Finance Bill 2nd reading debate

8 Nov 2018

The second Finance Bill of 2017 was debated by MPs today ahead of the Bill's second reading vote. We live blogged on the debate here.

NB. Scroll down for background on Finance Bill 2017-19.

Summary of debate and votes

Finance Bill 2017-19 passed its second reading by 320 votes to 299 following nearly six hours of debate

One area focused on during the debate was the provisions relating to non-doms including business investment relief. These measures came under sustained fire from opposition MPs. Labour's Shadow Chief Secretary, Peter Dowd, accused the Government of 'aiding and abetting' non-doms to avoid paying taxes. A number of Labour MPs drew attention to what they saw as a 'loophole' of offering two years for non-doms to transfer their money to an offshore trust. The increase in the scope of business investment relief was described as ‚ yet another loophole for the super-wealthy‚ . Defending the policy the Economic Secretary, Stephen Barclay, said the Government's was 'a balanced approach, and one that has been subject to extensive consultation'. He stressed: 'if funds are taken out of trusts, they will become liable for tax.' A number of other Conservative MPs praised the Government for abolishing permanent non-dom status and noted that this went further than anything Labour governments had done in this area. One Conservative, Craig Mackinlay, thought he had identified a flaw in the proposal dealing with non-doms who use a company or trust to hold UK residential property.

The legislation on business investment relief is one of three areas picked out by Labour for debate in Committee of the Whole House, the other two being the clauses on termination relief and corporation tax trading profits taxable at the Northern Ireland rate. These are the same measures as the three ways and means resolutions that Labour opposed the previous week. On termination payments, Labour's spokesman repeated his claim that the changes will mean people losing their jobs may face higher tax bills when they are least able to pay. The Economic Secretary responded that the reforms were about providing clarity and tackling avoidance. "They will not affect statutory termination payments or payments arising as a result of employment tribunals," he emphasised. On Northern Irish corporation tax the shadow minister repeated his claim that changes in the Bill would mean 'corporations will find it easier to shop around within the UK for where to put their brass plates'. The Financial Secretary, Mel Stride, denied this, saying the legislation "simply ensures that all small and medium sized enterprises with trading activity in Northern Irland will be able to benefit from the Northern Ireland corporation tax regime in the same way as is already available for larger companies, and it introduces additional anti-avoidance measures to ensure the regime operates as intended." Expect further clashes on all three of these areas during Committee of the Whole House.

The Making Tax Digital proposals were also prominent during debate, with MPs from all sides welcoming the Government's changes. Conservative Kit Malthouse said he was "pleased to see that the parliamentary system worked: the Government proposed something; Members scrutinised it and opined upon it; the Treasury Committee, on which I sat and still sit, issued a report on the policy; and the Government listened to lots of industry groups and amended the policy to one that was roundly and warmly welcomed by industry generally. That is the way things should work and I am very pleased that they have in this particular instance." He pressed the Government to think more about the difficulty of introducing quarterly reporting for corporation tax. SNP MP Stewart Hosie asked for a government guarantee that those who are unable to use digital tools because of their geographical location would be able to keep the current manual system.

The length of the Bill and the general complexity of the tax system came in for a lot of flak. Conservative Mark Harper declared an interest as a non-practising chartered accountant but said he knew from talking to colleagues in the tax business 'that they do not enormously welcome Finance Bills this thick'. Another Conservative, James Cleverley, called the Bill 'gargantuan' and called for taxes to be lower and simpler. A number of MPs, on both sides of the House, had concerns about the extent of retrospectivity in the Bill's provisions.

Many other issues were touched upon. SNP spokesperson Kirsty Blackman was concerned that the clause on errors on taxpayer‚ s documents might mean that people will be unduly penalised for something that was not their fault. Her SNP colleague Stewart Hosie was critical of the reduction in the dividend allowance, and also raised questions about clause 6 relating to PAYE settlement agreements. Labour's Stella Creasy proposed '10 ideas' to help people including raising the rate of tax on carried interest and joining up the way the state deals with self-employed people. Conservative Kit Malthouse advocated consideration of moving to a turnover tax for business, replacing business rates and corporation tax. Another Conservative, Charlie Elphicke called for further action on image rights to make sure that footballers and other sports stars pay their 'proper dues'.

Debate on Finance Bill Second Reading ‚ Tuesday 12 September 2017 (live blog)(Notes reflect debate as heard by author and transcription errors cannot be ruled out)

2.13pm Opening speech - Mel Stride, Financial Secretary to the Treasury (FST)

Praised a good debate‚ about the resolutions last week. He set out the background and main provisions of the Bill. He said the Government is putting a ‚ fair and competitive tax system‚ at the heart of its plan.

Talked about abolishing permanent non-dom status. Non-doms make a ‚ huge‚ contribution to our public finances (£9bn a year). Government is putting end to unfairness where people live in the UK and can claim they are non-dom on a permanent basis.

On termination payments, he said the rules are unclear at the moment. Some deliberately manipulate payments to get around the tax system. He announced that all compensation paid to employees where it has been proved they have been discriminated against will remain exempt from tax.

On dividend allowance he said the change will remove some working distortions between different ways of working. He defended the Tory reputation for supporting entrepreneurs.

Asked what measures were being proposed to deal with geographical income inequality, the minister said the Government's record was strong in this area and went on to make a point about the merits of the living wage, NMW and HMRC ‚ vigorous‚ action that they are implemented.

He turned to ‚ strengthening‚ positon to tackle tax avoidance and evasion. The Government has already announced 75 measures to tackle avoidance and evasion since 2010, he said. This Bill includes efforts to crack down on disguised remuneration scheme and enablers of tax avoidance and online VAT fraud, he added.

An intervention criticised Labour for its role in getting clauses 'which would have cracked down on billions of pounds worth of evasion and avoidance' dropped from the pre-election Finance Bill. The minister said that the Government's wish had been that this Bill be considerably shorter as a consequence of the pre-election Bill being longer and measures already being on the statute book.

He said as taxes have come down, tax take has increased, such as with corporation tax.

He was asked, when there is so much retrospective legislation in the BIll, why the penalty for enablers clause does not kick in until the Bill receives Royal Assent. The minister said this was convention.

The minister said the Government is succeeding on tackling avoidance and evasion, proved by more money coming in to HMRC.

He said he was 'somewhat surprised' by the reaction in last week's debate to provisions in the Bill relating to the Northern Ireland corporation tax regime. "These are nothing new - they were announced in the 2016 autumn statement. Nor do they create a tax loophole. The legislation simply ensures that all small and medium sized enterprises with trading activity in Northern Irland will be able to benefit from the Northern Ireland corporation tax regime in the same way as is already available for larger companies, and it introduces additional anti-avoidance measures to ensure the regime operates as intended. The provisions in this Bill do not weaken that at all. They simply mean that more businesses will be able to apply the regime to the taxation of profits genuinely arising and only arising from activities carried out in Northern Ireland once the regime is put into effect."

On Making Tax Digital, the minister said the climb down by the Government has come from listening carefully to the need for breathing space from businesses. He said moving to MTD should now not be ‚ onerous‚ . He is determined the changes are done at the right pace. He said that once we are through the pilot, businesses will be able to voluntarily use the system ahead of mandation should they choose. He mentioned a good relationship with the FSB. Many speakers welcomed the concessions on MTD. He said the ‚ digital exclusion test‚ will deal with areas with poor broadband.

In summary, he said, the Bill is about addressing ‚ imbalances‚ in the system.

2.44pm Peter Dowd, Shadow Chief Secretary to the Treasury (Labour)

The shadow minister accused the minister of ‚ wall to wall complacency‚ on the Finance Bill. He spent his opening comments talking about the ‚ outrage‚ of the impact of the EU Withdrawal Bill last night, which he said gives more power to the Government than is necessary or desirable in a democracy - a bit murky‚ he said.

After a point of order, the Deputy Speaker mildly mocked the large size of the Finance Bill, showing a copy of it to MPs, noting that it was 'quite wide and varied'.

On the Bill, Dowd accused the Government of 'aiding and abetting' non-doms to avoid paying taxes and legislating to tax those who have been injured on grounds of discrimination. He hoped for far greater debate as the Bill progresses about the ‚ gig economy‚ , child poverty, wealth inequality and the fact that median incomes in North West, South West and West Midlands are 30 per cent lower than London and the South East and national debt.

He also said British productivity is ‚ dreadful‚ but there was no action from the Government, he said. Low investment levels pre-date the Brexit debate, yet is not addressed in the Bill.

While on non-doms, he said the curbing of the status was a 'false promise' from the Government, shown up by part of schedule eight of the Bill being titled ‚ protection of overseas trusts‚ . "Ministers may not have thought that we would notice, but they made absolutely sure that non-doms knew that nothing would change if they squirrelled their wealth away in trusts."

The shadow minister repeated his claim that changes in the Bill relating to Northern Ireland corporation tax would mean 'corporations will find it easier to shop around within the UK for where to put their brass plates'.

On termination payments, he suggested that the changes will mean people losing their jobs may face higher tax bills when they are least able to pay, particularly lower paid employees.

Government should stop its ‚ smoke and mirrors‚ game on tax avoidance and evasion and the changes made are not enough to deal with the country‚ s problems, he concluded.

3.05pm John Redwood (Con)

The Conservative veteran accused Labour of making ‚ synthetic points‚ on the Bill and turned his opening remarks to Labour's policy on student fees and the Labour leadership's views on Venezuela‚ s economy.

Moving onto the Bill, he said if you ‚ over tax‚ the rich, they have privileges ordinary people do not have, such as accountants, that help them shift profits around the world and even live elsewhere. We cannot afford to drive the non-doms away, he said.

On the corporation tax proposals, the Government has ‚ massively‚ increased the revenue by reducing it. We must set tax rates that companies will ‚ stay to pay, he said.

Redwood asked for Labour‚ s help to create higher paying, better jobs in the public sector and achieve greater productivity.

In an intervention Stella Creasy said that the Government were talking about £23 billion of infrastructure spending financed by this Bill. She asked if Redwood would join her in supporting amendments to the Bill to ensure that companies signing PF2 contracts with the Government 'pay their fair share of tax and the public sector gets the money it deserves'. Redwood replied that he had no evidence that these companies would not pay their fair share of tax.

In conclusion, he said the best way to raise tax revenue is to drive further growth in the economy is to have tax rates that are not too complicated and low enough to be sensible so we are internationally competitive. He said the size of the Bill is a barrier to scrutiny‚ It is useful to have another door stop. It would be good to see fewer, simpler taxes, so we do not need so much language in Finance Bills.

3.29pm Kirsty Blackman, SNP spokesperson

The Bill is a wholly inadequate response to economic challenges faced by Scotland and the UK‚ . The Bill has come about because of the ‚ most muddled‚ of processes, she said.

Blackman contrasted today‚ s cost of living with assumptions made when the original items in the Bill were introduced in March. She said OBR forecasts for inflation have been higher than predicted so far this year and the OBR‚ s estimates about average earnings have proved optimistic. Most tellingly, she said, real disposable household incomes had dropped by significantly more than then when the items were first included in the Bill.

She suggested the UK follow Scotland‚ s example of moving to a National Investment Banks

Blackman raised the fact that the Value Added Tax (Refund of Tax to Museums and Galleries) (Amendment) Order 2017 had not yet been laid. The minister intervened to say that he thought it was the case that it had been laid today, 'but in the event that it has not, I will chase it up'.

The carbon capture and storage items highlight the worst of the way the Treasury has behaved in the past, sidelining other government departments, she said.

On clause 64, errors on taxpayer‚ s documents, she is concerned that people will lose out as a result of employing people to do their tax returns and help with tax affairs who they think are qualified but turn out not to be so. "I was not clear‚ÄI am still not clear from this Bill‚Äabout exactly how the process will work and whether people will be unduly penalised for something that was not their fault. I look forward to exploring that matter further in Committee with the Minister."

Blackman also repeated the SNP's continued frustration that Scotland‚ s single police and single fire services have to pay VAT, unlike their English counterparts (because English forces are split up nationally).

This Bill comes from an original Budget that did not have inclusive growth and fairness at heart, she concluded

3.43pm Mark Harper (Con)

Harper said the Bill will put into place ‚ sound public finances‚ . He said a multilateral approach through BEPS is the best way to tackle tax avoidance and evasion, as the UK is limited in what it can do unilaterally. He said the only sustainable way to drive up pay in private and public sector is to drive up productivity. The MP suggested companies may not have invested in equipment that will improve productivity.

He said producing Finance Bill ‚ as thick as this one‚ , is not what government should be doing. "I understand the complexity of these matters‚ I declare an interest as a non-practising chartered accountant‚ but I know from talking to colleagues in the business that they do not enormously welcome Finance Bills this thick. Much as this might upset them, I have to say that creating jobs for tax accountants is also perhaps not something that we ought to be doing." Slimmer and simpler legislation ‚ would do everyone a service.

He wants to see more urgency from the Treasury to accelerate progress in housing, for example. Perhaps departments that do accelerate on pressing matters, such as housing, may get a reward?

During an intervention Craig Mackinlay (Conservative) , a chartered tax adviser, said the reduction in corporation taxes since 2010 is paying a greater dividend for the Treasury. In another intervention Kit Malthouse (also Conservative) said 'in the same way that we make the argument about corporation tax that if we lower the rate we will collect more money, perhaps if we lowered air passenger duty more people would fly and we would gather more revenue'.

4.11pm Dan Carden (Labour)

The new MP for Liverpool Walton used the debate to make his maiden speech. As well as paying tribute to his constituency and Liverpool generally he attacked government welfare and disability benefit cuts which had, he said, inflicted 'agony'. "It is no wonder that people who visit my surgeries as often as not break down in tears before they can utter a single word."

<p>He argued that the fourth industrial revolution - "the onset of artificial intelligence, robotics, cobotics, 3D printing and biotechnology, in the context of global finance and multinationalism... will require bold economic planning, and the political will to make it work for the whole of society. That is why the House must now start to consider ideas such as the ‚ universal basic citizen‚ s income‚Äù. We are the sixth richest economy on the planet, and it is time to stop making excuses for the kind of human indignity and poverty that I see all too often in my own city."

4.25pm James Cleverley (Con)

Cleverly complained about the ‚ gargantuan‚ size of the Finance Bill. He said he was glad of the move to shift the burden away from those at the ‚ lower end of the tax spectrum‚ and on business and move to a broad tax base. ‚ As Tories, we should not be afraid of the concept of taxing and spending - there I said it out loud and it wasn‚ t even that painful." He said if the Government looks at every opportunity to reduce the tax burden on individual taxpayers and individual businesses, ‚ we will rarely go wrong‚ with the economy.

He welcomed clauses 48-59, which address ‚ smart and innovative‚ UK businesses being undercut by fulfilment houses that do not pay their taxes. On non-doms, he said they must pay their fair share of tax. We need to continue to 'make taxes simpler, fairer and more effective', he added.

4.36pm Stewart Hosie (SNP)

Hosie said that the provision of tax relief for pensions advice in clause 3 was welcome, as was the mirroring provision in clause 4 of tax relief for other necessary legal advice. "It is equally sensible, as part of the process of tax simplification, to make changes, in clause 6, to the process of PAYE settlement agreements. They will not have effect until next year, and I have no problem with that. The explanatory notes state that the new regime will be ‚ a largely automated process‚Äù and, again, that is probably sensible, but the commencement date for that largely automated process does not fit well with the recent changes announced for the implementation of a fully digital tax system, which has been put back until 2019." He hoped that those who go digital quickly 'do not suddenly find that they fall foul of regulation and guidance issued the following year'. Given that this measure is expected to be in place in six months‚ time, when will the promised strengthened HMRC guidelines be available to businesses, he asked.

On business investment relief, Hosie noted the ability of partnerships, previously excluded from BIR, to now be eligible if they carry out commercial trades in their own right. What would the scale of those commercial trades have to be for an application to be able to be made for BIR, he wondered, adding: "The Minister might want to explain further why those changes have been proposed, given that I was not aware of any particular demand from partnerships to have BIR associated with them in the first place."

He expressed concern about 'the serious issue of the level of retrospective tax law in the UK' before adding that he found it odd 'that of all the measures in the Bill that are subject to retrospectivity, it is the penalties for the enablers of defeated tax avoidance that are not'.

On digital reporting and record keeping for VAT, he asked for a government guarantee that those who are unable to use digital tools because of, for example, their geographical location, would be able to keep the current manual system.

On the change to the income charged at the dividend nil rate, he said; "surely to goodness the legislation can be drafted in such a way that it does not penalise or appear to act as a disincentive for those who wish to start a business, by taxing what might be the first modest dividend that that business might ever have had. I hope that, even at this late stage, the Government will look again and table some sensible amendments to ensure that the change captures the tax revenue from those from whom the Minister wants to see it captured but does not act as a disincentive to those who wish to start a business."

4.48pm Douglas Ross (Con)

In his maiden speech, Ross welcomed further action against evasion and avoidance. The bulk of his speech was spent paying tribute to his constituency, as is traditional for maiden speeches. He made a call for the Westminster and Scottish Parliaments to work more closely together.>

5pm Stella Creasy (Labour)

Creasy likened Brexit to 'the big Monty Python foot', crushing everything else underneath. She said it was vital we did not let Brexit deter us from tackling the other problems facing the country. Viewed from this perspective, she found this Bill wanting in many ways. She proposed '10 ideas' to help people.

Creasy suggested changes that could be made to clause 16 of the Bill, which covers capital gains tax. ‚ Now there is a loophole around commercial property sales. Let me reassure the government benches that if they choose to follow our advice on this matter that is something that has been tackled in the United States, in Canada, in Australia. Not crazy economics but sensible planning. We could apply the same rate of tax on carried interest to those hedge fund managers. Why is it that they are not paying the same rate of income tax as the cleaners who clean their offices still, under their watch, seven years in. We could change business property rates too often used to avoid inheritance tax, restricting it to small businesses, perhaps bringing in a cap of, say, £5 million, so that people don‚ t use that to avoid taxation. Or we could deal with commercial real estate where people are avoiding the 5% stamp duty by putting it into companies. All things that could be put into clause 16 of this Bill.

Referring to clause 69 on data gathering from money-service businesses, she called for the cap on high cost credit and payday loans to be extended to credit card companies.

Turning to VAT, Creasy said that the lack of information about how companies will manage VAT post-Brexit was very alarming. The Financial Secretary responded that the VAT arrangements that would pertain when the UK leaves the EU would be dealt with in the forthcoming Customs and Excise Bill which would also cover VAT arrangements.

She also issued a plea for the Government to help self-employed people who suffer errors between their welfare and tax entitlements. We need to join up the way we as the state deal with self-employed people, from VAT to universal credit to insurance. She accused the Government of lacking ideas to help these people.

5.16pm John Lamont (Con)

Lamont, a newly elected MP for a Scottish constituency, praised the Government's overall economic approach and contrasted it favourably to the situation he argued an independent Scotland would be in. "My instinct is for taxation to be kept as low as possible," he said, arguing that this promoted growth, innovation and inward migration from 'the best and the brightest'. As MP for a Scottish borders constituency he was concerned that it was all too easy for a business, or a higher-tax earner, to relocate south of the border if Scotland ceases to be an attractive place to do business, ‚ and I fear that that is increasingly becoming the case.

On the measures in the Bill, Lamont praised the anti-avoidance proposals, including penalties for enablers, and said the time was right to abolish permanent non-dom status. ‚ The idea that a person can move and live here for 40 years, or even be born here, and avoid certain taxes is a ridiculous way of exploiting our tax regime‚Äù. He was also pleased about the introduction of a simplified corporation tax deduction for companies that make contributions to grassroots sports, and about the new income tax exemption to cover the first £500 of pensions advice provided to an employee. Clauses 5, 7 and 8 tightening the rules over termination payments, the recycling of pension savings and incomes paid through dividends, also won his support, as did Making Tax Digital.

5.25pm Ruth George (Labour)

George accused the Government of trying to avoid scrutiny by publishing the Finance Bill so close to the second reading debate. She welcomed the assurances from the Financial Secretary earlier that the £30,000 of tax-free money on termination of employment would continue and that there would be no taxation of discrimination compensation payments following a tribunal. ‚ However, Ministers need to recognise the ill feeling and hurt feelings that are often caused when an employee is made redundant. Those payments can be genuine and Ministers need to look again at that matter.

She contrasted the treatment of people on low incomes and public sector workers with the treatment of non-domiciles. The Government have given them a loophole of two years to transfer their money to an offshore trust, she claimed. That shows the attitude the Government take towards non-domiciles and tax avoidance by people who can afford to pay it. She argued that the increase in the scope of business investment relief was ‚ yet another loophole for the super-wealthy.

5.32pm Kit Malthouse (Con)

Malthouse, a member of the newly reconstituted Treasury Committee, bega by focusing on Making Tax Digital. He said that he had run "a low-level campaign to advise the Government of the error of some of the measures they had put into Making Tax Digital early on. Frankly, I am pleased to see that the parliamentary system worked: the Government proposed something; Members scrutinised it and opined upon it; the Treasury Committee, on which I sat and still sit, issued a report on the policy; and the Government listened to lots of industry groups and amended the policy to one that was roundly and warmly welcomed by industry generally. That is the way things should work and I am very pleased that they have in this particular instance." He was pleased to hear the Minister announce that the scheme will now be open for voluntary participation. "I assume that will also be the case for corporation tax purposes, and not just for VAT... It might be sensible to allow companies to participate on corporation tax earlier than 2020, so that the system could operate like the old self-assessment system did when it came in. That was entirely voluntary for the first few years until 60% compliance was achieved, when it then became compulsory for everybody." Malthouse called for the Government to 'think more' in the years ahead about the notion of quarterly reporting, in particular for corporation tax. While VAT quarterly reporting is 'relatively simple', he argued, corporation tax, was 'an entirely different exercise of deep complexity and, frankly, fear for a lot of companies'. He concluded: "Making Tax Digital‚Äfantastic. I will be an enthusiast for it on the basis that it is voluntary at the moment."

On other measures Malthouse welcomed the anti-avoidance proposals and the end to permanent non-dom status. However he was concerned that the rise in taxation on dividends "says something about how we treat the proceeds of risk. The argument has always been that dividends should be taxed less than income to recognise that risk. More times than not, if someone invests in a company, they lose their money. In some spheres, such as life sciences‚Äa specialist area of mine‚Änine times out of 10 they lose their money. If someone invests in a drug discovery company, it is quasi-charitable giving‚Änine times out of time, they are giving to the economy for the good of their health, hopefully. The notion that dividends should be taxed just like every other income starts to erode the idea that as a Government and a society we want to reward risk taking." He praised the enterprise investment scheme and the small enterprise investment scheme but argued they should be deregulated so that it becomes easier for people to invest. "I would like to see a system in which people who invested in a business would receive 100% tax relief up front, and then, if they ended up owing capital gains tax, would pay the tax. That would be a nice problem to have. When I have started my businesses, the last thing on my mind has been whether there is any capital gains tax to pay. What has been mostly on my mind has been raising the money, getting going, paying the staff, finding an office, and all the rest of it. I think that such a system would be simple, easy and understandable, and would encourage a great deal more investment in the drugs, therapies and technologies that we need for the future." He pressed for a speedy conclusion to the Government's patient capital review.

Finally Malthouse turned to the tax system in general, and advocated consideration of moving to a turnover tax for taxing businesses. His starting point was the complexity of the system, shown in the length of this Finance Bill. He argued it would become ever harder for the Government to tax the new economy. "Even in my working lifetime of 20-odd years the nature of work has changed almost completely, as has the way we work. My business is almost entirely cashless. There are vast corporations that operate without cash, and that trade in one jurisdiction, fulfil in another jurisdiction, bank the money in a third, and pay tax in a fourth. Chasing this money around, combined with this incredibly complicated system, is going to become harder and harder." We are going to have to do some 'pretty heavy fundamental thinking' about the way we tax. "How are we going to tax these enormous corporations that are bigger than nations? How are we going to make it fair between them and small businesses? How are we going to tax a changing economy of individuals, who might have four, five or six different jobs, with somebody in this country perhaps performing a job in another country, but doing it digitally?" He advocated getting rid of business rates (biased against small businesses and favouring massive internet companies) and corporation tax (hard to collect and with low compliance) and thinking about moving to 'an easy, collectible turnover tax'. "The advent of the cashless society means it is much easier to track people‚ s turnover, and to take that little clip that the Government want to pay for all the services we need. In time... we might even move to a situation where there are no direct taxes on individuals, and where tax becomes voluntary, with people paying it as part of their spending, in the form of indirect taxes through VAT, duties and so forth."

5.54pm Colin Clark (Con)

Clark, who represents a seat in north east Scotland, said