FINANCE BILL

Public Bill Committee, 16 May 2013.

(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules)

Sir David Amess (Conservative, Southend West)

The room is relatively warm, so Members may, within reason, remove articles of clothing to be comfortable throughout our proceedings.

Clause 6 - Main rate for financial year 2015

Chris Leslie (Labour, Nottingham East)

Good morning, Mr Amess. It is a pleasure to serve under your chairmanship. I cannot think of anywhere I would rather be than here on the Finance Public Bill Committee.

All hon. Members are ready and raring to go, although I am not sure we should remove all items of clothing for comfort. I am sure we gentlemen should continue to wear our neck ties. You would not want the Committee to go all Conservative modernist, Mr Amess. I wonder whether you remember the good old days, when the Conservatives were in the centre ground. The hon. Member for Grantham and Stamford (Nick Boles) was the main exponent of the open-neck look. How long ago those days seem now that the Conservatives have firmly moved back to the right of the political spectrum. Anyway, I digress. [Interruption.] Well, one has to have a go at such things.

The clause takes us back a little to before the Committee adjourned, when we were debating the clauses relating to corporation tax changes. The Exchequer Secretary is not with us today, but he led that debate opposite my hon. Friend the Member for Kilmarnock and Loudoun last time the Committee sat. I will ask the Economic Secretary a few questions to test his knowledge of the Treasury’s corporation tax strategy. I am not sure who is in charge of such things, but I am sure he has a strong grasp of the matter.

We hope that reducing corporation tax will have an economic benefit. After all, the previous Labour Administration reduced corporation tax and there is clearly a good case to be made for some of that strategy. However, we now feel very strongly that we require evidence for the Government’s continuing changes, particularly relating to 2015, which is the subject of the clause. The clause will put corporation tax at 20% of company profits, other than ring-fenced profits, which are, of course, addressed elsewhere in the Bill.

Obviously, there is some sort of relationship with levels of personal taxation and income tax. After all, it is sometimes said that corporation tax could almost be regarded as deferred income tax, because corporations are ultimately owned by individual shareholders, who, at some level, pay tax on any income that comes downstream from corporate profits. The Economic Secretary may wish to elaborate on the argument that there is a point of alignment here with the 20% rate. Has a strategic choice been made on rates of income tax? Last time we sat, the Committee debated alignments with the small profits rates of smaller firms, but did income tax go through the Treasury’s mind when it was thinking about these points?

I do not think that the Treasury has ever produced a firm analysis of how further cuts to corporation tax would definitely feed through into economic growth. There has been all sorts of conjecture, speculation and anecdotal examples from various hon. Members, but we need to see hard evidence to be certain that such instincts are correct. I want to press the Minister on whether further falls in corporation tax will undoubtedly feed through into positive economic activity or whether, as some suspect, corporate surpluses will be stockpiled if the tax strategy is not correct?

I want to ask the Minister about his understanding of inward investment and outflows of investment from the UK relative to other jurisdictions. The corporation tax rates set for 2015 will not exist in isolation; other national jurisdictions set their own. Labour tax practitioners are anxious that if we are not careful, the UK will get into a vicious circle of a constant chase for lower rates, in which countries engage in an arbitrage process of always outbidding one other, with the result that public services and public investment lose out.

It may well be that the United Kingdom finds itself in a more tax competitive position than other jurisdictions, but that is not necessarily guaranteed because they are perfectly able to reciprocate by following suit or even outbidding the United Kingdom, as we have seen in some jurisdictions over the past decade or two. Any observer of international tax rates would say that those rates have tended to flow downwards across the main developed jurisdictions. Has the Minister taken stock of where that flow will end? Will the main developed nations settle on an equilibrium as a natural level of corporation tax, or will that circle be pursued in perpetuity, which would obviously affect the Treasury’s strategy?

Famously, the Republic of Ireland has a corporation tax level that is relatively low compared with those of other countries. It has been under pressure, particularly from Germany and other member states of the European Union, under the rescue programme for countries in the eurozone that require financial assistance. There was speculation about Germany or other nations putting pressure on Ireland to move its corporation tax strategy in an alternative direction. It is obviously unusual for a nation state that has a particular tax strategy to come under external pressure from its partners and other nations.

Thankfully, we stayed out of the euro, as a result of decisions taken by Labour—[Laughter.] We will see where the Chief Secretary to the Treasury—the Minister’s good colleague—takes the Treasury, because he spent 10 years of his life campaigning for membership of the euro, but I do not want to digress again. We need to know what evidence the Treasury has that the strategy for a cut in corporation tax in 2015 will yield positive economic benefits, rather than essentially being lost by our fuelling an international race to lower levels.

I have seen the recent statistics on inward foreign direct investment, but there is a lag in relation to when they are collected. While this Government have been in power and perhaps pursuing this particular strategy, our inward foreign investment levels have fallen back somewhat compared with previous levels. Indeed, as far as I can see, the amount of British money that has been invested in foreign jurisdictions has increased. The figures show that in 2011 foreign companies invested £31.9 billion in the UK, which was a fall compared with the 2010 figures and the lowest investment level since 2004.

Perhaps the Minister can give us the most recent statistics that the Treasury has about FDI. He could make a case for his corporation tax strategy if he said that inward investment into the UK had been somehow connected with the levels of corporation tax that the Government had been pursuing. However, as far as I can see from this set of statistics that the House of Commons Library has produced, in 2011 outward FDI by UK companies was £68 billion, an increase of £42 billion from 2010, which is a phenomenal increase in the amount of money leaving the UK and going elsewhere. One could make an assumption—there might be a simple correlation rather than a causal effect—that British companies were choosing to invest net higher levels outside our own jurisdiction, for whatever reason. Perhaps corporation tax is part of that equation, but we need to get a view from the Minister about what is happening with those particular choices.

Our preference would be that British money and British companies choose to invest in the future prosperity of British firms and British endeavours, supporting UK enterprise and increasing job creation in this country. I know that Government Members have a terrible blind spot when it comes to jobs, economic growth and these particular questions.

Kwasi Kwarteng (Spelthorne) (Con) British jobs for British workers.

Chris Leslie (Labour, Nottingham East)

That is an interesting intervention from the hon. Gentleman. Perhaps he wants to tell us if that is now his policy. If it is his policy, I am not sure that the strategy is borne out by the evidence before us.

Nevertheless, the Minister should tell us a little more about this issue. If he does not have the figures on inward flows of investment and outflows from the UK, I would be more than happy for him to write to the Committee to give us any more information. That would be extremely helpful.

I also want to take the opportunity to ask the Minister to clarify what will happen on corporation tax in 2015 in relation to the banking sector. We touched on some of these issues a little in the debate on clause 4, but we did not get to the bottom of the issue of the other tax that interplays with corporation tax. As part of the Government’s strategy, they have introduced a levy on the banks, at a puny, knock-down rate. They said that it was supposed to yield £2.5 billion annually, but it has totally failed to bring in the sums that the Prime Minister promised that it would. In fact, last year it brought in only £1.6 billion, which represents a pretty big shortfall. Think what that extra £900 million could have done for public services and investment if they had hit that £2.5 billion target. The year before, I think that only £1.8 billion was brought in.

The Government said that they were going to offset the corporation tax cuts for the banks with an adjustment in the bank levy. It does not appear, at first glance, that that is what has happened in the last couple of financial years. I want to press the Minister to give us a bit more detail about how exactly this particular change for 2015, as set out in clause 6, will work. What is the formula that feeds back through into the bank levy in terms of the way that that has been calculated? Obviously, if there is going to be a 20% rate in 2015, adjustments to the bank levy will need to be made, but I do not see directly in the Bill where that offset is being made. I want to see a straight line—maybe even a dotted line—from one bit of clause 6 to those other provisions, so we can be certain that that nice, juicy corporation tax cut, which I am sure the banks are all rubbing their hands at and looking forward to, will be clawed back through the bank levy increases planned elsewhere.

If our constituents knew that the Minister and the Chancellor of the Exchequer were giving a corporation tax cut not just to many large multinational corporations but particularly to the banking sector, I think they would be very concerned. They are not getting a tax cut this year. Our constituents are being clobbered by the reductions in tax credits and the increase in VAT. [Interruption.] We should be thinking about the VAT increase as a petrol tax, as my hon. Friend the Member for Cardiff South and Penarth suggests.

What is the formula? How does it feed into the bank levy? I am assuming that if the economy improves by 2015—although heaven knows—we might have some bank profitability by that time. Perhaps the Minister can give us a sense of what it would be. If we have bank profitability by 2015, presumably there will be corporation tax on those profits. Ultimately, the problem with corporation tax is that if businesses are not doing very well or are making losses, that yields no corporation tax. Again, it would be helpful for the Committee if the Minister could give us a projection of what he anticipates the corporation tax yield will be in 2015. Perhaps that will give us a sense of the Government’s confidence in business profitability by the time of the next general election; the rate will kick in about four weeks before that, during the campaign. What is the Treasury’s projection of yield from corporation tax as a result of the change?

I know that Government Members often like to refer to what is sometimes known as the Laffer curve, their slightly antediluvian theory, used with the 50p rate in tax, that tax can be reduced to low levels and somehow miraculously yield massive revenues as a result. They do not call it Laffer for nothing; there is a reason why it has that particular nomenclature. Speaking of Laffer, I give way to the hon. Member for Braintree.

Brooks Newmark (Conservative, Braintree)

I am a protégé and acolyte of Professor Laffer. Does the hon. Gentleman not agree that one must look at the evidence? The evidence indicates that when the Thatcher Government reduced the punicious—sorry, punitive, and pernicious—tax rates of the Labour Government of the late 1970s, taxation on unearned income was cut from 98% and other taxation was cut from 60% to 40%. As the tax rates were reduced, the Exchequer’s tax take increased. As an economist and somebody involved with the Treasury, he should recognise that what is important is not political point-scoring but ensuring that we raise the maximum amount of revenues possible from taxation.

Chris Leslie (Labour, Nottingham East)

My hon. Friend the Member for Kilmarnock and Loudoun made this point in previous debates. Obviously, if the tax rate is set at 100%, it will have a pretty devastating effect on the revenue yield, but if the rate is 0%, obviously, there will be no revenue, hence the issue of what happens in the mid-ranges in between.

What Professor Laffer did not factor into his analysis was forestalling people’s behavioural change when it comes to particular rates of tax. We have seen clear evidence that behaviour has been distorted by the knowledge that the 50p rate would be reduced to 45p. Many wealthy individuals, or high net worth individuals as they are sometimes called, held back until that 50p rate fell to 45p and decided to give themselves a big bonanza pay packet on the flipside of that tax year. If only the Government had given the 50p rate a proper run, we would have seen a significant benefit for taxpayers, but they were far too generous to the millionaires of this country.

Brooks Newmark (Conservative, Braintree)

I sense the hon. Gentleman’s strong feeling for wanting the 50p rate and ensuring that it is raised back up from 45p to 50p. Does he regret that during their 13 years in office the last Government did not raise the higher level of taxation to 50p until their last six weeks?

Chris Leslie (Labour, Nottingham East)

I am glad that the last Government put the rate at 50p, which was fair and popular. Our constituents, including those of the hon. Gentleman, agreed with that move. I take it from his representation that he wanted a 50p rate far earlier and that he thought it should have been introduced the previous year, or the year before that. I am fascinated that Conservative Members were itching for that 50p rate so much sooner than when it was introduced.

Sheila Gilmore (Labour, Edinburgh East)

Enthusiasm for the 50p rate is sometimes overwhelming in this debate. Regardless of that, the context in which the decision was made on the 50p tax rate was very much part of a deficit reduction programme, and many of my constituents believe that if we are to have deficit reduction, everyone must play their part in that. The context was substantial cuts in various forms of social security benefits, tax credits and so on, and it was reasonable in that context to raise the tax to 50p.

Chris Leslie (Labour, Nottingham East)

Coming back to clause 6 and the corporation tax rates, our constituents want to know that the Treasury is being fair in its approach to taxation across a whole set of different classes of taxpayer in different circumstances. Many of our constituents may think that we should support business and ensure that that we get the tax rate right, but they are paying far more than in 2010—the extra cost of tax increases and cuts in various benefits is £891 for a typical family compared with 2010—and when they see the Government’s strategy of cutting taxes for millionaires and making generous provision for banks and so on, they want to know sort of priorities the Government have. That is why, with corporation strategies such as this, we need to see evidence that they are yielding results. So far, the economic performance of the last three years has not in any way verified that the Government’s tax strategy is yielding economic benefits.

That is the point I want to put to the Minister today. I want him to answer questions about the bank levy and to know how he is calculating that formula to make that offset. I want to see the evidence of foreign direct investment, and above all I need to hear from the Minister what evidence he has that this corporation tax strategy will be beneficial for the economy. Is it ideology or a theory? What evidence does he have? Those are the points I wanted to make about the clause.

Sajid Javid (Conservative, Bromsgrove)

May I say, Mr Amess, that it is a pleasure, as always, to serve under your chairmanship? I look forward to taking part in the Committee. I will come to some of the specific questions asked by the hon. Member for Nottingham East in a moment. First, I will introduce clause 6, which sets out the main corporation tax rate and the charge for the financial year beginning on 1 April 2015. The rate will be reduced to 20%, as announced in Budget 2013. It will be the joint lowest rate in the G20—lower than almost all our key competitors, including the Netherlands, France, Germany, the United States and Japan. Among those last two countries, key competitors of Britain in the global race, the US has a corporation tax rate of 40% while Japan has a rate of 38%.

We have just heard the hon. Gentleman’s views regarding the cut, and there has been an interesting discussion on why the Government are reducing corporation tax rates and the impact on businesses and investment across the country. A stable tax system is vital for business. Legislating now for the rate reduction in 2015 will provide the certainty that is needed for effective business planning. Next year’s Finance Bill will legislate to unify the small profits rate, which is already 20%, with the main rate from April 2015, so that there is a single headline rate of corporation tax—a significant simplification of the tax system.

I was asked what evidence there is of the benefits of this Government’s strategy of making Britain more competitive and more open for business. The announcements made by global multinationals including some of the largest companies in the world, and their reactions to the Government’s policy, including the policy to reduce corporation tax rates and make Britain’s tax rates more competitive, show how confidence in Britain is being boosted and how our policy is generating jobs and investment. WPP, the world’s largest advertising agency, has announced that it will move its headquarters back to Britain. Other companies, such as Aon, Seadrill, Ensco, Lancashire and Rowan, have announced that they will move their global headquarters to Britain, generating jobs and investment. That is firm evidence that the Government’s changes are already making a difference.

The hon. Gentleman asked about foreign direct investment. The most recent annual report on FDI published by Ernst and Young states that the UK is the highest recipient of FDI in Europe. One reason it cited was the changes that the Government are making in cutting tax rates and making Britain more competitive.

Chris Leslie (Labour, Nottingham East)

The Minister is good on statistics, which his Department provides him with a great number of. However, I was looking not for a snapshot volume of foreign direct investment but for the direction of flow, which we have seen reducing. Of course, the UK, being a large economy, will have a large amount of FDI, but what is happening with it? The 2011 figures were disappointing. What has been happening more recently? I genuinely do not know the answer to that.

The Minister says, anecdotally, that there is this company coming and that company over here. It is not methodologically rigorous of him to pick one or two companies as an example of the success of a whole policy. We need to get the whole picture. Companies will come, but other companies will leave. What is the flow? I want a better statistic from the Minister.

Sajid Javid (Conservative, Bromsgrove)

The latest numbers on FDI published by the Office for National Statistics—for the quarter ending 2012—showed that direct investment abroad by UK companies, which the hon. Gentleman also talked about, had fallen by £12 billion to £3.2 billion. I think he suggested that the figure was going up, but the ONS figures show something to the contrary. Direct investment into the UK increased by £0.3 billion to £7.2 billion. Clearly the number is heading in the right direction, which I am sure is a direct result of this Government’s policy to promote Britain and create more jobs and investment.

Stephen Doughty (Labour, Cardiff South and Penarth)

What direction does the Minister think those figures would go in if we were to leave the European Union?

Sajid Javid (Conservative, Bromsgrove)

That is not the subject of the debate.

Chris Leslie (Labour, Nottingham East)

He was tweeting about it.

Sajid Javid (Conservative, Bromsgrove)

It is not the subject of this debate, and I do not think my tweets are the subject of this debate. It is important that we have a debate on Europe, but this is not the time or place for it.

Brooks Newmark (Conservative, Braintree)

My hon. Friend was correct to point out the extremely high corporate tax rates of the United States and of Japan. While we are in Europe—as we still are—the competitive landscape within the European Union has to look attractive for the UK. It is worth noting that the corporate tax rate in Belgium is 34%, in France, it is 33%, in Italy, it is 32% and in Germany it is almost 30%. In that competitive landscape, is it not best to attract businesses within Europe to come to, settle in and have their headquarters in the UK, so that UK plc benefits from those tax revenues?

Sajid Javid (Conservative, Bromsgrove)

As always, my hon. Friend is absolutely right. He understands business, as Government Members do; that is why we are taking these measures. It is no surprise to me that Opposition Members find it hard to understand how to attract business and investment to Britain.

It might help to quote other people who have direct experience of the business world. The director-general of the CBI said:

“An extra one penny cut in corporation tax will...make the UK one of the most internationally competitive locations in which to do business.”

The director-general of the British Chambers of Commerce said:

“All companies will cheer the news that Corporation Tax will fall to 20% by 2015. This is an important fillip to business confidence, particularly among global investors.”

Those people know a lot more than the hon. Member for Nottingham East about how to attract business into Britain.

The hon. Gentleman also raised the issue of the bank levy. As he points out, the Government have rightly increased the bank levy alongside each cut in corporation tax to ensure that banks do not benefit from the decrease in the corporation tax rate. In the last autumn statement, we increased the bank levy to 0.13%, effective from January 2013. In Budget 2013 we announced that the rate would increase further, to 0.142%, from 1 January 2014. It is right to take those measures and ensure that banks are making their contribution to the fiscal consolidation process.

Chris Leslie (Labour, Nottingham East)

What will be the commensurate increase in 2015-16? As I understand it, the clause relates to corporation tax rates from the financial year 2015-16. The Minister said that he would offset that for the banks with a change in the bank levy, but he has not said what the bank levy rate will be in 2015-16.

Sajid Javid (Conservative, Bromsgrove)

The hon. Gentleman raises a good point. We will set that out in due course. We have said quite clearly that any reductions in the corporation tax rate will not be passed on to banks, and that will be achieved by increasing the bank levy rate.

Chris Leslie (Labour, Nottingham East)

Let me get this absolutely clear. The Minister and the Government are telling the banks that they will get a corporation tax cut from April 2015, to 20p, but the Minister is not prepared to say at this stage what the increase in the bank levy will be in 2015-16. Have I got that factually correct?

Sajid Javid (Conservative, Bromsgrove)

The Government have made clear how we intend to cut the corporation tax rate, and in Budget 2013 we set out our plans to increase the bank levy rate. We will announce any further changes in due course. The purpose of this debate is not for me to announce tax changes that will be made clear in future Budgets.

Chris Leslie (Labour, Nottingham East)

I am surprised at that, because there was a clear commitment by the Chancellor of the Exchequer—for it was no less than that right hon. Gentleman—that the banks would have their corporation tax cut recouped by a commensurate increase in the bank levy. The Minister is clearly not prepared to tell us what the bank levy will be for 2015-16. Will he at the very least guarantee to the Committee, with a cast-iron guarantee, to quote the Prime Minister—

Stephen Doughty (Labour, Cardiff South and Penarth)

Copper-bottomed.

Chris Leslie (Labour, Nottingham East)

Copper-bottomed, as well as cast-iron. Will the Minister guarantee to the Committee that the bank levy will increase in 2015-16?

Sajid Javid (Conservative, Bromsgrove)

We have always made it clear that any cuts in corporation tax will not be passed on as a benefit to banks, which we ensure by increasing the bank levy. That is absolutely the case for the cut in corporation tax that will take effect in 2015-16, as there will be a further increase in the bank levy. To set the levy, we look at the most up-to-date forecast of corporation tax to ensure that it is set based on the best information available.

I would like to point out that the hon. Gentleman and his colleagues have, on a number of occasions, made the case for replacing the bank levy with a repeat of the bankers’ bonus tax, which, incidentally, would have raised less money than the levy in each year that the levy has been in effect. It is intriguing that he set out that the revenue that he thinks a bankers’ bonus tax will raise £1.6 billion when last year’s bonus pool was £1.8 billion—[Interruption.]. I will give way to him if he wants to confirm that his intention would be to have a 90% tax rate, or thereabouts, on bankers’ bonuses.

Chris Leslie (Labour, Nottingham East)

I dispute the Minister’s statistics, which are dodgy in the extreme. He needs to take a look at that. What statistic is he using for bankers’ bonus payments for 2012-13? Is he really certain that those bonuses were £1.8 billion? I understood that Her Majesty’s Revenue and Customs’ figures were quite different? Will he put that on the record?

Sajid Javid (Conservative, Bromsgrove)

A moment ago, the hon. Gentleman was commending my use of statistics, but now, when it does not suit him, he does not like it. The latest numbers from the banks are that approximately £1.8 billion was paid in bonuses in the latest year. If he believes that he can raise £1.6 billion from £1.8 billion, he must be suggesting a tax rate similar to that imposed by Labour in the late 1970s.

Chris Leslie (Labour, Nottingham East)

What is the Minister’s source for that figure for 2012-13?

Sajid Javid (Conservative, Bromsgrove)

I will be more than happy to provide the hon. Gentleman with my source.

Chris Leslie (Labour, Nottingham East)

Tell us now.

Sajid Javid (Conservative, Bromsgrove)

I will write to the hon. Gentleman and provide him with that source. If he is not comfortable with the source, he is at liberty to raise that with me. I notice he has not answered my question about how, on a £1.8 billion base of income, he thinks that we can raise £1.6 billion. His bankers’ bonus policy has just fallen apart.

Nigel Mills (Conservative, Amber Valley)

When my hon. Friend writes to the hon. Member for Nottingham East with the details on how much the bankers’ bonuses were worth, will he include how much tax was paid on those bonuses in personal income tax, national insurance and employer’s national insurance?

Sajid Javid (Conservative, Bromsgrove)

My hon. Friend raises a good point; it would be useful to include that information and I will seek to do so.

The hon. Member for Nottingham East raised questions on what I think he loosely described as tax fairness and he talked about the impact of tax changes. I know, Mr Amess, that this debate is about corporation tax, but I hope that you will allow me briefly to point out the tax cuts that the Government are making.

Through the personal allowance, there is a cut for 24 million people. When that allowance hits £10,000, more than 3 million people will be taken out of taxation altogether. All the individuals who enjoyed Labour’s 10p tax rate, which they then abolished, will now be paying a zero rate of income tax.

As for taxation on the highest earners, we made changes designed to ensure that the wealthiest make the biggest contribution to fiscal consolidation. The increase in the capital gains tax rate from 18% to 28% is fair not only because it makes the richer in society contribute more. It also ensures, as my right hon. Friend the Chancellor of the Exchequer said in yesterday’s debate, that we have got rid of a situation in which the cleaners in hedge fund offices were paying higher tax rates than the hedge fund managers themselves.

In conclusion, reducing the main corporation tax rate to 20% in 2015-16 will further reduce the cost of new investment, incentivise activity across the economy and provide further support for the Government’s ambition to achieve the most competitive tax system in the G20.

Clause 7 - Temporary increase in annual investment allowance

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I beg to move amendment 10, in clause 7, page 3, line 8, at end add—

‘(3) The Treasury shall review, within six months of Royal Assent, the impact that changing the allowance under section 51A of CAA 2001 from £100,000 to £25,000 and back to £250,000 has had on small and medium-sized enterprises and business confidence, and a place a copy of this review in the Library of the House of Commons.’.

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss the following:

Clause stand part.

That schedule 1 be the First schedule to the Bill.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

It is a pleasure to be back in Committee under your chairmanship, Mr Amess. Clause 7 and the incredibly complex schedule 1 increase the annual investment allowance for businesses to £250,000 for a temporary period of two years, as announced in the 2012 autumn statement. Rather oddly, given that the measure will be enacted in this Finance Bill, the provisions of clause 7 took effect on 1 January 2013, as opposed to from the start of the tax year or the accounting period for most companies. I will return to the significance of that point.

Although welcomed by many, the announcement of the increase in Labour’s annual investment allowance came not long after the Government’s earlier decision by to reduce it significantly. Chopping and changing in this way risks further destabilising business confidence to invest.

We are keen to see a proper review of the size and numbers of businesses that benefit from the measure, given the somewhat conflicting information that has been provided by the Chancellor about those benefiting from the annual investment allowance in recent years. That is why amendment 10 calls on Her Majesty’s Treasury to undertake a review of the impact of the increase in the AIA on small and medium-sized enterprises. It should take into consideration the impact of the previous reduction and the subsequent increase, which, according to the explanatory notes to the Bill, has been introduced with a view to

“providing an additional, time-limited incentive for businesses (particularly small and medium-sized businesses) to increase, or bring forward, their capital expenditure on plant or machinery.”

The amendment is intended to enable us to ask the Government seriously to review and consider the impact of the continual and, many have said, somewhat erratic changes in the annual investment allowance and what impact that may have had on business confidence.

Brooks Newmark (Conservative, Braintree)

I am not sure what the hon. Lady’s direction of travel is. I understand her first point: she does not like the chopping and changing. No businesses like that at all, but is she saying that there should be a review, or that there should have been a review before the increase in the allowance was implemented, or is she saying that after a year we should stop and there should be a review?

The hon. Lady talks of small and medium-sized businesses, as I do and other hon. Members on both sides of the Committee do. She will know that £25,000 is a small amount when one is deciding whether to make an investment, but £250,000 allows companies to invest in a reasonable amount of capital expenditure. The issue today is that we need to get this money on the ground and working as fast as possible, not wait another three months, 12 months or 24 months.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I thank the hon. Gentleman for that intervention. If he reads the amendment, he will see that it clearly says a review will be undertaken

“within six months of Royal Assent”

being given to the Bill. It would be a review, in the future, of the impact of chopping and changing. Labour introduced the £100,000 level for annual investment, recognising its value in stimulating the business investment that the hon. Gentleman agrees the allowance can bring. The review would look at the impact of slashing that to £25,000, which had a limited impact on encouraging businesses to invest, as the hon. Gentleman eloquently said—he rather made my point for me, and I thank him for that. The intention is that the review would take proper stock of the impact of chopping and changing the policy by reducing the level from £100,000 to £25,000 and then increasing it to £250,000.

Sheila Gilmore (Labour, Edinburgh East)

The case was indeed made for my hon. Friend on the allowance. At the time of the 2010 emergency Budget, the Chancellor told us that it would not really be a problem to make the reduction, because 95% of businesses invested less than £25,000 anyway and that was why he was making the cut. Clearly, three years ago, the Chancellor was not convinced of the measure in the Bill. If he had been, the economy might be in a better state now.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

My hon. Friend makes an important point, which I will go into in more detail. There has been some confusion, and the Chancellor, in particular, has certainly put some conflicting information out there about the impact of this measure on boosting investment, particularly in areas of the economy that the Government have expressed a commitment to rebalancing.

Paul Uppal (Conservative, Wolverhampton South West)

I might be able to provide some guidance to the hon. Lady. I recently looked at some research from a team at Lombard, a subsidiary of RBS, which has noted that there has already been a 15% year-on-year increase in investment, spurred by the likes of the automotive supply chain, in which production in the UK has hit a four-year high and car exports have registered a record high. Ultimately, growth is about confidence. One problem with the amendment is that the Opposition are talking down positive news. We really have to talk up investment, and that is about confidence. The amendment is counter-productive from that perspective.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

I thank the hon. Gentleman for his comments. I think he knows that the performance of manufacturing has not been as strong as it should and could be. We have still not seen the march of the makers leading us into a new generation of manufacturing in this country. He talks about confidence, but that is not reflected in the message I am getting from businesses—certainly those in my region, but also those I speak to around the country. That confidence is what the Opposition are interested in safeguarding and projecting in the future.

The amendment is in no way intended to undermine confidence or talk down business. It is intended to do completely the opposite—to focus on the impact that chopping and changing business policy has on business confidence and to take stock for the future of how the undermining of business confidence can be prevented. Many business sources have confirmed my fears that this chopping and changing undermines confidence. As the hon. Gentleman knows, and as the hon. Member for Braintree said, uncertainty about the future and about Government policy is one of the most destabilising forces for business and business investment. That is the point we are looking to reinforce.

Ian Mearns (Labour, Gateshead)

The north-east is fortunate that, over the past couple of decades, Nissan has planted itself in the region and grown its business. Nissan exports a huge number of cars to the European Union from the dock at Jarrow. The problem, however, is that one of Nissan’s major shareholders is Renault. If we were to withdraw from the European Union, I am convinced that Renault would have no hesitation in withdrawing the Nissan investment from Washington and Jarrow and taking it back to France.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

My hon. Friend makes a powerful point. I enjoyed his analogy of Nissan “planting” itself in Sunderland, growing from there and sprouting the manufacturing of the Leaf, a new generation electric vehicle being produced in Sunderland. The region is very proud of that and proud to be a net exporter and a huge contributor to UK plc.

The point that my hon. Friend makes about the destabilising effect of the current debate on Europe is important. Generally speaking, the Government’s mixed messages undermine the confidence to invest in this country and for the future. We know that businesses are sitting on stockpiles of cash because they are uncertain about the future, and the Government are failing to give them confidence in terms of economic stability going forward. There are also questions about whether we are going to be in the European Union and whether we are going to have trade deals with the US. Who are our friends here and who are our competitors? We have an uncertain environment for business at the moment.

Going back to the annual investment allowance, it might be helpful briefly to consider the background, which will set the scene for our amendment. The allowance was announced as part of the 2007 Budget by the former Chancellor of the Exchequer, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown). It was introduced as part of a package of reforms to enhance Britain’s international competitiveness, encourage investment and promote innovation and growth.

The allowance replaced first-year capital allowances and was introduced initially at a level of £50,000. It was made available to businesses regardless of size and regardless of their legal form. It meant that, in any given year, 100% of expenditure spent on general plant and machinery, other than cars, up to the £50,000 limit could be offset against taxable profits. The measure took effect in April 2008 and was very much aimed at targeting support on all businesses to invest for growth.

As referenced in the Opposition’s amendment 10 today, the previous Labour Government announced their intention to double the investment allowance at the March 2010 Budget as part of a series of measures intended to:

“support startups and small and medium-sized enterprises (SMEs), position the UK as a leading centre for research and innovation, and ensure that the UK is equipped with skills for growth and the infrastructure it needs to be successful in a low-carbon economy.”

Nigel Mills (Conservative, Amber Valley)

I am surprised the hon. Lady quoted that speech on the Budget, because that must go down as one of the longest statements of hubris that we will ever find if we go back and read the economic forecasts. In that year’s Budget speech, the then Chancellor set out that he was making other changes to the capital allowances regime, including reducing the rate from 25% to 20% and taking away tax relief on investment in industrial buildings. Does the hon. Lady now regret those changes?

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Following the 2010 Budget, we had a general election that brought in the Conservative-Liberal coalition, which has led us into stagnant growth and paltry growth rates since that time, so I am surprised that the hon. Gentleman seeks to reflect on what has been a very sorry period of poor economic growth, with confidence to invest at an all-time low.

The March 2010 Red Book went on to state:

“In order to provide further cashflow support and an incentive to increase business investment, the Government will increase the threshold of the AIA to £100,000 for expenditure incurred from April 2010.”

Interestingly, given our deliberations on clauses 203 to 212 of the Bill’s general anti-abuse rule, which were considered on the Floor of the House at Committee stage, the Red Book also stated:

“The Government will introduce a targeted anti-avoidance rule from 24 March 2010 to ensure this measure is focused on support for genuine business investment.”

Will the Minister outline what similar measures the Government will be taking, or whether the targeted approached adopted by the previous Labour Government will continue to apply to the temporary annual investment allowance? I would be grateful if the Minister commented on that.

From April 2008, under Labour, businesses were able to offset 100% of expenditure in any given year on general plant and machinery, up to a limit of £50,000, against taxable profits. From April 2010, that was increased to £100,000. We know the story from there. The coalition came to power, and we had the Chancellor’s so-called emergency Budget in June 2010, which announced to great fanfare that the annual investment allowance would be reduced to £25,000 from April 2012.

As my hon. Friend the Member for Nottingham East commented, the Chancellor sought to reassure us that the impact of the reduction from £100,000 to £25,000 would in fact be very limited because, in his words,

“Over 95 per cent of businesses will continue to have all of their qualifying plant and machinery expenditure fully covered by this relief.”

In other words, the Chancellor believed in June 2010 that only 5% of firms were receiving any benefit from the annual investment allowance. Indeed, HMRC’s tax information and impact note stated:

“Over 95 per cent of businesses are expected to be unaffected as any qualifying capital expenditure will be fully covered by the new level of AIA (£25,000).”

But it went on to clarify that

“between 100,000 and 200,000 businesses will have annual capital expenditure of over £25,000”,

and they would therefore be affected by the decision. In the Chancellor’s terms it is only 5% of businesses, but in anyone else’s terms it is a significant number of firms, which no doubt directly employ, or potentially employ, a significant number of people while indirectly supporting the employment of many others through their supply chains.

It is useful to remind ourselves of some of the views expressed at the time about the decision that the Chancellor took. The Institute for Fiscal studies commented that the losers from the cut

“would be those firms with capital intensive operations—with long lasting equipment and machinery—that currently benefit most from the capital allowances. While this is likely to apply more to firms in the manufacturing and transport sectors it may also be true to for some capital intensive service sectors firms.”

A senior economist at the manufacturers association the Engineering Employers Federation stated:

“Reducing the corporation tax rate over time was in principle the right course of action. But financing it, in part, by cuts to investment allowances will be a heavy price to pay, especially for smaller companies. It might be a positive signal for large companies, but not for their suppliers.”

In his evidence to the Treasury Committee on the June 2010 Budget, John Whiting, then tax policy director at the Chartered Institute of Taxation, and now director of the Office of Tax Simplification, expressed his concern that the cut would particularly hit medium-sized firms.

So we had the June 2010 Budget, which cut the annual investment allowance to £25,000 from April 2012. We then had two autumn statements and two Budgets before, lo and behold, the Chancellor announced in the autumn statement 2012 that he would increase the annual investment allowance—the one he had cut to £25,000—to £250,000 from January 2013.

It might be helpful if the Minister explained what changed between the June 2010 Budget and the 2012 autumn statement. I think some of us know the answer, but it would be helpful if he could provide some clarity on that point. What happened to business investment in the intervening period that drove the Chancellor from a position where he felt able to slash the annual investment allowance in 2010, because more than 95% of businesses were expected to unaffected, to announcing in 2012 that he was increasing it to £250,000?

Let us recall what the Chancellor said about the decision in the 2012 autumn statement. He said he was increasing the annual investment allowance because:

“It is a huge boost to all those who run a business and who aspire to grow, expand and create jobs.”—[Official Report, 5 December 2012; Vol. 554, c. 881.]

That surely means, does it not, that his decision to slash the annual investment allowance just two and a half years earlier was therefore the opposite: a huge blow to all those who run a business, who aspire to grow, expand and create jobs.

The Chancellor and the Minister cannot have it both ways. Either the annual investment allowance supports growth and business expansion or it does not. It would seem that the coalition has now come round to our point of view on the issue, believing that it is important to back businesses that want to grow, innovate and boost employment.

I should be grateful if the Minister clarified the number and size of businesses that are expected to benefit from the increase to £250,000, particularly given the clear statement that the intention is particularly to incentivise small and medium-sized enterprises and bring forward their capital expenditure.

The estimate in the HMRC tax information and impact note is that about 90,000 businesses that spend more than £25,000 a year on qualifying plant and machinery will benefit from the change. For comparison, I remind hon. Members that between 100,000 and 200,000 businesses were estimated to have capital expenditure of more than £25,000 in 2010.

Either the Chancellor got his figures wrong when he made the decision to slash the annual investment allowance, or there has been a disturbing drop—of between 10,000 and 110,000—in the number of companies investing more than £25,000 since 2010. We need to ask whether that is down to the Chancellor’s decision to slash the annual investment allowance, or whether it is a result of his and the Government’s catastrophically failing economic plan—or, whether, indeed, it is a combination of both.

When he announced the increase in 2012, the Chancellor stated that the

“capital allowance will cover the total annual investment undertaken by 99% of all the business in Britain.”—[Official Report, 5 December 2012; Vol. 554, c. 881.]

Does that in effect mean that the change will benefit about 4% of businesses in the country, or did he get his figures wrong there, too?

We need a great deal more clarity about the impact of the measure, in relation to the number and size of the firms—particularly small and medium-sized enterprises—that will or will not benefit. That is why the amendment would require a review of the impact of the various changes in the annual investment allowance since the coalition came to power.

Of course, those changes have been erratic, to say the least. Cutting the allowance from £100,000 to £25,000 and then increasing it to £250,000 does not exactly inspire confidence in the Government’s long-term approach and strategy for supporting businesses with growth and investment.

Andrew Gotch of the Chartered Institute of Taxation commented on the increase announced in the 2012 autumn statement:

“This is a very generous increase that will be warmly welcomed by many small businesses...However, we note that it is only a temporary increase. Business would really welcome some stability in this area. In recent years the allowance has fallen from £100,000 to £25,000. Now it will rise to £250,000 before, apparently, coming back to £25,000. Businesses like certainty above everything and the chopping and changing of the AIA has been a problem.”

The Institute of Chartered Accountants in England and Wales, although it supports the increase in the annual investment allowance, has said:

“We are less enthusiastic about the frequency of the change to this amount and consider the different calendar dates now being used are an unnecessary complication.”

I am sure that we would all agree that at the present critical juncture in our stagnating economy what businesses most need are long-term stability and certainty. That would give them the confidence to invest and make plans for the future. If they are to dig us out of this economic mess—of the Chancellor’s own making—and to create the new jobs that we desperately need as unemployment rises again, with youth and long-term unemployment at disturbingly high levels, it is vital that they help power our flatlining economy back into growth. We need to give confidence to business to invest.

What assessment has the Minister made of the impact of the constant chopping and changing on business confidence? Does he accept that it is vital for the Government to think strategically about how they support business in this country? Given the completely unpredictable nature now of the annual investment allowance, could he state on the record today whether the two-year temporary increase will remain in place until January 2015 as announced in the 2012 autumn statement? That would at least, if nothing else, give a short-term level of certainty to the businesses looking to take advantage of it.

We need confirmation that the Minister and the Government—particularly the Treasury—take seriously the impact of their policy decisions on business confidence. That is why our amendment proposes a review of the impact of the various changes to the annual investment allowance on business confidence since the coalition came to power. That would help persuade us, the business community and the general public that the matter is being taken seriously. I suggest that Government Members should have no qualms supporting the amendment, given that that should be our main focus at this time.

Finally, I want to comment on the complexity of the changes introduced by clause 2 and schedule 1. The Association of Taxation Technicians warned earlier this year that

“chopping and changing of capital allowances will lead to error, confusion and higher professional costs for small businesses”.

The ATT neatly summarised the potential problems caused by this temporary increase, in particular the fact that it runs from January 2013 to January 2015, rather than over companies’ usual accounting period.

“Under the Government’s proposals the annual investment allowance limit is being increased for the two-year period between 1 January 2013 and 31 December 2014 from £25,000 to a headline figure of £250,000.

“However, in reality, the actual limit on qualifying expenditure from 1 January 2013 can be less than £25,000 depending on the firm’s accounting year end and the level of its qualifying expenditure incurred before 1 January 2013.

“As the annual investment allowance limit was only reduced from £100,000 to £25,000 from 1 April 2012, the combined effect of that reduction and the proposed temporary increase is that within a period of just 39 months, there can be as many as seven occasions when the precise dating of expenditure determines how much tax relief the business will get each year on its capital expenditure.”

I apologise, Mr Amess, if that complicated analysis is giving a headache to hon. Members. I have no doubt that it will give a headache to many businesses and their accountants seeking to use the annual investment allowance.

Commenting further on the problem, the ATT’s president, Yvette Nunn, explained:

“These proposals are well intentioned but will be very problematic for small firms in particular. The arithmetical complexities involved will lead to error and confusion and result in increased professional costs for businesses and an unnecessary diversion of HMRC resources into policing the cliff edges at the critical dates.

“The majority of SME businesses spend far less than £250,000 every year. For them, it would be far simpler for the old £100,000 annual limit to run through to 31 December 2014. In that way, there would be only one cliff edge. So we are urging the Government to allow businesses to elect out of the confusing varying limits and into a flat limit of £100,000 a year from April 2012 for the whole affected period. We think that this would work well for businesses, HMRC and the economy.

“Small firms and entrepreneurs are the life blood of the economy. Encouraging these businesses is vital for Great Britain. If it looks too complicated to start and manage a business then we will deter the innovation and enterprise we need to get our economy motoring again.”

Any Members who have spoken to small and smaller-sized medium businesses in their constituencies will know that if things look too complicated, businesses will not take advantage of the available allowances. That is why we have tabled our amendment—so that the Government take seriously our concerns about not just the chopping and changing, but the complexity on the ground for small and medium-sized businesses up and down the country.

We have only to look at the explanatory note to clause 7 and schedule 1, which runs to 10 pages and which I am I sure all Members have studied, to comprehend how complex the changes will be for many businesses. Indeed, the Chartered of Institute of Taxation commented:

“The extreme complexity of the transitional rules may, for many businesses, negate the intended cash flow benefits of the increased AIA and could trip up some businesses, who might understandably assume that allowances are time apportioned.”

I would greatly appreciate hearing the Minister’s response to the concerns so well articulated by the ATT and the Chartered of Institute of Taxation when he addresses our concerns about the clause. I would be grateful if he outlined what steps, if any, the Government have taken to mitigate the confusion caused by the change and how it has been introduced. Indeed, how confident is he that the change enacted by clause 7 will result in the Government’s intended consequences?

Steven Baker (Conservative, Wycombe)

When I look at clause 7, schedule 1 and the explanatory notes, I am extremely grateful to the Government, because they make me feel 12 years younger. You may ask why such a lengthy piece of rule making would make me feel 12 years younger—it is because 12 years ago I was leading a team of people encoding HMRC tax rules so that submissions could be checked electronically as they came into the Revenue. One of the things we found was that in at least one case regarding expenses and benefits it was not possible to submit a valid tax return. The rules were incompatible with one another, so when I look at these rules, I worry that by the time everything has been encoded and checked, we may find that it is vastly too complicated.

Could the Government have done more to raise the allowance to this level while making it all much simpler? I realise that they inherited a hugely lengthy tax code that ballooned under the previous Government, but it is time for tax simplification, much as my former colleagues would curse me for saying so because it would take away some of their work. This is a great time—[Interruption.] I think that flat taxes are perhaps for another day, although I am grateful to hon. Friends for their suggestion. However, I wish that the Government would take a good look at the issue and see whether it is possible to do something simpler, although I appreciate that that may be something for the next Bill.

Chris Evans (Labour, Islwyn)

It is a pleasure to serve under your chairmanship, Mr Amess. We are both supporters of the Caravan Club, my mother and father are both supporters, and we look forward to the day when 1 Parliament street becomes a Caravan Club site. I support you in that campaign, sir.

I refer to amendment 10. I do believe that one of the great innovations has been the annual investment allowance created by the Labour Government. For all the trashing of the reputation of my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), it was a very good innovation. It encouraged people to invest in plant and machinery, create jobs and bring about the type of growth that we were looking for.

The allowance was originally set at £50,000. It was a capital allowance that offered tax relief at 100% of the qualifying expenditure in the year of purchase, excluding cars. When the Chancellor presented his first Budget in 2010, he reduced it to £25,000, saying that most people’s expenditure was under £25,000 anyway. Now we have come back here again and he has put it up to £250,000. Those of us who were sometimes fortunate to work in the banking industry—it was sometimes unfortunate, depending on how people thought of us—know that unless someone has worked in business banking and put a bank loan together, they do not know how difficult that is. That is a problem in society generally. There are all sorts of factors, and people can attack banks all they want, but at the end of the day banks need to make profit. They do not want to risk that profit by lending to a company they are not sure about.

There are two problems with increasing the annual allowance. The first is that businesses do not work in a vacuum, or over planning periods of a year or 18 months. They often work on planning periods of five or 10 years. This temporary increase is only for two years. What does that say to businesses who want to invest in plant and machinery or expand, as we all want them to do? What do they do with their planning and where do they go next? Those questions need to be answered. They work on a five-year cycle, so they would say, “In two years, we can claim this tax relief, but what happens three years beyond that?” Both we and business need that certainty before we go on with the increase.

The second problem is that we have two dates. My hon. Friend the Member for Newcastle upon Tyne North quoted Andrew Gotch of the Chartered Institute of Taxation, who said:

“we note that it is only a temporary increase. Business would really welcome some stability in this area. In recent years the allowance has fallen from £100,000 to £25,000. Now it will rise to £250,000 before, apparently, coming back to £25,000. Businesses like certainty above everything and the chopping and changing of the AIA has been a problem.”

What can we do? When I spoke previously in the Finance Bill Committee, I said that we could do nothing to change it; the Bill was going through, whether we liked it or not. The law does not allow us to make any amendments, but we can bring about a review. If we do that, we can answer our questions about business stability and moving forward.

I will not take up too much of the Committee’s time, because I can see that we are heading towards lunch, but I will pick up on the point made by the hon. Member for Wycombe, which is in the south somewhere; I am sure I have seen it on a map. The problem is that the explanatory notes are dry and complicated. My worry is that if we asked most business people whether they had a wish list, they would say that they wanted one thing—lower taxation. Okay, we are lowering corporation tax—I say that quietly, because I do not want to praise the Government to much—but the other thing that business people want is simplicity. They do not want red tape; they want to cut through it, but the explanatory notes are extremely complicated. I previously worked in business banking, and I have read them four or five times and cannot make head nor tail of them.

We need stability, and that is why the Government should not just see the amendment as a Labour amendment and vote it down. I hope that they will look at bringing about a review, because there is so much complexity and instability. There have been so many changes, and we need to think about the message we are sending out. The Chancellor is chopping and changing so much, and we need to understand the rationale. Why, if he said in 2010 that the majority of businesses were investing less than £25,000, does he want to increase it to £250,000? We need those answers, and they will not come through Budgets, comprehensive spending reviews or finance Bills; they will only come through a review of the specific policy. I hope that the Minister will look favourably on setting up such a review so that we can know that rationale.

Sajid Javid (Conservative, Bromsgrove)

We have heard from a number of hon. Members, so I will get straight down to it. Clause 7 and schedule 1 increase the annual investment allowance from £25,000 to £250,000 for two years from 1 January 2013. The clause is designed to stimulate growth in the economy by providing an additional time-limited incentive for businesses to invest in plant and machinery. It has been warmly welcomed by business representative groups such as the CBI, the EEF, the British Chambers of Commerce, the Institute of Directors and the Federation of Small Businesses.

The changes made under clause 7 and schedule 1 enable companies and unincorporated businesses, regardless of their size, to reduce their taxable profits effectively by 100% of their expenditure on qualifying plant and machinery, up to £250,000 in each of the years 2013 and 2014. That effectively accelerates the tax relief on expenditure between the current threshold of £25,000 and the new maximum limit of £250,000. The clause will increase the net present value of capital allowances to investors in plant and machinery, and will provide a valuable cash flow benefit likely to be of most help to small and medium-sized businesses.

It is estimated that the new £250,000 annual investment allowance limit will cover the qualifying annual investment by 99% of businesses in the United Kingdom. Increasing the threshold of the allowance to £250,000 will directly benefit about 90,000 businesses that currently invest more than £25,000 a year on plant and machinery.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

The Minister has again referred to the number of businesses that are likely to benefit from the increased annual investment allowance. What happened to the 100,000 to 200,000 businesses that were set to lose from the reduction that was announced in 2010?

Sajid Javid (Conservative, Bromsgrove)

Those businesses will all benefit from the increase, which is a lot more generous than the allowance that was in place in 2010 when the Government took office.

Raising the threshold will also encourage businesses that currently invest below £25,000 to increase their level of investment so as to benefit from the additional relief. Supporting businesses in that way will encourage them to take advantage of new technologies and new opportunities. The move has been backed by business bodies, several of which I mentioned earlier.

Amendment 10 would require the Treasury within six months of Royal Assent to review the impact on small and medium-sized enterprises and on business confidence of the changes to be effected by the clause and of the change to the annual investment allowance threshold made in the Finance Act 2011, and to place a copy of the review in the House of Commons Library.

The Government are fully committed to providing greater transparency on the impact of their tax measures. I am sure that Opposition Members will have already examined the tax information and impact notes that we published on 6 December relating to the clause. They included the Office for Budget Responsibility’s certified costing and the initial assessment expected economic impact of the measure. It recorded that accelerating relief on qualifying expenditure between £25,000 and £250,000 will provide an incentive, particularly to small and medium-sized businesses to increase and bring forward their investment in plant and machinery.

The published note also records that the measure will be duly monitored in the normal way through information collected from businesses and their tax returns. Clearly, full and systematic information from tax returns will not be available for some time, and certainly not within the six months of Royal Assent, which is the time scale envisaged by the review proposed in the amendment. Therefore, the amendment is not necessary. The Government keep all tax policy under review, with HMRC and HMT routinely monitoring the impact of such economic reforms on a case-by-case basis.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

Given that the Minister believes that the review is not necessary, what assessment have the Government made of the change between 2010 and today that made it a good policy decision to slash the annual investment allowance to £25,000? What has changed since then and now, when it is about to be increased to £250,000? Presumably, the Government have carried out a full assessment, given that they do not believe that a review of this change is necessary.

Sajid Javid (Conservative, Bromsgrove)

I was just coming to that. We recognise that the change follows quite soon after the decrease in the annual investment allowance to £25,000 that was announced in the June 2010 Budget and implemented in the Finance Act 2011, which took effect from April 2012. The Government’s central position has not changed and remains that, in general, a lower corporation tax rate with fewer reliefs and fewer allowances will provide the best incentives for business investment, with the fewest possible distortions. That is why we have announced a further reduction in the main rate of corporation tax, as we discussed earlier, from April 2015 and is also why the current 10-fold increase in the maximum annual investment allowance is time limited rather than permanent. We feel strongly and recognise, however, that the particular challenges that businesses face in the current economic climate make positive action by the Government to support and encourage increased investment in the short term both appropriate and highly desirable, which is why we are introducing the temporary measure.

Before I conclude, I want to turn to a couple of other points. The hon. Member for Newcastle upon Tyne North was right to mention the impact that the accounting period will have on the tax returns of businesses, particularly SMEs. We considered that, but we wanted the incentive to take effect as soon as possible, which is why it started on 1 January 2013 rather than waiting for the start of the new tax year. When we considered the impact, we first took into account the fact that many businesses use the calendar year for their accounting period, which makes the proposal quite straightforward for them. Obviously, those companies that do not use the calendar year will have to use a time-apportioned system, which is more difficult to calculate, but the benefits outweigh the extra burden, so it is a valid trade-off. It was the right course of action for the Government to take to ensure that the measure took effect as soon as possible.

My hon. Friend the Member for Wycombe and the hon. Member for Islwyn raised several similar points, focusing on the general complexity of the tax code as well as this particular measure. My hon. Friend the Member for Wycombe asked whether it was possible to simplify the scheme, and we looked at all the options and made it as simple as possible. It is in the Government’s interest to make tax incentives as simple as possible, so that as many companies as possible can take them up and increase investment. The hon. Member for Islwyn was right to mention the overall complexity of the tax code, which he will know from working with companies during his time in banking, but he will also know that the fastest expansion of our country’s tax code took place during the 13 years of the previous Government. At 11,000 pages, it is one of the longest in the world—longer than India’s—and it tripled in size under the previous Government. Therefore, if he truly is concerned, I urge him to ask his hon. Friends why they did that and why they damaged so many businesses.

In conclusion, we recognise the challenges that businesses face in this current economic environment, and the temporary increase in the annual investment allowance will help them to meet those challenges by supporting investment and growth. I therefore ask the hon. Lady to withdraw the amendment.

Catherine McKinnell (Labour, Newcastle upon Tyne North)

The Opposition feel that proper analysis of the issue is still necessary so that the Government have a better understanding of the long-term approach to supporting business investment. We need better to understand exactly which firms will benefit from the provisions of clause 7. That is what our amendment calls for, so we urge the Committee to support it.

(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules) - Clause 8 - London Anniversary Games

Nigel Mills (Conservative, Amber Valley)

I beg to move amendment 2, in clause 8, page 4, line 1, at end add—

‘(7) The Chancellor of the Exchequer shall bring forward in time for the 2014 Budget proposals in relation to exempting competitors in major sporting events, including the criteria for determining whether a sporting event meets the requirements for exempting competitors.’.

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss the following:

Clause stand part.

Clause 9 stand part.

Nigel Mills (Conservative, Amber Valley)

It is a pleasure to serve under your chairmanship again, Mr Amess. I rise with some trepidation to speak to this probing amendment. I hope we do not end up in the same confusion as last time. Perhaps I should just press it to a vote now and make life easier. This might look like a technical and pretty tedious amendment, but a real principle is at stake here in how we handle our tax system. Given a free choice, I suspect we would all choose to have a tax system where we publish clearly in law what the rules are and we task taxpayers with abiding by them and HMRC with enforcing them. What we do not want is the most skilful or well connected lobbyists being able to obtain tax relief for the various causes that they hold dear at the expense of others who do not get the same tax exemptions.

The danger is that we will start cherry-picking certain sporting events and give tax exemptions to them so we can encourage well paid, wealthy athletes to turn up here and compete, but certain other sporting events, which may not have the same sporting value for the country, will not get that tax exemption. That is the wrong way to go. We should set out rules under which we would be prepared, in very limited situations, to grant exemptions to certain sporting events to attract them to this country because we think the overall benefits would be worth the tax that we would be forgoing. The other option would be to change the rules on how we tax overseas sports stars, music entertainers, actors and so on. If the rules are deterring the brightest, the best and the most talented from coming here to play, perform and compete, perhaps we should change them completely rather than exempting certain sporting events.

I doubt that anyone in this room would object to us exempting competitors in the Olympics. That is not a sporting event in which athletes are paid to take part. There is no prize money. We would not seek to tax them on their earnings to get that event here. It was also a once in a generation, perhaps a once in a lifetime opportunity for the country. We would all clearly accept that there were so many benefits from having the Olympics that it was worth the tax relief that we granted. However, I am not so sure that the London anniversary games will meet those criteria. We have had a diamond league athletics meeting in London for as many years as I can remember. This year we are choosing to exempt the competitors at that diamond league in London from being taxed, on the basis that Usain Bolt will turn up and compete after he refused to come for the last three years.

I am not quite sure how this meeting meets the criteria for granting these exemptions. It is not a one-off, once in a generation event that we may never have again if we do not grant this tax relief. It is an annual meeting of athletes which has taken place in London in successive years. There is also a diamond league athletics meeting in Birmingham next month. We have not chosen to give tax exemptions for that meeting. If we wanted to give a huge tax exemption to try to boost the Olympic legacy and attract the best in the world to compete, would we choose to do that in the same stadium and the same area that had the Olympics last year or would we choose to do it in Birmingham which did not have all those bonuses? As a midlands MP, I suspect that we would have chosen the latter.

I can see the advantages of trying to build on the Olympic legacy by having a huge, high-profile event in the same stadium. I can understand why the Government have done this. We exempted the champions league final, which we debated for many hours a year ago, and we had concerns about why we were giving a nice tax-free evening to a lot of extremely well paid Spanish footballers. Well, we thought it would be Spanish footballers, but those teams were knocked out and it will be German footballers by and large. We could be using the tax revenue gained to support local sports clubs in our constituencies. If I remember rightly, all the members of that Committee managed to sneak in the names of all their local football clubs as bodies to which they would prefer to give taxpayer support, rather than overpaid footballers.

Ian Mearns (Labour, Gateshead)

I know that this is a probing amendment, but Gateshead is hosting the European athletics team championships on 22 and 23 June. Does the hon. Gentleman think that an event of that nature should be exempt from tax?

Nigel Mills (Conservative, Amber Valley)

No. Exemptions should be given sparingly for once in a generation events that we would not otherwise get in this country; we should not exempt regular or frequent events such as that. If we are concerned that we cannot attract the best sporting talent, we should change the basic rule about when we tax sports stars, actors and film stars; we should not give exemptions to individual events as that is not the way that a tax regime should work.

I will not list all the athletics clubs in my constituency, although there are several, or all the other sports that could be covered by these various exemptions— [Interruption.]. I am happy to list them all, but I have three pages in small type. We have clubs such as the Amber Valley athletics club and the Charles Hill satellite club.

The important point of principle for a tax regime is whether we want general rules applied equally, or one-off exemptions that go to the best placed lobbyists. That could be the Usain Bolt tax exemption, or perhaps the Seb Coe tax exemption—he may now be held so highly in the national esteem that we would grant him anything he asked.

Ian Mearns (Labour, Gateshead)

I understand the hon. Gentleman’s point, but events such as the European athletics team championships move around Europe and we are in competition with other event arenas in Europe to hold that championship. If we are to exempt events such as the champions league final to attract them to Britain, should we not give similar indemnities to events such as that?

Nigel Mills (Conservative, Amber Valley)

I can see the hon. Gentleman’s point, but if he looks at the amendment I tabled, he will see that it would get the Government to bring forward, for next year’s Finance Bill, some criteria that set out how we determine which events get tax exemptions. Therefore, rather than people having to lobby and use media pressure or threats that stars would not attend, we would be able to point to the criteria we would use to decide whether sporting events would get a tax exemption. If the event in Gateshead met those criteria, it would get those tax exemptions, but I do not seek to list all the events that could be given exemptions.

We are on a slippery slope: what would happen if Bernie Ecclestone said, “Actually, I have got loads of cities around the world that want to have a Formula 1 grand prix. All my drivers are really miffed that they get a huge clobbering of tax by racing in the UK for that weekend. If you do not give my drivers a tax exemption, I will move the race to somewhere in the middle east where they will get that tax relief”? Would we be under pressure to say, “Okay, we will exempt the Formula 1 grand prix because Formula 1 has a huge base in the UK”—it has—“and loads of jobs are based here”?

If so, what would be next? Rafa Nadal has refused to play tennis at Queen’s Club for the last few years because he does not want to pay the UK tax bill, although he plays at Wimbledon and at the end-of-season championship. What would happen if he said that he would not play at the end-of-season championship and the organisers threatened to move it away again, as it has been around the world at various times? Would we exempt that tournament?

What if a load of golfers said, “Actually, we are not playing in the Open anymore because the tax bill is too high” and that historic championship came under threat? What if they all refused to come and play in the Ryder cup? Where do we draw the line at which we are prepared, for regular sporting events, to exempt a collection of very rich sports stars who refuse to come here because they do not want to pay the tax on the prize money that they would get from these tournaments?

If a large company were to say, “We will come to your country only if you give us a complete tax exemption,” we would all fall over in shock and horror and they would be beaten up by the Public Accounts Committee. However, if the likes of Rafa Nadal and Usain Bolt say that, we end up giving them a tax exemption. I am not sure whether that is the message that we want to send.

I accept that the Commonwealth games deserves to be in the same position as the Olympics, as athletes do not get paid and huge, lucrative earnings do not accrue from those events, but I am not convinced about the London anniversary games. I can see why it has been done and now that it is a done deal we need to stand by it, but in future Finance Bills should not grant tax relief to different one-off events each year. If certain events need tax exemptions for all those who take part, let us set out those criteria in law and enforce them fairly so that similar events get the same treatment and we do not have this spectre of exemptions for those with the best lobbyists.

In the last few weeks, we have seen all the media attention about musicians and actors wanting the same treatment to try to boost the cultural olympiad legacy; to try to get films made here and the best performers to appear here. We are in danger of completely undermining the basic rules for the most high-paid worldwide talent. I do not think that any of us want to see that.

Although I suspect the Minister will not accept the wording of my amendment, I urge him to reassert the policy that overseas sports stars, entertainers, musicians and so on get taxed on their winnings or earnings in the UK and on the proportion of their sponsorship that relates to them competing or performing in the UK. That is the basic rule.

If sports stars really do not want to come and compete in a high-profile sporting event taking place in the Olympic stadium a year after the Olympics, which will get them a huge worldwide profile and millions upon millions of television viewers, let us just say, “Don’t bother. Go and compete somewhere for the highest buck.” We should not pander to them by giving them those tax reliefs.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

It is a pleasure to be back this afternoon, Mr Amess. I am going to address some of the issues raised by the amendment and also clauses 8 and 9.

We can all remember the excitement, joy and pride felt in communities across the UK when the Olympic games came here last year. I recall that many miles away in my constituency of Kilmarnock and Loudoun, thousands of people lined the streets. A new athletics facility had opened in Kilmarnock just prior to that and there was the excitement of the Olympic torch wending its way through. At one point it was carried by David Coulter, who is a 7th dan karate champion and was twice world champion. People’s excitement at seeing a local sporting hero carry the Olympic torch through Kilmarnock was something to behold.

I hope that we are going to see that atmosphere rekindled at other sporting events, not least when the London 2012 anniversary games come to the Olympic park and when the Commonwealth games come to Glasgow in 2014. Such events are necessary to ensure that we build on the legacy of the Olympics, not just on the success of the games themselves but the goodwill and enthusiasm felt by adults and children across the country. I am sure we all have very positive examples at local level of that legacy.

I want to mention a couple of points about the importance of the Commonwealth games to Glasgow, of course, but also more widely in Scotland. Labour in the city council in Glasgow was very involved from the beginning in making and supporting the bid for the city to host the Commonwealth games. I know that many Scots and people in Glasgow thoroughly enjoyed the spectacle of the London 2012 games, watching it on television in their homes and at community events throughout the city, looking forward to the time that Glasgow would have the opportunity to have its own great sporting events. We want to build on that legacy.

The Minister told me that he is coming to Scotland soon and I hope other hon. Members will take the opportunity to visit Glasgow for the Commonwealth games, not least to sample the famous Glasgow hospitality on offer. [Laughter.] I leave it to hon. Members’ own thoughts as to which parts of the hospitality they would most like to sample.

Pamela Nash (Labour, Airdrie and Shotts)

That hospitality is not just in Glasgow but throughout the west of Scotland and Lanarkshire. I am sure my hon. Friend will agree that the legacy of the Commonwealth games will benefit everyone in Lanarkshire, including young people going into sports and local businesses. Does my hon. Friend welcome, as I do, the Daily Record headline on Monday that declared that Glasgow’s Commonwealth games will be as big as the Olympic games in London last year?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank my hon. Friend for those comments. I know the part of the world that she represents very well, as it is relatively close to my own constituency, and I am sure that people there will enjoy the games. The legacy of sporting activity and involvement—of seeing sports stars—is important, to inspire young people but also to give a boost to the many people who work week in, week out to support sport in their local community. She was right that it was a brilliant headline. The Daily Record is, of course, always on top of such issues, putting forward what is happening in Scotland and making the case for us. I hope that there will be as much excitement and enjoyment from the Commonwealth games as there was from the Olympics.

It is now only around 500 days until another important event in Scotland happening in 2014; there is somewhat less time until the Commonwealth games. Everything is well on track and within budget. Around £2 billion has been invested in games-related infrastructure, from the Commonwealth arena and the Sir Chris Hoy velodrome to the new Scottish Hydro arena. Many of us were disappointed that we will not see Sir Chris in action in Scotland in the same way as he was in the Olympics; none the less it is great to have that facility—named after him—made available to us, as one of several world-class sporting facilities owned and used by the people of Glasgow.

The Glasgow games have to produce a legacy of their own and 2014 has to provide tangible benefits. In terms of an economic legacy, that has already begun, with Glasgow city council investing in Glasgow guarantee of employment programmes, with the Commonwealth apprenticeship initiative, the Commonwealth jobs fund, the Commonwealth youth fund and the Commonwealth graduate fund. The Glasgow guarantee has seen almost 3,000 people gain jobs and apprenticeship places over the past few years. That is a real legacy, and that is why it is important that we can attract people to Glasgow for the Commonwealth games.

We have also seen the appointment of very high profile UNICEF ambassadors, Ewan McGregor and David Beckham, linked to the Commonwealth games, to ensure there is that inspirational approach of involving young people, and to ensure the games have a legacy not just in Glasgow and Scotland, but in the wider world. That is important: people in Scotland take their responsibilities elsewhere seriously, and will want to support the fundraising efforts that will go on around the Commonwealth games to reach children across the world who require help and support.

For those reasons—to help boost the games’ legacy, to attract big-name stars and the world’s sporting elite, and to confirm that the UK, with Scotland a part of it, remains on the map as a world-class sporting venue—we support the measures in the Bill. However, I understand the motivation of the hon. Member for Amber Valley in tabling his amendment, although as we previously got into a tricky situation with one of his amendments I assume that it is a probing amendment.

Nigel Mills (Conservative, Amber Valley)

It was last time.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Perhaps it was not at the time; however, today I am working on the assumption that his amendment is a probing one. I understand that the hon. Gentleman feels that we ought to have a wider look at some of the issues. He raised a number of points. Members of this Committee who served on the Finance Bill Committee last year will remember the lively debate we had on exempting from UK taxation the income made by non-resident footballers and team officials in relation to the UEFA champions league final. We heard how current UK tax law was introduced after HMRC won a landmark case in 2004 against American tennis star Andre Agassi, allowing it to claim tax on a proportion of his worldwide endorsement earnings.

The effect of that case was that competitors were suddenly deemed tax residents by the UK for a tax year purely by virtue of coming here for a week, or even just a day, to compete in a single event. Many saw that as unfair to competitors who now faced being taxed twice, by their home country and again by the UK, and as a result, many sporting organisers have since made it a requirement that overseas competitors be exempt from tax in the country in which they compete. The hon. Member for Amber Valley referred to some of the consequences of that case, including Rafael Nadal announcing that he would not play in the 2012 pre-Wimbledon tennis tournament due to UK tax demands, and Usain Bolt refusing to race in grand prix meetings in the UK for the same reason. We need to explore the issues in more detail, but we must also try to find ways to ensure that people come here to compete, because such events will help to confirm the legacy of the Olympic games and continue to inspire children and adults across the UK.

Nigel Mills (Conservative, Amber Valley)

I have sympathy with the hon. Lady’s suggestion that the worst aspect is the taxation of overseas residents on their annual endorsement income. Provisions such as that in clause 8, however, mean that we do not tax athletes on prize money that they earn by winning sporting events in the UK; I am thinking more of the diamond league event than the Commonwealth games. Does she agree that that is not right, and that there is nothing wrong with taxing prize money that athletes win in the UK?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

We have some sympathy with the hon. Gentleman’s aim of trying to achieve consistency of approach. Inconsistency over tax exemption rules for international athletes who compete in the UK has been a problem. Different sporting events have been dealt with in different Bills, under which some athletes have received exemptions for some sporting events and others have not. For example, the Finance Act 2012 dealt with this year’s UEFA champions league final, the Finance Act 2010 dealt with the 2011 UEFA champions league final and the Finance Act 2006 dealt with the London Olympics. The rules that govern exemption have been rather fluid and have changed from event to event, and that has created uncertainty and unfairness for athletes who have come to the UK.

HMRC currently argues that if an athlete is here for an event, it can tax not only the competition fee but a proportion—based on the number and duration of events—of the star’s worldwide earnings. In other words, if an athlete comes to the UK to compete in a major event that is one of 10 that they do during the year, the UK levies tax on a tenth of that individual’s worldwide income for the year even though they may be in the UK for only a few days. Some have argued that such uncertainty and unfairness has denied us the opportunity to have some of the star names at UK sporting events.

There has been concern about the potential loss to the UK of entire competitions. For example, the UK failed in its bid to host the final of the UEFA Europa league in 2010 after deciding not to provide assurances on tax exemptions. We debated that a lot during the proceedings on the previous Finance Bill, and it shows that inconsistencies can cause problems. The 2011 UEFA champions league final yielded an estimated £45 million for the London economy, so the impact on the economy of the UK’s being unable to attract such events is not to be scoffed at.

Has the Minister considered any plans to clarify the situation? Perhaps he will not accept the wording suggested by the hon. Member for Amber Valley, but will he tell the Committee what work the Government have done on clarifying tax exemption rules for non-resident athletes competing in the UK? Is the Minister considering plans to exempt athletes involved in any future sporting events? I have mentioned some of the inconsistencies between different competitions, and another example of such inconsistency is that the provisions in last year’s Finance Act on the UEFA champions league final also applied to officials, but the Bill does not include such an exemption. Will the Minister explain why that is? What assessment has he made of the economic benefits to London, Glasgow and the UK of staging the events that we are discussing today? When the Government were considering making the exemptions, what assessment was made of the impact of not doing so on the economy and individuals?

As I said earlier, more needs to be done to ensure that the legacy is assured. We have had a debate both in the media and in Parliament about what the Government are doing to make that happen. Now that we are moving forward from the legacy of the 2012 games, what more is going to be done to support that at grass-roots level?

Finally, the hon. Member for Amber Valley referred to the requests that are now beginning to be made by others who are coming to the UK for major events. The Minister will be aware of a letter of 7 May, which has had quite a lot of publicity, from dozens of orchestras and classical musicians. The letter was published in the Daily Telegraph. It called for visiting foreign musicians to receive the same tax treatment as visiting foreign footballers and athletes coming to events. What is the Minister’s response to that? Does he intend to look at the issue in a way that would allow us to consider a consistency of approach for future events, rather than simply having to do everything on a case by case basis, or does he feel that there is more of an argument for dealing with it case by case? Is it about the nature of the event itself, or is it based on the likely economic benefits to a particular part of the UK or a particular area? How much of that is linked to the possible legacy that would arise from those events?

Steven Baker (Conservative, Wycombe)

My hon. Friend the Member for Amber Valley made a thoroughly honourable speech. I wish the tax code did embody equality before the law for all, and the idea of equal treatment was at the heart of what he said. I am absolutely astonished, because I did not know anything about this particular area of tax. I am astonished to discover that if someone makes money through some popular means, they get tax cuts, but if they make their money through some means that is not so popular or does not have widespread celebrity status, they are not merely taxed at the same rate as everyone else but often positively discouraged from creating wealth in this country. It is a most astonishing area of tax law.

Ben Gummer (Conservative, Ipswich)

Just as an interesting aside, there is the question of what is deemed popular by some groups of people. Why would the exemption not exist for people playing in symphony orchestras, for instance, who are paid a great deal less than Mr Bolt?

Steven Baker (Conservative, Wycombe)

I agree with my hon. Friend. I would not want to make a moral judgment one way or the other. If somebody’s conduct is lawful and they create value for other people and thereby make a profit, whether it is in sport or orchestras, or indeed entrepreneurship, they should be treated equally by the law. I congratulate my hon. Friend the Member for Amber Valley on his deeply honourable speech and I look forward to his further deeply principled contributions. I find that every time he makes such a speech, I agree with him.

Sajid Javid (Conservative, Bromsgrove)

Clauses 8 and 9 introduce two income tax exemptions for non-resident athletes competing in two major international sporting events to be held in the United Kingdom. Clause 8 will exempt from UK tax any income received by non-resident athletes who compete in the 2013 London anniversary games. Clause 9 will do the same for non-resident competitors in the 2014 Glasgow Commonwealth games. The Government’s objective in providing the exemptions is to ensure that both events make a real contribution to building on the legacy of the London 2012 Olympic and Paralympic games. Encouraging world-class athletes to take part in each event is a key objective.

I will briefly provide the Committee with some background to the clauses. Under normal tax rules, non-resident sportspeople are fully liable to UK income tax on their earnings in connection with any activities they undertake in the UK. That includes their income from appearances at international sporting events, both their direct income, such as appearance fees and prize money, and a proportion of any worldwide endorsement income that they might earn. The UK’s approach is consistent with international practice as set out in the OECD model tax convention.

I turn specifically to clause 8. The London anniversary games will take place in the Olympic stadium in east London from 26 to 28 July 2013, and will provide a great opportunity to promote and sustain the legacy of the London 2012 Olympic and Paralympic games. The anniversary games will begin on the first anniversary of the 2012 Olympic opening ceremony, and a number of Olympic and Paralympic medallists are expected to return to the UK for the first time since 2012 to compete in the event. The tax exemption provided by clause 8 will apply to UK income on all appearance fees, prize money and endorsement income related to the anniversary games. The tax exemption will be restricted to accredited, non-resident competitors. It will not cover those not competing in the games, such as officials, sponsors or coaching staff. The cost of the exception will be negligible.

I now turn to clause 9, which mirrors clause 8 and provides an income tax exemption for non-resident competitors in the Glasgow 2014 Commonwealth games. The hon. Member for Kilmarnock and Loudoun spoke to both clauses, but she understandably focused on Glasgow. I thank her for her support of these clauses. She helped to illustrate how important the games are to Glasgow, Scotland and the UK in a wider sense. I agree with everything she said about Glasgow’s hospitality. I also agree with what the hon. Member for Airdrie and Shotts said about people in Lanarkshire. I not only have friends in Lanarkshire, I have family in Lanarkshire. I cannot say that they voted for the hon. Lady, but they are generous and warm people, like all Scots.

The events will feature competitors from more than 70 nations in 11 days of competition from 23 July to 3 August 2014. They will take place in various venues in Greater Glasgow, including the iconic Hampden Park stadium and the new Sir Chris Hoy velodrome. Again, the exemption will apply to competitors’ income that arises directly from taking part in the games, and to a portion of their worldwide endorsement income that relates to that appearance. It will also be restricted to non-resident competitors, and will not be available for team officials and similar individuals who do not compete themselves. As is the case with clause 8, the cost of providing the exemption will be negligible.

I turn to the amendment tabled by my hon. Friend the Member for Amber Valley, who I understand is a keen sports fan. If I am not mistaken, he is a season ticket holder for Notts County FC. His enthusiasm for sport and for winning causes is reflected in his amendment. I will go into detail about the amendment. Although I will ask him to withdraw it, I understand the reasons for it, which he set out passionately, and I noted the support of my hon. Friend the Member for Wycombe for it.

Amendment 2 would place a new requirement on the Government to bring forward proposals for exempting competitors in major sporting events, which would include the relevant criteria underlying these exemptions. It is not entirely clear to me what the amendment is intended to achieve, and I will explain why. It makes no reference to tax, but I assume from what my hon. Friend the Member for Amber Valley said that that is an oversight, and that it is focused entirely on tax. Nor does it stipulate that the competitors in question should be non-UK resident for tax purposes, but again I assume that is what he meant by his amendment. The criteria for providing tax exemptions for non-resident sportspeople are already very clear, and were restated with the exemption of the Glasgow Commonwealth games announced in January 2012.

My hon. Friend mentioned a number of sporting events. He asked about the granting of a tax exemption to the diamond league meeting in London but not to a similar event in Birmingham. The London anniversary games and the Glasgow Commonwealth games 2014 are both exceptionally placed to build on the Olympics’ legacy. For example, both events will not only be multi-sport, but will include para-athletic events, which is not usually the case for the diamond league. It is in order to keep promoting the legacy of the Olympics that we have provided special treatment here and not for a similar event in Birmingham.

My hon. Friend also asked about Wimbledon. The All England Lawn Tennis and Croquet Club, which hosts Wimbledon, does not compete for the event each year. A tax exemption would therefore neither help nor make any difference to securing the event in south-west London every year. That is why events of such nature are not considered for similar tax exemptions.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Does the Minister agree that it is important to sustain the legacy at grass-roots level and that it is not simply about having a whole series of high-profile events? The legacy must also be about grass-roots sport, particularly involving young people, and about the economic regeneration of local areas that comes as part of the process of hosting such events.

Sajid Javid (Conservative, Bromsgrove)

I agree entirely. I hope that the hon. Lady agrees that the Government have worked hard on a cross-party basis to try to maintain the legacy and maximise the economic benefit from it. That has been made clear by some of the announcements regarding east London.

Unfortunately, however strong and passionate the case made by my hon. Friend the Member for Amber Valley, amendment 2 is unnecessary for the reasons that I have stated. The Government’s policy is that such tax exemptions are provided when they are a requirement of the bidding process to host an international sporting event at the highest level of world sport. That is why, for example, exemptions were provided for the Olympic games in 2012 and the champions league final in 2013 at Wembley stadium.

The Government are committed to building on the legacy of the 2012 games. I need not remind Members of the games’ great success. Central to London’s successful bid to host those games was the pledge to create a genuine and sustainable Olympics and Paralympics legacy. Both the London anniversary games and the Commonwealth games are major sporting events at the highest level of international sport. The Government believe that they are exceptionally well placed to support the UK’s Olympics legacy. That is why it is right to provide tax exemptions to non-resident competitors, which will help attract top international athletes and increase the profile of the games. The Government do not have any plans to change their existing policy of granting an income tax exemption to non-resident competitors at international sporting events, nor do they intend to abandon the commitment to building on and maintaining the legacy of the 2012 games. I therefore ask my hon. Friend to withdraw the amendment.

The hon. Member for Kilmarnock and Loudoun asked why coaches and team officials had not been included in the exemption, as they were in the Olympic games. That is because the exemptions for the 2012 games were a requirement in the bidding process to host them. The requirements included granting tax exemptions to non-resident team officials and coaches. Such tax exemptions were not required for either the London anniversary games or the Glasgow Commonwealth games. The Government have therefore provided exemptions only to non-resident competitors in those two games.

Before I conclude, with your permission, Mr Amess, may I briefly correct something in respect of clause 6, which will mean my not having to send a letter to the Committee? The hon. Member for Nottingham East has left the room, but the hon. Member for Kilmarnock and Loudoun might be aware that when we discussed the clause on the reduction in the corporation tax rate, I referred to the last City bonus pool and linked it to the Labour party’s policy requirement to raise money for a new bonus tax.

I said that it was the Labour party’s policy intention to raise £1.6 billion from a new bankers’ bonus tax, but I now understand that that figure was not correct, in that it is the Labour party’s intention to raise £2.5 billion. I will give the hon. Lady an opportunity to correct me if the £2.5 billion figure is wrong, but statements made by the party after the recent Budget said that it wished to raise £2.5 billion, not £1.6 billion.

I said that our best estimates from independent sources were that the bonus pool in the City for 2012 was £1.8 billion. I have been informed that the figure is £1.6 billion. I unintentionally overstated the amount. It is even lower than I thought, and compares with approximately £11 billion in 2008.

Mr Brooks Newmark (Braintree) (Con) rose—

Sir David Amess (Conservative, Southend West)

Order. I have allowed the Minister great latitude in putting something on the record. Now is not the moment to have a further debate. Minister, will you complete correcting the record?

Sajid Javid (Conservative, Bromsgrove)

I said that, in order to meet its objective, the tax rate that Labour would have to impose would be 90%. I have now to correct that, and say that it would be closer to 150%, in theory. Of course, we know that a tax of 150% would raise nothing.

Brooks Newmark (Conservative, Braintree)

If you will indulge me, Mr Amess, will my hon. Friend give way?

Sajid Javid (Conservative, Bromsgrove)

I will.

Brooks Newmark (Conservative, Braintree)

Is that not another example of when the Labour party’s figures simply do not add up?

Sajid Javid (Conservative, Bromsgrove)

I agree wholeheartedly with my hon. Friend. I could not have put that better myself.

In conclusion, the two clauses will help to make the anniversary games and the Glasgow Commonwealth games attractive events for top-class international athletes. They will positively contribute towards the 2012 Olympic and Paralympic legacies in the United Kingdom. I therefore respectfully ask my hon. Friend the Member for Amber Valley to consider withdrawing his amendment.

Nigel Mills (Conservative, Amber Valley)

I am grateful to the Minister for his comments and especially grateful for his mentioning Notts County in his speech. They are the very embodiment of the Olympic legacy of the Team GB football team, who started with much promise and then faded away into disappointment. That is about where we are. I am sure they will not be asking for a tax exemption.

I accept the argument that the Commonwealth games deserve a tax exemption. There is no dispute about that, but I am not completely convinced by the arguments for the anniversary games. I am sure that if Birmingham had been offered a tax exemption for its diamond league meeting, the world’s best athletes would have turned up there, too. The problem is that we do not advertise the criteria at the start. I can understand why, as a one-off for the diamond league event in London, tax exemption is justified, but I hope that it is a one-off, and that a tax exemption will not be sought each year.

We are in a strange position. We believe that, overall, there are economic benefits from attracting global stars, in which case I am sure that Wimbledon can set out the amount of economic advantage that the UK receives from that tournament. All the hotels in London are booked, if nothing else. I am sure that the Open golf at St Andrews can set out the huge advantage that it brings to that area of Scotland. We will be in an unfortunate position if we do not make the criteria clear. Such a policy should be for one-off, truly top-of-the-world sporting events, otherwise we can go through all the events for which we received gold medals at the Olympics and wonder why they do not all receive a world championship tax exemption.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

The hon. Gentleman referred to sporting events that take place in Scotland. Of course, they are very important for the economy there. Does he agree that the events we have discussed are linked to the opportunity for economic regeneration? They have been absolutely vital in regenerating communities, as they have for the grass-roots legacy. The Minister was able to support that; does the hon. Gentleman think that that would be important in future decisions?

Nigel Mills (Conservative, Amber Valley)

Exactly. Those are the criteria that we should apply. If we just said that there had to be general economic benefit, we would be exempting the premier league or something disastrous, so I absolutely agree that there needs to be a grass-roots benefit of getting young people involved in sport. We must consider the impact on the community around the event. That is why the exemption must be for truly special, one-off events and not an annual series. However, we have kicked the issues around, so I beg to ask leave to withdraw the amendment.

Clause 10 - Expenses of elected representatives

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I do not intend to detain the Committee for too long on this clause. I shall start by referring to my register of interests as a former Member of the Scottish Parliament, because clause 10 introduces a new income tax exemption for certain travel expenses paid or reimbursed to MSPs, Members of the National Assembly for Wales and Members of the Northern Ireland Assembly. Essentially, it will maintain the tax treatment that applies to similar expenses paid or reimbursed to Members of the UK Parliament under a long-standing arrangement.

It is important that the clause correctly formalises some of the long-standing concessionary arrangements regarding the tax treatment of travel expenses paid to Members of the devolved Administrations in Scotland, Wales and Northern Ireland. In doing so, it brings the tax treatment of such Members’ expenses broadly into line with ours in the UK Parliament. It is also important to note that the tax rules recognise the requirement of elected representatives around the various parts of the UK to undertake work-related travel both in their constituencies and to their respective Parliament or Assembly.

I note that, following the creation of the Independent Parliamentary Standards Authority and the introduction of the new MPs’ expenses scheme, legislation was enacted in the Finance Act 2010 to formalise aspects of those concessions as they previously applied to MPs here in Westminster. Somehow, legislation was not introduced for Members of the devolved Administrations at the same time, because at that time the new allowance schemes were not all in place. The schemes are now in place, so it is right that the changes proposed in the clause provide statutory exemptions for certain relevant UK travel expenses.

We all know that elected representatives still have some way to go before they fully regain the public’s trust following some of the difficulties there have been about MPs expenses. Formalising some of the long-standing arrangements and improving transparency, as these measures propose, will go some way towards contributing to that trust.

I may be stating the obvious, but it is important for Members representing their communities to be able to come to Parliament from a wide variety of backgrounds and economic circumstances. The ability to claim travel expenses in order to do the job on behalf of constituents is a fair and necessary tool if becoming an elected representative is to be accessible to people from all walks of life. The measures assist that cause by exempting from income tax journeys that are necessary for the performance of a Member’s duties and also, when a Member shares caring responsibilities with a spouse or partner, journeys made by that spouse or partner between the constituency or particular nation of the UK and the Member’s parliamentary home.

I presume that the Minister is going to give us some further information and confirm my understanding of what the clause does. In doing so, will he give us examples of circumstances in which, at some future stage, he may feel that he needs to amend by order the definition of caring responsibilities as proposed in the Bill? That was the only query that I had at this point.

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Lady for her support for the clause. She speaks with experience as a former MSP. Clause 10 provides for the income tax treatment of certain expenses paid or reimbursed to Members of the devolved Administrations in Scotland, Wales and Northern Ireland under their respective expenses schemes. For the main part, the changes introduced by the provisions continue the long-standing concessionary tax treatment that previously applied to similar expenses. They are necessary to reflect the fact that HM Revenue and Customs can no longer apply concessionary treatment and must instead either withdraw or codify all such arrangements.

As with Members of this House, a Member of the devolved Administrations has to perform duties in both their constituency or region and their Parliament or Assembly. The exemptions introduced in the clause are therefore required in order for those Members to carry out their parliamentary or Assembly functions effectively.

The clause codifies elements of the long-standing concessionary tax treatment that has been applied to certain UK travel expenses because Members are required to carry out their duties in both their constituencies and in their Parliament or Assembly. However, while the concessionary treatment applied to all travel within a Member’s constituency, the clause does not allow tax relief for journeys between a Member’s home and their main constituency office.

That is in line with the treatment both of Members of this House and ordinary employees for whom there is no tax relief available for ordinary commuting. That restriction will apply only to journeys to a Member’s main office. That ensures that Members who represent large constituencies, such as that of my hon. Friend the Member for Penrith and The Border or hon. Members from Scottish constituencies, are not unfairly disadvantaged simply because they need more than one office to serve their constituents effectively.

The clause also introduces a new statutory exemption for reimbursed travel expenses incurred by a spouse or partner who shares caring responsibilities with the Member for travel between the constituency home and the Member’s parliamentary home. That is also in line with the treatment for Members of this House. The hon. Lady asked about caring responsibilities and whether the Government had plans to broaden the definition. I am not aware of any plans, but she makes a good point and I will consider it further.

In conclusion, the changes introduced by the clause place the tax treatment of travel expenses received by Members of the devolved Administrations on a statutory footing and bring them more broadly into line with the treatment of travel expenses for Members of this House.

Clause 11 - Exemption from income tax of contributions to pension schemes

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I beg to move amendment 16, in clause 11, page 6, line 16, at end add—

‘(3) The Chancellor of the Exchequer shall within 12 months of the passing of this Act, provide a report to Parliament on the impact of these provisions including on, but not limited to—

(a) death-in-service schemes;

(b) other death benefits;

(c) non-working spouses without independent pensions provisions.’.

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss the following:

Clause 11 stand part.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I say at the outset that we have tabled this as a probing amendment, because we wish to raise a number of questions about the possible unintended consequences of the Government’s proposals.

The clause relates to employer contributions to registered pension schemes and addresses what was seen as potential tax avoidance, where an employer made a contribution to a pension arrangement for an executive’s or employee’s spouse or dependant. The effect of those arrangements was to allow an employer to provide retirement funding for a family member tax efficiently, as it has been described. The employer contribution was not treated as a benefit in kind for the employee and was exempt from income tax and national insurance.

The provisions in the clause would mean that an employer contribution to a registered pension scheme will now be exempt from income tax only if it is in respect of the employee. Contributions to a spouse’s or dependant’s pension will not be exempt from an income tax charge on the employee. I want to probe some of the concerns that have been raised about consequences, perhaps unintended, of the provisions.

We tabled the amendment to give the Minister the opportunity to clarify and, if necessary, to think further about the issues, and I want to take a few moments to develop some of the themes that concern us.

First is the provisions’ impact on non-working spouses. Pensions have become a concern to us all as the population ages and budgets tighten. People up and down the country are worried about how they will support themselves in retirement. The Government are implementing the flat-rate state pension—it has several issues, but this is not the place to go into them in detail—but many people are finding the changes difficult to understand. Pensions are always a complex matter and people want clarity on what is ahead.

Companies have been providing spouse’s pensions for many years, including both widow’s and widower’s pensions. For example, the civil service pension scheme and MPs’ and Ministers’ pension schemes provide pensions for spouses who may never work for the civil service or sit in Parliament. An individual has an annual allowance for the amount of pension savings that benefit from tax relief in a registered pension scheme or overseas equivalent. That allowance is currently set at £50,000 and will be reduced to £40,000 from 6 April 2014 following the provisions set out in clause 48. In addition, if the annual allowance relating to the previous three tax years has not been used, either partly or fully, my understanding is that it can be carried forward to add to the current year’s annual allowance, provided that the individual has been a member of a registered pension scheme during the earlier tax years.

In theory—I am by no means an expert, so I am looking to Minister to get information to us if he is not able to give it today—the carry-forward rule gave an opportunity to make a contribution of up to £200,000 for the spouse, civil partner or other family member, although I understand that that rarely happens in practice. The tax benefits of the arrangement were that the contribution to the spouse or dependant’s pension did not count toward the employee’s annual allowance and neither was it taxable on the employee, spouse or family member. It was also deductible by the employer for corporation tax purposes. I hope people are bearing with me as I go through the technicalities.

Once the contribution was made, the normal rules applied, so that when the pension was accessed, there would be, on the whole, a 25% tax-free lump sum and the balance of the pension income would be taxed at the marginal rate. However, that worked only if the spouse was not already using his or her annual allowance with pension savings of their own. Hence it automatically cut out any benefit when both husband and wife are working and building up their own pensions. My understanding is that the current legislation does allow people without earnings to pay up to £3,600 into a personal pension scheme each year, but there is no carry-forward provision. When people may live, for example, for 30 years into retirement, a fund of £3,600 would be equivalent to providing a pension of only £120 a year or £2.30 a week for those 30 years. I am sure that Minister would agree that that seems a very low amount.

The Government have stated that the intention behind clause 11 is to protect against attempts to sidestep the annual allowance limit, which we absolutely understand. However, the concern is that the measure would, in reality, additionally target pension provisions not for rich spouses trying to seek tax relief for their partners, but rather those spouses who do not have generous pensions and who therefore understandably welcomed an opportunity to build up their own, perhaps relatively small, pension pot. Our concern is that the measure targets not only the spouses of, for example, City fat cats, but also many middle-income earners and their spouses, for whom the ability to build up that pension and to secure a decent and worry-free retirement remains a real concern. The non-working spouses affected are those women who may not have worked in a paid job through some or all of their adult life, but instead undertook years of unpaid valuable family or caring responsibilities. Precisely because they have not been able to work, they have been unable to build up a pension pot of their own.

I understand the Government’s desire to make savings in these tough times. We hear constantly about the restriction in retirement savings going some way towards helping the Treasury reduce budgets. I do not want to open up a whole debate at this stage on other measures, but these measures sit alongside others in the Bill that once again reduce the annual and lifetime limits on pension savings. All three measures together may be seen by many to be discouraging retirement savings at the exact time when we need to be encouraging people to ensure that they can provide for themselves in the future.

We on the Opposition Benches understand the Government’s desire to make savings and to protect against people trying unreasonably to sidestep set allowance limits, but will the Minister commit to reviewing the measures’ impact on the pensions of non-working spouses? That review would ensure that we are not storing up problems for the future or leaving non-working spouses unfairly less well off in their retirement compared with spouses who have undertaken paid work during their lifetime.

It would be helpful to know whether the Minister has given some thought to our points. For example, has he undertaken an assessment of the measure’s impact on those affected, including an assessment broken down by income group? Has he undertaken an assessment of the cumulative impact of this and other measures in the Bill to reduce the annual and lifetime limits of the pension savings of those affected?

We have asked in our amendment for a review of the clause’s impact on other arrangements, such as death benefits and death in service schemes. It has been unclear to us and others, including the Chartered Institute of Taxation—I understand it has made some comments on this—whether such arrangements are covered by the clause. As we know, the clause provides that there will be no tax charge on an employee for an employer pension contribution, provided the contribution is in respect of the employee. I mentioned that at the outset, but with death benefits and death-in-service schemes the former employee will by definition not receive any pension benefits from the former employer’s contributions. It is therefore unclear whether such arrangements will be included within the scope of the provisions. Will the Minister clarify whether that is an issue of drafting or an issue of the Government’s intent?

If we do not have clarity, the concern is that it will be left to the discretion of officials, such as those at HMRC, as to which arrangements are covered by the provision. I genuinely do not think that the Minister is looking to do that; I am sure he would be looking to have as much clarity as possible. Can he clarify whether he intended such arrangements to be covered by the provision? If so, what assessment has he made of the number of individuals who will be affected and what will the cost be to them? If he did not intend those arrangements to be included, what action will he take to ensure that there is clarity, both for HMRC and for those individuals who may be affected? I hope he will hear the comments that have been made.

If the Minister can put some assurances on the record about his intentions, how he wants to take the proposal forward and whether there is any need to look again at the drafting, we will hopefully not need to press the amendment to a vote. As I said at the outset, it is a probing amendment, designed to raise issues and get clarity for those who are likely to be affected. I hope that the Minister will respond to those points and give us the assurances we need.

Sajid Javid (Conservative, Bromsgrove)

Clause 11 restricts employees’ exemption from income tax and national insurance on pension contributions made by their employer to a registered pension scheme. Before I turn to the amendment tabled by the hon. Member for Kilmarnock and Loudoun it would probably be helpful for me to provide some background to the clause.

Contributions to registered pension schemes are subject to an annual allowance which limits the total amount of tax relief an individual can benefit from. This includes employer contributions. The Finance Act 2012 reduced the annual allowance from £255,000 to £50,000 from April 2011. We will be considering a further reduction to £40,000 under a later clause. As a consequence of the 2011-12 reduction, many employers restricted the overall value of total contributions into the employees’ pension scheme to the amount of the new limit. However, certain arrangements paid excess contributions into a family member’s pension scheme instead of the employee’s own in an attempt to sidestep the reduction in the annual allowance. This is not fair.

In the face of such arrangements the clause ensures that the exemption from income tax and national insurance for employer contributions to a registered pension scheme will be limited to contributions made by an employer in respect of their own employees. The effect of the clause is that an employee will become liable to both tax and national insurance on the value of the pension contributions their employer pays in relation to members of the employee’s family or household. However, I can assure the Committee that it will not affect the exemption for employer contributions paid to the employee’s own arrangements under a registered pension scheme.

Restricting the exemption in this way also removes unintended scope for the employee and a member of his or her family both to benefit from income tax relief on the same employer contributions. This clause will not affect the relief available to the spouse or family member, whether contributions into their scheme are paid by the employee, the employee’s employer or by other persons.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I want to refer specifically to a point raised by the Chartered Institute of Taxation. In its submission it asked:

“if the employee’s pension arrangement includes provision for the employee’s spouse or other family member (eg in the event of the employee’s death) would that mean that part of the employer’s contribution is not ‘in respect of the employee’?”

It would be helpful if the Minister could get some clarification on that at some point.

Sajid Javid (Conservative, Bromsgrove)

I will try to clarify that now. The death benefit rights are building up by the reason of the service of the employee, whether or not the employee lives to receive the pension and the lump sum directly. Employees also benefit from knowing that their dependants will be provided for by their pension scheme after their death. Therefore there is no doubt that legally the employer pension contributions are being paid in respect of the employee. This treatment is consistent with the wider tax framework for the registered pension schemes and HMRC guidance will be published to confirm this point.

Turning to amendment 16, the Government fully support the need to make the best possible assessment of the impacts of changes to the tax regime, but believe that this amendment is unnecessary. As I said earlier, the clause will not affect the income tax treatment of employer contributions paid to an employee’s registered pension scheme. This includes where the contributions are or may be used to provide death in service benefits or a pension for dependants after the employee has died. HMRC guidance will shortly be published on this. This clause also does nothing to prevent anyone from paying contributions into a registered pension scheme on behalf of any individual. As already mentioned, the clause does not affect the tax relief that is available for individuals on whose behalf pension contributions have been made, whether or not they have taxable earnings.

What the clause does do is ensure that that tax treatment of pension contributions made on behalf of an individual will be the same as if the money was given to them out of taxed income and then paid into their pension scheme as a contribution. The clause therefore provides fairer tax treatment, ensuring that affluent individuals cannot obtain unfair tax advantages through arrangements designed to undermine the annual allowance set by the Government.

The hon. Lady understandably raised the potential impact on non-working spouses. The tax framework already provides a widely-used facility for individuals with no taxable income to enjoy tax relief on contributions made by them, or by someone else on their behalf, into a personal pension scheme. Currently, an individual with no taxable earnings may put up to £2,880 into their pension, which would be topped up by the Government to £3,600 and that will continue to apply—[Interruption.] I am not sure what has happened to my officials. Perhaps someone scared them off—I wonder what I said?

If I may conclude before anyone asks me another question, it is not appropriate that the annual allowance limit can be undermined in that way, nor that the multiple relief should be available for the same pension contributions. I therefore ask that the amendment be withdrawn.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I was frantically trying to think of something very difficult to ask the Minister at the point at which he was not able to get the normal inspiration, but, in the hope that we might make some progress, I resisted that temptation. It was helpful to hear the Minister’s response to the specific points that we raised. As I said at the outset, I was hoping to get some assurances from him that he was alive to the issues we were raising, he understood the concerns and he would keep the matter under review so that we would not need to press for a vote. Indeed, he did give clarification on those issues and some assurances; I am sure that he will continue to give assurances on this issue throughout the course of the Bill.

I do not want in any way to undermine efforts to discourage people from side-stepping, or trying to avoid, paying what is due; I simply want to ensure that there are no unintended consequences that could impact on those trying to do the right thing, particularly those on lower and middle incomes and, particularly, women who have not been in the employment market for the period necessary to build up a decent pension pot. In light of the Minister’s comments, I beg to ask leave to withdraw the amendment.

Clause 12 - Childcare exemptions: meaning of disabled child

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

The clause changes the definition of a disabled child in the Income Tax (Earnings and Pensions) Act 2003 to allow tax relief for employer-supported child care to continue where the child is in receipt of a personal independence payment rather than a disability living allowance. At first look, this is a short, technical clause, although it underpins some important issues.

Hon. Members will be aware that there are three types of exemptions from income tax and national insurance contributions available for employer-supported child care: exemptions for workplace nurseries; exemptions for child care vouchers provided to employees up to the relevant exempt amount; and exemptions for other child care made available to the employee up to the relevant exempt amount. I am resisting the temptation to go into any of the wider issues around child care, and the proposals that may or may not be brought forward at a later date, and am sticking strictly to the clause, Mr Amess. There are a number of qualifying conditions for each exemption. One relates to the child for whom the care or care voucher is provided. The age cap for relief is higher for disabled children than for children without disabilities, and is set at the first week of September following the child’s 16th birthday.

Following the Government’s changes to the welfare system in the Welfare Reform Act 2012, the definition of a disabled child for the purposes of the provisions in the clause now also needs to be changed, as I understand it, to include those receiving the new personal independence payment. As those payments are initially going to be phased in for new applicants, references to both DLA and PIP are required in legislation until such time as the DLA is replaced completely.

In the explanatory notes to the clause, the Government state that the purpose of the new PIP benefit is

“to contribute to the extra costs faced by long-term disabled people to leading full and active lives.”

I was pleased to see those words. Although I said that I would resist temptation, I find it difficult to resist saying that it would be useful to see that principle carried forward into other pieces of legislation, given the number of people who have come to me—and no doubt to other hon. Members—about withdrawal of support and other changes taking place that mean that many long-term disabled people with long-term medical conditions do not feel that they are getting the support that they need to lead full and active lives. No doubt, however, that is a debate for another day, and I will not try your patience any further, Mr Amess.

The clause is important in ensuring that families with a child with a disability can get the support that they need under the system. I believe that assessments have to be designed around what disabled people need. We have to ensure that nothing is done within the process of legislation that in any way disadvantages disabled people. I would hope that when we are looking at tests around, and definitions of, disability, any savings would come about from the right test being applied rather than from designing a test to deliver a pre-set idea of how much money ought to be saved. That principle is important for people with disabilities.

According to their impact assessment for personal independence payments, the Government expect 500,000 to lose PIP by 2015-16, compared with what would have happened with DLA. I note from the work done on this issue that HMRC is not able to analyse the numbers precisely, and I want to probe the Minister on that. There is concern that the Government are generally trying to mould the benefits system around cuts rather than around meeting the needs of individual disabled people. I am sure that the Minister would agree that we must be careful about that when we come to provisions that have been made for children.

Given that inspiration will, I am sure, be able to strike him now, will the Minister tell us how many disabled children will be affected by the change from DLA to PIP, including those whom the tax exemptions cover? Has the Minister calculated how many disabled children affected by the provisions might not be eligible for the new personal independence payments? It is important for hon. Members to understand whether the measures will affect a significant number of people or a small one. Will the Minister also confirm whether the timetable for transferring the arrangements for disabled children affected by the provisions takes into account the new personal independence payments?

It would help if the Minister responded to those points on this technical clause. I understand what the Government are trying to do and I do not wish to stand in the way of that. However, we must recognise that such changes in legislation can, as I outlined in the discussion on the previous clause, sometimes lead to unintended consequences. We want to ensure that everything possible has been done to make the case that the families of children with disabilities ought to be given that additional support, as the Government have said, to contribute towards the extra costs faced by long-term disabled people. It is important that families can support and help their children to lead full, active lives. We would not want anything done in legislation that stood in the way of that. I look forward to hearing the Minister.

Sajid Javid (Conservative, Bromsgrove)

Clause 12 will ensure that parents of children in receipt of personal independence payment will continue to receive tax relief for employer-supported child care. This is purely a technical change affecting children who are 16 years old and ensures that the move to PIPs from the disability living allowance will not impact on current tax-free child care support.

The Government are reforming the welfare system and the Department for Work and Pensions has begun a phased introduction of personal independence payments. The parents of children who receive DLA can claim tax relief on employer-supported child care for a year longer than is otherwise allowed. The clause ensures that the parents of children who receive the personal independence payment will be treated in the same way, by amending income tax legislation to include the appropriate references.

Children under 16 will continue to receive DLA, so the changes made by clause 12 are not relevant to them. Rather, these changes mean that those with parental responsibility for children in receipt of either DLA or PIPs will be eligible for the same tax relief for child care. We believe that the numbers affected are small, but this change is being made to ensure consistency of treatment. To add a bit more information on numbers, about which the hon. Lady asked specifically, some 600,000 employees in total currently use employer-supported child care. Most employer-supported child care is used for pre-school-age children and a much smaller proportion is used for children aged 15 or 16. In the tax information and impact note issued by HMRC, we stated that some 50 individuals may be negatively affected, but I stress that that is the best estimate that HMRC has at this point.

The changes reflect previous discussions in the House during the passage of the Welfare Reform Act 2012 and are wholly consequential to the changes already in place. Furthermore, we published the clause for consultation in December and received no comments and no suggestions. I move that the clause stand part of the Bill.

Clause 13 - Income tax exemption for universal credit

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

This short, technical clause would add universal credit, and its equivalent in Northern Ireland, to table B in section 677 of the Income Tax (Earnings and Pensions) Act 2003, which sets out the social security benefits that are wholly exempt from income tax.

Universal credit supersedes six benefits and tax credits, of which two are taxable to some degree. The Government have said that it is not possible to disaggregate the components of an award to universal credit, so the tax exemptions will now apply to an individual’s total benefit entitlement. They state in the policy objective of their impact note to the clause that,

“Making Universal Credit tax exempt is consistent with the Government's wider aim of simplification.”

Many of those who have followed closely some of the changes and difficulties around trying to make the benefit system simpler will wonder whether we have fully reached that particular objective with universal credit. However, that remains to be seen in terms of the implementation. It is good to see that the Government at least want to make something simpler, given the comments that we heard earlier about other aspects of taxation.

We want to see that work always pays. We have had a lot of debate and discussion in the House and various places around how best to achieve that. The Opposition and the Government have different approaches to improving incentives to work and simplifying the benefits system. Of real concern have been the unintended consequences. There has been disappointment in how things have been brought forward. In some instances, we have had nothing short of chaos.

A big concern is the suggestion that 1.8 million main earners could be worse off under the universal credit if they take on extra work, and 300,000 second earners could face the same fate. That scenario does not seem to be encouraging people to take on extra hours and to do the right thing in looking after themselves and their families. We have also become aware of the complexity of the reporting requirements. Rather than reducing red tape, they are set to increase the red tape and to hit small businesses. We have seen a pilot scheme that is descending into chaos. It has been scaled back from its original plans, and it has an IT system that seems to fail to match 25% of payments.

There are still concerns around key elements relating to the universal credit—for example, how passported benefits, including free school meals and prescriptions, are going to be treated under universal credit. If the Minister is able to give us any further information, I am sure people would be pleased to hear it.

Ian Mearns (Labour, Gateshead)

That is a matter of great concern. It is also a matter of great concern to head teachers in schools, because the pupil premium is driven by the right to free school meals. If there is any significant change in such entitlement, that could have a significant impact on school budgets, because it is the free school meal entitlement that drives eligibility for the pupil premium.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend makes an extremely important point. I know that he constantly and consistently stands up for his constituents and expresses concerns about those who are on the lowest incomes, and he has again made a very valid point. Once again we could see the potential unintended consequences of the Government trying to operate in a particular way. If there is not clarity on issues such as the linkage between universal credit and free school meals, we have heard that there is another knock-on effect, and I suspect that there will be others over and above that.

The implementation of universal credit is in chaos—it is already late—and I understand it is about £100 million over budget. [Interruption.] I am sure that an hon. Member—perhaps the Government Whip—will ensure that if I raise a question at this particular point, it will be relayed and I will receive a response in due course.

Chris Leslie (Labour, Nottingham East)

Give way.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I am always happy to give way. This is an important point. The Government have also stated in the policy objective that the clause

“fits with the Government’s stated intention to remove those on the lowest incomes from tax.”

We would agree with that principle. The reality on the ground is that, despite the Government’s warm words on this and on the benefits of other measures to help those on the lowest incomes, the measures they are taking to reform the welfare system far from help those on the lowest incomes.

I will refer again, as I have done on previous occasions, to the independent research of the Institute for Fiscal Studies. Taking into account all the tax and benefit changes introduced since 2010, including the rise in personal allowance that the coalition Government seem so proud of, families are estimated to be an average of £891 worse off in the new financial year. If that is added to the Government’s recent tax cut for millionaires, their claim to be helping those on the lowest incomes seems to ring very hollow. [Interruption.] Government Members may sigh and moan, but the reality is—as my hon. Friend said—that many people on the lowest incomes face a really uncertain time at the moment. We must ensure that whatever we do we try to tackle the problems of the families with children who are finding it hard on a day by day and week by week basis to balance the household budgets.

We should not underestimate the impact that the uncertainty of universal credit will have on the families on the lowest incomes who will not know whether their children will continue to get free school meals. Therefore, provisions such as this have a great impact on those on the lowest incomes. Given the problems that the Government have already run into with the implementation of universal credit, they need to assure those affected by the clause that the resources and processes to deal with it are in place.

Paul Uppal (Conservative, Wolverhampton South West)

I have always been a big fan, through the work I do in BIS, of something called e-commerce, which is about making the system of payments and financial transactions much simpler. It is something that people on universal credit may benefit from. Will the Minister respond on this point? I do not want to blind-side him completely. Some of the work we have done on this issue is to look at some of the changes from the European directives on e-commerce, which have the unintended consequence of making the whole process a lot easier. What is happening with interchange payments—I do not want to get too techie about this; the Minister can always write to me about it if he wants to—is there are unintended consequences for people who receive payment through e-payments and through small businesses. That is slightly detached from the hon. Lady’s point, but it is a concern that is arising in the future.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I am not going to usurp the Minister’s role by trying to answer that and give the hon. Gentleman assurances. However, he makes some interesting points. I know from my local small businesses—indeed, some of my family are involved in the small business sector—that everyone wants to see, as much as possible, a reduction in red tape and a streamlining of systems. However, for many small businesses, the idea of moving everything on to an online system or working on an e-commerce basis can be frightening if they do not have the skills, resources and back-up to do that.

The same goes for many people who rely on the benefit system to support them day to day and week to week. For many people—again, I know this from my constituency work—the idea of having to apply for everything online is off-putting. An elderly gentleman came to me to express his concerns about that. He felt that if he was required to do certain things on the computer system, he would just not bother, as he put it. We have to take those concerns to heart.

Will the Minister tell the Committee, in the context of the delivery of universal credit and the need to ensure that the taxation regime and universal credit fit together properly, what assessment he has made of the impact of the provisions in the clause on resources in HMRC, particularly given the concerns about the cuts in that Department? Jobs are being lost in that Department, and HMRC offices in some areas may close. The Government have said that the measure will be monitored through information collected from tax receipts and data from the Department for Work and Pensions as individuals are moved from currently taxable benefits to universal credit. Will the Minister confirm whether the results of that monitoring will be published? If so, when and how often will that be done? How will we be able to see whether the process is working as intended or whether further unintended consequences are causing difficulties for people?

Sajid Javid (Conservative, Bromsgrove)

Clause 13 makes changes to ensure that no one will pay tax on an award of universal credit, by making it exempt from tax. Universal credit was part of a package of measures in the Welfare Reform Act 2012. It replaces six benefits and tax credits, of which two—jobseeker’s allowance, and income support when paid during a trade dispute—were previously taxable. Universal credit is a single integrated award. It is not possible to isolate elements of an award for different tax treatments, so an award of universal credit must be either taxable or tax exempt. Making universal credit tax exempt is consistent with our wider aim of simplification, and it fits with our stated intention to remove those on the lowest incomes from tax.

Most people will see no change, either because the majority of benefits that will be replaced by universal credit are not taxable, or because an individual has a low income and does not pay tax. The changes made by clause 13 will, therefore, affect only those who receive a taxable benefit and pay tax. The change will apply when they move off a currently taxable benefit on to non-taxable universal credit.

The universal credit pathfinder was introduced in April this year and it will be rolled out gradually. We estimate that approximately 300,000 individuals pay tax on benefits which will be replaced by universal credit, and in many cases the amount of tax is very small. We are currently unable to provide further details of those affected by region or constituency, because that is related to the schedule planned by the Department for Work and Pensions for the roll-out of universal credit. Universal credit has been introduced in Ashton-under-Lyne, and it will soon be extended to Wigan, Warrington and Oldham.

I turn to a few of the issues raised by the hon. Member for Kilmarnock and Loudoun. She stated that universal credit was over budget, but I can tell her that universal credit remains on track and on budget, and the pathfinder is running smoothly, as the Government anticipated. She also talked about the impact on small employers of accommodating universal credit, and she mentioned the new real-time system that employers will use. HMRC’s website provides detailed guidance for all employers, and it offers a helpline that provides advice and help to all employers. The use and take-up of the system has been smooth, and the system will help HMRC beyond the requirements of universal credit.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

On that point, I recently spoke to a small business person in my constituency who said that she was struggling with the real-time information system. Has the Minister been made aware of the number of people who have contacted the helpline since its introduction, and of any particular problems that have arisen? On what issues are people seeking assistance?

Sajid Javid (Conservative, Bromsgrove)

That has been brought to my attention by other MPs and certain small and medium-sized enterprises. During the change to a new system of reporting tax there are bound to be issues, but that does not take away from the fact that, overall, the change is happening on time and according to plan. In some cases, of course, companies may have questions. That is why HMRC rightly has a helpline and has issued guidance, which I am sure is making the process a lot smoother.

The interaction of passported benefits such as free school meals with universal credit has also been mentioned. The Government are aware of that issue, and the Secretary of State for Work and Pensions has said that it is being worked through with stakeholders, as he has committed to do. There will be further information on that in due course.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I appreciate that the Minister is not responsible for what is being worked on and for what will be announced in due course, but I and other hon. Members have asked a number of questions in the House on that. Does he have any indication as to when “in due course” is likely to be? As long as that uncertainty continues, people will be genuinely worried about what is going to happen to their household incomes.

Sajid Javid (Conservative, Bromsgrove)

I assure the hon. Lady that that important issue is being taken seriously, but I cannot enlighten her on the timing. Again, she should be reassured that the DWP is taking the issue very seriously, is looking at it and will get back to the House.

The hon. Lady raised a number of other issues that more generally address welfare reform, rather than the technical issue in clause 13. I do not think it would be appropriate to go into detail on those general welfare reform issues, but I make the general point that, for 13 years, this country’s welfare budget was out of control—it was 60% in real terms—and no thought was given to how it affected people. Welfare dependency was created, and our welfare reforms are designed to bring the budget under control, to make it affordable and sustainable and to ensure that people who find themselves out of work and on out-of-work benefits have the right system of incentives so that work pays.

Lastly, my hon. Friend the Member for Wolverhampton South West mentioned European regulations on e-commerce. He asked about the impact of the current proposals from Brussels in relation both to the clause and, perhaps more generally, to welfare payments and beyond. He has asked me to look into that, and I will do so. He raised an important point that is worthy of further consideration. The Chancellor has already announced that the Government are considering the regulation of payment systems, and there will shortly be a consultation on that, which is perhaps something to which my hon. Friend and his constituents may want to contribute. I will get back to him on his specific point.

In conclusion, the clause makes universal credit tax exempt, so most people will see no change. Additionally, making universal credit exempt from income tax will be a minor, but welcome, simplification for the small number of individuals who currently pay tax on the benefits that will be replaced by universal credit.

Clause 14 - Tax advantaged employee share schemes

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss the following:

Government amendments 17 to 19.

That schedule 2 be the Second schedule to the Bill.

Sajid Javid (Conservative, Bromsgrove)

Clause 14 introduces schedule 2, which gives effect to the recommendations of the Office of Tax Simplification on the four tax-advantaged employee share schemes that currently exist. Such schemes are popular with businesses and employees alike, but they can sometimes be complex to operate. That is why in 2011 the Government asked the Office of Tax Simplification to review the schemes to identify where they place unnecessary administrative burdens on their users and to suggest ways in which they could be simplified. Following detailed work and consultation with businesses and other scheme users, the OTS published its report and recommendations last year. I pay tribute to the OTS for its work in this important area.

The changes set out in schedule 2 will make the tax advantaged employee share scheme simpler and more attractive to both employers and employees. In some cases, they will increase the tax benefits available to participants. Details of the changes are set out in the explanatory notes, but I will single out a few as examples of the improvements we have made.

The provisions on retirement in part 1 of the schedule will establish uniform rules across the schemes and allow companies more flexibility to set rules that match their own retirement policies. The provisions set out on cash takeovers in part 2 will allow employees to benefit from tax advantages on their shares even if their company is taken over and it is not possible to continue with the scheme. The changes in part 4, which will relax the rules on the shares that may be used in the schemes, will particularly benefit smaller companies, many of which feel that the current rules are too inflexible and do not enable them to operate the schemes properly. All the changes have been subject to extensive consultation and have been widely welcomed by businesses, advisers and other interested stakeholders.

Government amendment 17 will remove some minor duplication that we identified in the current drafting of the provision in part 4 of schedule 2, which enables the use of restricted shares in tax advantaged employee share schemes. The amendment will put that right and prevent any possible confusion.

Government amendments 18 and 19 respond to concerns that a provision in the Bill as it is currently drafted is too restrictive. Part 6 will remove the current statutory limit on the cash dividends on shares in share incentive plans that can be reinvested into SIP dividend shares each year. However, companies may, if they wish, apply their own limit to the total cash dividends that may be reinvested. We accept the point put to us that the way in which part 6 allows companies to do so is too inflexible and may cause administrative difficulties. The amendments will address those concerns by allowing companies, for example, to cap a total amount to be reinvested at a fixed sum as an alternative to setting the amount as a percentage of the total dividends.

The measures demonstrate the Government’s support for employee share ownership and for simplifying the tax system where possible. As we heard earlier, a number of hon. Members on both sides of the Committee believe that the economy can benefit from tax simplification.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I appreciate the fact that the Minister gave us advance information on the Government amendments; that was helpful. As the Minister said, the measure will give effect to some of the changes recommended by the Office of Tax Simplification to the rules governing the four tax advantaged employee share schemes—the share incentive plan, the save-as-you-earn share option scheme, the company share option plan, and enterprise management incentives—with the aim of simplifying the rules of the employee share scheme where it has been acknowledged that they currently create undue complexity or unnecessary administrative burden. Generally speaking, we welcome the changes.

We welcome attempts to simplify the tax system and the update of recommendations from the OTS following a wider consultation on recommendations last year. The Minister may recall that the briefing provided by the Institute of Chartered Accountants in England and Wales for the debates on Second Reading and in the Committee of the whole House states that the Bill would only add to the incredible complexity of the tax system. The UK tax code is the longest in the world. The Finance Act 2013 would be one of the longest on record, coming hard on the heels of the Finance Act 2012, which itself was the longest ever. Having sat through all its proceedings, I remember it well. The Minister was in a different role at that time and was, therefore, spared sitting through the longest ever Finance Bill and dealing with all those issues.

As I said, we want to see simplification. The ICAEW again highlighted the issue of being

“caught in a culture of constant change”

with

“tweaking, new initiatives, rate changes and compliance requirements”.

It wanted to see something less burdensome and damaging to the Government’s reputation with SMEs.

I appreciate that the concerns raised do not relate specifically to the clause, but many in the business community will be concerned about the extra burden that the changes might place on them. It is important to have a clear assurance from the Minister that the business community—particularly small businesses—will not have further undue burdens imposed on them.

In the summary of impacts for the clause the Government stated:

“There may be some one-off costs to businesses associated with familiarising themselves with any changes to scheme rules.”

I go back to the point made in relation to previous clauses on real-time information. Something can be potentially sensible and should overall simplify a process. Of course, there are difficulties in setting things up and people have to familiarise themselves with requirements. Small businesses will be concerned about not only the time it takes to do that but whether there are going to be costs. I am interested to hear from the Minister what assessment he has made of the level of those costs for business, and how many businesses he thinks will be affected by them. What guidance will be issued to businesses and employees about the new changes? Will there be any further consultation on the content of any guidance to ensure that it meets the needs of everyone affected?

Small businesses will want to be reassured that HMRC is able to cope with any extra demands placed on it by these measures, to ensure a smooth transition once the measures kick in, and to ensure that small businesses get the help they need to deal with changes.

I note that the Minister did not respond to my previous comments about job reductions at HMRC and the potential loss of HMRC offices in some areas. Perhaps in this context he could say something about the impact those changes will have on resources within HMRC and what processes are going to be put in place to ensure that resources and staffing are sufficient to aid the transition.

The Government also stated in the summary of impacts that they anticipate many of the proposed changes encouraging further take-up of the schemes by employees. I am interested to hear whether the Minister has assessed the impact of the changes on the number of extra employees entering into the schemes and on levels of tax avoidance.

As the Minister knows, the Bill did not initially include all of the recommendations made by the Office of Tax Simplification and accepted by HMRC. Is the Minister confident that all of those issues have been addressed by the Bill and the amendments? Was anything put forward or suggested at that stage that the Minister has not yet acted on? Is there anything tucked away somewhere for potential future legislation?

I have a couple of technical questions in relation to the Income Tax (Earnings and Pensions) Act 2003. The first concerns SAYE and leavers. In what circumstances do the Government consider a non-tax relieved early exercise of SAYE options could likely occur under paragraph 34(5) of schedule 3 that does not fall within paragraph 34(2)(c) or (d) of schedule 3? Does that mean that paragraphs 34(5) and (5A) are obsolete?

Secondly, is it fair to employees that, further to a cash takeover within three years of the grant of a SAYE or CSOP option, an employee who receives cash for his shares benefits from tax relief while an employee who does not have a cash alternative in the transaction and receives shares—loan notes—in the acquirer does not benefit from tax relief? Finally, particularly given that the Government’s policy objective of employee share schemes is to encourage employee share ownership, would it not be more fair for all early exercises of CSOP and SAYE new options in a takeover scenario to benefit from income tax and national insurance relief subject to suitable anti-avoidance provisions? I should be interested to hear what consideration the Minister has given to such matters. If he is not able to answer the specific questions now, perhaps he would write to us about them.

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Lady for her questions, and what I believe is a general welcome for the changes and the simplification that we are proposing. They are all designed to increase take-up of employee share ownership schemes and help to incentivise individuals working for such companies to play a greater role and have a greater stake in the success of the companies for which they work.

The hon. Lady quoted the ACAW, which said that Britain has the longest tax code in the world. Of course, she is right about that but, as we heard earlier, the primary reason why that is so is due to what the Government whom she supported did for 13 years by tripling the size of our tax code to it being more than 11,000 pages long, longer than Tolstoy’s “War and Peace”. Clearly, it is probably still the most complicated tax code in the world. That brings me to the Office of Tax Simplification, and why we set it up. Its purpose is to recommend to Ministers changes that can simplify our tax code, to make sure that it serves the purpose for which it was set out to serve and that it is not only simple and less complex, but competitive in the global race.

The OTS has made several recommendations to the Government, some of which we have discussed. Further clauses are also based on its recommendations. The hon. Lady asked whether it has made other recommendations that we have not yet made public. It is undertaking diligent work all the time. We are in constant communication with it, and when it makes further recommendations and we have had time to digest and reflect on them, we will, of course, bring that to the attention of the House.

The hon. Lady also asked whether we have heard from companies, and how the policy had been generally received. As I said earlier, several business groups representing large companies across the board have welcomed the changes, as have those representing small and medium-sized enterprises. She also asked a more general question about resources and HMRC in respect of personnel. In order to make sure that the Government are once again living within their means after the experiences under the previous Government, HMRC, like any other Department, is trying to find efficiencies by more use of IT and other methods of efficiency savings.

However, HMRC’s headcount is increasing, which touches on another issue raised by the hon. Lady. One of the key reasons for the increase is that the Government are rightly investing significant amounts in fighting aggressive tax avoidance and tax evasion, which requires more dedicated resources in respect of HMRC. We do not believe that the policies under discussion can be taken advantage of for aggressive tax avoidance schemes, but I am that the hon. Lady will agree that the Government need to remain diligent in respect of such issues, and would welcome the fact that they are investing resources to counter tax avoidance and evasion.

The hon. Lady also asked three questions that I will not repeat because she described them herself as quite detailed and technical. I believe that that was an appropriate description. She invited me to write to her with more details, and I will take her up on that invitation. With that, I commend the clause to the Committee.

Schedule 2 - Tax advantaged employee share schemes

Clause 15 - Abolition of tax relief for patent royalties

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

We are making good progress this afternoon. I hope to maintain that speed, as I can see that people are noticing that many others have gone home while we are still here enjoying our consideration of the Bill. I was wondering about whether, if the officials had gone home, all that inspiration would have been lost to the Minister.

We have had many lively debates regarding tax avoidance, not least during the sitting of the Committee of the whole House. Despite our criticism of other attempts by the Government to crack down on tax avoidance, of which the Minister will be well aware, we support their proposals in this short clause. The Minister will no doubt state that this relief is being abolished to counter known avoidance and to simplify the tax code—that brings us back to some of the issues that we have already debated.

The relief abolished by clause 15 applies only to payments that are not deducted in calculating income tax liability from any other source—for example, a trade. Where patents royalties are deductible in calculating income from any source, they will continue to be relieved in that way. To cut to the chase, I would like to ask the Minister a number of questions. What assessment has he made of the levels of tax avoidance regarding these specific payments of patent royalties? I would like to hear him state, for the record, why he feels the clause is so important.

The Government stated in their summary of impacts that

“the proposed changes will impact only a small number of individuals and households who pay patent royalties other than as part of a trade or profession”.

Will the Minister tell us exactly what assessment has been made of the numbers of businesses and households affected by the changes?

The Government also stated in the summary of impacts that

“businesses will need to understand the effect of the changes to advise the small number of their clients that may be affected”.

Given that the changes will have effect for payments made on or after 5 December 2012, will the Minister tell us what guidance he has given to businesses regarding the measure and what efforts he has made to publicise it to ensure that businesses are already fully aware of it and its impact? Or, will he tell us what additional guidance he intends to introduce or whether he intends to take any action to alert businesses to the measures in the clause?

Sajid Javid (Conservative, Bromsgrove)

Clause 15 makes changes to protect the Exchequer from a loss of tax resulting from avoidance arrangements exploiting the income tax relief of patent royalty payments. It is one of a number of measures in the Bill to ensure that individuals and businesses cannot exploit loopholes in the tax legislation to gain unintended and unfair tax advantages.

In October 2012, HMRC became aware of a new income tax avoidance scheme that was being marketed to wealthy individuals. It made use of this little-known relief for patent royalty payments. The relief in question was unlimited and given as a reduction to individuals’ net taxable income. The avoidance scheme that exploited it was structured so that the amount of tax relief that could be claimed was greater than the net outlay by the claimant. The relief applied only to those patent royalty payments that were not relieved from tax in any other way, for example as business expenses.

Individuals will therefore continue to receive income tax relief for the vast majority of patent royalty payments in the usual way. The changes made by clause 15 will abolish the relief for non-business patent royalty payments made by individuals and other persons who are within the charge to income tax, such as trustees. Some wealthy individuals have in the past had an appetite for similar schemes. Using the data from those other schemes, the potential tax loss from the scheme was estimated at £100 million per annum. The potential tax loss for the period from the date of the autumn statement to the end of the 2012-13 tax year was estimated at £50 million.

The abolition of the relief, with immediate effect, was therefore announced in the most recent autumn statement. The relief was little known and it was not thought to have been used that much, in any case in recent years. In fact, when it was announced—[Interruption.] Was it something I said? I am surprised that hon. Members find dealing with tax avoidance such a joyous matter.

Ian Mearns (Labour, Gateshead)

I would just like to wish the Minister a nice weekend.

Sir David Amess (Conservative, Southend West)

Order. It is not necessary for hon. Members to make an intervention when they are leaving—but do have a nice weekend.

Sajid Javid (Conservative, Bromsgrove)

I have taken the hint, Mr Amess.

To ensure that compliant taxpayers would not be disadvantaged, a written ministerial statement announcing the change invited anyone who thought that they had been adversely affected to contact HMRC. No representations were made to HMRC following that announcement. There was no consultation before the abolition of the relief from the date of announcement at the time of the autumn statement.

Nigel Mills (Conservative, Amber Valley)

Just so we know where we are for next year, would this scheme have been ruled ineffective by the general anti-abuse rule, so that in future years we would not need to have had such provisions?

Sajid Javid (Conservative, Bromsgrove)

My hon. Friend, as always, makes a good and incisive point. The general anti-abuse rule, which will be introduced by the Government—something that was not done in the 13 years of the previous Government —will help to tackle future tax avoidance schemes and help the Government to act more quickly as soon as such schemes come to their notice.

The clause removes an opportunity for avoidance and, at the same time, has simplified tax legislation by removing an obscure relief. I therefore recommend that the clause stand part of the Bill.