PARLIAMENTARY DEBATE
Loan Charge 2019: Sir Amyas Morse Review - 19 March 2020 (Commons/Commons Chamber)

On a point of order, Mr Deputy Speaker. I am sorry to have delayed my point of order, but it is pertinent particularly to this business. May I ask why the Financial Secretary’s excellent biography of Adam Smith has not been laid on the Table as one of the papers pertinent to this debate? You will appreciate that Adam Smith was absolutely categoric in his view of taxation—that it should be fair, proportionate, not retrospective and not arbitrary, which is clearly the subject matter of this afternoon’s debate.

It is as if the right hon. Gentleman read my mind. I am sure that those on the Treasury Bench will have heard his comments.

I beg to move,

That this House believes that the Loan Charge is an unjust and retrospective tax; notes that the law on the Loan Charge was not settled until 2017; and calls on HMRC to cease action on loans paid before 2017.

The motion is in my name and those of the hon. Member for Brentford and Isleworth (Ruth Cadbury) and my right hon. Friend the Member for New Forest East (Dr Lewis), and is supported by some 40 other Members of the House.

I start by commending my right hon. Friend the Member for New Forest West (Sir Desmond Swayne) for having the courage to beat me to the punch in this particular debate. It may seem strange to outside observers that in the midst of a global pandemic and a huge national crisis we are talking about a tax technicality—at least, that is how it might appear. But actually it is one of the great virtues of our country that no matter what the crisis, whether it is a pandemic or warfare, the House always pays attention to issues of natural justice. We never ignore issues of natural justice, even in times of crisis. As a matter of justice, which this is, it is not a party political issue. In politics and our business, justice is a matter of honour that we deliver to the British people, and that is what we intend to do today.

The loan charge is an injustice with very large consequences. We have all met and listened to constituents who are facing utter financial ruin as a result of this policy. It is ruining people’s lives. There have been at least seven suicides caused by the stress, anxiety and financial hardship of this policy. To give the House a flavour of that—because it does not apply just to those who have committed suicide but to those who are under stress—here is what the family of one loan charge victim told the all-party group about his suicide note:

“He wrote about being at the end of his tether with the Loan Charge matter. He wrote such awful things about himself things that just weren’t true, that he clearly thought about himself at the time. He wrote that he did not set out to do such wrongdoings; he wrote about being unable to speak to his GP about his anxiety as he was ashamed, his fear of going to prison, his disgust in himself for getting mixed up in the Loan Charge and his belief that he would now go to hell.”

In the case of this individual, the loan charge policy took not just his money, but his self-respect and eventually his life. And there could be more. According to the loan charge all-party group, 39% of those affected have had suicidal thoughts. I think the Minister will be hard pushed to think of another Government policy that has caused more than a third of those affected to consider suicide. It is no surprise that it is having that effect on people. Some 68% have suffered depression, 71% face bankruptcy, and 49% could lose their homes. I said in the previous debate on this issue that the power to tax has the power to destroy, and that has never been more clearly demonstrated than here.

The right hon. Gentleman makes an extraordinarily powerful point in his own skilful way. I say this back to him: his group took that evidence before the added economic stress of the coronavirus. Many of the individuals affected will be contractors. They will be people who perhaps have no rights at the moment and certainly no way of finding the money to meet the demands on them. Even small sums of money will bring enormous pressure to bear on the individual. So he is right: this is not some vague and abstract tax issue. This is about people’s lives. That is why I was pleased when the Government launched the Amyas Morse review into the policy, and in December, he published a detailed report. I commend him for his heroic attempt to find a compromise, because that is really what he did. The facts and the conclusions are a little different, and that is because he was trying to find a compromise. However, when it comes to matters of natural justice, I am afraid that a compromise is nowhere near enough. Such a detailed review deserves detailed scrutiny, and I am going to spend a small amount of time looking at his central findings.

Sir Amyas recommended a December 2010 cut-off date for the loan charge. All loans before that date will be out of the loan charge scope. In a piece for The House magazine some time ago I referred to that as arbitrary, and Sir Amyas responded. He said:

“It is not an ‘arbitrary’ date. It is the date from which the Finance Act 2011 ensured that tax was charged on income paid through loan schemes.”

But that simply did not make sense, even in its own terms. The Finance Act was not law in December 2010; it was simply draft legislation. It was not passed for another eight months—until July 2011. HMRC does not, or certainly should not, take its instruction from draft legislation. It certainly should not take it from press releases, which was what actually went out on that day. It takes its instruction from settled law—and the words “settled law” matter.

Sir Amyas went on to argue in his piece that, once the 2011 Act was passed,

“tax should have been understood as being due from that point.”

But even in 2011 the law was far from clear after the Government suffered a series of defeats in the courts.

My constituents just do not have any extra money—they have used it all up each year. After 2010, they were continually told by financial experts and the companies they were contracted to, “All is well—carry on.” Suddenly in 2017, they faced a massive bill, and they just cannot cope.

I am talking about how we got to that position. I will come on to talk about the financial status of these people, but my hon. Friend is right: these are not rich people.

HMRC, which has claimed that this is clear law, lost the Dextra Accessories Ltd and Sempra Metals Ltd cases in 2002 and 2008 respectively, when the courts specifically rejected the idea that the loans could be subject to income tax. HMRC then lost a case in 2012 and again in 2014, demonstrating that the 2011 legislation had not clarified the law to the satisfaction of the courts. That is a key point—it was not a question of it not being to our satisfaction or our constituents’ satisfaction, but it was not to the satisfaction of the courts. The fact that HMRC lost twice and then won twice tells us that even experienced, highly informed judges spending a great deal of time studying these cases found it a difficult issue to resolve.

Is not the proof of the pudding in the fact that the 2017 legislation was introduced? The loan charge itself is standing proof that previous legislation was not sufficient to tax the people involved, otherwise that would have been done.

As usual, my right hon. Friend trumps my argument in advance, but I will come back to that in a second.

What that demonstrates—and what my right hon. Friend’s point demonstrates—is a failure of the Treasury and HMRC to write clear and comprehensible legislation. If the judges cannot understand it, what chance is there for ordinary laymen—people who cannot afford to employ an accountant? We are not talking about city slickers or international bankers; we are talking about locum nurses, social workers, careworkers and hospital cleaners.

The right hon. Gentleman’s point that these are not city slickers and tax-avoiding, money-grabbing sorts reminds me of my constituent, Caroline Cheasty. She was a social worker in the public sector, with 24 years’ experience in local authorities. She had a career break, and when she wanted to go back as a locum, she was advised to either form a plc or go with an umbrella company—that is what she did. She came to my surgery in tears. Does he agree that the Government should go after the promoters of these schemes, not the little people?

I do. The hon. Lady tempts me into a political point, because the Blair Government were the most active promoter of these schemes, but she is right in general.

When something is as unclear as this tax law obviously was, we do not take the date of resolution from the first date that HMRC wins—we do not keep going until we get the answer that the Government want. We take it from the day it is finally resolved in the Supreme Court. The case was not finally and definitively settled by the Supreme Court until 2017, when it found in HMRC’s favour on the Rangers, Dextra and Sempra cases. The Government—this relates to the point made by my right hon. Friend the Member for New Forest West—then passed further legislation to clarify the law. Even after the court case, they passed legislation to clarify the law. If it was so clear, why did we need a new law in 2017? That is the fundamental point.

My right hon. Friend is making an unanswerable case in logic, but I would like to put another political point to him. The cause of tax avoidance is not normally associated with such parties as the Labour party or the Liberal Democrats, but I am sure he would acknowledge that Members from both those parties have played a leading role in trying to put this injustice right.

My right hon. Friend is absolutely right. I started by saying that this is not a political issue; it is an issue of honour. As we would expect from our House—one of the greatest Parliaments in the world, if not the greatest—all sides take part in defending that honour.

I thank the right hon. Gentleman—I nearly called him my right hon. Friend, from my days on the Public Accounts Committee.

When financial advisers and accountants could not understand the law, when employers could not understand the law, and when the courts could not agree on the law until 2017, how could an ordinary layperson possibly have understood the law?

The Supreme Court’s eventual decision, overturning three decisions before it, reflects changing national attitudes on the responsibility of the taxpayer—the point the right hon. Gentleman has just lighted on. As a result, one organisation representing the professions involved explicitly changed its guidance to its members. It said:

“Members must not create, encourage or promote tax planning arrangements or structures that…set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation and/or…are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation.”

In what year was that changed guidance handed out by the professions? 2017.

My right hon. Friend is making some very good points, which I agree with. However, does he not agree that if something looks too good to be true, it usually is? In my business, we have been brought this kind of scheme a number of times by our advisers over the last 30 years, maybe with a barrister’s letter saying, “Don’t worry. It’ll be fine. You can reduce your tax bill hugely by adopting this scheme.” We have always rejected them because we knew the risk. Does my right hon. Friend agree that there is a requirement on the individual who subscribes to one of these schemes to make sure they understand the risks and that there is no guarantee the scheme will actually reduce their tax burden?

My hon. Friend is, of course, a skilled businessman; he knows what he is doing, and he is across this sort of thing—it is his job to be across it—but I am not so sure we could say that about a locum nurse or a social worker. This issue was actually at the centre of Sir Amyas Morse’s arguments. He took the view that the attitude from 2017 should apply back to 2010, even though the law was not clear. He took the view that the principle of a taxpayer’s responsibility for their own tax affairs must be upheld. That is the point my hon. Friend is making, and it is right—but only when the law is clear. That means that the Government have a responsibility to make the law clear and not to punish ordinary, hard-working taxpayers when Ministers fail to live up to that responsibility.

HMRC itself seems to disagree on the importance of the taxpayer’s responsibility. Why do I say that? Because until 2014, it did not approach the individual taxpayers; it approached the advisers. It approached the companies that insisted—they did not ask, but they insisted—that these locums and social workers took up this option. HMRC went to the advisers until 2014—until the issue suddenly started to become quite controversial.

Last year, the Prime Minister himself commented on this issue. He said:

“The real culprits in this matter, if I may say so, are not so much the individuals themselves who have decided to use the loan charge as a way of minimising their tax exposure. It’s the people who advised them that it was a sensible thing to do. In my view, we should find a way of going after them.”

That is the Prime Minister’s view, and I happen to agree, unusually.

Will the right hon. Gentleman give way another time?

If the hon. Lady will forgive me, I am trying to constrain my speech to 15 minutes, and it is beginning to be a struggle with so many interventions.

In summary, these people are now suffering because of a history of poorly drafted regulation and legislation and poor management by HMRC, targeted on the wrong people.

On many occasions, the Minister and his predecessor have told me and the House that the loan charge is not retrospective. In his report, Sir Amyas Morse states:

“The Loan Charge can look back 20 years…This design has been described by HMT as ‘retroactive’.”

The report describes the loan charge throughout as backward looking. HMRC denies that it is retrospective; it says it is retroactive. If I may say so, that is a distinction without a difference. When I looked up “retrospective” in a thesaurus, guess what it said? It defined the word as “retroactive or backward looking”.

Maybe the thesaurus wasn’t clear.

Yes, I will send HMRC a copy of Microsoft’s thesaurus. Not only that, but in paragraph 3.8 of his report, Sir Amyas states:

“The Review’s legal advisers found that there was no precedent for that element of the design.”

That is the retroactive, retrospective or backward-looking element. There was no legal precedent for that design. I hope, frankly, that the Government will now stop playing with words and finally concede that this is indeed a retrospective measure—an unprecedented retrospective measure.

The only just, fair and rational resolution is to remove the retrospective nature of the loan charge and set the cut-off date when the law became clear—when the Supreme Court finally settled the matter in 2017 and when the Government felt it necessary to legislate to make clear what they meant in the first place. That is why, as I made clear, if the Government do not act to address this issue, Parliament—all of us who take this very seriously—will have to act for them and make clear that, in the future, HMRC can under no circumstances act retrospectively. If we cannot solve this, here comes a Finance Bill. I suggest that the Minister should make one simple adjustment to his plans before they are published: change December 2010 to July 2017. That would resolve the issue. It would lift enormous pressure off 50,000 of our constituents, and it would put the Government in a morally defensible, justifiable and decent position.

Tax law is the only part of English law where “innocent until proven guilty” does not apply. If HMRC tells us we owe it money, then, until we prove otherwise, we owe it money. It is therefore very important that the law is clear—that it is not subject to reinterpretation by subsequent Governments and it does not move with social mores or whatever; it is simply clear. That is what we have to do. In the interests of natural justice and the financial and mental wellbeing of thousands of our constituents, it is time for the Government to change their mind and remove this harrowing burden from the 50,000 people who have been caught by it.

I intend to speak for only a couple of minutes. That is partly because of the outstanding introduction from the right hon. Member for Haltemprice and Howden (Mr Davis), which was clear, logical and unimpeachable—I congratulate him on securing the debate—but partly also because the situation is simple.

I am clear about two facts. First, disguised remuneration loan schemes—DR schemes—were clearly a tax dodge and were used for people to pay less tax. It is absolutely right, as the right hon. Member for Kingston and Surbiton (Sir Edward Davey) hinted, that we should close down those loopholes. However, it is also clear that the loan charge was put in place unfairly and unjustly as a retrospective measure. What is the proof of that particular pudding? Well, the right hon. Member for New Forest West (Sir Desmond Swayne) beat us all to it, and he is absolutely right. Why on earth did we need to introduce the 2017 legislation to introduce the 2019 loan charge if, as the Government and HMRC claim, these schemes were already illegal? They were not. That is why the loan charge was brought in. It is utterly wrong to bring in retrospective legislation and retrospective taxation as a result.

HMRC is entirely within its rights to look at up to five years of someone’s tax records, but only if the information that the individual has given to HMRC can be proved to be incorrect. We are talking about individuals who had their correct tax returns signed off by HMRC, which agreed that they were perfectly legitimate and lawful under current tax law but then reopened them, not because there was a suggestion that the individuals had provided incorrect information, but because the law had changed or was not quite as HMRC thought it was at the time it signed off those tax regulations. That is HMRC’s problem, not the problem of my constituents.

Fortunately, I do not know of any constituents who have taken their own life, but I do know of constituents who have lost their business and their house. One constituent’s marriage broke up. One young lad doing his first contracting job was told on the first day, “This is the way that we get paid in this place.” He did not know any better; he was 21 years old and just out of university. That was how he was encouraged by the employer and, incidentally, his colleagues to undertake the scheme. He does not yet know what his liability will be. Will it be £16,000? Will it be £60,000? The uncertainty is dragging him down. At the moment, he does not even feel able to work.

I congratulate the right hon. Member for Haltemprice and Howden and echo the right hon. Member for Kingston and Surbiton, who says that it is not a party issue. Members will agree that it is a question of natural justice and fairness, and of not reopening tax returns that had previously been signed off by HMRC. By all means let us close the loophole, but let us not drag people into this dreadful sense of natural injustice.

Order. Thirteen other hon. Members—in fact, more than that—want to get in, so I plead for short contributions of the length that we have just heard from Christian Matheson, otherwise we will simply not do justice to the next debate. I call Julian Lewis.

During business questions before this debate, I asked about the perennial issue of war widows whose pensions were stopped because they remarried or cohabited, and we were told in no uncertain terms that those pensions would not be reinstated retrospectively. On 6 February, I tabled a question to the Financial Secretary to the Treasury, who is present, about the apparent difference between the approach to war widows, who will not get retrospective pensions, and people who will be hit retroactively by the loan charge. I was told in the reply that the loan charge is not retrospective. We now know that the reason it is not retrospective is that it is retroactive, even if the two things are exactly the same.

I pay tribute to my right hon. Friend the Member for Haltemprice and Howden (Mr Davis) for taking the initiative over several months to try to put this right, to the all-party parliamentary group ably led by the right hon. Member for Kingston and Surbiton (Sir Edward Davey), and to our former colleague, Greg Mulholland, who has done a great deal of background research in support.

My understanding of the situation can be summarised as follows. First, uncertainties arising from IR35 legislation led tax experts to approve umbrella company loan schemes. Secondly, many self-employed public sector workers, among others, had no idea that they were being paid by means of such loans. Thirdly, if HMRC had been doing its job properly, it would have sanctioned the purveyors of those schemes and warned the victims, as soon as they sent in their first annual returns, that they were making themselves liable for charges.

Fourthly—this is quite incredible—such schemes are still being sold to thousands of people who clearly still have no idea what is waiting for them from HMRC further down the line. Fifthly, the Morse review’s decision to exempt people affected prior to 2010 leaves people who were bullied into making large payments relating to the years before 2010 unable to get those settlements rescinded. People actually paid money before the Morse review for a period that has now been exempted, and they could probably negotiate better settlements, if any were still needed, than those for which they paid money that they cannot now get back, because they cannot reopen the negotiation.

Sixthly, people acted in good faith on the best professional advice that they could get. They should not have been left in blissful ignorance for years on end by a Government body that is now playing catch-up. Because of the time constraints, I will not go through the harrowing personal testimonies, but will stick to a couple more theoretical points and then conclude.

Seventhly, it has been pointed out that there was something called part 7A ITEPA—part 7A of the Income Tax (Earnings and Pensions) Act 2003—which came into effect in December 2010, and this has been cited as justifying the decision for the loan charge to apply from 2010 onwards. However, I am advised by Alan Williams FCA, a constituent as well as a highly qualified professional, that this does not apply to the self-employed, so the self-employed who were so often the victims of this set-up ought not to be caught by a provision—by the assumed knowledge of a provision—that did not, in any case, apply to them.

An eighth point is that the loan charge is not, in any case, full and final settlement, and therefore does not close open years. Even those paying the loan charge will see HMRC continuing to pursue further sums for so-called protected years in which loans were received. The recommendation of Mr Williams is that those accepting the loan charge should be afforded finality by making the loan charge full and final settlement.

I come to the conclusion that HMRC fell down on the job. It was asleep at the wheel. It bullied the victims, and let the villains who created these schemes get away with it. HMRC in this case is not just a bully; it is a negligent bully. The Government should know when they are beaten both morally and intellectually, stop flogging this dead horse and finally do the right thing.

When the right hon. Gentleman took evidence from people who are subject to the loan charge, did he receive any evidence to the effect that their chartered accountants or financial analysts since 2010 had told them—the people they were being paid by—that they were in real danger and had better change the way in which they paid their taxes?

I, too, congratulate my right hon. Friend the Member for Haltemprice and Howden (Mr Davis) and others on securing this important debate, and thank the Backbench Business Committee for allocating the time. It may not be the most pressing issue that we are facing at the moment, but it does address the deeply held concerns of constituents caught up in this injustice; and I say “injustice” because I truly believe that that is what it is.

This debate is to look at the Morse review, which did have some welcome outcomes, but I do not believe for one minute that it went far enough. I believe that everyone has a duty and an obligation to pay their fair share of tax, and that anyone who evades tax should rightly be sought out and made to pay. But that is not what we are dealing with here. In many of these cases, we are dealing with ordinary people who were either forced or persuaded into schemes that they were advised were perfectly legitimate and approved by HMRC. And there lies the problem. By way of example, I will share with the House an account of one of my constituents who is caught up in this situation and is facing a bill for tens of thousands of pounds, and potential financial ruin. I know that the Government and HMRC have said that that will not be the outcome, but after looking at the details of his case, I assure the House that it would be.

My constituent is an intelligent individual, but by no means a tax expert. When he gave up his job in 2011, deciding to work freelance so that he could get a better work-life balance, he was advised to join a freelancer scheme—a scheme that was established and promoted by an Institute of Chartered Accountants in England and Wales-regulated chartered accountant. The promotional literature unambiguously stated that the accountant’s scheme was

“anodyne, with no tax avoidance motive (HMRC words) involved”,

“legal and compliant” and

“supported by tax counsel’s opinion ”.

At no point did the chartered accountant mention any known or future possible risks, either verbally or in writing.

The chartered accountant simply positioned my constituent’s use of the scheme—through which he would receive a combination of salary and loans—as perfectly legal and an “effective tax planning tool”. That said, in mid-2012, having noted some adverse media coverage of the subject of tax avoidance, my constituent sought confirmation from the promoter that the scheme remained truly “anodyne”, as had been stated when he joined it. The promoter’s response was unequivocal—that nothing had changed.

Later in 2012, a copy of an HMRC letter addressed to the promoter and dated 20 June 2012 was forwarded to my constituent in validation of the chartered accountant’s previous assurances that the scheme was legitimate. The letter confirmed that for the purposes of mandatory disclosure under disclosure of tax avoidance schemes legislation, HMRC’s anti-avoidance group had formally reviewed the scheme and determined that it could apply no “hallmarks” of tax avoidance. Therefore, and of critical significance, HMRC stated that the scheme was “not disclosable”.

The unambiguous contents of HMRC’s letter gave my constituent absolutely no reason to conclude other than that its anti-avoidance group had undertaken a full, diligent review of the scheme and that, in the absence of any adverse findings, he could continue to use the scheme safely. But even then, as a cautious person, my constituent sought further confirmation from the promoter and was again reassured. Why would he not carry on using a scheme when he has sought so many reassurances? I restate: if HMRC had even the slightest concerns about the scheme’s legitimacy and/or my constituent’s use of it, its failure to openly communicate such concerns denied my constituent the clear and obvious opportunity to immediately depart the scheme in mid-2012.

As it is, HMRC notified my constituent in late 2013 that it had opened a formal section 9A inquiry into his use of the scheme, at which point he immediately ceased to use it. Regardless of that, to this day, more than six years after that section 9A inquiry into my constituent’s use of the scheme was launched, it remains open, and he has yet to receive any technical argument from HMRC as to why it considers the scheme unlawful.

It is very clear to me that HMRC sees the loan charge as a panacea for its historical and obvious failures. It is attempting to bypass my constituent’s basic right as a taxpayer to have a court rule on any alleged additional liability. We have heard from countless hon. and right hon. Members, and from esteemed independent tax practitioners, that HMRC must at the very least be forced to desist from using the loan charge to drive through these retrospective, unproven and ordinarily out-of-time claims, which predate the enactment of the Finance Act 2017.

I strongly agree with that viewpoint and feel that it would be undeniably unfair and entirely unreasonable to pursue people from before that date. Therefore, in the light of the uncertainties caused by the current situation with coronavirus and its effect on freelancers’ ability to work and earn at this time, may I please ask that the existing legislation be amended so that the loan charge is made prospective from 2017 onwards, which would remove at least one level of uncertainty for this important group of people at this very difficult time?

Order. Colleagues will see that a number of hon. and right hon. Members wish to speak in this debate and the next debate. If we are to get everybody in fairly, I would ask that speeches should be five minutes.

It is indisputable that everyone should pay their fair share of tax to fund our public services, and if recent events have taught us anything, they have illustrated that we all rely on the response of those services and that any future threat to funding must be resisted. However, the Government’s current position on this issue is, frankly, quite wrong and unjust. At £35 billion, the Government’s official estimate of tax losses is now the highest it has ever been, yet the true figure of tax avoidance by the super-rich and corporations could be as high as £120 billion a year.

My constituent Doug Aitken is facing a significant bill as a result of the loan charge. This is money that he simply does not have, and if HMRC persists, he will lose his home and his car, and, because he is self-employed, the resulting bankruptcy will lead to the loss of his business and his personal contribution to the Exchequer. Like many, he took independent advice from tax experts before entering the scheme and was reassured that it was operating entirely within the law. He declared his income and submitted his tax returns. He set money aside, ready to pay any tax liabilities, and he kept the money for the HMRC look-back period. He is not alone; a number of other constituents have contacted me about this matter. Some are retired or are now surviving on benefits. They simply do not have the resources to pay. Others have spoken of the significant impact on their mental health. Although the changes to the look-back period from the Morse report may exempt thousands from being pursued, thousands more are still facing the prospect of absolute financial ruin. This is nothing short of a disgrace and meaningful recovery is very unlikely, whereas bankruptcy is almost certain.

In closing, I would like to offer my reflections on the key argument put forward by Sir Amyas in favour of recovery. In his recent contribution to The House magazine, he explained that the advice he took about legality was from tax experts. However, he also notes that the contributions from those who entered the scheme’s evidence that they did not understand the implications—that is, they are not tax experts. Although Sir Amyas might have sympathy with the loan charge recipients, pursuing them now is very unlikely to lead to any meaningful recovery.

I previously served the health service ombudsman as a clinical expert, and I was advised that I should not assess the treatment and care provided against my gold standard practice level. Rather, my judgment should be tempered to a level of what one could reasonably expect. I would respectfully suggest that the current policy has measured those in the grip of HMRC over the loan charge against the gold standard of tax experts and not, as it should have, against the standard of what one would reasonably expect a lay person to understand. Although I firmly believe that individuals should pay the taxes they owe, ruinous action from HMRC will help no one. The Government must act now to completely remove all retrospective action.

I congratulate my right hon. Friend the Member for Haltemprice and Howden (Mr Davis) on securing the debate, and all Members who are members of the all-party parliamentary group for being here today. Having been in this Chamber for only four months, I am not as experienced as others in complicated tax arrangements, but, very quickly during my election campaign and during my surgeries, this issue has proven to be a huge worry for the many of my hard-working and honest constituents who run small businesses. For me, thankfully, this is not a debate that revolves around complicated tax issues. It is a debate that revolves around fairness and proportionality, and I think the Government have got that drastically wrong. That is where the Morse review has not gone far enough.

Like my hon. Friend the Member for South Basildon and East Thurrock (Stephen Metcalfe), I believe that everyone in our country must pay the taxes they owe—individuals, businesses, everybody. That is how a responsible society works. But the people this affects are not tax avoiders, so I have some concerns on behalf of my constituents about some aspects of the Government’s approach. I believe that it is my duty as a constituency MP to bring them up with Ministers.

Many constituents have come to see me at the surgery and have told me the severe pressure that this has put them under; the pressure of making payments and possible insolvency has, in some cases, caused the breakdown of marriages, physical exhaustion, and suicidal thoughts through no fault of their own whatsoever. I am also aware from my constituents that many of those who used some form of disguised remuneration scheme did so at the behest of financial professionals they had hired to advise them. Some were told that these schemes were HMRC compliant. Others were not even told that these schemes were tax avoidance and thought that they were normal procedure.

I want briefly to ask the Minister to consider the following points. Of course, any shortening of the time for which people affected are liable for these payments is welcome, but even after 10 years the payments over three years are too regimented and draconian. What thoughts has the Minister had about lengthening the terms? It is simply not fair of HMRC to impose the retrospectivity that follows from this review. As I have said, many people were advised by financial advisers and are now being penalised because of the late realisation and intransigence of HMRC. Does the Minister accept that that should not be a portent for any decision making on policy in this area? What steps is he taking to share the cost burden with the financial advisers who recommended these schemes? They are getting away scot-free.

Lastly, I want to raise the subject of HMRC. Even in normal times, it is not the most transparent Government Department, or the easiest to deal with; it is not known for its empathy or human nature. I really hope that the Government do not continue down this path, but if they do, it is vital that a bespoke, compassionate team be set up solely to deal with the vulnerable people in our constituencies who are affected by this issue.

That is a gross understatement of HMRC’s lack of compassion. If we are to move forward, HMRC must give individuals who have suffered as a result of the loan charge situation certainty that there will be finality in the way the issue is dealt with.

My hon. Friend is absolutely correct. His point backs up mine. Any team that the Treasury sets up—and there should be one—to deal with people affected by the issue should treat them as people, not as numbers, which is unfortunately how HMRC has a track record of treating them.

My hon. Friend puts his finger on one of the core points. Who is running the show here? Is it HMRC, or are the Government making sure that law on this matter is paramount? Does he not find it ironic that HMRC’s annual report this year says that HMRC wants a system that can

“be trusted and seen to be fair, with the right safeguards in place to protect customers”?

Does this case not show that it is falling woefully short of meeting that ambition?

I agree entirely. This is not the only case of people being treated unfairly by HMRC. I really hope that the Minister listens to the concerns being expressed across the House, particularly about the issue under discussion. There is a wider point here about HMRC. As my right hon. Friend the Member for Haltemprice and Howden said, it has decided to charge people retrospectively although the situation arose through its negligence. Never again—I feel this strongly—should it be allowed to adopt retrospective measures to cover its failure to get its policies in order.

Lastly, the Minister needs to make it clear, hopefully today, that the people affected by this are victims. They are struggling after following advice given to them by independent tax experts. I hope that he will look at lengthening the repayment period, commit to dealing fairly with the people affected by this, and never allow this to happen again. Ideally, he should at the Dispatch Box this afternoon scrap the loan charges affecting so many of my constituents.

I pay tribute to right hon. and hon. Members on both sides of the House for their eloquence and the detail of their arguments. That will save me some time in my speech, and allows me to give the perspective of one of my constituents. I received a number of constituent inquiries on this subject, but I highlight just one.

In 2008, one of my constituents was a pilot employed by Ryanair. His conditions changed and he was forced to become self-employed. He attempted to register as self-employed, and was asked a series of questions by HMRC, including, “Do I supply my own equipment?” Obviously he did not; Ryanair supplied the plane. “Can I work for who I want?” Absolutely not; he was on the Ryanair rota. “Can I nominate a substitute?” He could not, because he had registered with Ryanair and was allowed to work only so many hours. He could not honestly answer yes to these questions, and so could not become self-employed, although a number of his colleagues did. He, though, was an honest man, and he decided not to.

My constituent looked for alternatives, and found a company on the Isle of Man—a group of qualified and recognised accountants who, for payment, presented him with a legal solution, known as an employee benefit trust. He did not really understand the implications of that solution, but he did his due diligence, and found that it was indeed legal and acceptable to HMRC. He proceeded with that system for four or five years, and filled in his tax returns legally every year on time, declaring his usage of that scheme. He was made aware of the loan charge in 2019. He came forward to HMRC straightaway and offered settlement. He assumed HMRC would treat him as an employed person and charge him for the tax he was due to pay, so he waited for the settlement figures and, in the meantime, paid £30,000 in accelerated payment notices—in fact, an advance payment of tax.

That year, he received a bill of £213,000, almost half of which was made up of interest and penalties. There was no allowance for the vast expenses he incurred. Ryanair made him pay for taxis, hotels and even water, and he had no pension relief. HMRC did not deduct the APNs he had previously paid, and he had provided all this information. He is still in dispute with HMRC.

None of that is fair. This has been a life-changing experience for him and his family. He has been treated like a criminal. He has not evaded tax law, he believes he has acted legally at all times, and he refuses to allow HMRC to ruin his life due to its incompetence. He believes this is nothing more than bullying of individuals by an all-powerful and out-of-control Government body that should rather be pursuing the people behind such schemes.

I will keep my speech short, as I appreciate we are short of time. In the interest of natural justice and fairness, I support the motion:

“That this House believes that the Loan Charge is an unjust and retrospective tax; notes that the law on the Loan Charge was not settled until 2017; and calls on HMRC to cease action on loans paid before 2017.”

In 2018, when a group of constituents first came to my surgery to complain about their treatment by HMRC, I was not particularly sympathetic—they were talking about loan schemes, of course. After all, why should a group of people use schemes to pay less tax than the rest of us? If they do not pay their fair share, others have to make it up, or so I thought. I was actually too harsh, not because people should not pay their fair share of tax, but because I did not understand the circumstances until they explained their predicament.

First, the people I met were clearly not out to defraud the system. They did not look or sound like petty criminals. They were normal, decent and honest. Some explained that they did not even have a choice, as we have heard: either they used a loan scheme or they would not be employed by the company or, in some cases, the state.

Secondly, as self-employed individuals, they were often contracted to different entities. Nobody but themselves, from what they earned, put aside anything for pensions, sick leave, paid holidays or, indeed, guaranteed employment. They were much less secure than someone with a permanent job.

In the interest of being quick, I have four requests of the Minister. First, I would like to see the retrospective nature of the charge removed up until July 2017, when the Finance (No. 2) Act 2017 was introduced. That makes sense to everyone.

Secondly, if that is not possible, the Government should revisit the settlement terms, which are hugely punitive. We have just heard the hon. Member for Ayr, Carrick and Cumnock (Allan Dorans) say how punitive they are, and I would like to see a radical reduction in extortionate interest rate charges and inheritance tax demands.

Thirdly, we would all find it distasteful for the Government to send out settlement terms using words that imply people have deliberately broken the law—they did not. HMRC allowed the use of loan schemes every year. It sent the tax returns back, and people thought they were doing right.

Finally, I see no reason why loan charge repayments should not be delayed by a year, rather like IR35, in response to the health crisis we are all facing. So many people are worried enough at the moment. Give them a break—give them another 12 months.

Let me say from the outset that I am no fan of tax avoidance. The law on disguised remuneration schemes should have been—and now has been, rightly—tightened, but the aggressive retrospective action taken by the Government in pursuing the loan charge policy and the profound effects that this has had on many people’s lives are quite simply unjust and unfair.

A significant number of people affected by the loan charge policy, including some of my constituents, are freelancers, contractors, locums and agency workers. When IR35 was introduced by the Government of the day in 1999, some of those who were employed by limited company or personal service companies sought and took professional tax advice and were advised to use umbrella company loan schemes instead, as those schemes were “tax law and HMRC compliant”. Acting in good faith and following the advice to the letter, many entered into these loan schemes. In some cases, particularly in the public sector, people were not even aware that they were being paid through loans.

When the loan charge was introduced in 2017, seeking to recover a 20-year retrospective tax charge for all remuneration paid in the form of a loan, those affected were rightly angered and aggrieved, particularly as HMRC lumped all the loans together into one and insisted on the tax being paid in a single year. The shock and stress of such a draconian and unjust measure caused intense pressure on many of those affected and their families. There have been seven known suicides by people who are facing financial ruin as a result of the demands of backdated tax from HMRC, even though it is questionable whether the tax was even owed. Relationships have broken down, and it has affected people’s mental health.

It is worth noting that HMRC has pursued individuals acting in good faith, rather than those who enabled the disguised remuneration loan schemes. Thankful for small mercies, the fact that HMRC is now only pursuing schemes going back 10 years, instead of 20, is to be welcomed, but many individuals are still caught by the current situation. It seems that, unlike in other areas of law, statutory time limits are of no consequence.

When the Prime Minister was running to be leader of his party, he promised a review of the loan charge situation. That review was led by Sir Amyas Morse, and the report was published in December 2019. While I welcome the recommendations of the Morse report, many of which the Government have accepted, unfortunately it does not go far enough. The report also has one fatal flaw: it concludes that the law was clear from 2010. There were a number of ambiguities at the time, such as the situation relating to those who are self-employed. If the law was so clear at the time, why did HMRC not enforce the law then, but instead choose to introduce the loan charge in 2017?

As a member of the loan charge all-party parliamentary group, I call on the Government to do a number of things. I ask them to amend the date from which the loan charge applies from 2010 to when the Finance Bill received Royal Assent in 2017; to ensure that closed tax years remain closed; to ensure that those with incomes of under £30,000 have any outstanding balances written off after 10 years; and to ensure that legislation covers business owners and directors, as well as individual contractors.

The Government and HMRC’s reputation has been damaged by the way that they have mishandled the loan charge situation. One principle that must underpin our legal and tax system is that things should be just and fair. Unfortunately, the loan charge and its aggressive application has been neither just nor fair.

The hon. Gentleman talks about the system being just and fair. As British people, we uphold the rule of law. That is part of the very nature and fabric of Britain. Retrospective legislation, in itself, is against the rule of law.

The hon. Member makes an excellent and pertinent point. We are discussing tax going back 20 years, and retrospective legislation should not be applied in this situation, because that is clearly unfair and unjust.

We must consider that, beyond the financial aspects of tax recovery, we are dealing with real people who need to be treated with fairness and respect. We have a moral duty to ensure that no more homes are lost, no more bankruptcies are filed, no more lives are lost and no more families are broken because of the loan charge policy.

Like many of those who have spoken in this debate, I have met many constituents, during the election and since, who have been directly affected by this issue. I have had the chance to go through with them many of the contracts they have signed and some of the advice they received from many of the professionals, who, we would all agree, based on what has been said today, are the villains of the piece from the perspective of this House. I have heard many examples of where professionals were paid and people should have been able to rely on their providing good, clear and legal advice, but they have left those people in a difficult financial position today.

I sympathise with the position that Sir Amyas Morse found himself in, and I believe that what he has put forward in his report, although a number of points and concerns remain, represents a reasonable attempt at a compromise to bring about a resolution of this situation. It is my understanding that many of these legal cases revolve around the question of how we define a loan. The position of the Inland Revenue, as it was, and now of Her Majesty’s Revenue and Customs is that money that someone receives for doing their work and that they spend as their income is their income and should be taxed as such. The Inland Revenue and HMRC have always permitted both employees and directors to receive loans from the organisations for which they are working. Indeed, many of our constituents will have access to things such as season ticket loans, provided on a regular basis, which are free of tax because they are loans.

From reading the contracts that many of my constituents have signed and having heard in detail the advice that they received, it seems clear that at the heart of this is a fundamental problem: the schemes themselves were lawful because it was lawful to receive a loan, but the money the constituent received was tax-free only if it was genuinely a loan. But as five, 10, 15 or 20 years have gone by and there has been a complete absence of evidence that these things were genuinely loans, because the person has received that money as remuneration and spent it as their income, HMRC has naturally begun to take a lot more detailed interest in that, and this situation has left many of our constituents in a real bind.

I am mindful that, when we read Morse’s proposals, we see that he proposes a process of resolution containing a number of different avenues that the individual taxpayer affected can explore. I hope the Minister will consider that somewhere at the heart of this is making sure that individuals who acted in good faith, notwithstanding the fact that they were badly and incorrectly advised by professionals, should be enabled to have the benefit of the fact that they acted in good faith when they signed their tax return, even if the information on it, prima facie, was not correct. They were not intending to evade tax and thought they were doing something that was within the law.

In summary, I am also conscious that although we have heard a vocal campaign on this during the election campaign, 99% of taxpayers in this country never go near a scheme such as this. Quite a few of those taxpayers have said to me that they find it hard to credit that anybody thought that by describing the pay they received for their work on their tax return as a “loan” that meant they did not and never had to pay any income tax on it.

Jeff in my constituency, who is hard-working, played by the rules. According to the rules, as far as Jeff was concerned, and as advised by accountants and even by HRMC, everything was in order. He was doing a good job and paying his way. As Members from across this House have said, this is about fairness and justice.

Everybody in the Chamber is going to agree with that point, but fairness and justice clearly extend to this Chamber making decisions that are appropriate for everybody. I am very mindful of what my hon. Friend the Member for Beckenham (Bob Stewart) said about ensuring that everybody pays their taxes and everybody is treated fairly. I simply say this: there has understandably been a huge outpouring of sympathy towards people who did not expect to find themselves facing a very substantial tax bill because they thought they had done the right thing. I urge Ministers to be as helpful and as considerate as possible in approaching the settlement of that, but it is also clear to me, as someone who worked as a professional in the financial advice business—not as a tax adviser—when these schemes were being rolled out, that huge numbers of people avoided them, because they recognised that they were being asked to put something on their tax return that they knew was not correct. We therefore have to strike the right balance in how we deal with the issue today.

It is a pleasure to speak in this important debate. I will be brief and focus my remarks on two or three key areas that have been partially mentioned by some colleagues earlier. I thank the right hon. Member for Haltemprice and Howden (Mr Davis) for securing this debate and commend the work of the all-party parliamentary group and the cross-party nature of the debate today, which is helpful.

First and foremost, I put on record my fundamental support for a fair tax system. We obviously need to raise taxes to pay for vital public services, but that system clearly has to be fair. I think that the points made by a number of colleagues across the House on the matter are absolutely right, and I am grateful for the emerging consensus on the issue.

Secondly, I highlight the importance of the issue of the loan charge. The fact that this debate is taking place today in a period of sustained national crisis—indeed, it is a crisis for the whole world—is interesting, and it does underline the importance of this issue. I was approached about it a number of times during the general election, like many Members here today, and I have had constituents contact me about it. There is deep unease in the community, certainly in the constituency I represent, which is made up of Reading itself and the neighbouring town of Woodley, about the problem, which affects many people. I noted the figure of 50,000 people across the country. It certainly seems to be higher than that, given the proportion of people in my community who seem to be affected.

I draw Members’ attention to the effects on a typical town of its type, as Reading is, and specific industries where I believe there may be a particular likelihood of the problem arising. In the area I represent, a very large number of people are self-employed and have microbusinesses or work as consultants in one form or another. That is spread across a huge range of sectors, from traditional small businesses through to people with trades or IT skills and public servants. It is a vast range of people.

I want to add to the point made by my hon. Friend the Member for Ealing Central and Acton (Dr Huq) about locums in public services affected by the issue. I know of cases where a number of people in public services have to set up as a company and work on that basis, perhaps as a supply teacher or in some other interim role in public services. I should declare an interest, as I have certainly operated in that way in the past as an interim public servant. In the more distant past, I was a full-time civil servant. Locums are a well-known type of employment and a subset of those people—not all of them—are affected by the loan charge.

As well as my area, many other nearby parts of the country have similarly high levels of employment in IT. There is a particular prevalence of self-employment among IT professionals. If we think of the great IT businesses in this country—companies such as Microsoft, Oracle or Vodafone—many of them are headquartered in the Thames valley or west London. Many of those large businesses rely heavily on subcontractors who have often no choice but to set up a limited company that then serves the much larger organisation.

In my area, many people who are affected by the loan charge are in the IT industry. There are whole WhatsApp groups of people in parts of the IT industry that are buzzing with concern about the matter. As has been said, the issue ranges back over many years and there is deep uncertainty and pressure on these workers and their small businesses and, indeed, their families, because of this whole problem. As I said earlier, we are debating this issue at a time of national crisis. Imagine how that concern overlays itself on top of the existing pressures that we talked about earlier today and yesterday. Quite rightly, we in this House have discussed and raised with the Government the importance of supporting small businesses at this time of national crisis.

Imagine how it would feel to be a small business person or an IT subcontractor who was the breadwinner in their family. Their source of income could dry up because of this crisis, which is not of their making and that they have not anticipated. At the same time, they face the long-standing problem of the loan charge looming over them, with the very grave measures that other colleagues have mentioned today. Some of the examples that have been mentioned are truly dreadful. Imagine that pressure. That is what we need to do today—to think about what it feels like for somebody who is a small business person or self-employed. I know the Minister is dutiful and well-read and, as was said earlier, he has written a biography of Adam Smith. I hope that he will look again at the evidence clearly and thoroughly and in the context of the current situation affecting small businesses.

I thank the Backbench Business Committee for allowing the debate when I know it had a backlog of requests on many important issues. I also thank my fellow sponsors of this debate, my fellow chairs of the loan charge APPG, particularly the right hon. Member for Kingston and Surbiton (Sir Edward Davey), and the right hon. Member for Hemel Hempstead (Sir Mike Penning), who cannot attend today because he is dealing with a family medical emergency. We wish him well.

I also thank the officers of the loan charge APPG and the action group. I can confirm that the three co-chairs of the APPG, from three different parties, all endorse the APPG report that was released tonight and is on our website. It is a pleasure to follow so many Members who have described in vivid terms the experiences of their constituents, so I will not dwell on those too much. I have similar experiences.

This is a time of incredible worry for most people in this country for their loved ones, their neighbours and themselves, and many of our constituents—perhaps most of them—are facing catastrophic and even absolute loss of income. While this debate is wholly unrelated to the covid-19 virus, for the victims of the loan charge scandal, who are already worried about their financial futures, the coronavirus outbreak only heaps more agony on top.

I agree with the points that others have made about tax avoidance, but this is not about tax avoidance, which we abhor and would like to see closed down. This debate is about natural justice, as has been said by so many. When the APPG started, the Treasury and former members of the Government said there was no problem with the loan charge and it was a perfect piece of Government policy. They said there was no need for a review of the policy. The right hon. Member for Kingston and Surbiton tabled an amendment calling for a review, we had a debate in the Chamber almost a year ago and a Treasury report that was a whitewash, frankly. Meanwhile, more and more Members were being contacted by worried taxpayers describing the bullying of HMRC and their fears for themselves, their families and their work. We kept standing up, we kept asking questions and we kept lobbying Ministers.

The Prime Minister, in his leadership bid, promised to hold a full review of the loan charge. We have had the review, led by the highly respected Sir Amyas Morse, whose report was released on 20 December, and on the same day, HMRC released its response. For taxpayers, the Morse review means that they are looking to the future, but I have heard several extremely troubling cases from my constituents who face the loan charge. This is about HMRC behaviour. In one case, my constituents provided all the information asked for and heard nothing back for two years. They received a note from HMRC saying they were facing the loan charge with interest added, including for the two years when they had had complete radio silence from HMRC. How is that justified or proportionate? Based on evidence to us, and I assume to Sir Amyas, along with casework and conversations with colleagues, including some casework wholly unrelated to the loan charge, it feels as though HMRC is just not capable of providing a competent service.

Others today have rightly mentioned the anxiety and uncertainty of taxpayers as they are chased for almost immediate payment of sums that they just do not have, and without any justification for the amount demanded. Usually, any previous information that they may have sent to HMRC is completely ignored.

I just want to touch briefly on poorly paid and vulnerable people. The Morse review recommended that, after 10 years, the loan charge should no longer apply to people who earn less than £30,000 a year, but the Government rejected that recommendation. Let us remember that many of these people are working in the public services—in the NHS and local authorities—and many of them do not have accountants. Many were effectively in a position where they were told that, if they wanted this work, they had to sign up to this umbrella scheme. The head clients will now no longer contract with personal services companies, so these umbrella schemes are all that is available to them.

We have social workers, junior doctors, nurses, cleaners and so on facing many charges year after year. To address this injustice, Sir Amyas made a reasonable request. It was that HMRC should not chase loan charge payments between 2010 and 2016 if the individual made a reasonable disclosure, but the words “reasonable disclosure” were changed by the Treasury to “full disclosure”—a term which, according to tax experts, has little or no relevance in tax law.

Where do we go from here? For months and months, we have heard the Government say that this is not a retrospective matter, yet they made an agreement with Sir Amyas Morse and shifted the date from which the loan charge applied from 1999 to 2010. If they can change their mind once, surely they can do it again. If the Government can defer the roll-out of IR35 to the private sector, as they did earlier this week following extensive concerns, they can change their mind on the loan charge, I hope. The new suggested cut-off date of 29 December 2010 is based on the law being clear, yet we know now that this was not the case. If the law was clear then why did we need the loan charge and another change in legislation in 2016?

I would like very briefly to list some of the concerns that are in our report but that have not yet been raised in this debate—[Interruption.] Madam Deputy Speaker is coughing at me, so I urge anyone reading Hansard or watching this debate to please look at the report that we released last night. It is on the Loan Charge Action Group and the loan charge all-party group website.

In finishing, let me return to a core question. Is applying the loan charge from 2010 justified and proportionate? The answer to that from the all-party group is, no, it is not. I would go further and ask: is HMRC abiding by Adam Smith’s principles of fair taxation, which were mentioned at the beginning of this debate? Furthermore, are HMRC and the Treasury abiding by the Nolan principles of public service, particularly selflessness, objectivity, accountability, openness, honesty and leadership? I urge the Government to listen to the strong opposition to this retrospective, unjust and unfair tax and, quite simply, to do the right thing.

Madam Deputy Speaker, I will obey your instruction to be brief by merely commending the contributions to this debate from the right hon. Member for Haltemprice and Howden (Mr Davis) and my right hon. Friend the Member for Kingston and Surbiton (Sir Edward Davey).

I merely add that, as a member of the accounting profession, I have been somewhat abashed during this debate. We are not coming out of this well. I was contacted by a constituent of mine, Dr Nausheed Baig, who is an NHS dentist. He is there to practise the skills of dentistry. He takes full responsibility for his tax affairs, and he does that by consulting a professional tax adviser. I believe that HMRC should always take into consideration the fact that taxpayers, in taking responsibility for their affairs, are not expected to be tax experts themselves, and it is perfectly reasonable and rational to consult and take advice from qualified accountants such as myself—I have never charged for tax advice, so I do not have a declaration to make.

I wish to raise the case of another constituent of mine, Mr Michael Bilton, who is now retired, and his wife is on the verge of retirement as well. Between them, they take care of their disabled daughter. Mr Bilton was in a loan scheme prior to 2010 and received notification only a few years ago of the large sums of tax that he was now required to pay. He has already paid a considerable sum. The outstanding liability is of considerable concern to him, as he and his wife prepare for retirement and to take proper care of their disabled daughter. I urge the Minister to think about those people who have already paid large sums. Sir Amyas Morse has confirmed that anything prior to 2010 should not be liable to a charge. I urge the Minister to consider rebates for those people who have paid vast sums already into a scheme that has now been judged not to give rise to a charge. I realise that there are considerably more pressing issues, but if that could be attended to in due course, I would be extremely grateful.

I, too, congratulate the right hon. Member for Haltemprice and Howden (Mr Davis) on securing this important debate at a time of national crisis. This is a crisis for 50,000 people across the country, and it will exacerbate the already difficult mental health and economic situation they face. I welcome the agreement we have heard across the House during the debate.

Let me make it clear at the outset that the debate is not about protecting and keeping in place loopholes and avenues for tax avoidance. I join other Members in saying that tax avoidance is a scourge, and any initiative or legislation aimed at tackling it has my full support. However, I do not support cruelly punishing more than 50,000 people and their families—hard-working entrepreneurs who acted in good faith—and often driving them to suicide. I have met many constituents at surgeries who have been in tears as a result of the effect of this issue on their family.

One constituent was hit with a bill for £158,000 plus interest five years after retiring. There is no way that he can repay that charge. He was advised by his accountant in 2007 that entering into employment via a loan remuneration scheme was entirely legal. That is a theme among the constituents who have come to see me. They say they found out that these schemes were QC-approved, they felt they were entirely legal and they did their due diligence, but the law has failed them. Although the Government’s decision to accept most of Sir Amyas’s recommendations is a very welcome step, the loan charge is still grossly unfair and is destroying lives in my constituency and across the country.

In the interests of time, I will cut to the six changes that I urge the Minister to consider. First, he should call off the dogs during the coronavirus situation and remove the threat of these huge charges from our constituents. This is a mental health crisis for many people. Secondly, the date that the loan charge looks back to should be amended from December 2010 to the date of Royal Assent of the Finance Act in July 2017, as the law was not clear.

Thirdly, the Government should accept the Morse review recommendation that unprotected or closed tax years should remain closed. Fourthly, they should accept the Morse review recommendation that people with incomes of under £30,000 should have any outstanding tax balances written off after 10 years of making a genuine attempt to pay on the terms that have been announced. Fifthly, the legislation must treat business owners and directors equally with individual contractors. Finally, anyone still using these schemes—I was astonished to find out that that is still going on—should be told immediately of the liabilities that they face.

We have to tackle tax avoidance, but using retrospective charges, which are ruining the lives of hard-working contractors and entrepreneurs and putting them in hundreds of thousands of pounds of debt overnight, is not right or just. The companies that promoted these schemes should be penalised, and the Government should accept the blame.

Let me first congratulate the right hon. Member for Haltemprice and Howden (Mr Davis) on his brilliant introduction to this issue and on standing up for the victims of this scandal—and it is a scandal. I am a proud member of the all-party parliamentary loan charge group.

Two constituents, Fraser Kennedy and Jason Millington, have been in regular contact about this issue. Indeed, one Monday morning, as I was travelling down to Westminster, I got the fright of my life when I saw the number of Twitter notifications I had. It surprised me because it had been a quiet weekend, so I knew I had not said or done anything particularly controversial—at least not that particular weekend. It was a tweet from Jason Millington, who said that what had kept him going was that he had the support of me and so many other MPs in fighting this injustice.

I congratulate my hon. Friend on avoiding controversy and recommend that for all Scottish National party MPs.

I have had two constituents get in touch and I have tried to make representations on their behalf, because they found themselves in a situation that they absolutely did not intend to be in because of the information that they were given. Does this not show the importance of constituents getting in touch with us? I understand from the people running the all-party parliamentary loan charge group that there may be more such constituents out there, and it is very important that they contact their MPs so that we can give them tailored advice and support.

My hon. Friend is right; that is very sound advice. Everyone who has spoken so far today has been a credit not just to the House, but to their constituents, because there are far too many people—such as my constituents, his constituents and others—who are in despair because of this issue.

On the importance of Members of Parliament speaking up, is the hon. Member concerned, as I am, that effectively, HMRC is smearing constituents as tax dodgers and adding to their mental anguish, rather than trying to assist them through this process?

I am not only very concerned, but angry about some of these actions and what I have heard today about what HMRC is up to. I will speak more about that.

When constituents such as Fraser Kennedy and Jason Millington come to us to discuss this issue, three immediate things leap out at us. This has come up in the debate, including in a fantastic example from my hon. Friend the Member for Ayr, Carrick and Cumnock (Allan Dorans). In this Parliament, we really need to deal with the relationship between an employer and a worker and their status in the workplace, because it really is time to end the bogus self-employment that we have heard about in this debate and in other examples. This needs to be addressed because what this issue has proven is that the wrong people are being targeted.

The hon. Member for Beckenham (Bob Stewart) said that when people first come across this issue, it looks like some sort of tax avoidance scheme, and I think it is perfectly natural for someone to think that when it is first explained to them. In the back of my head, when I first heard about it, I thought, “Well, maybe I will approach HMRC as an MP and try to get the same sweetheart deal that Google got only a couple of years ago,” when it paid the equivalent of 4% corporation tax. It seems that there is a disproportionate way that the people who have been caught up in the loan charge are being dealt with compared with other people who can get a sweetheart deal. That is how I thought I could try to deal with it, because if the answer is, “Yes, it is tax avoidance”, then the people HMRC should really be going after are those who contrived and promoted such schemes, because they are the ones who are directly responsible. They should be pursued and punished, and there should not be the blunt instrument that is being used for those caught up in the loan charge.

The third conclusion is, as the hon. Member for North East Bedfordshire (Richard Fuller) said, that there have been disproportionate actions from HMRC towards the individuals who have been caught up in this and how they feel. My constituent, Fraser Kennedy, sums it up well. His employer, Winchester, assured him and HMRC that it had paid all the tax and moneys, but he is still getting chased by HMRC. He feels bullied and harassed, and is suffering from stress and anxiety because of how it has handled the matter. He believed that it was settled a year ago, but he is still getting correspondence.

The hon. Member’s speech perfectly sums up the problem for many of my constituents in Eastleigh. So many times, they get a letter and desperately try to get through to HMRC, but there is no constructive dialogue with HMRC. Does he agree that we need a better bespoke team to work with the people affected by these measures?

I entirely agree. The hon. Member’s constituents in Eastleigh and my constituents in Glasgow South West will have the same feelings about this matter and how they are being treated.

Jason Millington emailed me his thoughts last night, because he knew that the debate was today. He said that he when he was advised of the changes in 2016, he stopped immediately and put his affairs in order, totally unaware that HMRC was looking for back taxes. The requests that are being made are entirely unreasonable. The stress of not knowing how he can ever repay what HMRC is looking for is having a serious impact personally, and indeed professionally. I do not remember the tax avoiders such as Google complaining publicly that they were feeling bullied and harassed, or that they were under stress or feeling anxiety. It seems appropriate to point out, as many hon. Members have, that if the law on tax was changed in 2017, that is when the law should apply from. Going back to 2010 is entirely unreasonable. I support the motion.

It is a long time since I read Adam Smith, but as I recall, the fourth maxim goes along the lines of, “Take from the taxpayer only that which is needed for the public realm.” Of course, the converse of that is that the more people do not pay their taxes, the more the rest have to pay to balance up, so Adam Smith’s statement is not absolutely unambiguous.

As almost everyone has said today, tax avoidance should not be allowed. It should not be encouraged. It should be discouraged in any way possible, because the rest of us who do pay our taxes have to support those who do not, so I do not have a problem with the concept of clamping down on tax avoidance. Retrospection has been used since the second world war, but it has always been commensurate with the needs of the nation. I do not want to get into a big argument about retrospection, but the issue is there. An excellent document from the House of Commons Library sets it out perfectly reasonably, and people have to take their own view.

I completely accept that many people took advice from a variety of organisations and that advice was wrong. I do not dispute that. These enablers ripped people off. Their scams were like other scams we have had, whether it is the recent leasehold scam, the payment protection insurance scam, or the endowment mortgage scam. These scams have existed for a long time, as the south sea bubble scam shows. They go back an awfully long time—

Before my time.

Precisely—before the right hon. Gentleman was a Member, although not much before, I imagine.

It might be dangerous to intervene here, but I am quite sure that a lot of these financial analysts and chartered accounts honestly thought they were doing the right thing and everything was legal. They acted in good faith. I do not suppose that all of them were slightly dodgy.

Well, that is a view. The hon. Member for Thirsk and Malton (Kevin Hollinrake) talked about how something that looks too good to be true is too good to be true. People have to take that on board when they become in involved in such schemes, as lots of people have, right across the spectrum, from those who are pretty wealthy all the way down to people who earn quite small sums.

It is the responsibility of this House to ensure that people are treated fairly. I do not want to get into the argument about whether HMRC has treated people fairly or unfairly. I accept in good faith what Members have said today about how their constituents have been treated. That has to be set in the context of the issue of HMRC’s resources. A third of its staff have gone since cuts in 2005 and later in 2010. Any increases in the cash amounts available to HMRC for its running have, in effect, been blocked. That is a factor that we must take into account as well.

The primary issue here is whether the enablers—the people everybody has talked about today—are getting away scot-free. I suspect that the Minister will tell us the extent of the Government’s and HMRC’s action to tackle these enablers, but I suspect that it will not be enough and the Government will have to sharpen up their footwork.

Whether HMRC has been aggressive is, again, a moot point. However, we know some of the enablers have also been incredibly aggressive. The Rangers FC issue trundled on for the best part of 13 years, with enablers—the accountants and lawyers—taking it right to the line and beyond, so let us not pretend there was not aggression from those who were attempting to push and push the boundaries, hence the reason for commensurate potential retrospective legislation.

I do not want to take much time, and everything has already been said today. It is important not just that the letter of the report and all its recommendations are put in place, but that the spirit of the report in relation to closed cases and so on is taken into account, and specifically the recommendation for a £30,000, 10-year limit, which the Government rejected.

The Government should have a word—I put it as gently as that—with HMRC about people’s perception of how it has behaved. It is important for Ministers to get that view across to HMRC. As the hon. Member for Ruislip, Northwood and Pinner (David Simmonds) said, it is about balance. We need balance in dealing with this matter, and I hope the Government can get that balance right.

I congratulate my right hon. Friends the Members for Haltemprice and Howden (Mr Davis) and for New Forest East (Dr Lewis) and the hon. Member for Brentford and Isleworth (Ruth Cadbury) for securing this debate today, and I thank colleagues on both sides of the House for their contributions. It is a measure of the effect they perceive on their constituents that, in these circumstances, they are here in such numbers.

The outbreak of covid-19 has created extraordinary circumstances, and it is important to say up front that the Government are keeping the situation under close review, as elsewhere, and will take a proportionate and reasonable approach to anyone covered by the loan charge who is unable to file their return by 30 September. That date has been moved back to give people enough time to respond to the Morse report and its recommendations, but the Government will insist that HMRC takes a proportionate and reasonable approach to anyone covered by the loan charge who is unable to file their return by 30 September.

Anyone who believes they may be affected by this should please contact HMRC as soon as possible. Equally, we must recognise that HMRC’s workforce may well be affected by the outbreak. Where appropriate, HMRC has made it clear that it will take steps to support anyone who has been disadvantaged by delays at its end as a result of covid-19. As the House will know, HMRC has already established a helpline to support any businesses and individuals affected. The hon. Member for Bootle (Peter Dowd) raised that issue, and I can confirm the helpline has now been in place for some time and has an expert and supportive staff behind it.

As this debate has made clear, the loan charge, and with it the wider issue of using disguised remuneration schemes to avoid tax, has been the subject of public concern and considerable controversy. Let us be clear that tax is never popular, and my colleagues and I recognise the strength of feeling and sympathise with those who may be subject to the charge. Today’s motion reflects some of the arguments and concerns expressed by colleagues that the loan charge is retrospective and unjust and that the law was not settled, it is claimed, until 2017. If I may, I will deal with each of those charges in turn.

First, however, we need to be clear what we are talking about. Disguised remuneration is a term of art—it is a fancy term—but the House should be under no illusion as to what it amounts to. Such schemes are a form of contrived tax avoidance in which people are paid in the form of a loan with no interest and no intention or requirement to pay the loan back.

If it were so clear and the schemes were so contrived, why did HMRC not point that out to people at an early stage, so that they would have seen what they were letting themselves become vulnerable to?

I thank my right hon. Friend for the question. All he needs to do is attend to the detail of the Morse report, in which Sir Amyas Morse goes through the efforts made at that time, before and after 2010, in some detail. That is the basis for the judgment that he reaches about the appropriate relief.

The Morse review also suggests that the main people responsible were the creators of such schemes, who do not seem to be getting chased up to the same extent as those who appear to be the victims of the schemes.

I take it that the hon Gentleman rightly refers to the enablers and promoters of such schemes. As he knows, I take that extremely seriously, and I have insisted on that point ever since I became Financial Secretary. I will say more about that shortly.

I return to the point that such schemes were contrived tax avoidance schemes that were typically run through an offshore vehicle. A person would receive a monthly amount of pay, often deliberately set at or around the level of the personal allowance to maximise the tax avoided, and above the national insurance lower earnings limit, so as to qualify the person concerned for the national insurance contributions required to receive a state pension. Of course, that did not reflect the person in question’s true earnings because, alongside that payment, they would receive a further top-up payment described as a loan. In many cases, the top-up payment far exceeded—often by a large multiple—the salary element declared for tax purposes.



Those facts are not genuinely in doubt, and all Members who have taken part in the debate have rightly condemned tax avoidance, but I put them on the record again because they highlight how contrived that form of tax avoidance typically was. They also go to the root of the problem.

My right hon. Friend the Member for Haltemprice and Howden raised the issue of thesauruses and dictionary definitions. Let me remind him of the difference between a dictionary definition and a thesaurus. A thesaurus gives an alternate word of supposedly the same meaning. A dictionary definition tries to explain exactly what it is that is being talked about.

The dictionary definition of a real loan is,

“an amount of money that is borrowed…and has to be paid back”.

That accords with our natural experience, as hon. Members will discover if they try to take out a business loan from a bank and not pay it back. If they try to take out a mortgage and not pay it back, they will find the same to be true.

Those loans, however, were not designed to be paid back. They were rather different from loans that might be made to employees that then get written off, on which tax is typically chargeable. They were not designed to be paid back. They were employment income in disguise, so they were subject to tax.

I am not in a position to take the right hon. Gentleman through the legal arguments, and I do not need to, because, as I have said, they have been described in detail by Sir Amyas Morse in his review which, of course, is based, as my remarks would not be, on a detailed interrogation with tax experts on all the specific issues behind it. I do not think we have any sensible reason—no one has in fact offered one—for disagreeing at length or in any detail with his conclusion.

The Minister knows that I have all the time in the world for him, but nobody in this House disputes the fact that it was tax avoidance and that loopholes needed to be closed. He is spending his time explaining why they were avoidance schemes, but hon. Members understand that. It is the question of retrospection and unfairness that is exercising us in this debate.

I am very grateful to the hon. Gentleman, but if I may say so, I do not think that has been true. I think the conclusion colleagues have been pushing in this debate is that they disapprove thoroughly of tax avoidance, and their view is that this is not tax avoidance in many cases. If they accept that this is tax avoidance and that the issue is merely as to the remedy, that is of course a slightly different position, and one that I am happy to respond to.

I just want to make it clear that this is a form of tax avoidance. It goes to the wider issue as to whether people should have known what it was. The point is that it is tax avoidance, and it costs the Exchequer hundreds of millions of pounds a year. That has two effects: it deprives public services of the money they need to operate; and it forces other taxpayers to pay more to make up the shortfall.

The purpose of the loan charge was to combat this form of abusive tax avoidance. The loan charge was introduced as a new measure in 2017. Following a public campaign last year, we asked Sir Amyas Morse, as has been noted, to conduct a review of whether it was an appropriate policy response to the use of the disguised remuneration scheme. He had full control of the review’s management and recommendations. He took evidence from a very wide range of individuals affected, and he spoke to interest groups, MPs, tax specialists and many other stakeholders.

Again, the facts are not in doubt. Sir Amyas Morse, as has been recognised by colleagues today, is an individual of huge experience and great independence of mind, and he is widely respected across the House. He was independent in his review, and he was given wide scope in expert support. He produced a thorough and exacting piece of work—a 76-page, 30,000-word report—that drew on over 700 individual testimonies and impact statements, and which painstakingly worked through the issues before recommending notable changes to the policy, including substantial carve-outs as to who was affected. Sir Amyas was clinical and at times unsparing in his criticisms, including of Her Majesty’s Revenue and Customs and, be it said, of the Loan Charge Action Group. All but one of these recommendations were accepted by the Government.

Among those recommendations were two to which I want to draw the House’s particular attention. The first is Sir Amyas’s insistence, as we have heard across the House today, on the need for the Government to go further in going after and bringing to justice people who enable or promote tax avoidance schemes. I am therefore delighted that, as part of the Budget documentation we have produced today, we have published a policy document on “Tackling promoters of mass-marketed tax avoidance schemes”, and I draw the attention of all colleagues to it. It is a sober and thorough piece of work that looks at lots of different approaches as part of an integrated strategy.

The other thing that Sir Amyas pointed to—again, I think rightly, but also picking up on a widely anticipated and understood gap—is the importance of raising standards in the tax advice market. Again, I am pleased to say that, as part of the Budget documentation, we have published a call for evidence on this very topic, “Raising standards in the tax advice market”. I encourage all colleagues and their constituents to contribute to that approach.

I thank the right hon. Member for the points he is making about advice and information. However, I again come back to the fact that the low-paid and the averagely-paid—generally public sector workers—are still being sold these schemes. They cannot be paid through a personal services company, but they need to work freelance and locum, and this is still happening to them. If the Government see these schemes as contrived, why are they not doing more to stop the mass marketing of them, such as by making the promoters personally liable for defeated schemes and similar?

I have in my hand a detailed document designed to address this very issue. It goes through a whole range of different approaches and integrates them into a strategy. I would be delighted to have any input that she would like to make about other ways in which that can be improved and developed. We work on the basis of the law as it presently stands, and which we have inherited. It is itself the result of previous Parliaments, including of course the parliamentary consideration of the loan charge. We have to work with the hand we have got, and improve it as fast and as comprehensively as we can.

I will now address the motion directly and then, in the limited time I have, turn to the comments that have been made. Is the loan charge retrospective? Again, I think it is clear that it is not. It was introduced as a new measure in 2017. It taxes a loan outstanding at a future date. It does not change any law previously on the statute book.

It has been asked why the loan charge was introduced. In the words of Sir Amyas Morse, it

“offers an expedited means of collecting tax that is due”.

Is the loan charge unjust? Again, I would suggest not. If one asks the average man or woman in this country, I think they would say, “Everyone should pay their fair share of taxes. People are responsible for their own tax affairs. Real loans get repaid; if someone offered you a loan for which no repayment, no tax and no interest was due, it would probably be too good to be true.” And so it is.

The numbers seem to bear that out. More than 99.8% of the tax-paying population have never used a scheme. Even among the freelance population, the take-up has been only 2.5%. It is notable that Sir Amyas Morse was clear that he supported the essential purpose of the loan charge and that it should remain in force.

We have heard a lot about how the law was not settled in 2017. Again, as I said, I can do no better than refer colleagues to section A of the Morse review, which carefully reconstructs the history of the past 20 years of disguised remuneration.

Let me quickly turn to the many excellent contributions that have been made. I will start with the excellent contribution made as a point of order by my right hon. Friend the Member for New Forest West (Sir Desmond Swayne), who pointed out the excellence of my book on Adam Smith—I thank him for that, although I defer to the hon. Member for Kirkcaldy and Cowdenbeath (Neale Hanvey), as Kirkcaldy was, of course, Smith’s home town. My right hon. Friend the Member for New Forest West will recall—he taught economics so he must know about these things—that Smith not only set out the ideals of a well-functioning tax system, which we all aspire to achieve, but was, for the last 12 years of his life, a practising commissioner of customs, attempting to wrestle with an ever-evolving customs market and seeking to extract duty and tax due, and rightly so.

I would like to touch on the statesmanlike comments of the hon. Member for Bootle, the shadow Chief Secretary, which perhaps reflected his imminent expectation of taking my seat on this side of the aisle. He recognised that what people do not pay in tax due, someone else must. He is right about that. He noticed that if it looks too good to be true, it probably is. He is right to focus, as others have, on the enablers and promoters.

Will the Minister give way?

I have half a minute left. The right hon. Gentleman has only just arrived, so it is a little impertinent to raise a question at this point.

It is important that we focus on the centrality of the claim. Sir Amyas Morse has looked at it, and he has attempted to find a Jupiterian way through complicated tax issues and to deal, with equity, with the different interests and parties involved. I think he has succeeded, which is why the Government, comprehensively, with one exception, have accepted his conclusions.

These occasions often show the House at its best, and that is certainly true today.

I start by paying tribute to the Loan Charge Action Group, the all-party group—particularly its chairman—and all who have contributed in the debate, which has been excellent, albeit slightly one way in terms of its emphasis. Why is that? Because this is a matter of justice, not technicalities. It is a story of unclear law not very competently clarified in 2011 and then rewritten in 2017. It is a story of HMRC allowing the real villains—the employers and advisers who forced people into this position—to carry on getting away with that, and of HMRC failing to intervene during that period to stop them.

I am afraid the Morse review is wrong. That was brilliantly exposed by the chairman of the all-party group. There is, in truth, only one answer, but before I come to it, I have 40 seconds, so I will say one other thing to those on the Treasury Bench and the Opposition Front Bench. All of us in this House believe in fair taxation. We all believe that we should pay our dues. When you are doing deals with Vodafone and Google, where they pay from 10% down to 4%, do not turn round to an ordinary locum nurse and say, “It’s too good to be true. You should have known.”

Will my right hon. Friend give way?

No, I will not. I only have seconds.

There is only one answer in this debate. I am afraid that Amyas Morse is wrong. The answer is laid out in our motion. HMRC should cease action on all cases before July 2017, and then justice will be done.

Question put and agreed to.

Resolved,

That this House believes that the Loan Charge is an unjust and retrospective tax; notes that the law on the Loan Charge was not settled until 2017; and calls on HMRC to cease action on loans paid before 2017.