Finance Bill

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The Committee consisted of the following Members:

Chairmen: Frank Cook , † Mr. Jim Hood , Sir Nicholas Winterton

Atkins, Charlotte (Staffordshire, Moorlands) (Lab)

Blackman-Woods, Dr. Roberta (City of Durham) (Lab)

† Blizzard, Mr. Bob (Waveney) (Lab)

† Bone, Mr. Peter (Wellingborough) (Con)

† Breed, Mr. Colin (South-East Cornwall) (LD)

Browne, Mr. Jeremy (Taunton) (LD)

Cable, Dr. Vincent (Twickenham) (LD)

Chapman, Ben (Wirral, South) (Lab)

† Eagle, Angela (Exchequer Secretary to the Treasury)

† Efford, Clive (Eltham) (Lab)

Field, Mr. Mark (Cities of London and Westminster) (Con)

† Gauke, Mr. David (South-West Hertfordshire) (Con)

† Greening, Justine (Putney) (Con)

† Hall, Patrick (Bedford) (Lab)

† Hammond, Mr. Philip (Runnymede and Weybridge) (Con)

† Hands, Mr. Greg (Hammersmith and Fulham) (Con)

† Hesford, Stephen (Wirral, West) (Lab)

† Hoban, Mr. Mark (Fareham) (Con)

† Hosie, Stewart (Dundee, East) (SNP)

† Joyce, Mr. Eric (Falkirk) (Lab)

† Kennedy, Jane (Financial Secretary to the Treasury)

† Morden, Jessica (Newport, East) (Lab)

† Newmark, Mr. Brooks (Braintree) (Con)

† Palmer, Dr. Nick (Broxtowe) (Lab)

† Penrose, John (Weston-super-Mare) (Con)

† Pound, Stephen (Ealing, North) (Lab)

Pugh, Dr. John (Southport) (LD)

Sharma, Mr. Virendra (Ealing, Southall) (Lab)

† Simon, Mr. Siôn (Birmingham, Erdington) (Lab)

† Thornberry, Emily (Islington, South and Finsbury) (Lab)

† Todd, Mr. Mark (South Derbyshire) (Lab)

† Ussher, Kitty (Economic Secretary to the Treasury)

Viggers, Peter (Gosport) (Con)

† Wright, David (Telford) (Lab)

Alan Sandall, James Davies, Committee Clerks

† attended the Committee

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Public Bill Committee

Tuesday 20 May 2008

(Afternoon)

[Mr. Jim Hood in the Chair]

Finance Bill

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

Schedule 16

Non-residents: investment managers

Amendment proposed [this day]: No. 78, in schedule 16, page 232, line 14, leave out paragraph 2.—[Mr. Hoban.]

4.30 pm

Question again proposed, That the amendment be made.

The Chairman: I remind the Committee that with this we are discussing the following amendments: No. 79, in schedule 16, page 232, line 28, leave out paragraph 3.

No. 80, in schedule 16, page 232, line 28, leave out paragraphs 3 to 6.

Mr. Mark Hoban (Fareham) (Con): Let me summarise the position that we had reached on the amendments before lunch. As parliamentarians, we should be jealous of our rights to determine tax law. Parliament fought for those rights and we should not give them up lightly. I am not convinced that the Economic Secretary has fought as vigorously as she should have done to make sure that Parliament kept the rights that the amendment would enshrine in the Bill.

The Minister said three things that gave me some comfort, the first of which was that Her Majesty’s Revenue and Customs would consult the industry on how the regime would work.

Stephen Hesford (Wirral, West) (Lab): Climbdown.

The Chairman: Order. The hon. Member for Wirral, West must not interrupt the hon. Gentleman when he is speaking.

Mr. Hoban: The hon. Lady said that the consultation process included principles to enable clarity of how the regime would operate. The third thing that the Minister said was reassuring. She said that there would be transparency about the EU arrangements and that they would be posted on a website so that there was no doubt about what instruments were deemed investment transactions and what instruments were not. In that spirit of openness and consultation, I am minded to withdraw the amendment. However, if HMRC goes

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back to its previous habit of not consulting fully with the industry, the industry will put pressure on the Treasury to reinstate parliamentary scrutiny of the legislation. The amendments would be effective only if the open spirit of consultation that the Minister spoke about earlier continues. If it does, there will be no uncertainty. If it does not, there will be and we shall return to such issues when we discuss the Finance Bill further.

The Economic Secretary to the Treasury (Kitty Ussher): I am bemused as to why the hon. Gentleman made it clear a few hours ago that he would press the amendment to a Division. I said that that meant he did not understand the financial services sector, and he has now decided not to call a Division. What happened in the intervening few hours?

Mr. Hoban: The Minister should quit while she is ahead, rather than push her luck. I have reflected on what she said. Her argument improved somewhat, after a bit of pressure from the Tory Benches. Her exchanges towards the end of the debate on the amendments were much clearer than they were at the start. I do not want to draw out the proceedings for too much longer. Some safeguards that are in place should ensure that the provision works well and, if it is does not, I am sure that the industry will tell us. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 16 agreed to.

Clause 36 ordered to stand part of the Bill.

Clause 37

Individual investment plan regulations

Question proposed, That the clause stand part of the Bill.

Mr. Hoban: I cannot let the clause pass by without making some comments, which I know will be of particular interest to my hon. Friend the Member for Hammersmith and Fulham. The clause gives the Treasury the power to introduce by way of statutory instrument the reinstatement of tax advantages that would have been lost if holders of individual savings accounts in Northern Rock had taken out their money when the run on Northern Rock took place. Although it does not immediately leap out from the explanatory notes, it is clear from the regulations that the Minister kindly supplied last week that they relate to Northern Rock. Indeed, the press notice that was published last year made it clear that, after it was leaked that the Bank of England was acting as a lender of last resort to Northern Rock, a number of members of the public sought to withdraw their deposits from the bank because they felt that it was not a safe place to keep their cash. That triggered queues around the block, both literally and metaphorically, as many tried to withdraw their money over the internet.

Some of those customers held their money in cash ISAs. To lure back depositors and try to rebuild the retail deposit base of Northern Rock, the Minster announced that people who put their money back into the ISA with Northern Rock would have their tax relief reinstated. That also applied to people who redeposited

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their ISA money with other ISA providers, but as I understand it, the measure was particularly aimed at rebuilding the deposit base of Northern Rock. This debate is one of the rare occasions that we have for parliamentary scrutiny on what is happening with Northern Rock.

Mr. Greg Hands (Hammersmith and Fulham) (Con): Does my hon. Friend share my general concern that it does not matter what is asked about Northern Rock, because it is being held at arm’s length in a special purpose company, so that Ministers are unable to answer any questions. I hope that my hon. Friend has greater luck today.

Mr. Hoban: My hon. Friend is right. We have both experienced the problems of trying to ask questions about Northern Rock, and we get poor answers in response, if we are answered at all. However, I might chance my arm and ask the Minister how much that change will cost the Government. What additional tax relief will be granted to customers who took their money out of their Northern Rock ISA and redeposited it with Northern Rock or another provider? Given that banks, as I understand it, must provide returns to the Treasury on ISAs and such things, I am sure that they have that information. Therefore, perhaps she could also tell us how much money has been redeposited in Northern Rock and, therefore, what the tax cost would be—[ Interruption. ] The Minister is looking quizzical. Can she tell us how much of the money that was originally taken out from cash ISAs in Northern Rock has been redeposited, and what the tax cost of doing so has been?

Kitty Ussher: I will answer the hon. Gentleman’s question, but I also want to make some remarks on the background, because he implied that the purpose of clause 37 was to help us rebuild Northern Rock’s retail base, which is not true at all. It was a logical point of fairness that I feel followed absolutely from the decision to guarantee normal retail depositors. The clause will allow retrospective ISA regulations to be laid, committing those individuals who withdrew cash from their Northern Rock ISA between 13 and 19 September 2007 to reinvest it in another ISA by 5 April 2008 and restoring the tax advantage that they would otherwise have lost. That is because in that window from 13 to 19 September inclusive, some ISA holders withdrew money from their ISA held with Northern Rock. By withdrawing their funds in cash, those individuals lost their ISA tax advantage for money deposited in 2007-08 and in earlier years.

Under existing ISA rules, if they had wanted to transfer their funds to a different ISA provider and retain their tax advantages, they should have arranged for Northern Rock to transfer their investment to another ISA provider. Before the Government gave that guarantee, I think that it was reasonable for them to presume that Northern Rock might be unable to transfer to another provider, so we are simply compensating for the actions taken at that time. We decided that the need to protect the financial interests of those ISA savers in exceptional circumstances justified a departure from the usual transfer rules. Therefore, on 18 October I announced that the funds that had been withdrawn between 13 and 19 September inclusive could be put back into any cash

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ISA with any provider by no later than 5 April this year and that the tax advantages would be restored. We announced that we would do so in this way. It was not an attempt to rebuild the retail base; it was a matter of fairness.

The hon. Gentleman asked about the cost to the Exchequer. There will be no tax cost at all, because we are simply restoring a tax advantage that customers already had. I do not have the figures for the overall amount of retail deposits currently in the bank. They will be made available through the business plan in the normal way.

Mr. Hoban: I am sure that when the announcement on the matter was spun, back in October, it was not a benign gesture by the Government to encourage people to put their money back into other providers. It was pretty much aimed at encouraging people to put their money back into Northern Rock, since the retail deposit base was a key factor in its problems. It was a way of rebuilding the Rock.

I am grateful to the Minister for suggesting that information on the deposit base might be in the business plan. The only problem is that so far we have been denied sight of the business plan, so that was not a satisfactory answer. Also, I would have thought that there would be a tax cost if people were unable to redeposit money into ISAs. Under normal circumstances, there would have been a tax saving to the Government from the money coming out, because people could not reinvest it in ISAs.

The Minister’s answers were not particularly satisfactory, but we do not wish to deny tax relief to people who have already suffered uncertainty as a result of the problems of Northern Rock and how the lender of last resort was handled. I therefore do not propose to vote against clause stand part.

Question put and agreed to.

Clause 37 ordered to stand part of the Bill.

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Prepared 21 May 2008