Finance Bill

[back to previous text]

Stephen Pound: On the subject of a fluid economy, the record holder in my constituency is a student who came here 14 years ago to study hospitality and catering and is still studying. She is legally here by constantly renewing her student visa. The hon. Gentleman is talking about a specific group of people. At present, overseas students cannot work for more than 16 hours a week if they are here on a student visa. Would his amendment make an enormous difference, or is it—I hesitate to say it—perhaps a little too loosely drawn?
Mr. Browne: I have already conceded that I did not anticipate that the Committee would support my amendment. I do not think that the Government have supported a single non-Government amendment yet. Actually, I think that there was one. However, I was keen to make the points and it would be to the good if the Government chose to accept the amendment. If the Government concede the thrust of the argument, I would regard it as significant progress.
Mr. Hands: The hon. Gentleman makes an interesting case. It seems that there is a good chance that that sort of overseas student, especially if they go back to their country of origin or any other country, could earn more than £2,000 during that year. They would therefore be caught under these regulations, in my understanding.
6.15 pm
Mr. Browne: Mine, too. We will get on to a greater deliberation of these matters, I anticipate, under schedule 7. However, this is important, because we are talking about £1.5 billion of income to British universities per year. There are large numbers of British universities now that would not function in their current, recognisable form without that. Indeed, it is an under-appreciated fact among domestic students that a lot of the activities of British universities are effectively subsidised by the fees of overseas students. We do not wish to put that revenue at risk, and that is the fear I am touching upon.
Before I conclude, it is relevant to, but not directly encapsulated in the amendment, that I received a representation from the City of London. I will just quote two sentences from its letter to me:
“Although it is not dealt with in your amendment, it is apparent from the Bill as currently drafted that a non-domiciled child who turns 18 by the end of the tax year, 5th April, and has then been resident for at least 7 of the past 9 years, will be required to pay the charge in full on the same basis as any other adult non-domicile. Thus a sixth-former who turns 18 before 5 April of his or her final year at school could attract the charge.”
It would be very interesting to hear the Minister’s response to that point.
I have made the specific point that there is a big market in higher education for attracting overseas students to this country, and of course they make a big contribution by enriching our institutions in ways beyond the merely financial. However, there is also, particularly with relation to independent schools, an important market in attracting students from elsewhere—or more specifically their parents—because of the high reputation that British independent schools enjoy in many parts of the globe. That too is an important feature of their income, so we would not wish to jeopardise that either.
Ben Chapman (Wirral, South) (Lab): Has the hon. Gentleman been able to put any figures to the suggestion that students may not come or may not stay in the United Kingdom? These students are often paying their own way, and are not on scholarships. They often have wealthy parents and make not just a contribution to the university, but a considerable contribution to the UK economy, both locally and more widely.
Mr. Bone: I am grateful for the hon. Gentleman’s points. I remember when I was on the former Trade and Industry Committee, there was an inquiry and we were very concerned about the fact that other countries were more successful than us at getting students and that we were declining in relative terms. The detail of this proposal does not matter too much, but, if it gets around that students who go to the United Kingdom will be hit heavily for tax, they will not come, will they?
Mr. Browne: That is precisely my fear. I am generalising, inevitably, but students coming to this country take into account a range of factors. There are some British educational institutions—most notably Oxford and Cambridge universities—that enjoy a worldwide reputation for excellence. Being in a country where the main language spoken is English is no doubt attractive to many people, so there are also factors beyond the immediate control of the Government. No doubt, one of the calculations in the minds of the potential students is a financial one. That is quite right, because they pay hefty fees to attend British universities and one would expect them to make such a calculation.
Stewart Hosie (Dundee, East) (SNP): The hon. Gentleman will be aware that, some years ago, the Fresh Talent initiative in Scotland allowed graduate students from overseas to stay in work for two years, something which has now been undertaken in the whole of the UK. Do measures such as this risk undermining the potential of those initiatives to grow the population and keep skilled people who have been educated here? Does he agree that instead of using the word “enrolled”, his amendment should have specified being engaged in full-time education, as his new clause 5 did, and also in part-time education up to a minimum number of hours? I am sympathetic to the argument but not sure that the wording is as tight as it might have been.
Mr. Browne: I am grateful for that intervention because I am willing to concede that my skills do not lie entirely in the area of drafting Parliamentary amendments. Others can conclude where they do lie. I hope that this has been a useful debate for the Committee. It would be helpful to have the Minister’s response to the amendments about the status of students in higher education. It would also help if she could respond to the point raised with me by Mr. Double from the City of London about whether the clock starts ticking on overseas residents who are in school-level education but turn 18 in the last year of their sixth form before 5 April and whether that entire period they have spent in school—not just the last few weeks before they do their A-levels—counts towards the regulations that the Government are bringing in. If so, that would obviously have a very damaging impact on school-level institutions that attract overseas students.
The Chairman: Before I call the Opposition spokesman, may I say to the Committee that I understand from the usual channels that they would like to adjourn consideration at 7 o’clock. There is, of course, a vote at 7 o’clock. I can only express the hope that those who are speaking can so order their comments that the Government Whip can rise in order to move that further consideration be now adjourned, otherwise it will be necessary to come back after the Division at 7 o’clock. If it has been agreed through the usual channels that the Committee wishes to adjourn, I would ask Members to note what must be done.
Mr. Mark Hoban (Fareham) (Con): May I say what a pleasure it is to serve under your chairmanship at this late hour of this afternoon’s proceedings, Sir Nicholas?
Lest any Member doubt the fact that the hon. Member for Ealing, North is a graduate of the LSE, let me assure them that in my first year there, he was the general secretary of the students union. One of us appears to have aged better than the other but I remember him fondly from those days. I also assure the Committee that nothing has changed in the 20-plus years since we were at the LSE.
I am not going to go over points made by the hon. Member for Taunton about the contribution of the higher education sector to the UK economy. It plays a significant role and makes a major contribution in subsidising the costs of UK students. We should acknowledge that.
Another issue in connection with students in full-time higher education has been raised by a number of people in the City of London. I am not sure whether it has been raised by the corporation itself, but it has been raised by other bodies in the City. It was also debated in the House of Lords Economic Affairs Sub-Committee on the Finance Bill. Ian Menzies-Conacher said in his evidence to the Sub-Committee:
“The simple thing is we would like to see time spent in full time education simply disregarded in terms of calculating the seven years. Our problem is that we would like to recruit non-residents—Chinese, Indians—for obvious the time they have been educated in a UK university with an MBA they are starting to approach the end of the seven years before we have even got them on board.”
The same point was made to me not only by the British Bankers Association but by the London Investment Banking Association. It is one of the strengths of London and the financial services sector that they draw on a pool of talent, some of which comes from UK universities in the form of non-doms who could be deemed to have been resident for the duration of their course. If they have already spent three years on a degree and a couple of years on a master’s and qualified under the rules that we discussed in schedule 7, they may be approaching the seven-year point at which they will have to decide whether to be taxed on an arising basis or to enjoy the remittance basis and pay the £30,000. That is an interesting argument, but there are some problems with it. We need to understand why that group deserves exemption when other groups might not. If it is because of their economic contribution, there may be cases to be argued for other groups, such as international bankers. Should they be exempted?
Mr. Browne: Full-time students on the five-year course that the hon. Gentleman described would not be earning money during that time, apart from pocket money, possibly, on the side. That is an important consideration that would not apply to the other example.
Mr. Hoban: It depends. We need to be careful. I will be interested to hear the Minister’s response, because the issue raises questions about who would qualify. They may well have remittances from overseas that would start that seven-year clock ticking, but my point is that if we exempt students on the basis of their future economic contribution, should we exempt international bankers as well? I do not think that it is anyone’s intention to do so.
If it is an exemption for study, why restrict it to higher education? I know from my own experience that it takes a minimum of three years to qualify as a chartered accountant. Only after someone has qualified can they maximise their potential benefit to the firm employing them. Should their seven years start when they qualify? What about lawyers? I think that it takes five years to qualify as a lawyer. I am not a lawyer myself but a chartered accountant, so I cannot say with the same degree of certainty, but becoming a lawyer involves a law degree, a year of law school and a year in articles. At what point should the seven years start? If we are going to consider exemptions, we need to be clear what grounds they are based on. I do not think that it is clear at the moment.
I point out to the hon. Member for Taunton, who has accepted that draftmanship is not his reason for being in Parliament, that even his two amendments that we are discussing have different wordings, which would have an impact. Amendment No. 47 says:
“Subsection (1) does not apply to an individual who is enrolled in a higher education institution in the United Kingdom.’.”
Far be it from me to suggest how people might take advantage of tax rules, but I can imagine all non-dom London employees of Goldman Sachs suddenly enrolling in higher education institutions.
Even his amendment No. 48, which says
“was enrolled in full-time higher education”
does not address the issue of engagement and being on the course. I recognise the arguments that have been made for the exemption for students in higher education, but I am not sure how we could tighten the wording to reduce misuse. It is quite a challenge to get that right. This issue has been raised not just by the Russell group, but by the financial services sector. All will be listening carefully to the Financial Secretary’s response.
6.30 pm
Jane Kennedy: It has already been suggested that the amendments might be described as loosely worded. They are technically deficient, largely for the reasons described by the hon. Member for Fareham. They are also absolutely unnecessary. The day-counting mechanism in clause 22 applies only to determining whether somebody who is not a UK resident should be treated as resident for tax purposes. It does not arise for students because the vast majority of higher education students live in the UK full time during their course. They are therefore tax resident from the moment they arrive. The day-counting process is simply irrelevant to their circumstances. They will be completely unaffected by the changes in clause 22.
As for the remainder, it is not clear that there is a material issue to be dealt with. Everybody remains exempt from the £30,000 charge while they are under 18. A first degree lasting three or four years will not be enough to trigger the new seven-years-out-of-10 test that controls the application of the £30,000 remittance basis charge. We accept that it is right to exempt children, but the counting starts from the moment of arrival of a non-domicile who comes to be resident in the UK. The hon. Member for Taunton is right in the description that the City raised with him that a child who arrives at the age of 5 will become liable for the charge on turning 18 if they opt to use the remittance basis. That goes to the nub of the debate.
There was political agreement across the House that the remittance basis needed to be reformed. There were clear differences about how we should do that. I believe that we have brought forward a set of changes that make necessary improvements to the regime to close loopholes that were widely regarded as being abused to a high degree. At the same time, we have not imposed a charge immediately on someone’s arrival, which is what the party of the hon. Member for Fareham proposed. That was clearly anti-competitive.
If a person turning 18 decided to use the remittance basis, it would be because they had access to offshore funds totalling in excess of £1.6 million. Such people may be doing a Saturday job, but it would not be in the same context that my children would be working on a Saturday. My children would be doing so because I had insisted that they go out and earn their own keep to a certain extent. It is wrong to paint the picture that there are hundreds, possibly thousands, of students coming to the UK who may be affected by this measure. That is not the case. It is also important to remember that under many double taxation agreements, money brought into the UK to support somebody’s studies is not taxable. The only students who would be opting for the remittance basis would be those who had been in the UK for a long time and had considerable offshore income that they can afford to leave outside the UK.
It is pointless reiterating this point. I have explained broadly why I think that the amendments are completely unnecessary. I will give way because I wish to make one or two points before I finish.
Previous Contents Continue
House of Commons 
home page Parliament home page House of 
Lords home page search page enquiries ordering index

©Parliamentary copyright 2008
Prepared 18 June 2008