Finance Bill — House of Lords, 2017-11-15
Topic: Macroeconomics
Michael Bates (Conservative, Centre-right): My Lords, the Lords Finance Bill debate gives us the opportunity to bring to bear the wide range of expertise that this House possesses on the issue of tax reforms. I particularly thank the Lords Economic Affairs Finance Bill Sub-Committee for its report, Making Tax Digital, and I am delighted that several members of that committee—including the noble Lord, Lord Turnbull, and my noble friends Lord Wakeham and Lord Leigh—will participate in the debate. I look forward to their contributions and to those of others The scrutiny of the Bill that comes both from the Finance Bill Sub-Committee and in this debate is invaluable to making our tax system stronger, and I thank noble Lords for their contributions. This year, the Finance Bill has taken an unusual route to get here. The clauses it contains were introduced first in March and withdrawn from the Finance Bill passed before the general election. This Bill makes sure that all in this country pay their fair share of tax, that our public services have the funds they need and that our tax system is as modern as the economy over which it presides. Fundamentally, it is a Bill to make Britain a fairer and more prosperous nation. I turn first to the issue of tax avoidance and evasion, which is a major theme of the Bill. This Government have done more than any other in their crackdown on tax avoidance and evasion. The tax gap is at a record low of 6% and we are bringing in £11.8 billion more each year as a result of the new measures introduced. Since 2010, HMRC has secured over £160 billion in additional tax revenue as a result of tackling avoidance, evasion and non-compliance, helping the UK to achieve one of the lowest tax gaps in the world. This includes more than £53 billion from big businesses and more than £2.5 billion from the very wealthiest. The second 2017 Finance Bill introduces over 10 policies to help build on this work For too long, employers and their employees have participated in disguised remuneration schemes, hiding salary in interest-free and tax-free loans. This Bill strives to bring an end to that practice by placing charges on such loans. This change alone will bring in an extra £3 billion by 2021, all of which can be spent on our key public services. Alongside that, the Bill works to strip the rewards from those who enable tax avoidance, imposing 100% fines on fees earned from enabling defeated avoidance schemes. This is not about penalising the tax profession. It is about making sure that deliberately enabling tax avoidance is not a profitable enterprise Finally, we are granting new powers to HMRC to deal with VAT avoidance by overseas companies using UK-based fulfilment houses. These overseas companies have for too long avoided their VAT obligations, undercutting British business. Now, HMRC will be in a better position to tackle this unfair practice Not only are the Government committed to clamping down on avoidance and evasion, but they are also working towards making the whole tax system fairer and more sustainable. In law, since colonial times, permanent non-dom status has become a source of inequity in the British tax system. These people live in Britain for the vast majority of their lives. They draw on public services and the opportunities our country offers but pay a lower rate of tax. There is no denying the contribution that non-doms make to this country. They are in many ways a great import, bringing in talent, skill and cultural diversity. But if you live in Britain for a long time, you should pay your taxes like everyone else. By getting rid of permanent non-dom status and ending the qualification for those who have lived in Britain for more than 15 of the last 20 years, the Bill ends an inequity. Permanent residents of this country should pay tax just like everyone else—and now they will As well as reforming the treatment of non-doms, we are also making fair and reasonable adjustments to the way in which businesses can claim interest expenses and calculate their losses. Thanks to these changes, big businesses will no longer be able to claim excessive tax deductions on interest payments or offset their new profits with old losses, getting out of paying fair amounts of tax. Each of these measures brings in vital revenue to help fund the public realm: schools, hospitals and universities. They are fair, proportionate and progressive. Britain faces a historic challenge and opportunity. The economy is changing and developing rapidly. For the Government to keep pace with the increasingly digital world, the way we interact with people must be modernised, too. This goes for our tax system as much as in any other area. That is why, over the next five years, we will be making tax digital. Every year, avoidable errors cost HMRC £9.4 billion—money that could be spent on key public services. By digitising our tax service, we will make it easier for businesses to get their tax right. The new system will help make tax an integral part of their business, rather than a burdensome process to be completed separately However, we understand that this is a big change. Indeed, various challenges faced by businesses in this transition were highlighted by the Lords Finance Bill Sub-Committee in its report, which I referred to at the beginning of my remarks. I will now respond to some of the points raised in that helpful report by setting out the Government’s position The sub-committee asked that making tax digital should be implemented from 2020. We saw the benefits of allowing businesses more time to adjust and have pushed back any mandatory implementation until 2019. Even then, it will be only on VAT and only for larger businesses. We believe that this strikes the right balance between allowing us time to properly pilot the changes and ensuring that businesses and the public purse see the benefits of the new system as soon as possible. The sub-committee recommended that businesses trading below the VAT threshold could not be expected to be ready to implement only a year after larger businesses and that it was unfair to subject them to an untested system. We heard that and we saw that it was right. Businesses below the VAT threshold will be able to adopt making tax digital on a voluntary basis and at their own pace The sub-committee raised a number of points about the scope and timetable for the programme and we have responded. It also had concerns about having time to test making tax digital. The pilots have already begun and we are encouraged by the aspects of the system that we have been able to test so far. We will ensure that making tax digital is shown to work before we introduce it for taxes other than VAT. This is a change that is as good for business as it is for government, and we will make sure that it goes ahead and is a success It has been pointed out that this is a long Bill, and there is no denying that. It is long because we have made vital changes to complex law, especially around interest expenses and loss calculation. It is not a good idea to avoid length if it means neglecting certainty and precision on tax obligations. We have avoided doing just that—for which it seems strange to have to apologise, but I recognise that it is a weighty document This is a forward-looking Bill that makes our tax system fairer and more progressive and readies it for the future. Its measures will bring in extra revenue for our public services while making sure that our tax system remains competitive and that Britain remains a place where businesses can thrive. It will reform non-doms to make sure that people pay their fair share; crack down on tax avoidance to force businesses to comply with the spirit, not just the letter, of the law; and bring tax into the modern age by making it digital. It has been consulted on, critiqued and strengthened by the wide-ranging scrutiny of Parliament, including this House, and the business world. It is thorough and it is necessary. I therefore commend the Bill to the House and beg to move.