Kitty
Ussher: I urge the Committee to resist the new clauses and
I shall explain why. This is an important subject and it is important
to debate it. However, the proposed new clauses will mean, as the hon.
Gentleman said, that any funds beyond those used to provide a minimum
retirement income via an annuity could be placed in a so-called
retirement income fund and taken out as required. We urge Committee
members to resist the proposed new clauses because they are unfair and
would mean that, by the time someone retired, due to the effect of the
favourable tax treatment, a significant proportion of their pension
fund would comprise tax relief: some £17.5 billion, nationally,
in 2007-08. To allow better-off pensioners to take advantage of that by
spending that relief at will when others do not do so because they
cannot afford it, is simply not fair. To do so would be to take money
from the normal taxpayer to benefit the richest. That is why we do not
support
it. Some
specific issues could also arise. For example, such a measure could
encourage tax avoidance, because somebody could become non-resident
just before they were 75, withdraw all the fund at 75, free of UK tax,
and return in the next year, which would lead to a cost for the
Exchequer and, potentially, boost inheritances in a way that is also
unfair. We urge all Committee members to oppose
it.
Mr.
Hoban: The Minister’s arguments have not advanced
the debate very far. The Treasury has deployed this line on a number of
occasions, but it does not recognise how some of the issues can be
dealt with. For example, it is
possible to levy an additional tax charge on inheritance that removes
that element of the savings that is generated by tax revenue. It is
estimated that about 55 per cent. of the unutilised fund on death is
down to tax benefits. So there is a way of trying to square that circle
by applying a higher tax
rate. The
Government fail to recognise that, although at the moment only a
certain small group of people may benefit from this proposed measure,
the reality is that ever more people will go down the route of being
part of defined contribution schemes. Of course, in 2012 the personal
account, which is a defined contribution scheme, will come into place
and the defined benefits schemes will be closing down. More and more
people, even those on relatively modest incomes, who have saved under
defined contribution schemes throughout their lives, will find that
they have built up a pension pot on retirement that could benefit them
if they opted out of compulsory
annuitisation. The
Government are digging their heels in, but the tide is moving against
them on this policy and it is time that they started taking these
challenges seriously. I urge Treasury Ministers to listen to the logic
of the arguments. I beg to ask leave to withdraw the
motion. Motion
and clause, by leave,
withdrawn.
New
Clause
21Missing
trader fraud ‘HMRC shall lay
a report before Parliament every three months on the measures taken by
the Government to combat missing trader intra community (MTIC) fraud
and the effects those measures are having on the VAT compliance system
generally.’.—[Mr.
Gauke.] Brought
up, and read the First
time.
Mr.
Gauke: I beg to move, That the clause be read a Second
time.
New clause 21
relates to missing trader intra-community fraud, an important matter
that we have considered in the past two finance Bills. The most common
or notable form of MTIC fraud is carousel fraud, which is, to use the
Treasury’s words,
“a circular
trading pattern that allows the same goods to be imported or exported
many times, with an unpaid VAT liability and a corresponding VAT
repayment being created in each turn of the
carousel”. MTIC
fraud is significant fraud that has cost the Exchequer several billion
pounds a year—last year, HMRC assessed the figure at £2
billion to £3 billion a year—in recent years. Admittedly,
there has been a change in methodology for calculating that
figure—it was somewhat higher, at about £4 billion to
£5 billion. Such is the significance of the fraud that the
Office for National Statistics believe that it distorts our trade
figures.
It is a hugely
important matter that has been the focus of attention from the Treasury
and HMRC, and I am sure that all Committee members recognise that it is
necessary to address it seriously. There is evidence, which I suspect
we will hear in a moment, of significant improvements in tackling MTIC
fraud. The new clause gives me the opportunity to ask for further
details about those improvements. We saw signs of them last year during
a debate on a similar new clause, when the
Government showed signs of improvement in 2006-07. I should be grateful
for confirmation of the numbers, and for some assessment of what has
happened in 2007-08. One reason for
the improvement is the reverse charge, which we discussed at some
length during the debate on the Finance Act 2006. Essentially, the
direction in which VAT was paid was reversed to counter
fraudsters’ efforts. The revisions that we debated in 2006 could
come into effect only after certain derogations had been obtained from
the European Union. In the interests of time, I will not go into an
exposition of how lengthy and difficult a process that was, but it took
many months for the Government’s proposals to be negotiated and
agreed. Negotiating difficulties arose, and it is widely believed that
the French used the UK’s request as a rather strong bargaining
tool in other matters.
Three points
are worth noting from the negotiations. Amendments and concessions had
to be made to the Government’s original plans. The reverse
charge was narrowly applied to mobile phones and computer chips. The
reason for choosing those particular goods is that they are the goods
most commonly used for MTIC fraud. However, fraudsters are cunning
people, and there is a widely recognised danger that the fraud can
mutate to other products. Is there any evidence that MTIC fraud has
mutated into other products, as per the concerns that were expressed
last year?
The second
concession was that the de minimis amount for which the reverse charge
could apply was increased from £1,000 to £5,000. That is
likely not to be too significant, but the third aspect is more
significant. The original request for a derogation made by the
Government was for three years, and instead we got two years. That
means that the issue is up for renewal relatively soon. Given the
difficulties in negotiating the original derogation, which I mentioned,
it would be helpful to have some indication of what progress is being
made. I
raise those points because this is an important matter and it is
important that Parliament has an opportunity to scrutinise and to gain
an understanding of what is happening. That is why we tabled new clause
21, which would require the Government to lay a quarterly report before
Parliament outlining the measures that have been taken to combat MTIC
fraud and the effect that those measures are having on VAT compliance
systems
generally. I
assume that we are looking to extend the derogation. The reverse charge
appears to have been substantially effective in tackling MTIC fraud, so
the Committee would be concerned if there was any question that it
would not be extended. The potential cost to the Exchequer is in the
billions of
pounds. The
second key element of the Government’s strategy to tackle MTIC
fraud was the extended verification procedure for VAT repayments. New
clause 21 draws attention to the fact that we would want a report to
cover the effect that the
“measures are
having on the VAT compliance system
generally”. Companies,
particularly importers and exporters of mobile phones and computer
chips, feel that they are being treated unfairly, that they have not
received the VAT repayments they are due and, as a consequence, that
they are out of pocket for some substantial sums of
money.
Mr.
Hammond: Is my hon. Friend aware of the problem that has
befallen many new but legitimate businesses that happen to operate in
that area? The additional checks that HMRC is carrying out have led to
long delays in registration for companies operating in those types of
businesses.
Mr.
Gauke: I was going to touch briefly on VAT registrations,
but I first wish to complete my remarks on VAT repayments. The
Government presented a lot of evidence last year to suggest that the
extended verification procedures were extremely well targeted, and that
something like 95 per cent. of the parties involved in cases of
extended verification were somewhere in a chain—perhaps they
were not directly involved—in which MTIC fraud occurred. I would
be grateful for an assessment of whether the extended verification
process is as effective and as well targeted as the Government claimed
last year. Do they still hold that view after a further year’s
experience? My
hon. Friend raised the important point of delays in VAT registration. I
am sure that the Minister will say, and we should acknowledge, that
there have been substantial improvements in registration times. I do
not think that anyone would disagree that they were frankly abysmal a
year or so ago. They have improved significantly, although it is worth
pointing out that the HMRC targets and figures that we see on the
matter relate to what are described as low-risk cases. There are still
high-risk cases. Any light the Minister is able to shed on what is
happening with the high-risk cases and the time it is taking to process
them would be greatly appreciated. We would also appreciate further
information on whether they are
targeted. 8.30
pm In
the course of my remarks, I have asked many of the questions to which I
would hope answers can be provided to Parliament on a regular basis.
That is the purpose of new clause 21, which deals with a matter of
considerable public concern to those who are interested in the public
finances and the fact that a substantial fraud needs to be tackled.
Equally, it is of concern to new businesses seeking to obtain VAT
registration and to existing businesses seeking to receive VAT
repayments. The matter has placed HMRC under considerable
strain. In
the light of all those issues, we think it would be beneficial if
Parliament was provided with a quarterly report so that it is better
informed about the matter. In essence, the issue is not controversial.
I believe both sides of the Committee want to address it but not to
leave innocent businesses in an unfair and unfortunate position. We
think that we would be in a stronger position to address those concerns
if more information were made available to Parliament so that we can
have a better informed
debate.
Jane
Kennedy: Annual estimates of MTIC fraud are published with
other indirect tax fraud estimates alongside the Chancellor’s
pre-Budget report, and they show, as the hon. Gentleman mentioned, that
the level of attempted fraud reduced by around £1.5 billion in
2006-07 on the previous year. The UK is the only EU country to produce
such annual estimates of this
fraud. I
am sure the Committee will appreciate that exposing more information
more systematically and frequently about the operation of HMRC’s
strategy to combat the
fraud, as suggested by the new clause, could undermine the strategy by
giving information to fraudsters. I would love to engage with the hon.
Member for South-West Hertfordshire in further detail on the matter,
but now is neither the time nor the
place. Mr.
Gauke: I am sorry that the Financial Secretary does not
want to engage on this important matter on this occasion. I would have
been grateful in particular for an update on how the figures are
looking for 2007-08, but we are not going to get them, at least not
this
evening. Although
I am not persuaded by the Minister’s short rebuttal, I do not
intend to press new clause 21 to a vote. I beg to ask leave to withdraw
the
motion. Motion
and clause, by leave, withdrawn.
New Clause
27Gift
aid averaging scheme ‘The
Treasury shall, before the publication of the 2008 Pre-Budget report,
prepare and lay before the House of Commons a feasibility study,
including an assessment of the cost and revenue implications, of
implementing a system of automatic refund of tax credits in respect of
gift aid contributions using an averaging
process.’.—[Mr.
Hammond.] Brought
up, and read the First
time.
Mr.
Hammond: I beg to move, That the clause be read a Second
time. This
is an important new clause, and there is much that I could say about
it. However, in view of the Committee’s evident desire to
progress, I shall try to be
brief. The
Government have undertaken a consultation about the gift aid scheme. We
believe that the scheme is important. It encourages charitable giving,
and at a time when charities and voluntary sector organisations are
playing an increasing role in delivering public services and acting as
contractors to public bodies, it is important that they retain their
independence. Independence, of course, comes from having an independent
financial base. A substantial donor base for any charity means that it
can enter into publicly funded contracts without compromising its
independence and essential
ethos. We
argue that the gift aid system is in need of simplification to ease the
administrative burden on charities, but the link between tax relief and
donations is important to preserve the principle that charitable
donations should be made out of gross
income. The
purpose of the new clause is to probe the Government’s thinking
on the issue and to find out what assessment they have made of the
validity of the approach it suggests, which is an automatic refund of
tax credits in respect of gift aid contributions using an averaging
process. At present, every time a gift aid contribution is made, the
taxpayer has to complete a form. Those forms have to be processed, the
charity in question has to preserve the documents for a significant
period and there is a considerable burden of administration, both for
the charities in question and for HMRC.
The Government
consultation that I referred to earlier did not lead to any substantive
changes. It was sparked by the proposals in the 2007 Budget to reduce
the basic rate of income tax—the other side of the coin to the
now infamous abolition of the 10p rate. Although a reduction of the
basic rate of income tax is welcomed by taxpayers, it also means that
charities receiving gift aid donations receive somewhat less in tax
credit for each £1 of donation that they
take.
When the then
Chancellor announced the consultation on the gift aid scheme, charities
had quite high hopes and they put forward a number of proposals, which
I shall not go into in detail because of the time. One of the proposals
that had wide support from the charitable sector was a revenue-neutral
averaging scheme. It would mean that instead of keeping individual
records for taxpayers who made charitable donations, charities would
receive from HMRC a tax credit based on an averaging of the tax credit
due, recognising that part of the donor base are taxpayers at the
standard or higher rate, part may be UK resident and domiciled
non-taxpayers who are on incomes that are too low, although it is
unlikely that they would be a significant component, and part may be
high earners who for one reason or another are not paying UK income
tax.
I emphasise
the fact that the proposal was that the credit rate should be set at a
level that was revenue neutral. It was not an attempt to increase the
net income of the charitable sector or to deprive HMRC of any of its
tax revenue, but an attempt to create a win-win situation where less of
that valuable money is lost in administration costs. The charitable
sector was rather disappointed with the Government’s response,
which was to announce a welcome but temporary transitional arrangement
to recognise the burden on charities of the reduction in the basic rate
of income tax, but with no guarantee that it would be
extended.
The new clause
asks the Government to produce a report on the feasibility and the
costs and benefits of implementing such an automatic rebate-averaged
system. The purpose of tabling it is to probe the Government, to try to
understand whether they have any intention of going further with the
suggestions that were put to them during the consultation, and whether
the charitable sector might hope that over the next year or so the
Government will come forward with further thinking in this area. It is
with some consideration that I say over the next year or so, because it
is certainly an area that we, in government, would want to look at. I
do not expect the Financial Secretary to make a commitment today
because many issues would have to be considered, but we would be
interested to hear whether she at least accepts that the principle is
worthy of further investigation and whether she intends to undertake
such an investigation.
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