 House of Commons |
Session 2007 - 08 Publications on the internet General Committee Debates Finance |
Finance Bill |
The Committee consisted of the following Members:Alan
Sandall, James Davies, Committee
Clerks † attended the
Committee Public Bill CommitteeThursday 22 May 2008(Morning)[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 50Gift
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 19Reduction
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 announcement in the 2008
Budget of the measures in schedule 19 reflects the failure of the
process that was kicked off in the 2007 Budget, to try
to find another way of compensating charities by improving the uptake of
gift aid. It would be useful if the Financial Secretary made it clear
to the Committee whether it is still the Government’s objective
in the long term to improve the take-up of gift aid in charitable
giving, and whether what we have before us is, in fact, the
Government’s medium-term solution. The schedule introduces a
transitional relief, whereby charities will be compensated directly
from HMRC for the reduced gift aid rebate and thus they will be kept
whole, as it were, for a period of three years. That prompts the
question, what happens after three years? Is that relief simply
intended as a stop-gap measure? One or two cynics have remarked that
three years gets us safely to the other side of the next general
election. Is the period of three years related in a logical and
explainable way to a longer-term strategy to address the underlying
problem that has been created? Members of the Committee probably all
agree that the best way to do that is to increase the take-up of gift
aid so that charities no longer have to rely on the supplementary
rebate that compensates for the missing income. Some indication from
the Minister on the long-term thinking would be greatly
appreciated. 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. Dr.
Nick Palmer (Broxtowe) (Lab): I welcome the comments we
have just heard, which were sensible and helpful. Going slightly wider,
it seems that there is no
overall rationale for how we work tax relief for charities. In effect,
we say that if a person is taxed at the standard rate we will refund
the tax to the charity, but if they are taxed at the higher rate, we
will refund it to the individual. That is something that we have got
used to, and it is not an unreasonable position in principle. However,
as the hon. Member for Runnymede and Weybridge said, that system leads
to uncertainty when the standard rate moves down or up. I wonder if, in
the longer term, we should look at decoupling this and having a
standard deduction that does not necessarily alter as the standard rate
moves up and
down. 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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