Finance Bill

Public Bill Committee, 26 June 2012.

(Except clauses 1, 4, 8, 189 and 209, schedules 1, 23 and 33, and certain new clauses and new schedules) - Clause 206 - Indexation of rate bands

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I welcome you again to the Chair, Mr Bone, on the final day of this Finance Bill Committee. I assure you that the Committee will be as thorough and scrutinising as it has been from the start. It is an honour to serve under your chairmanship today.

I will address clause 206 and introduce some of the queries and concerns that arise from the clauses on inheritance tax. We all remember what a priority inheritance tax was for the Government when they went into the last general election. Their manifesto pledge to raise the inheritance tax threshold to £1 million lasted just 12 days and did not make it into the coalition agreement. That was good news for Opposition Members because the pledge was a millionaires’ charter that would have given the richest people in this country a tax break at a time when the incomes of millions of hard-working families are being cut.

I can therefore happily say that these clauses do not introduce a large rise in the threshold. Instead, clause 206 will limit the threshold by changing the automatic index-linking of the nil rate band—the amount that can be inherited before inheritance tax is payable—to the consumer prices index inflation measure, instead of to the retail prices index. We do not oppose that change. The vast majority of people will be unaffected by the measure; only 6% of estates are large enough to be subject to inheritance tax. Labour’s last Budget in 2010 confirmed that the nil rate band would be frozen until 2015 as a deficit reduction measure. We therefore see the change as a reasonable measure to slow down the rate at which the threshold will grow after that.

Will the Minister confirm whether his Government’s policy is to lift the freeze after 2015? What are the Government’s future plans?

Charlie Elphicke (Conservative, Dover)

Is the hon. Lady saying that she opposes any rise in the threshold, now or in the future? Or does she believe that there should be a rise in the threshold at some point?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I am not in any way saying that I am opposed to rises in the threshold. I am grateful that the hon. Gentleman gives me this opportunity to make it clear that I do not think it is appropriate at this stage, given the current economic situation and the burden that is falling on those who earn the least, for the threshold to be frozen for those who are most able to bear such a burden. I seek confirmation of the Government’s policy on the freeze and any potential future rises.

The measure before the Committee will collect more revenue from the people who can afford it most. For that reason, we will not oppose or seek any amendment to the clause.

Jacob Rees-Mogg (Conservative, North East Somerset)

It is a great pleasure to serve under your chairmanship, Mr Bone, although, to some extent, there is sorrow that we are ending this marvellous consideration of the Bill. This Committee has been a feast of delights, joys, wit and entertainment from both sides.

On inheritance tax—or death duty, as it more popularly ought to be called, because it is not on inheritance but on death—I want briefly to remind Conservatives of what they really believe. We believe that this is a monstrous tax, one of the cruellest taxes that falls on people at the worst time when they are facing the loss of a member of their family, somebody to whom they were probably devoted. This tax takes something that has been built up over years, sometimes generations, and penalises it at a 40p rate, snatching it into the grasp of Revenue and Customs. One would think that the undertaker turns up followed immediately by somebody accounting for the Inland Revenue. That is a cruel and sad thought. The Conservative party was amazingly popular when it said it would raise the threshold to £1 million. The right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) decided that a general election could not be called, so popular were the Conservatives at that point. The opinion poll ratings shot up; it made us almost as popular as the veto of the European treaty did. There is a lesson to learn from that of sticking to the true Conservative principles of low taxation and not taxing capital, because that is a tax on something that is not fundamentally liquid. That is bad whether it is on death, wealth or property.

Grahame Morris (Labour, Easington)

I am sorry to interrupt the hon. Gentleman’s flow. Will he advise the Committee whether he agrees with his right hon. Friend the Member for North Somerset (Dr Fox)? On a radio interview during the week, he said that he believed in the abolition of inheritance tax.

Jacob Rees-Mogg (Conservative, North East Somerset)

Somerset is such a place of wisdom and sense that it is no surprise to me that I agree with my right hon. Friend and immediate neighbour, with whom I am sometimes privileged to be confused when people forget the word “East” in my constituency. I take it as a matter of honour to be compared to the great man, and his wisdom is known across the nation. What he said is absolutely right.

John Mann (Labour, Bassetlaw)

To clarify the hon. Gentleman’s core Conservative principles, which he advises his colleagues to consider for the first time in the Committee, will he say whether it is his view that taxation, as he suggests, should be lowered, but that everybody who avoids the set rates of tax should be pilloried and identified, from Prime Minister onwards—for example, Mr Jimmy Carr? Would he like to name other tax avoiders, who ought to be named and shamed in the true new Conservative tradition?

Jacob Rees-Mogg (Conservative, North East Somerset)

I am grateful to the hon. Gentleman, who sometimes manages to put a more Tory case than I can myself. It troubles me that Bassetlaw is not about to become an outpost, an honorary part of Somerset, when he has so robust and staunch a view.

Tax avoidance is perfectly legal, and people are entitled to prevent the Revenue, as Lord Clyde said, “putting the largest possible shovel” into their stores, by making such arrangements as they see fit and are legal. Some things might turn out not to be legal.

Grahame Morris (Labour, Easington)

Leaving aside the point about tax avoidance, I do not think that that defence would hold in the court of public opinion. In relation to the hon. Gentleman’s advocacy of the abolition of inheritance tax, how would he pay for that tax cut? That cut of £4 billion would benefit a very small proportion of people, a lot of them in Somerset.

Jacob Rees-Mogg (Conservative, North East Somerset)

I am grateful to the hon. Gentleman for that point. There is a serious economic argument for getting rid of inheritance tax. On the propriety of taxing people on death, I would question whether it is right for the Government in principle to impose a tax at that point.

On the economic argument, taxing capital ties it up in inefficient ways. There are a variety of reasons for that, not least that there are all sorts of exemptions relating to inheritance tax that encourage people to make particular types of investment, which may not be the best economic use of capital. They may invest in or hold goods that are exempt, buy trading farms or put the money into land—raising the price of land, already currently high—and not necessarily into other productive investments. There is a great prejudice in favour of a private business as against a public business, but public businesses may need investment more than private trading companies. Private trading companies may be over-capitalised because that is a way to get round inheritance tax. Our public companies find it hard to raise capital. Bank deposits are lowered; if someone has a bank deposit that is the easiest way to levy inheritance whereas if the money is in a corporate structure, it is taken out of inheritance tax.

The anomalies that are caused through inheritance tax are economically very damaging and ensure that capital is not best used. It seems crucial that any tax system should do the least damage to people’s investment decisions, because our economy will grow only if capital is used efficiently and productively. I argue strongly that death duties lead to the unproductive use of capital.

The only reason for death duties, as they currently stand, is as a “Let’s soak the rich” approach to taxation.

Ian Mearns (Labour, Gateshead)

The hon. Gentleman is giving a stout defence of those who avoid paying and subsequently may fall foul of inheritance tax. If the apocryphal Mr Carr were to fall unfortunately under the number 53 Saltwell park omnibus one day, his estate, which he has put offshore, would fall foul of inheritance tax, because the offshore trust would revert back to his estate. Is the hon. Gentleman saying that such an estate should not be subject to any inheritance tax?

Jacob Rees-Mogg (Conservative, North East Somerset)

It is not for me to discuss the affairs of particular comedians. All I will say is that it is interesting that both Ken Dodd and Mr Carr have got into trouble over their tax affairs, and I wonder if there is any connection between them, or whether Mr Dodd is funny and the other is not. That may be a minority taste, even among the Committee.

Ian Mearns (Labour, Gateshead)

I think it was Ken Dodd who said that comedians were not accountants, but some accountants are comedians.

Jacob Rees-Mogg (Conservative, North East Somerset)

I do not wish to be pedantic, but I think it was George Carman, his QC, who said that, rather than Ken Dodd himself. The point is none the less well made.

On death duties relating to offshore trusts, once again, we are seeing perverse decisions being made to try and get round the tax system that are not necessarily for the best and most productive use of capital.

Grahame Morris (Labour, Easington)

This is an important point. The hon. Gentleman is arguing that the abolition or the reduction of inheritance tax would act as a stimulus to the UK economy, but what is the opportunity cost, and how would the hon. Gentleman propose to fund that? Would he increase indirect taxes such as VAT, which would be regressive, with the burden falling on the poorest?

Jacob Rees-Mogg (Conservative, North East Somerset)

The hon. Gentleman makes a good point. If you are in favour of any tax cut, it is necessary to work out where the revenue will come from to replace it.

I make two observations on death duties. First, the amount is small for a complex area of taxation, and it is expensive for the Government to enforce. Some £4 billion is not a large amount of money in a Government system that is taking in the order of magnitude of £700 billion a year at expenditure level.

Julie Hilling (Labour, Bolton West)

It interests me that the hon. Gentleman says it is a small amount of money, when the Government say that they have to make enormous changes to welfare benefit, which would produce less money than he is talking about here. Again, is that intended to hit the poor and benefit the rich?

Jacob Rees-Mogg (Conservative, North East Somerset)

The hon. Lady misattributes what is going on. Any welfare reform requires a large number of individual steps, each one of which raises a remarkably small amount of money, but that does not mean that those steps do not need to be taken. Cumulative steps are needed to implement major reform of an expenditure area of £200 billion a year. On something in welfare reform only affecting £1 billion or so, yes, the individual amount of expenditure is small. If that were the only thing being done, it would not be worth it for that amount of money, but if the £1 billion is part of a much bigger and more sensible reallocation of resources, it becomes important in its own right.

To return to inheritance tax—death duties—£4 billion is an amount that the economy could make up very easily if more sensible capital allocations were made and if money were released from being tied up in tax avoidance schemes, not only of a legitimate kind but of the kind that the Government specifically encourage. A small trading business is 100% exempt from inheritance tax, but small does not have to be small; it could be very large. That business therefore maintains higher levels than it needs and does not necessarily invest that money as it otherwise would, because the money may simply be used as a means of protecting the investment. That could be unleashed if people were not devoting their capital to ensuring that their heirs and successors inherited in the end.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

The hon. Gentleman is making an interesting argument and clearly an impassioned one. Does he therefore suggest that inheritance tax would be more acceptable to him and perhaps many of his party colleagues if it were linked directly to specific investment decisions? For example, the charity tax, which we will debate in the next clause, is a targeted relief. If inheritance tax was targeted at specific business investment decisions, would he then accept it as a form of duty?

Jacob Rees-Mogg (Conservative, North East Somerset)

I am grateful to the hon. Lady for asking that, because it is important to clarify that it is exactly what I do not believe. The Government are the worst possible organisation to guide people on what investment decisions they ought to make.

Peter Bone (Conservative, Wellingborough)

Order. We are getting a little away from replacing the retail prices index with the consumer prices index. Perhaps the hon. Gentleman could get back to the point.

Jacob Rees-Mogg (Conservative, North East Somerset)

I will come back immediately to replacing the consumer prices index with the retail prices index, but my general point is that the inheritance tax threshold should be raised as much as possible whatever index you choose. I would choose an infinite index, better than the CPI, so that its effect would be ameliorated altogether and removed. The Government should certainly not develop and devise schemes to encourage people to invest in certain ways, because Governments always get people to go into schemes that might have been a good idea five years ago but are not now. That is the nature of Government and we have seen that historically.

My point is that inheritance tax is inefficient, ties up capital and is unfair, because of the time at which it strikes people, and that capital taxation as a rule is a bad form of taxation. There is no transaction flow with it to produce the cash for people to pay the tax falling upon them. Transactional taxes, be they income or sales taxes, are related to a flow of funds which is then available for the tax to be siphoned off. Capital taxation singularly fails to do that. It leads to bad decision making, inefficiencies within the economy and ultimately less money to the Exchequer. Thus, I think that Conservatives should stick to their guns and persuade our Lib Dem Friends—and indeed Members from Bassetlaw who seem keen to come in this direction—that what we should do is have thorough-going blue water policies.

Julie Hilling (Labour, Bolton West)

It is, as normal, a pleasure to serve under your chairmanship, Mr Bone. The issue of inheritance tax is extremely interesting, because in 2007, to great fanfare, the Tory party announced that it would introduce a £1 million threshold for inheritance tax. It now says that because of its Lib Dem colleagues in the coalition, it has had to go back on that. Interestingly, in 2009, the right hon. and learned Member for Rushcliffe (Mr Clarke) announced that the rise in inheritance tax thresholds would not go ahead in the Tory Government’s first term anyway. They are perhaps choosing to put the blame a little bit—perhaps a little unfairly—on their coalition partners. It has, of course, been a great disappointment to Tory voters that the Government have not increased the threshold, though I am not saying that they should have done. It is a conundrum.

I was in a meeting with the chief economist for the Greater Manchester chamber of commerce last night, and I asked him about inheritance tax. He felt it was fairly useless in some ways, because those whom it is meant to capture are not being captured as they use avoidance tactics, so each time, revenues tail off. He said the very wealthy avoid paying it, because they can pay for advice.

Last night, when I decided to speak on the clause, I googled IHT. The first item that came up was “How to avoid paying inheritance tax”, as was the second. Clearly, the people who should be paying it—millionaires—are not.

Aidan Burley (Conservative, Cannock Chase)

It is not just millionaires who have to pay inheritance tax. It is everybody who has an asset, such as a house, that is liable at the 40% rate. That is the point made by my hon. Friend the Member for North East Somerset: it hits the poorer disproportionately hard.

Julie Hilling (Labour, Bolton West)

The hon. Gentleman has pre-empted my next comment. I wanted to talk about the dilemma relating to whether to use the retail prices index or the consumer prices index.

Ian Mearns (Labour, Gateshead)

I am grateful to the hon. Member for Cannock Chase, who has just massively inflated the value of my house.

Julie Hilling (Labour, Bolton West)

I thank my hon. Friend for that intervention. When the Tory party talked about raising the inheritance tax threshold to £1 million, it said that that would help 9 million families, and that only millionaires would pay the tax. We know there are families, particularly in the south of England, who are of ordinary means and are caught in the inheritance tax trap. Again, it is one of those taxes that affect the squeezed middle. The rich, thanks to the reduction from 50% to 45% tax and other measures in the Budget, are getting away with paying less tax. We are helping the super-rich, but the squeezed middle is suffering in all sorts of different ways. Think of the changes to child benefit and tax credits, and all the other things that have hit that squeezed middle.

The proposal to raise the threshold by CPI rather than RPI is unfair. We say that that will not keep pace with inflation. A major difference between CPI and RPI is that RPI includes housing costs. Given that we are fundamentally talking about a housing cost, it seems a little odd not to raise the threshold according to RPI.

I am consistent: I think the Government have been mealy-mouthed in all the cases where raises have used CPI rather than RPI, be it for pensions or other benefits. There must be hundreds of thousands of people worried about the proposal—people whose only asset is the family home. We are not talking about the rich. The people who are caught and most affected are those who do not pay accountants for advice, and cannot afford to, because all they have is the property. This is another example of the Government attacking the squeezed middle.

However, as my hon. Friend the Member for Newcastle upon Tyne North said, only 6% of estates are affected by inheritance tax. I assume that is the 6% who are not paying accountants. I wonder if the figure is actually higher. Will the Minister explain why CPI, not RPI, has been chosen in this instance?

Are the Tories still going to raise the IHT threshold enormously? What will the Minister do about avoidance measures? Given all the ways of avoiding it, one wonders if the Government are planning to crack down on avoidance tactics on IHT, in order to increase the tax take and ensure that the rich pay their fair share of taxes. It seems to Opposition Members that throughout the Budget the rich are not paying their fair share. The burden is falling on the low-paid—those who live ordinary lives—who are facing tax hikes in all sorts of areas.

John Mann (Labour, Bassetlaw)

Again, welcome to the Chair, Mr Bone. Another week passes by, and we have more interesting revelations from the Government. I wish to ask the Minister about the impact of the change from RPI to CPI on the behaviour of tax-paying individuals, and whether he believes that the change will lead to a difference in the taxpayer’s behavioural attitude.

I am somewhat concerned by the changes, because the Government chose in the Budget specifically and particularly to target pensioners. I suspect that, even later today, more will be revealed on how pensioners and pension funds are being disproportionately hit by the Government’s economic policies—something that the Budget failed to address, and so pensioners pay the price. This change, which runs through the Budget and is reinforced by clause 206, means that pensioners pay a greater price than everybody else. That is our concern about the Government’s meddling with indexation.

I welcome the fact that, at last, the hon. Member for North East Somerset, a true, clear and unequivocal Conservative, is putting forward the Conservative party’s position—the position that it takes in its bones, ethos and whole ideology—as opposed to the mishmash that we get from those who lead the coalition, represented by the Ministers here today, whom we see U-turning every week.

I disagree with the hon. Member for North East Somerset on many points of principle, but it is refreshing to have an open, honest debate. Indeed, he and I are considering taking this debate further, post-Committee, during a visit to Taunton cricket club to enjoy a true English tradition—willow on the bat, and all that—as the north comes to the south-west. [Interruption.] Willow on the ball. I am glad the Minister is listening today.

The question is the impact on behaviour. Death duties have done a lot for this country. The National Trust was created because death duties allowed stately homes to be handed over for the enjoyment of everyone. In my constituency, the Newcastles had to hand over Clumber park and Clumber hall, a wonderful major tourist attraction that will hopefully benefit from the tourists coming for the London Olympics. That attraction underpins the local economy and provides green lungs for the industrial workers, all created because death duties required that family generously to hand over the whole estate to the people through the National Trust. There are such examples all over the country. This is the essence of modern Britain today.

Julie Hilling (Labour, Bolton West)

Does my hon. Friend agree that the National Trust has also meant that there are other ways for the economy to benefit from death duties? Longleat and Woburn safari parks were created because the families had to pay their death duties. Even though the families retained the parks, they became open to the public, creating great enjoyment for visitors.

John Mann (Labour, Bassetlaw)

My hon. Friend hits on a point dear to my heart, because many years ago I was the chair of the all-party group on endangered species, which should perhaps be recreated. Those safari parks contribute to maintaining the ecology of the world’s fauna, which is fundamental to our role in the modern world. This is not just about Britain showing itself in all its glory to tourists, and creating opportunity for our own people; it is also about making our contribution to the world’s species—all provided for by the generosity of those who have paid death duties.

Ian Mearns (Labour, Gateshead)

When my hon. Friend chaired that group looking after the interests of endangered species, did he have the foresight to include Liberal Democrats?

John Mann (Labour, Bassetlaw)

I hear what my hon. Friend says, but this is the last day of Committee, and I urge him to show more generosity. Surely we need to see some free thinking from the Liberals in at least one vote in this Committee. What is the point of being in a political party if all you do is act as lapdogs to an equivocating Government? There is not even any following of the true Conservative tradition, as outlined by the Member for North East Somerset. He would prefer no death duties, and I would prefer an inheritance tax at an appropriate level. I am concerned that any change to the system might encourage the kind of disgraceful tax avoidance we have seen from persons unnamed—and one who has been named by the Prime Minister, Mr Jimmy Carr. I was most surprised when, in the Budget, I heard the Chancellor talk about tax avoidance—as opposed to evasion—being “morally repugnant”. My ears pricked up, because that means the behaviour, rather than the legality.

Returning to my question to the Minister about what the change in indexation will do to the behaviour of individuals, I look forward to hearing what analysis the Government have carried out on the behavioural impact. The Prime Minister says that Jimmy Carr is morally repugnant—the Chancellor has given him the opportunity to say so—but what about the many others? Newspapers are naming person after person. They all seem to be directly connected to one particular political party, perhaps because it is that party that is attempting, John Major-style, to take the moral high ground.

Courageously, the Member for North East Somerset has distanced himself entirely from the party leadership on this issue. He is clear and consistent that the Tory party of the past—I do not think I am misrepresenting what he said—believed that it was a patriotic duty to avoid paying taxes, as long as that was within the law. That is where we disagree. I am absolutely with the Prime Minister and the Chancellor. They clearly say that there is a moral duty to pay all taxes and not attempt to avoid them. I want to see consistency in approach. Will this change in indexation affect behaviour, so that people are more, not less, likely to avoid taxes in the way that so many donors, Cabinet members and others are alleged by the media to have done—a way that is unpatriotic, morally repugnant and unacceptable in modern Britain? That is a point on which the Prime Minister, the Chancellor and I combine coherently, and to which we adhere.

Julie Hilling (Labour, Bolton West)

Does my hon. Friend agree that there may be other consequences for some of those who have been avoiding their taxes? I for one will never buy another record by Gary Barlow, and I am sure I must be in good company. There will be other consequences for the people who so publicly and horrendously avoid doing what ordinary people have to do, day in, day out: pay their taxes. We have no choice, but those who make their money on the backs of ordinary people are not being patriotic and are not paying their dues.

John Mann (Labour, Bassetlaw)

Who is Gary Barlow?

Mark Garnier (Conservative, Wyre Forest)

The hon. Gentleman makes a powerful point about millionaires and highly paid people avoiding tax, but it is not only millionaires who do so. Many people around the country will offer a tradesman a cash payment, which is just as morally repugnant.

Nigel Mills (Conservative, Amber Valley)

That is evasion.

Mark Garnier (Conservative, Wyre Forest)

My hon. Friend is right. People look at the very rich avoiding tax, which is wrong. I disagree with my hon. Friend the Member for North East Somerset, in that tax avoidance uses the letter of the law to get around the spirit of the law, and it is very different from tax planning. Avoiding tax is endemic, and people are doing it at every level. That moral point is very strong, because it is universal.

John Mann (Labour, Bassetlaw)

We are beginning to build a new, tax-collecting coalition across Government. The hon. Gentleman is right, and the scrap metal trade, the problems created by it, and the criminality that comes from it is a classic case of the cash economy. It is not that one should be morally condemning those who are managing to get their way through the cash economy; the problem with the cash economy in areas such as mine is that it is economically inefficient and non-aspirational. The idea of getting by with a bit of wheeler-dealing, rather than forming a company, having proper accounts, and participating in and aspiring to grow in the real economy, holds down aspiration in areas such as mine, and it has done for generations.

This is not about a moral crusade, but about economic efficiency, from the poorest to the wealthiest—[Interruption.] From a sedentary position, the Government Whip mentioned Ken Livingstone. I unequivocally condemn any Labour politician who avoided taxation in the way that he did, and he paid a heavy price. Knowing what happened, if I had my way and had any influence over the Labour party, he would not have been a candidate because of his moral stance. It is wholly unacceptable that a person running for senior office—

Jacob Rees-Mogg (Conservative, North East Somerset)

Will the hon. Gentleman give way?

Peter Bone (Conservative, Wellingborough)

Order. Before the hon. Member for Bassetlaw does so, I am sure that he will relate his points to RPI and CPI.

John Mann (Labour, Bassetlaw)

I absolutely will, Mr Bone. I am illustrating the behavioural effect of changing indexation. The question I am posing to the Minister, who will want to answer soon, is whether changing the indexation will affect behaviour. I am doing so—hopefully I am in order, Mr Bone—using examples of the kind of behaviour that I would like to illustrate. Mr Kenneth Livingstone is one of those examples, and the way that he avoided taxation cost the Labour party the London mayoral election. Such is the price paid by political parties when one from their fold is not prepared to do the decent thing and does not see it as a moral obligation to pay taxes.

Grahame Morris (Labour, Easington)

I do not intend to take issue with my hon. Friend’s comments about the Labour mayoral candidate, but I seek his views on the opportunity cost and what the consequences should be. Government Members are defending individuals’ right to employ tax avoidance mechanisms, whereas Opposition Members share the country’s moral outrage. The hon. Member for Richmond Park (Zac Goldsmith) has advocated a Bill, to which the Government may well be committed, allowing for the recall of Members of Parliament. Would a Member’s employing such methods be taken into account if they were to be recalled? We see a constant drip-feed in the press of cases of celebrities who employ such methods; the politicians who do so will surely be next.

John Mann (Labour, Bassetlaw)

That is an interesting suggestion. The coalition, if it is expanding to Richmond, will be broader still, and all the better for it. We need to root out the concept of tax avoidance at the top. We should start with politicians: every Cabinet member should declare unequivocally that they do not avoid tax. The Government’s and the Prime Minister’s new press secretary should do the same thing. Donors to all parties should be judged on that basis, and those who are avoiding tax should pay the money back. Political parties should agree among themselves—perhaps we could agree in principle today—that all parties should refuse donations from those who avoid tax. They should not be eligible to donate. The hon. Member for North East Somerset caught my eye earlier, so I will give way to him.

Jacob Rees-Mogg (Conservative, North East Somerset)

The hon. Gentleman has moved on slightly, but in the interests of balance, I ought to defend Ken Livingstone, who behaved perfectly legally. All he did was delay tax. If he had paid the money out to himself, he would have been subject to tax in the normal way. There is no obligation on socialists to pay a higher rate of tax than the law allows to be taken. If they want a higher rate of tax, the socialists need to win elections to put a higher rate in place, as they would be completely entitled to do.

John Mann (Labour, Bassetlaw)

I thank the hon. Gentleman for his candid, straightforward clarity. This is the debate that should be taking place across the country. On the one hand, there is our principle, which clearly, perhaps accidentally, the Prime Minister and the Chancellor have strayed into—hence each and every person associated with the Conservative party has this new scrutiny test to pass. On the other hand, there is the unequivocal position of, shall we say, the Tory shire counties, which totally oppose the Prime Minister and Chancellor and are diametrically opposed to the coalition Government. That is the big new split in the modern Conservative party. “Modernist” and “traditionalist” are mere descriptions; the fundamental issue is what lies behind.

I repeat my question to the Minister about indexation. Will the proposed change in indexation improve or worsen the behaviour of those whom the Chancellor describes as “morally repugnant”?

David Gauke (Conservative, South West Hertfordshire)

It is a great pleasure to see you in the chair, Mr Bone, for the last Committee day. For those who are worried that we are reaching the end of the process, such as my hon. Friend the Member for North East Somerset, Report stage is only a few days away. That is something for us all to look forward to.

We have had a broad-ranging debate but I will focus my remarks on clause 206, which would make changes to the indexation of the IHT nil rate band. The nil rate band will remain frozen at its current level of £325,000, up to and including 2014-15. From 2015-16, the automatic annual increase in the nil rate band will rise in line with CPI rather than RPI.

The hon. Member for Newcastle upon Tyne North asked what the Government policy is for the future of the nil rate band threshold. Clause 206 is the answer to that: it is frozen and then will increase in line with CPI. The IHT nil rate band is automatically indexed every year in normal circumstances, unless Parliament sets a different figure. Indexation works by referencing the nil rate band to inflation over 12 months to September in the previous year, subject to a rounding up to the nearest £1,000. From 2015-16, the measure of inflation used will be CPI rather than RPI. That change will ensure that the nil rate band more accurately reflects the rate of inflation. The Government seek consistency across all areas of direct tax.

The nil rate band has been frozen at £325,000 up to and including 2014-15, as per the 2010 autumn statement. The measure was confirmed as the right course of action at that point, and given the economic circumstances, it is still the right action. Clause 206 confirms that the nil rate band will remain frozen at its current level of £325,000 until 2014-15. The nil rate band will then rise in line with the CPI, instead of the RPI, from 2015-16.

We have had a broad-ranging debate, and I am sure there will be many opportunities to debate avoidance in the broadest terms. Although perhaps not directly relating to clause 206, the hon. Member for Bolton West raised the specific point of inheritance tax avoidance, which the Government take seriously. As the Committee will hear shortly when we come to clause 208, we will take action, when necessary and appropriate, where there are steps we can take.

The behavioural impact of clause 206 is not in itself likely to be significant. The effect of moving from RPI to CPI will, over time, bring more estates into inheritance tax and will raise additional revenue. The sums we are talking about are relatively small, so there is unlikely to be a dramatic impact on avoidance.

On the extent of the additional revenue that the measure is likely to raise, the tax information and impact note states:

“This element of the reform is expected to increase receipts by approximately £20 million in 2015-16.”

Julie Hilling (Labour, Bolton West)

I hear what the Minister says about clause 208, but I wonder whether he intends to do anything else to close some of the other loopholes. He has addressed one small element, but what about all the other tactics that people use to avoid inheritance tax? Will he look to bring in other measures to close those loopholes?

David Gauke (Conservative, South West Hertfordshire)

We are committed to tackling inheritance tax avoidance, as we are with other taxes. Where there is evidence of new avoidance behaviour, HMRC acts quickly with litigation and, if necessary, the Government will act quickly with legislation to shut down such avoidance. Inheritance tax has a behavioural impact and often there are steps consistent with Government incentives whereby people minimise their inheritance tax liability. Where an action is inconsistent with the spirit of the law or the intentions of Parliament, we will, of course, take action as necessary. The Bill contains such an example.

I will try to avoid being drawn into the deep philosophical issues raised by my hon. Friend the Member for North East Somerset on the role of capital taxation, but I remember reading recently of the debate within the wider Conservative movement in the 1960s on the balance between reducing taxes on capital and reducing taxes on income. Of course, the rates at that point were particularly high. One of the most prominent and articulate exponents of the view that we should not tax capital as much as we did then was the then editor of The Times, which shows that not just wealth but political principles can be inherited.

Clause 207 - Gifts to charities etc

Peter Bone (Conservative, Wellingborough)

With this it will be convenient to discuss the following:

That schedule 32 be the Thirty-Second schedule to the Bill.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

We have had a wide-ranging, passionate and well considered debate on raising the inheritance tax threshold by CPI rather than RPI. Clause 207 deals with specific targeted tax relief relating to charitable giving, which can be set off against inheritance tax liability. Despite the wide-ranging—and raging—debate on clause 206, the Government’s intentions were clear. Unfortunately, at this stage, I cannot say that clause 207 is entirely clear.

On the face of it, the reduction of inheritance tax from 40% to 36% on estates where 10% has been given to charity, seems to be a tax break for large-scale charitable giving. We now know that the Government are no longer in favour of the principle of the default charity tax, which placed limits on existing tax relief for large donations—or are they? Clause 207 is still in the Bill, so we must assume that it was the charity tax that was the mistake, rather than this tax measure. As we know, the charity tax has already joined the growing pile of ill-thought-out taxes that the Government have had to scrap.

There is a serious point here. If the Government’s intention were truly to encourage large donations to charity through the clause, we would not be opposed to that. However, the mixed messages they have sent out do not help that cause. If they want people to give with confidence, it seems strange to put on a tax in one place and remove a tax from somewhere else. I would be grateful if the Minister clarified the Government’s position definitively on charitable giving and how the clause fits into that agenda and the decision to scrap the measures on charitable giving.

We also have some concerns about how the measure would work in practice. I would be grateful if the Minister clarified that. I understand that under the clause the reduced rate of inheritance tax will not be applied across the whole estate. Rather the estate would be treated as three components—survivorship, settled property and general—and the reduction would apply only to the remainder of the component of which 10% was given. So if a person gives away 10% of the smallest component of their estate, they would be eligible for the reduced tax on the remainder of that one component, but would still be charged the full rate of inheritance tax on the other, potentially larger, components. I see some furrowed brows in front of me. The provision seems more complex than necessary and restricts the discretion of the individual who would like to give. That complexity also risks diluting the attractiveness of the incentive.

Was that the Government’s intention? Will the Minister explain why the measure has been designed in that way? Did she consider applying the reduction across the whole of a non-exempt estate? Compared with what would have been given otherwise, how much new giving do the Government expect as a result of this rather convoluted proposal? Does she have an estimate? Unless the Government expect a large increase in charitable giving to occur, this is just another tax break for existing charity donors, which is the exact opposite of the recently abandoned policy.

Will the Minister please clarify those points? Will she also clarify the following? If beneficiaries will not receive more as a result of the plan, why do the Government expect large-scale charitable giving to increase? Did the Government intend the measure to be a tax break for people who already give large amounts to charity, to encourage them to give more? Are the Government aware that there is a risk that the measure will be seen as a tax break exclusively for the wealthy? That does not necessarily sit in line with their current deficit-reduction strategy, which they have claimed will ask the wealthiest to pay the most.

Julie Hilling (Labour, Bolton West)

I must apologise for an attack of hay fever, which makes speaking a little difficult. Anything that the Government do to encourage charitable giving has to be good, particularly when the community, voluntary and charitable sector across the piece has suffered so hugely from the cuts to Government Departments. My local charities have suffered because they have lost money from Government grants, local authority grants and health grants. It is a very tough time for charities; anything that encourages giving is a good thing. This measure is not about avoiding tax, but about building a better civic society. It is going back to the days when the philanthropy of entrepreneurs at the end of the 19th century did so much to build civil society, the charitable and voluntary sector. We can look at the model villages that were built and all the initiatives that took place. Anything that encourages the new entrepreneurs to give to charity must be a good thing.

It is interesting that the measure is talked about as supporting the big society agenda. This week the Archbishop of Canterbury said that the big society is

“aspirational waffle designed to conceal a deeply damaging withdrawal of the state from its responsibilities to the vulnerable”.

Does the Minister think that the measure will go any way to repair some of the damage done by the state withdrawing from the community and voluntary sector?

It gives a confused message to people thinking of donating when a clause, now withdrawn, capping donations to charities is put alongside one that seems to give money to charities. It sends a confused message to wealthy entrepreneurs and people who want to engage in philanthropy.

As my hon. Friend the Member for Newcastle upon Tyne North said, this seems an extremely complicated way to assess the tax take. I have just done some sums around the worked example that we were given. Not only do the tax man and beneficiaries lose money, but the balance of money lost does not go to the charities. There is a loss somewhere in the calculations. I do not know where the money goes, but it does not seem to go to anybody in these worked examples. It is not the most simple and straightforward measure. We know that the most straightforward taxes are the ones that people are most likely to opt into. If taxes are too complicated, people are less likely to opt in. If it is not clear and transparent to people who want to give to charity how the beneficiaries’ take will be reduced, they are less likely to go ahead. I think that the Minister should look again at how the calculations are worked out.

I agree with my hon. Friend that, obviously, anything to increase charitable giving is a good thing, but we need to be clear about the message.

Chloe Smith (Conservative, Norwich North)

It is a pleasure to serve under your chairmanship, Mr Bone.

To answer hon. Members’ questions, I will start with both a measure of context and an explanation of exactly what the clause does. The clause and schedule 32 introduce a new incentive to encourage people to provide more for charities in their will. Their estate will benefit from a lower rate of inheritance tax if more than 10% of it is left to charity.

The main point of context here is that the measure is only one—we discussed another last week—that the Government have introduced to support philanthropy and charitable giving at all life stages and in all walks of life, which is significant. Last week we discussed the gifts of pre-eminent objects scheme, which, importantly, encourages large-scale giving during the donor’s lifetime. Only last week, I introduced into the Commons the scheme that will enable charities to claim gift-aid style payments on bucket donations, which is another important example at the other end of the scale of how the Government intend to support philanthropy and encourage giving.

Ian Swales (Liberal Democrat, Redcar)

Does my hon. Friend the Minister feel that any clarification is needed on when a charity is a charity? We all assume in such discussions that we are thinking about Cancer Research UK, and so on. How does she feel, for example, about foreign charities that are outside the reach of the Charity Commission, or about family-controlled trusts? Does she feel that the legislation has any room to be more specific about the scope of what is meant by a charity?

Chloe Smith (Conservative, Norwich North)

My hon. Friend asks an excellent question, which relates more broadly than only to the clause under discussion. We might wish to apply such stringency to any piece of legislation that seeks to encourage charitable giving.

In this case, as with all our other charitable measures and legislation, avoidance, abuse and fraud are examined extremely carefully. I assure my hon. Friend that that has been the case with these provisions, and as in examples elsewhere, guards against avoidance, abuse and fraud have been included. I can also assure him that measures to combat potential fraud run very clearly through the Small Charitable Donations Bill, for example, which is perhaps what inspired him to get up and speak. Her Majesty’s Revenue and Customs and the Charity Commission would expect, in many cases, to apply similar definitions to achieve the same objective of getting money to genuine charitable causes.

Grahame Morris (Labour, Easington)

To follow on from the point made by the hon. Member for Redcar, can the Minister be more specific? If I may push her a little further, does the scope of the clause or her assurance specifically rule out the overseas trusts and family trusts that the hon. Gentleman referred to?

Chloe Smith (Conservative, Norwich North)

If I may, I will come to that question in due course. I have a number of technical points that I need to address about what the clause does and some of the protections around it, but I will return to the hon. Gentleman’s point.

Continuing with the broad background, IHT—inheritance tax—is currently charged at a single rate of 40% on the net value of an estate above the inheritance tax threshold, after deducting all available reliefs and exemptions. Gifts made to charity and charitable legacies are already exempt from inheritance tax. The intention behind this measure is that reducing the inheritance tax rate to 36% on chargeable estate assets will provide an additional incentive for individuals to leave charitable legacies or to increase the amount that they already leave to charity.

Let me answer at least two of the questions from the hon. Member for Newcastle upon Tyne North. She asked whether the provision was a tax measure for large-scale giving. My answer is yes. This Government wish to encourage giving, as I laid out in our objectives. The Government are keen to help the charitable sector and I can tell the hon. Lady that the additional revenue for charities is expected to build up gradually over the period to 2016-17 to an estimated £95 million. That clearly answers her question about whether the clause brings additional benefit.

The changes were consulted upon over the summer and broadly welcomed. Even though a relatively small proportion of estates pay inheritance tax, it is encouraging that respondents felt that the incentive would encourage charitable legacies from a broad range of estates. It would also provide an opportunity for charities and advisers to discuss charitable legacies with people who are, or are considering making a will.

Respondents were also keen to see a balance between simplicity, so as not to discourage potential donors—a point made by others this morning—and flexibility, for example, to maximise the chances of charitable legacies from more complex estates. So the provisions in schedule 32, which have been amended since that exposure as part of the draft Bill, provide some additional flexibility. I believe those provisions achieve that balance.

Schedule 32 sets out conditions to be met for an estate to qualify for the lower inheritance tax rate. The provisions take account of the different classes of assets that are charged for inheritance tax when someone dies; assets they might own outright or jointly and, indeed, in interest in trusts. If the amount left to charity from one or more parts of the estate is at least 10%, after taking account of any reliefs and exemptions made due, those parts will be eligible for the lower inheritance tax rate of 36%. To answer a question from the hon. Member for Newcastle upon Tyne North, to provide a greater encouragement for charitable legacies, there is an option for various parts of the estate to be merged. So a larger legacy from one part of the estate can be offset against a smaller legacy from another part to achieve the reduced inheritance tax rate from the estate as a whole, if the overall legacy is at least 10% of the estate. She asks how I or the Government reached that conclusion. It is absolutely clear that the intention is to encourage that a legacy should be 10% or more of the estate. That incentive and intention clearly come through that part of the Bill.

Schedule 32 also amends the provisions relating to the instruments of variation, which allow assets left in a will to be redirected to other beneficiaries. Unlike wills, these are not public documents and charities do not have access to them, so schedule 32 provides that charities must be notified of the instrument if a redirection is made to charity. For clarity, the changes set out in the schedule and clause will apply to deaths on or after 6 April 2012.

Let me answer a few more of the questions that were posed. On overseas trusts in particular, the gift will qualify if it is a charitable legacy that already qualifies for charitable exemption from inheritance tax. I can confirm that legacies are valid only if they are given to charities that are or would be charities under the law of England and Wales. So they must meet the public benefit test that the Charity Commission for England and Wales would apply. In line with my comments at the beginning, it is also important to say that this Government are keen to encourage giving at all stages of life and from all walks of life. There is a simple way to check if a charity is eligible and that is to ring HMRC or the Charity Commission, though I shall not read out the telephone number into the record.

Ian Swales (Liberal Democrat, Redcar)

Is the Minister saying that only charities registered with the Charity Commission will qualify?

Chloe Smith (Conservative, Norwich North)

As I said, legacies are valid only if they are given to charities that are or would be charities under the law of England and Wales. I believe that answers my hon. Friend’s question.

Let me sum up the measures before the Committee, the intention of which is clear. The measures introduce a lower rate of inheritance tax where 10% or more of a deceased person’s net estate is left to charity. There is a clear incentive to encourage more people to leave bequests to charity in their will or to increase their existing charitable legacies. That sits against a background in which the Government are keen to help the charitable sector. The Government listen to the charitable sector and make amendments where necessary, as I have laid out in the context of clause 207 and schedule 32. We expect charities to receive additional benefits of up to £95 million.

Clause 208 - Settled excluded property: effect of certain arrangements

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I shall deal with the clause very briefly, you will be relieved to hear, Mr Bone.

I note the Minister’s written ministerial statement on the clause, which was issued on 21 June. The provision seeks to extend the applicability of inheritance tax to settled property outside the UK that has been acquired via a conversion of UK assets without giving rise to a transfer of value, which are currently exempt.

The Minister has specifically made provision that the new rules will not be retrospectively applied, which might be a welcome notice for some Members, but I would be grateful if, while explaining this clause and the written ministerial statement, he explained why that specific measure has also been included.

David Gauke (Conservative, South West Hertfordshire)

As we have heard, clause 208 closes a complex avoidance scheme involving the acquisition of interests in offshore trusts to avoid inheritance tax charges. The clause ensures that UK assets used to acquire such interests are charged to inheritance tax in the same way as if they had been transferred to a UK trust, bringing such trusts within the scope of inheritance tax.

HMRC has found an avoidance scheme that exploits the special rule on settled overseas assets. Promoters of the scheme set up offshore trusts that are funded with overseas assets. Interests in those trusts are then sold to wealthy UK-domiciled individuals. Complex arrangements convert UK assets, which would otherwise be chargeable to inheritance tax, into excluded property, avoiding the inheritance tax charge that normally arises when UK assets are put into trust. Any loans taken out to fund the arrangements also reduce the value of a person’s estate for inheritance tax purposes. An individual can, therefore, escape inheritance tax charges on assets in offshore trusts and reduce the value of their estate.

Clause 208 amends the rules on settled excluded property, whereby a UK-domiciled individual enters into arrangements through which they acquire an interest in excluded property and, in doing so, reduce the value of their estate. Assets settled in an offshore trust will cease to be treated as excluded property. UK assets used to acquire a settled interest will be treated as if the person had transferred them directly to a UK trust. An inheritance tax charge will apply to the transfer equal to the reduction in the value of the estate. Inheritance tax charges will also rise if the assets are held in the trust for more than 10 years, or when the assets are taken out of the trust. The changes will target only individuals or trustees entering into such arrangements; they will not affect most individuals or businesses. This measure was announced at the Budget and the changes in clause 208 will take effect from 21 March 2012.

The provisions apply to new schemes entered into on or after that date and to existing arrangements entered into before 21 March 2012, but only in relation to IHT charges arising on or after that date. The hon. Member for Newcastle upon Tyne North raised the amendments. Clause 208 may not deter some variants of the scheme and may also inadvertently apply to some arrangements not made for tax avoidance purposes.

As announced last week, amendments to clause 208 will therefore be introduced on Report. The amendments will aim to ensure that the new provisions effectively stop potential variants of the scheme involving acquisition of interests in settled property, target the intended schemes correctly and do not affect existing arrangements. The amendments will also revise the date that the changes in clause 208 take effect to 20 June 2012.

The reason for that is that we have received feedback that suggests that the provisions in clause 208 may inadvertently apply to some existing arrangements not made for tax avoidance purposes. The amendments will correctly target the provisions. The clause closes a particularly contrived avoidance scheme involving offshore trusts that seeks to avoid IHT charges.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I apologise for interrupting the Minister’s flow. I seek clarification on his comment about shifting the date. I understand that the original date was 20 or 21 March. Will the Minister confirm that? Given that he is moving on to say that these are particularly contrived tax avoidance measures, has there been a calculation of the loss to the Exchequer in that interim period?

David Gauke (Conservative, South West Hertfordshire)

This is a particularly contrived scheme. The difficulty with the original provisions is that, on the basis of feedback that we received from interested parties, there was a concern about inadvertently having an impact on arrangements that were not driven by tax avoidance and were not part of these contrived arrangements.

I do not have the information about costs that the hon. Lady seeks, but I will write to her. We made an assessment that there was a danger with the original position of inadvertently affecting some innocent arrangements. We did not want to do that, which is why we have made the announced changes. That will get us to the place we want to be: closing down a contrived avoidance scheme, preventing people from using an offshore trust to avoid IHT charges in particular circumstances by reducing the value of a person’s estate. That very much supports the Government’s aims in our anti-avoidance strategy to protect revenue.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I appreciate that the Minister is not able to provide the specific figure relating to the interim period that I requested. Can he indicate the overall saving or increase to the Exchequer from that measure? I would be grateful if he could clarify that now.

David Gauke (Conservative, South West Hertfordshire)

On further reflection, I may be able to help the hon. Lady and the Committee on that point. The purpose of the clause is more to protect revenues than produce additional yield. By that, I mean that the yield—the additional sums we will receive as a consequence of the clause—is likely to be negligible. However, there is a concern that the scheme could grow considerably if we do not take action and that, as a consequence, revenue may be reduced more significantly. Consequently, a delay from 21 March to 20 June is likely to have a negligible impact on yield, but none the less will still protect revenue for future years. I hope that provides some clarification.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

That does provide clarification and some reassurance. However, I would be grateful if the Minister could confirm when the scheme first came to the attention of Her Majesty’s Revenue and Customs and the Department, and thereby give some clarity about how long the scheme may have been in existence and the revenue therefore left unprotected.

David Gauke (Conservative, South West Hertfordshire)

The hon. Lady raises a fair point about when the scheme first came to light. It might help the Committee to point out a degree of context. There were similar schemes in 2005 and 2009 and action was taken then. This particular scheme came to HMRC’s attention in August last year, but we think that the actual cost to the Exchequer so far has been negligible and the risk is in relation to revenue. As a consequence, now is the right time to act, although we have taken into account some of the representations that we have received, ensuring that the measure is properly targeted.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

The Minister will understand and realise that this is exactly the sort of tax avoidance that the public are particularly concerned about. Members of the Committee and of the public will be concerned that, after the scheme came to the attention of HMRC and the Treasury, it took 10 months to take the correct legal preventative measures to close it down and ensure that revenue was not lost. Will the Minister comment on why it has taken so long to get the legislation right? He says that the loss to the Revenue is negligible, but can he provide a figure—if not today, then in writing—to provide reassurance to Committee members and the public that this sort of avoidance is not slipping through the net?

David Gauke (Conservative, South West Hertfordshire)

On the wider point, HMRC is active in closing down these schemes. There has been a lot of publicity about such schemes in recent days and in many of those cases HMRC has taken strong action. Often, that can be dealt with through litigation. In some cases there is a need for further legislation. In the past year or so we have taken legislative measures regarding seven schemes. In this case, it was a particularly complex arrangement and it was not until January this year that HMRC felt that it fully understood the way in which the scheme would work. The evidence that HMRC has seen is that there are only a very small number of cases where people have made use of the scheme, but other intelligence shows that promoters’ marketing material and tax planning conferences have identified the potential for the scheme to expand rapidly. That is something that we want to address.

This is a particularly complex and contrived arrangement but we need to ensure that the legislation targets it effectively and avoids affecting innocent arrangements. It has taken a little time to get this right—I fully accept that. It highlights one of the tensions in the tax system. Where there are particular exemptions for a tax designed to avoid an unfairness in the system, that can be exploited by some scheme promoters in a way that Parliament never intended. As the hon. Member for Newcastle upon Tyne North pointed out, this is exactly such a case.

We do not believe that the cost of the delay in sorting this matter out is insignificant, but the measure will protect millions of pounds of revenue over the next five years. It is therefore still a worthwhile step, and I hope that the clause stands part of the Bill.

Clause 210 - Prevention of avoidance: subsales etc

Catherine McKinnell (Labour, Newcastle upon Tyne North)

It is me again, Mr Bone.

Mark Garnier (Conservative, Wyre Forest)

It is still a pleasure to serve under your chairmanship.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

It is, Mr Bone. Once again, we continue with the theme of tax avoidance, a subject that is close to the hearts of all Committee members. Some are strongly in favour of closing down tax avoidance loopholes, which is what the measure does.

In my understanding, by making it clear that selling an option to buy a property is not sub-selling, the measure has closed a loophole that allows buyers to claim they are exempt from stamp duty because they come under rules designed to avoid stamp duty being payable twice. The clause amends the sub-sale relief rules for stamp duty land tax purposes by setting out that the grant or assignment of an option cannot satisfy the requirements of the SDLT sub-sale rules.

The measure has effect from 21 March 2012, and is aimed at blocking a specific SDLT avoidance scheme considered by most people to be ineffective anyway, because it did not work in the intended way. The scheme, as I understand it, involved an individual purchaser of a property granting a non-connected company an option to acquire the property at market value. The new measure provides that the grant or assignment of an option cannot be a transfer of rights for the purposes of the sub-sale rules, and it only affects individuals.

I believe that the Minister will explain in more detail the clause’s technicalities. Therefore, I will save the Committee from my explanation, and I will allow him to do so.

Nigel Mills (Conservative, Amber Valley)

He is paid to do that.

Peter Bone (Conservative, Wellingborough)

Order. Was the hon. Gentleman intervening?

Nigel Mills indicated dissent.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I have some questions for the Minister, based on my interpretation of how the clause will work and what the effects may be. The Budget document gives little detail on how much the measure is expected to raise, which may be because the effect is negligible, but I would be grateful if he explained why those figures are not available. Has the practice of sub-selling already been eradicated by the measure’s announcement? Will the Minister provide those figures to the Committee now or subsequently?

At the time of the Budget, it was announced that a more general consultation would take place on sub-selling, and I would be grateful if the Minister provided more details about that. Does he think that there may be a case for restricting the practice more widely in general, and is that something that we should give further consideration to?

David Gauke (Conservative, South West Hertfordshire)

Clause 210 amends the stamp duty land tax rules on a transfer of rights or sub-sale, and the change puts beyond doubt that a particular SDLT avoidance scheme does not work. It will be a pleasure to run through some technical elements of the clause, but before I do so, I will say a word or two about the background.

The SDLT rules contain provisions for a transfer of rights or sub-sale, which is where someone enters into a contract to purchase land but then, before completing the purchase, agrees either to transfer their rights under the contract to a third party or to sell the land on to a third party. The provisions result in SDLT being charged only to the ultimate purchaser; the transaction involving the original purchaser is disregarded. That single charge reflects the economic reality of the transactions, as the intermediate purchaser never takes possession of the land.

Such transfer-of-rights rules frequently feature in attempted SDLT avoidance schemes. A new scheme that became popular in the months leading up to the Budget involved combining the transfer-of-rights rules with the use of an option. HMRC, based on legal advice, is firmly of the view that the scheme has never worked in the way its promoters claim. The scheme was widely marketed and used, however, so clause 210 has been introduced to make it absolutely clear that the scheme does not work.

The hon. Member for Newcastle upon Tyne North asked how much tax has been avoided through the scheme and how much additional tax the change will bring in to the Exchequer. Because HMRC is firmly of the view that the scheme has never worked, no tax has been successfully avoided. None the less, the clause puts the matter beyond doubt. Were HMRC to be wrong, which I do not believe it is, tens of millions of pounds could be at risk. That is why there is no expected Exchequer impact. Any revenue raised through the measure would have been raised through the courts in any event.

Clause 210 inserts a provision into the transfer-of-rights rules to make it clear that the use of an option—the avoidance scheme’s key feature—does not bring transactions within the rules. A consultation on reforming the sub-sale rules will be launched this summer. There is a possibility of introducing legislation in Finance Bill 2013, if necessary, subject to the outcome of that consultation.

Furthermore, as announced at the Budget, the Government will take action to close down future SDLT avoidance schemes, with effect from 21 March 2012, where appropriate. The measure was not published in advance of the Budget due to the risk of forestalling. A limited, confidential consultation was conducted with external interested parties.

The clause supports the Government’s objectives to create a fairer tax system and to tackle SDLT avoidance, so I hope it will stand part of the Bill.

Clause 211 - Rate in respect of residential property where consideration over £2m

Catherine McKinnell (Labour, Newcastle upon Tyne North)

The clause raises stamp duty on residential properties from 5% to 7%. The raise was one of the measures mooted as a “mansion tax” before the Budget, which, it was said, would in part replace the lost 50p rate as a new tax on wealth.

When the Chancellor scrapped the 50p rate in his Budget, he gave the richest 1% of the population a tax cut, but he told us that these clauses would make up the difference. He told us and the public that the 50p rate caused “massive distortions,” a euphemism for the kind of legal tax avoidance that the majority of his party find repugnant. He told us:

“It raises at most a fraction of what we were told, and may raise nothing at all.”

It was on that basis that the 50p rate was cut. In other words, lots of people found ways to get round the 50p rate in its first year, so the Chancellor decided to abolish it. One has to question whether that is a sensible way to run a tax system. If we abolished all the taxes that the rich did not like, did not pay or tried to avoid, we may be left with few taxes.

Clause 211 is in the package that is supposed to raise the money lost through the 50p tax cut. Indeed, the Chancellor told us:

“Thanks to the other new taxes on the rich that I have announced today, we will be getting five times more money each and every year from the wealthiest in our society.”—[Official Report, 21 March 2012; Vol. 542, c. 805-6.]

That claim was later thoroughly debunked by the experts. The Institute for Fiscal Studies stated clearly that it was far too soon to know how much the 50p rate would raise. It said:

“If the future of the 50p rate is to be determined on the basis of evidence... then Budget 2012 will be too soon to form a robust judgment.”

The independent Office for Budget Responsibility later confirmed that,

“the results of the evaluation are highly uncertain”.

If we do not know how much the 50p tax rate would have raised, how can we be sure these stamp duty measures will cover its loss? Even in combination with other schemes, these new charges cannot come close to raising as much as the 50p tax did. Will the Minister tell us if this is a watered down version of a more stringent original measure? This measure would raise much less than a mansion tax or a tax on wealth.

It means only one thing: if it is not avoided, the very rich will pay more tax on their very expensive house purchases than before. However, when one looks at the detail, clause 211 introduces SDLT at 7% on the purchase of residential property, where chargeable consideration is more than £2 million. On the purchase of a residential property with chargeable consideration of £2,000,001 the SDLT charge increases from £100,000 to £140,000. The clause is effective from 22 March 2012.

Harriett Baldwin (Conservative, West Worcestershire)

The hon. Lady asserts, as the basis of her argument, that the 50p tax rate was a money-raising measure. Is she familiar with the numbers released by HMRC in response to one of my parliamentary questions? They showed that in 2009-10, the number of people paying income tax on incomes over £1 million was 16,000 and they paid £13.4 billion in income tax. In 2010-11, when the 50p rate was brought in, that number had fallen to 6,000 and they paid only £6.5 billion in income tax. Therefore, it cost the Treasury money. [Hon. Members: “ Ah!”]

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Hon. Members make their “ah” noises, but that is the point I am making. The 50p tax rate was in its infancy. It has been well documented by both the IFS and the OBR that sufficient avoidance measures were put in place to avoid paying at the full rate. It is highly uncertain what the longer-term implications of that tax rate would be.

Stephen Williams (Liberal Democrat, Bristol West)

I gather from the hon. Lady’s tone that she and her colleagues attach great importance to the 50p tax rate which, as she just said, was in its infancy. If it is so important to the Labour party, how come the top rate of tax was 40% for roughly 12 years and 352 days of the 13 years that it was in office, and the 50% tax rate was introduced only when the general election was under way?

Greg Hands (Conservative, Chelsea and Fulham)

Answer!

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I am delighted to answer. The hon. Member for Bristol West overlooks the point that not only was a general election due, but we were in the middle of an extremely deep recession, which has now become a double-dip recession. We were on the way out of it at that point, and the 50p tax rate was put in place to ensure that, as part of the recovery effort—

Peter Bone (Conservative, Wellingborough)

Order. I remind Members that we are talking about:

“Rate in respect of residential property where consideration over £2m”.

We will finish at 9 o’clock tonight, but we can finish earlier if Members wish.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Thank you, Mr Bone. A discussion on the 50p tax rate is relevant to this clause and in this context, due to the specific assertions that the Chancellor made when he put the changes in place. They are part of a package of taxation measures that he claimed would put the burden more on the shoulders of rich. Our concern, however, is that the burden is falling more on the shoulders of those who can least bear it.

Stephen Williams (Liberal Democrat, Bristol West)

I thank you, Mr Bone, for your indulgence, and the hon. Lady for giving way. She answered my question by saying that that the measure was introduced in the dying days of the previous Labour Government because we were in the middle of a recession at that point. It could have been the middle, because that concedes that it started a lot earlier. We now know that the recession started in 2007. The structural deficit started under the previous Government in the 2001-02 tax year. If the 50p top rate was so important, why was it not introduced much earlier?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I agree with you, Mr Bone, this is getting somewhat—

Stephen Williams rose—

Catherine McKinnell (Labour, Newcastle upon Tyne North)

We are looking at the past 10 years of taxation policy. We are actually focusing on a change being brought in by the Chancellor and the specific assertion he made that this stamp duty land tax will outweigh the impact of cutting the 50p tax rate. If the hon. Gentleman wants to come back with a relevant point, I would be grateful and will respond.

Stephen Williams (Liberal Democrat, Bristol West)

To focus the hon. Lady’s attention precisely on the clause, which is about a tax that raises money from the wealthy, who are able to buy properties worth more than £2 million: why were effective taxes on the wealthy not introduced from 2001-02 onwards to bridge the structural deficit, and from 2007 to deal with the recession?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I thank the hon. Gentleman for his intervention. He makes a valid point: particularly at this time of recession, it is vital that we put the right taxation policies in place, which take a sufficient amount from those who can afford to pay and ensure that they do pay. That is why we do not oppose, but welcome the measure today. We are trying to probe its impact and whether it sufficiently outweighs the choice to cut the 50p top rate of tax now, given the economic circumstances that the country faces.

Julie Hilling (Labour, Bolton West)

Does my hon. Friend agree, first, that the second part of the double-dip recession we face was made in Downing street, and, secondly, that the measures in the Budget let the rich off and punish the poor?

Peter Bone (Conservative, Wellingborough)

Order. No. As, I think, the Minister kindly mentioned earlier, we will have a Report stage after Committee. It would be more appropriate for recent comments to be made at that stage. We must stick to what is relevant to the clause.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I will not tempt your wrath, Mr Bone, by responding to the question asked by my hon. Friend the Member for Bolton West about how this recession was made in Downing street. Suffice it to say that there are significant concerns.

Previously, a stamp duty land tax of 5% applied to the purchase of expensive residential properties. Since 22 March 2012, SDLT of 5% has applied to the purchase of residential property on chargeable consideration in excess of £1 million, but not more than £2 million. Will the Economic Secretary explain where those figures came from? Why was the level of £2 million chosen? Why was the provision not applied to £1 million properties, which were previously considered expensive enough for the 5% rate? Will she also explain where the figure of 7% came from? What are the evidential bases of the percentages? Where do the costs of the properties to which the rates are being applied derive from? Were other rates considered as part of any consultation? Was an analysis carried out of how those rates might have worked? Has the Economic Secretary considered the fact that 75% of properties worth £2 million or more are in London? Was that a factor in the decision not to apply the 7% rate to £1 million properties, which are more widely distributed? It is clear that a number of questions need to be answered.

The measure will affect not just owner-occupiers; it is likely to affect the whole market, including investors in residential property, which will now be less attractive to them. Institutional investors and commercial landlords have traditionally invested in this market. The increased SDLT will result in a lower yield for investors and might result in higher rents for the tenants of the properties. Investors may now switch to commercial investments and pay SDLT at a rate of 4%. Have those possibilities been modelled and considered?

The Government have called on private landlords to lower their rents for tenants. A large £2 million property split into flats could easily be subdivided into smaller flats to be occupied by non-millionaire tenants. Will the Economic Secretary end up having to give tax incentives back to investors who exit the residential market as a result of the change? It would be reassuring if all of the issues had been considered before the policy was decided.

The main question that I would like the Economic Secretary to answer is whether she believes that the measure is a credible replacement for the removal of the 50p rate of income tax. Unfortunately, I do not think that she will be able to answer that question because, while 300,000 people will benefit from the tax cut, only 4,000 houses are sold each year for more than £2 million, so 99% of those who will gain from this tax cut for the richest will be totally unaffected by the rise in stamp duty. The concern is that that has been the Chancellor’s plan all along. He has reduced the tax on very high incomes across the board, whatever a person’s spending habits, and increased a tax that will affect only people who buy expensive houses. Does the Economic Secretary accept that only 1% of those previously paying the 50% tax will have to pay higher stamp duty?

Robert Syms (Conservative, Poole)

Will the hon. Lady not at least acknowledge that it is very difficult to avoid paying stamp duty tax on a house? As long as people are selling houses and we know the numbers, it is possible to get the revenue, so it is a good tax in that regard.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I thank the hon. Gentleman for his reasoned and rational contribution, which sits in contrast to some of the previous contributions made by Government members of the Committee. He makes a good point that stamp duty is a difficult tax to avoid and that it is, therefore, a good tax. We do not oppose the measure in itself, as long as all of the issues that I have raised have been well considered and thought through. In itself, it is not something that we oppose, but the concern is whether this is a genuine replacement for the 50p tax rate and whether it sufficiently enables that burden to remain on those who have the ability to pay the higher rates of tax, rather than shift it on to the squeezed middle to whom we often refer. Sometimes there is frustration about exactly who those people are. They know who they are, because they face the difficulty every day of paying their bills and dealing with the cost of living. My argument, which I made at the beginning of the debate on this clause, is that the fact that a tax is easy to avoid, can be avoided or has been avoided is no argument for scrapping it. It is actually an argument for putting better measures in place to make sure that the tax is collected.

I refer again to the IFS and the OBR on the 50p rate. They said clearly that, even though the yield in the first year was not as high as one would have hoped, over the course of this Parliament, for example, it was highly uncertain what future yields would be, as avoidance measures were put in place in its first year of implementation. That could not continue indefinitely, so inevitably it was expected that the yield would be higher over the coming years.

My final question to the Economic Secretary relates to the Chancellor’s assertion that this tax would offset the cut in the 50p rate. How will the other 99%, who will not be hit in any way by the imposition of this tax, pay their fair share? This strikes me as a missed opportunity to contribute to reducing the deficit .

Simon Kirby (Conservative, Brighton, Kemptown)

I am slightly confused and perhaps the hon. Lady can clarify the matter. Is she referring to 1% of the 6,000 people who we have heard will pay the top rate of tax? It seems a very small number compared with the number of properties sold each year, either above £1 million or indeed above £2 million. It does not seem to make sense. Can she clarify that for me?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Yes I am referring to the 1% of those who were previously paying the 50p tax rate. As I said, 300,000 people—14,000 millionaires in particular—will benefit every year from the reduction of the 50p tax rate, but only 4,000 houses are sold each year for more than £2 million. So 99% of those who gain from this tax cut for the richest will be unaffected by this increase in stamp duty. How is the higher rate of SDLT going to offset the cut in the 50p tax rate as the Chancellor of the Exchequer, not I, has claimed?

Jacob Rees-Mogg (Conservative, North East Somerset)

I think I should speak up for my hon. Friend the Member for Chelsea and Fulham, who probably represents more houses in this category than any other Member in Parliament, with the possible exception of the hon. Member for Cities of London and Westminster (Mark Field). He, of course, is not allowed to speak, considering his position. It is important to question what the 7% rate will actually do and its effect on the London property market. The hon. Member for Newcastle upon Tyne North made some excellent points in this regard. I will put aside most of what she said about the 50p tax rate, but she raised some important issues on the knock-on effects.

I declare my own modest interest. The house next door to me has just dug out its basement in London. Will we see people across London not moving house, but digging out their basements? What effect will that have? Will we see people buying two flats in a block and putting them together to avoid the increase in the tax, which is quite substantial? We are talking about £40,000 that is payable as soon as people go over that £2 million level, but not payable at even £1 below that limit, or at £2 million itself. What effect will that have on encouraging people to rent, rather than move property? What effect will there be in London on the mobility of labour, and particularly the international movement of labour, which is very important for the City of London? Is it coincidence that we have discussed clause 210 on stopping anti-avoidance schemes just as the rate of stamp duty land tax has gone up? As the Government have got increasingly greedy with stamp duty—the previous Government started this, of course—has avoidance become more of a problem, leading to a constant effort to plug holes, although the situation is sieve-like, and it is never possible to plug enough of them? When the number of property transactions has been declining, is it sensible to put up taxes on property at all?

John Mann (Labour, Bassetlaw)

The hon. Gentleman quoted a figure of, I think, £40,000. Is he aware that the Government have brought in the community infrastructure levy, which has just begun to take effect in the first few councils? That raises amounts of £20,000 and £30,000 per new property, in the hon. Gentleman’s constituency and everywhere else, and it includes conversions or expansions of existing properties.

Jacob Rees-Mogg (Conservative, North East Somerset)

I will speak very specifically to the issue before us, because I do not want to take up a lot of time in Committee, and I know we must finish at 9 o’clock. Tempted though I am by the hon. Member for Bassetlaw to move along all sorts of highways and byways, I intend to stick exclusively to the increase in stamp duty land tax, and to caution the Government that there will come a point at which, if we keep on attacking the golden goose, it will stop laying eggs.

We have found stamp duty to be an easy way of raising tax. It was a very good way to get it when the economy was booming. The rates would go up and there was little effect in a rising market. I am not convinced that that is the situation we are now in. The increase will probably be a disincentive to moving house. It will have an effect on planning in London, as people seek to build upwards and downwards, and on neighbourhoods.

We want a very liquid, high-turnover property market, with as few imposts on it as possible, which is one of the advantages that the UK housing market has had over continental housing markets. That contributes to the mobility of labour. The provision is probably not a good way to raise increased tax. To go back briefly to the 50p point, if the Government had been bolder and cut the 50p rate to 40p—bang!—it would have raised more revenue.

Sheila Gilmore (Labour, Edinburgh East)

The hon. Member for North East Somerset may have shot the Government’s fox, in relation to whether they will derive from the increase the amounts stated. Stamp duty has, over the years, proved to have clear impacts on the property market and people’s behaviour. That is, indeed, precisely why there was a stamp duty holiday, for a period, for first-time buyers.

A lot of property market experts report that ending the holiday and re-imposing stamp duty has led to fewer transactions. The tax affects people’s behaviour. The argument that more money will be levied through stamp duty than through the 50p tax rate is based on certain assumptions. After all, it was the Chancellor who made the comparison, and Conservative Members who in the Budget debate put up their fingers to tell us—because we obviously cannot count to five—that one amount was five times the other.

The provision is an important part of the Chancellor’s Budget policy, so if there is any likelihood that the increased rate of tax will affect people’s behaviour and lead to them not moving or carrying out the relevant transactions, but instead doing various things that might enable them to stay where they are, such as making more space, the expected tax take will be less. Why should we expect people’s behaviour to be affected at the bottom end, and say that people looking for cheaper properties are perhaps more likely to buy when stamp duty has been waived for a period, but not at the top end? It seems that there will be an impact on people’s behaviour.

I think a Government Member suggested that stamp duty was a difficult tax to evade. Well, it may be, provided that a property is actually purchased, but stamp duty does not apply where a property is not purchased. That is the bit about behaviour. If stamp duty is so difficult to avoid, we have to ask why there are so many measures in the Bill to prevent people avoiding it. We discussed that when we considered clause 210, which addresses the avoidance of stamp duty land tax.

We also know—this was part of the big Budget debate—that one of the ways in which people avoided the 5% stamp duty land tax was by creating situations in which a company, rather than the individual, purchased the property. The Government declared that they wanted to take steps both to address such avoidance in future transactions and, through another mechanism, to recoup some of the losses on past transactions. Sadly, people may be able to avoid even that kind of tax.

Such avoidance was not so uncommon in the past, when there were cut-offs at various levels—at one point, a higher rate of stamp duty was levied at £100,000. I recall people offering arrangements such as, “Well, we’ll call it £99,000, and we’ll sell you the furniture for £10,000,” or whatever. The same amount of money was passed, but it came under the stamp duty threshold. I am not defending that practice, but I am aware that it happened at times.

People find ways to get around stamp duty, and perhaps that will be true of £2 million houses, too. There may be different ways of doing so; I am not a tax-avoidance lawyer, so I have not thought of what those ways might be. I would not be surprised if somebody was working out how to make a transaction in such a way that it falls beneath £2 million but that some other service or sale takes places on which the tax is not levied. In all those circumstances, the amount generated by the tax may well be less than anticipated. On that basis, the promise that the measure will plug the gap, and perhaps do even better, may not be met.

I am slightly worried by the glee with which Government Members want to tell us that the 50p tax rate does not raise any money or might even be a money loser, as was suggested earlier, The Government have repeatedly told us that we have to address the deficit and raise money. What annoys so many of our constituents, and so many people up and down the country, is that they do not have the ability to accelerate their income and pull it back into a previous year, as appears to have happened in the first year of the 50p tax rate. Most people cannot go to their employer and say, “Will you pay me next year’s money this year so I can avoid paying tax?”, or “Will you pay me next year, rather than this year?” That is probably what people are doing at the moment; given that there is an exit year, as well as an entry year, they will just delay their income. If the tax had gone on, of course, it would be much harder for people to do that, as has been suggested. It must be understood why people are so angry about some of these matters. It is almost as if we are being told to be delighted that the tax did not raise what it should have done, and that people clearly tried to get out of it.

There is an argument for property taxes such as SDLT. As we have seen over the past week in the big debate about tax avoidance, income taxes are avoidable on lots of levels by many people, particularly by those who are self-employed or have companies. All those mechanisms have been under discussion. There is an issue about how to ensure a reasonable tax take, proportionate to income and wealth, and create a fair and progressive tax system. That is one reason people have suggested that a property tax might achieve that in a way that an income tax might not. That is one argument for continuing with council tax, although a lot of people do not like that either. That is a property tax that it is quite hard to avoid. I suspect it is also the reason why Liberal Democrats, both prior to the election and since, have advocated a mansion tax. They realise that wealth is not being taxed as effectively as it might be, and want to ensure that it is.

It has been spun that the 7% is a mansion tax, but it is a pale shadow of one. The crucial point is that it may not raise the money needed to deal with the problems the country faces. It is significant that we should hear today that public borrowing rose more than expected in May; it has hit £17.9 billion, compared with £15.2 billion the year before. That increase in borrowing was driven by a fall in income tax of just over 7%, and an 11.7% jump in welfare benefits. Sadly, it is hurting, but it is not working.

John Mann (Labour, Bassetlaw)

I shall be quick. I support the clause and will defend and promote it as appropriate. However, I worry in that members of the Committee and the wider public are not aware of how the Government are attacking the entrepreneur and the person who wants to build a small house.

It is appropriate that a large mansion should be taxed in this way as a minimum, if not more. At the same time, this very day across the country, from Somerset to Nottinghamshire, the community infrastructure levy is being introduced. That means that anyone building a small house on a plot of land will, for the first time in this country, be taxed a huge amount by the Government. Converting a small property such as a barn will be taxed for the first time in the same way as the large developer. That is a tax on the aspiration of Britain.

That skewing of the housing market and the attempt to dampen aspiration among those who wish to get up or move on to the housing ladder emphasise the flaws in the Government’s housing and taxation policy. It would be better if the clause imposed a higher mansion tax than that proposed and introduced a cap at the bottom to allow the person who wants a plot of land on which to build their own house for the first time to get on the housing ladder. Anyone wishing to do that should not be taxed between £20,000 and £30,000 extra. The country hardly knows that is going on. It is our duty, therefore, to tell people about the new tax that the Government have brought in on aspiration and home ownership.

Will the Minister consider, over the next few months, whether the tax in the clause could be increased by 1%? A cap could then be created for small, affordable, starter houses, allowing the aspirant entrepreneur to get on to the housing ladder by building a small home, without the burden of the state taxing them, for the first time, £20,000 to £30,000 each. For some people, that would be decisive. Will the Minister give a commitment to the Committee to look at this matter, and see whether a small tweaking would provide an opportunity for entrepreneurship, and not dampen down aspirational home owners in the way that the Government are now doing sneakily?

Chloe Smith (Conservative, Norwich North)

If I may say so, Mr Bone, with due respect to your chairmanship, this morning’s debate has involved one of the more egregious avoidances of a clause’s point that we have seen.

Peter Bone (Conservative, Wellingborough)

Order. If it had been out of order, I would have ruled it out of order.

Chloe Smith (Conservative, Norwich North)

I apologise, Mr Bone. I meant no disrespect to your chairmanship, but I would like to pay some disrespect to other comments that we have heard today. The point was made about the rich paying more, which is an idea that my constituents certainly welcome. If people are asked, “Should a purchaser of a £2 million home pay more in tax than someone who purchases a £1 million home, and in turn, more than someone who purchases a £100,000 home?”, the answer would be a resounding yes. That is what the clause does in part.

Jacob Rees-Mogg (Conservative, North East Somerset)

The purchaser of a £2 million home pays more than someone who purchases a £1 million home, or a £100,000 home, even if the rate is the same. It does not require a higher rate for fairness.

Chloe Smith (Conservative, Norwich North)

Let me go into what the rate does—my hon. Friend will know well the technical terms, “a slab” and “a slice” that apply to this tax, and rather broader reform would be required if we were to fully tackle what he has just asked for.

The new rate is one of a package of measures that is targeted at the wealthy. As the Committee knows—they can check the figures in the Red Book—the package ensures that the Exchequer will gain five times more money each and every year from the wealthiest in our society, compared with how much those people benefit from the Budget. For clarity, the package includes other changes to stamp duty land tax, such as clause 210, the cap on tax reliefs, and measures to address avoidance. Members have asked whether the measures take more from the rich, and those answers can be found in the Red Book.

Clause 211 introduces a new rate of stamp duty land tax for residential properties worth over £2 million from 22 March 2012. SDLT is a tax on land transactions, both residential and commercial. Purchasers are charged a percentage of the price paid for the land or property that they acquire. Before the changes were introduced, the rates of SDLT on residential properties rose from 0% for properties up to £125,000 to 5% for properties over £1 million. The clause introduces an additional 7% rate for residential transactions over £2 million, again with an effective date of on or after 22 March 2012. As the measure applies only to properties costing more than £2 million, it is clearly a charge on the wealthiest individuals.

It is clear to those who listened to this morning’s debate that many of the comments made by Opposition Members have been debunked enough, and I thank some of my hon. Friends for doing that here today. I will add to their comments the point that the Office for Budget Responsibility made in the context of the Budget announcements, which is that the package put forward was based in part on central and reasonable figures.

John Mann (Labour, Bassetlaw)

The Minister wants to debunk, but will she just confirm that, with the community infrastructure levy, the Government are taxing everyone who builds a new home or converts a non-residential dwelling into a new home? They are applying now, for the first time ever, a tax of between £20,000 and £30,000 per property. It is brand new this year; it has never existed before. Will the Minister confirm that that is a fact?

Chloe Smith (Conservative, Norwich North)

I am grateful to the hon. Gentleman for giving me the chance to deal with that question before moving on to the rest of what I need to say this morning. It is my understanding that Department for Communities and Local Government plans help to ensure that the externalities involved in the very broad community infrastructure levy reforms are properly funded. It is my understanding that if the land is worth less than £125,000, no SDLT is due; nor is it due on the finished house. I am sure that other Ministers would be happy to discuss that with the hon. Gentleman in due course.

John Mann (Labour, Bassetlaw)

On that point, I hope that the Minister will consider reassessing the facts and the inaccurate information that she has been presented with to suggest that land must be worth £125,000 before the community infrastructure levy is applied.

Peter Bone (Conservative, Wellingborough)

Order. This is getting out of order. The hon. Gentleman made the point before. He was asking for the rate to be increased, but he now appears to be debating the actual charge. Unless he wants to rephrase the question, that might be out of order.

Chloe Smith (Conservative, Norwich North)

Perhaps it would be best if I offer to return to the hon. Gentleman on that topic or, indeed, ask other Ministers to do so. They might be better equipped to discuss the matter, given what this clause allows us to discuss.

I want to deal with other points before making some brief comments about what the clause does. The hon. Member for Newcastle upon Tyne North asked as one of her first questions whether the measure had been watered down. She asked: is it less than a mansion tax? It seems to be less than a tax on the wealthy, she said. The idea of a mansion tax from her and perhaps the idea of a tax on the wealthy from her is the closest we have got, all Finance Bill long, to a statement of what the Opposition’s plans are on tax. If she has an idea of what a mansion tax or, indeed, what a tax on the wealthy would achieve, we are all ears.

I will quote back to the hon. Lady her note that—

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Will the Minister clarify something? The points that I have raised today are scrutinising the measure that the Government are implementing and the Government’s intentions with regard to it. I do not recall at any stage setting out any policy proposals with regard to this measure in any of my comments.

Chloe Smith (Conservative, Norwich North)

Indeed, and that has been one of the difficulties with the hon. Lady’s contributions in proceedings on the Bill. She talks about her concern that measures are falling on the shoulders of those who can least bear it. I just wonder whether she means those—[Interruption.]

Peter Bone (Conservative, Wellingborough)

Order.

Chloe Smith (Conservative, Norwich North)

I wonder whether the hon. Lady means that she is concerned that those who can least bear it are indeed those who would pay to move to £2 million houses. I suspect not.

Julie Hilling (Labour, Bolton West)

I am sorry to take the Minister back a moment, but my understanding of this Committee—you may be able to correct me, Mr Bone—is that we are scrutinising Government legislation. We are not proposing the Opposition’s legislation. I am sure that we would very happily, with your permission, set out in this Committee exactly what we would do if we were in government, but sadly we are not in government and therefore we are scrutinising the Government’s Bill. I am very confused about why the Minister would make those comments—those accusations. Clearly, we have already set out five-point plans and, from these Benches, talked about some of the things that we would do in government.

Chloe Smith (Conservative, Norwich North)

Let me continue and explain what this Government are doing through the policy under discussion, which is very simple. It is a further tax on wealthy individuals—the wealthiest individuals—who purchase properties worth more than £2 million. Members have asked why the figures of £2 million and 7% were picked. I think that I have already responded to those questions by saying that the previous upper cost limit was £1 million and the previous upper rate of tax was 5%. Clearly, a balance needs to be struck in relation to raising more revenue and against overly punitive rates or thresholds. The central point is that if someone can afford to pay £2 million for a house, they can afford to pay a little tax towards the mammoth deficit in which the previous Government left this country.

On whether the measure will fall more on London and the south-east, it is no great surprise that London and the south-east have a higher graded property market than other parts of the country, so the tax may have an effect in that regard. However, let me reassure the Committee that the business model takes into consideration the considerable capital gains tax anticipated from London properties, and that the initial stakeholder reaction, including responses from high-value London estate agents, suggests that the measures have had a limited impact on investor activity. We expect it to be an effective tax that will, as intended, secure more revenue from the wealthiest, while not acting as a barrier to investment in residential property. It is important that the UK remains a safe haven for high-end property investors.

On avoidance, my hon. Friend the Member for North East Somerset said that a further higher rate would increase already high levels of SDLT. The Budget highlighted the Government’s determination to tackle SDLT avoidance, and the Bill includes a package of measures to put a stop to sub-sale avoidance and to deter enveloping, which my hon. Friend the Exchequer Secretary has already explained, and provides for notification to Her Majesty’s Revenue and Customs of much more serious schemes. The Chancellor has been absolutely clear that we will legislate with retrospective effect, if necessary, to stop any new schemes that emerge in future.

Julie Hilling (Labour, Bolton West)

I thank the Economic Secretary for giving way on that particular point, because I am concerned that there is a risk that properties will now be sold for £1,999,999. I am also concerned, as my hon. Friend the Member for Edinburgh East has said, about whether people will be able to take other measures—for instance, sell their house separately from its outbuildings—in order to avoid selling for £2 million. Is that possible and will the Government do something to prevent it from happening?

Chloe Smith (Conservative, Norwich North)

In brief, and without attempting to give tax advice to anyone wishing to seek out new schemes, the overall package of measures in the clause and a couple of others either side of it makes it clear that this Government will bear down on any avoidance schemes that enable the enveloping of property or creative ways of getting around paying a fair share of tax. I reassure the hon. Lady and the hon. Member for Newcastle upon Tyne North, who first posed the question, that the new 7% rate will raise an estimated £150 million in 2012-13, rising to £300 million by 2016-17. That will help support the Government’s priority of reducing the deficit, and it is clearly more than the £100 million estimated to have been raised by the former 50p tax rate.

(Except clauses 1, 4, 8, 189 and 209, schedules 1, 23 and 33 and certain new clauses and new schedules) - Clause 212 - Higher rate for certain transactions

Peter Bone (Conservative, Wellingborough)

With this it will be convenient to discuss that schedule 34 be the Thirty-fourth schedule to the Bill.

I call Cathy Jamieson—no, sorry, Catherine McKinnell.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I appreciate that it might be preferable if one of my colleagues contributed to this part of the debate, Mr Bone, but I am sure you are pleased to hear that it is me again. [Interruption.] I thank Government Members for the warm welcome. It is a pleasure to serve under your chairmanship this afternoon, Mr Bone.

Clause 212 and schedule 34 introduce a new 15% stamp duty land tax that applies to the acquisition of UK residential property by certain “non-natural persons” where the consideration exceeds £2 million. The policy objective, as stated in the explanatory notes, is

“to dis-incentivise the ownership of high value residential property in structures that would permit the indirect ownership…of the property to be transferred in a way that would not be chargeable to SDLT.”

The 15% SDLT charge will apply to acquisitions by companies, collective investment schemes such as unit trusts, and partnerships that have a company as a partner. The charge will apply to both UK and non-UK entities.

I will not go into much detail on the technicalities of the clause, as I am sure that the Minister will respond to any queries relating to them. However, I want to raise a few concerns. Although stamp duty is paid by the purchaser, the seller implementing the schemes has still tended to gain, as properties free from stamp duty tend to command higher prices. The Chancellor said that he wanted the measure to be seen as a sign that he is

“throwing the book at avoidance”,

but there are myriad problems with the plan.

The measure is aimed at owner-occupiers who acquire residential property that is wrapped up in a company, and who avoid or minimise SDLT on transfer. However, the measure catches far more than that. Some say that it is a sledgehammer to crack a nut, in that it catches every transaction whereby a company acquires a residential property via a company subject to narrow exemptions. It catches not only owner-occupiers but investors, including institutional investors, and commercial landlords. Will the Minister say what he intends to do to make sure that residential development will not be hit? Has he considered the alternative of introducing a transfer tax on the sale of a company that would generate the same SDLT as if there had been an asset sale? For example, we might apply a tax that would be the same as SDLT of 4% or 5% on an asset sale. I understand that Her Majesty’s Revenue and Customs think that is difficult to administer, but the Germans, French and Dutch have something similar.

The definition of “non-natural persons” is wide and, broadly, catches everything apart from individuals and very simple partnerships. The exemptions are narrow. Will the Minister explain the intention behind that? We support the principle of the measure—indeed, we called for it to be introduced before the Budget—but we called for it as a way of raising money to protect families from cuts to tax credits, not to give a tax break to the super-rich.

Of course rich individuals should not be able to avoid tax by buying properties through complex structures, but neither should they be rewarded for avoiding the 50p tax rate, which has been abolished. This is one of the measures that is said to compensate for that. The measure is one tiny element of a much wider approach that we need to take to get a fair amount of tax from the richest 1% in the country. Bigger stamp duty on expensive homes and a crackdown on stamp duty avoidance is not unacceptable. What is unacceptable is the pretence that these measures will plug the huge gap in wealth taxation that abolition of the 50p tax has left. Will the Minister respond to those points to allay the concerns of Committee members?

Sheila Gilmore (Labour, Edinburgh East)

It is a pleasure to serve under your chairmanship, Mr Bone, for what is perhaps the Committee’s last sitting. [Hon. Members: “Hear, hear.”] Several of my colleagues seem to be much relieved at that idea, although I am sure that most of us would prefer to spend our time discussing the intricacies of Finance Bills on a permanent basis—and of course we may have to do so, as this one seems to have been unravelling at such a pace.

Again, this is a matter on which there is a risk of a knee-jerk response. How much revenue would this measure generate? On one level, if it is to close a loophole whereby people have purchased very expensive properties through the mechanism of a company to avoid the previous level of tax at 5%, it seems unlikely that people will even want to use such a mechanism at the proposed 15% level, so it will not raise any revenue. That may be legitimate in itself—we may want to stop certain practices rather than to raise revenue—but it would be interesting to hear the Minister’s view on whether the measure is designed to bring in revenue or simply to stop such transactions. Is he confident that it will close the door on these transactions, or will people still be able to do it in a different way?

People often say that our tax code is too long—the longest in the world, or the universe, probably—but one of the reasons why we have such lengthy Finance Bills is to stop people doing things that they have worked out can be done to avoid tax, so do we anticipate further legislation, or will this be conclusive?

David Gauke (Conservative, South West Hertfordshire)

It is a great pleasure to welcome you back to the Chair this afternoon, Mr Bone, for the last time in the course of our proceedings this year—unless we have a pleasant surprise, for whatever reason.

The clause introduces a new rate of stamp duty land tax for residential properties worth over £2 million purchased by certain non-natural persons. The new rate is part of a package of measures announced at the Budget to tackle stamp duty land tax avoidance. The purchase of high-value properties into, for example, a corporate envelope allows for the future avoidance of SDLT by a subsequent purchaser of the property wrapped in the envelope. The enveloping of property is common among the purchasers of high-value property.

The clause introduces a 15% SDLT rate for residential transactions over £2 million by certain non-natural persons, with an effective date on or after 21 March 2012. The new 15% rate is part of a package of measures both to ensure that individuals and companies pay a fair share of tax on high-value residential property and to tackle avoidance.

The 15% rate will apply to purchases by non-natural persons, including acquisitions by a company; acquisitions made by or on behalf of a partnership where one or more of the members is a company; and acquisitions made for the purposes of collective investment schemes. Companies acting in their capacity as trustees of settlements, and property developers with a record of development of two years or more, will be excluded.

I draw the Committee’s attention to an error in the tax information and impact notes, which were published at the Budget, regarding the transitional arrangements for the 15% rate. I wish to clarify that the rate does not apply to a transaction for which a contract was entered into on or before 20 March 2012, and is subsequently unchanged for a transaction that is to complete on or after 21 March 2012. In such cases, the transitional rules will apply, and the rate chargeable will be 5% rather than 15%. Where a contract has been entered into on 21 March 2012 for a transaction that is to complete on or after that date, the transitional rules will not apply, and the rate chargeable will be 15%.

I shall now address some of the questions asked in our short debate. First: does the 15% rate unfairly hit, for example, property investment companies that do not avoid paying their taxes? The package outlined by the Chancellor was designed both to ensure that individuals and companies pay a fair share of tax on residential property transactions, and to tackle avoidance. We understand the concerns raised by bona fide property investment companies, and the Treasury is in conversations with a number of affected interested parties. The current consultation on the annual charge seeks comments specifically on the coverage, and once that has been completed we will carefully consider all representations before making a final decision on coverage for the annual charge. The conclusions reached in relation to that coverage may also inform any changes to the 15% SDLT rate, but before making any changes to current legislation, we will have to take into account the need to ensure that the core aim of the policy, which is to tackle avoidance, is not compromised.

On a related point, the hon. Member for Newcastle upon Tyne North asked whether the definition of a non-natural person was too broad. It is broad because we want to prevent avoidance; too narrow a definition could leave loopholes. A long-standing problem with SDLT has been that, in too many cases, those who have arranged their affairs in such a way that a property is held through a company or other non-natural person have essentially been able to sell the property without the purchaser incurring SDLT, which adds to the value of the property. The hon. Lady was right that that can be the economic effect of being able to sidestep the SDLT rules. That is not fair, and we have consequently taken action to address the concern because we think it is right that we do precisely that.

Charlie Elphicke (Conservative, Dover)

With the higher SDLT rate in the Budget, is it not important that strong anti-avoidance measures are in place to ensure that people do not sidestep the higher charges?

David Gauke (Conservative, South West Hertfordshire)

My hon. Friend is absolutely right. Given his considerable expertise in the area, he will know, as will many members of the Committee, that there was a growing concern that wealthy individuals were able to sidestep the requirements of SDLT, whereas our constituents living in properties of much lower value would face SDLT when making a purchase or a sale. In some of the wealthiest properties, SDLT was not applying. That clearly is not fair and the Government were determined to take action to redress it. Perhaps the matter should have been addressed years ago, but I am pleased that we have been able to take steps to deal with it. The clause is part of that general desire to address the matter, and I hope that the clause will stand part of the Bill.

Clause 213 - Disclosure of stamp duty land tax avoidance scheme

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Clause 213 seems to be a fairly straightforward anti-avoidance measure that extends the disclosure of tax avoidance schemes. Tax specialists are required to notify HMRC of any schemes that they believe exploit loopholes to reduce tax to areas of stamp duty where they did not previously apply. It links with the previous clauses and it gives the Treasury the power to make regulations to modify the way in which the DOTAS rules apply to SDLT avoidance schemes.

The measures are welcome. The DOTAS was introduced in 2004 under the Labour Government. Eight years on, it is still a fairly innovative approach to countering tax avoidance. It was limited to high-risk areas of income tax, corporation tax and capital gains tax. A similar scheme was introduced for VAT at the same time. Over the years it has been extended to cover more areas of tax, and that is a welcome development, which we very much support. Does the Minister find the DOTAS regime to be an extremely valuable weapon in the fight against tax avoidance?

David Gauke (Conservative, South West Hertfordshire)

As we have heard, clause 213 provides for a power to modify by way of a statutory instrument the application of one section of the SDLT DOTAS regime. This new power will be used to aid HMRC to identify all users of SDLT avoidance schemes. The measure was announced on 6 December and the draft clause was published alongside the technical consultation.

The SDLT DOTAS regime was significantly amended with effect from April 2010. The changes included extending the regime to residential property and introducing a new requirement for the users of avoidance schemes to make disclosures rather than just the promoters. The user disclosure regime applies only to avoidance arrangements that were disclosed by promoters after 1 April 2010. Avoidance arrangements that were disclosed by promoters before April 2010 did not have to be disclosed again and so have never been brought within the regime for users to have to make disclosures.

Clause 213 provides for a power to modify the application of one section of the SDLT DOTAS legislation. This will mean that the promoters of certain SDLT avoidance arrangements first disclosed before April 2010 will have to make one further disclosure. This will bring such arrangements within the regime for disclosure by users, so HMRC will be able to identify the users of the avoidance schemes.

The avoidance arrangements affected will be those that utilise the rules for a transfer of rights, also known as a subsale, in conjunction with certain other specified features. We anticipate that the operational impact of the changes on HMRC will be negligible. It will affect only entities or individuals attempting to avoid paying the appropriate amount of SDLT.

To answer the question raised by the hon. Member for Newcastle upon Tyne North, the DOTAS regime is an asset to our tax regime. It is helpful. It enables HMRC to respond to schemes. Our view is that it is working well, but of course we cannot be complacent.

We have strengthened the DOTAS regime in this Parliament, and that is the right thing to do. The clause strengthens the way the SDLT DOTAS regime works, aiding HMRC in identifying users of SDLT avoidance schemes, supporting the Government’s objectives of creating a fairer tax system and tackling SDLT avoidance, so I commend the clause to the Committee.

Clause 214 - Health service bodies

Catherine McKinnell (Labour, Newcastle upon Tyne North)

The clause will not detain us too long. We are hop, skip and jumping over anti-avoidance measures that we all support. The clause is a simple re-enactment of the existing provisions to exempt parts of the NHS from paying stamp duty on certain fixtures and repeals obsolete provisions in that area. It is a measure that is likely to have nil Exchequer impact and is a housekeeping exercise that we have no objection to.

John Pugh (Liberal Democrat, Southport)

I will detain the Committee just a little bit longer. The clause exempts NHS bodies from stamp duty when they purchase land and buildings, which is a good thing, and to some extent updates the legislation to take into account the reconfiguration of the health service that is being debated elsewhere, as the hon. Member for Easington will undoubtedly recall. However, the biggest property holder in the NHS is not mentioned in the legislation at all: NHS Property Services Ltd, which is registered with Companies House and is a residuary body for PCT buildings when they are passed on, some of which are freehold, some PFI and some held under a complex arrangement known as LIFT—local improvement finance trust.

Some such properties will be leased back and rented back to NHS bodies, and some will be surplus to requirements and disposed of, because some are quite unattractive financial arrangements—particularly those held under PFI conditions or the LIFT arrangements. It is not a small portfolio: it represents anything between £4 billion and £6 billion of public assets. I do not foresee a major problem with the body buying property and therefore incurring stamp duty, as by and large it will be trying to dispose of property, although some will be incapable of being disposed of in any rational way.

Having looked at the terms that apply to that body, it does not seem to me obvious that it would be prevented from purchasing property if that was a move within a wider property management game, so I would welcome clarification from the Minister as to whether NHS Property Services, with its huge property portfolio of NHS assets, can sell anything within its portfolio. Can the Minister confirm that, if it does, it will incur stamp duty because it is a limited company and is not exempted? I would welcome some clarification on this perhaps forgotten aspect of the legislation.

David Gauke (Conservative, South West Hertfordshire)

The clause is a technical measure, as we have heard, which updates an existing stamp duty land tax relief for property acquisitions by certain bodies involved in the provision of NHS services. It repeals the existing relief and an obsolete equivalent relief under the old stamp duty regime.

Since SDLT was introduced in 2003, it has included a relief for property acquisitions by NHS trusts, primary care trusts and equivalent bodies in the devolved Administrations. The relief was enacted in health service legislation and not within the Finance Act 2003, and has undergone successive amendments, first to include NHS foundation trusts, and later to take account of changes to the NHS legislation underlying the various bodies. Unfortunately, the accumulation of amendments has caused defects in the legislation, which we have been advised to rectify as soon as possible.

Within the clause, we are taking the opportunity to consolidate SDLT legislation by placing the relief with the main body of SDLT legislation in the Finance Act 2003. The relief will in future apply to NHS foundation trusts, local health boards and NHS trusts in Wales, and to health and social services trusts in Northern Ireland. It will also apply to NHS trusts and primary care trusts in England until those bodies are abolished under provisions of the new Health and Social Care Act 2012, and then to the new NHS Commissioning Board and clinical commissioning groups.

Committee members will have noted that no Scottish bodies appear on the list. Health provision in Scotland is now undertaken by health boards and special health boards, which acquire title to land in the name of the Scottish Ministers. The transactions are therefore exempt from SDLT under the Crown application provisions.

The relief continues to apply only to public sector bodies engaged in the commissioning and provision of NHS services. We do not expect the clause to have any significant Exchequer or other impact. The clause will have effect for transactions where the effective date for SDLT purposes is on or after the date of Royal Assent to the Finance Bill. The effective date is normally the date on which a sale contract is completed.

On the point raised by my hon. Friend the Member for Southport, NHS Property Services is not included within the relief because it was not included in the previous relief. The measure is designed to re-enact an existing relief, not to broaden its scope. Consequently, bodies that fell outside the previous relief are not brought in. As I said, it does not have an Exchequer impact.

John Pugh (Liberal Democrat, Southport)

It is fairly evident that it would not be included in the previous set of organisations with freedom from taxation, simply because the organisation did not exist as such. It is relatively recent. However, such is the size of its property portfolio—we are talking about billions of pounds—that it is not inconceivable that at some future date, it will be both a buyer and a seller of property. Is it fair for me to infer that it is perfectly possible for that organisation, which will inherit the NHS assets, to incur stamp duty?

David Gauke (Conservative, South West Hertfordshire)

I take on board my hon. Friend’s point about NHS Property Services. Obviously, we will keep the matter under review. The broad principle behind the clause is that it applies to those bodies that previously fell within the provisions, or whose predecessor organisations did. I appreciate his point that NHS Property Services does not quite fall within that category, but I hope that he will take this as some reassurance. We keep such matters under review.

The clause’s intention is essentially to re-enact the SDLT relief for NHS bodies in a simplified and more robust form and provide for forthcoming changes in the pattern of NHS service provision. I commend the clause to the Committee.

Clause 216 - Agreement between UK and Switzerland

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment 201, in clause 216, page 124, line 8, after ‘2012’, insert

‘and by a mutual agreement signed by them on 18 April 2012 implementing article XVIII of that protocol’.

Peter Bone (Conservative, Wellingborough)

With this it will be convenient to discuss the following:

Clause stand part.

Government amendment 202.

That schedule 35 be the Thirty-fifth schedule to the Bill.

David Gauke (Conservative, South West Hertfordshire)

Clause 216 gives effect to the tax agreement between the UK and Switzerland signed on 6 October 2011 and to the protocol to that agreement signed on 20 March 2012. Swiss banking secrecy has been a thorn in the side of tax administrations for generations. Billions of pounds have been deposited in Switzerland, and until now that money has remained stubbornly beyond the reach of even our finest tax investigators. The tax agreement puts an end to that exploitation for good, and in doing so it will raise billions of pounds for the Exchequer. It will resolve existing tax liabilities and put in place arrangements to ensure the effective future taxation of Swiss investments.

Some have objected to the agreement on the grounds that we should have pushed for full and open access to Swiss bank records, but we fear that there was, and is, no chance of that happening in the near future. Banking secrecy is enforced by law in Switzerland. Although this Government are a strong supporter of the automatic exchange of information, we also recognise that it will take some time to achieve it. Doing nothing to address the problem of tax evasion in the meantime is not a credible option. We recognise that, as do Germany and Austria—which is why they have struck similar agreements with Switzerland—and several other European countries. I would not be surprised if other such agreements are made in the future.

The agreement addresses tax evasion through Swiss bank accounts via three tough measures. First, a one-off levy on existing accounts held by UK residents will settle past tax liabilities. Liability to income tax, capital gains tax, inheritance tax and, if applicable, VAT in respect of the account will be cleared, as long as a payment worth between 18% and 34% of the assets is made. That, in the experience of Her Majesty’s Revenue and Customs, is comparable with the amounts recovered in offshore investigations. If the account holder wishes to avoid the payment, they may authorise disclosure of the account to HMRC, or they must close their Swiss accounts and move their money elsewhere.

The second measure is a new withholding tax, which will ensure the effective future taxation of investment returns. All income and gains arising on investment held through Swiss banks will be subject to a tax set by reference to the UK top rates. In certain circumstances, inheritances will be subject to a tax worth 40% of the assets in the account. Again, these significant taxes can only be avoided if the account holder authorises disclosure to HMRC.

The third measure introduces a powerful new provision that allows HMRC to discover Swiss bank accounts. The power, which operates alongside and in addition to our existing powers to request information, allows HMRC to discover whether any named individual has a Swiss account, without having to provide any evidence suggesting that any such account is open. This provision and that on inheritances will, over time, act as strong drivers towards tax transparency, because they significantly raise the consequences for those who continue to hide money in Switzerland.

What of those who try to dodge the agreement by moving their illicit funds to another secretive jurisdiction? They will gain no tax clearance and will still be liable for all unpaid taxes, but that is not all. They will also be liable for significant penalties, worth up to 200% of the tax evaded, and they could face criminal investigation and prosecution.

We are not powerless to find out about offshore investments. The information-sharing provisions in the UK-Switzerland double taxation agreement meet international standards and can be used in connection with any account that existed after 1 January 2011. The Swiss will give HMRC a list of the 10 most popular destinations for funds withdrawn from Switzerland before the agreement comes into force. That will help HMRC target its investigations into funds that are moved elsewhere.

The changes made by clause 216 will give effect to the UK-Swiss agreement by disapplying section 23 of the Constitutional Reform and Governance Act 2010, which requires international agreements to be approved by a Committee of the House.

The agreement marks an historic moment in the fight against offshore tax evasion. It will contribute significant amounts to the UK Exchequer, now and in the future. The Government consider that the agreement is best debated in the full light of the Finance Bill process, rather than by a merits committee.

The clause also introduces schedule 35, which gives effect to the changes to UK tax law required to implement the agreement. The schedule is critical for the collection of UK tax on investments held in Switzerland. It is divided into five parts. Part 1 deals with definitions, and part 5 with miscellaneous provisions. Part 2 implements part 2 of the UK-Swiss agreement, on the clearance of past tax liabilities. Significant assets that have not been correctly taxed here are held by UK taxpayers through Swiss banks. Part of the agreement offers a simple choice to UK residents with Swiss assets: “Speak up or pay up.” Part 2 of the schedule makes the necessary changes to UK law to allow for tax clearance to be given, and to deny it where one of the exclusions applies. Furthermore, paragraph 10 of the schedule ensures that no person will be able to claim a refund of past, correctly paid taxes on the basis that clearance has been given.

It is not sufficient simply to regularise existing assets in Switzerland. The aim of the UK-Swiss agreement is to put an end to evasion through Swiss accounts for good. Part 3 of schedule 35 implements part 3 of the agreement: the new withholding tax on income and gains arising in Switzerland. All investment returns will be subject to a tax at close to the top UK rates, unless the account holder agrees that details of that income and gains can be passed to HMRC. In return, income tax and capital gains tax clearance is given. The tax rate is slightly below the top UK rates—for example, the rate on interest income is 48%, which will of course become 43% for the 2013-14 tax year. That is to account for the fact that the tax is collected at source and paid to HMRC sooner than it would be under self-assessment. The schedule gives effect to that clearance in UK law. It also sets out a mechanism for electing to disapply clearances and to treat the amounts paid in Switzerland as creditable amounts. In such a case, the income and gains will be brought into account for the year in the normal way.

Robert Syms (Conservative, Poole)

Does the treaty purely include UK citizens who were resident in the UK, or does it include UK citizens who may be resident anywhere?

David Gauke (Conservative, South West Hertfordshire)

The provisions relate to UK residents. That is the test applied, whether British citizens or not.

On part 4, the protocol also introduced a new provision to ensure that any inheritance of property held in Swiss portfolios is subject to UK tax. From January 2013, when a UK resident account holder passes away the Swiss paying agent will freeze 40% of the value of assets in the account at date of death. A sum equal to that value will be paid to the UK one year later, unless the personal representatives of the deceased authorise disclosure of the account to HMRC. Again, the payment will confer UK inheritance tax clearance on the assets.

Amendments 201 and 202 ensure the effective implementation of the tax agreement with Switzerland. The one-off payment to settle past tax liabilities is determined by a formula specified in the agreement. The amount payable was, under the terms of the original agreement, to range between 19% and 34% of the value of the account. Germany, which concluded a similar deal with Switzerland, agreed the same rates for the one-off payment. In March of this year, the UK and Switzerland signed a protocol amending the agreement, which introduced a powerful new provision to safeguard inheritance tax and clarified the relationship between our agreement and the EU-Swiss agreement on the taxation of savings. When we signed the amending protocol, we knew that Germany was still negotiating its own changes, so we obtained legal assurances from the Swiss that, should Germany secure any increases to the rate of the one-off payment, the UK may demand equivalent changes. In concluding a further mutual agreement with Switzerland, in April, we did just that.

The minimum rate of the one-off payment has risen to 21% of the account balance, and there is a new provision to increase the top rate for accounts holding more than £1 million, up to a maximum of 41% for accounts holding more than £7 million. It should be noted, however, that the new maxima only apply where the person would previously have been liable to the maximum 34% rate. The amendments make changes to the enabling legislation for the Swiss agreement to acknowledge the new mutual agreement, which is necessary to recognise those higher rates. We do not expect the changes to have a significant impact on the revenue raised by the agreement, but they reinforce an important principle: that we will always secure the best possible outcome for the UK.

An earlier version of the clause formed part of the draft Finance Bill published in December last year. Some respondents highlighted important questions about the implementation and interpretation of the agreement. Both HMRC and the Swiss Government will be producing guidance that addresses those practical concerns.

Successive Governments have wrestled with the problem of Swiss banking secrecy. We have within our grasp a solution that will not only be hugely beneficial to the Exchequer in the short term but will allow us to lay the problem to rest for good. I therefore urge the Committee to seize the opportunity and to approve the agreement.

Grahame Morris (Labour, Easington)

It really is a pleasure to serve under your chairmanship, Mr Bone. I mean that most sincerely; you have been an excellent Chairman. I have served on three Public Bill Committees and you have been a paragon of fairness and administered the whole process with great good humour. I appreciate the latitude you have been able to give.

The Minister suggested that the clause and the amendment are uncontroversial, but I think a number of questions are raised. However, I welcome the efforts made by the Minister and those concerned to close down tax havens, such as the Swiss tax havens. It was a principle and objective of the previous Prime Minister, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), who is sadly much maligned by hon. Members from other parties.

Peter Bone (Conservative, Wellingborough)

Order.

Grahame Morris (Labour, Easington)

I am afraid that rather typifies the attitude of Conservative and Liberal Democrat Members. Credit is not given where it is due for the excellent work that my right hon. Friend did in that regard, not just in beginning negotiations across Europe with regard to the Swiss tax havens, but also with the United States. If we can get down to the bare bones—no pun intended, Mr Bone—the bilateral agreement signed on 6 October 2011 by the Exchequer Secretary and the Swiss Finance Minister is not yet in force. My understanding from the Minister’s remarks is that it needs to be passed and ratified by the legislatures in each country.

I would like to take the opportunity to highlight some of the potential pitfalls. The Government seem to have set an arbitrary date, no doubt as a consequence of negotiation, of May 2013 for the agreement to come into effect, regardless of how long—[Interruption.] Well, perhaps the Minister can correct me if I am wrong. An hon. Member is suggesting that that date is not correct.

That is an arbitrary date of May 2013 for the agreement to come into effect, regardless of how long the legislative process takes. My first concern is about timing. As a layman, it seems to me that waiting until May 2013 would give UK holders of Swiss bank accounts plenty of time to make alternative arrangements, for example, to move their money elsewhere. That has been a feature of a number of the mechanisms that the Government have employed to close tax loopholes. They have given a long lead-in time, so the army of accountants has opportunities to see the planned changes and take avoiding action to reduce their clients’ liability for tax.

I am also concerned that it allows Switzerland to remain a hub of financial secrecy, despite the Minister’s assurance that it was the end of an era. Effectively, by colluding in such a scheme, the Minister and the Government are giving implicit support for the continuation of tax havens. The wealthy may now consider that these tax havens are now somehow Government sanctioned.

Switzerland remains a country that embraces wealthy people willing to break the tax rules of their own states. In my view, that is quite wrong. We have heard lots of talk recently about moral judgments, not least from the Prime Minister, but as I mentioned in an earlier debate, the arguments have clearly changed in the court of public opinion. The public are not happy that individuals and corporate entities can avoid legitimate levels of tax.

Ian Mearns (Labour, Gateshead)

My hon. Friend is making a powerful speech. I think his point is that every £1, £100 or £1,000 forgone to the sort of tax haven arrangements that are and will continue to be available in places such as Switzerland is £1, £100 or £1,000 that must be raised from ordinary taxpayers—the ordinary man or woman in the street working hard to look after their family. Every pound forgone has to come from them.

Grahame Morris (Labour, Easington)

That is an important point. Government Members have said that some of the measures in the Budget would result in relatively small sums—we had a debate earlier about inheritance tax—but they are of symbolic importance. I know that mentioning individuals is frowned upon, but people mentioned in the national press, such as Philip Green and Jimmy Carr, who are fabulously wealthy compared with most ordinary people, can employ accountants and get away with paying less than 1% tax.

On corporate entities, to recall the early days of this Committee, the hon. Member for Dover went on a tirade against Vodafone and Amazon, and we were cheering from the Opposition Benches. The public are appalled by the fact that those companies can get away with it.

Julie Hilling (Labour, Bolton West)

I do not want my hon. Friend to forget Gary Barlow.

Grahame Morris (Labour, Easington)

From Take That. There is a long list. I do not intend to detain the Committee by reading it out, but the point is well made. The public want to see action. The climate has certainly changed.

The Financial Times published an editorial at around the time of this year’s Budget in which the editor described his view of the deal, saying that

“the willingness of the UK…to sell out on the principle that taxpayers must declare their taxable earnings and assets is of far greater import than the prospect for immediate tax windfalls.”

That is an important point about the principle being established. If that is right, the Minister has engaged in a rather remarkable collusion—that is the only word I can think of—in the worst type of tax evasion, or is it tax avoidance? It is possible that some of the sums stashed away in secret accounts were accumulated illegally, in which case it would be evasion. The arrangement will allow continued secrecy and a cover-up by UK citizens to UK authorities.

I have a number of questions for the Minister. Why should tax evaders be exempt from the legal obligations placed on the rest of us? Why should they declare less information about their financial dealings and tax affairs than the rest of us who keep our money at home or pay tax through PAYE or other established mechanisms? Under the agreement, fellow UK citizens who hold secret Swiss bank accounts—that is what they are; the details are completely secret—are to remain anonymous, as the Swiss authorities will collect and pass on the taxes to the UK.

The plan is for the Swiss Government to apply a one-off tax on accounts held by UK individual taxpayers, as determined by the Swiss banks. As the hon. Member for Poole said in a question to the Minister, the tax will apply only to UK citizens resident in the UK. That one-off sum is to be deducted in May 2013 at a rate that the Minister said in his earlier remarks would be between 19% and 34%.

John Pugh (Liberal Democrat, Southport)

A reputable magazine called “Accountancy Age” said that Britain will from January begin taxing the funds under the terms of a withholding deal agreed with the European Commission, so I am not quite sure that the hon. Gentleman is right.

Grahame Morris (Labour, Easington)

I accept that, and I stand corrected. I am simply going on the explanatory notes. Perhaps the Minister can correct the record if I am wrong.

Regarding the sums that are projected to be raised by the deal, perhaps the Government have been rather hasty in presuming that the measure will raise billions for the Exchequer and the economy. The estimates seem to vary between £4 billion and £7 billion. [Interruption.] I see that the hon. Member for Southport is checking the references, but that is the information I have.

Certainly, there are only two possible outcomes from the deal. First, people who have gone to the trouble of setting up a Swiss bank account would, I assume, have no trouble in moving their money elsewhere before the deadline, whether it is January or May, to avoid the tax. As the deal was announced more than 12 or 17 months before it comes into effect, that must be a concern. I would be interested in the Government’s views of that issue.

Secondly, people may consider the deal to be a sweetheart deal between the UK and Swiss authorities, but that it still far outweighs any legal obligations that they have to pay the rate of tax here in the UK, so the money would stay put. Let us not forget that many will want to stay put in Switzerland because of secrecy; they obtain secrecy from that tax haven, and for some, that is more important than the rate of tax. That returns to the issue I raised on whether we are dealing with avoidance or evasion, and I want to come on to whether there are any moneys from the proceeds of crime. The Minister told us in his opening remarks that the rate of tax will be set close to the top rate of UK tax. Will he clarify precisely what that will be?

I want to return to the problem of people who would move their money from the Swiss tax haven before the implementation of the measure. It is clearly a concern to the Minister, because he said:

“Under the terms of the agreement the Swiss authorities will give HMRC details of the top 10 destinations of funds which do move from there.”—[Official Report, 19 October 2011; Vol. 533, c. 965W.]

The UK and Swiss authorities are obviously anticipating that, and the Swiss authorities have indicated that they will give details of the top 10 destinations—alternative tax havens, some of which may well be British dependent territories. Incredibly, there is no requirement on the Swiss to give any more details than that. They will not have to say precisely how the money is being moved around or what sums are involved, but simply the destinations.

Is the deal a process or an event? If individuals take the opportunity to move to a different tax haven, what will the Minister do? Will he assure the Committee that he will continue to chase those tax avoiders and their profits? Will he seek to sign sweetheart deals with the top three destinations, or perhaps all 10?

What potential does the agreement have? There are many potential tripwires in it. Why will it affect only individuals and not other entities such as trust funds and foundations? Earlier we touched on tax exemptions. Will the Minister tell us why the agreement will not apply to wages, royalties, income on property, directors’ fees or loans?

On a positive note, I am delighted to hear that an amendment to the deal was secured that means that a full 40% inheritance tax may be levied on funds there; I know that it will not please the hon. Member for North East Somerset. Due to the continued secrecy involved in the deal, we have to rely on Swiss banks to identify that the individual has died. I am aware that individuals have gone to more trouble to delay such announcements to the Treasury over much smaller sums, but on the issue of secrecy, let me reiterate that account-holders will, under the terms of the agreement, remain anonymous. They will only need to provide details to HMRC should they decide to challenge the sum taken from them by the Swiss authorities and passed on to the UK.

Essentially, the Minister has, perhaps inadvertently, strengthened the sustainability of the Swiss tax haven system. We had a discussion earlier about the sort of individuals who would benefit from this, and there was a comment that it was a kind of “Swiss Tony” second-hand car dealer clause. Whether advertent or not, there is a possibility that it has provided spivs and speculators with a guaranteed sanctuary for grubby financial secrets. Most disturbingly, any criminal behaviour such as money laundering or corruption will remain undiscovered, because these accounts will remain secret. This is a dereliction of duty by the UK Government. What precedent does it set for other tax havens?

Ian Mearns (Labour, Gateshead)

Is my hon. Friend also aware that under the terms of this agreement with the Swiss authorities, HMRC is allowed to ask for the details of only 500 account holders a year, whereas the German authorities have agreed a deal allowing them almost twice as many? I think it is 999—or in German, nein, nein, nein.

Grahame Morris (Labour, Easington)

I am grateful for that intervention from my hon. Friend, who has always been able to inject some humour into these sometimes turgid clauses. He is absolutely right, and I was about to come to this issue. HMRC is restricted to asking the Swiss authorities for the details of just 500 account holders each year. Perhaps it was a blessing in disguise that our football team did not meet Germany in the semi-final—

Graeme Morrice (Labour, Livingston)

Scotland?

Grahame Morris (Labour, Easington)

No, I meant England. We did not meet Germany, and it seems the Germans have outdone us again. They have negotiated a deal with the Swiss authorities, which on the face of it seems twice as good as the deal the Government secured. I would be interested in the Minister’s view.

In concluding, I will refer to what the Chancellor said last August—that Britain has an even greater obligation in the current economic climate to pursue those who try to avoid paying taxes. I wholeheartedly agree, as I am sure all members of the Committee do. However, he went on to say:

“The days when it was easy to stash the profits of tax evasion in Switzerland are over”.

I am not convinced of that. In stark contrast to the words of our Chancellor, the Swiss Finance Minister said the agreement would

“create legal certainty and reinforce the long term competitiveness and reputation of Switzerland as a financial centre”.

They clearly cannot both be right. Can there be any doubt that the Swiss have gained the upper hand on this occasion? It looks like a victory for the gnomes of Zurich. The Minister has been outdone by his Swiss counterpart. Tax evaders and, potentially, money-launderers and corrupt criminals, do not seem to need to worry because of the secrecy element.

Jacob Rees-Mogg (Conservative, North East Somerset)

I agree with much of what the hon. Gentleman has said. The Government are right to stop evasion, which is criminal, wicked and not to be confused with avoidance. However, the Swiss want an honest financial centre and have passed the stage where they think their economy depends on being the bolthole of criminals and tax evaders. What the Swiss authorities and the Chancellor said are the same.

Grahame Morris (Labour, Easington)

I am grateful for that intervention because, as always, the hon. Gentleman speaks a great deal of sense, but my contention is that the two assessments of the agreement by our Chancellor and the Swiss Finance Minister are mutually exclusive. If the Swiss are serious about ending the perception of Zurich and Switzerland as being a bolthole and a centre of secrecy, surely the answer is complete openness and transparency.

Richard Harrington (Conservative, Watford)

I am very grateful to the hon. Gentleman for giving way, particularly because I was not asking him to do so at this juncture, but one should never lose an opportunity to make a point. Despite his criticisms of the Government, does he not find it strange that his own party’s Government did absolutely nothing about the problem for 13 years?

Grahame Morris (Labour, Easington)

Well, I do not think that is fair criticism. We are discussing financial matters and a deal to try to eradicate or minimise tax evasion in relation to the Swiss tax haven. I think that the last Government made a start and that significant progress was achieved. I do not have the figures to hand as to the sums involved, but the previous Prime Minister set the process in train. He sought to get agreement to close down tax havens in not only Europe, but further afield in the Cayman Islands and the British colonies. He also had discussions about that with President Obama. I do not accept that as legitimate criticism.

Julie Hilling (Labour, Bolton West)

I thank my hon. Friend for giving way, and for being his normal generous self. Does he agree that one of problems in trying to close any tax loophole and stop tax leaking out of the country that should be paid here is that the rich continually find other methods of not paying their tax? No matter how much work the previous Government did and the current Government do, the rich will always circumvent it and find a new way to rip us all off.

Grahame Morris (Labour, Easington)

I do not think anyone can argue with that point. The goalposts are constantly moving.

My concern, which I sought to emphasise at the outset of my speech, is that by giving so much advanced notice of the proposed change, there is ample opportunity for individuals to make alternative arrangements. The fact that we do not have complete openness, and rely upon the Swiss authorities to identify and pay over moneys that they say are due to the UK Treasury, is a cause for serious concern. I am not convinced by the suggestion that the problem has been solved. The Swiss tax haven system seems to be safe and well, and now may even have been regularised and legitimised. My concern is that we might well be looking at HM Swiss tax haven.

Robert Syms (Conservative, Poole)

In the long term, the solution is to get our tax rates down, so that people want to stay in the UK and pay UK taxes. The earlier debate about a tax rate of 50p or 45p and all the stuff that we have done in the Bill to close loopholes feeds places such as Switzerland and the Channel Islands, and if people have the ability, or the required advice, they will try to use those places. However, Switzerland has come a long way in the past 15 years. It was embarrassed by the revelations regarding various Jewish accounts, and was criticised by the World Jewish Congress for perhaps not paying money that it should have paid. It is now opening up a lot more. We have taken advantage of that with our tax treaties, as have the Germans.

The fact of the matter is that in two or three years, we will be able to measure whether the agreement lives up to what the Government are saying. If it does, good; if it does not, we will have to put more pressure on such places to be fairer in what they do. They have come a long way, and the British Government are very sensible. We live in a world where tax revenue is not what it should be and many things need to be paid for. Coming to a sensible agreement so that we get extra money is the right thing to do.

Sheila Gilmore (Labour, Edinburgh East)

I wonder whether the hon. Gentleman has any view on how low tax rates have to go for there to be no avoidance. Are there not serious issues over, for example, providing social care in our community, which tax has to pay for?

Robert Syms (Conservative, Poole)

At some point, we will have to take a judgment—certainly when economic times are better—about what to do with the top rate of tax. I would like to see it back down to 40p, and perhaps below that. We must increase the threshold, as the Government have been doing, so that people on lower incomes do not get pulled into the tax net. Providing we can do that, I see no reason why we cannot build incentives back into our system in the medium term.

We live in a competitive world where money swishes around. We have to be tax-efficient; if we are, we will generate revenue and income. The Government and the Minister must be congratulated for reaching that agreement. We will see whether it lives up to its billing, but if it generates money to pay for schools, the national health service, foreign aid and all the other things that the Government want to do, that is a good thing. I commend what the Government have done.

Ian Lavery (Labour, Wansbeck)

It is a pleasure to serve under your chairmanship, Mr Bone. I am not sure whether I would go as far as my hon. Friend the Member for Easington, but for the record, I think you are an all-right bloke.

When I was asked to serve on the Bill Committee, I was not sure what it would involve, but I have been pleasantly surprised. That is probably the correct thing to say, a because a lot of issues have come up through amendments and clauses that the vast majority of the public are unaware of. I have learned many things from Members on both sides of the Committee, and although I will not say that I have enjoyed it, it has been okay.

Clause 216 refers to the UK-Swiss Confederation taxation co-operation agreement. Put more simply, the agreement is between the UK and Switzerland to tackle tax evasion and avoidance by UK nationals who, for many years, had used the Swiss banking system for secrecy and tax avoidance. The agreement is an attempt to stop UK citizens taking advantage of the system that has prevailed in Switzerland for generations, traditionally allowing people to hide money. They have no intention of paying their dues or declaring their taxes or investments, and they deliberately do not pay the correct tax.

We pay our taxes through the pay-as-you-earn system. For generations, people have been getting away with not paying their taxes by hiding money abroad and siphoning it into Swiss bank accounts. I am from a mining community and I thought such things only happened in James Bond films, in thrillers. There are not many people in and around our community who would believe that that sort of thing goes on. That is why I was determined, as I looked through all the documents, to mention it and have a go at the situation.

It is estimated that between £4 billion and £7 billion in tax revenues would enter the UK from UK taxpayers, which is money that would previously have been hidden. It is shocking. I understand why Members across the Committee have been asking what the Labour Government did, and I would probably agree with them because tax evasion, tax avoidance, refusing to pay your way in society is not good enough whatsoever, regardless of who is in government. The Treasury has claimed that it will earn up to £5 billion a year from the agreement, but it would be useful if the Minister gave, as I am sure he will, details of how it came up with that figure.

Although I fully support all measures against tax avoidance and tax evasion, clause 216 raises a raft of issues. The first issue that intrigues me is that it covers only individuals; it does not cover discretionary funds, foundation trusts, family trusts or other similar types of structures. I would have thought that not many Opposition Members have discretionary trusts, foundation trusts or other similar structures—not many at all—but I would have thought that, in Parliament, there will be quite a few MPs who have their finances in those types of financial arrangements. I have to ask why it is only for individuals. How many trusts, how many foundations, how many—

Mark Garnier (Conservative, Wyre Forest)

Does the hon. Gentleman actually mean “foundation trusts”? A foundation trust is a type of structure for a school or a hospital, not for a tax avoidance scheme.

Ian Lavery (Labour, Wansbeck)

Shall I answer that the way it should be answered? You are just actually trying to be quite clever and rude. I never mentioned foundation trusts; I mentioned trusts and foundations. If I wanted to mention NHS foundation trusts or school trusts, that is what I would have said. Does the hon. Gentleman want to come back in?

Mark Garnier (Conservative, Wyre Forest)

It is only a point of pedantry but, for the purpose of the record, a foundation trust is a different thing. The hon. Gentleman mentioned it three times. It was not meant to be a smart comment; it was meant to be a helpful comment, to ensure that the Hansard record is right, and that he has not said something that he did not mean to say.

Ian Lavery (Labour, Wansbeck)

I will take it as a smart comment, if that is okay with the hon. Gentleman. Reference to foundation trusts is made in the notes that we have. I am not in any way suggesting that those are foundation trusts in relation to the NHS or such organisations; they are trusts that individuals can be part of, with their families and others, and which are hidden abroad—that is the real point—and obviously, as I have mentioned, there are other similar structures.

Any individuals who want to move their money into one of those structures will, indeed, be protected. How and why can that be the case? How and why do the arrangements allow people, if they are caught out, to put their money within the given period into one of these—I will miss out “foundation”, for the sake of clarity—family or discretionary trusts or structures and that is then okay? The arrangements will not come into force until May 2013.

Jacob Rees-Mogg (Conservative, North East Somerset)

Although it may not be covered by the treaty, what the hon. Gentleman is suggesting would be straightforward tax evasion. If someone, to get out of a tax liability, tried to put their money into a discretionary trust without disclosing it to the Revenue, I have absolutely no doubt that that would be illegal. Whoever did it would be taking the risk that the Revenue found out, because the penalties would be quite severe.

Ian Lavery (Labour, Wansbeck)

I accept what the hon. Gentleman says, but the whole point about such funds in Switzerland is that they are totally secret and anonymous. The big problem with that amenity is that people can do what they want and there is no paper trail with names or details, because that is not how the Swiss do business.

Jacob Rees-Mogg (Conservative, North East Somerset)

Ought not the Government to get some credit for doing the best they possibly can, given that they cannot possibly change the law in Switzerland? Switzerland has a tradition of secrecy, which the Government are getting around to a considerable degree for individuals. The solution may not be perfect—there may be illegal ways around it—but the Government have done something admirable and remarkable to cut down on tax evasion and, therefore, they deserve the Committee’s support.

Ian Lavery (Labour, Wansbeck)

I would not say that the measure was admirable and remarkable but, as I have said, it is a step in the right direction.

Ian Mearns (Labour, Gateshead)

My hon. Friend makes a powerful contribution. Given the topicality of the discussions in the public domain about avoidance, the average man or woman in the street would be surprised to learn that the measures will not apply to annual salaries, royalties, income on property, directors’ fees or loans. I suggest to the hon. Member for North East Somerset that given the amount of money involved in avoidance and evasion, I am sure that a number of individuals will gamble on the fact that in any given year they will be the 501st individual, rather than the 500th or the 499th about whom the HMRC would inquire with the Swiss authorities.

Ian Lavery (Labour, Wansbeck)

I am not sure whether that was a question or a speech, but I agree with my hon. Friend. I understand that the notice period has been challenged; I believe that the hon. Member for Southport said that has been changed to January. If that is the case, I stand to be corrected; he obviously used the same notes as my hon. Friend the Member for Easington.

The arrangements for the agreement were made 17 months ago, which gives account holders advance warning and allows them to move their money anonymously from individual funds to some form of financial structure, without any paper trail. The Government have basically said, “We are coming after you. What are you going to do about it?” If the Government give people 17 months’ notice, it is obvious what they will do. If someone tells me that they will do something to me in 17 months’ time, I will do something about it. If I can avoid tax by moving my money from an individual account to a foundation or a discretionary trust, that is what I will do. It is obvious that that will happen.

Charlie Elphicke (Conservative, Dover)

I hesitate to remind the hon. Gentleman that the previous Labour Government had 13 years to do something about the matter, and they did nothing. I further hesitate to remind him that the leader of the Labour party is advised by Andrew Rosenfeld, who seems to have availed himself at various times of the facilities that Switzerland offers. If we are going to start throwing rocks, we should say that this Government have taken the right action—

Peter Bone (Conservative, Wellingborough)

Order. Interventions are getting longer. Keep the interventions short. Every Member can speak, and they can speak again if they want to later on. Keep the interventions short, and the speeches whatever length you like.

Ian Lavery (Labour, Wansbeck)

I thank the hon. Gentleman for his intervention, and I have already made my position clear.

The problem of tax avoidance and tax evasion—dodging taxes—is not new. It will not change in the future, as has been mentioned by a number of my hon. Friends. This is simply about a number of people—I am not sure how many, but perhaps a Minister could tell us—who are well-advised, wealthy tax dodgers. It is very polite to call them evaders, or avoiders. They are tax dodgers. When it is people on benefits, they get called scroungers, and when it is rich people, they should be called dodgers.

Ian Lavery (Labour, Wansbeck)

Or Jammie Dodgers.

Richard Harrington (Conservative, Watford)

There is too much in this terminology. It seems to me that the kind of people we are talking about who have these arrangements in Switzerland are clearly taking part in criminal acts, whatever you call it.

On the other hand we have people like the advisor to the Leader of the Labour party, Rosenfeld, and Mr McKenna, who is the chairman or chief executive of Ingenious Media, one of the biggest tax avoidance companies in the whole country, and who is a confidante and advisor of the Labour leader. They are involved in avoidance, which, whether we like it or not, and I agree with you about dodging and scrounging—sorry, I do not agree with you, Mr Bone, although I am sure you will agree with me—

Peter Bone (Conservative, Wellingborough)

Order. First, that intervention was far too long. Perhaps if I asked for long interventions, hon. Members would keep them short. Secondly, I have absolutely no views, on anything.

Ian Lavery (Labour, Wansbeck)

I have to disagree with the hon. Gentleman, because I have never once said, and I am not suggesting for one minute—I am not sure, he might have a lot more detailed information on this situation than I have—that these people investing money in Switzerland are all criminals and crooks. I would have thought it is across the board. It is people who have got money and wealth, and who see an opportunity of not paying taxes, and doing so legally, in the Swiss banks.

Richard Harrington (Conservative, Watford)

For clarification, if UK residents put money in Switzerland because doing so is anonymous, but they are due to pay that tax in the United Kingdom, surely that is a criminal offence. They should be dealt with accordingly, and I hope that HMRC do so.

Ian Lavery (Labour, Wansbeck)

There is an argument to be had with that, but I will not get into it at the moment. We are talking about avoidance and evasion, and that is a huge argument that we really should have. However, the regulations make it very easy for people to move money around in Switzerland anonymously.

Charlie Elphicke (Conservative, Dover)

Is the hon. Gentleman saying that anyone who uses a trust in somewhere like Switzerland or Jersey—who uses one, sets one up or benefits from one—is, basically, dodgy?

Ian Lavery (Labour, Wansbeck)

I think it is down to terminology. I am not saying that everyone is dodgy; it would be incorrect to do so. But what I feel, as a man of morality, is that some of the people who seek, whether through evasion or avoidance, to put their finances elsewhere and take revenue from this country, are dodgy and immoral. I am sorry, but that is the way I feel: it is wholly immoral. It might not be illegal, but if it is immoral, that is very important. We should all have morals. Again, that opens up a whole new argument.

Grahame Morris (Labour, Easington)

My hon. Friend is prosecuting some powerful arguments, but is not the nub of the problem that, because of the cloak of secrecy that surrounds the Swiss banking system, we frankly do not know whether the money is a consequence of avoidance or evasion? Until there is some transparency, we will not know.

Ian Lavery (Labour, Wansbeck)

Again, that is one of the reasons why Opposition Members are highlighting a number of potential problems with clause 216.

As a number of Members have mentioned, the Swiss authorities will give HMRC details of the top 10 destinations to which funds are moved—no names, no pack drill. People can move money from an individual bank account into a trust, and the Swiss authorities will give no details of who those individuals are or, indeed, where the money is being sent. They will only say, “These are the top 10 destinations.” Frankly, that is bizarre. The situation is hardly transparent and is less than helpful. There is no requirement on the Swiss to give any additional details on such moves.

In simple terms, people have been deliberately dodging taxes for many years and many generations. They have been saving and saving, putting the money into Swiss bank accounts. Then, they hear that they have 17 months’ notice of liability to pay tax. So to avoid paying the tax, they move their money without trace—completely anonymously, with no paper trail—into a new bank account, and a new bank is a new challenge. The losers are the UK Revenue, and the winners are the tax dodgers. In fact, some Swiss banks do not hold a single account in an individual’s name, which is bizarre in 2012.

If an individual account holder falls foul of the arrangement, they will remain anonymous. After 2013, if an individual account holder is found out or comes forward to challenge the required payment to HMRC, they will still remain anonymous. Under the clause, we are agreeing that someone who has deliberately evaded, avoided or dodged taxes in Switzerland will remain anonymous if they receive a bill after being found out. I disagree with that provision.

Will the Minister tell the Committee why HMRC is allowed to ask for the details of only 500 account holders a year? As my hon. Friend the Member for Gateshead has pointed out, a deal struck with the German Government a year or so ago was for 999 tax dodgers. It might just be me, but I am confused: why can we not say to the Swiss Government, “Give us the details of every one, not just 500”? How many are there? Five hundred? One thousand? Ten thousand? One hundred thousand? We can ask these people in Switzerland—because of their dodgy deals and the dodgy deals of the dodgy people putting money into funds that avoid or evade paying taxes—for only 500 sets of details.

If the general public understood all this, they would shake their heads in disbelief. Why have we not simply asked—the Minister might be prepared to answer this question—for the details of every single person or the details of all individual account holders, whether they are just numbers or whatever? The entire agreement can be avoided if the account holder shifts their home branch. I will doubtless be corrected if I am wrong, but I think I am right in saying that if someone’s home branch is in Switzerland—it is strange to say that that is the “home branch”—and they move their finances within the period of the 17 month get-out clause to a different branch in Singapore, Hong Kong or another such area, they do not have to pay under the regulations.

The stark reality is that the agreement is totally unbelievable. I could not get my head around it when I was reading the briefing notes. Individuals who wish to carry on evading tax will quite easily carry on doing so, as I have explained, and they can end up paying less than they should have in the first place. HMRC will never know whether they should have paid more, because it has not got a clue who they are.

If the Government are confident that the agreement will work, why does the clause facilitate chasing people who are expected to move their money? Perhaps the Minister will answer that question. Why are wages or inheritance tax not subject to tax under the agreement? As I have asked before, how many individual accounts are there and how many have been disclosed to HMRC? How much revenue has been raised through the agreement and how much is likely to be raised in the foreseeable future?

As I have said on numerous occasions, the agreement is a step in the right direction. It is an attack on the dodgers using legal loopholes to deny the UK its much-needed taxes in times of austerity, but there are options available to the wealthy to avoid, evade or dodge tax payments. The arrangements must be more of a deterrent. Avoidance should be outlawed and such people should be brought to task. I pay my taxes; they should pay theirs.

John Pugh (Liberal Democrat, Southport)

I shall be brief. The best is always the enemy of the good, and the clause is good progress, in so far as it is progress. In fact, it is progress beyond the original announcement, because it is now compatible, I think, with the EU withholding agreement. That was one of the objections when the provision was first mooted, and I think the date has been advanced; I hope the Minister will confirm that. It will certainly lead to some migration of funds to places such as Liechtenstein and Jersey, so the obvious question occurs: is it good enough?

There is a sense of injustice when we get any kind of tax amnesty on the horizon. Clearly, people do not go to Swiss banks because of better customer service or because of the coffee served while sorting out the account. They go there, essentially, for the secrecy, so there is a strong prima facie presumption that that may have something to do with tax evasion. I think the hon. Member for Poole was probably wrong in suggesting that the solution was lower tax rates, because people who go in for evasion want to pay no tax. They are not making a comparison between low tax and high tax; they simply resent paying any tax whatever.

There are weaknesses in the agreement—I think the Minister would probably accept that—but we cannot force the Swiss to write out a script that we want, because they are free agents and do not have to agree to anything. We should be looking at how good our agreement is compared with others, such as those the Swiss have with the USA and Germany. Most of them have the same characteristic weakness: that the Swiss preserve the right to secrecy of bank accounts, and so insist on doing the assessment themselves. Generally, the Swiss offer to do something about individual bank accounts, rather than those held in the name of trusts and the like.

The one area where we can make helpful progress is in looking at specific examples of the individuals that HMRC will refer to the Swiss, and how they are treated. There is a limit of 500, but that may be a trickier business than people think. We simply do not know—perhaps the Minister does—how many accounts are held in the name of UK, American or German citizens. Until we have that clarity, we cannot know whether 500 is a reasonable figure or not.

It might be helpful for the Committee to look at what the Americans have done. Between 2006 and 2010, they had the opportunity under some 80 tax treaties to make requests of the Swiss. During that four-year period they made 894 requests. Recent statistics show that 19,000 US citizens have accounts with only one Swiss bank. I read from that, not that the Americans are idle in chasing tax—they are not—but that the issue is a lot more complex than we think.

None the less, it will help convince people that we are on the right track if, as the hon. Member for Poole suggested, we have a proper report on the outcome—of the number of individuals reported, of the amount of tax regained and of the success achieved with the Swiss authorities. We are taking a step forward and we genuinely should not begrudge that.

John Mann (Labour, Bassetlaw)

I shall make a few non-contentious remarks in order to be constructive and assist the Government. I have heard all the back-slapping on the Government Benches about how well they have done. I am concerned about the back-scratching that has gone on in reaching the agreement. There is a backdrop.

Colleagues might wonder why the Tory Government are suddenly pursuing tax dodgers in Switzerland when those are the people who fund them. There has to be a reason. Is it that they have suddenly seen the light? Or is it that there is an EU savings tax directive, which the Government are blocking, that would do the same thing? In other words, they are negotiating to get off the hook. What are they offering in exchange? No transparency of any kind. Where does that lack of transparency benefit their backers? There is already no transparency in Switzerland, the country with whom the agreement is made. However, if the EU directive comes in, it will apply to Crown dependencies, to Jersey, the Isle of Man, Guernsey, the Cayman Islands. Those are the very places that their backers do not wish anyone to find out, be it personal or corporate, where the money is hidden.

The question was once posed, “Who owns Leeds United football club?” Another question arose in that context: “Where has the money gone?” I have been over to Geneva making investigations. I found a chap there called Peter Boatman, who owns 7% of the company that allegedly owns Leeds United. He owns 7%; it is the owning Leeds United that is “allegedly”. We are told publicly that it is worth nothing. As I am a big fan and a former business man, I would take the 7% off him and help develop the club and I offered to take it off his hands. I then find inquiries being made in the Leeds United boardroom about me, asking, “Who is this chap, trying to get hold of the 7% share that is allegedly worthless?” Then we look at the money that has disappeared—vast amounts have disappeared, doubtless legally—and I reckon that some of that has found its way to Switzerland.

We then look at the structure, which is the point in the context of what the agreement does not do. The other party is a chap called Patrick Murrin, who is based in the Cayman Islands. The deals have complex interrelationships between them, so the Swiss do not know what is in the Cayman Islands, the Cayman Islands do not know what is in Switzerland, and we do not have a clue what is in anywhere; all we know is that the money is gone. That is how people siphon money off personal or corporate accounts into tax havens. They do not do it in just one place—they even ensure that the places do not know. It passes on and on.

Taking the example of Vodafone, which had that outrageous deal with HMRC, it employs a single bookkeeper in Switzerland who spends 5% of his time bookkeeping for Vodafone. We can see the kind of arrangements there. The reason they have done it is to avoid the possibility of the European Union imposing something that would require transparency on the Crown dependencies. It is not just from Switzerland, but the rest of them, that we want to know where the money is hidden away. It is money that should be used to fund the police, the national health service and the Army, and to stop all the unnecessary cuts. That is what we are talking about in the clause.

There is another problem with the clause, even with what has been negotiated. Listening to the Tory Front Bench, backed by the Liberals as usual, what we hear is that we have the best deal—this wonderful deal. Unfortunately, this Thursday we are not going to play against Germany, but Germany has already beaten us when it comes to deals with Switzerland. The German deal is better than ours. German taxpayers are getting more back from Switzerland. We have been outmanoeuvred by Germany, and I would like to know whether Ministers have the guile to negotiate up, so that we get at least as high a take as Germany—it ought to be more—out of Switzerland. We are getting less at the moment. We have been outmanoeuvred by the Germans on taxation and on getting more back, because of this Government’s incompetence and the back-covering for the likes of Lord Ashcroft and their funders, who can hide away their money in Crown dependencies with no transparency. That is why the agreement is weak.

Jacob Rees-Mogg (Conservative, North East Somerset)

On a point of order, Mr Bone. I think it is unusual for this House to criticise directly Members of another place.

Peter Bone (Conservative, Wellingborough)

The hon. Gentleman is correct. I did not hear a direct criticism, but it was getting awfully like a direct criticism. I am sure that the hon. Member for Bassetlaw did not want to make a direct criticism.

John Mann (Labour, Bassetlaw)

I would not want to criticise the leading Tory funder, who spent £250,000 trying to remove me, because all he did was increase my majority by sending 29 direct mailings to my constituents with a picture of David Cameron on a glossy leaflet. I was able to go to my voters and say, “There you are. That is how they spend their money. Here is all I can afford, but who would you trust?” I praise that kind of investment. Please throw more money my way in the future.

The principle of those who refuse to pay British tax has been outlined. We now call them Jimmy Carr and “morally repugnant” individuals. Those people have let down their country and do not pay their full tax. Jimmy Carr is prepared to change his arrangements. What about the friends, family, staff and backers of the Prime Minister, the Chancellor and their party? A whole wodge of them are not paying their taxes. We have no idea where their money is hidden away, because it is totally opaque to the lot of us. What we do know is that there are these kinds of arrangement.

I say to the Minister: less back-slapping on this agreement and more humility to say that this is tiny, but that we will catch up with the Germans. I would like a commitment that what is good enough for the Christian Democrats in Germany, in terms of what they are getting back from Switzerland, can at least be matched by this European-loving coalition Government. We could then congratulate them for beating the Germans in the next few months.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

We have had a passionate debate on this subject and well-considered contributions from both sides of the Committee. This is an important matter, which is key to ensuring that people pay their fair share of tax. This is part of the solution to reducing the current deficit. I will summarise the points raised and reiterate to the Minister some of the particular concerns that we have. We support the agreement signed by the UK and Swiss Governments to secure billions in unpaid tax, according to the Treasury, on money held by British nationals in secretive Swiss banks. The measures were supposed to eliminate the tax advantages of hiding money in Switzerland and encourage account holders to emerge from secrecy and declare all their details and tax affairs to HMRC.

The Treasury claims it will secure £5 billion a year from the deal and of course, we strongly support any measures to recover tax from those who are trying to avoid paying it—the dodgers that my hon. Friend the Member for Wansbeck so passionately described. So the principles behind this deal are welcome, but the concern is that the plan is riddled with loopholes and exemptions that will severely undermine its potential to make anything like the sums the Treasury claims. My hon. Friend the Member for Bassetlaw put that case strongly and with his usual vigour. Crucially, it allows people hiding their money to maintain total anonymity. This has been touched upon, but is a key concern. Instead of striking a deal to bring people out into the open, the Government seem to have bowed to the Swiss refusal to compromise on secrecy. The one concession, which has been discussed, was to give the UK permission to request and be granted the details of 500 individual accounts per year. That is welcome, but we know that it is only half the amount that Germany secured in an agreement, where they can request 999.

John Pugh (Liberal Democrat, Southport)

I wondered whether the hon. Lady knew of any deal with any country anywhere in the world involving the Swiss that has sacrificed the principle of banking secrecy?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

The point we are making is—no, I cannot. The intervention was sprung on me. Obviously, I am talking about the number of requests that have been granted and the concern that it is half the amount that Germany has agreed with Switzerland. That is an interesting point, and one which I hope the Minister will respond to. I hope that the Minister will explain why the Government settled for half the transparency that Switzerland was prepared to give to Germany, and outline the discussions that resulted in that agreement. Apart from those 500, it would be the Swiss banks themselves that identify accounts that they believe should be subject to UK tax. As far as I understand it, no one from HMRC will be involved in the process even in an advisory capacity. That prompts the question: how will HMRC even know if there are others who have been inadvertently or, worse still, deliberately missed?

It will be the banks themselves that apply the levy and subsequent withholding tax, so HMRC will have no details about whether the right amount has been paid. That also makes it impossible to chase the funds that may have been moved. As my hon. Friend the Member for Wansbeck passionately explained, because nothing will happen until January 2013, account holders have been given significant notice of when the deal will come into effect. Who knows how much revenue may be lost in the interim? In theory, the value of the account in December 2010 will be subject to the one-off charge, but given that the banks will collect the levy, there is no way to enforce that charge if the money is moved before January 2013. Obviously, there is ample time for individual account holders to move their money to avoid the charge completely, so I would be interested to know whether that has been factored into the Government’s calculations of the amount of money that they believe they will be able to get from the measure.

The Government have tacitly accepted that a mass exodus is on the cards by writing into the agreement that, under its terms, the Swiss authorities will give HMRC details of the top 10 destinations of funds that move. No further details are required—no names, no facts, no figures. HMRC will be left trailing in the wake of account holders who saw it coming and chose not to stick around. It is clear that it is obvious to HMRC that this is a natural response to the forthcoming measure, so some reassurance that that effect has been factored into the accounting would be useful.

Can the Minister tell us what steps the Government took to press for more details of departing clients? We look forward to the Minister’s response about the total surrender of secrecy, but if more information could be obtained, that would provide a more useful source for HMRC which may need to track particular individuals concerning not only their Swiss bank accounts but other offshore accounts.

As my hon. Friend the Member for Wansbeck highlighted, it is incredible that the measure will only apply to accounts held in individuals’ names and does not cover foundations, discretionary trusts or any other non-individual structure, and any money already in such a structure will be exempt as funds will be moved out before January 2013. Not all types of income will count—wages, royalties, income on property, directors’ fees and loans will not be taxed. When the measure was drawn up, inheritance was not included, but a welcome amendment has now been made, and inheritance tax at 40% will be charged on the death of an account holder who should be liable. We hope that works in practice, as it is a welcome measure. Again, we do not know who these account holders are, and we have to rely entirely on the Swiss banks to determine who should be liable for inheritance tax, and to collect it.

The deeper we go into the agreement, the more concerns emerge. Lots of income is exempt; many types of account are exempt; account holders have been given time to move their money, and are expected to do so; and ultimately, HMRC’s role in enforcing tax justice has been outsourced to the Swiss banks. If the deal were really to raise £5 billion, that would be welcome, but there are massive problems with the agreement, which undermine the Government’s claim. Will the Minister publish full costing reports to explain the figure further, and will he clarify whether he has considered the probability of most the money being removed before the agreement comes into force?

David Gauke (Conservative, South West Hertfordshire)

We have had a thorough debate on the clause, and I thank hon. Members for their contributions. I welcome the support offered by the hon. Member for Newcastle upon Tyne North for the agreement’s objectives. I will try to address some of the points raised by hon. Members and to provide some clarification where that is necessary.

Members have asked when the agreement enters into force. There has been some confusion about January, May and so on, so let me try to clarify that. The agreement enters into force next January, and we will get 500 million Swiss francs up front in February, which is the equivalent of some £350 million. That will be set against future payments once 1.3 billion Swiss francs are collected on our behalf.

Why does the agreement not come into force before January 2013? The agreement needs to be ratified by both the UK and Swiss Parliaments. Processes also need to be put in place in Switzerland to identify those covered by the agreement and to collect payments due. The May date, to which the hon. Member for Easington referred, is the point by which clients of Swiss banks who are UK-resident will have to inform the banks of whether they are to pay the sum or to disclose all details.

A concern has been raised about what happens to those who take their money out of Switzerland before January 2013. Anyone who does that escapes the agreement, but that includes all aspects of the agreement, including, most importantly, the clearance they would otherwise receive. They will remain subject to tax, interest and penalties of up to 200% of the tax due. They will also face the risk of criminal investigation. Indeed, the risk of being caught will increase due to a number of HMRC initiatives, including the creation of the offshore co-ordination unit, dedicating an additional 100 inspectors to tackling offshore evasion.

Ian Lavery (Labour, Wansbeck)

How big a risk will that be if the deals are totally anonymous?

David Gauke (Conservative, South West Hertfordshire)

Of course, there are ways in which HMRC can acquire information. HMRC acquires information from time to time, and at the moment those individuals are anonymous and have Swiss bank accounts. Were they to leave Switzerland, the agreement would have essentially chased them out of the Swiss jurisdiction.

The number of options available to those who are hiding the proceeds of tax evasion, or who are hiding sums, is diminishing all the time. The UK remains determined to close the net on those individuals. We are certainly in no worse position as a consequence of their fleeing Switzerland. Indeed, there are risks for those who are evading tax. As they move their accounts around, the opportunities increase for HMRC to acquire more information. Without the agreement, those individuals could continue to have their Swiss bank accounts, and nothing would particularly threaten their anonymity.

Grahame Morris (Labour, Easington)

Will the Minister give an estimate of the number of individuals involved? I know the Swiss authorities are going to give us the names of only 500. If we divide the lower estimate of how much revenue the measure will raise by 500, the figure is some £8 million per individual according to my maths. Is that correct?

David Gauke (Conservative, South West Hertfordshire)

I will come to the 500 issue, on which I can provide some helpful clarity.

On the numbers involved, as all members of the Committee will be aware there is banking secrecy in Switzerland, which means it is difficult for us to have an accurate number of how many UK residents have Swiss bank accounts. It is not possible to give a robust estimate at this point. None the less, the steps that we are taking with this agreement, and the other steps that we are taking to address offshore tax evasion, substantially strengthen our position. As hon. Members have pointed out, HMRC will receive information at a global level on the top 10 destinations used to hide money, which will help us to focus future compliance efforts and to put pressure on jurisdictions that will be the recipients of such funds. I will talk briefly about the estimates for yield in a moment, but we have taken into account an estimate of the capital flight that will occur. We have no doubt that some people will leave Switzerland and go elsewhere, and we have taken that into account in our estimates.

Ian Mearns (Labour, Gateshead)

Given the anonymity in the Swiss banking system, which the Minister has highlighted, how will the Swiss authorities know that the money deposited in a Swiss bank account comes from a British-domiciled account holder if the money goes into the bank account from a third-party country?

David Gauke (Conservative, South West Hertfordshire)

Swiss banks will have a responsibility to comply with the agreement. To correct the hon. Gentleman, the test is residence rather than where someone is domiciled, by and large. We expect Swiss banks to enforce the agreement properly and to ensure that any UK resident is faced with the choice of declaration or paying up. If a UK resident is not faced with that choice, they do not get the benefit of the clearance regime and they will still remain liable for the tax and the penalties that would otherwise normally apply.

The question was asked whether we are essentially subcontracting our tax law and administration to the Swiss, and specifically the Swiss banks. We retain complete control of tax law, tax rates and tax administration; we are ceding no such control to the Swiss. We are working with their banks and authorities to assist in recovering tax that HMRC would have little prospect of recovering without such co-operation. We still require income and gains to be declared to us, but tax will be collected at source. It is not about cutting deals with tax evaders; it is about bringing in money that should have been paid to the UK. That money has, until now, generally been beyond the reach of tax investigators, but the innovative approach taken in this agreement means that historical liabilities can be settled, effective future taxation can be secured and a long-running problem can be resolved. Those who are under investigation, those who have had an opportunity to come clean but failed to do so and serious criminals will not be able to benefit from the tax finality that the agreement offers.

A question was asked about the number of requests that we can make each year, and a comparison was made with Germany. It is worth pointing out to the Committee that the new information exchange provision is in addition to, rather than instead of, existing information exchange provisions. It has been agreed that 500 requests for information may be made each year under the new provision. If those requests are generally successful, more requests may be made in the following year. Regarding the comparison with Germany, it is generally accepted that far more accounts in Switzerland belong to German residents than to UK residents, so this is a much bigger issue for the Germans. I do not accept that the Germans have a better deal. In proportionate terms, I suspect that the UK has done much better .

John Mann (Labour, Bassetlaw)

The Germans say that, proportionally, they have done a lot better. I believe that they are suggesting a 41% taxation rate. They specifically identify themselves as having done better than we have. How can the Minister be so certain of his facts?

David Gauke (Conservative, South West Hertfordshire)

The hon. Gentleman has moved on to the issue of tax rates. I do not know whether he missed this part of my speech earlier, but as a consequence of negotiations that we have had, our arrangements now match the German arrangements, and indeed can go up to 41%. The agreement there is the same as the German position.

An issue was raised about the yield figures. Again, I think there might have been a little confusion there. The figures are based on the best information that we have, but there is a degree of uncertainty. The one-off levy is the element that relates to the past, and we expect it will raise between £4 billion and £7 billion. There will then be a smaller annual amount that relates to the future. I think a couple of hon. Members have said that there would be £5 billion a year. That is not what we are saying. We anticipate £4 billion to £7 billion initially, and then a small amount subsequently. The actual numbers will depend on behaviour.

The question was also asked, why does the future tax not apply to employment, loans, and so on? That is because we are talking about a withholding tax on financial investments, administered by banks. It can apply only to returns on investments held in banks and similar institutions. It is not designed to apply to employment and so on.

A point was raised about how banks will determine beneficial ownership. That also relates to the issue of whether complex ownership structures such as trusts will apply. They will; banks will be required to look through complex structures to identify whether the beneficial owner is a UK-resident taxpayer. Assets owned by so-called domiciliary companies—that is, legal entities, including trusts, that are not commercial operations—will be in scope if they are controlled by a UK taxpayer. Banks are required to use all information at their disposal to determine whether assets are beneficially owned by a UK-resident taxpayer. It is not sufficient merely to establish the account in the name of a company or trust if, as is often the case, the ultimate beneficial ownership is known to the bank.

My hon. Friend the Member for Southport asked whether any other jurisdictions had obtained an automatic exchange of information. The answer is no. There is a question as to what exactly we could do. If the argument is that we must insist on an automatic exchange of information, it is necessary to reach an agreement with the Swiss. That is what we have done, and we believe we have done so on very good terms.

Finally, the hon. Member for Bassetlaw enlivened proceedings, as usual, with the conspiracy theory that the reason for the agreement was to allow the Government to block the EU savings directive, and that it was all some great cunning plan. I am afraid that conspiracy theory collapses when I point out that this Government support the amended EU savings directive. It is in fact Luxembourg and Austria that are blocking it, not the UK Government. We are keen for it to proceed.

I hope that those points are helpful to the Committee. I hope I have provided some clarification on the points that have been raised, and I hope that the Committee will seize the opportunity to proceed with clause 216, schedule 35, and the agreement with Switzerland.

Schedule 35 - Agreement between UK and Switzerland

Clause 220 - Removal of special provision for incapacitated persons and minors

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

It has been a fairly long day so far, Mr Bone, and we still have a fair bit of business to get through. We want proper scrutiny, but not to take up unnecessary time. It is worth putting on the record what the clause does, because it changes terminology that is outdated, particularly the definition of “incapacitated person” in the Taxes Management Act 1970. It was brought to my attention by the Chartered Institute of Taxation, which noted

“some exemplary co-operation between Government and Opposition committee members during the debates”

on the Finance Bill in 2010. The then shadow Financial Secretary to the Treasury, my hon. Friend the Member for Nottingham East (Chris Leslie), tabled a new clause; the Government decided to consult on it, and indeed to replace what have been described as anachronistic definitions that include expressions such as “lunatic”, “idiot” and “insane person” with something more in keeping with the modern understanding of mental incapacity. That is to be welcomed. I note on the record the work that was done on this, and obviously we will not oppose the clause.

The rest of the debate is in Hansard.