The Committee consisted of the following Members:
Simon Patrick, Committee Clerk
† attended the Committee
(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules)
‘(7) The Chancellor of the Exchequer shall bring forward in time for the 2014 Budget proposals in relation to exempting competitors in major sporting events, including the criteria for determining whether a sporting event meets the requirements for exempting competitors.’.
Nigel Mills: It is a pleasure to serve under your chairmanship again, Mr Amess. I rise with some trepidation to speak to this probing amendment. I hope we do not end up in the same confusion as last time. Perhaps I should just press it to a vote now and make life easier. This might look like a technical and pretty tedious amendment, but a real principle is at stake here in how we handle our tax system. Given a free choice, I suspect we would all choose to have a tax system where we publish clearly in law what the rules are and we task taxpayers with abiding by them and HMRC with enforcing them. What we do not want is the most skilful or well connected lobbyists being able to obtain tax relief for the various causes that they hold dear at the expense of others who do not get the same tax exemptions.
The danger is that we will start cherry-picking certain sporting events and give tax exemptions to them so we can encourage well paid, wealthy athletes to turn up here and compete, but certain other sporting events, which may not have the same sporting value for the country, will not get that tax exemption. That is the wrong way to go. We should set out rules under which we would be prepared, in very limited situations, to grant exemptions to certain sporting events to attract them to this country because we think the overall benefits would be worth the tax that we would be forgoing. The other option would be to change the rules on how we tax overseas sports stars, music entertainers, actors and so on. If the rules are deterring the brightest, the best and the most talented from coming here to play, perform and compete, perhaps we should change them completely rather than exempting certain sporting events.
I doubt that anyone in this room would object to us exempting competitors in the Olympics. That is not a sporting event in which athletes are paid to take part. There is no prize money. We would not seek to tax them on their earnings to get that event here. It was also a once in a generation, perhaps a once in a lifetime opportunity for the country. We would all clearly accept that there were so many benefits from having the Olympics that it was worth the tax relief that we granted. However, I am not so sure that the London anniversary games will meet those criteria. We have had a diamond league athletics meeting in London for as many years as I can remember. This year we are choosing to exempt the competitors at that diamond league in London from being taxed, on the basis that Usain Bolt will turn up and compete after he refused to come for the last three years.
I am not quite sure how this meeting meets the criteria for granting these exemptions. It is not a one-off, once in a generation event that we may never have again if we do not grant this tax relief. It is an annual meeting of athletes which has taken place in London in successive years. There is also a diamond league athletics meeting in Birmingham next month. We have not chosen to give tax exemptions for that meeting. If we wanted to give a huge tax exemption to try to boost the Olympic legacy and attract the best in the world to compete, would we choose to do that in the same stadium and the same area that had the Olympics last year or would we choose to do it in Birmingham which did not have all those bonuses? As a midlands MP, I suspect that we would have chosen the latter.
I can see the advantages of trying to build on the Olympic legacy by having a huge, high-profile event in the same stadium. I can understand why the Government have done this. We exempted the champions league final, which we debated for many hours a year ago, and we had concerns about why we were giving a nice tax-free evening to a lot of extremely well paid Spanish footballers. Well, we thought it would be Spanish footballers, but those teams were knocked out and it will be German footballers by and large. We could be using the tax revenue gained to support local sports clubs in our constituencies. If I remember rightly, all the members of that Committee managed to sneak in the names of all their local football clubs as bodies to which they would prefer to give taxpayer support, rather than overpaid footballers.
Ian Mearns (Gateshead) (Lab): I know that this is a probing amendment, but Gateshead is hosting the European athletics team championships on 22 and 23 June. Does the hon. Gentleman think that an event of that nature should be exempt from tax?
Nigel Mills: No. Exemptions should be given sparingly for once in a generation events that we would not otherwise get in this country; we should not exempt regular or frequent events such as that. If we are concerned that we cannot attract the best sporting talent, we should change the basic rule about when we tax sports stars, actors and film stars; we should not give exemptions to individual events as that is not the way that a tax regime should work.
I will not list all the athletics clubs in my constituency, although there are several, or all the other sports that could be covered by these various exemptions—
The important point of principle for a tax regime is whether we want general rules applied equally, or one-off exemptions that go to the best placed lobbyists. That could be the Usain Bolt tax exemption, or perhaps the Seb Coe tax exemption—he may now be held so highly in the national esteem that we would grant him anything he asked.
Ian Mearns: I understand the hon. Gentleman’s point, but events such as the European athletics team championships move around Europe and we are in competition with other event arenas in Europe to hold that championship. If we are to exempt events such as the champions league final to attract them to Britain, should we not give similar indemnities to events such as that?
Nigel Mills: I can see the hon. Gentleman’s point, but if he looks at the amendment I tabled, he will see that it would get the Government to bring forward, for next year’s Finance Bill, some criteria that set out how we determine which events get tax exemptions. Therefore, rather than people having to lobby and use media pressure or threats that stars would not attend, we would be able to point to the criteria we would use to decide whether sporting events would get a tax exemption. If the event in Gateshead met those criteria, it would get those tax exemptions, but I do not seek to list all the events that could be given exemptions.
We are on a slippery slope: what would happen if Bernie Ecclestone said, “Actually, I have got loads of cities around the world that want to have a Formula 1 grand prix. All my drivers are really miffed that they get a huge clobbering of tax by racing in the UK for that weekend. If you do not give my drivers a tax exemption, I will move the race to somewhere in the middle east where they will get that tax relief”? Would we be under pressure to say, “Okay, we will exempt the Formula 1 grand prix because Formula 1 has a huge base in the UK”—it has—“and loads of jobs are based here”?
If so, what would be next? Rafa Nadal has refused to play tennis at Queen’s Club for the last few years because he does not want to pay the UK tax bill, although he plays at Wimbledon and at the end-of-season championship. What would happen if he said that he would not play at the end-of-season championship and the organisers threatened to move it away again, as it has been around the world at various times? Would we exempt that tournament?
What if a load of golfers said, “Actually, we are not playing in the Open anymore because the tax bill is too high” and that historic championship came under threat? What if they all refused to come and play in the Ryder cup? Where do we draw the line at which we are prepared, for regular sporting events, to exempt a collection of very rich sports stars who refuse to come here because they do not want to pay the tax on the prize money that they would get from these tournaments?
If a large company were to say, “We will come to your country only if you give us a complete tax exemption,” we would all fall over in shock and horror and they
I accept that the Commonwealth games deserves to be in the same position as the Olympics, as athletes do not get paid and huge, lucrative earnings do not accrue from those events, but I am not convinced about the London anniversary games. I can see why it has been done and now that it is a done deal we need to stand by it, but in future Finance Bills should not grant tax relief to different one-off events each year. If certain events need tax exemptions for all those who take part, let us set out those criteria in law and enforce them fairly so that similar events get the same treatment and we do not have this spectre of exemptions for those with the best lobbyists.
In the last few weeks, we have seen all the media attention about musicians and actors wanting the same treatment to try to boost the cultural olympiad legacy; to try to get films made here and the best performers to appear here. We are in danger of completely undermining the basic rules for the most high-paid worldwide talent. I do not think that any of us want to see that.
Although I suspect the Minister will not accept the wording of my amendment, I urge him to reassert the policy that overseas sports stars, entertainers, musicians and so on get taxed on their winnings or earnings in the UK and on the proportion of their sponsorship that relates to them competing or performing in the UK. That is the basic rule.
If sports stars really do not want to come and compete in a high-profile sporting event taking place in the Olympic stadium a year after the Olympics, which will get them a huge worldwide profile and millions upon millions of television viewers, let us just say, “Don’t bother. Go and compete somewhere for the highest buck.” We should not pander to them by giving them those tax reliefs.
We can all remember the excitement, joy and pride felt in communities across the UK when the Olympic games came here last year. I recall that many miles away in my constituency of Kilmarnock and Loudoun, thousands of people lined the streets. A new athletics facility had opened in Kilmarnock just prior to that and there was the excitement of the Olympic torch wending its way through. At one point it was carried by David Coulter, who is a 7th dan karate champion and was twice world champion. People’s excitement at seeing a local sporting hero carry the Olympic torch through Kilmarnock was something to behold.
I hope that we are going to see that atmosphere rekindled at other sporting events, not least when the London 2012 anniversary games come to the Olympic park and when the Commonwealth games come to Glasgow in 2014. Such events are necessary to ensure that we build on the legacy of the Olympics, not just on the success of the games themselves but the goodwill and enthusiasm felt by adults and children across the country. I am sure we all have very positive examples at local level of that legacy.
I want to mention a couple of points about the importance of the Commonwealth games to Glasgow, of course, but also more widely in Scotland. Labour in the city council in Glasgow was very involved from the beginning in making and supporting the bid for the city to host the Commonwealth games. I know that many Scots and people in Glasgow thoroughly enjoyed the spectacle of the London 2012 games, watching it on television in their homes and at community events throughout the city, looking forward to the time that Glasgow would have the opportunity to have its own great sporting events. We want to build on that legacy.
The Minister told me that he is coming to Scotland soon and I hope other hon. Members will take the opportunity to visit Glasgow for the Commonwealth games, not least to sample the famous Glasgow hospitality on offer. [ Laughter. ] I leave it to hon. Members’ own thoughts as to which parts of the hospitality they would most like to sample.
Pamela Nash (Airdrie and Shotts) (Lab): That hospitality is not just in Glasgow but throughout the west of Scotland and Lanarkshire. I am sure my hon. Friend will agree that the legacy of the Commonwealth games will benefit everyone in Lanarkshire, including young people going into sports and local businesses. Does my hon. Friend welcome, as I do, the Daily Record headline on Monday that declared that Glasgow’s Commonwealth games will be as big as the Olympic games in London last year?
Cathy Jamieson: I thank my hon. Friend for those comments. I know the part of the world that she represents very well, as it is relatively close to my own constituency, and I am sure that people there will enjoy the games. The legacy of sporting activity and involvement—of seeing sports stars—is important, to inspire young people but also to give a boost to the many people who work week in, week out to support sport in their local community. She was right that it was a brilliant headline. The Daily Record is, of course, always on top of such issues, putting forward what is happening in Scotland and making the case for us. I hope that there will be as much excitement and enjoyment from the Commonwealth games as there was from the Olympics.
It is now only around 500 days until another important event in Scotland happening in 2014; there is somewhat less time until the Commonwealth games. Everything is well on track and within budget. Around £2 billion has been invested in games-related infrastructure, from the Commonwealth arena and the Sir Chris Hoy velodrome to the new Scottish Hydro arena. Many of us were disappointed that we will not see Sir Chris in action in Scotland in the same way as he was in the Olympics; none the less it is great to have that facility—named after him—made available to us, as one of several world-class sporting facilities owned and used by the people of Glasgow.
The Glasgow games have to produce a legacy of their own and 2014 has to provide tangible benefits. In terms of an economic legacy, that has already begun, with Glasgow city council investing in Glasgow guarantee of employment programmes, with the Commonwealth apprenticeship initiative, the Commonwealth jobs fund,
We have also seen the appointment of very high profile UNICEF ambassadors, Ewan McGregor and David Beckham, linked to the Commonwealth games, to ensure there is that inspirational approach of involving young people, and to ensure the games have a legacy not just in Glasgow and Scotland, but in the wider world. That is important: people in Scotland take their responsibilities elsewhere seriously, and will want to support the fundraising efforts that will go on around the Commonwealth games to reach children across the world who require help and support.
For those reasons—to help boost the games’ legacy, to attract big-name stars and the world’s sporting elite, and to confirm that the UK, with Scotland a part of it, remains on the map as a world-class sporting venue—we support the measures in the Bill. However, I understand the motivation of the hon. Member for Amber Valley in tabling his amendment, although as we previously got into a tricky situation with one of his amendments I assume that it is a probing amendment.
Cathy Jamieson: Perhaps it was not at the time; however, today I am working on the assumption that his amendment is a probing one. I understand that the hon. Gentleman feels that we ought to have a wider look at some of the issues. He raised a number of points. Members of this Committee who served on the Finance Bill Committee last year will remember the lively debate we had on exempting from UK taxation the income made by non-resident footballers and team officials in relation to the UEFA champions league final. We heard how current UK tax law was introduced after HMRC won a landmark case in 2004 against American tennis star Andre Agassi, allowing it to claim tax on a proportion of his worldwide endorsement earnings.
The effect of that case was that competitors were suddenly deemed tax residents by the UK for a tax year purely by virtue of coming here for a week, or even just a day, to compete in a single event. Many saw that as unfair to competitors who now faced being taxed twice, by their home country and again by the UK, and as a result, many sporting organisers have since made it a requirement that overseas competitors be exempt from tax in the country in which they compete. The hon. Member for Amber Valley referred to some of the consequences of that case, including Rafael Nadal announcing that he would not play in the 2012 pre-Wimbledon tennis tournament due to UK tax demands, and Usain Bolt refusing to race in grand prix meetings in the UK for the same reason. We need to explore the issues in more detail, but we must also try to find ways to ensure that people come here to compete, because such events will help to confirm the legacy of the Olympic games and continue to inspire children and adults across the UK.
Cathy Jamieson: We have some sympathy with the hon. Gentleman’s aim of trying to achieve consistency of approach. Inconsistency over tax exemption rules for international athletes who compete in the UK has been a problem. Different sporting events have been dealt with in different Bills, under which some athletes have received exemptions for some sporting events and others have not. For example, the Finance Act 2012 dealt with this year’s UEFA champions league final, the Finance Act 2010 dealt with the 2011 UEFA champions league final and the Finance Act 2006 dealt with the London Olympics. The rules that govern exemption have been rather fluid and have changed from event to event, and that has created uncertainty and unfairness for athletes who have come to the UK.
HMRC currently argues that if an athlete is here for an event, it can tax not only the competition fee but a proportion—based on the number and duration of events—of the star’s worldwide earnings. In other words, if an athlete comes to the UK to compete in a major event that is one of 10 that they do during the year, the UK levies tax on a tenth of that individual’s worldwide income for the year even though they may be in the UK for only a few days. Some have argued that such uncertainty and unfairness has denied us the opportunity to have some of the star names at UK sporting events.
There has been concern about the potential loss to the UK of entire competitions. For example, the UK failed in its bid to host the final of the UEFA Europa league in 2010 after deciding not to provide assurances on tax exemptions. We debated that a lot during the proceedings on the previous Finance Bill, and it shows that inconsistencies can cause problems. The 2011 UEFA champions league final yielded an estimated £45 million for the London economy, so the impact on the economy of the UK’s being unable to attract such events is not to be scoffed at.
Has the Minister considered any plans to clarify the situation? Perhaps he will not accept the wording suggested by the hon. Member for Amber Valley, but will he tell the Committee what work the Government have done on clarifying tax exemption rules for non-resident athletes competing in the UK? Is the Minister considering plans to exempt athletes involved in any future sporting events? I have mentioned some of the inconsistencies between different competitions, and another example of such inconsistency is that the provisions in last year’s Finance Act on the UEFA champions league final also applied to officials, but the Bill does not include such an exemption. Will the Minister explain why that is? What assessment has he made of the economic benefits to London, Glasgow and the UK of staging the events that we are discussing today? When the Government were considering making the exemptions, what assessment was made of the impact of not doing so on the economy and individuals?
As I said earlier, more needs to be done to ensure that the legacy is assured. We have had a debate both in the media and in Parliament about what the Government
Finally, the hon. Member for Amber Valley referred to the requests that are now beginning to be made by others who are coming to the UK for major events. The Minister will be aware of a letter of 7 May, which has had quite a lot of publicity, from dozens of orchestras and classical musicians. The letter was published in the Daily Telegraph. It called for visiting foreign musicians to receive the same tax treatment as visiting foreign footballers and athletes coming to events. What is the Minister’s response to that? Does he intend to look at the issue in a way that would allow us to consider a consistency of approach for future events, rather than simply having to do everything on a case by case basis, or does he feel that there is more of an argument for dealing with it case by case? Is it about the nature of the event itself, or is it based on the likely economic benefits to a particular part of the UK or a particular area? How much of that is linked to the possible legacy that would arise from those events?
Steve Baker (Wycombe) (Con): My hon. Friend the Member for Amber Valley made a thoroughly honourable speech. I wish the tax code did embody equality before the law for all, and the idea of equal treatment was at the heart of what he said. I am absolutely astonished, because I did not know anything about this particular area of tax. I am astonished to discover that if someone makes money through some popular means, they get tax cuts, but if they make their money through some means that is not so popular or does not have widespread celebrity status, they are not merely taxed at the same rate as everyone else but often positively discouraged from creating wealth in this country. It is a most astonishing area of tax law.
Ben Gummer (Ipswich) (Con): Just as an interesting aside, there is the question of what is deemed popular by some groups of people. Why would the exemption not exist for people playing in symphony orchestras, for instance, who are paid a great deal less than Mr Bolt?
Steve Baker: I agree with my hon. Friend. I would not want to make a moral judgment one way or the other. If somebody’s conduct is lawful and they create value for other people and thereby make a profit, whether it is in sport or orchestras, or indeed entrepreneurship, they should be treated equally by the law. I congratulate my hon. Friend the Member for Amber Valley on his deeply honourable speech and I look forward to his further deeply principled contributions. I find that every time he makes such a speech, I agree with him.
The Economic Secretary to the Treasury (Sajid Javid): Clauses 8 and 9 introduce two income tax exemptions for non-resident athletes competing in two major international sporting events to be held in the United Kingdom. Clause 8 will exempt from UK tax any income received by non-resident athletes who compete in the 2013 London anniversary games. Clause 9 will do the same for non-resident competitors in the 2014 Glasgow Commonwealth games. The Government’s objective in providing the exemptions is to ensure that both events make a real contribution to building on the legacy
I will briefly provide the Committee with some background to the clauses. Under normal tax rules, non-resident sportspeople are fully liable to UK income tax on their earnings in connection with any activities they undertake in the UK. That includes their income from appearances at international sporting events, both their direct income, such as appearance fees and prize money, and a proportion of any worldwide endorsement income that they might earn. The UK’s approach is consistent with international practice as set out in the OECD model tax convention.
I turn specifically to clause 8. The London anniversary games will take place in the Olympic stadium in east London from 26 to 28 July 2013, and will provide a great opportunity to promote and sustain the legacy of the London 2012 Olympic and Paralympic games. The anniversary games will begin on the first anniversary of the 2012 Olympic opening ceremony, and a number of Olympic and Paralympic medallists are expected to return to the UK for the first time since 2012 to compete in the event. The tax exemption provided by clause 8 will apply to UK income on all appearance fees, prize money and endorsement income related to the anniversary games. The tax exemption will be restricted to accredited, non-resident competitors. It will not cover those not competing in the games, such as officials, sponsors or coaching staff. The cost of the exception will be negligible.
I now turn to clause 9, which mirrors clause 8 and provides an income tax exemption for non-resident competitors in the Glasgow 2014 Commonwealth games. The hon. Member for Kilmarnock and Loudoun spoke to both clauses, but she understandably focused on Glasgow. I thank her for her support of these clauses. She helped to illustrate how important the games are to Glasgow, Scotland and the UK in a wider sense. I agree with everything she said about Glasgow’s hospitality. I also agree with what the hon. Member for Airdrie and Shotts said about people in Lanarkshire. I not only have friends in Lanarkshire, I have family in Lanarkshire. I cannot say that they voted for the hon. Lady, but they are generous and warm people, like all Scots.
The events will feature competitors from more than 70 nations in 11 days of competition from 23 July to 3 August 2014. They will take place in various venues in Greater Glasgow, including the iconic Hampden Park stadium and the new Sir Chris Hoy velodrome. Again, the exemption will apply to competitors’ income that arises directly from taking part in the games, and to a portion of their worldwide endorsement income that relates to that appearance. It will also be restricted to non-resident competitors, and will not be available for team officials and similar individuals who do not compete themselves. As is the case with clause 8, the cost of providing the exemption will be negligible.
I turn to the amendment tabled by my hon. Friend the Member for Amber Valley, who I understand is a keen sports fan. If I am not mistaken, he is a season ticket holder for Notts County FC. His enthusiasm for sport and for winning causes is reflected in his amendment. I will go into detail about the amendment. Although I
Amendment 2 would place a new requirement on the Government to bring forward proposals for exempting competitors in major sporting events, which would include the relevant criteria underlying these exemptions. It is not entirely clear to me what the amendment is intended to achieve, and I will explain why. It makes no reference to tax, but I assume from what my hon. Friend the Member for Amber Valley said that that is an oversight, and that it is focused entirely on tax. Nor does it stipulate that the competitors in question should be non-UK resident for tax purposes, but again I assume that is what he meant by his amendment. The criteria for providing tax exemptions for non-resident sportspeople are already very clear, and were restated with the exemption of the Glasgow Commonwealth games announced in January 2012.
My hon. Friend mentioned a number of sporting events. He asked about the granting of a tax exemption to the diamond league meeting in London but not to a similar event in Birmingham. The London anniversary games and the Glasgow Commonwealth games 2014 are both exceptionally placed to build on the Olympics’ legacy. For example, both events will not only be multi-sport, but will include para-athletic events, which is not usually the case for the diamond league. It is in order to keep promoting the legacy of the Olympics that we have provided special treatment here and not for a similar event in Birmingham.
My hon. Friend also asked about Wimbledon. The All England Lawn Tennis and Croquet Club, which hosts Wimbledon, does not compete for the event each year. A tax exemption would therefore neither help nor make any difference to securing the event in south-west London every year. That is why events of such nature are not considered for similar tax exemptions.
Cathy Jamieson: Does the Minister agree that it is important to sustain the legacy at grass-roots level and that it is not simply about having a whole series of high-profile events? The legacy must also be about grass-roots sport, particularly involving young people, and about the economic regeneration of local areas that comes as part of the process of hosting such events.
Sajid Javid: I agree entirely. I hope that the hon. Lady agrees that the Government have worked hard on a cross-party basis to try to maintain the legacy and maximise the economic benefit from it. That has been made clear by some of the announcements regarding east London.
Unfortunately, however strong and passionate the case made by my hon. Friend the Member for Amber Valley, amendment 2 is unnecessary for the reasons that I have stated. The Government’s policy is that such tax exemptions are provided when they are a requirement of the bidding process to host an international sporting event at the highest level of world sport. That is why, for example, exemptions were provided for the Olympic games in 2012 and the champions league final in 2013 at Wembley stadium.
The Government are committed to building on the legacy of the 2012 games. I need not remind Members of the games’ great success. Central to London’s successful
The hon. Member for Kilmarnock and Loudoun asked why coaches and team officials had not been included in the exemption, as they were in the Olympic games. That is because the exemptions for the 2012 games were a requirement in the bidding process to host them. The requirements included granting tax exemptions to non-resident team officials and coaches. Such tax exemptions were not required for either the London anniversary games or the Glasgow Commonwealth games. The Government have therefore provided exemptions only to non-resident competitors in those two games.
Before I conclude, with your permission, Mr Amess, may I briefly correct something in respect of clause 6, which will mean my not having to send a letter to the Committee? The hon. Member for Nottingham East has left the room, but the hon. Member for Kilmarnock and Loudoun might be aware that when we discussed the clause on the reduction in the corporation tax rate, I referred to the last City bonus pool and linked it to the Labour party’s policy requirement to raise money for a new bonus tax.
I said that it was the Labour party’s policy intention to raise £1.6 billion from a new bankers’ bonus tax, but I now understand that that figure was not correct, in that it is the Labour party’s intention to raise £2.5 billion. I will give the hon. Lady an opportunity to correct me if the £2.5 billion figure is wrong, but statements made by the party after the recent Budget said that it wished to raise £2.5 billion, not £1.6 billion.
I said that our best estimates from independent sources were that the bonus pool in the City for 2012 was £1.8 billion. I have been informed that the figure is £1.6 billion. I unintentionally overstated the amount. It is even lower than I thought, and compares with approximately £11 billion in 2008.
Sajid Javid: I said that, in order to meet its objective, the tax rate that Labour would have to impose would be 90%. I have now to correct that, and say that it would be closer to 150%, in theory. Of course, we know that a tax of 150% would raise nothing.
In conclusion, the two clauses will help to make the anniversary games and the Glasgow Commonwealth games attractive events for top-class international athletes. They will positively contribute towards the 2012 Olympic and Paralympic legacies in the United Kingdom. I therefore respectfully ask my hon. Friend the Member for Amber Valley to consider withdrawing his amendment.
Nigel Mills: I am grateful to the Minister for his comments and especially grateful for his mentioning Notts County in his speech. They are the very embodiment of the Olympic legacy of the Team GB football team, who started with much promise and then faded away into disappointment. That is about where we are. I am sure they will not be asking for a tax exemption.
I accept the argument that the Commonwealth games deserve a tax exemption. There is no dispute about that, but I am not completely convinced by the arguments for the anniversary games. I am sure that if Birmingham had been offered a tax exemption for its diamond league meeting, the world’s best athletes would have turned up there, too. The problem is that we do not advertise the criteria at the start. I can understand why, as a one-off for the diamond league event in London, tax exemption is justified, but I hope that it is a one-off, and that a tax exemption will not be sought each year.
We are in a strange position. We believe that, overall, there are economic benefits from attracting global stars, in which case I am sure that Wimbledon can set out the amount of economic advantage that the UK receives from that tournament. All the hotels in London are booked, if nothing else. I am sure that the Open golf at St Andrews can set out the huge advantage that it brings to that area of Scotland. We will be in an unfortunate position if we do not make the criteria clear. Such a policy should be for one-off, truly top-of-the-world sporting events, otherwise we can go through all the events for which we received gold medals at the Olympics and wonder why they do not all receive a world championship tax exemption.
Cathy Jamieson: The hon. Gentleman referred to sporting events that take place in Scotland. Of course, they are very important for the economy there. Does he agree that the events we have discussed are linked to the opportunity for economic regeneration? They have been absolutely vital in regenerating communities, as they have for the grass-roots legacy. The Minister was able to support that; does the hon. Gentleman think that that would be important in future decisions?
Nigel Mills: Exactly. Those are the criteria that we should apply. If we just said that there had to be general economic benefit, we would be exempting the premier league or something disastrous, so I absolutely agree that there needs to be a grass-roots benefit of getting young people involved in sport. We must consider the
Cathy Jamieson: I do not intend to detain the Committee for too long on this clause. I shall start by referring to my register of interests as a former Member of the Scottish Parliament, because clause 10 introduces a new income tax exemption for certain travel expenses paid or reimbursed to MSPs, Members of the National Assembly for Wales and Members of the Northern Ireland Assembly. Essentially, it will maintain the tax treatment that applies to similar expenses paid or reimbursed to Members of the UK Parliament under a long-standing arrangement.
It is important that the clause correctly formalises some of the long-standing concessionary arrangements regarding the tax treatment of travel expenses paid to Members of the devolved Administrations in Scotland, Wales and Northern Ireland. In doing so, it brings the tax treatment of such Members’ expenses broadly into line with ours in the UK Parliament. It is also important to note that the tax rules recognise the requirement of elected representatives around the various parts of the UK to undertake work-related travel both in their constituencies and to their respective Parliament or Assembly.
I note that, following the creation of the Independent Parliamentary Standards Authority and the introduction of the new MPs’ expenses scheme, legislation was enacted in the Finance Act 2010 to formalise aspects of those concessions as they previously applied to MPs here in Westminster. Somehow, legislation was not introduced for Members of the devolved Administrations at the same time, because at that time the new allowance schemes were not all in place. The schemes are now in place, so it is right that the changes proposed in the clause provide statutory exemptions for certain relevant UK travel expenses.
We all know that elected representatives still have some way to go before they fully regain the public’s trust following some of the difficulties there have been about MPs expenses. Formalising some of the long-standing arrangements and improving transparency, as these measures propose, will go some way towards contributing to that trust.
I may be stating the obvious, but it is important for Members representing their communities to be able to come to Parliament from a wide variety of backgrounds and economic circumstances. The ability to claim travel expenses in order to do the job on behalf of constituents
I presume that the Minister is going to give us some further information and confirm my understanding of what the clause does. In doing so, will he give us examples of circumstances in which, at some future stage, he may feel that he needs to amend by order the definition of caring responsibilities as proposed in the Bill? That was the only query that I had at this point.
Sajid Javid: I thank the hon. Lady for her support for the clause. She speaks with experience as a former MSP. Clause 10 provides for the income tax treatment of certain expenses paid or reimbursed to Members of the devolved Administrations in Scotland, Wales and Northern Ireland under their respective expenses schemes. For the main part, the changes introduced by the provisions continue the long-standing concessionary tax treatment that previously applied to similar expenses. They are necessary to reflect the fact that HM Revenue and Customs can no longer apply concessionary treatment and must instead either withdraw or codify all such arrangements.
As with Members of this House, a Member of the devolved Administrations has to perform duties in both their constituency or region and their Parliament or Assembly. The exemptions introduced in the clause are therefore required in order for those Members to carry out their parliamentary or Assembly functions effectively.
The clause codifies elements of the long-standing concessionary tax treatment that has been applied to certain UK travel expenses because Members are required to carry out their duties in both their constituencies and in their Parliament or Assembly. However, while the concessionary treatment applied to all travel within a Member’s constituency, the clause does not allow tax relief for journeys between a Member’s home and their main constituency office.
That is in line with the treatment both of Members of this House and ordinary employees for whom there is no tax relief available for ordinary commuting. That restriction will apply only to journeys to a Member’s main office. That ensures that Members who represent large constituencies, such as that of my hon. Friend the Member for Penrith and The Border or hon. Members from Scottish constituencies, are not unfairly disadvantaged simply because they need more than one office to serve their constituents effectively.
The clause also introduces a new statutory exemption for reimbursed travel expenses incurred by a spouse or partner who shares caring responsibilities with the Member for travel between the constituency home and the Member’s parliamentary home. That is also in line with the treatment for Members of this House. The hon. Lady asked about caring responsibilities and whether the Government had plans to broaden the definition. I am not aware of any plans, but she makes a good point and I will consider it further.
In conclusion, the changes introduced by the clause place the tax treatment of travel expenses received by Members of the devolved Administrations on a statutory footing and bring them more broadly into line with the treatment of travel expenses for Members of this House.
‘(3) The Chancellor of the Exchequer shall within 12 months of the passing of this Act, provide a report to Parliament on the impact of these provisions including on, but not limited to—
(a) death-in-service schemes;
(b) other death benefits;
(c) non-working spouses without independent pensions provisions.’.
Cathy Jamieson: I say at the outset that we have tabled this as a probing amendment, because we wish to raise a number of questions about the possible unintended consequences of the Government’s proposals.
The clause relates to employer contributions to registered pension schemes and addresses what was seen as potential tax avoidance, where an employer made a contribution to a pension arrangement for an executive’s or employee’s spouse or dependant. The effect of those arrangements was to allow an employer to provide retirement funding for a family member tax efficiently, as it has been described. The employer contribution was not treated as a benefit in kind for the employee and was exempt from income tax and national insurance.
The provisions in the clause would mean that an employer contribution to a registered pension scheme will now be exempt from income tax only if it is in respect of the employee. Contributions to a spouse’s or dependant’s pension will not be exempt from an income tax charge on the employee. I want to probe some of the concerns that have been raised about consequences, perhaps unintended, of the provisions.
We tabled the amendment to give the Minister the opportunity to clarify and, if necessary, to think further about the issues, and I want to take a few moments to develop some of the themes that concern us.
First is the provisions’ impact on non-working spouses. Pensions have become a concern to us all as the population ages and budgets tighten. People up and down the country are worried about how they will support themselves in retirement. The Government are implementing the flat-rate state pension—it has several issues, but this is not the place to go into them in detail—but many people are finding the changes difficult to understand. Pensions are always a complex matter and people want clarity on what is ahead.
Companies have been providing spouse’s pensions for many years, including both widow’s and widower’s pensions. For example, the civil service pension scheme and MPs’ and Ministers’ pension schemes provide pensions for spouses who may never work for the civil service or sit in Parliament. An individual has an annual allowance for the amount of pension savings that benefit from tax relief in a registered pension scheme or overseas equivalent. That allowance is currently set at £50,000 and will be reduced to £40,000 from 6 April 2014 following the provisions set out in clause 48. In addition, if the annual allowance relating to the previous three tax years has not been used, either partly or fully, my understanding is that it can be carried forward to add to the current year’s annual allowance, provided that the individual has been a member of a registered pension scheme during the earlier tax years.
In theory—I am by no means an expert, so I am looking to Minister to get information to us if he is not able to give it today—the carry-forward rule gave an opportunity to make a contribution of up to £200,000 for the spouse, civil partner or other family member, although I understand that that rarely happens in practice. The tax benefits of the arrangement were that the contribution to the spouse or dependant’s pension did not count toward the employee’s annual allowance and neither was it taxable on the employee, spouse or family member. It was also deductible by the employer for corporation tax purposes. I hope people are bearing with me as I go through the technicalities.
Once the contribution was made, the normal rules applied, so that when the pension was accessed, there would be, on the whole, a 25% tax-free lump sum and the balance of the pension income would be taxed at the marginal rate. However, that worked only if the spouse was not already using his or her annual allowance with pension savings of their own. Hence it automatically cut out any benefit when both husband and wife are working and building up their own pensions. My understanding is that the current legislation does allow people without earnings to pay up to £3,600 into a personal pension scheme each year, but there is no carry-forward provision. When people may live, for example, for 30 years into retirement, a fund of £3,600 would be equivalent to providing a pension of only £120 a year or £2.30 a week for those 30 years. I am sure that Minister would agree that that seems a very low amount.
The Government have stated that the intention behind clause 11 is to protect against attempts to sidestep the annual allowance limit, which we absolutely understand. However, the concern is that the measure would, in reality, additionally target pension provisions not for rich spouses trying to seek tax relief for their partners, but rather those spouses who do not have generous pensions and who therefore understandably welcomed an opportunity to build up their own, perhaps relatively small, pension pot. Our concern is that the measure targets not only the spouses of, for example, City fat cats, but also many middle-income earners and their spouses, for whom the ability to build up that pension and to secure a decent and worry-free retirement remains a real concern. The non-working spouses affected are those women who may not have worked in a paid job through some or all of their adult life, but instead undertook years of unpaid valuable family or caring
I understand the Government’s desire to make savings in these tough times. We hear constantly about the restriction in retirement savings going some way towards helping the Treasury reduce budgets. I do not want to open up a whole debate at this stage on other measures, but these measures sit alongside others in the Bill that once again reduce the annual and lifetime limits on pension savings. All three measures together may be seen by many to be discouraging retirement savings at the exact time when we need to be encouraging people to ensure that they can provide for themselves in the future.
We on the Opposition Benches understand the Government’s desire to make savings and to protect against people trying unreasonably to sidestep set allowance limits, but will the Minister commit to reviewing the measures’ impact on the pensions of non-working spouses? That review would ensure that we are not storing up problems for the future or leaving non-working spouses unfairly less well off in their retirement compared with spouses who have undertaken paid work during their lifetime.
It would be helpful to know whether the Minister has given some thought to our points. For example, has he undertaken an assessment of the measure’s impact on those affected, including an assessment broken down by income group? Has he undertaken an assessment of the cumulative impact of this and other measures in the Bill to reduce the annual and lifetime limits of the pension savings of those affected?
We have asked in our amendment for a review of the clause’s impact on other arrangements, such as death benefits and death in service schemes. It has been unclear to us and others, including the Chartered Institute of Taxation—I understand it has made some comments on this—whether such arrangements are covered by the clause. As we know, the clause provides that there will be no tax charge on an employee for an employer pension contribution, provided the contribution is in respect of the employee. I mentioned that at the outset, but with death benefits and death-in-service schemes the former employee will by definition not receive any pension benefits from the former employer’s contributions. It is therefore unclear whether such arrangements will be included within the scope of the provisions. Will the Minister clarify whether that is an issue of drafting or an issue of the Government’s intent?
If we do not have clarity, the concern is that it will be left to the discretion of officials, such as those at HMRC, as to which arrangements are covered by the provision. I genuinely do not think that the Minister is looking to do that; I am sure he would be looking to have as much clarity as possible. Can he clarify whether he intended such arrangements to be covered by the provision? If so, what assessment has he made of the number of individuals who will be affected and what will the cost be to them? If he did not intend those arrangements to be included, what action will he take to ensure that there is clarity, both for HMRC and for those individuals who may be affected? I hope he will hear the comments that have been made.
If the Minister can put some assurances on the record about his intentions, how he wants to take the proposal forward and whether there is any need to look again at the drafting, we will hopefully not need to press the amendment to a vote. As I said at the outset, it is a probing amendment, designed to raise issues and get clarity for those who are likely to be affected. I hope that the Minister will respond to those points and give us the assurances we need.
Sajid Javid: Clause 11 restricts employees’ exemption from income tax and national insurance on pension contributions made by their employer to a registered pension scheme. Before I turn to the amendment tabled by the hon. Member for Kilmarnock and Loudoun it would probably be helpful for me to provide some background to the clause.
Contributions to registered pension schemes are subject to an annual allowance which limits the total amount of tax relief an individual can benefit from. This includes employer contributions. The Finance Act 2012 reduced the annual allowance from £255,000 to £50,000 from April 2011. We will be considering a further reduction to £40,000 under a later clause. As a consequence of the 2011-12 reduction, many employers restricted the overall value of total contributions into the employees’ pension scheme to the amount of the new limit. However, certain arrangements paid excess contributions into a family member’s pension scheme instead of the employee’s own in an attempt to sidestep the reduction in the annual allowance. This is not fair.
In the face of such arrangements the clause ensures that the exemption from income tax and national insurance for employer contributions to a registered pension scheme will be limited to contributions made by an employer in respect of their own employees. The effect of the clause is that an employee will become liable to both tax and national insurance on the value of the pension contributions their employer pays in relation to members of the employee’s family or household. However, I can assure the Committee that it will not affect the exemption for employer contributions paid to the employee’s own arrangements under a registered pension scheme.
Restricting the exemption in this way also removes unintended scope for the employee and a member of his or her family both to benefit from income tax relief on the same employer contributions. This clause will not affect the relief available to the spouse or family member, whether contributions into their scheme are paid by the employee, the employee’s employer or by other persons.
“if the employee’s pension arrangement includes provision for the employee’s spouse or other family member (eg in the event of the employee’s death) would that mean that part of the employer’s contribution is not ‘in respect of the employee’?”
Sajid Javid: I will try to clarify that now. The death benefit rights are building up by the reason of the service of the employee, whether or not the employee lives to receive the pension and the lump sum directly.
Turning to amendment 16, the Government fully support the need to make the best possible assessment of the impacts of changes to the tax regime, but believe that this amendment is unnecessary. As I said earlier, the clause will not affect the income tax treatment of employer contributions paid to an employee’s registered pension scheme. This includes where the contributions are or may be used to provide death in service benefits or a pension for dependants after the employee has died. HMRC guidance will shortly be published on this. This clause also does nothing to prevent anyone from paying contributions into a registered pension scheme on behalf of any individual. As already mentioned, the clause does not affect the tax relief that is available for individuals on whose behalf pension contributions have been made, whether or not they have taxable earnings.
What the clause does do is ensure that that tax treatment of pension contributions made on behalf of an individual will be the same as if the money was given to them out of taxed income and then paid into their pension scheme as a contribution. The clause therefore provides fairer tax treatment, ensuring that affluent individuals cannot obtain unfair tax advantages through arrangements designed to undermine the annual allowance set by the Government.
The hon. Lady understandably raised the potential impact on non-working spouses. The tax framework already provides a widely-used facility for individuals with no taxable income to enjoy tax relief on contributions made by them, or by someone else on their behalf, into a personal pension scheme. Currently, an individual with no taxable earnings may put up to £2,880 into their pension, which would be topped up by the Government to £3,600 and that will continue to apply—[ Interruption. ] I am not sure what has happened to my officials. Perhaps someone scared them off—I wonder what I said?
If I may conclude before anyone asks me another question, it is not appropriate that the annual allowance limit can be undermined in that way, nor that the multiple relief should be available for the same pension contributions. I therefore ask that the amendment be withdrawn.
Cathy Jamieson: I was frantically trying to think of something very difficult to ask the Minister at the point at which he was not able to get the normal inspiration, but, in the hope that we might make some progress, I resisted that temptation. It was helpful to hear the Minister’s response to the specific points that we raised. As I said at the outset, I was hoping to get some assurances from him that he was alive to the issues we were raising, he understood the concerns and he would keep the matter under review so that we would not need to press for a vote. Indeed, he did give clarification on those issues and some assurances; I am sure that he will continue to give assurances on this issue throughout the course of the Bill.
I do not want in any way to undermine efforts to discourage people from side-stepping, or trying to avoid, paying what is due; I simply want to ensure that there are no unintended consequences that could impact on those trying to do the right thing, particularly those on lower and middle incomes and, particularly, women who have not been in the employment market for the period necessary to build up a decent pension pot. In light of the Minister’s comments, I beg to ask leave to withdraw the amendment.
Cathy Jamieson: The clause changes the definition of a disabled child in the Income Tax (Earnings and Pensions) Act 2003 to allow tax relief for employer-supported child care to continue where the child is in receipt of a personal independence payment rather than a disability living allowance. At first look, this is a short, technical clause, although it underpins some important issues.
Hon. Members will be aware that there are three types of exemptions from income tax and national insurance contributions available for employer-supported child care: exemptions for workplace nurseries; exemptions for child care vouchers provided to employees up to the relevant exempt amount; and exemptions for other child care made available to the employee up to the relevant exempt amount. I am resisting the temptation to go into any of the wider issues around child care, and the proposals that may or may not be brought forward at a later date, and am sticking strictly to the clause, Mr Amess. There are a number of qualifying conditions for each exemption. One relates to the child for whom the care or care voucher is provided. The age cap for relief is higher for disabled children than for children without disabilities, and is set at the first week of September following the child’s 16th birthday.
Following the Government’s changes to the welfare system in the Welfare Reform Act 2012, the definition of a disabled child for the purposes of the provisions in the clause now also needs to be changed, as I understand it, to include those receiving the new personal independence payment. As those payments are initially going to be phased in for new applicants, references to both DLA and PIP are required in legislation until such time as the DLA is replaced completely.
I was pleased to see those words. Although I said that I would resist temptation, I find it difficult to resist saying that it would be useful to see that principle carried forward into other pieces of legislation, given the number of people who have come to me—and no doubt to other hon. Members—about withdrawal of support and other
The clause is important in ensuring that families with a child with a disability can get the support that they need under the system. I believe that assessments have to be designed around what disabled people need. We have to ensure that nothing is done within the process of legislation that in any way disadvantages disabled people. I would hope that when we are looking at tests around, and definitions of, disability, any savings would come about from the right test being applied rather than from designing a test to deliver a pre-set idea of how much money ought to be saved. That principle is important for people with disabilities.
According to their impact assessment for personal independence payments, the Government expect 500,000 to lose PIP by 2015-16, compared with what would have happened with DLA. I note from the work done on this issue that HMRC is not able to analyse the numbers precisely, and I want to probe the Minister on that. There is concern that the Government are generally trying to mould the benefits system around cuts rather than around meeting the needs of individual disabled people. I am sure that the Minister would agree that we must be careful about that when we come to provisions that have been made for children.
Given that inspiration will, I am sure, be able to strike him now, will the Minister tell us how many disabled children will be affected by the change from DLA to PIP, including those whom the tax exemptions cover? Has the Minister calculated how many disabled children affected by the provisions might not be eligible for the new personal independence payments? It is important for hon. Members to understand whether the measures will affect a significant number of people or a small one. Will the Minister also confirm whether the timetable for transferring the arrangements for disabled children affected by the provisions takes into account the new personal independence payments?
It would help if the Minister responded to those points on this technical clause. I understand what the Government are trying to do and I do not wish to stand in the way of that. However, we must recognise that such changes in legislation can, as I outlined in the discussion on the previous clause, sometimes lead to unintended consequences. We want to ensure that everything possible has been done to make the case that the families of children with disabilities ought to be given that additional support, as the Government have said, to contribute towards the extra costs faced by long-term disabled people. It is important that families can support and help their children to lead full, active lives. We would not want anything done in legislation that stood in the way of that. I look forward to hearing the Minister.
Sajid Javid: Clause 12 will ensure that parents of children in receipt of personal independence payment will continue to receive tax relief for employer-supported child care. This is purely a technical change affecting children who are 16 years old and ensures that the move to PIPs from the disability living allowance will not impact on current tax-free child care support.
The Government are reforming the welfare system and the Department for Work and Pensions has begun a phased introduction of personal independence payments. The parents of children who receive DLA can claim tax relief on employer-supported child care for a year longer than is otherwise allowed. The clause ensures that the parents of children who receive the personal independence payment will be treated in the same way, by amending income tax legislation to include the appropriate references.
Children under 16 will continue to receive DLA, so the changes made by clause 12 are not relevant to them. Rather, these changes mean that those with parental responsibility for children in receipt of either DLA or PIPs will be eligible for the same tax relief for child care. We believe that the numbers affected are small, but this change is being made to ensure consistency of treatment. To add a bit more information on numbers, about which the hon. Lady asked specifically, some 600,000 employees in total currently use employer-supported child care. Most employer-supported child care is used for pre-school-age children and a much smaller proportion is used for children aged 15 or 16. In the tax information and impact note issued by HMRC, we stated that some 50 individuals may be negatively affected, but I stress that that is the best estimate that HMRC has at this point.
The changes reflect previous discussions in the House during the passage of the Welfare Reform Act 2012 and are wholly consequential to the changes already in place. Furthermore, we published the clause for consultation in December and received no comments and no suggestions. I move that the clause stand part of the Bill.
Cathy Jamieson: This short, technical clause would add universal credit, and its equivalent in Northern Ireland, to table B in section 677 of the Income Tax (Earnings and Pensions) Act 2003, which sets out the social security benefits that are wholly exempt from income tax.
Universal credit supersedes six benefits and tax credits, of which two are taxable to some degree. The Government have said that it is not possible to disaggregate the components of an award to universal credit, so the tax exemptions will now apply to an individual’s total benefit entitlement. They state in the policy objective of their impact note to the clause that,
Many of those who have followed closely some of the changes and difficulties around trying to make the benefit system simpler will wonder whether we have fully reached that particular objective with universal credit. However, that remains to be seen in terms of the implementation. It is good to see that the Government at least want to make something simpler, given the comments that we heard earlier about other aspects of taxation.
We want to see that work always pays. We have had a lot of debate and discussion in the House and various places around how best to achieve that. The Opposition and the Government have different approaches to improving incentives to work and simplifying the benefits system. Of real concern have been the unintended consequences. There has been disappointment in how things have been brought forward. In some instances, we have had nothing short of chaos.
A big concern is the suggestion that 1.8 million main earners could be worse off under the universal credit if they take on extra work, and 300,000 second earners could face the same fate. That scenario does not seem to be encouraging people to take on extra hours and to do the right thing in looking after themselves and their families. We have also become aware of the complexity of the reporting requirements. Rather than reducing red tape, they are set to increase the red tape and to hit small businesses. We have seen a pilot scheme that is descending into chaos. It has been scaled back from its original plans, and it has an IT system that seems to fail to match 25% of payments.
There are still concerns around key elements relating to the universal credit—for example, how passported benefits, including free school meals and prescriptions, are going to be treated under universal credit. If the Minister is able to give us any further information, I am sure people would be pleased to hear it.
Ian Mearns: That is a matter of great concern. It is also a matter of great concern to head teachers in schools, because the pupil premium is driven by the right to free school meals. If there is any significant change in such entitlement, that could have a significant impact on school budgets, because it is the free school meal entitlement that drives eligibility for the pupil premium.
Cathy Jamieson: My hon. Friend makes an extremely important point. I know that he constantly and consistently stands up for his constituents and expresses concerns about those who are on the lowest incomes, and he has again made a very valid point. Once again we could see the potential unintended consequences of the Government trying to operate in a particular way. If there is not clarity on issues such as the linkage between universal credit and free school meals, we have heard that there is another knock-on effect, and I suspect that there will be others over and above that.
The implementation of universal credit is in chaos—it is already late—and I understand it is about £100 million over budget. [ Interruption. ] I am sure that an hon. Member—perhaps the Government Whip—will ensure that if I raise a question at this particular point, it will be relayed and I will receive a response in due course.
We would agree with that principle. The reality on the ground is that, despite the Government’s warm words on this and on the benefits of other measures to help those on the lowest incomes, the measures they are taking to reform the welfare system far from help those on the lowest incomes.
I will refer again, as I have done on previous occasions, to the independent research of the Institute for Fiscal Studies. Taking into account all the tax and benefit changes introduced since 2010, including the rise in personal allowance that the coalition Government seem so proud of, families are estimated to be an average of £891 worse off in the new financial year. If that is added to the Government’s recent tax cut for millionaires, their claim to be helping those on the lowest incomes seems to ring very hollow. [ Interruption. ] Government Members may sigh and moan, but the reality is—as my hon. Friend said—that many people on the lowest incomes face a really uncertain time at the moment. We must ensure that whatever we do we try to tackle the problems of the families with children who are finding it hard on a day by day and week by week basis to balance the household budgets.
We should not underestimate the impact that the uncertainty of universal credit will have on the families on the lowest incomes who will not know whether their children will continue to get free school meals. Therefore, provisions such as this have a great impact on those on the lowest incomes. Given the problems that the Government have already run into with the implementation of universal credit, they need to assure those affected by the clause that the resources and processes to deal with it are in place.
Paul Uppal (Wolverhampton South West) (Con): I have always been a big fan, through the work I do in BIS, of something called e-commerce, which is about making the system of payments and financial transactions much simpler. It is something that people on universal credit may benefit from. Will the Minister respond on this point? I do not want to blind-side him completely. Some of the work we have done on this issue is to look at some of the changes from the European directives on e-commerce, which have the unintended consequence of making the whole process a lot easier. What is happening with interchange payments—I do not want to get too techie about this; the Minister can always write to me about it if he wants to—is there are unintended consequences for people who receive payment through e-payments and through small businesses. That is slightly detached from the hon. Lady’s point, but it is a concern that is arising in the future.
Cathy Jamieson: I am not going to usurp the Minister’s role by trying to answer that and give the hon. Gentleman assurances. However, he makes some interesting points. I know from my local small businesses—indeed, some of my family are involved in the small business sector—that everyone wants to see, as much as possible, a reduction in red tape and a streamlining of systems. However, for many small businesses, the idea of moving everything on to an online system or working on an e-commerce basis can be frightening if they do not have the skills, resources and back-up to do that.
The same goes for many people who rely on the benefit system to support them day to day and week to week. For many people—again, I know this from my constituency work—the idea of having to apply for everything online is off-putting. An elderly gentleman came to me to express his concerns about that. He felt that if he was required to do certain things on the computer system, he would just not bother, as he put it. We have to take those concerns to heart.
Will the Minister tell the Committee, in the context of the delivery of universal credit and the need to ensure that the taxation regime and universal credit fit together properly, what assessment he has made of the impact of the provisions in the clause on resources in HMRC, particularly given the concerns about the cuts in that Department? Jobs are being lost in that Department, and HMRC offices in some areas may close. The Government have said that the measure will be monitored through information collected from tax receipts and data from the Department for Work and Pensions as individuals are moved from currently taxable benefits to universal credit. Will the Minister confirm whether the results of that monitoring will be published? If so, when and how often will that be done? How will we be able to see whether the process is working as intended or whether further unintended consequences are causing difficulties for people?
Sajid Javid: Clause 13 makes changes to ensure that no one will pay tax on an award of universal credit, by making it exempt from tax. Universal credit was part of a package of measures in the Welfare Reform Act 2012. It replaces six benefits and tax credits, of which two—jobseeker’s allowance, and income support when paid during a trade dispute—were previously taxable. Universal credit is a single integrated award. It is not possible to isolate elements of an award for different tax treatments, so an award of universal credit must be either taxable or tax exempt. Making universal credit tax exempt is consistent with our wider aim of simplification, and it fits with our stated intention to remove those on the lowest incomes from tax.
Most people will see no change, either because the majority of benefits that will be replaced by universal credit are not taxable, or because an individual has a low income and does not pay tax. The changes made by clause 13 will, therefore, affect only those who receive a taxable benefit and pay tax. The change will apply when they move off a currently taxable benefit on to non-taxable universal credit.
The universal credit pathfinder was introduced in April this year and it will be rolled out gradually. We estimate that approximately 300,000 individuals pay tax on benefits which will be replaced by universal credit, and in many cases the amount of tax is very small. We are currently unable to provide further details of those affected by region or constituency, because that is related to the schedule planned by the Department for Work and Pensions for the roll-out of universal credit. Universal credit has been introduced in Ashton-under-Lyne, and it will soon be extended to Wigan, Warrington and Oldham.
I turn to a few of the issues raised by the hon. Member for Kilmarnock and Loudoun. She stated that universal credit was over budget, but I can tell her that universal
Cathy Jamieson: On that point, I recently spoke to a small business person in my constituency who said that she was struggling with the real-time information system. Has the Minister been made aware of the number of people who have contacted the helpline since its introduction, and of any particular problems that have arisen? On what issues are people seeking assistance?
Sajid Javid: That has been brought to my attention by other MPs and certain small and medium-sized enterprises. During the change to a new system of reporting tax there are bound to be issues, but that does not take away from the fact that, overall, the change is happening on time and according to plan. In some cases, of course, companies may have questions. That is why HMRC rightly has a helpline and has issued guidance, which I am sure is making the process a lot smoother.
The interaction of passported benefits such as free school meals with universal credit has also been mentioned. The Government are aware of that issue, and the Secretary of State for Work and Pensions has said that it is being worked through with stakeholders, as he has committed to do. There will be further information on that in due course.
Cathy Jamieson: I appreciate that the Minister is not responsible for what is being worked on and for what will be announced in due course, but I and other hon. Members have asked a number of questions in the House on that. Does he have any indication as to when “in due course” is likely to be? As long as that uncertainty continues, people will be genuinely worried about what is going to happen to their household incomes.
Sajid Javid: I assure the hon. Lady that that important issue is being taken seriously, but I cannot enlighten her on the timing. Again, she should be reassured that the DWP is taking the issue very seriously, is looking at it and will get back to the House.
The hon. Lady raised a number of other issues that more generally address welfare reform, rather than the technical issue in clause 13. I do not think it would be appropriate to go into detail on those general welfare reform issues, but I make the general point that, for 13 years, this country’s welfare budget was out of control—it was 60% in real terms—and no thought was given to how it affected people. Welfare dependency was created, and our welfare reforms are designed to bring the budget under control, to make it affordable and sustainable and to ensure that people who find themselves out of work and on out-of-work benefits have the right system of incentives so that work pays.
Lastly, my hon. Friend the Member for Wolverhampton South West mentioned European regulations on e-commerce. He asked about the impact of the current
In conclusion, the clause makes universal credit tax exempt, so most people will see no change. Additionally, making universal credit exempt from income tax will be a minor, but welcome, simplification for the small number of individuals who currently pay tax on the benefits that will be replaced by universal credit.
Sajid Javid: Clause 14 introduces schedule 2, which gives effect to the recommendations of the Office of Tax Simplification on the four tax-advantaged employee share schemes that currently exist. Such schemes are popular with businesses and employees alike, but they can sometimes be complex to operate. That is why in 2011 the Government asked the Office of Tax Simplification to review the schemes to identify where they place unnecessary administrative burdens on their users and to suggest ways in which they could be simplified. Following detailed work and consultation with businesses and other scheme users, the OTS published its report and recommendations last year. I pay tribute to the OTS for its work in this important area.
The changes set out in schedule 2 will make the tax advantaged employee share scheme simpler and more attractive to both employers and employees. In some cases, they will increase the tax benefits available to participants. Details of the changes are set out in the explanatory notes, but I will single out a few as examples of the improvements we have made.
The provisions on retirement in part 1 of the schedule will establish uniform rules across the schemes and allow companies more flexibility to set rules that match their own retirement policies. The provisions set out on cash takeovers in part 2 will allow employees to benefit from tax advantages on their shares even if their company is taken over and it is not possible to continue with the scheme. The changes in part 4, which will relax the rules on the shares that may be used in the schemes, will particularly benefit smaller companies, many of which feel that the current rules are too inflexible and do not enable them to operate the schemes properly. All the
Government amendment 17 will remove some minor duplication that we identified in the current drafting of the provision in part 4 of schedule 2, which enables the use of restricted shares in tax advantaged employee share schemes. The amendment will put that right and prevent any possible confusion.
Government amendments 18 and 19 respond to concerns that a provision in the Bill as it is currently drafted is too restrictive. Part 6 will remove the current statutory limit on the cash dividends on shares in share incentive plans that can be reinvested into SIP dividend shares each year. However, companies may, if they wish, apply their own limit to the total cash dividends that may be reinvested. We accept the point put to us that the way in which part 6 allows companies to do so is too inflexible and may cause administrative difficulties. The amendments will address those concerns by allowing companies, for example, to cap a total amount to be reinvested at a fixed sum as an alternative to setting the amount as a percentage of the total dividends.
The measures demonstrate the Government’s support for employee share ownership and for simplifying the tax system where possible. As we heard earlier, a number of hon. Members on both sides of the Committee believe that the economy can benefit from tax simplification.
Cathy Jamieson: I appreciate the fact that the Minister gave us advance information on the Government amendments; that was helpful. As the Minister said, the measure will give effect to some of the changes recommended by the Office of Tax Simplification to the rules governing the four tax advantaged employee share schemes—the share incentive plan, the save-as-you-earn share option scheme, the company share option plan, and enterprise management incentives—with the aim of simplifying the rules of the employee share scheme where it has been acknowledged that they currently create undue complexity or unnecessary administrative burden. Generally speaking, we welcome the changes.
We welcome attempts to simplify the tax system and the update of recommendations from the OTS following a wider consultation on recommendations last year. The Minister may recall that the briefing provided by the Institute of Chartered Accountants in England and Wales for the debates on Second Reading and in the Committee of the whole House states that the Bill would only add to the incredible complexity of the tax system. The UK tax code is the longest in the world. The Finance Act 2013 would be one of the longest on record, coming hard on the heels of the Finance Act 2012, which itself was the longest ever. Having sat through all its proceedings, I remember it well. The Minister was in a different role at that time and was, therefore, spared sitting through the longest ever Finance Bill and dealing with all those issues.
I appreciate that the concerns raised do not relate specifically to the clause, but many in the business community will be concerned about the extra burden that the changes might place on them. It is important to have a clear assurance from the Minister that the business community—particularly small businesses—will not have further undue burdens imposed on them.
I go back to the point made in relation to previous clauses on real-time information. Something can be potentially sensible and should overall simplify a process. Of course, there are difficulties in setting things up and people have to familiarise themselves with requirements. Small businesses will be concerned about not only the time it takes to do that but whether there are going to be costs. I am interested to hear from the Minister what assessment he has made of the level of those costs for business, and how many businesses he thinks will be affected by them. What guidance will be issued to businesses and employees about the new changes? Will there be any further consultation on the content of any guidance to ensure that it meets the needs of everyone affected?
Small businesses will want to be reassured that HMRC is able to cope with any extra demands placed on it by these measures, to ensure a smooth transition once the measures kick in, and to ensure that small businesses get the help they need to deal with changes.
I note that the Minister did not respond to my previous comments about job reductions at HMRC and the potential loss of HMRC offices in some areas. Perhaps in this context he could say something about the impact those changes will have on resources within HMRC and what processes are going to be put in place to ensure that resources and staffing are sufficient to aid the transition.
The Government also stated in the summary of impacts that they anticipate many of the proposed changes encouraging further take-up of the schemes by employees. I am interested to hear whether the Minister has assessed the impact of the changes on the number of extra employees entering into the schemes and on levels of tax avoidance.
As the Minister knows, the Bill did not initially include all of the recommendations made by the Office of Tax Simplification and accepted by HMRC. Is the Minister confident that all of those issues have been addressed by the Bill and the amendments? Was anything put forward or suggested at that stage that the Minister has not yet acted on? Is there anything tucked away somewhere for potential future legislation?
I have a couple of technical questions in relation to the Income Tax (Earnings and Pensions) Act 2003. The first concerns SAYE and leavers. In what circumstances do the Government consider a non-tax relieved early exercise of SAYE options could likely occur under paragraph 34(5) of schedule 3 that does not fall within paragraph 34(2)(c) or (d) of schedule 3? Does that mean that paragraphs 34(5) and (5A) are obsolete?
Secondly, is it fair to employees that, further to a cash takeover within three years of the grant of a SAYE or CSOP option, an employee who receives cash for his shares benefits from tax relief while an employee who does not have a cash alternative in the transaction and receives shares—loan notes—in the acquirer does not benefit from tax relief? Finally, particularly given that the Government’s policy objective of employee share schemes is to encourage employee share ownership, would it not be more fair for all early exercises of CSOP and SAYE new options in a takeover scenario to benefit from income tax and national insurance relief subject to suitable anti-avoidance provisions? I should be interested to hear what consideration the Minister has given to such matters. If he is not able to answer the specific questions now, perhaps he would write to us about them.
Sajid Javid: I thank the hon. Lady for her questions, and what I believe is a general welcome for the changes and the simplification that we are proposing. They are all designed to increase take-up of employee share ownership schemes and help to incentivise individuals working for such companies to play a greater role and have a greater stake in the success of the companies for which they work.
The hon. Lady quoted the ACAW, which said that Britain has the longest tax code in the world. Of course, she is right about that but, as we heard earlier, the primary reason why that is so is due to what the Government whom she supported did for 13 years by tripling the size of our tax code to it being more than 11,000 pages long, longer than Tolstoy’s “War and Peace”. Clearly, it is probably still the most complicated tax code in the world. That brings me to the Office of Tax Simplification, and why we set it up. Its purpose is to recommend to Ministers changes that can simplify our tax code, to make sure that it serves the purpose for which it was set out to serve and that it is not only simple and less complex, but competitive in the global race.
The OTS has made several recommendations to the Government, some of which we have discussed. Further clauses are also based on its recommendations. The hon. Lady asked whether it has made other recommendations that we have not yet made public. It is undertaking diligent work all the time. We are in constant communication with it, and when it makes further recommendations and we have had time to digest and reflect on them, we will, of course, bring that to the attention of the House.
The hon. Lady also asked whether we have heard from companies, and how the policy had been generally received. As I said earlier, several business groups representing large companies across the board have welcomed the changes, as have those representing small and medium-sized enterprises. She also asked a more general question about resources and HMRC in respect of personnel. In order to make sure that the Government are once again living within their means after the experiences under the previous Government, HMRC, like any other Department, is trying to find efficiencies by more use of IT and other methods of efficiency savings.
However, HMRC’s headcount is increasing, which touches on another issue raised by the hon. Lady. One of the key reasons for the increase is that the Government are rightly investing significant amounts in fighting
The hon. Lady also asked three questions that I will not repeat because she described them herself as quite detailed and technical. I believe that that was an appropriate description. She invited me to write to her with more details, and I will take her up on that invitation. With that, I commend the clause to the Committee.
‘(3) In sub-paragraph (4)(b) for “provision for forfeiture” substitute “restriction”.’.
‘(2) In sub-paragraph (1) for the first “all” substitute “some or all of the”.
(3) After sub-paragraph (1) insert—
“(1A) The company’s direction must set out—
(a) the amount of the cash dividends to be applied as mentioned in sub-paragraph (1), or
(b) how that amount is to be determined.”
(4) In sub-paragraph (4) after “may” insert “modify or”.’.
‘(2) Sub-paragraph (3) applies to a direction requiring the reinvestment of cash dividends which is given before that day.
(3) For the purposes of paragraph 62(1A) of Schedule 2 to ITEPA 2003 the direction is to be treated as requiring the reinvestment of all the cash dividends, subject to any modification of the direction which is made on or after that day under paragraph 62(4) of that Schedule.’.—(Sajid Javid.)
Cathy Jamieson: We are making good progress this afternoon. I hope to maintain that speed, as I can see that people are noticing that many others have gone home while we are still here enjoying our consideration of the Bill. I was wondering about whether, if the officials had gone home, all that inspiration would have been lost to the Minister.
We have had many lively debates regarding tax avoidance, not least during the sitting of the Committee of the whole House. Despite our criticism of other attempts
The relief abolished by clause 15 applies only to payments that are not deducted in calculating income tax liability from any other source—for example, a trade. Where patents royalties are deductible in calculating income from any source, they will continue to be relieved in that way. To cut to the chase, I would like to ask the Minister a number of questions. What assessment has he made of the levels of tax avoidance regarding these specific payments of patent royalties? I would like to hear him state, for the record, why he feels the clause is so important.
Given that the changes will have effect for payments made on or after 5 December 2012, will the Minister tell us what guidance he has given to businesses regarding the measure and what efforts he has made to publicise it to ensure that businesses are already fully aware of it and its impact? Or, will he tell us what additional guidance he intends to introduce or whether he intends to take any action to alert businesses to the measures in the clause?
Sajid Javid: Clause 15 makes changes to protect the Exchequer from a loss of tax resulting from avoidance arrangements exploiting the income tax relief of patent royalty payments. It is one of a number of measures in the Bill to ensure that individuals and businesses cannot exploit loopholes in the tax legislation to gain unintended and unfair tax advantages.
In October 2012, HMRC became aware of a new income tax avoidance scheme that was being marketed to wealthy individuals. It made use of this little-known relief for patent royalty payments. The relief in question was unlimited and given as a reduction to individuals’ net taxable income. The avoidance scheme that exploited it was structured so that the amount of tax relief that could be claimed was greater than the net outlay by the claimant. The relief applied only to those patent royalty payments that were not relieved from tax in any other way, for example as business expenses.
Individuals will therefore continue to receive income tax relief for the vast majority of patent royalty payments in the usual way. The changes made by clause 15 will abolish the relief for non-business patent royalty payments made by individuals and other persons who are within the charge to income tax, such as trustees. Some wealthy individuals have in the past had an appetite for similar
The abolition of the relief, with immediate effect, was therefore announced in the most recent autumn statement. The relief was little known and it was not thought to have been used that much, in any case in recent years. In fact, when it was announced—[ Interruption. ] Was it something I said? I am surprised that hon. Members find dealing with tax avoidance such a joyous matter.
To ensure that compliant taxpayers would not be disadvantaged, a written ministerial statement announcing the change invited anyone who thought that they had been adversely affected to contact HMRC. No representations were made to HMRC following that
Nigel Mills: Just so we know where we are for next year, would this scheme have been ruled ineffective by the general anti-abuse rule, so that in future years we would not need to have had such provisions?
Sajid Javid: My hon. Friend, as always, makes a good and incisive point. The general anti-abuse rule, which will be introduced by the Government—something that was not done in the 13 years of the previous Government —will help to tackle future tax avoidance schemes and help the Government to act more quickly as soon as such schemes come to their notice.