Finance Bill 2020 Committee - 1st sitting (liveblog)
A live blog of the first public bill committee sitting of Finance Bill 2020 (also known as Finance Bill 2019-21), which took place on Thursday 4 June 2020 at 11.30am. Topics covered included income tax and corporation tax rates, and tax treatment of social security benefits. MPs approved clauses 1-12 of the Bill.
Documents on the Bill can be read here. These include explanatory notes on the clauses and the text of amendments and new clauses tabled for debate.
Proceedings can be listened to here.
NB. The live blog below is contemporaneous and not checked against Hansard. We cannot guarantee that no errors have crept in and we advise on checking any passage against Hansard before repeating it.
New clauses debated during proceedings will not be voted on until the end of the committee's proceedings
Committee members are listed here. The main contributors are expected to be:
For the Government:
Jesse Norman, Financial Secretary to the Treasury (FST)
Kemi Badenoch, Exchequer Secretary to the Treasury (XST)
For the Opposition:
Bridget Phillipson (Labour), Shadow Chief Secretary to the Treasury
Wes Streeting (Labour), Shadow Exchequer Secretary to the Treasury
Alison Thewliss (SNP), Lead SNP Treasury Spokesperson
Stephen Flynn (SNP), SNP Treasury Spokesperson
Finance Bill Public Bill Committee - Sitting One - Thursday 4 June 2020, 11.30am
The committee began by agreeing the programme motion. This states that the committee will meet at 11.30am and 2pm on Thursdays and 9.25am and 2pm on Tuesdays until the committee stage is complete, with a cut off of 5pm on Thursday 25 June if proceedings have not been completed by then.
Clauses 1-4 - Income tax rates
The chair grouped clauses one to four to be debated together -
Clause 1: Income tax charge for tax year 2020 - 21 - annual measure allowing government to collect income tax for the next 12 months. (Yes, income tax is still a theoretically temporary measure requiring annual renewal.)
Clause 2: Main rates of income tax for tax year 2020- 21 - sets income tax rates for 2020-21 for England and Northern Ireland at 20%, 40% and 45% (ie no change). (NB. Political matter – CIOT/ATT generally doesn’t offer a view on what rate taxes should be set at.)
Clause 3: Default and savings rates of income tax for tax year 2020- 21 - sets the “savings rates” which will apply to savings income of all UK taxpayers and the “default rates” which apply to non-savings, non-dividend income of taxpayers who are not subject to the main rates of income tax, Welsh rates of income tax or the Scottish rates of income tax. Both stay at 20%/40%/45%. NB. Dividend rates are unchanged.
Clause 4: Starting rate limit for savings for tax year 2020-21 - starting rate limit for savings unchanged at £5,000. This is a zero rate on income from savings, but is only available to people on low incomes. If your earnings from non-savings income are over your personal allowance (usually £12,500) plus the starting rate limit (i.e. over £17,500 for most people) you can’t get this.
There was one amendment tabled to this group of clauses -
Amendment 5, tabled by Labour, would require the Government to assess the impact of the income tax rates in the Bill on tax revenues and on households and individuals of different income levels.
The FST introduced the clauses, focusing on the help the Government are offering to savers, which he described as generous. He asked the committee to reject amendment 5.
Bridget Phillipson responded for Labour. She described as 'regrettable' that the committee proceedings required MPs to meet face to face. She assured the minister that she appreciated the pressure that officials are under in responsing to the coronavirus crisis. Introducing clause 5 (see above) she said a greater level of scrutiny of policies which may need to be revised following the current economic shock was needed.
Quoting analysis by the Resolution Foundation the shadow minister highlighted the damaging impact of tax and benefit changes on low income households over recent years. Incomes of the poorest families have fallen over the last two years, she said. "Overall tax and benefit policy over the last five years has been regressive, with the poorest losing the most both in proportional and in cash terms."
Turning back to Labour's amendment, Phillipson highlighted the recommendations of the Better Budgets report to which the CIOT contributed -
"Our amendment allows the Government to reflect on its existing policy and to measure how much, if at all, it needs to change in order to fund support during this crisis, together with its other spending plans, presented in the Budget, earlier this year. And turning to the question of whether this is necessary, in responding to the points that the minsiter made, I'd just like to reference a joint report of the Institute for Fiscal Studies, the Chartered Institute of Taxation and the Institute for Government, back in 2016, which considered this issue around the absence of external post-legislative scrutiny.
"Now their report said that post-legislative scrutiny should focus on whether the measure is raising its expected revenue, whether it's achieving its policy objectives and whether it's operating as intended. So whether the measure is still needed and the impact it has. Now clearly this is a much broader point but I think it is worth government considering its impact here too. Now this requires clarity up front about what measures will achieve. They also pointed out that when Parliament does engage on tax issues, most scrutiny focuses on new proposals and that there is very little capacity or appetite to look at the effectiveness of past measures or the coherence of the system as a whole. We intend to return to this issue in later considerations, particularly the work the Nataional Audit OIffice has been doing in this area.
"There is a role, they argue, for other institutions to consider more effective, systematic scrutiny. They consider that could be done, perhapos, by the National Audit Office, whether there might be a greater role for the Office of Tax Simplification, or perhaps the OBR, but also what role parliament might play in all of this, perhaps through its select committees. But also what scope there is for boosting academic evaluations of tax policy too."
Alison Thewliss for the SNP also regretted that committee stage required MPs to sit in a room together talking for hours on end, which was a high risk factor for coronavirus. She spoke about the need for the committee to take oral evidence. "I would suggest that if we were to take that evidence we would make better decisions, we would make wiser decisions, we would more fully understand the implications of the decisions that are being brought forward in this Bill. And the Government could avoid making mistakes and having to retrospectively come back and change things in the next Finance Bill, whenever that might come. So hearing from people like CIOT, hearing from people like ICAEW, in front of us at this committee, would be incredibly helpful, and I would urge the Government to consider why this could be helpful to all of us in this room rather than just passing it over as something which isn't necessary."
Commenting on Labour's amendment she warned of the need to consider the impact of changes on Scotland given the partial devolution of income tax. For that reason she was unwilling to support the amendment at this stage.
There being no other speakers the committee moved to votes.
Clause one was approved without opposition.
Amendment 5 (to clause 2) was rejected in a division by 10 votes to 5.
Clause two was approved without opposition.
Clause three was approved without opposition.
Clause four was approved without opposition.
Clauses 5-6 - Corporation tax rates
The chair grouped clauses five to six to be debated together -
Clause 5: Main rate of corporation tax for financial year 2020 - keeps the CT rate at 19% for 2020-21, replacing the reference to a 17% rate which Finance Act 2016 had brought in.
Clause 6: Corporation tax: charge and main rate for financial year 2021 - keeps the CT rate at 19% for 2021-22 as well.
There was one amendment tabled to this group of clauses -
Amendment 6, tabled by Labour, would require the Government to assess the impact of the corporation tax rates in the Bill on businesses of different sizes and on tax revenues.
Wes Streeting spoke first, proposing amendment 6 for Labour. He described the Government's move to freeze rather than cut corporation tax as 'the culmination of a five year u-turn'.
He praised the contribution of business, through provision of services, innovation and jobs, as well as through tax revenue. But he said the Government could easily increase the rate of CT and raise more money without making business uncompetitive.
The FST said it was important that cuts to CT were balanced against wider objectives. That was why CT main rate would remain 19% rather than being reduced. OBR forecast this would raise c£33bn across the forecast period enabling the Government to provide additional support to public serv ices including the NHS. He noted this was still the lowest headline rate of CT in the G20. He responded to Labour's comments about the impact of government changes on people on low incomes by saying distributional analysis did not always include the impact of welfare changes. Responding to an intervention from Bridge Phillipson he agreed there would need to be a detailed examination of how the coronavirus economic shock impacts different groups, including women.
The minister said amendment 6 required a review within six months of the Bill taking effect. He highlighted the CT statistics HMRC already produce and said the separate analysis required by amendment 6 was therefore unnecessary.
Alison Thewliss said she was glad to see the Government had 'realised the error of its ways' and decided not to cut CT further. The FST responded that the Government's intention had oinly been to set out 'forward guidance' and rates are kept under review.
Wes Streeting withdrew the amendment indicating the matter might be returned to later in the Bill's passage.
Clause five was approved without opposition.
Clause six was approved without opposition.
Clauses 7-9 - CO2 emissions and company cars
The chair grouped clauses seven to nine to be debated together -
Clause 7: Determining the appropriate percentage for a car: tax year 2020-21 onwards
Clause 8: Determining the appropriate percentage for a car: tax year 2020-21 only
Clause 9: Determining the appropriate percentage for a car: tax year 2021-22 only
These clauses introduce a new regime for calculating a car’s CO2 emissions (known as the Worldwide Harmonised Light Vehicles Test Procedure (WLTP)) for company car tax purposes, which will apply to all cars first registered from 6 April 2020 onwards. Most appropriate percentages for calculating the car benefit charge will be reduced by 2% in 2020/21, then increased by 1% for each of the tax years 2021/22 and 2022/23, bringing the appropriate percentages back to their published rates in 2022/23.
Opening the debate on these clauses for the Government, the XST said WLTP was an improved emissions testing regime.
Wes Streeting spoke for Labour. He said the measure was entirely reasonable but the Government's response fell far short of what was needed to tackle the climate crisis. Outlining the rules relating to company car tax he highlighted their complexity, concluding: "If members opposite have followed all of that detail... I'm sure a bright future awaits them for a career at the Chartered Institute of Taxation, after the next general election, when the results have flashed up 'Labour gain'."
Alison Thewliss said there was 'not much to oppose here' but lamented the Givernmenbt's lack of ambition, drawing attention to some measures introduced in Norway which had led to a 'dramatic' change in the number of electric vehicles.
The XST said tackling climate change was a top priority for the Government and the UK was a world leader.
Clause seven was approved without opposition.
Clause eight was approved without opposition.
Clause nine was approved without opposition.
Clause 10: Apprenticeship bursaries paid to persons leaving local authority care
This clause implements Budget 2020 announcement that a one-off bursary (known as the care leaver’s apprenticeship bursary payment) paid to individuals who are currently in or have left local authority care, and subsequently join an apprenticeship scheme will not be subject to income tax and NICs.
Proposing the measure, the FST briefly explained it and said he doubted the House had any serious disagreements about this. Young people leaving care receive a £1,000 bursary to help them into the world of work. These will be exempt from income tax.
For Labour Wes Streeting was disappointed that the country has not done more to narrow the gap in attainment and opportunity between care leavers and others. He said one of his parents had been in care for some of their childhood. He said of course the clause was right so Labour would not be opposing it.
He did pose a number of questions to the minister about legislation in this area, drawing on a submission made to the committee by the CIOT. He said there is an existing exemption at Section 776 of the Income Tax (Trading and Other Income) Act 2005 for income from scholarships, which includes bursaries, held by an individual in full-time education. Section 776 potentially could have been amended to include this bursary payment instead of introducing a new section into the Income Tax Act 2003. He said he would be grateful if the FST could clarify why the Government has chosen to enact this provision by amending legislation in this way rather than using section 776 of ITTOIA. "I understand it is the Government's view that the bursary is employment income, rather than ‘other income’. But other bursaries are classed as ‘other income’... I would be grateful if the minister could explain why the Government considers this bursary to be employment income. If it is employment income then NICs disregard legislation will be required to exempt the payment from NICs (both employee and employer). If not, this additional legislation may not be needed."
Alison Thewliss (SNP) also supported the exemption. She warned that coronavirus may affect the number of apprenticeships available to all young people, including those leaving care. She asked the Government to look at this, saying that apprenticeships can be 'transformational'.
The FST, Jesse Norman, welcomed the contributions from the opposition spokespeople. In response to Wes Streeting's technical enquiry he said it was a 'cleaner and more direct' way of addressing the problem but he would be delighted to write to him to set out the reasoning in more detail. On other exemptions he said he was open to considering these on a case by case basis, if the MP wanted to write to him. He said the response to coronavirus might cause the Government to want to look at this area in more detail.
Clause 10 was approved without opposition.
Clause 11: Tax treatment of certain Scottish social security benefits
The Scottish Government is introducing three new social security benefits: Disability Assistance for Children and Young People; Job Start; and, the Scottish Child Payment. This clause confirms they are exempt from income tax.
The FST spoke first on this clause, saying that this area was governed by the Scotish Fiscal Framework agreement which agreed that all new benefits introduced by the Scottish Government would be exempt from income tax. He said the clause was very straightforward.
Bridget Phillipson, for Labour, said her party supported the clause.
Alison Thewliss, SNP, said the benefits would be of great benefit to the people of Scotland but it was of regret that this had to be brought to the UK Government to put it into force.
Clause 11 was approved without opposition.
Clause 12: Power to exempt social security benefits from income tax
This introduces a new power for the Treasury to exempt social security benefits (UK or devolved administrations) from income tax by statutory instrument.
There were two amendments tabled to this group of clauses -
Amendments 8 and 9, both tabled by SNP, together seek to exempt all social security benefits from income tax.
Introducing the amendments for the SNP, Alison Thewliss said her party brought them forward 'as a query'. They wante to explore why some social security were taxable. Is the Government giving with one hand and clawing back with another, she wondered. The result was a cumbersome and difficult to navigate system. She listed some of the benefits taxable and some not, and some which are partly taxable.
Bridget Phillipson said Labour had no objection to what the Government were trying to achieve with the clause. On the amendments she observed the general principle was that a benefit is taxable if it is an income replacement benefit and the rules were designed to avoid a situation where someone on social security benefits is better off than someone on a comparable income whose income is liable to tax. She said the House of Commons library had estimated the cost of the measure in 2020-21 at £5.9 billion, with 95 per cent of this attributable to the state pension, mostly benefiting those in the top decile of the income distribution. Such an approach would be hugely regressive, she said.
Alison Thewliss responded that she was really just trying to highlight the complexity of the system. She appreciated Phillipson's points but said it was more a probing amendment to assess what the Government is doing to consider this area.
The FST responded for the Government, noting the SNP amendments were being introduced in an interrogatory spirit. He said Bridget Phillipson had set out the case against the amendments very well. The issues included cost and equity but it would also undermine the fiscal framework.
Alison Thewliss withdrew her two amendments.
Clause 12 was approved without opposition.
The committee adjourned at 12.56pm. It will return for the second session at 2pm.
By George Crozier