This is the seventh of a series of reports on the progress of this year's Finance Bill, as it goes through its various parliamentary stages.
This report primarily covers sittings 14-16 of the standing committee on the Bill, which sat on Tuesday 19 and Thursday 21 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 a little behind the Bill's progress. The Bill has now cleared its Commons stages and goes to the Lords, which will debate all stages a week on Monday (July 16th). Reports on the final two committee sittings and report stage will be posted next week, but a brief summary of report stage appears at the bottom of this report.
Finance Bill Standing Committee – Sitting 14 – Tue 19 June (pm)
Good progress with the committee rattling thoughts parts 4 (controlled foreign companies), 5 (oil) and 6 (excise duties) of the Bill.
The three hour sitting kicked off with half an hour spent concluding the discussion on controlled foreign companies (CFCs). Conservative Nigel Mills praised the reforms as “a testament to how it should be done” with long consultation and several drafts. Lib Dem Stephen Williams explained that he had tabled his amendment after meeting ActionAid and Christian Aid to test how joined up policy making was between the Treasury and the Department for International Development. He pressed the minister for reassurance on the Government’s intention to get departments working together to build up capacity among overseas tax authorities so that they can collect the taxes that their Governments decide are due but that are often avoided. The minister, David Gauke, confirmed that the Treasury, HMRC and DFID would continue to work closely on this issue. Reassured, Williams withdrew his amendment. In response to requests to keep the CFC regime under review, Gauke said the Government met business and professional tax advisers in a number of forums, such as the corporate tax liaison committee, the Business Forum on Tax and Competitiveness and the Business Tax Forum, and interested parties had the opportunity to raise their concerns about any matter in those forums, including CFC reforms. For Labour, Catherine McKinnell made clear that they did not oppose reform of CFC rules. The clause and a large number of government amendments were then approved. A Labour amendment requiring publication of a government assessment of the implementation and impact of the changes for each of the first three years of their operation, was voted down. The clause and schedule were approved without a vote.
The second half an hour of the sitting was spent discussing oil and gas taxation. The only speakers were the Economic Secretary, Chloe Smith, and her Labour shadow, Cathy Jamieson. Jamieson asked a number of probing questions, but no amendments were tabled and none of the clauses was contested.
30 minutes of debate on tobacco duty took the committee to the mid-point of the session. Clause 185 increases tobacco duty by 5% above inflation. The impact of higher tobacco prices on the sale of illegal and cheap imports coming into the country was raised by Cathy Jamieson, and Conservative Jacob Rees-Mogg pointed out the measure was regressive, but the clause passed without objection.
The remaining hour and a half was split evenly between debates on alcohol duties and gambling duties. On alcohol, Labour backbenchers Graeme Morrice and Grahame M Morris (yes, really) proposed an amendment calling for a review of the impact of the proposed duty increases. Morris is vice-chair of the all-party save the pub group and both are concerned about the impact of duty increases on the pub industry. For the Labour frontbench, Cathy Jamieson asked whether HMRC were considering ‘duty marks’ as “a simple and easily identifiable way for HMRC to identify whether the duty on beer has been correctly paid”. For the government, Chloe Smith said the Government had reviewed alcohol taxation already and were proposing a minimum unit price which would “not only reduce alcohol consumption and curb pre-loading before a night out but should help to reduce the demand for cheap alcohol on the off-trade side, then help the on-trade by extension.” In view of the assurances received from the minister, the amendment was withdrawn. This was followed by a brief debate on a clause on the repeal of drawback (repayment) of excise duty on spirits manufactured by licensed rectifiers and compounders that are exported from a producer’s premises or placed in a warehouse for approved purposes. The minister said the legislation was being repealed because it was redundant.
Finally, the committee debated the introduction of machine games duty (MGD), which will replace both amusement machine licence duty and VAT for dutiable machine games. Graeme Morrice highlighted concerns of industry representatives that the change would result in an increased tax burden on small businesses in the amusement sector, which has already been struggling in recent years. He proposed two amendments. One would allow businesses to net off irrecoverable VAT against MGD, and the other would reduce the rate of MGD from 20% to 15%. The Government’s proposals were challenged on two grounds – their claims to simplification and their claims to be revenue neutral. An Ernst & Young study was widely quoted as suggesting the changes would lead to an increased burden on business. Ian Swales (Lib Dem), Grahame M Morris (Lab) and Cathy Jamieson (Lab spokesperson) all weighed in. Chloe Smith stuck to her argument that the changes would be revenue neutral and the clauses went through unamended.
Finance Bill Standing Committee – Sitting 15 – Thur 21 June (am)
The committee got through most of the VAT section of the Bill (Part 7) in the two hour sitting. Debate started with some mockery from the opposition of the Government’s U-turns (or sensible responses to consultation, according to ministers) on the VAT changes announced in the Budget but soon settled into more technical discussion of the (mostly fairly technical) proposal in this part of the Bill.
Clause 195 and schedule 26 provide for an anti-forestalling charge in respect of supplies of self-storage facilities and approved alterations to listed buildings. For Labour, Shadow Chief Secretary Rachel Reeves welcomed the change on alterations to listed churches, but noted that a huge number of listed buildings are not places of worship. Labour did not vote against the clause and schedule but she did criticise the Government for “making policy on the hoof [which] has caused chaos and consternation”. Two other Labour MPs, Graeme Morrice and Sheile Gilmore, also called for the introduction of VAT on alterations to listed buildings to be reconsidered. There was also some debate about the full rate of VAT should apply to building repairs (Labour are proposing it be reduced to five per cent). A Labour amendment calling for a review of the full impact of the VAT changes on jobs, living standards and businesses was not pushed to the vote. The clause and schedule were passed unopposed.
Clauses 196 to 201 and schedule 27 were also passed unopposed, with less than an hour of debate between them. Clause 196 introduces the cost-sharing exemption, and will allow qualifying organisations, such as charities and housing associations, to form cost-sharing groups allowing the recharge of participants to be exempt from VAT. Clause 197 confirms that public bodies, such as Departments and local authorities, that engage in activities as public authorities are not taxed unless that would distort competition with businesses. Labour’s spokeswoman, Cathy Jamieson, focused her remarks on the treatment for VAT purposes of the new Scottish police force. Responding, Exchequer Secretary David Gauke said that the Scottish Government had taken the decision to fund the Scottish police force from central taxation in the knowledge that VAT relief would be lost, but that they believed the savings would more than outweigh the additional VAT costs. The matter was not, he said, directly relevant to the clause anyway.
Clause 198 repeals low value consignment relief for goods imported from the Channel Islands. Catherine McKinnell, for Labour, supported the move but noted that LVCR will still apply to other non-EU countries such as Switzerland, Andorra and Gibraltar. She asked if the Government had considered withdrawing LVCR from all non-EU countries and, if so, what their conclusion was. For the Government, David Gauke said the Government had considered withdrawing the relief from selected other countries too but they had decided not to do this for the time being as the exploitation of the relief primarily involves imports from the Channel Islands. That might change in future if a problem on a large scale developed elsewhere.
Clause 199 legislates for an extra-statutory concession “ensuring that taxpayers and UK VAT groups pay VAT on services brought into their UK business via overseas establishments on a fair basis.” Clause 200 provides for the introduction of a new notification system for vehicles brought into the UK, and paying any VAT due. Clause 201 and schedule 27 respond to a ruling of the Court of Justice of the European Union, in which it ruled that businesses without an establishment in a member state are prohibited from benefiting from that state’s domestic VAT threshold. Conservative MP Nigel Mills criticised the Court’s verdict for creating “a perverse situation where a window cleaner from Ireland who pops over to clean the windows of a few friends in Northern Ireland and gets paid for that will in theory be committing an offence by not registering for VAT.” Could this realistically be enforced, he asked. The minister did not respond directly to this point, but did say that tax receipts as a consequence of the changes are expected to be small, with implementation costs also negligible.
Finance Bill Standing Committee – Sitting 16 – Thur 21 June (pm)
The afternoon session of the committee was kept to just one hour to enable MPs to hear Aung San Suu Kyi speak in Westminster Hall. There was still enough time to debate and approve clauses on landfill tax and the climate change levy as well as the final clause of the part of the Bill on VAT.
On landfill tax, Cathy Jamieson, shadow economic secretary, talked about the concerns expressed by the skip hire industry, who felt that the rules under which they operated were being changed without any consultation, and that some small companies would be particularly disadvantaged. She asked the minister for an assurance “that the fears, concerns and points raised by the industry have all been dealt with, and that any future changes will be subject to the appropriate consultation”. Nigel Mills (Conservative) highlighted a company in his constituency who had been affected and pressed the minister to make the regime flexible and commercial. The minister, David Gauke, said the main purpose of the clause was to increase the standard rate of landfill tax from £64 per tonne to £72 per tonne. With regard to skip operators, there had, he said, been no change to the landfill tax legislation, who do not pay landfill tax directly in any case. What had happened is that HMRC had issued guidance that clarified the existing law around disposal of specific types of waste. A second clause corrected the legislative definition of a landfill site in Scotland, with retrospective effect from March 2000!
On the climate change levy, 18 pages of changes contained in three separate schedules were passed. The Exchequer Secretary said they struck “a sensible balance between helping business and meeting our environmental objectives.” One of the proposals was to remove the exemption from the CCL for electricity generated by combined heat and power (CHP) plants and exported to the national grid. Labour’s Seema Malhotra proposed amendments calling for the exemption to be extended a further four years, to April 2017, and requiring a review of the impact of the removal of the exemption on carbon emissions, security of supply and industrial competitiveness. She said the short notice for the removal of the exemption and the lack of clarity on what would replace it “runs the risk of creating confusion in the marketplace, a slowdown in the momentum of the development of such new technologies and of carbon reduction and could undermine investor confidence in general.” From the Labour frontbench, Cathy Jamieson said that if the present scheme was not to be taken forward, an alternative scheme should be put in place to deal with the industry’s concerns. Responding, the minister said extending the relief was expensive to the taxpayer and administratively complex.
Amendments debated in the three sessions
Due to the large number of amendments tabled only contentious amendments are included here. A large number of uncontested government amendments were also passed.
Amendment 2 (Stephen Williams (Lib Dem))
Clause 180, page 105, line 19, at end add—
‘(2) Notwithstanding the provisions of Part 4 of Schedule 20, the Schedule will not come into force until a full impact assessment has been prepared in conjunction with the Department for International Development reviewing the effect on developing countries’ tax revenue, and details of aid and technical assistance being provided to developing countries in order to increase the capability and technical expertise in their tax regimes to collect the taxes that are due in their countries, has been laid before and approved by the House of Commons.’.
Amendment withdrawn and not put to the vote
Amendment 191 (Grahame M Morris (Lab))
Clause 186, page 107, line 9, at end insert—
‘(3A) The Chancellor of the Exchequer shall review the wider economic impact of the duty increases imposed by subsection 3 on the beer and pub industry, and consumers, and shall lay a report of his review in the House of Commons Library.’.
Amendment not pressed to the vote
Amendment 193 (Graeme Morrice (Lab))
Schedule 24, page 542, line 11, leave out ‘20%’ and insert ‘15%’.
Amendment not pressed to the vote
Amendment 192 (Graeme Morrice (Lab))
Schedule 24, page 542, line 34, at end insert—
‘Allowable deductions from duty payable
[Fairly lengthy amendment]
Amendment not pressed to the vote
Amendment 200 (Labour Treasury team)
Clause 195, page 112, line 25, at end add—
‘(2) No new Order shall be made under section 30(4) or 31(2) of the Value Added Tax Act 1994 unless the Chancellor of the Exchequer has reviewed the full impact of those changes on jobs, living standards and businesses, and placed the review in the Library of the House of Commons.’.
Amendment 197 (Seema Malhotra (Lab))
Schedule 31, page 605, line 2, after ‘April’, leave out ‘2013’ and insert ‘2017’.
Amendment 198 (Seema Malhotra (Lab))
Schedule 31, page 605, line 4, after ‘April’, leave out ‘2013’ and insert ‘2017’.
Amendment 199 (Seema Malhotra (Lab))
Schedule 31, page 605, line 4, at end add—
‘(4) The Chancellor of the Exchequer shall conduct a review of the expected impact on carbon emissions, security of supply and industrial competitiveness of the removal, in 2017, from combined heat and power plants of the Climate Change Levy exemption for indirect supplies of electricity and shall, by 31 December 2012, lay a report of his review in the House of Commons Library.’.
Quick note on report stage
Monday 2 July
Started late (c6pm). One hour of debate on fuel duty. Followed by 3 hour debate on income tax rates best summed up as shadow minister saying “It simply cannot be right to ask millions of pensioners on modest incomes to pay more while finding a way for a few thousand millionaires to pay less” and the minister responding “The 50p rate is not sustainable. The introduction of the triple lock on state pensions means pensioners continue to be better off”. Debate on child benefit started about 10.30pm and ran for an hour, including debate on two CIOT amendments. CIOT and ICAEW criticisms of the legislation were central to the shadow minister’s speech. On our amendments David Gauke said: “Amendments 21 and 22 would allow those on the taper who have opted out of child benefit retrospectively to receive the payment. I am pleased to confirm that HMRC will apply the legislation as it is to enable such a claim to be made. I can therefore reassure the hon. Member for Kilmarnock and Loudoun that the amendments are not necessary.” They were consequently not pressed to the vote.
Tuesday 3 July
VAT debate around hot food, caravans, etc. took up most of the time. Single use vouchers got a paragraph in the minister’s speech but a cursory scan suggests no-one else mentioned it. Remaining time was taken up debating bank bonuses. There was no time to debate Stephen Williams’ new clause on CFC reform and consultation on its effect on developing countries, though he did get to raise it in the one hour third reading debate.
Plenty of votes (both days). All votes went as you might expect (ie the government won).
CIOT External Relations Manager
Friday 6 July 2012