Finance (No.2) Bill 2017-19 ‚ 1st and 2nd sittings
A live blog of the first public bill committee sitting of Finance (No.2) Bill 2017-19, which takes place on Tuesday 9 January 2018 at 9.25am.
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. The second session of the committee will commence at 2.30pm.
Clause 8 and Clause 33, together with Schedule 9; Clauses 40 and 41 and Schedule 11 were dealt with in Committee of the Whole House on Monday 18 and Tuesday 19 December 2017. Reports on day 1 and day 2 of these proceedings can be found by clicking on the respective links. These reports also include background notes on the Finance Bill, its history and its contents.
NB. The notes below are 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.
RESOLUTION OF THE PROGRAMMING SUB-COMMITTEE - PASSED (INCLUDING SNP AMENDMENT A - DEFEATED)
The Financial Secretary to the Treasury (FST) Mel Stride formally moved the proposed timetable for consideration of the Bill by the public bill committee.
Kirsty Blackman (SNP) moved as an amendment that the committee‚ s proceedings on 11 January be altered to allow it the opportunity to take evidence from a number of organisations including HM Treasury, HMRC, The Office for Budget Responsibility (OBR), Institute for Fiscal Studies (IFS) and the Chartered Institute of Taxation (CIOT).
Ms Blackman cited the 'Better Budgets' report published in January 2017 by the CIOT, IFS and Institute for Government, which suggested that oral evidence sessions at the start of Finance Bill committee stage should be considered as part of the public bill committee's processes. She added that these organisations would 'probably know more about taxation than we do'. Ms Blackman added that she would continue to press this recommendation even if her amendment failed today. Alison Thewliss (SNP) voiced concerns about the lack of time available for Parliamentary scrutiny.
Peter Dowd (Labour) said that he had 'sympathy' for the SNP's amendment, and suggested that it was time to allow external experts to provide evidence, given that the number of Finance Bills brought before Parliament since 2015 required considerable parliamentary time and scrutiny. Mr Dowd also cited the CIOT's input through the Better Budgets paper and quoted passages from the report. It was further noted that the former chair of the Treasury Select Committee, Andrew Tyrie, had supported the idea of having external evidence sessions while Mr Dowd also hinted that the new chair, Nicky Morgan, had also expressed support. He said in conclusion that external evidence sessions would greatly improve parliamentary scrutiny of the bill and move the process beyond the 'outdated and archaic' processes currently in place.
Responding for the government, Mel Stride said he understood why these amendments had been tabled but said that the government would 'resist' these measures, adding that there was already substantial opportunities for scrutiny. He said that the Programming Sub-Committee had already unanimously agreed the timetable for scrutiny but Ms Blackman said that the SNP no longer had a position on the sub-committee, had therefore been unable to make its representations known at an earlier stage of the process and as a result would press ahead with its amendment. She rejected the FST's reasoning and in moving the SNP's amendment, accused the government of being 'scared' of taking evidence, which she said would allow members to increase their knowledge and improve tax legislation.
Following division, the amendment was defeated by 10 votes to 9.
FINANCE (NO.2) BILL 2017-19 PART 1 - DIRECT TAXES
1 Income tax charge for tax year 2018-19 - PASSED
Passed without debate.
2 Corporation tax charge for financial year 2019 - PASSED
The FST set out the government's corporation tax strategy, noting that low corporation tax helped to increase investment, reduce prices and support employment. Since 2010, onshore CT receipts had increased by 50% to more than £55 billion per year, in spite of lower rates. He further set out the government's steps to tackle tax evasion and avoidance. The clause was passed without debate.
Income tax: rates and allowances
3 Main rates of income tax for tax year 2018-19 - PASSED and 4 Default and savings rates of income tax for tax year 2018-19 - PASSED (INCLUDING NEW CLAUSE 10 - TO BE VOTED ON AT THE END OF THE BILL'S PROCEEDINGS)
Ruth George (Labour) moved new clause 10, which would require the OBR to undertake an analysis of the effect of income tax rates on incentives into employment and to consider the wider impact on National Insurance, tax credits and social security benefits. She noted that despite the government's aim of reducing the tax burden on working people, increasing marginal rates of tax had impacted on some of the lowest paid and those seeking to re-enter the workplace. Peter Dowd (Labour) set out the contrasting views of the government and opposition in their approaches to tax and spending and resultant pressures on public spending and public services.
Mel Stride said he rejected the 'gloomy' picture painted by the new clause and said that the government had taken a number of steps to support those on low incomes, including the introduction of the National Living Wage. These had helped to support record levels of employment, low levels of unemployment and ensured that the wealthiest paid a greater share of their income in tax than under the previous Labour government. In moving clauses 3 and 4, he said that the government would reject new clause 10 when put to a vote.
5 Starting rate limit for savings for tax year 2018-19 - PASSED
The FST moved the clause, saying that government's support for savers meant that savings 98% of those saving paid no tax on the money they put away.
6 Transfer of tax allowance after death of spouse or civil partner - PASSED (INCLUDING NEW CLAUSE 3)
Mel Stride said the changes would allow marriage allowance to be claimed and backdated for deceased spouses and civil partners. He cited evidence from the Low Incomes Tax Reform Group (LITRG) that had highlighted the unfairness of the current regime at a time of considerable stress for people who have lost a partner. The changes would put marriage allowance on a similar footing to other tax reliefs and allow 'thousands' of additional people to claim at 'negligible' cost to the Treasury.
In rejecting new clause 3, Mr Stride said that there was no need for there to be an impact assessment of the relief. He further added that the clause was put forward as a result of representations from LITRG and showed that the government was prepared to take on board the concerns of external organisations in developing tax policy.
Moving new clause 3, Ms Blackman said the SNP had a long-standing opposition to the marriage allowance but conceded that the measures proposed would help alleviate part of these concerns. Anneliese Dodds (Labour) said her party had similar concerns with the allowance, which appeared to benefit those on higher incomes and males.
The FST welcomed the SNP's acknowledgment of the benefits of the amendment to marriage allowance but noted the party's wider concerns over the relief.
7 Deductions from seafarers‚ earnings - PASSED
Mr Stride moved the clause, saying that it would provide certainty to employees of the Royal Fleet Auxiliary(RFA) by placing the relief on a statutory footing. He said that 20,000 people claim the allowance each year, including 900 working for the RFA. Anneliese Dodds (Labour) sought assurances that the change would not have a detrimental effect on RFA seafarers, some of whom had made representations to MPs that they feared retrospective penalties from HMRC. The FST gave assurances to this effect.
[Clause 8 on Exemption for armed forces‚ accommodation allowances was covered in Committee of the Whole House]
9 Benefits in kind: diesel cars - PASSED (INCLUDING CONSIDERATION OF NEW CLAUSE 5)
The FST said the clause would enable a 1% increase in the company car diesel supplement to help fund the government's national air quality plan and encourage car producers to bring forward next generation 'clean diesel' cars. The measure would increase the diesel supplement from 3% to 4% and support the government's environmental objectives.
Labour's new clause 5 would require an impact assessment to be undertaken to review of the effect of the provisions of Clause 9 on the use of diesel cars and on emission reduction targets. Mr Stride said the timescales proposed by the new clause would fail to capture the benefits of the change and as a result requested that it be withdrawn.
Anneliese Dodds (Labour) understood the rationale for the government's proposal but said a review of its impact was required. This was because Labour had concerns over the technical readiness of the motor industry and the lack of a holistic approach to emissions reductions by the government.
10 Termination payments: foreign service - PASSED
Mr Stride set out the rationale for the measure, which would ensure that UK residents be liable for tax on termination payments received regardless of whether they were working abroad. In moving the clause, the FST said that the UK had one of the most generous termination payment regimes in the world and that these measures would impact people who had their employment terminated on or after 6 April 2018. The clause was passed without debate.
11 Employment income provided through third parties - PASSED/ 12 Trading income provided through third parties - PASSED and Schedule 1 (Employment income provided through third parties)
Labour tabled a series of amendments (detail below) considered as part of the debate on clauses 11 and 12.
Amendment 34 (DEFEATED) - This amendment provides for higher penalties for failure to comply with section 35C where the amount of the loan is greater.
Amendment 35 - paves the way for Amendment 36, which provides for higher penalties for continued failure to comply with section 35C where the amount of the loan is greater and Amendment 37 - provides for higher penalties for inaccurate information or documents relating to compliance with section 35C where the amount of the loan is greater (NOT VOTED ON AS AMENDMENT 34 DEFEATED)
Amendment 38 (DEFEATED) - provides for commencement of the provisions of Part 4 of the Schedule to take place after the publication of a review of the profile of those affected, and in particular on lower paid taxpayers.
Mel Stride moved clauses 11 and 12, saying that the measures proposed would ensure that those engaging in disguised remuneration schemes pay their fair share of tax. He said that the government would reject these amendments and set out a range of measures already being undertaken by HMRC in these regards. He urged the committee to reject these.
Moving the amendments, Anneliese Dodds said Labour welcomed moves to restrict the use of disguised remuneration schemes but voiced concerns that they did not go far enough. She said that the penalty regime had to be sufficiently strong in order to crack down on tax avoidance and rejected the suggestion that the existing regime was sufficient enough.
The FST said that HMRC had been successful in clamping down on tax avoidance but conceded that further work needed to be done. That said, he noted that HMRC had recouped £160 billion in revenue since 2010 that would have otherwise been lost to the exchequer and restated the government's success in lowering the tax gap to 6%, one of the lowest rates in the developed world. He said government would crack down on avoidance with 'vigour'.
The meeting adjourned at 11.03am.
Clause 13 Pension schemes - PASSED, Schedule 3 - PASSED and Amendment 39 - DEFEATED
This clause and Schedule amends the Finance Act 2004 (FA 2004), as it relates to the registration of pension schemes for UK tax reliefs. The debate on this clause revolved around Master Trusts. Tories think the clause is enough to rid the public of pension scams but Labour say it does not go far enough, citing the need for greater ‚ democracy‚ as an argument.
FST Mel Stride said it makes changes to extend HMRC powers to refuse to register and deregister pension scheme that are not authorised by the new Pensions Regulator. It will help HMRC to restrict the tax register to legitimate ones only and support the Pensions Regulator‚ s supervision of master schemes. The changes support the Government‚ s objective for fairness in the tax system while maintaining the integrity of pension tax relief. The amendment suggested by Labour will only duplicate existing requirements, he argued. This clause ensures HMRC can tackle scams, he added.
Peter Dowd gave a lengthy speech. He said his amendment seeks to improve transparency of the schemes, especially as we have had ‚ institutional dodgyness‚ , such as endowment schemes in the past and leaseholds in property, where people‚ s faith in institutors are becoming ‚ a bit challenged‚ ‚Äì hence Labour wants to ‚ push the envelope‚ on the clause. Labour‚ s amendment seeks to make are two-fold: a clear and coherent investment strategy is shown to HMRC before registration and second, a clear annual statement on the cost and charges applied to savers pots be made to HMRC and savers themselves.
He spoke about the findings of the Kay report, to support his amendment, especially on Master Trusts, and the UK Stewardship to show how shareholders act like ‚ absent landlords‚ and he does not want savers to fall into this pattern of behaviour.
Ruth George (Lab) intervened to say low paid workers will be encouraged to save if they have a say on it ‚Äì avoids ‚ disempowerment‚ , she added. She later intervened again to say we are talking about people on low incomes who may be saving for the first time.
Dowd said his amendments are about making people accountable to savers where there is a disconnect at the moment, sometimes because of intermediaries, who themselves may be open to ‚ market indiscipline‚ . The onus must be on Master Trusts to take the lead in creating an engaging strategy ‚Äì none must be allowed to slip through the net.
On reporting costs and charges, he said there is a ‚ glaring dysfunction', in so far as no one knows how much a pension pot costs. The Government has begun to catch up on this matter which Labour has campaigned on for many years. Labour‚ s amendment would be a step forward on this by embedding a process already taking place. Any person auto enrolled into Master Trust must understand what it costs and how much they will get. We need cost reporting on the statute book, he urged.
FST Stride said Dowd‚ s ‚ comprehensive‚ approach will be overly burdensome and lead to additional costs as a consequence. He added that the FCA is consulting on the publication of costs and the Government hopes to bring forward proposals on this.
Dowd said he will push his amendment 39 to a vote.
Clause 14: EIS, SEIS and VCT reliefs: risk to Capital - PASSED
Clause 15: EIS, SI and VCT reliefs: relevant investments - PASSED
Clause 16 and Schedule 4: EIS and VCT reliefs: knowledge-intensive companies ‚Äì BOTH PASSED
Clause 17 and Schedule 5: VCTs: further amendments ‚Äì BOTH PASSED
Government amendment one - PASSED
New Clause six, New Clause seven and New Clause eight ‚Äì NOT VOTED ON
All the clauses grouped together relate to the same matter. FST Mel Stride said clause 14 is a response to the Patient Capital Review and deals with technical flaws to make sure new legislation on tax advantage venture capital schemes (VCTs) means they co-oporate as envisaged. These schemes ate important, he said, but evidence in the consultation suggested knowledge intensive companies still struggle with acute funding gaps despite their potential.
This clause amends the requirements for investments to qualify for relief under the EIS, SEIS or the VCT scheme. It introduces an overarching risk-to-capital condition to prevent investment in companies whose activities are mostly geared towards the preservation of the capital invested rather than the long-term growth and development of the company. The changes will take effect in accordance with regulations made by Treasury.
Clause 17 makes amendments to encourage VCTs to invest more funds into qualifying companies and quicker, he said.
Government amendment one will encourage VCT‚ s to make longer term investment in higher risk companies.
Schedule Five raises reinvestment period to 12 months, FST Stride added.
The Government believes it is reducing the cope for low risk investment with the following clauses.
Peter Dowd (Lab) moved Opposition amendments (in the form of the New Clauses) relating to Schedule 4, which covers the aforementioned clauses. The current legislation is a ‚ maze‚ and therefore difficult to see if they are open to abuse. He mentioned that CIOT has argued that the success of a start up and its ability to access money comes down to whether they can access advice.
He spoke on Labour‚ s New Clause six: Labour is calling for a review of the operation of these reliefs to compare against their stated aims, something the Tories think would be too close to when these changes begin. Labour‚ s New Clause seven asks for a review to EIS and VCT reliefs for knowledge intensive companies and ‚ have they been effective‚ .
FST Stride said Labour‚ s new clauses are not needed now because the changes in clauses 14 - 17 have come about as a result of intensive consultation.