the review under subsection (1) must be laid before the House of Commons within 3 months of the passing of Finally, trading vouchers across borders resulted in this Act.” problems of double and non-taxation, as different countries The provisions of Schedule 16 transpose Council Directive (EU) have different rules. The changes made by clause 51 and 2016/1065. This new clause requires a review of the revenue effects of diverging from EU law on the VAT treatment of vouchers. new schedule 16 will standardise these rules. First, the legislation specifies the type of voucher covered. Quite a few things nowadays look similar to vouchers, but are 3.15 pm not recognised as vouchers under the VAT system—for Mel Stride: Clause 51 and schedule 16 make changes example, the type of card many of us store money on to to ensure that we can properly collect VAT when purchases go on holiday or give to our children. We are not talking are made using vouchers. It amends the Value Added about vouchers that are totally free from when they are 223 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 224 issued to when they are used to buy something, such as impact—no taxation at all. I therefore ask the Committee discount vouchers found in magazines or toothpaste to reject the new clauses, and I commend the clause and money-off tokens. the schedule 16. The legislation identifies two distinct types of voucher and sets out specific VAT treatments for each. If we Jonathan Reynolds: I begin with a word of apology to know what the voucher can buy and where, that can be the hon. Member for Aberdeen North for mixing up my charged at the point of issue and at any subsequent Aberdeen constituencies. I can only say to her that in a transfer of a voucher through its distribution network. former Parliament a former Member for Aberdeen If these details are not known at the time of issue, South and I were both shadow Energy Ministers, and because it is a general gift voucher, we must wait until it that at some level I must be missing him and I cannot is used to be able to apply the correct VAT. Therefore, bring him back. However, that is no excuse for mixing the law identifies single-purpose vouchers, such as a up the two parts of Aberdeen. traditional CD token that can be used only to buy CDs, Clause 51 relates to gift vouchers and the transposition which are limited to specific products, and multi-purpose of an EU Council directive clarifying the consistency of vouchers, such as a WHSmith gift voucher, which can treatment of vouchers. I thought that this was more be used to buy many things,. interesting than it sounded in the explanatory notes; the To avoid charging VAT twice, single-purpose vouchers Minister has done a very good job on that. As he said, are subject to VAT throughout distribution, but no VAT this Christmas, when people are out shopping, not is charged on redemption. In contrast, multi-purpose many of our fellow citizens will understand that vouchers vouchers are VAT-free through distribution, but are pose a challenge to HM Treasury in charging VAT, subject to VAT at redemption. For the multi-purpose because when a customer buys a voucher, should we voucher, the redeemer—the shop—must account for charge the VAT on that, or should we charge it when VAT. If they know the amount paid for the voucher, they spend the voucher? they should account for the VAT on that value. If they As the Minister said, the discrepancy is further do not know the amount paid, they should account for complicated because there will be some stores that sell VAT on the face value of the voucher. gift vouchers that then offer zero-rated VAT items, such Because the activities of any distributor of multi-purpose as children’s clothes. I understand that there have been vouchers are disregarded for VAT purposes, there will mismatches in the way that different member states be certain restrictions on the extent to which they can have approached these questions, and that this situation reclaim VAT incurred on related costs. I hope that the has potentially led to double taxation or no taxation at Committee is following this very closely, because it is an all across borders. That is the background to the extremely important series of elaborations on how these introduction of the EU vouchers directive agreed in vouchers work. HM Treasury and HMRC have consulted June 2017. with the relevant businesses represented, and HMRC The Minister outlined the new regime of single-purpose will be clear in guidance on how the rules will work. vouchers and multi-purpose vouchers; I do not think that anyone wants me to repeat that. However, it makes The two new clauses would require two reviews by sense that there is clarity on vouchers, finally, and that the Government within three months of the passing of the risk of there being either double taxation or intra-EU the Act. New clause 8 concerns the impact of the taxation is avoided. provisions on the circulation and distribution of vouchers in the UK and the EU. New clause 9 concerns potential However, professional bodies have raised a number revenue and other impacts that could arise if UK law of issues, which I would appreciate some further detail were to diverge from EU law. from the Minister on. It is my understanding that there is still no new guidance available from HMRC on this Collecting VAT when vouchers are used is always measure, even though implementation is from 1 January complex, and it will inevitably take some time for the 2019. As I mentioned in relation to the previous clause, new rules to bed in. Throughout the negotiations about VAT is a complex and time-consuming area for businesses, the changes in the underlying EU law, the Government so they need as much advice and notice about it as were in regular contact with the UK businesses affected possible. The timing of this implementation, in January, by the changes, and it was generally felt that this option will also coincide with one of the peak times of the year was the best of the various options identified. Officials for voucher redemption—hopefully, all of us will get a have worked hard with businesses to ensure as smooth a voucher for Christmas—and that could create a further transition as possible, and HMRC has offered to be burden. Gift vouchers are an important part of revenue pragmatic as businesses get to grips with the new system. for UK businesses. I can reassure the Committee that the Government This is a very challenging time for the high street, so will continue to monitor the effects of the change and the Opposition are mindful that we do not want to other developments in this area, including impacts on create any additional administrative barriers for smaller revenues. With regard to divergence from EU law, it is shops as they develop their businesses. As the Chartered far too early to consider such impacts, given that we do Institute of Taxation has highlighted, shops will need to not yet know the future agreement with the EU and be able to identify the date of purchase for vouchers, to what it will look like in respect of the VAT system more assess whether they need to declare VAT, given that the generally. However, I stress to the Committee that a key rules will be changing. It is surely important, therefore, advantage of this measure is to ensure a level playing that they receive as much support as possible from field across the EU, so that UK businesses are not HMRC through the process and receive as much guidance disadvantaged by different rules in other EU member as they can. Those technical details are a concern, and I states, which they would need to understand and which would appreciate further context from the Minister on could result in double taxation or—in terms of Exchequer how they might be mitigated. 225 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 226

[Jonathan Reynolds] Clause 52

Clause 51 also raises a wider issue, given that it relates GROUPS: ELIGIBILITY to the transposing of EU laws into the UK and our future compliance with EU VAT regulations. Historically, Question proposed, That the clause stand part of the it has not been possible for the UK to fully diverge from Bill. the EU on setting rates for VAT. VAT revenues to the Exchequer are a crucial part of the UK’s tax landscape, The Chair: With this it will be convenient to discuss and we need to know how crashing out without a deal the following: or abruptly pulling out of the customs union will affect Amendment 93, in schedule 17, page 305, line 28, at how we set VAT rates in future. That is why Labour has end insert— tabled new clauses 8 and 9, in relation to schedule 16, which is associated with this clause. New clause 8 would oblige the Government to “PART 3 “commission a review of the expected impact of the provisions of Schedule 16 on the circulation and distribution of vouchers in— REVIEW (a) the United Kingdom, and “16 (1) The Chancellor of the Exchequer shall commission a (b) the European Union.” review on the impact of the provisions in this Schedule on the number of individuals and businesses entering into VAT groups. Vouchers are an important part of business for UK (2) A report of the review under sub-paragraph (1) must be retailers. As we leave the EU, questions should be raised laid before the House of Commons before 1 April 2020.” about whether this decision on compliance will still This amendment requires a review of the impact of this measure on the work best for both sides, as it has been drafted on the number of individuals and businesses entering into VAT groupings for basis that the UK is a member of the customs union. the purpose of tax planning, and for that review to report by the end of Given that circumstances will change quite dramatically the tax year 2019-20. in future, we must be mindful of how this will impact on Amendment 94, in schedule 17, page 305, line 28, at ongoing changes. end insert— Subsequently, new clause 9 mandates the Government to produce a review of the potential divergence from “PART 3 EU policy of the VAT treatment of gift vouchers, so that we can properly assess its implications. Supporting REVIEW our high street in today’s challenging environment is a priority for all of us. I therefore urge Members to vote “16 (1) The Chancellor of the Exchequer shall commission a review on the potential revenue changes if domestic law were to for our new clauses, to make sure that we create the best diverge from European Union law in relation to VAT groups. possible taxation framework for vouchers and help our (2) A report of the review under sub-paragraph (1) must be retailers to succeed. laid before the House of Commons within 3 months of the passing of this Act.” Mel Stride: I will be brief, but will hopefully answer This amendment requires a review on the potential revenue changes if domestic law were to diverge from European Union law in relation to the questions that the hon. Member for Stalybridge and VAT groups. Hyde has posed. First, as regards guidance, these measures That schedule 17 be the Seventeenth schedule to the were consulted on widely with UK businesses and Bill. stakeholders, and HMRC has recently shared draft guidancewithstakeholdersforcomment.HMRC’sguidance was published yesterday, so that is now in the public Mel Stride: Clause 52 makes changes to the Value domain. Of course, if the hon. Gentleman has any Added Tax Act 1994 to allow certain non-corporate particular observations on that, I would be happy to entities such as partnerships and individuals to join a take representations from him. The Government have VATgroup.VATgrouping is an important VATaccounting also given businesses advance notice of the changes. A simplification for UK businesses. It allows companies consultation document was published last December, within the same corporate group to operate under one HM Treasury and HMRChave been in constant discussion VATregistration and submit a single VATreturn. Members with businesses, and we published the draft legislation of a VAT group can share goods and services with each last July on L-day, with an impact assessment last other without the need to account for VAT. This helps month. businesses operate effectively and saves time and resource, for both businesses and HMRC. My final point relates to the hon. Gentleman’scomments Clause 52 will simplify VAT accounting arrangements about future VAT arrangements in the context of our for many UK businesses and ensure that the UK’s VAT departure from the EU. Of course, at this stage, we do grouping rules operate effectively. It is up to the UK not know exactly what those will look like. However, Government to determine how VAT grouping rules the Government have made a general statement that we operate, to ensure that they work effectively for UK are seeking to have arrangements that are broadly in businesses. They must adhere to EU VAT principles line, so that we do not have very dramatic changes when when doing so. Following a judgment of the Court of we depart from the European Union. Justice of the European Union in 2016, HMRC held a Question put and agreed to. consultation to determine which entities should be eligible to join VAT groups. HMRC listened carefully to the Clause 51 accordingly ordered to stand part of the Bill. representations made during this consultation and held Schedule 16 agreed to. detailed discussions with VAT expert stakeholder groups 227 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 228 to ensure that the changes to VAT grouping rules work challenge of the physical presence test be monitored for businesses and HMRC, including publishing draft and policed? That is especially pertinent given HMRC’s legislation in July this year. constrained resources. The changes made by the clause will help reduce VAT Equally, it is important to understand how ongoing accounting burdens for many businesses. Under current eligibility for partnership will be assessed. Questions rules, only corporate bodies can join a VAT group. We that need to be answered include whether there should will amend the Value Added Tax Act 1994 to allow be an annual declaration or tick box on the VAT return non-corporate entities such as partnerships or sole traders to encourage regular self-assessment. Will VAT groupings to join a VAT group, where those entities control all be cross-referenced with partnership or sole trader tax other members of the VAT group. Although these changes returns within that group to ensure accuracy? Another will bring administrative benefits for businesses, it is issue raised by the Chartered Institute of Taxation is important that the rules are not misused, so we will whether partnership and sole trader tax registration update existing anti-avoidance rules via a statutory details should be used to tag and monitor which instrument to ensure that no taxpayers use VAT grouping partnerships or sole traders were within a VAT group, to avoid VAT. The changes made by the clause are both for HMRCadministration and for taxpayers’reference expected to have a negligible impact on the Exchequer. when dealing with such entities and checking VAT Amendments 93 and 94 would require the Chancellor registrations. to commission a review on the impact of these changes The Government’s 2017 consultation document stated: to individuals and businesses and a further review on “The government recognises that any widening of grouping the UK tax revenue impact of any future divergence will come with a revenue cost unless it excludes businesses that from EU VAT grouping rules. The Government do not make exempt supplies. This is not something that the government intend to accept these amendments. The VAT grouping is planning to do, so any potential change must be assessed to changes have been made following extensive consultations fully understand the effect on UK revenue.” by HMRC. HMRC’s response to the consultation was I appreciate that the Minister’s comments appeared to published in December 2017. contradict that, but that also appears to be contradicted With respect to a review of the UK tax revenue by the wording in the consultation document last year. impact of any future divergence from EU VAT grouping The consultation also says: rules, it is worth noting that although the UK must “Whilst we agree that there may be implications with joint and follow EU VAT law principles, the UK Government several liability for certain entities, the government has no immediate already have the ability to tailor UK VAT grouping plans to make any changes to joint and several liability rules.” rules to our own specifications. If any future changes Can the Minister confirm that both statements still are made to UK VAT grouping rules, they will of course apply 12 months later, and that there is no intention to receive parliamentary scrutiny at that time. I do not change joint and several liability rules now or widen consider, therefore, that either of the proposed reviews grouping in a way that impacts on revenue? is required. Ensuring compliance and that revenue is fully collected must be our priority. It is noted that, in the 2017 3.30 pm consultation, the majority of respondents agreed with HMRC’s view that an entity could be excluded to Jonathan Reynolds: I will speak briefly to clause 52, prevent evasion, avoidance and abusive practices. However, schedule 7 and our related amendments.As the explanatory given the large VAT gap in the UK, the Opposition notes say, UK VAT grouping already allows for two or believe we must be vigilant to any potential opportunities more bodies corporate, such as limited companies or that arise that can be exploited with regard to VAT limited liability partnerships, to register collectively as a treatment by incentivising individuals or businesses to VAT group if they are both established in the UK and enter into groups for tax purposes when they might not under common control. Their VAT return is considered otherwise have done so. That is why Labour has tabled as one and, therefore, supplies between the individual amendment 93; I encourage Committee members to subsidiaries are disregarded for tax purposes. vote for it. It mandates the Government to commission However, a judgment from the European Court of a review on the impact of provisions made on the Justice in September 2015 on a case relating to a shipping number of individuals entering into VAT groups for the company widened this definition beyond bodies corporate. purposes of tax planning by the end of the tax year After consultation, this has been extended to a wider 2019-20. That will help us to identify quickly whether a definition, including non-corporate entities such as distorting effect has been created by the legislation. partnerships and individuals that have a business The second, wider issue in relation to the clause and establishment in the UK and control a body corporate. schedule is how our own changes in VAT legislation will We are awaiting further guidance from HMRC in be impacted by our departure from the EU.Amendment 94 relation to non-corporate entities, which we are told by would require a review of the potential revenue changes the Government will be published after Royal Assent. if domestic law were to diverge from EU law in relation Outstanding issues remain that the guidance will urgently to VAT groups. As we outlined when discussing clause 51, need to address. The Chartered Institute of Taxation, we must take stock of the full impact as the Government which has been helpful in providing briefings on the propose our departure from the customs union. That VAT-related issues in the Bill today, has outlined a will have a huge bearing on how we collect VAT, and number of these questions already. We need to know potentially VAT revenues, if we choose to deploy flexibility whether partnerships could have partners that were in what we do and do not accept. This measure is no both UK and non-UK resident, and whether a partnership exception and for the purposes of scrutiny it is critical that had UK business premises with entirely non-resident that we have a full understanding of its impact on partners would be eligible. How would the ongoing the UK. 229 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 230

Kirsty Blackman: It is not our position that the UK PART 3 should leave the common VAT area, but we support both Labour amendments, because it is sensible that we REVIEW have more information about all these provisions, so 16 (1) The Chancellor of the Exchequer shall commission a that the House can take better-informed decisions. review on the impact of the provisions in this Schedule on the number of individuals and businesses entering into VAT groups. (2) A report of the review under sub-paragraph (1) must be Jonathan Reynolds: I am extremely grateful for the laid before the House of Commons before 1 April 2020”. hon. Lady’s intervention and entirely agree with it. —(Jonathan Reynolds.) On the access of financial services to the single market This amendment requires a review of the impact of this measure on the once we leave the EU, under the terms of what the number of individuals and businesses entering into VAT groupings for Government have negotiated—that single market access the purpose of tax planning, and for that review to report by the end of will almost certainly be denied unless the equivalence the tax year 2019-20. provisions prove adequate, although most people expect The Committee divided: Ayes 9, Noes 10. them not to be—the Government’s advice to firms in Division No. 25] the UK is to set up subsidiaries in the EU. It was reported to me in meetings yesterday in the City that AYES there is concern that when those subsidiaries are created, the connected UK entities will not be able to enter VAT Black, Mhairi Lewis, Clive groups in the UK, which would therefore trigger a Blackman, Kirsty Reynolds, Jonathan substantial tax liability in order for firms to comply Charalambous, Bambos Dodds, Anneliese Smith, Jeff with the Government’s own advice on market access to Dowd, Peter Sobel, Alex the EU. The Minister may not be able to answer that now, but I want to put it on the record. NOES I call on all Committee members to support both amendments today so that we can get a clear and full Afolami, Bim Lamont, John picture of the wider impact of the measures on the Badenoch, Mrs Kemi Stride, rh Mel future VAT policy approach outside the EU and on Ford, Vicky Syms, Sir Robert Jenrick, Robert Whately, Helen closing our own VAT gap here in the UK. Keegan, Gillian Whittaker, Craig Mel Stride: The hon. Gentleman raised a large number Question accordingly negatived. of questions, most of them very specific and quite technical, not least around the treatment of UK resident Amendment proposed: 94, page 305, line 28, at end individuals in the context of VAT grouping as opposed insert— to non-residents in a similar situation, where perhaps a business has—my terminology—a permanent establishment PART 3 here, but is run by non-residents. He also made various points about the administration of VAT groups. I will REVIEW write to him about those issues and the other points he 16 (1) The Chancellor of the Exchequer shall commission a raised in that part of his contribution. He asked a review on the potential revenue changes if domestic law were to specific question about whether we are updating joint diverge from European Union law in relation to VAT groups. and several liability rules for these changes. The answer (2) A report of the review under sub-paragraph (1) must be is that we are not. HMRC will continue to monitor the laid before the House of Commons within 3 months of the rules, of course, to ensure that they work effectively for passing of this Act.” —(Jonathan Reynolds.) UK businesses. This amendment requires a review on the potential revenue changes if domestic law were to diverge from European Union law in relation to The final point that the hon. Gentleman raised related VAT groups. to our future relationship with the European Union. His specific question, as I understand it, was about The Committee divided: Ayes 9, Noes 10. compliance with the financial services arrangements Division No. 26] that might be in place once we have left the European Union: if, as a consequence of that, a UK financial AYES services business had a subsidiary or another operation Black, Mhairi Lewis, Clive within the EU27 as opposed to here, would that prohibit Blackman, Kirsty Reynolds, Jonathan that particular operation from participating in a VAT Charalambous, Bambos group with the UK domicile concern? I have absolutely Dodds, Anneliese Smith, Jeff no idea what the answer to that is, but I did at least Dowd, Peter Sobel, Alex understand his question and I am happy to look into it and get back to him. NOES Question put and agreed to. Afolami, Bim Lamont, John Clause 52 accordingly ordered to stand part of the Bill. Badenoch, Mrs Kemi Stride, rh Mel Ford, Vicky Syms, Sir Robert Jenrick, Robert Whately, Helen Schedule 17 Keegan, Gillian Whittaker, Craig

VAT GROUPS: ELIGIBILITY Question accordingly negatived. Amendment proposed: 93, page 305, line 28, at end insert— Schedule 17 agreed to. 231 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 232

Clause 53 Peter Dowd: I am delighted to see you in the Chair, Ms Dorries. Clause 53 provides for an increase in line with inflation based on the retail prices index in the RATES OF DUTY ON CIDER, WINE AND MADE-WINE rates of excise duty charged on all wine and made-wine with a strength at or below 22% alcohol by volume— Peter Dowd (Bootle) (Lab): I beg to move amendment 96, ABV—and sparkling cider and perry exceeding 5.5% ABV in clause 53, page 34, line 14, at end insert— but less than 8.5% ABV. The changes will come into effect on and after 1 February 2019. As we approach ‘(5) The Chancellor of the Exchequer must review the revenue effects of the changes made to the Alcoholic Liquor Duties Christmas, we felt it was important to scrutinise this Act 1979 by this section and lay a report of that review before the measure closely: poring over the matter, one might say. House of Commons within six months of the passing of The Government have ensured that enjoying a nice this Act.” glass of rouge by the fireside over a game of charades—they This amendment would require the Chancellor of the Exchequer to know a lot about charades—will cost a little bit more. review the revenue impact of the revised rates on cider and wine. Never fear though, we have tabled a number of amendments to clause 53 which I will address in turn. The Chair: With this it will be convenient to discuss It is important to note the context of the rates. Duties the following: on alcoholic drinks are forecast to raise £11.5 billion this year, split between beer and cider at £3.7 billion; wine Amendment 103, in clause 53, page 34, line 14, at end duties, £4.3 billion; and spirit duties, £3.5 billion. The House insert— of Commons Library provides us with a potted history ‘(5) The Chancellor of the Exchequer must review the of recent developments on the matter of excise duty, an expected effects on public health of the changes made to the area of strong interest to the great British public. Alcoholic Liquor Duties Act 1979 by this section and lay a report of that review before the House of Commons within one year of the passing of this Act.” This amendment would require the Chancellor of the Exchequer to 3.45 pm review the impact of the revised rates on cider and wine on public In his spring statement—the Budget—the Chancellor health. announced that excise duties for alcohol would be increased Clause stand part. in line with inflation with effect from 13 March. Provision Amendment 97, in clause 54, page 36, line 12, at end to set duty rates was made by the Finance Act 2017 and insert— introduced before the general election of happy memory. ‘(5) The Chancellor of the Exchequer must review the effect on In addition, the Government launched a consultation the cider industry of the changes made to the Alcoholic Liquor on options for reform, to ensure that duty rates better Duties Act 1979 by this section and lay a report of that review corresponded to alcoholic strength, specifically a new before the House of Commons within six months of the passing duty rate band to target cheap, high-strength white of this Act.” ciders, and a new lower-strength still wine band to This amendment would require the Chancellor of the Exchequer to encourage the production and consumption of lower- review the impact of Clause 54 on the cider industry. strength wines. Amendment 98, in clause 54, page 36, line 12, at end In the autumn Budget, the Chancellor confirmed insert— that the Government would introduce a higher-rate ‘(5) The Chancellor of the Exchequer must review the duty on white ciders from 2019, while duty rates on expected effects on public health of the changes made to the alcohol would be frozen. Freezing duties is estimated to Alcoholic Liquor Duties Act 1979 by this section and lay a report of that review before the House of Commons within one cost between £225 million and £240 million a year from year of the passing of this Act.” 2018-19, with provision to set the new duty rate band This amendment would require the Chancellor of the Exchequer to on white cider included in the Finance Bill introduced review the impact of Clause 54 on public health. after the autumn, “later this year”, as quoted. Amendment 99, in clause 54, page 36, line 12, at end That new provision for white cider is presumably insert— contained in clause 54, although we have some queries, ‘(5) The Chancellor of the Exchequer must review the which I will come on to. I would first like to note the expected effects in each part of the United Kingdom and each Government’s use of RPI in this instance. It would region of England of the changes made to the Alcoholic Liquor appear that the Government apply different inflationary Duties Act 1979 by this section and lay a report of that review indices to policies, depending on which would provide before the House of Commons within one year of the passing of them with either the most income or with the least this Act. expenditure. (6) In this section— There is a question of transparency. We have seen “part of the United Kingdom” means that with students forced to take loans indexed using (a) England, RPI, saddling them with significant debt. I suspect that (b) Scotland, makes the loan book more attractive. Meanwhile, RPI (c) Wales, and was scrapped in favour of the lower consumer prices (d) Northern Ireland; index for the indexing of public sector pensions, meaning our public sector workers are £12,000 worse off when “regions of England” has the same meaning as that used by the Office for National Statistics.” they retire. This amendment would require the Chancellor of the Exchequer to Will the Minister set out exactly why RPI was chosen review the impact of Clause 54 on different parts of the United as the appropriate index in this instance? The Office for Kingdom and regions of England. National Statistics recently described RPI as “a very Clause stand part. poor measure”, yet the Government still apply it to all 233 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 234 revenue-raising policies, which is strange. Perhaps the of the damaging and tragic effects of alcohol on children Government will add a cross-departmental review of in the womb through foetal alcohol syndrome. The inflationary indexation to the very long list of reviews report goes on to say: that make up much of their domestic policy agenda. No “Since 2008, there has been a drop in total alcohol consumption wonder they do not want to take any of our reviews; but there has not been a corresponding drop in the level of related I suspect they have enough of their own to be getting harms. The evidence review makes clear that alcohol-harm on with. disproportionately affects the poorest communities, even though on average they drink no more than more affluent groups.” For now, we should fully imbibe the implications of amendment 96 and make a sober judgment on whether Other findings suggest that the Government have taken the correct approach to this “most adults in England drink alcohol—more than 10 million issue. The amendment would require the Chancellor of people are drinking at levels that increase the risk of harming the Exchequer to review the revenue impact of the their health;5% of the heaviest drinkers account for one third of all alcohol consumed; alcohol is the leading cause of death raised rates on cider and wine. I have looked closely at among 15 to 49 year olds and heavy alcohol use has been the policy papers for the Bill and, once again, could find identified as a cause of more than 200 health conditions; alcohol no indication of the revenue that the Government hope caused more years of life lost to the workforce than from the to raise from the RPI-indexed inflationary increase.Perhaps 10 most common cancers combined—in 2015 there were 167,000 years the Financial Secretary would inform me about that; he of working life lost; the evidence strongly supports a range of might have a little bit more divine inspiration, as I move policies that are effective at reducing harm to public health while on. It could be that the Government are worried about at the same time reducing health inequalities—reducing the how the press might treat such a figure. Again, it is a affordability of alcohol is the cost effective way of reducing alcohol harm”. matter of transparency. We have been forced to raise the issue numerous times in our debates on the Bill; there is That evidence has to be considered in the context of a total lack of information [Interruption.] I am not that the Government’s long-standing policy of alcohol duty boring, am I? Give me a break. It is okay; it is better cuts and freezes. The House of Commons Library than the barracking I usually get. describes that in some detail, which I will not go into, I have referred to the “Better Budgets” report from but it is well worth having a look at the report. Those the Institute for Government and the Chartered Institute cuts, it is worth noting, come at some expense during a of Taxation, which makes clear the need for more time of austerity, and we cannot ignore the fact that information provided in good time. Once again, we are they could further contribute to the concerning picture being asked to spend hours and hours in Committee set out in the report by Public Health England. The scrutinising the barest sets of facts, with no hope of Economic Secretary indicated that there was a requirement meaningful amendment. That is why we have tabled an for evidence, but the evidence in this regard is resounding: amendment calling for a review, making a wholly a public health approach to alcohol duties will not only uncontroversial request for costings of the higher duties raise revenue for the Exchequer, but will reduce the that have been introduced. Sadly, the Government no harm caused by alcohol in our society. longer seem to be capable of providing that basic information, so I ask again: will the Minister provide us with costings for this measure, or commit to our review? Bambos Charalambous: My hon. Friend is making an excellent and, shall I say, spirited speech. Does he agree I will refer, if I may, to amendment 103, which I think that the Government have totally ignored the health we will debate in due course. That amendment, tabled effects of alcohol consumption in the way they have by the Scottish National party, would implemented alcohol duties? “require the Chancellor of the Exchequer to review the impact of the revised rates on cider and wine on public health.” That is a very important matter, and we would support Peter Dowd: It leads me to believe that the Government it; we have tabled a similar amendment. In December 2016, have not paid enough attention. That is why we want to Public Health England published a report on the public have a look at it in the round and why we want a review. health effects of alcohol consumption in the United Let us see the evidence. If the evidence indicates my Kingdom. That study found that hon. Friend’s contention as I think it will, we would “Alcohol is now more affordable and people are drinking more need to do something. than they did in the past. Between 1980 and 2008, there was a 42% increase in the sale of alcohol. Despite recent declines in Unfortunately, despite the move to begin to increase sales, as a nation we are still drinking too much, with over 1 duties on wine and cider as set out in clauses 53 and 54, million hospital admissions relating to alcohol annually. it seems that the Government’s policy on wider alcohol The economic burden of health, social and economic alcohol- duties reflects continuation rather than a break with the related harm is substantial, with estimates placing the annual cost to be between 1.3% and 2.7% of annual GDP. Alcohol related last eight years. Will the Minister confirm that it remains deaths affect predominantly young and middle aged people; as a the Government’s policy to increase only those alcohol result alcohol is a leading cause of years of working life lost” duties included in the clause and to freeze all those not in this country.Professor Kevin Fenton, National Director included? That being the case, does it not seem that the for Health and Wellbeing at Public Health England, has attempt in clause 54 to increase the price of mid-strength said: cider is a mere sticking plaster on the Government’s “The harm alcohol causes is much wider than just on the wider policy of ignoring the harm to the public’s health individual drinker. Excessive alcohol consumption can harm caused by cheap alcohol? In other words, when it comes children, wreck families, impact on workplace colleagues and can to applying this approach across all duties, it seems that be a burden and drain on the NHS and economy. It hits poor they bottled it. Could it be that they choose to grab a communities the hardest.” quick Budget headline once a year instead of taking an In fact, my hon. Friend the Member for Sefton Central evidence-based approach to alcohol harm like that adopted (Bill Esterson) has on many occasions raised the issue by the last Labour Government? 235 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 236

I question the logic of creating an additional rate of I will not be here on Thursday, so I will not have duty to ciders up to only 7.5% alcohol by volume. A much of an opportunity to quote Cicero. He identifies cursory look at the white cider market suggests that that drunkenness on wine, like disease, must be curbed. many of the products that the Government seek to He also said—I think he was referring to the Ministers—that make more expensive are currently listed at exactly the wise mind is always devoid of vice and never swells up. 7.5% ABV, which is the upper band of the new duty That will be their epitaph if they listen to me today. applied by the clause. Clearly, while those ciders would Finally, amendment 99 looks at the regional impacts be covered by the new band of duty, it would take only of the new duty. We know the cider industry in the UK an additional spoon of sugar, as the saying goes, to is concentrated in certain regions—west country scrumpy, push them up to 7.6% ABV, which is currently covered for example, Buckinghamshire and Herefordshire, the by the higher rate of duty that is applied to so-called Welsh seidr and even the Channel Islands, which have high-strength ciders. Would it not have been a better had a cider tradition stretching back to the middle ages. approach for the Government simply to reduce the In fact, the Minister in those days may have been lower band of excise applied to higher-strength ciders drinking that sort of Channel Islands cider. What work to ensure that that duty instead applied from 6.9% ABV has the Treasury done to assess the impact of changes all the way up to 8.8% ABV? Will the Minister expand to excise duty on production in those regions? That is on what logic has been pursued by the Government and important and another element of regional economies whether it might incentivise the industry to take more and regional disparities. Challenging the prevalence of decisive action to reduce the strength of their white white ciders may have a positive effect on some regional ciders or begin to diversify their products? manufacturers while others may suffer as a result. It is important to understand the changes if we are to continue Amendment 97 would require the Chancellor of the to support British cider producers across the areas I Exchequer to review the impact of clause 54 on the have mentioned and beyond. [Interruption.] Again, I am cider industry.The point is to see how far the Government having bad luck with people moving out of their chairs. have tried to work with industry to develop and implement It is a trend. a more public health-oriented approach to their products while minimising the impact such an approach has on Mel Stride: In 10 minutes you will be on your own. the industry. Peter Dowd: As long as that? Ten minutes? My word. Anneliese Dodds: Is my hon. Friend aware that there I should point out that, under a more active used to be a differential regime for small-scale cider Government—one not simply going through the producers, whose product was often of far greater quality motions—these measures would already have been taken than the kinds that are often linked to alcohol overuse? into account, acted upon and been on offer for proper That no longer exists, partly because of changes at EU scrutiny during this debate. Nevertheless, I hope the level. Surely we need to know more from the Government Minister will see the benefits of the review as set out in about what they are doing to support that part of the our amendment and agree that it is worth while—or industry as well as clamp down on the production of that Members will choose to support amendment 98 to very high-volume, high-alcohol product. see that it is implemented. That brings our amendment on this particular matter to a close. Cheers. Peter Dowd: My hon. Friend makes a pertinent point and I am sure the Minister was listening. What have the Kirsty Blackman: I rise to speak to amendment 103 in Government done to work with producers to transition the name of myself and my hon. Friend the Member for to less harmful products while protecting jobs and Paisley and Renfrewshire South, but I would also like to livelihoods? That could provide an opportunity for the speak a little more widely about the clauses and the industry to move into other cider products—perhaps Labour amendments. First, I would like to ask the those not so reliant on glucose and corn syrup and Minister a question about the post duty point dilution, using the cheaper pomace, all of which presumably add which was in the Red Book. Hopefully, can answer or to the negative health effects. I hope the Minister will get inspiration during the course of the debate. The speak to the work that the Government are getting on changes do not appear to be in the legislation, so it with in that regard. would be useful if the Minister could explain when the legislative changes to post duty point dilution will take 4 pm effect. I understand that the hope is that it will be put Amendment 98 would require the Government to into legislation to be enacted in April 2020, but it would review the public health effects of clause 54. I have be useful if we could have an idea of the legislative spoken about the links between alcohol and public process to ensure that those changes are made. I have health in relation to amendment 103. Amendment 98 been lobbied heavily on this by one of my constituents. I seeks to look at the measures set out in clause 54 in the know it is important to a lot of people and that the context of the Government’s wider policies on alcohol. Government have to their credit committed to making Is it enough to simply address mid-strength ciders while changes in the autumn Budget 2017. continuing to freeze wider alcohol duties? Will this have Returning to our earlier discussion, I am not clear much of an impact in the context of the Government’s what the Government are trying to do with the changes wider policies? That is what we hope to winkle out to alcohol taxation. Are they trying to incentivise good through this amendment and it will be an important behaviour; are they trying to disincentivise bad behaviour; exercise for the Government to undertake. If they are or are they trying to generate revenue for the Exchequer? committed to developing policy based on evidence, I do It is important for the Government to clarify that and not see why they would not wish to undertake such a accept the Labour amendment on the revenue impact review. It can only help to provide a clear picture. on the Exchequer and on public health. That would 237 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 238

[Kirsty Blackman] central to the community. One of the worst things that has happened over the past few decades is the number make a big difference, because we would be clear about of public houses that have closed, which has had a the Government’s intentions and what the Government material impact on many people and communities. This expect to achieve. is a matter of balance, and the Government may be On public health, people who want to get drunk wrong or they may be right, but I think they are more quickly often drink high-strength ciders. It is important likely to be right because their approach is more likely the changes focus on people who are not drinking for to secure jobs in the hospitality and brewing industries, pleasure in the main, but who are drinking to get as and to achieve a proper balance so that people can drunk as they possible can. Those are the alcohol enjoy a meal or a drink out. deaths we are trying to combat in Scotland with the new There is a serious alcohol issue, but the producers of minimum unit pricing we introduced, which is a clear wine and beer label things very clearly to show the and well-intentioned public health change. Minimum strength of alcohol. There is a strong “Drinkaware” unit pricing is all about making sure that high-strength campaign, so it is not difficult for people to find out the alcohols that can be bought very cheaply are increased impact of alcohol, but we know there is a hard core of in price, so that people cannot get hold of them as heavy drinkers, many of whom use A&Es and ambulances. easily. We predict that we will see a reduction in alcohol It costs about half a million pounds a year to keep an deaths as a result of the changes to legislation in Scotland. ambulance on the road, and many of them are What do the Government expect will be the impact of disproportionately used by people who abuse alcohol. their legislation, particularly the extreme impact on The focus, if there is any focus, ought to be on addiction people who are dying from alcohol misuse? What numbers services and trying to intervene with those who abuse do they expect to see as a result of the changes? If the alcohol rather than on the vast majority of people who Government accept Labour’s amendments, it would be enjoy a drink. useful if the review included the number of people The hon. Member for Bootle, in his amusing speech—we whom they expect to save so that we can measure them will miss him on Thursday when he is no doubt raising against that. a cheer to Cicero in whatever he is doing—noted that Lastly, it is important that the Government tax this the industry contributes substantially to the Treasury. stuff and increase the tax rates as inflation increases. We Some of those billions of pounds have to go to the NHS want the Government to take a step back and a holistic because of drinking, but the industry also generates look at the entire system and explain why they are a lot of money for good causes and things that the taxing things in the way that they are, rather than tweak Government need to provide. and bodge and make changes year on year, as often This is a matter of balance, and I think the Government happens in this place, so that we end up with something have it right. There may come a time when prices have that is unwieldy and does not fulfil the intentions of the to go up. If incomes start to rise more substantially—we Bill in the first place let alone the intentions of the hope that will be a factor in a few years and that there is world as we see it. Will the Minister provide answers? evidence that pay is picking up a bit—it may be time to review the taxes, but I think the Government have got Sir Robert Syms: The Government have sensible policies this one right. on this. We debated an amendment earlier today about securing jobs in the North sea when there are relatively Robert Jenrick: I gather there may be a vote in a few few jobs on oil rigs. The hospitality industry is one of moments’ time, but I will begin by addressing, in no the biggest employers in the United Kingdom. It is also particular order some of the points that have been very important for the tourist industry. The Government raised by the hon. Member for Aberdeen North. We are have been constantly keeping taxes under review to see interested in the Scottish and indeed the Welsh what gets a reasonable amount of income and what is Government’s actions on minimum unit pricing. It is fair for consumers. fair to say that the jury is still out on whether that has We also have to understand that we have been through been effective, but we will be watching with interest, as a difficult economic period and incomes have not risen will the Department of Health and Social Care and as much as one would like. One of the disadvantages of Public Health England, and that will inform the decisions putting up some of these prices is that it will affect not we take at future Budgets. middle class people, but some of those on the lowest The hon. Lady asked about post duty point dilution. incomes who have every right to enjoy a drink. I therefore This is an issue that she has rightly highlighted, and a think that the Government policy is perfectly sensible. number of the producers who are likely to be affected by this and who are based in the UK will no doubt be Kirsty Blackman: I agree that the hospitality industry asking the question she has asked. We intend to give is incredibly important, particularly to tourism. However, this further consideration and lay draft legislation on the oil and gas industry supports 135,000 jobs and is L-day next year, in the early summer of 2019, with a also very important to the livelihoods it supports. view to legislating on it in the autumn Budget 2019 and Sir Robert Syms: I am sure it is, but I suspect the its coming into force from April 2020. While I have hospitality industry is 10 times that. The other factor spoken to some of the small number of British producers about the drinks industry generally is that it is very who will be affected and I note their concerns, this is a regionally diverse, with the scotch industry in Scotland, question of fundamental fairness in the duty system. and wine, cider and beer producers. We all have Kirsty Blackman: Perhaps I did not express myself representations from the owners of breweries, which very well. My constituents are lobbying for the change employ people and are sometimes very important parts to be made; they are not lobbying against the change of the local economy. We have all had representations being made. I was asking when this would come in, from people who run public houses, which are also because they are hoping for it to come in. 239 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 240

Robert Jenrick: It is coming in as swiftly as possible, As the Minister responsible for these areas, I met a although because of the impact on the small number of range of stakeholders in advance of the Budget—not British manufacturers, we have given them some time at just those who produce alcohols, but those who campaign least—until April 2020—to make any adjustments they and are interested in alcohol-related harms, and I did might need to. the same for tobacco, for example, where there are, of My hon. Friend the Member for Poole advanced what course, similar concerns. We take those concerns on has been our approach to this issue—a nuanced one that board, and I believe that the Home Office and the helps those on low incomes to enjoy a drink, particularly Department of Health and Social Care are currently at Christmas time. We are concerned, as he is, about taking evidence on, and will publish next year, a new supporting the British pub industry. As he says, the alcohol harms strategy, which the hon. Gentleman or number of pubs has declined significantly.It is still declining, other Members might like to take part in. although it has stabilised somewhat in the last year or With respect to the hon. Gentleman’s question about so. We are taking a number of actions, including freezing why we chose not to reduce the band for high-strength duties where appropriate, to help to support them. cider, we wanted to encourage, as I think he does, My hon. Friend also made the point that the drink reformulation through a gradient of duty. It therefore industry has a significant regional element to it, whether seemed sensible not to tax 6.9% the same as 8.5%, but that is the Scottish whisky industry,which is very important to create an incentive for producers to reduce through a to particular regions of Scotland where large numbers series of different duty bands. That decision was taken of distilleries are clustered in small areas, such as Moray as a result of careful consideration and engagement or the areas around Aberdeen, or the cider industry in with the craft cider industry, which he and other hon. Herefordshire—where I grew up—and throughout the Members have mentioned, such as those producers in west country and Wales, which as we have heard has a Somerset and Herefordshire I met to listen to their particular resonance and supports local jobs. We have concerns. We wanted to limit the degree to which they taken a nuanced approach, but where there are particular would be adversely affected by the actions of larger interventions that we feel we need to make, as with producers of white cider. I think we all agree that it is white cider, we have made them and will continue to unfortunate that, in the course of taking action against make more in the future if that is required. producers of white cider, which carries health concerns, I now turn to the questions raised by the hon. Member we may inadvertently bring into the same rules those for Bootle in his entertaining speech. I hope, Ms Dorries, who produce craft ciders, which we all enjoy in pubs, that you did not have to reach for a stiff drink in the which have a particular importance to certain regions middle of it, although you might do by the time I have of the country and which employ people in the west finished. [Laughter.] Well, we are about to talk about country and so on. the retail prices index and the consumer prices index. As we have heard already, the clauses make changes to alcohol duty rates from 1 February 2019. It was 4.15 pm announced in the Budget that the duty on beer, spirits The Government have historically used RPI. We have and most ciders would be frozen this year. The duty committed to moving away from it, but we want to do rates on most wine and higher-strength sparkling cider so in a considered and coherent way, as it has a number will rise by inflation to generate funds to pay for vital of impacts elsewhere on the public finances, including public services. As we have heard, this industry contributes on gilts and pensions. Those impacts need to be considered a great deal to the cost of public services. The clauses carefully. We do that on a case-by-case basis as we make also set the new duty rate for mid-strength cider. decisions in Budgets. I will come to the amount that is With those changes, we continue to support the pub likely to be raised in a moment, but had we made the industry, which we believe play an incredibly important decision to freeze wine, that would have cost the Exchequer part in British cultural life. I think that view is shared about £150 million a year, so these are significant sums. across the House—during the Parliaments in which I I will come in a moment to a more detailed explanation have been in the House, it has been a cross-party matter. of what information is in the public domain. The hon. The British Beer and Pub Association estimates that Gentleman asked me specifically, and a great deal of approximately 30 million adults visit a pub at least once information in this area is published. Through Her a year, which clearly shows the significant role pubs Majesty’s Revenue and Customs we publish quarterly play in our lives and our communities. revenue receipts for each of the alcohol duty categories. Pubs are important community assets that promote At both the Budget and the spring statement, the Office responsible drinking and provide a place for people to for Budget Responsibility forecasts for the rest of the socialise, tackling a whole range of other issues, such as financial year. There is no shortage of information in loneliness. We therefore took the decision in the Budget the public domain in this area. I appreciate that that is to take further action to support the pub industry. Even not always the case, but I do not think that this area today, as pubs continue to diversify with products such requires further reviews or information. as food and gin, approximately half of all pub sales are The hon. Gentleman asked about alcohol-related of beer. It continues to play an essential part in pub harms, which we all care about. We want to take a revenue, so the Government have frozen the duty on a nuanced view. Just because we have, on occasion, frozen pint of beer, following on from the freeze in beer duty in some of the duty categories—in this Budget, we have our autumn Budget 2017. As a result of our action to done it for beer, spirits and cider, although not for wine support pubs, the price of a typical pint of beer is now —that does not mean that we are oblivious to those 14p lower than it would otherwise have been since the concerns. That area is led primarily by Public Health beer duty escalator ended in 2013. England and the Department of Health and Social I think the hon. Member for Bootle asked whether we Care. Welisten to them very carefully, and they contribute have a policy to freeze duties on beer, or on any other to our thinking as we approach every Budget. category, in the future. The answer is no. The Treasury 241 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 242 considers each duty on its own merits as we approach This amendment would require the Chancellor of the Exchequer to every Budget. There is no suggestion that the freezes in review the impact of the revised rates on cider and wine on public duties on beer, spirits or cider will necessarily continue health. in future Budgets, but they will be considered on their Question put, That the amendment be made. own merits. As we approach each Budget, those individual Question negatived. decisions will be determined by the arguments that we Clause 53 ordered to stand part of the Bill. have already heard about the cost of living, the importance to regional economies and the protection of pubs and Clause 54 ordered to stand part of the Bill. other community assets, as well as public health. CLAUSE 55 The Budget also froze the duty on spirits. As we have already heard, the Scotch whisky industry is one of the great British success stories. Scotch whisky exports were Rates worth more than £4 billion to the British economy in 2017, accounting for around 20% of food and drink Peter Dowd: I beg to move amendment 100, in exports in the same year. [Interruption.] I am not quite clause 55, page 36, line 30, at end insert— sure what that sound was—a different type of spirit? “(4) The Chancellor of the Exchequer must review the revenue [HON.MEMBERS: “Cicero.”] It could be the ghost of effects of the changes made to the Tobacco Products Duty Cicero rearing his ugly head again, rather than heading Act 1979 by this section and lay a report of that review before the straight to Bootle. House of Commons within six months of the passing of this The freeze on spirits duty means that the average tax Act.” on a typical bottle of Scotch is now £1.54 lower than it This amendment would require the Chancellor of the Exchequer to would otherwise have been since the spirits duty escalator review the revenue impact of the changes to the rates of excise duty on ended in 2014. Freezes on spirits duty are instrumental tobacco products. in encouraging investment in the sector. We have listened carefully to the stakeholders who campaigned for many The Chair: With this it will be convenient to discuss months leading up to the Budget and who made the clause stand part. important point that the Scotch whisky industry is essential to the Scottish economy on a range of levels, Peter Dowd: If hon. Members consult the Treasury’s from employment, innovation and exports to Scotch Red Book published with the Budget, they will see that whisky tourism, which alone is now worth £500 million tobacco duties account for £9.2 billion of revenue. That a year. The freeze on spirits duty will help elsewhere, relates to amendments 100, 101 and 102. It would too, including through support for British gin—a continuing therefore be accurate to describe tobacco duties as one success story that the Government are happy to back, of the Treasury’s most important revenue streams, as with production and exports breaking records every year few taxes have consistently contributed such a level of and forecast to continue doing so in the near future. revenue to the Exchequer, but there will be a fall. The The Budget also announced that the duty on most fall in the expected receipts from tobacco duties raises ciders would be frozen, meaning that a typical pint of questions about their long-term viability as a stable cider is now 2p cheaper than it would otherwise have source of revenue for the Exchequer. been since the cider duty escalator ended in 2014. As well as offering support to pubs, the freeze goes a long What is often overlooked in this discussion is where way to supporting the rural economies that we have the revenue raised from increasing tobacco duty actually spoken about. The decision to freeze was also influenced comes from, particularly given that smoking is no longer by a desire to support craft cider producers, who would as socially acceptable or widespread as it once was. In otherwise be inadvertently affected by changes elsewhere, 2016, those with an annual income of less than £10,000 as I have described. Duties on sparkling cider will were almost twice as likely to smoke as those with an increase by RPI in line with inflation. [Interruption.] annual income of £40,000 or more. To return to the Treasury forecasts for tobacco duties, 4.24 pm it is clear that tax receipts will inevitably fall victim to Sitting suspended for Divisions in the House. the success of smoking cessation programmes and the shifting demographics of those who smoke. Smoking 5.1 pm prevalence is highest among younger adults: almost On resuming— 20% of 16 to 34-year-olds smoke, compared with less than 11% of those aged 60 and over. However, younger The Chair: Mr Jenrick, did you want to finish your adults report lower levels of daily consumption. The point? House of Commons Library found that the prevalence of cigarette smoking tends to be higher in the north of Robert Jenrick: No, I am happy to proceed. England. For instance, almost 18% of those in Yorkshire and the Humber were smokers, compared with about PeterDowd:Ibegtoaskleavetowithdrawtheamendment. 14% in the south-west. That regional variation is quite clear and apparent. Amendment, by leave, withdrawn. Amendment proposed: 103, in clause 53, page 34, line 14, at Data on NHS stop smoking services in England end insert— shows that between April and December 2016, more than 200,000 people set a date to quit smoking and “(5) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the 50% reported successfully quitting at a formal follow-up. Alcoholic Liquor Duties Act 1979 by this section and lay a Those statistics clearly show that an increasing number report of that review before the House of Commons within one of people are quitting smoking, which will inevitably year of the passing of this Act.”—(Kirsty Blackman.) affect the revenue that the Exchequer receives from 243 Public Bill Committee 4 DECEMBER 2018 Finance (No. 3) Bill 244 tobacco duties. It looks as if the changes in clause 55 tobacco. The new tobacco duty rates will be treated as will exacerbate that, as cost is one of the greatest taking effect from 6 pm on the day they were announced, influences on people to give up smoking, besides health. 29 October, with the exception of the rate for tobacco The Tobacco Manufacturers Association has long for heating, which will take effect on 1 July 2019. complained that the UK’s rates of tobacco taxation are We recognise the potential interactions between duty higher than those of any other European country. It is rates and the illicit market. The Government have to be therefore hard to see how much bandwidth the Government careful not to raise rates too far and fast, as that might have for raising further taxes. exacerbate the illicit market. We included an important The Opposition welcome the fact that fewer people measure at the time of the Budget: the creation of a smoke today than even 20 years ago, but it is clear that UK-wide anti-illicit trade group, bringing in law the Treasury and Ministers need to begin to consider enforcement and representatives from the devolved the long-term viability of tobacco duties, and an alternative Assemblies, and building on the good work done by the source of revenue to replace the £9 billion a year they Scottish Government. We hope that that will mean we represent. Weare concerned that without forward planning, can take forward and intensify our efforts to tackle the the Treasury will not be equipped to handle the fall in illicit trade. tobacco receipts and will instead be forced to borrow Amendment 100 would place a statutory requirement money or, more likely, to pursue further austerity and on the Chancellor to review the revenue effects of changes cut public services that we rely on. We hope that the to tobacco duty, as we have just heard from the hon. Minister will take our request seriously and support the Member for Bootle. The Chancellor assesses the impacts Opposition’s proposal for a review, as well as considering of all potential changes in the Budget considerations the long-term stability of tobacco duties. every year. The tax information and impact note published The Opposition amendments to clause 56 would alongside the Budget announcement sets out the introduce a new excise on tobacco for heating, more Government’s assessment of the expected impacts. Detail commonly known as tobacco for vaping. on the revenue impacts is set out in the policy costings document, which is also published alongside the Budget. The Chair: Order. That is a separate debate, so the Both include the expected revenue impact to 2023-24. hon. Gentleman needs to move on to the substance of In addition, HMRC publishes a quarterly bulletin his amendment. covering all excise duty receipts. The information that the amendment calls for will already be in the public Peter Dowd: Okay, Ms Dorries. In relation to domain for Members to scrutinise. It is not an area that amendment 102, we would require the Government to requires further reviews and information, as there is no undertake a review of clause 56 and its impact on public shortage of information in the public domain. health. I take the hon. Gentleman’s point that, with the use of cigarettes declining, this is an area where we would The Chair: Order. Clause 56— expect revenues to fall in the years ahead. That is, of course, something that we take into account as we review duty rates for each fiscal event, with our two Peter Dowd: I accept the point that you are making, objectives, which I hope hon. Members will support: Ms Dorries. I have moved the amendment and laid out the primary objective is to protect public health, but the our overall position on tobacco revenues, and on that secondary one is to raise revenue to support vital public basis I shall not take up the Committee’s time further. services. I hope that I have reassured the Committee, and I ask RobertJenrick:Clause55implementschangesannounced that amendment 100 be withdrawn. in the Budget concerning tobacco duty rates. My right hon. Friend the Chancellor announced that the Government will increase tobacco duty in line with the escalator. The Peter Dowd: I beg to ask leave to withdraw the clause therefore specifies that the duty charged on all amendment. tobacco products will rise by 2% above RPI inflation. In Amendment, by leave, withdrawn. addition, duty on hand-rolling tobacco will rise by an Clause 55 ordered to stand part of the Bill. additional 1% to bring it to a total of 3% above RPI inflation this year. Clause 56 ordered to stand part of the Bill. The clause specifies with respect to the minimum Ordered, That further consideration be now adjourned. excise tax—the minimum amount of duty to be paid on —(Craig Whittaker.) a pack of cigarettes—that the specific duty component will rise in line with cigarette duty. It also sets the rate 5.12 pm for the new category of tobacco product, tobacco for Adjourned till Thursday 6 December at half-past Eleven heating, at the same rate applicable to hand-rolling o’clock. 245 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 246

Written evidence reported to the House FB01b Association of Taxation Technicians (clauses 79 FB02d Chartered Institute of Taxation and 80: Time limits for assessments, etc) (clauses 50 to 52 – VAT) PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT GENERAL COMMITTEES

Public Bill Committee

FINANCE (NO. 3) BILL

(Except clauses 5, 6, 8, 9 and 10; clause 15 and schedule 3; clause 16 and schedule 4; clause 19; clause 20; clause 22 and schedule 7; clause 23 and schedule 8; clause 38 and schedule 15; clauses 39 and 40; clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 and schedule 18; clauses 68 to 78; clause 83; clause 89; clause 90; any new clauses or new schedules relating to tax thresholds or reliefs, the subject matter of any of clauses 68 to 78, 89 and 90, gaming duty or remote gaming duty, or tax avoidance or evasion)

Seventh Sitting

Thursday 6 December 2018

(Morning)

CONTENTS

CLAUSES 57 TO 59 agreed to. Adjourned till this day at Two o’clock.

PBC (Bill 282) 2017 - 2019 No proofs can be supplied. Corrections that Members suggest for the final version of the report should be clearly marked in a copy of the report—not telephoned—and must be received in the Editor’s Room, House of Commons,

not later than

Monday 10 December 2018

© Parliamentary Copyright House of Commons 2018 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 247 Public Bill Committee 6 DECEMBER 2018 Finance (No. 3) Bill 248

The Committee consisted of the following Members:

Chairs: MS NADINE DORRIES, †MR GEORGE HOWARTH

† Afolami, Bim (Hitchin and Harpenden) (Con) † Lewis, Clive (Norwich South) (Lab) † Badenoch, Mrs Kemi (Saffron Walden) (Con) † Reynolds, Jonathan (Stalybridge and Hyde) (Lab/ † Black, Mhairi (Paisley and Renfrewshire South) Co-op) (SNP) † Smith, Jeff (Manchester, Withington) (Lab) † Blackman, Kirsty (Aberdeen North) (SNP) † Sobel, Alex (Leeds North West) (Lab/Co-op) † Charalambous, Bambos (Enfield, Southgate) (Lab) † Stride, Mel (Financial Secretary to the Treasury) † Dodds, Anneliese (Oxford East) (Lab/Co-op) † Syms, Sir Robert (Poole) (Con) Dowd, Peter (Bootle) (Lab) † Whately, Helen (Faversham and Mid Kent) (Con) Ford, Vicky (Chelmsford) (Con) † Whittaker, Craig (Lord Commissioner of Her † Jenrick, Robert (Exchequer Secretary to the Majesty’s Treasury) Treasury) † Keegan, Gillian (Chichester) (Con) Colin Lee, Gail Poulton, Joanna Dodd, Committee Clerks † Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con) † attended the Committee 249 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 250

Clive Lewis: It is a pleasure to serve under your Public Bill Committee chairmanship, Mr Howarth. I am pleased to have the opportunity to speak to the clause and our amendments. Thursday 6 December 2018 As the Minister might outline shortly, the clause provides for changes to certain levels of vehicle excise duty, (Morning) which I will refer to as VED, by amending the Vehicle Excise and Registration Act 1994, which will now be [MR GEORGE HOWARTH in the Chair] known as VERA—there are lots of acronyms in this. Finance (No. 3) Bill Changes to the rates are due to take effect in relation to vehicle licences taken out on or after 1 April 2019. (Except clauses 5, 6, 8, 9 and 10; clause 15 and VED is chargeable on vehicles, dependent on various schedule 3; clause 16 and schedule 4; clause 19; factors, such as vehicle type, engine size, date of first clause 20; clause 22 and schedule 7; clause 23 and registration, carbon emissions data—indirectly—and schedule 8; clause 38 and schedule 15; clauses 39 and 40; other emissions’ impacts, such as air quality and public clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 health. I will not go through all the changes to the and schedule 18; clauses 68 to 78; clause 83; clause 89; various excise duty rates as they apply to the different clause 90; any new clauses or new schedules relating to types of vehicle covered by the clause. At this stage, I tax thresholds or reliefs, the subject matter of any of will simply note that they are relatively small. clauses 68 to 78, 89 and 90, gaming duty or remote The amendment would require the Chancellor to gaming duty, or tax avoidance or evasion) review the revenue impact of the clause and to publish the findings. That would allow the House, not to mention Clause 57 the drivers of those classes of vehicle and the public at large, to understand the impact on the public purse. VED: RATES FOR LIGHT PASSENGER VEHICLES, LIGHT Without such an assessment, neither the Government GOODS VEHICLES, MOTORCYCLES ETC nor indeed Committee members would know how much 11.30 am additional money was available to redirect into measures Clive Lewis (Norwich South) (Lab): I beg to move to help drivers—in particular those on low incomes—to amendment 108, in clause 57, page 40, line 12, at end take up cleaner vehicles to the benefit of the natural insert— environment and public health. Will the Minister tell us whether the Government have undertaken any such “(10) The Chancellor of the Exchequer must review the revenue effects of the changes made to the Vehicle Excise and assessment? If so, will he commit to publish it? If they Registration Act 1994 by this section and lay a report of that have not, will he undertake to do so? review before the House of Commons within six months of the The amendment would require the Chancellor to passing of this Act.” review the impact of the clause on carbon dioxide This amendment would require the Chancellor of the Exchequer to emissions and the UK’s climate change targets, and to review the revenue impact of Clause 57. publish that analysis. As the Minister might confirm, The Chair: With this it will be convenient to discuss road transport accounts for 22% of total UK carbon the following: dioxide emissions—a major contributor to climate change. Amendment 109, in clause 57, page 40, line 12, at end The European Union has agreements with motor insert— manufacturers that aim to reduce average CO2 emissions from new cars. Colour-coded labels, similar to those “(10) The Chancellor of the Exchequer must review the expected effects on levels of CO emissions and the UK’s ability to used on washing machines and fridges, are now displayed meet its fourth and fifth carbon budgets of the changes made to in car showrooms, showing how much CO2 new models the Vehicle Excise and Registration Act 1994 by this section and emit per kilometre. However, as traffic levels are predicted lay a report of that review before the House of Commons within to increase, road transport will continue to be a significant six months of the passing of this Act.” contributor to greenhouse gas emissions. This amendment would require the Chancellor of the Exchequer to review the impact of clause 57 on CO2 emissions and climate change Given that light vehicles and other vehicles covered targets. by the clause contribute substantially to carbon and Amendment 110, in clause 57, page 40, line 12, at end greenhouse gas emissions, will the Minister explain why insert— no such climate impact assessment has been carried “(10) The Chancellor of the Exchequer must review the out? How will the Government take a lead internationally expected effects on the volume of traffic on the roads of the in the fight to keep average atmospheric temperatures changes made to the Vehicle Excise and Registration Act 1994 by below 1.5° C in the absence of full monitoring and this section and lay a report of that review before the House of measurement of all greenhouse gas emissions from all Commons within six months of the passing of this Act.” sources? He will surely also need to apply “polluter This amendment would require the Chancellor of the Exchequer to pays” disincentives in the form of increased taxes, for review the impact of clause 57 on road congestion and traffic levels. example, including relevant changes to VED. Amendment 111, in clause 57, page 40, line 12, at end Finally, will the Minister give a commitment that any insert— such planned or future increase in VED will be recycled “(10) The Chancellor of the Exchequer must review the into helping drivers to adopt low-emission fuel alternatives, expected effects on air quality standards of the changes made to the Vehicle Excise and Registration Act 1994 by this section and such as electric vehicles or, in future, hydrogen-powered lay a report of that review before the House of Commons within vehicles—that is particularly important to help drivers six months of the passing of this Act.” who must use their vehicles for work purposes as well as This amendment would require the Chancellor of the Exchequer to for leisure activities—or, where convenient, into helping review the impact of Clause 57 on air quality standards. public transport alternatives, which are rarely available Clause stand part. in some parts of the country and many rural areas? 251 Public Bill Committee 6 DECEMBER 2018 Finance (No. 3) Bill 252

Amendment 110 would require the Chancellor to Clive Lewis: My hon. Friend makes a very valid review the impact of the clause on road congestion and point. The point has not been lost on many people, traffic levels and to publish the results. Vehicle use including in my own city of Norwich, where some affects our whole quality of local life: traffic can be people are part of a court case against the Government dangerous and intimidating, dividing communities and on this issue and on others relating to climate change. It making street life unpleasant, while air pollution and is something that many people are concerned about, traffic noise can make urban living uncomfortable. As especially given the impact on very young children, who the Institute for Fiscal Studies points out, taxing only are often lower to the ground and closer to the fumes. I fuel consumption and car ownership, no matter how welcome the point my hon. Friend has raised. the taxes are differentiated by emissions and engine size, This issue is directly relevant, because an element of cannot result in anything approaching an optimal tax, VED revenue take, including the extra amount raised because neither is a good proxy for the impact of car by the clause, is ring-fenced to provide a fund of about use on congestion. £500 million for air quality. Londoners are contributing Many journeys occur on relatively empty roads. Those to this, in common with the rest of the country. The journeys are overtaxed because the congestion cost Government have allocated about £255 million of that imposed on other road users is minimal. Rural road funding for clean air zone implementation and another users are overtaxed relative to those who regularly drive £220 million for the clean air fund, including supporting in towns during busy periods. The result is too much measures to soften the impacts of clean air zones on the driving in towns relative to the amount of driving in less poorest and on small businesses. They also allocated an congested areas, and the build-up of noxious fumes and extra £20 million to £25 million in the Budget for city climate-changing pollution. Those adverse impacts are air quality measures. in addition to the disruption for all drivers, who are less London, however, is excluded from all that funding. able to move freely and go about their business or other The Government previously said that this is because driving activities efficiently and without wasting so London received a generous air quality settlement in much time stuck in their vehicles. Not only is that 2015 under the then Mayor, who is now better known as personally frustrating and a contributor to so-called the failed former Foreign Secretary. Frankly, that is an road rage, but the impact on economic and social absurd claim, and I hope the Minister will not stretch productivity should be minimised. Will the Minister his credibility by repeating it to the Committee today. In therefore explain why there has been no assessment of reality, the Government reduced the revenue grant by a the impact of the clause on road congestion and traffic far greater amount than any extra funding for air quality, levels, or publish any that has been carried out? reducing it from £700 million to nothing in this financial year. The Mayor’s office received no air quality funding Amendment 111 is similar, requiring the Government from the Government as part of the last comprehensive to assess the impact of the clause on air quality standards. spending review. Unlike other cities, London is not As the Minister must be aware, air pollutants in transport getting help to implement the ultra low emission zone, include nitrogen oxide, particles, carbon monoxide and and nor can the Greater London Authority access the hydrocarbons, all of which have a damaging impact mitigation funding to help small businesses and low-income locally on the health of people, animals and vegetation. people in other cities to meet new vehicle emission Air quality in the UK might be slowly improving, but standards. That is perverse. many areas still fail to meet the health-based national air quality objectives and European limit values,particularly In addition, that predates the changes to VED, which for particles and nitrogen dioxide. Londoners are contributing to, and ignores the fact that, quite frankly, the current London Mayor has far In town centres and along busy roads, vehicles are greater ambition on air quality than his predecessor responsible for most local pollution. Vehicles of all did. London is introducing the first, biggest and most types tend to emit more pollution during the first few ambitious clean air zone—the ultra low emission zone—on miles of a journey, when their engines are warming up. 8 April 2019. This is an essential part of the national air Although new technology and cleaner fuel formulations quality plan to achieve compliance with our legal will continue to cut emissions of pollutants, these benefits obligations. are being eroded by the increasing number of vehicles on the road, including motorcycles, and the number of miles driven. Can the Minister please explain why he Anneliese Dodds (Oxford East) (Lab/Co-op): Is my does not believe that any such assessment, as set out in hon. Friend aware that my city, Oxford, is due potentially our amendment, is necessary to understand the impact to be the first city in Europe with a zero emissions zone? of the clause on such a critical aspect of road use? We need more support for such initiatives from the Government—more than has been forthcoming up to Amendments 108 and 111 also allow us to address a this point. particular aspect of the total revenue impact and the impact of the measure on air quality: the specific amount raised from VED in London and the extra amount that Clive Lewis: Yes, I was aware of that. Labour local would be raised as a consequence of the clause, and the authorities in Oxford and across the country do fantastic consequent impact on air quality. work on the issue, but they often do so in isolation and with limited support from central Government. The Alex Sobel (Leeds North West) (Lab/Co-op): Are our Government should really be getting behind them, given amendments not particularly important in the light of the severe impact that poor air quality can have, not just fact that the Government have been taken to court three on children, but on all of us—it is now believed to be times by ClientEarth for failing European air quality connected to the onset of Alzheimer’s and other standards and have lost three times? degenerative diseases. 253 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 254

[Clive Lewis] that strengthens the environmental incentives when cars are first purchased, with all cars paying a standard rate The London Mayor has proposed a targeted scrappage in subsequent years. The standard rate will increase by scheme that uses camera data to ensure that only vehicles £5 only. Expensive cars with a list price of more than that are regularly in the ultra low emission zone receive £40,000 pay an additional supplement for five years of scrappage funding. The proposal meets the criteria set paying the standard rate. That will increase from £310 out in the five-case model in the Treasury’s Green Book to £320, so it is only a modest increase, and it will affect and has a positive business case ratio. about 7% of new car purchases. Finally, the flat rate for Will the Minister confirm that none of the general vans will increase by £10, and for motorcyclists there VED revenue will be spent in London, because the will be no more than a £3 increase in rates. We believe Treasury plans to give it to Highways England to maintain that those are modest, incremental changes, which protect strategically important roads outside London? Strategically the public finances but also pay careful attention to the important roads in London are maintained by Transport cost of living for motorists. for London without any Government support or a share of VED income. Frankly, I suspect that any assessment 11.45 am made under our amendments would reveal that money Amendments 108 to 111, which the hon. Member for is available from the proceeds of VED, which of course Norwich South has spoken about, would require the will rise under the new rates proposed in clause 57. I am Government to review the impact of the clauses on also confident that any assessment under amendment various grounds: revenue, carbon dioxide emissions, 111 would show that reducing harmful emissions in carbon budgets, traffic volumes and air quality standards. London is vital to our national effort on climate change I shall come on to his wider comment about the granularity and air quality, let alone the fact that it would address of the available data in relation to understanding the the suffering of ordinary people in our most congested impact on London, and his important points about air city. quality more generally—in all parts of the country, but It is fair to say that there is a strong suspicion that the particularly London. I hope to give him some reassurance Government’s political refusal to support Londoners on those points. owes more to Londoners’ refusal to support them at the As I have said, the clause increases VED rates only by ballot box than to the best interests of the city or the RPI. It maintains VED revenue in real terms for 2019-20, country as a whole. If the Minister wants to dispel that ensuring that motorists continue to pay a fair contribution impression, will he clarify what share of VED revenue to the public finances. As VED is increased only by comes from London now and what share he expects to RPI, the clause has no revenue impacts, as the Office for come from London after the passage of the Bill? Budget Responsibility forecast assumes that rates will rise by RPI already. The impact is already in the public Bambos Charalambous (Enfield, Southgate) (Lab): I domain, and there is of course no revenue impact other am a London MP and my constituency borders the than the increase by RPI. I am therefore not sure North Circular road. The Mayor has introduced a low whether there would be anybenefit from further information emission zone for part of the road, but more is needed in that regard. to reduce emissions. Does my hon. Friend agree that funding from this measure should go towards introducing In relation to statistics and data in the public domain, low emission zones in other parts of London as well? the Driver and Vehicle Licensing Agency publishes VED revenues on an annual basis as part of its annual Clive Lewis: Yes, I do. I do not think that there is a report and accounts. In 2017-18 VED raised about lack of ambition from the Mayor of London or from £6 billion, making an important contribution to the local authorities around the country; ultimately what public finances.Weannounced previously,and reconfirmed holds them back is a lack of resources. Will the Minister at the Budget, that VED revenues will be hypothecated commit to using the revenue to offer London the same towards the roads fund, which will fund strategic road air quality funding that is being made available to other investment across the country. I shall come in a moment parts of the country, to ensure that ultra low emission to the point made by the hon. Member for Norwich zones are a success? South about London; but it is important to note that from 2020 the roads fund will, at £25 billion, be the The Exchequer Secretary to the Treasury (Robert largest we have had. It will make a major contribution Jenrick): It is good to be back, Mr Howarth. As we have to the improvement of strategic roads across the country, heard, clause 57 will make changes to vehicle excise and it will invest in tackling productivity, by reducing duty rates for cars, vans and motorcycles with effect congestion and helping people get more quickly to from 1 April 2019. As announced in the Budget, those work and elsewhere. rates will increase in line with the retail prices index As VED is a tax on car ownership, it is unrelated to from that date. As a result, they will have remained congestion or traffic volumes. The changes will not, unchanged in real terms since 2010, with additional therefore, have an impact on the volume of traffic on significant incentives for ultra low and zero emission the roads, air quality or our ability to meet CO2 emissions cars. That comes on top of the Government’s decision targets, as, I think, the amendments suggest. to freeze fuel duty rates for the ninth successive year, The hon. Gentleman raised a distinction between which by April 2020 will have saved the average car supporting drivers in rural areas, who may well drive driver £1,000 compared with the pre-2010 escalator. longer distances, and supporting those in urban areas, Cars first registered on or after March 2001 pay VED who might drive shorter distances. That is why, in based on their carbon dioxide emissions; 87% of those addition to keeping VED low, and in this case increasing cars will pay no more than £5 extra in 2019-20. From it only by RPI, our primary intervention has been the April 2017, a reformed VED system was introduced freezing of fuel duty—for eight successive years. That 255 Public Bill Committee 6 DECEMBER 2018 Finance (No. 3) Bill 256 particularly helps those on lower incomes who must taxis. Indeed, measures in the Bill support the uptake of drive considerable distances to work or to the other ultra low emission taxis. We took those measures a year appointments and engagements of daily life, particularly early, as we will discuss later, and they have had a in rural areas. significant impact on the number of taxis on the streets I am pleased to report that the Government’s most of London. There are now between 500 and 600 electric recent projections on climate change, for the fourth and or ultra low emission taxis that did not exist at the fifth carbon budgets, suggest that we could deliver 97% beginning of the year, incentivised by the measures and 95% respectively of our required performance against taken by the Treasury. We are also supporting low 1990 levels. Of course there is always more that we emission buses and charging infrastructure.The Committee would like to do, as I am sure the hon. Gentleman has already discussed the £200 million public investment would agree. However, the VED system continues to in charging infrastructure, which we hope will spur at least a further £200 million of private investment. That incentivise motorists to choose cars with low CO2 emissions to help in meeting our legally binding targets. On first will support charging infrastructure in all parts of the registration, zero emission cars pay no VED, while the United Kingdom. most polluting models pay more than £2,000, so we are I hope hon. Members respect the fact that we consider taking action in that regard. the funding settlement for London’s roads as separate On improving air quality, as the hon. Gentleman from that for the rest of the United Kingdom. That is a mentioned, the Government announced in the Budget long-standing convention. We occasionally provide an additional £20 million to help more local authorities additional money. For instance, in the Budget the meet their air quality obligations. That is in addition to Chancellor provided more than £400 million for potholes. the £255 million implementation fund and the £220 million He included London in that, so London boroughs are clean air fund announced last year. Those were introduced able to take advantage of that money, but in general the alongside the diesel supplement, which incentivises funding settlement for London’s roads is separate from manufacturers to bring cleaner diesels to the market. the negotiation with respect to Highways England. Many are doing so, but we appreciate that important I urge the Committee to reject the amendments, as I British manufacturers have not yet done so, and we are believe the reports they would require are unnecessary. in regular consultation and engagement with them. The changes outlined in the clause will ensure that the They are clearly all working on this, and we want to Government continue to support motorists with the support them to get to the point that they can bring cost of living while ensuring that they continue to make such vehicles to the market and improve their position a fair contribution to the public finances. As a result of accordingly.Those measures are unaffected by the changes our decision to hypothecate VED revenues, we will see a made by the clause. major increase in investment in our strategic roads, The Department for Environment, Food and Rural which I hope will benefit everyone in all parts of the Affairs will shortly publish the clean air strategy, which United Kingdom. I therefore commend the clause to I hope will answer some of the hon. Gentleman’s perfectly the Committee. legitimate questions about the long-term scale of our ambition to support communities. All of us who live Clive Lewis: I thank the Minister for trying to answer part of the time in cities or bring up our children in some of our questions, but I still find myself with cities want a significant improvement in air quality, and questions.It seems that there is a basic issue of transparency that strategy will be ambitious. here. If, as he is saying, the Department for Transport has given certain funding to London—I am sure that is true—it would do no harm to make transparent what Kirsty Blackman (Aberdeen North) (SNP): I appreciate other funding is going to other parts of the country, so that the Minister is providing all this information in that the figures can be compared and contrasted to answer to issues raised by the amendments. Given that ensure that London is getting its fair share. The Mayor he has all the information, it would be great if he just of London clearly does not believe that it is getting its put it into a review, as the amendments would require, fair share. It is the capital city—it has a large population, so that we could see it written down in six months’ time. many vehicles on the road and a high population density— and all that is being asked for here is transparency. Robert Jenrick: I take the hon. Lady’s point, but the On the issue of there being no assessment of the information is mostly already in the public domain. It is impact of the clause on road congestion on traffic not clear to me what information is not available. With levels, the Minister said that VED has a limited impact respect to air quality, the Government will very shortly on that, but that is quite an arbitrary statement. Taxes publish our ambitious clean air strategy. I encourage have two effects: they can raise revenue and they can her and other hon. Members who, perfectly understandably, change behaviour. It is normally one or the other, but want to scrutinise our clean air commitments to pay there are variations and it is sometimes a bit of both. I attention to that document and scrutinise the Environment do not think it is beyond the ken of the Government to Secretary at that point. No doubt he will come to the assess the potential impact of the VED increases on House to make an announcement on the strategy. congestion levels, given that we have all agreed that air The hon. Member for Norwich South also mentioned quality in this country is in a pretty poor state. Tens of London. London already has a separate comprehensive thousands of people are dying prematurely or are adversely funding settlement from the Department for Transport, affected every single year. which includes measures to deliver compliance with Toecho the sentiment of the hon. Member for Aberdeen legal air quality limits. The Mayor has significant powers North, it would not be too much trouble to write a to take additional measures. Londoners also receive report along the lines that we have asked for and make it further funding for ultra low emission vehicles such as available to Parliament. So go on, please. 257 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 258

Robert Jenrick: The hon. Gentleman tempts me, but The Chair: With this it will be convenient to discuss on this occasion I will resist his request. On the two the following: issues he raises, the clause is not increasing VED; it is Amendment 113, in clause 58, page 41, line 16, at end simply allowing it to rise with RPI, so the clause has no insert— revenue impact; the public finances assume that VED ‘(6) The Chancellor of the Exchequer must review the effects and many other duties will rise with RPI, so its impact on the taxi and private vehicle hire sectors of the changes made will be negligible. This is not a substantial or material to the Vehicle Excise and Registration Act 1994 by this section increase in VED. I really do not think there would be and lay a report of that review before the House of Commons any value in having a review. within six months of the passing of this Act.’ On the wider question of roads funding, all this This amendment would require the Chancellor of the Exchequer to information is in the public domain. The settlement review the impact of Clause 58 on the taxi and private car rental with respect to roads for London is in the public domain, industry. as is the settlement for the roads fund. Which roads will Amendment 114, in clause 58, page 41, line 16, at end then be funded through the roads investment strategy, insert— which will be set out in the middle of next year, will be ‘(6) The Chancellor of the Exchequer must review the effects in the public domain. All these investments are highly on levels of CO emissions and the UK’s ability to meet its fourth transparent, as one would expect. That information is and fifth carbon budgets of the changes made to the Vehicle available to all hon. Members, should they wish to Excise and Registration Act 1994 by this section and lay a report of that review before the House of Commons within six months view it. of the passing of this Act.’ Sir Robert Syms (Poole) (Con): My observation is This amendment would require the Chancellor of the Exchequer to review the impact of this measure on CO2emissions and climate change that an awful lot of money is spent in London, compared targets. with the regions of this country, whether the north-west or south-west. There may be a very good reason for that—London is a very important city for our nation—but Clive Lewis: I am pleased to be speaking—again—to I would not be inclined to vote even more money to our amendments relating to clause 58, on vehicle excise London, bearing in mind that it has the biggest duty and taxis capable of zero emissions. The clause infrastructure project in Crossrail, to which the Government seems to rectify an obvious mistake made by the Treasury have already given £300 million extra. If there is any during the 2017 Budget, which saw electric vehicles fall special pleading, it really ought to be for the shires and into the luxury vehicle segment of the new VED regime counties of this country, which probably need a bit for cars costing over £40,000. more money for potholes, rather than clean air. VED rates are based on carbon emissions, and zero- emissions vehicles below £40,000 have a zero standard Robert Jenrick: My hon. Friend makes a very important rate and a first year rate. Standard rate on zero-emissions point. It is certainly important to me, as a midlands and vehicles above £40,000 is currently £310 a year for the northern MP. The Government have made a significant first five years. To include electric vehicles in that policy effort both to increase the levels of public investment was clearly a major oversight by the Treasury in last in infrastructure over the course of this Parliament to year’s Budget. The correction, although somewhat late the highest levels in my lifetime—the highest level since the in the day, is none the less welcome and, indeed, essential 1970s—and to redress the regional imbalance. Over the if we are to seriously encourage the uptake of electric course of this Parliament, for example, investment vehicles, specifically taxis. in transport will be highest in the north-west of England, and London and the south-west will be among the Anneliese Dodds: I am sure that my hon. Friend is lowest. There is a great deal more to do, not least aware that back then, Opposition Members warned because London has the ability to raise significant about the potential unintended consequences of those amounts of money from local government, which has measures, including for the private hire and taxi industries. co-funded projects such as Crossrail. My hon. Friend Those warnings were not heeded at the time. It is rather makes an extremely valid point. frustrating that they have only now been dealt with. Clive Lewis: I beg to ask leave to withdraw the amendment. Clive Lewis: My hon. Friend makes a very good Amendment, by leave, withdrawn. point; that is one lost year of support. Clause 57 ordered to stand part of the Bill. To include electric vehicles—ah, I have already said that. I will recap, though. [Laughter.] To include electric Clause 58 vehicles in that policy was clearly a major oversight by the Treasury in last year’sBudget. The correction, although VED: TAXIS CAPABLE OF ZERO EMISSIONS somewhat late in the day, is none the less welcome and, indeed, essential if we are to seriously encourage the 12 noon uptake of electric vehicles, specifically taxis. Clive Lewis: I beg to move amendment 112, in That is particularly pertinent as local regulations are clause 58, page 41, line 16, at end insert— tightening around clean air and greenhouse gas emissions, ‘(6) The Chancellor of the Exchequer must review the revenue as we have seen with the implementation of the ultra effects of the changes made to the Vehicle Excise and Registration Act 1994 by this section and lay a report of that low emissions zone in London. Amendments 112 to 114 review before the House of Commons within six months of the require the Government to undertake a review that we passing of this Act.’ believe is essential to understand the consequences of This amendment would require the Chancellor of the Exchequer to the clause, which range over the impact that it is likely review the revenue impact of Clause 58. to have on the Exchequer, on the taxi and private car 259 Public Bill Committee 6 DECEMBER 2018 Finance (No. 3) Bill 260

rental industry, and on CO2 emissions and climate Available charging infrastructure is a requirement of change targets. Amendments 112 and 113 focus on the accelerating the transition. Outside London and a few economic impact of the clause, both on the Exchequer select places, availability is poor. Drivers face a postcode and on taxi and private car rental companies. Can the lottery that is a barrier to electric vehicle growth. For Minister provide an assessment of the revenue implications example, there are more chargers available in the Orkney of the measure? Islands than in Blackpool, Grimsby and Hull combined. Similarly, while we understand from the published Even if grants are available, drivers in some areas will be documents relating to the clause that industry response unable to perform their work using EVs, due to the to the Government consultation was supportive, will unavailability of charging infrastructure. It could therefore the Treasury do further analysis of the potential economic be argued that even if the Government increased grants impact on taxi companies and the private car rental and ensured that availability, poverty of EV infrastructure industry,should the change come into effect? The Minister would mean that a majority of taxis would not be in a may wish to resist the amendments, but regardless of position to benefit from the change suggested in clause 58. any legal obligation, will he commit to conducting such Will the Minister comment on that? What assessment an analysis and presenting it to the House in due has been undertaken of the availability and adequacy of course? the infrastructure, and what steps are being taken to ensure that it does not undermine the good intentions Amendment 114 refers to carbonisation and improving behind the clause? Although the current situation is a air quality. It would seem, in that respect, that taxis are mistake, it should not have happened in the first place. low-hanging fruit. They are used frequently, often in The measure is important in seeking to undo the bias urban areas with poor air quality. Similarly, according created by classing zero-emissions taxis as luxury vehicles, to the Mayor of London, drivers stand to benefit from and in encouraging the uptake of zero-emissions vehicles. lower fuel costs—by around £2,800 a year—and from avoiding present and future congestion and air quality We will support the clause—we ask only that the charges. We believe, however, that the Government have Government assure us that the right analysis will be failed to put in place necessary fiscal incentives to done to assess the impact of the measure on the Exchequer, encourage the transition to the electric vehicles needed the companies that will be affected, and the environment. We urge the Government to take such matters into to ensure a reduction in CO2 emissions. Simply removing the excess tax for luxury vehicles, as the clause would consideration. I hope the Minister can give us some do, does not go far enough to encourage the uptake of assurance on those points. zero-emission vehicles. The primary driving forces behind the reluctance to Robert Jenrick: I thank the hon. Gentleman for those take up electric vehicles are cost and an anxiety about questions. I hope that I can answer them all and reassure range. The costs of electric vehicles are explained by him. Clause 58, as we have heard, makes changes to high manufacturing costs, specifically of their batteries. ensure that purpose-built taxis that are capable of zero The anxiety about range affects taxi drivers far more emissions do not have to pay the VED supplement than private vehicle owners or private car hire companies, applicable to expensive vehicles, which are those with a as they do not have access to the range in the ultra-low list price of more than £40,000. Having listened to emissions vehicle segment of the market for mid-range representations on the issue, the Government announced to luxury. That is due to licensing conditions, as they in March that the exemption for such taxis would be need to fulfil accessibility requirements. In London, for brought forward a year earlier than planned. example, that means that many drivers are mandated to We do not believe that the purchases of many vehicles, buy a London-style hackney taxi in many districts. Will if any, were adversely affected. For example, the London the Minister agree to assess the impact of clause 58 on Electric Vehicle Company, which manufactures these CO2 emissions and the UK’s climate change targets, vehicles, had sold almost no vehicles by the time of the and whether that policy goes far enough in encouraging announcement and has subsequently sold more than the purchase of zero-emissions taxis? 500 vehicles—I do not have the exact figures but I am I have a few questions on the clause. At present, a happy to supply them to the hon. Gentleman—so from grant of £7,500 is available for new zero-emissions taxis. the time of our announcement in early March to the We believe that the Government should be looking to present day, the incentives have clearly made a significant increase available grants and encourage the transition difference in stimulating the market. We do not believe to electric vehicles, specifically taxis, in areas outside that many purchases, if any—I will confirm that point— Greater London. There are currently only a few limited were disadvantaged as a result of this matter, which was pots of funding, not all of which are available for taxis, an unintended consequence of the earlier policy. and they are largely skewed towards Greater London. An exemption will encourage the transition to ultra-low Similarly, the Government have yet to invest a penny and zero-emissions taxis. The figures show that, certainly of the £400 million charging fund announced in the in London, there has already been a significant take-up 2017 Budget, half of which should be public money, in vehicles, although it is less in other parts of the with the other half contributed by the private sector, as United Kingdom. I believe that the manufacturers are we have already heard. Will the Minister tell us whether now targeting other cities, including Manchester and the issue that the clause seeks to rectify will aid the Nottingham—my nearest city—to improve their air Government in finally setting up the charging fund that quality. We want to see that rolled out as soon as they promised to deliver to encourage the use of zero- possible in all part of the United Kingdom. emissions vehicles? Will he give us a clear timetable of It will make the system fairer.The Government recognise when that fund will be operational? Will he commit that that a number of technical requirements exist for purpose- he or another relevant Minister will come back to the built taxis, including, as the hon. Gentleman said, access House with more detail when it is due to launch? for disabled passengers and turning circles, meaning 261 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 262

[Robert Jenrick] write to him with more details and to inform him when it is launched, but I expect that to be at the very that only a limited number of options are available. beginning of the new year. Most other motorists have a range of vehicles available to them, many costing less than £40,000, and can therefore 12.15 pm choose not to pay the supplement. Clive Lewis: There is £200 million in public money In passing, the hon. Gentleman mentioned other and £200 million in private money. Will the Minister private hire vehicles. Our argument—a valid one, I think confirm whether the £200 million in private funding has —has always been that there are a range of other actually arrived and is available for the Treasury to options available to drivers of private hire vehicles. spend on EV infrastructure? They do not have to purchase a vehicle costing over £40,000. That would be a choice because they want to enter a particular segment of the market. Those driving Robert Jenrick: The answer is that the fund has not a registered London taxi do not have that discretion. actually been launched yet. We are committed to the Therefore, it would not be right for drivers buying a taxi £200 million, but we will not know until the fund is capable of zero emissions to pay the VED supplement launched the amount of private capital we are able to targeted at cars at the luxury end of the market. As the crowd in as a result of that. I am happy to write to the supplement is only due from the second licence onwards, hon. Gentleman with more detail about that. As I said, this means that almost all taxi drivers who have purchased I expect in the first two months of the new year to be in an eligible taxi from April 2018 will never have to pay a position to launch the fund and to inform hon. the supplement. This will save those drivers up to £1,600 Members across the House of its detail, should they in total. wish to direct businesses in their constituencies that are The changes made by the clause will provide the interested in this area to it. With that, I commend the power to exempt purpose-built zero-emissions taxis from clause to the Committee. the supplement for expensive cars, through regulations. This will enable the Government to apply the exemption Clive Lewis: I beg to ask leave to withdraw the to further models as they become available in the future. amendment. I will turn briefly to the amendments tabled by the Amendment, by leave, withdrawn. hon. Member for Norwich South. Amendment 112 would Amendment proposed: 114, in clause 58, page 41, line 16, at require the Government to review the revenue effects of end insert— the changes made by the clause. The Government have “(6) The Chancellor of the Exchequer must review the effects already published a tax information impact note, in line on levels of CO2 emissions and the UK’s ability to meet its fourth with normal practice,which sets out that the revenue impact and fifth carbon budgets of the changes made to the Vehicle of the changes will be negligible. Amendments 113 and Excise and Registration Act 1994 by this section and lay a report 114 would require the Government to review the effect of that review before the House of Commons within six months of the clause on the taxi and private hire sectors, and of the passing of this Act.”—(Clive Lewis.) the impact on carbon dioxide emissions and our carbon This amendment would require the Chancellor of the Exchequer to budgets. The measure applies to purpose-built taxis review the impact of this measure on CO2 emissions and climate change only, enabling a quicker switch to greener models by targets. saving drivers that £1,600. It is not expected to have an Question put, That the amendment be made. impact on the number of taxis on the roads, but it is The Committee divided: Ayes 8, Noes 9. intended to increase the proportion of those that are capable of zero emissions. By strengthening the incentive Division No. 27] to purchase such taxis over conventionally fuelled AYES alternatives, the measure is expected to have a small positive impact on our ability to meet our fourth and Black, Mhairi Lewis, Clive fifth carbon budgets, although isolating its impact would Blackman, Kirsty Reynolds, Jonathan be challenging and uncertain. I am not sure what value, Charalambous, Bambos Smith, Jeff if any, that analysis would provide. Again, these impacts Dodds, Anneliese Sobel, Alex were covered in the published tax information and impact note. I respectfully urge the Committee to reject NOES the amendments, on the grounds that they are unnecessary. Afolami, Bim Stride, rh Mel The hon. Gentleman asked important questions about Badenoch, Mrs Kemi Syms, Sir Robert electric vehicle charge points. Clearly it is important for Jenrick, Robert taxi drivers in London, and indeed in any other part of Keegan, Gillian Whately, Helen the United Kingdom, to know that the relevant charge Lamont, John Whittaker, Craig points are available to them. Range anxiety is just as valid, if not more so, for a taxi driver as it is for a private Question accordingly negatived. citizen. Significant investment is underway in London, Clause 58 ordered to stand part of the Bill. particularly for fast charge points, which are critical for taxi drivers, so they do not have to spend hours waiting to recharge or top-up their vehicle. The Mayor of London Clause 59 is leading that effort and making good progress. With regard to the charge point infrastructure fund, HGV ROAD USER LEVY which I spoke about in relation to the previous clause, we are close to appointing a fund manager and expect it Clive Lewis: I beg to move amendment 115, in to be launched in January or February. I am happy to clause 59, page 44, line 9, at end insert— 263 Public Bill Committee 6 DECEMBER 2018 Finance (No. 3) Bill 264

“(11) The Chancellor of the Exchequer must review the We believe the analysis should focus on the costs and revenue effects of the changes made to the HGV Road User Levy benefits of remaining on a time-based charging system Act 2013 by this section and lay a report of that review before the rather than one based on distance. Will the Minister tell House of Commons within six months of the passing of this us what comparative analysis has been undertaken to Act.” date by Government, and agree either to publish it or to This amendment would require the Chancellor of the Exchequer to review the revenue impact of Clause 59. commission the relevant work and publish it in due course? The analysis should also assess how well the HGV The Chair: With this it will be convenient to discuss road user levy reflects the costs imposed by road freight the following: on other road users, the road network itself and society Amendment 116, in clause 59, page 44, line 9, at end at large. Metropolitan Transport Research Unit research, insert— issued in April 2017 and sponsored by the DFT, suggests “(11) The Chancellor of the Exchequer must review the effects “that a very significant amount of the real marginal costs imposed by the largest HGVs is not being met.” on levels of CO2 emissions and the UK’s ability to meet its fourth and fifth carbon budgets of the changes made to the HGV Road That has led to poor economic efficiency and a misallocation User Levy Act 2013 by this section and lay a report of that of scarce resources. Will the Minister undertake a review review before the House of Commons within six months of the of the real marginal costs imposed by the latest HGVs passing of this Act.” so that we may assess their relative economic efficiency? This amendment would require the Chancellor of the Exchequer to Similarly, when considering the overall revenue effect review the impact of Clause 59 on CO2 emissions and climate change targets. of differing levels of road user levy for different categories Amendment 117, in clause 59, page 44, line 9, at end of heavy goods vehicles, we believe it is important to insert— factor in the huge disparity between the costs of wear and tear on road surfaces caused by HGVs and those “(11) The Chancellor of the Exchequer must review the expected effects on the volume of traffic on the roads of the caused by cars and lighter vehicles. The Campaign for changes made to the HGV Road User Levy Act 2013 by this Better Transport estimates that the standard 44-tonne section and lay a report of that review before the House of HGV does 100,000 times more damage to road surfaces Commons within six months of the passing of this Act.” than a Ford Focus. This amendment would require the Chancellor of the Exchequer to review the impact of Clause 59 on road congestion and traffic levels. Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op): Amendment 118, in clause 59, page 44, line 9, at end One hundred thousand times! insert— “(11) The Chancellor of the Exchequer must review the Clive Lewis: Yes. An update of the DFT’s mode shift expected effects on air quality standards of the changes made to benefit values technical report in 2015 doubled previous the HGV Road User Levy Act 2013 by this section and lay a estimates of the cost per HGV mile to road infrastructure. report of that review before the House of Commons within six months of the passing of this Act.” Campaign for Better Transport research suggests that HGVs are paying for only 11% of their UK road This amendment would require the Chancellor of the Exchequer to review the impact of Clause 59 on air quality standards. infrastructure costs, predicting a shortfall of about £6 billion. Clause stand part. Will the Minister tell us whether the Government have made their own such estimate during the development Clive Lewis: I begin by welcoming the long overdue or passage of the Bill, or does our amendment give change to the heavy goods vehicle road user levy. As the them the opportunity to assess it for the first time? Will Minister will no doubt lay out, the clause will differentiate he produce a fresh assessment of the cost shortfall that the rates paid by efficiency, rewarding freight operators the new HGV road user levy rates will leave for other for using less polluting trucks on the UK’s roads. road users and taxpayers in general to pick up? In any Department for Transport statistics show that HGV case, will he give us the Government’s view of whether traffic has grown on average by 2.3% per year since the total revenue raised will reflect a fair share of the 2008, making it the second fastest growing type of total tax take from road users, as compared with that of traffic in that period. That has resulted in HGV traffic those who drive smaller vehicles? In the Chamber, many increasing, on motorways and rural A roads in particular, MPs complain about potholes and funding for them. to an overall 17.1 billion vehicle miles. Inevitably, that The statistics give a clue as to where in part the responsibility has had an enormous impact on greenhouse gas emission lies for so many potholes on our roads. and climate change targets, road congestion and traffic levels, road safety, and air quality—the key issues on Bambos Charalambous: As the driver of a Ford Focus, which our amendments are based. I want to clarify something. Does my hon. Friend agree Amendment 115 would require the Chancellor to that yes, a greater proportion of the money ought to go review the revenue impact of the clause. We believe that towards repairing potholes, because that will leave more there is an urgent need for a financial assessment of the money available for schools and other resources? measure, as the freight sector has been left in the dark about the overall impact of these tax reforms. The Clive Lewis: My hon. Friend makes an interesting Department has failed to publish any conclusions from point from his Ford Focus. The issue is that there is a its call for evidence, which closed in January.We therefore massive externality that those HGVs are causing on our argue that it is the Treasury’s responsibility either to roads. No one wants to see HGV businesses go out of produce the evidence and conclusions or to undertake business, but everyone in Committee would agree that it any new research that is needed. is right for people to pay the appropriate level of tax for 265 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 266

[Clive Lewis] times more likely than cars to be involved in fatal collisions on minor roads, despite making up just 5% of the damage that they cause to our road infrastructure. overall traffic miles.There has been little or no improvement If they are to be subsidised, that subsidy ought to be in recent years in the rates of fatal collisions involving transparent, so that we can appreciate and make a HGVs either on motorways or on A-roads. In 2014, proper assessment of the value that HGV companies HGVs were involved in almost half of all fatal collisions contribute to our economy, while taking into account on motorways, although they accounted for only 11.6% the externalities that they create as well, because there of the miles driven on them. Will the Minister tell us are impacts on other tax areas where the Government whether, in the course of considering the relative levels would need to spend—he mentioned schools, and there of taxation for different types of HGV, the Government are hospitals and so on and so forth. have made any assessment of the impact on road safety Amendment 116 would require the Chancellor to of HGVs on motorways and A-roads across the UK? In developing the clause, did they consider whether the tax review the impact of the clause on CO2 emissions and climate change targets. As I have described, the use of system for vehicles might in any way be used to improve HGVs has increased hugely in recent years. Inevitably, the safety record of HGVs? that has had an adverse effect on the UK’s greenhouse Amendment 118 would make equivalent provision in gas emissions. Studies from the Government’s own 2017 relation to air quality standards. In launching its call for freight carbon review proved that HGVs are also evidence about the HGV road user levy, the DFT disproportionately responsible for pollution when compared conceded the importance of working with other road vehicles. In 2014, HGVs were estimated “with industry to update the Levy so that it rewards hauliers that to account for about 17% of UK greenhouse gas emissions plan their routes efficiently, to incentivise the efficient use of from road transport, and about 21% of road transport roads and improve air quality.” nitrogen oxide emissions, while making up only 5% of As the results of the consultation are yet to be published, vehicle miles. Will the Minister confirm those figures? I ask the Minister whether the Treasury is able to review Clearly, if we are to stay in line with EU emissions whether the changes proposed in clause 59 will succeed targets, which have themselves been agreed at the necessary in encouraging an improvement in air quality standards. level to ensure that we meet our Paris climate agreement If the Minister does not intend to accept the amendment, targets, CO2 emissions from HGVs must drop by at perhaps he will tell the Committee whether, and when, least 15% by 2025, and be at least 30% lower by 2030. the Government intend to publish the evidence they Will the Minister agree to conduct an analysis of just have gathered, and their formal response to it, for how far the changes in the clause go towards the country’s scrutiny by the House and the public. Perhaps he will ability to meet our climate targets? Will he also consider also confirm that the evidence that they have gathered addressing the generality of the need to meet those to date shows that, nationally, 20% of lorries are now targets with either taxation of the sector, or other driving around completely empty and only 36% are full measures that the Government might put in place to by volume. Not only is that a highly inefficient use of meet our obligations and to safeguard our shared scarce road space, but it exacerbates the existing problem environment? that more than 40 towns and cities in the UK have Amendment 117 would introduce a similar requirement already exceeded air pollution limits set by the World to review the impact of clause 59 on the overall volume Health Organisation. Can he confirm that air quality of traffic on roads, which is fairly self-evidently a major standards will be assessed when looking at the important contributory factor to road traffic congestion. The Centre impacts of the HGV road user levy? Can he give us any for Economics and Business Research estimates that timetable or detail? congestion will cost the economy as much as £307 billion The Committee will note that our amendments have by 2030. Similarly, the latest INRIX figures show that a similar theme. Perhaps I can ask the Minister to the UK currently ranks as the fourth most congested outline in general terms what assessment or review of developed country, and the third most congested in the success of these measures the Government have Europe. planned, what impacts they will consider, how they will Will the Minister tell us what assessment the Government measure them and how they will publish their results. I have made of the economic—not to mention environmental also reiterate my point about the Government’s various —impact of traffic congestion? I hope he will agree that calls for evidence that relate to the measure in clause 59. it is undeniable that the increase in HGV traffic is Will he commit to publishing the evidence received and contributing to the problem. Is he willing to undertake giving a formal response from the Government? We a formal assessment of the impact of HGVs on overall often hear about evidence-based policy making, but as road congestion and traffic, which in turn clearly has a legislators we, too, need to hear that evidence if we are significant impact on the economy? If he intends to to agree to the legislation that implements that policy. resist the amendment, perhaps he will tell us what I look forward to the Minister’s response to our assessment the Government have made to date and how amendments, but I want to make one final argument it informed their choice of the relative levels of taxation about the clause itself. While it is to be expected that the that the clause sets for more or less polluting vehicles. reforms in clause 59 will lead to improvements in fuel The amendment also addresses the important issue efficiency and reductions in pollution from HGVs on of road safety. The volume of traffic is clearly relevant Britain’sroads, we believe that those reforms are incomplete to road safety outcomes. The Campaign for Better and unsatisfactory because the HGV levy will continue Transport’s analysis of Department for Transport road to be charged according to time spent on UK road safety statistics shows that HGVs are twice as likely to networks. It is widely acknowledged that the existing be involved in a fatal collision on minor roads as they time-based charging system is inefficient and not cost- were 10 years ago. In 2016, HGVs were almost seven effective. As it stands, the current daily charge bears no 267 Public Bill Committee 6 DECEMBER 2018 Finance (No. 3) Bill 268 direct relationship to the amount of use of the network been a massive increase in the number of light goods and therefore the system does not incentivise efficient vehicles, which is negative if we end up with older diesel use of the network. To improve economic efficiencies, models. there should be a direct relationship between taxes per Wecould develop the rail freight network. I understand mile travelled and the marginal cost that a distance-based that it is pretty difficult for those who are looking to charging system can provide. increase rail freight to get time on the lines because of 12.30 pm the number of passenger trains. Solutions to assist that The DFT’s recent review offered the opportunity to would be very helpful in ensuring that freight is moved move to distance-based charging in the UK, which around the UK in the least carbon-emitting way possible. would be the single most effective change that would Subsection (6)(b) relates to Euro 6. It describes the achieve all the Government’sstated objectives of improving definition of Euro 6, saying that it is as in the EC efficiency, reducing exposure to collisions and reducing directive. I am keen for the Government to lay out what air pollution and CO2 emissions. Replacing time-based would happen about the development of new standards lorry charging with a distance-based system could relate after Brexit and any transition period. Is it their intention charges paid to the real impact that HGVs have on that we would have our own standards on vehicle emissions? other road users, the road network and society at large. If so, how much does the Minister believe it will cost to Of course, it could also reward those HGV operators assess vehicles? What would be the cost of UK-EU who have the least such impacts, as the clause intends to regulatory divergence, which will result in issues for car do in relation to emission standards. manufacturers? The most troubling thing about all the measures of Alternatively, do the Government intend that we cost and harm—from the environment, to road safety should not diverge from using the European Commission and congestion, to the revenue impact on the Exchequer—is directive standards? Obviously technology is developing that the sector is showing little or no improvement and there will be new standards to which we should peg across them. That is a clear illustration that the current our decisions on tax rates. If the UK Government plan framework of incentives, including the HGV road user not to have their own assessment centre, with regulatory levy,is not working. While we welcome these much-needed divergence, do they plan to continue to follow EC changes, we urge the Government to look at the bigger directives? What preparation are the Government making picture and assess the wider impacts of the HGV road in that case to scrutinise or comment on the directives, user levy, as our amendments propose. given that we will not be in the room after Brexit, and will therefore not be able to influence the standards, Sir Robert Syms: Apart from paying the levy, the either to support our car manufacturers or secure the road haulage industry pays considerable sums of tax on best standards for the British public and get improved fuel; it therefore pays quite a lot into the Exchequer for air quality? the provision of roads. I would make another important point: almost every good that we have in this country I understand that the Minister may not have the travels at some point on a road haulage vehicle. Almost answer at his fingertips, but I hope he can say something. all of what someone buys in a supermarket for Sunday lunch travels in such a vehicle. There is no such thing as a painless tax. If we raise the cost of vehicles delivering Robert Jenrick: I shall try to respond to the many goods in this country,the costs are raised for supermarkets points that have been raised. My hon. Friend the Member and businesses and that is passed on in the form of for Poole in part answered the challenge from the hon. higher prices and inflation. There is a balance to be Member for Norwich South as to whether hauliers pay struck. their fair share. It is worth remembering that they pay a range of taxes, as my hon. Friend pointed out. They pay The other point is that the British economy has been the levy that we are discussing and vehicle excise duties. growing since 2009-10. As it grows, there are more They also pay tax on fuel. Taken as a package, hauliers vehicles on the road, and that is a difficulty. The real pay a considerable amount of tax. British hauliers as an way to deal with climate change is probably to crash the industry are highly taxed, going by European and economy, so that unemployment shoots up and vehicles international comparisons. The reforms mean that some come off the roads. It is a problem that, if we have the hauliers will pay more. The VED system is based on economy growing, there are more vehicles on the road. both weight and axles, so to some extent it reflects wear On the whole, the solution is technological, both in the and tear on the roads, although I appreciate the point development of the levy—the hon. Member for Norwich made by the hon. Member for Norwich South that South made one or two suggestions for that—and also HGVs make a significant impact on the roads. I did not in the engines and the information that people get this realise it was 100,000 times that of a Ford Focus, but days. There has been a big improvement. The biggest that puts things in perspective. incentive that there ought to be for the industry is to replace vehicles more regularly because, in the end, that The hon. Gentleman asked whether the HGV levy will probably have more impact on climate change. was specifically hypothecated to tackle such issues as I do not think that the solution to this problem is to potholes and strategic roads. It is not. However, as I increase costs. There are technological solutions that I have described, the VED system will be, which will am sure will come to help with all of our concerns significantly increase the amount of investment that the about climate change. country makes in roads at every level: £28.8 billion is the spending envelope for roads investment announced Kirsty Blackman: If we are going to disincentivise by the Chancellor in the Budget, and £25 billion of it people from using HGVs or charge them more for using will be spent on strategic roads in the road investment HGVs, we need to make sure that we have a positive strategy that will be announced later next year. That route with alternative methods of transport. There has will be about 170% of the first road investment strategy, 269 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 270

[Robert Jenrick] revenue effects, which have been certified by the Office for Budget Responsibility. I believe those amount to so there is almost double the amount of investment £25 million over the scorecard period. These reforms to going into roads to tackle congestion and improve the HGV levy are part of wider action by the Government strategic roads in all parts of the country. to tackle challenges in the areas highlighted by the The hon. Member for Aberdeen North made a valid amendments. Isolating the impact of the HGV levy point about the European standards. It is our intention reforms would be extremely challenging and, I suspect, to remain closely aligned to those. That seems sensible of limited use, as they cannot be separated from other and it is our intention in a number of respects, such as actions the Government is taking in these areas. climate change, emissions and carbon budgets, as is The Government’s draft clean air strategy sets out an indeed set out elsewhere in the Bill. For example, we annual reporting process for the monitoring of air have not yet made a final decision on carbon trading, pollution, which is the appropriate mechanism for assessing but we shall monitor it and review the matter. If I can the effectiveness of those changes and others over time, give the hon. Lady any further information I will write rather than introducing a new method to review it, as to her to set out the position of the Department for proposed by the amendments. I therefore urge the Transport. Committee to reject the amendments.The changes outlined On the broader question of why we are not using the in the measure will ensure that both foreign and domestic VED system for HGVs to encourage greater take-up of HGVs play their part in meeting the Government’s air zero-emission or ultra-low emission HGVs, it comes quality targets. back to the point made by the hon. Lady: currently there are very few commercially available ultra-low Clive Lewis: I thank the Minister for his contribution. emission alternatives for HGV drivers, which prevents I note that he was unaware of the 100,000 figure between the broad uptake of new vehicles. Clearly, we would like the damage caused by an HGV compared with the to do all we can to stimulate the market and see rapid damage caused by a Ford Focus. Have the Government progress, but we have to be mindful of that. Through made any assessment of whether HGVs currently cover the Road to Zero strategy that was published earlier this the cost of the impact they have on UK road infrastructure? year, the Government have committed to working with It sounds like they have not, but the Treasury should be the industry to reduce HGV greenhouse gas emissions able to amend VED or the taxation system that it will significantly by 2025. The strategy sets out the Government’s use in order to better reflect that. plans to use a variety of different tools to meet that To pick up on some of the comments made by the commitment. hon. Member for Poole, we are talking about externalities. The hon. Member for Norwich South made a number Everyone wants to see everybody pay their fair share, of important points about HGVs and road safety. I will and I am aware that haulier companies pay not just the write to him on that and find out what information I excise for HGVs, but road tax and fuel tax. So do can about DFT’s work, because it is important that we drivers of Ford Focuses: they also pay their fair share of take note and see what can be done to improve road tax, including income tax and other taxes as well. We all safety, particularly as the number of vehicles going pay our fair share of tax, but if HGVs are damaging the down smaller roads and country lanes as a result of roads to that extent and having such an impact in terms online shopping is becoming more important. Through of road traffic accidents, that calls into question whether the Road to Zero strategy and other initiatives, DFT is they are paying excise duty appropriately, and whether paying attention to how we can improve the last mile of that excise duty is a genuine reflection of the cost that delivery to tackle air quality and reduce the number of those HGVs are exacting on society and on our road vehicles on our roads. systems. The clause introduces a lower rate of HGV levy for vehicles that meet the latest emission standard, and a 12.45 pm higher rate for vehicles that do not. As we have discussed, The hon. Member for Poole also talked about the change will incentivise hauliers to move to cleaner, technological fixes—so-called technological decoupling. less-polluting vehicles. It is only right that everyone Unfortunately, that has been around for some decades plays their part in protecting our natural environment now,and there is no evidence that technological decoupling so that we leave a cleaner, greener Britain for our will work quickly enough or in a manner that will stop children. HGVs currently account for approximately us from heading off a cliff edge on most of the nine 20% of harmful nitrogen oxide emissions from road planetary boundaries that scientists say we should be transport but only 5% of total miles travelled, so they aware of. David Attenborough has said that the horizon will play an important part in tackling the problem. for the end of civilisation is before us. It is no longer The changes made by the clause will reduce HGV acceptable for political parties and Members of this levy rates by 10% for vehicles that meet the latest place to decouple political rhetoric from political reality emission standards, reflecting the fact that they generate and the reality of climate change. That has to end. 80% less NOx emissions than the older HGVs. The HGVs are significant contributors to pollution and clause will also increase rates by 20% for HGVs that do to greenhouse gas emissions, so I argue that the Treasury not meet those standards. Many hauliers will pay less as needs to accept the amendments. It needs to take on more companies move to cleaner lorries—we have board the impact that HGVs have on our road networks, introduced it to improve air quality and not to raise greenhouse gas emissions and noxious fumes, and the revenue. fact that the system in place is inefficient. Sixty-four per On amendments 115 to 118, to which the hon. Member cent. of HGVs on the road are either empty or partially for Norwich South spoke, the Government have published full, so the Opposition have suggested basing excise a tax information impact note outlining the impact duty not on time on the road, but on distance travelled assessment of these reforms, including the forecasted by HGVs. That would incentivise road hauliers to increase 271 Public Bill Committee 6 DECEMBER 2018 Finance (No. 3) Bill 272 efficiencies and invest in vehicles to ensure that they are Question put, That the amendment be made. as efficient as possible. It would also ensure that logistical The Committee divided: Ayes 8, Noes 9. runs are as efficient as possible, which they clearly are not currently. I look forward to the Minister writing to Division No. 29] me on those issues,but we will be pressing both amendments to a vote. AYES Black, Mhairi Lewis, Clive Robert Jenrick: In my earlier remarks, I did not Blackman, Kirsty Reynolds, Jonathan respond to the hon. Gentleman’s questions on the calls Charalambous, Bambos Smith, Jeff for evidence. We did a call for evidence before we Dodds, Anneliese Sobel, Alex introduced the levy in 2014 and, at that point, the time-based levy was the preferred method among those NOES who responded. That was the reason why we alighted Afolami, Bim Stride, rh Mel on that methodology. The call for evidence on the Badenoch, Mrs Kemi Syms, Sir Robert reforms, which he also asked me about, will be published Jenrick, Robert next month—further information that he may wish to Keegan, Gillian Whately, Helen scrutinise when it is published. As I said earlier in Lamont, John Whittaker, Craig response to my hon. Friend the Member for Poole, we believe that HGV drivers pay their fair share through Question accordingly negatived. the levy, through VED and through fuel duty. However, we will of course keep the matter under review. Amendment proposed: 117, in clause 59, page 44, line 9, at end insert— Sir Robert Syms: If a road haulier sends a vehicle “(11) The Chancellor of the Exchequer must review the with a load to a city in the north, the profit it makes is expected effects on the volume of traffic on the roads of the on the load back. If that vehicle runs empty, the haulier changes made to the HGV Road User Levy Act 2013 by this has higher costs. Therefore, if that vehicle is empty, the section and lay a report of that review before the House of road haulier’s manager is not doing his job properly—they Commons within six months of the passing of this Act.”—(Clive have not been able to find a load—or the vehicle is Lewis.) going from one factory or depot to another to pick up a This amendment would require the Chancellor of the Exchequer to review the impact of Clause 59 on road congestion and traffic levels. load. It is inevitable that there will be some empty vehicles, but that is not the fault of the road haulage Question put, That the amendment be made. industry. They would love their vehicles to be full. The Committee divided: Ayes 8, Noes 9. Robert Jenrick: My hon. Friend makes an important Division No. 30] point. Technology will improve that situation in time, as AYES he said in his earlier remarks, but we will keep this matter under review. However, we respectfully ask that Black, Mhairi Lewis, Clive the amendments be rejected. Blackman, Kirsty Reynolds, Jonathan Question put, That the amendment be made. Charalambous, Bambos Smith, Jeff Dodds, Anneliese Sobel, Alex The Committee divided: Ayes 8, Noes 9. Division No. 28] NOES AYES Afolami, Bim Stride, rh Mel Badenoch, Mrs Kemi Black, Mhairi Lewis, Clive Syms, Sir Robert Jenrick, Robert Blackman, Kirsty Reynolds, Jonathan Keegan, Gillian Whately, Helen Charalambous, Bambos Smith, Jeff Lamont, John Whittaker, Craig Dodds, Anneliese Sobel, Alex

NOES Question accordingly negatived. Afolami, Bim Stride, rh Mel Amendment proposed: 118, in clause 59, page 44, line 9, at end insert— Badenoch, Mrs Kemi Syms, Sir Robert Jenrick, Robert “(11) The Chancellor of the Exchequer must review the Keegan, Gillian Whately, Helen expected effects on air quality standards of the changes made to Lamont, John Whittaker, Craig the HGV Road User Levy Act 2013 by this section and lay a report of that review before the House of Commons within six months of the passing of this Act.”—(Clive Lewis.) Question accordingly negatived. This amendment would require the Chancellor of the Exchequer to Amendment proposed: 116, in clause 59, page 44, line 9, at review the impact of Clause 59 on air quality standards. end insert— Question put, That the amendment be made. “(11) The Chancellor of the Exchequer must review the effects The Committee divided: Ayes 8, Noes 9. on levels of CO2 emissions and the UK’s ability to meet its fourth and fifth carbon budgets of the changes made to the HGV Road Division No. 31] User Levy Act 2013 by this section and lay a report of that review before the House of Commons within six months of the AYES passing of this Act.”—(Clive Lewis.) Black, Mhairi Lewis, Clive This amendment would require the Chancellor of the Exchequer Blackman, Kirsty Reynolds, Jonathan to review the impact of Clause 59 on CO2 emissions and climate change Charalambous, Bambos Smith, Jeff targets. Dodds, Anneliese Sobel, Alex 273 Public Bill Committee HOUSE OF COMMONS Finance (No. 3) Bill 274

NOES Clause 59 ordered to stand part of the Bill. Afolami, Bim Stride, rh Mel Ordered, That further consideration be now adjourned. Badenoch, Mrs Kemi Syms, Sir Robert Jenrick, Robert —(Craig Whittaker.) Keegan, Gillian Whately, Helen Lamont, John Whittaker, Craig 12.54 pm Adjourned till this day at Two o’clock. Question accordingly negatived. PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT GENERAL COMMITTEES

Public Bill Committee

FINANCE (NO. 3) BILL

(Except clauses 5, 6, 8, 9 and 10; clause 15 and schedule 3; clause 16 and schedule 4; clause 19; clause 20; clause 22 and schedule 7; clause 23 and schedule 8; clause 38 and schedule 15; clauses 39 and 40; clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 and schedule 18; clauses 68 to 78; clause 83; clause 89; clause 90; any new clauses or new schedules relating to tax thresholds or reliefs, the subject matter of any of clauses 68 to 78, 89 and 90, gaming duty or remote gaming duty, or tax avoidance or evasion)

Eighth Sitting

Thursday 6 December 2018 (Afternoon)

CONTENTS

CLAUSE 60 agreed to. CLAUSES 63 TO 67 agreed to. Adjourned till Tuesday 11 December at twenty-five past Nine o’clock. Written evidence reported to the House.

PBC (Bill 282) 2017 - 2019 No proofs can be supplied. Corrections that Members suggest for the final version of the report should be clearly marked in a copy of the report—not telephoned—and must be received in the Editor’s Room, House of Commons,

not later than

Monday 10 December 2018

© Parliamentary Copyright House of Commons 2018 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 275 Public Bill Committee 6 DECEMBER 2018 Finance (No.3) Bill 276

The Committee consisted of the following Members:

Chairs: MS NADINE DORRIES, †MR GEORGE HOWARTH

† Afolami, Bim (Hitchin and Harpenden) (Con) † Lewis, Clive (Norwich South) (Lab) Badenoch, Mrs Kemi (Saffron Walden) (Con) † Reynolds, Jonathan (Stalybridge and Hyde) (Lab/ † Black, Mhairi (Paisley and Renfrewshire South) Co-op) (SNP) † Smith, Jeff (Manchester, Withington) (Lab) † Blackman, Kirsty (Aberdeen North) (SNP) † Sobel, Alex (Leeds North West) (Lab/Co-op) † Charalambous, Bambos (Enfield, Southgate) (Lab) † Stride, Mel (Financial Secretary to the Treasury) † Dodds, Anneliese (Oxford East) (Lab/Co-op) † Syms, Sir Robert (Poole) (Con) Dowd, Peter (Bootle) (Lab) † Whately, Helen (Faversham and Mid Kent) (Con) † Ford, Vicky (Chelmsford) (Con) † Whittaker, Craig (Lord Commissioner of Her † Jenrick, Robert (Exchequer Secretary to the Majesty’s Treasury) Treasury) Colin Lee, Gail Poulton, Joanna Dodd, Committee † Keegan, Gillian (Chichester) (Con) Clerks † Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con) † attended the Committee 277 Public Bill Committee HOUSE OF COMMONS Finance (No.3) Bill 278

This amendment would require the Chancellor of the Exchequer to Public Bill Committee review the revenue, environmental and certain other impacts of the changes made by Clause 60. Amendment 121, in clause 60, page 44, line 17, at end Thursday 6 December 2018 insert— “(3) The Chancellor of the Exchequer must review the effects (Afternoon) of the changes made in subsection (1) together with the matter specified in subsection (4) and lay a report of that review before the House of Commons within six months of the coming into [MR GEORGE HOWARTH in the Chair] force of the changes. (4) The matter specified in this subsection is to assess whether Finance (No. 3) Bill the rate for privately-owned and privately-chartered jets is reflective of environmental costs relative to the other rates and bands of air passenger duty.” (Except clauses 5, 6, 8, 9 and 10; clause 15 and This amendment would require the Government to review the extent to schedule 3; clause 16 and schedule 4; clause 19; which rates of air passenger duty for privately-chartered and privately-owned aircraft reflect environmental costs. clause 20; clause 22 and schedule 7; clause 23 and schedule 8; clause 38 and schedule 15; clauses 39 and 40; Clause stand part. clauses 41 and 42; clauses 46 and 47; clauses 61 and 62 and schedule 18; clauses 68 to 78; clause 83; clause 89; Kirsty Blackman: I will not speak for a terribly long clause 90; any new clauses or new schedules relating to time, because I am sure the Committee is not keen on tax thresholds or reliefs, the subject matter of any of being detained for any longer than necessary. clauses 68 to 78, 89 and 90, gaming duty or remote gaming duty, or tax avoidance or evasion) The devolution of air passenger duty has not been properly completed, so the Scottish Government are unable to put in place air departure tax, which we Clause 60 committed to introducing, or to make our proposed changes first to halve that tax and then to remove it RATES OF DUTY FROM 1 APRIL 2020 completely. We are keen to do that because we believe it is important that we can attract people to visit, live and 2 pm work in our country, and those steps were in the manifesto we were voted in on in 2016. Kirsty Blackman (Aberdeen North) (SNP): I beg to move amendment 104, in clause 60, page 44, line 17, at Complete devolution has not happened due to an end insert— issue with our exemption for the highlands and islands. I understand that the UK Government and the Scottish “(3) The Chancellor of the Exchequer must review the effects of a reduction in air passenger duty rates from 1 April 2020 and Government are working on that. It would have been lay a report of that review before the House of Commons within great if it had been dealt with before, because we hoped six months of the passing of this Act. to have air departure tax in place in April. It has not (4) A review under subsection (3) must in consider the effects been dealt with, but I get the impression that people are of a reduction on— still around the table trying to solve the issue, which is (a) airlines, good news. (b) airport operators, In lieu of APD being properly devolved and our (c) other businesses, and having the powers to make our planned changes in (d) passengers.” Scotland, we support a UK-wide reduction in APD. That is why we tabled amendment 104, which would This amendment would require the Chancellor of the Exchequer to review the effects of a reduction in air passenger duty. require the Chancellor of the Exchequer to “review the effects of a reduction in air passenger duty rates from 1 April 2020”— The Chair: With this it will be convenient to discuss the following: we chose that date because the industry has asked us to ensure that any change in rates is not made immediately— Amendment 120, in clause 60, page 44, line 17, at end insert— “and lay a report of that review before the House of Commons within six months”. “(3) The Chancellor of the Exchequer must review the effects of the changes made in subsection (1) and related matters The review would have to specified in subsections (4) and (5) and lay a report of that review “consider the effects of a reduction on— before the House of Commons within six months of the coming into force of the changes. (a) airlines, (4) The matter specified in this subsection is the revenue effects (b) airport operators, of the changes. (c) other businesses, and (5) The matter specified in this subsection is the effects of the (d) passengers.” changes on— One of the key issues for us is that the comparatively (a) CO emissions, 2 high taxes in the UK sometimes cause difficulties for (b) the United Kingdom’s ability to comply with its third, airlines and airport operators. If we take into account fourth and fifth carbon budgets, VAT, air passenger duty and other taxes, the UK is one (c) air quality standards, of the more highly taxed places to visit as a tourist. We (d) air travel demand, and are keen to see changes so that we can secure the routes (e) air traffic movements.” we have and run more routes. 279 Public Bill Committee 6 DECEMBER 2018 Finance (No.3) Bill 280

Given the remoteness of some communities in Scotland, Committee on Climate Change has repeatedly called on it is important that we have good access to flights. I live the Government to develop a robust domestic mitigation in Aberdeen, which is about two and a half or three policy framework for international aviation emissions hours’ drive from Glasgow and Edinburgh. There are for flights taking off from UK airports. Most recently, international flights out of Aberdeen, but not as many its 2017 and 2018 progress reports in Parliament highlighted as I would like—there are lots of places we cannot get the need for a new strategy and new policies to ensure to unless we drive to Glasgow, Edinburgh or even UK aviation emissions are at about 2005 levels in 2050. further afield. I have previously looked at flying from In its 2018 assessment of the Government’s clean growth Newcastle to get a better range of flights. strategy, it warned that they are falling far short of the I would appreciate it if the Minister, if he cannot necessary action. It noted that no progress has been accept the amendment, talked a bit about what he made on this requirement. thinks would be the impact on airlines, airport operators, The Committee on Climate Change is currently working other businesses and passengers of reducing air passenger to update its advice to the Government on mitigating duty. If he does not want to talk about that because it is aviation emissions. It is due to report on that in the not the Government’s policy to reduce air passenger spring—we await that with interest. One aspect of its duty, it would be interesting to hear why it is not their guidance that is unlikely to change and is highly salient policy given my concerns. We are calling for a review to the clause is the recognition that the UK’s participation because the amendment of the law resolution does not in international mitigation programmes for aviation allow us to change it in a serious way. I hope I have laid emissions, such as the International Civil Aviation out the Scottish National party’s position clearly. Organisation’sCORSIA—carbon offsetting and reduction scheme for international aviation—agreement to offset growth from 2020 and the EU’s emissions trading scheme Clive Lewis (Norwich South) (Lab): With your leave, will simply not be sufficient to keep UK aviation emissions Mr Howarth, I will speak to amendments 120 and 121, within safe limits, as defined by the Committee on and press them to a vote if necessary, before moving on Climate Change. to other significant questions that we feel need answering Likewise, even if some fairly heroic assumptions are in relation to the clause. As numerous environmental made about technology, operational improvements and non-governmental organisations, scientists and even the the uptake of genuinely sustainable biofuels, the projected chair of the Committee on Climate Change have observed, growth in demand for air travel is expected to outstrip the Government are failing to tackle the climate crisis these efficiency gains, causing emissions to rise above that is already upon us, and we believe that that is the safe limit. In 2009, the Committee on Climate reflected in their policy on air travel. There is an awkward Change advised the Government that: mismatch between our world-leading climate change legislation and our policy and prevailing political attitudes “Deliberate policies to limit demand below its unconstrained level are therefore essential if the target is to be met.” towards aviation. That has remained its formal position ever since. The purpose of amendment 120 is to force the The statutory advice to Government by the committee— Government to share with Parliament the impact, or renowned, by the way, as among the best climate change the lack thereof, of their proposed changes to air passenger advisers in the world—is therefore that the growth in duty on a variety of environmental concerns. The demand for UK air travel must be limited if our climate Committee will be aware that the projected impact of change targets are to be met. That is clear. However, no climate change poses severe risks, not just to the natural Government, least of all this one, has yet proposed any environment but to the prosperity of the British nation such policies. On the contrary, this Government have and the welfare of the people we represent in the House. acted to remove constraints to growth in UK air traffic, Aviation has a significant and growing impact on such as by approving a third runway at Heathrow climate change. Emissions from the sector rose by 1.2% in Airport without any corresponding measures to meet 2016. It currently represents about 7% of the UK’s total climate change commitments. emissions yet, on current projections, that figure will That is why we seek through amendment 120 to reach 25% by 2050 as a result of increases in aviation compel the Government to review air passenger duty, demand and carbon reduction in other sectors. That is its effect on the demand for air travel and the consequent because aviation currently enjoys a uniquely generous effect on greenhouse gas emissions. That is not to say target under our national framework for reducing emissions that APD is the only lever that the Government have, through to 2050—namely, it is not expected to make but it is incumbent on them to make it clear how they any contribution in our carbon budgets to those reductions, will achieve the climate objectives agreed by consensus and is instead required to conform to a level of emissions of the House. Perhaps the Minister will answer some in 2050 that are no higher than 2005 levels, which is 37.5 questions—I am sure the Committee on Climate Change megatonnes of carbon dioxide. That is known as the will be interested in hearing the answers. Committee on Climate Change planning assumption What impact APD rates have on demand today? for aviation. That generous target is in recognition of How high would APD rates need to be, or what other the difficulty of decarbonising air travel through technology measures would have to be in place, to constrain growth and operational improvement, and of the utility and in emissions to within the safe limits advised by the social value of air travel for those who are lucky enough Committee on Climate Change? Was that even a to use it. consideration of the Government when developing the Department for Transport aviation forecasts show Bill? Assuming that the Minister agrees it is indeed that UK aviation emissions are currently on course to the Government’s goal, he might say that APD is not exceed even that generous limit, thus potentially jeopardising the best or most equitable route to achieve that goal, our ability to meet our overall climate change targets in but we need to be clear that there is another route. The the form of the fourth and fifth carbon budgets. The answers we hope to receive will help us all as legislators 281 Public Bill Committee HOUSE OF COMMONS Finance (No.3) Bill 282

[Clive Lewis] fifth say they never fly. Research suggests that 70% of all flights by UK residents are taken by 15% of the to decide whether APD and the suggested rate changes population—the so-called frequent fliers. That group are indeed an effective mechanism to achieve the probably includes many people in this room. Only 1% of Government’sstated policy,or whether alternative measures the general population fly more than seven times a year, would be more economically efficient and fiscally but the richest 5% of households fly 13 times a year. progressive. Growth in demand for air travel is likewise being driven We understand that limiting growth in demand for by the UK’s wealthiest residents. Perhaps the Minister air travel is politically fraught, and that important can share any official figures the Government hold. social justice dimensions must be considered when designing In any event, to avoid catastrophic global warming, any policies to achieve that aim. The issue, however, we must collectively limit carbon emissions from aviation. cannot be ducked forever. The Government have been, Ordinary people taking occasional family holidays or and continue to be, remiss in their duties by failing to visiting relatives abroad should not be the priority for make any assessment of the potential for different fiscal any policy designed to curb demand growth. measures or other policy approaches to constrain UK aviation emissions in line with Committee on Climate 2.15 pm Change guidance. Kirsty Blackman: The hon. Gentleman makes a strong Modal shift from air to rail is an important feature of case for the amendments. Given that more information nearly all decarbonisation scenarios intended to deliver is better, we are happy to support them. For the avoidance zero net emissions by the middle of the century, as per of doubt, I would love to stop flying every week. An the UK commitment under the Paris agreement. At the independent Scotland would mean we could do that, moment, however, it is much cheaper to travel from and it would reduce our carbon footprint. London to Edinburgh by plane than by train. That is in part a product of the chronic failure of Britain’sill-advised experiment with the privatisation of our railways, but Clive Lewis: The hon. Lady makes a good point— there is an argument that it is also due to tax advantages enjoyed by aviation over other modes of transport, Anneliese Dodds (Oxford East) (Lab/Co-op): It is not which brings us back to the clause. that good a point. Under international air service agreements,it is prohibited to tax aviation fuel—an anachronism from the earliest Clive Lewis: It is a very good point in the sense that days of international aviation, when only a handful of the hon. Lady cannot not come down here—I understand passenger planes were in the sky and Governments that. It is not such a good point about breaking away sought to do all they could to nurture this exciting new from the United Kingdom, and independence. However, economic sector. Seventy years later, more than 23,000 we understand that she has to make the journey for aircraft are in the global fleet, and yet this highly work purposes. mature industry continues to enjoy tax-free fuel, a perk It is a small minority of people who have to work in it has retained through a combination of lobbying and the way that the hon. Lady does, but many people now the structural difficulties of levying a tax on an activity talk about the use of new technologies, and there may that, by its nature, crosses national boundaries. come a time, in the near future, when a holographic That anomaly is the subject of intense debate in image of her could be here to represent her constituents. France, where motorists are rightly pointing out the That may soon be upon us—who knows? We have been gross disparity between the high rates of duty in the form talking about the impact of technology. of a carbon tax levied on petrol and diesel at the pump, and the total absence of taxation on aviation fuel. Former French environment Minister, Nicolas Hulot, The Chair: Order. I should tell the hon. Gentleman last week joined calls for kerosene to be taxed. Serving that no hologram form will be recognised in this Committee. members of the French Government say that they are now speaking with the European Commission. Clive Lewis: Thank you, Mr Howarth, for that In addition to duty-free fuel, airline tickets, planes, clarification, which was clearly needed. parts, repairs and fuel are all zero-rated for VAT,alongside As I was saying, it would be neither socially fair nor items such as baby clothes and wheelchairs. There is environmentally effective if ordinary people taking also the duty-free shopping in airports. Given that occasional family holidays or visiting relatives abroad history, the price of air travel does not reflect the were made the priority for any policy designed to curb environmental damage caused by flight. Taxing air travel demand growth. Therefore, as amendments 120 and 121 appropriately is clearly a difficult political problem to would provide,the Government need to make an assessment solve, and I want to make it clear that we do not of the distributional impact of increasing aviation tax advocate that such travel should become a privilege rates on specific groups who could be disproportionately available only to the rich. However, it is important to affected. understand the social justice dimensions of the challenge The Opposition fully accept that, ultimately, APD clearly. may not be the right instrument to bring aviation growth APD has been criticised in the past as a blunt instrument. into line with the planning assumption of the Committee That may be true, but it is overall a fiscally progressive on Climate Change. However, without the reviews we tax in the sense that it is mostly collected from households are calling for in amendments 120 and 121, it will be all at the upper end of the income spectrum. Government but impossible to know whether it can play a role, or survey data suggests that about half of British residents whether there are better alternatives. There have, for do not take any flights in a given year, while about a instance, been proposals for a per-plane tax, which 283 Public Bill Committee 6 DECEMBER 2018 Finance (No.3) Bill 284 would more closely link taxation to carbon emissions, Robert Jenrick: As I understand it, we handed it over and be a better incentive for more efficient use of in accordance with EU law.Negotiation has subsequently passenger capacity in planes. Alternatively, there could taken place between the Scottish Government and the be a frequent flyer levy designed to protect access to a EU, with the support of the UK Government, to try to reasonable amount of flying for low-income households, find a satisfactory resolution. I assure the hon. Lady—I while targeting the most frequent flyers with an do not think she implied otherwise—that we are working incrementally rising tax, thus addressing the elasticity as hard as we can to support the Scottish Government of demand for air travel in relation to low prices or high in that respect. In fact, my officials at the Treasury were income—or the fact that the key determinant of the in Edinburgh in the past couple of weeks to continue propensity to fly is income, not ticket price. working with the Scottish Government in that regard. I I take no view of those options today, because we hope she takes our assurance that we will continue to simply need to understand more about how they would work productively together. work; but that is precisely why we need the Government Because APD is essentially a devolved matter—although, to undertake formal assessments that allow us to compare as a result of the request, we have not yet turned it the impact of potential options on the factors set out in off—the Scottish Government could of course choose the amendment. Small changes in price have little impact to carry out the review that the hon. Lady requests on demand for flights, so increasing the cost of flights themselves. Alternatively, they could choose not to pursue to a level that exerts significant downward pressure on the measure with respect to the highlands and islands demand is difficult to do fairly via the taxes that the and to continue with their plans for their own version of clause deals with, and could mean pricing the poor out air passenger duty. I appreciate that they do not wish to of the skies when the richest air travellers cause most of do that. However, I hope that I can allay the hon. Lady’s the environmental damage. In any event, without the concerns by saying we are going to work as closely as Government carrying out the necessary assessments, possible. I do not think a review by the United Kingdom which our amendments would require, we cannot know Government is necessary when the Scottish Government what APD rates are required to meet the planning could proceed with one if they wished. assumption of the Committee on Climate Change, or The hon. Lady and the hon. Member for Norwich the relative efficacy of APD and alternative fiscal South asked what evidence and reports we had, and approaches, such as a per-plane tax or a frequent flyer what studies we had done, on the impact of reducing air levy, for achieving this policy goal. passenger duty on Treasury receipts or its wider benefits to the economy and society. We reviewed the 2016 PwC Let me end with a sobering fact. As the widely report, which the hon. Lady may be aware of. We did respected naturalist David Attenborough warns the world not agree with all its conclusions in terms of cutting or at COP 24 that the collapse of our civilisation is on the abolishing APD. Its principal claim was that that would horizon, the two largest aircraft manufacturers in the pay for itself, and we did not agree with that. APD world—Boeing and Airbus—have more than 13,000 raises £3.4 billion a year, so it is a significant revenue new fossil fuel-powered planes on order. Given the long raiser for the Exchequer. Cutting it would put pressure operational lifespan of passenger jets, most of those on other public finances, although I appreciate that it planes will still be in the air in 2050, as will many of would have some benefits in different parts of the the 23,000 already in use. Given what is at stake, can the country. Recently, our limited study on devolving air Minister, hand on heart, genuinely say that the passenger duty for long-haul flights in Northern Ireland Government’s policies, future techno-fixes aside, are acknowledged that there could be some benefits, but it really up to the existential challenge that we all face? also raised a number of further questions and concerns that require further study. The Department for Transport will publish its aviation The Exchequer Secretary to the Treasury (Robert strategy shortly. That will, I hope, answer some of the Jenrick): I will respond to as many comments as I can. I broader questions that the hon. Member for Norwich will come to the amendment tabled by the hon. Member South asked about our long-term strategy and plan for for Aberdeen North, but we agreed and legislated to this country, whether it is in technology, aviation and devolve air passenger duty to the Scottish Government. airport capacity or the environmental concerns he expressed. The delay in so doing is unfortunate—it is not what we Air passenger duty was never designed to be an wished to happen—but it is a result of the Scottish environmental tax. One might argue that it could be Government’s asking us to postpone the implementation used as an environmental tax, but that was never its of devolution. They did so for the perfectly understandable primary purpose; it was a tax designed to raise revenue reason that they wished to pursue the measure with for the Exchequer to pay for public services. It is already respect to the highlands and islands, but it was essentially the highest tax of its kind in Europe, and one of the their decision, which we respected in agreeing to postpone highest in the world, so it is not clear whether increasing the turning on of devolution, if that is the right phrase, it substantially would make any significant difference, at their suggestion. and doing so would, of course, come at significant cost to our competitiveness as a country. Many would like us to reduce the tax substantially, rather than to increase it Kirsty Blackman: Yes, but the UK Government were materially, as the hon. Gentleman seems to suggest. I trying to hand APD over in such a way that the highlands will come on to his point about the international perspective and islands exemption would no longer exist, so it and the Chicago convention, and what progress the would have been completely deficient and would not Government are making. have operated in the way we hoped or, presumably, the To summarise the clause, it makes changes to ensure way it was intended to work when its devolution was that long-haul rates of air passenger duty for the tax first mooted. year 2020-21 increase in line with the retail prices index. 285 Public Bill Committee HOUSE OF COMMONS Finance (No.3) Bill 286

[Robert Jenrick] to engaging actively on this agenda. I can see that the hon. Member for Oxford East is eager to intervene—she The change will ensure that the aviation sector continues and I have discussed this previously. to play its part in contributing towards funding public services. APD, as I have described, raises £3.4 billion in Anneliese Dodds: I am grateful to the Minister for revenue annually, so it is an important part of our being willing to give way. He will probably remember public finances. Aviation plays a crucial role in keeping that I asked for the concrete ways in which Government Britain open for business, and the UK Government are are engaging with international partners around that keen to support its ongoing success. Passenger numbers convention. I have not received any concrete details travelling via UK airports have grown by more than aside from the general aspiration to change things. Can 15% over the past five years, and the UK has the highest he provide some details now? direct connectivity score in Europe, according to an Airports Council International Europe report. Of course, we continue to measure our competitiveness, and we Robert Jenrick: The hon. Lady and I discussed this in want the UK to continue to have hub airports and to be a Westminster Hall debate earlier in the year. I believe I as well connected to emerging markets as it can be. wrote to her afterwards to set this out, but perhaps she was not satisfied with the response. I am happy to revert The clause increases the long-haul reduced rate— to her with more information, but I made the point in economy class—by just £2; and it increases the standard that letter that the UK Government are committed to rate, which is for all classes above economy, by £4. The this, and we play a leading role internationally in discussing rounding of APD rates to the nearest £1 means that the future of the Chicago convention. As I also set out short-haul rates will remain frozen for the eighth year in in the letter, several of the leading aviation nations— a row, which benefits about 80% of all airline passengers, including the United States and Australia—have limited including many of those whom the hon. Gentleman interest in changing the current regime, which makes it mentioned, who are on lower incomes and trying to rather difficult to make the kind of progress that I enjoy cheaper holidays and less expensive business travel. suspect she would like us to make. The changes made by clause 60 will increase the long-haul APD rates for the tax year 2020-21 by RPI. On amendments 120 and 121, which were tabled by Anneliese Dodds: The Minister is being generous in the hon. Member for Norwich South for the Labour giving way. It might help the Committee to know what party, the Government recognise the importance of meetings the Government have called, which Governments understanding the impact of changes to tax policy on they have contacted to discuss the matter and what the aviation industry. I reassure the Committee that that public pronouncements they have made on the subject. is done as a matter of course by the Government as we I have been unable to find evidence of any. consider carefully how to proceed at every Budget. Furthermore, isolating the impact of APD on the areas Robert Jenrick: I will write to the hon. Lady again to highlighted in the amendments is challenging. It is set out some of the information. I discussed the matter better to consider such issues in a more holistic way. with my officials in preparing for this Committee, and As I have said, the upcoming aviation strategy to be they listed some of the international meetings they have published by the Department for Transport will be the attended, where they represented the United Kingdom opportunity to consider the aviation industry’s impact exactly as she would like us to have done. on and role in addressing issues in such areas. I encourage I hope I have addressed amendment 104 in my earlier the hon. Gentleman and others who take an interest in comments. This is a matter that the Scottish Government those matters to pay careful attention to that. They will could take forward themselves, given that we have already have the opportunity to scrutinise the Secretary of State legislated for the devolution of APD. The impacts of for Transport and other Ministers following that. any future reductions in Scotland are a matter for the On the issue of those at the higher end of the Scottish Government, and they will clearly become distributional scale, in Government we have tackled more so once we proceed to the long-term arrangement that through the introduction of the additional rate for that the hon. Lady wishes for. private jets. The Government are confident that those The changes being made by clause 60 ensure that the flying in that way will now pay a fairer share of tax. We aviation sector continues to play its part in contributing were the first Government to introduce the private jet towards the funding of our vital public services, raising rate, and the rate for individuals flying by private jet is £3.4 billion a year. I therefore commend the clause to six times that of someone flying in economy on a the Committee. commercial jet. Clive Lewis: I want to raise a couple of things before we vote on amendments 120 and 121. The Committee 2.30pm on Climate Change has clearly stated that we are heading In terms of how we can use the tax system to tackle towards a substantial breach of the generous headroom aviation emissions, APD is not designed to be an that has been provided for aviation in the UK. The environmental tax. One could use it for that purpose, Government are going to overshoot that, to use a pun. but it has already been set at a very high rate internationally. There is a pressing climate emergency on this planet. As I am not clear that there is evidence that further material we speak, millions of people—many of them in the increases would make a difference. Because of international world’s poorest countries—are already being affected conventions—the Chicago convention and others, as I by climate change. My dad is from Grenada, and he has described earlier—we are unable to tax aviation fuel or retired there. People there, and in the West Indies generally, any proxies for fuel. The Government remain committed cannot get insurance as a result of the hurricanes that 287 Public Bill Committee 6 DECEMBER 2018 Finance (No.3) Bill 288 destroy vast swathes of the islands year in, year out, “(3) The Chancellor of the Exchequer must review the effects because of climate change. I feel as though we are of the changes made in subsection (1) together with the matter hearing once again from the Government about business specified in subsection (4) and lay a report of that review before as usual, even though a climate emergency is taking the House of Commons within six months of the coming into force of the changes. place. (4) The matter specified in this subsection is to assess whether I understand the APD. It is not designed as an the rate for privately-owned and privately-chartered jets is environmental tax or a demand management tool; it is a reflective of environmental costs relative to the other rates and revenue raiser. Given that we find ourselves heading bands of air passenger duty.”.—(Clive Lewis.) towards a breach of the headroom that the Committee This amendment would require the Government to review the extent to on Climate Change has provided, surely the Government which rates of air passenger duty for privately-chartered and should be looking at ways to control and push down privately-owned aircraft reflect environmental costs. demand for flights, so that we can begin to make a real The Committee divided: Ayes 8, Noes 9. impact on our commitments to tackling climate change. Division No. 33] Will the Minister tell the Committee whether he plans to join our French counterparts in lobbying for tax AYES reform on kerosene, as they will shortly talk about with the EU Commission? It seems to me that the aviation Black, Mhairi Lewis, Clive industry has enjoyed these 70-year-old tax perks and is Blackman, Kirsty Reynolds, Jonathan now an established sector, but one that has yet to fully Charalambous, Bambos Smith, Jeff Dodds, Anneliese Sobel, Alex play its part in tackling climate change. This country can show leadership on that, starting with the Treasury. NOES Kirsty Blackman: I beg to ask leave to withdraw the Afolami, Bim Stride, rh Mel amendment. Ford, Vicky Syms, Sir Robert Jenrick, Robert Amendment, by leave, withdrawn. Keegan, Gillian Whately, Helen Amendment proposed: 120, in clause 60, page 44, line 17, at Lamont, John Whittaker, Craig end insert— “(3) The Chancellor of the Exchequer must review the effects Question accordingly negatived. of the changes made in subsection (1) and related matters Clause 60 ordered to stand part of the Bill. specified in subsections (4) and (5) and lay a report of that review before the House of Commons within six months of the coming into force of the changes. Clause 63 (4) The matter specified in this subsection is the revenue effects of the changes. CLIMATE CHANGE LEVY: EXEMPTION FOR (5) The matter specified in this subsection is the effects of the MINERALOGICAL AND METALLURGICAL PROCESSES changes on— (a) CO emissions, 2 Clive Lewis: I beg to move amendment 124, in (b) the United Kingdom’s ability to comply with its third, clause 63, page 45, line 13, at end insert— fourth and fifth carbon budgets, “(6) The Chancellor of the Exchequer must review the (c) air quality standards, expected effect of the changes made by this section to (d) air travel demand, and paragraph 12A of Schedule 6 to the Finance Act 2000 on (e) air traffic movements.”.—(Clive Lewis.) companies with up to 250 employees and lay a report of that This amendment would require the Chancellor of the Exchequer to review before the House of Commons within six months of the review the revenue, environmental and certain other impacts of the passing of this Act.”. changes made by Clause 60. This amendment would require the Chancellor of the Exchequer to review the impact of Clause 63 on SMEs. The Committee divided: Ayes 8, Noes 9. Division No. 32] The Chair: With this it will be convenient to discuss AYES the following: Amendment 125, in clause 63, page 45, line 13, at end Black, Mhairi Lewis, Clive insert— Blackman, Kirsty Reynolds, Jonathan Charalambous, Bambos Smith, Jeff “(6) The Chancellor of the Exchequer must review the Dodds, Anneliese Sobel, Alex expected effect of the changes made by this section to paragraph 12A of Schedule 6 to the Finance Act 2000 in the event that— NOES (a) the UK leaves the European Union without a Afolami, Bim Stride, rh Mel negotiated withdrawal agreement, Ford, Vicky Syms, Sir Robert (b) the UK leaves the European Union following a Jenrick, Robert negotiated withdrawal agreement. Keegan, Gillian Whately, Helen (7) The Chancellor of the Exchequer must lay a report of the Lamont, John Whittaker, Craig review under subsection (6) before the House of Commons within two months of the passing of this Act.”. Question accordingly negatived. This amendment would review the impact of Clause 63 in the event the UK leaves the EU under (a) no deal or (b) a withdrawal agreement. Amendment proposed: 121, in clause 60, page 44, line 17, at Amendment 126, in clause 63, page 45, line 13, at end end insert— insert— 289 Public Bill Committee HOUSE OF COMMONS Finance (No.3) Bill 290

“(6) The Chancellor of the Exchequer must review the it clarifies that a landlord can claim the exemption for expected effect of the changes made by this section to both mineralogical and metallurgical processes on behalf paragraph 12A of Schedule 6 to the Finance Act 2000 on of a tenant. divergence between the regime that applies to mineralogical and metallurgical processes in the United Kingdom after it has left Although it is estimated that the measure will have a the European Union and that which applies in the European minor impact on the Exchequer, we have a number of Union. concerns. We appear to be lacking assessments of the (7) The Chancellor of the Exchequer must lay a report of the market impact of the clause, its effect on our leaving the review under subsection (6) before the House of Commons European Union and its consequences for the UK’s within two months of the passing of this Act.”. carbon budgets and other greenhouse gas emissions This amendment would require the Chancellor of the Exchequer to reduction targets, as well as for tenanted businesses review the effect of Clause 63 on divergence between the UK’s regime covered by it. for mineralogical and metallurgical processes and the EU’s, after the UK has left the EU. Amendment 124 would require the Chancellor to review the impact of the clause on small and medium-sized Amendment 127, in clause 63, page 45, line 13, at end enterprises. We are surprised by the Government’s lack insert— of consideration of this matter, as SMEs, which lack the “(6) The Chancellor of the Exchequer must publish a staff and financial resources of large companies, often statement annually listing the companies to which the struggle to cope with the impact of new financial regulation. exemption for mineralogical and metallurgical processes under As SMEs are important to maintaining existing jobs paragraph 12A of Schedule 6 to the Finance Act 2000, as and creating new jobs and apprenticeships, will the amended by this section, applies.”. Minister support our proposed review and help that This amendment would require the Chancellor of the Exchequer to critical part of our economy, which is already hard publish an annual statement listing the businesses to which the pressed? exemption for mineralogical and metallurgical processes applies. Amendments 125 and 126 would require the Chancellor Amendment 128, in clause 63, page 45, line 13, at end to review the impact of the clause in the event that the insert— UK leaves the EU either in a no-deal scenario or under “(6) The Chancellor of the Exchequer must carry out an a withdrawal agreement, and its effect on divergence impact assessment of the exemption for mineralogical and between the UK and EU regimes for these processes if metallurgical processes under paragraph 12A of Schedule 6 to the UK leaves the EU. Again, we are surprised that the the Finance Act 2000, as amended by this section, considering the impact on— Government have not seen fit to carry out such assessments. Does the Minister intend to do so? If not, why not? (a) tenanted businesses that carry out mineralogical and metallurgical processes, Amendment 127 would require the Chancellor to publish annually a list of the businesses to which the (b) revenue effects, exemption for mineralogical and metallurgical processes (c) the UK’s ability to meet its third, fourth and fifth applies. As the Government are only too aware, there is carbon budgets, nothing like keeping on top of matters to ensure that (d) the UK’s ability to meet its greenhouse gas emission legislation has the desired outcome and markets respond targets. appropriately to the necessary signals. Will the Minister (7) The Chancellor of the Exchequer must lay the impact support our amendment so we can all follow the unfolding assessment under subsection (6) before the House of Commons impact of the climate change levy and its exemptions in within two months of the passing of this Act.”. this sub-sector? This amendment would require the Chancellor of the Exchequer to Given the stark realities of the latest scientific findings carry out an impact assessment of the changes made by Clause 63 and submitted to the conference of the parties under the their impact on tenants, HMRC revenues, the UK’s national carbon UN framework convention on climate change, which is budgets, and carbon and other greenhouse gas emission reduction targets. meeting this week in Poland, the Minister surely agrees that nothing is more important than continuously Clause stand part. monitoring, with an eagle eye, the greenhouse gas emissions of every sector in the UK. Monitoring leads to measurement, which leads to management. We must carry out official assessments if we are most effectively Clive Lewis: I am particularly pleased to have the to support British industry and companies to reduce opportunity to speak to our amendments to clause 63, their carbon and other greenhouse gas emissions. That which relate to the climate change levy exemption for means embracing opportunities to modernise our industrial mineralogical and metallurgical processes. I hope that I processes as we rapidly move along the path to a zero- do not have to say that too often—it is a bit of a carbon economy and help the world stay within the tongue-twister—and that the Minister will answer some boundaries of the 1.5° warming target of the questions on the Government’s proposed measures. Intergovernmental Panel on Climate Change. The clause may seem technical, but the overall issue Amendment 128 would require the Chancellor to could scarcely be more important, as I hope I illustrated carry out an impact assessment of the effects of the earlier. As the Minister no doubt will outline, business changes made by the clause on tenants, the revenues of do not have to pay the climate change levy on the energy Her Majesty’s Revenue and Customs, the UK’s national theyuseforsomespecifiedpurposes,includingmineralogical carbon budgets, and carbon and other greenhouse gas and metallurgical processes. The clause amends the emission targets. The guidance notes to the clause state definition of mineralogical processes so the exemption that its impact on the Exchequer is negligible, but will for energy used in those processes will remain operable the Minister please explain how, unless it investigates, following the UK’s departure from the EU. In addition, HMRC will know how many heavy industry or fossil 291 Public Bill Committee 6 DECEMBER 2018 Finance (No.3) Bill 292 fuel use tenants will be affected? Without a confident continuity for businesses. Overall, we judge that they quantification, that assertion is meaningless, as I am will have a negligible impact, as we set out in the sure he agrees. relevant tax information impact note published in July. Moreover, by extending relief, the clause in effect The clause does two things. First, it removes “by a encourages those tenants, alongside existing owners person” and “to a person” from the current wording of and plant operators, to continue emitting carbon and the exemption, to clarify that it is the energy used in other greenhouse gases rather than switching to alternative mineralogical and metallurgical processes that qualifies generation methods with lower emissions. Will he please for exemption, rather than the person carrying out the explain why the Government would want that, and process, as the current drafting suggests. This means what complementary measures they are taking to support that all firms using energy to carry out these processes businesses that want to convert to lower-emission modes can claim the exemption. I believe this will be widely of generation? welcomed by those who have approached us previously. Secondly, the clause replaces the reference to the 2.45 pm energy taxation directive in the definition of mineralogical Given the imperative to reduce greenhouse gas emissions processes with a reference to the appropriate NACE following the latest IPCC report and to contribute to code. These codes are an internationally recognised stabilising the average annual temperature increase to system for classifying economic activity and are of UN no more than 1.5°C, the Government should take all origin. This aligns the definition with the way metallurgical possible measures to help industry to adapt and to processes are defined, which already refers to NACE retrain and re-skill workers so that they can secure codes. I hope that is clear. well-paid jobs in the emergent low to zero-carbon Amendments 124 and 128 would require the Government economy—the so-called just transition. In that vein, it to assess the impact of these changes on small and is also necessary to calculate a new greenhouse gas medium-sized enterprises, tenants, revenue, carbon budgets emissions budget for any policy change likely to encourage and greenhouse gas emissions reduction targets. more intense fossil fuel use and therefore higher greenhouse Amendment 127 would require the Government to gas emissions. Will the Minister tell us whether that publish an annual statement listing the companies that calculation has been undertaken and inform the Committee have benefitted from these changes. of its results? If it has not been, will he agree to look While the first change that the clause makes will have into the matter and inform the House of any further a negligible impact, as set out in the relevant tax information findings? impact note earlier this year, the second change will This is a small but important change to the Government’s have no impact on these businesses and sectors. Indeed, levy. Taken as it stands, it is, sadly, in tune with their if we did not make these changes, there would be an refusal to use the levy in the way it was intended—to impact as we leave the European Union. reduce greenhouse gas emissions. However, like the Amendment 125 would require the Government to former Chancellor’s irresponsible and perverse decision review the effect of these changes in both a no-deal and to impose the levy on lower-carbon, renewable forms of a negotiated exit from the EU. Amendment 126 would generating electricity, such as solar and wind power, the require the Government to review the effect of those clause exempts industries that should be incentivised to changes on any divergence between the exemption in use less-polluting alternatives. the UK and similar exemptions in the rest of the We deeply regret Government decisions over the last European Union. Both changes made by the clause will few years, including axing the fund to support work on ensure the exemption continues to operate exactly as carbon capture and storage, which could have helped to intended now and after the UK leaves the EU. make us a world leader in a growing new industry, as The changes introduced by the clause do not affect well as in tackling climate change. However, similar how the exemption works in the UK compared with objectives can be achieved through the Bill by offering other European countries; they apply equally while we clear incentives, through the tax system, to clean up remain in the EU, if we were to leave the EU with a these sectors, and not by offering tax breaks like this negotiated deal or in the event that we leave with no levy exemption to continue down the high-emission deal. I therefore urge hon. Members to reject the path. For that reason, we must question the wisdom of amendments. The information required to fulfil the this measure. Unless the Minister gives a clear assurance requests made in the amendments is either already in that the measure is in the context of other steps to the published impact assessment or, for the reasons I reduce climate change emissions, we will not be able to have just described, unnecessary. support the clause. There was a question from the hon. Member for Norwich South about how the Government know that Robert Jenrick: Clause 63 makes changes to the definition the impact on revenue from landlords and tenants is of mineralogical processes in the climate change levy negligible. We do not have data in terms of specific exemption for energy used in mineralogical and numbers, because the tax is paid to HMRC by energy metallurgical processes, to ensure that the exemption suppliers, not tenants and landlords, but this issue has remains operable following the UK’s departure from not resulted in any lobbying or representations to us, the EU. In response to representations, it also clarifies which suggests that the numbers are extremely low, if that tenants can benefit from the exemption where they not negligible. are supplied with energy via a landlord. This clause maintains the current scope of the exemption The changes will come into effect following Royal processes following the UK’s departure from the EU Assent to the Bill. They are minor, technical changes and, in response to representations from stakeholders, designed to maintain the status quo and to provide ensures that businesses entitled to the exemption are 293 Public Bill Committee HOUSE OF COMMONS Finance (No.3) Bill 294

[Robert Jenrick] The Chair: With this it will be convenient to discuss the following: not precluded from benefiting, purely because they are Amendment 131, in clause 64, page 45, line 22, at end tenants. I therefore move that the clause stand part of insert— the Bill. “(5) The Chancellor of the Exchequer must review the Clive Lewis: I thank the Minister for that response. expected effect of the changes made by this section to section 42 All I will say is that, if I understand it correctly, the of the Finance Act 1996 on the UK’s ability to meet the Waste Framework Directive target of recycling 50% of waste by 2020, reason he is confident of those numbers is that no one is and lay a report of that review before the House of Commons complaining. That is an interesting statistical analysis within six months of the passing of this Act.” on which to base it, but I will accept it for now. I beg to This amendment would require the Chancellor of the Exchequer to ask leave to withdraw the amendment. review the impact of Clause 64 on the UK’s ability to meet the target of Amendment, by leave, withdrawn. recycling 50% of waste by 2020. Amendment proposed: 128, in clause 63, page 45, line 13, at Amendment 132, in clause 64, page 45, line 22, at end end insert— insert— “(6) The Chancellor of the Exchequer must carry out an “(5) The Chancellor of the Exchequer must review the impact assessment of the exemption for mineralogical and expected effect of the changes made by this section to section 42 metallurgical processes under paragraph 12A of Schedule 6 to of the Finance Act 1996 on the quantity of waste from the the Finance Act 2000, as amended by this section, considering United Kingdom that is exported abroad.” the impact on— This amendment would require the Chancellor of the Exchequer to (a) tenanted businesses that carry out mineralogical and review the impact of Clause 64 of the amount of UK waste that is metallurgical processes, exported abroad. (b) revenue effects, Amendment 133, in clause 64, page 45, line 22, at end (c) the UK’s ability to meet its third, fourth and fifth insert— carbon budgets, “(5) The Chancellor of the Exchequer must review the (d) the UK’s ability to meet its greenhouse gas emission expected effect of the changes made by this section to section 42 targets. of the Finance Act 1996 on the quantity of waste that is sent to (7) The Chancellor of the Exchequer must lay the impact landfill in the year after the increased rates come into effect and assessment under subsection (6) before the House of Commons compare it with the quantity of waste that has been sent to within two months of the passing of this Act.”—(Clive Lewis.) landfill before that coming into effect. This amendment would require the Chancellor of the Exchequer to (6) The Chancellor of the Exchequer must lay the review carry out an impact assessment of the changes made by Clause 63 and their impact on tenants, HMRC revenues, the UK’s national carbon under subsection (5) before the House of Commons within two budgets, and carbon and other greenhouse gas emission reduction months of the passing of this Act.” targets. This amendment would require the Chancellor of the Exchequer to Question put, That the amendment be made. review the impact of this measure on the amount of waste being sent to landfill and to compare it with the amount that had been sent The Committee divided: Ayes 8, Noes 9. previously. Division No. 34] Amendment 134, in clause 64, page 45, line 22, at end AYES insert— Black, Mhairi Lewis, Clive “(5) The Chancellor of the Exchequer must review the Blackman, Kirsty Reynolds, Jonathan expected impact on the environment of increasing the difference Charalambous, Bambos Smith, Jeff between the standard and reduced rates of landfill tax and lay a Dodds, Anneliese Sobel, Alex report of that review before the House of Commons within two months of the passing of this Act.” NOES This amendment would require the Chancellor of the Exchequer to review the anticipated environmental impact of increasing the Afolami, Bim Stride, rh Mel difference between the standard and lower rates of landfill tax. Ford, Vicky Syms, Sir Robert Amendment 135, in clause 64, page 45, line 22, at end Jenrick, Robert insert— Keegan, Gillian Whately, Helen Lamont, John Whittaker, Craig “(5) The Chancellor of the Exchequer must review the expected effect of the changes made by this section to section 42 of the Finance Act 1996 on the cost of collecting landfill tax and Question accordingly negatived. lay a report of that review before the House of Commons within Clause 63 ordered to stand part of the Bill. two months of the passing of this Act.” This amendment would require the Chancellor of the Exchequer to effects on the costs of collecting landfill tax of the changes made by Clause 64 Clause 64. Amendment 136, in clause 64, page 45, line 22, at end LANDFILL TAX RATES insert— “(5) The Chancellor of the Exchequer must review the Clive Lewis: I beg to move amendment 130, in expected effect of the changes made by this section to section 42 clause 64, page 45, line 22, at end insert— of the Finance Act 1996 on waste disposal practice by waste “(5) The Chancellor of the Exchequer must review the revenue disposal operators and lay a report of that review before the effects of the changes made by this section to section 42 of the House of Commons within two months of the passing of this Finance Act 1996 and lay a report of that review before the Act.” House of Commons within six months of the passing of this This amendment would require the Chancellor of the Exchequer to Act.” review the behavioural impacts on waste disposal operators of the changes made by Clause 64. This amendment would require the Chancellor of the Exchequer to review the revenue impact of Clause 64. Clause stand part. 295 Public Bill Committee 6 DECEMBER 2018 Finance (No.3) Bill 296

Clive Lewis: I am not quite sure how I have displeased Has expert opinion been taken? Was there any consultation the shadow Chancellor so that I have to do yet another or was a broad assumption made without detailed speech, this time on rubbish—or landfill—but it has consideration behind it? fallen to me. I will speak to our amendments to clause 64, Similarly, amendment 131 requires the Chancellor to and I hope the Minister can answer some of the questions review and publish the analysis of and any findings on on it. As will become clear, we have some serious doubts the impact of the clause on our ability to meet the about the clause as it stands, which I will explain in EU-mandated target of recycling 50% of our waste by greater detail. It might be that the Minister resists our 2020. As the Minister is aware, our low recycling target amendments, but in any event I hope he will have some is unambitious by comparison with that of our northern answers to the serious questions we have. European neighbours such as Sweden, which has developed As the Minister will no doubt outline, the clause sets highly effective closed-loop resource, recycling and reuse the rates of landfill tax for 2019-20, increasing the systems for a number of household waste items. standard and the lower rates in line with RPI rounded Those more successful countries have achieved that to the nearest 5p. The Exchequer impact is estimated to change in significant part through tax changes, such as be nil. That change was announced in the autumn 2017 the decision to cut VAT on repairing bicycles, clothes, Budget and follows the pattern of increasing duty rates household linen, leather goods and shoes from 25% to in line with inflation, which applied for both 2017 and 12%. Will the Minister tell us whether the Government 2018. In the 2018 Budget, the Government announced have given any consideration to such steps given their that duty rates will be increased in the same way for potential interrelationship with total quantities of landfill 2020. waste? The measure, although it widens the differential between Sweden also allows people to claim back from income the lower and the standard rates of the tax, is estimated tax 30% annually—up to 50,000 Swedish kroner, or by the Government to have no overall impact on Exchequer some £5,000 per person—of the labour cost of repairs revenue, but we are concerned about a number of points to white goods appliances such as fridges,ovens,dishwashers to which I will draw the Minister’s attention. As has and washing machines, as well as purchases of data and become something of a theme in our debates today, a IT services, and of some social activities such as babysitting, number of assessments seem to be lacking: the market household cleaning and gardening. Will the Minister and revenue impacts of the clause, its effect on recycling explain why the Government have not taken similarly rates and meeting Government targets, its impact on innovative steps to tackle throwaway consumption and UK waste exports and the amount sent to landfill, the boost the market for repair and reuse, enhance the costs of tax collection, its environmental impact, and its economy through the jobs and small businesses that go impact on the behaviour of waste disposal operators. with it, and enhance social living? Labour Members find it remarkable that the Government should seek to adjust such an important levy on all 3 pm forms of waste—it is one of the few fiscal tools in the Amendment 132 would require the Chancellor to Government’s policy bag to encourage recycling and review the impact of the clause on the amount of UK reuse rates, and to dampen waste streams—without waste exported overseas. Earlier this year, the Minister’s apparently carrying out any assessments in the first colleagues at the Department for Environment, Food instance. Will the Minister explain why the measure is and Rural Affairs announced an overhaul of UK waste being introduced without such basic information being recycling policies because countries such as China were available to him, let alone the Committee? If such data sensibly refusing to take in UK waste exports—the raw are available, why have they not been published alongside materials regularly used in a closed-loop economy.British the Bill with the accompanying Budget documents? household and commercial plastics waste was being That is especially so given that those types of assessment illegally dumped in countries such as Malaysia. Will the would surely guide any reasonable adjustment to the Minister explain the UK’s feeble waste recovery and tax rates in order first to ensure the most beneficial reuse policies—the rates set out are inadequate—and outcomes for the environment and the Exchequer; secondly acknowledge that the effectiveness of the tax is made to accelerate the roll-out of a functioning, closed-loop, worse by the lack of relevant data? circular resource economy in the UK; and thirdly to do Amendment 133 would require the Chancellor to the most we can to stop the illegal dumping of wastes review the impact of the clause on the amount of waste that have such an adverse impact on local communities being sent to landfill, to compare that with historical and environments. Will the Minister confirm that those disposals to the same type of site, and to publish the are indeed objectives of public policy and expand on results and findings of that review. I hope the Minister how he believes that landfill tax and the changes contained recognises that even marginal changes to tax rates can in the clause will contribute to achieving them? What is affect the behaviour of both scrupulous and unscrupulous the evidential basis for the Government’s belief that waste operators. they will do so? According to DEFRA’s collated statistics on waste In that vein, the amendment simply requires the published on 9 October this year, recycling rates from Chancellor to review the anticipated impact of the household waste, biodegradable municipal waste and measure on revenue and to publish it for scrutiny. Will packaging waste have not been updated since 2016. the Minister explain precisely why the Government Moreover, data on the recovery rate for construction assume no impact at all on revenue given that tax and demolition waste; commercial and industrial activity increases on goods and services invariably lead to increases waste; total waste generation and final treatment of all in successful avoidance by some taxpayers? What kind waste; and waste infrastructure have not been updated of modelling and analysis has been conducted internally? since 2014. Will the Minister commit both to writing to 297 Public Bill Committee HOUSE OF COMMONS Finance (No.3) Bill 298 his ministerial colleagues at DEFRA asking them to Such a beneficial undertaking would help both businesses urgently update those statistics, and to sending that and households to reduce drastically their waste streams data to all members of the Committee? In the light of and so cut their work-related and living costs. It would such appalling monitoring, can he explain how the also go a very long way to helping the UK to meet its Government could oversee any type of effective energy and greenhouse gas emission targets on the way management regime, or ensure that different waste streams to becoming a zero-waste, zero-carbon economy. As are not ending up at landfill sites or being dumped well as securing existing jobs and helping to create elsewhere, illegally, to the detriment of local communities many new ones in the reuse, repair and recycling sectors, and urban, suburban and natural environments? adopting the amendments that we are calling for would Similarly,amendment 134 would require the Chancellor undoubtedly help to protect urban, suburban and natural to undertake a review—publishing the analysis and environments where illegal waste dumping continues. findings—of the environmental impact of increasing Will the Minister tell us how he means to address the the difference between the standard and the lower rates very serious concerns of the Environmental Industries of tax. As the Minister will be aware, the disposal of Commission and its members about the growing gap waste can give rise to a range of adverse environmental between the lower rate and the higher rate of this tax? impacts. Those include, but are not limited to, the The existing gap is already causing significant problems unsightly and illegal dumping of household and business in the industry, with some operators presenting for the goods, such electrical appliances, machinery and vehicles, lower rate inert waste that actually contains asbestos clothing, mattresses and soft and hard furnishings; leachates fibres and therefore should be subject to the higher rate. polluted into the ground, water courses and atmosphere; How does the Minister intend to address that imbalance? and rotting organic and bio-degradable materials, which In the EIC’s view, which is shared by Labour and a add methane and other greenhouse gas contributions to number of prominent environmental and countryside global warming and climate change. They also look and non-governmental organisations, the gap should be closed smell bad. and not made wider, so that the tax acts as a deterrent Badly managed legal and illegal waste disposal can to illegal waste disposal of all types and so benefits the attract vermin such as rats, and make life extremely public purse and society at large in significant environmental unpleasant for people in the vicinity. Will the Minister ways. explain why the likely adverse environmental impacts of That being the case, in the absence of significant those changes to the tax rates, not least their potential assurances from the Minister, we will struggle to support to encourage more illegal dumping, have not yet been the clause as it stands. However, I would like to give the assessed? Will he agree to make such an assessment and Minister the opportunity to provide us both with those will the results published as our amendment calls for? assurances and some answers to the questions that we Amendment 135 is in a similar vein, and would have posed. I look forward to his response. require the Chancellor to properly assess, with full publication, the effects on the costs of collecting the landfill tax as a result of the changes to the applied Robert Jenrick: Like the hon. Gentleman, I get all the rates. It is perhaps surprising that the Treasury has not glamorous jobs, so I will endeavour to answer all his seen fit to carry out such a simple cost-benefit analysis questions about landfill. of adjusting the applied rates. Surely it goes without Clause 64 increases the standard and lower rates of saying that without such a cost-benefit analysis, the landfill tax in line with inflation from April 2019, as Government cannot possibly anticipate the impact on announced in Budget 2017. Landfill tax has been immensely the public purse. Will the Minister tell us why such an successful. Since its introduction, the amount of waste elementary assessment of the costs of implementation disposed of at landfill sites has fallen by more than has not been carried out, and will he commit to carrying 70%—of course, we would like to go further—and the out that assessment and publishing the results? benefits of that reduction are twofold. The first is to the Amendment 136 would require an assessment of the economy: we have made better use of scarce resources impact of the tax changes in the clause on the behavioural rather than simply tipping them into holes in the ground impacts on waste disposal operators of all types. The across the country. Secondly, greenhouse gas emissions clause represents a series of missed opportunities by the from decomposing waste are reduced. When waste is Government to adjust and strengthen landfill tax in diverted from landfill, we promote more sustainable ways that would help to address a number of environmental waste treatment, such as recycling. We are committed to and disposal problems and would drive forward the moving towards a more circular economy, and we are roll-out of a closed-loop resource economy across the working together with business, industry, civil society UK by increasing recycling and reuse of goods and and the public to achieve that valuable aim. Landfill tax materials that any responsible society should not be is an important fiscal lever that we can use to achieve it. throwing away. The hon. Gentleman asked why the Government are not doing more to meet their recycling target. The Kirsty Blackman: The hon. Gentleman is making an Government are very committed to meeting the target excellent speech in which he is talking about a lot of of recycling 50% of household waste by 2020. Through sensible measures to reduce waste. I just want to say the Waste and Resources Action Programme, we are that the matter covered in this aspect of the Bill is providing guidance and support to local government to devolved, so if he presses the amendment to a vote, the help it to improve recycling services and to communicate Scottish National party will not take part in it. with householders so that they recycle more. The next milestone in our campaign is the upcoming resources Clive Lewis: I thank the hon. Lady—her point is and waste strategy, on which we at the Treasury have taken on board. been working closely with the Environment Secretary 299 Public Bill Committee 6 DECEMBER 2018 Finance (No.3) Bill 300 and the Department for Environment, Food and Rural from the Treasury to enable them to do so if the site met Affairs. That will outline a number of further measures certain criteria, essentially providing support equivalent to increase recycling across the UK. to the cost of the landfill tax itself. A number of hon. The hon. Gentleman and others will have noticed Members from across the House approached us to ask other important measures in this regard, including the for that support, and we have delivered it as a £10 million announcement of a forthcoming consultation with respect pilot. to a deposit return scheme and other measures in the Budget—for example, a plastic packaging tax, which is Anneliese Dodds: I am very grateful to the Minister to be consulted on, with the aim of increasing the for giving way. However, in the previous Budget, landfill amount of recycled content in all the plastic packaging tax was applied to illegal waste sites, so surely that that we use in our daily lives. measure is more than a pilot. As I understand it, it came Landfill tax continues to provide an incentive to into practice in April this year, because I have been reduce waste from landfill and ensure it is recycled and trying to find out whether or not it has been applied to reduced: as landfill is the most expensive form of waste any sites. Surely that money should already be coming disposal, that makes perfect sense. We have also noted into the Exchequer? in the Budget that we would be willing to consider a future incineration tax once further infrastructure has Robert Jenrick: Perhaps I did not explain myself been put in place to reduce, for example, the amount of correctly to the hon. Lady. The measure that she speaks plastics that are incinerated, further improving the to was in the Budget last year, and has since been environment and reducing the amount of throwaway implemented via a statutory instrument that went through single-use plastics. the House. That measure ensures that the landfill tax is The waste infrastructure delivery programme is providing payable on illegal waste sites. The measure that we have some £3 billion in grant funding over its lifetime to a included in the Budget enables innocent parties—local number of long-term local authority waste management authorities that take on, and wish to clean up, a site that projects, which has helped to increase recycling rates has been left by criminals—to apply through the from 36% in 2008 to 45% in 2017. I hope the hon. Environment Agency as part of the pilot for a sum of Member for Norwich South will await the future resources Treasury funding equivalent to the landfill tax, instead and waste strategy, which will provide a number of of having to pay that tax in addition to all the other important measures.Those will include further information costs involved in cleaning up the site. We hope that that on the reform of the producer responsibility system, will help local authorities with sites that are among the which will play a crucial role in improving recycling worst and most dangerous to public health to meet the capacity and infrastructure in all parts of the country. costs of doing so. That measure was requested by a The clause also changes the tax on disposal at landfill number of Members from across the House. sites. Each tonne of standard-rated material is currently taxed at £88.95, and lower-rated material draws a tax of 3.15 pm £2.80. Those rates per tonne will change to £91.35 and £2.90 respectively from 1 April 2019, which maintains Anneliese Dodds: I am very grateful to the Minister the strong current signal to move waste away from for giving way yet again. Surely Committee members landfill. are scratching their heads and thinking, “Would it not be more efficient and effective just to fund the Environment Amendment 130 would require a review of the revenue Agency properly so it can actually do some prosecutions, effects of the proposed changes. HMRC published tax rather than going through this very complex system?” information impact notes when the rates were announced at the autumn 2017 Budget. Robert Jenrick: We do fund the Environment Agency correctly, and it is stepping up its enforcement of these Anneliese Dodds: As far as I understand it, that note sites. We urged it to do so—that was part of the purpose did not look into the impact of differential tax rates on of the waste crime review. We have also increased the waste crime. The picture is very worrying: the number powers available to local authorities. For example, since of illegal waste sites that the Environment Agency is May 2016, they have been able to issue fixed penalty dealing with had risen to 1,485 at the end of 2017-18, notices for smaller scale fly-tipping. Fly-tipping is a compared with 1,425 the previous year. The number of criminal offence punishable by a fine of up to £50,000 those illegal waste sites that were active had also risen—to or 12 months’ imprisonment. We wish to see more 673—and there were eight fires at those sites last year, successful prosecutions, because this is a significant so why is the Minister not considering those factors? area of criminality that is linked to serious organised Surely a broader review is necessary. crime and other important types of criminality, such as the drug trade and human trafficking, against which we Robert Jenrick: The hon. Lady raises an important wish to take serious action. That is why fly-tipping was question about waste crime,which affects many constituents included in the Government’s review of serious organised across the country, including my own. We have taken a crime in the waste sector, to which I have already number of significant steps. The Secretary of State for referred. Environment, Food and Rural Affairs has conducted Amendment 131 seeks to review the effect of these with the Home Secretary a review of waste crime, which changes on the Government’s ability to meet the waste looked at many of these questions—I believe that review framework directive target of recycling 50% of waste by was published recently. We also included a measure in 2020, and amendment 132 seeks to review their impact the Budget whereby local authorities, or those responsible on the amount of waste exported for treatment abroad. for clearing up illegal waste sites, could receive support As the clause maintains the rates of landfill tax in real 301 Public Bill Committee HOUSE OF COMMONS Finance (No.3) Bill 302

[Robert Jenrick] I will withdraw amendment 130, and will not press amendments 132, 133 and 135, but will press the remaining terms, we do not expect significant changes to the amendments to a vote. I beg to ask leave to withdraw strong behavioural incentives the tax already provides. the amendment. Landfill tax continues to play an important role in our Amendment, by leave, withdrawn. meeting our targets for recycling and encouraging alternative Amendment proposed: 131, in clause 64, page 45, line 22, at forms of waste treatment, and the clause will ensure end insert— that landfill remains the most expensive form of waste treatment. Furthermore, I assure the Committee that “(5) The Chancellor of the Exchequer must review the the Government are committed to meeting the 50% expected effect of the changes made by this section to section 42 of the Finance Act 1996 on the UK’s ability to meet the Waste household waste recycling target through the Waste and Framework Directive target of recycling 50% of waste by 2020, Resources Action Programme and the upcoming resources and lay a report of that review before the House of Commons and waste strategy, on which we at the Treasury worked within six months of the passing of this Act.”.—(Clive Lewis.) extremely closely with the Department for Environment, This amendment would require the Chancellor of the Exchequer to Food and Rural Affairs. I hope the Committee sees that review the impact of Clause 64 on the UK’s ability to meet the target of amendments 131 and 132 are therefore unnecessary. recycling 50% of waste by 2020. Amendment 133 would require a review of the expected Question put, That the amendment be made. effect of these changes on the quantity of waste that is The Committee divided: Ayes 5, Noes 8. sent to landfill. The uprating of landfill tax rates in line with the retail prices index ensures that those rates Division No. 35] remain stable in real terms, and means that the tax can AYES continue to help the Government meet their objective. Figures published regularly—annually, I think—by Her Dodds, Anneliese Smith, Jeff Majesty’sRevenue and Customs show a consistent decrease Lewis, Clive in the amount of waste sent to landfill as a result of Reynolds, Jonathan Sobel, Alex increases the capacity of alternative waste treatment, such as recycling, which is encouraged by our policy on NOES landfill tax rates. As the clause will keep the rates the Afolami, Bim Stride, rh Mel same in real terms, that decrease is expected to continue. Jenrick, Robert Syms, Sir Robert I trust that provides the Committee with sufficient Keegan, Gillian Whately, Helen information, and I ask that amendment 133 not be Lamont, John Whittaker, Craig pressed to a vote. Amendment 134 would require a review of the expected Question accordingly negatived. impact on the environment of increasing the difference Amendment proposed: 134, in clause 64, page 45, line 22, at between the standard and lower rates of landfill tax. end insert— The clause seeks to increase landfill tax rates in line “(5) The Chancellor of the Exchequer must review the expected with inflation. That is the equivalent of maintaining the impact on the environment of increasing the difference between the rates in real terms, which means there will be no real-terms standard and reduced rates of landfill tax and lay a report of that change to the difference between the standard and review before the House of Commons within two months of the lower rates. Although we appreciate there may be concerns passing of this Act.”.—(Clive Lewis.) about illegal dumping or breaking of the rules, we do This amendment would require the Chancellor of the Exchequer to not anticipate the clause making any material difference review the anticipated environmental impact of increasing the to those. The issues the hon. Member for Norwich difference between the standard and lower rates of landfill tax. South legitimately raised about individuals or companies Question put, That the amendment be made. dumping waste on which the higher rate should be paid, The Committee divided: Ayes 5, Noes 8. and seeking to pay the lower rate, are exactly the kinds Division No. 36] of matters that were considered in the waste crime strategy. I hope that reassures the Committee, and I ask AYES that amendment 134 not be pressed to a vote. Dodds, Anneliese Smith, Jeff Lewis, Clive Clive Lewis: I thank the Minister for his answers. I Reynolds, Jonathan Sobel, Alex also thank my hon. Friend the Member for Oxford East for her timely and useful interventions, which shed light NOES on this issue. Afolami, Bim Stride, rh Mel Waste management is often the poor relation when it Jenrick, Robert Syms, Sir Robert comes to policy making. It is not sexy, but it is critical. Keegan, Gillian Whately, Helen We have spoken about the environment and climate Lamont, John Whittaker, Craig change today. Scientists say that it is entirely possible that we could save ourselves from climate change and its Question accordingly negatived. effects, only to destroy ourselves by breaching other Amendment proposed: 136, in clause 64, page 45, line 22, at planetary boundaries. Recycling and waste management end insert— are critical, if we are really to reap the benefits of improved recycling and technological processes that “(5) The Chancellor of the Exchequer must review the expected effect of the changes made by this section to section 42 of the Finance ensure we use resources as efficiently as possible. As we Act 1996 on waste disposal practice by waste disposal operators and move through the 21st century, and population increases, lay a report of that review before the House of Commons within two that will become critical. months of the passing of this Act.”.—(Clive Lewis.) 303 Public Bill Committee 6 DECEMBER 2018 Finance (No.3) Bill 304

This amendment would require the Chancellor of the Exchequer to direct descendants. In its current form, the residence review the behavioural impacts on waste disposal operators of the nil-rate band is particularly complicated when the individual changes made by Clause 64. in question has downsized before their death by selling Question put, That the amendment be made. their residence and either buying a less valuable property The Committee divided: Ayes 5, Noes 8. or going into residential care. Given the crisis in social care and the growing pressure on elderly people to sell Division No. 37] large homes and downsize, that is sure to be fairly AYES common. A recent survey by McCarthy and Stone, one of the UK’s leading retirement house builders, found Dodds, Anneliese Smith, Jeff that 48% of pensioners—nearly 6 million people—are Lewis, Clive considering moving to smaller homes, or would be Reynolds, Jonathan Sobel, Alex encouraged to do so if there were a stamp duty exemption. The attraction of downsizing is clearly growing. NOES The Opposition understand the logic behind the Afolami, Bim Stride, rh Mel Government’s proposed change, which aims to simplify Jenrick, Robert Syms, Sir Robert the residence nil-rate band in cases where homes are Keegan, Gillian Whately, Helen downsized. However, we remain concerned about the Lamont, John Whittaker, Craig rate at which the residence nil-rate band is set, particularly since the Government plan to increase it from £125,000 Question accordingly negatived. to £150,000 in 2019-20, and to £175,000 in 2020-21. For Clause 64 ordered to stand part of the Bill. estates with a net value of more than £2 million, there is a tapered withdrawal of the residence nil-rate band at a rate of £1 for every £2 over the threshold. Clause 65 Like many colleagues in the Opposition and some on the Government Benches, I have profound concerns RESIDENCE NIL-RATE BAND about the impact of inherited wealth on social mobility, inequality and social cohesion in the UK, but I think Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op): there is a consensus that people should be able to pass I beg to move amendment 122, in clause 65, page 46, line 6, properties and family homes—or, if they have sold that at end insert— home and downsized, the equivalent material value—to “(7) The Chancellor of the Exchequer must review the revenue their direct descendants. However, we believe that effects of the changes made in this section and lay a report of inheritance tax on the whole is simply not fit for purpose. that review before the House of Commons within six months of It is not only a universally unpopular tax, but one that the passing of this Act.” fails to raise significant revenue. This amendment would require the Chancellor of the Exchequer to review the revenue effects of the changes made by Clause 65. According to the Government’s own figures in this year’s Budget Red Book, the Treasury is set to raise just The Chair: With this it will be convenient to discuss £5.5 billion in inheritance tax receipts—substantially clause stand part. less than it raises from tobacco duties, alcohol duties, environmental levies, vehicle excise duties and even the insurance premium tax. It is therefore no surprise that Jonathan Reynolds: It is lovely to be able to give my there is a growing surge of public opinion in favour of hon. Friend the Member for Norwich South some well reforming inheritance tax and replacing it with something earned respite before he leaves the Committee briefly. better.The Institute for Public Policy Research’scommission Opposition amendment 122 would require the Chancellor on economic justice, which brought together economists, to publish a review of the impact on inheritance tax academics, the business community and members of revenue of clause 65’s changes to the residence nil-rate civil society,recommended scrapping the tax and replacing band, six months after they are adopted. As we have it with a new gift tax. stated in debates on previous clauses, the lack of an The commission’s report identified that the inheritance amendment of the lawresolution has significantly hindered tax system is easy to avoid and favours the wealthy, our ability to properly amend such clauses, beyond healthy and well advised. It concluded that wealth requesting a general review. transfers confer an unearned advantage on the recipient, The nil-rate band, also known as the inheritance tax and should be taxed more effectively to promote equality threshold, is the amount up to which an estate does not of opportunity. I would go further and say that the have to pay inheritance tax. Everyone has their own principle of taxing income from work more heavily nil-rate band, which is currently £325,000, or £625,000 than income from wealth heavily distorts the UK tax for a married couple. Any part of the estate up to the system. nil-rate band threshold is chargeable to inheritance tax at a rate of 0%. Any part of the estate that exceeds the nil-rate band threshold is usually chargeable to inheritance 3.30 pm tax on death at 40%. The nil-rate band applies to A similar critique of inheritance tax was made by non-exempt property passing on death, together with Paul Johnson from the Institute for Fiscal Studies, who any taxable gifts made within seven years of death. pointed out: Clause 65 focuses specifically on the residence nil-rate “Higher income people—those in the top 20 per cent of band—an additional nil-rate amount available on top lifetime income—are ten times as likely to have received an of the nil-rate band when the deceased has left a residence, inheritance of more than £250,000 as those in the bottom half of or the proceeds of the sale of a residence, to his or her lifetime incomes.” 305 Public Bill Committee HOUSE OF COMMONS Finance (No.3) Bill 306

The Resolution Foundation has called for inheritance broadest shoulders should always be asked to pay a fair tax to be abolished and replaced with a new system that and reasonable share. We can begin that process today commands greater public support by being fairer to by voting for amendment 122. families and harder to avoid. Its intergenerational commission also found that the state does a poor job of The Chair: I hope that the Minister is not anticipating collecting revenue from inheritance tax. the tumbrels rolling at the end of his speech, as in the Under the current system, individuals can and do French revolution. minimise their inheritance tax liabilities in all manner of ways, including by buying agricultural land or investing The Financial Secretary to the Treasury (Mel Stride): in woodlands, which I first became aware of in the Very good. There will be no singing of “The Red Flag” House of Commons Tea Room. Members might remember on this side, Mr Howarth. the coalition Government’s plans to privatise the forests in 2011. They did not last very long, but it was at that Bim Afolami (Hitchin and Harpenden) (Con): “La time that a Conservative MP told me about the practice. Marseillaise”? Basically, people buy up commercial woodlands, which, once they have been owned for more than two years, Mel Stride: Maybe. It is a pleasure to serve under become eligible for 100% business property relief. This your chairmanship, Mr Howarth. I will turn briefly to reduces the value of a qualifying business asset to nil in points raised by the hon. Member for Stalybridge and the inheritance tax account, and as a result, no inheritance Hyde. tax is payable on the asset in question. Alternatively, 100% agricultural property relief can Sir Robert Syms (Poole) (Con): Will my hon. Friend apply in certain situations. A special inheritance tax give way? relief is also available for commercial or amenity woodlands that are owned for more than five years and to which The Chair: Robespierre. Sorry; Robert Syms. neither business rates nor agricultural property relief apply. These abuses of inheritance tax relief limit our Sir Robert Syms: There is a sort of revolution going revenue-raising ability, yet it is still usually regarded as on in Paris as a result of high fuel duties, which of one of Britain’sleast fair taxes.The Resolution Foundation’s course the Opposition want. intergenerational commission, like the IFS and the IPPR, recommends replacing it, favouring a lifetime receipts Mel Stride: As my hon. Friend pointed out in his tax with a personal allowance of £125,000, followed by remarks on earlier clauses, we have frozen fuel duty for a 20p rate up to £500,000 and a 30p rate after that. It nine successive years—but perhaps we had better get states that this will significantly reduce the marginal back to the matter in hand, revolutions and fuel not rate of tax on wealth transfers, while still raising up to featuring particularly in clause 65. £11 billion in 2020-21, compared with the £6 billion that the current system is projected to raise. First, the hon. Member for Stalybridge and Hyde feels that this tax is seen as one of the least fair. It is The lack of an amendment of the law resolution certainly true that it is one of the least popular taxes; I makes it impossible for the Opposition to table an would accept that. However, it only typically applies to amendment asking for a wider review. However, about 4% or 5% of estates, although the public generally amendment 122 would force the Government to publish assume that it applies much more widely. That, of a review of their changes to the residence nil-rate band, course, is a consequence of the policies we brought in to factoring in the amount of revenue that the changes will extend the thresholds, which we have been discussing. raise and their impact on the Exchequer’s total inheritance As the hon. Gentleman suggests, it brings in about tax receipts. £5 billion a year and, in terms of its fairness across the range of different wealth levels, I can inform him that I will raise one final point on inheritance tax. I 70% of inheritance tax is raised from those with estates particularly enjoy, when discussing the different parts of valued at over £2 million, so the vast bulk of it comes a Finance Bill, references to the origins of some of the from those who are significantly wealthy. taxes in question. Inheritance tax has existed in the UK The hon. Gentleman quite rightly raises the general in some form or other since 1694, when probate duty question of keeping taxes under review and looking at became payable on estates. However, it was not until inheritance tax. He gave various examples of the work 1796 that a tax on estates was first introduced by the of others in that respect and made various suggestions. Chancellor and Prime Minister, William Pitt the Younger. He will be aware that the Office of Tax Simplification is It was deliberately introduced at the height of the reviewing inheritance tax, and has already reported on French revolution to deter a similar revolt from taking the administration and guidance relating to it, with place in the UK. I think it is fair to say that the which there are various issues. In the spring of next Government needed the revenue to fight the subsequent year, it will also report on the policy area itself, and we war against Napoleon. will look with great interest at the report when it comes The Government then recognised the need to prevent out. [Interruption.] May I correct something I have just wealth being simply handed down to the already wealthy. said? Perhaps I am bad at reading handwriting here. At a time of continued austerity and hardship for many The 70% relates to those with an estate of over £1 million, communities across the UK, we should not forget that rather than £2 million. the top 10% of UK households hold half the wealth of The hon. Gentleman raises perfectly legitimate questions the entire country, while the bottom 50% of households that we should be asking about the reliefs associated hold less than 10%. In that environment, those with the with agricultural land and woodlands, and the different 307 Public Bill Committee 6 DECEMBER 2018 Finance (No.3) Bill 308 approaches that those who can afford advisers and so NOES on may seek to take to lower their inheritance tax. All Afolami, Bim Stride, rh Mel those things will make for interesting debate and Jenrick, Robert Syms, Sir Robert consideration when the OTS reports back in spring. Keegan, Gillian Whately, Helen The Government are introducing these changes to Lamont, John Whittaker, Craig clarify the working of the downsizing rules, and to provide certainty about when a person is treated as Question accordingly negatived. inheriting property. The residence nil-rate band reduces Clause 65 ordered to stand part of the Bill. the burden of inheritance tax for families by making it easier to pass on the family home to children or grandchildren, and the band is an additional threshold Clause 66 available when a residence is being passed to a direct descendant. As the hon. Gentleman set out, the value in APPLICATION OF PENALTY PROVISIONS 2018-19 is £125,000. That will rise to £175,000 by 2020-21. Question proposed, That the clause stand part of the Any unused threshold can be transferred to a surviving Bill. spouse or civil partner. The unused threshold is also available when a person has downsized to a less valuable property and passes on the proceeds from selling their The Chair: With this it will be convenient to consider home, instead of the property itself, to their children or clause 67 stand part. grandchildren. The Government announced those reforms in 2015 Robert Jenrick: The clause makes changes to ensure to ensure there would be an inheritance tax threshold of that penalties may be raised against businesses registered up to £1 million for married couples and civil partners for the soft drinks industry levy that do not submit a by the end of this Parliament. That was a manifesto quarterly return or fail to submit a quarterly return on commitment, which I am pleased we have delivered, but time. The changes ensure that a penalty can still be it is right that we make changes to the legislation where raised for non-payment of the soft drinks industry levy necessary to ensure that the policy works as intended. in the event that certain provisions in the Bill are enacted. The changes made by clause 65 will correct two areas of the residence nil-rate band. First, the downsizing The soft drinks industry levy was announced at Budget provisions were introduced to ensure that people would 2016. The levy commenced on 6 April 2018 and has not lose access to this additional nil-rate band by, for been successful in its stated objective of driving example, moving house to meet their long-term care reformulation, to such an extent that over half of all needs. However, the wording in the current legislation drinks by volume that would have been in scope of the means that these provisions could apply in an upsizing levy have now been reformulated, and in fact were scenario. That was never the intention and the changes reformulated even before the tax came into effect. This will correct it. measure will support that success by allowing penalties Secondly, we believe that the additional threshold should to be issued for late returns and non-submission of be available only when the family home passes directly returns for accounting periods ending after 1 April from an individual to their direct descendant on death. 2019, should they be required. The changes will correct an anomaly in the legislation whereby the threshold could be available for a family Kirsty Blackman: I appreciate what the Minister says home passed into a trust, where the direct descendants about the effects of the soft drinks industry levy, but it do not inherit the property. While the changes are still does not apply to milk-based drinks. Will the important for revenue protection, we expect them to Government consider extending the levy to milk-based affect very few estates. drinks, given that it has been so successful? There has been one amendment proposed to this clause, which proposes reviewing and laying a report on Robert Jenrick: The hon. Lady makes a valid point. the revenue effects of the changes. Amendment 122, When we announced the policy, we said that we would however, is not necessary.The clause corrects the working consider milk-based sugary drinks in 2020, which is of the residence nil-rate band and has no impact on when more information, including Public Health England wider inheritance tax policy. Consequently, there will be data, will be available to inform that decision. We have no revenue effects as a result of the clause. I therefore reiterated that commitment, so there will be a review in ask that the amendment be withdrawn and commend just over a year, which could lead to such a decision, the clause to the Committee. although we have no plans to extend the levy at this moment. Jonathan Reynolds: I wish to press the amendment to The changes made by the clause will help to provide a the vote. proportionate and fair penalty regime and to drive Question put, That the amendment be made. compliance. The changes will affect only soft drinks The Committee divided: Ayes 7, Noes 8. industry levy-registered businesses that do not submit a Division No. 38] quarterly return and payment by the due date.Furthermore, although the clause gives us the powers to act, at AYES present there is no evidence of fraud or non-compliance Black, Mhairi Reynolds, Jonathan with the soft drinks industry levy on any material scale. Blackman, Kirsty Clause 67 makes changes to amend section 1 of the Smith, Jeff Dodds, Anneliese Isle of Man Act 1979, to add the soft drinks industry Lewis, Clive Sobel, Alex levy to the list of common duties. It will ensure that the 309 Public Bill Committee HOUSE OF COMMONS Finance (No.3) Bill 310

[Robert Jenrick] simply down to administrative failures? How many returns are submitted late, and how many are not movement of liable soft drinks between the UK and the submitted at all? Isle of Man will not be seen as either an import or an On a related question, will the Minister tell us how export under the levy, as long as the levy rates of the much he expects to be raised through the imposition of UK and the Isle of Man remain aligned. This change these penalties and—perhaps more significantly—through will have effect from 1 April next year. any deterrent effect on tax evaders? Will the penalties, particularly for non-payment, form part of the revenue 3.45 pm take for the tax, or will they be considered separately for The changes made by clause 67 will implement a purposes such as the intended link to funding for child change to the soft drinks industry levy legislation, meaning health? that the movement of liable soft drinks will not be seen as an import or export. Businesses liable to pay the levy The Minister will be aware that the projected tax take on liable soft drinks packaged in the UK will no longer from the levy has declined precipitously since the former be able to claim an export credit when those drinks are Chancellor’s original estimates when he announced the moved to the Isle of Man. The changes will also help to levy. The original forecast was for £520 million in the reduce the administrative burden on businesses that current fiscal year. The latest “Economic and fiscal wish to move their liable drinks from the Isle of Man to outlook” from the Office for Budget Responsibility, the UK mainland, by removing the requirement to produced for last month’s Budget, anticipated that just register for the levy as importers. The clause is necessary £240 million will be raised. I assume the Minister stands as it ensures that movements of liable soft drinks between by that figure, unless it has declined even further in the the UK and the Isle of Man under the levy are treated past few weeks. How much of that difference is down to in the same way as movements of goods in other taxes the kind of deliberate evasion that clause 66 addresses, and duties. I commend clauses 66 and 67 to the Committee. and how much is simply down to error in Treasury forecasts or—being generous—to changing economic circumstances and the impact of behavioural change? I Clive Lewis: It is a pleasure to address the Committee should say for the record that, in the case of this tax, on behalf of the Opposition for the final time today—I behavioural change is welcome, because it effectively am sure to the great disappointment of all. The two means less sugar in soft drinks, with consequent benefits clauses both address the soft drinks industry levy, often for public health. As I will touch on later, the dramatic known colloquially as the sugar tax, which came into shortfall in tax receipts has had some less desirable force in the current tax year. Given the scope of the two consequences. clauses, you will be relieved to hear, Mr Howarth, that I will not attempt to have a general debate on the basic I note that this measure comes into force at Royal principle of the tax—as tempted as I was. Nor do the Assent, rather than in the next tax year. We do not Opposition disagree in principle with the Government’s object to that, as measures to tackle tax evasion and broad intention in the clauses. avoidance should not be delayed. However, what steps have the Treasury and HMRC taken to ensure that As the Minister said, clause 66 allows penalties to be businesses are alerted and that tax collectors can take imposed on businesses eligible to pay the soft drinks full advantage? When does the Minister expect the first industry levy where they fail to submit the required quarterly returns to be due under this measure? quarterly return by the due date. It also ensures that similar penalties can be imposed for non-payment of Perhaps the Minister can explain what will happen the levy, contingent on certain provisions in the Finance should Royal Assent occur around the due date for a (No. 3) Act 2010 being enacted. For context, will the quarterly returns. If, for example, a quarterly return is Minister clarify the Government’s plans in relation to due on 1 February—let us say, for argument’s sake, for the enactment of these provisions? Will he explain why the final quarter of the current financial year—and they have come to be made now, rather than during the Royal Assent was achieved on 2 February, would the passage of previous legislation? penalties be enforceable on a company that failed to On the substantive point, let me start by asking the submit, or would they not be retrospectively enforceable? Minister for some clarity about the number and types of Indeed, it would be helpful if the Minister could tell us business that might be affected. How many companies what the due dates are for quarterly returns over the are now registered for the soft drinks industry levy, and next year, what returns are required at the end of the what analysis can he give us of their size and scale? How financial year, and whether this measure applies to does that compare with the number and composition those or simply to returns at the end of each quarter. originally anticipated? Will he outline for the Committee Of course, the Minister is not responsible for the what kind of penalties a business might face, first, for allocation of parliamentary time, so he may not be able failing to submit a quarterly return and, secondly, for to predict when Royal Assent is likely. When it comes to non-payment? Is he convinced that the penalties are this Government, things are, to put it mildly, a bit sufficient to deter tax evasion, while not being so high unpredictable. Given the apparent trouble with their that genuine errors are disproportionately punished? supply and confidence agreement, in which confidence To put this in context, will the Minister tell us what seems to be somewhat lacking, the passage even of the level of evasion, late or non-payment, and failure to Finance Bill may be a bit choppy when we go back submit quarterly returns has been recorded to date? downstairs to the main Chamber. [Interruption.] I apologise What estimate has the Treasury undertaken of any if I am keeping the Government Whip awake. Perhaps revenues lost to tax evasion? Has HMRC been able to the Minister can tell us what the impact of different give him any idea of the scale of the failure to submit dates might be, and what consideration the Treasury returns? Is that related to evading payment, or is it has given to that in its assumptions and planning? 311 Public Bill Committee 6 DECEMBER 2018 Finance (No.3) Bill 312

Clause 67 is designed to facilitate the movement That solemn pledge, still available on the Department between the UK and Isle of Man of soft drinks on for Education website, did not last the year. Instead, the which the industry levy has been paid, without that fund was cut by more than three quarters, to just being designated as an import or export respectively for £100 million for the year,when the Government desperately the purposes of the levy. It also adds the levy, and the tried to plug their own gap in the main schools’ budget Manx equivalent proposed by the Isle of Man Government, for one year only, by raiding the money that was meant to the list of common duties in the Isle of Man Act 1979. to be ring-fenced for children’s health. After the introduction of the levy in April, eligible soft As a constituency MP, I know just how desperate drinks that were brought into the UK from the Isle of schools in Norwich South are for funding. Schools have Man were chargeable under section 33 of the Finance had to fire teaching assistants because of the budget Act 2017, and those removed from the UK can attract constraints they find themselves in, and that money an export credit. The Isle of Man, however, is introducing could have been very useful to them in helping our Manx SDIL from the next tax year, which is equivalent. children and their educational attainment. I also know As the UK and Manx Governments have now agreed, the impact that austerity has had on the health of our in principle, to treat soft drinks that have been levy-paid children. in the one as being levy-paid in the other, and to share When I represented the Opposition in February this revenue, administration and enforcement of the respective year on the Delegated Legislation Committee implementing levies,I understand from the Minister that the Government’s the levy, I pressed the Minister, and he assured us that view is that those arrangements are, in effect, being “regardless of how much is raised, the Government remain superseded. The levy will therefore be treated as a committed to funding the Department for Education with the common duty under the 1979 Act, with a commencement £1 billion that we originally expected, and providing the devolved date to coincide with the introduction of the levy in the Administrations with the full amount that we promised at the Isle of Man—in other words, at the start of the next tax time.” year in April 2019. The Opposition have no objection to He went on to say: those arrangements, but I would ask the Minister to “Every penny of England’s share of the spending raised by the clarify a few points—before we lose the light completely. levy will go towards improving children’s health”.—[Official Report, 7 February 2018; c. 3.] First, the Manx SDIL is described in the Government’s Sixth Delegated Legislation Committee, accompanying notes as “modelled” on the UK version. Perhaps he can confirm today whether that remains the Can the Minister clarify what that means? Is it identical case, and that the Government are not counting the or are there significant differences? The rates are presumably £350 million that was cut from the healthy pupils fund the same, but are there any variations in design? Have towards the latter commitment. Secondly, I hope he can the Manx Government made any improvements in the clarify that that applies to any additional revenue raised structure or implementation, from which we could learn? by the two clauses before us. If he can give us an Are we confident that they will be able to enforce the expected amount, will he indicate how that will be levy in a consistent way that does not create any incentives allocated? for producers to relocate from one jurisdiction to the other? Robert Jenrick: I will respond to as many of those In the meantime, can the Minister assure us that we questions as I can; if I omit any answers, I will write to are not missing out on revenue that should be owed, due the hon. Gentleman. to failures of collection and enforcement at the point of With respect to the Isle of Man’s SDIL in clause 67, I import? Does he have any figures on the total revenue am sorry to disappoint the hon. Gentleman, but no one raised from charges on imported soft drinks from the currently produces soft drinks on the Isle of Man—so Isle of Man? there is a business opportunity, should any of us need I must confess that my knowledge of the Manx soft one in the near future. The Manx soft drinks industry drinks industry is sadly limited, so perhaps the Minister levy is expected to be identical to the existing one in the can give us a sense of its scale and tell us whether there rest of the United Kingdom. We do not expect that is a revenue impact. I would hazard a guess that it is there will be any issues on enforcement, although we unlikely that our import and export of soft drinks to will of course continue to monitor that closely. and from the Isle of Man are not of identical value, but On the number of registered businesses, 450 have perhaps he can confirm that to the Committee either already registered. The top four of those by volume pay way. 90% of receipts, as one would perhaps expect. Before I conclude, I want to return to the point about In terms of publicising the changes to businesses, we the overall revenue impacts of the two clauses in the have not specifically publicised those—we have taken a context of the soft drinks industry levy.This is important, light touch in the first year of operation—but we do not because when the levy was created, it was linked directly anticipate any difficulties, given that there is only a to investment in projects that would improve the health small number of registered businesses. of our children. A ring-fenced sum was put aside for the The hon. Gentleman had a particular interest in the healthy pupils capital fund, which would fund schools duty periods. The duty period runs from April to June, to create facilities for better physical and mental health, and that is due on 1 August. The July to September or for disability access. At the time that was announced duty period is due on 1 November. by the then Secretary of State for Education, the right In terms of why we are taking this action now, we hon. Member for Putney (Justine Greening), the always intended to be as light touch as possible, but it is Government sensible to proceed with this housekeeping on behalf of “pledged to ensure that the amount schools receive will not fall HMRC to ensure the full range of compliance and below £415 million regardless of the funds generated by the levy.” penalty powers are available to combat non-compliance. 313 Public Bill Committee HOUSE OF COMMONS Finance (No.3) Bill 314

[Robert Jenrick] The amounts we promised to fund school sports are being honoured. The Department for Education will We do not have evidence to date of any material degree receive £575 million during the current spending review of fraud or non-compliance, and certainly nothing that period. That funding has been allocated to a number of should make the hon. Gentleman or any other hon. programmes to support pupil health and wellbeing, and Member concerned, but it is sensible and prudent for us includes doubling the funding for the primary physical to take this action, should circumstances change in the education sport premium to £320 million a year from future. 2017. The Department for Education and the Department The hon. Gentleman asked about some specific details, of Health and Social Care contribute £100 million and including how much the penalty will be for late returns. £60 million to that premium respectively, with the soft It will be £100 in the first instance, rising to £400 for drinks industry levy contributing £415 million over the four or more offences. The first late return will incur remainder of the current spending review period. We that fixed amount of £100. The penalty will then rise to have provided £100 million in 2018-19 for the healthy £200 for a second late return within a 12-month period, pupils capital fund, and £26 million to kick-start or to £300 thereafter, and eventually to £400. We think improve breakfast club provision in more than 1,700 that is proportionate given that there has not been a schools. Although the Treasury forecasts in this case significant problem to date, and that gives HMRC the were not correct, there has been a happy ending. powers it requires. Where a return for a particular period is still not filed Clive Lewis: Does the Minister think a £400 fine is within 12 months, a further penalty will be issued, in the really a deterrent for a major international soft drinks amount of 5%, 70% or 100% of the liability for the manufacturer? return period, depending on whether HMRC believes there has been a deliberate and concealed effort to Robert Jenrick: That is a fair challenge, but given that withhold information, or £300—whichever is greater. we have no evidence of non-compliance or fraud, it is Those are not excessive sums, but they give HMRC the sensible to proceed on a relatively light-touch basis. If powers it requires. there were evidence of larger manufacturers being fraudulent or non-compliant, we might change things, but at the moment there is no such evidence. With those reassurances, I commend the clause to the Committee. 4 pm Question put and agreed to. The hon. Gentleman asked about the important issue Clause 66 accordingly ordered to stand part of the Bill. of schools funding. The objective of the policy was Clause 67 ordered to stand part of the Bill. never to raise revenue for the Exchequer; it was always to ensure that manufacturers did the right thing and reformulated where appropriate and where they felt The Chair: I hope everyone has a wonderful weekend they were able to. As I said, the majority of them have studying the terms of the withdrawal agreement. done so. Some took significant risks. Manufacturers Ordered, That further consideration be now adjourned.— with loyal customer bases—Irn-Bru and Lucozade, for (Craig Whittaker.) example—had to make major reformulations, which were not always popular with their customers but none 4.3 pm the less significantly reduced the sugar in their products. Adjourned till Tuesday 11 December at twenty-five We are grateful to them for taking the policy so seriously. past Nine o’clock. 315 Public Bill Committee 6 DECEMBER 2018 Finance (No.3) Bill 316

Written evidence reported to the House FB03 Low Incomes Tax Reform Group of the Chartered Institute of Taxation (clauses 79 and 80: Time limits for assessments, etc) FB02e Chartered Institute of Taxation (clauses 79 to 80 FB04a ICAEW (Clause 7) FB04b ICAEW (Clause 10) – offshore time limits) FB04c ICAEW (Clause 52 and schedule 17)