MPs debate shrunken Finance Bill

During the proceedings the Government deleted 72 out of 135 clauses and 18 out of 29 schedules. The residual Bill is only 148 pages long compared to the original 762 pages.

This was in line with a call by CIOT in a letter to the Chancellor (see press statement), copied to the Shadow Chancellor (changes are negotiated between government and opposition), sent on Wednesday last week, in which CIOT President Bill Dodwell warned of the risks of rushing through a large number of tax changes without any real parliamentary scrutiny. In his letter Bill explained that this was not simply about the formality of parliamentary debate but that CIOT had identified a number of changes that the Institute believes are needed to the legislation including in complicated areas such as loss relief and interest deductibility

Clauses dropped include those on Making Tax Digital (MTD), corporate loss relief and interest deductibility, VAT in relation to fulfilment houses and penalties for enablers of defeated tax avoidance schemes. A full list of what is in and what is out can be seen here. It is expected that most if not all of the provisions dropped will return in a Bill after the election, regardless of who wins the election. However delaying legislation until the summer will hopefully allow time for concerns to be looked at and taken on board by government.

Committee stage debate was timetabled to last just four hours and lasted only half of this time. All government amendments were passed. No opposition amendments were passed. Nothing was pushed to a vote (i.e. a division of the committee or the House). 

Committee stage debate was timetabled to last just four hours and lasted only half of this time. All government amendments were passed. No opposition amendments were passed. Nothing was pushed to a vote (i.e. a division of the committee or the House).

Group 1 - Income tax, corporation tax, chargeable gains and provisions relating to more than one tax

Clause 1 stand part + Clauses 2 to 4 stand part + Clause 5 stand part + Clause 6 stand part + Clause 16 stand part + Clauses 17 and 18 stand part + Clauses 19 and 20 stand part + Clause 21 stand part + Clauses 22 to 44 stand part + Clauses 45 to 47 stand part + Clauses 52 to 56 stand part + Gov 13 to Gov 29 + Schedule 3 stand part + Gov 30 to Gov 56 + Schedule 4 stand part + Schedules 5 and 6 stand part + Schedule 7 stand part + Schedules 8 to 15 stand part

The Financial Secretary (FST) Jane Ellison said that the proposals to remove a majority of the Bill did not indicate any policy change. Ellison said the Government remains ‘committed to the digital future of the tax system’ despite MTD being left out. Setting out some of the measures which remain in the Bill, Ellison said the Bill aims to deter overseas pension transfers which have become increasingly marketed and used as a way to gain an unfair tax advantage on pension savings that had had UK tax relief. She said the removal of the tax advantages of employee shareholder status was a response to evidence suggesting that companies are being used as a tax planning device, rather than the status being used for its intended purpose of helping businesses to recruit.

Shadow Chief Secretary to the Treasury Peter Dowd said Labour had sought to balance fiscal responsibility against parliamentary scrutiny in the discussions about what should be dropped from the Bill. Labour would “not attempt to block any measure in the Bill that has to be levied to ensure business as usual for our public services, such as income tax, and nor will we obstruct tax that is already in the process of collection. But of course we cannot give the Government carte blanche”. Turning to policy matters he said that rising business rates and rising inflation have created a ‘perfect storm’ for many small businesses. He welcomed Ellison’s statement on the digitalisation of tax. It will be a great relief to many small businesses given the onerous requirements for quarterly reporting, he said. No one is against a move to a digital tax system, Dowd explained, but Labour do not agree with the rush to implement it. 

Kirsty Blackman (SNP) welcomed the Government’s withdrawal of the dividend tax threshold change because it was particularly contentious. Blackman welcomed the increase in the personal allowance but felt the Government has not gone far enough in supporting the low paid. She said that tax credit changes more than balance out the extra money people are getting from the increased minimum wage and personal allowance. She argued that if the Government are making changes to self-employment, they need to do so in the round. A review more widely defined than the Taylor review was needed, she said. Alison Thewliss (SNP)said the national living wage was only a ‘pretend living wage’. George Kerevan (SNP) suggested the Government felt ‘embarrassed’ about the proposed reduction in the dividend income that investors in small companies can take, which was why it was being dropped.

Copeland MP Trudy Harrison (Conservative) chose this debate to make her maiden speech. Former Chief Secretary to the Treasury Andrew Smith (Labour), meanwhile, made his farewell speech, wishing that we had a Finance Bill with a focus on ‘social justice’. 

Group 2 - Taxation of employment income, tax avoidance and tax evasion

Clause 7 stand part + Clause 8 stand part + Clauses 9 and 10 stand part + Clause 11 stand part + Clauses 12 to 15 stand part + Gov 4 + Clause 48 stand part + Clauses 49 to 51 stand part + Clauses 124 to 126 stand part + Clause 127 stand part + Motion to transfer Clause 127 + Clauses 128 and 129 stand part + Gov 10 + Schedule 1 stand part + Gov 11 and Gov 12 + Schedule 2 stand part + Gov 57 + Schedule 16 stand part + Schedules 17 and 18 stand part + Schedules 27 to 29 stand part + NC1

On the reform of the off-payroll working rule, the Financial Secretary said HMRC estimates that less than 10 per cent of those who should operate these rules actually do so. The new digital ‘Check employment status for tax’ service has been used more than 273,000 times to assist people in applying the off-payroll rules, she said.

Kirsty Blackman said concerns have been raised with her about the off-payroll working online tool and its shortcomings. The minister was ‘surprised’ about this.  The SNP MP said that ‘just the other day somebody told me that they are no longer bidding for public sector contracts as a result of the tax changes made on IR35’ and it is sometimes difficult to get people to come to some of the most rural parts of Scotland, as it is.  She closed on this topic by stating that the Government’s document on the impact of the tax changes, called OOTLAR—the overview of tax legislation and rates— did not recognise the impact the changes may have on communities. She spoke about her new clause on tax avoidance that would require the Chancellor to review within two months international best practice in relation to the prevention and reduction of tax avoidance arrangements and combating tax evasion, and to publish a report of the review. She said the UK was “certainly not the best place in the world at all the different ways of tackling tax avoidance; we could learn a huge amount from what different countries are doing.” She added that the SNP would support the Government in any action they take to encourage whistleblowers and to create a better environment in which they can come forward.

David Nuttall (Conservative) suggested that “by reducing taxes, particularly corporation tax, in this country, we are more likely to attract inward investment and new companies from around the globe to this country, thereby producing the taxes to pay for our public services”. Blackman responded that when companies are looking at where to base their headquarters and their staff, corporation tax does not feature all that high up the list. They are looking for good infrastructure, schools and support for individuals in the community, she said.

Group 3 - Value added tax

Clause 57 stand part + Schedule 19 stand part + NC2

To justify new restrictions on a scheme where no VAT is charged for the buying of an adapted vehicle by or on behalf of a disabled wheelchair, the Financial Secretary revealed that HMRC found that one person purchased 30 BMWs under the scheme in one day. The clause makes it mandatory for vehicle dealers to submit a declaration of eligibility for each car purchased under the scheme to HMRC and applies penalties to those found to abuse the scheme.

Kirsty Blackman spoke in support of its new clause 2 which requests that the Treasury commissions a review of the VAT treatment of the Scottish Police Authority and the Scottish Fire and Rescue Service, reporting the cost of VAT to them at present and how this would change if they were eligible for refunds. She observed that the Government has created VAT exemptions for Highways England, which is a national English body. Patrick Grady (SNP) said the other option open to the Government is to devolve all power over VAT to the Scottish Parliament. Joanna Cherry (SNP) said this VAT charge was costing Scotland’s emergency services tens of millions of pounds a year. Responding the minister said that both the Scottish bodies referred to are funded centrally rather than through local taxation and therefore do not meet the eligibility criteria for section 33 VAT refunds, an issue that the Scottish Government was told about prior to their formation.

Group 4 - Insurance premium tax

Clause 58 stand part + Clause 59 stand part

Clause 58 legislates for the increase in the standard rate of insurance premium tax from 10 per cent to 12 per cent and Clause 59 will make minor changes to anti-forestalling provisions.  The Financial Secretary linked the change to the Government’s deficit reduction targets, pointing out that the OBR’s recent fiscal sustainability report highlights the challenges posed by an ageing population, projecting debt almost trebling to 234 per cent over the next 50 years, if no further action is taken. if insurers do choose to pass on the IPT increase, ‘it will be spread thinly across a wide range of people and businesses’, she said.

Stephen Pound (Labour) was concerned about the impact of IPT on charities. George Kerevan said it was the third IPT rise in 18 months ‘which actually increases the rate by 20 per cent, well above the rate of inflation’. He asked Ellison to rule out extending the provision of IPT to reinsurance. Kirsty Blackman said this was ‘a tax on people doing the right thing by insuring their homes and properties’ and  tax on charities and organisations such as the scouts. She added that the SNP wants young people, particularly those in rural areas, to be able to access services, learn to drive safely and afford insurance. Huw Merriman (Conservative) was also concerned about the impact on young drivers.

Group 5 - Landfill tax, alcohol duties, other duties, taxation of oil and gas, etc

Clause 60 stand part + Clause 61 stand part + Clauses 62 and 63 stand part + Clause 64 stand part + 1 + Clause 65 stand part + Clauses 66 and 67 stand part + Clauses 68 and 69 stand part + Clause 70 stand part + NC3 + NC4

The 2017 Budget kept duty rates on beer, cider, wine and spirits flat in real terms, the Financial Secretary told the House.  If alcohol duties had been frozen or cut at Budget 2017, the Government would instead have had to raise taxes in other areas of the economy, cut public spending or increase the public deficit, she said. Ellison said that to reverse the uprating as applied to spirits, as requested in an amendment by the SNP, would not help exports, because the £4 billion of exports a year are unaffected by the duty change, as no duty is paid on exported spirits.  Such an amendment would cost the Exchequer, and so increase the deficit by, around £100 million this year.

Kirsty Blackman said the changes that have been made this year will put 36p on a bottle of whisky and mean that £4 of every £5 spent on whisky goes to the UK Government. She is also concerned about the loss of protected geographical indication because of Brexit. Blackman said she and her SNP colleague Callum McCaig had worked on two new clauses on oil and gas. The first called on the Government to look at the tax structure for the oil and gas industry to see how they can incentivise companies to ensure that they are getting the best out of the North Sea and secure jobs in the north-east of Scotland, and beyond, for as long-term a future as possible. The second asked the Government to look at what they can do to the tax regime to ensure that decommissioning jobs are kept in the UK.

Group 6 - Soft drinks industry levy

Clause 71 stand part + Clauses 72 to 75 stand part + 2 + 3 + Clause 76 stand part + Clauses 77 to 107 stand part + Schedules 20 to 23 stand part

In a blitz of numbers, the minister, Jane Ellison, said more than 60 public health organisations had called for a tax on sugary drinks, and the Government expect more than 40 per cent of all drinks that would otherwise have been in scope to have been reformulated by the introduction of the levy. “We now expect the levy to raise around £385 million per year, which is less than the £520 million originally forecast - but we are clear that this is a success.” Health experts agree that the naturally occurring sugars in milk are not a concern from an obesity perspective but Ellison made a commitment to the House that the Treasury will also review the exclusion of milk-based drinks in 2020, based on the evidence from Public Health England’s assessment of producers’ progress against their sugar reduction targets.

Joanne Cherry (SNP) said the problem with omitting high-sugar milk-based drinks from the provisions is that parents may mistakenly think that they are healthier than soft drinks. Kirsty Blackman said the Faculty of General Dental Practice and the Health Committee have said that milk-based drinks should be included in the levy and that SNP amendments 2 and 3 would remove their exemption. 

Group 7 - Fulfilment businesses, digital reporting, tax administration and enforcement, and concluding provisions

Clauses 108 stand part + Clauses 109 to 123 stand part + Clauses 130 to 133 stand part + Gov 5 to Gov 9 + Clause 134 stand part + Clause 135 stand part + Schedules 24 to 26 stand part

The Financial Secretary indicated that the Government’s amendments in this group were consequential amendments and she wanted to move them formally (without a speech).

Kirsty Blackman said she appreciated the withdrawal of the MTD proposals. George Kerevan paid tribute to outgoing Chair of the Treasury Committee Andrew Tyrie. He said:  “There could be no more fitting tribute to the right hon. Gentleman leaving this House than the Government withdrawing the making tax digital provisions.” Tyrie had announced that day that he was stepping down as an MP.

Legislative Grand Committee

The Deputy Speaker informed the House of her decision about certification in relation to the Bill’s territorial applicability. She certified clause 2 of the Bill (Main rates of income tax for tax year 2017-18) as relating exclusively to England, Wales and Northern Ireland and within devolved legislative competence. She certified the amendment omitting clause 60 (Landfill tax: taxable disposals) from the Bill as relating exclusively to England, Wales and Northern Ireland. As a result a consent motion was required.

To consider this the House resolved itself into Legislative Grand Committee for the (limited) parts of the Bill relating only to England, Wales and Northern Ireland. There was then an opportunity for debate on the consent motion (all members can speak but Scottish members cannot vote) but no-one took the opportunity. The FST moved the consent motion formally (i.e. without a speech) and the motion was approved without dissent.

Third Reading Debate

Financial Secretary Jane Ellison said that “a number of key policy changes to the tax system, such as measures to tackle tax avoidance, are not being proceeded with now, but will be brought forward in a Finance Bill at the first opportunity after the election”. She said that the shortened Bill continues the Government’s commitment to tackling tax avoidance and evasion to ‘level the playing field’ and keep pace with the different ways in which people choose to work. She also praised Andrew Tyrie and Andrew Smith following their announcements they would not be restanding at the forthcoming election.

Peter Dowd, for Labour, welcomed the Minister’s commitment to the review of milk drinks in a couple of years, based on the advice of Public Health England.  He said: “Some measures are no longer in the Bill, some will no doubt come back and we will bring some measures back before the House. We hope that those measures, in one way or another, will be scrutinised.” He also paid tribute to Tyrie and Smith, as well as to former Labour Treasury spokesman Rob Marris, another retiree.

Kirsty Blackman also paid tribute to Marris, saying she was constantly impressed by his ‘incredible knowledge’ about all the matters discussed in Finance Bill committee last year. She said the SNP was the only opposition party to speak on every group of measures in second reading and were the only party, other than the Government, to table amendments to the Bill. We have gone out of our way to provide scrutiny, she said.

Blackman ‘absolutely’ backs the call in the Better Budgets report for the Finance Public Bill Committee to have public hearings. She said: “It is really important for this House to do that. I would very much like whatever Government comes in after 8 June 2017 to change the Standing Orders [Parliamentary rules]. That would make a really big difference to the level of scrutiny we are able to provide. I have heard the argument that the Treasury Committee hears evidence from members of the public. However, different individuals sit on the Treasury Committee and the Finance Bill Committee. I will keep making this call - the Minister knows that once I start bringing something up, I am not very good at letting it go - until the Government change the Standing Orders. I recognise that they were not put in place by this Government.”

The SNP MP welcomed the Government’s recognition that Making Tax Digital is a contentious matter. She insisted the Government produce a full report on international comparators would be ‘incredibly helpful’ for the Government to ensure that the right decisions are taken to tackle tax evasion. There is still not enough protection for whistleblowers, she added.  When it comes to tax changes to level the playing field between employed and self-employed, the Government also need to look at tax credits, so that self-employed individuals are supported through childcare vouchers and so on. The SNP spokeswoman would ‘very much like’ the Government to look at changes to the tax regime on small oil pools.

In his valedictory speech,  Rob Marris (Labour) said that on projections, taxation as a percentage of national income is likely to be at its highest ever level in peacetime. He said the achievement of falling unemployment under the Coalition and the Tories has been bought on a ‘sea of debt’. The MP said average incomes have risen because pensioner incomes have risen thanks to the triple lock. The Conservative party has come late to that party, he commented. We now have the target of three million apprentices, which might or might not be met, but if it is met, one fears it will be through redefining as ‘apprenticeships’ courses and training schemes that many of us would not regard as such, to make the figures work, he said.

The question was put by the Deputy Speaker and the Bill was approved without a vote.

The committee stage and third reading debates can be read in full here.

Bill speeds to Royal Assent

The Lords stage of the Finance Bill consisted of four speakers only. A number of peers who had intended to speak decided not to do so when the clauses of interest to them were withdrawn from the Bill. Peers cannot in any case amend Finance Bills.

Commercial Secretary to the Treasury Baroness Neville-Rolfe spoke for the Government. She repeated the statement of the Minister in the Commons that the Bill had been amended at the request of the Opposition but that “There has been no policy change.” Neville-Rolfe said that since 2010, the Government has invested more than £1.8 billion in HMRC to tackle evasion, avoidance and non-compliance, helping to secure more than £140 billion in additional tax revenues.  HMRC wants to ensure that those who promote tax avoidance schemes cannot circumvent the rules by reorganising their business while continuing to use high-risk tactics in promoting avoidance schemes, she said. She expects the reform of IR35 to improve compliance significantly.

Labour spokesman Lord Davies of Oldham said: “The Government’s fiscal policy shows a ruinous performance on the public finances, as their target period for clearing the deficit has now been surpassed.”  He called it ‘nonsensical’ to cut back at HMRC when the tax authority brings in far more money than it costs. He added that all forecasts show that within two to three years the already low growth levels under the Tories and the Coalition will begin to subside.

Lord Haskel (Labour) said the Bill fails to ‘grow the economic pie’ with ‘politics that divide it up fairly’. The Lord said the quality of jobs and whether they enable people to achieve an acceptable and rising standard of living, needs to be addressed. He said it would take the pressure off NHS finances if the Bill introduced ‘some kind of loan scheme that would be repayable on death’ to pay for adult social care. He made a general point about a lack of readiness for Brexit, The National Audit Office tells us that over the last 10 years there has been a 26 per cent reduction in the number of civil servants. “Perhaps the new Government will have to take note of the American system, whereby IT experts do a tour of duty with the Government as a kind of patriotic contribution”, he suggested. He closed his speech: “The Minister outlined the tax changes but not how we could civilise our society even more, perhaps by broadening the tax base with heavier taxes on activities that damage the environment, extending VAT to financial services, revaluing residential property, or fairly taxing inherited wealth.”

Lord Kerr of Kinlochard (crossbencher), a former Foreign Office Permanent Secretary and member of the Economic Affairs Committee, hoped that the Treasury and HMRC will use purdah to consider the Economic Affairs Committee recommendation that MTD ‘should be phased in’ and made optional for small companies and the Treasury Committee proposal that the threshold should be raised to be in line with that for VAT. The minister replied that she was “grateful for the work that is done on Treasury areas in the House. It really helps us to improve policy formation. Although there has been no change of policy, I entirely accept that time is needed for proper debate and scrutiny of the provisions for making tax digital. The Government remain committed to the digital future of the tax system - it was good to hear support for that from the Opposition Benches - and it was of course, in principle, accepted in the extensive consultation we held. But more time is needed for parliamentary scrutiny, and that will be made available at the earliest opportunity in the next Parliament.”

The Bill passed its second reading and then moved straight to third reading which was also passed. The full debate can be read here.

The Bill gained Royal Assent at 5.30pm on Thursday 27th April shortly before the prorogation of Parliament. The text of the final Act can be read here and other documents relating to the Bill are linked to from here.

By Hamant Verma