Finance Bill

Public Bill Committee, 19 June 2008.

(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003)

Nicholas Winterton (Conservative, Macclesfield)

I welcome members to what we expect will be the last day of sittings of the Finance Bill Committee 2008. I know we are going to make good progress. That has come down to me through the usual channels. I feel we have come around Tattenham corner. We have gone up the rise and we can see the finishing post ahead of us. I remind the Committee that we are debating—

Philip Hammond (Conservative, Runnymede and Weybridge)

rose—

Nicholas Winterton (Conservative, Macclesfield)

Does the hon. Gentleman wish to make a point of order?

Philip Hammond (Conservative, Runnymede and Weybridge)

On a point of order, Sir Nicholas, it could be a few furlongs yet.

Nicholas Winterton (Conservative, Macclesfield)

Indeed, I forget exactly how long the straight is at the Derby, but—

Peter Viggers (Conservative, Gosport)

I am really shocked that Tory knights of the shires should not use an Ascot reference on ladies day.

Nicholas Winterton (Conservative, Macclesfield)

Historically, I have been a guest of a particular company on ladies day, but today I am doing my duty here in the Palace of Westminster.

Clause 22

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following: clause stand part.

New clause 5—Definition of residence

‘(1) An individual is resident in the United Kingdom for income tax purposes if—

(a) during the tax year in question the individual spends (in total) more than 31 days in the United Kingdom; and

(b) during the three-year period that includes the tax year in question and the two tax years immediately preceding it the individual has spent (in total) 183 or more days in the United Kingdom, including—

(i) the total number of days spent in the United Kingdom in the tax year in question,

(ii) one-third of the days in the tax year immediately preceding the tax year referred to in sub-paragraph (i), and

(iii) one-sixth of the days in the tax year immediately preceding the tax year referred to in sub-paragraph (ii).

(2) An individual found to be resident under subsection (1) shall be liable for income tax on both their UK income and capital gains and any foreign income and capital gains remitted to the United Kingdom.

(3) In determining whether an individual fulfils the definition of residence under subsection (1) treat each day the individual is physically present in the United Kingdom as a day spent by the individual in the United Kingdom.

(4) But in determining that issue do not treat as a day spent by the individual in the United Kingdom any day on which the individual—

(a) arrives in and departs from the United Kingdom on the same day;

(b) is present in the United Kingdom for less than 24 hours for transit only;

(c) is present in the United Kingdom by virtue of being employed as a crew member of a foreign vessel;

(d) is unable to leave the United Kingdom on the same day owing to a medical condition;

(e) is enrolled in full-time higher education in the United Kingdom;

(f) is an exempt individual.

(5) The Treasury shall, by regulations, define an exempt individual.

(6) Regulations under subsection (5) shall be made by statutory instrument.

(7) A statutory instrument containing regulations under subsection (5) may not be made unless a draft of it has been laid before and approved by resolution of the House of Commons.

(8) On the coming into force of this section, Chapter 2 of ITA 2007 shall cease to have effect.’.

Jeremy Browne (Liberal Democrat, Taunton)

Good morning, Sir Nicholas. I would like to go straight to new clause 5, which is in my name and that of my hon. Friends. The purpose of the new clause is to introduce a statutory definition of residence into the Bill and into British law as a whole. The explanatory notes concede that the concept of residence, which is central to determining the liability of an individual to UK tax, is

“only dealt with in a limited way in statute.”

The approach of Her Majesty’s Revenue and Customs to residence is a mixture of legislation, case law and guidance dating back to the 1950s, so it is drawing on a range of sources to try to establish what constitutes residence in any given case. A number of professional bodies and others, including PricewaterhouseCoopers, have drawn attention to that situation and expressed their concerns that a hotchpotch of legislation, case law, guidance and established practice, some of which has a firm legal basis and some of which is for the purposes of guidance only, constitutes an unsatisfactory basis on which to determine these matters.

That is the background, and my understanding is that the Government are sympathetic to that case, as is the Conservative party and others. Therefore, I hope that I am introducing a brief conversation which will find a lot of sympathy in all parts of the Committee. New clause 5 would introduce the test, and I will briefly take the Committee through it. It is based on the American residence test. There is also an Irish test that is regarded by many as a good basis on which to draw up a test for our country, but the new clause is based on the American test, and the tests are all variants on a theme in any case.

The test would establish who is liable for income tax on their UK income and capital gains, and on any foreign income and capital gains remitted in the United Kingdom. There is a list in the new clause, which draws up a basis on which these matters could be measured. I concede that it is a slightly complicated list, but it is necessary to have a degree of complication in order to try to make the system as fair as possible. However, it is not beyond the wit of members of the Committee or, for that matter, employees of HMRC, to use that as a basis on which to determine one way or the other whether somebody is a resident for tax purposes or otherwise.

I have added to the American test a few other features that are unique to these proposals. One of those features, which I touched on during our discussions on Tuesday, is an exemption for those enrolling in full-time higher education in the UK—students would be a better way of describing them. I know that the Committee rejected that proposal on Tuesday, which might be a barrier to some Members supporting it now, but that was to be consistent with my previous amendments.

There is also a provision that would allow the Treasury to define by regulation what “an exempt individual” means. In the United States, exempt individuals include foreign Government workers, professional athletes and students and teachers on certain categories of visas. We might wish to introduce some exemptions of that sort in the UK to ensure that no one falls foul of the regulations in a way that would be difficult for the Committee to envisage. That is the basis of what I am trying to achieve in the new clause.

I say without immodesty that there appears to be considerable support for the proposal outside the House. John Barnett, the chairman of the Chartered Institute of Taxation’s capital gains tax and investment income sub-committee, said:

“We welcome the Liberal Democrats’ contribution to this debate as it is a very important issue that needs to be discussed. While the Government has stated that it does not wish to make any more changes to the non-domicile rules, the CIOT feels that a statutory residence test would bring certainty to this complex area. If done with sufficient consultation it need not result in unexpected or adverse consequences. And it will be popular with the business community because it will avoid the current ambiguities that are not helpful either to HM Revenue & Customs or to taxpayers.”

John Whiting, the distinguished employee at PricewaterhouseCoopers, said:

“Including a wider statutory framework for deciding residence, in this or a later Finance Bill would give greater certainty to taxpayers and employers.”

That is what I am seeking to achieve. I have been told that the professional bodies believe that the Government are open to creating such a definition. After other Members have contributed to the debate, it would be extremely helpful to hear whether the Financial Secretary might accommodate the new clause or give an undertaking that the Government will consider bringing forward a similar clause in a future Finance Bill.

Jane Kennedy (Labour, Liverpool, Wavertree)

Welcome, Sir Nicholas. I fully appreciate the sacrifice that you have made to be present. We value your chairmanship and are grateful to see that you are here, rather than somewhere else that might have appeared more attractive on the surface.

As has been explained, the UK does not have a statutory residence test. Rather, our system operates through a mixture of statute, case law and guidance. I am aware that a number of representative bodies have argued the case for a statutory residence test for tax purposes. I have met a number of those organisations, and having listened to their representations, it is clear that there is currently no agreement on what form a statutory residence test should take. I have asked officials to consider the representations that have been made and to work with those groups to see whether consensus can be reached on what the best test would be for the UK environment, bearing in mind that our circumstances are different from those of other economies in which those tests already exist. However, I am not prepared to allow the whole debate about residence, non-domiciles and the remittance basis to be opened up, because that is not in the UK’s interests.

One of the criticisms that I accept as fair is that the current debate has caused a degree of uncertainty. I have some sympathy for the case that a statutory residence test would enable taxpayers to decide whether to use the remittance basis or another basis on which to pay tax. Ours is a complicated system, so having a simpler rule applied would be a benefit. However, I would like to see a lot of work done before we commit to a particular style of test. Therefore, I am encouraging the very good and productive work that the four main organisations making the point are undertaking. I am hopeful that that will bear fruit. At this stage, I cannot set a time for that, but I am sure that, with good will, those organisations can agree on what might be best, and we can take that forward to a proper consultation. I am prepared to do that only if it will not change the policy that we are discussing this morning fundamentally; it remains the settled view of the Government in terms of the detail of how the system will impact.

Mark Hoban (Conservative, Fareham)

The Financial Secretary is making important points about the debate. I understand that the representative bodies could work quickly towards reaching a view among themselves about what an appropriate test might be. If the consultation were to be part of the 2008 pre-Budget report, by when should the representative bodies come together and produce a workable definition, which they could pass to the Treasury and HMRC?

Jane Kennedy (Labour, Liverpool, Wavertree)

Those bodies would need to be very swift indeed. We would want to research a suggested model carefully, so that the Treasury and HMRC could thoroughly understand what the economic impact of any such model might be before we brought it forward through the PBR for consultation. There is no point of party principle or difference here. We are interested in setting the debate for the future so that non-domiciled UK residents, who seek to use the remittance basis for tax purposes, can be assured that we not only appreciate the value that they bring to the economy, but want them to continue to make the UK their home and to continue contributing to the British economy in the significant way that we know they do already.

The hon. Member for Fareham asked me to elaborate on how the Treasury arrived at its figures. The figures that he drew upon came from the document that we published in December, “Paying a fairer share: a consultation on residence and domicile”. I could elaborate at length, but I do not think that it would be of great value to the Committee. There is not a lot more that I can add to the figures. They were based upon estimates of people who were considered as needing to use the day-counting rules—air crew and others who would have to count the number of days that they were resident in the UK. It is true that to some degree they were estimates, but they were the best estimates based on the figures that we had. It would not necessarily be helpful to the Committee to enter into a vague debate about those figures.

Based upon the representations that I have heard this morning, and on Tuesday evening, the principle being pressed is that we should consider a statutory residence test. I have said that I am open to those representations and I think that it would be best to leave it at that for now. I hope that the hon. Members for Taunton and for Fareham will accept that the specific example of a residence test, which the hon. Member for Taunton has put forward, is a little premature for us to accept. Equally, it is not necessary for us to be required to lay a report in the way that the hon. Member for Fareham has suggested. I have made it clear that I will use my good offices to do so when we have arrived at consensus. I know that the Chancellor does not like issues such as this to remain unsettled, so it would be better if we could see what consensus can be arrived at quickly, and move forward on that basis.

Jeremy Browne (Liberal Democrat, Taunton)

That was a helpful speech from the Financial Secretary. I have some sympathy with her Treasury Ministers, and Ministers in any Department for that matter: if they consult widely, they are criticised for not moving with sufficient haste, and if they fail to consult widely, they are told that they are not listening sufficiently to representations. I hope that the Treasury can strike a balance between those two positions and, as the Financial Secretary says, take on board a lot of the comments that have been made by outside bodies. Such comments are made with the good intention of having a system that is easier for them and all citizens to understand, whether they be UK residents or those who come here only periodically.

I did not anticipate the Financial Secretary accepting the new clause, and I acknowledge that a new clause drawn up by me and my hon. Friends, albeit with the assistance of people in professional bodies, is unlikely to be introduced off the peg by the Government. However, I hope that it will at least provide a kick-start to a helpful process. I do not know what the procedure is for new clauses, but I would not wish the Committee to be detained any longer.

Nicholas Winterton (Conservative, Macclesfield)

You merely resume your seat in this case.

Mark Hoban (Conservative, Fareham)

I want to make two comments. I welcome the Financial Secretary’s remarks. She has indicated an openness to the debate on the need for a statutory residence test, and has sent a clear signal to the representative bodies that we need to work quickly. I am sure that they will take note and respond to that signal, so that the debate can be moved forward as quickly as possible. That is in everybody’s interest. The Financial Secretary has dealt with the statutory residence test, but not with the questions I raised on Tuesday evening about when we will see a revised IR20, and what guidance will be produced on in-transit rules. She did deal with the issue of cost. I would be grateful if she could respond now.

Jane Kennedy (Labour, Liverpool, Wavertree)

If the hon. Gentleman will forgive me, I had an answer for him on Tuesday afternoon but I have now mislaid that. I have found it. I beg the Committee’s pardon.

Once the Bill is passed, HMRC will publish a revised IR20. That will, however, be temporary, as HMRC is rewriting all the guidance covering residence and domicile, which will include the 2008 Budget changes. It will be appropriate to wait until those changes have been made before the guidance is completely rewritten. The new guidance will be subject to consultation, following Royal Assent.

Mark Hoban (Conservative, Fareham)

I am grateful for that clarification, and also that there will be consultation. I beg to ask leave to withdraw the amendment.

Schedule 7

Jane Kennedy (Labour, Liverpool, Wavertree)

I beg to move amendment No. 339, in schedule 7, page 151, leave out lines 20 to 28 and insert—

‘(3) Sections 42 and 43 of TMA 1970 (procedure and time limit for making claims), except section 42(1A) of that Act, apply in relation to a claim under this section as they apply in relation to a claim for relief.

809BA Claim for remittance basis by long-term UK resident: nomination of foreign income and gains to which section 809G(2) is to apply

(1) This section applies to an individual for a tax year if the individual—

(a) is aged 18 or over in that year, and

(b) has been UK resident in at least 7 of the 9 tax years immediately preceding that year.

(2) A claim under section 809B by the individual for that year must contain a nomination of the income or chargeable gains of the individual for that year to which section 809G(2) is to apply.

(3) The income or chargeable gains nominated must be part (or all) of the individual’s foreign income and gains for that year.

(4) The income and chargeable gains nominated must be such that the relevant tax increase does not exceed £30,000.

(5) “The relevant tax increase” is—

(a) the total amount of income tax and capital gains tax payable by the individual for that year, minus

(b) the total amount of income tax and capital gains tax that would be payable by the individual for that year apart from section 809G(2).

(6) See section 809Z for the meaning of an individual’s foreign income and gains for a tax year.’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following: Government amendments Nos. 340 to 343.

Amendment No. 52, in schedule 7, page 153, line 37, at end insert—

‘(6) Subsection (4) shall not have effect until—

(a) the Treasury has laid before the House of Commons a report setting out its assessment of the impact of the charge on—

(i) foreign nationals in low-paid employment,

(ii) small businesses employing foreign nationals, and

(iii) higher education institutions; and

(b) the report has been approved by resolution of the House of Commons.’.

Government amendments Nos. 344 to 350.

Jane Kennedy (Labour, Liverpool, Wavertree)

I will speak briefly, as has been my habit, but I will seek to answer any detailed questions on Government amendments Nos. 339 to 343. I draw attention to Government amendments Nos. 339 and 342, which will introduce changes in the Bill to ensure that the £30,000 charge should be creditable under the UK-US double taxation agreement. I was keen to address that concern. I commend the group of amendments to the Committee and am happy to respond in detail to any questions.

Jeremy Browne (Liberal Democrat, Taunton)

Amendment No. 52 is in my name and those of my hon. Friends so I will explain the purpose of it. Before I start, I remember being criticised by Committee members for my absence of drafting skills on Tuesday afternoon. Given the number of Government amendments to the schedule, there are others who need to do their homework in that regard. This part of the Bill is a cautionary tale for the Government about the perils of aping Conservative policy. All kinds of lessons can be learned from looking at these proposals in more detail.

The Institute of Chartered Accountants, among others, was concerned about this proposal. It may not have much of an impact on the so-called super-rich, who will feel that the levy is not too much of a financial burden, but it may have a detrimental impact on other categories of people, particularly those with less money. There may be damaging consequences for some individuals, for certain sections of the economy and for the UK economy as a whole.

Amendment No. 52 would delay the implementation of new section 809G(4), which sets the £30,000 charge for claiming the remittance basis, until the Treasury has produced a report to assess the impact of the charge on three categories. The first is foreign nationals in low-paid employment, a number of whom make contributions in our constituencies in areas with shortages of UK and EU residents willing to undertake certain tasks. The second is small businesses employing foreign nationals. The third is higher education institutions, on which I touched on Tuesday when the Financial Secretary conceded, following an intervention from the hon. Member for Wirral, South, that the Government had not undertaken any appraisal of the impact of these proposals on the UK higher education sector. She anticipated that it would not be a profound impact, but that was not based on a detailed assessment undertaken by the Department. The purpose of amendment No. 52 is to delay the £30,000 charge.

Ben Chapman (Labour, Wirral South)

May I make the point that my question related to the case made by the Liberal Democrats on the proposal under discussion? It did not relate to the case that had or had not been made by the Government.

Jeremy Browne (Liberal Democrat, Taunton)

I have the highest regard for the hon. Gentleman so I do not wish to imply that he had been disloyal or troublesome as a member of the Committee. He has wisely shown no inclination to do that.

In conclusion, the purpose of amendment No. 52 is to allow greater reflection on the impact of the £30,000 charge on the groups that I mentioned.

Mark Hoban (Conservative, Fareham)

I should like to raise a couple of questions on the Government amendments. In moving the amendment, the Financial Secretary made a point about ensuring that the £30,000 charge is creditable under the UK-US double taxation treaty. I wonder what happened in the period between the Budget and the Government tabling these amendments. The Treasury commissioned Skadden, a respected US law firm, to comment on the creditability of the charge as set out in the Budget. The conclusion it reached was that in the absence of current guidance by the US treasury or the IRS, the charge would be creditable against United States federal income tax. To be fair to them and to the Minister, there followed various caveats, as lawyers are very good at, but will the Minister set out more clearly, for the benefit of those who pay close interest in these proceedings, who are concerned about creditability, what aspects of the amendment improve the chance of the IRS and the US treasury seeing it as a creditable tax charge?

On the specific amendments, amendment No. 339 puts a cap on the remittance charge at £30,000. The Institute of Chartered Accountants asks what happens if the amount nominated exceeds £30,000, either by error—if an individual has nominated higher gains or income by mistake—or if, when looking at the amounts to be nominated, having originally reached a point of having £30,000, later on perhaps a relief has been changed or amended which means that, because of those tax changes, the gains exceed £30,000.

Amendment No. 342 sets out what happens when an individual nominates less than £30,000 upon income or gains. The amendment treats that individual as if they had nominated £30,000. Would it not have been easier for taxpayers simply to elect to use a remittance basis without having to nominate the gains? The amendment seems to create a situation where, if someone only nominated, say, £1, they would be deemed to have nominated £30,000. I am not sure why the Government have gone down the route of that complicated nomination process when it appears from their amendment that, if someone fails to nominate, it can be deemed that they had nominated £30,000.

Amendment No. 346 makes it clear that only those gains or income that have not been nominated are taken into account when capital, income or gains have been remitted. Would the Minister outline what the consequence will be if the taxpayer remits nominated foreign income or gains?

Jane Kennedy (Labour, Liverpool, Wavertree)

I invite the hon. Member for Taunton to be a little cautious in representing his party, bearing in mind the comments of his hon. Friend the Member for Twickenham who, as recently as their party’s spring conference in my home city of Liverpool, divided the UK into taxpayers and tax dodgers. I think that their policy is to abolish the remittance basis altogether after a certain period of residence in the UK. Inviting resident non-domiciles to pay up or pack up is not in the interests of UK competitiveness and fails to recognise the major contribution that resident non-domicile individuals make to the UK economy. We have made it clear that we will retain the remittance basis, and the changes we are making are precisely to ensure that the remittance basis remains sustainable in the long run. By making it a more fair and transparent system, we believe that that sustainability is very much improved.

The hon. Member for Taunton also criticises the number of Government amendments that have been tabled. It is clearly a large number, but he did, in the earlier debate, indicate that often we cannot win when we seek to make changes to an original proposal. Draft clauses having been published in January, we then received representations on the detail of the draft, made changes to the draft, and made further changes after further representations. We sought throughout the whole of that process to ensure that we arrive at the right outcome. I believe that we have now done that.

The 12 Government amendments arise from discussions with representative bodies and interested parties since the publication of the Bill. I can assure the Committee that the issues raised by the British-American Business Council will be fed into discussions with the US on the double taxation treaty.

In quick response to the early questions about what has happened since the publication of the legal advice that we had earlier this year, there has been a number of informal discussions between HMRC and the IRS, the American tax authorities, to ensure that what we sought to achieve and the legal advice we had received and published was accurate. Legal advice is often open to interpretation. We did not want to go forward with a set of proposals that might have been interpreted differently by the American authorities. That is why the changes we have made have been brought forward. We will continue to keep an open ear to the concerns that the British-American Business Council may have.

Mark Hoban (Conservative, Fareham)

We should all be grateful that the Government have had that dialogue with the IRS, and the amendments reflect that. Was there much dialogue between the Treasury and the IRS before the publication of the Finance Bill? These matters could have been raised and discussed at that point, rather than the Government having to come back to table amendments.

Jane Kennedy (Labour, Liverpool, Wavertree)

There is always informal dialogue between the tax authorities at various levels, particularly when treaties are in operation, as is the case with the United States. There is regular contact to ensure that the treaty is working properly, and to keep the situation under review.

I cannot say what detailed discussions took place between the Treasury and the IRS in the United States before we published the discussion document, but we certainly had discussions to bring us to the point at which we believed our proposals would work for American citizens. It became clear that further work needed to be done to make sure that our understanding was as accurate as possible and did not impact in a negative way on American citizens living and working in the UK.

The hon. Member for Fareham asked a number of questions. Regarding the top-up provision, I have said before that that is a matter of personal choice. The provision applies only if an individual chooses not to nominate sufficient income or gains to give rise to a £30,000 tax charge. If they are concerned about the top-up provision applying to them they can nominate gains in their return.

Mark Hoban (Conservative, Fareham)

What would be the consequence if they did not nominate sufficient gains?

Jane Kennedy (Labour, Liverpool, Wavertree)

If they have already remitted all their taxed income and gains they will not be taxed if they remit the nominated income or gains. If they still have unremitted untaxed income and gains, the rules treat them as having remitted the untaxed income and gains before the nominated income and gains.

That may not be the clearest explanation the hon. Gentleman has ever heard, but this is a complex area and I want to be sure that I give the clearest answer possible, rather than cause confusion for those who are listening with interest to our deliberations.

Changing the top-up charge with a deemed nomination as we propose is a direct response to the informal discussions that took place. Nominating income is important to secure creditability and it is important that that is a tax on an actual amount of money, which is why the legislation was drafted to make a nomination of £1, rather than no nomination, and provide a base under which the £30,000 remittance basis charge could be credited.

As I said, the amendments replace the current top-up charge with a deemed nomination. I recognise that the changes are complicated, but the Committee will agree that it is important to ensure that the £30,000 amount is creditable. The main Opposition party and the Government agreed that it was reasonable to introduce such a charge, and if the party of the hon. Member for Fareham had dealt with the details, it, too, would have had to consider those issues. Stakeholders made it clear to us that this was a key issue and we have responded. Government amendments Nos. 349 and 348 make the necessary changes to clarify the fact that the normal time limits and procedures apply both to claims with a remittance basis and to claims of capital gains tax losses by remittance basis users. Finally, the remaining Government amendments make a number of consequential and minor changes in response to the comments that we received. They ensure that the legislation works as intended, and makes things clearer for taxpayers and their advisers. It is likely that we will table further amendments on Report, so we will have an opportunity to look in greater detail at some of these issues. The deeming provision always applies to make the charge £30,000, even if someone does not nominate enough income or gains. If an individual really does not have enough, they should opt out of the remittance basis altogether. As I have repeatedly said, that is a choice that individuals have to make, depending on the details of their personal circumstances.

Amendment No. 52 seeks to delay the implementation of the £30,000 charge. Delaying the implementation would simply prolong the uncertainty in the intervening period, and there would be a cost to the Exchequer of doings so in the region of £300 million. The hon. Member for Taunton did not say anything about how he would find that cost. In introducing this package of changes, I believe we have found the right balance based on the evidence available to us. I urge hon. Members to support the 12 Government amendments, and I hope that the hon. Member for Taunton will withdraw amendment No. 52.

Nicholas Winterton (Conservative, Macclesfield)

May I tell the Minister that the hon. Member for Taunton does not have to withdraw amendment No. 52; it is merely included for discussion with this group of amendments.

Jeremy Browne (Liberal Democrat, Taunton)

I beg to move amendment No. 49, in schedule 7, page 151, line 30, leave out ‘£2,000’ and insert ‘£5,435’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following amendments:

No. 50, in schedule 7, page 151, line 36, leave out ‘£2,000’ and insert ‘£5,435’.

No. 51, in schedule 7, page 152, line 2, at end insert—

‘(4) The Chancellor of the Exchequer shall review, on an annual basis, the amount specified under subsection (1)(c).

(5) Any review conducted under subsection (4) is subject to approval by resolution of the House of Commons.’.

No. 361, in schedule 7, page 152, line 8, at end insert

‘or such income and gains do not exceed the amount referred to in section 809C(1)(c),’.

No. 402, in schedule 7, page 205, line 25, at end insert—

Jeremy Browne (Liberal Democrat, Taunton)

The Committee will doubtless be relieved to know that amendments Nos. 49, 50 and 51 are the last amendments to this year’s Finance Bill tabled by the Liberal Democrats, although we have tabled a couple of important new clauses, which we will consider later in our proceedings.

The purpose of our amendments is to set the de minimis level higher than it is set in the proposed legislation. While it has been increased, the proposal in the Bill is to increase it from £1,000 to £2,000. PricewaterhouseCoopers says that

“it remains too low to exclude many non-doms who, realistically, are not the target of these provisions.”

Amendments Nos. 49 and 50 have the combined effect of altering the £2,000 level so that it reads “£5,435”. That is on the recommendation of the Institute of Chartered Accountants, which suggested a more appropriate de minimis level would be in line with the personal allowance for income tax. That is how we arrived at that rather unrounded figure, which would further ease the compliance burden as well as setting the level at a rate that would be less likely to penalise unfairly workers who have made a contribution to the United Kingdom economy.

In an ideal world, the de minimis level should not be fixed but should be amended, subject to changes in need. That is the intention of amendment No. 51, which would require the Chancellor to undertake an annual review of the level that has been set. I would be interested to know if the Minister would consider such a review, and also if she will engage with the argument to increase the level from the rather limited figure of £2,000 to a figure of £5,435.

I conclude my contribution on this schedule with a quote from PricewaterhouseCoopers on this matter, which goes to the nub of the problem. It said that the amount of the de minimis level

“is unlikely to cover everyday situations such as the rent on the let-out flat back home, or earnings from helping with the family farm in the summer, or a student’s summer vacation job at home. It is the lower paid who will be hit hardest by this and HMRC is not in a position to deal with the practicalities of educating and coping with this community.”

The nub of the problem is that the measure is regarded by observers of politics as one that was introduced to recoup money from extremely rich people who choose to earn large amounts of money in this country. The stereotypical picture that is painted is of an extremely rich banker in the City who is not making a large contribution to our tax base. However, many more people are affected by the measure. The intention of the amendments is to try to ensure that those people are not unfairly snared in the system and penalised.

Stewart Hosie (Scottish National Party, Dundee East)

Can the hon. Gentleman confirm that the measure applies to people who have chosen not to use the remittance basis, rather than to those who have chosen to use it, and that the numbers involved are not just the 120,000 or 130,000 wealthy non-doms who are normally spoken about but perhaps up to 5 million other people who fall into that category, one way or another?

Jeremy Browne (Liberal Democrat, Taunton)

Yes is the short answer to that question. We could have a debate about the figure of 5 million that the hon. Gentleman mentioned, because I understand that that is an estimate or a prediction of the maximum number of people involved. However, his comment was helpful, because he expanded on the point that I was seeking to make, which is that these measures are often regarded by the wider commentating classes and the population as a whole as being mainly concerned with the tax affairs of people who are relatively wealthy, but there are large numbers of people working in the United Kingdom and remitting money who are not very wealthy. Indeed, they are on the lower end of the income scale, and they contribute to our economy by doing work that people in this country do not have the skills or, more likely still, the inclination to do themselves.

We are therefore talking about a category of people to whom we would not wish to do anything other than encourage regarding the contribution that they make to our economy. The proposal in amendments Nos. 49 and 50 seeks to ease the burden on those people in a way that is more equitable than the arrangements envisaged by the Government in the Bill.

Mark Hoban (Conservative, Fareham)

I want to talk principally to amendments Nos. 402 and 361, which are in my name and those of my hon. Friends. I would also like to use this debate as an opportunity to discuss further the issue that the hon. Member for Taunton has mentioned, which is the treatment of large numbers of people who are going to be subject to these rules. He is right to say that much of the debate has focused on relatively wealthy individuals, but a large number of people have raised concerns about people on much lower incomes who will fall within the remit of the changes.

As I understand it, the de minimis limit that the Government have introduced is designed to take people at low levels of foreign income and gains out of the tax system, and to help lift the burden of compliance on taxpayers and HMRC. The Minister said in the previous debate that people will have to make a choice, and that they will need to make a decision and do some calculations as to whether the rules apply. We are asking taxpayers to make a decision: should they claim the remittance basis and lose the personal allowances, or should they be taxed on an arising basis, then seek to offset foreign tax against UK tax?

Those calculations will be made not just by high net worth individuals who have access to expensive accountants and lawyers. They will have to be made by migrant workers, seasonal workers who come into the UK to pick fruit and help in the agriculture industry, people from overseas working in the NHS, skilled migrants entering through Home Office programmes, international students—we spoke about them earlier—and even Commonwealth citizens serving in the armed forces. The Low Incomes Tax Reform Group has highlighted the range of people who may be caught by the measure.

It is worth bearing in mind some of the comments that have been made about the issue. John Whiting, who was cited earlier, said in evidence to the House of Lords Economic Affairs Committee:

“It is of great concern that we have here a provision that will affect a considerable number of the vast majority of non-domiciles who are not only unaware of the term ‘non-domicile’ in many cases...but because of the situation back home...because of the work they do back home, or their summer job back home, or the rent on their flat, are suddenly losing their personal allowances...It seems unfair, at best, and, actually, totally impractical”.

I shall raise some questions about that later. That view is shared by several people who gave evidence and made representations to us.

The Low Incomes Tax Reform Group suggested that HMRC needs to make sure, before people set foot in this country, that they understand remittances and how the relevant double tax treaty works. It will be necessary for them to consult agreements in the years of arrival and departure—every year for seasonal workers who have a pattern of being in two countries on a regular basis—to establish, for the purposes of the double tax treaty, in which country they are resident. Once they have established that, they will be able to determine which country has the primary right to tax.

People also need to think about how tax credit relief claims can be made; about withholding taxes that may have been levied on earnings and bank interest; and about how those taxes will be credited under the UK system. There are quite a few complex issues that migrant workers need to understand to make the choice that the Minister mentioned earlier. There are other issues, too. What about income that arises in the tax year of arrival, before the individual becomes resident? There are some issues concerning split years. In the past, extra-statutory concession A11 looked at how income could be treated in a split year, and whether it was feasible for income earned before someone became resident in the UK should be disregarded for UK tax. Can the Minister indicate whether she has given any thought to the situation of someone who becomes resident in the middle of the year? Is the foreign income that they earned before they arrived in the UK disregarded? That would certainly make the regime easier to use, but, as a consequence of the Wilkinson judgment—we had a debate about it on Tuesday—I am not sure whether A11 will still apply. Clearly, that is important in trying to ensure that there is a workable regime for migrants.

One of the examples deals with capital gains tax and the position for temporary visitors who keep their home abroad, and how that applies to migrant workers. There are some significant issues and if there are issues for migrant workers themselves, there will be issues for the administration of the system by HMRC. Malcolm Gammie from the Institute for Fiscal Studies put it this way:

“Precisely how it will be possible actually to administer that exemption and how Her Majesty’s Revenue and Customs will actually be able to check whether people are doing this correctly is, I think, one of the more significant questions which arises from an administrative perspective in relation to these arrangements”.

Francesca Lagerberg from the Institute of Chartered Accountants wondered how

“from a resource perspective, HMRC are going to police whether that £2,000 de minimis is being properly operated and that is a big ask ... do they have the resources to do that, the training to do it and the understanding of the issues around it? It is a massive undertaking. We were very concerned about the compliance, the admin work placed upon HMRC and upon the taxpayer that that particular de minimis will bring”.

HMRC is very confident that it will be able to deal with this. David Richardson from HMRC said:

“In reality it is quite simple for most people... Although some choose to present it as complicated”.

Indeed, the Minister’s response might be that those people who are raising issues about de minimis are making it far more complicated than it is, but that slightly complacent answer underplays the full extent of the problem. The Minister last week referred to a bank balance of about £1.6 million. We are talking about people who are earning some money while they are back home in the country where they are domiciled. They are migrant workers who will perhaps spend time in the UK working and will then return home.

There are some issues about the cost of compliance both for HMRC and for the people who are subject to this regime—individuals who are non-domiciled in the UK, but are resident here. That is where amendment No. 402 comes into play. The objective is to understand the point at which it is worth introducing this regime, and where the de minimis limit should be set by reference to the cost of compliance to the taxpayer and HMRC. There is no point trying to collect revenue if the cost of collection exceeds the revenue that will be collected. That is a better approach to looking at the impact of the de minimis limit than setting an arbitrary figure in the Bill. We need to understand exactly what the Government expect the costs of compliance will be for both the tax payer and HMRC.

Amendment No. 361 would amend a change that the Government have made: where there is a spouse or a child under the age of 18 they are not required to pay the £30,000 charge. Under amendment No. 361, rather than having no income, the income that they would earn would be below the de minimis limit. A spouse may have a bank account that earns some interest. Rather than catching relatively small amounts, the de minimis limit would apply in that case.

I should like to make one further comment about the interaction of these arrangements with the tax treaties. I touched on this briefly on Tuesday when I intervened on the Minister to ask which took precedence: double tax treaty rules or these rules. There are some issues around the number of years that might be treated as resident. The question arises as to what years should be counted for the purpose of the test, where a taxpayer may be resident in the UK under UK law but is also resident in another country. If, under the double tax treaty, the taxpayer is treated as not being resident in the UK for a particular year, does that mean that they are not resident in the UK for the purpose of the seven-out-of-nine-years rule?

It is usual for a double tax treaty to contain clauses to determine residency. Often, there is a tie-breaker clause where the general tax laws would result in an individual’s being a dual resident. In cases of difficulty, it is usual for the two countries to decide the question by mutual agreement. For example, the US-UK tax treaty has that facility at the moment. It would be helpful if the Minister expanded a little bit—certainly in respect of migrant workers—on how the double tax treaties will work, how applicable they are and the extent to which they override the existing rules. I understand that some double tax treaties deal with split-year arrival or departure, but in other situations that may not apply. That refers back to the point about extra-statutory concession A11.

Mark Field (Conservative, Cities of London and Westminster)

I shall be brief, as it is not an appropriate time to have a full debate on all aspects of the proposal for non-domicile tax. I have always been sympathetic towards elements of such a tax, but there is grave concern about the lack of certainty in this area.

I accept that, as the Minister said, these are often quite complicated matters. The concern is not necessarily whether that lack of certainty is justified—professionally qualified people probably can work their way through a mesh of different regulations. However, such a perception could do grave damage to this country as an open and welcoming one in a global world. I accept that that is by no means the single most important consideration. None the less, in the City of London there is a worry that we could run the risk of losing some talented people, who will go to Singapore, Dubai or other parts of the world rather than settling on these shores.

With reference to the amendments, I have a lot of sympathy with the idea of having a larger de minimis provision. Otherwise, we run the risk, as my hon. Friend the Member for Fareham said, of encountering two problems. First, there is the sheer cost of compliance, which will be every bit as much a cost to HMRC as it will be to the taxpayers concerned. Secondly, above all, that makes this a potentially inefficient tax, which should not go unremarked on by Opposition Members. I am interested to hear the Minister’s response.

Recalling elements of an earlier debate, a particular problem that we are facing is not so much that relatively low-paid people are coming to work in this country as immigrants and taking the jobs of our indigenous population, but that the disincentive to work is often so great, particularly because of social housing and the tenure that comes with it—and all the housing benefit that goes with that—that we run a real risk of unintended consequences arising from what is emerging in a lot of legislation.

I hope that the Minister will reassure us that she is giving some thought to these matters. Without a reasonable de minimis provision, we run the risk of pulling many more people into the provisions covering these remittances, in a way that the Government probably do not intend.

Jane Kennedy (Labour, Liverpool, Wavertree)

We must consider what de minimis should be applied to the remittance basis, alongside our decision that it is not fair that a taxpayer should have access to both their personal allowances, if they pay tax on the arising basis, and an allowance when they are using the remittance basis.

Amendments Nos. 50 and 51 together seek to raise the limit on the unremitted overseas income beyond which individuals lose access to their UK personal allowances and instead face the £30,000 remittance-basis charge. The Opposition amendments are unnecessary. We have increased the limit beyond which a remittance-basis user pays the charge. Our original proposal was £1,000. In direct response to the representations that we received, we felt it was reasonable to double that, in effect, to £2,000.

The hon. Members for Taunton and for Fareham are concerned about whether that is in the interest of low-income migrant workers. I reassure the Committee that low-income migrant workers who have more than £2,000 of unremitted foreign income and gains for the year are unlikely to pay more tax as a result of the new rules on the remittance basis. It is worth remembering that to earn £2,000 of interest on a foreign bank account would require about £40,000 of capital invested in that income at an interest rate of about 5 per cent. I think hon. Members will agree that that is a substantial sum of money.

Greg Hands (Conservative, Hammersmith and Fulham)

It strikes me that a migrant worker could well have £40,000 in a bank account. About 6 per cent. of my constituency is Polish, and many of those people are saving back home to build a house or some other kind of property. It seems to me not impossible that £40,000 could be a realistic sum to have in a bank account.

Jane Kennedy (Labour, Liverpool, Wavertree)

We need to keep clearly in mind that the de minimis limit we are discussing does not refer to income in the UK. It refers to the income that the worker leaves offshore. I know the hon. Gentleman understands that, but I do not think it is always fully understood.

I shall deal in more detail about the work being undertaken to ensure that the greatest possible clarity and assistance is given to those who may be concerned about the impact of the proposal. It is important to remember that individuals have a choice about paying tax using the arising basis. There are a number of decision points, depending upon individual circumstances, when it may be in the individual’s interest to be in one place or the other.

All the advice I have received leads me to conclude that the majority of migrant workers with modest earnings will be better off using the arising basis, as they will be able to claim relief from foreign tax paid. HMRC will provide additional targeted help and guidance for this group of taxpayers. A limit set at the level of the personal allowance as proposed by the amendments would cost us around £40 million a year.

Mark Hoban (Conservative, Fareham)

The Minister suggested that it may be beneficial for migrant workers to be taxed on an arising basis, and talked about the work that HMRC will do to ensure that they are aware of these issues. Does that mean, for example, that HMRC is going to produce easily comprehensible guides to double tax treaties?

Jane Kennedy (Labour, Liverpool, Wavertree)

I will come to that in a moment, but I want to address one or two other points that have been raised. The hon. Member for Dundee, East, who is temporarily not in his seat, asked whether people not claiming the remittance basis would be affected by the de minimis limit. This is an example of the misunderstandings that exist, which it is helpful for me to clarify.

Such individuals would not be affected by the de minimis. They would be opting for the arising basis of tax, and therefore would not be affected. Following from that, there are many decisions for people to make. The legislation works by applying the arising basis automatically. Resident non-domiciles, and migrant workers in particular, would have to claim the remittance basis. If people do not claim, there is no complexity and they are on the same tax basis as the vast majority of UK citizens. The vast majority of low-income migrant workers are either under the £2,000 limit, or better off on an arising basis.

The hon. Member for Hammersmith and Fulham talked about the Polish workers living and working in his constituency. I, too, have significant numbers in my constituency, and they make a great contribution to Liverpool. Is it not fairer that someone with that much offshore income back in their home country should make a contribution, when other UK residents are taxed on income well below that level?

Questions have been asked about HMRC’s ability to cope. Although the new rules will apply from 6 April this year, it is important to remember that individuals will not need to make a claim to the remittance basis for this tax year until after April 2009 at the earliest, and the first filing date for paper returns will not be until 31 October 2009. There is time, therefore, to put in place new procedures and resource, as needed, to ensure that HMRC administers the new rules effectively.

HMRC is updating all the guidance on residence and domicile, and there will be several layers of guidance including material aimed at providing simple, non-technical explanations of the concepts and rules. HMRC will consult stakeholders on the guidance—my officials met the Low Incomes Tax Reform Group yesterday to take forward work on the guidance. We are aware of the concerns, and are working hard to address them.

The hon. Member for Fareham asked whether the extra-statutory concession A11 would apply. In our brief discussion of extra-statutory concessions yesterday, I indicated that a great deal of work going on. The concession will continue to apply, but if we are to consider a statutory residence test, it would be appropriate that such discussions take account of the extra-statutory concession A11, as we will want to consider any split-year treatment as part of that dialogue.

Mark Hoban (Conservative, Fareham)

Will the Minister confirm, therefore, that for somebody who comes to the UK part-way through the tax year, their earnings in their normal place of domicile will not be counted towards the £2,000 de minimis limit, as the extra-statutory concession A11 will continue to apply until the statutory residence test?

Jane Kennedy (Labour, Liverpool, Wavertree)

I can confirm that if the extra-statutory concession applies to such an individual now, it will continue to apply.

HMRC will rely on a range of approaches to avoid the problems of compliance described this morning. Its guidance will help people to make the right choices, and it would not be sensible for HMRC to seek to enforce the collection of small amounts of tax. That would not be economical—for example, it will not spend £500 to collect £100.

Mark Hoban (Conservative, Fareham)

As I understand it, the default position will be that people will be taxed on an arising basis. How will HMRC work out whether that basis is appropriate and that people are complying with the rules? Somebody might be taxed on their earnings in the UK on an arising basis and claims for personal allowances, but might not have declared, for example, that they are earning £3,000 in rent on their flat in Warsaw. How will HMRC identify those facts and ensure proper compliance?

Jane Kennedy (Labour, Liverpool, Wavertree)

With regard to amendment No. 402, HMRC is required to administer all taxes efficiently and in the least burdensome way possible, and that already includes the sort of cost-to-yield ratio calculation that we have just been discussing. I do not see a case for separating out, as proposed in the amendment, as part of the tax system for those already being reported on, and we do not believe that there will be an increase in the administrative cost of the remittance basis as a result of implementing the reforms. As I said, HMRC will provide support and guidance for migrant workers and other low-income groups, and we are working with key stakeholders to ensure that that is targeted appropriately.

The hon. Gentleman will know that individuals will be required to self-assess. HMRC will not increase its surveillance or policing of resident non-domiciled communities. The system will be based on the normal procedures of individuals being required to self-assess their liability to pay tax.

Amendment No. 49 would mean that the level of the limit was reviewed annually. Again, that is unnecessary. The Committee will recognise that any future increase in the level of the limit would be enacted in a Finance Bill and would be subject to discussion and debate at that time.

Amendment No. 361 would exempt someone from having to make a claim for the remittance basis if they have less than £2,000 income or gains arising in the UK.

Jeremy Browne (Liberal Democrat, Taunton)

Would not it be helpful if, between Budgets, the Chancellor had come to the House to raise the personal allowance owing to an error in a previous Budget? Should not there be some scope in the legislation to allow adjustments to be made in such circumstances?

Jane Kennedy (Labour, Liverpool, Wavertree)

The short answer is no.

On amendment No. 361, people with no income or gains are permitted to access the remittance basis without a claim, as I said. Introducing an exemption for £2,000 could create tax avoidance possibilities. Individuals have a choice between keeping their personal allowance or claiming the remittance basis. The amendment would give people a £2,000 personal allowance with the remittance basis, which would disturb the balance of fairness that we have sought to achieve.

On double taxation treaties, it depends on the individual’s circumstances, their home country and the nature of the tax treaty with that country. Unless there is a specific example that might illuminate that and to which I could respond on Report, having considered it, I cannot give much more than that general response. It will depend on the circumstances of a particular individual and the terms of the relevant tax treaty. I have answered most of the points that have been raised, but I am sure that we will return to some of these issues.

Jeremy Browne (Liberal Democrat, Taunton)

The number of amendments to the schedule that have been tabled indicates the confusion in the Government’s mind about this whole area of taxation. I agree with the view that has been expressed by others, including the hon. Member for Cities of London and Westminster, that there are practical issues relating to implementation and information to employers and employees about the consequences of the arrangements and the potential revenue implications. Different people have different ideas about what is “fair”, but several members of the Committee have expressed concerns about the impact of the proposals on people with low and low-to-middling incomes who are making a contribution to our economy.

There is only so much that we can do in Committee to save the Government from themselves, and I am content to have made those opinions available to the Minister. She is, of course, within her rights to ignore them and suffer the consequences later. I beg to ask leave to withdraw the amendment.

Nicholas Winterton (Conservative, Macclesfield)

Order. I feel bound to tell the Committee that there are 10 minutes before we break, and when we reassemble at 1 o’clock we have three hours. We have a further 10 major debates on schedule 7, and then we will discus new clauses. I suggest that hon. Members bear that in mind when they are speaking and when deciding whether it is appropriate to intervene.

Mark Hoban (Conservative, Fareham)

I beg to move amendment No. 362, in schedule 7, page 153, leave out lines 1 to 12.

I shall be mindful of your strictures about brevity, Sir Nicholas—

Jane Kennedy (Labour, Liverpool, Wavertree)

Hear, hear.

Mark Hoban (Conservative, Fareham)

I said “mindful”.

There is a point of disagreement between us and the Government. The Government decided that, as part of their rules for the taxation of resident non-domiciles, they would no longer benefit from personal allowances. That cropped up in the previous debate. Our point is that people with relatively modest overseas income could end up paying tax on all their income, without the benefit of any personal allowances. Furthermore, because of the way in which the provision is structured, they might also lose their annual exempt amount under capital gains tax. That could lead to them being taxed on relatively small gains if they have already used their de minimis limit of £2,000.

There will also be an issue for companies. The Minister said that people will, by default, be taxed on an arising basis and will be able make their claim for remittance basis when the tax year has ended, but clearly employers will assume that people qualify for personal allowances and will tax them on that basis, so either the individual will have to repay the benefit from that tax allowance, or part of the way through the yea they will elect the remittance basis and advise their employer appropriately.

A compliance cost for business will arise from the loss of personal allowance and people’s decision about that. That will add to the burden on companies. The Association of Labour Providers, a body that has not previously been cited during our proceedings, has highlighted some of the challenges that will arise when people move between the UK and other territories. It pointed out that 52 per cent. of registrants under the Department for Work and Pensions scheme were in temporary employment, and 57 per cent. said that they intended to stay for less than three months, while only 12 per cent. said that they intended to stay for more than a year.

That demonstrates some of the challenges for migrant workers in complying and for employers in, for example, providing advice on whether workers should be taxed on a remittance basis or retain their personal allowances and be taxed on an arising basis. We discussed those points during previous debates, and I shall not reiterate them. To make it easier for those individuals, it may be better to reinstate the personal allowances and to lift the burden rather than changing the de minimise limit, as was proposed in the previous group of amendments.

Another issue goes back to double taxation treaties. John Whiting suggested that although these rules withdraw personal allowances, they may have to be reinstated under some double taxation treaties, which again adds to the confusion and complexity that taxpayers will have to navigate. It would be helpful if the Minister would indicate whether taxation treaties will be able to override the withdrawal of personal allowances. If so, it might be easier for the Government to return to personal allowances.

My final point is about capital gains tax. The Government’s proposals not only exclude the personal allowance, but take away the annual exempt allowance. In terms of the compliance burden on HMRC, the current reporting requirements for CGT are linked to the annual exempt allowance. If the annual exempt allowance for resident non-domiciles is removed, they will need to report any gains that they make. That will lead to a disproportionate increase in the administrative burden on both HMRC and the taxpayer.

I note the Minister’s comments in the last debate about HMRC not pursuing relatively small amounts of tax, but in theory a taxpayer would be required to report a relatively small gain—a gain as small as £5—on overseas property, for example. They would need to complete all the CGT pages of the tax return and would potentially pay CGT of 90p on a £5 gain. By wiping away the annual exempt allowance, we are in danger of increasing the burden on the taxpayer, requiring them to submit more forms than strictly necessary to comply with the rules. That is the impact of the abolition of personal allowances, and I am grateful for the Minister’s comments on both the personal allowance and the withdrawal of the annual exempt allowance.

Jane Kennedy (Labour, Liverpool, Wavertree)

We have been clear from the outset that it is unfair for a remittance basis user to continue to have the double benefit of the remittance basis and UK personal allowances. We have responded to concerns that remittance basis users with small amounts of overseas income or gains would be adversely affected by the loss of the personal allowances, by raising the limit above which a remittance basis user would lose that personal allowance from £1,000 to £2,000 of unremitted overseas income and gains. Above that level, people who do not want to lose their personal allowances can choose to be taxed on the arising basis like the majority of UK taxpayers. We believe that that strikes the right balance. We do not believe that it will be an extra burden on employers, because it will all be done through self-assessment.

I note the hon. Gentleman’s point that some employers may have concerns for their employees, and I will give the matter some thought. However, I do not believe that it will be a burden for employers. It is technically possible for a small number of our double taxation treaties to prevent the removal of the personal allowances when an individual claims the remittance basis. In practice, however, the circumstances would be very unusual. The individual would have to be treated as resident in both the UK and another country during the year, the double taxation agreement would have to treat them as treaty resident in the other country, and they would have to have certain sorts of investments in order to make it worth their while to claim the remittance basis. As a result, we anticipate that the number of people to whom this applies will be tiny. Those who do benefit will still be liable for the £30,000 charge.

Mark Hoban (Conservative, Fareham)

Are any of those potentially troublesome treaties ones which the UK has with A8 states?

Jane Kennedy (Labour, Liverpool, Wavertree)

There are 16 double taxation agreements. If it would be helpful to the Committee, I will establish which countries those 16 apply to and return with that information after our break.

Individuals have a choice. If they want to claim the remittance basis, they will lose their personal allowances and the annual exempt amount. No one will be forced to claim the remittance basis. Individuals need to make a decision on whether or not to claim, based on their own circumstances.

(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003)

Nicholas Winterton (Conservative, Macclesfield)

Order. I have managed a small amount of chocolate between our last sitting and now, which is an intake of glucose to ensure that I have the strength to see us through the next three hours or so.

Schedule 7

Jane Kennedy (Labour, Liverpool, Wavertree)

I can clarify that there are 16 double taxation agreements. None are A8 countries; I was asked a specific question about that. The only one that may be cause for concern is the double taxation agreement with Fiji, but we anticipate that very few taxpayers would be affected as a result.

Nicholas Winterton (Conservative, Macclesfield)

That was a very brief, succinct speech, which I am sure will be the order of the rest of this afternoon.

Mark Hoban (Conservative, Fareham)

I think that small amounts of chocolate are apparently the best quantities to eat.

We are all relieved that it is Fiji, but there are Fijian soldiers serving in Her Majesty’s armed forces, so I am sure that the MOD will be reacting to that news and rushing forward with advice for Fijians enlisted in the armed forces.

I have listened to the arguments advanced by the Minister about personal allowances. We do have a difference of view here. It was never part of our proposals on the charging of a levy on non-doms to remove their personal allowances. We think that the impact on taxpayers could be quite significant, and it will lead to complexity. The Minister is a great advocate of choice for individuals, and we welcome that conversion to choice, but it is going to be challenging for some people to comply with the rules. It would have been more reassuring for all those engaged in the debate if the preparations of Her Majesty’s Revenues and Customs had been further advanced to assist those on low incomes to comply with these rules, but I do not wish at this point to push the amendment to a vote, so I beg to ask leave to withdraw the amendment.

Mark Hoban (Conservative, Fareham)

I beg to move amendment No. 363, in schedule 7, page 156, line 35, leave out from ‘is’ to end of line 36 and add

‘employed in the United Kingdom by a relevant person.’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following amendments: No. 364, in schedule 7, page 157, line 37, after ‘(3)(a)’, insert ‘, subsection (11)’.

Government amendment No. 482.

No. 365, in schedule 7, page 157, line 41, at end insert—

‘(11) For the purpose of Condition A, property brought to, or received or used in, the United Kingdom by or for the benefit of a relevant person is to be disregarded in any of these cases—

(a) if the property or service is enjoyed virtually to the entire exclusion of the individual, his spouse or civil partner and his dependent children;

(b) if full consideration in money or money’s worth is given by the individual, his spouse or civil partner or his dependent children for the enjoyment; or

(c) the property or service is enjoyed by the individual, his spouse or civil partner or his dependent children in the same way and on the same terms as it may be enjoyed by the general public or by a section of the general public.

(12) The references in subsection (11) above to the spouse or civil partner of the individual do not include—

(a) a person to whom the individual is not for the time being married but may later marry, or a person of whom the individual is not for the time being the civil partner but of whom he may later be a civil partner, or

(b) a spouse or civil partner from whom the individual is separated under an order of a court or under a separation agreement or in such circumstances that the separation is likely to be permanent, or

(c) the widow or widower or surviving civil partner of the individual.

(13) In this section—

(a) “dependent child” means a child who—

(i) is under the age of 18 years,

(ii) is unmarried, and

(iii) does not have a civil partner, and

(b) “child” includes a stepchild.’.

Government amendment No. 483.

No. 366, in schedule 7, page 159, line 33, leave out ‘all relevant persons’ and insert

‘the individual, his spouse or civil partner and his dependent children’.

No. 367, in schedule 7, page 159, line 34, leave out ‘a relevant person’ and insert

‘the individual, his spouse or civil partner and his dependent children’.

No. 368, in schedule 7, page 159, line 36, leave out ‘relevant persons’ and insert

‘the individual, his spouse or civil partner and his dependent children’.

No. 369, in schedule 7, page 159, line 40, at end insert—

‘(11) The references in subsection (9) above to the spouse or civil partner of the individual do not include—

(a) a person to whom the individual is not for the time being married but may later marry, or a person of whom the individual is not for the time being the civil partner of whom he may later be a civil partner, or

(b) a spouse or civil partner from whom the individual is separated under an order of court or under a separation agreement or in such circumstances that the separation is likely to be permanent, or

(c) the widow or widower or surviving civil partner of the individual.

(12) In this section—

(a) “dependent child” means a child who—

(i) is under the age of 18 years,

(ii) is unmarried, and

(iii) does not have a civil partner, and

(b) “child” includes a stepchild.’.

No. 370, in schedule 7, page 160, line 23, leave out ‘all relevant persons’ and insert

‘the individual, his spouse or civil partner and his dependent children’.

No. 371, in schedule 7, page 160, line 24, leave out ‘a relevant person’ and insert

‘the individual, his spouse or civil partner and his dependent children’.

No. 372, in schedule 7, page 160, line 26, leave out ‘relevant persons’ and insert

‘the individual, his spouse or civil partner and his dependent children’.

No. 373, in schedule 7, page 160, line 28, at end insert—

‘(6A) The references in subsection (6) above to the spouse or civil partner of the individual do not include—

(a) a person to whom the individual is not for the time being married but may later marry, or a person of whom the individual is not for the time being the civil partner but of whom he may later be a civil partner, or

(b) a spouse or civil partner from whom the individual is separated under an order of a court or under a separation agreement or in such circumstances that the separation is likely to be permanent, or

(c) the widow or widower or surviving civil partner of the individual.

(6B) In this section—

(a) “dependent child” means a child who—

(i) is under the age of 18 years,

(ii) is unmarried, and

(iii) does not have a civil partner, and

(b) “child” includes a stepchild.’.

No. 374, in schedule 7, page 162, line 42, leave out from beginning to end of line 7 on page 163 and insert—

‘(4) The kinds of income and capital are—

(a) income and gains subject to a UK tax,

(b) employment income subject to a foreign tax,

(c) relevant foreign income subject to a foreign tax,

(d) foreign chargeable gains subject to a foreign tax,

(e) relevant foreign earnings (other than income within paragraph (b)),

(f) foreign specific employment income (other than income within paragraph (b)),

(g) relevant foreign income (other than income within paragraph (c)),

(h) foreign chargeable gains (other than chargeable gains within paragraph (d)), and

(i) income or capital not within another paragraph of this subsection.

(4A) Subsection (4) is subject to subsection (4B).

(4B) Where an individual has insufficient information to be able to determine whether foreign income or foreign gains has suffered foreign tax he shall not be deemed to have made an incorrect return if he treats the funds as relating to the appropriate income or gains paragraph with respect to which foreign tax has not been suffered.’.

Government amendments nos. 463, 464, 484, 485, 465 to 468 and 486.

No. 495, in schedule 7, page 202, line 30, after ‘809Q’, insert ‘and 809S’.

Mark Hoban (Conservative, Fareham)

This is an extensive group of amendments and the nature of them means that there are a number of issues to be discussed. All of them are of interest to outside bodies in terms of seeking clarification on the way in which the Government would interpret the rules around residence.

Amendment No. 363 picks up an issue that we will come back to in a later group of amendments, as there is a Government amendment that covers that area. Therefore, I will keep remarks on that point relatively brief and talk at greater length later.

Amendment No. 363 deals with the issue that, where fees are incurred, the rules at the moment focus on where the services arise. The amendment shifts that focus from where the services are performed to where the services are enjoyed. Under current rules, where a UK-based investment manager manages an offshore trust, the payment of his fees is treated as a remittance and therefore subject to tax.

Our amendment would say that, as the trust is offshore, when fees are settled they are not treated as remittance and therefore do not form part of the tax liability of the UK resident non-dom. There may also be a remittance if trustees of an overseas trust pay fees to investment advisers in the UK, or pay for UK legal accounting or other professional advice provided in the UK. In all those cases, the individual has not benefited, and those are not the circumstances, I believe, that the Government had in mind. I understand that the Government amendments that introduce new section 809SA seek to address those issues and I will come back to that when we debate the relevant amendments later.

The changes created widespread concern among the investment management industry and elsewhere. I know that British Bankers Association wrote to the Minister on 20 March highlighting its concerns about the extended definitions of remittances as set out in new section 809H. It indicated that one of its private banking members was considering moving a significant part of its operations overseas as a consequence of the effect of new section 809H. We want to try to refocus that by saying that, rather than looking at where the service is performed, we should look at who is enjoying the service and where those services are enjoyed. That is why we believe that any fees paid by an offshore trust would not be deemed to be a remittance.

That is an important issue. In the UK we are very skilled at providing investment management expertise and there was a concern that as new section 809H was drafted that would significantly impact on the effectiveness of London as a place to do business and would potentially affect the investment in equities in the UK and other assets. As a consequence, we seek to shift that focus from where the service is provided to where it is enjoyed, in a relatively simple way, to avoid a tax being charged on remittances to pay those fees.

I move on to amendments Nos. 364 to 374. As well as introducing a £30,000 charge for non-doms who have been in the UK for at least seven of the last 10 years, the Bill makes radical changes to the way in which the remittance basis will operate. It allows individuals who are resident for tax purposes in the UK but not domiciled here to be taxed on income and gains from outside the UK only to the extent that such income and gains are received or enjoyed—that is, remitted to the UK. Clearly the Government have taken the opportunity of the introduction of the charge to deal with various loopholes and anomalies, which they consider would allow remittance users to bring funds into the UK without paying UK tax on their overseas income and gains. In particular, the Government have sought to change the law to prevent individuals from giving away overseas taxable income and gains to a third party, such as a relative, who can then arrange for the individual to use or enjoy those funds in the UK without a tax liability arising.

To deal with that potential source of mischief, in proposed new section 809L on page 157, there have been wide-ranging changes so that where such funds are brought to the UK by a relevant person, which is defined to include many of an individual’s relatives as well as trusts and companies with which the individual has a connection, that will be treated as a remittance by the individual of income or gains and therefore may be taxable.

There are some practical issues around that that I want to explore. It leads to a situation where there are transactions taking place which are not intended to achieve a tax advantage, and I think that that partly stems from the fact that the definition of a relevant person is too wide and results in a number of problems. As a consequence, our amendments Nos. 364 to 374 seek to narrow the definition of who a relevant person is and restrict the definition to close family members only.

Let me give some examples where the current rules give rise to some problems. The first is grandchildren under the age of 18. A relevant person does not include a child over the age of 18 but does include a grandchild under the age of 18—that is in new section 809L(2)(d). That could impose considerable burdens of compliance, since an individual will be taxed by reference to the actions of others, of which the individual will be completely unaware. For example, it would require an individual who has given funds to their adult child outside the UK to report a remittance if that adult child provided a benefit to their own minor child in the UK. One example has been given—funds to purchase a railway ticket for them—but clearly there are much wider examples than that. It means that the grandparent would be responsible for reporting transactions that his grandchild might undertake, without necessarily having knowledge of what the grandchild’s parent, or the child, will actually do. There is an issue there about compliance that we need to think about carefully.

On charitable trusts, new subsection (2)(g) adds a further new category of relevant person:

“the trustees of a settlement of which a person falling within any other paragraph of this subsection is a settlor or beneficiary”

That again could cause a number of problems. I will focus on one now which will create particular problems for charitable trusts established by non-domiciled, but UK-resident settlors. The concern is that that would deter the trustees of such a charity from investing in UK assets, so as not to give rise to a remittance for the settlor. From a practical point of view for the settlor, they are in an invidious position. They could never be in a position to complete a self-assessment return without having had detailed information regarding the investment activity of any trust that they have established since 5 April 2008 and where they have used unremitted foreign income or gains to do so.

I am sure that I could come up with further examples, but I do not think that it is necessarily in the interests of the debate to go down that route. However, it shows that the current definition of related person in new section 809L is very widely drafted. I understand that it is drafted widely to prevent new loopholes arising, but it creates problems for compliance in the two examples that I have quoted. That is why amendments Nos. 364 to 374 replace the broader definition of relevant persons to one that covers immediate family members, so that the tax liability will arise only in circumstances in which that individual, his spouse or other minor children receive a benefit other than an incidental, or otherwise minor, benefit.

I now turn to amendment No. 374 on mixed funds. The schedule sets out a particular order in which funds should be deemed to be remitted and that is a change from the previous guidance on mixed funds. Mixed funds are derived from various sources such as funds from before the individual became a UK resident, gifted funds, funds derived from UK income and gains and funds derived from foreign income and gains. In the tax years prior to 2008-09, there were no statutory rules on the treatment of remittances from mixed funds and one followed the prevailing non-statutory practice. Now we have the statutory provisions in the Bill which will apply to transfers from mixed fund accounts where the foreign income or foreign gains have arisen after 6 April 2008.

I will not go through the order in which these funds are remitted, but they start with employment income subject to UK tax, relevant foreign earnings where there is no foreign tax credit, foreign-specific employment income where there is no foreign tax credit, relevant foreign income where there is no foreign tax credit and so on. Towards the end of the list, in (f), (g) and (h), the funds are deemed to be from sources that are subject to foreign taxes. My amendment changes the order so that where there is income or gains from overseas that has been subject to foreign tax, it is deemed that they are remitted first, in preference to the untaxed income or gains. This reflects the current treatment and was set out in statement of practice 5/84. That statement of practice is more favourable to the taxpayer than the current order set out in new section 809P(4).

We do not believe that this unfavourable change has been adequately highlighted in the explanatory notes. We think that it is counter-intuitive and that it is penal to tax previously untaxed income before income that has already suffered tax. There is also a risk that taxpayers will not understand the rules. Well advised taxpayers will not operate mixed accounts, so it will be unrepresented taxpayers and those who make mistakes whose tax liability will be increased under these provisions.

Leaving aside the problems with the order of identification in new section 809P (4), I believe that the proposals are over-complex. The record keeping required to identify all sources of funds so as to categorise them correctly will present a problem for the unrepresented taxpayer, identifying remittances from mixed funds has always been extremely difficult, but codifying a rigid set of matching rules takes away the flexibility and ability to be pragmatic that existed previously. There is, therefore, a significant danger of inadvertent compliance, which is heightened by the fact that the rules apply from 6 April 2008, so there is no time to educate affected taxpayers in advance—by the time this Bill receives Royal Assent, we will be a quarter of the way through the tax year and people may well have made remittances from mixed funds without knowing and understanding the new rules. It would be helpful if HMRC would publish a statement as to how it plans to assist taxpayers with the additional compliance burden that this brings about.

Another weakness in this area is how overseas expenditure transfers between overseas accounts or gifts made overseas from mixed accounts is to be treated. I think that this has already been raised with HMRC and I do not know whether there will be further amendments, but we hope that the Minister will be able to clarify that the interaction of new section 809Q(2) and new section 809P means that the amount of income or capital of the individual for the relevant tax year in mixed account immediately before the transfer does not include funds that have been removed from the account by earlier transfers or payments either to the UK or overseas.

In response to the treatment of mixed funds and the change in the order in which they are to be remitted, our proposal would put in place the concession that has existed in statement of practice 5/84 and reflects the fact that that treatment was more favourable to the taxpayer than the new rules are designed to be.

On amendment No. 495, it is not clear what happens if overseas earnings from employment income are used to pay the £30,000 remittance charge by means of a cheque payable to HMRC drawn on an overseas bank account. This is quite a technical point, so I will go slowly. On the face of it, such an example would not be a remittance under new section 809S. However, while amendments to the Income Tax (Earning and Pensions) Act 2003 specifically import new sections 809K to 809Q of the Income Tax Act 2007 into it, no mention is made of new section 809S. As those are two separate Acts, that suggests that new section 809S does not apply in determining whether relevant foreign earnings have been remitted. Is that clear?

Jane Kennedy (Labour, Liverpool, Wavertree)

The hon. Gentleman is getting his own back.

Mark Hoban (Conservative, Fareham)

I am indeed. If that explanation is right, it would have been highly misleading of HMRC not to have made that point clear when it said that the direct payment of £30,000 would not create a remittance. It may be that new section 809S is for reassurance only and that the direct payment would not in any event create a remittance under new sections 809K to 809Q. The payment is not a remittance of cash by the taxpayer, HMRC is not a relevant person and the payment is not a gift to the UK Government. Perhaps the Government would like there to be more gifts like that, but it is certainly not the case in this example.

We also doubt whether in this example the amount will be a relevant debt, as it will be brought into the UK by HMRC for the benefit of the Exchequer, not for the benefit of the taxpayer. HMRC will not be providing a service to the taxpayer.

The position is unclear. It would be helpful if the Financial Secretary could provide clarification. Amendment No. 495 would provide some clarification by inserting “and 809S” after “809Q” on line 30 of page 202 in schedule 7. I hope that she will comment on that and provide clarification and reassurance.

Jane Kennedy (Labour, Liverpool, Wavertree)

It would be great if the immediate answer to that question was simply yes or no, but I fear that it will be somewhat more lengthy.

Before I get into the detail of the group, will the hon. Member for Fareham permit me to give a more substantive response to his questions about fees when we come to discuss Government amendment No. 354?

The Government amendments in this group deal with a number of issues that were raised in consultation. First, Government amendment No. 483 narrows the scope of the definition of “relevant person”. Under the original wording, trustees of settlor-interested trusts were automatically treated as relevant persons, even if the individual or his close family members were not beneficiaries. This change will be particularly helpful for charitable trusts, a point that the hon. Gentleman asked about specifically. Following representations, we are amending the definition of “relevant person” to ensure that remittances to the UK by genuine charitable trusts will not be taxable upon a settlor. The change we are making removes the risk that the existing legislation might catch donors who did not arrange to make a donation in a particular way.

Amendment No. 486 prevents tax arising on remittance to the UK in certain circumstances where items are remitted to the UK before the income or gain to which they relate is treated as arising. Under the original wording, such payments might in certain circumstances become chargeable before the tax year in which they arose. The amendment ensures that that cannot now happen. Amendments Nos. 463 and 465 to 468 change the mixed funds rules, clarifying how transfers between offshore funds are treated. This change is being introduced in direct response to representations received.

Mark Hoban (Conservative, Fareham)

Will the Minister give way?

Jane Kennedy (Labour, Liverpool, Wavertree)

I am going to say more on mixed funds rules in a moment.

Mark Hoban (Conservative, Fareham)

I have a quick question on Government amendment No. 468. The Minister may well be coming on to this, but could she tell us how people are meant to self-assess as a consequence of that amendment?

Jane Kennedy (Labour, Liverpool, Wavertree)

I shall come to that. Amendment No. 468 is a direct attempt to deal with potential anti-avoidance risks.

The hon. Gentleman’s amendments address issues that have been raised, some of which we have already sought to address. We have some sympathy with their aims. I realise that the “relevant person” provisions have caused considerable debate. It has been said that the changes will harm UK investment. I do not believe that our response to those concerns has meant that that is still the case. If there was a risk, I believe that we have reduced it substantially. The fundamentals of the remittance basis remain in place. Non-domiciles can still bring into the UK underlying capital and any taxed income and gains without incurring a charge under the remittance basis. Our changes make the remittance basis more sustainable.

Greg Hands (Conservative, Hammersmith and Fulham)

Has the Minister seen the report in today’s Financial Times of the latest CBI/KPMG London business survey, which says that the threats to capital’s competitiveness have doubled in the last year and that top of the list of complaints is the uncertainty surrounding the regulations on non-doms?

Jane Kennedy (Labour, Liverpool, Wavertree)

I have not seen that article, although I looked at the Financial Times today. I am aware of the concerns that have been expressed, but I am also aware from my informal discussions with representatives of the City of London and so on, that there is now a great deal less anxiety than there was when we first introduced the detailed draft clauses for consideration in January. I will look at the article and the report.

I should like to comment briefly on the question of fees paid by offshore trusts and whether they should count as a remittance. If the fees paid were exempt, it would be possible for UK residents to fund their UK lifestyles, such as school fees, medical fees—I hesitate to say nanny’s fees—which non-remittance basis users patently could not. I believe that that is an unfair outcome, but neither would it make any clear contribution to competitiveness, which the Government amendments do.

Mark Hoban (Conservative, Fareham)

I just wanted to touch on the issue of fees. My amendment, which leads the group, says that because the services of the driver, the nanny, the cook or the butler happen to be undertaken and enjoyed in the UK, they would still be covered by the remittance rules. However, where services are enjoyed offshore, for example if a trust managing UK-based investments is based offshore, they will not be covered. Services enjoyed in the UK would be caught, but not the investment fees charged to an overseas trust. We may have a longer debate on that later.

Jane Kennedy (Labour, Liverpool, Wavertree)

I would rather do that later, and it is likely that we will.

Our changes in response to representations make the remittance basis more sustainable. Following consultation, we have made some changes. For example, we have introduced certain exemptions for existing funds. Those set up before 6 April will continue to be able to invest tax free with their existing funds, as long as the individual does not provide further funds.

The argument about the definition of “relevant person” is interesting. The relevant person rule prevents a significant amount of tax avoidance, whereby people could simply give something to another individual to import. Stopping that abuse was always going to be unpopular, but we had to strike a balance. We have got the balance right by focusing the rules on close individuals and immediate family, rather than using the much wider definition that we originally proposed. The inclusion of a minor grandchild as a relevant person follows broadly the same approach as that used to determine whether a non-resident trust is settlor-interested, except that the non-resident trust rules also include adult grandchildren. Individuals giving unremitted money or assets offshore to a relevant person would need to make arrangements with that person, to enable them to keep track of any remittances to the UK. I acknowledge that there is complexity there for the taxpayer.

Amendment No. 374 would cut across the Government’s amendments in this area by changing the ordering rule within the mixed-fund rule. There are various ways in which the mixed-fund rule could be ordered, and the way we have chosen again strikes a balance between fairness and simplicity. The ordering treats employment income as arising first and is therefore favourable to the taxpayer, as the hon. Member for Fareham suggests. That income has already been taxed and cannot be taxed again. However, it discourages avoidance by making untaxed income and gains come out next. Representative bodies obviously would prefer the ordering rule to treat untaxed and already taxed income and gains as remitted first, but that would prolong an avoidance. Taxpayers still have the choice about whether they use a mixed fund. If they do not, the rule does not apply.

Mark Hoban (Conservative, Fareham)

Well-advised taxpayers—the sort of people who might seek to use the rules for avoidance—would tend not to have mixed funds. I am particularly concerned that those people who are not represented, who know what the previous rules were, would find it potentially more difficult to comply with these rules. Changing the ordering may make it more difficult for the unrepresented taxpayer to comply.

Jane Kennedy (Labour, Liverpool, Wavertree)

The hon. Gentleman makes a fair point. My understanding is that the vast majority of those using the funds would not be in that position; they would be getting good advice. However, I would want to consider whether his point is valid.

I understand the purpose of amendment No. 495, and would like to assure hon. Members that the exemption in new section 809S applies to untaxed foreign employment income as it does to other untaxed foreign income, because of the provisions in new section 809J(1). I knew that it was not a yes or no answer. As long as the payment is made directly to HMRC, it will not be treated as taxable remittance. The hon. Gentleman’s amendment is technically deficient as it would be made to the accrued income scheme provisions. However, I realise that the legislation on that point might justifiably be described as a little unclear. I am grateful to the hon. Gentleman for his suggestion, but if he will withdraw his amendment, I shall give serious consideration to whether an amendment on Report would bring the desired clarity to this point.

I shall make one or two final points. The ordering rule, on which he pressed me earlier, applies to funds remitted to the UK and so it is irrelevant whether funds have gone elsewhere—as long as it is not within the UK. On amendment No. 468, I do not really understand why he believes that there is a problem with how people are supposed to self-assess. If he has examples of where that might be a problem, he can write to me and I would be happy to give that some detailed consideration and reply to him in relation to a more specific case.

Finally, the hon. Member for Hammersmith and Fulham drew my attention to the article in the Financial Times, and I know that others have seen both that article and the report. However, on the survey, I shall simply say that a survey by Barclays Wealth states that the residence and domicile tax changes as they now stand, have not led to non-doms leaving the UK—that has not come from Government sources but from independent sources. The report to which he is referring states that the UK remains the most attractive place in the world for non-domiciles. I hope that he will accept that reassurance. We are conscious of the concerns in the business community about the changes that we have proposed. I believe that our response has been measured and responsible and I hope that the Committee will acknowledge that.

Mark Hoban (Conservative, Fareham)

Although I do not wish to trade reports with the Minister, having read the press coverage of the Barclays report, my recollection was that one of the reasons for non-doms not leaving the UK was the difficulty they were having selling houses in this troubled housing market. We understand the issues, but we are concerned that there is still a lack of clarity on some of the measures and that some work will have to be done to produce guidance to help taxpayers achieve their goals.

Jane Kennedy (Labour, Liverpool, Wavertree)

I do not wish to prolong the debate, but on the point about clarity, will he accept that the remittance basis remains a complex area. We have gone a long way to try to help clarify that, but there will still be many instances where people with complex arrangements will probably need a lot of professional advice on how they manage their affairs.

Mark Hoban (Conservative, Fareham)

I am sure that outside advisers will be delighted to hear that people using remittance basis will continue to need to use their services—they will be reassured about that. I might touch on some of these issues in the next group of amendments, but I suspect that there is more work to be done in this area and that some of the matters relating to the way in which this debate has developed in recent months do give rise to some problems. I am grateful to the Minister for agreeing to look into amendment No. 495 and how that might be dealt with.

On amendment No. 365, although the Minister prays in aid precedents from trust legislation, I still believe that we are in danger of potentially creating quite a difficult regime for people to comply with. Although the wealthier end of the non-dom market might be able to find advice and put structures in place to ensure that their adult children report to them gifts or transfers that they have made to grandchildren, the legislation captures so many people that some taxpayers will inadvertently be caught in this net—through no fault of their own, but because of the complexity of the rules. It would be better to have a more restricted definition of relevant persons. I am disappointed that the Minister has not moved on that. However, I beg to ask leave to withdraw the amendment.

Mark Hoban (Conservative, Fareham)

I beg to move amendment No. 375, in schedule 7, page 164, line 2, at end insert—

‘(3) This section shall not have effect with respect to gains accruing to an individual on the disposal of an asset if the disposal took place prior to 6 April 2008.’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following amendments:

No. 399, in schedule 7, page 184, line 37, leave out ‘2008’ and insert ‘2009’.

No. 400, in schedule 7, page 184, line 39, leave out ‘2008-09’ and insert ‘2009-10’.

No. 401, in schedule 7, page 184, line 39, at end insert

‘, except for the amendment made by paragraph 1 to insert a new section 809G in Part 14 of ITA 2007, which has effect for the tax year 2008-09 and subsequent tax years.’.

Mark Hoban (Conservative, Fareham)

There is one issue that I want to raise under amendment No. 375; and then, under amendments Nos. 399 to 401, I shall deal with some broader concerns about the handling of the legislation.

On amendment No. 375, the accepted position prior to 6 April 2008, where a foreign-domiciled individual gifted foreign-sited assets, was that once the deemed gain was realised, it could not be remitted, as the gain was not represented by any money or money’s worth in the hands of the individual making the gift. Accordingly, provided that there was a genuine gift, with the donee—who could be the trustee of an offshore settlor-interested trust—assuming full and unfettered control of the property gifted, the gain arising on the making of the gift could never be accessible. The HMRC capital gains tax manual, at CG25331, sets out the position as follows:

“Where an individual assessable on the remittance basis has gifted foreign assets to another person and has not received any disposal proceeds he or she may still be deemed to have realised a gain on the disposal. As that gain is not represented by any money or moneys worth in the hands of the individual making the gift, it is not possible for the individual to remit the gain. The gain arising on the making of the gift can therefore never become assessable.”

That is, I think, a clear statement of where practice prior to 6 April 2008 led people.

The new section 809R set out in schedule 7 creates some uncertainty in the minds of advisers as to meaning. The optimistic, preferred best interpretation is that new section 809R does not apply in relation to gains that arose prior to 6 April 2008. It is understood that that is also the view of HMRC. Accordingly, the old legislation states that, provided that there was a genuine gift, there would be no tax liability on the gain that arose when the gift was made. While it has been helpful for HMRC to have made its view known, doubt and concern still remain.

The potential sums will often be significant, and it is likely that inadequate records will have been kept to establish the position since, at the time, the law was clear that there could never be a tax charge as a result of the gift. Accordingly, taxpayers who made gifts of foreign assets offshore prior to 6 April 2008 will be concerned by the split in opinion; some suggest that new section 809R could exist retrospectively. Taxpayers who made absolute unfettered gifts of foreign assets offshore prior to 6 April 2008 had a legitimate expectation that the gain deemed to have been realised on the making of the gift would never come into charge. The new legislation should be clear, which is why amendment No. 375 seeks to insert:

“This section shall not have effect with respect to gains accruing to an individual on the disposal of an asset if the disposal took place prior to 6 April 2008.”

That makes the position clear so it is beyond doubt that new section 809R is not meant to have a retrospective impact. Advisers would be grateful for that conformation, and would perhaps be even more grateful—as would I—if the Minister felt obliged to accept the amendment, but when she hears what I am about to say next, she probably will not.

I am concerned about the process that we have gone through to get to this point, which is why amendments Nos. 399 to 401 seek to defer the commencement of major parts of the schedule to the start of the 2009-10 tax year, with one exception. Assuming that my drafting is correct, the amendments do not seek to defer the £30,000 charge. We have different views about the amount of and the timing of the charge. Although we do not believe that it should be deferred, the complex rules surrounding the changes should be. Today’s debate is proof of why deferral of commencement is important.

Last Thursday night the Government tabled, I think, 90 amendments to the schedule, in addition to several earlier batches of amendments. Can the Minister tell the Committee how many amendments have been tabled to schedule 7 and whether that is a record number of amendments to a schedule in a Finance Bill? The volume of amendments is indicative of two things: first, the willingness to listen to the concerns raised by representative bodies during this process, and I give credit for that; and secondly, the state of the legislation when it was first published a couple of months ago. I suspect—I think that the Minister may have confirmed it this morning—that this is not the end of the amendments to the schedule and that we will see more tabled on Report.

The overall volume of amendments tabled is, in a way, reflected in the volume of amendments that I have tabled to the schedule. It reflects how the changes to very complex areas of taxation have been dealt with in a tight time scale. In October, the Chancellor announced a series of measures in the pre-Budget report: on the charge, the denial of allowances, changes to day-counting rules and on addressing anomalies in the rules on remittances. He promised consultation, and a document was published on 6 December 2007—just four months before the rules were to come into effect. Draft legislation was published on 18 January, which triggered much of the outcry about the Government’s intentions. John Cullinane of the Chartered Institute of Taxation said:

“but one of the unfortunate things is the way in which these proposals came in unannounced, caused brouhaha, and then were subject to a lot of compromises and have generally gone off at half cock. The result of all that is that any kind of genuine, rational, consultative look at the whole thing, to see how we can best give effect to this principle, that the greater your connection with the UK the more of a burden you should bear, has just been ruled out and we have a very complicated regime with as many anomalies as before”.

Those are quite harsh words from someone who is known to be measured in his comments about Government tax policy.

Malcolm Gammie from the Institute for Fiscal Studies said that the draft legislation

“apparently went very much further and had a very much greater impact than had generally been anticipated”.

He summarised the problem as follows:

“I think that really the general uncertainty it generated as to what precisely the rules were going to be, how wide-ranging they were going to be, really led to the degree of outcry that there was and the publicity it obtained”.

I think that that is a fair statement. The volume of comment in the aftermath of the publication of those draft rules was significant, and there was a sense that they went further than the Chancellor’s original intentions. As a consequence of opposition from investment managers, tax advisers and the art market, Dave Hartnett was forced to publish a letter clarifying the changes on 12 February, which was widely seen as yet another climbdown by the Government on their tax policy.

In the Budget, there were further concessions on assets to be remitted into the UK and the applicability of the charge on children and spouses. The de minimis limit was increased from £1,000 to £2,000, as we discussed earlier, and there were relaxations on CGT and offshore mortgages.

One might have thought that that was a settled position and that after that the consultation would be perfect, but from the moment the Bill was published it was recognised that the content was incomplete. The explanatory notes flagged that up:

“Some of the clauses in the published version of the Finance Bill 2008 are not wholly complete.”

That is an understatement, given the volume and complexity of amendments that have been tabled. The explanatory notes went further and stated that there would be further discussions with interested parties, and there was an open day for advisers at the beginning of this month. The explanatory notes stated:

“Further changes will be introduced by way of Government amendments during the course of the Bill.”

That is where we are today, discussing a long series of amendments that arose from that process.

The Institute of Chartered Accountants, when commenting on the schedule, said:

“We are however concerned that a significant part of the legislation remained unfinished even as it came into effect on 6 April 2008. We understand that this is to enable the final legislation to be comprehensive and workable but are surprised that it was thought appropriate to lay before Parliament legislation that is admitted to be ‘incomplete.’”

The way in which the changes have been made has also caused concern. Ian Menzies-Conacher from the British Bankers Association summed it up very well when he gave evidence to the House of Lords Committee on Economic Affairs, saying that

“on balance it would have been better to have deferred [the proposals] for a year to allow a lot of the detailed problems that they are now seeing emerge to be resolved properly...we are rapidly running out of time in the present Finance Bill.”

Here we are, debating those two hours before the Committee is scheduled to adjourn. Some constructive discussions are taking place with officials and problems have been addressed, but late in the process. There is a great danger in drafting against rigid timetables, as we are almost as likely to create new problems as we are to solve old ones—that is the nature of drafting in a hurry. That concern was flagged up in February when the Institute of Chartered Accountants said:

“HM Treasury confirmed to us in a meeting in February 2008 that the overwhelming message from the representations that they had received had recommended deferring the more complex measures to enable workable legislation to be drafted.”

When the rules are finally determined, they will apply from 6 April 2008. Yet no one knows what they are going to be, as they are subject to further changes. This is an unreasonable situation for taxpayers. It will lead to confusion as the rules settle down and could lead to significant non-compliance in a system that is known for a very high degree of compliance. Many taxpayers will be making remittances without knowing their effect, which could turn out to be expensive if they make the wrong choice.

If the Government are not willing to postpone the changes until 6 April 2009, an alternative would be to ensure that the rules apply only from the date of Royal Assent and that remittances prior to that can be ignored. This is hastily drafted legislation which people have had relatively little time to digest, and there is concern that even the amendments tabled by the Government in response to concerns raised by tax advisers do not appear to address adequately all the underlying concerns.

I fear that, by the time we get to Royal Assent, some issues will be left unresolved, and we will then be in a situation where we rely upon guidance being generated. People will look to the “frequently asked questions” section of the HMRC website for answers. There is a lot of work to be done to enable taxpayers to comply with these rules, and the Minister gave an indication of the type of work that needs to be done during the earlier debate about de minimis limits.

No one underestimates the amount of work that has taken place so far and the amount that needs to be done going forward to make this work. We are in a situation, a quarter of the way through the tax year in which the Finance Bill gains Royal Assent, where there has been significant uncertainty about how the rules will apply. The Government should step back from this and understand some of the concerns they have created by the way the legislation has been introduced. There are lessons to be learned about how these changes should have been made. Consultation in this area has apparently been going on since 2003, and there has been a sudden acceleration and pick-up in pace since the pre-Budget report. I am not quite sure what triggered that interest in amending these rules, but clearly a lot of work has had to be done and is not entirely finished. It is a lesson that we should all learn, on both sides of the House, about how not to make tax policy.

Mark Field (Conservative, Cities of London and Westminster)

My hon. Friend the Member for Fareham is too polite to say that there has been a little too much politics involved in some of these proposals. While I accept that elements of this have been in play for five years since the initial consultation process in 2003, breakneck speed has apparently been required since October 2007 in order to get changes on to the statute book.

As I mentioned earlier, I have considerable sympathy with elements of what the Government are trying to achieve. I represent a constituency that contains the City of London, and have therefore heard some of the somewhat hysterical response to changes regarding non-doms. Some of the points raised are true, but other elements have been overplayed, not least because there is a level of uncertainty, about which I will say more later.

I also represent a large residential population in some of the most expensive real estate in the country, and it is a big concern, not only in the City of London, Westminster and Greater London, but beyond, in the home counties. There is real concern among people I speak to, particularly those in their 50s and 60s, who worry about how on earth their children are ever going to be able to have a quality of life akin to the one that they themselves have been accustomed to, particularly in relation to house prices. There is a sense that much of the concern has been focused unduly and slightly unfairly on the non-dom community as an extremely wealthy group, which is regarded as not paying its way. There is an element of truth in that, and those of us in the political world have to understand that that sense of inequality could be very damaging to the country if it is allowed to persist for long.

However, a significant number of non-domiciled individuals who live and work in this country do not earn huge amounts of money. Their voices have been almost silenced in this debate because it has focused on multi-millionaires. Their influence and the fact that they appear to pay little in direct tax because of the arrangements that they are able to work with HMRC are resented by an increasingly large number of people—not just the usual suspects, but relatively well-educated, middle-class, professional people who feel that they are being priced out of the property market and private schooling.

This matter needs to be addressed. The Government sensibly began this process in 2003, but it should have been an ongoing process and not accelerated as it has been in the past nine months. As my hon. Friend the Member for Fareham has rightly pointed out, when the Bill gets Royal Assent and as we approach the next Budget, we are still likely to have a whole range of uncertainties as people are being taxed. The risk is that we end up with the worst of all worlds and people will assume the worst rather than consider what is actually happening.

I have some sympathy with what the Government have tried to do. My party suggested a sensible and relatively straightforward approach at the last Budget. Rather than potentially open a can of worms by looking at the arrangements for individuals overseas, we should have had a simple, straightforward, one-off or annual charge for those with non-domiciled status. I fear that politics have played too big a part in this issue. I understand that we live in a political world, but we are, unfortunately, also at a time in the economic cycle when these things matter rather more than might have been the case two, three or four years ago.

Many of the changes have not been properly thought through. The real risk to the Government’s credibility and, more importantly—dare I say it—to the marketability of the UK across the world, is the sense of uncertainty and almost incompetence that seems to be an everyday part of the way in which the Government are addressing this issue. That is regrettable. Representing the seat that I do, I can see both sides of the argument. Time and again, I hear from people in the City who say, “This is appalling; we are going to lose loads of non-doms.” I do not think that there has been much evidence of that happening yet, although my hon. Friend the Member for Fareham might be right that the rather stagnant state of the property market could be playing a part in that.

It is wrong that we should be held to ransom by any group in society, such as the very rich, or by any organisation. We need to get the balance right, which means that we must think through the implications of this sort of legislation. My hon. Friend has skilfully pointed out time and again things that have not really been thought through. There will be a total lack of certainty. We live in a world and have a global economy in which labour has been at its most mobile in human history. We cannot afford to lose some of the brightest and best people. Those affected will not all be the richest individuals, although some inevitably will be, and will make a contribution beyond paying tax. Some of the very wealthy pay significant amounts of tax, such as council tax and VAT on their purchases, and often employ many people. The non-domiciled sector therefore brings a range of benefits to our economy. That argument must be put forward if there is to be a balanced approach, which the Government have slightly lacked.

I have made some rather general points, and my hon. Friend has put his finger on more specific points. I fear that we are putting in place an ill-thought-through, rather uncertain framework, which will create the worst of all worlds. It will probably raise relatively little money and will dissuade people who would otherwise come to our shores from coming here. One has to remember that there are 20 million people a year emerging in the middle classes in India and China together. Those two countries have 4 million graduates a year. We would hope to attract, if only for a short period, some of the brightest and best of that talent. The real risk is that we are perhaps putting in place an ill-thought-through and uncertain programme on non-domiciles which will dissuade those people from coming here. There are other options and they might go to Singapore, New York or Dubai. Such places will seem attractive in the short or even the medium term. That is our broadest concern.

I hope that the Government will give real thought to the timetabling. We can try to put back the implementation of this so that there is a proper and rigorous system that will stand the test of time. The worst of all worlds would be for us to reassemble here next year and the year beyond and have to rewrite many of these provisions, not least because of the unworkability that may have been introduced. We will be advised by too many tax advisers about the loopholes that should have been thought through at the outset.

Thank you for your indulgence, Sir Nicholas. I am sure that we will not have a stand part debate. I hope that the Government and the Minister will give us some assurances about exactly how see they this playing out in the months and years ahead.

Nicholas Winterton (Conservative, Macclesfield)

I can fully support what the hon. Gentleman has said about a stand part debate.

Greg Hands (Conservative, Hammersmith and Fulham)

I am not going to detain the Committee for long but, I want to reinforce what has been said by my hon. Friends. It strikes me that the whole process has been deeply flawed. The consultation has been extremely poor, especially in relation to the data. Seven months later, we are not really any closer to having any more robust data.

I have a question for the Minister. Going back to the Institute for Fiscal Studies report and the pre-Budget report in October, the IFS outlined various questions. I want to see whether the Minister has any answers. What is her current estimate of the number of non-doms? How many have unremitted foreign income above £62,500 or £80,000? How much foreign income do the remainder have? How many does she believe would leave the country if these proposals came into force?

Jeremy Browne (Liberal Democrat, Taunton)

I wonder whether the Minister will draw on the expert analysis provided by the Government when they estimated how many members would come from new accession EU countries.

Greg Hands (Conservative, Hammersmith and Fulham)

That is a very valid point. I represent a constituency where the current estimate is that 6 per cent. of the population is Polish. In the last year we had 7,300 foreign nationals apply for a national insurance number. The effect that these new regulations might have on the flow of people could be considerable, particularly in a constituency like mine.

In October, the IFS said that no one really knows the answers to these questions. I am assuming that, after seven months, the Minister, when faced with questions from a body such as the IFS, would be able to provide some reasonably good answers.

Jane Kennedy (Labour, Liverpool, Wavertree)

There have been 135 Government amendments. I checked that quickly myself scanning through the amendment paper. I say to the hon. Member for Fareham—other hon. Members will be interested in this—that that is not a record. The previous record for a Finance Bill is more than 200. Guess when that was. It was in 1995.

Mark Hoban (Conservative, Fareham)

rose—

Bob Blizzard (Labour, Waveney)

Do not give way on that.

Mark Hoban (Conservative, Fareham)

Perhaps it is a sign of a Government coming to the end of their life when so many amendments are tabled to Finance Bills.

Jane Kennedy (Labour, Liverpool, Wavertree)

My hon. Friend was right. I should not have given way.

On the very specific point about unfettered gifts of foreign assets offshore, HMRC made its view very clear in a frequently asked question some time ago. In simple terms, it is only when such gifts were made after 6 April 2008 that they would be taxed. I would like to answer a little more broadly than I would have done on these specific amendments, Sir Nicholas. Following the pre-Budget report, we have shared clauses in draft at the earliest opportunity. We actively looked to respond quickly to the concerns that were aired within our overall policy aim. Following the PBR in October, there was relatively muted reaction to the proposals on residence and domicile, but our response has been swift to concerns raised once the detailed clauses were put out in draft.

We have sought at every opportunity to address those concerns. That has resulted in several changes to our original proposals, and numerous improvements and simplifications to the Bill as first drafted. As has been pointed out on other occasions, when the Government respond to criticism, it is simply presented as a U-turn. One simply cannot win when one seeks to address proper concerns that have some basis, and try to amend the proposals accordingly.

On the IFS report, we have stated in both the PBR and the Budget that we assumed there were about 3,000 people who might leave, but our assumption has now fallen by about 400 as a result of the Budget changes. However, it is an area in which it is very difficult to make assumptions. We have not seen any convincing evidence that the numbers leaving the UK might be higher. As I have said repeatedly, the UK remains an attractive place to live, work and do business.

Greg Hands (Conservative, Hammersmith and Fulham)

It is certainly helpful to have some estimates of these numbers—3,000 and the latest estimate 2,400—could she tell us a little bit about the methodology involved in arriving at those estimates?

Jane Kennedy (Labour, Liverpool, Wavertree)

The fact is that we do not have hard data on many of these, simply because there has not previously been a need for people to declare their income offshore. So the hard data that he is seeking are not immediately available either to us or to other sources.

Greg Hands (Conservative, Hammersmith and Fulham)

The Minister says that we have no hard data, but figures of 3,000 and 2,400 sound as if they have a certain amount of precision. Can she at least tell us what factor has been most involved in downgrading that estimate from 3,000 to 2,400?

Jane Kennedy (Labour, Liverpool, Wavertree)

In large part it was the debate we held with representative bodies about the changes we have made that led to the clarity we were able to bring to the concerns in the early days. Although the hon. Gentleman dismissed the letter that Mr David Hartnett published, it did go a long way to allaying many fears about what the changes mean to individuals.

Greg Hands (Conservative, Hammersmith and Fulham)

I thank the Minister for giving way—she has been generous—but I do not think that she has come any closer to saying where the figures of 3,000 or 2,400 have come from. Have they come from a consulted body, which seems to be her implication? If so, presumably that body must have said what was driving the change. Is it the decline in house prices, or is it something else?

Jane Kennedy (Labour, Liverpool, Wavertree)

The hon. Gentleman should not try to put words into my mouth. I know that he is not trying to do it in a deliberately mischievous way—[Interruption.] I am being generous here. But for me to go into detail about the way in which we arrive at these assumptions would entail a great deal of debate in this Committee. I suggest that it may be of more value if I look in detail at the questions he has asked and see what data I can make available to the Committee. I will write to him and share the letter with the Committee.

I should like to make a more general point, Sir Nicholas, particularly in view of your advice on the stand part debate. Hon. Members criticised the fact that we had made the decisions and the fact that we had plans to proceed with the detail. The hon. Member for Cities of London and Westminster said that, on balance, he preferred the Conservative proposal, but that would have been for the flat rate charge of £25,000. Once a charge had been paid, no more questions would have been asked about an individual’s worldwide income. Their proposal would not have addressed the issue of fairness to which he rightly alluded.

There was without question a great deal of awareness within the House of the complaints of unfairness, but it is also important to bear in mind that the Conservative proposal, unlike our proposal, would have charged people from the day they arrived. The hon. Gentleman referred to Indian graduates who could come here for a short time and then return to the Indian sub-continent. We very much want to encourage people of quality from around the world to come here. We would want them to come and, having worked here, perhaps to stay longer. That is why we believe that beyond seven years it is right to invite remittance users to make a greater contribution.

That brings me back to the other main difference between the two proposals. The Conservative proposal would have raised in the region of £3.5 billion from a group of people—roughly 120,000—whereas the tax take already is around £13 billion. It is around £500 million now. We were inviting a greater contribution, but a much more modest one than the Conservatives proposed. That may be why the hon. Gentleman preferred their proposal. That is not widely appreciated.

The current arrangements for the taxation of non-domiciled people in the UK are very generous. They serve the British economy well. In terms of attracting the world’s best talent to the UK we have now arrived at a balance which maintains that. It is important to recall that the changes that we propose do not affect all non-domiciles. They affect those who choose to use the highly advantageous remittance basis. I have responded in a broader way to a debate that has gone slightly wide of the amendment.

Jeremy Browne (Liberal Democrat, Taunton)

I think all reasonable people would recognise that the Conservative party’s proposals were laughably ill-conceived and put together in a characteristically amateur fashion. I concede that point to the Minister. What still seems strange is that the Conservatives succeeded in panicking the Government into coming up with a corresponding set of proposals which, judging by the number of amendments, do not seem to have been much better thought-out than the Conservative ones.

Jane Kennedy (Labour, Liverpool, Wavertree)

I have drawn attention to the comments of the hon. Member for Twickenham on the matter. I would not have characterised the proposals put forward by the hon. Member for Fareham as laughably ill-conceived.

Greg Hands (Conservative, Hammersmith and Fulham)

Because you copied them.

Jane Kennedy (Labour, Liverpool, Wavertree)

We acknowledge that there was some merit in the idea of a charge, but we did not agree with the way in which it was proposed to levy it. We have arrived at the right balance. Our proposals are reasonable and proportionate. They allow the remittance basis to settle at a point at which it is now sustainable for the very long-term future, without the shallow and partisan criticism that we occasionally hear from the Lib Dem Benches.

Mark Hoban (Conservative, Fareham)

I thank the Minister for her clarification of what I was seeking to tackle in amendment No. 375. I shall not therefore push it to a vote. Any lingering ambiguity should have been dealt with by her very clear statement on pre-April 2008 gains.

In the Minister’s response to the broader issues, she highlighted the fundamental difference between the approach of our two parties, and the reason why the Government are in the mess they are in. When we consulted on our proposals for a charge on non-doms, we recognised some of the challenges there would be in trying to unpick the details of anomalies. It is a complex area. I return to one of the comments that was made in evidence to the House of Lords Select Committee: the Government have probably created as many anomalies as they have closed down.

I do not know whether I will be sitting on the Finance Bill Committee next year, but I fear that we may come back to revisit this matter, if not in terms of primary legislation, perhaps in the form of guidance or some other way of getting around the Chancellor’s commitment to avoid reopening the topic.

The way in which issues other than the charge were dealt with created the weight of opposition to some of the measures. The Minister was right: there was an immediate response to the change announced in October’s pre-Budget report. When we announced our proposals in October, there was support for them because they struck the right balance between fairness and making sure we did not create more problems than we were trying to resolve. There was support for our proposals because they seemed proportionate and reasonable.

The Government got into trouble because of the broadening of their proposals when the consultation document came out, and particularly when the draft legislation came out. That is one of people’s concerns, and the problems with the proposals and their complexity has resulted in the process we are going through today to deal with 135 amendments in the space of six hours, or however many hours there are in today’s two sittings. I do not think it has created much certainty for taxpayers.

Mark Field (Conservative, Cities of London and Westminster)

For the record, although the Finance Act 1995 may have had slightly more amendments, it was not guillotined by the Government of the day, and therefore there was a chance to discuss in full detail the various amendments that had been put forward, which has not been the case with this Bill.

Nicholas Winterton (Conservative, Macclesfield)

Order. I have to correct the hon. Member for Cities of London and Westminster. The Bill is not guillotined or programmed. We have to make that clear. That does, however, give me the opportunity to say that we have—in expectation only, not according to a programme motion—just over an hour and 35 minutes to go, although it looks to me as though we will go on longer.

Mark Hoban (Conservative, Fareham)

Thank you, Sir Nicholas. As you said, Finance Bills are traditionally not subject to programme motions and guillotines. In the interest of moving the debate on to the gripping topic of fees, on which I would like to say a few more words, I shall draw the debate on this group to a close. I think the Government are reaping the problems of acting in haste by trying to close down loopholes and anomalies, and I feel that in some shape or form we will relive these moments with pleasure, not only on Report, but in subsequent Bills. With that, I beg to ask leave to withdraw the amendment.

Jane Kennedy (Labour, Liverpool, Wavertree)

I beg to move amendment No. 354, in schedule 7, page 164, line 12, at end insert—

‘809SA Consideration for certain services

(1) This section applies to income or chargeable gains if—

(a) the income or gains would (but for subsection (2)) be taken to be remitted to the United Kingdom because conditions A and B in section 809K are met,

(b) condition A in section 809K is met because a service is provided in the United Kingdom (“the relevant UK service”), and

(c) condition B in section 809K is met because section 809K(3)(a) or (b) applies to the consideration for the relevant UK service (“the relevant consideration”).

(2) The income or chargeable gains are to be treated as not remitted to the United Kingdom if the following conditions are met.

(3) Condition A is that the relevant UK service relates wholly or mainly to property situated outside the United Kingdom.

(4) Condition B is that the whole of the relevant consideration is given by way of one or more payments to one or more bank accounts held outside the United Kingdom by or on behalf of the person who provides the relevant UK service.

(5) Sections 275 to 275C of TCGA 1992 (location of assets) apply for the purposes of subsection (3) as they apply for the purposes of TCGA 1992.’.

The amendment was drafted in consultation with representatives from the UK financial services industry. It enables the industry to continue to provide services to non-domiciled individuals. I am assured that the amendment meets the concerns that the industry has raised. The hon. Member for Fareham has indicated that he has a number of issues to raise, so I will allow him to do so and then hope to reply in more detail.

Mark Hoban (Conservative, Fareham)

The Government have tabled an important amendment because it addresses the wider concerns about the impact of changes in the Bill on the competitiveness of the UK financial services sector. It is important we get these things right and I want to tease out some of the issues from the Minister.

The amendment introduces two new conditions which, if met, mean that a payment for a service does not become a remittance and therefore is not subject to tax. Condition A is that the relevant UK service relates to property situated outside the UK, and condition B is that the consideration is given by way of payments to one or more bank accounts held outside the UK by the person who provides the relevant UK service. What constitutes property situated outside the UK? I am clear in my own mind that it includes shares in overseas companies held by an offshore trust, but I am not clear whether UK shares held by an offshore trust would meet the definition as

“wholly or mainly property situated outside the UK.”

If UK shares held by an offshore trust do not meet that condition, investment management fees charged by a UK fund manager will be a remittance. My amendment No. 363 sought to get around that by saying that as the fees related to an offshore trust, the fees paid would not constitute a remittance.

What is a service? There has been considerable debate about what a service is in the context of VAT legislation, but one example that has been suggested to me is whether travel in or out of the UK would count as a service performed in the UK? Clearly checking in for a flight is more than an incidental activity, but it is not wholly, or indeed mainly the activity, yet there is an element of the cost that would be a UK service. Would payment for that element constitute a remittance? Would the treatment differ if the travel was, say, to an overseas property owned by the non-dom?

Condition B states that the payment must be made to an offshore bank account. Will the Minister tell us why a UK-based service provider needs an offshore bank account. Surely the main point is that the payment for the service should go directly to the service provider. I am concerned that the Government’s proposals are in danger of becoming unnecessarily onerous.

In new section 809SA (1)(b), may I also raise an issue about the service being provided in the UK? It is common in many multinational service companies for a client to be sent a single bill for all the firm’s activities on their behalf, but the subsection would require those firms to issue separate bills. Is that really what the Government are expecting people to do? My understanding is that for the convenience of their clients, large, multinational accountancy firms would try to raise a single bill to a client for services rendered by a range of offices across the world, including their office in the UK, rather than separate bills. Their own internal accounting arrangements would deal with the rest. Is the Government really expecting companies to raise a series of separate invoices?

There are practical issues, too. For example, if a US citizen resident in the UK asks a UK-based firm of tax advisers to prepare their US tax return and their fees are paid from offshore income or gains, does that count as remittance, even though the work relates to an offshore—non-UK—tax return? How is advice on gains and investment income that could be linked back to offshore assets treated, compared to advice on earned income? Would a UK-based firm advising on that tax return have to submit different bills for different parts of the advice? Should work on assets as opposed to employment income be billed separately? There is a conflict, which I think the Financial Secretary is trying to address. She alluded to it earlier when we touched on payment for services received in the UK, where a non-dom might seek to establish a service company as a means of paying the costs of nannies, drivers and other personal staff.

I can see that the Financial Secretary is trying to close that loophole, on this side of the equation. I understand the purpose of that. However, on the other side, she is making it complicated for certain professional firms to comply with the rules in a way that is cost-effective and efficient for their clients. There is a tension there that we have not resolved. While new section 809SA may deal satisfactorily with the concerns of people in the investment management community—the issue of UK equities is still to be addressed by the Financial Secretary—it may create a ripple effect in other professional services firms, which may be important to understand. I appreciate that there is a challenge there for the Financial Secretary to address.

The Law Society has raised with me some points about private equity. They include the management fee, how the fees paid to the general partner might be dealt with, and whether investing in property wholly or mainly situated outside the UK might disadvantage UK investments, as people may be less inclined to invest in a UK partnership or UK assets. I suspect that those representations have also been made to the Financial Secretary, so hopefully she will be able to offer some clarification, rather than my expanding on the points at length.

Jane Kennedy (Labour, Liverpool, Wavertree)

The hon. Gentleman asks a number of questions. It became clear only recently that the issue he raises might be a problem. As soon as I became aware of that, I moved quickly to address what might have become a significant problem along the lines that the hon. Gentleman described. It has been longstanding practice that the payment for professional services under new section 809SA must be made outside of the UK. We specifically asked representatives of the financial services industry whether that would cause a problem, and they confirmed that it would not. The provision of travel is not the provision of a service in relation to a property outside of the UK.

The hon. Gentleman asked whether the fees exemption would apply to individuals who used a UK-based firm to advise on completing US returns. That could be within the terms of the exemption. However, it would depend on the details of the individual case. I am not deliberately trying to avoid the question; it genuinely will depend on the individual circumstances when the work is considered.

Mark Hoban (Conservative, Fareham)

I am grateful to the Financial Secretary for the honesty of that answer. Could she expand on what factors people should bear in mind when thinking about these invoices? To say that it depends on the circumstances of the case is not terribly helpful to professional advisers in that area. Some clarity this afternoon would be helpful. Perhaps she might be able to say how HMRC intends to go beyond what she says this afternoon in terms of providing support to professional firms.

Jane Kennedy (Labour, Liverpool, Wavertree)

The amendment’s intention was to construct a change that would address all the concerns of the financial services industry, the British Bankers Association and the City of London regarding the impact of fees potentially becoming tangled up in the remittance basis and the possible damage that that might do to the City of London and the financial services industry, who receive a great deal of business from resident non-domiciles even under the rules as they stand. I do not want to be drawn into too much detail in Committee where I, as a non-expert—I freely admit—may give an answer that is either wider than intended or may mislead. My intention was always to provide a response that met the concerns of the BBA, which was the first to raise these issues, as well as the other organisations.

The hon. Member for Fareham asked for the definition of property held offshore, and if UK assets are involved. The key point is that the trust is offshore and that its assets, in whatever form—whether shares or other property—are also offshore. Property takes its natural meaning but certainly does cover shares, real estate, investments and other assets. Again, what constitutes a service takes its natural meaning.

We have to recall that this is a self-assessment system; it is not one where definitions apply directly to cases, but there will be guidance available. It will, however, be up to the individual to self-assess. As I have said, our aim in reforming the remittance basis and tabling this amendment was to address the concerns raised with us by representatives, particularly when it became clear that the definition of remittance had the effect of treating the fees paid to the UK service providers in respect of, for example, offshore investments, as a remittance. I am assured that our amendment fulfils my commitment to address that concern. The payment for the service must also be made outside the UK for the exemption to apply.

Greg Hands (Conservative, Hammersmith and Fulham)

How much are we talking about here? Are there very small sums of money in these remittances, or something really quite large? It would be helpful for the Committee to get some idea of the magnitude of the sums involved in the amendment.

Jane Kennedy (Labour, Liverpool, Wavertree)

It is clear to me that our original proposals were very much wider than we originally intended. So, where we sought to prevent the payment of services that included the payment of school fees and fees for other services, where it could be defined as a service, people were paying with offshore funds and avoiding tax as a result. We sought to prevent that as we did not think that that was fair.

Our original drafting caught the very proper financial advice being offered by the City of London about the fact that UK advisers would have become uncompetitive in comparison with other financial centres and financial advice that could be obtained abroad. We shifted the definition in response to that criticism. All I can do is repeat the fact that I am assured that this amendment addresses those concerns.

It does not mean that we would allow the payment of fees for the types of services that I have described, which I do not think that the constituents that the hon. Gentleman and I represent, who pay their taxes through the arising basis without having the opportunity to use the remittance basis, would consider to be fair. I believe that the amendment is a good one and hope that it sees its way on to the statute book.

Mark Hoban (Conservative, Fareham)

I am not sure that the amendment goes far enough. In addressing the concerns raised by the BBA about investment management and private banking fees, the Financial Secretary has gone much of the way towards tackling this issue. However, there are further considerations, such as the issue of US tax returns. I am a little uncomfortable with her answer about assets based wholly or mainly offshore. It appears that her proposal will restrict the ability of offshore trusts to invest in UK equities, properties and so on. That was the sense that I got from her remarks, but I do not intend to oppose the amendment. However, I will look at her remarks in Hansard and we may wish to retaliate and table amendments on Report.

Jane Kennedy (Labour, Liverpool, Wavertree)

I beg to move amendment No. 355, in schedule 7, page 164, line 19, leave out from ‘rule’ to end of line 28 and insert

‘(see sections 809V and 809VA).

(4) Clothing, footwear, jewellery and watches that derive from relevant foreign income are exempt property if they meet the personal use rule (see section 809VB).

(5) Property of any description that derives from relevant foreign income is exempt property if—

(a) the property meets the repair rule (see section 809VC),

(b) the property meets the temporary importation rule (see section 809W), or

(c) the notional remitted amount (see section 809X) is less than £1,000.’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following amendments: No. 376, in schedule 7, page 164, line 21, leave out

‘that derive from relevant foreign income’.

No. 377, in schedule 7, page 164, line 24, leave out

‘that derives from relevant foreign income’.

Government amendments Nos. 487 to 489.

No. 378, in schedule 7, page 165, line 4, at end insert—

‘(6) For the purpose of subsection (4) property is to be treated as not ceasing to meet a relevant rule if it is lost, stolen, destroyed, scrapped or otherwise ceases to exist or it is disposed of by way of gift other than to a relevant person; and property gifted to a relevant person that is exempt property in the hands of that person immediately after the gift shall not be treated as ceasing to be exempt property solely by reason of that person subsequently ceasing to be a relevant person.

(7) If exempt property ceases to meet one of the relevant rules because it is sold to someone other than a connected person, the amount chargeable to tax shall be the sale proceeds received and not the amount referred to in section 809O above.’.

Government amendment No. 356.

No. 379, in schedule 7, page 165, leave out lines 10 to 20 and insert

‘it is for the purpose of public display at a museum, gallery or other premises within subsection (8) below.’.

No. 380, in schedule 7, page 166, line 1, leave out from ‘is’ to end of line 4 and insert

‘any museum, gallery or other premises at which it is usual to display items for access to the public and where the item will be on display to the public throughout the normal opening hours of that place or where throughout such times it will be available for public access.’.

Government amendments Nos. 490 and 357.

Jane Kennedy (Labour, Liverpool, Wavertree)

The Government amendments, apart from No. 357, arose from discussions about the rules for the remittance basis treatment of moveable property brought to the UK. Government amendment No. 357 ensures that a reference to “the Commissioners” is supported by an appropriate definition. I say that as a brief opening comment and look forward to listening to the debate.

Mark Hoban (Conservative, Fareham)

I rise to speak to amendments Nos. 376 to 380 that stand in my name and those of my hon. Friends. Amendments Nos. 376 and 377 relate to new sections that exempt certain property from remittance provisions. I have a number of concerns about the interaction of these sections, particularly in the case of property brought into the UK for personal use. My overriding concern is that, with the exception of property brought in for public display, the exemptions apply only if the property derives from foreign income; that excludes things like gains.

I am unable to understand the logic of that restriction. It appears to complicate the law unnecessarily, particularly for the unrepresented taxpayer, who may well not appreciate the distinction. For example, when a Polish builder flies into the country, he will have to think about whether he is wearing a watch that he bought from the proceeds of the sale of his flat, rather than with relevant foreign income. It would aid compliance with the rules if he or she were able to exclude clothing, jewellery and watches bought from any source of income. I would like justification from the Financial Secretary of why relevant foreign income is so important in this matter.

On amendment No. 378, the provisions on exempt property are currently far too complicated. They are difficult to understand and are unlikely to be workable in practice. I should like to illustrate, using a few examples, some of the anomalies that might arise with items of personal use property.

Such property, which is defined as clothing, footwear, jewellery and watches costing under £1,000, is exempted under new sections 809T(4) and 809T(5)(a). Under new section 809U(3), if the item is sold whilst in the UK, there is remittance of the original cost at the time of sale even if the item is sold for £1. If it is sold in the UK while it is physically overseas, there is no remittance. There is no remittance if the item is scrapped or gifted in the UK or if it is stolen. That remains the case even if it is insured and moneys are received in settlement of an insurance claim.

An item of personal use property that costs more than £1,000 is exempt only under new section 809T(4). If it is gifted while in the UK to anyone other than a relevant individual, even to a charity shop, the cost of the item becomes a remittance at that date under new section 809U(4), but there is no remittance if the item is gifted to an overseas charity shop while abroad. There is remittance of the cost of the item if it is scrapped or stolen in the UK, but not if it is scrapped or stolen overseas. If, however, it had been in the UK for fewer than 275 days and the non-domiciled individual could show that it was taken overseas after it was stolen, which is, admittedly, unlikely, there will not be remittance.

If a gift is made of the item by a non-domiciled individual to their infant child, there is no remittance as it continues to meet the personal use rule under new section 809W(2). When that child reaches 18, however, a remittance will arise if the property is in the UK, but not if it is overseas on that day, even if it is brought back to the UK on the following day. Those provisions are not very straightforward, and I hope that my amendments would make them more comprehensible and accessible to the taxpayer, although I suspect that my explanation might not be particularly comprehensible or accessible to the average taxpayer.

On amendments Nos. 379 and 380, many of the original rules on public display, and in the Minister’s amendments, mirror the VAT treatment of relevant items. I should be interested to hear why the VAT treatment should be used as a basis. My amendment No. 380 would broaden the location type beyond museums to any place where there is public access. I understand that the Treasury runs a scheme for other assets in which tax is waived or held over if an asset is available for public access. For example, we have artwork in the House, which has arrangements for people to visit, but it is not deemed to be a museum. Could the exemption be extended to cover such arrangements? I should like to go beyond the Government’s amendment, which extends the exemption to commercial auction houses. Could we go further than that?

Jane Kennedy (Labour, Liverpool, Wavertree)

I thought that the hon. Gentleman’s explanation was very clear, if I may compliment him.

Our amendments, which we have tabled in response to representations that we have received, clarify the conditions under which property that is brought to the UK will not trigger a tax charge under the remittance basis. The changes will ensure that the legislation works as intended, and will make things clearer for taxpayers and their advisers in this complex area. They will deliver the final parts of the new scheme that we are introducing to allow people to bring works of art to the UK for public display without triggering a remittance-basis tax charge.

The hon. Gentleman’s amendments Nos. 376 and 377 would extend the scope of the exempt property rules, which he has described to great effect. He wants to extend those rules to cover assets purchased abroad with any form of unremitted income or gains. I am not sure if he appreciates what the effect of his amendment would be.

Until now, remittance basis users bringing into the UK assets purchased from unremitted foreign employment income or offshore gains, have faced a charge to tax in the UK. That has been a long-standing practice. Only where the asset was purchased with unremitted relevant foreign income was there no liability to tax when it was enjoyed in the UK. Relevant foreign income is income such as bank interest, rental income or dividends. The hon. Gentleman’s amendments would remove a tax charge in situations where one has always arisen. It would therefore provide a new tax break for remittance basis users. I am not sure that he knew that would be a consequence of his amendment.

I appreciate that the amendments have been tabled in a probing manner, but the Government have already proposed generous provisions to exempt property bought with unremitted relevant foreign income where it is either of low value or falls into certain categories of personal use such as clothing and jewellery. We also have exemptions for assets bought with unremitted relevant foreign income and temporarily imported into the UK. Finally, in recognition of the importance of the UK’s repair and restoration sector, which is very significant—there is a centre of restoration in the city of Liverpool—assets bought with unremitted relevant foreign income can stay in the UK for an unlimited time while being repaired or restored.

The hon. Gentleman’s amendment No. 378 proposes two additions to the new section dealing with assets that cease to be exempt property. I understand the point that he is making but the issue was not raised with us during the extensive consultation on the new section introduced by the schedule. The amendment as drafted would lead to higher tax charges in some circumstances. For example, if an asset cost £10,000 but increased in value and was sold for £50,000 his amendment would tax £50,000 rather than the £10,000. Furthermore, the amendments would provide new avoidance opportunities for the enjoyment of exempt assets without a tax charge in others. The outcomes are clearly at odds with the objective of schedule 7.

Amendments Nos. 379 and 380 seek to define the public access rule by reference to where the assets are displayed. There are two reasons why those changes are unnecessary. First, they remove the link between the public access rule and existing schemes for VAT. We explained the reasoning behind using that. The link between the public access rule and existing schemes for VAT and import due to relief on importation has been in place for some time. The alignment was developed in consultation with key stakeholders in the art world and it was agreed that basing the public access rule on those schemes was the most simple and straightforward approach. I am aware that there is wider lobbying on other types of what might be described as public access, but in consultation a persuasive argument was made for extending the type of venue from institutions such as galleries and museums to other commercial properties, such as a commercial auction house—the example cited by the hon. Gentleman. Our amendment No. 356 provides the framework to achieve what is needed to allow that to happen.

By bringing forward this particular package—it is a large group of amendments, but they address genuine concerns about the handling of movable property—we have responded to the points raised during consultation. I therefore press the amendments in my name. I am sure the hon. Gentleman was probing, but he may want to press some of his amendments. However I urge the Committee, if asked to consider his amendments, to reject them.

Mark Hoban (Conservative, Fareham)

I am grateful to the Minister for a helpful explanation as to why the existing terms have been drawn up as they are. It is not my intention deliberately to make the law less restrictive or more lenient than it is currently. So I am grateful for the clarification that she gave on personal use items and also for the explanation of why there is a link between public access, as far as non-domicile rules are concerned, and the VAT rules. With her comments in mind, I beg to withdraw the amendment in my name.

Nicholas Winterton (Conservative, Macclesfield)

The hon. Gentleman does not have to withdraw his amendment, as the lead amendment is a Government amendment.

Jane Kennedy (Labour, Liverpool, Wavertree)

I beg to move amendment No. 316, in schedule 7, page 168, line 10, leave out from ‘is’ to end of line and insert

‘such of the individual’s specific employment income for that year as is’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss Government amendments Nos. 317 to 328, 331, 329, 330, 332 to 334, 271 to 274, and 335 to 338.

Jane Kennedy (Labour, Liverpool, Wavertree)

I believe the amendments will be widely welcomed. I will wait to hear if there are any specific questions arising from any elements of them. Again, they have arisen following our consultations, particularly in relation to employers and employee share schemes, share incentive plans and save-as-you-earn schemes.

Mark Hoban (Conservative, Fareham)

I, too, understand that the amendments will be widely welcomed by those involved in the area. It would appear that the Government, in a spirit of generosity, thought that as they were intending to tax non-ordinarily resident employees more, they should also give them the benefit of exemptions. An act of kindness and gratitude has apparently led to all sorts of potential compliance problems for employee share schemes, which the Government have tried to address in the amendments, although the response I had from one of the interested groups was:

“The Revenue listened to companies and advisers and so what has come about is a return to the status quo ante...it is not simply enough to rip up the original amendments.”

That is a wise comment on the difficulty of changing these things. However, the Government amendments have not addressed the concerns brought to light only relatively recently by the Quoted Companies Alliance, one of many organisations—as I found out during a debate on capital gains tax—with a particular interest in employee share schemes.

I want to raise two points with the Minister to flag up the alliance’s concerns. The first problem that it identified is that the principle should be that a relevant person should not be taxed until a remittance is offered, in so far as share scheme income is concerned. HMRC is saying that if a person, who could otherwise claim the remittance basis for share scheme gains, receives income in UK shares, that income will be remitted to the UK automatically, and so be taxable in full. The alliance believes that that is wrong on two counts.

First, the legislation can be interpreted that way in any event, as it requires the shares to be used or enjoyed in the UK and, in many cases, the shares will be transferred to the employee outside the UK only because most companies use employee trusts, which are based outside the UK for a variety of reasons—not just tax. Secondly, there is a policy issue. The stance is potentially extremely disadvantageous to UK-listed companies, whether they are operating in London or elsewhere. It means that if they are employing non-doms or non-ordinarily resident employees, all of their share scheme gains will be taxed in full, whereas, if their employee were working for, say, a US or German-listed banking group, the non-UK employment gain would not be taxed unless it is remitted to the UK, which is the broad policy intention.

It instinctively makes the UK-listed banking group a less attractive employer for such a person, as that group can pay out bonuses and share awards only in fully taxable form. Companies are being encouraged to pay out more bonuses as shares, to align the interests of the employees with those of the company as a whole. It cannot be right to discriminate against UK companies in that way, given that they need to attract talent to work in London. It goes back to the point about competitiveness. The way that the changes are drafted appear to put non-doms working for a UK banking group at a disadvantage compared with those working for a foreign banking group.

The second problem identified by the alliance is that HMRC is saying that there will automatically be a charge up front when employment income is received by non-dom employees, even if that income is not remitted. That goes against the principle that there should be such taxation of foreign income only as and when it is remitted. It could also lead to large amounts of NICs being payable, even though the non-dom or the non-ordinarily resident employee has only a very small amount of UK tax to pay. That could create an extra expense for companies, which has not existed previously, and it may lead to NICs being paid for an employee with little or no UK connection, and so with no benefit to that employee. The representation that I have received suggests that the alliance’s earlier understanding was that additional automatic up-front NIC payments did not apply, but since it has discussed the matter with HMRC it appears that those payments could arise.

Will the Minister take up those points? I have chosen to raise them on this grouping, rather then in a clause stand part debate, since we are dealing with the issue of employee share schemes.

Jane Kennedy (Labour, Liverpool, Wavertree)

The hon. Member for Fareham asked whether it is fair to treat an automatic remittance for UK assets in this way. The remittance basis specifically treats cases differently depending on whether the employee is resident, ordinarily resident or domiciled in the UK, whether the employer is UK-based and whether the assets in question are used in the UK. Those distinctions exist in all contexts, not just in the context of employment-related securities. If the share is in the UK, taxing it as a remittance is in accordance with the overriding principle that income and assets enjoyed in the UK should be taxed as remittances. I do not see a case for making a special distinction for UK employment-related securities, although I would like to read the hon. Gentleman’s comments and the representations he has received in detail when they are published in Hansard.

There are a number of instances where national insurance contributions and PAYE treatment differ so that a mismatch already exists. Although there is a broad policy to align national insurance contributions and PAYE whenever possible, there are necessary limits and alignment is not always practical or desirable. For example, where an employee meets the employer’s secondary NICs liability on payments by way of securities, the amount liable for class 1 NICs differs from the amount accountable for PAYE.

Government amendments Nos. 271 to 274 respond directly to representations from employers by ensuring that they are not obliged to offer the schemes to employees who are resident but not ordinarily resident. I anticipate that they will be welcome. Government amendments Nos. 316 to 338 ensure that the provisions of the schedule work as intended with relation to employment-related securities, including for awards of shares and share options.

Greg Hands (Conservative, Hammersmith and Fulham)

This is a simple question relating to the regulations on share options or securities options. The phraseology of Government amendment No. 323 seems a little odd. It states:

“The assignment or release of the relevant securities option,”

Does that include the exercise of the option?

Jane Kennedy (Labour, Liverpool, Wavertree)

Yes. I appreciate the points that have been raised in this short debate. I will look at the points raised by the hon. Member for Fareham when I have time to read them in Hansard, and give them detailed consideration to see whether there is any further merit in them.

Mark Hoban (Conservative, Fareham)

I beg to move amendment No. 381, in page 178, line 2, at end insert

‘where the source ceased after 5 April 2007’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment No. 382, in page 178, leave out lines 40 to 45 and insert—

‘(1) Deductions are allowed from the income mentioned in section 832(2) where—

(a) the income is from a trade, profession or vocation carried on outside the United Kingdom; and

(b) the income is overseas property income.

(2) In the case of section 832B(1)(a) the same deductions are allowed as are allowed under the Income Taxes Acts where the trade, profession or vocation is carried out in the United Kingdom.

(3) In the case of section 832B(1)(b) the same deductions are allowed as are allowed under the Income Taxes Acts where the property business is carried on overseas and taxed on the arising basis.”’.

Mark Hoban (Conservative, Fareham)

The first amendment deals with a particular area of tax planning that the rules on remittance facilitate. It is a concept called source ceasing, which is an interesting way in which people can tackle their tax affairs. For people who remitted to the UK an amount of income for which the source did not exist in the year in which it was remitted, it was untaxed. That enabled people to do all sorts of tax planning. The fact that this sort of thing was possible was in itself a revelation and an education. I do not think that there is any great dispute with the Government’s changes in the Bill. I get no sense from talking to representative bodies and others that there is any great outcry about the closure of that loophole, at least not in principle.

However—this is where my amendment comes into play—there is concern about the practical problems arising from the fact that HMRC has long recognised and accepted the source ceasing provision. It has, I understand, been widely used and it is a perfectly legal process. The problem that the change will potentially give rise to is one of identification. As drafted, any sum that is income would be taxed as income in the year in which it was remitted. The argument is that it would be difficult if not impossible correctly and accurately to identify these sums as they might have been treated as capitalised, assimilated into other funds or reinvested into other assets. How will it be possible for a taxpayer to link up any incomes remitted to sources that may have ceased in previous years? What happened when those sources ceased; where has the money gone? All of those identification and record-keeping issues will be raised.

The problem is particularly exacerbated by the fact there was no requirement at the time to keep records of those transactions and it might not be possible for many taxpayers to comply with the provision and complete correctly the self-assessment form. The Minister has said on a number of occasions that it is a self-assessment process. We want taxpayers to be able to do the best that they can in completing that form. However, it may be that through no fault of their own, given that this is a long-established HMRC approach to tax planning, they do not have adequate records to enable their compliance. That is why my amendment would delimit that situation by stating that the provision applies only where the source ceased after 5 April 2007. The Minister might come back and suggest that there are other alternative points at which that delimitation might come into effect, but I propose 5 April 2007. It would be easier for taxpayers to comply and for the self-assessment process to work correctly. I would be interested in the Minister’s comments on how we might make this practice work, given that it has been acceptable and legal to do it for some time in the past. That is amendment No. 381, which is a straightforward issue.

I turn to amendment No. 382. The position prior to 6 April 2008 was that deductions were not generally allowed from a relevant foreign income charter tax on the remittance basis. One exception to that rule was where the income in question was from a trade profession or vocation carried out outside the UK. The restriction and the exemption are in section 832(4) of the Income Tax (Trading and Other Income) Act 2005. This provision is being carried forward into new section 832B in the Bill. It would appear illogical and unfair that deductions are not allowed from overseas property income for legitimate expenses that would have been allowed if the taxpayer were taxed on an arising basis. Again, it is not appropriate that an unrepresented taxpayer is expected to realise that he will be taxed on income received without the benefit for deductions. It does not seem fair that this should be so.

Let me give the Committee an example. Mr. X is UK resident and domiciled in Switzerland. He has a cottage in France which in the year to 5 April 2009 he rents out at €600 a month. He does not have a French bank account and the income is paid straight to his UK bank account. When legitimate income deductions are taken into account such as for the interest on the loan to purchase the property and agents fees, he would have a taxable profit of €3,600 if taxed on an arising basis. However, it is not in his interest to be taxed on an arising basis as he has significant Swiss investment income and trust income that he does not remit. Accordingly, he makes a remittance claim. The consequence of that is not that he would be taxed on the taxable profit of €3,600, but on the €7,200, which is the rental value, not taking into account any deductions.

It appears from the frequently asked question on the HMRC website that the Government agree that the position is as I have set it out. Can the Minister clarify this? We think that amendment No. 382 will make the necessary clarification to this Bill to allow that interest and any expenses to be offset against the rental income.

Jane Kennedy (Labour, Liverpool, Wavertree)

If people choose to bring income from a ceased source, which is not a phrase that trips easily of the tongue, into the UK after 5 April 2008, they should pay tax on that untaxed income. The amendment would allow that any account closed before 5 April 2007 could still be remitted tax free at any time in the future. I appreciate that in some cases people may no longer have all the records to make a full and complete return. In such cases the individual will need to complete their tax return to the best of their ability and to explain their problem in the white space that is available on the tax return for that purpose. If HMRC inquires into the return—[Interruption.] Well, the hon. Gentleman asked what they would have to do. The individual and HMRC will need to work together to establish the correct figure, based on the facts which the individual is declaring.

I am confident that such problems can be dealt with pragmatically by HMRC and if problems arise in practice I am sure that they will be brought to my attention. Amendment No. 382 seeks to clarify that certain deductions are allowed in arriving at the tax amount of a remittance. The hon. Gentleman uses the example of rental income. I can assure the Committee that the current legislation already delivers what his amendment seeks to achieve. For the sake of clarity, I should point out that a deduction for expenses paid, such as interest on let property, is already given in arriving at the amount treated as remitted to the UK. It has been clarified in HMRC guidance. I am assured by my advisers that there is no need for an amendment along the lines that the hon. Gentleman has described. I know that it was a probing amendment, but I hope I have addressed the concern that he raised.

Mark Hoban (Conservative, Fareham)

In the example I outlined, the gross amount was remitted—the rent, because it was received into the UK and not held in a French bank account. I suspect that the interest payments on that mortgage would have been paid out of the same UK bank account. I think that the Financial Secretary is saying that the net will be the remittance, rather than the gross, so I would be grateful for that clarification.

David Wright (Labour, Telford)

That is correct.

Jane Kennedy (Labour, Liverpool, Wavertree)

My hon. Friend the Member for Telford assures me that the hon. Gentleman is right and I have no reason to doubt him. I believe that the hon. Gentleman’s description of the problem and its treatment is accurate. When I read Hansard, if I believe that something needs further clarification, I will be happy to provide it.

Mark Hoban (Conservative, Fareham)

With regard to amendment No. 382, I am grateful for the clarification that the hon. Member for Telford gave. His talents are wasted sitting behind the Minister. He could be either an official or a Minister, and I think I know which he would prefer—perhaps that recommendation from the Opposition Front Bench has ended his chances of ministerial office. I am grateful for that clarification, which tackles a particular concern.

I am less comfortable with the clarification that the Minister gave on source ceasing. I think we will be in difficult territory on a range of issues that we have discussed. There will have to be discussions between HMRC and the taxpayer in those situations, and I am anxious about where the balance will sit in those discussions. I would feel instinctively more comfortable with a hard and fast date than I would with having to fill out white space on a tax form—I am not sure what the on-line equivalent of the white space is, but I am sure there is one. I would rather have a delimitation on time than the Minister’s reassurance.

Jane Kennedy (Labour, Liverpool, Wavertree)

I hesitate to prolong the discussion, but cannot see how shifting the date by a year would remove that requirement in cases where an individual does not have the records to indicate that on a return.

Mark Hoban (Conservative, Fareham)

The taxpayer will be dependent on a discussion with HMRC on whether it is comfortable with the explanation that is given on their return, and I think that it is reasonable to expect a taxpayer to have kept records that date back a year and from the previous tax year. It would be unreasonable to expect a taxpayer to have kept records from 10 years ago, but there is a continuum between 10 and one and I chose one year as a way of probing to get an explanation. The further back we allow that to go, the greater the uncertainty and risk that the taxpayer will have insufficient records to reassure HMRC that they are being open and transparent about source ceasing, and that is where the problem arises in having a cut-off point. It is more reasonable to expect taxpayers to have records relating to more recent transactions than records relating to historical ones, but it would be better to have that in the Bill, rather than leave it as an area for negotiation between HMRC and the taxpayer.

We are keen to see some certainty in a number of those areas, and I think that source ceasing would be a good area in which to see some of that certainty. Perhaps I have persuaded the Financial Secretary to come back on Report with an amendment to put that limitation in. However, having had the explanation from her, I beg to ask leave to withdrawn the amendment.

Mark Hoban (Conservative, Fareham)

I beg to move amendment No. 383, in schedule 7, page 187, leave out lines 1 to 9 and insert ‘, and

(b) before 6 April 2008 the money was received in the United Kingdom.’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following amendments: No. 386, in schedule 7, page 187, leave out lines 1 to 3 and insert—

‘(b) the loan was made for the purpose of enabling the individual to—

(i) acquire an interest in residential property in the United Kingdom,

(ii) carry out a remortgaging exercise with respect to residential property in the United Kingdom, or

(iii) furnish, decorate, repair or enhance a residential property in the United Kingdom, and’.

No. 387, in schedule 7, page 187, line 6, leave out from ‘money’ to ‘and’ in line 7 and insert

‘for any of the purposes referred to in subsection (1)(b),’.

No. 384, in schedule 7, page 187, line 10, leave out ‘Relevant foreign income’ and insert ‘Foreign income gains’.

No. 388, in schedule 7, page 187, line 10, leave out ‘Relevant foreign income’ and insert ‘Foreign income and gains’.

No. 385, in schedule 7, page 187, leave out lines 13 to 21.

No. 389, in schedule 7, page 187, leave out lines 13 to 19.

Government amendments Nos. 492 and 493.

Mark Hoban (Conservative, Fareham)

I thought that I should give the Committee a break from the 10th group of amendments on schedule 7, and so did not seek any explanations from the Financial Secretary on amendment No. 491. Doubtless I will find out later today that there is something in that group that we should have asked about, but we can tackle any such issues on Report if necessary.

This is the 11th and penultimate group of amendments on the schedule. Group 12 is lurking. This group goes back to the issue of foreign property. Just to clarify for the Financial Secretary, I have tabled two sets of amendments in this group to tackle the same issue. Amendments Nos. 383 to 385 would provide an exemption for all property, meaning buildings rather than the wider definition of property. Amendments Nos. 386 to 389 apply simply to residential property.

I will give some background. Prior to 6 April 2008, someone repaying a capital element of an offshore-linked debt out of foreign income or gains constituted a remittance. For that purpose, UK-linked debt meant

“a debt for money lent to the person in the United Kingdom, or for interest on money so lent”

or

“a debt for money lent to the person outside the United Kingdom and received in the United Kingdom”.

It could also be to repay a debt lent initially to the individual in the UK or subsequently received in the UK. If the funds were brought to the UK after the loan was paid off, that would also constitute a remittance.

The settlement offshore from foreign income or foreign gains of the interest as it fell due did not, however, constitute a remittance, as I understand the existing legislation. However, the Government have made it clear that, from 6 April 2008, the Finance Bill is to extend the debt provision. As well as catching the repayment of UK-linked debt, the payment offshore of the interest on a UK-linked debt will constitute a remittance. That was not the case prior to 6 April 2008.

The Government have recognised some issues around that and introduced limited transitional provisions. To fall within the scope of those provisions, the loan must be a qualifying loan—the funds were lent prior to 12 March 2008, the date of the Budget—and must have been made for the sole purpose of enabling the individual to acquire an interest in UK residential property. Also, before 6 April 2008, loan funds must have been received in the UK, applied to acquire an interest in UK residential property and the loan itself secured on that property. Interest on the offshore loan must be paid offshore from relevant foreign income. That does not include funds representing the proceeds from offshore income gains.

Provided that all those conditions are met, the payment of loan interest would not constitute a remittance. Unless entitlement to the relief is forfeited, the transitional period will last until the repayment of the loan, or 5 April 2008 if earlier. Paragraph 86(3) provides that all entitlement to relief would be lost should the following occur after 11 March 2008: any term upon which the loan was made is varied or waived; the debt ceases to be secured on the residential property; or any other debt is secured on the residential property. The last point, which corresponds to paragraph 86(3)(c), goes further than the Budget day material, in that taking out an entirely new loan would mean that the entitlement to transitional provisions was forfeited. There appears to have been a tightening up from the Budget day proposals to the Bill proposals.

The problem identified is that non-doms could have taken out offshore-linked loans with the legitimate expectation that they could service the interest costs from foreign income and gains without that constituting a remittance. Given that, the transitional provisions appear to be very restrictive. For example, if any term of the loan is varied, the benefit of the transitional provisions will be lost and the interest payment will be treated as a remittance. We are not sure why the transitional provisions do not allow relief for interest paid overseas from foreign earnings on capital gains, where those could have been used under the old rules to pay interest on offshore mortgages secured on UK property, without that resulting in a remittance.

Although we understand that a special economic case can be made for allowing relief with respect to residential properties, that seems harsh on individuals who took out loans, say, to fund a UK business, as they may have borrowed more than they could normally afford, because they were going to be able to pay that interest from untaxed foreign income or gains. Even considering residential property, the subject of four out of the seven amendments in the group, the provisions appear unduly narrow, as they deny relief where there has been a remortgaging exercise, or part of the loan funds have been used to repair, renovate, decorate or furnish the property.

It has been further suggested that there is a problem with paragraph 86(1)(c)(iii), which specifies that there will only be relief where the debt is secured on the UK property. That is very restrictive, as in practice many offshore lenders prefer to have security over assets under management with them. Nevertheless, the loan can be demonstrated as being for the purpose of purchasing the interest in the land that was acquired. Therefore, the provisions in paragraph 86(3) seem a little unnecessary and could result in foreign domiciliaries accidentally breaching the conditions to qualify for relief. Again, that goes back to a problem that we have highlighted previously. It seems unfair to tax those who perhaps do not have the access to special advice and could inadvertently be caught out by the provisions. It is the unrepresented taxpayers who could be the losers. It is particularly harsh because the restriction was not announced on Budget day.

In summary, my amendments Nos. 383 to 385 create much more flexibility for all property, but amendments Nos. 386 to 389 create flexibility only in respect of residential property.

Jane Kennedy (Labour, Liverpool, Wavertree)

Amendment No. 493 is our response to calls for the provisions in the Bill to be extended so that relief is available for remortgages. As paragraph 86 stands, loans only qualify for exemption if they are made to acquire an interest in residential property in the UK. There would be no relief if the individual had switched the original mortgage—perhaps because they had found a better deal—because the replacement loan would not serve to acquire the interest in the property. Perhaps that is less of an occurrence in the current climate than had been the case.

I accept that some relaxation was needed and therefore amendment No. 493 extends the grandfathering so that remortgages can qualify so long as the remortgage took place prior to 12 March 2008. Amendment No. 492 is a relatively minor technical change.

The hon. Gentleman proposes very extensive changes—certainly in his first group of amendments Nos. 383 to 385—to grandfathering for mortgages. They would remove many of the restrictions on relief that currently apply. For example, they mean that relief would cover all manner of loans not just those for acquiring residential property. They would apply not just to relevant foreign income but to foreign employment income and gains where a payment of this sort has always been taxable as a remittance under existing law.

His proposed changes go too far. I suspect that the reason he has tabled two different groups is to elicit why we have chosen the structure we have, and why we have gone some way but not to such a generous extent as he proposes. The relief under paragraph 86 is none the less generous and the extension we are making to cover remortgaging under amendment No. 493 does strike a fair balance. Extending the grandfathering to all loans would effectively reinstate the loophole under which remittance basis users could enjoy tax-free loans which are not available to other UK taxpayers. While it is reasonable to grandfather mortgages rather than cast uncertainty over people’s housing arrangements, it is not reasonable to extend such relief to all loans.

The hon. Gentleman asked why relief is not allowed for interest paid overseas from foreign earnings and capital gains which could both be used to pay interest previously without resulting in a remittance. Payments out of employment income and capital gains have always been treated as remittance, so giving relief would be untaxing things which we have always taxed in practice.

His second group of amendments appears to be an alternative and rather more modest in scope. Unlike the others, these amendments would not seek to cover all manner of loans but would provide relief for remortgaging and home improvement loans. The first of those is now covered by our amendment No. 493 and, in view of my comments about paragraph 86 being generous, I do not consider that it would be right to cover loans for home improvement.

Having said that, my officials are currently in discussion with a number of banks about the status of certain offshore loans and mortgages and whether those, too, should be covered by the grandfathering rules. I hope to be able to provide an update to the House on Report. This is an area where we are continuing dialogue and I will be interested to hear the outcome of those detailed discussions.

I hope that I have given the hon. Gentleman some of the answers that he seeks. I ask the Committee to support my amendments and hope that the hon. Gentleman will withdraw his.

Mark Hoban (Conservative, Fareham)

This is a difficult area. The fact that the Financial Secretary’s officials are having a conversation with banks at the moment indicates that we need to get this right. The transitional provisions extend as far as March 2028 and indicate the complexity and long-standing nature of some of these arrangements. It is important to get them right. On occasion, we do not get the balance right—we try to close down appropriate tax loopholes, but at the same time the phrasing is so wide that it can inadvertently affect people. That goes back to my comment on the amendments about who would be caught out by this measure, and whether there is any risk of unrepresented tax payers falling foul of the arrangements.

I am grateful that the Financial Secretary is considering the matter again with the banks to try to get it right—she has addressed a number of issues in that spirit and tried to get a workable arrangement. One of the great assets of the scrutiny process in this House is that it provides the opportunity to get it right, either through the clarification that Ministers offer in such debates—and we have had a number of those clarifications already today—or through the opportunity to revisit issues up to and including Report. The Financial Secretary might throw those words back at me on Report if confronted by another 100 amendments on schedule 7, so I should be careful how fulsome I am when commenting on the effectiveness of the procedure. Given the Financial Secretary’s reassurance that the Government are talking to the banks and that there will be further opportunity to get the fine detail of the rules right, I beg to ask leave to withdraw the amendment.

Jane Kennedy (Labour, Liverpool, Wavertree)

I beg to move amendment No. 402A, in schedule 7, page 187, line 31, at end insert—

‘(1A) In subsection (1), after paragraph (a) insert—

“(aa) any reference to anything accruing is to be read as a reference to it arising (and similar references are to be read accordingly);”.’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following: Government amendments Nos. 403 to 411.

Amendment No. 390, in schedule 7, page 189, line 17, leave out from ‘12’ to end of line 18.

Amendment No. 494, in schedule 7, page 189, line 36, at end insert—

‘(5) In computing gains to which this section applies, those gains shall, if the company so elects, be calculated by reference to the value of the asset concerned at 6 April 2008.

(6) An election under subsection (5) is irrevocable and shall be made within two years of the end of the first accounting period ending after 5 April 2008.

(7) An election under subsection (5) shall be made in the way and form specified by the Commissioners for Her Majesty’s Revenue and Customs.’.

Amendment No. 391, in schedule 7, page 189, line 36, at end insert—

‘93A (1) The following provisions apply to a company if—

(a) section 13 of TCGA 1992 applies to the company for the tax year 2008-09, and

(b) the directors of the company have not opted out from the provisions within this paragraph.

(2) An election to opt out from the provisions within this paragraph may only be made on or before the anniversary of the first 31 January to occur after the end of the first tax year (beginning with the tax year 2008-09) in which chargeable gains are attributed under section 13 of TCGA 1992 to a participant in the offshore company.

(3) An election under sub-paragraph (2) is irrevocable and must be made in the way and form specified by the Commissioners for Her Majesty’s Revenue and Customs.

(4) The only information that need be provided in the course of making the election is the name of the offshore company and the name of the director making the election.

(5) Sub-paragraph (7) applies if—

(a) chargeable gains are treated under section 13 of TCGA 1992 as accruing to an individual in a tax year, and

(b) the individual is resident, but not domiciled, in the United Kingdom in that year.

(6) The individual is not charged to capital gains tax on so much of the aggregate chargeable gains attributed to him in the tax year as exceeds the relevant proportion of the gains.

(7) The relevant proportion is A/B where—

A is the portion of the gain that would what have been treated as accruing to the participator, if immediately before 6 April 2008 every relevant asset had been sold by the directors and immediately re-acquired by them at the market value at that time; and

B is the actual gain attributed to the individual.

(8) For the purposes of sub-paragraph (7) an asset is a “relevant asset” if—

(a) by reason of the asset, a chargeable gain or allowable loss accrues to the trustees in the relevant tax year, and

(b) the asset has been comprised in the company from the beginning of 6 April 2008 until the time of the event giving rise to the chargeable gain or allowable loss.’.

Government amendments Nos. 412 to 435.

Amendment No. 392, in schedule 7, page 196, line 28, leave out ‘made an election under this sub-paragraph’ and insert

‘have not opted out from the provisions within this paragraph’.

Amendment No. 393, in schedule 7, page 196, line 30, leave out ‘An election under sub-paragraph (1)’ and insert

‘An election to opt out from the provisions within this paragraph’.

Amendment No. 394, in schedule 7, page 196, line 30, after ‘the’, insert ‘anniversary of the’.

Government amendments Nos. 436 and 437.

Amendment No. 395, in schedule 7, page 196, line 40, leave out ‘(1)’ and insert ‘(2)’.

Amendment No. 396, in schedule 7, page 196, line 42, at end insert—

‘(4A) The only information that need be provided in the course of making the election is the name of the trust and the name of the trustee making the election.’.

Government amendment No. 438.

Amendment No. 397, in schedule 7, page 197, line 24, at end insert ‘and’.

Amendment No. 398, in schedule 7, page 197, line 27, leave out from ‘gains’ to end of line 34.

Government amendments Nos. 439 to 462.

Jane Kennedy (Labour, Liverpool, Wavertree)

I almost say, “Hurrah”, Sir Nicholas. This is the final group of amendments and the vast majority of them are technical changes to ensure that the code on chargeable gains of non-resident trusts, and its interaction with the code for offshore income gains, works effectively. There are more substantive changes following our discussions with external stakeholders on the draft Bill. I will not explore those further at this point, as I would benefit from hearing what concerns are raised in Committee before making more substantive comments.

Mark Hoban (Conservative, Fareham)

Before I talk to amendments Nos. 390 to 398, I wish to make a couple of brief points about Government amendments Nos. 402A to 462. Matters are not quite as bad as they are presented on the order of consideration, but when we realise that the Government have tabled 60 amendments in the group under discussion, my own eight amendments pale into insignificance in respect of number, although perhaps not in points to discuss.

As for Government amendments Nos. 402A to 462, we may return to such matters on Report. External bodies consider that the volume of amendments tabled in Committee, although they would affect their understanding of matters from discussions with officials, show continuing thought. We do not know whether they would address the issues that they want dealt with, given that lurking in the amendments is the use of our old friend “just and reasonable”, which was dealt with an eternity ago. On new paragraph 108A under Government amendment No. 432, I do not know whether the intention is for HMRC to provide guidance about that or to discuss matters on a case-by-case basis, but it would be helpful to know if that is the route that the Government intend to take. It is also fair to say that some of the Government amendments address issues slightly more elegantly than do my amendments.

Amendments Nos. 390 and 391 deal with a matter that a number of people have raised with me, which almost pushes people to use more complex structures to manage their tax bills. I understand why people do that, but it would be better not to drive them down that route. I am talking about the treatment of capital gains tax. Offshore companies that do not have a United Kingdom branch or agency are not subject to United Kingdom capital gains tax. From the introduction of CGT, anti-avoidance provisions have been designed to prevent UK-domiciled, UK resident and ordinarily resident individuals from avoiding it by exploiting the fact that an offshore company is outside the territorial scope of CGT by holding its assets within offshore companies that they control.

Paragraph 93 to schedule 7 introduces new section 14A that extends the anti-avoidance provisions to UK residents or ordinarily resident non-doms. I wish to draw the Committee’s attention to a distinction and to present matters clearly. The current effect of the anti-avoidance provisions is such that they attribute gains arising to an offshore company that would be a closed company if it were resident in the UK—that is how companies are caught—to a UK resident or ordinarily resident person, or UK-domiciled qualifying participators who were chargeable to tax on the gain attributed in the year of attribution, and offshore trusts that meet the qualifying participator conditions.

The Finance Bill extends the provisions so that gains will be attributed to non-domiciled residents or ordinary residents. When the non-dom is a remittance basis user, they will be taxed on the gains attributed on the basis of UK gains subject to tax with respect to the tax year on which the gains arise. Foreign gains on a remittance basis will apply such that they will suffer UK tax only if they are deemed to remit the gain attributed.

Part of the problem appears to be that the Finance Bill contains no transitional provisions, which means that the non-dom would be subject to tax on gains that relate to the period prior to 6 April 2008 and, as has been recognised by the Government, where trust structures are concerned, non-doms had a legitimate expectation that they would not be subject to UK capital gains tax with respect to gains and disposal of chargeable assets held within offshore structures. There are transitional arrangements in place for those non-doms who hold assets in trust structures, but there are no transitional provisions for offshore companies held directly by individuals in the same way as is provided for in the Finance Bill for assets held within trust structures immediately before 6 April 2008.

As I understand it, if in one situation a non-dom has a house in, say, Eaton square and that house is owned by a company, and in another, the non-dom has the house in Eaton square, a company and an off-shore trust on top of that, there are transition provisions for the offshore trust to rebase the capital gains, but there is not a mirroring provision for companies. That creates a bias in favour of complex trust structures rather than a more immediate way in which a company may own an asset.

Amendments Nos. 390 and 391 attempt to draw out that comparison. It was never expected that foreign domiciled individuals would receive a rebasing to 6 April 2008 in relation to their direct holdings and offshore companies, with respect to which they are qualifying participators, but it is hard to follow the logic of allowing a wholesale rebasing of assets within an offshore trust structure, including assets owned by an underlying company, when there are no comparable provisions to allow rebasing of assets owned by an offshore company.

My amendments seek to bring about two changes: first, the gains attributed to offshore companies should be taxed only if there is remittance to the UK and, secondly, to introduce a rebasing election that can be made by directors of offshore companies. The first group of amendments deals with the transitional provisions and what is available for companies as opposed to trusts. The second group comprises amendments Nos. 392 to 398. Amendment No. 494, which is also in that group, is an alternative way to address the issues that I have highlighted in amendments Nos. 390 and 391. It does have a broader impact as well, which relates back to amendments Nos. 392 and 398.

I have already mentioned the rebasing election that trustees can make. I have read the rules on rebasing—I lead a sad life, when I spend my afternoons doing things like that—and I am not going to go through them at this point for fairly obvious reasons. Trustees are able to elect for a settlement that is non-resident at 6 April 2008 to make what could be described as a rebasing election. The election is relevant only where the trust has beneficiaries who are non-doms and the election is irrevocable. It is an all-or-nothing provision, applying to every asset within the trust structure immediately before 6 April 2008.

The legislation states that the rebasing election

"must be made in the way and form specified by Her Majesty's Revenue and Customs".

and I am sure that there will be a prescribed form on which to do that. I am sure that disclosures will be required, but I am not yet sure what they will be. The deadline for making the election is 31 January, following the end of the tax year in which the first of the following take place: capital payment is received or treated as received by a beneficiary regardless of their domicile of a settlement, and the beneficiary is a resident of the UK in the tax year in which it is received or; the trustees transfer part, but not all, of the trust property to a new settlement.

Again, this is a situation where well-advised taxpayers will receive the right advice. The concern is that not all taxpayers may benefit from rebasing elections if the trustees do not make the election in time. Prior to 6 April this year, offshore trustees did not necessarily need much knowledge of the UK tax system to act as trustees. So, my argument is that we should introduce into legislation a presumption that the election will be made. Broadly, people believe that the election is beneficial for the purposes of rebasing capital allowances. What we are seeking is, rather than having an election to opt for the rebasing, we have an election to opt out of the rebasing. It is probably in the best interests of taxpayers to start on the basis that they will be rebasing.

As I understand it, the Government thought that the arguments behind my amendments Nos. 397 and 398 were rather good, despite not having heard them. I understand that they tabled amendments Nos. 439, 440, 467 and 447 to address those issues.

Nicholas Winterton (Conservative, Macclesfield)

Order. I intend to suspend the sitting until 4.30 pm for a health break, a tea break and so that hon. Members can attend to any other matters.

Nicholas Winterton (Conservative, Macclesfield)

I hope that everyone feels a little better as a result of that break. I certainly do. I am right on top of things again, so watch out.

Greg Hands (Conservative, Hammersmith and Fulham)

I shall be brief, Sir Nicholas, but may I start by welcoming you to this extended sitting? I shall make a couple of general comments. I do not believe that there will be a stand part debate, but after our debate on the schedule I am struck by the number of Government amendments that were tabled. My hon. Friend the Member for Fareham counted 60, but I think it is only 59. We are embarking on something very dangerous. There is an almost unbelievable level of complexity involved in some of those amendments, particularly in amendments Nos. 402A, 404 and 406. I am worried about the possible effect, not only on the City of London, but on London as a whole.

My constituency contains the second highest proportion of residents born outside the UK. The highest is in Kensington and Chelsea. I am worried about the effect of the schedule, the Bill and these 59 or 60 Government amendments. One third of my constituents are foreign-born. It is not just a finance issue. I believe that skilled and semi-skilled labourers will struggle with these new regulations, both in their complexity and their possible effect.

It still worries me that no real answers have been provided to the questions posed by the IFS last October about how much money is involved, how many non-domiciles there are, and the numbers who might emigrate as a result. From what we have seen this afternoon, if anything, the Government proposals are becoming ever more complicated. The situation in the UK economy and in the City of London economy is extremely delicate. I urge the Government in the remaining stages of this Bill to think carefully about the impact, not only of the 60 Government amendments, but of the whole set of regulations they are proposing, on my constituents and on the wider London economy.

Jane Kennedy (Labour, Liverpool, Wavertree)

We have readjusted, in this modest group of amendments, the interaction between trusts and offshore income gains. I would be the first to admit that this is one of the most complex parts of a complex area of tax law that I have had a rapid lesson in learning. I would not pretend to be an expert. It is no surprise to me that this area of tax law generates its own industry in terms of advice. It is important not to confuse the complexity of the legislation with the way that it will apply to individual cases through the self-assessment system. Not to make the amendments that we are proposing would be a very great disadvantage to the UK. The amendments themselves have arisen from close and detailed discussions between HMRC, the Treasury and experts in this field of law. I take a great deal of comfort from the knowledge that they have done so.

The Bill, as drafted, changes the interaction between trusts and offshore income gains. Except in limited circumstances, it has the effect of denying the benefit of rebasing offshore income gains to the market value as at 6 Apri 2008. Our amendments restore the previous relationship between trusts and offshore income gains, so that rebasing on offshore income gains would be more widely accessible. It would be fair to concede that our proposals went much wider than we intended when the detail of the clauses become available, and when we received the response to them. I should add that the rules relating to offshore income gains will be translated into regulations next year, so there will be an opportunity for interested parties to make further representations on the rules over the next few months.

We have made a number of changes to the way in which the rebasing rules for trusts work. Those changes extend the application of rebasing to situations in which the trustee’s interest in a company have decreased since 6 April 2008, or in which an asset held at 6 April 2008 has been modified since then. Amendments No. 390, 391 and 494 seek to apply the same treatment to offshore companies as applies to offshore trusts. In developing our overall package of reforms, we have drawn a clear distinction between companies in which the shareholder or participator has a direct interest, and trusts, in which the beneficiary’s interest is indirect. Trusts are different from companies, and chargeable gains of non-resident trusts are taxed differently from companies. When a company is caught by the anti-avoidance measure that we are amending under schedule 7, the people who control the company are treated as though a chargeable gain to the company was their own chargeable gain.

By contrast, the beneficiaries of a trust have an indirect interest in a trust. They do not have the control of a trust that the participators of a company have, and the way that the non-chargeable gains of a non-resident trust are attributed to a beneficiary reflects that fact. Instead of looking at individual chargeable gains, as we do with companies, we look at the aggregated gains of the trust. Those are very real differences in approach between companies and trusts, and they mean that we cannot assume that what works for a trust will also work for a company or that they are in any way equivalent.

It is not the case that the proposals that we are making would, as the hon. Member for Fareham put it, “push people into more complex structures”. The rebasing rule relates to trusts that existed before April. There is no scope for benefiting from rebasing by setting up a trust now.

Mark Hoban (Conservative, Fareham)

I accept the Minister’s comment. The arrangement relates to transitional provisions, but the message that it sends out is that if there are complex tax structures, there is an incentive to use those structures—not necessarily in relation to the particular area that we are looking at today, but more generally. Rather than a simpler, more straightforward means of holding the house in Eaton square, or wherever it happens to be, people go down the route of that more complex structure, because there seems to be this arbitrage opportunity between a company and a trust.

Jane Kennedy (Labour, Liverpool, Wavertree)

I have no reason to believe that the hon. Gentleman’s view is well founded. I have said this before, but I want to keep this area under review. I am sure that he will appreciate that the amendments have grown out of concern about the rebasing issue. If trustees elect for rebasing, they have to disclose detailed information about trust assets. It was made very clear to us during our consultation that some trustees did not want to disclose anything more about the assets that they held than they needed to. That can be achieved only by making rebasing optional. I hope that that resolves the problem that we he was probing in his amendments.

Our amendments deliver the commitment not to introduce new disclosure requirements. The practical effect of amendment No. 390 would be to exclude entirely the non-resident company’s gains from tax, where a non-domiciled individual was using a remittance basis. That would be unfair to non-domiciled individuals who use the arising basis, and non-domiciled individuals who own an asset directly, rather than through a non-resident company. Amendments Nos. 391 and 494 seek to apply rebasing to non-resident companies, the effect of which would be to offer individuals who own their own investments through offshore companies the tax re-uplift on their investments, without any clear rationale. The three amendments run counter to the overall thrust of the reform, although I appreciate that they may have been tabled to promote discussion.

Amendments Nos. 392 to 394 and amendment No. 396 would together result in rebasing being mandatory. I dealt with that issue in my comments on the representations we received on maintaining the option not to disclose, as it was feared our original proposals required. Under the hon. Gentleman’s proposals, there would be an opt-out for trustees, with a longer deadline than we have specified and a limit on the amount of information that HMRC could require. The amendments are misconceived. They would not protect trustees from having to disclose information on offshore assets. Whatever form election for rebasing takes, trustees who use rebasing still need to disclose to HMRC additional information about assets disposed of, to compute the gains that will be left untaxed. Not all trustees will wish to make that level of disclosure or to engage in the additional evaluation work involved in rebasing, so the rebasing rules should be voluntary rather than imposed, albeit with an opt-out. Amendment No. 394 extends the deadline. The deadline already provides trustees with 19 months from now to make the decision, and I see no reason to extend it as proposed.

Finally, amendments Nos. 397 and 398 seek to change a provision of the trust rules that was brought up by many interested parties in discussions, namely the restriction on rebasing where the trustee’s interest in a company has decreased between 6 April 2008 and the date of disposal of the asset by the company. Our amendments Nos. 439, 440, 446 and 447 respond to calls for change in that area. Our approach is different from that proposed by the hon. Gentleman, but it delivers the same effect, with the advantage of guarding against avoidance and applying to property transferred between settlements. He suggested that our amendments were more elegant than his. Our amendments are not always described as elegant, so it is good to hear it on this occasion.

This is a complex area, and there is an argument that it is worthy of detailed debate. Our brief debate has helped to clarify some of the concerns out there. In my opening comments, I could not bring myself to alert the Committee to the fact that there were 61 Government amendments in this group. I skirted over it then, so I say it now, and shall quickly sit down.

Mark Hoban (Conservative, Fareham)

I am grateful to the Financial Secretary for tabling 61 amendments.

I will focus on the election for rebasing. I wonder whether the issue is the right way round. Rightly, after publishing the draft legislation that gave rise to the concern about disclosure by trusts, the Government listened to that concern and responded to it. We seem to have produced a set of rules that benefited those who are particularly knowledgeable about how trusts will function. They are the very people who would be in a position to make the right decision about opting out of rebasing, if we went down the route that I proposed of automatic rebasing with the option to withdraw. I may have got the disclosure wrong in my amendments, but the Government seem to have gone a long way towards satisfying those who are very aware of the consequences and who want to manage their clients’ affairs in a particular way, without thinking about those people who are not so well advised and may not have access to trustees who are aware of the detail of UK law, so they might not recognise the importance of the rebasing election.

In tackling one issue, we have created another that affects those who are not as well advised or well represented as those who made the initial representation. My only concern is that we have got the balance slightly wrong. I liked the Minister’s description of this “short” debate.

Jane Kennedy (Labour, Liverpool, Wavertree)

On this group of amendments.

Mark Hoban (Conservative, Fareham)

I thought the Minister meant the debate that has been going on since 9 o’clock this morning. One of the things I have tried to develop throughout my remarks today has been the question of how we can ensure that the unrepresented taxpayer is not disadvantaged by these rules. We should make it easy for them to comply with them, and not create widespread non-compliance, particularly in the self-assessment system. That is the thrust of these provisions, as of others.

Jane Kennedy (Labour, Liverpool, Wavertree)

I very much appreciate the point that the hon. Gentleman is making. It is a fair point, and something I will watch carefully as we go forward.

Mr. Hobanrose—

Nicholas Winterton (Conservative, Macclesfield)

I call Mark Hoban.

Mark Hoban (Conservative, Fareham)

I was seeking to make an intervention, Sir Nicholas. I do not wish to audition to join the Chairmen’s Panel. Having listened to the Minister’s reassurances throughout the debate, I beg to ask leave to withdraw the amendment.

Nicholas Winterton (Conservative, Macclesfield)

Order. The lead amendment is in fact a Government amendment, so the hon. Gentleman does not have to withdraw his amendment. I am sure that he will go far within his party, and will not need to fall back on an alternative career chairing Committees in the House.

New Clause 6

New Clause 7

New Clause 8

Angela Eagle (Labour, Wallasey)

I beg to move, That the clause be read a Second time.

I do not intend to detain the Committee long, since this is a wholly beneficial clause. The Committee will recall that in an earlier sitting, changes to the research and development tax credit and vaccine research relief were agreed, including an enhancement of the rate of R and D credit for large companies and small and medium-sized enterprises. Those enhancements are accompanied by minor changes to the rules governing the small and medium-sized R and D credit and the vaccine research relief, which are notifiable state aids, to comply with the state aids framework.

Following further discussions with the European Commission, three further small changes to the schemes are necessary. The new clause introduces those changes, which are necessary to secure state aid approval. I can confirm to the Committee that, subject to these changes, the European Commission has now approved all the improvements to the R and D credits scheme and the vaccine research relief scheme, increasing the R and D credits generosity by some £180 million per year. If the clause is approved, we will implement the improvements from the earliest possible date after Royal Assent, which we hope will be 1 August this year. I commend the new clause to the Committee.

David Gauke (Conservative, South West Hertfordshire)

It is a great pleasure, Sir Nicholas, to serve once again under your leadership. It seems such a long time since I was last standing here and even longer since we debated research and development and vaccine research relief—it was a whole Test series ago.

I have only a couple of comments on the provisions, the first part of which, as the Exchequer Secretary said, relates to EU anti-discrimination legislation and changes to make the Bill compliant with that. The issue relates to allowing the equivalence of national insurance contributions paid in the European economic area to count for research and development staffing costs and ensuring that relief is available in the same way as it is within the UK. Will the Minister confirm that this is for EU purposes and there is no intention to make the provision worldwide? It will apply only for the EEA and Switzerland, I believe.

My second point is on vaccine research relief. The provisions, as I understand them, stop vaccine research relief being subcontracted to an independent body by way of contribution to their research. In other words, a company would not be able to pay a university £100 to do research on vaccines and get a £150 deduction—to use those numbers as an illustration. Presumably the intention is to make sure that research is subsidised only if it is carried out directly by the company and under the control of the company. Presumably for the benefit of universities and companies researching vaccines, the Government want to encourage co-operation. We have a tremendous resource in our universities and it is frustrating that sometimes our companies may not use universities as much as they might. One could put it another way and say that universities may not always be in a position to assist companies as much as they could. There are strong arguments for encouraging greater co-operation between those two parts of our economy in fields such as vaccine research, but the new clause appears to hamper that development.

The Government may argue that the vaccine research relief should be available only when the research is done by the company itself. However, if the best entity to do the research is a university or a third party, why should the relief not be available? If we wish to encourage expenditure on vaccine research, and encourage companies in that field to grow through the quality of the research undertaken, why make the way vaccine research relief works a barrier? That is my point, and I would be grateful for clarification from the Minister on the thinking behind the new clause. Does she recognise that there is concern and that further explanation is needed?

Angela Eagle (Labour, Wallasey)

First, I can confirm that the hon. Gentleman’s interpretation of the changes to the R and D relief with respect to national insurance contributions is correct—relief will be paid for costs in EEA countries and Switzerland, but not worldwide. He is right, as I mentioned in my brief opening remarks, that it is a state aid issue and, therefore, there is no requirement or intention to extend the changes worldwide.

The hon. Gentleman is wrong about the vaccine research relief, however. The changes do not prevent relief for research that has been contracted to universities or charitable companies. The change aligns the treatment of those bodies with that of other subcontractors, and it moves the relief available to them down from 100 per cent. of the costs to 65 per cent. Again, that was a technical issue about state aid approval. It is still possible for a company, charity, university or subcontracted scientific research organisation jointly to elect to be treated as connected parties and claim the full amount of costs incurred. It is an alignment, not a ban.

David Gauke (Conservative, South West Hertfordshire)

I am grateful for clarification that the provision is not a ban as such; none the less, it is an alignment that makes using universities for vaccine research less attractive. That is a fair interpretation of the new clause.

Angela Eagle (Labour, Wallasey)

It makes it slightly less attractive, but at present nobody has used it in its more attractive state. Vaccine research relief is a small and limited scheme, which deals only with TB, malaria and certain strains of HIV. It is not a general issue, and even at 100 per cent. relief we have seen no use of it. We are not worried about the practical effect of the alignment.

New Clause 10

Justine Greening (Conservative, Putney)

I beg to move, That the clause be read a Second time.

It may be helpful if I spend a brief time talking about the background as to why the issue has arisen. I shall then talk about the picture at present, beverages and food generally and then about why I think the mew clause is important in that context.

First, let us talk about the state of the nation’s health, which is ultimately the background to our tabling the amendment. The provision would obtain a fact base for the Government to understand to what extent VAT could be used to encourage healthy eating. Across the nation, healthy eating has risen up the political agenda dramatically, certainly over recent years, for a number of reasons. The main reason is many people’s sense that the state of our nation’s health is getting steadily worse, particularly in terms of avoidable ill health. The situation is worse than it has been for some time, perhaps worse than it has ever been. One only has to look at some key statistics for obesity on the Department of Health website to start to understand the magnitude of the problem and its implications.

The latest statistics, which I think are from 2006, show that 24 per cent. of the adult population in England is already classified as obese. Although that is weighted equally between male and female populations, women are more likely to be morbidly obese than men. My understanding is that if current obesity levels continue to rise as they have done, about 60 per cent. of men and 50 per cent. of women will be clinically obese by 2050.

We know the impact of obesity on people and on public finances. For the individual, obesity unfortunately comes with a whole bundle of negative health impacts. Conditions such as type 2 diabetes, heart disease and even, it would seem, some types of cancer—endometrial, breast and colon—can to some extent be attributed to excess body fat. According to the Department of Health, 9,000 premature deaths each year in England are semi-related to obesity. There are broader effects such as the impact of ill health on people’s ability to work productively and the fact that they also have higher sickness rates.

More worrying is the picture of obesity in children. Almost one fifth of all children under the age of 16 are classed as obese, and the figure is expected to rise to 25 per cent. by 2050 if these sorts of trends continue. It is deeply worrying.

The problem is not just the lack of healthy eating. There is also a problem regarding lack of exercise. The extent to which people are taking regular exercise is declining, or at best static. Many of us who live in London are hoping that the 2012 Olympics will be used as a positive spur to encourage people to take exercise. Looking at the NHS statistics, just 40 per cent. of men and 28 per cent. of women met the minimum recommendations for physical activity in adults—at least 30 minutes of activity on at least five days a week.

Patrick Hall (Labour, Bedford)

I know that the hon. Lady is being serious and I take the subject that she is talking about seriously, but could she assist us all by coming to an early conclusion on the matter so that we can all go to the gym?

Justine Greening (Conservative, Putney)

That was an interesting intervention. I shall not take any more time than I need. I tend not to use the House of Commons gym because I am worried about some of the hon. Members I may meet on the exercise bike.

Angela Eagle (Labour, Wallasey)

As someone who regularly uses the House of Commons gym, I can assure the hon. Lady that it is a very welcoming place, and we would all be happy to see her there.

Justine Greening (Conservative, Putney)

This seems to have become a debate about my physical exercise. I am happy to tell the hon. Lady that in the Commons versus Lords swimming competition two years ago, I won the prize for fastest female. I exercise, but I tend not to be a gym person. I am more of a swimmer, which I am sure Sir Nicholas is very relieved to hear. I apologise for being slightly diverted. I will now return to the nation’s health rather than mine.

We have discussed why physical exercise is important. It is fair to say that our main concern in tabling the amendment, which relates to fruit juice in particular, was to encourage healthy lifestyles. In an interesting report in May, a senior medical director at Alder Hey children’s hospital in Liverpool said that “significant numbers” of children aged between two and three were being classed as obese. He said that they were experiencing conditions such as type 2 diabetes, which would normally only be expected in middle-aged people. Depressingly, the medical director, Steve Ryan, said that

“it was almost certain that surgeons will have to staple children’s stomachs within a few years.”

That is horrendous. The same medical director talked about seeing breathing difficulties in overweight children, which is a particularly depressing state of affairs. That is one of the reasons why we must consider all the levers that can be pulled, including ones in the tax system, to start addressing such issues.

It is fair to say that the Government have made some efforts. There have been a number of different initiatives including the five-a-day programme, which included the school fruit and vegetable scheme. We are also aware of the big debate and the improvements that were made to school lunches. We can all pay tribute to people such as Jamie Oliver who put the issue of healthy eating at school high on the agenda. I know that the matter is important in my constituency. Last year, I visited Albermarle, one of my local primary schools, which has a fantastic school kitchen that produces healthy food.

Nicholas Winterton (Conservative, Macclesfield)

Order. May I say to the hon. Lady that she is going slightly wide of her new clause, which relates to VAT on beverages and not food? I am not sure whether she is suggesting that there should be VAT on food. I hope that she is not.

Justine Greening (Conservative, Putney)

Thank you, Sir Nicholas. There is some rationality in the way I am building up my argument. I know that I have been talking about food, but I want to go on to discuss the contrast between VAT on some food and VAT on fruit juices. We may expect to see a different approach to the VAT rates on some food compared to some beverages and fruit juices, but I will come to that very shortly.

Philip Hammond (Conservative, Runnymede and Weybridge)

I listened carefully to what the Chairman said, but I, too, have received a great number of representations on that issue. At the root of them is concern that fruit, which is generally regarded as a good thing, is not subject to VAT as a food, but as soon as one squeezes it to make equally healthy fruit juice, it becomes subject to VAT. That contrast is at the heart of this debate, as I think my hon. Friend would agree.

Justine Greening (Conservative, Putney)

My hon. Friend has expressed the point perfectly—better than I could have done.

Angela Eagle (Labour, Wallasey)

Does the hon. Lady recognise that it became the case because the previous Government in 1993 changed the rules to bring fruit juices into the VAT system?

Justine Greening (Conservative, Putney)

The Exchequer Secretary is right. It happened following the decision regarding Tropicana UK Ltd, which found that pasteurised orange juice was not a manufactured beverage. We are all conscious that VAT law can be complex. This may be a good time to discuss some of the anomalies.

I draw the Exchequer Secretary’s attention back to the purpose of the new clause. For the first time, we want to put a fact base on the table to show whether the tax system can be used to encourage healthy eating. The proposal specifically uses VAT. I understand that the Government are considering the issue; the Wanless report looked at dietary-based taxes so there is clearly a debate to be had. We will not be able to understand whether the idea is realistic or important or whether it can provide real achievements unless we have a statistical fact base. Only then can we understand the impact and take a decision.

A lot of VAT law is set through case law. There is no doubt that there are some oddities—there is no other word for them—in what is zero-rated and what is not. When looking at healthy eating, such oddities jump out. Chips, hot dogs, burgers, biscuits, tea and coffee, yoghurt and a range of other foods are zero-rated, but fruit juice, bottled water and some herbal teas are not. As my hon. Friend the Member for Runnymede and Weybridge said, we end up with the bizarre situation where a fruit that is still intact has a zero rate of VAT, but the minute it is squeezed to become a fruit juice, it has a standard rate of VAT. There are some questions that need to be raised.

We have already started to debate the issue in the House. In this very room, we have the hon. Member for Dundee, East, who tabled early-day motion 558, called “VAT on Fresh Fruit Juice”, which called

“on the Government to investigate the possible benefits of reducing VAT on fresh fruit juice to encourage children in particular to choose to drink fresh fruit juice rather than other less healthy drinks.”

That received the signatures of 59 colleagues in the House. I spotted the signature of the hon. Member for South-East Cornwall of the Liberal Democrats. There is, therefore, some support for the issue in the House.

There is also evidence of support outside the House. A petition on the issue was set up by Innocent smoothies, although it is fair to say that the company has a business interest in the issue.

Mr. Handsrose—

Nicholas Winterton (Conservative, Macclesfield)

Greg Hands—innocent smoothie!

Greg Hands (Conservative, Hammersmith and Fulham)

I am delighted that my hon. Friend has mentioned Innocent, as it is located in my constituency. She is right to say that the company has launched an extensive campaign. However, I have received representations not only from that company, but from a large number of constituents advocating a change. It is certainly very popular in Hammersmith and Fulham.

Justine Greening (Conservative, Putney)

I am not sure whether the hon. Gentleman’s constituents would describe him as an innocent smoothie, but I am sure that he is a smoothie in his own way. The campaign was backed by the British Soft Drinks Association, which I am sure also has its own reasons for supporting it. When Innocent smoothies set up the petition, it received 22,000 signatures.

Mark Todd (Labour, South Derbyshire)

The new clause refers to “beverages containing fruit juice”. That is substantially different from a discussion of fresh juice, which I am sure Innocent would advocate very powerfully. I drink Innocent smoothies myself. The new clause does not make entirely the point that the hon. Lady is dwelling on.

Justine Greening (Conservative, Putney)

It does, but one of the key issues that the Government need to look at is how broad would be the extent of any reduction of standard rate VAT to a lower rate. A key debate would be whether it would be restricted to pure fruit juice. One main reason for the change in VAT law was a reaction to how fruit juice might be defined. Those are all issues to be discussed.

We seek to encourage that debate but, most importantly, to encourage it in terms of where we are now rather than in a fact-free environment. We do not know the Treasury view on demand elasticity, health benefits or price elasticity of fruit juice. The Treasury could look into many issues to get a better understanding of where the line might be drawn, such as whether fruit juice combined with water or any other liquid might be included or whether it would be a more a restricted definition of pure fruit juice.

We need to understand—I think that the hon. Member for South Derbyshire was alluding to this—whether it is better to have a more restricted definition or whether broadening it out would mean fewer health benefits. Although drinks and beverages may have fruit juice in them, they may also have other ingredients such as sugar, which may lessen the health benefits. The hon. Member for South Derbyshire raised a very good point.

As I was saying, the Innocent smoothie petition got 22,000 signatures. It is becoming recognised that this nation has a real issue with obesity, particularly childhood obesity. A Foresight report estimated that such weight problems could cost the wider economy in the region of £16 billion.

It is time to start looking at whether we are using all the mechanisms available to Government, including VAT law and tax. We will not get to the bottom of this if we do not get the facts for Ministers to look at and for this House to start debating.

Our new clause is designed to help do that. I look forward to hearing what the Minister has to say. We should not hide from facts. In today’s Britain we are increasingly looking at our tax system to change behaviour. This is not something that we have ever done as broadly as we are now discussing, particularly with regard to green taxation. We will not be able to understand how tax can change behaviour for the better—for the individual and the country—if we do not carry out the research and investigations and have the necessary debate.

New clause 10 is about ensuring that we will lay a report before Parliament so that it can have a debate and get to the bottom of these vital issues, including fruit juice. I will listen with interest to what the Minister has to say.

Angela Eagle (Labour, Wallasey)

I will respond briefly to what has been a short but tantalising debate about some of the uses of tax instruments for incentivising potentially healthy outcomes.

I do not think that any member of the Committee disagrees with the worries raised by the hon. Member for Putney about trends in obesity, childhood eating habits, nutrition and ongoing health. I suspect that those concerns are shared across the House.

New clause 10 proposes that the Treasury should, within six months of the Bill passing into law, lay before the House of Commons a report on the potential revenue costs and health benefits of a VAT reduction for beverages containing fruit juice. There is a bit of a difficulty in that issue, as hon. Government Members have pointed out. As the hon. Lady hinted after my earlier intervention, that problem led to the term “manufactured” being dropped from the existing tax rules in 1993, as that had meant that all fruit drinks, whether manufactured or pure, were included in VAT rather than excluded.

I do not think that any member of the Committee is unaware of the worries surrounding obesity and the challenge of ensuring that we can change the nation’s eating habits in a positive way. I thank the hon. Lady for her observation that the Government have been doing good things in that area, such as the school fruit and vegetables scheme, the five-a-day programme, the education issues that are being raised and the move to much healthier school lunches.

Justine Greening (Conservative, Putney)

The Minister is right that the Government have been doing stuff—I should say initiatives, rather than stuff. However, one thing that I did not mention was that last year the Government abandoned their target to halve childhood obesity by 2010 and set a goal of reducing it by 2020. Despite that action, there is an issue regarding what progress will really be made. I caveat my comments about what the Government have been doing with a concern about that step back from what was an ambitious but obviously important target on childhood obesity reduction.

Angela Eagle (Labour, Wallasey)

I do not want to get diverted by having an argument with the hon. Lady about the Government’s commitment to ensuring that we have a healthy nation and that we teach our children, in particular, how to eat healthily when they are besieged by all kinds of temptations to do otherwise, because that is not appropriate to the new clause. However, I hope that she will acknowledge, as I thought she had, that all members of the Committee are interested in a positive solution to those challenges. I am particularly interested in what we can do to reduce the seemingly absurd positive correlation between poverty and obesity, which I do not think many people would have been able to predict would have been such a problem as we move forward.

Let us get back to new clause 10, which suggests that we look at the potential revenue costs and health benefits of a VAT reduction on beverages containing fruit juice. There are, however, many difficulties about what those beverages are.

Justine Greening (Conservative, Putney)

Will the Minister give way?

Angela Eagle (Labour, Wallasey)

No, I want to develop this argument. The hon. Lady admitted that fruit juice could be 100 per cent. pure, which many of us know to have good health benefits, although one has to be careful that children do not drink too much because the acidity is not always good for their dental health. It is much better for them to eat the fruit and get the fibre at the same time, so some issues need to be considered. Also, beverages containing fruit juice could cover all sorts of beverages that are completely unhealthy, so it will become an issue of whether we can restrict the VAT reductions to the right kinds of beverages. It was difficulty in that area that saw beverages brought into VAT in the first place, with the 1993 changes.

We are not against thinking about the issue in principle, but some of the difficulties with using VAT and tax rules to try to achieve healthy outcomes are precisely those that were experienced in 1993. We have a thing called fiscal neutrality in our VAT rules, which are EU-based, meaning that there has to be equal VAT treatment of substitutable products to the extent that any VAT difference could impact on consumer choice. Whether one could argue that pure fruit juice and a fruit juice made with higher levels of sugar were not substitutable products for that VAT rule is part of the difficulty that was resolved in 1993. It is not a boundary that it would necessarily be possible for us to maintain. That is one of the issues that we are having to consider as we think about whether we could use reductions of VAT on particular beverages to incentivise healthy eating or drinking.

Justine Greening (Conservative, Putney)

I want to take the hon. Lady back to her earlier comments about poverty and obesity. She commented on that link, a positive correlation—the greater the poverty, the greater the chance of being obese. That may not be surprising, if things like chips, hotdogs, burgers and biscuits have zero-rated VAT, when fruit juice has standard-rated VAT.

Angela Eagle (Labour, Wallasey)

It is also possible, Sir Nicholas, to eat your five a day without incurring any VAT. The issue that we are dealing with is that VAT is a purchase tax that has developed. We have zero-rating for about 60 per cent. of food, because that is what we had when we came into the EU. There are anomalies all over. There is the VAT on particular foods. There is even an anomaly with water—if one drinks tap water, it is not VAT-able, but if one drinks it out of a bottle, it is. VAT does not apply to tap water at all, but people still do not drink enough water. I suggest to the Committee that whether VAT exists on a product or not is not the only difficulty that we have here. The result of reducing VAT might not have that positive a correlation with the end that we all want to see. We have to think about whether the instruments that the new clause suggests, and which we are considering, would achieve the desired end. I do not think that that is by any means proved at the moment.

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Lady is putting her case entirely reasonably. It is precisely because we agree—we would agree with every word she has said in that last paragraph or two—that we are not considering a prescriptive new clause, saying that VAT shall be reduced on fruit juices. We are considering a new clause that asks the Government to get at the underlying facts and set them out so that hon. Members can consider them.

We accept that the issue is complicated. We accept that there all sorts of anomalies in the VAT system. She talked about substitution between products. The essence of the argument is that there is substitution between fruit and pure fruit juices. It happens, by and large, to be easier to get children to take fruit in the form of juices than in the form of solid fruit. I speak as one who has tried. However, she made an interesting point about the negative dental effects of drinking too much fruit juice. There are arguments on both sides. It is precisely because we want to understand the balance of those arguments that we are seeking to persuade the Government of the merits of looking into that and setting out the answers in a way that all Members of the House could consider.

Angela Eagle (Labour, Wallasey)

I do not disagree with that, but there are other difficulties. It is possible to remain sceptical as to whether VAT is the right instrument to achieve that, particularly given that it is unclear whether we could draw the boundaries in a way that would be sensible from a health point of view. We also have to think about the opportunities to use the money in other areas that would be forgone if we had a reduction in VAT, such as extending the school fruit and vegetable scheme to nursery education. That might be a better use for the money.

It is important to consider these issues carefully, and it is only right that they are considered. It is appropriate also that we publish any supporting information, but I would ask that this be part of the normal Budget process rather than a completely separate process, which this new clause suggests. We can then look at the case for a VAT reduction in the context of the broader fiscal position and alongside alternative tax proposals and other potential policy instruments.

Philip Hammond (Conservative, Runnymede and Weybridge)

I think we are in danger of agreeing on everything here. We agree with what the Minister said, and the new clause specifically refers to the Exchequer costs as well as the health benefits. They clearly have to be weighed, and we do not know the outcome any more than she does. From the general tenor of her remarks, the Government are doing work in this area. Can she give the Committee any commitment as to whether it will be the Budget next year or the Budget the year after when the fruits—if I may put it that way—of that work will be delivered?

Angela Eagle (Labour, Wallasey)

We are doing work, and we are considering whether this is an appropriate instrument. There was some consideration of it in the run-up to this year’s Budget. These things are still under review, and it would be wrong of me to come up with a definitive answer in the next month or two, but I can assure him that we are considering all these issues. We share the anxieties, if I can put it that way, of the challenge that is before us in terms of the trends in childhood obesity. I note that the Department of Health is not in favour of the reduction of VAT in this way, because it thinks there are more focused ways of delivering these messages. But I can assure the hon. Gentleman that we are not dismissing these concerns or interests out of hand. There are some difficulties, and I have explained two or three of them, in terms of fiscal neutrality and definitions. But I hope that, with this explanation, the hon. Member for Putney will withdraw her new clause.

Justine Greening (Conservative, Putney)

I am grateful to the Minister for her comments. It is helpful to know that the Treasury is actively reviewing this area. I understand that, back in the Budget of 2006, there was an announcement by the then Chancellor, now Prime Minister, of a review of the taxation of non-alcoholic drinks, but it seems to have been lost over time. It would be helpful to know what the deliberations going on at the moment—by the sound of it, in the Treasury and Department of Health—are turning up in terms of new evidence and assessments.

The whole point of our new clause was to get facts on the table, as my hon. Friend the Member for Runnymede and Weybridge said, so that we can understand the trade-offs between these competing policy areas, and where we might want to put resources and where they might be most effective in terms of achieving healthy eating. So from my perspective, this has been a really helpful debate, and I am grateful for the Minister’s comments. I beg to ask leave to withdraw the motion and the clause.

New Clause 13

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move, That the clause be read a Second time.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss

New clause 14—Report on impact of Finance Bill on people on low incomes—

‘It shall be the duty of the Treasury to prepare and lay before the House of Commons, at the time of publication of each Finance Bill, a report on the impact on individuals in the lowest income decile of the population of the measures contained in that Finance Bill.’.

Philip Hammond (Conservative, Runnymede and Weybridge)

New clause 13 would require the Treasury to lay before Parliament every year, when the Finance Bill was published, an assessment of its impact on people aged over 60, and new clause 14 would place a similar requirement in respect of people in the lowest income decile.

New clauses or amendments requiring the laying of a report are often simply devices for holding a debate. In this case, it is entirely substantive to suggest that it would be convenient for Members of the House of Commons if the Government were to table reports detailing these issues at the time that the Finance Bill is published. We have had probably as good a reminder as one could conceivably devise of the need to understand the impact of a measure on different groups in our society over the course of the last six months with the debate on the 10p rate—more of which in a moment.

Older people are amongst the most vulnerable citizens in our society and any Government have a duty to ensure that they are not unfairly treated. That means, alongside the panoply of positive measures to try to address the issues that particularly face pensioners, we need to ensure that none of the general measures that we are introducing—we are looking particularly at taxation measures introduced in Finance Acts—have the effect, either inadvertently or otherwise, of worsening the situation that those people find themselves in. At the very least, we ought to ensure that Members of Parliament scrutinising proposed legislation and debating these issues, do so with their eyes open, so that if they introduce a measure that may impact adversely on groups such as the over-60s—there may be occasions when sadly, for fiscal or other reasons, it is necessary to do so—they do so with their eyes open and in full knowledge and understanding of the effects and implications of the legislation that they are passing. In other words, we should not introduce measures that have unintended consequences that then have to be unravelled after a political furore.

Older people, of course, face some very severe pressures at the moment, which makes the introduction of this new clause, with effect for all future Finance Bills, particularly pertinent. The soaring price—I might say, without wishing to resort to hyperbole—of fuel and food, while it affects all of us, even those who are relatively well-off, clearly has a devastating and disproportionate effect on those living on fixed incomes, and a significant proportion of those living on fixed incomes will be pensioners.

I hope that the Minister will accept that the purpose of both of these new clauses is to avoid unforeseen circumstances and to ensure that Parliament, commentators and the public debate are well informed. As I think she will be among the first to acknowledge, unforeseen consequences of measures in Finance Bills can have political as well as economic impact. The Government would be wise to look at what is being proposed here and consider whether this would not be a measure that could avoid future pitfalls from unintended consequences of measures introduced in Finance Bills.

I must give credit to the right hon. Member for Birkenhead (Mr. Field), who during consideration of last year’s Finance Bill tabled a provision that was a little too restrictive for the taste of the official Opposition. It would have required the Government to assess the impact of measures in the Finance Bill on those at the bottom of the income scale and, as I understand it, it would have prevented such measures from being introduced unless and until offsetting mitigation measures were also included. It would have severely restricted the Treasury’s ability to propose fiscal measures. As I have acknowledged—I am sure the Financial Secretary will agree—none of us would choose fiscal measures that disproportionately burden the poorest and most vulnerable. The Treasury needs flexibility to deal with the fiscal situation that it is in, which frankly is not good and, from figures published today, does not seem to be heading in a positive direction. The right hon. Gentleman’s proposal was a useful and helpful measure, as it would have drawn attention to and clearly set out the likely impact of the measures in the Finance Bill on those most vulnerable groups.

As originally published, the Finance Bill contained a measure announced in the 2007 Budget that would have left 5.3 million households worse off—the abolition of the 10p tax rate. A significant number of those households, at least 700,000, would have been people between the ages of 60 and 64. I say “would have been”, because the Government have subsequently changed tack and, rather humiliatingly, introduced a mini-Budget to announce further changes that reduce the number of people placed at a net disadvantage by the measure. I am sure that the Government would have preferred not to have needed to do that. I am sure that Labour MPs—many of whom, to their credit, identified and vocalised their concerns between the Budget and the Committee of the whole House—would have preferred the potential impacts of the measure to have been set out and understood earlier. They could have made their feelings known discreetly to Ministers, who would then have understood the scale of the feeling across the House on those issues and something could have been done earlier with much less fuss and bother for everyone, especially the Government. I hope that the Minister is appreciative of my concern to spare the Government embarrassment wherever possible.

Even after the compensation package, 300,000 60 to 64-year-olds will still be worse off as a result of a 10p rate cut. An unfortunate fact, inconvenient to hon. Members on both sides of the Committee, is that the Government do not routinely provide any distributional impact information on the measures as part of the Budget process. Although the new clause talks of publishing such a report not later than the time of publication of the Finance Bill, we envisage that a distributional impact analysis could be published at the time of the Budget that introduced the measure—that is something that I hope will become practice if the new clauses are accepted.

In practice, it is left to organisations such as the Institute for Fiscal Studies to go through the small print and publish an attempt at distributional analysis, which sometimes the Government decline to endorse. On other occasions—this year was one of them—the Government broadly endorsed the analysis of the IFS of the distributional impact of the measure. The Treasury Committee also takes evidence on issues including distributional impact and ultimately publishes a report on the Budget measures which includes such an analysis and its comments thereon, although that is usually some time after the critical point.

We are arguing for transparency. It is crucial that Members of Parliament have the necessary information to scrutinise legislation properly. The Financial Secretary will remember, and members of the Committee will have very firmly in their minds, that no less a person than the Prime Minister, at the beginning of his term of office, stated quite clearly his intention to reinforce the role of Parliament in scrutinising the Executive. If Parliament has an important role in scrutinising the Executive, it is nowhere more important than in relation to the Finance Bill, the premier piece of legislation in the Government’s programme each year. This new clause is designed to reinforce that scrutiny process and thus to reinforce the Prime Minister’s desire to give more teeth to Parliament in its scrutiny and oversight of the working of the Executive.

Pensioners are currently struggling with higher food and fuel bills. Frankly, most of them do not see much light at the end of the tunnel. They are looking for some sign of relief from the Government. At the very least, they are looking for a recognition that their specific vulnerability should be taken into account when general revenue raising measures are introduced in the Finance Bill so that mitigation can be put in place if that is appropriate, or that the general measures can be tempered in recognition of the impact that they will have on older people.

The number of pensioners going bankrupt has more than doubled in the last five years from just 900 in 2002 to 7,900 in 2007. That looks like more than doubling to me. It is up nearly tenfold in those five years. That is partly a result of the complexity of the means-tested pension credit system. That is not just my analysis, but the analysis in an independent report on why so many pensioners miss out on the benefits to which they are entitled, published by Wilkins Kennedy under the title “Proportion of Retired Bankrupts Rising” on 27 September 2007.

More people are reaching retirement age in debt. Perhaps that simply reflects the tendency in recent years for people to treat their homes as a sort of piggy bank out of which they can draw equity when they find life getting difficult. Many people have been tempted to do that. Borrowers in their late 50s and early 60s owe four times as much as they did a decade ago, according to a study by Barclays and Help the Aged.

This 10p fiasco is not the first time that pensioners have been adversely affected by measures in a Finance Bill. It is not the first time that measures that would have an impact on pensioners have gone initially unnoticed, or at least with their significance unacknowledged. I remind the Committee that as long ago as the Labour party conference of October 1996, the now Prime Minister gave a pledge of

“fairness to the pensioners under Labour.”

The truth is that various fiscal measures that he has taken over the past 10 years when he was Chancellor of the Exchequer have adversely affected British pensioners and reduced security in retirement, often in a way that is not clear at the time. Sometimes that has been inadvertent, and sometimes it has been the result of a stealth measure. This Government’s first welfare reform Minister, the right hon. Member for Birkenhead, summarised the Government’s record by saying that

“when Labour came to office we had one of the strongest pension provisions in Europe and now probably we have some of the weakest”.

I want to talk about a matter on which this new clause 13 would have a specific impact: the decision taken in 1997, and implemented in the Finance Act 1997, to abolish the tax credit on dividends, costing occupational pension schemes billions of pounds and undermining the retirement security of millions of people. That measure, which has cost pension funds an estimated £5 billion a year since it was introduced in 1997, has eroded confidence in pension savings and, according to actuaries, has reduced the capital value of pension funds by at least £100 billion.

Yet the truth is that none of us—even those who were looking for the undeclared consequences of Government announcements and legislative proposals back in 1997—spotted the significance of the abolition of dividend credits. Those lobbying for pensioner and pension fund interests did not make the case loudly at the time. I accept that that is partly due to the fact that, back in the heady days of 1997, the concept of stealth taxes was an entirely new one. The convention had always been that changes in taxes were announced in the Budget and then enacted in the Finance Bill. At that time, we had not yet got used to sifting through the small print, looking for the changes that were unannounced but nevertheless of major significance. The truth is that even if that measure had been announced later, when we understood the concept of stealth taxes, it would have been difficult to identify its significance, and certainly difficult to quantify its significance and its impact on people aged over 60.

The new clause would require the Government to bring out into the open the distributional impacts of measures in the Budget, so that there would never again be an opportunity for a Government to sneak in a measure like the dividend tax credit abolition without explaining and accounting to Parliament for the impact it would have on this particularly vulnerable group: people over the age of 60.

You will know, Sir Nicholas, some of the statistics around the situation affecting pensioners. Five sixths of final salary pension schemes have closed since 2007, “under our watch”, as the right hon. Member for Birkenhead put it. Only a third of final salary pension schemes are still open to new members. You will remember, Sir Nicholas, the papers released under the Freedom of Information Act 2000, after a long battle by the Treasury to prevent their release, which showed that the then Chancellor, the current Prime Minister, was advised in very precise terms in 1997 of the damage that the abolition of dividend tax credit would do to pension funds. It is not the case that these were unidentified consequences.

Clearly, if new clause 13 had been in effect at the time of the Finance Act 1997—I think it was Finance Act No. 2, since we had just had a general election—the Government would have had to set out in very clear black and white terms the impact of this measure on pension funds and pensioners, particularly poor pensioners. It was very clear, and the Chancellor was advised very clearly, that the poorest pensioners would be hit hardest.

We are trying to get the argument into the public domain in a way that is conducive to good governance. At the time of the 1997 events, various things were said. The current Secretary of State for Children, Schools and Families claimed that the changes were

“the best thing for the long-term investment of the UK economy.”

However, Derek Scott, who was an economics adviser to No. 10 at the time, thought differently. He said:

“I thought it was a crackers thing to do. The policy came out of the Treasury and I thought it was a mad thing to do and said so at the time. The idea that it helps investment by hitting pension funds is ludicrous.”

So we have these tensions inside the broader Government machine, but we do not get them out into the open. We need the facts set out in the open, we need all the information out there, and we need the distributional impacts fully spelled out so that we can understand them, discuss them openly and scrutinise what the Government are doing.

Stephen Hesford (Labour, Wirral West)

The hon. Gentleman is making an entirely bogus case. He knows that the pensions industry did not suffer because of the reasons he suggests. There were reasons why the pensions industry did suffer, but they had absolutely nothing to do with what the then Chancellor, now the Prime Minister, did in the Finance Act to which he refers. There were a number of reasons why the pensions industry suffered, and I will ask him to ponder on three indications.

First, around 2000, there was the dotcom bust, which caused investments to go down. That was one part of the story. Secondly, there was a miscalculation by the actuaries about people’ longevity, so such pension provision became unsupportable and expensive and therefore unfashionable. Thirdly, there was a miscalculation about pension holidays—contribution holidays—and the catch-up became too expensive. It was nothing to do with the then Chancellor.

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Gentleman makes his point, but it will not surprise him to hear that I disagree entirely. It is difficult to understand how anyone could think that £5 billion per year could be taken out of pension funds, making a £5 billion hit on their income, not once, but every year, without that having a negative impact on the value of those funds and the future security of retirees who depend on them.

Stephen Hesford (Labour, Wirral West)

The hon. Gentleman knows that this is not the first time that the House has debated this bogus issue.

Philip Hammond (Conservative, Runnymede and Weybridge)

It is not a bogus issue.

The rest of the debate is in Hansard.