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Session 2007 - 08
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General Committee Debates

Finance Bill

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

Public Bill Committee

Thursday 22 May 2008


[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)

9 am
The Financial Secretary to the Treasury (Jane Kennedy): On a point of order, Mr. Hood. It is a pleasure to be here this morning on the last day before the Whitsun recess. Speaking for myself, I need a haircut and a holiday, although not necessarily in that order. My compliments to you, Mr. Hood, for stealing the hands of time and correcting the clock. It will help us to a great extent.
I wish to update the Committee. I undertook to publish amendments relating to residents and non-domiciles for a future debate. I said that they would be laid as soon as they were available and that full explanatory notes would be provided for each one. To provide the maximum opportunity for scrutiny before the debate, I propose to table each amendment formally when it has been prepared rather than release all the amendments at the same time. They will then be published on Her Majesty’s Revenue and Customs website to ensure that the widest possible audience can be informed of their contents before they are discussed in Committee. If the amendments are ready for release during the Whitsun recess, I shall place them on HMRC website in draft, having circulated them to the Committee, and then table them during the week commencing 2 June when the House returns from the recess. I anticipate that that will happen with the first such amendment, which is to paragraphs 37 and 38 of schedule 7.
The Chairman: That was not a point of order for the Chair. However, the Committee will be grateful to the Minister for the information.

Clause 50

Gift aid: payments to charities
Question proposed, That the clause stand part of the Bill.
Mr. Philip Hammond (Runnymede and Weybridge) (Con): I have a couple of points to make about the clause, but I wonder whether it would be more appropriate to make them when we speak to schedule 19, which contains the substance of the matters raised by the clause. I shall be happy to do so.
Question put and agreed to.
Clause 50 ordered to stand part of the Bill.

Schedule 19

Reduction of basic rate of income tax: transitional relief for gift aid charities
Question proposed, That this schedule be the Nineteenth schedule to the Bill.
Mr. Hammond: The schedule introduces a provision for HMRC to make payments to charities in respect of donations that they receive that are subject to the gift aid scheme. It is to be called the gift aid supplement. The measure is intended to address the consequences of the reduction in the basic rate of income tax from 22p to 20p. An essential part of the symmetry of the arrangements of reliefs and allowances against income tax is that, when the income tax rate goes down, the value of the relief goes down. For my part, I certainly regard it as an important principle that tax reliefs are given against income tax, so when the rate reduces, the value of the relief will reduce.
Increasingly, however, we are debating the effect of reliefs, such as the impact on pension savings when the value of the tax relief is reduced. I am sure that other hon. Members who have a pension provision that they fund themselves will have had the same experience as me, and have received a letter from their pension provider telling them that because the income tax rate has gone down, their contribution will have to increase to maintain the benefit level.
Although the difficulties for charities were identified when the reduction in the basic rate of income tax was announced in the 2007 Budget, they are particularly vulnerable to the loss of income arising from the reduction. When that reduction was announced, it was also announced that there would be a thorough review of the take-up of gift aid. The implication—what was probably in the mind of the Government at that time—was a recognition that charities would face a loss of income. In a rational world, income tax-paying donors would give a little more, because they were being taxed a little less, and thus would compensate for the loss of the gift aid tax relief. In the real world, however, people do not make those fine-tuned adjustments. Certainly, when people are under pressure financially in other areas they are unlikely to make that adjustment. The thorough review of take-up was perhaps seen as a way of squaring the circle. If more effective use could be made of the gift aid scheme so that more of the money donated to charities was channelled through it, perhaps there was a way to increase the amount of income on which gift aid relief was claimed and thus compensate charities for the cut in the basic rate of income tax.
A consultation paper was published last summer and the view of the charitable sector is that there was not a great deal of meat in it. The sector responded by making various proposals, some of which were quite radical, about how the gift aid scheme might operate. None of those proposals, unless the Minister tells us differently today, has been taken up by the Government, who have no stated intention of doing so. The proposals included, for example, introducing some form of automatic refund gift aid contributions using an averaging process.
The proposal in the Bill was welcomed by the charitable sector. If you were told, Mr. Hood, that you would be deprived of X per cent. of your income, you might worry about it for a year, but if you were then told that somebody would give it back to you for three years, your initial reaction would be one of gratitude. Perhaps only after two years would you start to think about what would happen after the three years. To some extent, this announcement has taken the pressure off the search for a longer-term solution to improve the take-up of gift aid or find another way of mending the hole in the fundraising of charitable organisations. We should try collectively to ensure that we do not allow this measure to distract attention from the underlying issue.
I have a specific but important question on schedule 19. Paragraph 1(5) will introduce condition D. There are four conditions on the receipt of gift aid supplement. Condition D is that the claim by the charity is allowed, which strikes the Opposition and most people in the charitable sector as rather an odd condition. It implies a degree of discretion by HMRC on whether to allow a claim by a charity. It is not a usual provision for an entitlement written into law that the claim to the entitlement is to be “allowed”, as if by some discretionary process.
I have not tabled an amendment to delete condition D because I would like to hear from the Minister how it is to be interpreted. Perhaps there is a technical reason for its inclusion, and the Minister can put on the record an assurance that properly made claims for gift aid supplement by charities will automatically be allowed, and that this is a mere piece of bureaucratic gobbledegook, not a real test implying that charities have to satisfy some additional conditionality that HMRC may introduce at an official level. That is the key issue that I wish to raise with regard to the schedule. If the Minister addresses it and the more general question about the medium-term solution, I should be very grateful.
9.15 am
Mr. Hammond: Does the hon. Gentleman not accept that that would lead to the decoupling of the concept that charitable giving is something that an individual can do out of their gross income As I made clear, I attach a lot of importance to the idea that certain things, such as charitable giving and pension contributions, can be done by an individual from their gross income, before the tax man has his share.
Dr. Palmer: That is an interesting point, but there is an essential difference between pension contributions and charitable ones. Pension contributions are, in effect, deferred income. If we, as individuals, have more immediately available income because tax rates go down, it is a rational and individual choice as to how much of that we choose to put into our pension funds. Whether we do, or do not, we are profiting directly. Charitable contributions are slightly different. Topping up our charitable contributions requires a separate decision. If we do not, do so the default position is that we profit but the charity loses. In the case of pension funds, we profit either way.
Basically, I welcome the principle that we need to consider the issues more widely. I am sure that the Financial Secretary will respond more fully to the specific point made by the hon. Gentleman, but HMRC has to protect itself against the possibility that the charity is unknowingly submitting a claim that is not valid—for instance, because the person who made a contribution to the charity is not a standard rate taxpayer.
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