I pay tribute to the remarks made by the two preceding speakers, my hon. Friends the Members for North Durham (Mr Jones) and for Ilford North (Wes Streeting). I promise that having been in this House for only a short time, I cannot yet seek to match them for speaking stamina. I am sure that the rest of the House will not be too disappointed by that.
I would like to address how the Bill fits with the Government’s stated priorities. Earlier this year, the Prime Minister, writing in The Sun, promised
“to build a stronger, fairer Britain that works for everyone, not just the privileged few. A Britain…that works for ordinary working people.”
If those words are not mere rhetoric, they need to be backed up by legislation, and where better to put that legislation than in a Finance Bill? It is an opportunity for the Government to make our tax system and our society fairer. I am concerned, though, that the Bill will not only not make Britain fairer, but make our society more unequal.
I wish to concentrate on the effect of motion 4, which is on termination payments, and of motion 13, which is on business investment relief. Business investment relief applies only to non-domiciled UK taxpayers—120,000 people who are some of the wealthiest in our society. They are already able to choose whether their income is only taxed when it is brought into the UK. That gives a huge advantage to those who spend most of their lives outside our country, and whose income can be held in offshore accounts, trusts and shares.
Although, as my hon. Friend the Member for Ilford North said, I worked for the past 20 years or so for a trade union for working people, prior to that I worked as a tax accountant. On leaving school, I went to work in London for an international tax accountancy firm that specialised in advising non-domiciled individuals. These people were enormously wealthy, and included some well-known names. Even if their income was earned in the UK, if their earnings went directly into a non-UK account, they were not subject to UK taxation. In recent years, we have seen how that sort of manipulation of high incomes still goes on. It enables the very wealthiest people to pay a minimal contribution to the UK, even if they are deemed resident here. It is not the fault of this Government, but non-domiciled status was essentially created to avoid UK taxation.
For many people who travel globally, the system is not actually adaptable. For all their enormous wealth and jet-set lifestyles, I used to feel sorry for our non-domiciled clients when I was a teenager in a junior tax accountancy position. They were able to spend only a
set number of days in the UK, and the enormous tax consequences of their overstaying that time limit meant that they felt they needed to adhere to it strictly, regardless of their own personal needs or wishes. Our accountancy firm used to keep a schedule in the front of each client’s file, setting out the number of days that they had set foot in the UK that tax year. The clients used to have to plan their personal and business engagements around the limits. When they got close to the limit, it was my job to write to inform them to be careful with their travel arrangements until 5 April, when the tax year came to an end and a new limit began. That is no way for people to have to live their lives or for a country to run its tax system.
The Government say they are cracking down on non-domiciled status, but, as I said to my hon. Friend the Member for Ilford North, it seems to be different from their crackdown on benefits for disabled people living on the breadline. Will the Minister confirm that non-domiciled individuals will see their status change only if they have not complied in 15 out of 20 years? Disabled people would love to have 15 years to show how their disability affects their lives and how it changes over time, but they are assessed on one day, at one particular time when they have managed to attend an assessment centre, and they are penalised immediately if they cannot do so. If there is a change in circumstance for non-domiciled residents, instead of their hugely beneficial tax status being changed immediately, the Government have given them two years in which to transfer their money to an offshore trust to again avoid paying any tax on it.
As if the tax benefits of non-domiciled status were not already generous enough, in 2012 the then Chancellor introduced business investment relief. I am sure that had nothing to do with the number of people of non-domiciled status with whom he spent his holidays on yachts, but it was certainly welcomed by their investment advisers. Firms such as Sapphire were pleased to advertise the benefits of business investment relief to their clients. The article on its website says:
“Unfortunately for the vast majority of us, when we earn money we have to pay tax…However, for those individuals who are resident in the UK but are considered non-domiciled this basic rule does not have to apply…From 6 April 2012, the government introduced the very attractive Business Investment Relief…Put simply, if you are resident in the UK but are…a “non-dom”…and you want to bring your overseas money into the UK to make an investment and NOT pay tax in the process—then Business Investment Relief is your answer…the UK Government is effectively giving non-doms a subsidy…on their investments”—
then it was 50%, now it is 45%. The company says:
“But wait—it gets better—you can also use the other reliefs when making an investment using offshore monies remitted to the UK”—
such as the enterprise investment scheme or the seed enterprise investment scheme, which will also potentially save 40% on an income tax bill. The advice that is given sets out how great the tax advantages are. An investment of £500,000 by someone with non-domiciled status would attract tax relief of £400,000.
Sapphire advertises how wide the opportunities are under business investment relief, saying:
“the rules for what makes up a qualifying company…are very wide. Quoted companies are excluded, but virtually any other
company…carrying out a business may qualify…investment into property development or property with a rent is allowable.”
Do we really need more overseas investors increasing our property prices? It does not even have to be an arm’s length or transparent investment, as money
“can be invested in a company in which the investor is or associates are involved in”.
If someone wants to dispose of that investment and is worried about capital gains tax, they are advised:
“When the investment is sold, if there is a gain it will be subject to UK Capital Gains Tax—but the original funds can be taken back offshore again (within a 45 day or 90 day time period) in order to avoid being taxed”.
It is no wonder that despite all the rhetoric about cracking down on non-doms, their number has increased since 2010. The Government now want to make business investment relief even more generous through this Bill. This time, I quote the reputable KPMG, which sets out the benefits of the Government’s proposals, which have
“the objective of making the BIR scheme more attractive to non-UK domiciled investors…BIR will be extended to include investments made in a new qualifying entity, a ‘hybrid company’…not exclusively a trading company or a stakeholder company…but…a hybrid of the two”—
just in case someone could not fit their investment into one or other of them. It goes on:
“At the same time…the period during which an eligible trading company must start to trade,”
or
“an eligible stakeholder company must start to hold investments…will be increased to five years…Where a company becomes non-operational and a BIR investment ceases to qualify, the grace period during which action must be taken…will be increased to two years”
to manage the risk of a tax change more effectively. It also states:
“Another extension to BIR sees acquisitions of existing shares already in issue potentially qualifying for BIR… there will be no requirement for shares to have been newly issued…Rules which withdraw BIR will be narrowed”.
An already exceedingly generous scheme will be widened and extended in scope to enable more companies to be invested in and to enable more people to make those investments, be it in a trading company or a property. May I ask the Minister how that squares with the Prime Minister’s promise that we will create a fairer society by breaking down the barriers of privilege and making Britain a great meritocracy?
The treatment of non-domiciled taxpayers in the Bill contrasts with the treatment of ordinary working people. The Government’s huge cuts to public services have largely been on the back of those ordinary working people, none more so than the hundreds of thousands in the public sector who have lost their jobs.
Under the Government’s continued austerity programme, thousands more hard-working public servants will lose their employment. In many cases, they have given the majority of their working life to their job and will find it extremely hard to get another. As the state pension age increases, people made redundant later in their working life have to try to get by on their payment for termination of their employment for as long as possible. It is an extremely worrying time for them.
Two hospitals in my constituency are earmarked for ward closures, with dozens of experienced NHS staff worried about whether they will still have a job. To those
hard-working hospital staff, who continue to give excellent care to their patients for which they are renowned, the Bill brings added uncertainty. The Government want Parliament to give them the power to vary the £30,000 tax-free limit for payments on termination of employment, but people will see less of that payment if that tax limit is reduced. The long-standing limit, which gives ordinary hard-working people the ability to make the most of the final payment from their job at a time when they need it most, is under threat. I hope the Minister can assure me that the Government will at no point seek to reduce the £30,000 tax-free limit on termination payments.
In another example of hitting hard-working people when they are down, the Bill seeks to tax the compensation for injury to feelings caused by a proven case of discrimination at work. Does the Minister realise what an employee has to go through to receive a compensation award for discrimination? Not only do they originally suffer that serious and long-lasting discrimination at work, but they also have to have made a complaint unsuccessfully through their employer’s procedures, having their claims refuted and exacerbating the hurt and distress. They then have to go through the whole process and complaint yet again, this time through an employment tribunal procedure. The process takes years of emotional distress and it is not surprising that only a handful of cases get through this arduous process.
Only 144 individuals were awarded compensation for discrimination in the past year, including 72 cases of disability discrimination, 33 cases of sex discrimination and nine cases of sexual orientation discrimination. Bearing in mind the small number of cases, this is not an effective revenue-raising measure. Until now, claimants have had to pay an employment tribunal fee of £1,250 to take a case of discrimination to an employment tribunal. Now that those fees have been ruled unlawful, does the Minister agree that victims of sustained and damaging discrimination will feel that taxation of their compensation payment will simply add financial insult to their injury? It is a worrying principle for the Government to commence taxing compensation—a measure to give redress from unfairness—which inflicts further unfairness on those who have already suffered enough.
I am relatively new to the House, but the Bill shows me and our wider electorate that, in spite of changing Ministers, the Government have not changed their spots. They are seeking to rush through these important measures with very little parliamentary scrutiny. These measures give even more to the wealthiest and take even more from hard-working people at the times they need it most. The Prime Minister has been long on rhetoric for tackling privilege and helping ordinary working people, but the Government speak a very different story in their actions in this Bill. Before the final Bill comes to the House, I urge the Minister to address the imbalance between rhetoric and action. He can either ensure that the Bill addresses the issues that his leader claims to seek to address or the Government can be straight with voters and say that their actions actually encourage privilege and knock working people when they are down.
6.19 pm