Hammond quizzed on loan charge and pension tax relief

Labour’s Rushanara Ali asked about the loan charge, saying the charge is retrospective, it overrides taxpayer protections and undermines the rule of law. Hammond said that HMRC’s default approach is that people are potentially vulnerable when they are presented with a large tax demand, and HMRC has effective procedures in place to support them. Asked if he is concerned by reports of six people committing suicide because of the loan charge, Hammond replied that HMRC is aware of one case where, sadly, a taxpayer committed suicide, where there was an open loan charge investigation underway. That does not mean there is a link between the two events, he added. Separately, he said: “It is difficult to envisage how somebody could genuinely have believed that they could draw their pay as a loan that never had to be repaid and not have understood that that action avoided the tax payable.”

Ali then asked whether “the intermediaries, the accountants, financial advisers, lawyers and tax advisers [should have] been regulated more stringently and is there a need to regulate then more stringently?” The Chancellor replied that HMRC are pursuing intermediaries and promoters of schemes, and expect to recover significant revenue from them. There are rules requiring the reporting of tax-avoidance schemes, so that anyone promoting these schemes is under scrutiny, he added. He then expressed concern “that the APPG, which carried out this review, is served by a secretariat, which itself includes people who, by their own admission, have been involved in the promotion of these avoidance schemes. That, it seems to me, is something that the House needs to think about very carefully, whether it is appropriate and whether it, in any way, affects the ability of the House to carry out its work through these APPGs.” He noted that a vice chair of the APPG, Conservative MP Ross Thomson, had “published a statement expressing regret that the published report made a number of inaccurate allegations about the personal conduct of Ministers and civil servants”.

Conservative Steve Baker raised the issue of interactions between the pensions and tax systems for the low and high paid. On the former he explained that savers earning less than the personal allowance are unable to be credited with a tax relief, if they are enrolled in a net pay arrangement. He told the Chancellor he understood that, on average, people are missing out on about £35 a year of tax credits into their pensions, but it could range up to £720 a year. What does the Government plan to do to resolve this issue, he asked. Hammond said he is ‘not sighted’ on the detail of the net pay issue that Baker spoke of but will write to the Committee on the matter. (NB. This is an issue LITRG and others have been pressing for action on.)

Baker then turned to ‘the other end of the spectrum’ where ‘punitive tax rates’, as people hit their limits on pension savings, are changing the way they work. He said it has been reported that about 10 NHS trusts are offering to give the employer’s pension contribution in cash to doctors, in particular senior consultants, rather than putting it into their retirement savings. Hammond replied that pension tax reliefs are extraordinarily generous and among the most expensive elements of tax relief in the system. “They are also heavily skewed to the better off in society. This is a legacy relief system, but it would be difficult to make a case to put in more relief to overcome an anomaly, because it is already extraordinarily generous, particularly to those on the highest incomes.” He went on to say it is surprisingly difficult in this area to find ways to ensure that those on the highest income bear more of a burden than those on lower incomes. The annual and lifetime allowances were an effective way to do this. He suggested the solution lies in looking at whether we can improve the flexibility of pension arrangements in the public sector.

Hammond also told the Committee that the Conservatives’ medium-term aim is to balance the budget in the middle of the next decade. The numbers published by the OBR at the Spring Statement show that that is ‘definitely a deliverable trajectory’. In 2023‑24 the UK is down to a deficit of less than 0.5 per cent of GDP. We have clear targets in the short term, by 2021, to have debt falling as a percentage of GDP and the deficit below two per cent of GDP, all of which look on target to be met at the moment, he said. We have significant headroom, about £27 billion of headroom, against meeting the deficit target in 2021, he said, with the key thing for him is that, probably for the first time in a decade, we are in a position ‘where we have choices’. 

Conservative Colin Clark asked about the ‘narrower and narrower tax base’. Hammond said many of the people who can provide the richest tax harvest have the greatest opportunities for international mobility, saying ‘the trick is to get the levels and scope of taxation just right, such that we can raise the revenues we need to support public services and the functioning of Government, while making sure the UK is still an attractive jurisdiction’. This is also the case for taxpayers moving between England and Scotland, he added, noting that ‘there will be consequences from any discrepancy in tax rates between the different jurisdictions within the United Kingdom.’ Hammond went on to say the only sustainable way to raise living standards and support high-quality public services, while still having sustainable and affordable levels of taxation, is to grow the economy and the productivity of our economy.

Conservative Charlie Elphicke asked if the time has come for proper House of Commons involvement in spending reviews and decisions. Hammond replied that he sees no impediment to the Commons deciding to take the time to scrutinise the estimates in greater detail. In his experience historically, going back to his backbencher days, that it was always quite difficult to get people prepared to put in the time and effort, because it takes quite a lot of time and effort to understand the estimates. He added that the quality of public spending in the United States is not necessarily higher as a result of the fingertip level of congressional involvement in making spending decisions.

The full session can be read here.

By Hamant Verma.