Finance Bill

Public Bill Committee, 15 October 2015.

(Except clauses 16, 17, 43 and 45 and schedules 2 and 3)

David Gauke (Conservative, South West Hertfordshire)

On a point of order, Sir Roger. You will recall that in our proceedings on Tuesday, the hon. Member for Wolverhampton South West asked whether clause 28, relating to councillors’ expenses, would apply to bicycles. I wish to amend my answer as, contrary to what I said then, the exemption will apply where qualifying payments are made to a councillor for travel on their own bicycle, provided that the qualifying payments are below the statutory approved mileage rates. For bicycles the approved rate is currently 20p per mile. I said on Tuesday that I could see the issue would become a big campaign for the hon. Gentleman, so I congratulate him on meeting the objectives of that campaign before he even began it. I fear this may be an auspicious beginning to his Front-Bench career. I apologise to the Committee, and hope that the correction is helpful.

Clause 37 - Changes in trading stock not made in course of trade

Roger Gale (Conservative, North Thanet)

With this it will be convenient to consider:

Clause 38 stand part.

Clause 39 stand part.

David Gauke (Conservative, South West Hertfordshire)

Clause 37 makes changes to ensure that the correct amount is used when calculating taxable profits when trading stock is transferred between related or connected parties. Clauses 38 and 39 are concerned with the same issue. Clause 38 makes similar changes to those in clause 37 but for cases where a trade ceases; clause 39 does likewise for cases where intangible fixed assets are transferred to a related party.

A number of situations can arise when trading stock is sold or transferred outside the course of trade. The stock can be transferred to a separate business run by the same person, or sold to a business run by a family member. The intention of the tax system is that the stock should always be brought into account at its market value when calculating the taxable profits from the trade—a well established principle that originated in a court judgment many years ago and was subsequently brought into legislation.

Some situations have been identified, however, in which the full market value of stock may not be brought into account. This can occur when transfer pricing rules take precedent over market value rules. Transfer pricing rules aim to identify and bring into account an arm’s length price for the stock. In many situations that will be the same as the market value, but that is not always the case. Where the transfer pricing rules apply, the market value rules are turned off; as a result, there is a risk that the transfer pricing rules will give an amount below market value when calculating profits for taxation, which was not the intention of the legislation. Similar issues have been identified where stock is valued when a trade ceases, and also where intangible fixed assets are transferred between related or connected parties.

Clause 37 is fairly simple. It removes the rule that states that if the transfer pricing rules apply the market value rules cannot also apply, so that where the transfer pricing rules apply in a way that does not give the full market value, the market value rules can be applied, adding the extra amount needed to bring the total up to market value. The true market value will therefore be brought into account when calculating taxable profits. Similar changes are made by clause 38 for cases where a trade ceases, and by clause 39 for cases where intangible fixed assets are transferred to a related or connected party.

Clause 37 removes an unintended consequence whereby two pieces of tax legislation do not, on occasion, work together properly. The changes will ensure that the correct amount is brought into account for tax, as intended by the legislation.

Rob Marris (Labour, Wolverhampton South West)

As I understand it, all three clauses are anti-avoidance measures designed to clear up conflicting legislation on market price and transfer pricing. Transfer pricing has occasionally been used by companies immorally—not illegally, but immorally—to pay less tax, effectively, by not using the market price. As the three clauses are anti-avoidance measures, I invite my hon. Friends to support them.

Clause 40 - Carried interest

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss the following:

Clause 41 stand part.

New clause 2—Tax treatment of private equity fund managers’ pay—

‘(1) The Chancellor of the Exchequer shall, within six months of the passing of this Act, publish and lay before the House of Commons a report setting out proposals for amending the law to ensure that no element of the remuneration paid to an investment fund manager may be treated as a capital gain, and that such remuneration shall be treated for tax purposes wholly as income.

(2) For the purposes of this section, an “investment fund manager” is a person who performs investment management services directly or indirectly.’

David Gauke (Conservative, South West Hertfordshire)

Sir Roger, I will speak on clauses 40 and 41 and may remark on new clause 2 in anticipation of remarks we are likely to hear from the hon. Member for Kirkcaldy and Cowdenbeath.

Clause 40 makes changes to ensure that investment managers will pay at least 28% tax on the economic value of the carried interest they receive. Clause 41 makes a change to a definition of disguised management fees rules and supports the legislation in clause 40.

Investment fund managers are rewarded in a range of ways for their work in managing funds. One element of reward is straightforward income in the form of a fee. Hon. Members will recall that we took action in the spring 2015 Finance Act to ensure that fund managers could not disguise management fees as something else in order to pay less tax.

Another key element of the reward involves what is known as carried interest. Carried interest is the portion of the fund’s value that is allocated to the manager in return for their long-term services to the fund. The manager’s reward is therefore dependent on the performance of the fund. Aspects of the UK tax code meant it was possible for asset managers to reduce the effective tax rate payable by them on their carried interest awards; in particular, it was possible for fund managers to pay tax on amounts much lower than their actual economic gains.

The changes made by clause 40 mean that the full amount of carried interest will be charged to tax. Where the carried interest represents capital receipts, it will be taxed at 28% for higher rate and additional rate taxpayers. There will be no extra deduction on account of what is known as base cost shift, which would reduce the amount taxed in the hands of the manager. That will move the basis of the tax charge so that it is the economic gain that is subject to tax. Previously, the carried interest gain was calculated in accordance with the rules on capital gains tax for members of partnerships, but those rules could be interpreted and manipulated in such a way as to reduce significantly the amount of tax payable.

As part of their contract with a fund, an investment manager may be required to invest their own money on similar terms to those that apply to an external investor. To ensure that returns on those co-investments will not be impacted by the change, clause 41 redefines whether an amount is reasonably comparable to the return to external investors. The clause ensures that true arm’s length investments made by the fund manager will not be caught by the new rules.

The clause removes a quirk in the UK tax system that was being exploited in such a way that investment managers were not being taxed on their full economic gain. The changes ensure that capital gains tax will be payable at 28% on the capital element of carried interest received. I therefore hope that clauses 40 and 41 stand part of the Bill.

I would like to make one or two remarks about new clause 2 now, although I will of course respond to what the hon. Member for Kirkcaldy and Cowdenbeath says. New clause 2 proposes two measures: subsection (1) recommends a review after six months of what performance returns should be charged to income, and subsection (2) would define an investment fund manager for the purpose of the new clause.

I am sorry to disappoint Opposition Members, but we will not accept the new clause. It is not necessary to legislate for a review in six months, because the Government have already consulted in this area to ensure that awards will be charged to income tax when it is correct that they are, according to the activity of the fund. The consultation closed on 30 September and we will publish our response, along with any resulting draft legislation, in due course. I dare say that I will have more to say on new clause 2 later this morning, but I look forward to the debate on this group.

Roger Gale (Conservative, North Thanet)

Before I call Mr Mullin, let me explain for the edification of not only new Members but some who are longer in the tooth that the lead amendment—the one that is first on the selection list—is always called first and moved after its introduction. No other amendment is moved at that time. It is not a question of saying, “I would like to move this.”

New clauses are always taken at the end of a Bill, so while they are debated in the context of the subject matter of the Bill, they are moved—if moved at all—at the end of the Bill. So there will be no occasion yet, as Mr Mullin will wish to know, to move the new clause. However, he is absolutely entitled to speak to it, as I am about to invite him to do.

Roger Mullin (Scottish National Party, Kirkcaldy and Cowdenbeath)

Thank you very much, Sir Roger, for that clarification, which I am sure we all enjoyed. I wish I had fully understood it. [ Laughter. ]

“I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax. And I don’t think that’s right.”

Those were the words of the Chancellor of the Exchequer in April 2012. He was right then, but he needs to do more about it now. We still find such loopholes continuing for the highest remunerated investment fund managers in the country. It may be a mere coincidence that some of them are significant donors to the Conservative party.

I recognise that the Government have moved a little way, but as is attested by page after page of technical explanation notes relating to these matters, we wait to see whether these modest proposals close or create further loopholes. I note the telling sentence in the explanatory notes, which says:

“HMRC will monitor the impact of these provisions”.

That is good. To ensure that we as legislators are fully informed, I am sure that our new clause, which calls for appropriate reporting, will be considered, notwithstanding the Minister’s recent comments.

The few thousand people who work in private equity firms are remarkably well remunerated. In the words of Stephen Feinberg, the head of PE firm Cerberus Capital in 2011:

“In general, I think that all of us are way overpaid in this business. It is almost embarrassing.”

The average European firm’s managing directors can expect to receive about £8 million in total personal compensation and the largest firms pay out even more. Even more junior directors and principals can expect to receive just over £1 million. Those figures will be relatively conservative for London, which has some of the highest paid private equity executives in London.

In some cases, executives have been able to bring tax rates on their carry-down even further by claiming entrepreneurs’ relief. As has been indicated already, private equity fund managers currently shrink their tax bills by arranging to pay 28% capital gains tax, rather than 45% income tax on their carried interest. Carried interest is in effect their remuneration for managing other people’s money and should therefore be taxed as income tax. The fund managers’ ability to pay capital gains tax instead of income tax also allows them to avoid paying national insurance contributions on a major part of their income.

Support for our measure comes from many quarters. Of particular interest to me is the fact that in May 2014 the OECD—not renowned for radical tax positions—released a raft of recommendations to tackle rising income inequality. Those include:

“Taxing as ordinary income all remuneration, including fringe benefits, carried interest arrangements, and stock options”.

The injustice in all this can be seen through a simple comparison. A senior matron in a local hospital or a middle manager in a local further education college on £47,000 a year will have an effective tax rate of about 32.2%, yet a senior private equity executive receiving about £8 million will pay, at most, 29.4%.

Chris Matheson (Labour, City of Chester)

Does the hon. Gentleman agree that this is an excellent early opportunity for the Conservative party to put words into action by showing that it is, as it claims, the party of ordinary working people, as opposed to, for example, the political wing of the City of London?

Roger Mullin (Scottish National Party, Kirkcaldy and Cowdenbeath)

I fully agree; indeed, I look forward to the Minister’s response in that regard. This may have been a missed opportunity that the Government now recognise and will want to correct.

Let me make another comparison. In my own constituency, my wonderful constituency manager, Lynda Holton, pays about the same effective tax rate as many fund managers who earn 100 to 200 times more than her. [Hon. Members: “Pay her more!”] When I was on the phone to her this morning, she did want me to say “my underpaid constituency manager”. And she is underpaid, but of course I am a devotee to the rules of the Independent Parliamentary Standards Authority in this regard. Surely it cannot be right that people on much more modest incomes have effective tax rates that are higher than those for some of the highest paid people in our society. I am prejudiced in favour of the simplification of tax as well as justice in tax. For both those reasons, I hope that the Government will respond positively to our new clause.

Rob Marris (Labour, Wolverhampton South West)

Sir Roger, I did understand your explanation. As you know, I am new and old—a retread—and I found it very helpful; thank you.

Clauses 40 and 41 are essentially anti-avoidance measures, so hon. Members on the Opposition Benches welcome them. I welcome the fact that there will be no base cost shifting—something that is discussed in the pubs and clubs of Wolverhampton every night of the week; we are very keen on that. However—there is on occasion a “however”—we do not think that clauses 40 and 41 go far enough, because the carried interest is still treated as capital gains. It seems to us that treating carried interest as capital gains is a bad idea and the Government should not permit it. It certainly appears to be a tax loophole—again, not illegal, but immoral—and we think that it should be closed. I have considerable sympathy with the spirit and wording of new clause 2, which was spoken to very eloquently by the hon. Member for Kirkcaldy and Cowdenbeath.

Chris Philp (Conservative, Croydon South)

Will the hon. Gentleman join me in welcoming the fact that the current Government have increased the tax rate on these kinds of capital gains from the 18% that it was at under the last Labour Government to 28% today? Would he also like to explain why, during its 13 years in office, the Labour party took no action in this area?

Rob Marris (Labour, Wolverhampton South West)

Looking round the room, I think that one hon. Member, the Minister, will remember that I was not a member of the last Labour Government when I was previously in the House—[ Interruption. ] I was “supportive” says an hon. Member from a sedentary position; we will get on to that—[Hon. Members : “Ah!”]. The Minister is well aware of this. I am aware that Alistair Darling, when Chancellor of the Exchequer, cut the capital gains tax rate to 18%. I said at the time that I thought that that was wrong and I have to say now that I think that it was wrong. Furthermore, I have to say, bearing in mind the time at which it took place, that it is shocking that I do not recall in the debate on that change any debate about how it would affect positively many right hon. and hon. Members who at that time, within the rules, owned second properties in London, on which they would accrue a capital gain, and on that capital gain, they would pay a lower rate of 18%. The hon. Member for Croydon South is absolutely right to say that it was the wrong thing to do. Putting it up to 28% is a step in the right direction, but on these measures and these activities of investment fund managers, they should pay income tax on what most people, including me, would regard as income.

As I have said, I have considerable sympathy with new clause 2. I shall listen with great interest when the Minister speaks at greater length about the new clause—he said he would and it would be helpful. Having heard his side, I and my hon. Friends will make up our own minds. We are not only swayed by the arguments for equity, equality and justice; we also bear in mind, as the hon. Member for Kirkcaldy and Cowdenbeath mentioned in speaking to new clause 2, the OECD’s recommendation that such incomes should be treated as incomes and be subject to income tax, not treated as capital gain and subject to capital gain tax. To those of us who are not taxation experts, it appears that calling it a chargeable gain is a manoeuvre to lessen the tax paid by those who benefit from that form of remuneration.

David Gauke (Conservative, South West Hertfordshire)

I will respond to the remarks, not necessarily at length. The comments from the hon. Members for Kirkcaldy and Cowdenbeath and for Wolverhampton South West were pithy.

I shall deal straight away with the question of carried interest. Carried interest is a reward for a manager that is linked to the long-term performance and growth of the funds they manage. It is therefore capital in nature and should continue to be charged against capital gains tax. That has been the approach followed by Governments of both major parties for many years, and it is consistent with what happens in many other jurisdictions.

My hon. Friend the Member for Croydon South was right to say that capital gains tax was 18% when the Labour Government left office. If I remember correctly, it was possible for private equity managers to benefit from taper relief, so there was often an effective rate of 10% for many years under the Labour Government. There at least seems to be a consensus in the Committee that that was not the right approach. We believe we were right to take steps to change the capital gains tax rate, as we did at the beginning of the previous Parliament, but I would still argue that, as is the case in many jurisdictions, it is perfectly reasonable to treat carried interest as essentially a capital gain issue rather than an income issue. Of course, if any part of a manager’s rewards payments are properly regarded as income rather than capital, they should be charged to income tax. That is what drives the Government’s approach. We have launched a consultation to ensure that rewards that should be charged to income tax are always taxed in that way.

I will just pick up a couple of points made by the hon. Member for Kirkcaldy and Cowdenbeath. He is correct that national insurance is not chargeable on capital gains; it is payable only on earned income. However, it is not the case that entrepreneur’s relief can be accessed by investment managers, as the activity of the underlying fund is investing, not trading. Entrepreneur’s relief therefore does not apply in those circumstances.

If I were so inclined, I could quote extensive comments from the likes of Ed Balls, when he was a Treasury Minister, in support of the capital gains treatment of carried interest, and that was a period when the gap between income tax and capital gains tax was much greater, but I will spare the Committee that this morning. I am not sure that Ed Balls is a particular hero of the hon. Member for Wolverhampton South West, but our approach on carried interest is consistent with that of other countries and previous Governments.

We are determined to ensure that the rate at which private equity managers pay tax is never lower than their cleaners pay. That was the case under previous Governments, but it is not the case any more. Nor is it acceptable that what should be charged as income is in fact charged as capital gains. The Government have taken action on those points. I hope that provides reassurance to the Committee and I urge the hon. Member for Kirkcaldy and Cowdenbeath not to press new clause 2.

Chris Philp (Conservative, Croydon South)

May I add a further consideration? Given that, as the Minister said, most other countries treat carried interest as capital gain, if we adopted new clause 2 and started taxing it as income, there would be a significant risk that the population of fund managers in London would simply relocate elsewhere and the UK Exchequer would end up receiving less cash instead of more, thus increasing the tax burden on the rest of us.

David Gauke (Conservative, South West Hertfordshire)

My hon. Friend makes a good and important point. In thinking through the impact of the policy advocated by some Opposition Members, we need to understand the international implications and the implications for the UK’s competitiveness. Clearly, any assessment of the revenue effects would have to take account of what are likely to be significant behavioural responses. Claims of large revenue sums may be based on a static analysis, without an understanding that there is also a competitiveness point.

Rob Marris (Labour, Wolverhampton South West)

The Minister mentioned Ed Balls. I think the Minister was on a Committee in the position that I am now in when Ed Balls was trumpeting the fact that London had become the financial centre of the world and had surpassed New York because of light-touch regulation. Some of us on the Labour Back Benches pointed out to him that that was a bad move that might end in tears. Sadly, our warnings were more than fulfilled in 2008, with the Lehman Brothers meltdown and what happened in this country. I caution the Minister not to go along with the argument made by the hon. Member for Croydon South that people will go offshore and so on. We should not have had light-touch regulation and we should be careful about regulation now.

David Gauke (Conservative, South West Hertfordshire)

Again, I think we can find some consensus. I will not dwell on this, Sir Roger, because we will depart from the business before us if we start to discuss the failures of the regulatory system in the run-up to the financial crash in 2008. However, that is why we have undertaken substantial reform of financial regulation in the UK.

We should want a competitive and thriving financial sector in this country, but we must ensure that it does not pose systemic risks for the UK economy as a whole. That is the challenge that the Chancellor has referred to as the British dilemma in having a major financial centre, with many benefits to us. It is important that the City thrives. Some of my ministerial colleagues and I have visited the City—I do not know whether everyone can say that. However, we must ensure that we have a regulatory system that does not impose greater risks on the overall taxpayer. There is a question of judgment here, and ensuring that we have a thriving private equity industry is something we should welcome.

Roger Mullin (Scottish National Party, Kirkcaldy and Cowdenbeath)

To clarify, we do not intend to press the new clause or any of our earlier measures to a vote at this stage, but we will return to them on Report, when we will also take account of the remarks the Minister just made, which I will want to challenge.

David Gauke (Conservative, South West Hertfordshire)

I very much look forward to debating this matter in future. I have said what I wanted to say. The Government are determined to ensure that income is taxed as income, and we have narrowed the gap between the rates of income tax and capital gains tax. I think that we are getting the balance right and we see that in the clauses we are considering today.

Roger Gale (Conservative, North Thanet)

New clause 2 would have been taken at the end of the Bill, but Mr Mullin has indicated that he does not wish to move it, so that is now academic.

Clause 42 - Vehicle excise duty

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss new clause 5—VED rate: impact on carbon dioxide emissions —

‘(1) The Chancellor of the Exchequer must, within two years of the passing of this Act, undertake a review of the impact of introducing a flat rate of Vehicle Excise Duty for all cars regardless of carbon dioxide emissions, except those with zero-emissions.

(2) The review must address (but need not be confined to):

(a) the impact on the UK car manufacturing industry, and ancillary industries, of introducing such a flat rate;

(b) the impact (including the environmental impact) of such a flat rate on sales of low-emissions vehicles; and

(c) the impact of such a flat rate on Exchequer revenue.

(3) For the purposes of this section, a “low-emissions vehicle” is a light passenger vehicle the carbon dioxide emissions of which exceed 0 g/km but do not exceed 100 g/km.

(4) The Chancellor of the Exchequer must promptly lay a report of the review before both Houses of Parliament.’

David Gauke (Conservative, South West Hertfordshire)

The clause reforms vehicle excise duty to support uptake of the cleanest cars. It also addresses the current system’s unfairness and sustainability challenges. The reformed VED will apply to cars first registered from 1 April 2017 onwards. The reformed tax will raise the same revenue as today, but the changes will ensure that revenues are sustainable in the long term. It supports creation of a new roads fund, so that from 2010 all revenue raised from VED in England will go into the fund, which will be invested directly back into the English strategic road network.

I will set out why the Government believe the current system needs changing. VED for post-2001 cars is currently banded according to carbon dioxide emissions for both first-year rates and annual standard rates. The current CO2 bands are out of date. They were introduced in 2008, when average new car emissions were 158 grams of CO2 per kilometre. Today they are 125 grams of CO2 per kilometre, so owners of many ordinary new family cars such as the Ford Fiesta now pay nothing or next to no VED, and by 2017 owners of nearly three quarters of new cars will pay only £30 a year or less. That has weakened the incentives for people to purchase the cleanest cars.

Clearly that level of revenue is unsustainable. It also creates unfairness. The average VED across all UK motorists is £166, whereas the average VED on a brand-new car is only £85, which will fall to £62 by 2017. Therefore, families who can only afford older cars are increasingly shouldering more of the tax burden than those who can afford to buy a new model every few years. Evidence from studying car purchase decisions across Europe suggests that the first-year rates of VED are the most effective in influencing people’s choices to buy efficient cars. VED annual standard rates are less effective, as people place little weight on future costs, so basing VED annual standard rates on CO2, as the current system does, has little impact on environmental outcomes, causes significant unfairness and makes revenues unsustainable.

Changes made by the clause maintain first-year VED rates based on CO2, but five new VED bands in the nought to 100 grams of CO2 per kilometre range will be created. The new bands will distinguish between zero-emission cars, plug-in and hybrid vehicles and efficient, conventionally fuelled cars. The very cleanest zero-emission cars that produce no air pollutants will pay nothing; rates on the most polluting cars will be increased. The changes strengthen the incentive to purchase the cleanest cars and incentivise continued improvement by manufacturers. For all subsequent years, the new VED system moves to a flat standard rate of £140 for all cars except zero-emission cars, which pay nothing. There will be a standard rate supplement of £310 for cars worth more than £40,000 to apply for the first five years on which the standard rate is paid.

These changes improve fairness for all motorists, strengthen environmental signals and sustain revenues in the long term. No one will pay more in tax than they do today for the car they already own. For cars in the new system, around 95% of motorists will pay less than the average £166 they pay today. The change will put revenues on a sustainable path, but the total car VED burden will not increase. The change updates and strengthens incentives to purchase the cleanest cars and particularly incentivises the uptake of fully zero-emission cars. Their uptake will drive the greatest reduction in carbon emissions reductions as well as air pollutants.

I would like to say a few words about new clause 5 before the hon. Member for Wolverhampton South West has a chance to speak on it. New clause 5 would require the Chancellor of the Exchequer, within two years of enactment, to undertake a review of the impact of introducing a flat rate of VED on the automotive sector, on emissions and on revenue. The new clause calls for such a review within two years of Royal Assent, but hon. Members should note that that would be only approximately eight months after the reforms actually came into effect.

The new clause is not necessary. The Chancellor already announced in the summer Budget that we will do precisely that kind of review as necessary, to assess how the arrangement works in practice and to ensure that the reforms continue to incentivise the cleanest cars. Adopting a flat annual rate of VED while strengthening support for the cleanest cars ensures the change is a fair, simple and sustainable solution able to provide long-term certainty for the UK car market.

Clause 42 strengthens incentives to purchase low-emission cars over efficient conventionally fuelled cars. It sustains VED revenues, allowing for the creation of the roads fund, and it will improve fairness for UK motorists. I stress that the proposed new clause is entirely unnecessary.

In conclusion, clause 42 reforms VED for cars first registered from 1 April 2017. It ensures the tax keeps pace with technological change, is fairer, simpler and sustainable in the long term, and it allows for the creation of a new roads fund, which will ensure our national road network gets the multibillion pound programme of investment it needs. I therefore urge that the clause stands part of the Bill, and hope to persuade the hon. Member for Wolverhampton South West not to press new clause 5.

Rob Marris (Labour, Wolverhampton South West)

With your permission, Sir Roger, I will start by addressing clause 44 in the group, lest I forget it. Have I understood that correctly?

Roger Gale (Conservative, North Thanet)

No, this is clause 42. I had my rented teeth in when I read it out. I fully understand the hon. Gentleman’s confusion. Clause 42 and new clause 5 are to be debated now. The next batch includes clauses 43 and 44.

Rob Marris (Labour, Wolverhampton South West)

Thank you for that clarification; I did not want that clause to be overlooked. I was doing quite well on the bicycles, and I thank the Minister for his clarification at the start of this session. I hope we can now make similar progress. I will be really motoring on clause 42. I think VED goes back to 1889. I want to thank my researcher Imogen Watson, who has done a sterling job in assisting me with the Bill, particularly clause 42.

I find the Minister’s explanation somewhat unconvincing. The first part of his explanation about equality and the fact that, if left unchanged, by 2017 75% of vehicles would be paying £30 or less VED a year, and that the average for vehicles is £166, but the average for new cars is £85. He seemed to jump from that to a suggestion that, because the banding based on CO2 introduced by the previous Labour Government was successful, we should now abandon it.

I fully understand the revenue arguments for that. That scheme was predicated on giving a tax break to car purchasers, whether individuals or companies, for buying a car that is less polluting—no vehicle is environmentally friendly. The scheme has been successful, as the Minister’s figures attest, but the Government now propose to abandon it.

I can see an argument for looking again at the vehicle excise duty scheme to protect Government revenue, and I can see an argument, particularly in the light of the admitted outrageous behaviour of the Volkswagen Group, for reconsidering whether CO2 should be the sole gas used in the metric for setting the vehicle excise duty that takes into account the pollution produced by a light passenger vehicle when in use. We could, for example, look at nitrogen oxides, commonly called NOx, as another component of pollution in a tax regime to dissuade purchasers of light passenger vehicles from buying vehicles that, through the tailpipe emissions of noxious gases other than CO2, cause hundreds of deaths in this city every year and thousands around the country. Clause 42 does not do that. It sticks to carbon dioxide, which, of course, is a key greenhouse gas, is bad for our climate and is produced in great quantities by light passenger vehicles around the world.

Where I differ significantly from the Minister—I will invite my hon. Friends to vote against clause 42 in a Division on this—is that he said today, unless I misheard, that the rates on the most polluting cars will be increased under the new regime, but that depends on the calculation. I remember what the Minister said about some research indicating that it is the first year of vehicle excise duty that has a particular impact on the purchasing decision. However, it may surprise the Committee to hear that I am an avid reader of The Daily Telegraph on Saturdays.

Jake Berry (Conservative, Rossendale and Darwen)

What about the Morning Star?

Rob Marris (Labour, Wolverhampton South West)

The motoring column in the Morning Star is not quite as good as that in The Daily Telegraph, but then it is a big capitalist publication with lots of assets.

Few, if any, Opposition Members will be aware of this, but all Government Members who are avid readers of The Daily Telegraph on Saturdays will be aware—[Interruption.] It appears that Opposition Members are avid readers of all newspapers; my colleagues are so well informed. In the motoring section is Honest John, who answers queries from members of the public. He is so successful that he has a team of three others to help him. He responds to queries on car purchases, what tyres to use, and certain technical stuff that, frankly, I do not really understand.

Jake Berry (Conservative, Rossendale and Darwen)

U-turns?

Rob Marris (Labour, Wolverhampton South West)

Handbrake turns if not U-turns. I suspect that Honest John has considerably more expertise than anybody in this room, and he is always clear that manufacturers aim to produce a car that will last at least seven years. Certain models last longer, and we all know that Jaguar Land Rover engines will last a lot longer than seven years because they are made in Wolverhampton and because they are a high-quality product. But the fact is that from 2017, assuming clause 42 is agreed to, the vehicle excise duty payable over seven years will not increase for the most polluting cars. It will decrease.

At the moment, 445 cars are in the top, least polluting band so are exempt from vehicle excise duty because they emit less than 100 grams of carbon dioxide per kilometre driven. I drive one; my car is a hybrid. Under the proposed changes, only 13 of those 445 models—I say “models” because although I appreciate that the proposal is not retrospective, I suspect that the car I drive will still be on sale in March 2017—will be exempt from vehicle excise duty. We are talking about the least polluting vehicles. That is a considerable drop.

At the top end of the scale, the position is reversed. It is difficult to compare the bands because, as the Minister said, there are five new bands at the least polluting end of the scale. However, if we look at the old band on a seven-year basis, someone with a car in band B—101 grams to 110 grams—would pay a total of £120 in vehicle excise duty over seven years. Under the new regime, that person would pay £850 for the same model, brand new—an increase of £730. For vehicles in band C, the seven-year figure increases from £180 to £865.

You will be relieved to learn, Sir Roger, that I do not intend to detain the Committee by going through all the bands from A to M. However, I should say that the seven-year figure for band K, currently £2,380, will drop by £340, while band L’s, currently £3,810, will drop by £1,270. The figure for band M, the most polluting on the CO2 measurement, will drop from £4,130 to £2,840 cumulatively over seven years—a drop of £1,290. The changes in respect of cars costing more than £40,000 when new have consequences that, even if intended by the Government, are in the Opposition’s view very unfortunate.

A petrol powered Audi Q5 with a two-litre engine—

Jake Berry (Conservative, Rossendale and Darwen)

Nice!

Rob Marris (Labour, Wolverhampton South West)

It may be nice for the hon. Gentleman, but it will not be so nice for his great-grandchildren when they reap the havoc from climate change. That Audi emits 181 grams of CO2 per kilometre. Under the new scheme, assuming it is still on sale in March 2017, the car will move up from band I to band J, yet those emissions will receive a discount, as it were, of £60; the current seven-year cumulative duty would be £1,700 but under the new scheme it will be £1,640. The change is not huge, but it is a 3.5% change in the wrong direction.

A petrol Infiniti Crossover, of the Nissan luxury brand, which as far as I know is not made in this country, produces an antisocial 265 grams of CO2 per kilometre. It is currently in band M and liable for a seven-year duty of £4,130. Under the new regime, the charge will be £1,290 less, at £2,840—a 31% drop because of the interaction between the new vehicle excise duty regime and the £40,000 cost threshold, above which a different regime applies. That is a 31% drop in vehicle excise duty over a seven-year period for one of the most polluting light passenger vehicles currently on sale in the United Kingdom.

Now let us look at a Jaguar XF, which currently costs just under £50,000. It is now in band F because its CO2 emissions are 144 grams per kilometre, and costs £1,015 over seven years in vehicle excise duty. Under the new regime, if a car costs less than £40,000, it will move up—up being less polluting—to band H and cost £1,040 over seven years, an increase of £25, or £3.57 a year, as my wonderful researcher, Imogen Watson, tells me. But as for the Jaguar XF, fine vehicle as it is, no doubt with an engine made in Wolverhampton, because its price tag is over £40,000—and remember: its CO2 emissions are 144 grams per kilometre, which is still high, but nothing like the Infiniti’s 265 grams per kilometre—it will cost an extra £310 per year for the first five years, meaning that over seven years the duty will go up to a total of £2,730, an increase of £1,715 or 169%.

Now, I have nothing against the Infiniti—as far as I know I have never been in one—and Nissan is a fine manufacturer, but its luxury model emits 265 grams of CO2 per kilometre, and yet there will be a 31% drop in duty for it over the seven-year cumulative period, whereas the Jaguar is much less polluting, at 144 grams per kilometre, but its duty will increase by just under 169%. That cannot be right.

I urge the Government to think again. They should think about the pulmonary diseases from which thousands of people are dying already. Much—not all, but much—of that illness is arising because of vehicles, including light passenger vehicles. The Government also need to think again about the mixture of bad gases, to put it in lay terms, used as the metric for calculating vehicle excise duty. I also urge them to think again about the CO2 based regime they are proposing from 2017 onwards, because it cannot be that the successor to the greenest Government ever, which is a phrase that hon. Members have no doubt been waiting for me to utter, are moving in the wrong direction by jettisoning what has been—I will try to be dispassionate, although it was my Government who introduced it—a vehicle excise duty regime that has been extremely successful in lessening considerably the CO2 emissions from the fleet of light passenger vehicles in the United Kingdom.

I take the Minister’s point that the way in which new clause 5 is worded means that the review would happen eight months after the new clause would come into effect if the Government do not withdraw clause 42, as I hope they will. If he were to say a little more about the Chancellor’s remarks regarding a review of the impact and effect of clause 42, something to which he adverted in his remarks, I might be reassured and so not wish to press new clause 5 to a Division at the appropriate time. I therefore hope for some reassurance from the Minister; although, capable as he is, he can only rely on what the Chancellor of the Exchequer has said in that regard. I urge Members to vote against clause 42 if the Government do not withdraw it, as it will be bad for the economy, bad for the environment and bad for our children.

Chris Matheson (Labour, City of Chester)

I feel I ought to add my congratulations to my hon. Friend on his research. He seems to be doing an impressive job. I was also impressed by the recommendation he gave about Honest John in The Daily Telegraph—I might cancel my Saturday subscription to the Morning Star and take the Telegraph instead.

My hon. Friend makes an important point. It is entirely legitimate to build environmental considerations into the taxation system if we want to change people’s habits in order to protect the environment, and the clause gives the impression that the Government are once again rolling back from their pledge to be the greenest Government ever and falling into bad old ways.

There is a way out. Perhaps the Minister should take a pause on the clause, as my hon. Friend suggested, because so much of it is predicated on emissions standards that have been thrown into turmoil by one company, which was not a British company—I do not believe that a British company would partake in such skulduggery. We cannot be absolutely sure that emissions standards across the industry are as they should be, because manufacturers in certain areas have been telling us, shall we say, statements that lack 100% veracity.

It is not only that motorists have been hoodwinked. The Government have potentially lost revenue as a result of emissions figures being massaged, with lower figures given. What are the Minister’s intentions, either through the Bill or perhaps more appropriately through another mechanism, on claiming back any revenue lost as a result of the Volkswagen scandal? The state has lost revenue as a result, so taxpayers have been hoodwinked as well as individual motorists, and although the Bill might not be the right mechanism for this, there must be a role for the Government in chasing down such manufacturers. Perhaps the Minister should not push through new measures linked to emissions standards until he and his colleagues in the Department for Transport are sure that a fair taxation system can be based on those standards. The Minister may wish to heed my hon. Friend’s good advice.

David Gauke (Conservative, South West Hertfordshire)

Let me try to respond to the points made. On the environmental incentives, consumer research suggests that VED is not an important factor in purchase decisions. Where VED has been shown to play a supportive role is in the highly visible first-year rates. In those we have retained, and indeed strengthened, the environmental signal: for example, first-year rates will double for the most polluting cars.

To drive real emissions reductions in transport, we need to incentivise the uptake of fully zero-emission cars such as pure electric cars. Owners of such cars will pay nothing in the VED system, while highly polluting cars will see a doubling of their rate. As more expensive cars are generally more polluting, it is the case that owners of such cars will continue to pay more than those of smaller, efficient cars through the standard rate supplement.

The point made by the hon. Member for Wolverhampton South West about the number of cars in the lowest band was correct. We are deliberately tightening the incentives at the bottom end. The current structure provides little incentive to buy a car much cleaner than 100 grams of CO2 per kilometre and we believe that such an incentive should be there. It is also worth making the point that nobody’s VED on their existing cars will go up. I made that point earlier, but I want to reiterate it.

The VED reforms target environmental incentives on the first year, which is the moment when they make the most impact on new car purchases. Highest banded cars will probably be withdrawn from the new car market anyway, due to tougher emissions standards placed on manufacturers. In that context, it is worth pointing out that new car pollution emissions standards, known as Euro 6 standards, are mandatory from 1 September 2015. The new standards effectively narrow the gap in emissions between diesel and petrol engine cars. The Government are also working to ensure EU-level changes that improve the test cycle, including using real-world driving as part of the approval process for new cars by 2017-18. That will ensure that all new Euro 6 diesel cars are adequately approved and the public can be confident in the test results.

In response to the question from the hon. Member for City of Chester, clearly the Volkswagen scandal concerns NOx emissions, whereas VED is based on CO2. We do not know whether CO2 emissions will have been affected by that scandal, but we are working hard to establish the facts. As for the Chancellor’s commitment to review the matter, he is committed to review the new system when necessary to ensure it keeps pace with technological change in the market and continues to incentivise the purchase of the cleanest cars.

We have to recognise that this is not a static market. That is why there is a need to return to the measures after the last period of reform. I return to the remarks I made earlier about the failure in the regime to distinguish between the cleanest cars and what, some years ago, would have been seen as low-polluting cars, but now tend to be much more the norm. I also come back to the point about fairness. If we had made no reforms, those who could afford new cars would be paying substantially lower amounts of VED than those who had older cars. I would also make the point that the reforms would bring in additional revenue to the Exchequer, notwithstanding the fact that nobody will face a higher charge on their existing cars.

Failing to pass the measures in the clause will clearly add to the deficit. I do not intend to rerun last night’s arguments, but when the Labour party tells us that it is serious about the deficit, it would be unfortunate if the very next day it voted against a measure that would help to reduce the deficit fairly significantly, by bringing in additional revenue by 2020-21 of £1.4 billion. If the Labour party wishes to vote against that today, so be it, but I would once again question its credentials for ensuring that the country lives within its means. With those remarks, I hope the clause will stand part of the Bill and that new clause 5 will not be pressed to a Division.

Rob Marris (Labour, Wolverhampton South West)

I take the Minister’s point about retrospection, which I referred to in my remarks. He may remember—although others will not—that at one point Alistair Darling, the Labour Chancellor of the Exchequer, did suggest a retrospective VED regime, and I led the Back-Bench rebellion among the Labour ranks and got him to drop it because it was unfair. I tried unsuccessfully in years gone by, under a Labour Government, to get swingeing increases in VED for the most polluting cars. In those days nine of the 10 most polluting light passenger vehicles were not 4x4s, as is commonly thought, but luxury brands such as Maserati. There was only one 4x4 in the top 10.

The Minister understandably referred to the deficit, which remains enormous under this Government, as it did under the previous, coalition Government. My hon. Friend the Member for City of Chester gave the Government a way out, because they do not propose to introduce this measure for another 18 months.

The Government should not be lowering the seven-year total vehicle excise duty on the most polluting cars and raising it considerably on the least polluting cars. I take the Minister’s point about the research to which he is privy regarding the effects of VED being most keenly felt, and therefore the biggest lever revenue-wise for the Government, on the year of purchase rather than in subsequent years. However, the two are not contradictory. It is not an either/or, particularly as the Government have, transparently and helpfully, put forward proposals for a change in regime in 18 months’ time. That is helpful for our debate and that helps prospective car purchasers take into account the change in regime. The clause could be changed on Report if the House so wants.

The Government could introduce a revised regime that protects Government revenue and which would address point about the deficit, to which the Minister reasonably adverted, and the Opposition’s concerns about the seven-year cumulative total dropping markedly—a 31% drop. That could be done by having a high first-year VED that influences purchasing decisions, as the Minister assures us is the case—I have no reason to doubt that; I do not know one way or the other—and dropping the crazy notion of a £140 flat rate thereafter, except for very expensive vehicles that cost more than £40,000, or those on the protected rate of £130.

The Minister and our society, but not purchasers of certain types of vehicles, can have our cake and eat it. We can have the first-year high vehicle excise duty to dissuade purchasers from wrecking the environment even more by buying a very polluting vehicle and we can have a continuing non-flat rate with progressively higher vehicle excise duty each year for more polluting vehicles. We can have both. That would protect revenue and help to lessen the damage to our environment. Again, I urge the Government to rethink, if not the whole scheme, then at least the £140 flat rate and the £130 protected rate for year two onwards. That would square the circle as the Minister seeks on revenue protection and pollution.

Roger Gale (Conservative, North Thanet)

The hon. Member for Wolverhampton South West will let us know what he wants to do about new clause 5 when we reach the appropriate moment.

Clause 44 - Aggregates levy: restoration of exemptions

David Gauke (Conservative, South West Hertfordshire)

Clause 44 makes changes to ensure that the aggregates levy will no longer be due on less environmentally damaging sources of aggregate, including waste from slate, and ball and china clay production. It ensures that exemptions found lawful by the European Commission are reinstated, with retrospective effect from 1 April 2014. Finally, it changes the former shale aggregate exemption to reflect the European Commission’s decision that part of the exemption provided unlawful state aid.

The Government believe it is right that the aggregates levy is used to encourage more efficient quarrying by shifting demand towards less environmentally damaging sources of aggregate. The levy was therefore designed with exemptions for recycled aggregates and by-products of other industrial processes, such as slate or ball and china clay waste. However, following legal action from a UK trade association, the European Commission launched an investigation into several of the aggregates levy exemptions on state aid grounds. During the investigation, the Government were required to suspend the aggregates levy exemptions, which were removed by the Finance Act 2014. The Commission announced on 27 March 2015 that it had found all the exemptions lawful except for part of the shale exemption, namely for shale aggregate that is not produced as a by-product of untaxed materials.

Clause 44 will restore in full the exemptions that were suspended on 1 April 2014, except for the shale exemption. It repeals the removal of the levy exemptions in the 2014 Act, so that they are reinstated with effect from 1 April 2014, the date from which they were originally suspended. Businesses were able to stop paying the aggregates levy on materials covered by the reintroduced exemptions from 1 August 2015. They can also reclaim levies that they have paid on such materials since the exemptions were suspended. To provide clarity to businesses, details of the repayment process have been published by HMRC in a Revenue and Customs brief, ending the uncertainty that businesses such as slate quarries in Wales and ball and china clay quarries in south-west England have faced since the start of the Commission investigation. We estimate that some 120 businesses will be able to claim repayment of the levy for reinstated exemptions.

Clause 44 will also change the former shale exemption, with only the part of the exemption found lawful by the Commission being reinstated. A new exemption process for shale will be introduced so that only shale used for construction purposes, which includes shale aggregate, and shale produced as a by-product of other taxed materials will be taxable under the aggregates levy.

To conclude, clause 44 will reinstate the aggregates levy exemptions found lawful by the European Commission with retrospective effect from 1 April 2014 and change the former shale exemption in line with the Commission’s decision. It will restore the environmental aim of the levy to shift demand towards less environmentally damaging sources of aggregate by exempting such materials once again.

Rob Marris (Labour, Wolverhampton South West)

It may surprise hon. Members to know that aggregates are dear to our heart in Wolverhampton, which was the site of the headquarters of Tarmac, as was, which grew to be one of the biggest aggregates companies in the European Union. I am pleased that the coalition Government were able to persuade the European Commission that the 2002 regime introduced by the then Labour Government was not unlawful state aid and that the decision made in March this year went in favour of our country. It is unsurprising that HMRC now wants to sort out the shouting, it being all over bar the shouting for the 120-odd companies that were caught up while that investigation was ongoing. The clause is an entirely sensible way of going about that, so I invite my hon. Friends not to oppose it.

Clause 46 - International agreements to improve compliance: client notification

David Gauke (Conservative, South West Hertfordshire)

Clause 46 amends section 222 of the Finance Act 2013 to allow regulations to be made requiring financial institutions and tax advisers to provide their clients with information regarding the automatic exchange of information on financial accounts between tax authorities. The purpose of the power is to support the Government’s ongoing strategy for tackling offshore evasion.

The UK has been an international leader in implementing the automatic exchange of information agreements, including through our G8 presidency. In 2012 we were the first country to sign an enhanced automatic tax information exchange agreement with the United States. In 2013 we signed similar agreements with our Crown dependencies and overseas territories and launched an initiative for multilateral exchange on a global scale. We have since played a leading role in the development and early implementation of the new global standard, known as the common reporting standard or CRS.

To date, 95 countries and jurisdictions have committed to begin sending information automatically under the CRS in 2017 or 2018. As a result, HMRC will receive information on a wide range of financial accounts and investments, of both individuals and entities, from financial centres the world over. That represents a step change in HMRC’s ability to crack down on offshore tax evasion. To coincide with that substantial increase in the flow of information on offshore accounts, we will be introducing a significantly tougher approach towards those who continue to evade their taxes. We have been consulting on a range of enhanced penalties and criminal offences.

In advance of the CRS data being received and the ramping up of penalties, there will be a last chance for people to come forward voluntarily to pay their tax, interest and penalties. That is not a soft touch by any means, and prosecution remains an option for the worst offenders. However, providing notice and a final opportunity for voluntary disclosure is appropriate as voluntary disclosure is a practice we want to encourage. In addition to media campaigns and other communications, the powers introduced by the clause will support the disclosure process. We know from previous experience that direct communication with a customer about their accounts, whether from HMRC, their account provider or their adviser, can be an effective means of communication, getting the message across and influencing behaviour.

The power will allow notification requirements to be placed on businesses that are likely to have advised clients about offshore accounts or to have helped to set up offshore accounts, which includes financial intermediaries, tax advisers and law firms in the UK and overseas subsidiaries of such UK businesses. Under the regulations it will be possible to specify the timing, form or manner of notifications. The scope of the power allows us to enact regulations to ensure that notifications are effectively targeted and proportionate. To that end, we will be consulting closely with the financial services industry as the regulations are drawn up.

I am aware that regulations made under this power will impose burdens on financial institutions, although we do not expect such burdens to be large. However, it is right that financial institutions should play their part in rooting out evasion that increases the burden on honest taxpayers. I am pleased to report that stakeholders to whom we have spoken are generally supportive.

Our current expectation is that the regulations will require financial intermediaries and advisers to notify their UK customers or clients who are known to have, or are likely to have, an offshore account. The regulations are expected to require that they provide such customers with the following information: first, that data on offshore accounts are being collected and will be reported to HMRC from 2017 by 95 other tax authorities; secondly, that HMRC will open a final time-limited disclosure facility in 2016 to regularise their affairs, as necessary, before the data are received; and, thirdly, that there will be a range of penalties, including possible prosecution, for those who continue not to pay the tax they owe.

As noted, we are consulting closely with the industry as the regulations are drawn up to ensure that they are workable, proportionate and effective. We also intend to discuss the possible use of this power to support other tax authorities on a reciprocal basis. Regulations under clause 46 would allow us to require those within scope to notify clients with accounts in the UK who reside in another country about the exchange of data. We would propose to put in place such a requirement only if that other country did likewise as regards accounts held by UK residents within its territory.

This clause forms an important part of our wider strategy to tackle tax evasion. It is a targeted tool to inform offshore account holders both the significant amount of data that HMRC will receive on their financial accounts and make them aware of the opportunity to disclose and the significant penalties that can be applied if they do not. I therefore hope that the clause stands part of the Bill.

Roger Gale (Conservative, North Thanet)

Before I call the hon. Member for Wolverhampton South West, I have to remind hon. Members that unless and until the recommendation of the Chairman of Ways and Means is adopted by the House—it has not happened yet—the Chairman has no power to suspend the sitting at 1 o’clock. It is therefore up to the Government Chief Whip to move the Adjournment at the time that he feels appropriate; and if he does not do so, you do not get any lunch.

Rob Marris (Labour, Wolverhampton South West)

Clause 46 is a step forward. I congratulate, with one cheer, the Government on that, but it is a small step. The common reporting standard comes in, I think, from 2017. The Government are talking now about another amnesty. How many amnesties can we have? Hon. Members will remember the CD of information on tax evaders that leaked out of Switzerland and was used constructively by several other countries in Europe to clamp down on those of their citizens who had illegally squirrelled away money in Switzerland. My recollection is that we had some kind of amnesty in the United Kingdom for such citizens and, lo and behold, when the Swiss papers—the Swiss bank records—were finally opened several months later, the money had all gone walkies and the amount that the Chancellor of the Exchequer got in was far less than he had been proudly trumpeting would be recovered by HMRC because of that information.

I fear that the same may happen in this case. The clause is a step forward. As for the regulations, which are being consulted on, I say to the Minister that I have not seen it anywhere—it may be somewhere—that this advice should be given in writing and recorded in writing by the financial adviser. That would be a step forward, but a greater step forward to protecting the Revenue from this offshoring avoidance, if not evasion, would be, as I said to the Committee two days ago, to have much more pressure from Her Majesty’s Government on transparency, on beneficial ownership and on the tax havens around the world, which assist aggressive tax avoidance and sometimes assist, perhaps unknowingly, with tax evasion. Many of those tax havens, whether Crown dependencies or otherwise, have a relationship with the United Kingdom. We have considerable leverage there and, in terms of what is disclosed publically, Her Majesty’s Government—both this Government and the previous, coalition Government—have not used that leverage as decisively as we on the Labour Benches would wish.

This externalising of costs to financial advisers, although understandable and welcome, is an externalising of costs, so the financial adviser has to remind the client of the penalties for undertaking certain types of financial transactions. Meanwhile, the number of staff at Her Majesty’s Revenue and Customs, who are one of the lines of defence against aggressive tax avoidance, is being slashed by one quarter, as I understand it, from 70,000 to 52,000 in the period 2010 to 2016. I would be delighted if the Minister could tell me that I have got that figure very wrong—I may have got it wrong slightly around the edge. If he could tell me that the number of HMRC staff is in fact being increased as part of a Government measure to increase markedly the number of staff who can help to crack down on aggressive tax avoidance and illegal tax evasion, I would be delighted, but I fear that he will not reassure me that there has been a major increase in staff. So, although the clause is a step in the right direction, it is nibbling around the edges. A much stronger and more effective way forward would be to have a larger number of properly trained HMRC staff investigating and applying pressure, and the legislation that already exists.

David Gauke (Conservative, South West Hertfordshire)

I welcome the support for the clause, even if the enthusiasm for it was somewhat limited. I will not dwell at length on the wider issues raised by the hon. Member for Wolverhampton South West, but it is worth pointing out that we have been a world leader in our pursuit of tax evaders. It is a driving force behind the implementation of the common reporting standard, to which all overseas territories and Crown dependencies have signed up. It is also worth pointing out that HMRC has the option to prosecute where it deems that suitable and where it is in the public interest. We are also currently consulting on tougher penalties, including new civil and criminal offences.

The common reporting standard will give HMRC access, for the first time, to data about accounts held by UK residents in over 90 countries, which will make a significant difference to HMRC’s ability to crack down on tax evasion. We are also toughening up the penalties for those engaged in tax evasion. HMRC has been consulting on new criminal offences for corporates and individuals and on new penalties, including applying to the underlying asset for individuals and enablers. The Government will report on the outcome of the consultations shortly. Disclosure facilities are one of a number of approaches—we are also introducing tougher sanctions against those who abuse the rules—and the disclosure facilities have brought in more than £2 billion in tax.

Rob Marris (Labour, Wolverhampton South West)

Can the Minister say briefly what the Government are doing about disclosure of beneficial ownership?

David Gauke (Conservative, South West Hertfordshire)

The UK is introducing a central register that is publicly available. We are leading the way on that; I am not aware at the moment of any other jurisdictions elsewhere that are pursuing that. We believe that we should set the benchmark, so I am pleased that we as a country are leading the way.

The hon. Gentleman mentioned HMRC resources and so on. He referred to headcount. He will be aware of the dramatic reductions in headcount that occurred under the last Labour Government. In the last Parliament, we invested more than £1 billion in HMRC to tackle evasion, avoidance and non-compliance between 2010 and 2015. We made more than 40 changes in tax laws, closing loopholes and introducing major reforms to the UK tax system. I think most people would agree that it is much harder to avoid and evade taxes now than it was five years ago. Over this Parliament, up to 2020-21, we will be investing more than £800 million in funding in HMRC for matters relating to evasion and general non-compliance, which will help HMRC tackle evasion.

We have a proud record. It is not purely about staff numbers, although as it happens, enforcement and compliance numbers were not reduced in the last Parliament; the reductions in head count were generally within personal tax. It is not simply about headcount; it is about making use of technology and information and acting efficiently. We have a proud record on that front and we will continue in that vein. The clause is part of that process.

Mel Stride (Conservative, Central Devon)

I beg to move,

That further consideration be now adjourned.

Roger Gale (Conservative, North Thanet)

Before I put the Question, in fairness to Members and, in particular, members of staff, let me say that the Committee has made—without indecent haste and having studied each clause thoroughly—very considerable progress. It is conceivable that we might get to the end of the Bill today. I am conscious of the fact that some hon. Members have considerable distances to travel and may therefore wish to adjourn at an earlier stage. That is entirely a matter for the usual channels; it is not for me to decide. Ordinarily, I would suspend the Committee for a comfort break after about three hours, but I want to make it plain to hon. Members and to staff—because they need to know as well—that I am perfectly prepared to stay in the Chair and see this through if that is the wish of the Committee, but that is a matter for the usual channels to consider.

(Except clauses 16, 17, 43 and 45; schedules 2 and 3) - Clause 47 - Enforcement by deduction from accounts

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss the following:

Government amendments 11 and 12.

That schedule 8 be the Eighth schedule to the Bill.

David Gauke (Conservative, South West Hertfordshire)

I welcome you back to the Chair this afternoon, Sir Roger; I am delighted to see you.

Clause 47 and schedule 8 introduce new means for Her Majesty’s Revenue and Customs to recover tax and tax credit debts from debtors who refuse to pay. The changes will allow HMRC to recover debts directly from the debtor’s bank and building society accounts, subject to a number of robust safeguards. That will help to level the playing field between hard-working, honest taxpayers and those who seek to play the system and avoid paying debts that they can afford to pay. It will also help to modernise HMRC’s debt collection powers, bringing them in line with those of many other advanced economies.

I would like briefly to explain the context for the changes being introduced, as it is important to understand how this new method of enforcement will complement HMRC’s existing procedures. The UK is a very tax-compliant nation. Last year, £518 billion revenue was paid by 50 million taxpayers. Around 90% of that was paid on time. The remaining 10%—around £50 billion—was not paid on time and was perceived by HMRC as a debt. Most of those with a debt simply need an additional reminder before they pay. Others are businesses and individuals who may be temporarily struggling, unable to pay the full amount that they owe.

HMRC takes a sympathetic approach to those who are in genuine financial difficulty. That includes support through time to pay agreements, allowing people to pay their tax in instalments over a longer time period. There are others who find themselves in a vulnerable position—perhaps because they are going through a difficult time in their lives—and find it a struggle to keep on top of everyday matters such as tax. In those cases, HMRC will provide the additional support that is required. For example, HMRC has established its well-received needs enhanced support service, which offers the appropriate support, including home visits, for HMRC customers who are struggling with their obligations. However, a persistent minority do not respond to HMRC’s repeated attempts at contact and do not require additional help. It is for that group that HMRC uses stronger powers as a last resort.

We should be clear that this measure will apply to the small population of debtors who are refusing to pay what they owe, despite having significant assets in their bank and building society accounts. Almost half of them have more than £20,000 in readily available cash, but are choosing not to pay their tax and tax credit debts. It cannot be fair that some should be able to abuse the process in that way. It is not fair on the people who pay what they owe on time and it imposes costs that are borne by every taxpayer.

The changes made by clause 47 and schedule 8 will allow HMRC to recover funds directly from the bank and building society accounts of those who refuse to pay. In explaining how those changes work, I would like to address three misconceptions about this power.

First, I will address the perception that there is no independent oversight of this power, that HMRC will act as “judge and jury”, and that it cannot be trusted to use these powers responsibly. Independent oversight is embedded in the legislation and debtors will have the opportunity to appeal against the use of the power. Before the stage of direct recovery is reached, taxpayers have the right to challenge and appeal against their liabilities before they go overdue and become debts. These existing rights are unaffected by the changes, and this power will only ever apply to established debts once the appeal process has concluded.

Furthermore, if a “hold notice” is sent to the debtor’s bank or building society to hold moneys up to the value of the debt owed, there is a 30-day window before any funds can be transferred to HMRC. During this time, the debtor can object to HMRC on specified grounds. If they do not agree with HMRC’s decision, they can appeal to a county court.

I understand that some people would argue that a court judgment should always be obtained before that power is used. However, the purpose of this measure is to focus on those who seek to frustrate HMRC’s attempts to recover money owed, including debtors who rely on HMRC taking up costly and lengthy interventions before they agree to settle. These debtors owe, on average, around £7,000 in tax or tax credit debts, and almost half of them have more than £20,000 in their bank and building society accounts.

The power will also be used transparently. HMRC will publish regular statistics on its use, including the number of objections and appeals that are filed and upheld. The Government have also committed HMRC to lay a report before Parliament once the power has been in use for two years.

Secondly, I will address the concern that HMRC will make mistakes and use this power against innocent parties. This is not a measure that will be used lightly, and every case will be assessed by a dedicated team before any action is authorised. However, the Government have listened carefully to the concerns that have been raised, including by those representing vulnerable members of the public and by respected members of the tax agent community. In response to their feedback, the Government have committed that every person whose debts are considered for direct recovery will receive a guaranteed visit from an HMRC officer. This will be an opportunity for debtors to have a face-to-face conversation about their debt, confirm beyond any reasonable doubt their identity and give them another opportunity to pay.

If a payment in instalments is appropriate, that route will be offered, and if the debtor is identified as vulnerable, or needs additional support, they will be referred to a specialist unit and explicitly ruled out of debt recovery through this power.

Finally, I will address the misconception that the moment a tax bill is owed, HMRC will be able to “dip its hands” into someone’s bank account. That could not be further from the truth. As I have explained, this power is a “bolt-on” at the end of a very long process during which HMRC will take every opportunity to recover the established debt that is owed. The power will target those who are making an active decision to delay paying what they owe. Out of the 50 million taxpayers that it serves, HMRC expects to use this power in around 11,000 cases per year. It will only apply to those who have debts of more than £1,000, and a minimum level of £5,000 in funds will be safeguarded in the debtor’s accounts to cover essential living expenses.

I turn to the Government amendments. We have always been clear that vulnerable customers should not be affected by the powers. Our amendments are a result of continued collaboration with the tax agent community and the voluntary and community sector, and I put on the record my gratitude for the advice and expert insight that those groups have given to us. Through this process of open and transparent consultation, we are now able to demonstrate in legislation the strength of the Government’s commitment to protecting vulnerable customers.

Amendment 12 puts a duty on HMRC officers to consider whether debtors may be put at a particular disadvantage if this power is applied to them, and it imposes a positive obligation on officers to ensure that the power is not used inappropriately in those circumstances. Further, amendment 11 requires that HMRC affirms in writing that officers have complied with those requirements.

The amendments make clear our commitment to protecting vulnerable members of society, and we will continue to work with experts to identify best vulnerable taxpayers and provide the most appropriate support.

I hope that clause 47, schedule 8 and amendments 11 and 12 stand part of the Bill.

Rob Marris (Labour, Wolverhampton South West)

I thank the Minister for that helpful explanation. I place on record also my thanks to the ever helpful Chartered Institute of Taxation for its briefing, with which no doubt the Minister is familiar.

I understand the safeguards, which will, through the amendments, be increased: the debt must be more than £1,000; there will be a face-to-face visit from HMRC; there will be particular reference to and recording of a decision on whether HMRC thinks that the allegedly recalcitrant taxpayer is vulnerable; they must have sufficient money in their account; and there are 30 days in which to object before any money is transferred from the account to HMRC. During the 30-day period, the individual can apply for a court order to prevent HMRC from transferring money without itself seeking a court order, and HMRC must leave £5,000 in the account of the allegedly recalcitrant taxpayer.

There are still problems—for example, with those who hold joint accounts. The innocent or uninvestigated party to a joint account will have to make their objections known to HMRC. The Chartered Institute of Taxation says that

“we do question whether it is right for a totally innocent joint account holder to have to make such representations to stop HMRC accessing their money in the mistaken belief that it belongs to someone else.”

There are safeguards and reassurances, and my critique is not that HMRC would be acting as judge and jury, which the Minister, helpfully, was at pains to say would not be the case. That is not the substance of my critique; it is not why I will ask my hon. Friends to vote against the clause and the consequent schedule in a Division. I oppose clause 47 because in effect it makes one rule for the Government and one rule for everyone else.

I am aware that under what used to be called distraint, HMRC has since, I think, 1970 had powers to seize goods and chattels, not money from bank accounts. The Chancellor of the Exchequer, when mentioning the prospective clause in the Budget on 19 March 2014, said:

“I am increasing the budget of Her Majesty’s Revenue and Customs to tackle non-compliance.”—[Official Report, 19 March 2014; Vol. 577, c. 785.]

I am not entirely sure, despite the Minister’s reassurances this morning, that that has been the case. It certainly needs to be the case.

I did take the opportunity to look at the helpful consultation document on this prospective power; I congratulate the Government on having a long and thorough consultation on the power, and so they should have done because it is quite draconian and quite new. The introduction to the consultation document was written by the then Exchequer Secretary to the Treasury, the hon. Member for South West Hertfordshire, who has deservedly had a promotion. On page 2 of the document, it gives this as one reason for wishing HMRC to have the power to take money out of people’s bank accounts without a court order:

“The current processes for recovering debts…can be costly”.

In paragraph 2.31 on page 9 of the document, it repeats that rationale, saying that

“a county court judgment…can be a slow and expensive process.”

I am aware of that. I and at least two of my hon. Friends knocked around the county courts for a number of years as solicitors. The process can indeed be slow and costly, but the speed and cost of county court processes in England and Wales are in part down to the Government. The Government decide on the resources available to the court system for the administration of civil justice; we are talking about civil matters, not criminal matters. The Government of the day provide or do not provide the money and make or do not make the rules, in liaison with the judges, who write what used to be called the white book and the green book before the Woolf proposals of 1999. The Government have a big hand not only in funding the courts, but in setting the framework within which the courts and their very able staff, judges and advocates operate.

What we have here is: HMRC saying—this is my gloss as it has not used these words—that the Government have made a bit of a mess of the court system so that it is, “slow and expensive”. We are not going to sort that out for HMRC. Oh no—we are going to give HMRC special powers to bypass the county court system, which our constituents who allege they are owed a debt cannot do. Our constituents who believe that they are owed a debt by another party in society have to use a court system that the Government say, as refracted in this Treasury consultation document, is “slow and expensive”.

It seems a fundamental principle that the Government should not be messing up one aspect of their endeavours—the court system—and then giving HMRC, which is another aspect of their endeavours, special powers to bypass the mess for which the Government are in part responsible. That seems wrong. This is not a principle for me, but I am not comfortable with the Government, refracted through HMRC here, having extra powers to grab money out of people’s bank accounts, even with all the safeguards and reassurances that the Minister has helpfully given us. I do not think that that is a good idea when there is a procedure already available to HMRC, which it has been using, I would guess, for centuries—certainly for decades—whereby it says that a taxpayer owes money, there is an adjudication process and there may be an appeal process within HMRC in which the taxpayer, rightly, is entitled to take part.

At the end of that process, to recover that cash, HMRC—believing it is still owed money by a taxpayer—can seek a court order, in the same way as anybody else who says they are owed money, using the court system; it might be the High Court or the county court. Why should HMRC be any different? I do not think it should be. Giving the rationale that—again to put a bit of a gloss on it—“The courts don’t work very well, so we’ll just bypass them”, is not acceptable.

Chris Matheson (Labour, City of Chester)

My hon. Friend the Member for Wolverhampton South West has given his usual detailed and forensic objections to the clause. Mine are a little bit more about the Minister’s tone and presentation. First, I associate myself with his comments about those who seek to evade their taxes. I have no time for such people. If people are able to pay their taxes, they should do so. That is the price that we pay for a having a stable society that is paid for by taxation. I have no time for people who are, frankly, freeloading on the hard work of others. The hon. Gentleman was correct on that.

My concern with the Minister’s presentation is the tone compared with the tone of the previous discussion about compliance for those who seek to hold their assets offshore. In the discussion on that clause, the hon. Gentleman seemed to suggest that enforcement action would be very much a last resort—a route that HMRC would not necessarily want to go down. With this measure, the enforcement action seems to be a whole lot tougher. If I am doing the hon. Gentleman a disservice, I apologise; this is a genuine point. The impression I get is that once again it seems easier, and the Government seem more ready, to go after, shall we say, the little man, rather than those who have substantial assets elsewhere. However unacceptable individual tax evasion is, I cannot help but wonder whether the real issue we face is large-scale corporate avoidance of tax. I realise that is not part of the clause, Sir Roger, but I hope you will allow me a little latitude. The Government are focusing on small individuals rather than tackling the big issues of corporate taxation. If I am doing the Minister a disservice, I apologise, but I felt that the tone of his presentation focused too much on smaller-scale enforcement.

Mark Garnier (Conservative, Wyre Forest)

I sympathise with some of what the hon. Gentleman says, but his party surely cannot be advocating that just because someone is a small person, they can avoid paying taxes. The Government are bringing in measures to tackle every level of tax avoidance. Clearly, some cases will be more obvious than others, but where someone has blindingly obviously not paid tax and has a cash asset, rather than go to the huge trouble and cost of taking them to court, seizing their assets and selling those assets, why is this the wrong thing to do? Surely we must collect tax from everybody who owes it.

Chris Matheson (Labour, City of Chester)

I certainly do not think we should not take enforcement action against people who can but do not pay their taxes. That is not the issue. I agree with much of what the hon. Member for Wyre Forest said about enforcement for non-payers. I was slightly concerned that in the tone of what the Minister said, there was much more zeal for enforcement action at the lower end of the market than at the higher end. If that is a mistaken impression, I apologise, but there has to be more focus on large-scale corporate taxation, which may of course be covered in other parts of the Bill.

David Gauke (Conservative, South West Hertfordshire)

Let me say first that I am disappointed the Labour party will not be supporting the measure. I reiterate: these powers will be used at the end of an exhaustive process, whereby there will have been many opportunities for a debtor to have paid the debt and to have challenged the application of the debt to them. It is a measure targeted at individuals and businesses that are making an active decision not to pay or to delay paying the money they owe, despite having sufficient funds in their accounts and despite attempts by HMRC to contact them and encourage them to put their affairs in order. We must remember that we are talking about allowing £5,000 or so to remain in an account, so that people have the sums to make ends meet in the short term. I accept that court action is appropriate in some circumstances, but it imposes significant costs on both the debtor and HMRC.

Rob Marris (Labour, Wolverhampton South West)

Will the Minister give way?

David Gauke (Conservative, South West Hertfordshire)

Let me make this point first, which is not an immaterial one: whatever reforms the hon. Member for Wolverhampton South West proposes for the courts system, there are risks of people gaming the system. For example, they might believe that HMRC will not want to go to court to recover a certain level of debt. It is widely acknowledged that there has been robust engagement with interested parties, and as a Government we have listened constructively to those interested parties to make reforms. In circumstances where substantial safeguards are put in place, this is a proportionate measure.

Rob Marris (Labour, Wolverhampton South West)

I appreciate that there can be unrecovered costs, but if HMRC takes on a court case and wins, it is not the case, as the Minister said in his opening remarks, that the costs are borne by every taxpayer, unless the paying party—the losing taxpayer—does not in fact meet that judgment debt. The costs will be paid by the debtor.

David Gauke (Conservative, South West Hertfordshire)

I come back to the practical operation of this power. Let us remember that the existence of this power will encourage some debtors to pay tax at an earlier stage in the process, knowing that HMRC is able to pursue them more effectively. In Committee, and on the Floor of the House, we often debate the need to reduce the tax gap. The shadow Chancellor made that point on the Floor of the House yesterday. Of course, the tax gap consists of many things, including corporate tax avoidance, which I did not specifically address in my remarks because this clause does not specifically relate to corporate tax avoidance, but these powers could apply to any debt owed to HMRC, including debt involving corporate tax avoidance. If it is determined that a debt is owed, HMRC may pursue it in that way.

Chris Matheson (Labour, City of Chester)

Will the Minister confirm that this clause will not simply apply to personal accounts but will also apply to corporate and business accounts of corporations that owe tax?

David Gauke (Conservative, South West Hertfordshire)

The clause will apply to both individual and business accounts, so it could be used in such circumstances. I will not detain the Committee for long on this subject but, on corporate tax avoidance, we have strengthened the capabilities of HMRC’s large business teams, introduced a diverted profits tax and led the way on the OECD’s work on base erosion and profit shifting. The Government have a proud record in that area.

However one looks at the tax gap, and there are different views on the size of the tax gap, corporate tax avoidance is a relatively small proportion. Whether one looks at the authoritative and well-respected HMRC numbers or at Richard Murphy’s numbers, no one claims that corporate tax avoidance is a large part of the tax gap. That is not to say that corporate tax avoidance is not important. It is important, but we also need measures that address all types of people who fail to pay the taxes that are due.

Richard Burgon (Labour, Leeds East)

I thank the Minister for confirming that the clause will apply to business, as well as to individuals. Will he also clarify whether leaving £5,000 in a debtor’s account will also apply to small businesses that owe tax? I am concerned that small businesses may need much more than £5,000 to pay the wages of their staff.

David Gauke (Conservative, South West Hertfordshire)

The £5,000 limit applies across the board, including for businesses. This measure is used only at the end of a process and, particularly for businesses, HMRC operates a time to pay process. I dare say that members of the Committee have experience of businesses in their constituencies that have had difficulty in paying tax when it is due and that have engaged with HMRC. Very large numbers of businesses have been able to defer such tax payments because of short-term cash-flow issues and have subsequently repaid them. HMRC does a lot of that, and it works successfully.

Joint accounts have been raised with us, and they have been raised in the Chartered Institute of Taxation briefing. If joint accounts were automatically excluded from the scope of this provision, it would provide an obvious opportunity for debtors to avoid paying what they owe. If we had gone down that route, it would be perfectly reasonable for the Opposition to say that it would be easy to walk around the provisions. However, we have made it clear that we want to strike a balance between recovering money from debtors who are refusing to pay and protecting the rights of other account holders. There are safeguards for joint account holders, including third parties who have a beneficial interest in money in a debtor’s accounts. Direct recovery will only be applied to a pro rata proportion of an account’s balance. All account holders will be notified that action has been taken, and all account holders will have equal rights to object or appeal. Joint account holders will also have clear appeal routes if they feel that their funds have been wrongly targeted.

Rob Marris (Labour, Wolverhampton South West)

I am grateful to the Minister for that explanation and apologise for not being clearer. I was not suggesting that joint accounts should be exempt from the procedure; I was using joint accounts as one more example of why the procedure should not pass into law at all.

David Gauke (Conservative, South West Hertfordshire)

I disagree with the hon. Gentleman, although I appreciate his point. If we are being serious about reducing the tax gap, this is an important additional measure. According to Treasury figures, which have been verified by the Office for Budget Responsibility, it will bring in something in the region of £100 million a year. It will ensure fairness between those taxpayers—the vast majority—who pay the tax that is due on time and in full, and indeed those who pay shortly after being reminded; and the small minority who persistently fail to pay the tax that is due, which they can indeed pay, and fail to engage with HMRC. The power will ensure that taxpayers are more likely to engage with HMRC and more likely to pay the tax that is due, which will fund the public services that we need and help to reduce the deficit. I will be disappointed if the Opposition, who talk a great deal about wanting to reduce the number of people who fail to pay proper taxes, oppose the measure.

Rob Marris (Labour, Wolverhampton South West)

The Minister suggests that £100 million may be recoverable under the procedure and earlier he estimated that the measure will cover 11,000 people, so that is an average of £9,000 per person. I would suggest that such an amount makes going to court well worth while. Of course Labour wants to close the tax gap and get in revenues. Will he address my point that it is a matter of principle that the Government should not—in my words—make a mess of the courts system and then give HMRC an end run around that?

David Gauke (Conservative, South West Hertfordshire)

I again make the point that HMRC has a set of processes and procedures, and a number of safeguards, that are not comparable with anything that a private individual or company would have. It is important that we ensure that we have a properly functioning tax system and HMRC must collect substantial sums—I outlined the numbers—so that we have a properly functioning state. It is therefore right, given the safeguards that are in place, that HMRC has an additional tool at the end of a pretty exhaustive process through which there could be six to nine communications with a taxpayer, although I am not saying that that is a minimum in every case because sometimes the process moves more quickly for a repeat debtor. That taxpayer is not likely to be one of the most impoverished people, because the most impoverished, by and large, do not have more than £5,000 in their bank account. It is legitimate that HMRC has these powers. The Government are determined to bring down the tax gap and ensure that people pay the tax due, whether they be big businesses or private individuals. The power is welcome and I hope the Committee will support it.

Schedule 8 - Enforcement by deduction from accounts

Clause 48 - Rate of interest applicable to judgment debts etc in taxation matters

David Gauke (Conservative, South West Hertfordshire)

The clause will ensure that when HMRC is party to a tax-related debt, the rates of interest payable by or to HMRC are those contained in tax legislation, whether the debt follows from a court order or not. The measure amends the rate of interest on tax-related debts owed by or to HMRC under a court order or judgment to an appropriate level given prevailing interest rates.

When HMRC is party to a tax-related debt, different interest rates currently apply depending on whether the debt follows from a court order. If the debt results from a court order, an interest rate of 8% applies. In England and Wales, that rate is set out in legislation under the Judgments Act 1838 and County Courts Act 1984, which is the responsibility of the Ministry of Justice. Scotland and Northern Ireland set their own rates of judicial interest, which are also 8%.

If the debt does not result from a court order, the relevant interest rates are set out in the Taxes Acts. Different interest rates apply if tax or other duties payable to HMRC are paid late, and if tax or other duties have been overpaid, resulting in repayment by HMRC. Those rates are linked to the Bank of England base rate. They are currently 0.5% if HMRC is paying interest and 3% if interest is being paid to HMRC.

The changes made by clause 48 will ensure that the rates of interest for all tax-related debts are contained in tax legislation, whether the debt follows from a court order or not. It will affect taxpayers in litigation cases where there is a tax-related judgment debt with interest due and HMRC is either the debtor or creditor. The clause will simplify the HMRC debtor and creditor interest rates. The Government will reduce the rate of interest that applies to tax-related debts payable by HMRC under a court order or judgment to a rate equal to the Bank of England base rate plus 2%, and apply the late payment interest rate of 3% as specified in the Taxes Acts to tax-related debts owed to HMRC under a court order or judgment. The changes will apply to new and pre-existing judgments and orders in respect of interest accruing on and after 8 July 2015. The new rates of judgment debt interest in tax-related cases will compensate the receiving party for any delay in receiving the money that a court has ruled is owed to them at an appropriate level considering prevailing interest rates.

The clause ensures that the rates of interest payable on tax-related debts to which HMRC is a party are all contained within tax legislation. It also reduces the rates of interest on tax-related judgment debts owed by or to HMRC to an appropriate level given prevailing interest rates.

Rob Marris (Labour, Wolverhampton South West)

Having so narrowly lost the vote on clause 47, I am tempted to press this clause to a Division, but I can assure the Minister I will not. However, there are similarities between the measures. My objection to clause 47 and HMRC taking money out of people’s bank accounts without a court order was that it was one rule for HMRC and one rule for everybody else. In the clause immediately following—clause 48—the Government cannot wait to do that again, and I am worried about that trend. I understand that if one wishes for consistency, one cannot always achieve it because the situation depends on the corresponding factor with which another factor is compared. In this case, the Government are saying, “We don’t like comparing the interest payable on moneys owed to HMRC pursuant to a court order,” as per the Judgments Act 1838 or the County Courts Act 1984, which I have written endlessly in pleadings—as they used to be called—over the years. They are saying “We want to compare it with an internal rate that HMRC has for debts owed to HMRC,” which are adjudicated on, but not via the court system.

There is an inconsistency if you have what I would call, for shorthand, an internal, non-court HMRC rate and an external, court HMRC rate. The bigger issue for me, however—this is where I come down decidedly for the opposite comparison for consistency to the Government’s—is that there should be consistency for the individual when faced with the court system of England and Wales, and there should be consistency in the interest rate payable on a county court or High Court judgment, regardless of who the applicant, claimant or, to use the old term, plaintiff is. Even if the plaintiff is HMRC in a tax-related case and the claimant or plaintiff wins that case—HMRC wins—the interest payable upon that judgment debt should be the same as if the winning party who successfully claimed at court that they were owed money was a private individual or a company.

As I said, I appreciate that there is a certain dilemma for HMRC, but it has put up with that dilemma since about 1838, as far as I can tell. I therefore think that it should carry on putting up with that in the interests of having one court rule for everyone, rather than one that relies on the identity of the claimant.

David Gauke (Conservative, South West Hertfordshire)

I note the hon. Gentleman’s remarks. I am pleased that he is not seeking to divide the Committee on this particular clause, as he did on clause 47. I argue that the measure is appropriate and proportionate. I understand that the Ministry of Justice is reviewing why there is not one court rule regarding when the Judgments Act rate of interest is reduced. I do not know whether the hon. Gentleman takes any comfort from that, but I am pleased to inform the Committee of the fact.

The clause is reasonable in respect of tax-related debts which, of course, flow both ways—there is money owed to HMRC and money owed by HMRC. There should be consistency, and provisions on the rates of interest payable to debts to which HMRC is party should be in tax legislation. Although the hon. Gentleman and I disagree about the operation of the process, I am pleased that we do not have a disagreement on the clause, which I hope will stand part of the Bill.

Roger Gale (Conservative, North Thanet)

We now come to our consideration of the new clauses. All but one of them have already been debated, so with those measures we will move immediately to a decision. Mr Mullin has indicated that he does not intend to seek a vote on any of his new clauses 1 to 3, so the first new clause that we will consider is new clause 4, which has not been debated before.

New Clause 4 - Consultation on reforms to the system of tax reliefs for businesses

Rob Marris (Labour, Wolverhampton South West)

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

Hon. Members will be pleased to hear that I will not detain the Committee for long. I have to say that in recent years HMRC and the Treasury have done a pretty decent job of carrying out consultation. They have got a lot better regarding the number of issues on which they consult, and especially the timeframe allowed. Rushed consultations were carried out under the previous Labour Government and in the early years of the coalition Government, and they sometimes still happen. Sadly, all of us have probably come across such consultations in local government around the country. It is a question of not only a consultation’s terms of reference or whether something is put out for consultation at all—I do not agree with consulting on everything—but the timeframe. HMRC and the Treasury have got better at that, for which I thank the Minister.

For a number of years—this is not exclusive to the coalition Government and the new Government—there has been a lack of monitoring of tax reliefs, which are the substance of new clause 4. I understand that the National Audit Office has criticised the Government for not properly monitoring their tax reliefs. The NAO has found more than 1,300 tax reliefs, which seems an awful lot for a Government of any political colour when we want a simpler system. The NAO found that only 200 of those reliefs are properly monitored by HMRC, meaning that the vast majority—1,100—are not. We could have a long debate—we will not—about what proper monitoring means, but if I understand the NAO report properly, there are difficulties in a major area of our tax regime.

I would venture that Governments around the world have any number of tax reliefs. Other countries may have more or fewer, but we have an awful lot and they are not being properly monitored. They are integral to our tax regime in terms of not only revenue and foregone revenue, but the Government using taxation as a lever to encourage and discourage certain behaviours. We sometimes overlook that, although we debated it earlier in the context of the effect of vehicle excise duty on people’s behaviour when buying light passenger vehicles. Some reliefs are intended to encourage behaviour, such as tax relief on pension contributions, which is quite properly being lessened by this Bill, but an awful lot of relief still remains. We are talking about billions of pounds, so there should be proper monitoring.

It might be that the Minister, who is very assiduous, can reassure the Committee that there is an overarching, ongoing consultation, or even a new consultation, on our tax relief system and, as is proposed in new clause 4, on reforms, specifically in relation to tax reliefs for businesses. I referred to Governments using tax reliefs to encourage and discourage certain behaviours, and there is agreement across the House that tax reliefs have a part to play in fostering the business growth that we all want.

David Gauke (Conservative, South West Hertfordshire)

The hon. Gentleman will be aware that his party’s leadership is looking to eliminate what I recently heard the hon. Member for Leeds East refer to as £93 billion of “corporate welfare” to reduce the deficit and fund public services. Some of that constitutes tax reliefs or exemptions—however one wants to describe them—including £20 billion of capital allowances. Does the hon. Gentleman consider the £93 billion of “corporate welfare” to be a potential source of revenue for a future Labour Government?

Rob Marris (Labour, Wolverhampton South West)

I thank the Minister for that question. The £93 billion figure has been much misunderstood.

The new clause is part of the probing that we want the Government to carry out on behalf of the country. My hon. Friends the shadow Chancellor and the Leader of the Opposition want to examine what tax reliefs exist—what we are spending the money on, in lay terms, although I appreciate that the process often involves leaving it in the taxpayer’s pocket. As the shadow Chancellor made abundantly clear to the House last night, he is quite rightly in the business of evidence-based policy—[Interruption.] Someone says that he is in the business of “changing his mind”. Yes, my hon. Friend is, as he made clear last night. He interprets the evidence, and evidence changes as more comes out. Like him and, I presume, other colleagues, I want evidence-based policy making.

Whether the figure is £93 billion, £193 billion or £3 billion, the fact is that the Government are foregoing billions of pounds of tax revenues. I think it would be agreed across the House that some of that will be a jolly good thing. There might be differences of opinion among hon. Members about whether a given tax relief is socially desirable, in the sense that its intention is to achieve a socially desirable outcome, and about the evidence of whether a socially desirable outcome is in fact being achieved through the tax measure. There therefore could be disagreement in two ways: first, about the outcome; and, secondly, about whether the tax relief is getting us anywhere nearer to that outcome, or near enough to it—about if we are getting bang for the buck, to use the vernacular.

New clause 4 would require a wider review of tax reliefs for businesses to encourage long-term investment. Were the review carried out and the evidence collected, it might be that my party would call for changes, and I do not rule out the possibility of increases in tax reliefs for businesses. I am not making a pledge on behalf of the Labour party, but it might be that we would think, on the basis of the evidence, that there should be greater relief for businesses regarding research and development—innovation.

On Tuesday, we discussed tax matters for small, growing, knowledge-based companies. We had that debate because the previous Labour Government set up a tax relief regime to encourage research and development. Again, I think there is generally agreement across the House—perhaps not among every right hon. and hon. Member—that encouraging research and development is a desirable goal for any Government. I think that there is also general agreement across the House—again, perhaps not from every Member—that the tax regime has a role to play in encouraging the research and development that almost all of us, if not all of us, want.

David Gauke (Conservative, South West Hertfordshire)

On a point of clarity, and to reassure businesses throughout the country—including, I suspect, in Wolverhampton—while the shadow Chancellor and the Leader of the Opposition talk about eliminating £93 billion of “corporate welfare”, to use their phrase, is the hon. Gentleman saying that there is no plan to remove capital allowances or R and D tax credits, which constitute sizeable elements of that £93 billion? When he says that the £93 billion “corporate welfare” estimate has been much misunderstood, does he mean by his own leadership?

Rob Marris (Labour, Wolverhampton South West)

I said to the Committee earlier that I was not about to start freelancing on tax policy for the Labour party. That will not surprise the Minister, or other hon. Members. It might disappoint him, but it will not surprise him. He tempted me on two major areas of tax relief for business; I will repeat what I said earlier. We are in the business of trying to develop evidence-based policy, so if the review were, as we hope, to be accepted by the Government and to take place, we might say that business tax relief should be increased in certain areas. I do not rule out that possibility. We might say that it should be reduced in other spheres of activity. I do not know yet.

I cannot help the Minister any more than that, because that is the whole point—or perhaps not the whole point: the major point of having the review is to get the evidence so that all parties can review their policy. After the review, perhaps the Government would review their policy and increase or decrease tax relief for businesses in certain areas.

As to the £93 billion, it has, as I said, been much misunderstood. It may be a coincidence, or perhaps it is a borrowing—many politicians are prone to borrow—but until very recently the most successful federal election in Canada for my party’s sister party, the New Democratic party, of which I used to be a member, was in 1972 under the then leader Ed Broadbent, the honourable member for Oshawa. He was a great leader of the New Democratic party. The campaign slogan referred to “corporate welfare bums”, and it was about large corporations—often multinational—having unfair tax breaks. It was very successful.

There is a tradition in capitalist democracies of corporate welfare. [Interruption.] Yes, there is, and I think we should be honest about that. Sometimes we socialists would support that, to encourage certain activities. I gave the example of research and development; but, yes, there is corporate welfare. Some of it, I suspect—but do not know—is unjustified. I will not know unless we can gather the evidence, and the Labour party will endeavour to gather the evidence as best we can, but it would help if the Government would put resources into doing so by accepting new clause 4, as I hope they will.

David Gauke (Conservative, South West Hertfordshire)

I thank the hon. Member for Wolverhampton South West for the thoughtful way in which he put his case, injecting, to some extent, scepticism into claims of £93 billion of corporate welfare that might be easily available to reduce the deficit and fund public services, as some of his colleagues have perhaps been inclined to suggest in recent weeks.

Having welcomed some of his remarks I will, I am afraid, disappoint the hon. Gentleman by urging my hon. Friends to oppose new clause 4. The Government are committed to supporting investment and growth through the tax system, which is why we provide businesses with a range of tax reliefs and allowances. The Treasury and HMRC keep all tax policies under review and routinely consult on changes as part of the policy-making process. However, a general consultation on the system of tax reliefs would not be appropriate, since each relief has been designed in a particular way to address a specific issue.

The new clause raises questions about the impact of tax reliefs on investment and growth. The Government recognise the importance of supporting growth and investment through the tax system. In fact, we have designed tax reliefs to do exactly that. For example, through the annual investment allowance, businesses can offset the first-year costs of plant and machinery against their corporation tax liabilities. That supports investment by reducing its cost to businesses. Small businesses in particular benefit from that; 85% of the total value of the annual investment allowance goes to small and medium-sized enterprises.

To support further investment, the Government are raising the permanent level of the AIA to £200,000—its highest permanent level ever. Similarly, R and D tax credits, which the hon. Gentleman referred to, are an incentive to invest in research and development. A recent HMRC study found that each £1 of tax forgone through tax credits stimulates between £1.53 and £2.35 of additional R and D investment, which fosters innovation and helps the economy to grow.

Looking forward, the Government remain committed to supporting investment and growth. We will publish a business tax road map by April 2016, setting out our plans for business taxes over this Parliament. That will provide businesses with the certainty they need to plan for long-term investment.

Of course, there is always scope for further reform and the Government keep all tax policies under review. As I have said, we invite written representations from business and industry ahead of each Budget and autumn statement. In addition, we routinely consult on individual tax changes before they come into force. The Government aim to have a tax system with a global reputation for predictability, stability and simplicity, and consulting on policy proposals is essential to achieving that aim.

The Government set out their approach to tax policy making by publishing a framework document in 2010. We remain committed to that approach. Only last month, HMRC published a guide of best practice principles for monitoring and evaluating tax reliefs, which will promote effective governance across all taxes. That document was recommended by the Public Accounts Committee, to promote more uniform and effective monitoring of reliefs across all taxes. It was shared across HMRC and the Treasury on 30 September, and it was also shared with the NAO and the PAC. The principles set out in the document will be used to inform policy development and to alert Ministers to significant monitoring and evaluation findings.

Consultation is already central to the Government’s approach to tax, and so it is not clear that a further consultation on the entire “system” of tax reliefs would be helpful. On the contrary, the hon. Gentleman’s proposal would cover a huge and diverse range of policies, many of which are working effectively. The “system” includes tax relief to support investment in start-ups, so that more high-risk businesses can get off the ground, and differentiated tax rates, such as the zero rate of VAT and VAT exemptions. It also includes policies with indirect benefits for businesses, such as the employment allowance, which encourages employers to hire new staff. Reviewing such a wide range of policies would create uncertainty for businesses, making it harder for them to plan for the long term. As a result, the UK would be a less attractive place to start a business or to invest. For that reason, we oppose the new clause.

The Government are already taking action on many of the issues raised by this new clause, so a separate consultation would not add value to the tax policy making process. There is also a risk that the new clause would create uncertainty for businesses, which would be harmful to economic growth. I hope, therefore, that the hon. Gentleman will withdraw it.

Rob Marris (Labour, Wolverhampton South West)

I am somewhat reassured by the Minister’s remarks about the framework document in 2010, for which I thank him; I hope that we will see another framework document soon. I am also somewhat reassured about the “road map”, as he calls it, that will be published next year, and the consultations that he referred to. For example, he referred to the annual investment allowance increase in the Budget this year. From memory, when I spoke in the House on the Budget on 8 July I praised that increase in the allowance.

However, the Minister went on to say that he was concerned that if he accepted the new clause it would call into question and create uncertainty about many tax reliefs that are working effectively. With due respect to him, to some extent that assumes what he is trying to prove, by saying that things are working effectively when Opposition Members are asking for an investigation to be carried out holistically—to use the everyday term that is used these days—into the business relief part of the tax regime. The risk is that the Government’s consultations, which I have previously spoken positively about, will become somewhat piecemeal in their approach.

We would like an overarching investigation, because tax reliefs—whether the 1,300 overall, or the smaller number within that 1,300 that apply to businesses—may produce what in chemical terms would be called the cocktail effect. In fact, some such effects have been addressed by provisions in the Bill. That is where a tax measure is put into place and then it is found that it contradicts an existing tax measure. Not surprisingly, those contradictions are often resolved in favour of taxpayers, which is understandable, but correspondingly that is at the expense of revenue for the Exchequer.

A piecemeal approach is not what we need. The new clause is part of our desire to have evidence-based decision making, a holistic approach and zero-based budgeting, to which we are committed. I will not press the new clause to a Division, but I urge the Government to avoid being piecemeal. I beg to ask leave to withdraw the motion.

David Gauke (Conservative, South West Hertfordshire)

On a point of order, Sir Roger, before we conclude I would like to take a moment to make one or two remarks and thank a number of people. I am pleased that the first Finance Bill of this Parliament has received excellent scrutiny from members of the Committee. Inevitably, more focus has been placed on certain clauses than on others, but debate has been insightful and wide-ranging throughout. I am pleased that the Committee has reached consensus over much of the content of the Bill, including measures that will support businesses and tackle avoidance and aggressive tax planning.

Most impressively, the Committee has displayed unparalleled efficiency, with debate on all clauses concluded in just six sittings. Having done every Finance Bill since 2006, Tuesday afternoon’s session was perhaps my favourite, on the basis that it lasted only 17 minutes.

I thank you, Sir Roger—through you, I also thank Mr Howarth—for your guidance and your wisdom in steering both new and experienced Committee members through what can be a complex process. The hon. Member for Wolverhampton South West is of course both new and experienced. I also thank my hon. Friend the Member for Wyre Forest for his brief unexpected spell as Chairman during the debate on corporation tax, and his guidance at that time was invaluable.

I thank all members of the Committee for their contributions and non-contributions. I thank Members on the Government side for their patience, forbearance and, above all, attendance. I also thank the Members from the SNP and from the Labour party where, for understandable reasons, there has been something of a changing of the guard over the course of the Bill. For me, it is surprising that Front Benchers change from decade to decade, but they perhaps change more frequently when a party is in opposition.

I put on record my thanks to the hon. Member for Worsley and Eccles South (Barbara Keeley) for the work that she undertook from the Labour Front Bench at the beginning of the process. I was delighted to see the hon. Member for Wolverhampton South West in his place. I say delighted, but I was slightly apprehensive, knowing that he is an extremely assiduous Member. It is very difficult to get much past him, and I welcome him to the Front Benches, as I do the hon. Member for Leeds East.

Earlier this week, the hon. Member for Wolverhampton South West compared our encounter to the South by Southwest festival—SXSW—given that we both represent seats that are in the south-west of their particular areas. He is clearly more familiar with trendy festivals than I am. Though I admit that the Finance Bill Committee can occasionally resemble Glastonbury in a wet year—a confused crowd struggling through a vast expanse of mud while someone at the front is shouting loudly—I am pleased that on this occasion, proceedings have been far more harmonious. For that, we have to thank the usual channels: my hon. Friend the Member for Central Devon, who has worked with quiet efficiency with both the hon. Member for Scunthorpe and now the hon. Member for St Helens North. I am particularly grateful for the assistance I have received from my hon. Friend the Economic Secretary, who led on the banking measures.

Finally, I thank the representative bodies and interested parties that have submitted to the evidence to the Committee. I thank our Clerk, Mr Hamlyn, the Hansard Reporters and the doorkeepers, who have ensured the smooth running of the Committee, the HMRC and Treasury officials, and the Office of the Parliamentary Counsel, without whom none of this would be possible. I am sure all hon. Members will join me in looking forward to Report and other stages of the Finance Bill in due course.

Rob Marris (Labour, Wolverhampton South West)

Further to that point of order, Sir Roger. I will briefly add my thanks to many. First, I thank my colleagues who were previously members of the Committee, most notably but not only my hon. Friend the Member for Worsley and Eccles South. I thank the staff both within and outside the House, most explicitly the Treasury staff, who were very astute in assisting the Minister to remember the details of certain matters.

I thank all members of the Committee on both the Government and Opposition sides for their assiduous attention to our proceedings. I thank the Economic Secretary, who was the first Minister I went up against, as it were. I also thank the Financial Secretary, who I went up against a lot more. As Members will know, he has done this a lot more than I have. This is my seventh Finance Bill Committee, but he is probably up to 11 or 12 now, because in years—such as this—there is more than one Finance Bill. I salute his tenacity.

In terms of the speed of proceedings, this is not like Glastonbury; it is more like the South by Southwest festival, which takes place in Texas, where mud is much less frequent and one just makes breezy progress in the sunshine, in a collective and collegial manner. Finally, I thank the two Chairs, Sir Roger and Mr Howarth. I will always remember the Committee, because if I have the honour to lead or contribute for the Opposition officially in future Committees, this will always be the first one in which I was able to do so. Thank you for your chairmanship.

Roger Gale (Conservative, North Thanet)

All of that is absolutely fascinating and, of course, completely out of order, because none of it is a matter of order for the Chair. As we are rambling on out of order, I thank Members on both Front Benches for their appreciation, which I extend to our Clerk, Matthew Hamlyn, to the officers and staff of the House, without whom none of us could do the job we are required to do. It is much appreciated.

I thank the Committee very sincerely indeed for the courtesy and conduct of the proceedings. Not all Committees are like this, but it has been amicable and sensible. The fact that it has been considered so well and so expeditiously is a credit to all Members present. I hope that those of you who were doing this for the first time have found the process exhilarating and that you will enjoy many more Committees under my chairmanship.