Finance Bill and SDLT Bill clear the Lords
The Finance Bill and Stamp Duty Land Tax (Temporary Relief) Bill passed their House of Lords stages today (17 July). Debate on the two bills was combined. There were concerns about the winners of the stamp duty cut, the IR35 changes and exchanges about the loan charge.
Treasury Minister Lord Agnew of Oulton said the Government have already supported more than 11 million people and jobs through the CJRS and SEISS and have helped over one million businesses to protect jobs through tax caps, tax deferrals, direct cash grants and one million government-backed loans.
The Digital Services Tax (DST) will ensure that digital businesses pay a ‘fair share of UK tax; and more accurately reflect the significant value that these businesses derive from their UK users. He said delaying IR35 extension to the private sector was to give businesses time to prepare and requiring them to do so during the pandemic would have been burdensome. Increasing the R&D expenditure rate to 13 per cent will allow innovation to continue for businesses across the country. Structures and buildings allowance rate increase will aid investment in new shops, factories and agricultural buildings, helping to stimulate capital investment.
No Finance Bill, no fiscal stimulus, no monetary stimulus can entirely compensate for the effects of restrictions such as lockdown and social distancing, said former Chancellor Lord Lamont of Lerwick. Financial support is fine; lifting the restrictions is better and should be the goal. The new head of the OBR has warned of the possible need for a massive write-off of toxic COVID-19 debt to stop the economy stagnating, he warns.
Lord Blencathra supports the DST because the current rules are now way out of date and because we need the revenue from these companies to repair the damage they are doing to society. He said: “These digital companies should pay a digital tax so that we have the money to spend on children’s mental health, anti-terrorist activity and taking down paedophiles.” He called for urgent business rates reform, saying giant Amazon distribution centres are treated like a big farmer’s shed, at ridiculously low rateable values, whereas shops on the high street have excessive rateable values.
The Earl of Shrewsbury said large infrastructure projects are a serious key to recovery.
Baroness Noakes said IR35 is an area that has never really worked well. It has led to tax rules with more unfairness than fairness in them: “If we are to get to where we were before the pandemic hit us, we need everything to run at top speed. Complicating the tax environment for wealth creators will not do that. A good start for the Government next year would be a Finance Bill of no more than 10 pages.”
Lord Cormack commended to the Chancellor a zero rating on all restoration and repair work on historic buildings. New build is zero-rated, and it would be a tremendous boost for craftsmanship, he said.
Baroness Altmann pondered that quantitative easing has had impacts that mimic tax changes but with rather perverse distributional and social side-effects. It has acted like a major tax cut for financial market operators, home owners and the wealthiest asset owners, while feeling like a tax increase that has reduced the disposable income of savers, first-time buyers and the young. It has also been an effective tax increase on pensions for companies sponsoring a defined benefit scheme and those trying to buy annuities.
A delivery charge on online orders would be environmentally sensible; it would also even up, to an extent, the fact that ‘out-of-town shopping opportunities such as Amazon’ pay virtually nothing for their premises, said Lord Balfe. Separately, he said it is ridiculous that, at the moment, you can have unearned income taxed more lightly than your earned income.
Due to the way in which tax law applies to not-for-profit clubs, Schedule 16 to the Bill will impose corporation tax liabilities and potentially significant additional costs and reporting burdens on community sports clubs in relation to COVID-19 support grants. Lord Moynihan said it appeared counterproductive for the Government to continue to claw back a proportion of these grants in tax when there is now a vital need to support the sectors that have been hit the hardest by the pandemic and resulting lockdown.
Lord Livermore said that the UK economy was already exceptionally weak before this pandemic, recording its worst ever average annual growth forecast in the Spring Budget. Against this backdrop of a pandemic-induced recession, the Government has decided that the end of this year is the right time to end the Brexit transition period, imposing a red-tape bill on British business of between £7 billion and £13 billion a year, he complained. The Labour Party has consistently argued that the furlough scheme must now evolve to deliver sectoral-specific support. On the job retention bonus, he cited the Institute for Fiscal Studies which warned that a majority of this money will go to jobs that would ‘have been returned from furlough anyway’ while the Resolution Foundation warned ‘the deadweight in the scheme will be large’ while ‘the scale and temporary nature of the bonus means’ that it will have no ‘major impact on employment’.
Livermore said the temporary cut in stamp duty raises further questions about the Government’s willingness to target support on the areas that need it most. The threshold increase also temporarily removes one of the few advantages that young people had in the housing market, while doing almost nothing to help first-time buyers. He concluded: “The Government were too slow into lockdown, too slow on track and trace and are now too slow on saving jobs.”
Lord Wood of Anfield complained that the stamp duty cut will reward people for living in the south-east, is a cash boost for buy-to-let-landlords, and sellers will win, as they will now be able to renegotiate asking prices to take advantage of the extra cash available to buyers. He said that sellers may also win when March comes around, as price spikes occur when the cliff edge of the end of this tax break looms. What happens to the property market after that is anyone’s guess. And first-time buyers will lose, unless they are wealthy ones in London, because the stamp duty proposal spells the end of the period of using the tax to give preferential help to those who have never owned property before. He said: “The sensible strategy on stamp duty, in my view, would be to abolish it and tax the huge windfalls that come from owning housing property, particularly for the top quarter of our population, in other ways: a housing services tax, for example, as recommended by the Mirrlees commission many years ago.”
On the stamp duty cut, Lord Truscott (Independent Lab) suggested foreign investors will also see this as a window of opportunity to invest in the UK property market, both to benefit from the current stamp duty reduction and to invest ahead of the two per cent rise in SDLT coming into effect in April 2021.
Lord Haskel welcomed the DST, saying in directing this tax at large companies, the Government are rightly aiming it at those which have long practised so-called ‘tax optimisation’.
Lord Young of Norwood Green said the ‘triple lock for pensioners’ ought to be looked at in the current circumstances.
Lib Dem speakers
Lib Dem Lord Bruce of Bennachie said before COVID-19, the economy was already slowing down and the OBR forecasts were pretty modest. Bruce said the reversal of a proposed cut in corporation tax from 19 per cent to 17 per cent was projected to yield around £5 billion, but he would like an updated figure partly because of COVID-19. He said the case for delaying implementation of the loan charge and IR35 was stronger because of COVID-19. Bounce-back loans totalling £30 billion have been rolled out, but normal due diligence has been suspended by government guarantees. What default estimate does the Government expect from those? The peer suggested the Government consider extending the VAT cut to boost bookings for what it is hoped will be a full season next year. The objective of DST must be to ensure that digital companies are taxed fairly and equitably in the same way as other companies and pay proportionately. On the Stamp Duty Bill, he suggested it would be better to target it towards first-time buyers rather than giving a kickback to many transactions that would have gone ahead anyway. He added that landlords take advantage of this holiday to put currently let flats on the market.
Lord Oates said the Government should not delay announcing a hydrogen strategy and putting a massive investment boost behind a UK-led hydrogen economy.
Lord Razzall suggests raising the national insurance threshold to the level of the income tax threshold. That would provide an incentive for employers to take on staff and would help the working poor. Secondly, we should establish an entity to take on the billions of pounds of toxic loans that will remain after the virus, as was done after the previous crisis and as is recommended by the leaders of all our major banks.
Baroness Burt of Solihull asked who is going to lend when they could lose everything if the company to which they are lending goes bust because of HMRC’s new prioritisation in insolvency proceedings.
Baroness Bowles of Berkhamsted said the economy will not be in sufficient shape by next year to take the IR35 risk to workforce flexibility, nor for companies to take the burden. The Government are roping them in to tax and NI as if they were employed, on the basis of tax fairness, but leaving them out in the cold when it comes to employment rights and benefits, she said. “Contract workers have other expenses that can be imposed on them by their clients. How are these to be treated? They can include public liability insurance and giving indemnities to the client.”
On the stamp duty cut, Baroness Bakewell of Hardington Mandeville said it is more likely that those with spare capital looking for holiday homes will snap up homes from under the noses of those trying to get on the housing ladder. The cost of this measure is £3.8 billion—money that could have been targeted at improving the supply of low-cost housing for those on lower incomes, she charged.
The Government’s DST plan in this Bill is a ‘mouse of a measure’ compared with the huge profits made by American big tech companies. The Government need to co-operate closely with the European Union, which is devising an international tax with much greater teeth, said Lord German.
Lord Goddard of Stockport said the loan charge has not stopped payroll loan scheme companies operating. He continued: It is retrospective; it has caused immeasurable stress and hardship to those facing it; it is forcing house sales, bankruptcy, family breakdowns and confirmed suicides. It does not serve a purpose, he added.
Baroness Kramer is disappointed that we still do not know how the Government plans to borrow, tax or cut its way to covering the £188 billion in crisis spending.
Lord Macpherson of Earl’s Court, crossbencher, said rates of stamp duty are too high; they discourage people from moving. In a rational world, we would follow Ireland’s example, cut stamp duty rates and introduce a self-assessed property tax, he said. The OBR says the country will still be a running a deficit of over £100 billion in four years’ time, which is some 4.5 per cent of national income. That suggests to him that we will need tax rises or public spending cuts of at least £50 billion to restore the public finances to a sustainable footing. He added the abolition of the so-called triple lock for uprating the state pension is long overdue and suggested a ‘social solidarity charge’, payable on all income and with no reliefs.
Baroness Bull (crossbencher) urged the Government to consider measures to increase R&D in the creative industries. Creative businesses undertake almost as much R&D as manufacturing but, as much of it relies on arts, humanities and social sciences research, it is explicitly excluded from HMRC definitions and therefore from R&D tax relief, she explained.
UUP’s Lord Empey said by increasing tax we have in fact reduced revenue in stamp duty terms. Simply imposing a large amount of tax does not in fact produce enough revenue for the Treasury, he said. In the 1970s, this country made a huge mistake in turning its back on manufacturing. We are not making things, and our service sector is vulnerable to very short-term issues.
Baroness Jones of Moulsecoomb, Green Party, said it is a good time to look at Green Party tax policies, which include: a £76 billion carbon tax; a £12 billion increase in corporation tax; £3.5 billion saved from scrapping HS2; and £2.2 billion saved from scrapping Trident nuclear weapons.
Baroness Falkner of Margravine, non-affiliated, also spoke for a solidarity tax, saying they had this in Germany when the Berlin Wall fell. Will the Government consider a progressive version of that kind of programme, perhaps to last for two years at one per cent for basic rate taxpayers, two per cent for higher rate taxpayers and three per cent for additional rate taxpayers? It would not breach the Government’s manifesto commitment not to bring in higher taxes in the sense that the public now want—'I think 66 per cent is the figure in recent polls’—to pay higher taxes to support vital public services such as the NHS and social care. She wished the stamp duty tax cut had been longer-term relief for first-time buyers and not a rather blunt tax which will benefit second homeowners, buy-to-let landlords and all those who are the last people to need assistance at this point.
Baroness Wheatcroft, also non-affiliated, said Brexit is an unnecessary onslaught for businesses on top of COVID-19.
Baroness Ritchie of Downpatrick, another non-affiliated peer, called for a review of tax reliefs, asking for an update on the government response to the NAO report.
Response to debate
Closing the debate, Lord Agnew of Oulton said the job retention bonus will provide an additional incentive to firms to keep their employees as demand recovers. On this matter, he said the Chancellor has given compelling reasons to justify the introduction of the job retention bonus, which falls outside the confines of the Managing Public Money guidance. The chief executive of HMRC has asked for a direction, but it is important to remind noble Lords that that has happened on a number of the schemes announced over the past few months, many of which have been supported both here and in the other place. For example, the discretionary grants top-up required a letter of direction, as indeed did the loan schemes. This is not an unusual mechanism. We are all working at pace and trying to be proactive in the face of the enormous challenges that exist.
In other comments, the minister said the Government has committed to a fundamental review of business rates, and published its terms of reference in the Spring Budget, and those affected by the loan charge are already able to defer submitting their self-assessment return for 2018-19 until September this year without having to pay any late filing charges or penalties. On HMRC’s preferred creditor in respect of insolvency, he said a financial institution holding fixed charges over assets will remain above HMRC in the creditor hierarchy and will be unaffected by this reform. The Government recognise that floating-charge creditors will recoup less than under the current law as a result of the way in which such tax debts are treated but that is tough.
It is worth reminding Lords that it is this Government who have reduced some of the tax incentives for buy-to-let borrowers over the past few years, he said.
On IR35, those who wish to challenge their employment status rights can take their case to the employment tribunal.
The Finance Bill passed its second reading without a vote and then its committee stage and third reading without debate. The Stamp Duty Land Tax (Temporary Relief) Bill also passed all its Lords stages.
The full debate is here.
By Hamant Verma