Motion to Take Note
My Lords, I rise to introduce the Economic Affairs Finance Bill Sub-Committee’s report on the powers of HMRC. Perhaps I will leave those who do not wish their tax affairs to be considered to leave the Chamber.
In this debate we are considering two reports from the committee: The Powers of HMRC: Treating Taxpayers Fairly and Making Tax Digital for VAT: Treating Small Businesses Fairly. These reports sprang from the sub-committee’s inquiry into the 2018 draft finance Bill. As the House will know, the sub-committee exists to scrutinise the draft finance Bill for issues of tax administration and clarification or simplification, and not the rates or incidence of tax.
Last year’s draft finance Bill did not contain many show-stopping measures, as Members might have noticed when the final Bill progressed through the House. We therefore decided to conduct thematic inquiries based on a few of its clauses, considering the cumulative effects of increased HMRC legislative powers over recent finance Bills and checking progress on the Making Tax Digital programme, which we considered in 2017. An example of the cumulative powers which perhaps went unnoticed in the Finance Bill was that anyone who has overseas investments can now have their tax affairs backdated for 12 years rather than four or six. That includes having an overseas property or perhaps having shares in a company listed on a US or other foreign exchange.
Before explaining our conclusions, I would like to thank the sub-committee members, who were recruited at short notice for a fast-paced inquiry. I also thank our excellent special advisers to the inquiry, Elspeth Orcharton and Robina Dyall, and the committee staff who produced the report: Sam Newhouse, Luke Hussey, Lucy Molloy and Lloyd Whittaker.
Making Tax Digital for VAT obliges all businesses with an income above £85,000 to submit their VAT returns through software that connects to HMRC’s database. It came into force at the start of this month. It is the first part of the Government’s Making Tax Digital programme, about which I will not go into detail other than to say that it aims to make tax digital. We first considered Making Tax Digital in 2017, when it was due to be implemented for income tax in April 2018. We found that HMRC had underestimated the cost to businesses and overestimated the benefits to the Exchequer, and that many businesses had no idea that they would soon be forced to change their whole accounting processes. The sub-committee recommended that all mandation of the programme be delayed until April 2020 at the earliest.
A year and a half later, when we started our 2018 inquiry, the deadline had been moved back to April 2019 and income tax had been removed from the scope of the first stage. We hoped that, by then, HMRC would have learned the lessons of our previous report, but we were disappointed. HMRC has again underestimated the cost to business. It says that, on average, there will be a one-off transition cost of £109 and an ongoing cost of £43 per year. But one practitioner told us that it could cost clients transitioning from paper records as much as £2,600. There seems to have been no effort to calculate a cost for the smallest businesses, which will need more agent support and may be more likely to use paper records. The definition of a small business used in HMRC’s estimate includes any business with taxable turnover between £85,000 and £10 million. This takes in 96% of VAT-registered businesses.
HMRC has still not done enough to raise awareness. The Institute of Chartered Accountants in England and Wales found in a survey as recently as last summer that 42% of businesses which are now required to comply with Making Tax Digital for VAT were not aware of its existence. The Treasury announced triumphantly last month that, as of December, over 80% of businesses in scope had started to prepare; but the fact that nearly one in five had not started to prepare, just three months before the introduction of Making Tax Digital, should have been more worrying. In its own research, the Daily Telegraph reported on 30 March, in a survey of some 500 companies, that 23% of affected companies had not even heard of Making Tax Digital; an additional 28% had heard of it but did not know how it would affect their business.
It seems likely that these are the same small businesses that HMRC also forgot about in calculating the costs of its programme. Serious questions remain about the expected benefits of the wider Making Tax Digital programme. HMRC and the Treasury expect it to yield higher tax revenue as businesses make fewer errors filling in their tax returns. But this does not seem to account for the fact that mistakes can run in both directions: businesses could be paying too much as well as too little. There is no convincing explanation of how businesses are meant to cope in rural and other areas where broadband connections are insufficiently good for this purpose.
We recommended that Making Tax Digital for VAT be delayed for a further year to address these problems. Clearly, that ship has now sailed. In the Spring Statement, the Chancellor reiterated that there would be no further mandation until after 2020. Our report recommended that no further mandation takes place until April 2022, to allow the Government to properly analyse and learn lessons from the implementation of Making Tax Digital for VAT.
Delaying until 2022 would also allow a reassessment of the benefits of the programme and its costs to the smallest businesses. We also recommended that the Government publish a revised long-term strategy for Making Tax Digital, accounting for the recommendations in our reports and the experiences of the programme so far. I ask my noble friend Lord Young whether he can give any further updates on these recommendations when he responds to the debate on behalf of the Government.
Our inquiry also sought to ask whether, after a plethora of new HMRC powers to address tax evasion and avoidance in recent years, there remains a fair balance of power between HMRC and the taxpayer. We concluded that HMRC’s powers have outpaced taxpayer safeguards and tipped the scales in HMRC’s direction. Before I begin, I must emphasise that the sub-committee wholly supports efforts to tackle tax evasion and avoidance but those efforts should enhance, not diminish, fairness in the tax system.
We found that several powers had been introduced with insufficient safeguards attached for taxpayers, particularly those on lower incomes or without agent representation. For example, accelerated payment notices require taxpayers to pay up front an amount of tax that HMRC thinks the taxpayer has avoided, before any dispute about whether the taxpayer is actually liable to pay tax to HMRC is settled by the courts; follower notices require taxpayers to pay tax that HMRC says the taxpayer has avoided by using a scheme that HMRC thinks is similar to one that has been challenged successfully in the courts. Taxpayers cannot appeal these notices, only the underlying tax liability. Taxpayers who continue to appeal a tax liability after receiving a follower notice and lose can face penalties of up to 50% of the tax liability added to their final bill. Both notices prioritise the fast recovery of tax revenue over fairness for taxpayers and, in my view, are attacks on access to justice. The sub-committee was very grateful to the noble and learned Lord, Lord Judge, who was able to advise the sub-committee on its draft conclusions. He criticised these powers for making HMRC judge in its own cause and fettering access to justice. I look forward to his contribution later in this debate.
To consider the overall balance of HMRC’s powers and taxpayer safeguards, we recommended a new collaborative review of powers between government and the tax profession, repeating an exercise so successfully conducted between 2005 and 2012 when Customs and Excise merged with the Inland Revenue. The Government noted this recommendation in their response, and I hope my noble friend can offer more clarity in his response to this debate on whether the Government will consider a new powers review.
In addition to legislative imbalance, we heard evidence of an aggressive and uncompromising culture of enforcement at HMRC. For example, witnesses told us that HMRC had presented voluntary requests for information as statutory requirements, made inappropriately harsh decisions on penalties, and alleged more serious conduct against taxpayers in order to access longer times for assessing tax. There is a sense, one witness told us, that HMRC is aiming to collect the maximum amount of tax rather than the right amount of tax. It may be that HMRC’s declining resources have made it impossible for it to satisfy demands to recoup higher amounts of tax revenue and treat taxpayers fairly. This is one area of government expenditure where increased expenditure actually produces increased revenue.
We recommended that consideration be given to the role of HMRC’s adjudicator, who currently considers taxpayers’ complaints about HMRC. She should, for example, proactively investigate the conduct of HMRC investigators in the manner of an inspectorate, or simply expand the types of taxpayers’ complaints that she can hear and strengthen her power to settle them. We also recommended a review of the case for an independent body to scrutinise the operations of HMRC.
The loan charge was the most distressing part of our committee’s evidence-taking. The new HMRC anti-avoidance measures, which came into force on 5 April 2019, introduced the measure known colloquially as the loan charge. This is an example of both the phenomena I have mentioned: disproportionate powers and an overtly aggressive culture. We received, and continue to receive, a huge amount of evidence on the impact this is having on individuals, which is often very difficult to read. There are already reports in the media of at least six suicides as a result of the implementation of the loan charge.
The loan charge seeks to tackle a tax avoidance scheme called disguised remuneration in which individuals, usually contractors, are paid in loans rather than income, to avoid income tax and national insurance contributions, on the understanding that those loans would never need to be repaid. The loan charge will classify any outstanding loans from these schemes, from 6 April 1999, as taxable under income tax. For those who have been using these schemes for many years, this requires them to pay many years of income tax in one go in one tax year.
In going back to 1999, the loan charge is retrospective. There is a long-established principle in the tax system that taxpayers are entitled to certainty in their tax affairs. As such, HMRC cannot go back further than six years, except in cases of fraud, but this charge goes back 20 years. HMRC says this is because the loans received in 1999 are still outstanding. The tax therefore applies to the present loan balance, not the past loan income. However, the problem with disguised remuneration schemes is that these are not really loans; they are income under another name. HMRC’s treatment of the loans as income in the loan charge is evidence that it agrees. We therefore recommended that the charge be disapplied to any disguised remuneration which occurred in years which would otherwise have been closed to HMRC inquiry.
Retrospection notwithstanding, we support HMRC in its attempts to address present and future disguised remuneration—it is clearly tax avoidance. However, we have pleaded with it, with limited success, to consider the different types of individuals embroiled in these schemes. Unlike some tax avoidance schemes, this affected middle- to lower-income individuals, rather than high-income individuals with easy access to professional advice. They believed the promoters of these schemes—often their employers—when they told them that the schemes were legitimate and approved by QCs and even by HMRC itself. They were perhaps naive, but they were not malicious.
One witness told us about a social worker affected by the charge. Before I continue, I note that we cannot independently verify the facts of this case, but it is illustrative of many examples received. The social worker was made redundant by her local council, which then offered to re-employ her as a contractor, as long as she used a particular scheme. Unknown to her, this was a disguised remuneration scheme. She was made aware of this fact only when she was presented with a bill by HMRC many years later. Some might say she should have investigated further, but as the witness said, she is a social worker, not a tax expert. The loan charge unfairly assigns the same culpability to lower-income individuals without easy access to professional tax advice as to better-advised individuals who should have known better. What is surprising about all this is that many of the schemes were promoted by employers with deep pockets, but we have found no evidence that HMRC is showing the same enthusiasm in pursuing either the employers or the promoters of the schemes.
I will finish by reflecting on the Treasury’s engagement with our inquiry. We invited the Financial Secretary to the Treasury, Mel Stride, to give evidence. At first, he said he was busy with the Budget, so we delayed our inquiry to accommodate him. He declined to attend on two occasions and he has since declined two further invitations to attend the Economic Affairs Committee itself. As rationale, the Treasury asserts a convention we do not recognise, claiming that the fact that no Treasury Minister has attended a sub-committee before represents a precedent. The Financial Secretary repeated this argument in the Financial Times on 31 March.
This is a matter of coincidence, not convention. No such agreement was in place when the sub-committee was created in 2003. In the past its inquiries have often been technical, uncontroversial and answerable entirely by HMRC officials, but the gravity of the evidence we received in this inquiry required a ministerial response. When HMRC and Treasury officials gave evidence, they could not answer several of our questions—quite understandably, because they were matters for Ministers. Furthermore, two of these invitations were from the Economic Affairs Committee, which has a long history of hearing from Treasury Ministers. The Chancellor gives evidence every year, and the Chief Secretary to the Treasury is likely to give evidence to us just next month. The Governor of the Bank of England attends every year.
In future years, when the finance sub-committee considers issues it believes merit a ministerial response, it will continue to invite Ministers from the Treasury. I hope that we will be able to co-operate more constructively for the good of this House and the Government. I would be glad of any reassurance to that effect from my noble friend Lord Young when he responds on the Treasury’s behalf. I beg to move.
My Lords, I thank the noble Lord, Lord Forsyth, for the tremendous work he and his colleagues on the sub-committee have done in producing these two reports. I am glad we are giving this discussion the time and space it deserves today and not trying to rush it through, as had been intended when it was to have been a precursor to weighty and important debates on Brexit.
Although I speak on small businesses for my party, I am no expert on tax—as will soon become painfully apparent. But even I could understand the sensible conclusions that the Making Tax Digital report draws, and I hope that the Government will listen to the words of the noble Lord, Lord Forsyth. I will leave it to my noble friend Lady Kramer to tread the fine line between the concepts of deliberate and contrived tax avoidance and uninformed or naive decisions—and, very importantly, the loan charge.
I hope we all agree that everyone in this country should pay their fair share of tax, so I will address my remarks to the first report, Making Tax Digital for VAT. Although I do not know a whole lot about business tax, either, I know about the challenges that small businesses face in ensuring that they fulfil HMRC tax requirements, having had my own small businesses in the past. I totally empathise with the hard-pressed entrepreneur, who has to multitask many of the roles in an organisation themselves, often including completing tax returns. Implementation of Making Tax Digital takes time, which cannot then be devoted to running and developing the business. It also takes money. The Federation of Small Businesses, to which I am indebted for its input, found that, excluding the opportunity costs I have just mentioned, putting MTD-compliant software in place this year will cost a small firm an average of £564—not £109 as HMRC estimated. The bigger the firm, the greater the cost.
MTD has the potential to improve the experience of tax compliance for small businesses, as well as facilitating the provision of business support, access to finance and tax credits. However, introducing it with the deadline of 1 April, which has already gone, is disastrous because small businesses are simply not ready. So I welcome the Economic Affairs Committee report. Its recommendations seem highly sensible. The first is deferring the mandatory introduction of Making Tax Digital for VAT by at least a year, while encouraging businesses to join voluntarily. This would have enabled HMRC to ensure a smooth transition, as well as helping business. Given the state of readiness of small business to achieve compliance, I am sorry that the Government have not seen fit to accept this recommendation.
The second recommendation was staging the transition to ensure that small businesses and HMRC are ready. I welcome the Government rowing back somewhat on their original intentions by requiring compulsory implementation only on VAT, and for companies above the VAT threshold. I also welcome the acceptance that sanctions will not be levied where companies can show that they have been doing their best to comply. The third recommendation was waiting until at least April 2022 to implement the next stage. This will allow time for lessons to be learned, and seems to have been accepted.
The Government may be rubbing their metaphorical hands in anticipation of increased tax revenue, but only one in 10 small firms responding to the FSB believes that MTD will have a positive impact on tax reporting and financial management processes, with more than a third believing that it will have a negative effect. However, I believe that, despite these considerations, the key problem is that small businesses are just not ready for this. Many small firms are still heavily reliant on offline accountancy methods and are not confident in their digital skills. Many live in areas without access to reliable broadband speeds. How does the Minister expect small businesses to overcome this problem, which is of the Government’s making because they have insufficiently improved the digital infrastructure? Nearly a third of small businesses use paper receipts and bank statements to keep track of their finances, and 37% use paper invoices. I can envisage the chaos that may at this moment be ensuing, as paper-based small businesses attempt compliance.
The fourth recommendation is to publish a plan for the long-term development of MTD, getting business to see the benefits rather than seeing it as just tax compliance. I totally accept that productivity, efficiency and modernisation are great benefits, and I am sure that many small businesses already realise this—but these are not the companies that I worry about. These incentives, and the long-term plan to promote them, should have been sold to them before, to persuade reluctant bosses to adopt the measures with a vestige of enthusiasm and not bury their heads in the sand, as they are now. Have the Government put the cart before the horse somewhat?
The FSB is calling for a full review of the rollout, and a guarantee that it will not be forced on those below the VAT threshold until at least the end of this Parliament—although they may need to be careful what they wish for. That date may not be too far in the future.
My Lords, it is a matter of great regret to me that, because Brexit is such a dominant issue in our politics, I often find myself in opposition to my noble friend Lord Forsyth. It is therefore a great pleasure to be able to say how much I admire the way he has chaired the Economic Affairs Committee and its sub-committee. The fruit of his chairmanship has been shown in the considerable media attention that our reports receive. They receive it not only because a certain amount of effort is put into obtaining that coverage but because they deal authoritatively with matters of topical and widespread concern, and in a detailed fashion that demands answers. The Government—HMRC, on this occasion—have largely responded in the same spirit. I do not by any means accept all the points made by HMRC and shall come to those in a few moments, but the quality of the response has been rather good.
That leads me to make a general remark. In inquiries and debates of this kind, we inevitably focus on issues of concern and matters that have gone wrong; that is what we are for. But, having been paying taxes of one sort or another for the last 60 years now, on the whole I have found the Inland Revenue—latterly HMRC—quite reasonable to deal with. My affairs have certainly been simple compared with those of many businesses, including many small businesses, but in my relationship with it over many years I have not found HMRC difficult to deal with. I have found it reasonably sensible and understanding of problems that have arisen. It is invidious to compare one public-facing government department with another, because their functions are very different, but if one compares HMRC’s record with that of the various departments which at different times have had responsibility for social security, HMRC emerges rather well from any such comparison—perhaps particularly so at the moment.
My noble friend Lord Forsyth went through the recommendations and details of the two reports and there is no point in members of the committee following each of the points that he made, so I shall confine myself to very few. I agree with his strictures about the pace at which Making Tax Digital is being introduced and I feel that this is an example of the problems that arise when those who work for very large organisations, with a wealth of specialist expertise, have difficulty in understanding the way in which those who have small businesses and do not have very much expertise at their disposal actually live.
Many years ago now, I was chairman of the Civil Aviation Authority, which is a very fine body. We dealt a great deal with small airlines, as well as with large ones. I remember being struck by how difficult some of the officials at the CAA found it to put themselves in the position of people running small businesses and understanding the pressures on them. In the case of Making Tax Digital, we have another example of that. Having said that, however, the Government have a responsibility to encourage the digitalisation of the economy. The process of introducing taxes is one way they may do that, so I recognise that fact.
So far as the other proposals are concerned, on treating taxpayers fairly I applaud the Government’s acceptance of our view that HMRC should do more to publicise action against promoters of tax avoidance schemes. These schemes are of course promoted to boost the profits of the advisers, sometimes to the very great disadvantage of the clients of those firms, who get into trouble later. The important thing here is to change the risk-to-reward ratio to make it clear to the promoters that they are running great reputational risks by plugging schemes at the outer limits of what is permissible, or go beyond what is permissible.
By contrast, I greatly regret the Government’s rejection of our proposal that naming and shaming should be restricted to those who have actually broken the law, as distinct from those engaged in legal activities of which HMRC disapproves. I realise that that naming and shaming is not done casually, and that various steps must be gone through before HMRC goes public in these matters. But the practice of naming and shaming people who have not done something that is, or has been demonstrated to be, illegal seems contrary to the basic principle of natural justice. It is also in line with the deeply objectionable current practice of using innuendo and denigration to generate accusations and change behaviour. This is not something a government department should participate in. It is dangerously close to the way the police and others have behaved in the case of sexual allegations, the most extreme example of which is that of Wiltshire Police and Ted Heath.
I also regret the out-of-hand rejection of the proposal to give the First-tier Tribunal the power to conduct judicial review. I accept that, as HMRC says in its response, the Ministry of Justice and the judiciary would need to be involved in reviewing the need and mechanism for such a change, but the terms in which the rejection are couched show no recognition of the reasons for the recommendation. They are to try to even out the balance between the small taxpayer on one hand and the large government department on the other. It would have been helpful if rather more detail or meat could have been given in explaining why this is such a bad idea.
In general, we must recognise that we are dealing with a government department that has a good record. We are putting forward proposals to improve it and to try to ensure that those who work for large government departments, with all the expertise at their disposal, show a greater understanding of the position of small businesses and individuals who lack those advantages.
My Lords, it is a pleasure to take part in this debate. It allows me to place on record my admiration for my noble friend Lord Forsyth’s insightful chairmanship of the Finance Bill Sub-Committee, in which I had the honour to take part. I fully support what my noble friend said on the engagement of Treasury Ministers in the sub-committee. It is little short of disgraceful for Ministers to obstruct this House from holding the Executive to account. It is also extremely discourteous. I hope that my noble friend the Minister will take back to the Treasury our extreme displeasure at the stance taken, in this instance, by the Financial Secretary.
Our two reports deal with different things, but they have a unifying theme of fairness—whether the HMRC’s powers treat taxpayers fairly and whether the plans to make tax digital for VAT are fair on small businesses. Noble Lords may note that our reports are careful to refer to “taxpayers”. We do not use the language of “customer”, which is used throughout the Government’s responses and has been used by HMRC and its predecessor bodies since the early 1990s, when it became fashionable for government departments to talk about their interactions with citizens using the language of customer service. I have never been convinced that “customer” language sits comfortably with organisations that have to enforce the law. Being a customer implies a consensual relationship; HMRC’s so-called customers have no choice whatever. The police and the courts do not talk about customers. HMRC’s top objective is, according to its plan, to maximise revenues due and bear down on avoidance and evasion. This is not appropriately described in customer language.
I turn to fairness. There are two aspects to fairness: substantive fairness and procedural fairness. Procedural fairness is at the heart of much that is in our reports. That is what our call for more safeguards and access to justice for taxpayers, as set out in our HMRC powers review, was about. Sadly but predictably, the Government have largely rejected our recommendations. Similarly with our report on Making Tax Digital, we called for concerns about the readiness of smaller businesses to be reflected in further time before implementation and for HMRC to do more to make it easier for small businesses. That, too, was rejected by the Government. Procedural fairness should be a hallmark of our tax system, but it is not clear that the Government share this ideal.
We also cover substantive fairness, in particular in relation to the loan charge legislation, which my noble friend Lord Forsyth explained. Substantive fairness is about how particular taxpayers or groups of taxpayers are treated in practice. The loan charge is a way of tackling tax avoidance and I certainly acknowledge that the Government are right to target that, including disguised remuneration schemes. What is much harder to accept is how the Government have tackled it. They have used retroactive legislation, taxing up to 20 years of income as if it were received in one lump sum on 5 April this year and with scant regard for the impact on individual taxpayers. The loan charge can catch taxpayers in a wide variety of circumstances. As we have heard, many were on low incomes and were put into umbrella schemes which they almost certainly did not fully understand. They just wanted to earn an income to support their families—an aspiration that our party normally applauds. Others were more aware that they were involved in a tax scheme, made appropriate disclosures in their tax returns and took comfort from the lack of challenge from HMRC over the years.
It was strongly represented to the committee that many individuals had no idea that further tax could be due. They spent the money that they received. They were not holding in reserve sums just in case a bill for 10 or 20 years of tax turned up; they believed that they did not need to. They are now overwhelmed by the debts that they are told they owe. It might well have been fair for HMRC to target the promoters of the schemes who profited from these unfortunate taxpayers, but many are out of reach and overseas. HMRC has instead targeted the little people.
I first raised whether this was fair for taxpayers last November, when we debated the Budget. I specifically asked my noble friend Lord Bates, who was then the Minister before he went walkabout, to go back to the Treasury after the debate and determine for himself whether it was fair. My noble friend duly wrote to me after the debate. The only time that fairness was mentioned in my noble friend’s two-page letter was when he said that,
“the Government believes it is unfair to the ordinary taxpayer to let anybody continue to benefit from contrived tax avoidance of this sort”.
A question whether something is fair was answered by saying what is unfair. This is a common HMRC and government tactic. In the Government’s March report to the other place on the loan charge, they avoided saying what was fair for some taxpayers by inverting the argument into what might be unfair for the totality of other taxpayers. That misses the point that fairness has a dimension which is taxpayer-centric.
The Government’s view seems to be that individual taxpayers can have no excuses for getting involved in schemes which avoid tax. My noble friend Lord Bates’s letter to me stated:
“It is an individual taxpayer’s responsibility to ensure the accuracy of their tax return and to understand the consequences of their decisions”.
That sounds like a simple proposition, but it is not realistic. There have been many studies of financial literacy in the UK, and all of them point to shocking levels of lack of financial knowledge. Over one-third cannot work out the impact of inflation; 16% do not know what the balance is on their bank statement; 40% cannot apply a discount to a price. Let us not kid ourselves about the competence of taxpayers.
I will bring this back to whether taxpayers are customers. Regulators are increasingly concerned about how businesses treat vulnerable customers. The Financial Conduct Authority claims that nearly half of the population is vulnerable in one or more ways at any one time. The FCA places responsibility on financial institutions to ensure that vulnerable customers are identified and then dealt with in a way which reflects the vulnerability. The onus is not on the customer to be able to make the right decisions. In their March loan charge report, the Government said:
“The government and HMRC takes the wellbeing of customers extremely seriously … HMRC’s teams are trained to identify and help vulnerable customers and, where appropriate, refer them to organisations such as Samaritans and Mind”.
Let that sink in. The Government’s solution is to refer people to the Samaritans. I am clear that if a bank said that that was its policy towards vulnerable customers, the FCA’s response would be immediate enforcement action.
The Government’s approach is particularly shocking against the background of a number of reported suicides, as referred to by my noble friend Lord Forsyth. These are people who are said to have been unable to cope with the consequences of the loan charge legislation. HMRC has referred itself to the Independent Office for Police Conduct in respect of one such case, which is a start, but neither the Government nor HMRC are facing up to the fact that the basic policy is not fair to some taxpayers and no amount of procedure such as helplines or extended payment terms will counter the harm that is being done.
I have spent a long time on the loan charge because I feel strongly that its lack of fairness is a blot on our tax system, but I also want to say a few words about Making Tax Digital. We all know that the future is digital and that digitisation has benefits for businesses and for government, but it is wrong for the Government to mandate digital solutions until it is clear that the vast majority of taxpayers can comply with ease and with minimal additional cost. That clarity simply does not exist, for all of the reasons that we set out in our report. We found that:
“HMRC is alone in its confidence that all one million businesses will be ready for Making Tax Digital for VAT in April 2019”.
I looked at last month’s edition of Economia—I do not expect noble Lords to know what Economia is, as it is the house magazine of the Institute of Chartered Accountants, of which I am a member. The latest survey it reported by the tax faculty of the institute found that only 28% of chartered accountants—this is only last month—believe that SMEs have a good awareness of Making Tax Digital and that only 22% think that they are well prepared. That is far too many businesses to put at risk. The top two concerns were the cost and administrative burden of implementation, followed by a lack of guidance from HMRC. This exactly mirrors the evidence that the sub-committee received. The next concern, at nearly 20%, was fear of software and technological change. Our evidence was that small and simple businesses did not need digital records for their own purposes. They are being forced on them by a dogmatic approach in the Treasury and HMRC. So far, Making Tax Digital has benefited only the software industry and professional accountants. We will find out over the next few months how much harm it does to the small businesses on which our economy depends.
I look forward to my noble friend’s reply to this debate. I hope that he does not merely repeat the Treasury’s refusal to face the difficult issues in our reports.
My Lords, it is very good that we have an opportunity today to debate the two excellent reports produced by the Economic Affairs Committee under the chairmanship of my noble friend Lord Forsyth of Drumlean. I congratulate my noble friend on the sub-committee’s reports and on securing this debate today.
Your Lordships’ House is rightly well regarded in its role as champion of the ordinary person against the powerful. In matters concerning tax, against the background of changes that have increased the powers of HMRC, it is most important that it continues to hold the Government to account in discharging that role.
There used to be a clear difference between tax evasion and tax avoidance. Tax evasion was illegal, and accountants and other professional advisers would give clear advice if their clients were considering evading tax properly due. On the other hand, to avoid paying tax which the law did not require a taxpayer to pay was a perfectly legitimate and, indeed, responsible way to conduct a business. Indeed, the manager of a business who unnecessarily paid more tax than he was legally liable to pay could be accused of wrongfully disadvantaging the owners of the business.
Will the Minister ask HMRC to look again at its definitions of tax avoidance? Its definition of tax evasion is clear enough, but HMRC states that the hitherto acceptable behaviour of tax avoidance,
“involves bending the rules of the tax system to gain a tax advantage that Parliament never intended”.
It adds that tax avoidance,
“involves operating within the letter, but not the spirit, of the law”.
Who is HMRC to opine on exactly what Parliament intended? How does it know? Does it not have a conflict of interest? If a taxpayer operates within the letter of the law, it is very hard to condemn his behaviour. If HMRC considers that Parliament intended that such behaviour should not be permitted, the Government should ask Parliament to change the law. There should not be any room for the subjective judgment of HMRC on the supposed failure to comply with the spirit of the law on the part of a taxpayer.
Concerning the proposed new powers for HMRC, it is surprising that the Government have proposed to treble the time limit for assessing income tax and capital gains tax from four years to 12 years. Victoria Todd of the Low Incomes Tax Reform Group is right in saying that the current timescales—four years normally and six years where a taxpayer has failed to take reasonable care—are reasonable. Where there is deliberate non-compliant behaviour amounting to fraud, there is already a 20-year limit. For inheritance tax, the limit is four years.
It is clear that significant extensions of the time limits, as proposed, will be very bad for the ordinary, honest taxpayer, for several reasons. First, the present limits make it incumbent on HMRC to look into all disputed cases relatively quickly. This means that taxpayers can more reasonably be expected to remember, or at least to discover, the facts relating to any tax-related queries.
Secondly, if HMRC does not have to raise any queries with taxpayers for 12 years, it will significantly reduce the incentive for HMRC staff to do so. HMRC’s staff resources and systems mean that it is better able to discover facts in an efficient and timely manner several years down the road than the average small business owner or individual taxpayer. Therefore, the balance of power is stacked in HMRC’s favour in the case of an inquiry into a tax event that took place 10 years ago more than in an inquiry into one that happened two years ago.
Thirdly, the case for longer time limits for offshore matters, compared with onshore matters, is becoming weaker rather than stronger. The adoption of the common reporting standard by more than 100 countries has led to the current situation where HMRC is receiving an unprecedented amount of information from many overseas tax authorities, as Keith Gordon of Temple Tax Chambers informed the committee. The Government’s response to the committee’s recommendation that they should start a fresh dialogue with representatives of tax professionals is disappointing. HMRC has dialogue with such representatives, of course, but it does not need to listen to their concerns. Regrettably, it seems not to have done so in this instance. I would like the Minister to explain the rationale for the removal of the safeguard provided by the tax tribunal’s oversight of HMRC’s attempts to obtain information from third parties, especially when the Government have not yet completed their consideration of the responses to their public consultation on this subject last year.
The committee considers the loan charge and disguised remuneration schemes, such as those involving the use of employee benefit trusts, an example of unacceptable tax avoidance. I would prefer them to be considered tax evasion because of the difficulty in drawing a line between acceptable and unacceptable tax avoidance. A loan that is not intended to be paid back and where the recipient of the loan is told that he or she will never have to do so, is, quite simply, not a loan at all. Furthermore, I do not think that all individuals using these schemes must accept any significant degree of culpability for placing an unfair burden on other taxpayers. Whether the employee was a care worker or an investment banker, the responsibility for a part of their remuneration to be made through such a scheme rested entirely with the employer; in most cases, the employee had absolutely no influence over this matter. It is especially regrettable that the Government rejected the committee’s recommendation to exempt from the loan charge those loans made in years when taxpayers disclosed their participation in these schemes to HMRC or which would otherwise have been closed. I look forward to the Minister’s comment on that point.
The committee rightly focused on HMRC’s changing culture. In common with my noble friend Lady Noakes, I agree with the committee’s policy to refer to individuals as “taxpayers”, not “customers”. HMRC’s recent decision to start referring to taxpayers as customers is very irritating—even more so than the fact that the London Underground and train operating companies no longer refer to “passengers”. I find HMRC referring to a taxpayer as a customer condescending. The taxpayer does not have a choice between offering his custom to HMRC or not. The Government’s partial acceptance of the committee’s recommendations in this area seems a bit reluctant and grudging, although it is encouraging that they accept the need to balance clamping down on tax avoidance and evasion with taxpayer protections.
Turning briefly to the committee’s report, Making Tax Digital for VAT, I agree entirely with the committee’s recommendation that the date for introducing a mandatory digital VAT system for small businesses should have been deferred for at least one year. It is correct that most small businesses are not prepared for it, and that many are still unaware of it or of how to respond. Many firms of accountants only contacted their clients about the changing requirements immediately before, or even after, 1 April.
It is true that HMRC invited small businesses to participate in webinars held in February, but many recipients of this invitation may not have understood the urgency or even how to participate in a webinar. The Institute of Chartered Accountants in England and Wales and the Chartered Institute of Taxation are among those industry bodies that have supported the committee’s recommendation that the mandatory date for digital VAT be deferred by at least one year. Many small businesses thought that VAT was already digital because for some time they have had to file it online anyway. It is disappointing that the Government have not accepted this recommendation although they have agreed not to pursue filing or recordkeeping penalties where businesses are “doing their best” to comply with the law. But, again, do we really believe that HMRC is in a position objectively to decide which businesses are doing their best and which are not?
It is to be welcomed that the Government have undertaken not to introduce the compulsory digitalisation of other taxes until HMRC has had time to assess the evidence from the income tax pilots and from VAT. However, can the Minister explain why the Government have rejected the recommendation to make no other taxes subject to compulsory digitalisation until 2020 at the earliest? Surely it is not realistic to continue to maintain that compulsory digitalisation will have been sufficiently tested and shown to work as early as next year; it will not even be enforced until September of this year, which means for the quarter ending 31 December. It is also disappointing that the Government have rejected the committee’s sensible recommendation to update the impact assessment to reflect the evidence gathered in recent months. Will the Minister consider carefully whether it is wise to adopt such a cavalier approach to this question?
Again, I congratulate the committee on two excellent reports and I look forward to the contributions of other noble Lords and the Minister’s winding-up speech.
My Lords, I gravely miss the noble Lord, Lord Bates, but I understand why someone might want to walk a very long way to avoid having to answer this debate. It is a pleasure to see the noble Lord, Lord Young of Cookham, in his place. I first bumped into the noble Lord 58 years ago in Oxford High Street—or rather, he bumped into me. He was on a bicycle, an enormously tall one, and he was of course moving very fast. I could have been seriously injured but I was not, and he was so nice about it that I think I ended up apologising to him.
I remind him of this incident particularly because, as I am sure many noble Lords will remember, of the way the noble Lord answered questions a couple of years ago at the Dispatch Box. He dutifully read out an appalling piece of unimaginative boilerplate defending an indefensibly insensitive misuse of Executive power, but I cannot remember what it was about. When the House objected and protested, was the noble Lord taken aback? Not at all. He said that he had been reflecting over the weekend on how, if he was still a constituency MP, he would have advised a constituent complaining about being subjected to the treatment he had just described. He concluded that there was a way around the bureaucratic intransigence exposed by the question. He then spelt out for us the way around that he would have advised his constituent to take. The officials in the Box could hardly complain because his first answer was the one that they had drafted for him. His second answer was his own: sympathetic and human. It is that side of him that I wish to appeal to today. He will by now have guessed that I want to talk about the loan charge.
I was not a member of the Finance Bill sub-committee but I am a member of the Select Committee, so I am one of those who have received numerous distressing and disturbing letters from the public about the way in which HMRC is handling some of these historical cases. Clearly, the few cases summarised in appendix 5 of the report are merely the tip of a considerable iceberg. In evidence, HMRC suggested that about 50,000 cases were being pursued. I have been shocked by the Government’s casual and peremptory dismissal in their response of some of the points made in the report. I do not believe that the noble Lord, Lord Young of Cookham, would have approved such a response, and I will put three questions to him.
Question one concerns retrospection and how to define it. Paragraph 76 of the report states:
“The loan charge is … retrospective in its effect”.
Some of the cases described in the appendix concern taxes now deemed due in respect of earnings in 2004-07, 2005-07, 2005-10 and 2010-14. As I understand it, in none of these cases was there any warning or challenge while the individuals in question were using the scheme in question. Years later, they face demands and talk of debt collectors and county court summonses.
I see in today’s Financial Times the rather disturbing news that HMRC spent £26 million last year on private debt collectors, up from £6 million in 2014. In this context, I find that a rather sinister number. The committee thought this was unfair and recommended against retrospective action in respect of years past where taxpayers had all along disclosed their participation in a scheme now found to have created a loan charge. Page 4 of the government response rejects this and maintains that the charge is “not retrospective” because:
“It does not change the tax position of any previous year”.
Surely that is, at best, disingenuous and casuistic. It is true only in the sense that the catastrophic cumulative charge resulting from retrospection accrues and must be paid 100% in the current year—but it has accrued because of actions in previous tax years, those that would otherwise have been said to be closed. Would the Minister have approved the definition of retrospection on page 4 of the government response? My strong hunch is that he would not. If he would not, will he ask his Treasury colleague, the Financial Secretary Mr Stride, to reconsider it?
My second question concerns the committee’s recommendation in paragraph 80 that,
“HMRC urgently reviews all loan charge cases where the only remaining consideration is the individual’s ability to pay”.
The government response, on page 5 this time, rejects this too, chillingly adding that HMRC considers bankrupting individuals only as a “last resort”. That is reassuring. I read in the response that only since 2009 have the promoters of the relevant schemes—some of which had been running for 10 years by then—been obliged to inform users of their schemes that HMRC approval is not certain. Only in November 2017—18 years in—did HMRC start writing systematically to the 50,000 individuals who might be affected by the loan charge. I understand the reason for that—the legal position will have become clear only when the Supreme Court reached its judgment in 2017—but surely HMRC should all along have been warning those who were signalling on their tax returns that they were using such schemes that HMRC clearance was not certain and that there was a legal uncertainty here.
I worry that we seem to be pursuing those least able to pay. As the noble Baroness, Lady Noakes, said, they are the little people—and it is a great and rare pleasure to be able to say I agree with everything the noble Baroness said. The Minister will recall Leona Helmsley, the New York hotelier who famously said, “We don’t pay taxes; taxes are for the little people”. It earned her the title, Queen of Mean—somehow, I do not see the noble Lord, Lord Young of Cookham, as the King of Mean. We are not talking about Amazon, Starbucks, Google or Facebook, or about rich people with tax advisers. We are talking about people like the social worker whose case the noble Lord, Lord Forsyth of Drumlean, mentioned.
We know that the Minister is humane. We know he went to a decent university. We know he will be familiar with act 4, scene 1 in the “Merchant of Venice”. My question is this. Does he agree that it is right to show “no mercy” to individuals like the social worker mentioned by the noble Lord, Lord Forsyth? Does he not agree with the noble Lord, Lord Robathan, the noble Baroness, Lady Noakes, and me that some blame must be ascribed to the Inland Revenue and HMRC for lying low and saying nothing for so long, not putting people on notice? Is the Minister with Portia or with Shylock?
My third question concerns the relationship between this Parliament and the Executive. The Minister responsible for HMRC is the Financial Secretary to the Treasury. In my Treasury days, he was a feisty, powerfully brilliant young individual who had absolutely no truck with Civil Service boilerplates and people like me, and who enjoyed nothing better than a good argument with a parliamentary committee. He is now the noble Lord, Lord Lawson of Blaby. Does the Minister believe that the current Financial Secretary, Mr Stride, is right to refuse to meet the Select Committee? Does he think that the then Nigel Lawson would have done so? Would he have done so?
I recall from my Treasury days the sensible rule that Ministers do not have access to any individual’s tax affairs. But I also recall that, when there is prima facie evidence that a class of taxpayers—maybe in this case 50,000 strong—is being unfairly treated and seriously disadvantaged, with very serious consequences in some cases, the responsible Minister surely needs to put that right or take responsibility for it. Hiding behind officials just will not do.
I look forward to the Minister’s answers to my three questions—and I hope they are indeed his answers.
My Lords, I must declare an interest: for a time in the late 1970s, I was standing counsel to the Inland Revenue on my old circuit. I am sorry that I am going to be critical of those who once fed me. I declare a second interest, which we all have: I believe that tax liabilities should be paid. That is not merely a moral view. Every time somebody fails to pay his or her tax, the rest of us who do pay our tax have to pay more. Therefore, I have an interest in this discussion beyond merely having been counsel to the Inland Revenue.
I want to, if I may, grapple with some very simple propositions. The liability to pay tax depends on legislation. Hurrah! I am right. Unless legislation provides liability to pay tax, there is no liability to pay it. Hurrah! That is self-evident. Tax legislation has become intensely complicated. Indeed, it is not unfair to say that tax legislation over the past 10 to 15 years has made understanding tax liabilities virtually impossible. The legislation is virtually unintelligible—no hurrah for that. Sometimes no one—not Her Majesty’s Revenue and Customs, not the taxpayer, not good sensible accountants and not even wise judges—can be too certain about what the legislation actually provides.
We have to grasp those simple issues when considering this debate for this reason: where the law is uncertain, one or other side—it may be HMRC, it may be the taxpayer—is entitled to go to a court and to ask the court to glean what the legislation means and whether it establishes a tax liability. Of course, if it does, it must be paid; but if it does not, surely not. The principles are simple provided we remember one long and well-established rule at common law, easily forgotten: we have the right to unimpeded access to a court. It is one of the essential principles on which the rule of law is founded. Note that I emphasise “unimpeded”. This is not the time or the place to point that what has been done in the past few years to the provision of legal aid has damaged that principle. However, just because it has been damaged once we do not want to go on to damage it further.
I am speaking today in relation to The Powers of HMRC because it has identified a number of incursions into the right of unimpeded access. I strongly support the recommendation in paragraph 134,
“that all powers granted to HMRC since the conclusion of the Powers Review in 2012 should be evaluated and those evaluations published. All future powers should be evaluated after five years”.
I find the Government’s response to this paper alarmingly negative. The fact that the Minister has treated the committee with what I regard—I am being less courteous than the noble Lord, Lord Kerr—as a contemptuous disregard for serious issues has encouraged me to speak on my own behalf.
I wish to take one aspect of these various matters: the general anti-abuse rule. What does that define? Using that language presupposes that a scheme intended to reduce tax liability by reliance on litigation constitutes an abuse. The description “abuse” assumes that the scheme is unlawful or that, if not unlawful, it should be treated as though it is even if it is not. Since when has it constituted an abuse for a citizen, rich or poor, to seek to rely on law laid down annually by Parliament? It is a strange concept.
If where the legislation is uncertain, a case is litigated, the court may decide that the scheme is lawful and, if it does, no penalty can be imposed on the taxpayer for going to court. It would be an extraordinary proposition if it could. However, what that successful taxpayer risked in going to court was not only the costs of losing the litigation, which is fair enough, but the imposition of a huge financial penalty—not tax, not back tax, not unpaid tax, not interest on tax, but just a straight penalty.
That is precisely what is meant by the Government’s response on page 9 that this regime—I paraphrase—provides the taxpayer with an opportunity to settle the dispute without the application of penalties. That is a subtle threat, seemingly bedecked, as an inducement that, “It will be in your interests to do as we tell you”.
As the noble Lord, Lord Tugendhat, mentioned, all this applies equally to the provision for extending powers of naming and shaming. That is fair enough if you have done something shameful, unlawful or wrong, but unless you have, why should you be shamed?
HMRC may be a unique institution in our country but, unique as it is, it is not infallible. It is not always right. However, if HMRC tells you that if you challenge its analysis of a problem and you lose, and it can cost you, as your accountants will advise you, a huge penalty, what is your reaction likely to be? It turns HMRC into judge and jury in its own cause. You can describe it in a lot of different ways, but what I am driving at is that the threat—the risk—would undoubtedly deter you from going to court, from seeking the opinion and judgment of the court. That is its purpose and it is rather alarming. That is interference with access to justice. Can we imagine our reaction if any other government department or Minister tried to obtain the power to impose a financial penalty on anyone who had the temerity to take it or him or her to court? We would be horrified.
I understand—I know perfectly well as a matter of history—how many powers HMRC has been given over many years, but that does not justify any further extensions. I quite understand the need to address protracted delays in dealing with avoidance cases. I understand that the court processes can be misused. They are, sometimes. I understand that on occasions the system is simply being played with a totally unmeritorious misuse of the court processes to delay settlement of a clear tax liability. I understand all that. I was prosecuting counsel for the Inland Revenue for long enough to know that it happens, but provisions in the court processes themselves would address those problems and do so in a way that does not offend the principle of access to justice. For example, there could be a leave requirement. If a taxpayer wishes to take proceedings and the Revenue says it is hopeless, he would need leave.
There could be a conditional leave requirement, for example, “Okay, you can come to court if you like, but bring the tax and the costs into court. If you win you’ll get them back”. Further, and perhaps more importantly, if a court concluded that the scheme was without merit, was unarguable and was, indeed, no more than an abuse of the court, why on earth should the court not be given the power to declare that it is so? Then you can be named and shamed. There is a judgment that you have been abusing the court process.
There is a further power that could be considered: in such a case, if the court had come to such a conclusion, it would be open to the court to impose a penalty for such misconduct by the taxpayer, not only on the taxpayer but on the taxpayer’s advisers and on those who promoted what the court had found to be an abusive scheme. Such a declaration, such a power and such processes would obviously be matters for parliamentary counsel. I venture to suggest that this would provide a surer foundation, consistent with the rule of law and unimpeded access to justice, for the imposition of a penalty through a judicial process rather than through an administrative decision by a department that resented or objected to the citizen going to court. We really need an evaluative review of the wide accretion of powers to HMRC. I repeat that I strongly support the recommendation in paragraph 134.
My Lords, what a brilliant debate. I almost hesitate to speak for fear of diluting what has really been extraordinary. When a unanimous voice comes with passion from so many Benches, I am sure that the Minister will take on board and take back to HMRC and the Government that this is not a party-political issue or an attempt by one faction to embarrass the Government or make life difficult for HMRC; it reflects a genuine, sincere and deep concern among people who have looked at the powers and the way in which HMRC is implementing programmes and feel that there is a real risk that it is undermining its own reputation, as well as the respect that the collection of tax has within the United Kingdom. That respect is critical if taxpayers are genuinely to believe that, when they are asked to pay, it is on a fair basis and they will get appropriate and fair treatment.
I was privileged to be a member of the finance sub-committee and I thank the noble Lord, Lord Forsyth, for his extraordinary and skilled chairmanship. I know that he does that every time, but it is not an easy thing to do and I hope that he will not mind if we all take this opportunity to thank him for exercising that skill and leadership.
I am also a member of the All-Party Parliamentary Loan Charge Group, which started taking evidence essentially as the sub-committee’s process came to a close. I will try to use some of the information that I have received from participating in those hearings, some of which is quite shocking.
I shall turn briefly to the report on Making Tax Digital. I suspect that everybody would agree that making tax digital over time is entirely appropriate and that it is reasonable to start with VAT. It is a programme that must be implemented well and effectively—but that is not the experience that the sub-committee heard about when it took evidence. My noble friend referred to the fact that nearly 20% of small businesses impacted by this requirement have absolutely no idea, and many more have not been able to access relevant software.
Regarding the cost, I would far rather go with the estimates from the Federation of Small Businesses than with the, frankly, rather silly numbers that we heard from HMRC, which seem to suggest that it is completely out of touch with the real world of software costs in the marketplace. I point out that HMRC has allowed a delay for what it considers to be large and complex organisations—big businesses with a swathe of staff and several departments to take them through this process—while small firms are being told that they now have to report their tax through this new digital process. We understand that there will be some sort of leeway for those who attempt but fail—but, frankly, given HMRC’s lack of ability to relate to or communicate with small businesses, I am not sure that many have a great deal of faith in it.
Communication with that particular group is unbelievably weak. There really is no excuse, because HMRC knows every small business that is liable to pay VAT, so, if it chose, it could communicate with them directly. The answer that we frequently get is that information was put on the website on the “Spotlight” page, as I think it is called. That is considered to be communication, but it makes absolutely no sense. We heard from many people who were represented by accountants and specialists. My great fear—and, I think, that of the committee—is for the many people who do not have that representation and who are completely in the dark. As I said, this ought to be a good programme. It should be on a voluntary basis and have all the time that it needs, but poor implementation undermines what could be a long-term programme of significance.
However, I want to focus much more on the tax powers report. I agree with all those who have raised the extraordinary issue of the denial of rights to appeal accelerated payments notices and follower notices to tax tribunals, and who totally object to the disproportionate penalties for appealing follower notices and GAAR decisions. Justice is fundamental, and I wish that HMRC would understand that and take it on board. I cannot understand the argument for extending the time limit for assessing offshore tax to 12 years. Who in their right mind keeps records for 12 years, particularly on a small property or a few shares? This is nonsensical. HMRC is merely making up for the fact that it has been lax in pursuing cases where it believes that there is something to investigate. It should not be throwing the burden of its own incompetence, I might say, on to the taxpayer.
But I want to talk mostly about the loan charge. I agree with all those who have said that it is the little people who get no understanding from HMRC. In a sense, HMRC has not recognised that this is the pool of people it is dealing with when it comes to the loan charge. Many of the people who ended up becoming self-employed did so because of outsourcing. The majority worked once for local or central government, or for bodies such as the BBC, or even for HMRC. They did not seek to become self-employed. They were told that the only way to do this particular line of work was to become self-employed. Indeed, they were told, “If you want to be recruited, this is the agency we are using. Go to them, they will provide you with the advice and mechanisms to allow you to become self-employed and continue with your job”. This goes all the way from social workers to IT contractors.
HMRC denies engagement in this process but is totally culpable. On the All-Party Parliamentary Group we heard from people who were consultants to HMRC and are now being faced with a loan charge. This is perhaps a very good example, because the individual from whom we got the most detail was told that, to work as a contractor for HMRC, they would have to go to a particular recruitment agency—which had been retained, and was presumably being supervised, by HMRC—that would provide them with various options to enable them to structure themselves as self-employed.
I am most grateful to the noble Baroness, and very interested in what she says. As she may recall, we did ask officials at HMRC whether any people involved with it had been involved in a loan charge. At first, the question was not answered. Then, on the second or third occasion, we were told that it was not aware of any evidence of this. So it might be useful to make that information available to HMRC so that we are not misled in the future.
I think that the individual has made HMRC aware and happens to have an email trail, which makes the process rather easier to understand. On many of these occasions, people were not told, “You are going into a loan scheme”, or that they were going into some form of disguised remuneration. They were told that there were two or three ways in which they could structure themselves as self-employed. The word “loan” was rarely used. They were told that the advantage of scheme X—it always had a fancy name—was that the administration of it was quite simple. For many people, it was not financially particularly advantageous, because they paid a huge fee for the administration of the scheme: 18% was the standard charge. When that is added to the tax they were paying, they were not taking home more, and they had every reason to think that they were working in an approved situation.
Some people perhaps knew that one scheme was more advantageous in tax terms than another—not everybody is in the same position—but virtually everyone we talked to said that if they had had any clue that HMRC was troubled by this, they would of course have stepped away. When they did find this out, many did step away but were then put into another scheme with similar characteristics. So we have a population here who did not understand what they were getting into. They did not intend this—and intent is significant and important when you go after people for what effectively are their life savings.
HMRC says that it understands about vulnerable customers, but there is plenty of evidence that people have now sold businesses, sold their homes or gone bankrupt. Families have split up because, I am afraid, money can become very significant in shattering a family structure, particularly when someone has to dissolve their whole pension pot to meet a very large bill that comes in over one year. Being told that it could be spread over three years is pretty meaningless because the number is so fantastically large. Many people on the receiving end of a loan charge are no longer employed and have no way to pay.
I was horrified that some of the 70 individuals who submitted evidence to the APPG—I am not sure how many—have actually been called by HMRC, with messages left on their answerphone that have been picked up by business partners and family members who had no idea that there was an issue. We need an answer about that from HMRC. I was even more shocked that on 24 April, giving evidence to the Treasury Select Committee, the Chancellor claimed that the secretariat to the APPG was partly staffed by people who were promoters of loan charge schemes, which was absolutely not true. I hope that that has been retracted by this point in time.
When I pulled these notes together—the situation now may be slightly different—only a single promoter of a loan charge scheme, Hyrax, had been successfully prosecuted, but on the grounds that it breached DOTAS rules, not because it sold the schemes to people. Indeed, it has been allowed to keep its 18% fees that were charged to users. Hyrax’s penalty appears to be a requirement that it discloses the users’ names to HMRC so that they can be pursued. On the six other promoters that HMRC has been investigating, we hear that charges will not be pursued because they did not breach DOTAS; only the users of the schemes will be pursued. As far as I know, no one has yet gone and asked the employers—which ultimately would of course include HMRC, a beneficiary of this move to outsourcing and to self-employment under tax-advantage pricing—and nor do I believe that they have yet gone to local government, to central government departments or to the various public bodies.
Surely this is a real abuse. I understand that HMRC is under extraordinary pressure, but I believe that at the decision-making level people are completely detached from those on whom they have an impact. They have very little sense of the world of contracting and self-employment, very little understanding of how people made those decisions and what their capacities and capabilities were, and very little understanding of the impact of their decisions. With a body that is responsible for implementation, it is key that that changes.
I totally support the various recommendations in these two incredibly powerful and important reports, but I hope that, in addition, the Government will now consider not just a report but a proper review of the loan charge and a minimum delay of six months in implementing. I know that it is officially implemented, but that can always be delayed. On Making Tax Digital, surely we could now initiate a delay for small businesses, look again and make sure that it is implemented properly and effectively. It could be a superb programme and it should not be undermined.
My Lords, I welcome the noble Lord, Lord Young. He has a somewhat challenging baptism in replying to this first debate in his new position. We all know his competence and that he always wins considerable support from the House for how he presents his arguments. However, I can scarcely recall another debate in which every contributor has identified issues that the Government have palpably failed to respond to. Nor are these minor pettifogging details; they are fundamental questions about how a government department should operate, and how a response to a committee report should be presented. The noble Lord has a great challenge before him.
I do not need to stress again the points made in this debate because we all have, strongly at the front of our minds, key issues on which we expect the Minister to make a response. The only figure I would like to bring to your Lordships’ attention—I do not know whether the Minister will bring this in as part of his defence—is that HMRC has 15,000 fewer civil servants than in 2010. Of course, we can all see ways in which government departments can work more efficiently and we all know the advantages of new technologies and so on, but a large part of that loss of people was a straight reflection of a determination to create a smaller state, with lower costs for the Government. These circumstances are part of the price that we are paying.
If there is one thing which stands out in this whole sorry saga, it is that HMRC persisted with conduct which was already causing enormous consternation not to people who were adept at tax evasion or those who employed professionals to look after their tax affairs, but to ordinary citizens applying for jobs. The report makes that clear. Their employers, or the agents working for those employers, took them on board and indicated a loan would be advantageous form of payment for their employment. That is why we have so many people who deserve the sympathy of every one of us in this House and all of us concerned with government. Ordinary people now find themselves facing charges which are not the kind of thing that might be easily disposed of by the better-off in society, but multiples of their actual earning power each year; these are now demanded as owed tax. This is a parlous position. What has been identified in this debate is just how dismissive the Government have been thus far on the issue.
Of course, the noble Lord is quite right about the substantial cuts in the resources available to HMRC. That has undoubtedly been a factor in its ability to deal with inquiries and to deal with people sensitively. However, it is not to blame for implementing the loan charge, which was passed by Parliament—by the House of Commons. Dealing with this requires a change in the law. Do the Opposition support that?
The answer is categorically yes. In fact, I was going to develop that argument briefly but I do not need to now: in his opening speech, the noble Lord made the main charge against the Government and their response to the report thus far quite clear. I utterly endorse that position. I am very grateful for the speech he made today and the way in which he obviously led the committee to produce these high-quality reports.
One of the things which stands out in the reports is that the Government found a whole series of the recommendations quite unacceptable. Of the recommendations in the digital taxation for VAT report, eight were accepted, seven were accepted in part and only six were rejected outright. However, the majority of the recommendations in the other report were rejected. The Government ought to have a pretty strong case when responding on this matter to a significant body such as a House of Lords committee led by the noble Lord, Lord Forsyth, but it seems fairly obvious that the Minister has somehow been shielded behind the perspective that only the House of Commons has any authority with regard to the economy. We all know the law—we all know why the House of Commons produces its Finance Act and we in the House of Lords defer to it as presented—but that is a little different from a committee examining the conduct of a government department. From what I can see, on the whole, Ministers have not been prepared to attend the committee and have been rather dismissive of many of its hugely significant recommendations.
Expressions have been made during the debate with which I have the greatest sympathy. I am not talking about the speeches from the noble Lord, Lord Kerr, and the noble and learned Lord, Lord Judge, who were both quite definitive in what they had to say—I of course agreed with the judgments they reached—but there were other comments that strengthened my support for the committee. The noble Lord, Lord Tugendhat, indicated the difference between how this part of taxation is dealt with and how welfare support is often dealt with. This is a tragedy that has gone on for a number of years, but so has welfare legislation and the great problems with universal credit, in which people who are devoid of resources are being asked to wait for weeks to get the money to which they are entitled. I was very grateful to him for bringing our attention to that.
The noble Baroness, Lady Noakes, criticised the use of the word “customer”. I too found it difficult when the railway companies started to refer to us as customers—they were not very confident that we would become “passengers” and go anywhere, but we were “customers” because we had paid for the ticket. There is a lot that we ought to seek to correct, through gentle persuasion, about the terms in which big organisations and businesses address us.
Two issues about the Government’s estimation come out strongly in the report. We can see that the Revenue and the Government are motivated by the fact that there could be considerable increases in resources through Making Tax Digital. The Opposition understand the argument for Making Tax Digital and endorse it, but it has to be introduced and developed in a better way, as the reports have identified. Those in this unfortunate position with the loan charge have earned salaries and tax is payable on them. There obviously has to be care about how people are challenged to make these payments, because many have limited resources, but there is no doubt that HMRC’s objective was to ensure that tax was legitimately paid on payments allocated to workers. The 2017 court case made this absolutely clear. Therefore we are not in any way, shape or form castigating HMRC for pursuing the issue in principle; we are concerned about the practice.
It has been quite clear from this debate that the committee has identified the department’s position with great force and accuracy. We expect Ministers to take note. We all have faith. I greatly regret the loss of the noble Lord, Lord Bates, the immediate predecessor to the noble Lord, Lord Young. Although I clashed with the noble Lord, Lord Bates, on very many occasions, I never had the slightest doubt about his genuine attempt to present his case accurately, effectively and with the greatest concern for the rights of the House. I am not so sure that Financial Secretaries in the other place have shown much respect for this body, but I am sure that the noble Lord, Lord Young, will seek to answer the very real questions asked in this debate, and treat the committee and its excellent reports with the respect due to it.
My Lords, I thank my noble friend Lord Forsyth for introducing this debate, and for agreeing to reschedule it from its previous slot, which would have been at a less civilised hour. I also thank the Economic Affairs Committee, for its two detailed reports, and all noble Lords who have taken part in this exceptionally well-informed debate.
I have read both the reports and the Government’s response with particular interest, as a former Financial Secretary to the Treasury with responsibility for HMRC 25 years ago—some 15 years after the noble Lord, Lord Lawson, who was referred to in our debate. Although we have debated these two reports together, they are very different. The one on powers is wide ranging, hard hitting and contains some radical proposals—particularly those which we have just heard from the noble and learned Lord, Lord Judge. The one on making tax digital is more narrowly focused, more consensual and concerned with the pace of travel—as mentioned by my noble friend, Lord Tugendhat—rather than its direction. The current Financial Secretary carefully considered both documents and gave a detailed written response. Although he did not agree with all the recommendations, he was happy to accept the majority of them, in whole or in part. We are still reflecting on the report.
I take very seriously the comments made by my right honourable friend, and the comments made by my noble friends Lady Noakes and Lord Forsyth, the noble Lord, Lord Kerr, and others, about his reluctance—his refusal—to give evidence before the committee. My understanding is that the sub-committee’s inquiry was focused on the Finance Bill, which is properly the preserve of the other place, and as such, no Treasury Minister has given evidence to the sub-committee in the nearly 20 years of its existence. However, I take on board the comments and undertake to convey them to my right honourable friend, to see whether, were a further invitation to be extended to him by the committee, he might reflect again on his decision not to appear.
Before addressing the issues raised in the debate, I join others, particularly the noble Lord, Lord Davies, in paying tribute to my colleague and noble friend Lord Bates, who earlier this month stood down from his position as a DfID Minister and Treasury spokesman. No one regrets his resignation more than I do, as part of his ministerial burden falls on my shoulders. He was an exceptional, dedicated and popular Minister, covering government business on a wide range of topics, from overseas aid to the Trade Bill, from financial services onshoring to the performance of our economy —to name but a few. For each, he brought intellectual clarity and a strong defence of the Government’s record, but also a listening ear. We all wish him well as he walks from Belfast to Brussels raising funds for a cause he is passionate about.
I apologise—58 years too late—for running into the noble Lord, Lord Kerr, on my bicycle in Oxford. Had I known that in 2019 he would make a trenchant attack on a government policy I was obliged to defend, I would have navigated with much more diligence. I thought I was in enough trouble when he sat down—but then the noble and learned Lord, Lord Judge, got up.
I turn to the question of HMRC’s powers, which dominated our debate. I am conscious that I will not answer all the questions raised but I will write to rectify that omission. The British people expect HMRC to take decisive action to tackle tax avoidance and evasion, and Parliament has voted to grant the department a variety of powers which allow it to carry out this essential function. It is of course also essential that there are safeguards in place for taxpayers, but the purpose of the powers is to allow HMRC to collect the tax that we need to fund vital public services, a point made by the noble and learned Lord, Lord Judge.
I note what the report says in paragraph 58 about scrutiny of the loan charge but, as someone who has taken a Finance Bill through the other place and sat in Committee on the Finance Bill in opposition, it is my experience that Members in the other place are extremely wary about giving HMRC new powers over their constituents. This legislation was taken through the parliamentary process, with scrutiny in the House of Commons, following a public consultation on the policy and on the draft legislation. As my noble friend knows, we have also set out in a report published last month the rationale for, and impact of, the charge on disguised remuneration loans.
On the subject of the scrutiny in Committee on the Finance Bill in the other place, I think I am right in saying that there was a speech from a Minister, a speech from the Opposition and two other speeches. None of the issues about retrospection et cetera was raised. I think there has also been an Early Day Motion signed by many Members and several debates, including one in Westminster Hall, none of which has altered the Government’s response in any way.
I am sure that if my noble friend and I had been on the Finance Bill at the time, we might have raised some of the issues that he has now raised. I make the point again that the legislation went through all its stages in the other place after its publication in draft.
I was grateful for what my noble friend Lord Tugendhat said about HMRC in some generous words, which I know will be well received by the hard-working public servants in that department. I believe all Governments, and both Houses, are committed to striking the right balance between helping the compliant majority to fulfil their obligations, and providing appropriate support to customers who need extra assistance to get things right, while taking robust action against those who seek to avoid paying their fair share of taxes. For this reason, the Government welcomed the committee’s detailed contribution to this important debate.
I say to my noble friend and to others who have taken part in this debate that my comments will reflect the Government’s response to the reports, including the updated response which we published in March. I will share with the Chancellor and other Ministers in the Treasury the tone of the debate and the deep concern expressed by Members on all sides about some of the actions that have been taken. Again, without any commitment, I will see whether within the confines, which I hope the House understands, there is any flexibility available to reflect the anxieties that so many Lords referred to.
Several noble Lords spoke more specifically about the charge on disguised remuneration loans. My noble friend Lady Noakes made this the focal point of her speech. As acknowledged by the report:
“Disguised remuneration schemes are an example of unacceptable tax avoidance that HMRC is right to pursue. All individuals using these schemes must accept some degree of culpability for placing an unfair burden on other taxpayers”.
It is the Government’s view, supported by a unanimous Supreme Court ruling, that these schemes are not and have never been effective, and that tax was always due. It is unfair to the vast majority of ordinary taxpayers who pay all their taxes to let anyone benefit from contrived tax avoidance of this sort. I am sorry to disappoint the noble Lord, Lord Kerr—
The Minister is doing his best and because he referred to the Supreme Court, he will be aware that that ruling focused on the culpability of employers. There was no expectation in any of those Supreme Court discussions that action would be taken against the ordinary user. That has been a source of a great deal of the fury around this issue.
With respect to the noble Baroness, the unanimous decision of the Supreme Court was that the tax was due and is payable by the employee and not the employer. I will come on to the employer in a moment. I was about to disappoint the noble Lord, Lord Kerr, on one of the questions he put to me. But if it was always the case that the tax was due, as I have just said, the loan charge is not retrospective, as he implied. I am not sure that he meant to imply this, but it does not have to be paid in the current tax year. It becomes liable, but I hope that people will engage with HMRC and agree terms that may cover a longer period.
I apologise for interrupting my noble friend again, but there are two points here. The court proceeding he referred to was the Rangers case, which said that liability was with the employer. The point that my noble friend Lord Kerr was making was that this is treated as an emolument in one year, which means that the incidence of tax is higher because goes over the top rate. That is the point.
My understanding is that the tax now due accrued over a period of time, and was payable in the year in which it was accrued. That has been consolidated and crystallised into the loan charge. If I am wrong, I will write to my noble friend.
The Government are committed to tackling the promotion of tax avoidance and that is why HMRC has been investigating more than 100 promoters and others involved in marketing tax avoidance, including many who sold disguised remuneration arrangements. HMRC recently won a legal case, mentioned by the noble Baroness, Lady Kramer, over a contractor loan avoidance scheme promoter, Hyrax Resourcing Ltd. This will help collect over £40 million in unpaid taxes.
The charge on disguised remuneration loans has been criticised by those who say that it ought to be the employer who has to pay the tax that is outstanding. I agree, so let me be clear that HMRC will seek to collect the loan charge from employers in the first instance, and will pursue individuals for the tax due only where it cannot reasonably do so from the employer; for example, if the employer is no longer in existence or is offshore. In those cases, HMRC seeks to collect the tax liability from the individual who benefited from the tax avoidance.
Since most of the employers in these cases were local government, they would pay any bill that HMRC thought was appropriate. Central government departments would also pay. Collecting from HMRC itself ought to be quite simple, and there are various public bodies, such as the BBC. Is the Minister now giving a reassurance to all those who have received a loan charge demand but were working for those public entities that they, at least, will not be pursued, because their employer will be paying?
The safest thing I can do is repeat what I just said: HMRC will seek to collect the loan charge from employers in the first instance, and will pursue individuals for the tax due only where it cannot reasonably do so from the employer; for example, if the employer is no longer in existence or is offshore. The BBC is still there and is not offshore, as are the other employers mentioned by the noble Baroness, so HMRC will indeed seek reimbursement from them first, before it seeks to collect the liability from the individual. By the end of 2018, about 85% of the yield in advance of the charge was from settlements with employers. Since the 2016 Budget announcement, around 6,000 have agreed settlement, raising £1 billion for the Exchequer. These numbers will continue to increase as more settlements are agreed.
The Government recognise the impact of this legislation on the individuals affected and the importance of them receiving appropriate support. Some individuals are facing large tax bills, often as a result of using these schemes over a number of years or receiving large sums through the schemes. That is why the best thing for anyone concerned about paying what they owe is to get in touch with HMRC, which is expanding its specialist service for customers with additional needs to help them meet their obligations. HMRC has a good track record of supporting customers to pay their tax debts and has made it clear that it will not force anyone to sell their main home to pay their disguised remuneration debts. It does not want to make anyone bankrupt; insolvency is considered only as a last resort and few cases ever reach that stage. HMRC is determined to work with individuals to reach manageable, sustainable payment plans wherever possible.
My noble friend Lord Forsyth spoke about suicides and my noble friend Lady Noakes about the Samaritans. HMRC has been informed that a customer who had used DR schemes has taken their own life. Out of respect, and given HMRC’s duty of taxpayer confidentiality, the Government are not in position to comment further, but we continue to improve support to vulnerable customers and will extend HMRC’s valued needs enhanced support service to customers undergoing compliance checks. HMRC works alongside the voluntary and community sector to improve its support and to ensure that vulnerable customers receive adequate support beyond getting their tax affairs right.
I was not aware. Of course, I understand the sensitivities of the issue and will raise the matter with HMRC.
HMRC has introduced simplified payment arrangements for those who approached it to settle by 5 April this year so that individuals will not have to pay the loan charge. Regardless of whether the individual decided to settle their taxes or whether the loan charge applies, for those who need more time to pay there is no maximum period for payment.
Resources for HMRC were raised during the debate. The Government have always provided HMRC with the resources that it needs. At the 2015 spending review, they invested £1.3 billion to transform HMRC to make it quicker and easier to deal with. In addition, since 2010, the Government have invested £2 billion in HMRC to tackle avoidance and evasion.
My noble friend Lord Forsyth raised the right of appeal on accelerated payment notices and follower notices. As my noble friend knows, the rules do not affect a taxpayer’s right to appeal against an HMRC decision or assessment concerning their tax liability. If the taxpayer successfully appeals the actual liability, the follower notice penalties will no longer be due. Again, Parliament granted HMRC these powers to discourage tax avoidance.
My noble friend also asked about retrospection. I think that I have dealt with that, if not wholly to his satisfaction. It is a new charge on DR loan balances outstanding on 5 April. It does not change the tax position of any previous year or the outcome of any open compliance checks.
My noble friend asked what the position was on the powers review. We agree that HMRC has to balance tax collection with important taxpayer safeguards. The powers review was a major project coming alongside the merger of HMRC and Customs and Excise. There has not been a similar fundamental change to justify another such review, but I say in response to my noble friend that we keep the tax system under review and will consider options for reviewing and updating the tax administration framework to ensure that it is effective in modern tax administration.
A number of noble Lords spoke about low-paid employees and social workers being affected by the loan charge. HMRC’s analysis shows that around 3% of those individuals who used a disguised remuneration loan scheme worked in medical services and teaching.
My noble friend Lord Tugendhat raised the issue of naming. Again, Parliament has legislated to allow taxpayers to be named in limited circumstances. These are prescribed explicitly in legislation. HMRC places importance on taxpayer confidentiality, and no one can be named simply for disagreeing with it. I hope that HMRC never engages in what my noble friend called “innuendo”.
In view of the number of interventions, I may claim a bit of injury time on the question about HMRC inaction on loan charges. The Government’s view, as I think I have already said, is that these schemes never worked. Compliance activity has been taken ever since the schemes were first used, including the use of thousands of inquiries into scheme users, successful litigation and agreement of settlements. The loan charge was introduced to draw a line under all outstanding DR loans, but HMRC has always warned against the use of DR schemes, with the first spotlight being published in 2009. Many scheme users did not disclose details of their scheme use, or disclosed partial information which did not enable compliance—this is in response to an issue raised by the noble and learned Lord, Lord Judge. Where DOTAS numbers were provided, HMRC routinely opened inquiries, and it will look carefully at cases where individuals provided evidence that they fully and properly disclosed their use of a DOTAS at the time and where HMRC closed an inquiry with that evidence. However, it does not believe that there are many cases where that has happened.
I am conscious that I have not said anything about Making Tax Digital, so I will say a few final words about that report. We want every individual and business to develop the skills and confidence to seize the opportunities of digital technology. In a world where businesses are already banking, paying bills and shopping online, it is important that the tax system keeps pace. Making Tax Digital gives UK businesses more control over their finances and allows them to manage their tax more easily so that they can focus on what they do best—innovating, expanding and creating jobs. The Enterprise Research Centre found in 2018 that web-based accounting software delivered productivity increases for micro-businesses of 11.8%. One should set that against the costs mentioned by my noble friend Lord Forsyth and the noble Baroness, Lady Burt.
I was asked what the position was on small businesses unable to go digital because of the absence of broadband. Businesses that are unable to go digital will not be forced so to do. If it is not reasonably practical for a business to join MTD for reasons of age, disability or remoteness of location—which can affect broadband connection—it may qualify for an exemption.
I am deeply conscious that I have not done justice to the many serious questions that have been raised, and I am already over my time. In conclusion, I thank noble Lords for their contributions to this stimulating debate—
At the risk of getting myself into further trouble, I said fairly early on in my remarks that I took very seriously the tone of the debate and the criticism of the implementation of the loan charge scheme. I said that within the constraints—I hope noble Lords understand that there is now legislation in place—I would see whether there is any flexibility which might address the very real concerns raised by noble Lords. That goes way beyond my negotiating position; it is without commitment to what anyone in the Treasury may do. I take this debate seriously; the points that have been made and the cases that have been raised were moving. The report has made some very strong points, and I propose to raise with the Chancellor and ministerial colleagues the nature and tone of this debate, and see—within the constraints that I am sure all noble Lords understand—whether we can go some way to meeting the issues that have been raised. I hope I have reassured your Lordships that we will continue to give careful consideration to these very important matters.
My Lords, those last few remarks from my noble friend are extremely reassuring. My noble friend Lord Bates gave him a bit of a hospital pass; had the debate not been deferred, it would have been answered by him. In fact, his formal response is an example of why the committee felt that we needed to look rather more strategically and fundamentally at the basis on which HMRC is held to account. That is not to say that the committee was entirely critical of HMRC. Some of the criticism arises from legislation which has been passed by Parliament. If my noble friend had come at the invitation of the committee and had listened to our points, I think we would have made considerably more progress.
We have had a fantastic debate, with a brilliant speech by my noble friend Lady Noakes not just on the nomenclature of customers but on the real issues here, which are illustrated by some of the problems. My noble friend Lord Tugendhat rightly pointed to the difficulties which HMRC has.
One gets the impression that Mr Osborne said to HMRC: “I need the money. Get it in”, but, at the same time, “Cut the numbers”. Therefore, perhaps some corners have been cut, to disadvantage. My noble friend Lord Trenchard pointed out the basic and fundamental conflict of interest in HMRC, which brings me to the issues pointed out in a very telling speech by the noble and learned Lord, Lord Judge. Honestly, in this House, if he says it is wrong, it usually is. I am grateful that my noble friend has decided to discuss this with the Chancellor.
I think we will lose the noble Lord, Lord Kerr, from our committee because of the turnover rule. He made a fantastic contribution and asked the three questions which I hope my noble friend will be putting to the Chancellor. I also thank the noble Baroness, Lady Kramer, who has updated us on the work being done by the All-Party Group on the Loan Charge. What has happened is very worrying. The path to hell is paved with good intentions. I have no doubt that the loan charge legislation was implemented with good intentions, but it has proved to be a path to hell for far too many people, not least those working in the public sector.
The noble Baroness, Lady Kramer, mentioned the BBC. I have read in a newspaper—we did not receive any evidence—that it appears that it will pick up the tab for all its employees. One way or another, it seems that this requires further work.
The noble Lord, Lord Davies, was right to highlight the pressures on the Inland Revenue, and I was very grateful for his commitment that the Opposition would change the legislation if they got the chance—which may very well encourage colleagues to bring forward amendments at a later date in the other place.
Most of all, I am grateful to my noble friend for the way in which he has answered what has been a powerful debate and undertaken to take it back to discuss it with colleagues. One thing that we have changed on the Economic Affairs Committee is that when we produce reports, we do not just move on to the next issue but come back to them to review what progress has been made. I am sure that there will be further work on the loan charge. We look forward to seeing the Government’s response. I am most grateful.