Greg Mulholland (Leeds North West) (LD): I thank the Minister for being so accommodating in giving way. Looking at part 10 of the Bill and given the pressure the Prime Minister has been under this week, with the Panama papers and the statement today, I wonder why the Bill does not include a measure to allow HMRC to name and shame publicly those who are involved in tax avoidance not after the third warning but after the first warning, and so send a much clearer signal?
Mr Gauke: I will discuss avoidance and evasion shortly, but on that specific proposal, we have strengthened HMRC’s capabilities in this area. The ability to name and shame facilitators of tax avoidance was introduced by this Government, and I think it is right that we have done that. As for the precise process, we think the balance is about right—it is difficult to see that there would be a substantial difference in terms of effectiveness if action were taken earlier. The whole idea of the regime was introduced by this Government.
As well as helping working households, the Government are committed to creating a nation of savers. In the Bill, we legislate to increase the personal savings allowance from April 2016, meaning that basic rate taxpayers will pay no tax on their savings income up to £1,000 and higher rate taxpayers will pay no tax on their savings income up to £500. As a result, 95% of taxpayers will pay no income tax on savings.
While supporting savers, we must also ensure that support is well targeted. The pension lifetime allowance is currently set at £1.25 million, but 96% of individuals now approaching retirement have a pension pot worth less than £1 million. We want a system that is targeted and sustainable and supports the majority of those approaching retirement. That is why the Bill reduces the pension lifetime allowance to £1 million—a change that will affect only the wealthiest pension savers.
The Bill also implements long overdue reform of the outdated and complex dividend tax system. The current system was designed at a time when total tax due on dividends was as high as 80% for some taxpayers; it also provides incentives for individuals to set up a company and pay themselves through dividends to reduce their tax bill. For those reasons, the Government are modernising and simplifying the dividend tax system by abolishing the dividends tax credit and replacing it with a new £5,000 tax-free allowance. The Bill also sets the dividend tax rates at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. Some 95% of all taxpayers and more than three quarters of those receiving dividend income will either gain or be unaffected by the changes.
Supporting home ownership and first-time buyers is a key priority for the Government. Although people should be free to purchase a second home or invest in a buy-to-let property, that can affect other people’s ability to get on the property ladder. The Bill therefore implements higher rates of stamp duty land tax for the purchase of additional residential properties that are three percentage points above the standard rates.
I have been made aware that the Bill as drafted might lead to some main houses with an annexe for older relatives attracting the higher rates of SDLT intended to apply to additional properties. I thank my right hon. Friend the Member for Brentwood and Ongar (Sir Eric Pickles) for bringing that to my attention. I am happy to
reassure the House that that is not our intention and the Government will table an amendment in Committee to correct the error and ensure fair treatment for annexes.
Sir Eric Pickles (Brentwood and Ongar) (Con): I am most grateful for that clarification from the Government. It is important in terms of social policy, as annexes are used not only by elderly relatives but by other family members, disabled children with special needs and so on. The Government are making an important statement that these annexes should prosper. I hope my hon. Friend will forgive me for saying that I will look carefully at the detail of the amendment, but I am grateful for the courteous way in which he dealt with me.
Mr Gauke: I am grateful to my right hon. Friend for the courteous way in which he dealt with me, too. He achieved a great deal in his role as Secretary of State for Communities and Local Government by addressing the issue in the context of council tax. He will find in this case—and he will want to look at the details, as we are going a bit further than council tax rules to provide support and reassurance to families—a small number of transactions are affected by the measure, but it is important that we provide clarity. We certainly do not want to discourage people who wish to create an annexe for an elderly or disabled relative, providing them with support close at hand.
The measures that I have outlined are important, and help working people to keep and save more of what they earn while ensuring that we have a modern and targeted tax system. I should like to address briefly an important issue that we discussed in the Budget debate: VAT on sanitary products. We heard people’s anger loud and clear, and we said that we would fight for agreement to reduce the VAT rate to zero, and all European leaders agreed our plan to do just that. Last week, the European Commission action plan on VAT was published, and it is an important step towards a common-sense VAT system that works for British businesses and people. The Government are committed to making that change, and let me make that point to those who have raised it, including the hon. Member for Dewsbury (Paula Sherriff), who is in the Chamber, and other hon. Members. I am proud that in the Finance Bill we are legislating to enable zero VAT rates for women’s sanitary products.
Mr Christopher Chope (Christchurch) (Con): I congratulate my hon. Friend on the progress he has made. Why does clause 115 say that the measure will not come into effect when the Bill receives Royal Assent, but is subject to the Treasury introducing a provision at some later stage? Why can we not legislate on this in the Bill without any qualification?
Mr Gauke: It is customary, with changes in VAT rates, to give retailers notice. It is not usual for VAT changes to be put in place on the date of Royal Assent, as notice is usually provided. I reassure my hon. Friend that the intention is to provide a short period of time, following Royal Assent, in which retailers will have an opportunity to adjust prices. This is no desire by the Treasury to kick this into the long grass—we want to make progress on the matter.
Alison Thewliss (Glasgow Central) (SNP) rose—