MPs debated and agreed clauses 1-4 of Finance Bill (No.3), agreeing that the government should continue to levy income tax and corporation tax, and the rates of income tax for 2019-20. Attempts by opposition MPs to get the committee to take oral evidence from experts, and to require the government to review aspects of tax policy, were rejected.
Tuesday 27 November 2018, 9.25am
Finance Bill (No.3) 1st sitting
The session lasted roughly 110 minutes. The first 30 of these were spent discussing the programme motion and, in particular, an SNP amendment to take oral evidence from the CIOT and others. This amendment was rejected. There was a brief debate on clauses 1, 3 and 4, which authorise income tax for 2019-29 and set the main and saving rates for it. There was a longer debate on clause 2, which authorises the government to raise corporation tax. This debate focused on a number of requests by Labour for a number of reviews to inform corporation tax policy. These were rejected, and the clause was agreed.
You can read the amendments tabled for debate here. Not all of these were selected for debate.
You can listen to the debate here.
[NB. These notes are based on a single hearing of the committee's deliberations and we cannot guarantee they are free of errors]
The chair, Nadine Dorries, welcomed members to the session.
Debate on this motion is limited to half an hour.
Kirsty Blackman, SNP Treasury Spokesperson, moved an amendment to the programme motion that oral evidence should be taken by the committee. She said it had bothered her for some time that there was a lack of opportunity to question witnesses. She criticised the number of clauses not published in draft for consultation. She said the CIOT had particularly criticised the process.
She said all those she had suggested give evidence knew more about the bill than the MPs on the committee. She noted that two of the clauses to the bill were returning to previous measures that had needed tidying up.
She said that having served on the Customs Bill committee earlier this year, where witnesses gave evidence, that was an incredibly useful exercise.
She welcomed the written evidence provided by outside bodies but thought most members of the committee would not yet have had an opportunity to read it because of the tight temetable.
She noted the Better Budgets report produced by CIOT and others had called for oral evidence to Finance Bill committee.
The key SNP amendment seeks to insert the text
Line 7, at end insert—
“(1A) The Committee shall hear oral evidence in accordance with the following Table—
Date Time Witnesses
Thursday 29 November Until no later than 12.15 pm HM Treasury; HM Revenue and Customs
Thursday 29 November Until no later than 1.00 pm Office for Budget Responsibility
Thursday 29 November Until no later than 3.30 pm The Institute for Fiscal Studies
Thursday 29 November Until no later than 5.00 pm The Chartered Institute of Taxation”
Peter Dowd, Shadow Chief Secretary to the Treasury, Labour's lead member on the committee, said he had positive experiences from other public bill committees which had taken evidence. He said it was important to be able to question experts and get the full facts.
He argued there had been change in relation to the use of Amendment to the Law motions which was significant, so we should "take a step back and decide, maybe we need evidence sessions to tease some of these important things out". He said it gave reasurance to those outside the committee that they take these things seriously. Mr Dowd said he had received evidence from CIOT and others and read it with great interest. It would be helpful to be able to ask people questions.
Mr Dowd gave credit to the government for the amount of consultation they had done on parts of the bill, but he thought there was potential to tease it out a little bit more. He said you could have more than one day of evidence sessions - there were lots of bodies that could contribute. He urged the government to listen carefully in the interests of trying to make this a better bill.
Sir Robert Syms (Conservative) noted the amount of material produced by accountancy firms and others after the Budget. He thought there was lots of information out there already. He added that there are also a great deal of vested interests in this country. "We could spend months listening to vested interests," he warned. Kirsty Blackman asked if he considered HMT and HMRC as vested interests. Sir Robert said the only point of additional information was to help the opposition put amendments down. A Labour MP intervened to suggest that oral evidence would be a conversation with an opportunity to ask questions. Sir Robert thought there was already a lot of evidence out there It is a time for action rather than a time for debate, he suggested. Governing is about taking decisions, he added.
Kirsty Blackman said she was suggesting one day of taking evidence. This was not endless discussion. Sir Robert suggested that taking one day out of the committee's scrutiny would reduce the time available to question the minister.
The Financial Secretary to the Treasury (FST), Mel Stride, responded for the government. He said it was important the provisions receive sufficient scrutiny, but the government's consultation framework had already achieved that. He was not convinced by Kirsty Blackman's argument. The amendments should be rejected because there was adequate consultation already. He did not accept Kirsty Blackman's argument that scrutiny had been less than usual this year. He said 226 pages of draft clauses had been published and the bill now was 315 pages. The level of scrutiny the Finance Bill gets is in excess of most bills already. A second argument was that the more important measures are put to committee of whole House which cannot take evidence sessions.
Jonathan Reynolds, a Labour Treasury spokesman, intervened to ask if the failure to remove an Amendment to the Law resolution, which had previously only happened close to an election, was now the established state of affairs. The minister said he would not get drawn into what happened in the future, but this was not a unique occurrence.
Kirsty Blackman replied to the minister. She didn't think the most important measures were discussed in CWH, just the most political. In relation to the measures before the public bill committee these were more technical measures, less likely to be debated in Parliament or in the newspapers. External organisations had raised concerns about how few of the draft claujses had been consulted on. The FST acknowledged these points, but said measures not consulted on were generally very technical which lent itself to written evidence more than oral sessions.
Peter Dowd observed that 10 or 11 of Labour's amendments had been ruled out of scope.
The chair put the question that the SNP amendment be made. The amendment was defeated 10-8.
The programme motion was approved without opposition.
The minister moved the motion to report written evidence. This was approved without opposition.
With that, debate moved on to the clauses and schedules of the bill, and the amendments tabled to them.
Clause 1 - Income tax charge for tax year 2019-20
Clause 3 - Main rates of income tax for tax year 2019-20
Clause 4 - Default and savings rates of income tax for tax year 2019-20
These three clauses were debated together
Clause 1 imposes a charge to income tax for the tax year 2019-20. Income tax is an annual tax. It is for Parliament to impose income tax for a year.
[One amendment to this clause had been tabled, but was not selected for debate. Amendment 13 (Labour) would have required a review of the effects of differences between UK income tax rates and those elsewhere.]
Clause 3 sets the “main rates”, which will apply to “non-savings, non-dividend” income of taxpayers in England, Wales and Northern Ireland. Income tax rates and thresholds on non-savings, non-dividend income for Scottish taxpayers are set by the Scottish Parliament. This clause provides that the main rates of income tax for 2019-20 are: the 20% basic rate, the 40% higher rate and the 45% additional rate.
Clause 4 sets the ‘savings rates’ which apply to savings income of all UK taxpayers and the ‘default rates’ which apply to the non-savings, non-dividend income of taxpayers who are not subject to either the UK main rates of income tax or the Scottish rates of income tax.
The FST introduced the three clauses and spoke of the government's success in taking low paid people out of income tax.
Kirsty Blackman noted that the reserved and devolved aspects were split in these clauses (clause 3 not applying to Scotland). This was welcome. She asked if the minister would always do this in future.
MPs approved clause 1.
Clause 2 - Corporation tax charge for financial year 2020 (and amendments)
Parliament charges corporation tax (CT) for each financial year. This clause charges CT for the financial year beginning 1 April 2020. The rate of CT for financial year 2020 was set at 17% in Finance Act 2016 Part 2 section 46.
Amendment 8 (Labour) would require a review of the effects of corporation tax receipts of multinational companies compare with their UK-based revenue.
Amendment 9 (Labour) would require a review of the effects of corporation tax receipts of technology companies compare with their UK-based revenue.
Amendment 10 (Labour) would require a review of the effects of HMRC’s effectiveness in applying General Anti Avoidance Principles with reference to corporation tax collection.
Amendment 11 (Labour) would require a review of the effects of the current UK tax gap in respect of corporation tax applying globally agreed avoidance measures to multinationals with UK-domiciled subsidiaries.
Peter Dowd moved amendment 8 and also spoke to amendments 9, 10 and 11. He said the government had offered huge tax breaks to big business at the same time as implementing a programme of austerity. He quoted Bill Dodwell, who he said was Head of Tax Policy at Deloitte (Mr Dodwell, a former CIOT President, left this role in May this year), as saying "No-one seems to welcome the 17 per cent cut". He (Mr Dowd) said there had been numerous criticisms of the corporation tax policy. Reviewing the CT policy could help 'get to the bottom of this matter', he said.
Bim Afolami (Conservative) intervened to ask if Mr Dowd would accept there is a dynamic effect to CT cuts and the relationship between the rate and the take was not linear. Mr Dowd said thart was a fair point and he would address it.
Anneliese Dodds, Shadow Treasury Minister, suggested it was inconsistent of the government to think CT rate cuts would lead to higher activity and investment, while cutting people's take home incomes with higher tapers would have no effect.
Specifically on amendment 8, Mr Dowd said it was a perfectly reasonable thing to ask for a review of the effects of corporation tax receipts of multinational companies compare with their UK-based revenue. He cited media reports of billions of pounds of tax avoidance by multinational companies through booking profits in overseas entities. He noted claims that transfer mis-pricing had cost billions of pounds of tax revenue. He suggested the government was 'winding down' the diverted profits tax rather than 'ramping up' pressure in this area.
Mr Dowd turned to technology companies and amendment 9 in particular. He quoted an article that had drawn attention to a tax credit received by Amazon that almost halved its UK CT bill. He wondered how many of the 27,000 Amazon UK employees received tax credits. He asked the minister to guarantee Amazon would pay full tax on its operations next year. He then turned to Google, saying it had paid £50 million of CT last year on total sales of £5.7 billion, and Facebook, about whom he made a similar criticism. The digital services tax was 'pretty pathetic' he thought, just 'a drop in the ocean'. He noted the European Commission's proposals to get more tax from digital companies. He asked the government to consider these.
Mr Dowd then turned to Labour's amendment 10 and a General Anti Avoidance Principle. He said this would strengthen HMRC's ability to tackle tax avoidance. An intervention from a Labour MP suggested more senior HMRC inspectors were needed to chase CT avoidance in partiuclar. Mr Dowd agreed, saying HMRC staff are productive and it would be an investment in the system. He said HMRC was being put under great pressure.
Discussion of amendment 11 took Mr Dowd onto the tax gap and he began by setting out some of the government figures relating to the tax gap for CT. He accused the government of inaction and called on the minister to 'get on with it, accept our amendments and follow our proposal for dealing with tax dodgers at the corporate level'.
Kirsty Blackman spoke on clause 2 for the SNP. She noted that of all the taxes on business CT was one that was 'better liked' by business. Businesses feel less unhappy about paying it because they see it as fairer. But it is only a fair tax if it is charged and companies pay the tax due, she said. The government shouldn't be scared to publish more extensive detail than they currently do on the tax gap. She spoke in support of international agreements and co-operation on tax matters. She endorsed Labour's comments on HMRC staffing and was concerned that office closures were reducing HMRC's compliance capacity. She said the SNP would be happy to support the clause and Labour's amendments.
The FST said the opposition's proposal to increase CT to 26% for large and 21% for small businesses would represent a big tax increase. Anneliese Dodds intervened to note this would only affect profitable businesses. She said the government had forced local authorities to rely more on business rates by cuttting central government funding for local councils. The minister said Labour's tax increases would increase costs on business, reduce returns to investors and increase prices. Jonathan Reynolds challenged the minister over whether the cuts in CT had increased investment. How come this country still has a lower rate of corporate investment than France which has a CT rate of 38%, he asked.
The minister then turned to the issue of avoidance where, he said, the government had an 'exemplary' record and had brought in and protected some £200 billion in revenue. On working with the EU, he said there were measures in this very bill which emanate from the EU Anti Tax Avoidance Directive. On digital businesses, where we are looking at profits generated by companies through digital platforms and the interaction of UK consumers with those platforms we are not looking at avoidance, we are looking at whether the current international tax regime is fit for purpose. The regime assigns taxation rights to the jurisdiction where there is economic activity. What the government want to do is move to a position where they can tax those businesses on the basis of value generation in the way he has described (value generated by UK users).
Kirsty Blackman asked the minister which countries he and his team have had discussion with on this issue. The minister said he would be happy to write to the committee on that. He said he had attended a recent OECD meeting with Paris and advocated a multilateral approach, ironing out risks of double taxation.
Amendments 8 and 9 - the proposed reports would have limited relevance to policy, said the FST, but the government was not being complacent about taking action. On amendment 10 he said the government applied a wide range of anti-avoidance measures. The GAAR had been operational since 2013, working principally as a deterrent. An additional review of the GAAR's effectiveness would not add significant value, he said, priasing the safeguard provided by the GAAR panel. Anneliese Dodds intervened to ask the minister to clarify - she understood there had been 12 panel opinions by the GAAR panel but there were only 9 on the website - in any case that was a relatively small number of decisions taken. Does the minister not feel it would be appropriate to have a review of the GAAR's operations at this point. The minister did not. He said there were 9 panel decisions which had supproted HMRC's position. If Ms Dodds thought there were 12 he would look into that. Ms Dodds said the figure of 12 was given in a parliamentary answer. This suggested there might be 3 occasions when the panel had not found for HMRC's position. She said concern had been expressed about the make up of the GAAR panel - people of good standing but it was taken from a quite restricted group of people, many of whom themselves had been involved potentially in devising some of the tax schemes it might be required to look at. The minister said Ms Dodds' request for information was reasonable. He added that he could confirm there had been 12 opinions, all of which had supported HMRC's position.
Concluding his remarks the minister commended the clause to the committee.
Responding, Peter Dowd said there was nothing the minister had told him that suggested the government took the need to review CT as seriously as the opposition did.
The FST clarified that there had been 9 GAAR cases but 12 opinions. Anneliese Dodds asked why there might have been more than one opinion about a single case. The minister said he would write to her.
Amendment 8 was put to the vote and rejected 10-8.
Amendment 9 was put to the vote and rejected 10-8.
Amendment 10 was put to the vote and rejected 10-8.
Amendment 11 was put to the vote and rejected 10-8.
Clause 2 was approved without opposition.
At this point, at nearly 11.15am, the whip, Craig Whittaker, moved that proceedings be adjourned until the afternoon. Clauses 5 and 6, relating to the income tax personal allowance and basic rate limit, and the starting rate limit for savings, were agreed in committee of the whole House, so debate will resume at 2pm with discussion on clauses 7-12, various measures relating to employment and social security income, followed by clauses 13-14, which deal with sales of UK land by non-UK residents.