Brexit & EconomyPoliticsFinancial Secretary to the Treasury on Brexit, Spring Statement, Making Tax Digital and Carillion

Financial Secretary to the Treasury on Brexit, Spring Statement, Making Tax Digital and Carillion

Accountancy Age caught up with the Financial Secretary to discuss what 2018 holds for the Treasury, including progress with Making Tax Digital, timeline for Brexit negotiations, what to expect from the Spring Statement and the fallout from the Carillion collapse

It’s been a busy seven months for Mel Stride following his appointment as Financial Secretary to the Treasury in June last year. Accountancy Age caught up with the Financial Secretary to discuss what 2018 holds for the Treasury, including progress with Making Tax Digital, timeline for Brexit negotiations, what to expect from the Spring Statement and the fallout from the Carillion collapse.

What were your highlights of 2017 as Financial Secretary to the Treasury?

When I came into this role, the first thing I had to get to grips with was a very large Finance Bill which had come out of the previous Budget – 770 pages compared to the one that I’m taking through at the moment, which is probably about 150 pages. It was the first time I’d taken a bill through as a minister because I’d previously been in the Whips’ Office, so that really was jumping in at the deep end.

But it really was a great learning experience for me, so I guess my highlight would be having taken that huge bill through the Commons through all its stages and now seeing it go onto the statute book.

What are your key areas of focus for 2018?

There’s another Finance Bill and within that there’s a lot of important things particularly around tax incentives for businesses – we’re putting through the R&D expenditure credit rise from 11% to 12%, and we’ve got a lot of changes to the Enterprise Investment Scheme and Venture Capital Trusts. The Patient Capital Review has been held and the bill is implementing a lot of recommendations of that to make sure that we get money into these high growth, high-risk areas rather than into capital preservation schemes, where these investments are largely just benefiting from tax breaks rather than being a good investment from a growth point of view.

We’ve got a very strong record of clamping down on tax avoidance, evasion and non-compliance. Since 2010, we’ve brought in or protected £160bn in revenue – a huge amount of money for our public services – and there are further anti-abuse measures in this bill, particularly clamping down on VAT fraud from online sales where traders – particularly overseas – are selling goods and not actually charging VAT, which of course disadvantages our local domestic high street operators who are doing the right thing and paying the tax.

And then also in the bill, we’ve got the first-time buyers relief, which we think is very important in taking away one of the critical barriers that particularly younger people have around getting on the property ladder – that’s the upfront costs of buying. By taking a lot of the stamp duty out, we’re making it easier for people to get that deposit to get them on the property ladder.

It’s the great mission of our age is to build houses and try and sort out the housing issue.

Do you have specific targets for the anti-avoidance initiatives that you’re introducing?

We’ve specifically invested in HMRC in the budget – £170m to chase a further £4.8bn over the next five years. But more generally the tax gap is now at a historic low at just 6%. I’d like to see that number come down further and we will do that by constantly finding all these loopholes and areas that need to be tightened up and legislating as quickly as we can to shut those down and make sure that people pay their fair share.

How will Making Tax Digital fit into that strategy?

We’re losing about £9bn a year to people making genuine mistakes when filling in their tax affairs, and sometimes from doing things that they shouldn’t be doing, and Making Tax Digital will be part of making sure that in that space we’re maximising the fair tax take. But one of the early decisions that I took when I first arrived here on listening to businesses and thinking it through was to delay the implementation of MTD to give us time to get it right. But in 2019 we will be moving forward in respect of VAT – that’s our first milestone and then we’ll look at moving in on the other taxes as well.

How is the HMRC pilot progressing at the moment?

It’s going well, and this spring in fact we’ll be getting into the area of starting to use some of this technology more broadly within the pilots we’ve got going at the moment. There’s a lot of stakeholder engagements going on. But what I’m very keen to signal to everybody out there, including the software developers and those that are going to have to start using this approach is that we are serious about it and it will happen, so there will be no question of any further delay on this, so we all need to make sure that we’re ready for it.

It was indicated previously that MTD would be introduced for taxes other than VAT by 2020 at the earliest. Do you have any guidance of when that will take place?

It’s something that’s under review. That’s the only sensible way to approach it, and we’ve allowed that flexibility to both reassure folks out there that we’re not going to immediately be turning this on but at the same time we just need to assess how we move forward on the VAT side before we take that decision. I’m quite determined that we must do it at the right time and not go off half cocked with it, but equally that we’re there ready to go at 2020 if that timing is right.

Productivity was a key theme of the Autumn Budget. How is the Treasury going to support increased productivity in the UK?

If you look at one of biggest overarching challenges it is productivity and if you look at productivity rates up to the 2008 financial crisis, we were running at about 2% growth a year. We’re now down about 0.1-0.2%. The implications of low productivity are clear – it impacts growth which we need to pay off our debts and pay our way in the world, and of course it has a major impact on living standards because in terms of getting real wages up we need productivity to improve, so it’s a central mission of the government to get that moving in the right direction.

There are a number of direct investment things that we’re doing. We’re investing in the national productivity fund which we announced in 2016 and we’ve extended in the last budget from £23bn to £31bn worth of spend over the next five years or so, so that’s a huge amount of money going into housing and infrastructure and broadband and those areas. We’re now setting a target by the mid-20s of building 300,000 new homes per year, and spending £44bn in the next five years – pumping that into getting housing moving. And also we’re looking at the planning system which is the other half of that particular equation.

By 2020, we’ll be spending £12.5bn on R&D. We’ve been very clear that our aspiration is by 2022, we’ll be spending about 2.4% of our GDP on R&D as a direct spend – at no point in the last 30 years have we ever exceeded 2% so that’s a major move forward.

The other part where it particularly falls to me is on the tax side and there we’re looking at things like the patent box where we have tax reliefs for IP development to keep those ideas and patents in the UK. We’re focusing more on knowledge intensive businesses that tend to be the higher risk, higher growth areas. I’m quite excited by that.

The final thing I’ll mention is business rates. We want to ease the burden of business rates wherever we can and so we announced measures that will take about £2.3bn out of the business rate burden by bringing forward the change in indexation by two years.

What businesses want is certainty, so we published some time ago the business tax road map – one of the critical things there is the decline we’re seeing in the headline rate of corporation tax coming down from 28% in 2010 to ultimately 17%, so we’re acutely aware of trying to ease those burdens on businesses.

Are there any plans to further decrease the corporation tax rate beyond 17% in 2020?

Not currently, but as with all taxes we’ll keep it under review. People will be aware of the changes in the United Sates where they’ve had a large drop in the federal tax rate, albeit they have state taxes on top of that, so we’re still competitive, but we’re very aware of the fact that we want to have a big sign out there that says to the rest of the world that we’re open for business, we’re business friendly and this is a place where you can come and pay a fair level of taxation but we’re going to make sure you’re in a position to invest and grow if you come to the UK.

In your opinion, what rate of corporation would be too low?

I think some of it depends on what happens in the rest of the world – the economy is increasingly global so these things matter. Companies and businesses, if you look at the way they do business over digital platforms and in the digital age, they’re far more mobile than they’ve ever been in the past so switching from one place to another is much easier than it would have been 10 or 20 years ago, so I think we have to track and make sure we remain competitive compared to the rest of the world. So, in a sense that’s out of our hands.

In terms of tax take, while we’ve reduced the tax rate from 28% in 2010 down to 19% now, we’ve actually increased the amount of money taken by way of corporation tax by 50% so there is an argument that says if you continue to lower taxes, you’re not necessarily going to be too punished on the yield because you’re increasing the level of business activity.

It’s something we’ll keep under review. From where I’m sitting, I’m keen to keep rates low.

The Taylor Review was published last year. Are you planning to incorporate the recommendations from the report?

We’re looking at them very carefully. We welcomed the report – it’s in a space that’s very important to us as a tax authority because changing ways of working, changing ways of delivering products and services such as on digital platforms is increasingly complicating the tax environment, making it more difficult to assess who should fall due to tax, and how to tax them. The international corporation tax system is creaking because it’s struggling to come to terms with businesses that might only have digital platforms, that might be making a lot of money but is it right to tax them or not, and so on. It plays into all of that area. It’s something we will be responding to in time, but we’re welcoming of the debate that has been started there.

It will certainly be informing what we’ll do at the next Budget. At the Spring Statement probably we will be beginning to share our thoughts as we run up to the Budget in the autumn.

What can we expect from the Spring Statement?

It’s not a fiscal event like a Budget so expectations need to be managed on that score. With one exception – if something has turned out wildly differently to the way that we expected it to have done then it might become something else, but I’m not anticipating that. We’ll be looking at the general direction of travel, indicating things that we’re interested in, the direction that we’re interested in going, spaces we’re interested in moving into on the tax front, perhaps telegraphing the types of things people might expect to see in the Budget in the autumn so that we give people plenty of notice about what we’re looking at and we’re able to get their feedback and responses. It’s not fixed in stone at the moment.

The whole intention is that it shouldn’t be too exciting. It’ll be a much lower key affair that the Budget.

How are Brexit negotiations going to impact on the Treasury’s work this year?

Brexit is one of biggest things we’ve got at the moment as a challenge, but also equally as an opportunity. Whereas there are many things that can hitch you at the Treasury that are external – things that happen elsewhere – this is something that we have a lot of control over in the sense of our own destiny.

In terms of negotiations, we’ve completed the first phase, which is good. We’re now moving on to negotiations around future trading relations with the European Union. In my part of the Treasury we’re look at future customs arrangement with the EU and the customs bill is currently going through parliament – I’m the minister taking it through – and it’s about to go to the committee phase. That’s about providing a framework to allow us to roll out our own customs regime on day one on exit and in a form that meets wherever the deal lands.

Much of what I’m doing is to make sure that the legislation is there so that we’re ready to out into place the right customs regime but also to work with HMRC who are tasked with ensuring that the kind of models of custom arrangements that we’re likely to end up with are going to be in place on day one. For ports like Dover, we want to keep goods moving, we want a frictionless border, so that begs issues like what kind of technology do you need in there, inventory systems for the ports, and new IT systems.

It’s a big challenge but I’m currently comfortable that we’re in the right place albeit there’s a lot of work to do.

Is there enough time to prepare?

I think so. There’s been a lot of discussion around an implementation period and the EU have suggested the end of 2020 for that to run so it’s in line with their own budgetary making timescale and whilst that hasn’t concluded yet, it looks like it’s something that would be sensible for both sides and will probably happen. I think certainly in that event, it gives a lot more time.

Whatever the timescale is, what I’m absolutely sure of is that on day one if you go to all these ports or airports, or the Channel Tunnel, or wherever it is, you will see this frictionless border occurring. However it needs to be done, it will be done. We will not be clogging things up from our side of things, I’m sure of that.

Changing the colour of the passport from red to blue – was that significant for you?

I was on the other side of the argument actually, largely for economic reasons, but if you’re going to leave a club and you’re going to be independent then you might want to change your passport. Personally, I don’t have a burning desire to have a different passport, but why not?

The Public Accounts Committee report on HMRC performance has recently been released. Are you planning to take on board the recommendations?

At the moment, we are working with HMRC to reprioritise projects in light of the Brexit challenge so it’s not a case of simply staying as we are. I’m working with Jon Thompson, head of HMRC, on reprioritisation and also on resourcing because clearly we need to make sure that HMRC have the resources in terms of money and people to deliver all the things we’ve been discussing. In the Budget the chancellor announced the £3bn that we’ve set aside – £1.5bn one year and the other £1.5bn the next year for Brexit.

Following the Carillion collapse, what measures will the government take to protect SMEs and do you see changes to regulations on the horizon following the collapse?

There are certainly lessons from all of this, but my view is that Carillion is a private company. There are debates around how we interact with and take on the services of some of these particular businesses. But what we’re focusing on is making sure that firstly we have the professionals in there sorting out the business and winding up the company and secondly making sure that the services that have been provided by Carillion right across the public services that those staff are still there, still working and still providing those services.

The point I’ll make about cost to the public purse is that we may be paying some of these amounts now effectively directly to those providing the services but these are costs that we would have otherwise be having to pay to the company. I don’t think net in terms of the public purse that it’s going to be as painful as some people might imagine but equally there are priorities in terms of making sure those services continue.

Interview by Emma Smith, managing editor, Accountancy Age.

Mel Stride was recently named in 5th place in the Accountancy Age Financial Power List 2018.

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