This is the eighth of a series of reports on the progress of this year's Finance Bill, as it goes through its various parliamentary stages.
This report covers sittings 17-18 of the standing committee on the Bill, which sat on Tuesday 26 June. As previously noted, these reports focus on the aspects of the debates most relevant to the CIOT and our members, which is primarily the technical elements of the Bill, although the reports will aim to give a flavour of the main issues debated, which will often be more political.
A note on the stages the Finance Bill goes through appears here.
Links to the various debates are available here.
These reports are running behind the Bill's progress. As of Tuesday the Bill has gained Royal Assent and is the Finance Act 2012. Reports on the Bill's report stage and Lords stages will be posted in the next week or so, as time allows.
Finance Bill Standing Committee – Sitting 17 – Tue 26 June (am)
The penultimate committee sitting covered inheritance tax and stamp duty (clauses 206-211) and lasted just short of two and a half hours. No clauses or schedules were opposed and no amendments had been tabled, but it was still a fairly lively session.
There was 50 minutes of debate on clause 206, which will limit the IHT threshold by changing the automatic index-linking of the nil rate band - the amount that can be inherited before inheritance tax is payable - to the consumer prices index inflation measure, instead of to the retail prices index. From the Conservative benches, Jacob Rees-Mogg made an impassioned argument for abolishing IHT: “We believe that this is a monstrous tax, one of the cruellest taxes that falls on people at the worst time when they are facing the loss of a member of their family, somebody to whom they were probably devoted.” He also made the economic argument that taxing capital ties it up in inefficient ways: “They may invest in or hold goods that are exempt, buy trading farms or put the money into land - raising the price of land, already currently high - and not necessarily into other productive investments.”
Other speakers were less hyperbolic. For Labour, Catherine McKinnell (Shadow Exchequer Secretary) said the party did not oppose that change, though her colleague Julie Hilling did say she thought it was “a little odd” not to raise the threshold according to RPI. John Mann (also Labour) took the debate onto tax avoidance more generally, talking about Jimmy Carr and the Chancellor’s comments about moral repugnance. For the Government, David Gauke (Exchequer Secretary) said the move would raise additional revenue (about £20m a year) but there was unlikely to be a dramatic impact on avoidance.
Clause 207 provides for a lower rate of IHT of 36% to be charged on an estate where 10% or more of the net estate has been left to charity. Catherine McKinnell accused the Government of mixed messages on charitable donations (ref. inclusion of charities in the tax reliefs cap originally) and suggested the provision was more complex than necessary (a point also made vocally by the CIOT in consultation responses and press statements. Chloe Smith (Economic Secretary) defended the proposals, saying the incentive would encourage charitable legacies from a broad range of estates.
Clauses 208 and 210 are both designed to close avoidance schemes and both were approved with about 20 minutes of debate between them. Clause 208 closes a scheme involving the acquisition of interests in offshore trusts to avoid inheritance tax charges. Clause 210 amends the stamp duty land tax rules on a transfer of rights or sub-sale, and the change puts beyond doubt that a particular SDLT avoidance scheme does not work. Clause 209 (the bank levy) had been debated earlier in committee of the whole House so was not debated in standing committee.
Clause 211 introduces a new 7% rate of stamp duty land tax for residential properties worth over £2 million from 22 March 2012. Chloe Smith, the minister, explained that the new rate was one of a package of measures targeted at the wealthy. But Labour MPs were unconvinced that it would balance out the cut in the top rate of income tax from 50p. Catherine McKinnell said the idea that new taxes on the rich will raise five times more than the 50p rate has been “thoroughly debunked”. There was a fair amount of back and forth over the effectiveness of the 50p rate, why Labour waited so long before introducing it, etc. before the chairman brought the committee back to the clause under discussion. Sheila Gilmore provided various reasons why the amount generated by the tax may well be less than anticipated. John Mann supported the clause but took the opportunity to criticise the community infrastructure levy which he called “a tax on the aspiration of Britain.” For the Conservatives Jacob Rees-Mogg said that if the Government had been bolder and cut the 50p rate to 40p then, “bang!—it would have raised more revenue.”
Finance Bill Standing Committee – Sitting 18 – Tue 26 June (pm)
The 18th and final sitting of the Finance Bill committee was a marathon, running from 4.30pm until 9.11pm with a 45 minute break for votes (and to allow the minister to attend the CIOT’s annual parliamentary reception) from 7pm. Proceedings were somewhat rushed due to the need to conclude debate on the Bill by 9pm, but pretty much everything got some debate. (Of course they would not have been so rushed if they hadn’t spent the first nine sittings approving just 18 clauses, leaving more than 200 for the final nine sittings...) Issues debated included the new SDLT rate for non-natural persons, the UK-Swiss Agreement, incapacitated persons, dishonest tax agents and the OTS relief abolition. All clauses were approved. The only change to the Bill was two government amendments relating to the Swiss agreement.
Clause 212 introduces a new 15% stamp duty land tax that applies to the acquisition of UK residential property by certain “non-natural persons” where the consideration exceeds £2 million. Labour were critical. Catherine McKinnell, Shadow Exchequer Secretary, said there were “myriad problems with the plan” and warned that its scope would be too wide, catching not only owner-occupiers but institutional investors and commercial landlords. McKinnell suggested the alternative of a transfer tax on the sale of a company that would generate the same SDLT as if there had been an asset sale. She also doubted that the measure would make the contribution the Government claim to plugging “the huge gap in wealth taxation that abolition of the 50p tax has left.” Nevertheless, Labour supported the principle of the measure and did not oppose it. Exchequer Secretary David Gauke said the Government understood the concerns of property investment companies and the Treasury is talking to affected parties. The measure is broad, he said, because we want to prevent avoidance; too narrow a definition could leave loopholes.
Clauses 213 (providing for a power to modify the application of one section of the SDLT DOTAS legislation) and 214 (updating an SDLT relief for property acquisitions by bodies providing NHS services) got a few minutes debate each before the committee turned to the controversial tax agreement between the UK and Switzerland. This was the longest debate of the sitting, with seven speakers taking just over 100 minutes between them. David Gauke opened, explaining that amendments 201 and 202 were needed to ensure the effective implementation of the tax agreement. A number of Labour MPs were then critical of the agreement. Grahame M. Morris said that, by colluding in such a scheme, the Government were giving implicit support for the continuation of tax havens. Ian Lavery criticised the retention of anonymity under the arrangement and asked what the Government would do if individuals take the opportunity to move to a different tax haven. John Mann suggested the UK Government had pursued the Swiss agreement in an effort to block the EU savings tax directive (an accusation strongly denied by David Gauke) as this would threaten Crown dependencies such as Jersey and the Isle of Man. The party’s spokesperson, Catherine McKinnell, said the principles behind the deal were welcome, but the plan was “riddled with loopholes and exemptions that will severely undermine its potential to make anything like the sums the Treasury claims.” The view from the government benches was more positive. Conservative Robert Syms described the agreement as sensible. Lib Dem John Pugh described it as “a step forward”, while asking for a full report on the outcome (number of individuals reported, amount of tax regained, etc.)
Responding to the debate, David Gauke said that while anyone who takes their money out of Switzerland before January 2013 would escape the agreement, they will face the risk of criminal investigation, and the UK “remains determined to close the net on those individuals”. Responding to concerns about a limit of 500 information exchange requests he pointed out this was in addition to, rather than instead of, existing information exchange provisions, and if requests are generally successful, more requests may be made in the following year. Responding to claims that trusts and foundations would not be covered by the agreement, Gauke said that trusts would be within the scope if they are controlled by a UK taxpayer. The proposals were passed, with the two government amendments.
The CIOT and LITRG were quoted in debate on the clause 220, the removal of special provision for incapacitated persons and minors, subject of a longstanding LITRG campaign. “The proposals developed through consultation mean that the clause will go further than simply amending an archaic piece of law; it will remove it. That allows everybody to be treated the same way under tax law, while those needing extra help will still be able to rely on representatives when it comes to the administration of their tax affairs,” said David Gauke.
Debate on clause 221 (Tax agents: dishonest conduct) straddled the 7pm break. For Labour, Cathy Jamieson (Shadow Economic Secretary) said that, if someone is ‘named and shamed’, there must be adequate safeguards in place to ensure that the procedures have been properly followed. She quoted the ICAEW and sought clarification on how the Bill’s provisions would interact with the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2003. Responding, David Gauke said, “Tax agents play a vital role in the delivery of the tax system, which could not function effectively without them.” He described the consultation process with agents and their representative bodies as “productive and constructive”, with HMRC adding new safeguards (eg. right of appeal to tribunal) as a result of robust points put to them by the professional bodies. Intriguingly, Gauke revealed that HMRC’s “working assumption is that the number of agents involved in dishonest behaviour at any time is about 40.” He also promised that HMRC would publish guidance in draft for comment before implementation.
Clause 222, on information powers, applies if HMRC possesses some information about a person but not enough to make their identity clear. A third party who knows basic details about that person, such as their name and address, would be required to provide them to HMRC. David Gauke said this was in response to a peer review by the global forum on transparency and exchange of information for tax purposes, which found that existing UK provisions do not meet international standards. For Labour, Catherine McKinnell asked why the minister had removed the need to obtain a tribunal notice to get this information, and also urged the Government to address the weakness of the appeal system. In response, Gauke emphasised the safeguards in the proposals and promised that they ensured that the power could not be used for ‘fishing expeditions’.
There was a brief 15 minutes of debate on RTI under clause 223 (PAYE regulations: information). Catherine McKinnell warned that, for many employers, the increase in reporting burdens could be considerable. She cited those who pay their staff weekly or daily, those who do not use computers in their businesses, who do not have broadband access or who pay workers before the payroll is computerised. David Gauke said that this was wrong: “The net effect is that RTI will reduce the burdens on business - HMRC estimates by about £300 million a year from 2014-15.” The pilot is working well, he said.
OTS proposals for reliefs to be abolished also got quarter of an hour of debate. There was a brief debate about what angostura bitters are used for, and Cathy Jamieson reported concerns over the withdrawal of relief relating to mineral leases and agreements (broadly that the proposals might discourage owners from allowing mineral extraction on their land). Conservative MP Nigel Mills thought this would be a good thing. He said he would wholeheartedly welcome any measure that discourages open-cast mines - “these awful blights on the countryside”. David Gauke defended the proposals. “As far as mineral royalties are concerned, the relief is redundant, and abolition would not discourage landowners from making land available for mineral extraction,” he said. Lib Dem Ian Swales intervened to observe that he did not detect the work of the OTS in the first 224 clauses of the Bill and to ask the Minister if he held out any hope “that in future Finance Bills the OTS will get deeper into our very complex system?” Yes, said the minister: “The OTS has made a good start. It has identified a number of areas where there is further work to be done.”
The existing clauses having been approved, the committee briefly debated two proposed new clauses. The first, tabled by Lib Dem Stephen Williams, proposed reintroducing the fuel duty differential for biodiesel, which ceased on 31 March 2012 as a result of a sunset clause. Responding, Chloe Smith (Economic Secretary) said the differential had proved more expensive than expected as international producers took advantage of the UK’s tax relief. Analysis suggested that, if the rebate were continued, it could cost around £200 million in 2012-13 and continue to increase in future, she said. Williams welcomed minister’s statement that she intended to continue to have dialogue with the biofuels industry and did not press the clause to the vote.
Conservative Nigel Mills raised the plight of those affected by section 58 of the Finance Act 2008, which ended a particularly awful tax avoidance scheme. “I am sure we would all agree that that scheme should have been properly closed down many years earlier, and that the Revenue should have properly litigated at the time against those who implemented it rather than letting it run on and give its users the impression that they were acting lawfully and within the tax code. People involved in the scheme have suffered distress and real financial hardship because the measure taken to close it down was deemed to apply for ever.” His new clause asked the Government to consider whether what was done was consistent with how the Government now think we should use retrospection, if at all. “Would we not be better off changing the law to close the scheme down from the date of the announcement in 2007, then litigating under the old rules to find out whether the scheme was legal?” he asked. A number of other MPs were supportive. Two (Labour’s Fabian Hamilton and Conservative Jacob Rees-Mogg said all retrospection was wrong. Responding, David Gauke said users should have been aware that HMRC was challenging the scheme, and should have ensure they would have funds to meet their liabilities. Mills withdrew his “probing clause”.
Finally came the words of thanks (light and humorous, as is the tradition), on the motion that the Bill, as amended, be reported to the House. David Gauke noted that Labour had requested 28 reports during committee stage. He suggested that Owen Smith had been moved from the Labour Treasury team because of his refusal to wear a red jacket and black blouse (apparently all three members of the Labour Treasury team present were wearing this). Catherine McKinnell, who had replaced Smith on the committee and as Shadow Exchequer Secretary, noted (tongue firmly in cheek) that there had been “much disappointment in Committee when he left because he dealt with matters succinctly, and I know that my arrival slowed progress somewhat.” (With Smith as Labour’s spokesman the committee was proceeding at a rate of roughly one clause a sitting.) She thanked the representative bodies for their “enormous help and assistance to the Opposition team in ensuring that the Bill is scrutinised”. Stephen Williams then invited committee members to what was left of the CIOT’s parliamentary reception on the Terrace, adding that “the really good news is that no one will have listen to the speeches, because the Exchequer Secretary and myself made our speeches during the vote on the Opposition business earlier this evening. The invitation is to pop downstairs and have a free drink - we all deserve it.” Proceedings were concluded by the observations of the chair, Peter Bone, who said it was “the best Finance Bill Committee that I have ever served on?” His statement that “every member has taken part” was not strictly true, though a quick analysis indicates that all but two of the 36 committee members did contribute at least an intervention during the proceedings.
The question was put and agreed to. At 9.11 pm the Committee rose.
Amendments debated during the two sittings
Amendment 201 (Government)
Clause 216, page 124, line 8, after ‘2012’, insert
‘and by a mutual agreement signed by them on 18 April 2012 implementing article XVIII of that protocol’.
Amendment passed (no vote)
Amendment 202 (Government)
Schedule 35, page 624, line 16, after ‘2012’, insert
‘and by a mutual agreement signed by them on 18 April 2012 implementing article XVIII of that protocol’.
Amendment passed (no vote)
New Clause 3 (Stephen Williams (Lib Dem))
Fuel duty differential for biodiesel
‘(1) The Biodiesel Duty (Biodiesel produced from waste cooking oil) (Relief) Regulations 2010 (S.I. 2010/984) shall be deemed not to have ceased to have effect on 31 March 2012 and shall continue in force.
(2) No further Regulations may be made under the Hydrocarbon Oil Duties Act 1979 which would have the effect of removing or reducing the relief provided for by the Regulations mentioned in subsection (1) until a full impact assessment of the impact of the removal of a fuel duty differential for biodiesel has been laid before Parliament.’.
New clause withdrawn
New clause 4 (Nigel Mills (Con))
UK residents and foreign partnerships (review)
‘The Chancellor of the Exchequer shall review the implementation of section 58 of the Finance Act 2008, and the impact of its retrospective nature on the taxpayers involved, and place a copy of the review in the House of Commons Library.’.
New clause withdrawn
CIOT External Relations Manager
Thursday 19 July 2012