House of Lords - Finance Bill all stages - 13 September 2016
Finance Bill 2016 went through all its House of Lords stages on September 13th. The House of Lords cannot amend Money Bills so Committee stage, Report stage and Third Reading were formalities, but that did not stop their Lordships having their say on the Bill during Second Reading debate.
For the Government Commercial Secretary to the Treasury Lord O’Neill of Gatley (Jim O’Neill, formerly of Goldman Sachs and known for coining the acronym ‘BRICS’) hoped that the business tax road map published at the last Budget, the approach taken to communications for the Making Tax Digital programme and the commitments on the headline rates of taxation all demonstrated the Government’s desire to provide clarity where feasible. Lord O’Neill said the Finance Bill would help more people to save, support businesses and take action against those who avoid or evade taxes, he said. Where recommendations are taken forward, HMRC and the Treasury will discuss them and their underlying rationale with the Office of Tax Simplification and seek to involve it in developing their approach and some of the implementation. No other Conservative spoke in the debate.
Labour’s Lord Hollick introduced the report of the sub-committee of the Economic Affairs Committee on the Finance Bill 2016, which looked at the reform of taxation on personal savings and dividend income, the new powers for HMRC to issue simple assessments of an individual’s tax liability and the establishment of a permanent Office of Tax Simplification. He said: “We are pleased to see that the 30-day limit has been extended to 60 days [to dispute simple assessment] but were disappointed that the statutory role of the Office of Tax Simplification has not been extended to cover its role in tax policy.” However, he said there was no significant consultation on the taxation of savings income and dividends, HMRC’s own research shows that taxpayers are hardly aware of how the current tax system works, ‘let alone the changes’. HMRC’s communications strategy continues to rely far too heavily on the website GOV.UK, and on third parties, he added. There is also concern that not all savings instruments will have interest paid without the deduction of tax. He said: “We urged the Government to reconsider their decision not to publish route maps outlining their longer-term plans for those areas of the tax system they were proposing to change.” On Making Tax Digital, he was critical of HMRC’s announcement that it would not make available free software after all. The Government continues to ignore the committee’s recommendation, also made in prior years, to introduce robust post-implementation reviews of all major tax reforms and to publish the findings.
Among other Labour peers, Lord Darling of Roulanish, a member of the Economic Affairs Committee, hopes the Government will take a sensible look at how investment in infrastructure could do more to ensure that fiscal policy is supporting monetary policy. Lord Hain attacked ‘embarrassingly low’ productivity and a trade deficit ‘both embarrassingly and historically high.’ Lord Davies of Stamford said that productivity and the balance of payments deficit are our ‘national weakness’. Lord Liddle said the skills funding approach is an opportunity to try to raise standards in areas such as hospitality, catering and social care and by training people better and paying them higher wages.
Lord Turnbull, the former Cabinet Secretary, criticised the ‘fragmentation’ caused by the new £5,000 dividend income and the new regime for the taxation of interest. He was critical of restricting the allowance as income rises, for example, to limit the benefit to higher-rate taxpayers of child benefit because it creates cliff edges, as well as exceptionally high marginal rates. He said: “Having introduced the principle of separate taxation - albeit with some transferability of allowances between spouses - the Revenue has introduced a household basis of assessment for operating child benefit and clawing it back.” He added that a result of Making Tax Digital is that that HMRC will save itself a great deal of money, but anyone in the higher-rate bands or with a range of income sources is forced to incur the cost of professional advisers to get the figures right. A final point he made was how important it is that the Office of Tax Simplification gets drawn into the policy formulation phase. Lord Kerr of Kinlochard bemoaned that the Finance Bill is pretty irrelevant to the real problems the UK faces, mainly Brexit. He said the putting the Office of Tax Simplification on a statutory basis will not reduce the size of the tax code because it is neither going to be genuinely independent nor will it be up-stream.
For the Lib Dems Baroness Kramer said the framework for business taxes in this country is ‘frankly unfit for purpose’ and lamented that the whole issue around pensions, pension inequality and the structure of pensions was not tackled in the Bill. The Lib Dem Treasury spokesperson said that the UK already has among the lowest corporate tax rates in the OECD but it has evidently done us absolutely no good in persuading businesses to invest in new projects or in R&D. Action on tax avoidance is timid in the Bill, according to her, ‘which still focuses on abuse, leaving plenty of grey areas where many companies stake out their tax minimisation strategy’. She is upset that the apprenticeship levy is structured in such a way that an employee share ownership company pays more levy than a conventional company because of the way the dividend exclusion is defined.
Finance Act 2016 was given Royal Assent on 15 September 2016
Footnote: Lord O’Neill lhas since stepped down as a Treasury minister and resigned the Conservative whip.