Consumer Credit Cap
I am committed to ensuring that more households can manage unexpected costs through affordable credit. Tackling the problems caused by high-cost credit requires a comprehensive approach. That is why the Government wants to both encourage the growth of the social lending sector as an alternative to high cost credit like payday loans, and ensure that the existing payday lending sector is effectively regulated.
The Financial Conduct Authority (FCA) established, reformed and toughened rules governing payday lending in 2015, which included a holistic cap on the total cost of payday loans, so that no payday loan consumer should have to pay back more than twice what they borrowed. In addition, the FCA is consulting on a further package of regulatory reforms for the high-cost credit market.
I believe that more can and should be done to build on this progress, and I welcome the measures outlined in the recent Budget to make affordable credit even more accessible and help people manage problem debt. The Budget proposed a 'breathing space scheme', which would allow for a 60-day protection period from debt recovery action by creditors. This policy, the finer details of which are currently being considered following a public consultation, is intended to allow people time to work out a path to a sustainable and affordable repayment of debt.
I hope this reassures you that action is being taken to help people access affordable and reliable credit.
IR35 (Personal Service Companies and Tax)
Flexible labour plays an important role in the UK economy. The option to work through an intermediary, including a company, helps support this labour market flexibility. However, it is fair that people should pay the right tax for their circumstances.
Off-payroll working rules, known as IR35, were introduced in 2000 to ensure that someone working like an employee, but through a company, pays similar taxes to other employees. These rules only affect people working like employees and through a company. HMRC estimate that two thirds of people working through a company are genuinely self-employed. These individuals are not affected by these rules, and that will not change.
I am encouraged that since April 2017, when the Government reformed these rules for engagements in the public sector, early indications are that this has resulted in an increase in compliance and £550 million in additional revenue. To increase compliance in the private sector, the Chancellor announced businesses will become responsible for assessing an individual's employment status. As with previous reforms to IR35, this will not affect the genuinely self-employed, nor introduce a new tax.
Following a consultation, I am pleased that the Government has listened to key stakeholders and exempted the smallest 1.5 million businesses from this reform. Furthermore, large and medium businesses will have longer to prepare for these changes, which will be implemented from April 2020.
Loan Charge for Disguised Remuneration Schemes
This is a topic in which I have taken a keen interest, and I have a great deal of sympathy with anyone who find themselves with a backdated tax bill to pay back. I recently co-signed a letter to the Chancellor asking for a pause in order to allow for a proper review of this situation, I have added my name to a Backbench Business Debate motion and signed EDM 1239. I also receive regular updates from the Loan Charge Action Group.
Nevertheless, I do feel it is reasonable to expect each of us to pay our fair share of tax. The Government is committed to tackling tax avoidance and evasion at all levels in order to ensure that everyone, no matter who they are, pays the right amount of tax at the right time. Over 100 measures have been introduced since 2010 and significant action has already been taken; including securing and protecting over £175 billion of tax revenues since 2010, and making the UK's tax gap fall to a record low of 6 per cent. It is unfair to ordinary taxpayers, who pay the right amount of tax and do not use avoidance schemes, to let anybody benefit from contrived tax avoidance arrangements. That is why the Government has taken action to ensure that everybody pays the taxes they owe and contribute towards the public-funded services from which they benefit.
The 2019 Loan Charge has been applied to reclaim tax that is owed from disguised remuneration schemes, wherein people have their salary paid in loans, instead of being paid in the usual way. It is estimated that around 50,000 individuals, or less than 0.2% of individual Income Tax payers in the UK, used such schemes. The loans were paid to people in such a way that meant repayment was not expected - in other words, the person who received their salary via a loan scheme kept the full amount and paid no tax at all, even though the money is clearly income. HM Revenue and Customs (HMRC) has never approved these schemes and has always said they don’t work. They were an aggressive form of tax avoidance which, at their peak, cost the Exchequer hundreds of millions pounds a year.
The Loan Charge works by adding together all outstanding loans and taxing them as income in one year. The result is that a person is likely to pay tax at higher rates than they would have at the time they were paid in loans, and so in 2016 HMRC provided a three-year amnesty to allow those with a loan to settle their tax affairs (paying tax at the rates for the years they received the loan) before the Loan Charge came into effect.
A technical consultation was run on these changes, resulting in an improved process for submitting information to HMRC. The proposals are part of a package of reforms to prevent tax avoidance, all designed to make sure we have a tax system that is fair to everyone. Since the Loan Charge was announced in the 2016 Budget, HMRC has agreed settlements on disguised remuneration schemes with employers and individuals worth more than £1 billion. Around 85% of this came from settlements with employers and 15% from settlements with individuals.
NHS Pension Taxation
I certainly understand your concern on this. I am aware that the Department of Health and Social Care recognises that the impact of pension tax can reduce the incentive for higher earners to continue scheme membership or increase their earnings by taking on additional work or responsibilities.
The response to the consultation on NHS Pensions, which closed on 28th January, was published on 1st April. In response to concerns expressed by practitioners, the NHS Pension Scheme Advisory Board (SAB) carried out a review of member contributions, exploring whether the rate payable should be determined using whole-time equivalent or actual earnings, what the range and number of tiers should be, and whether tier boundaries should be indexed. The SAB agreed that, while the principles in the current scheme should be retained (such as protection for the low paid), there is a need to explore ways to minimise opt-outs and other issues caused by pension taxation.
I understand that where an annual allowance tax charge is incurred, the Scheme Pays facility is available for individuals to settle their tax charges without needing to pay upfront. Individuals can elect for the NHS Pension Scheme to pay the tax charge on their behalf. The scheme then recoups the cost by reducing the value of the individual's pension by an amount equivalent to the tax charge plus interest.
I realise this will not fully address your concerns and I will continue to take an interest in this issue, including when it is next raised in the House. I have also submitted a question to the Secretary of State for Health to ask what effect these changes are having on practitioner morale and hours worked.
Sale of RBS Shares
I understand your concerns regarding the sale of RBS shares back to the private sector and agree that any sale of these shares must represent good value for money. The Government has been quite clear of late that it will go ahead with plans to return RBS fully to the private sector only when they represent value for money and market conditions allow. That said, it is important to bear in mind that RBS is a completely different institution compared with ten years ago. As such, it has to be accepted that these shares may not be sold for the price at which they were bought.
Nonetheless, I do believe the decision to bail out RBS was the right one. As the Office for Budget Responsibility noted, "the economic and fiscal costs of the crisis would almost certainly have been greater in the absence of these direct interventions to restore the financial system to stability". I do not believe, however, that the state should be in the business of owning banks, which is why I welcome that the Government shareholding in RBS has fallen to 62 per cent, down from the 84 per cent share controlled in 2009. The Government remains committed to returning RBS fully to the private sector by 2023-24, subject to market conditions and achieving value for money.
Banks seeking to lend today face much more stringent requirements than before the financial crisis, and I support the Access to Banking Standard, which commits banks to ensuring customers are better informed about branch closures and the options they have locally to continue to access banking services.
Support for Pubs
The brewing and pubs industry contributes over £1.7 billion to the Scottish economy and supports the employment of 60,000 people. I also recognise the crucial role that pubs play in the social and economic life of our nation, as well in helping to promote responsible drinking, and I have spoken of their benefit in recent debates.
The Chancellor announced at the 2018 Autumn Budget that duties on beer, cider, and spirits will be frozen across the UK. My Scottish colleagues and I very passionately campaigned for a spirit duty freeze, so this came as a very welcome decision. This year, the price of a typical pint of beer will be 2p lower than if prices had risen with inflation; the price of a pint of cider will be 1p lower; and the price of a bottle of Scotch whisky will be 30p lower.
This follows the removal of the beer duty escalator in 2013 and the unprecedented cuts and freezes in beer duty since then, as well as the removal of the duty escalator for spirits, wine and cider in 2014. I am pleased that the UK Government was able to deliver this, in order to support our great Scottish spirits distilleries, our cider producers, our brewing industry and our local pubs.
In Scotland, business rates relief is a devolved matter, and therefore the responsibility of the Scottish Government. I understand many of the pubs across Scotland pay in excess of £10,000 a year in business rates, which represents a significant cost. In 2018, the Scottish policy convener of the Federation of Small Businesses said there is "a long-term optimism gap between a typical firm in Scotland and their counterparts elsewhere in the UK." It is important that the Scottish Government listens to the concerns of small businesses, such as pubs and brewers, in order to help their confidence to grow.