“an uncompetitive charge that puts UK-domiciled funds at a disadvantage to funds domiciled elsewhere”.––[Official Report, Finance Public Bill Committee, 10 June 2014; c. 412.]
That does not square with the idea that the UK investment management industry is doing so well that it is the second largest in the world, beaten only by the US.
I want to draw to a conclusion soon because I put quite a number of questions to the Minister in Committee and it would be useful for us to give him some time to respond to them, as he was not necessarily able to do so in Committee. It is important that we give him the chance again today, therefore. Unsurprisingly perhaps, the Minister is continuing to steadfastly—albeit politely—refuse to countenance our amendment for two reasons. First, he seems to be suggesting that the information requested has already been covered by the tax information and impact note, which, as I hope I have outlined, it does not seem to me to do in any clear and transparent way. The other argument that came up in Committee is that it would be difficult and it would perhaps take longer than six months to do. I am sure—and I am sure the Minister will understand this—that should he wish it to be so, he would be able to utilise all the capacity of the Government to overcome any difficulties, and indeed to ensure more information and a report were brought forward, and I am sure he would also be able to use his good offices to have his Government provide us with considerably more information than is currently contained in the tax information and impact note. It would also be helpful if the Minister could give us more information in his winding-up speech as to why he thinks it would not be possible to do this within a six-month deadline, as we have asked in our amendment.
In conclusion, this is all about priorities. The Government’s measures will reduce Exchequer revenues by more than £800 million over the course of the next five years if this particular measure goes ahead. That funding could be used in a variety of ways, and the Government have to be held responsible for the choices they make. Our amendment simply asks them to undertake that assessment and put the information in the public domain, so that we can see who benefits from this initiative and how it would benefit the wider public. The Government have not made that case; they have not shown how the measure would have an impact on our constituents—for the most part they seem to suggest it would not have any impact on them—and they have not answered the questions put previously about job creation and the impact on the regional economies.
Let me therefore remind the Minister of some of the questions we posed in Committee—I am sure other Members will wish to contribute, but he will also want to answer these in his summing up. The Investment
1 July 2014 : Column 805
Management Association is saying that the industry is doing very well, so why are the Government handing this tax break to the industry? What evidence can the Minister provide to us, even at this late stage, to suggest that the measure will have a positive impact on the UK economy and, in particular, the jobs market? Unless my memory fails me, he has not so far been able to give me a concrete number on the jobs he expects to be created or any more information about the regional benefits that have been referred to. Can he do that now? It would be helpful if he could do that and if he could set out all that information today. In those circumstances, perhaps I would consider whether our amendment was necessary. I suspect that he will not be able to give that information and will not be able to provide the clarity and transparency we seek, so I strongly suspect that when the time comes, I will seek to press my amendment to a vote.
Mr Gauke: It is a pleasure to respond to this short debate. The hon. Lady has an admirable ability to make unreasonable requests in a very reasonable way, and it falls to me once again to decline her offer, as Treasury Ministers have done in the past when a review or report is sought from them during a Finance Bill debate.
Let me quickly try to address some of the points raised, the first of which relates to the impact on the industry, the competitiveness argument and what we can do to assess that. It is worth pointing out that this measure came into effect only on 30 March, and it will take longer than six months for evidence of how the benefits of the change are accruing to investors to become available. So the report requested in amendment 67 will not adequately be able to do justice to that question.
Another area we have debated on a number of occasions is who benefits from this measure, and I will return to our little engagement on hedge funds. It is worth pointing out that the National Association of Pension Funds, the Association of British Insurers and the Investment Management Association stated their disagreement with the Labour party’s position and its policy proposal last year to reintroduce the schedule 19 charge. They say it would
“impose a £145 million annual cost on the ordinary savers, investors and pensioners, who are the beneficiaries of its abolition.”
That would weaken the UK’s competitiveness as a place for funds to be domiciled. If we are competitive in this sector, we will have more growth and more jobs. Let us be clear that this is not about jobs in the City of London—not that there is anything wrong with jobs in the City of London. The fund management industry directly employs 30,000 people throughout the United Kingdom, and about a half of those jobs are linked to fund domiciles. The jobs are located in many, if not all, the regions and nations of the United Kingdom.
4 pm
The hon. Lady asked what was in it for her constituents in Kilmarnock or the constituents of the hon. Member for Inverclyde (Mr McKenzie), and I can tell her that the fund management industry employs 3,600 people in Scotland. I am sure that all of us in this House want to preserve and protect those jobs and ensure that the UK is competitive. The jobs involve operational and administrative matters, such as IT, compliance and legal audit services, all of which are relevant and jobs that we want to support and preserve.
1 July 2014 : Column 806
Mr Gauke: I hope that the hon. Lady will share that view.
Cathy Jamieson: Of course I recognise the value and the range of those jobs. Will the Minister tell us exactly what assessment the Government have done on the risk of reintroducing the measure, or indeed on the risk associated with producing a report? Surely he will want to investigate fully the number of jobs that he seems to think might be lost if our measure went ahead.
Mr Gauke: The hon. Lady puts her finger on an important word, which is “risk”. Yes, a number of jobs are involved. Some 30,000 people are employed in this industry in the UK. About 10,000 jobs are located in regions and nations such as Scotland, the north-west of England and the west midlands. If we have an uncompetitive tax system in the UK, that sector will suffer. There will be a threat to those jobs. We want to see an expanding and thriving sector, but there is a lot of competition from other jurisdictions in which funds can be domiciled. If we do not compete in the sector, we run the risk of losing those jobs.
There is not only the issue of the industry itself and the jobs that can be encouraged and protected in this country if we have a competitive tax regime, but the underlying point that it is the investors who indirectly bear the burden of this tax. That means that contributors to pension schemes—people in auto-enrolment schemes—will receive less in their pension if this tax remains in place. That is something that we should all seek to address. If we want policies that will be good for jobs and good for savers, then abolishing schedule 19 is a good policy. But what do we get from Labour? We get it embarking on a process to reinstate the policy because it misunderstands it. It thought that it was something to do with hedge funds. After it was explained to Labour Members—I have to say that it has been explained to them time and again—they refused to abandon it. I do not know whether it is still their policy to reverse this, or whether they are calling for a report. As I understand it, it is still the policy of the Opposition to reintroduce this tax.
Cathy Jamieson indicated assent.
Mr Gauke: The hon. Lady is nodding her head. I will take that as an acceptance, even though, as we have heard, this is a policy that her colleagues and those higher up in her party appear to misunderstand.
Simon Kirby: Does the Minister agree that it seems incredibly naive to give away these jobs and reduce these pensions for nothing? Surely the Opposition should better understand the proposed legislation.
Mr Gauke:
It is striking that time and again senior figures in the Labour party went around describing this as a tax cut for hedge funds. It is to the credit of the hon. Member for Kilmarnock and Loudoun that she refused to repeat that accusation. Although she did not quite go as far as she might have done towards putting the record straight, at least she did not repeat the accusation despite being given multiple opportunities to do so. I do worry about the understanding of some
1 July 2014 : Column 807
issues within the Labour party. Just today, we have seen the example of the confusion about how many jobs have been created inside and outside London. I understand that the Leader of the Opposition is standing by his position this morning, although he did not quote that in his speech—but there we go. I am afraid that this is an example of somewhat shoddy thinking from the Opposition.
Ian Swales: On the same theme, did the Minister share my concern about the number of speeches made in Committee by Opposition Members that appeared to suggest that the benefits of the policy would accrue to the managers of the funds rather than the funds themselves?
Mr Gauke: Yes, I did. There was a complete absence of any understanding of tax incidence and of who ultimately bears a tax, but that, I am afraid, is all too typical.
The removal of schedule 19 is a welcome measure that will ensure that we have a competitive investment funds management set-up in the UK. It will help savers and those investing in their pensions and remove a distortive and uncompetitive tax. It is a great pity, although not a great surprise, that this further measure to improve our competitiveness and to help savers is opposed by the Opposition, and I certainly urge my colleagues to vote against amendment 67, assuming that it is pressed to a vote.
New clause 7 accordingly read a Second time, and added to the Bill.
Abolition of SDRT on certain dealings in collective investment schemes
Amendment proposed: 67, page 90, line 33, at end insert—
‘(5A) The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish and lay before the House of Commons a report setting out the impact of changes made to Schedule 19 of the Finance Act 1999 by this section.
(5B) The report referred to in subsection (5A) must in particular consider—
(a) the impact on tax revenues;
(b) the expected beneficiaries; and
(c) a distributional analysis of the beneficiaries.”—(Cathy Jamieson.)
Question put, That the amendment be made.
The House divided:
Ayes 231, Noes 296.
Division No. 26]
[
4.8 pm
AYES
Abbott, Ms Diane
Abrahams, Debbie
Ainsworth, rh Mr Bob
Alexander, rh Mr Douglas
Alexander, Heidi
Ali, Rushanara
Ashworth, Jonathan
Austin, Ian
Balls, rh Ed
Barron, rh Kevin
Bayley, Hugh
Beckett, rh Margaret
Begg, Dame Anne
Benn, rh Hilary
Benton, Mr Joe
Berger, Luciana
Betts, Mr Clive
Blackman-Woods, Roberta
Blears, rh Hazel
Blenkinsop, Tom
Blomfield, Paul
Blunkett, rh Mr David
Bradshaw, rh Mr Ben
Brennan, Kevin
Brown, rh Mr Nicholas
Brown, Mr Russell
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Burnham, rh Andy
Byrne, rh Mr Liam
Campbell, rh Mr Alan
Campbell, Mr Ronnie
Champion, Sarah
Chapman, Jenny
Clark, Katy
Clwyd, rh Ann
Coaker, Vernon
Coffey, Ann
Connarty, Michael
Cooper, Rosie
Cooper, rh Yvette
Crausby, Mr David
Creagh, Mary
Creasy, Stella
Cruddas, Jon
Cryer, John
Cunningham, Alex
Cunningham, Mr Jim
Cunningham, Sir Tony
Curran, Margaret
Dakin, Nic
Danczuk, Simon
Darling, rh Mr Alistair
David, Wayne
Davidson, Mr Ian
Davies, Geraint
Dobbin, Jim
Dobson, rh Frank
Donaldson, rh Mr Jeffrey M.
Donohoe, Mr Brian H.
Doran, Mr Frank
Doyle, Gemma
Dugher, Michael
Durkan, Mark
Eagle, Ms Angela
Eagle, Maria
Edwards, Jonathan
Elliott, Julie
Ellman, Mrs Louise
Engel, Natascha
Esterson, Bill
Evans, Chris
Farrelly, Paul
Field, rh Mr Frank
Fitzpatrick, Jim
Flello, Robert
Flint, rh Caroline
Flynn, Paul
Fovargue, Yvonne
Gapes, Mike
Gardiner, Barry
Glass, Pat
Glindon, Mrs Mary
Godsiff, Mr Roger
Goodman, Helen
Green, Kate
Greenwood, Lilian
Griffith, Nia
Gwynne, Andrew
Hain, rh Mr Peter
Hamilton, Mr David
Hamilton, Fabian
Hanson, rh Mr David
Harman, rh Ms Harriet
Havard, Mr Dai
Healey, rh John
Hepburn, Mr Stephen
Hermon, Lady
Heyes, David
Hillier, Meg
Hilling, Julie
Hodge, rh Margaret
Hodgson, Mrs Sharon
Hoey, Kate
Hood, Mr Jim
Hopkins, Kelvin
Hosie, Stewart
Howarth, rh Mr George
Hunt, Tristram
Jackson, Glenda
James, Mrs Siân C.
Jamieson, Cathy
Jarvis, Dan
Johnson, rh Alan
Johnson, Diana
Jones, Graham
Jones, Helen
Jones, Mr Kevan
Jones, Susan Elan
Kane, Mike
Kaufman, rh Sir Gerald
Keeley, Barbara
Kendall, Liz
Khan, rh Sadiq
Lammy, rh Mr David
Lavery, Ian
Leslie, Chris
Lewell-Buck, Mrs Emma
Lewis, Mr Ivan
Llwyd, rh Mr Elfyn
Long, Naomi
Love, Mr Andrew
Lucas, Caroline
Lucas, Ian
MacNeil, Mr Angus Brendan
Mactaggart, Fiona
Mahmood, Mr Khalid
Mahmood, Shabana
Malhotra, Seema
Mann, John
Marsden, Mr Gordon
McCabe, Steve
McCann, Mr Michael
McClymont, Gregg
McDonagh, Siobhain
McDonald, Andy
McDonnell, John
McFadden, rh Mr Pat
McGovern, Alison
McGuire, rh Mrs Anne
McKenzie, Mr Iain
McKinnell, Catherine
Meale, Sir Alan
Mearns, Ian
Miliband, rh Edward
Miller, Andrew
Mitchell, Austin
Moon, Mrs Madeleine
Morden, Jessica
Morrice, Graeme
(Livingston)
Munn, Meg
Murphy, rh Mr Jim
Murphy, rh Paul
Murray, Ian
Nash, Pamela
O'Donnell, Fiona
Onwurah, Chi
Osborne, Sandra
Owen, Albert
Pearce, Teresa
Perkins, Toby
Phillipson, Bridget
Pound, Stephen
Powell, Lucy
Qureshi, Yasmin
Raynsford, rh Mr Nick
Reed, Mr Jamie
Reed, Mr Steve
Reeves, Rachel
Reynolds, Emma
Reynolds, Jonathan
Riordan, Mrs Linda
Robertson, Angus
Robertson, John
Robinson, Mr Geoffrey
Rotheram, Steve
Roy, Mr Frank
Roy, Lindsay
Ruane, Chris
Ruddock, rh Dame Joan
Sawford, Andy
Seabeck, Alison
Shannon, Jim
Sharma, Mr Virendra
Sheerman, Mr Barry
Sheridan, Jim
Shuker, Gavin
Simpson, David
Skinner, Mr Dennis
Slaughter, Mr Andy
Smith, rh Mr Andrew
Smith, Angela
Smith, Owen
Spellar, rh Mr John
Straw, rh Mr Jack
Stringer, Graham
Stuart, Ms Gisela
Sutcliffe, Mr Gerry
Tami, Mark
Thomas, Mr Gareth
Thornberry, Emily
Timms, rh Stephen
Trickett, Jon
Turner, Karl
Twigg, Derek
Twigg, Stephen
Umunna, Mr Chuka
Vaz, rh Keith
Vaz, Valerie
Weir, Mr Mike
Whiteford, Dr Eilidh
Whitehead, Dr Alan
Williamson, Chris
Winnick, Mr David
Winterton, rh Ms Rosie
Wishart, Pete
Wood, Mike
Woodcock, John
Woodward, rh Mr Shaun
Wright, David
Tellers for the Ayes:
Phil Wilson
and
Stephen Doughty
NOES
Adams, Nigel
Afriyie, Adam
Aldous, Peter
Alexander, rh Danny
Andrew, Stuart
Baker, Norman
Baker, Steve
Baldry, rh Sir Tony
Barclay, Stephen
Barker, rh Gregory
Baron, Mr John
Barwell, Gavin
Bebb, Guto
Bellingham, Mr Henry
Benyon, Richard
Beresford, Sir Paul
Berry, Jake
Bingham, Andrew
Binley, Mr Brian
Birtwistle, Gordon
Blackman, Bob
Blackwood, Nicola
Blunt, Crispin
Boles, Nick
Bottomley, Sir Peter
Bradley, Karen
Brady, Mr Graham
Brake, rh Tom
Bray, Angie
Brazier, Mr Julian
Bridgen, Andrew
Brine, Steve
Brokenshire, James
Brooke, Annette
Browne, Mr Jeremy
Bruce, Fiona
Bruce, rh Sir Malcolm
Buckland, Mr Robert
Burley, Mr Aidan
Burns, Conor
Burrowes, Mr David
Burt, rh Alistair
Byles, Dan
Cable, rh Vince
Campbell, rh Sir Menzies
Carmichael, Neil
Carswell, Mr Douglas
Cash, Sir William
Chishti, Rehman
Chope, Mr Christopher
Clappison, Mr James
Clark, rh Greg
Clifton-Brown, Geoffrey
Coffey, Dr Thérèse
Collins, Damian
Colvile, Oliver
Cox, Mr Geoffrey
Crabb, Stephen
Crouch, Tracey
Davies, David T. C.
(Monmouth)
Davies, Glyn
Davies, Philip
Dinenage, Caroline
Djanogly, Mr Jonathan
Dorrell, rh Mr Stephen
Dorries, Nadine
Doyle-Price, Jackie
Drax, Richard
Duddridge, James
Duncan, rh Mr Alan
Duncan Smith, rh Mr Iain
Dunne, Mr Philip
Ellis, Michael
Ellison, Jane
Eustice, George
Evans, Graham
Evans, Jonathan
Evans, Mr Nigel
Evennett, Mr David
Fabricant, Michael
Fallon, rh Michael
Farron, Tim
Featherstone, Lynne
Field, Mark
Foster, rh Mr Don
Fox, rh Dr Liam
Francois, rh Mr Mark
Freeman, George
Freer, Mike
Fuller, Richard
Gale, Sir Roger
Garnier, Sir Edward
Garnier, Mark
Gauke, Mr David
George, Andrew
Gibb, Mr Nick
Gillan, rh Mrs Cheryl
Glen, John
Goldsmith, Zac
Goodwill, Mr Robert
Gove, rh Michael
Graham, Richard
Gray, Mr James
Grayling, rh Chris
Green, rh Damian
Greening, rh Justine
Grieve, rh Mr Dominic
Griffiths, Andrew
Gyimah, Mr Sam
Halfon, Robert
Hames, Duncan
Hammond, rh Mr Philip
Hammond, Stephen
Hancock, Matthew
Hands, rh Greg
Harper, Mr Mark
Hart, Simon
Harvey, Sir Nick
Heald, Oliver
Heath, Mr David
Heaton-Harris, Chris
Hemming, John
Henderson, Gordon
Hendry, Charles
Hinds, Damian
Hoban, Mr Mark
Hollingbery, George
Hollobone, Mr Philip
Holloway, Mr Adam
Hopkins, Kris
Horwood, Martin
Howarth, Sir Gerald
Hunt, rh Mr Jeremy
Huppert, Dr Julian
James, Margot
Javid, rh Sajid
Jenkin, Mr Bernard
Jenrick, Robert
Johnson, Gareth
Johnson, Joseph
Jones, rh Mr David
Jones, Mr Marcus
Kawczynski, Daniel
Kelly, Chris
Kennedy, rh Mr Charles
Kirby, Simon
Knight, rh Sir Greg
Kwarteng, Kwasi
Lamb, Norman
Lancaster, Mark
Lansley, rh Mr Andrew
Latham, Pauline
Leadsom, Andrea
Lee, Jessica
Lee, Dr Phillip
Leech, Mr John
Lefroy, Jeremy
Leigh, Sir Edward
Leslie, Charlotte
Letwin, rh Mr Oliver
Lewis, Brandon
Lewis, Dr Julian
Liddell-Grainger, Mr Ian
Lilley, rh Mr Peter
Lloyd, Stephen
Luff, Sir Peter
Lumley, Karen
Macleod, Mary
Main, Mrs Anne
Maynard, Paul
McCartney, Jason
McCartney, Karl
McIntosh, Miss Anne
McLoughlin, rh Mr Patrick
McPartland, Stephen
Metcalfe, Stephen
Mills, Nigel
Milton, Anne
Mitchell, rh Mr Andrew
Moore, rh Michael
Mordaunt, Penny
Morgan, rh Nicky
Morris, Anne Marie
Morris, David
Morris, James
Mosley, Stephen
Mowat, David
Mulholland, Greg
Munt, Tessa
Murray, Sheryll
Murrison, Dr Andrew
Neill, Robert
Newmark, Mr Brooks
Newton, Sarah
Nokes, Caroline
Norman, Jesse
Nuttall, Mr David
O'Brien, rh Mr Stephen
Offord, Dr Matthew
Ollerenshaw, Eric
Opperman, Guy
Ottaway, rh Sir Richard
Paice, rh Sir James
Parish, Neil
Patel, Priti
Pawsey, Mark
Penning, rh Mike
Penrose, John
Percy, Andrew
Perry, Claire
Phillips, Stephen
Pickles, rh Mr Eric
Pincher, Christopher
Poulter, Dr Daniel
Prisk, Mr Mark
Pritchard, Mark
Raab, Mr Dominic
Randall, rh Sir John
Reckless, Mark
Redwood, rh Mr John
Rees-Mogg, Jacob
Reevell, Simon
Reid, Mr Alan
Robertson, rh Hugh
Robertson, Mr Laurence
Rogerson, Dan
Rosindell, Andrew
Rudd, Amber
Ruffley, Mr David
Russell, Sir Bob
Rutley, David
Sanders, Mr Adrian
Sandys, Laura
Scott, Mr Lee
Selous, Andrew
Sharma, Alok
Shelbrooke, Alec
Shepherd, Sir Richard
Simmonds, Mark
Simpson, Mr Keith
Skidmore, Chris
Smith, Chloe
Smith, Henry
Smith, Julian
Smith, Sir Robert
Soames, rh Sir Nicholas
Soubry, Anna
Spelman, rh Mrs Caroline
Spencer, Mr Mark
Stanley, rh Sir John
Stevenson, John
Stewart, Bob
Stewart, Iain
Stewart, Rory
Stride, Mel
Stuart, Mr Graham
Stunell, rh Sir Andrew
Sturdy, Julian
Swayne, rh Mr Desmond
Swinson, Jo
Swire, rh Mr Hugo
Syms, Mr Robert
Tapsell, rh Sir Peter
Teather, Sarah
Thornton, Mike
Thurso, John
Tomlinson, Justin
Tredinnick, David
Truss, Elizabeth
Turner, Mr Andrew
Tyrie, Mr Andrew
Uppal, Paul
Vaizey, Mr Edward
Vara, Mr Shailesh
Vickers, Martin
Walker, Mr Charles
Wallace, Mr Ben
Ward, Mr David
Watkinson, Dame Angela
Weatherley, Mike
Webb, Steve
Wharton, James
Wheeler, Heather
White, Chris
Whittaker, Craig
Whittingdale, Mr John
Wiggin, Bill
Willetts, rh Mr David
Williams, Stephen
Williamson, Gavin
Wilson, Mr Rob
Wollaston, Dr Sarah
Wright, Jeremy
Wright, Simon
Yeo, Mr Tim
Zahawi, Nadhim
Tellers for the Noes:
Harriett Baldwin
and
Jenny Willott
Question accordingly negatived.
1 July 2014 : Column 808
1 July 2014 : Column 809
1 July 2014 : Column 810
1 July 2014 : Column 811
Capital gains tax and employee shareholders
‘(1) The Chancellor of the Exchequer shall, within three months of the passing of this Act, undertake a review of the impact on tax revenues of employee shareholder status as defined by section 205A of the Employment Rights Act 1996, and set out the conclusion of the review in a report.
(2) The report referred to in subsection (1) above must in particular set out—
(a) the impact on total capital gains tax receipts paid to the Exchequer arising from the capital gains exemptions under section 236B of the Taxation of Chargeable Gains Act 1992;
(b) the estimated value of shares owned by employees working in employee shareholder jobs and the number of such employees.
(3) The Chancellor of the Exchequer must publish the report of the review and lay the report before the House.
(4) Subsequent reviews must be completed before the end of each period of 12 months beginning with the date on which the previous review was completed.’—(Catherine McKinnell.)
Brought up, and read the First time.
Catherine McKinnell (Newcastle upon Tyne North) (Lab): I beg to move, That the clause be read a Second time.
1 July 2014 : Column 812
New clause 11 relates to the Government’s employee shareholder scheme, more commonly known as “shares for rights”. It seeks to probe the Government on the scheme’s performance to date and the costs to the Exchequer in the form of capital gains tax exemptions. We have debated the subject at some length, so I thought that it would be helpful to give some background to jog hon. Members’ memories before setting out the reasons why the Opposition tabled the new clause.
The concept of employee shareholders was introduced under section 31 of the Growth and Infrastructure Act 2013, which was part of the Chancellor’s desperate attempt to kick-start growth after three years of a flatlining economy and rising unemployment, particularly youth unemployment. To get more businesses hiring, he created a status of employee known as employee shareholders. They are expected to give up several fundamental employment rights in return for tax advantaged shares in the employer’s company or parent company, issued under an employee shareholder agreement. Those shares would be tax advantageous to employees because up to £50,000 of the shares would be exempt from capital gains tax on disposal.
In exchange for those tax advantageous shares, employees would be expected to waive some of their fundamental employment rights, including the right not to be unfairly dismissed, the right to a redundancy payment, the right to request leave for study or training and the right to request flexible working, and they will have to give 16 weeks’ notice, rather than the usual eight weeks, before returning to work.
Of course, the right to request flexible working and the ability to give just eight weeks’ notice after maternity or adoption leave have been assessed by the Government themselves, in their tax information and impact note, to affect women disproportionately. They acknowledged that when they legislated for this last year. These reduced rights for female employees, in particular, are in addition to the Government’s real-terms cuts to statutory maternity pay—the mummy tax—the scrapping of the health in pregnancy grant and the significant restrictions on the Sure Start maternity grant. That begs the question that many of us are asking ourselves: just what do this Government have against women and families?
The shares for rights scheme has been widely criticised from across the political spectrum—particularly by the business world because of its impact on employment rights and grave concerns about the opportunities that it presents for tax avoidance.
Mark Tami (Alyn and Deeside) (Lab): Does my hon. Friend agree that rights are rights—not something to be bought and sold? If we give people rights, they should not be able to be sold to whoever.
Catherine McKinnell: My hon. Friend hits on a key point. Rights are rights and should not be up for sale. I will go into some of the concerns expressed about the policy. The TUC, for example, has said:
“We deplore any attack on maternity provision or protection against unfair dismissal, but these complex proposals do not look as if they will have very much impact, as few small businesses will want to tie themselves up in the tangle of red tape necessary to trigger these exemptions.”
Not only do the proposals send out completely the wrong signals about employment rights—I have focused
1 July 2014 : Column 813
on women’s employment rights, but those rights are affected across the board—but they have been so badly thought through that the general feeling is that they will not have much impact, as most people would not want to enter into the arrangements.
Seema Malhotra (Feltham and Heston) (Lab/Co-op): My hon. Friend is making incredibly important points. She mentioned businesses. Does she share my concern that the scheme has not had the support from businesses that we might have expected, for some of the practical reasons that she has raised?
Catherine McKinnell: I agree with my hon. Friend’s concern. The lack of transparency from the Government about the interest in the scheme is why we tabled the new clause. It has been difficult to get information about the scheme’s potential take-up—how many businesses have expressed an interest? It has taken a freedom of information request to get even the most basic information, which I will outline a little later.
I should like to quote Justin King, chief executive of Sainsbury’s. What he says relates poignantly to the interventions made by my hon. Friends the Members for Alyn and Deeside (Mark Tami) and for Feltham and Heston (Seema Malhotra):
“This is not something for our business. The population at large don’t trust business. What do you think the population at large will think of businesses that want to trade employment rights for money?”
I could not have expressed it better myself.
Mike Kane (Wythenshawe and Sale East) (Lab): Does my hon. Friend agree that the measure lacks basic human dignity, which should be at the forefront of all public policy legislation? Does she agree with Lord O’Donnell, the former head of the civil service, who said that it was a form of modern slavery?
Catherine McKinnell: The proposition risks ringing of that. It lacks an ethical approach, given that it trades people’s rights for £2,000 of shares. More than that, it flies in the face of what we know to be true about productivity and engagement. We know that engaging a work force and building their trust makes businesses more successful. Sarah Jackson, chief executive of Working Families, says:
“It also flies in the face of everything we know about productivity and employee engagement. Treat your employees well, give them the flexibility they need, and you will be rewarded by highly motivated and high performing employees.”
The proposal we are discussing goes in completely the opposite direction, undermining the rights of employees and buying them off with shares that could carry a lot of risk for them. It is no wonder that so few businesses have taken up the offer.
Stewart Hosie: That is the key point, is it not? Share schemes and share option schemes are fantastic incentives in their own right. That is what should be promoted, not the link with the withdrawal of rights, which is absurd and preposterous.
4.30 pm
Catherine McKinnell:
I agree with the hon. Gentleman. He sums up the point at stake. The scheme seems to confuse and conflate two different issues: employee ownership of shares in a company—something we fully
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support—and employment rights. There seems to be a belief that one can be traded for the other and that that will create an entrepreneurial work force, when in fact it undermines productivity and performance and is so unattractive that few businesses have taken up the offer, we believe. But that is the reason for the new clause: we want to get to the truth of exactly how many businesses are interested in taking up the scheme.
Seema Malhotra: To build on that important exchange, Labour supports employee ownership, but coupling it with slashing employment rights is not only contradictory but counter-productive. Do we not need a way in which we can support employee ownership alongside employment rights? That is how we will get a motivated and engaged work force. Partnership between management and staff is the right way to get the focus on high productivity and long-term incentives.
Catherine McKinnell: My hon. Friend speaks passionately and I absolutely agree. Employee ownership is something we should be talking about and finding ways to support. That is why it is so disappointing that the Government wasted the opportunity to boost the cause of employee ownership and shareholding, and have undermined it by framing the argument so unfairly. It smacks of the Adrian Beecroft fire-at-will proposals and does not ring true for most businesses, which do not want to conduct their affairs in that way. They want an equal partnership with their employees to build the business together, knowing that in most circumstances their work force are their key asset. Undermining and cutting employment rights will potentially undermine the trust in a business between employers and employees. That is not the way to build a successful, strong business for the future.
The policy was the centrepiece of the Chancellor’s speech to the 2012 Conservative party conference. He suggested at the time that his grand idea would herald a new three-way deal between employer, employee and the Government, in which employees give up their employment rights, the company gives shares and the Government grant tax exemptions on those shares. In his words, it is swapping “old rights”—as if they are no longer required—
“with new rights of ownership.”
I want to be absolutely clear that we do not oppose the concept of employee ownership. We are aware of its benefits for both employees and employers alike, but we strongly object to its being linked to the removal of employment rights, which serves to undermine the whole concept. Ministers need to make it easier to hire people, not to fire them, but the Chancellor is kidding absolutely nobody by trying to claim that the scheme does anything other than encourage that.
The Chancellor talks about new types of ownership rights, but the Employee Owner Association, which describes itself as the voice of co-owned business, has pointed out that the scheme serves only to discredit and undermine genuine employee ownership schemes—schemes that we fully support. The chief executive of the Employee Ownership Association has said:
“There is absolutely no need to dilute the rights of workers in order to grow employee ownership and no data to suggest that doing so would significantly boost employee ownership.
Indeed all of the evidence is that employee ownership in the UK is growing and the businesses concerned thriving, because they enhance not dilute the working conditions and entitlements of the workforce.”
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We need only look at the comments of our colleagues in the other place, including a number of former Tory Cabinet Ministers, before they voted down these measures to see that that view is shared by pretty much everyone outside the Government. Lord O’Donnell said:
“If an employer is offering this, they are probably the kind of employer that you do not want to go near. If an employee accepts it, it is probably because they do not really understand what they are doing. On those grounds, it is bad.”
“we know that in the old days the price of slavery was 20 or 30 pieces of silver. Is it now £2,000?” —[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 617.]
I could not discuss shares for rights without reminding right hon. and hon. Members of the view of the former Conservative Cabinet Minister, Lord Forsyth of Drumlean. He described the scheme as having
“all the trappings of something that was thought up by someone in the bath”—[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 614.]
Perhaps the Minister will respond to those comments today.
In new clause 11, the Opposition are trying to probe the Government on the take-up that the scheme has achieved so far. A cursory search for “shares for rights” on an internet search engine suggests that things have not been a roaring success. It turns up the following headlines. The FT.com website states, “Chancellor’s ‘shares for rights’ plan flops”. The Guardian says, “George Osborne’s shares-for-rights scheme doesn’t add up”. The Telegraph says, “No take-up on ‘rights for shares’”, as well as, “George Osborne’s flagship rights for shares scheme risks falling flat”. The specialist human resources website, XpertHR, sums it up well with, “Shares for rights: 1.7% of UK employers plan to use employee shareholder contracts, XpertHR research finds”. Even the Deputy Prime Minister has contributed to the headlines, with FT.com reporting in January that “Nick Clegg urges end of ‘shares for rights’”.
I am quoting headlines from internet searches because it is incredibly difficult to get any information out of the Government on the take-up and impact of the policy. The purpose of the new clause is to get to the truth. [Interruption.] I see that the hon. Member for Rochford and Southend East (James Duddridge) is frantically searching on his hand-held device. Perhaps he has found some alternative headlines that he would like to share with the House. Would he like to intervene?
James Duddridge: I assure the hon. Lady that I do not do anything frantically. I have been searching. I think that it was on Google, but I am not very good at using this little hand-held box. HR magazine says, “Osborne’s shares for rights scheme could help SMEs”. I do not know whether she needs to update her search engine or whether she is using an internal Labour party search engine that filters out good news stories.
Catherine McKinnell: I would be interested to hear more details of that story once the hon. Gentleman has had time to read the entry on his search engine. I am sure that it will help him to provide a robust response to my comments when he speaks in this debate. I look forward to hearing the positive story that he has to tell about the shares for rights scheme. I think that he might be a lone voice in this debate, but good luck to him.
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Seema Malhotra: My hon. Friend has quoted some significant voices in this debate and I want to add one more quotation. Justin King, the chief executive of Sainsbury’s, said:
“This is not something for our business… The population at large don’t trust business. What do you think the population at large will think of businesses that want to trade employment rights for money?”
Does she agree that businesses are concerned that the way in which this scheme is being used is not helpful to them? They want to build long-term relationships with their employees, invest in them and find ways to build employee engagement in the profits of the company. Does she also share my concern that this is another way in which the Government are trying to reduce employment rights?
Catherine McKinnell: My hon. Friend raises an important point, and that concern has been expressed by a range of voices in response to the proposals—when I say voices, I mean businesses, but also those who represent employees, employee ownership and recruitment agencies. They are all concerned about the proposals ultimately creating a two-tier work force: those who have rights and those who do not.
The Opposition would like to see many problems addressed in relation to some of the insecure working practices that many workers up and down the country are subject to. We know the impact that such working practices have, particularly on those with families and their ability to plan for child care and to know whether they can afford to pay the rent at the end of the week.
People come to my constituency surgery in awful confusion about whether they need to claim housing benefit from one week to the next, because one week they get enough hours to pay the rent, and the next week they do not. That creates a two-tier work force of those who know how much they will be paid and what hours they will work, and those who are left with insecure zero-hour contracts. That potentially creates yet another tier of worker—one who does not have redundancy rights, cannot request flexible working, does not have the right to take time off to train, and one who, if they take maternity leave, has to give four months’ notice instead of two as to when they might return. There is a worrying trend of eroding employment rights that does no good for the workers involved or for businesses, and that strong message has come from businesses in response to the proposals.
Let me return to the criticisms of this policy made by the Deputy Prime Minister in the Financial Times report that I mentioned. That report was telling because it contained the only official piece of information in the public domain about the take-up of the scheme. A freedom of information request from the FT revealed that the Department for Business, Innovation and Skills had received just 19 inquiries about the scheme in the six months to the end of December. That followed a report in The Daily Telegraph last November which found that of 500 businesses surveyed, a mere 0.1%—virtually none—said they were planning to introduce the scheme. The survey also showed that 72% of businesses believed that encouraging employees to relinquish rights would make recruitment far more difficult, in complete contrast to the Chancellor’s claims.
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I find that response from the business community incredibly heartening because it shows that businesses in Britain know what makes for a good, strong work force, and for trust between employer and employee. It also shows, however, how completely out of touch the Government are if they think by offering this scheme, they are giving business what it needs. The results of the survey correlate closely with the Department’s own consultation responses, which found that the policy had the full support of fewer than five of the 209 businesses asked to respond. It conceded that only a “very small number” of respondents welcomed the scheme or were interested in taking it up.
To return to the FT report, it is perhaps no wonder that Treasury officials are not particularly optimistic about the scheme’s take-up. Responding to the FT’s FOI figures, an unnamed official admitted:
“This was never going to fly off the shelf.”
Of course it was not—it is divisive, ill thought through, and has proved unpopular among former Tory Cabinet members, not to mention the overwhelming majority of the business community. I gather, however, that those FT figures are the latest information available for the scheme. Will the Minister comment on why that is the case, and explain why Ministers are so reluctant—for whatever reason—to update Members of the House on the scheme’s progress? That is why we have tabled new clause 11. We think that the House deserves to have available the information associated with this scheme.
4.45 pm
The FT cited a spokesperson from the Department for Business, Innovation and Skills as saying that they still expected 6,000 businesses to sign up this year. Do the Minister and his officials share the belief in that estimate? Are the Government on track to meet that target? Based on previous figures, consultations and survey responses, I suggest that it is a little ambitious. I am keen to hear the exact figures from the Minister, but if he cannot supply them, I expect the Government to support new clause 11. I am sure that they would also want to ensure that the information be made available to Members.
Seema Malhotra: One could conceive that this policy may have had a well-intentioned goal, but does my hon. Friend agree that, given the feedback on the consultations, the low take-up and now the claims that it could lead to a tax loophole and large amounts of tax avoidance, it could end up being a real own goal for the Government? If the policy is not reversed, it needs to be under active review at the very least—hence the importance of new clause 11.
Catherine McKinnell: I thank my hon. Friend for that intervention as it takes me neatly to my next point, which is the issue of tax avoidance. Several people share our concern that the employee rights scheme is potentially vulnerable to significant abuse. I raised that concern during consideration of last year’s Finance Bill, when we tabled an amendment calling on the Government to review the impact of this scheme on tax avoidance activity. That helpful amendment was not accepted by the Government, but I hope that this year—knowing that the Government profess to be keen to clamp down on all forms of tax avoidance—they will accept the need to have the right information available to prove that this policy will not create just another massive loophole.
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Buried in the annexes to the OBR’s policy costing document from December 2012 was an admission that the cost of the scheme could rise to £1 billion by 2018—depending on take-up, obviously, and we are looking forward to the figures for that. A quarter of that cost was specifically attributed to tax avoidance—or tax planning, as it is termed in the report. In certifying the figures, the OBR stated that
“there are a number of uncertainties in this costing. The static cost is uncertain in part because of a lack of information about the current Capital Gains Tax arising from gains on shares through their employer. The behavioural element of the costing is also uncertain for two reasons. First, it is difficult to estimate how quickly the relief will be taken up; this could make a significant difference as the cost is expected to rise towards £1 billion beyond the end of the forecast horizon. Second, it is hard to predict how quickly the increased scope for tax planning will be exploited; again this could be quantitatively significant as a quarter of the costing already arises from tax planning.”
Perhaps the director of the Institute for Fiscal Studies, Paul Johnson, characterised the issue best when he wrote, in a Financial Times article aptly entitled, “Shares for rights will foster tax avoidance”:
“There may be a case for more flexible approaches to employment legislation. But as a tax policy, ‘shares for rights’ always looks pretty questionable. At a time of increasing scrutiny of tax avoidance schemes, it has all the hallmarks of another avoidance opportunity. So, just as concern over tax avoidance is at its highest in living memory, just as government ministers are falling over themselves to condemn such behaviour, the same government is trumpeting a new tax policy that looks like it will foster a whole new avoidance industry. Its own fiscal watchdog seems to suggest that the policy could cost a staggering £1bn a year, and that a large portion of that could arise from ‘tax planning’.”
It is bad enough that the policy is unnecessary, divisive, damaging and counter-productive. Those of us on the Opposition Benches pretty much all agree on that, and I have not heard any voices from the Government Benches argue the opposite. I look forward to the Minister’s contribution, once he has managed to find that article that is, apparently, supportive of the scheme. The fact that the scheme could cost the Exchequer up to £1 billion, and that one quarter of that cost could arise from tax avoidance, simply beggars belief. The Minister has previously stated that there are sufficient anti-avoidance provisions to mitigate such activities, but what are the Government actually doing to monitor capital gains receipts and reliefs, and ensure we have evidence of avoidance?
Recent reports from the National Audit Office and the Public Accounts Committee have been highly critical of the Government’s continued creation of complexities and loopholes that open the door to more tax avoidance. If Ministers fail to monitor such avoidance activity properly, I fear that this will be just one more tax relief to add to the 948 on the NAO’s list of unmonitored tax expenditures, to use the Treasury’s own phraseology. Considering that the scheme came into being last September, can the Minister produce any more up-to-date estimates, based on Treasury data, to build on the OBR’s original forecast? If he is not able to do that today, hon. Members will want to vote for new clause 11 to ensure that that information is available to the House, that monitoring is taking place and that we can all see the potential implications of the Government proposal.
The Chancellor’s flagship shares for rights scheme has been rejected by businesses. It may have opened up a tax loophole that, according to the OBR, will cost the
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Exchequer £1 billion. For what gain? That is what people are asking. That is what the Government need to demonstrate in their response today, or certainly in the report that we are calling for. We have said that we will reverse the shares for rights scheme and use the money to contribute to the repeal of the bedroom tax. The bedroom tax is a cost-inefficient policy and we would like to see it reversed. We want the money saved from the damaging shares for rights scheme to be used to ensure that that can be achieved without any extra borrowing. We have urged the Government to abandon their ill-thought-through shares for rights policy, which the director of the IFS aptly described as having all the hallmarks of another tax avoidance opportunity, never mind the former Conservative employment Minister, Lord Forsyth, accusing it of having the trappings of something thought up in the bath. So far, Ministers have failed to listen; or at least, they may be listening but they are not hearing.
We have tabled new clause 11 to try to provide much-needed clarity. Officials and Ministers dismiss out of hand as unrepresentative take-up figures disclosed in FOI requests. OBR forecasts are dismissed as not taking account of all the facts. Indeed, the Government’s own measures are dismissed as being unreliable or uncertain. Why will Ministers not step up to the mark and disclose exactly how many employees have signed up to employee shareholder contracts and have been awarded the £2,000 in return for shares? Why will Ministers not disclose the value of shares that have been issued under the shares for rights scheme to date? Instead of labelling Opposition amendments as unnecessary and as an administrative burden, which I anticipate the Minister will, why will the Minister not instead today tell us exactly how much the scheme is costing the Exchequer as a result of the capital gains tax exemptions? How much of that cost is as a result of tax planning arrangements; people capitalising on a poorly thought through policy that could quite easily act as a tax avoidance mechanism, rather than the great stimulus to entrepreneurship and employment that the Government claimed it would achieve?
It is bad enough that this divisive policy totally undermines the concept of employee ownership and workplace rights, not to mention the potential millions lost in tax avoidance activity; but worst of all, Ministers are plainly refusing to disclose the information that would enable Members properly to assess and scrutinise what the scheme has done to achieve the Chancellor’s clearly stated aim of helping businesses to recruit more people.
For all those reasons and given the concerns set out by my hon. Friends, I urge hon. Members to support our new clause 11, so that we can get the facts straight on shares for rights.
Chris Evans (Islwyn) (Lab/Co-op):
Before the soothsayers and the sketch writers say again that Labour is anti-something or other, I want to make something quite clear. [Interruption.] The sketch writer is in the Gallery, although perhaps I am being a little arrogant to think that anyone would want to report on one of my speeches. Before the press releases go out from Tory central office saying that Labour is anti-share save schemes all of a
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sudden, I want to make it clear that this party has always been in favour of shares to reward people for the work they do.
The best and most successful companies offer shares to their most successful employees. Indeed, I would like to draw the Minister’s attention to how successful a share save scheme can be by using the example—a Welsh example—of Admiral Insurance. In March 2013, it recorded a 15% increase in profits. In all, 6,500 members of staff at the Cardiff-based Admiral Group will get £3,000 in an employee share save scheme. Alastair Lyons, the chair, said at the time:
“I want to thank everyone who has helped us to create such a robust business”
in the past 20 years. People are more productive, happier and more contented when they are valued and, above all, when they feel valued. That is why the Admiral Group of companies are among the top 100 best places in the UK to work, which I am sure did not come about by trading in employee rights for shares.
Sometimes it seems that this Government are so intent on presenting some sort of radical, compassionate conservatism that they fumble around for an idea, before coming back to ideas that have failed time and again. Very often, it seems that this Government, like previous Tory-led Administrations, are fearful of employment rights, and I am not the only one saying that. According to even the independent Office for Budget Responsibility—if I may digress, Madam Deputy Speaker, the Government are resisting requiring that very body to audit all parties’ manifestos at the next general election—the flagship shares for rights scheme has been rejected by businesses, opened up a tax loophole and will lead to £1 billion being lost by the Exchequer. In the face of such criticism, it seems eminently sensible to support our amendment for it would compel the Treasury to report on the take-up of shares for rights, collect data on the scheme and publish further reports on shares for rights every year.
James Duddridge: Is there not a contradiction between the argument that the scheme will lose billions and saying that it is being taken up by nobody?
Chris Evans: I have the utmost respect for the hon. Gentleman, but he should allow me to develop the argument a bit further. As he knows very well, this is a Finance Bill, and the Opposition cannot move any amendments that relate to spending. A report is the only thing we can propose, and it would be eminently sensible. If we had the data, we would know what the uptake was. I would argue that the Government have to abandon their ill thought out “shares for rights” policy, which even the director of the Institute for Fiscal Studies described as having
“all the hallmarks of another avoidance opportunity”.
My hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) alluded to the Conservative employment Minister Lord Forsyth who described it as having
“the trappings of something that was thought up in the bath”—
by the Government on their own, I hope, although we don’t know with Tory sleaze! It is bad enough that this divisive policy undermines the concept of employee ownership and workers’ rights, but it could also cost the
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Exchequer up to £1 billion, a quarter of that arising from tax planning activity—the very tax planning activity that the Chancellor said he had clamped down on since he took office.
Fundamentally, the problem that employees have faced over the last 40 years with the end of heavy industry—it is a problem that comes with Governments of all stripes—is that most feel insecure in their jobs anyway. People do not have a job for life any more; they move around seven or eight types of jobs, but slashing employment rights at work is wrong in principle. It will not help create jobs and growth. It seems to me that this is a policy made up on the fly.
If anybody wants to know how ill-conceived this policy is, they need only look at some statistics. The scheme has not won the support of the business community. A 33-week consultation on the scheme—two thirds of the year, or nine months—had more than 200 responses. Of those, only five businesses said they would be interested in taking up the scheme.
I sometimes think I admire the Chancellor. He is an economist—of the highest rank, I have no doubt—but I wish he were here to explain how he came up with the line:
“Owners, workers and the taxman are all in it together”.
Where was the sense in that? It is just not fully worked out. Has he not asked the employer? If an employer has a bad employee, why would he want to give them shares and make them owners of the company? That does not make sense to me. The employee would then have voting rights over what the employer wanted to do. Why would an employee want shares in a company that had just dismissed him? It should be easier to hire than fire.
We need tax breaks for small businesses so that they can hire extra employees rather than throw away their employment rights. As a proud Labour and Co-op MP, I support employee ownership, but coupling it with slashing employment rights is contradictory and counter-productive. As the Employee Ownership Association has pointed out, boosting employee ownership
“does not require a dilution of rights”.
Even a city on the hill, the United States of America, where employee rights are certainly not in fashion, has criticised the scheme. The proposal reflects the “fire at will” recommendations of the controversial Beecroft report, authored by the Prime Minister’s employment tsar and Tory donor, Adrian Beecroft. Mr Beecroft admitted to MPs that his proposals were based not on any statistical or empirical evidence but on a “valid sample of people”. Who has he spoken to? No doubt the same Tories who have problems with the employment rights of anybody anywhere.
The scheme could also present considerable costs to business and create new administrative burdens. I believe that people are already being deterred from taking up the scheme. Alan Higham told The Guardian:
“I worry it would create suspicion among employees that I might sack them unfairly. Employees wouldn’t easily be able to see the value in the shares today…If I employ 10 staff and decided to give them £2,000 each of shares, then I would need to spend £10,000 in getting a professional valuation done. Under current tax rules I would also have paid them £2,000 each to change their contract, on which PAYE and national insurance would be charged. As this is a gift I would also have to pay tax on this. On this basis it could cost me £10,000 and a further £9,400 to
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give away £20,000 of shares. There will probably also be some sort of ongoing admin and HMRC compliance to do, which will also cost.”
Fundamental questions must be asked about this entire scheme. If the company goes bankrupt—if the employer is so bad that he runs his company into the ground—does the employee he has just sacked become responsible for any of the company’s losses? If the employee has shares in the company, of course he will.
Ministers are seeking to introduce this scheme without proper consultation and discussion. They have proceeded in a shambolic and chaotic way. That is reflected by the fact that the Second Reading of the Bill that became the Growth and Infrastructure Act 2013 took place before the consultation had closed.
Given that £10,600 of capital gains tax is already exempt, exemption from CGT in the scheme is only likely to benefit employee shareholders in a small minority of companies which achieve unusually high growth. There is also concern about the full cost of the scheme. Ministers originally claimed that it would be £100 in 2017-18, but according to the Office for Budget Responsibility’s contribution to the Treasury’s policy costing document, which was released along with the 2012 autumn statement 2012,
“the cost is expected to rise towards £1 billion”,
“uncertainties are around assumptions on take up rates, the average value of shares that are entered into the scheme, the extent of tax planning and the timing of disposals.”
What really concerns me is that a person could throw away all his employment rights in return for shares that could already be tumbling. There is no win-win situation for such people.
According to the Office for Budget Responsibility, a quarter of that £1 billion additional cost—£250 million—is expected to arise from tax avoidance as a result of the scheme. A Government who have been obsessive about tax avoidance seem to be creating another vehicle for people to avoid taxation. Following the publication of the Government’s response to the consultation scheme, a Government source was quoted as saying:
“The proposals are on life support.”
However, Ministers went ahead with them. I wonder whether this Minister knows who that person was, and whether he can enlighten us.
It seems to me that the scheme is unworkable. When “shares for rights” were discussed during the Committee stage of the Growth and Infrastructure Bill, the Minister of State, Department for Business, Innovation and Skills, the right hon. Member for Sevenoaks (Michael Fallon), admitted that employees taking part in the scheme could be liable to pay income tax and national insurance on any shares received from employers over and above £2,000. That would impose a significant up-front cost on employees.
It is feared that there are other ways in which the scheme could have an adverse impact on employees. For example, will jobs be advertised as available only with employee shareholder status? In practice, will employers be able to impose the scheme on individual employees or groups of employees? What safeguards will there be to ensure that the scheme is voluntary for existing employees, as Ministers claim that it will be?
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On behalf of the members of the Employee Ownership Association, chief executive lain Hasdell sent an open letter to the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for East Dunbartonshire (Jo Swinson), who is responsible for employment relations, consumer and postal affairs, expressing concern about recent developments in the Government’s approach to growing the number of employee owners in the economy. He said:
“'Our Members have three main concerns on this matter.
Firstly, proposed legislation has appeared in a Bill before the Government consultation on the possibility of deploying this model of employee ownership has finished. Indeed it has only just started.
Secondly, our Members are very aware that there is no need to reduce the rights of workers in order to grow employee ownership and no data to suggest that doing so would significantly boost the number of employee owners. Indeed all of the evidence is that employee ownership in the UK is growing and the businesses concerned thriving, because they enhance not dilute the working conditions and entitlements of employee owners.”
In that context, I remind the House of what I said about Admiral Insurance in Cardiff at the beginning of my speech. Iain Hasdell continued:
“Thirdly, the appearance of this measure in the Growth and Infrastructure Bill appears to our Members to be completely disconnected to the recommendations in the Nuttall Review. That Review contained a series of recommendations on how to grow employee ownership and none of those recommendations suggested the dilution of worker rights.”
I am not the only person who is saying these things, and that is why I believe that we should have a report. The criticism of this measure has been immense, from the business community and employment organisations to trade unions—some Members on the Government Benches will probably think I have sworn there. The Employee Ownership Association says:
“whilst growing employee ownership should be part of the UK’s Industrial Policy, such growth does not require a dilution of the rights and working conditions of employees.”
Brendan Barber, TUC general secretary, said:
“We deplore any attack on maternity provision or protection against unfair dismissal, but these complex proposals do not look as if they will have very much impact, as few small businesses will want to tie themselves up in the tangle of red tape necessary to trigger these exemptions.”
There, in a nutshell, is the problem: there is low take-up; it is very complicated; people are not interested. As my hon. Friend the Member for Newcastle upon Tyne North said, we see maternity provision, a hard-fought right that many people argued and fought for and in some cases gave their lives for, being given up for the whim of a few shares in a company that could be either taken over or finished in a couple of years.
Mike Emmett, employee relations adviser at the Chartered Institute of Personnel and Development, says:
“The UK has one of the least regulated labour markets in the world and there is little evidence to suggest that employment regulation is preventing small businesses from taking people on. In fact, according to the Government’s own research, unfair dismissal doesn’t even figure in the list of top ten regulations discouraging them from recruiting staff. Employees have little to gain by substituting their fundamental rights for uncertain financial gain and employers have little to gain by creating a two tier labour market.”
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Geraint Davies (Swansea West) (Lab/Co-op): My hon. Friend is making a very eloquent and provocative speech. Does he agree with me that it is intrinsically wrong for someone to sell their rights, just as it would be intrinsically wrong of me to sell myself into slavery? Is this not going down that absurd and immoral path?
Chris Evans: I do not know how much my hon. Friend thinks he would get if he sold himself into slavery—[Interruption.]
Mr Speaker: Order. Thankfully, that matter would be out of order to discuss. Therefore, any embarrassment that the hon. Member for Swansea West (Geraint Davies) might feel is spared.
Chris Evans: Thank you for that interjection, Mr Speaker, and I am sorry that I treated such a serious topic as slavery in a light-hearted manner.
I agree with my hon. Friend: these are hard-fought employment rights. I do not want to hark back to the past, but although the Conservatives like to say theirs is a progressive party, every piece of social legislation in this country, from votes for women to increased maternity and paternity rights to the minimum wage and even the state pension, has been brought about by Labour and by people having to fight for them. To me, it seems frivolous for those rights to be given away. As a former trade union official working in financial services, I do not believe that people were deterred from employing staff because of the rights they had. Maternity rights are accepted across the board. If someone goes on maternity leave, people believe they have that right, and it is shocking that the Government think this can be sold off for 30 pieces of silver.
John Cridland, director general of the CBI, said:
“I think this is a niche idea and not relevant to all businesses,”
again backing up my argument that this is policy made on the fly. It has not been thought out. It seems to me that the share schemes and share save schemes work very well without people having to trade their employment rights. Employers who have introduced a share save scheme or given shares to their employees do so as a reward for good business practices, not to buy off potentially bad employees.
There is a little thing that we should learn in this House: it is called trust. If an employer asks me to sell my rights, I will straight away be suspicious; I will always work hard, but I will not be industrious in the way I should, and I am going to ask myself questions such as, “Is there a question mark over my competence if he is willing to trade my hard-fought employment rights for shares in his company?”
Stephen Lloyd (Eastbourne) (LD): I have sympathy with some of the Labour party’s concerns on this issue, but having listened for an hour or so one thing occurs to me. Does the hon. Gentleman agree that no employee will be forced to do this—they will voluntarily choose to do so or not? That is important.
5.15 pm
Chris Evans:
The hon. Gentleman is taking a very liberal position, but I refer again to the evidence given during the Committee stage of the Bill that became the
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Growth and Infrastructure Act 2013, which introduced the measure. It was said there that employees who took up the scheme would have to pay income tax and national insurance on any share received from employers over and above £2,000. The scheme would impose significant up-front costs, so I do not know whether it would be so voluntary. I have criticised Adrian Beecroft about his anecdotal evidence, but I wonder what would really happen in the workplace. We know of so many tribunal cases where people have been harassed or been under severe strain from an employer and then gone on long-term sick leave. What is to prevent the employer from forcing them to sell those rights?
Catherine McKinnell: My hon. Friend raises an important point, but the intervention by the hon. Member for Eastbourne (Stephen Lloyd) does not take account of the fact that many employees are in a very vulnerable position with their employers. If they are approached by their employer to take this up and they turn it down, what happens? What situation are they left in? There are an awful lot of question marks over how the scheme works in practice and where the equality of arms is for the employees potentially affected by the scheme.
Chris Evans: My hon. Friend advances the argument eloquently. We debate these issues and talk about employment rights, but if someone is in a poor workplace, is struggling to pay the rent or the mortgage and the bills, and faces a severe threat that they might lose their job, they might be forced into doing this. In many non-unionised businesses there will be nobody to police this, so those people might be forced into it. She powerfully made the point about how women, in particular, are in that type of situation.
I should have made my next point before the hon. Member for Eastbourne (Stephen Lloyd) intervened on me, but I will do so now. Paul Callaghan, partner in the employment team at Taylor Wessing, has said:
“Osborne is potentially forcing all new employees to waive the main employment rights including unfair dismissal and redundancy rights in exchange for £2,000 of shares. This makes Adrian Beecroft’s fire at will proposals look moderate.
From April it may become the norm for job offers to require this waiver which will also involve the loss of flexible working rights and stricter maternity rights. This is likely to have a disproportionate effect on women.”
Henry Stewart, founder and chief executive of the training company Happy Ltd, has said:
“I welcome anything which makes it cheaper and simpler to give employees shares, but coupling it with taking away employment rights is ridiculous. If as an employer you have a problem with unfair dismissals, you need to improve management—that’s what the government should be giving incentives for. I don't think it's been thought through.”
In a nutshell that sums up what I think of this proposal. Bad employers who are afraid of unfair dismissal cases, reprisals, recrimination and grievances from employees should think about how they are managing their staff and look hard at their human resources department.
Corey Rosen, founder of the National Centre for Employee Ownership, one of the world’s leading groups promoting share ownership, has said:
“There is a lot of employee ownership in our country, but not one of these employees and not one of these plans asks employees to give up any employment rights to get any of the various tax benefits associated with employee ownership.”
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That is a voice from the United States, not somewhere known for being particularly friendly to those in trade unions or on employment rights.
Simon Caulkin, writer on management and business, has said:
“In effect, Osborne's cobbled-together scheme is a back-door re-run of the agenda of…Beecroft”.
Rebecca Briam, partner at Gannons Solicitors, said:
“It is unlikely to get off the ground.”
With only five businesses out of 200 wanting to take up the scheme, I think she is right. She goes on to say:
“The proposals will be unpopular with employees because the chances of benefitting are so slim.”
“unpopular with employers, especially privately controlled companies, because of the risks imposed to the share structure. Far from saving on payroll expenses, the total costs for an employer may well increase.”
Manufacturers’ organisation EEF said:
“Our members have indicated they would not implement the new status.”
The Federation of Small Businesses said:
“The scheme is unlikely to be appropriate for many small businesses.”
The Chartered Institute of Personnel and Development said:
“There is very little evidence as to why this policy is needed or what impact it will have.”
Such views support the new clause that is before us.
Earlier, I talked about the vehicles that are created for the purpose of tax avoidance. Matthew Findley, partner at law firm Pinsent Masons, addressed that matter quite eloquently. He noted that the income tax positions of those receiving the shares is still unclear:
“There is nothing in what the Government has said so far that would stop senior executives or substantial shareholders from participating in the arrangement. This may mean that an opportunity still exists for such individuals, even if they may be viewed by some as the ‘wrong’ people politically to benefit.”
Paul Johnson from the Institute for Fiscal Studies talked about the potential for tax avoidance as the scheme
“prepares to put another billion pound lollipop on the table.”
“Just as Government Ministers are falling over themselves to condemn such behaviour, that same Government is trumpeting a new tax policy which looks like it will foster a whole new avoidance industry.”
An avoidance industry is something of which a Government who want to create jobs cannot be proud.
I support new clause 11. As there has been such a low take-up of the scheme—only five in 200 companies have said that they would consider it—a report needs to be produced. Numerous commentators from the business community have expressed the fear that a new tax avoidance scheme is being set up, which suggests that this is a pertinent and sensible new clause, and I urge the Government to accept it.
Richard Fuller: I am pleased to follow the hon. Member for Islwyn (Chris Evans), who spoke with great authority, drawing as he did on his experiences as a trade union official before he was a Member of Parliament. I will, if I may, draw on some of my own experiences of working with small businesses. In that regard, I draw Members’ attention to my entry in the Register of Members’ Interests.
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I apologise to the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) for missing the beginning of her comments. I thought that she spoke persuasively and eloquently about some of the issues and about the policy that the Government have introduced. She had me persuaded all the way, until she referred to the spare room subsidy as a tax. It is just not a tax, and it is such a shame when bad slogans happen to good people because all the persuasion power of their speeches is lost. The rest of her speech raised some important points.
We should put the new clause into context. The Government have an extraordinary long-term economic plan that is delivering improvements to the economic lives of my constituents in Bedford and Kempston. It impacts on their ability to find work and get into work. It also raises their average weekly earnings, which is a major concern for many people. It is good to see the plan starting to bear fruit.
Perhaps now is not a good time for an ordinary Tory Back-Bench Member to criticise the Government, but if my hon. Friend the Minister will forgive me, I will do so. We are looking here at a policy in search of a problem; we are not really looking at something that will have a dramatic impact on the well-being of our businesses or our employees. I am open to being persuaded by the Minister. He usually persuades me and I am sure that he will do so today, but perhaps I could go through some of my experiences from when I was in business relating to two parts of our debate.
On the one hand, we have employee and workers’ rights and, on the other, we have employee shareholdings. The approach seems to be to conflate those two issues into one policy and I am not sure whether that will ultimately prove to be wise. In my experience as an employer, although employees’ issues in employment sometimes concerned the extent of employee rights, red tape and regulation often led to far more concerns about the impact of government on the business. In addition, the problem was not necessarily the rights per se but the complexity of the regulations. For a small business, just understanding the regulations to comply with them causes problems. I am not sure that the problem was specifically the rights that were given to employees. Is the objective in this case to reduce the complexity of regulation for businesses through the use of the combination of employee shareholdings, or is there some other objective?
The hon. Member for Islwyn mentioned some of the issues when companies give shares to employees. For a large part of my life, I have worked with technology businesses and the provision of shares was a norm for business. It was a way in which many companies could afford to start, to grow and to prosper. In those circumstances, people were given shares not because of their employee rights but as an incentive either to reward effort or to encourage effort to promote the success of the company. It was also a matter of the trade-off of rewards. Many small companies did not want to use the cash they got from investors to pay high or market rates to their employees and wished to defer that by providing people with the opportunity to have shares to share in the ultimate long-term success of the business. That is a tremendously powerful model for many sectors, not just the technology sector but other sectors of our economy, in that people are willing to trade off immediate returns for long-term rewards.
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When we consider other ways to think about compensation, which will, I think, be a growing issue over the next five years, we must consider how to encourage people to defer some of their compensation until later in their lives. I can understand how the promotion of employee shareholding helps with short and long-term rewards, but my concern is that combining that with employee rights means that clarity might be lost. Rather than being given a positive impression about why we are encouraging employees to become shareholders, people will instead ask whether there is a catch. It should be absolutely clear that there is no catch when people are being offered shares. This is clearly an issue of deferring compensation from period x to period y.
I am concerned that, as I have said, this is perhaps a policy in search of a problem. As with so much that Government do, we will see unintended consequences. If the new clause is targeted at small businesses, we must remember that the Government have other options at their disposal. Just a week or two ago, the Centre for Policy Studies produced some very positive policies about abolishing corporation tax for very small businesses and abolishing capital gains tax for investors. To my mind, that would have more of an impact on encouraging more entrepreneurial businesses. We have recently seen news about the merger of national insurance and income tax, which would alleviate some of the burdens and complexity for business in managing employees.
Bob Stewart (Beckenham) (Con): When I visit small businesses in my constituency, I am sometimes quite shocked that, say, one person out of 10—a large proportion of the staff—has to spend all his or her time dealing with regulations and sorting out the problems they cause rather than getting on with making money.
5.30 pm
Richard Fuller: My hon. Friend speaks from great experience and is, as usual, exactly on the point. For many small business people, the biggest constraint is time: they have to be the sales person, the accountant, the HR person and the form filler. The policy that has given rise to new clause 11 is supposed to be helping those people, but I think there are many other ways we can support our small businesses that would have a greater impact.
One of those is that the Department for Business, Innovation and Skills should lose its great focus on a grand industrial policy, centred on our large corporations, and start to show a bit of passion about our small businesses. I know that the Secretary of State is a good friend of the Treasury Bench—obviously, he is a member of it—but somehow we are not getting the focus and heart for our small businesses that we should be getting, and it would be good to hear that voice coming through louder and clearer.
I am drawn by Opposition Members’ eloquence on the questions they are raising about this policy. It did not occur to me at the start of our support for the policy that it was going to be a big policy that would have an impact on many businesses. I would be interested to hear an update from the Minister on where the policy is taking us and what our goals are when it comes to promoting employee shareholding. What are his concerns? Does he share my concern that, in trying to put together
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promotion of employee shareholding and reductions in employee rights, we may be failing to make progress on two issues, rather than making progress on both?
Mike Kane: It is a delight to follow the hon. Member for Bedford (Richard Fuller), who spoke with such authority about his work now and previously with small businesses. It was a pleasure to serve with him on the Finance Bill Committee, where generally he spoke loyally from the Government Benches on his party’s agenda, even though he disagrees slightly with the policy before the House now. It is also a pleasure to follow my hon. Friend the Member for Islwyn (Chris Evans), who spoke articulately and ably, using his experience as a former trade union official.
I believe that shares for rights as it has been proposed lacks common human dignity. We know that the main purpose of Government is to protect individuals, communities and their property from exploitation and harm; Government must also provide a stable economic, social and legal framework for businesses and economies to thrive. The proposal does not do that. As I mentioned earlier, Lord O’Donnell described shares for rights as a form of modern-day slavery. It creates a two-tier market and a two-tier work force—one part having sold its rights and the other retaining them. I think that that is wrong for our economy.
The policy was announced with great fanfare in 2013, but the shares for rights scheme cannot be described as anything other than a massive flop. It is also proving to be another bone of contention in our fractured coalition. The Under-Secretary of State for Business, Innovation and Skills, the hon. Member for East Dunbartonshire (Jo Swinson), and the Secretary of State are nowhere to be seen near the proposal. The real problem, though, as the Chancellor has found, is that it has been impossible to get employer organisations to back the scheme. As my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) said, according to the most recent information we have—hopefully, the Minister will update us—there were 19 expressions of interest by December last year. The Office for Budget Responsibility says it could be used as a tax dodge, costing us—the Treasury—nearly £1 billion a year. In this age of austerity, that is the last type of policy we need to be introducing.
Ministers seek to introduce the scheme without proper discussion, and without proper consultation, as my hon. Friend the Member for Islwyn said, and have proceeded in what can only be described as a very chaotic way. Following the publication of the details of the scheme, a Government source was quoted as saying that the scheme was on “life support”, but Ministers still went ahead. As was mentioned earlier, John Cridland, director-general of the CBI, said that this was a niche idea that businesses really do not want. There is unanimity among people who really care about employers and their rights and those Opposition Members who believe that employees should also be shareholders and work hard in their small and medium-sized enterprises, where most employees now reside.
Chris Evans: Does my hon. Friend think it is just a coincidence that the vast majority of the FTSE 100 companies also find themselves in the list of the top 100 best places to work in the UK, and they have not rolled back employment rights in any way and have successful share save schemes, as I mentioned earlier?
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Mike Kane: The best organisations offer benefits in kind, which can be shares to their employees. I and many in the House have no problem with that.
This measure is wrong for business and wrong for employee-business relations, and I urge all hon. Members to support the new clause.
Ian Murray: I apologise to the House for not being present at the beginning of the debate. The previous debate finished slightly earlier so there was a clash with something else that I had in my diary. However, I want to make a few comments on this because it harks back to new clause 14, which we debated earlier. All we are looking for in new clause 11 is some transparency on this policy. We know it was introduced with great fanfare by the Chancellor at the Conservative party conference last October when he said:
“Workers of the world unite.”
The conclusion to the workers of the world uniting was that everyone united against this policy.
This is incredibly relevant to the Finance Bill because it has created a significant tax loophole. On new clause 14 on the 50p tax rate and the need for transparency on how much tax that takes, the Government said clearly that 45p brings in more tax at the top rate than 50p, which brings in less because of tax avoidance. In this case, we are looking at the biggest tax avoidance measure we can get. It has been described by the Institute of Fiscal Studies as a billion-pound tax lollipop on the table. If we are serious about tackling such tax avoidance, it would be great for transparency, not just for the House but for the country, if a report were produced showing take up and the consequences of that.
Because it is such an important prospect, we need to look at what the Chancellor tried to do in his conference speech. We will end up in the situation where people are able to sell their rights for a few pounds that might be worth nothing. That is not the kind of working society that we want. It is not the kind of partnership that we want between employers and employees and trade unions, whereby people can sell their rights for maternity pay, unfair dismissal, and all those rights referred to by Beecroft in his report for the Prime Minister. We now have a fire-at-will culture, which does nothing to dispel the Government’s move towards a hire-and-fire culture with this proposal. There are the hallmarks of another tax avoidance scheme. Why on earth would we want to produce a scheme that not only allows people to sell their rights and not be covered by any employment rights, but to be in a situation whereby those at the top end of businesses can use these mechanisms to avoid paying tax? I hope that the Minister can address some of those serious concerns when he replies.
I cannot understand why the Government would not accept new clause 11 if they are so confident that this measure will be well used, resulting in a transformation in entrepreneurship, with people hiring more and more employees because they do not have what the Government would call the burden of employee relations. Why would they not want to produce a report showing how many people are using the measure? I do not understand why they do not want to produce a report showing the impact on the Treasury coffers, through capital gains tax and any other tax receipts that might be lost.
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It is important for the Government to have confidence in their proposals. The Chancellor was confident when he announced it with great fanfare. I am not sure whether it will have any take-up, because of the way it has been presented and the message it sends out. Justin King, the former chief executive of Sainsbury’s, said that it sends out a poor message. Many chief executives and business owners say that it sends out such a poor message on the partnership we want in the workplace.
Therefore, if the Government wish to have confidence in their own policies, it is only right that they agree to new clause 11, bring forward the report setting out the take-up and the data collected on the scheme and publish further reports every year. If the scheme is denying people their rights at work at the same time as denying the Treasury valuable income, this House should know about it and be able to debate it so that it can hold the Government properly to account.
Mr Gauke: As we have heard, new clause 11 would require the Chancellor to review the impact of the new employee shareholder status on tax revenues and to publish a report setting out the impact on capital gains tax receipts, the estimated value of shares owned by employees with employee shareholder agreements and the number of such employees. Let me set out why I believe the new clause is unnecessary—a word the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) rightly predicted would come up, although, to be fair, we have had this debate before.
It is far too early for any detailed information on the employee shareholder status to be available. It has been available only since 1 September 2013, and we have not yet reached the deadline by which companies must submit their annual share scheme returns covering that period. Therefore, the Government do not yet have full information about the use of the new employment status. Once received, it will take time to process and analyse those data. The Government set out the potential impact on tax revenues in our tax information and impact note for the employee shareholder tax reliefs, and there are currently no additional data available that would allow that to be updated.
In addition, it is not necessary for a requirement to publish information to be placed in legislation. HMRC publishes a wide range of information about employee share schemes with no such statutory obligation. For example, only last week it published a wealth of data on the use of the tax advantaged employee share schemes during the year ending 2012-13.
We will consider whether that type of publication is appropriate for employee shareholder status or whether a different approach might better enable an evaluation of the employee shareholder status. As the Government have made clear, the employee shareholder scheme is different from the existing tax advantaged employee share schemes. It is primarily designed as an employment measure to encourage choice, growth and flexibility over the long term, rather than being focused on tax advantages. We will want to take those broader factors into account when evaluating the policy. However, given that employee shareholder legislation has been in operation for less than a year, it is simply too early to be finalising any details in that area.
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Ian Swales: I certainly accept the Minister’s point about the timing for reporting back on the scheme. However, we are starting to see examples of the very few companies that are taking it up, and they seem to be focused on high earners in industries such as private equity, who arguably are not very worried about their employee rights anyway. For example, eight managers at European Capital each received the maximum £50,000 recently when they sold one of their businesses. Can the Minister say what kinds of companies are registering and how the scheme is working so far?
Mr Gauke: We have been consistent throughout. No one argues that the arrangement is right for everybody; it will be suitable only in particular circumstances. It is more likely to be relevant for fast-growing areas involving a relatively small number of highly valued individuals who benefit from arrangements that incentivise performance but who are not necessarily looking for extensive employment rights.
It has been said before in the context of this debate that there are employees who benefit in full from employment rights; there are the self-employed, who have essentially no rights in this area; and there is a gap in the middle. Part of the thinking behind the arrangement is about ensuring that something appropriate falls in between—something useful for fast-growing small and medium-sized companies that want to create a flexible work force.
5.45 pm
Ian Murray: I appreciate the intervention just made by the hon. Member for Redcar (Ian Swales). The issue is surely not one of employment flexibility; it is about maximising tax advantages. The policy has been announced on the basis of allowing companies—particularly high-growth technology companies—to employ people on a more flexible basis, but the example just given by the hon. Gentleman goes completely against that. That shows that the scheme is being used for tax-avoidance purposes.
Mr Gauke: I do not accept that. As far as avoidance is concerned, the tax reliefs are intended to encourage the take-up of employee shareholder status by individuals when that is offered to them. However, those reliefs are not an end in themselves. A number of rules in the legislation will prevent abuse of the new status while keeping it as simple as possible for employers and employees to use. For example, there are rules that will stop people with a material interest in the relevant business exploiting the tax reliefs for their or their families’ benefit. We will always keep the matter under review. As I said, if we see any abuse, we will act. However, we believe that we have put in place rules that protect the Exchequer from such tax avoidance.
I want to say a little more about take-up. My hon. Friend the Member for Rochford and Southend East (James Duddridge) made a good point: the argument is simultaneously that no one is making use of the scheme and that the scheme will cost a lot in tax avoidance. There is something of a tension between those two positions.
We decided not to introduce a pre-registration or pre-approval system for those wishing to make an employee shareholder agreement. The Office of Tax Simplification has told us that HMRC pre-approval of share schemes
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is outdated and time consuming for businesses. Data on employee shareholder status will therefore be picked up from companies’ annual share scheme returns to HMRC. As I said, the scheme has been in place only since the beginning of September 2013, so we have not even reached the deadline by which companies must submit their returns to HMRC for that period. It is far too early to finalise any details of publication.
Catherine McKinnell: Given the widespread concern expressed about the scheme, is the Minister’s position—that the Government will just wait and see—not incredibly complacent? When the returns come in, the scheme may prove to have been one big tax avoidance opportunity, but the Government seem perfectly relaxed about that.
Mr Gauke: No, that is not the case. As I said, when the original legislation was passed, protections were put in place; a moment ago, I gave an example of one designed to prevent abuse. We will continue to monitor the issue. As with all activities, if evidence of avoidance emerges, the Government will be determined to act, as we have time and again.
On the data on employee shareholders and on take-up, a question raised by a number of hon. Members, I am simply seeking to explain that I am not in a position to give the information that the hon. Lady and others have asked for because we have not required pre-approval or pre-registration for the scheme. That point is also relevant to the FT figures on take-up that have been mentioned. As there is no need for companies making use of the employee shareholding scheme to contact BIS in advance and there is no registration or approval system, we do not expect BIS to have a definitive list of all those companies that have made use of the scheme. That is why I am not in a position to give that information to the House and why the figures that were used by the Financial Times should not necessarily attract a huge amount of excitement.
The scheme is a new facet of our employment practices. It is probably unfair to judge a scheme such as this in its first few months because it will need time to bed in before there is wider knowledge about it and it is more widely used. As I have said, I am not in a position to provide information at this point.
Ian Murray: I am grateful to my favourite Treasury Minister for allowing me to intervene again. What the Minister is missing is that, according to his Government’s own figures in the Red Book, £1 billion has been allocated to this proposal. Why will he not agree to the new clause, which would allow the House to scrutinise what that £1 billion of public money is being used for? That way we could avoid the situation raised by the hon. Member for Redcar in which people use the scheme to avoid tax rather than as a proposal to create growth and to get more people into employment by denying them their workers’ rights.
Mr Gauke:
It is always a great pleasure to give way to my favourite Member of Parliament for Edinburgh South. In quoting the figure of £1 billion he is somewhat conflating two things. One is the OBR’s estimate of the potential cost of the scheme some years into the future, if a whole set of circumstances apply and we do not take action to deal with any concerns that might emerge. As far as the Red Book is concerned, the published estimates of the annual cost of the measures are £10 million
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in 2016-17 and £45 million in 2017-18. Those are the numbers and we have no reason to believe that they will prove inaccurate, so to correct the hon. Gentleman for the record, we are not talking about a cost of £1 billion.
New clause 11 would impose an obligation on the Government that is not only unnecessary but, as I have set out in some detail, could not be met given the current availability of data on take-up of the employee shareholder status. Given that the new clause is unnecessary and would be unworkable, I ask the Opposition not to press it.
Catherine McKinnell: It will be no surprise that I find the Minister’s response extremely disappointing and a little concerning in its complacency towards a policy about which widespread concern has been expressed. Taking away the rights of working people across the UK is no substitute for a proper strategy for economic growth. The policy makes it easier to reduce rights at work and fire people, rather than making it easier to hire people. That shows just how out of touch the Government are.
I commend the hon. Member for Bedford (Richard Fuller) on his thoughtful speech. I also commend my hon. Friend the Member for Islwyn (Chris Evans) on his mammoth and excellent speech, and my hon. Friends the Members for Wythenshawe and Sale East (Mike Kane) and for Edinburgh South (Ian Murray). Opposition Members have put forward a powerful argument for the reasonable new clause that we have tabled. It simply asks the Government to make a proper assessment of who is taking up the shares for rights offer and what the cost to the Exchequer will be, including any loss from tax avoidance or abuse. As far as we can see, this is just another way in which the Government are trying to water down the rights of people at work.
Frankly, to Opposition Members and the many business organisations that have expressed their concerns, this policy stinks. The House and members of the public deserve to know exactly what the implications of the policy will be before the horse has bolted. The Government say that they will only shut the gate once that has happened. [Interruption.] I hear hon. Members groan at that, but I quote Lord Deben:
“I cannot imagine any circumstances whatever in which this would be of any use to any business that I have ever come across in my entire life.”—[Official Report, House of Lords, 6 February 2013; Vol. 743, c. 293.]
I think that he puts it very well.
Ian Murray: The Minister tried to respond to my two interventions about tax evasion by reading figures from the Red Book. However, the accompanying document to the autumn statement of 2012, at which this policy was announced, states that the policy could cost upwards of £1 billion because there are uncertainties around
“the extent of tax planning”.
That sounds to me like tax avoidance.
Catherine McKinnell:
I, too, took great interest in what the Minister said, because he seemed to disown the figures that were published by the Office for Budget Responsibility on this policy, as though they were in some unknown ether in the future. He appeared to be saying, “It’s nothing to do with me, guv.” The figures that the OBR predicts are very clear. It will cost £1 billion
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and a quarter of that can be attributed to tax planning and, if the concerns of the hon. Member for Redcar (Ian Swales) are borne out, tax avoidance.
Ian Swales: I am sorry to have missed some of the erudite contributions to this debate, especially that of the hon. Member for Islwyn (Chris Evans), whom I always enjoy hearing. I do not know whether these points have been mentioned. Is the hon. Lady concerned about the effect on competition between businesses if one business uses this process and another does not? Secondly, is she aware that the Office for Budget Responsibility thinks that existing share schemes may be shoehorned into the new process, meaning that people who are already in share schemes and who have employee rights might suddenly find themselves forced into the new arrangements?
Catherine McKinnell: I share all those concerns and many more. Ultimately, it is for the Government to take on board what is being said to them so clearly, but they seem to be ignoring it. The hon. Gentleman will know that he has the opportunity to vote with the Opposition on new clause 11 and to get the Government to sit up and listen to the concerns that are being expressed. Perhaps the data will show that the scheme has had a fantastic take-up, that it is entirely fair and that it has created many new jobs. Perhaps it is the boost for growth and job creation that the Chancellor proclaimed it would be. Alternatively, they might show that it is just a tax avoidance opportunity that is unfair to the employees who are forced into it against their will.
The Conservative, Baroness Wheatcroft, said:
“Let us imagine a group of employees who have sold their rights—for a mess of pottage, as we have heard—and another group who have not. The company falls on hard times and has to declare redundancies. Who will be first in the line for redundancy? I would hazard a guess that it will be those who have shown the most commitment to the business by becoming employee shareholders under the new scheme. That is the sort of perverse effect that we are likely to see if the clause goes through.”—[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 618.]
That is the sort of perverse effect that we want the Government to take action on by producing the data that will enable Members of this House to know the true impact of this employee shares for rights scheme.
I urge all hon. Members to vote for new clause 11.
Question put, That the clause be read a Second time.
The House divided:
Ayes 233, Noes 303.
Division No. 27]
[
5.59 pm
AYES
Abbott, Ms Diane
Abrahams, Debbie
Ainsworth, rh Mr Bob
Alexander, rh Mr Douglas
Alexander, Heidi
Ali, Rushanara
Ashworth, Jonathan
Austin, Ian
Balls, rh Ed
Barron, rh Kevin
Bayley, Hugh
Beckett, rh Margaret
Begg, Dame Anne
Benn, rh Hilary
Benton, Mr Joe
Berger, Luciana
Betts, Mr Clive
Blackman-Woods, Roberta
Blears, rh Hazel
Blenkinsop, Tom
Blomfield, Paul
Blunkett, rh Mr David
Bradshaw, rh Mr Ben
Brennan, Kevin
Brown, rh Mr Nicholas
Brown, Mr Russell
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Burnham, rh Andy
Byrne, rh Mr Liam
Campbell, rh Mr Alan
Campbell, Mr Ronnie
Champion, Sarah
Chapman, Jenny
Clark, Katy
Clarke, rh Mr Tom
Clwyd, rh Ann
Coaker, Vernon
Coffey, Ann
Connarty, Michael
Cooper, Rosie
Cooper, rh Yvette
Crausby, Mr David
Creagh, Mary
Creasy, Stella
Cryer, John
Cunningham, Alex
Cunningham, Mr Jim
Cunningham, Sir Tony
Curran, Margaret
Dakin, Nic
Danczuk, Simon
Darling, rh Mr Alistair
David, Wayne
Davidson, Mr Ian
Davies, Geraint
Dobbin, Jim
Dobson, rh Frank
Donohoe, Mr Brian H.
Doran, Mr Frank
Doughty, Stephen
Dowd, Jim
Doyle, Gemma
Dugher, Michael
Durkan, Mark
Eagle, Ms Angela
Eagle, Maria
Edwards, Jonathan
Elliott, Julie
Ellman, Mrs Louise
Engel, Natascha
Esterson, Bill
Evans, Chris
Farrelly, Paul
Fitzpatrick, Jim
Flello, Robert
Flint, rh Caroline
Flynn, Paul
Fovargue, Yvonne
Francis, Dr Hywel
Gapes, Mike
Gardiner, Barry
Glass, Pat
Glindon, Mrs Mary
Godsiff, Mr Roger
Goodman, Helen
Green, Kate
Greenwood, Lilian
Griffith, Nia
Gwynne, Andrew
Hain, rh Mr Peter
Hamilton, Mr David
Hamilton, Fabian
Hanson, rh Mr David
Havard, Mr Dai
Healey, rh John
Hepburn, Mr Stephen
Hermon, Lady
Heyes, David
Hillier, Meg
Hilling, Julie
Hodge, rh Margaret
Hodgson, Mrs Sharon
Hoey, Kate
Hood, Mr Jim
Hopkins, Kelvin
Hosie, Stewart
Howarth, rh Mr George
Hunt, Tristram
Jackson, Glenda
James, Mrs Siân C.
Jamieson, Cathy
Jarvis, Dan
Johnson, rh Alan
Johnson, Diana
Jones, Graham
Jones, Helen
Jones, Mr Kevan
Jones, Susan Elan
Kane, Mike
Kaufman, rh Sir Gerald
Keeley, Barbara
Kendall, Liz
Khan, rh Sadiq
Lammy, rh Mr David
Lavery, Ian
Leslie, Chris
Lewell-Buck, Mrs Emma
Llwyd, rh Mr Elfyn
Long, Naomi
Love, Mr Andrew
Lucas, Caroline
Lucas, Ian
MacNeil, Mr Angus Brendan
Mactaggart, Fiona
Mahmood, Mr Khalid
Mahmood, Shabana
Mann, John
Marsden, Mr Gordon
McCabe, Steve
McCann, Mr Michael
McCarthy, Kerry
McClymont, Gregg
McDonagh, Siobhain
McDonald, Andy
McDonnell, John
McFadden, rh Mr Pat
McGovern, Alison
McGuire, rh Mrs Anne
McKenzie, Mr Iain
McKinnell, Catherine
Meale, Sir Alan
Mearns, Ian
Miliband, rh Edward
Miller, Andrew
Mitchell, Austin
Moon, Mrs Madeleine
Morden, Jessica
Morrice, Graeme
(Livingston)
Morris, Grahame M.
(Easington)
Mudie, Mr George
Munn, Meg
Murphy, rh Mr Jim
Murphy, rh Paul
Murray, Ian
Nandy, Lisa
Nash, Pamela
O'Donnell, Fiona
Onwurah, Chi
Osborne, Sandra
Owen, Albert
Pearce, Teresa
Perkins, Toby
Pound, Stephen
Powell, Lucy
Qureshi, Yasmin
Raynsford, rh Mr Nick
Reed, Mr Jamie
Reed, Mr Steve
Reeves, Rachel
Reynolds, Emma
Reynolds, Jonathan
Riordan, Mrs Linda
Robertson, Angus
Robertson, John
Robinson, Mr Geoffrey
Rotheram, Steve
Roy, Mr Frank
Roy, Lindsay
Ruane, Chris
Ruddock, rh Dame Joan
Sarwar, Anas
Sawford, Andy
Seabeck, Alison
Shannon, Jim
Sharma, Mr Virendra
Sheerman, Mr Barry
Sheridan, Jim
Shuker, Gavin
Simpson, David
Skinner, Mr Dennis
Slaughter, Mr Andy
Smith, rh Mr Andrew
Smith, Angela
Smith, Owen
Spellar, rh Mr John
Straw, rh Mr Jack
Stringer, Graham
Stuart, Ms Gisela
Sutcliffe, Mr Gerry
Tami, Mark
Thomas, Mr Gareth
Thornberry, Emily
Timms, rh Stephen
Trickett, Jon
Turner, Karl
Twigg, Derek
Umunna, Mr Chuka
Vaz, Valerie
Weir, Mr Mike
Whiteford, Dr Eilidh
Whitehead, Dr Alan
Williamson, Chris
Wilson, Phil
Wilson, Sammy
Winnick, Mr David
Winterton, rh Ms Rosie
Wishart, Pete
Wood, Mike
Woodcock, John
Woodward, rh Mr Shaun
Wright, David
Tellers for the Ayes:
Seema Malhotra
and
Bridget Phillipson
NOES
Adams, Nigel
Afriyie, Adam
Aldous, Peter
Alexander, rh Danny
Andrew, Stuart
Arbuthnot, rh Mr James
Baker, Norman
Baker, Steve
Baldry, rh Sir Tony
Barclay, Stephen
Barker, rh Gregory
Baron, Mr John
Bebb, Guto
Bellingham, Mr Henry
Benyon, Richard
Beresford, Sir Paul
Berry, Jake
Bingham, Andrew
Binley, Mr Brian
Birtwistle, Gordon
Blackman, Bob
Blackwood, Nicola
Blunt, Crispin
Boles, Nick
Bottomley, Sir Peter
Bradley, Karen
Brady, Mr Graham
Brake, rh Tom
Bray, Angie
Brazier, Mr Julian
Bridgen, Andrew
Brine, Steve
Brooke, Annette
Browne, Mr Jeremy
Bruce, Fiona
Bruce, rh Sir Malcolm
Buckland, Mr Robert
Burley, Mr Aidan
Burns, Conor
Burrowes, Mr David
Burstow, rh Paul
Burt, rh Alistair
Byles, Dan
Cable, rh Vince
Cairns, Alun
Campbell, rh Sir Menzies
Carmichael, Neil
Carswell, Mr Douglas
Cash, Sir William
Chishti, Rehman
Chope, Mr Christopher
Clappison, Mr James
Clark, rh Greg
Clegg, rh Mr Nick
Clifton-Brown, Geoffrey
Coffey, Dr Thérèse
Collins, Damian
Colvile, Oliver
Cox, Mr Geoffrey
Crabb, Stephen
Crouch, Tracey
Davies, David T. C.
(Monmouth)
Davies, Glyn
Davies, Philip
Davis, rh Mr David
Dinenage, Caroline
Djanogly, Mr Jonathan
Dorrell, rh Mr Stephen
Dorries, Nadine
Doyle-Price, Jackie
Drax, Richard
Duddridge, James
Duncan, rh Mr Alan
Duncan Smith, rh Mr Iain
Dunne, Mr Philip
Ellis, Michael
Ellison, Jane
Elphicke, Charlie
Eustice, George
Evans, Graham
Evans, Jonathan
Evans, Mr Nigel
Evennett, Mr David
Fabricant, Michael
Fallon, rh Michael
Farron, Tim
Featherstone, Lynne
Field, Mark
Foster, rh Mr Don
Fox, rh Dr Liam
Francois, rh Mr Mark
Freeman, George
Freer, Mike
Fuller, Richard
Gale, Sir Roger
Garnier, Sir Edward
Garnier, Mark
Gauke, Mr David
George, Andrew
Gibb, Mr Nick
Gillan, rh Mrs Cheryl
Glen, John
Goldsmith, Zac
Goodwill, Mr Robert
Gove, rh Michael
Graham, Richard
Gray, Mr James
Grayling, rh Chris
Green, rh Damian
Greening, rh Justine
Griffiths, Andrew
Gyimah, Mr Sam
Halfon, Robert
Hames, Duncan
Hammond, rh Mr Philip
Hammond, Stephen
Hancock, Matthew
Hands, rh Greg
Harper, Mr Mark
Harris, Rebecca
Hart, Simon
Harvey, Sir Nick
Heald, Oliver
Heath, Mr David
Heaton-Harris, Chris
Hemming, John
Henderson, Gordon
Hendry, Charles
Herbert, rh Nick
Hinds, Damian
Hoban, Mr Mark
Hollingbery, George
Hollobone, Mr Philip
Holloway, Mr Adam
Hopkins, Kris
Horwood, Martin
Howarth, Sir Gerald
Hughes, rh Simon
Hunt, rh Mr Jeremy
Huppert, Dr Julian
James, Margot
Javid, rh Sajid
Jenkin, Mr Bernard
Johnson, Gareth
Johnson, Joseph
Jones, rh Mr David
Jones, Mr Marcus
Kawczynski, Daniel
Kelly, Chris
Kennedy, rh Mr Charles
Kirby, Simon
Knight, rh Sir Greg
Kwarteng, Kwasi
Lamb, Norman
Lancaster, Mark
Lansley, rh Mr Andrew
Latham, Pauline
Laws, rh Mr David
Leadsom, Andrea
Lee, Jessica
Lee, Dr Phillip
Leech, Mr John
Lefroy, Jeremy
Leigh, Sir Edward
Leslie, Charlotte
Lewis, Brandon
Lewis, Dr Julian
Liddell-Grainger, Mr Ian
Lilley, rh Mr Peter
Lloyd, Stephen
Luff, Sir Peter
Lumley, Karen
Macleod, Mary
Main, Mrs Anne
Maynard, Paul
McCartney, Jason
McCartney, Karl
McIntosh, Miss Anne
McLoughlin, rh Mr Patrick
McPartland, Stephen
Metcalfe, Stephen
Miller, rh Maria
Mills, Nigel
Milton, Anne
Mitchell, rh Mr Andrew
Moore, rh Michael
Mordaunt, Penny
Morris, Anne Marie
Morris, David
Morris, James
Mosley, Stephen
Mowat, David
Mulholland, Greg
Munt, Tessa
Murray, Sheryll
Murrison, Dr Andrew
Neill, Robert
Newmark, Mr Brooks
Newton, Sarah
Nokes, Caroline
Norman, Jesse
Nuttall, Mr David
O'Brien, rh Mr Stephen
Offord, Dr Matthew
Ollerenshaw, Eric
Opperman, Guy
Ottaway, rh Sir Richard
Paice, rh Sir James
Parish, Neil
Patel, Priti
Pawsey, Mark
Penrose, John
Percy, Andrew
Perry, Claire
Phillips, Stephen
Pincher, Christopher
Poulter, Dr Daniel
Prisk, Mr Mark
Pritchard, Mark
Pugh, John
Raab, Mr Dominic
Randall, rh Sir John
Reckless, Mark
Redwood, rh Mr John
Rees-Mogg, Jacob
Reevell, Simon
Reid, Mr Alan
Robertson, rh Hugh
Robertson, Mr Laurence
Rogerson, Dan
Rosindell, Andrew
Rudd, Amber
Ruffley, Mr David
Russell, Sir Bob
Rutley, David
Sanders, Mr Adrian
Sandys, Laura
Scott, Mr Lee
Selous, Andrew
Shapps, rh Grant
Sharma, Alok
Shelbrooke, Alec
Shepherd, Sir Richard
Simmonds, Mark
Simpson, Mr Keith
Skidmore, Chris
Smith, Chloe
Smith, Henry
Smith, Julian
Smith, Sir Robert
Soames, rh Sir Nicholas
Soubry, Anna
Spelman, rh Mrs Caroline
Spencer, Mr Mark
Stanley, rh Sir John
Stevenson, John
Stewart, Bob
Stewart, Iain
Stewart, Rory
Stride, Mel
Stuart, Mr Graham
Stunell, rh Sir Andrew
Sturdy, Julian
Swales, Ian
Swayne, rh Mr Desmond
Swinson, Jo
Swire, rh Mr Hugo
Syms, Mr Robert
Tapsell, rh Sir Peter
Teather, Sarah
Thornton, Mike
Tomlinson, Justin
Tredinnick, David
Truss, Elizabeth
Turner, Mr Andrew
Tyrie, Mr Andrew
Uppal, Paul
Vaizey, Mr Edward
Vara, Mr Shailesh
Vickers, Martin
Walker, Mr Charles
Wallace, Mr Ben
Ward, Mr David
Watkinson, Dame Angela
Weatherley, Mike
Webb, Steve
Wharton, James
Wheeler, Heather
White, Chris
Whittaker, Craig
Whittingdale, Mr John
Wiggin, Bill
Willetts, rh Mr David
Williams, Stephen
Williamson, Gavin
Willott, Jenny
Wilson, Mr Rob
Wollaston, Dr Sarah
Wright, Jeremy
Wright, Simon
Yeo, Mr Tim
Young, rh Sir George
Zahawi, Nadhim
Tellers for the Noes:
Harriett Baldwin
and
Gavin Barwell
Question accordingly negatived.
1 July 2014 : Column 836
1 July 2014 : Column 837
1 July 2014 : Column 838
1 July 2014 : Column 839
Report on tax advantages arising from tax arrangements that are abusive
“(1) The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish and lay before the House of Commons a report setting out further proposals to reduce the tax advantages arising from tax arrangements that are abusive.
(2) The report referred to in subsection (1) must in particular include proposals about—
(a) the exemption from the obligation to deduct tax on yearly interest in respect of interest received on a quoted Eurobond contained in section 882 of the Income Tax Act 2007;
(b) disguised employment in the construction sector; and
(c) the use of dormant companies as a means of tax avoidance.
(3) The report referred to in subsection (1) must set out the estimated impact of the proposals contained in the report on the total receipts paid to the Exchequer.”—(Shabana Mahmood.)
Brought up, and read the First time.
1 July 2014 : Column 840
Shabana Mahmood: I beg to move, That the clause be read a Second time.
We now come to the last of our debates on the Finance Bill today. New clause 12 would require a report by the Chancellor within six months of Royal Assent, setting out further proposals to reduce the tax advantages arising from tax arrangements that are abusive. It makes particular reference to the quoted eurobonds exemption, disguised employment in the construction sector, and the use of dormant companies as a means of tax avoidance. The new clause would require an assessment of the impact of all three on total receipts paid to the Exchequer.
6.15 pm
Charlie Elphicke (Dover) (Con): In relation to eurobonds, I read a report that the shadow Chancellor has suggested that there is £500 million at stake. Will the hon. Lady confirm her understanding of the costings?
Shabana Mahmood: I will turn at length to costings of the abuse of the quoted eurobonds exemption, but it is certainly true that many of the estimates of how much it might be costing the Exchequer have placed the figure at around £500 million.
Let me start with the context and explain the thinking behind our new clause. Public concern about tax avoidance is high, and this is a problem not only for the Government but for parties across the House. The setting of tax rates, decisions about tax reliefs, and the collection of tax are among the most important functions of government. If the system is not working as well as it could be, that needs to be addressed. Over the past couple of years, there have been a number of high-profile media stories focused on the tax arrangements of particular companies and individuals, as a result of which, it is fair to say, public trust in the tax system has been eroded.
The deficit, as we know, is high and will not now be cleared by 2015, as the Government promised when they came to office in 2010. It will not, in fact, be eliminated until well into the next Parliament.
Sir Gerald Howarth (Aldershot) (Con): As the hon. Lady has mentioned the deficit, would she now like to apologise on behalf of the Labour party for the catastrophic destruction of the public finances in the last Parliament?
Shabana Mahmood: I think the hon. Gentleman and other Government Members should apologise for the fact that their Government have delivered a huge tax cut for millionaires while households are on average £974 a year worse off. That is a deplorable record and the Government should apologise for it.
We have already discussed at length today the fact that ordinary working people in our country are worse off as a result of this Government’s economic plan. As I have said, households are £974 a year worse off as a result of tax and benefit changes, and wages will be 5.6% lower in 2015 than they were in 2010. We also know that it is the richest 1% of the country who have benefited most from the recovery. With working people facing a cost of living crisis, it is vital that everyone pays their fair share and that we restore public trust. When ordinary people are struggling with their household budgets, which are stretched ever thinner, it is understandable
1 July 2014 : Column 841
that there will be increasing anger if they feel that others are successfully avoiding tax and the Government are failing to do enough about it.
The same goes for businesses, too. We know that small and medium-sized enterprises are struggling with business rates, for example, which have gone up since 2010. Many businesses are now paying more in rates than they do in rent. Businesses that do the right thing when it comes to tax are understandably frustrated and angry when they see others that do not play by the rules, and they are right to think that there should be a level playing field, so that those who do the right thing are not penalised because others get away with not paying their fair share. High-profile cases of tax avoidances have therefore undermined public trust in company taxation and hit businesses that play by the rules.
Our best measure of how well the system is working is the tax gap—which is effectively the amount of uncollected tax in the economy—which has risen under this Government by £1 billion to a total of £35 billion.
Shabana Mahmood: I know the Minister will say that it has gone down in percentage terms, but only by 0.1%. I assume that that was the intention behind the intervention he was about to make.
Shabana Mahmood: Focusing on the actual figure is important. It concentrates the mind when assessing the scale of the task both for this Government and the successor Government in 2015. By anyone’s analysis, £35 billion is a huge sum, which, if collected, would make a very significant difference to the nation’s finances.
Kelvin Hopkins (Luton North) (Lab): My hon. Friend is making an excellent speech and she is right that this is a large sum of money. It is equivalent to 9p on the standard rate of income tax.
Shabana Mahmood: My hon. Friend makes an excellent point. He is of course right that this is a huge sum of money and that people are rightly concerned that £35 billion-worth of tax is potentially going uncollected in our country.
Ian Swales: I am certainly no defender of the tax gap, and I am on record as having challenged the whole system of tax avoidance many times. However, does the hon. Lady know what the tax gap was in 2010 when the previous Government left office?
Shabana Mahmood: The truth is that any tax gap, however big or small, is unacceptable to the public, and strong action should always be taken to tackle it. I was about to say that I am grateful to the hon. Gentleman and that it was £32 billion. As I say, that is too high, and it has gone up to £35 billion under this Government. These large sums of money shake the public’s confidence when it comes to believing that the Government are doing everything they can to tackle tax avoidance.
Shabana Mahmood: I will take further interventions later, but I want to make some progress.
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What else has been happening on this Government’s watch? The Government have raised expectations in respect of some aspects of their tax avoidance policy, but they have not been met. In particular—we have put this point to the Minister on many occasions—the Swiss deal, which was supposed to bring in £3.12 billion, a sum that would have gone some way towards making a dent in the tax gap, has in fact brought in only £818 million. I know the Minister will say that the figures were okayed by the independent Office for Budget Responsibility when the costings were put in the Red Book, but that does not mean that the Minister can simply get away with it. At the end of the day, there is an unexplained and substantial difference between what was meant to happen as a result of that deal and what did in fact happen, raising questions about the substance of the deal.
Another feature of public debate as the issue of tax avoidance has shot up the public agenda relates to Her Majesty’s Revenue and Customs. If we are to close the tax gap, we need HMRC to be as effective as possible. Last year’s Public Accounts Committee report “Tax avoidance: tackling marketed avoidance schemes” found that HMRC did not know how much it spent on its anti-avoidance work and had not evaluated the effectiveness of its efforts. It calls for HMRC to improve its recording and monitoring of the cost of its anti-avoidance work and to set out clearly how it will evaluate its anti-avoidance strategy. This is a substantial gap in knowledge; again, it has a direct impact on the Government’s ability to tackle tax avoidance effectively and thereby close the tax gap.
Charlie Elphicke: It is worth noting that last year tax inspectors collected a record £23.9 billion, about £4 billion of which was from criminals and tax avoiders, so HMRC has been quite effective in collecting that record amount.
Shabana Mahmood: I am grateful to the hon. Gentleman for his intervention, but as I just said, the tax gap has widened: despite those efforts, it has gone up by £1 billion or more.
The Public Accounts Committee also raised concerns about the monitoring of tax relief at HMRC and the Treasury. In 2013, there were 1,128 tax reliefs in the UK taxation system—a number that continues to grow. Tax reliefs can range from fundamental components of the tax system, such as the level of the personal allowance, to tax expenditures with more specific objectives to change behaviour, such as film tax relief. They play an important role in the tax system, but can be abused. Indeed, even in this Finance Bill the Government have had to take steps to close down the abuse of tax reliefs. It is therefore very worrying that the Public Accounts Committee has concluded:
“There is a lack of transparency and accountability for tax reliefs and no adequate system of control, following their introduction. HMRC and HM Treasury share responsibility for tax reliefs, but there is no accounting officer with responsibility for the stewardship of tax reliefs, as there would be for”
“public spending. In 2010, HM Treasury committed to developing a framework for the introduction of new reliefs”.
However, no measures have been implemented so far.
1 July 2014 : Column 843
In December 2013—this is relevant to what the hon. Member for Dover (Charlie Elphicke) said a moment ago—there were just four full-time officers in the fugitive unit, trying to catch 124 HMRC fugitives. The Government launched a “most wanted” campaign in August 2012, but earlier this year it was found that just four fugitives had been caught since the publication of the list. Moreover, it was admitted that of the 32 “most wanted”, 11 could not be located. If the Government are to support their claim that they are succeeding in the fight against tax avoidance and evasion, they must be able to demonstrate that they will catch those who break and abuse the rules, and will prosecute them to the full extent of the law.
Kelvin Hopkins: Does not what my hon. Friend is saying suggest that there is a cosy relationship between the Conservative party and the very rich? The Conservatives do not want to chase those people, because they do not want to upset their friends.
Shabana Mahmood: My hon. Friend has made his point powerfully, and in his characteristic way.
As we can see, despite the Government’s claims, their record of tackling tax avoidance is simply not good enough in a number of areas. They will say that the avoidance measures in this Bill are radical and bold, and are evidence of a commitment to tackling avoidance. We have supported the measures relating to follower notices, accelerated payment notices and the need to tackle promoters of tax avoidance schemes, although we have questioned the Minister about some of the deeply felt concerns of those who will be affected by the follower notices regime and by accelerated payment notices, which have caused a great deal of debate outside the House. However, although those measures have received the Opposition’s support, the fact is that they are not revenue raisers. They will simply bring in money that the Government were expecting to collect, but which had been clogging up the various back channels and alleyways of the legal system.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC): The hon. Lady has mentioned a number of measures, and has made some good points. Should not the Government be pursuing large multinationals such as Microsoft and Google, which are not paying a penny in corporation tax?
Shabana Mahmood: I think the Government should adopt an across-the-board strategy. I think they should deal with companies of all sizes, as well as individuals who engage in the various types of tax avoidance and evasion. I have mentioned a number of areas where there is concern about the Government’s action to date, and about their record of being able to narrow the tax gap.
The Government’s other flagship policy, introduced last year, is the general anti-abuse rule. Of course, it will take some time for the GAAR to settle in, as it is a new measure, and it is not yet clear how it will operate in practice, because it has not yet been the subject of a court case. It is, however, striking that no penalties regime associated with abuse falls within its remit. One would have thought that such a regime was a deterrent, and that the Government would want to make it clear that the type of abuse caught by the GAAR—abuse of the most egregious nature—would not be tolerated.
1 July 2014 : Column 844
However, it seems that an individual who fell foul of the GAAR, having engaged in the most egregious form of tax abuse, would incur no penalty but would merely be required to pay the amount that had been disputed. That strikes me as an interesting omission from the GAAR and the Government’s arsenal of measures to tackle tax avoidance.
Nigel Mills (Amber Valley) (Con): I think we went through this in the Finance Bill Committee last year. It would be somewhat iniquitous to have a higher penalty for a scheme that complied with the letter of the law but was subsequently ruled out of order by the GAAR than for one that was blatantly outside the law in the first place. I think we should stick to the standard penalties that apply for under-declaring tax on a tax return.