Finance Bill
Monday 27th April 2020
(4 years, 8 months ago)
Commons ChamberRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Jesse Norman)
I beg to move, That the Bill be now read a Second time.
I congratulate the new shadow Chancellor and her shadow Treasury team on their appointments. Six weeks ago, on 11 March, this House assembled to hear my right hon. Friend the Chancellor deliver his Budget speech. How long ago that seems now when every day feels like a decade. A Budget statement is a central part of our democracy; indeed, it is at the very heart of a parliamentary tradition of accountability for taxation that goes back to the 13th century. It is deeply sobering to reflect that that 11 March moment might be the last great parliamentary occasion we have in this Chamber for some time to come.
Truly, we know better now. We live in a disenchanted world, a world of self-isolation, of social distancing, of shielding, of lockdown. In the Treasury and across Government as a whole we have worked around the clock since then to respond to the extraordinary challenges posed by the coronavirus to people’s lives and livelihoods. The same has been true in this Palace of Westminster. I know that I speak for all my colleagues in saying that I have the greatest respect for the work that you, Mr Speaker, and so many others, including parliamentarians across this House, have done to prevent covid-19 from becoming a threat to our democracy itself. I pay special tribute to all the Clerks and staff of this House of Commons and of the Palace of Westminster for working so quickly and creatively to adapt to this new reality and for their skill in drawing on the flexibility and resilience of our uncodified constitution to create a virtual Parliament.
When this Chamber was bombed and destroyed on the night of Saturday 10 May 1941, with the fires raging, the roof fallen in and the Lobbies and corridors gutted, it was decided that the Commons should sit immediately in Church House. Extraordinary measures were undertaken at great speed to transfer proceedings to the new location. The Commons rarely sat on Mondays, so it duly reconvened in the normal way on Tuesday 13 May, but it did so in Church House. There were oral questions to the Secretary of State for War, including on officers’ outfits and the collection of swill and vegetable waste from military units, followed by a full Order Paper of business and, at the end, a short statement from the Prime Minister in which he reported that the old Chamber was damaged beyond immediate repair and that preparations were already under way for a move to a further location, if that should be necessary. Thus the biggest and the worst raid of the blitz resulted in the loss of not one single day—indeed, not one single minute—of sitting time for Parliament. It is a moment of which this country can be intensely proud.
Why so much determination and so much speed? It was so that, as Churchill said:
“hon. Members may be reassured that the work of our Parliamentary institutions will not be interrupted by enemy action”.—[Official Report, 13 May 1941; Vol. 371, c. 1086.]
It was so British democracy should not be thought to have been destroyed amid the burning ruins of the Commons Chamber, and so that the great thread of public scrutiny and parliamentary accountability that gives legitimacy and authority to our Government should not be broken. So it is again today, Mr Speaker. For that, we are, and we will always be, profoundly grateful. I hope that we shall soon return to the close combat of political business, whether that be the intimate interrogation of the Chamber, the camaraderie of the Lobbies or the noise and clamour of a full House packed to the rafters with MPs, press and public looking on, all fully intent on our national political business; the House of Commons as the cockpit of the nation.
Here again, history can be our guide. When the Chamber was rebuilt, special care was taken to make it, as it had been, too small for the number of Members. That was at the specific insistence of Churchill. In his words, the essence of good House of Commons speaking is the “conversational style”. This requires a
“fairly small space, and there should be on great occasions a sense of crowd and urgency…a sense that great matters are being decided, there and then, by the House”.
Not for Churchill the vast, empty hall of Deputies, the amphitheatre, or what he called “Harangues from a rostrum”. Without that collective sense of crowd and urgency and the ever-shifting energy of the House in action, we lose something vital.
Mr Speaker, I ask you this: can we not also gain from this great virtual experiment? Through new forms of questioning and calmer, more dispassionate cross-examination of Government, may we not find glimmers of new possibility amid the present gloom? I believe that we can. The significance of today’s debate lies not just in this Finance Bill, important though it is; it marks a new legislative beginning for Parliament. As we go forward together, I hope that we in this House can restore not merely our old ways, but what was best in them, and use this moment to add, to develop, to reform and to make them better still.
When my right hon. Friend the Chancellor addressed the House on 11 March, he announced a Budget focused on delivering the Government’s manifesto commitments from the general election last year. He did not only that; he also set out and carefully explained the reasons for a very ambitious and wide-ranging set of measures designed to tackle the coronavirus head-on, to buttress our frontline services and to support people, families and businesses affected by the pandemic.
Since then the Government have gone much further still. Indeed, we have announced what we believe to be the most comprehensive and far-reaching economic response to covid-19 in the developed world, and Ministers and public servants across Government have worked to deliver it. Among its many different packages, that response includes a job retention scheme, which guarantees 80% of the wages of furloughed workers, and which has been conceived, developed and launched by Her Majesty’s Revenue and Customs in just a few weeks.
Alongside the job retention scheme is a similarly generous scheme aimed at supporting the self-employed for 80% of taxable trading profits up to £50,000. This covers some 95% of those who are mainly self-employed, including cleaners, taxi drivers, plumbers, musicians, journalists, electricians, childminders and many others. Businesses can also benefit from more than £300 billion-worth of Government-backed loans, numerous tax cuts and grants, with a business rates holiday for the worst-affected sectors of the economy. There has also been a further package of measures aimed at the charitable sector.
These are unprecedented measures for unprecedented times. The impact of the coronavirus falls not only on businesses, but directly on the well-being of some of the most vulnerable people in our society, whom the Government are determined to protect. For that reason, the Government have raised by £1,000 the universal credit standard allowance and working tax credit basic element for a year. Almost a billion pounds has been allocated so that the local housing allowance can cover at least 30% of market rent, and the Government have offered vouchers or meals at home for children who would otherwise be eligible for free school meals.
This Bill goes beyond the immediate response to covid-19 by delivering the Government’s manifesto commitment to make the tax system fairer and more proportionate. For example, care leavers who start apprenticeships will pay no income tax on bursary payments that they receive. I am delighted to say to recipients of payments under the Windrush compensation scheme and the troubles permanent disablement payment scheme that those payments will be exempt from income, inheritance and capital gains tax, and inheritance tax will not be collected on Kindertransport fund payments.
Taxes are rarely popular or straightforward, but they are necessary to support our public services. Now, more than ever, the Government have a duty to ensure that the rules are applied correctly. Last month, my right hon. Friend the Chief Secretary to the Treasury announced that, in the light of covid-19, the Government will delay the introduction of reforms to the off-payroll working rules in order to give businesses more time to adapt. However, he was clear that the Government remain fully committed to introducing these reforms to ensure that people working like employees but through their own limited companies pay broadly the same tax as individuals who are employed directly. That has not changed, and the Government will introduce an amendment to the Bill in due course to legislate for a new commencement date of 6 April 2021. The Government will use the additional time to commission further external research into the long-term effects of the reforms in the public sector, with the intention that that research will be available before the reforms come into effect in the private sector in April 2021.
Meanwhile, this Bill implements the recommendations of Sir Amyas Morse’s independent review of the loan charge. It will mean that the loan charge no longer applies to loans entered into before 9 December 2010, which is the point at which Sir Amyas found that the law put beyond doubt the fact that disguised remuneration schemes were a form of tax avoidance. The Bill also brings forward legislation to repay taxpayers who voluntarily settled for years that are no longer in scope, while those still able to pay will be able to spread their loan balance over three tax years to suit their finances.
The Budget also included changes to help businesses to prosper for years to come. This Bill will implement the Government’s manifesto commitment to increase the research and development expenditure credit rates from 12% to 13% in order to help drive growth and productivity across the UK, and to continue to support this country’s proud history of innovation. It also raises the structures and buildings allowance rate from 2% to 3%, which should help to stimulate long-term capital investment in the United Kingdom by strengthening the business case for investment in shops, factories and agricultural buildings. Those changes apply nationwide, underlining the fact that, even in these times of uncertainty, the Government are seeking to level up investment and opportunity right across the whole United Kingdom.
The Government have made successive cuts to the rate of corporation tax since 2010 and we now have the lowest headline rate in the G20. That has helped to create a corporate tax system that supports British businesses, boosts economic growth and strengthens the UK’s pull for inward investment.
However, the extra benefits of lowering corporation tax rates still further must be balanced against other objectives, such as funding the NHS and the public services on which we all rely. That is why the Chancellor announced that the Government will not cut the corporation tax rate further this year, but instead will maintain it at 19%, in line with their manifesto commitment.
Likewise, while the Government are committed to encouraging entrepreneurial activity, the evidence indicates that entrepreneurs’ relief in its current form is neither effective in stimulating new business growth nor good value for money. By reducing the lifetime limit from £10 million to £1 million, we are returning the relief to its original purpose while continuing to promote and reward enterprise.
Finally, following an extensive period of consultation, the Bill will implement the digital services tax. Digital businesses providing search engines, social media platforms and online marketplaces derive significant value from their UK users, but current international corporate tax rules mean that that value is not reflected in the level of UK tax they pay. Setting a tax on revenues from those digital services at a rate of 2% will make the system fairer and should raise up to £2 billion over the next five years, but the Government’s ultimate goal is to secure a long-term global solution. We are working with international partners through the Organisation for Economic Co-operation and Development to agree a way forward.
Covid-19 is the most pressing challenge for the country—and, indeed, the world—at the moment, but it is by no means the only one. Notwithstanding our intense focus on tackling the pandemic, the Government have not lost sight of longer-term public concerns, notably the need for the UK to move to a greener and more sustainable economy in the years ahead. Now that we have left the European Union and as we prepare to leave the EU emissions trading system, this Bill introduces legislation for both a charging power to create a UK emissions trading system, and a carbon emissions tax.
This twin-track approach is designed to ensure that, whatever the circumstances, the UK will have an effective carbon pricing regime in place. In the Budget, the Chancellor also revealed key elements of the plastic packaging tax, which should significantly increase the use of recycled materials in packaging. This Bill allows preparatory spending ahead of its introduction.
The Bill will also encourage the uptake of zero-emission vehicles by removing them from the vehicle excise duty expensive car supplement, which will mean that employers and employees pay no tax on zero-emission company cars in 2020-21. The United Kingdom has led the world in introducing legally binding carbon emissions reduction targets; these measures underline once again how serious the Government are about meeting those targets.
My right hon. Friend the Prime Minister has made it quite clear that we will do what it takes to support our public services and key workers as they respond to this pandemic, and to safeguard jobs and businesses so that our economy can bounce back as quickly as possible. Yet we must also look to the future. The advent of a virtual Parliament is a chance to chart new territory, and this Bill is a first step on that journey.
The Bill also redeems the manifesto promises of the last election. It points the way to a fairer tax system and a greener and more sustainable future. With the support of Members from across the House, and as we look beyond lockdown, it gives us all an opportunity to cement the United Kingdom’s place as one of the most innovative, exciting and enterprising nations in the world. For all those reasons, I commend this Bill to the House.
Mr Speaker
I call Anneliese Dodds, who is asked to speak for no more than 15 minutes.
Anneliese Dodds (Oxford East) (Lab/Co-op)
Thank you, Mr Speaker. May I echo the Financial Secretary’s comments about the hard work that you and the parliamentary authorities have gone to, to ensure that these proceedings could go ahead? Of course, as the Opposition we are well aware of the need for Government to have a legal basis to continue levying taxes, and we approach this Bill very much in that spirit.
Many of the clauses in this Finance Bill were written many months ago, with a large number of them involving relatively minor fixes to existing tax legislation—not exactly the vegetable waste and pig swill that the Financial Secretary referred to in his colourful and wide-ranging perorations, but none the less in large part delivering technical aspects of already announced policies. In fact, overall, this Bill presents a picture of continuing the business as usual of the last 10 years.
However, it is unthinkable that we will go many months before additional fiscal measures will need to be brought in by this Government. There will be an urgent need to stimulate the economy as and when we move out of the lockdown, and when boosting consumption will not threaten to damage disease containment. Other measures may well be needed to help alleviate some of the numerous supply-side problems caused by the current dislocation.
Finally, of course, we will need to deal with the considerable burden created by the costs necessarily incurred in fighting coronavirus. Subsequent Finance Bills will need to be very different from this one, and I want to use the time I have available to spell out why. We will need new approaches to taxation generally, the social contract with business, funding public services, the climate crisis and tax reliefs. I will deal with each area briefly in turn.
First, we of course need a different and fairer approach to tax. The Bill largely continues the previous framework, with its reductions in the tax paid by the very best-off people, while support for the worst-off has been reduced. The Financial Secretary will, I am sure, be aware of the Institute for Fiscal Studies analysis of the distributional consequences of successive Budgets since 2010. As of 2019, for example, due to changes in tax and social security, the poorest 10% of households have seen losses of 11% of their income, on average, as a direct result of reforms. Among those with children, the losses amount to 20%: that is £1 out of every £5 being removed from low-income families with kids. Large numbers of frontline careworkers fall into that category. We know from recent research by the Resolution Foundation that half of careworkers are not paid the real living wage, and tens of thousands appear to be paid even below the national minimum wage. They deserve better. In contrast, the best off 10% of people have seen losses of only 2% in their incomes due to tax and social security changes since 2010.
As all in this House will remember, George Osborne maintained that, in his recovery, 80% of the reduction in debt should come from cuts to spending and only 20% from tax changes, yet the latter went alongside cuts in income tax, inheritance tax and capital gains tax for the very best-off people.
There is already a lively debate about how we should deal with the costs incurred by the coronavirus. The academic consensus is that decisions taken to load the cost of debt on to spending cuts in the 2010s made our recovery slower than it would have been otherwise, so it was the slowest not only in a generation but in eight generations, and slower than in many other countries. I am not saying that to castigate the Government; I am saying it because we will need to adopt a radically different approach to future Finance Bills from that seen over the last 10 years.
We are currently feeling the impact of that decade’s fiscal approach very keenly, especially when it comes to UK households’ resilience. A quarter of UK families entered this crisis with less than £100 in savings—making it impossible for them, for example, to buy a new cooker or get their car fixed—and almost 2 million households did not even have a cooker in their home in the first place. As and when we return to what will be a very different normality, we must have building up financial resilience at the core of future Finance Bills. That will mean instituting a more progressive tax system, with those with the broadest shoulders contributing to services that benefit us all.
Secondly, we will need a new social contract with business. As discussed at length during the statement, huge numbers of businesses are currently struggling like never before. We have already discussed the Government’s economic package today, and I must emphasise again that there is a very strong expectation from the public that public support must translate into protecting jobs, not the extraction of value into already deep private pockets.
We have called for the Government to consider the examples of other nations, such as France and Denmark, as well as that of the Labour Government in Wales, when approaching the bail-out of different large firms. Jobs must be retained, workforces must be supported, and we should expect and require good corporate behaviour going forward. That means a ban on public funds being passed into tax havens or doled out immediately in dividends, no share buy-backs on bailed out companies, and a commitment to improvements in environmental performance in future.
We also need a renewed focus on dealing with the enablers of tax avoidance and evasion. I regret that we still do not see that when it comes to those who facilitated disguised remuneration loan arrangements, while those who received such arrangements continue to be affected by the loan charge.
The Bill rightly rows back on the Government’s previous ill-advised commitment to cut corporation tax further to 17%, by maintaining it at 19%. The OBR estimated that a cut to the latter rate would reduce receipts by £5.4 billion a year in three years. Recent reductions in corporation tax have not boosted investment in the UK. It was clear that such a reduction simply could not be afforded in current circumstances, and we therefore welcome that element of the Bill. When we talk to businesses, as I am sure Government Members do regularly, rates of corporation tax are not the headline reason for locating in the UK. Other factors are far more important, such as workforce development and training, logistical factors such as transport, and—critically—business rates, which are a key issue for many companies in our nation.
There is, of course, an imbalance in the taxation of those businesses based in fiscal property compared with internet-based businesses—the division between bricks and clicks. The Bill details the digital services tax—a new 2% tax on the revenues of search engines, social media platforms and online marketplaces that derive value from UK users. We welcome that tax to the extent that it recognises the comparative under-taxation of many digitally provided services, but we are concerned about the restricted scope of the measure. It means, for example, that Amazon will continue to pay a lower rate of tax in relation to revenue than many high street bookstores and other retailers. In addition, it fails to fill the gulf in unpaid corporation tax from many of the largest technology firms. TaxWatch UK has suggested that the UK is losing £1.3 billion in corporation tax from just five of those firms, and the digital services tax would make up less than half of that.
The current crisis suggests that digitally based businesses will amount to an even larger part of our economy in the years to come, so we need to get this right. Above all, our Government need to be more explicit about their discussions with international partners about the move to a formula-based corporation tax system. Given the ability of those firms to shift profits between countries, we must work with other countries to apportion taxing rights better.
The OECD’s anti-base erosion and profit shifting project was a good start, but it failed sufficiently to inform countries in the global south. I hope Ministers will be more forthcoming in future about what they are doing to seek that international consensus, not least given current hostility from the US towards multilateral approaches in a number of areas. This topic is controversial, and we need to hear more than just that our nation is engaged in those discussions.
I hope Ministers will be more forthcoming in their approach when it comes to local government finance, which is crucial in providing public services—from social care, to helping the homeless, to providing areas for leisure and play. Local authorities will be crucial in helping to rebuild the economy after this period, through their work on economic development.
My third point concerns the need for the Government to commit to a proper, deep and wide review of local government finance that takes account of the full impact of the crisis in terms of extra expenditure and forgone income, and which considers business rates and council tax in the round. We still only have a commitment to yet another restricted review of business rates. Surely we can be more ambitious in that area, as the need for a deeper review is now very strong. The goal must be to provide certainty and stability about the provision of local public services.
An additional area where action is needed is tackling the climate crisis. Survey evidence, albeit tentative at this stage, suggests a renewed appetite from the public to grasp the challenges posed by the need to decarbonise. The Bill makes small moves in the right direction. It incrementally increases vehicle excise duty, using emissions as a benchmark—the Chief Secretary to the Treasury mentioned that—and it introduces the world- wide harmonised light-duty vehicles test procedure, a UN-established vehicle testing procedure, in an attempt to prevent the gaming of emissions standards by vehicle manufacturers. We encourage the Government to adopt a steady replacement of all testing procedures within that framework. More broadly, we need a far stronger shift in taxation to disincentivise carbon production. The previous Finance Bill continued implicitly to support fossil fuels in a number of areas, and this one only sets the scene for some elements of the promised new plastics tax and the new emissions controls that will be necessary. Given that we have declared a national climate emergency in this very House, we need far stronger action in subsequent Finance Bills.
Finally, we fail to see in the Bill any substantive change in the Government’s approach to tax reliefs. This is essential. Public funding will be under pressure, so we must choose very carefully what we subsidise through these reliefs.
The incidence of tax reliefs has increased over recent years, yet there is little thorough oversight of their impact. Labour has called repeatedly for a thorough review of tax reliefs, but this Bill does not deliver one. As public finances come under substantial pressure, that position is no longer sustainable.
The National Audit Office’s recent report on tax expenditure showed that the Government are not reporting costs of over two thirds of reliefs; that must change. Alterations are made in this legislation to entrepreneurs relief—that was right to state—but the Institute for Fiscal Studies has suggested that the £1 million limit is still too generous. Furthermore, it does not achieve its principal aim of boosting investment, with the IFS stating:
“If one of the aims of reduced capital gains tax rates on business assets is to incentivise individuals to invest more in their businesses, this evidence suggests they are not working.”
We must ensure that corporate tax reliefs are focused on employment retention and promotion, and the provision of public goods. That is as essential for entrepreneurs relief as for the hundreds of others that continue to receive little public scrutiny.
There are many measures in the Bill that are sensible, that tidy up anomalies and that make life easier for taxpayers and HMRC, and we welcome them. But, as I have said, in many ways this feels like a Finance Bill for a different age. Subsequent Budgets and Bills will need to recognise the need for a much more resilient household financial situation and much more resilient public services, and will need to move away from the demand-sapping, confidence-stripping approach that has characterised the response to the last crisis. We stand ready to work with the Government where we can to achieve that new approach.
Madam Deputy Speaker (Dame Eleanor Laing)
We now have to introduce a formal time limit of five minutes. Members in the Chamber will be able to observe the clock, but I strongly advise Members who are participating virtually to have a timing device nearby that they can see, because, due to necessity, the five-minute time limit will be very thoroughly enforced.
Mel Stride (Central Devon) (Con) [V]
The economic backdrop to this Finance Bill is among the most challenging that this country has ever faced. The Office for Budget Responsibility, for example, in the scenario that it put forward, suggested a 35% contraction in the economy followed by a rapid bounce back—the so-called V-shaped recovery. Whether that is realistic or not remains to be seen, but it is the case that the Government have some significant control over two areas of policy that will determine whether we come back with a V-shaped recovery or not: the timing and nature of our exit from the lockdown.
On timing, as the House will be aware, the Government have put forward five tests, one of the most important of which is the fifth test, which is that we should extract ourselves from lockdown but in a manner that does not cause a second flare-up of the virus, which happened with the flu pandemic of 1918. This is critical; if the Government get it wrong and we do have that second surge in the virus, it will be a catastrophe for our economy and we will have not a V-shaped recovery, but at best a double-dip recession of some magnitude. It is therefore very important that the Government be allowed the time and space to take those decisions, and that we are patient with them.
Secondly, on the nature of our withdrawal, it is important that we have transparency. As the Chair of the Treasury Committee, I urge the Government to engage with businesses on the broader elements of the plan, so that they can both input and adjust accordingly. The element of which the Government have control, of course, is the support they are providing to the economy, at considerable scale and pace. The Chancellor is to be congratulated on that, but with scale and pace come hard edges to policy and challenges in delivery. Examples of both that the Government should focus on are, first, making sure that, for the self-employed who work through their own companies, dividends that result from self-employment can count when it comes to assessing the furlough amount that they can qualify for. Secondly, on delivery, we heard from the Chancellor earlier about bounce-back loans. I welcome those a great deal, but we also need to ensure that the banks are on notice that we expect them to deliver on the coronavirus business interruption loans and the other loans concerned. Through the Treasury Committee, I have had conversations with the British Business Bank and also written to the banks on its lending panel to urge them to come forward transparently and provide us with data on how much money is going out the door relative to the number of applications on a daily basis. I call on the Financial Secretary to the Treasury and the Government to row in behind us and ensure that transparency, because what gets measured tends to get done.
Let me turn to two specific points in the Finance Bill. The first is the changes that the Financial Secretary to the Treasury has just outlined in respect of entrepreneurs relief. He is right to make those changes; it is a relief that is not fit for purpose. However, there are £24 billion-worth of reliefs every year relating to businesses, and at a time when we need economic growth encouraged at every single turn, it is imperative that the Treasury examines all £24 billion-worth of those reliefs and makes sure that they are all fit for purpose.
Secondly, I was particularly pleased to see such a large number of clauses relating to the digital services tax. It is not right that search engines, online marketplaces and social media platforms should not be paying a fair level of tax in our country. It is not a case of evading tax; it is a case of the taxation system not being adequate for the 21st century. We cannot assess national taxation rights on property, on where people are, on where the management are or on where the intellectual property resides; we must do it on where value is created. These measures are a big step in the right direction. I urge the Financial Secretary to stick to his guns. He will face great pressure from the United States in particular, but in the absence of an international approach to this matter, it is vital that we take action.
I think my five minutes are now up, and I am very aware of your exhortation, Madam Deputy Speaker, so I will conclude, except to say that I will be supporting the Second Reading of this Bill.
Madam Deputy Speaker (Dame Eleanor Laing)
Exactly five minutes; I commend the right hon. Gentleman. I call Alison Thewliss, who, as her party spokesperson, is asked to speak for no more than 10 minutes.
Alison Thewliss (Glasgow Central) (SNP) [V]
I welcome the shadow Chancellor to her role. She is the first woman ever to do the job. I wish her all the best and look forward to working with her.
Time is tight, so my remarks will not cover all my thoughts on this 186-page Finance Bill. It seems to me that each Finance Bill tries to fix the errors of those that preceded it, and this is no different. It would be useful to have the opportunity to take public evidence on the Finance Bill, because if ever there was a time to ensure that the measures and reliefs proposed by the UK Government are appropriate, it is now. If we are to believe that austerity is over, this Finance Bill must be followed by a recovery package that grows our economy in an inclusive way and protects the most vulnerable.
The UK Government continue to short-change Scotland. We are seeing the limitations of the Barnett formula writ large. The UK promised £242 million for regional deals in the Budget, but we have not yet made up for the £400 million shortfall relative to the money that the Scottish Government are putting in. Scotland is still waiting for Scotland’s £5.8 billion of the DUP’s Brexit bungs and the £175 million of VAT owed to Police Scotland the Scottish Fire and Rescue Service.
Clause 12 gives Ministers the power by regulation to exempt certain social security benefits from income tax, which is fair enough, but far more extensive measures are required to address the flaws in the social security system. The welfare cap set out in the Budget is surely now set to be breached, and instead of setting a new cap, as he is required to do, the Chancellor may want to consider whether it is a useful tool in the first place.
People who have never had to rely on benefits to put food on the table and meet their rent are suddenly finding out just how pitiful the UK social security system is. A letter from 50 campaigners led by the Child Poverty Action Group and the Bishop of Durham has highlighted the fact that tens of thousands of the 1.5 million households that have applied for universal credit will lose out due to the size of their family. I have been saying, ever since the two-child limit was proposed in 2015, that no one can predict their circumstances. The letter states:
“Even in normal times, no parent can be sure that their financial security will withstand unpredictable events such as illness, bereavement or redundancy. Certainly no parent could have had foresight of Covid-19, and so planned their family size accordingly.”
I urge the Chancellor and the Financial Secretary to the Treasury to bring forward measures to remove the two-child limit and end the unfairness being meted out to families in need.
This UK Government have failed to go far enough for workers. The cut to employers’ national insurance goes only a third of the way that we demanded towards the £2,500 in the Tories’ own manifesto commitment. Younger workers will continue to suffer state-sanctioned age discrimination, and this is really a missed opportunity to introduce a real living wage for all. The Chancellor previously claimed that he would do whatever it takes to help people affected by the coronavirus crisis, and the UK Government must follow through on that commitment and strengthen welfare provision so that people get the help they need now. They must scrap the five-week wait, turn the loans already given into emergency grants and ensure that all new claimants are given automatic grants to prevent millions being plunged into debt and poverty. If the UK Government had listened to our calls to introduce a universal basic income at the start of this crisis, the huge difficulties people are now facing could have been avoided.
I also support the calls from the Low Incomes Tax Reform Group, Age UK and the TUC for action on the net pay pensions issue. Due to a flaw in the tax system, around 1.7 million lower-income workers, mostly women, are being unfairly charged 25% more for their pensions as a result of the way in which their employer pension scheme operates. I ask the Government to look at this.
Firms are already finding it difficult to access cash, not least because of the limitations of the UK Government’s coronavirus business interruption loan scheme. Part 4 of the Finance Bill lays out plans to grant HRMC preferential status in insolvency procedures from December this year, and measures to make directors personally liable for a company’s tax liabilities where HMRC considers avoidance is taking place or where there is evidence of phoenixism or tax abuse via insolvency. I very much want to see companies and their directors take their responsibilities seriously and to avoid phoenixism wherever possible, but I am not alone in questioning whether this is the correct approach. R3, the Association of Business Recovery Professionals, wrote to the Chancellor last September:
“While extra money for HMRC in insolvency procedures may appear positive, it means less will be going back to trade creditors, pension schemes, and consumers. This will hurt the economy in the long run. Poor returns from insolvency procedures can jeopardise the health of other businesses, can make creditors more likely to vote down rescue proposals, and can trigger further insolvency. The government’s policy increases the chances of this happening.”
Coronavirus has brought this issue into sharp focus. UK Finance estimates that this policy could hit lending by at least £1 billion per annum. Furthermore, if HMRC gobbles up the largest amount first, there will be very little left for unsecured creditors such as small and medium-sized enterprises. Examples include the contractors and clients of a building company, food suppliers and parents who have paid upfront for a nursery that has gone bust. Why should creditors—real people in the real economy—lose out on much-needed pay-outs because of the vague notion of giving value to the taxpayer? The City of London Law Society also highlighted, in a letter in September last year, that this proposal erodes protections and would put the UK at a competitive disadvantage, so I urge the Chancellor and the Financial Secretary to the Treasury to give further thought to this measure. What would help to prevent phoenixing would be to tackle this matter at Companies House, giving it the full powers under anti-money-laundering legislation to carry out due diligence, rather than simply nodding companies through. This would protect consumers and other businesses that end up losing out.
The Scottish National party welcomes the Bill’s attempts to counteract tax avoidance laid out in clause 64 on anti-avoidance. The UK Government must urgently introduce a robust and transparent system of company registration in order to combat money launderers’ attempts to register entities for illicit and avoidance purposes. The UK Government must act to tackle the ongoing improper use of Scottish limited partnerships through a proper reform of Companies House. In reference to clause 72 of the Finance Bill, relating to properties and trusts, will the Chancellor also update the House on what has happened to the Registration of Overseas Entities Bill, which seems to have disappeared?
The SNP will support a fit-for-purpose digital services tax. We agree that it is unfair that huge multinational online firms pay less in tax than small high street businesses, but the devil will be in the detail, as the shadow Chancellor laid out. Firms may seek to get around measures, which is where good evidence comes in. The UK Government must be a step ahead of, rather than several steps behind, those companies that seek to evade paying their fair share. It is regrettable that the UK has failed to implement the measure alongside international partners, despite countries such as France, Spain and Italy seeking to introduce similar measures.
The Finance Bill is another example of the Tories yet again failing to support the oil and gas sector when it needs support to transition to a greener future. The oil and gas sector has generated £334 billion in net tax revenues to the Government since 1970-71, but the Tories have failed again to support it in its time of need. Promising a sector deal within the term of this UK Parliament is just not good enough; the sector needs fiscal support, and it needs it right now. OGUK chief executive Deirdre Michie has said:
“OGUK will be pressing the case for a COVID-19 resilience package to governments in the coming days which will focus on protecting the supply chain, jobs and our ability to continue to reposition ourselves for the future.”
I urge Government Front Benchers to listen carefully to that plea.
I also encourage UK Government Ministers to do all they can to finally deliver justice for the former Roadchef workers who have been waiting for decades for their employee benefit money. My hon. Friend the Member for Airdrie and Shotts (Neil Gray) has offered one solution via early-day motion 268; the other solution would be for HMRC to act reasonably in recognising that the employee benefit trust was non-taxed at its establishment and negotiating positively with the trust to allow payments to happen quickly.
Our economy does not need Ministers to be given trade war powers. To protect jobs, we believe that the Brexit transition should be extended by two years. Clause 94, “International trade disputes”, will amend the Taxation (Cross-border Trade) Act 2018 as follows:
“In section 15(1)(b)…(import duty: international disputes etc), for ‘is authorised under international law’ substitute ‘considers that (having regard to the matters set out in section 28 and any other relevant matters) it is appropriate’”.
What that amendment means, in short, is giving the UK Government the right to abrogate from international agreements and engage in trade wars at the whims of a Brexiteer Government, which is really not what we need right now. The Government need to decipher whether that is really what they mean by the clause.
The UK Government should ask the EU today for the maximum two-year extension to the transition period. An extended transition will keep the UK as close as possible to the EU and provide an opportunity to rethink the future relationship. The Scottish economy just cannot afford the double hit of covid-19 and the growing likelihood of no deal, or at the very best a hard Brexit deal, in eight months’ time.
The SNP seeks to work constructively with all parties on the Finance Bill. We know that voting will be a challenge and that proceedings will be very different this year. The UK Government have a majority, but they do not have a monopoly on wisdom. They should listen carefully to ideas from every part of this House and from people across the country.
Sir Charles Walker (Broxbourne) (Con)
The chief medical officer has said that we will have to learn to live with covid-19 for perhaps the next 18 months. I have received scores of emails from constituents who are fearful of losing their business, their employees and ultimately their homes because of the current crisis, so living with covid-19 also has to mean working with covid-19.
This is not a lives versus the economy argument, as some have disgracefully suggested. Most hon. Members know that the economy is lives and that the two march hand in hand. As each day passes, fractures in supply chains and the onward routes to market grow deeper and will therefore take longer to repair. If producers do not have the raw materials to produce, they do not produce. That is a real problem, so it is no good suggesting or thinking that in two or three weeks, in two or three months or in six months we will be back to work and everything will be fine. It will not; supply lines will take time to gear up again, and I hope that the Finance Bill will take that into account. Without cement and without plaster, it is very difficult to build homes.
I hope that the Bill will address the following concerns. Will it look again at the business interruption loan scheme? It is just not sensible for banks to ask desperate businesses, “Can you give us a cash forecast for the next nine months?” Of course they cannot; nobody can. The Government cannot give a cash forecast for the next nine months, let alone a business.
Can we look again at extending the £25,000 grant scheme to all businesses that have rates assessed at £51,000 or less? There are many good businesses not directly involved in leisure, tourism or hospitality, for example, who are nevertheless feeling the pain of this crisis and fear for their futures and that of their colleagues.
Can we also look at dividends? In my constituency, PB plumbing has been in business for 30 years. It is a great little family business that supports the pub trade in the constituency and surrounding constituencies. The founder/owner of that business pays himself with dividends, mostly—he is not a greedy man. This is the way that he structured his business but he is really not now eligible for any form of support, and I think that that needs to be addressed.
We heard this afternoon—the hon. Member for Oxford East (Anneliese Dodds) mentioned this during the statement earlier—that there needs to be some flexibility in furloughing. It would be really useful for many businesses to be able to have a member of staff in for one or two days a week, just to keep things ticking over and going during busy periods. I know the Government say that this is a very difficult thing to achieve, but lots of things are very difficult to achieve and this Government are the Government to achieve them. I say this very generously: the Government are getting things right. They just have to get things even more right, if that is possible.
We have a fantastic Treasury Minister here today, and we need a dedicated Treasury Minister responsible for filling in the gaps. I sometimes think that the media have better access to Ministers not only than I do, but, more worryingly, than my constituents do, so let us have a consultation with all colleagues. How can these schemes be made better? There are these Downing Street statements every evening, where the media get to ask questions. I think there are some fabulous people in the media. There are a few moderate ones, but there are some very good ones. However, let us allow small businesses—they are the engine of our economy—to ask questions.
In my remaining minute, I will focus on one constituency business, called Kupros Dairy. It makes fabulous, award-winning cheeses, which it was selling to 200 great restaurants in London and a few specialist food shops. All of these restaurants are no longer open, so its market has entirely disappeared. Supermarkets will not take specialist cheeses in the main, because they cannot stock them from Land’s End to John O’Groats—by the way, the supermarkets have done a simply fabulous job in rising to this challenge. Could the Minister get in touch with Dave Lewis of Tesco and others and ask them to have a dedicated aisle, or part of an aisle, for local produce? That would save Kupros Dairy and allow it to start making cheese again, stay in business and employ people and pay mortgages.
Rushanara Ali (Bethnal Green and Bow) (Lab)
We are humbled daily by the efforts of the NHS workers and all the other key workers in our country. They are making unimaginable sacrifices to treat the sick and care for the vulnerable, and to provide supplies of medicine and food. We owe them everything and it is right that we should continue the pressure to ensure that PPE, testing and equipment is provided, as we continue to enforce the lockdown.
This is a national struggle but it is being fought hardest at the local level in communities. My constituents in Bethnal Green and Bow are resilient people. Some still recall surviving the blitz, and today, there are many who survive a daily struggle of poor housing, low wages, a lack of opportunities and antisocial behaviour, but no matter how resilient and tough they are, they need the Government on their side. They need targeted interventions to help them in these difficult times. They need protection against the vagaries of a global economy, to protect their jobs, incomes and businesses.
The economic projections are chilling. The latest International Monetary Fund analysis suggests that the global recession is going to be far worse than the 2007 global crash. The World Trade Organisation says that global trade could collapse by 31% this year, just as post-Brexit Britain is desperate to strike deals.
A terrible economic storm is coming, and we are just not ready. The UK is ill prepared after a decade of under-investment, imbalances between the nations and regions and the deep scars of inequality and poverty caused by a decade of austerity characterised by stagnant wages and cuts to our public services.
Young people are once again likely to be the lost generation unless our Government take immediate steps to ensure that they have the training and support—virtually, while we are in distancing mode—and other provisions they need to get into the labour market. We need to use the hundreds of thousands of people who volunteered to help the NHS to support young people by mentoring and backing them, as we find a way through this crisis.
This Finance Bill does little to strengthen our economy or make us more resilient. Even before the covid crisis, it was inadequate. It does not deal with the challenges of climate change and the climate emergency, and it does not go far enough to reverse the challenges posed by the deep-seated inequalities in health, education and other spheres over the last decade.
The Office for Budget Responsibility predicts that there will be a 35% reduction in GDP in the second quarter of the year and that unemployment will rise by more than 2 million. Already, the deficit hawks are circling over the Treasury Bench, calling for huge cuts in public spending. Another decade of austerity as the answer to Government debt is absolutely not acceptable. Surely we have learned from the financial crisis in recent weeks that we have to ensure that our public services are resilient and strong in order to face the threats of global pandemics and economic downturns.
We need to ensure that we protect those on the frontline, who have often been the low-paid and have not been treated well—the teachers, nurses, carers, delivery workers and shop workers. They do not run the country, but they make the country run, as we have seen in recent weeks. We need a modern-day Marshall plan, rebuilding and reconstructing our NHS, social care, police, schools and other vital public services, rather than leaving them vulnerable and fragile as we face crises like the current pandemic.
We need to ensure that local authorities on the frontline get the support they need. Tower Hamlets Council in my constituency is having to spend around £25 million and is losing £35 million of income—that is a significant amount of money. I call on the Minister to ensure that local authorities get support. The job retention scheme is welcome, but hundreds of thousands of people in hospitality and other sectors are still being excluded, and they need help urgently.
Finally, I want to highlight the impact in the global south. In countries like Bangladesh, the failure of companies such as Asda, New Look, Edinburgh Woollen Mill, Peacock and Urban Outfitters to pay up for contracted work is leaving millions of people vulnerable to unemployment and starvation. It is important to ensure that our companies are responsible and that people’s lives are protected. We have a duty to work together domestically and internationally.
John Penrose (Weston-super-Mare) (Con) [V]
We have already heard how the coronavirus crisis has fundamentally changed our economy and is in the process of changing our society too. We have also heard how the Bill makes changes to important items such as entrepreneurs’ relief. As someone who co-founded and ran two software start-ups before being elected to Parliament, I am a huge advocate of encouraging wealth creators, particularly the ones who are at the technological leading edge and may be creating the fourth industrial revolution jobs in Britain in companies and industries that have hardly been invented yet.
But we have to be fair in the process, and the coronavirus lockdown has revealed an uncomfortable truth. It has turned Britain into a two-nation society, where better-paid, white-collar professionals work from home, while often less well-off key workers keep travelling to work, often on crowded public transport, in riskier jobs where they have to wear PPE. Of course, the lockdown is temporary, but it has shone a spotlight on a more long-term structural problem. Those less well-off key workers are paying a much higher overall tax rate—the marginal effective tax rate, or METR—than the safer, better-off white-collar professionals, because tax rates on investment income are lower than on wages and salaries, and because benefits withdrawal rates only apply to low-income households. The combined effect often means that low-income key workers pay an effective marginal tax rate of up to 75%, while better-off people pay dramatically lower rates. The haves are being subsidised by the have-nots. If we are all in this together, and if we are to go down in history as acting in the Conservative party’s best and finest traditions, how can we ignore that? How can we not act? It cannot be right.
The changes to entrepreneurs’ relief are a small but extremely welcome step in the right direction, but I hope the Chancellor will use the clarity and the challenge of the coronavirus process to make it the first step in a much longer journey. We need to encourage wealth creators, but they should not pay lower tax rates than the people who clean their offices or drive the trucks that deliver their goods. If we believe—as I and many others do very strongly—that rates of tax much above 40% will undermine an incentive to work for high earners, why is the same thing not also true for someone on the national living wage? The last time Britain taxed earned income and investment income equally was under a Conservative Government, when Nigel Lawson was Chancellor.
If we can go back to taxing all income the same, whether from benefits, work or wealth, it will be transformational. It will show that we are serious about helping the people who voted Conservative in their tens and hundreds of thousands, some for the first time ever, in the general election last year. It will create clear and stronger work incentives for everybody, not just the rich. It will make our economy work better by allowing investment to flow to wherever it can be used best without distortions in the tax system, and it will make taxes simpler and harder to dodge. It will reduce in-work poverty, because less well-off families will keep more of any extra money they earn, and, as we come out of the coronavirus crisis, it will prove beyond a shadow of a doubt that Conservatives really mean it when we say we are all in this together.
Changing entrepreneurs’ relief is a good sensible Conservative idea, but it is only a start. The Chancellor has taken the first step. I hope we will all go with him on a much longer and more important journey.
John Spellar (Warley) (Lab)
Thank you, Madam Deputy Speaker. You missed the historical perspective given by the Minister, but I will, if I may, focus on the economics and the politics—the politics being about decision making.
Before I came into Parliament, I was a national officer in the electricians’ and plumbers’ union. I used to have to explain to people that the reason a problem got on to the general secretary’s desk was because it was insoluble. Otherwise, someone else would have made the decision and claimed the credit. In government, it is the same. The reason decisions are at No. 10 is that there are no easy answers. It is dealing with ambiguity and it is dealing with possibilities and probabilities, but nevertheless decisions still have to be made. There will be some that go wrong. It is the Eisenhower doctrine—all plans break down on first contact with the enemy. He also added, as people forget, that it is nevertheless still necessary to plan. That is where the military mindset of making decisions rapidly and moving rapidly towards implementation comes in. Frankly, the Treasury, while it is talking to other Departments and giving them money, has to insist on a change in practices. The old dither, delay and process-driven mechanisms are no longer acceptable. They have to either change their ways or move out of the way.
The other message I would like to get across is that we have to get our country moving again by opening up our economy and, at the same time, ensuring the safety of workers and customers alike. I am sure the Minister will join me in welcoming the positive message from the Trades Union Congress and the negotiations that are taking place right across the country between unions and companies about how they can safely restart work. It must be the frontline that Government support goes to. Denmark and Poland have, very helpfully, led the way in seeming to be declining subsidies to companies based in tax havens or paying dividends or lavish bonuses or using share buy-back schemes. We should be following that and supporting real engineers, rather than financial engineers. The same goes for public procurement. If we look, for example, at the production and distribution of PPE equipment, I have to say that I am slightly concerned that the Government seem to have, as always, gone straight to the big consulting companies, rather than real industrial and commercial companies that actually have that experience and know how to join it up.
This crisis has also revealed a neglect of our manufacturing base by Whitehall. We must hope that the lessons have been fully learned, and our national recovery must be focused on rebuilding industry. That requires Government to act as not only legislator and administrator, but customer. We may well be facing a deficiency of demand that will mean that the restarting of the economy is in fits and starts, and Government needs to look at what role it can play. It can order buses, cars, vans and trucks to get the auto industry going; it can have a programme of council housing and of road repairs, in order to get construction and building materials moving; and it can give orders to British firms for health service equipment, protective clothing, chemicals and a reconstruction of our vaccine production capacity. There are many more things it can do, but time does not permit me to mention them all. Equally, time does not permit me to raise the issue of the difficult situation supply teachers have got themselves into with umbrella companies, which puts them in a grey zone. I have been warning about this for a number of years, since as far back as five years ago, but I will write to the Minister about it.
In conclusion, I wish to echo the words of the new Leader of the Opposition—colleagues will understand what great pleasure it gives me to be able to say that after five years. He told the Prime Minister:
“This is a national crisis and therefore needs a national response. Will you therefore commit to publishing an exit strategy as soon as possible?”
The country desperately needs that strategy, a way forward and, most importantly, hope. We do not want to be told that everyone is focusing on the coronavirus epidemic; during the second world war they were in an existential world war and we had a command economy, yet they were still able to produce the Beveridge report and a host of other measures planning for the future. That report identified five giants—want, squalor, idleness, ignorance and disease. We are focusing on disease, but those other giants are still killing people, here and around the world, which is why we need an urgent strategy from the Government and why we need Britain back to work safely.
David Mundell (Dumfriesshire, Clydesdale and Tweeddale) (Con) [V]
It is a real pleasure to be able to connect to you and to the House of Commons today, Madam Deputy Speaker, and to take part in the Second Reading debate on the Finance Bill. I wish to begin by echoing comments made by the Chair of the Treasury Committee in relation, first, to those who receive a significant part of their income through dividends. I believe that there must be the possibility for the furlough scheme to accommodate a calculation of income that is based on those dividend receipts—that is used for many other income calculations. The second point is that we need to ensure that the banks are playing their part. I receive a lot of emails from the banks telling me what a great job they are doing, but I receive even more emails from constituents about the bureaucracy and difficulty that the banks are putting their way in respect of securing not just the loan guarantees, but wider loans.
I wish to raise two specific points, one of which is access to cash. I raised that in my contribution to the Budget debate on 16 March, which seems like a lifetime ago. The second relates to the Roadchef employee benefits scheme, which the hon. Member for Glasgow Central (Alison Thewliss) mentioned and which is particularly relevant in my constituency. We are seeing during this crisis that access to cash is even more important than it would be in so-called “normal” times. People need cash, often to get others to buy their weekly shop or to get them to do other tasks, or simply to have the reassurance of having cash at home in order to meet unforeseen circumstances. That is why this remains such an important issue.
As I highlighted when I spoke previously, the average cash transaction is £10 or £20. When someone is paying £3 to get £10, that creates a huge distortion in the ability to have cash. It impacts on the most vulnerable in our communities, and that is why I welcomed the fact that the Chancellor has said that he will legislate to ensure access to cash, but that has to be on a fair basis. It has to be on the basis that there are not disproportionate charges and that cash is accessible across the whole of the United Kingdom, particularly in rural areas.
I represent one of the largest rural constituencies in the UK, so I welcome the fact that LINK has made some announcements on how it might approach the issue. I also welcome the fact that NoteMachine, the second largest provider of cash machines—it does so on a charge basis—has indicated that it would go back to free charging if the significant change of a return to the previous interchange rate was put in place. I therefore urge the Chancellor and Treasury Ministers to actively consider making that change, which would make a real and significant difference to people’s ability to access cash machines and to do so on a free basis. The crisis has shown more than ever the need for people to be able to access cash.
I will move on to the issue of the Roadchef employee benefits trust. I will not give a detailed outline of the issue, because it has a long history. I know that the Financial Secretary was able to meet the chairman of the trustees and the hon. Member for Airdrie and Shotts (Neil Gray), who has done so much to pursue the issue. I have a service station in my constituency that you may have used yourself, Madam Deputy Speaker. It is now called Annandale Water, but it was previously under the branding of Roadchef. Roadchef set up the first tax-exempt, all-employee share ownership scheme of its kind, but unfortunately the former chief executive of Roadchef plundered that trust, causing all sorts of difficulties, not least that it was not registered in—
Madam Deputy Speaker (Dame Eleanor Laing)
Order. I hope that the right hon. Gentleman is drawing to a close.
David Mundell
I am coming to a close. The trust was not registered. The funds cannot currently be distributed on a tax-free basis. I hope, either by an amendment to the Finance Bill or through the Financial Secretary’s good offices with HMRC, that issue can be satisfactorily resolved.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op) [V]
What a pleasure it is to contribute to this debate while in my isolation that I am still under, which meant that I could not accept the invitation to be in the Chamber today. I have one very quick point to make on the background of this debate. The Finance Bill, more or less like the Queen’s Speech, was redundant almost before the print had dried, because we are in a situation we could not have imagined when either was first framed.
I want to make a pitch in particular for an unrepresented group in our society: children and young people. I believe that young people—school leavers, children in school and children in pre-school—have had a pretty tough time during this coronavirus epidemic, and they are still having a tough time. Looking forward, we are going to see real problems. If we have the recession that every authority is predicting, we will have a very serious problem of youth unemployment, and young people will have to accept jobs that they would not otherwise have dreamed of accepting. We have to concentrate and modify at every level to prepare for that great demand, and we must amend the Finance Bill, because we have a responsibility to look after young people well.
When I first came into Parliament all those years ago in 1981, everyone was surprised when Margaret Thatcher, the new Conservative Prime Minister, introduced a windfall profit tax on the banks, because they had made money while doing very little about it. I want this Bill to be amended very soon to include a windfall profit tax on those who have done rather well, even though they did not plot or plan it. I am thinking of Amazon, Google, Netflix and the gambling sector, all of which are ripe for a windfall tax that could be distributed to look after young people.
One way to do that would be to learn from the Americans—from the Kennedys and the peace corps—and give young people at 18, at 21 or at any stage of their lives the chance to go and serve the community abroad or at home. I would like us to take a bit of that, and perhaps a bit of the green apprenticeship in Germany, and create a new green national service. It would give every young person in our country an opportunity—at the age of 16, 18, 21 or whenever they chose—to spend a year working on climate change and the environment. We need the money to do that, and I think a windfall profit tax would be the way.
I believe that that would go some small way to addressing the unfairness of the taxation system, which other colleagues have spoken about eloquently. In Huddersfield, the typical town of Britain, we know that very well. We know that universities, which are the heartbeat of many communities such as mine, will be under threat in the coming months and years. We need to focus on young people, education and higher education, and we need a windfall tax to give us the resources and the opportunity to do something substantial rapidly in the coming months and years.
Sir Graham Brady (Altrincham and Sale West) (Con)
We meet for this debate about 10 days before the end of the extended period of lockdown, and we want this process to continue to succeed. The number of new cases has started to fall, the number of hospital admissions is coming down and, while the tragic death toll remains too high, it looks as though that is falling, too. We want that to carry on, but if we want the public to continue to engage in this battle, as they have done magnificently, we need to offer them hope and a light at the end of the tunnel.
We need to look ahead to the point where more people return to work and more businesses operate. An extraordinarily difficult political judgment faces the Government: the need to balance the recovery of the economy and the protection of jobs with the need for common-sense measures for hygiene and distancing, which might continue as people get back to work and business gets moving again.
The only thing from the 11 March Budget that I want to mention is the one-year extension to the IR35 changes. The Minister said that that time would be used well, and that research would be conducted into the impact on the public sector before the change was extended to the private sector. I hope that Ministers will also take the opportunity to look at whether more could be done to achieve proper clarity of definition between contractors and employees, and at the ill-defined status of worker, which causes considerable confusion.
Moving to more recent financial measures, I warmly congratulate the Chancellor on the bounce-back loan. It is a sensible compromise between protecting against potential high levels of fraud—by introducing the limit of £50,000, or 25% of turnover—and meeting the need to get money out quickly. I commend the Government for listening to calls for changes to achieve that. All measures should be focused on getting the economy moving again once it is judged that the acute phase of the crisis has passed.
I have a couple of specific points to mention. A number of Members have made the point that although the job retention scheme has been hugely successful, it is inflexible. As we look towards the phase during which people will gradually return to work, it would be immensely helpful if it was possible to furlough an employee for part of the week, rather than the whole of it, to assist a gradual return to work.
The small business and hospitality grants are extremely beneficial to small businesses, but some have found themselves excluded. I refer particularly to those that operate in shared premises, paying rent and not paying their business rates directly. It is manifestly and especially unfair for small cafés and restaurants that have been required to cease trading yet find themselves specifically excluded by the technical terms of the grant regime.
Finally, I turn to the aviation sector. My constituency is adjacent to Manchester airport, which is directly or indirectly the source of the greater number of jobs in my constituency. We all know that the aviation sector is facing perhaps the greatest problems of any in the current crisis, and they look like going on for longer, so will the Minister ensure that he and his colleagues do everything possible to look ahead at how the aviation sector can be supported through recovery? In my remaining half minute, I leave with him the suggestion that it might be a good time to consider a holiday, as it were, for air passenger duty, by cancelling it for a 12-month period.
Richard Burgon (Leeds East) (Lab) [V]
The coronavirus pandemic is the greatest crisis that most of us have ever lived through, so the values of solidarity, co-operation and support for—[Inaudible.]—are more important than ever at this critical time. In his March Budget speech, the Chancellor said that we were entering this crisis from a position of economic strength; for millions of people, that could not be further from the truth, and nor was it the case for our public services. A decade of austerity and a 40-year period dominated—[Inaudible.]
Madam Deputy Speaker (Dame Eleanor Laing)
Order. I hesitate to interrupt the hon. Gentleman—I do not know whether he can hear me—but the sound quality is very bad. Let us try again to see whether it improves; if not, I will have to move on to the next speaker and come back to the hon. Gentleman.
Richard Burgon
A decade of austerity and a 40-year period dominated by marketisation, deregulation and privatisation has left us less prepared to deal with this crisis—[Inaudible.]
Madam Deputy Speaker
Order. To be fair to the hon. Gentleman, I am going to interrupt him, because the House cannot properly hear what he is saying. I judge it would be better if we could come back to him later in the proceedings.
John Redwood (Wokingham) (Con) [V]
I have declared my interests in the Register of Members’ Financial Interests.
At the time of the Budget it was a very different world. The Government were forecasting a little bit of growth and recommended a modest stimulus. I remember that I was able to welcome that stimulus in the Budget debate—I thought it was right that we boosted public spending a bit and borrowed a bit more—but with masterly understatement I said that I was a bit surprised by the magnitude of the stimulus: I thought that perhaps something more was needed. In the six weeks that have elapsed since then, we have seen a blizzard of announcements that have made it clear that the Government recognise the magnitude of the downturn that now besets us and the world economy and are rightly moving swiftly to try to provide some compensation to the many businesses that cannot trade and the many people whose jobs are under threat or whose income is disappearing because of the lack of work. The response is correct, so the Government should look again at the Finance Bill in the light of the fact that the events that led to its formation have been completely overtaken by the magnitude of this crisis, and because we will need quite soon a Finance Act that does everything in its power to promote recovery.
Tax rises are not a good idea at all. The Government, in this period of response to the crisis, have offered tax holidays, tax reductions and tax deferrals, which is the right response as the private sector and individuals cannot afford those taxes at the moment with their incomes so rudely interrupted. The Government must also look at the groups of people they are targeting. I urge the Minister to think again about changing the rules on IR35. There are about 5 million self-employed people in this country who have been doing a magnificent job for us. They provide flexibility, service and products that we need and they are very competitive. A number of them have been living under the shadow of those tax changes; some have lost contracts and work to overseas companies and competitors simply from that threat. I therefore urge the Minister to think again and recognise that we need to reward and encourage those people, not threaten them with a new tax. Above all they will offer a lot of the flexibility, hard work and energy that the recovery will need.
The Government are right to provide as much compensation as they can and the Bank of England is right to buy a lot of bonds and create money, but we all know that that is not a sustainable model for the economy in the medium to longer term. I echo the comments of colleagues who rightly said that we need a way back to safe working as quickly as possible. The only way we can afford to pay for the NHS is to have more people at work paying taxes and earning decent incomes, and more companies generating turnover who can then afford company taxation.
Through the Finance Bill and all the other measures the Government can undertake, we must together ensure that we have as early a return to work, and as safe a return to work, as possible, and that means working away with business on better safety so that people have the clothing and equipment they need, automating where necessary and allowing proper social segregation while people are working in warehouses, offices and shops. We need to develop those new business models, and the Government can provide a lead by showing how they can continue to administer their great services while looking after the safety of their employees to the best possible effect. That requires reshaping the Finance Bill. I am delighted that the Minister is thinking of making amendments to the Bill during its passage through the House. I ask him above all to look at measures that could reward companies that go in for a new model, and reward employees and the self-employed who go that extra mile to work safely and create some restoration of service and activity in our economy.
No one in this House has seen anything on this scale or magnitude before. Never have we got to the point where a quarter or more of the companies in the country are not allowed to trade and millions of people are banned from doing their job because of public health and safety considerations. In this situation, we need to offer them a Finance Bill with hope, a Finance Bill that will help them finance the recovery and a Finance Bill that will make it worthwhile for them to lead that recovery as soon as the time comes.
Shabana Mahmood (Birmingham, Ladywood) (Lab) [V]
When the Minister introduced the Bill’s Second Reading, he spoke for everyone in the country when he said that every day feels like a decade. There is an air of slight unreality about the debate. As other Members have remarked, the Budget was out of date almost immediately from the moment the Chancellor sat down after delivering it, because of the scale of the crisis, the fast-changing situation that we are living in and the difficulties that businesses and people are facing all over the country. It is vital that we do everything we can in a national effort to keep people in work and to get cash to struggling businesses.
In that context, I welcome the Chancellor’s announcement today that the bounce-back loans are now 100% Government backed, but I must say we are far behind other countries—in particular the US, China, Germany and Switzerland—on measures to get money through to small and medium-sized enterprises. So often we describe SMEs as the lifeblood or the engine of our economy, yet we are failing to get the right level of support to them quickly enough in this crisis.
That is why we have seen multiple announcements made to correct defects in previous announcements. That approach is simply not good enough. In my view, the Government need to go much further than the current schemes, because they are not equal to the task that we face. In particular, they must as a matter of urgency streamline the application process and remove the high barriers that are in place at the moment for businesses to prove their viability.
I understand the argument about placing too high a burden on future generations, but if we fail to take adequate action now, that burden will be high in any event. We must try to limit the long-term damage to our economy, and that means supporting small and medium-sized enterprises much more than we are doing at the moment.
This crisis highlights more than ever the need to deal with fundamental weaknesses in our economy. I think in particular of my constituency, the challenge that we have with long-term unemployment and the plight of the working poor. We cannot allow such structural weaknesses in our economy to continue after the crisis, which has exposed the dangers that we see as a result of those fundamental weaknesses.
The shadow Chancellor said, and I agree with her, that after the crisis we will need a new economic settlement. We will need a new economic settlement not only in our domestic politics and economy, but in the international sphere as well, so I will speak a little about the digital services tax. I welcome the new 2% tax on revenues of search engines, social media platforms and online marketplaces that derive their value from UK users. As we all know, this measure will not deal with the differential tax treatment between brick businesses and click business, and it will certainly not deal with Amazon, which continues to grow exponentially, but it is a step in the right direction. I appreciate that there is a debate to be had about whether to take multilateral or unilateral action in this space, but as far as I am concerned the status quo needs breaking apart, and that can happen only through Governments taking unilateral action. In this case, I urge the Government to go further. We cannot keep standing by, watching this ridiculous situation where hugely wealthy companies pay little or no tax in countries such as ours where they have a huge presence.
The current crisis means that, once we emerge from covid and all its related difficulties for our economy, it will not simply be a case of playing populist politics; I simply do not think the public will accept a situation in which such huge multinational enterprises do not pay a fair share of tax in countries such as ours where they create a huge amount of their value. Something needs to break open the logjam on this in the international sphere. We know that the US will react, but we must be bold and we must be brave—we must grasp the nettle on this, because we need well resourced Governments if we are going to deal with the challenges that we face as a result of the covid crisis.
Dr Liam Fox (North Somerset) (Con)
It has often been said in this debate that this is the most difficult and unusual backdrop to a Finance Bill that any of us can remember, but at the time of the Budget, the global economy was already slowing. Growth in trade across the globe last year was downgraded from 2.8% to 1.8% to 1.2%, and actually came in at about 0.7%, and global trading growth went negative in the last quarter of 2019. That is unlikely to be reversed, because all of that was pre-covid. It was partly due to US-China trade tensions and partly due to greater protectionism since the global financial crisis, which saw an increase in the number of non-tariff barriers to trade operated by the G20 from 300 in 2010 to 1,200 by 2015. Dependence on global supply chains is not a bad thing, but one of the first lessons that we will have learned in this crisis is that over-dependence on just-in-time supply chains has tilted the pendulum too much towards efficiency rather than towards resilience. I predict that one of the changes that will come in the post-covid economic environment will be a move towards greater stockholding and warehousing.
I have never been a big believer in the big state. David Cameron once asked me what type of Conservative I thought I was, and I told him that I was an unreconstructed free-market Thatcherite, Unionist, Eurosceptic Atlanticist. I do not believe that we are seeing the re-emergence of the big state that many of my colleagues on the right of politics so fear and that those on the left would love to see, but what we are seeing from this Government is a sensible suspension of the norms so that we can go back to free-market economics. If we had not supported jobs and businesses, we would be seeing not the sort of evolution that we get in a free-market economy, but millions of jobs lost. We would have seen the well-being of families and communities destroyed, the loss of viable businesses, the loss of valuable jobs and a huge burden of the costs of unemployment falling on the taxpayers for absolutely no economic benefit.
I never imagined that I would be in the House of Commons calling for an increase in Government spending, even a temporary one, but as I used to tell my patients, there is no point in complaining about the air when there is nothing else to breathe. We are in a situation that demands unusual measures, but it is also fair for us to point out to taxpayers that the longer that we have to keep the economy in so-called sleep mode, the higher the cost will be for future taxpayers to bear over a longer period.
We need to see both domestic and global demand increasing, because there is a link between trade and prosperity and security. Oil demand is 30% below what it was at this time last year. That is great for the countries that import oil, but very bad for the economies of the producers. It is not in our interests globally to see destabilisation in states such as Saudi Arabia, which is what some of this lack of demand will ultimately lead to. We need to support demand, encourage confidence on which that demand rests and promote our own entrepreneurial creativity and talent. I echo the comments of my right hon. Friend the Member for Wokingham (John Redwood) that we need to do everything to promote recovery, which leads me to two brief practical points and one question for my right hon. Friend the Financial Secretary to the Treasury.
The first is a comment on bank lending. The problem is not that the money is not there and being underwritten by the Government; the problem is the lending criteria being operated by many of the banks, which applies more to some sectors than to others. In the tech sector, for example, the value lies in internet protocol and not in physical assets. That makes it very much more difficult for the sector to borrow against standard bank lending criteria. That needs to be looked at.
Secondly, I reiterate the points that have already made by some of my colleagues about IR35. Some of our most flexible and resilient workers in our economy are in that grouping, and what we must not do in trying to right a wrong is put them in a position where they are disadvantaged, without sick pay in line with other workers in the economy, for example.
This is a global pandemic that requires global co-operation. Are we, in the long term, to paralyse the global economy for the emergence of every new virus? Will we be governed in fact by the smallest pathogen on the planet, and if not, how will we develop the protocols that we will need to manage the situation? Globally, we need to find solutions. We will need them to be adhered to, to be transparent and to be verifiable. We cannot deal with these matters as single nation states. We have to find new ways to co-operate in an interdependent global economy. The risks will affect us all. Contagion in one bit of the global economy will affect us all whatever our political beliefs. That is one of the greatest tasks, and I urge my right hon. Friend to take a lead for Britain in that global debate.
Tonia Antoniazzi (Gower) (Lab)
I would like to take this opportunity to congratulate the shadow Chancellor, my hon. Friend the Member for Oxford East (Anneliese Dodds), on taking her place on the Front Bench.
I highlight my hon. Friend’s striking words that this Finance Bill is really a Finance Bill for a different age, because so much has happened and our economic backdrop is now frighteningly challenging. We have therefore reached a point where the public want to know and understand the proposed exit strategy. There are a number of reasons for that. People do not like to feel helpless. They want to see and plan their future during this covid-19 crisis and pandemic. For many of my constituents, that is about protecting the long-term future of their businesses and their employees. There must be a mechanism of support for businesses, many of which may not currently be in profit but which are crucial to the future of our economy in Gower, including those in the hospitality business. For many who rely on seasonal trade to stay open, debt is really not a solution. I have been contacted by a number of iconic and well respected family businesses such as Castellemare in Mumbles and the King’s Head in Llangennith, all with grave concerns about their future viability. Will this Bill and this Government provide large seasonal businesses with the certainty and flexibility to continue to employ locally and provide a warm welcome to the community and to tourists all year round?
UK business organisations and the UK Government would do well to look at the decision-making powers we have in the Welsh Government, as quite a few of the gaps in the different grants and loans that we are calling on the UK Government to fill have been filled in Wales; additional grants to businesses are available to fill in the gaps in the programmes of Her Majesty’s Treasury. There are obviously limits to what we can do with the block grants, but many companies in Wales will have a safety net that is not available elsewhere.
I thank the Government for the support they are providing to furloughed workers, and commend the unselfish dedication of all our key workers at this time of national crisis. However, there are many people working on the frontline in the fight against coronavirus who should not be there because of the severe danger that the virus causes to them and their families. I am talking about key workers who are deemed clinically extremely vulnerable or those who have family members who have been put in the same category by the Government. These people should be shielded and furloughed right now, but many cannot be because the Government’s guidelines on furloughing do not give them that right.
The Government have placed our key workers in a financial and public health trap. Many are finding themselves in an agonising situation where they have no choice but to work through the dangers caused by the coronavirus so that they and their families are not faced with financial ruin. For example, I have a constituent who works in a care home who had his spleen removed just before the outbreak. Working from home or maintaining social distancing at all times is not possible, but his employer will not furlough him because that has not been mandated. That leaves my constituent with two choices: to take unpaid leave or to take statutory sick pay, placing a heavy income penalty on him and leaving him not protected at all.
We are seeing that where employers are not compelled to act, they are not acting. We therefore need the Government to clarify the guidelines on furloughing key workers who are clinically extremely vulnerable or who are carers to family members who are in that category. How is it right that the Government expect these key workers to choose to stay in work at immense personal risk, potentially putting themselves and their families in jeopardy? We needed clarification to be written into the Government’s furlough scheme. We know that key workers’ hourly wages are 8% lower, on average, than those of other employees. If vulnerable key workers cannot be furloughed, the Government have a duty to increase the level of statutory sick pay to ensure that no key worker is left behind as a result of this Bill. I would hope that the Bill can be amended to provide such support to our key workers.
Lilian Greenwood (Nottingham South) (Lab)
Next week is the 10th anniversary of my election to this House. There have been some memorable moments in that time, but none as discombobulating as making a speech sitting in my own kitchen.
However, if the surroundings are very unusual, some of the concerns we are debating today are not. For too long, the UK economy has not been working for many of my constituents, particularly the lowest paid. While they are working hard but struggling to make ends meet, there are others who simply have not played by the rules, whether they are multinational tech giants avoiding billions of pounds of tax or wealthy individuals and companies failing to pay their fair share.
In recent weeks, we have seen more clearly than ever how much we rely on our key workers, whether the staff in our NHS, careworkers, teachers, bus drivers, shopworkers and so many more. They deserve our thanks, of course, but they also deserve a new social contract: a recognition that the economy has to change so that they are fairly rewarded for the work that they do and that our public services receive the investment they need. For too long, real wages have been depressed and services decimated in the name of austerity, while there have been tax cuts for people and organisations that could afford to pay more.
Some of the measures in the Bill represent a step in the right direction, but they do not go far or fast enough to match the scale of the challenge. No one could have anticipated the immense shock to our economy from the measures needed to fight the coronavirus, and it places a great responsibility on the Government. As my hon. Friend the shadow Chancellor has said, it is absolutely critical that the Government now do all they can to minimise the depth and length of the economic impact.
The measures that the Government have introduced to protect businesses and individuals are welcome, but, as all Members must know, the schemes announced leave gaps—as things stand, there is a real risk that some workers and businesses will miss out on the support they need. This will lead to unnecessary damage to the economy and hardship to individuals. I hope the Minister can give us some reassurance this evening that he is listening and that he will act swiftly to close those gaps—to keep people in work, to keep businesses afloat and to keep families out of poverty.
I do not have time to speak about all the issues of concern, but it is clear that the business interruption loan scheme is not getting help to those who need it. The East Midlands chamber of commerce has told local MPs that businesses describe accessing the scheme as
“a complex and lengthy process with no consistent approach between lenders”.
Certainly, the number of loans agreed does not reflect the level of need. The chamber has called on the Government and lenders to work together to address these issues and improve the way the scheme works; I can only echo its call. I have heard from very many self-employed constituents who cannot access the Government’s support scheme, perhaps because they have a new start-up or because they run a limited company and take their income through dividends. Will the Minister address their concerns this evening?
Our social security system needs urgent change. My hon. Friend the Member for Stalybridge and Hyde (Jonathan Reynolds) has made five very straightforward proposals to the Government, and I hope they will adopt those to prevent more individuals and families from falling into poverty.
I would particularly like to highlight one gap that the Government must address in their support for small businesses. I know that local councils around the country have worked incredibly hard to distribute the small business grants as quickly as possible. I pay tribute to the staff at Nottingham City Council, who have ensured that over £33 million of grant funding was paid out by last Friday, processing every application they had received.
However, there is a problem. Many small businesses rent space in a multi-occupancy building—an office, a shopping centre or a small business incubator—and they pay their landlord a fee that includes rent and rates. The landlord does not qualify for small business rate relief, which means that neither the landlord nor the small business tenants can access the £10,000 small business grant. Both I and the council have written to the Chancellor on this point, and I hope the Minister can tell me that he intends to address this anomaly, which is preventing dozens, if not hundreds, of Nottingham small businesses from receiving much-needed support.
These are unprecedented times, and it is more essential than ever that we have an economic system in which those with the broadest shoulders bear the heaviest burden. I hope the Government recognise that we need a new approach to tax and spending decisions that learns from this crisis and produces a better and fairer system for the future.
Mr Steve Baker (Wycombe) (Con)
“Unprecedented measures for unprecedented times”—that is how my right hon. Friend the Financial Secretary introduced the Bill at the Dispatch Box, and of course he was absolutely right. I believe that, across this House and the country, there is overwhelming support for the necessity of these measures.
I wish to make a speech that will touch on some subjects that I think would otherwise not be touched on in the debate. I apologise in advance to my constituents. This is in no way to neglect the cracks through which many people have fallen, but we will simply pick those up through the Treasury Committee in future, as we have been doing over the past few weeks.
I will make three points in the short time available. First, I will say a little more about the context of the Bill. The threat of disease and death on a mass scale has dramatically rolled forward the state in a way that I never thought I would see in this country, let alone under a Conservative Government. It has been necessary for all the reasons that are common territory, but it fills me with a little horror. It is not the consummation of all my worst fears because, of course, my right hon. and hon. Friends on the Front Bench do not wish to nationalise the means of production. They are not dramatically hiking taxes, so things could have been worse had we lost in December. [Interruption.] I hope that Opposition Members will forgive me, but we cannot take interventions.
Taxes are not being dramatically driven up by the Finance Bill, and thank goodness for that, because I believe that the economy is already at or near its taxable capacity. I am working with economists to set that out shortly. I am not surprised that the Bill has to fiddle around at the edges with such things as IR35, because we are at or beyond the taxable capacity of the British economy. The Government are having to go where in other times they might not; they might simply raise other rates. Who, though, could imagine going up from 20% VAT? The very idea is an absurdity, as that tax hits the poorest hardest.
I wish, of course, to turn to borrowing and monetary policy, because the Debt Management Office has announced that it will borrow—that the Government will borrow—an extra £180 billion, which is an absolutely extraordinary sum. Still more extraordinary is the reality that the Bank of England is going to buy bonds faster than the Debt Management Office is selling them. We are in the most extraordinary situation. Quantitative easing will go up to a total of £645 billion. I should say, in passing, that I am going to guard my remarks, because I wish to have regard to the need for monetary stability.
QE is going up by an extra £200 billion. If that were not enough, the countercyclical capital buffer is being released, which releases £190 billion of extra lending capacity for the banks. Many Members may not know this, but I recommend that they Google “Money creation in the modern economy” by the Bank of England. They will see that that £190 billion will be loaned into existence. That is where most of our money is created.
We have the borrowing of the DMO, bought through QE, and the countercyclical capital buffer. Though it is a technical point, the Treasury Committee has just had it put on the record that an accounting change in relation to loan loss provisioning is as important as the countercyclical capital buffer, because it would undo the benefits—the additional lending—that one gets by releasing that capital buffer.
These are enormous times. We are talking about loan loss provisioning being changed in order to massively add to the stock of money through new lending. In the past, I have talked about the covid corporate financing facility, which I think I heard the Minister say is adding £13 billion—it is in the order of teens of billions of pounds—to the money stock. Then, of course, there is the ways and means facility of the Bank of England: a kind of overdraft facility.
I put those things on the record in this place not because I want things to go wrong, but because I want to highlight the sheer scale of the extraordinary measures and the extraordinary times through which we are living. Were all that to go wrong, and I pray to God that it does not, we need to have understood what was being done at the time. When the spending, interventions, borrowing and monetary policy is all unwound, it will be really important to have some ideological keel to get us through difficult times.
No one could say that this is an ideological Government, but times will be difficult and we will need to aim very firmly at a free market economy. As we do so, we will need to understand monetary policy as well as other factors. That is why I have put it on the table today. Far too often—I hope that the Minister will forgive me for saying so—Ministers say, “That’s a matter for the Bank of England.” The Bank of England is not above the law. It operates within a framework of law that this House sets, and I believe that we shall need to revisit that.
Sir Edward Davey (Kingston and Surbiton) (LD) [V]
Today’s economic crisis is the worst and most alarming of our lifetimes. Never since the second world war has Britain’s economy faced such damage and uncertainty. I recognise just how difficult it is for Treasury Ministers, the Bank of England and other policy makers trying to tackle this crisis, but the Liberal Democrats agree with the Leader of the Opposition that we need a public debate about how the lockdown can be phased out in due course. I would add to that that we need a really mature debate about how economic policy will help in the economic recovery. Indeed, whether it is in the immediate solutions, the emergency packages or the preparations for that recovery, Liberal Democrats believe that economic policy must be guided by three key objectives: producing a fairer society; building a more sustainable economy; and restoring our reputation as a country that is outward-looking and internationalist.
Economic policy must tackle Britain’s unequal society, so exposed in this crisis, including the poor pay of people in the care sector, the problems with the universal credit system and the low levels of statutory sick pay. All these problems show that we must do far more to increase social justice in our country, and I believe that they show that we should look more seriously at proposals for a universal basic income.
Alongside greater fairness, we must move our economy much faster towards net zero so that we address the climate emergency in the recovery. I am pleased that the Government are talking about this, but we need urgently to debate specific policy proposals to make sure that the new economy that we must build is genuinely low carbon. We are seeing how fast the Government can move in a crisis; well, there is a climate crisis and we need to move just as fast to tackle that, too.
We must also work with other countries to ensure that the recovery is as strong as possible, and deepen international co-operation, especially with our closest allies. We cannot allow this crisis to move us back from support for free and fair trade, even where we adapt trade to secure an improvement in our biosecurity. We must remember how the recovery from the second world war was driven so much by agreements such as Bretton Woods and by growth in international trade.
I have already commented widely elsewhere on the Chancellor’s emergency packages. The business loan scheme has just been too slow and although today’s micro-business loan scheme is welcome, it is very late. I urge the Chancellor to go further and look at the Liberal Democrat plan for new online marketplaces for these Government-backed business loans. Using existing platforms such as Funding Xchange, Funding Options and Alternative Business Funding, businesses could fill in just one form and those applications would be sent immediately to lenders whose lending policies show that they are much more likely to say yes, so the businesses could get the cash more quickly. If we do not see businesses getting the cash quickly, we will see more businesses fail.
The element of the Government’s emergency package that I would most like to talk about today is the challenge facing local authorities. The Government’s help so far just is not sufficient to help councils on the frontline of this crisis, which are so crucial to helping vulnerable people and businesses. Councils are having to increase spending dramatically just at the time when their income is also being slashed—from a huge loss in income from parking and services such as leisure centres, to real concerns that council tax income will fall significantly too.
May I ask the Treasury today to commit to the principle that for councils across the country it will not just fund extra crisis-related spending in full but provide grant funding to cover these dramatic losses in revenue? Just as the Chancellor wrote off the debts of NHS trusts as part of his emergency assistance, will he now look at reducing or writing off councils’ debts? Writing off housing debts could help stimulate a council house building boom in the recovery. Writing off debts linked to spending on special educational needs and disabilities would help our schools recover, too.
When it comes to planning the recovery, may I ask Treasury Ministers to consider three key issues? The first is how the furlough scheme is wound down to make sure that we protect jobs. We must prevent staff who are furloughed today from becoming staff who are laid off tomorrow. The second is that in the recovery we must achieve a historic and dramatic rise in both private and public investment in green technology and climate-friendly infrastructure. After solving the current international crisis, let us solve the next global crisis—the climate crisis—that we all know is facing us.
Finally, over the thorny issue of Brexit and the transition period, I once again urge the Minister to recognise that this crisis and its immediate aftermath is exactly the wrong time to add to the uncertainty, the cost and the loss of markets that businesses are already facing. Surely suspending the Brexit talks and seeking an extension to the transition period is just economic common sense.
This Finance Bill will pass its Second Reading, but the Chancellor must do far more to ensure that Britain’s economy after this crisis is fairer, greener and more outward-looking to the world.
Madam Deputy Speaker (Dame Eleanor Laing)
The hon. Member for Leeds East (Richard Burgon) is still having some technical difficulties. Although we are not able to see him in action, we have his photograph and are able to hear him.
Richard Burgon (Leeds East) (Lab) [V]
The coronavirus pandemic is the greatest crisis that most of us have ever lived through, and the values of solidarity, co-operation and support for public services are more important than ever at this critical time. In his March Budget speech, the Chancellor said that we enter this crisis from the position of economic strength. But for millions of people, that could not have been further from the truth, nor was it the case for our public services.
A decade of austerity and a 40-year period dominated by marketisation, deregulation and privatisation left us less than prepared to deal with this crisis. The crisis has brought the failings of all that into sharp focus: weak public services, a broken social care system, a woeful lack of workers’ rights, a hollowed-out social security system, and a housing market that treats housing as an asset rather than a human right. The priority of the Government must, of course, be saving lives, but we must also do all we can to stop this public health crisis from becoming a social and economic crisis.
The Chancellor, since his Budget, has provided additional support. That is welcome, but it falls far short of what is needed. It is rightly said that this virus does not discriminate, but our society and economy do: that is clear from how many people are suffering in this crisis. Families in my constituency were struggling to get by before this pandemic. Many are now in crisis. The bills have not stopped, even if their ability to pay them has. Many were on poverty pay before the crisis. Now some are receiving just 80% of the minimum wage on furlough. The Government must act immediately so that no one is left on less than the minimum wage during this crisis.
We urgently need to see action over the shockingly low level of sick pay. It should be increased to real living wage levels, and we must ensure that millions of low-paid—mainly women—workers can access it too. We also still need to see much more support for renters, starting with rent suspensions, as well as social security set at levels that families can live on, not levels designed to punish them.
The Chancellor recently said that the financial support for those affected by the coronavirus crisis will need to be paid back at some point. When we draw up the list of who should pay, at the top must be the super-rich, who have profited from a decade of tax giveaways from the Conservative party. There must be no question of us repeating the injustice of the past decade while working-class people have paid with their wages frozen and their services cut. This crisis has underlined who we really rely on: workers deemed unskilled or undeserving of proper pay rises just a few weeks ago. When this is over, we have to build a country that treats those workers and working-class families across the country with the respect that they deserve, and which they have not been shown for far too long.
Mr Marcus Fysh (Yeovil) (Con) [V]
It is a pleasure to reopen proceedings. I welcome this Finance Bill and I support the Government in dealing with this most difficult challenge of covid-19 and the lockdown that has been required. It is right that we protect the NHS and increase its capacity; I am proud of the part that Somerset has played in that, with firms such as Numatic, Oscar Mayer and others doing a brilliant job, helping to manufacture PPE, get meals out and get involved with ventilator production and with looking for vaccines and treatments.
Test and trace is clearly the way to go, and it is right that we stay locked down for a few more weeks, because we absolutely need to avoid a second lockdown, which would be a proper catastrophe for the economy. It is worth buying time now to be able to control the virus’s spread, so that we can spring back with confidence about our health, our travel and our interactions with others.
However, the scale of the downturn that we are in globally even now makes lifting the lockdown as soon as possible of critical importance. At that time, a new Budget and a new Bill will be needed, for incentive for research and development, for investment and reinvention. I believe that the multi-year scope and huge scale of this downturn mean that it will not be V shaped.
The scale of the destruction of consumption and supply that is going on and the crisis in real demand, which is seen in things such as unemployment—for example, in the United States they are now expecting 30% unemployment by the summer—mean that it is a massive challenge. Just expanding the money supply does not conjure up that demand. We are seeing major problems in the oil markets; money is being printed to support them, but nevertheless, large swathes of oil production around the world will be taken out and there will be major debt crises in emerging markets coming down the road.
The other problem we have seen with massive monetary easing is that it destroys the mechanism of the markets for discovery of prices of different types of assets. We have a massive challenge coming down the line. However, as I said, I support these measures to keep the economy from its heart attack; even if those immense problems are being stored up for the future, there is really nothing else to be done about it.
It is right that we support those who genuinely cannot work through this crisis, but the furlough is creating some of its own issues and it cannot be afforded forever. We need to incentivise people to get back to work and companies to get back into operation as soon as we can.
The other thing to understand is that it is massively important that we maintain confidence in markets in our public finances. At 100% borrowing as a percentage of GDP, it really makes a difference whether we are paying 1% or 5% on the debt service: 5% would give us a very big problem and would see 25% to 30% of Government spending going on debt service. It is an unpalatable choice that we and nations around the world will face about how to deal with that—whether to go for some element of inflation, whether more monetisation is the order of day, whether there might even have to be debt forgiveness, such as happened in the 1930s, or whether we have extra taxation. The point is that all those things are massively challenging and are, in one way or another, an assault on the value of money. Maintaining confidence in money itself will be one of our key tasks.
We need our economy here to be ready to spring out, powered by research and development and reinvention. We need to be open to trade and innovation. We must not be seduced by the sirens of protectionism that led us into a terrible place a century ago. We must, as a nation, pursue a US trade deal. We must pursue deals with all nations around the world, and we must not be scared into thinking that we need to be protectionist at all costs. I want to say to people in Somerset: you are doing a brilliant job—keep going. We need to come out of this in the right way, and everything you do now is going towards that.
Debbie Abrahams (Oldham East and Saddleworth) (Lab) [V]
As so many of us speak virtually for the first time in a House of Commons debate, it is clear that the impact that—[Inaudible.] The early response to the pandemic was to provide some relief to businesses. The array of support, added to as the gaps in it were revealed, is not only inadequate but has too many hoops for businesses to jump through and is too slow to get to them. That is particularly the case for small businesses.
I wrote to the Chancellor five weeks ago about the gaps in the various business support schemes he announced. Among the questions I asked him were whether he would ensure that all Government Departments had paid their suppliers and that those suppliers had in turn paid their supply chain. I also asked him why he chose the small business rate relief option instead of an HMRC delivery mechanism. An HMRC route would have supported 7,000 small businesses in Oldham, instead of only 3,900 that have received rate relief. I have yet to hear from the Chancellor on those points, and I would be grateful for a response tonight. Fundamentally, his package of measures does not do what it is meant to do: keep businesses afloat until we are able to come out of total lockdown. I heard from a local business last night which has had to close after nearly 30 years of trading and another that is close behind.
Similarly, the Government’s response to the hundreds of thousands of individuals who do not qualify for, or whose employers are refusing to use, the job retention scheme has been found wanting. Ministers at last week’s Work and Pensions Committee were not able to answer how many people will have been pushed into debt after having to rely on social security support for the first time or about estimates of the increase in poverty. The £20 a week extra in universal credit and the increase in local housing allowance will be completely wiped out for some claimants, given that the benefit cap is still in place. Again, I would be grateful for a response on that tonight.
Disabled people are disproportionately represented in the self-employed workforce. Although I am pleased that the minimum income floor has been lifted from universal credit, why has disability social security support not been uprated, given the additional costs that disabled people are facing on top of the average pre-pandemic costs of over £530 a month?
This health emergency will be followed by an economic and potentially social one as well. Many have predicted that the economic effects from the pandemic could last for most of this decade, and in that regard, it is a reminder of the 2008 global financial crash. As we prepare for a partial lifting of the lockdown, we need to learn from other countries on how to do that safely and effectively—something I fear we did not do when planning our covid strategy.
We also need to recognise the impact that austerity has had on too many of our citizens over the last 10 years. Nearly six in 10 people living in poverty come from working households, compared with less than four in 10 20 years ago. Two thirds of the 4 million children living in poverty live in working families. Sick and disabled people are being isolated and excluded from society, with over 4 million living in poverty. There are increasing inequalities in income, wealth and power. The richest 1,000 people in the UK have significantly more wealth than the poorest 40%—that wealth increased by nearly £48 billion in 2019 and by £253 billion over the last five years. After decades of growth, we are now seeing our life expectancy flatlining, and for women and people in deprived areas it is actually going down. We have the worst child mortality rates in western Europe; four babies in 1,000 will not reach their first birthday.
Another round of austerity must not be allowed, and it certainly cannot be endured. Globally, it is estimated that the covid pandemic could cost as much as $10 trillion, and for each percentage point drop in the economy, 10 million more people typically fall into poverty. We must make sure that the poor, who are predicted to suffer disproportionately in this crisis, do not also suffer in its aftermath through widened socioeconomic and health inequalities.
We are at war with this virus. Out of this health emergency, and the tragedy and heartbreak that so many will endure, we must ask ourselves, “What type of society do we want?” It is my sincere hope that the Government’s long-term economic response will be to provide adequate support for all, as Labour did when we created the welfare state after the second world war.
Mr Peter Bone (Wellingborough) (Con) [V]
It is a great pleasure to follow the hon. Member for Oldham East and Saddleworth (Debbie Abrahams). She made a wide-ranging speech, and I would not want to comment on one aspect of it.
I very much welcome the Finance Bill and the efforts that the Government have made during the pandemic to support the economy and businesses, but the same cannot be said for the major banks. They have failed to act in the national interest. Their response to the national emergency has been marked by indifference, greed and self-interest. I have had many complaints from my constituents about the attitude of the banks. Let us look at just one example.
A director of a small business contacted me last week. He has built his business up over a decade and he directly employs a handful of people, as well as using a number of subcontractors. He said, “Of course we are feeling the impact of a covid-19 lockdown, and without financial help we will have to make redundancies. Should furlough payments come through, we will be able to make salary payments, which is life-saving for our business. However, cashflow has dried up, with outstanding debtors holding back funds, so I applied to my bank for a CBIL. It took three weeks, with three telephone calls, before I was given the application details. I have since applied and chased up for a response after a further seven days. I had applied for £30,000 on the understanding that I could pay off the loan early, as I am optimistic that our turnover will return, putting us back in profit. The £30,000 will help us ride out the uncertainty and keep our suppliers paid and their businesses stable. Without it, we will not survive. These funds are needed now.
The response from my bank has been far from dynamic, and even if my loan is approved, it may be too late. If the Government are paying 12 months’ interest and securing 80% of the loan, why are the banks taking such a long time to get the funds out to businesses?”
My constituent poses a very good question. Why has it taken the banks so long to provide support to small and medium-sized businesses when the Government are guaranteeing 80% of loans and paying all the fees and interest in the first year? Nationally, the banks have lent £2.8 billion through the scheme to 16,600 firms, yet more than 36,000 firms have applied for loans—an acceptance rate of just 48%—whereas in Germany, £7.4 billion has been lent and the approval rate has been 98%.
Businesses do not go bust because they make a loss; they go bust because they run out of cash. The business interruption loan scheme has been running for seven weeks, yet the banks are failing to get the money to businesses. Today’s announcement by the Chancellor of a bounce-back loan will help my constituent, but I hope he will consider making all the loans 100% guaranteed.
Some people may ask, “Should the banks act in the national interest?” Of course, there is a moral reason why they should do so, but the banks do not seem to have any morals. Yet during the banking crisis, the taxpayer injected £137 billion in loans and capital into the banking system, plus hundreds of billions of pounds of guarantees. The banks still owe the taxpayer £27 billion. Taxpayers saved the banks, now the banks have a duty to help save the country.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op) [V]
Like my hon. Friends and many across the House, my primary aim today is to highlight the reality on the ground in our economy in constituencies such as Cardiff South and Penarth. It is clear that this unprecedented crisis has shown up the historic strengths and weaknesses of our economy and society, the fragility of our global trade and supply links, and the fact that we have for far too long undervalued many of those who are the lifeblood of our economy and society, including our incredible NHS, care and key workers and our small and microbusinesses.
This Finance Bill provides opportunities to address those challenges, and it is absolutely right, as the shadow Chancellor and others have done, to set out the challenges that apply equally at home and globally, whether that is keeping people in jobs and incomes, getting cash to, and ensuring liquidity for, struggling businesses to enable them to keep jobs now and recover quicker later, or preventing a slide into devasting poverty and deeper inequality by providing the right safety nets.
I praise the work of our Welsh Labour Government here in Wales and my local councils in Cardiff and the Vale of Glamorgan for the speed and effort they have shown in responding to the crisis, getting cash out of the door and into the hands of those who need it. The Welsh Government’s £500 million economic resilience fund, part of over £1.7 billion of support, has been intended to fill as many gaps as possible in the financial support for businesses. Since it opened to applications, it has received almost 9,000 requests for support, which is evidence of the scale of demand. The Development Bank of Wales is also making real money available to businesses and processing applications faster and more efficiently than many of the high street banks—a point that I will come to, and which the hon. Member for Wellingborough (Mr Bone) exposed.
For microbusinesses, although I welcome the Chancellor’s announcements today on smaller loans, I note that the Welsh Government have already stepped in with grants for microbusinesses, including start-ups. The Welsh and UK Governments must also work together to support major anchor industries, including the steel and creative industries, which are crucial in my constituency, whether it is Celsa Steel or our world-beating film and TV production companies. Immediate support is needed, but beyond that it is also important to ensure support for the UK Steel Charter, for example, and its procurement principles.
I heard today from the internationally renowned Wales Millennium Centre—which is currently displaying in its window a huge “Diolch yn fawr NHS” sign to say thank you—which has an annual economic impact of over £70 million locally and sustains over 1,000 jobs. The Wales Millennium Centre has benefited from the furlough scheme, but it seems likely that restrictions on theatre and mass gatherings will be among the last to be lifted, so will the job retention scheme be extended to cover the whole closure period?
The hon. Member for Wellingborough, who spoke before me, was absolutely right to highlight the reality of the CBILS scheme. I am finding very similar issues, with banks making themselves inaccessible even to phone calls, let alone giving the loans that businesses have needed. I have had businesses refused on viability grounds, which in one case was apparently based on poorer than expected performance for the last two years during the Brexit uncertainty. Despite a significant upturn since last year, that business has had a loan refused. It is simply not good enough, and I hope the Chancellor will crack down on UK Finance and its members.
A particular concern that I have encountered is the issues facing the creative industries, particularly pay-as-you-earn freelancers. A Musicians’ Union survey of over 1,000 musicians shows that 38% of respondents do not qualify for the Government’s assistance schemes, with one in five saying the problems caused by coronavirus may force them to abandon their career as a musician in the long term. One of the issues appears to be whether people were on the RTI—realtime information—submissions scheme to HMRC in time. I would argue that we should use the end of March RTI, to include freelancers on contracts who started before 19 March.
There is also an issue facing those who did not have an employer from 28 February onwards, who therefore do not have an employer to furlough them, and who are ineligible for the self-employment income support scheme as they pay their tax by PAYE. The Chancellor needs to take steps to support those individuals. There are also major issues affecting the newly self-employed, who do not have access to the support systems because the system does not allow for 2019-20 tax returns, and who have no employer to furlough them. What can the Government do to support those in that group, who seem to be falling through the gaps?
I have also heard from many in the taxi and private hire industry, which is facing particular structures, who also need support. I urge the Chancellor to listen closely to the trade unions and others who are exposing the issues that they are facing. The issue of those who pay themselves through a small number of dividends has also been highlighted. I have been contacted by local companies affected by that; indeed, I was approached by one business of that type just today. Many such firms are weeks away from folding after burning through their cash reserves and finding little support.
Insurance companies have been mentioned. The Association of British Insurers and others need to start acting in the interests of the economy and in the spirit of these difficult times. One of my excellent local pubs in Grangetown in Cardiff has paid substantial sums for insurance but is now facing difficulties making a claim with the firm RSA, which made more than £7 billion of revenue in 2018.
Internationally, it is clear that we face a massive crisis—it is not just in this country—and the only way to approach it is multilaterally. That is in our national interest as well. We must maintain such levels and ambitions for co-ordinated action as the former Prime Minister Gordon Brown and others have argued for, lest we see economic and financial contagion rebound on us and the ability of our economy to come out of this. We need support through liquidity injections, debt relief and the maintenance of aid and investment flows. That will be in the interests of us all in the future.
Sally-Ann Hart (Hastings and Rye) (Con) [V]
I endorse the comments on the gaps in the financial support but, at the request of several of my constituents in Hasting and Rye, I wish to highlight the measures on the loan charge in clause 16.
There is no doubt that the loan charge is an anti-avoidance measure: it was introduced in the Finance Act 2016 to address the tax lost to the Treasury through a variety of disguised remuneration schemes. In the 2016 Budget, the Government announced a package of changes to tackle the existing disguised remuneration avoidance schemes and prevent their further use. The loan charge was introduced as a new charge on disguised remuneration loan balances outstanding at 5 April 2019. It is absolutely right that the Government take action to ensure that everybody pays the taxes that they owe and contributes towards the publicly funded services from which they benefit.
In September 2019, the Government commissioned Sir Amyas Morse to lead an independent review of the design and implementation of the loan charge. Sir Amyas was asked to consider whether the policy was an appropriate response to the tax avoidance behaviour in question, and whether changes that the Government had previously announced addressed any legitimate concerns raised. The review was published in December, alongside the Government’s response, which welcomed Sir Amyas’s acknowledgement that disguised remuneration schemes are a form of tax avoidance, but recognised the concerns raised by the review about the impact of some aspects of the loan charge. The Government have, in this Bill, accepted all but one of the review’s recommendations.
The review found that legislation announced in 2010 removed any doubt that tax was due. However, it is argued that the law was not clear on tax after 2010, as explained by Members in this House on 19 March this year. I will not revisit those arguments. The all-party group on the loan charge formally disputes the review’s finding that the law on the use of loan schemes became clear from December 2010.
It has also been argued that some of those caught by the loan charge were misled and, in some cases, coerced into entering schemes as the only way of securing a job. Although the loan charge was intended to shut down loan schemes, the Morse review found that the use of some schemes continues to be extensive in the 2019-20 tax year, with more than 8,000 individuals having entered into schemes between April and October 2019. Some promoters and professional advisers are still selling schemes, in spite of the law becoming clear from November 2017. That needs to stop.
My concern centres around the retrospective aspect of the loan charge. The loan charge does not change past liabilities, because it is a new tax on loans outstanding as at 5 April 2019. It changes the current tax effect of previous events and therefore brings past tax years back into charge. It is structured to correct past avoidance. In common law there is a presumption that a statute does not have retrospective effect, largely because of the serious injustice that that could engender. However, retrospective legislation is not necessarily unconstitutional, and legal argument and case law is available to support that view.
Retrospective legislation can right a wrong when law is an ass, but when it is used to penalise retrospectively, it undermines public confidence in the rule of law. A person must know in advance whether their conduct is or is not legal. There is no punishment without law. The rule of law is fundamental to our democracy. It ensures accountability and trust in our institutions. The principles of the rule of law, including legal certainty and open government, are the processes by which the laws are enacted, administered and enforced. They are accessible, fair and efficient and must be respected and not undermined.
I am speaking on behalf of my constituents in Hastings and Rye and providing them with a voice. They have ended up as victims of the loan charge. I am asking for a just decision to be made that the loan charge takes effect from the date of Royal Assent of the 2017 Finance Act. That would avoid the retrospective element, and would give certainty from that point onwards regarding loan arrangements.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
It really is a pleasure to be back in this place today. I welcome the bold steps that have been taken by the Government since the Budget, which seems like aeons ago, and the subsequent support in the Coronavirus Act 2020 and in the Chancellor’s settlement. I particularly welcome the support for start-ups, of which my constituency has many, especially in the Shoreditch part of Hackney South and Shoreditch. They will be the engines of the future economy, so the move is very welcome. None the less, some very big issues obviously exist, so while those bold steps were necessary—I pay tribute to the Chancellor, to the TUC and to so many others who have contributed to this thinking—we do need to have some answers to some very important questions. I want to rattle through some of them before touching on a couple of other very important issues around the Budget.
Will the Minister today confirm that the coronavirus business interruption loan scheme does not require a personal guarantee by businesses? Only today, I spoke to a business in my constituency, which has been hampered in trying to get this loan because the bank has asked for a raft of personal information about the financial arrangements of every director of that company. This is a company that has praised the Government for the furloughing scheme, but that is struggling on this point. We have heard that that personal guarantee is not necessary, but really clear guidance is needed from the Government to make sure that those banks that were bailed out in 2008, as the hon. Member for Wellingborough (Mr Bone) highlighted, are going to support the economy now.
One of the big issues in my constituency relates to other forms of work. There are those who are self-employed, those who freelance and the many people on repeated short-term contracts who fall outside the employment support schemes. The self-employed and, in fact, most of those workers will often have an accountant or will have very clear financial records, so just as the PAYE scheme has been reverse-engineered to support furloughing, there must be a way that HMRC and the Government can work together with those people to make sure that there is a scheme in place to support them.
Many people are really scared. The emails in my inbox are not from people I normally hear from. They are from people who are about to lose their jobs. They are people who never thought that they would be in a position to have to consider claiming from the state, but they actually cannot even do that—they cannot even qualify for universal credit.
Another group caught up in this is sole directors, including those of personal service companies. I can relate an ironic example that really highlights this matter. An occupational therapist working in the national health service was told by the NHS that, for liability reasons, she had to set up personal service company. She is a frontline health worker supporting our NHS and yet does not qualify for any of the business and employment support schemes. That surely shows this up as a nonsense. The chickens are coming home to roost in this crisis: the economy has split in a different way, which means that people are working in different ways and that businesses are setting up in different ways. They are now being penalised because of a system that grew up like Topsy, with little thought for the consequences.
I want to touch on the huge demand on the hardship fund, which is the responsibility of local authorities. Those local authorities are already overspending on this. Everything that is not quite fitting has to come from the hardship fund, which is a huge problem. The overall cost to local government is enormous, with many councils now effectively bankrupt. Although the extra injection of cash the other week was welcome, it will not be enough. We may have to be very careful post-cv-19 to ensure that those very councils, which were going to be the engines driving the support that people will continue to need, are well resourced to do that.
I want to highlight an issue around housing. In 1992 and in 2008, under Governments of different political colours, money was given to housing associations to buy up unsold properties. In 1992, a housing market package was in place to buy up properties on the street, and in 2008, unsold properties from private developers were bought up. That money was there to buy those houses to create homes for homeless families. Many people in my constituency are living in severely overcrowded conditions, including a woman with a seven-year-old daughter who has had four years in a single hostel room with shared facilities, and a mother and daughter living with grand- mother—one family in one room and one in another. I have many other examples like that. Such a move would keep the housing market going and, crucially, give a fillip to the social housing market and give people a chance, in the long-term future we want to see, to support themselves.
The £1 billion announced in the Budget for cladding is about a tenth of what is needed, but will the Minister tell me when we will get the detail on how that £1 billion will be bid for? If not, perhaps the Treasury will write to me. It was supposed to come in June, but with coronavirus it is likely to be delayed. When we reach the day of reckoning on the pounds that we are spending now that will have to be paid back, that is just one of many issues that will need to be sorted. Many of my constituents are paying over the odds to support things such as waking watch while they wait for that money to come and, because of coronavirus, those who were already hit hard are being hit harder still.
Saqib Bhatti (Meriden) (Con) [V]
The First Reading of the Finance Bill back in March seems an age away; the country has been through so much since then. The world is now a very different place, and I fear that that change is not yet complete, nor has it been fully comprehended. In line with the medical advice and scientific data, entering into a lockdown was the only option available to protect the most vulnerable in our society and limit the spread of the silent and invisible enemy that is covid-19. That was possible only with the co-operation of the British public and, over the past few weeks, they have been nothing short of heroic.
There is a significant economic cost to covid-19, which has been much documented over the past few weeks. Indeed, the Office for Budget Responsibility’s analysis made for harrowing reading, with its published scenario predicting that the UK economy could fall by 35% by June, and recent analysis by KPMG predicted that the west midlands will be the hardest hit region of the United Kingdom. Given that Meriden is an economic hub in the west midlands, that concerns me deeply. I was, however, reassured by the OBR’s prediction that by the end of 2020 we would return to our pre-crisis growth trend, with an economic recovery under way in the three months to September.
As the Chancellor of the Exchequer said in this House on 11 March,
“this virus is the key challenge facing our country today, but it is not the only challenge.”—[Official Report, 11 March 2020; Vol. 673, c. 278.]
He recognised that there will be a temporary disruption. Beyond that, the Bill secures our financial security and sets the foundation for our future recovery. If we are to embark on the route to recovery, the Bill will be central to achieving that.
When we read statistics, review economic analyses and read the headlines, it is easy to forget the real, hard-working individuals—the business owners, the wealth creators and the employees—who ensure our economic success and, in turn, drive our society forward. A number of measures in the Bill will help those who need our support and give us the tools to do exactly that. I commend in particular the Chancellor of the Exchequer’s measures to increase the national living wage by the end of the Parliament, and the increase in the minimum threshold for national insurance that will mean more money in the pockets of those who need it. I also endorse the increase in the research and development tax credit from 12% to 13%. That is an invaluable tool for many businesses and, as we look beyond the coronavirus, we must do absolutely everything we can to reward those who undertake research and development and innovate. If ever there was a time to reward those who undertake R&D and innovate, it is now.
I was also pleased to see the delay in the implementation of IR35 reforms to 2021. Our flexible workforce have seen serious strains in recent weeks and continue to experience significant difficulties, yet they remain an essential part of our economy. We do not yet know what the world will look like in 2021 or what the landscape for our flexible workforce will be, so it is sensible that we continue to monitor this area, ensuring that our flexible workforce is not left behind.
In the past few weeks there have been countless stories about our businesses and entrepreneurs stepping up in various ways to support the demands of the nation and our national health service. That reaffirms that the only way to succeed as a nation is by ensuring that we continue to encourage and nourish the entrepreneurial spirit that is the foundation of our society. In that vein, I commend the Chancellor for the announcements he made earlier today to make sure that our smallest businesses, the backbone of our economy, can get the funds they need to survive and thrive. In the coming months, the road ahead will be difficult; a lot of people will be worried about their uncertain future. I believe that this Bill sets the foundation to help grow the economy and give the people the security they need, and I am pleased to support it.
Chris Evans (Islwyn) (Lab/Co-op) [V]
Let me begin by thanking you Madam Deputy Speaker, Mr Speaker and all the staff for all the work you are doing, in difficult times, to keep our Parliament running. When the Chancellor stood before the House to make his Budget speech, no one would ever have thought that some two months later the entire country, and indeed our way of life, would come to a complete standstill. There is no historical precedent for the crisis we face. The works of Adam Smith, John Maynard Keynes or Milton Friedman make no reference to the crisis we face; we have lost not only supply, but demand. Therefore, this Government should look again at this Finance Bill, and once the lockdown is at an end they should present a new Budget, one that puts people, and small and medium-sized businesses, at its heart.
Through no one’s fault, the Bill before us is out of date and belongs to another age. Not since the financial crash has the local economy felt fear and panic like this; many look to the future with dread. As many Members will know, my constituency has a proud industrial past, but in the past few years we have seen a revolution; I have witnessed a burgeoning tourism industry, with many people coming to south Wales to enjoy the mountains, the greenery and the healthy lifestyle. We have seen eco pods, cider producers and biking all contributing to a growth in our tourism industry. However, many constituents have been in touch about issues relating to accessing the grant and loan schemes, especially the coronavirus business interruption loan scheme—CBILS. These businesses cover a wide range of sectors, including agriculture, dairy and food suppliers, pubs and clubs—even dental practices have got in touch with their concerns about the access to financial support. Recently, a rugby club has been in touch about the struggles it is having in accessing business rate grants. Many of these businesses are micro-businesses that cannot access anything at all. In addition, many still find themselves excluded from the Government’s self-employment and furlough schemes. For example, the dairy industry cannot furlough staff or switch off production.
In this new world, where the Government are getting it right the Opposition must be supportive. Therefore, today’s announcement of bounce-back loans with a 100% Government-backed guarantee for lenders is most welcome. Labour has been calling for that, and it is positive to see that, for once, the Government have listened and acted. However, applications for those loans will not open until next Monday, and for some companies these measures have already been introduced far too late. The main issue has been that money has been delayed in getting to them.
Under the bounce-back loan scheme, businesses will be able to apply for loans of between £2,000 and £50,000. However, we need to consider what this means for SMEs that require more than £50,000. The Chancellor has said that small businesses are the backbone of the economy and of communities, and that is very true in my constituency, but I have heard too many reports of businesses being denied financial support. The CBILS, which most businesses are relying on, is having enormous problems. The scheme is designed to help SMEs with an annual turnover of up to £45 million, and they can access up to £5 million. However, there have been countless complaints from constituents about the application process. The Government must simplify it if businesses are to be able to access support quickly. Switzerland introduced a straightforward one-page form for businesses to fill in, and it is encouraging to hear that the Government have adapted something similar for the bounce-back application scheme. However, the Government are still not approving enough loans and they are not being supplied quickly enough. As of 23 April, just over 16,000 had been approved, with only 9,000 being provided, whereas in France 170,000 loans have been provided and in Switzerland the figure is 100,000, and Germany has an approval rate of 98%, as we have heard. Although we have to factor in some risk——that is what business works on—those people were, only a few weeks ago, running perfectly viable businesses. Action has to be taken now. Small businesses need help, and it should not be found wanting.
Many of the Government measures are welcome, but the present situation is not sustainable. There is now a compelling case for an exit strategy. Business owners and companies need to be assured that business will continue to be financially supported during the pandemic and beyond. Nobody is expecting social distancing measures to be lifted, which is why there needs to be a roadmap out of the present lockdown. Business needs it but, most importantly as humans, families are desperate for it.
Suzanne Webb (Stourbridge) (Con) [V]
The Finance Bill is presented at a time when the UK is fighting a destructive, invisible force, which is, of course, covid-19. The Government are operating and developing policy in unparalleled times and at unprecedented speed. Co-operation and collaboration are key to overcoming covid-19, and to making, and keeping, people safe.
That co-operation and collaboration are evident nowhere more than between the Government, the Treasury and the Bank of England in their financial response to tackle the consequences of covid-19. The Chancellor acted swiftly and decisively, with a profound level of financial support for individuals and businesses, to cushion them from the economic impact of policy to tackle covid-19, with a keen eye to preserving employment and productive capacity. Our Prime Minister is orchestrating the limbs of Government, demanding that they stretch every sinew to ensure that the engine rooms of our great economy have the support that they need to recharge our return to economic normality.
Of course, given their heroic efforts, it is those on the frontline and operating in the care community to whom we owe a debt of gratitude. They are our life-support system at this time of extraordinary need. It seems that we are a country with a deeper and perhaps more visceral understanding of the vital role of the NHS in our lives—a sense of rekindled communion. It is with that same sense of communion that we must, as a nation, seize new opportunities and new ways of doing things as we emerge from this immense time of uncertainty.
The economy is a vital component of that. One of the biggest discussion points has been how far policy should go in constraining the economy in order to beat covid-19. Just as the NHS and other key workers have been instrumental in safeguarding us through lockdown, we must now look to unleashing the entrepreneurial endeavour and innovation of businesses that will, with the support of the Government, be the next stage of delivering us out of these astonishing times. I therefore welcome the Government’s clear plan of investment in research and development, which will stimulate growth, drive technological change and attract foreign direct investment.
The Bill provides companies with the ability to push ahead and invest in world-leading research due to the increase in public investment in the area to £22 billion per year by 2025. It is a landmark investment, doubling the amount previously spent supporting world-leading research and infrastructure, investing in experimental research and supercharging public investment in science. It encourages innovation, with research and development tax credits set to rise, creating an environment where private companies will have the fiscal confidence to invest in new products, people and new ways of working, which will be vital during this national crisis.
Investment is essential if we are to maintain international competitiveness and deliver economic sustainability, wellbeing and prosperity to constituencies such as mine in Stourbridge. Advancement in research and development has never been more crucial than now, in combating covid-19. However, we can do more. The Government should consult on widening the definition of research and development tax credits, qualifying expenditure to include data cloud computing. As we enter a world of augmented reality, the next technological revolution is paramount to making a success of post-covid-19 Britain.
We do not need to be experts to understand that the economy is contracting. Less trade is being shipped, productivity is down, and there has been severe disruption to global supply chains. It is, of course, a simple consequence of people not working. People want to be responsible and to contribute to the foundations of society. The welfare state is a safety net that has caught so many people who are in need at this time, but it should never be a long-term solution. We must look at getting people back to work. After all, we have some pretty big bills that will have to be paid.
We must orchestrate our way out of covid-19 together. This is a Finance Bill by a Government taking decisive action towards long-term opportunities using the great evangelism of entrepreneurialism—opportunities that will bring real benefits not just to businesses, but to people in my constituency. I urge the businesses of Stourbridge to take note of the measures outlined in the Bill. It is imperative to have one eye on our collective recovery, as well as navigating through the immediate challenges in these difficult times. The jewel in the crown of this Government is that they put people first. The Bill puts people first. At its heart, it is about getting people back to work, but lifting lockdown only when it is safe to do so.
Kate Osborne (Jarrow) (Lab) [V]
I am sure that all Members agree that the covid-19 crisis is unlike anything we have experienced in our lifetimes, and life will possibly never be the same again. This Government, however, have a duty to ensure that people’s jobs and incomes are protected. The crisis, as we know, has caused serious financial suffering for businesses, for people and for their families. Although everyone’s lives have been affected by the efforts to contain covid-19, so many people are struggling to cope with the financial and practical repercussions of tackling the spread of the virus.
According to the Centre for Economics and Business Research, households across the UK face a fall in disposable income of £515 a month due to the pandemic. Well over 1 million new claimants have signed on for benefits since the start of the coronavirus crisis, and there are genuine fears that unemployment is heading towards levels not seen since the 1980s. The Government’s emergency measures are welcome, but, along with the measures set out in the Finance Bill, they simply do not go far enough.
My constituency of Jarrow has already been hit hard by a decade of austerity and remains an area of high unemployment. The north-east has the highest unemployment rate in the country, which is extremely worrying, but equally concerning is that many of the tens of thousands of people employed across our region are in low-paid, part-time or insecure jobs or on zero-hours contracts. If the coronavirus crisis leaves 2 million more people unemployed, as suggested by the Office for Budget Responsibility, it will be crucial that the Government do everything in their power to minimise the depth and length of the economic impact.
My two local authorities, South Tyneside Council and Gateshead Council, have lost more than half of their funding during the past decade, leaving services stripped to the bone. That cannot continue, and they cannot be expected to pay for the crisis. In the South Tyneside and Gateshead local authority area, one in three children are already living in poverty and thousands more families are living on the edge of the poverty line.
Nationally, people have lost their jobs or seen their income fall during the pandemic and the lockdown, and there have been more than five times as many claims for universal credit in the space of a month. I am regularly contacted by constituents who receive universal credit and have been left with no choice but to turn to a food bank, left unable to pay for heating and struggling to pay their rent. This Government say that universal credit is working, but from the people of Jarrow and the whole of the country I tell the House that it is not.
We know that businesses have been hit hard, but the coronavirus business interruption loan scheme, though welcome, is going only a small way to helping those firms that are now struggling to stay afloat. Providing 16,000 loans in four weeks in a country of 6 million small and medium-sized enterprises is simply not good enough. Those 16,000 loans amount to £2.8 billion of lending to SMEs. In comparison, the French scheme has provided 174,000 loans worth €24 billion.
So many workers are falling through the cracks. I have written to the Chancellor about the cut-off date for employees to receive support through the coronavirus job retention scheme. Although the extension from 28 February to 19 March will allow more employees to be furloughed, a lot more new workers will still miss out because they are paid towards the end of each month. Some have contacted their previous employer and asked to be re-employed on furlough, but I am informed that some companies are either unwilling or unable to help. The Government must consider further extending the cut-off date for the coronavirus job retention scheme to include the large proportion of workers who are paid monthly and giving the opportunity for other new employees also to be furloughed.
With economic growth already predicted to fall even further in the months ahead, the coronavirus crisis must not be used as cover for all the problems that have resulted from the lack of investment over the past 10 years. Lessons need to be learned from this crisis. This Government’s Finance Bill does not come close to reversing the damage of the past 10 years of austerity. The Government need to make sure that no families, workers or businesses fall down the cracks, because there is no doubt whatsoever that after this crisis is over our society and our economy will have to be very different.
Lee Rowley (North East Derbyshire) (Con)
I refer Members to my declaration in the register, which pertains to some of the remarks that I will make today.
Thank you, Madam Deputy Speaker, for the opportunity to speak at this incredibly odd and strange time. We are in truly unprecedented times. I am not sure that we would have expected just a few short weeks ago that we would be here in the Chamber with some of our colleagues dialling in.
Debating the Budget, and the Finance Bill which I warmly welcome that succeeds it, almost feels as though we are talking about another time. We have moved on, but it is important to go back to many of the measures in the Budget—which I welcome, as one would expect of a member of the governing party—because it demonstrated this Government’s commitment to levelling up in many regions such as my own by putting in additional investment into areas that perhaps have not received the investment that they have needed and desired over the past half century. That ranges from broadband to R&D and to all the many things that so many of us across the House, particularly on the Government Benches, will welcome, not least the continuing commitment to debt falling as a proportion of GDP. That is important for constituencies such as mine because, although talking about bypasses might not seem to strike quite the right tone, there is money in the Bill for a bypass for which people in North East Derbyshire have waited for nearly a century. We first proposed it in 1927 and we are hoping that it might be built before 2027. With the help of my colleagues on the Treasury Bench, I will continue to push for that.
I warmly welcome the Budget. Of course, one can never agree with absolutely everything in a Budget package. There are challenges in my constituency. I have bent the ear of Ministers on the Treasury Bench about the challenges with regard to dilution—an issue relating to alcohol duty that was introduced in a previous Budget but implemented just a few short weeks ago. Such things cause challenges to towns such as Clay Cross in my constituency that are heavily reliant on companies that work in that sector. I look forward to the alcohol duty review, because I am very keen to promote the importance of fairness and equity in alcohol duty laws to support businesses and employees in my constituency.
I want to turn to what has been talked about both remotely and here in the Chamber throughout today’s sitting—the thing that is in front of us and has caused unprecedented changes to the way we work, the way we live and the way we are as a society, hopefully temporarily. I welcome what the Government have done over the past six weeks to respond to the most unprecedented crisis in our lifetimes. We forget, because we move very quickly through this, that we are trying to do something—I say this as somebody who was a historian many years ago at university—that is utterly unprecedented in the history of humanity: to turn back the tide of a pandemic which at any other time in our history would have overwhelmed us. The efforts that have been put in across the community, across local government and national Government and at the frontline of the NHS are absolutely unprecedented. I welcome and pay tribute to those efforts not just in North East Derbyshire but across the country as a whole.
In particular, I welcome what the Government have done to bring forward their support for people and for businesses, including today. I was in the Chamber when my right hon. Friend the Chancellor brought forward the latest in the package of bounce-back loans, and I look forward to businesses in North East Derbyshire benefiting from them.
We have said that we are trying to put ideology aside, and in the main I think that we have been positive in doing that in this debate. I say this as somebody who is genuinely a smaller-state liberal economic free marketeer who wants to see us thrive through those means: even I recognise—as do my right hon. Friend the Member for Wokingham (John Redwood) and my hon. Friend the Member for Wycombe (Mr Baker), who have already spoken, and many other colleagues—that now is the time to ensure that people have the support to get through these unprecedented times, and that is why I support these measures. However, that creates a responsibility for us in this House. I say this without any real ideology: we have a responsibility to support the immediate challenge in front of us, which is to ensure that the health of our nation and our communities is protected, but we also have a responsibility to ensure, as the Government and many Members of all parties are doing, that the health of our economy can come back in the medium term.
There is something that has not been talked about so much tonight, perhaps understandably, although I hope there will be more time to do so in the future. We also have a responsibility, in what we are doing as a nation, to the long-term health of our public finances and to the debt, so that when we pass this on to future generations, if they have a similar challenge to this one—God forbid that they do—they will be able to tackle it in the way we are doing at the moment.
Mr Alistair Carmichael (Orkney and Shetland) (LD) [V]
Thank you very much for calling me, Madam Deputy Speaker. It is a great pleasure to be able to join you from a mere 718 miles away.
In the normal course of things, the purpose of a Finance Bill is to give legislative underpinning to the Budget. As others have reflected, however, it is a mere seven weeks since we heard the Chancellor’s Budget, and in that time most of it has been fed into the shredder. Obviously, this Bill reflects the legal necessity of having a Finance Act, but I think we all know that there will be further fiscal measures this year. It may be at that stage that we get a truer sense of the Government’s intentions.
We have all fallen easily into the habit of using the rhetoric of war when speaking of the challenge of tackling the covid-19 pandemic. I can see why, but it is worth remembering that for a Government to get the support of the people for a war, it is essential that they are able to give a clear vision of the purpose of that war. What is it that we are fighting to preserve? As I look around my communities, I am pretty clear about what I am prepared to fight for in this war. I want to preserve and protect the small businesses that are the lifeblood of the economy in the northern isles. We are overwhelmingly a small business economy. I hear so often from the builders, plumbers, electricians, joiners and decorators—people who may be working out of their house or the back of a van—and they tell me that the schemes that are available are not going to help them, and that this war effort is not going to give them the assistance that they need to get to the other side.
I also want to protect the myriad people who are part of the important visitor economy here in the northern isles. That is something that we have built up gradually and organically over decades. It involves the tourism guides, the food and drink manufacturers and the people who run café and bed-and-breakfast businesses or provide self-catering accommodation. This is something that we have all built up, and those people are all essential to that future offering. Just recently, I spoke to someone at a local hotel who told me that, having come through the six difficult months of the winter, they were now looking forward to the six productive months. However, they have had to close, and they see little prospect of opening again. They say that if they do not open over the course of the summer months, they will stay closed until next Easter. That will be absolutely critical. The people who work in those businesses will find something else to do with their time if they are unable to continue to work in them.
At the start of this pandemic, my inbox was overflowing with messages from people wanting to know that there would be help, and I am sure I was not alone among hon. Members in that. Recently, that has changed. The volume of correspondence is perhaps not as big as it was, but the pleas are just as heartfelt. People are telling me time and again that the help that is available is not going to work for them. One chartered accountant in my constituency recently told me that he reckoned that about 75% of his clients would get no help from the available schemes. That is why, when it came to the Chancellor’s statement today, I made a very unusual-for-me step—to ask him to consider the introduction of a universal basic income.
Let me be quite clear: that runs against just about everything I have ever believed. I was always brought up to believe that you work hard, you get on, you contribute and you pay back. The idea of effectively giving people something for nothing would otherwise be anathema to me, but in these times if the schemes we have are just too difficult and complex to reach the people who have worked hard and taken risks, surely we are going to have to do something different. Consider, for example, the position of those who rely on dividend income; people are going to be left without the protection they need, and they will not then be there when the good times return and our businesses want to open up again.
Anthony Browne (South Cambridgeshire) (Con)
I have been engaged with Government Budgets for over two decades, either as an economics journalist, a political adviser or chief executive of the British Bankers Association, but this is my first speech in the Second Reading of a Finance Bill, and it is almost certainly the most surreal that I will ever make—not just because this debate was virtually entirely virtual, but also because many of the measures announced in the Budget, as well as the fiscal projections, have been overtaken by events.
Since the Chancellor made his Budget speech, he has announced the most comprehensive and generous package of measures to support businesses and individuals that any industrial country has made in this crisis. As someone who has in the past been involved with launching business support schemes throughout the banking sector, I have to say that I am amazed by the speed at which these packages have been launched. The Chancellor and his Treasury team, including the Economic Secretary to the Treasury, my hon. Friend the Member for Salisbury (John Glen), have packed years’ worth of work into weeks. It is an extraordinary achievement, but I still share the frustrations of others that the banks have not quite stepped up to the plate; things are moving faster now, I hope.
Many of my constituents—individuals and companies—are really hurting, but many are also really appreciating the support that the Government are giving. I think we all appreciate the new announcement today of the bounce-back loans, which should really help the smallest businesses to get quick access to the financing that they desperately need.
But even with all the support, the economic damage caused by this lockdown is deep. Some forecasters are predicting the sharpest recession for a century or more. As the Chancellor has made clear, he cannot save every business and every job, but with this package of measures, most of the productive capacity of the economy should be preserved for when the economy bounces back, which it surely will. We do not know how long the lockdown will last or to what degree it will cause permanent damage, but we do know that the UK and most other developed countries will be left with vastly bigger national debts.
The Office for Budget Responsibility, in what was widely deemed an optimistic scenario, said that the national debt could rise to as much as 100% of GDP. That is why I wanted to speak tonight—to touch on our longer-term economic strategy. How do we deal with this huge public debt? What impact will it have on the Government’s other plans, such as investing in infrastructure, levelling up and becoming carbon neutral?
I have long been a believer in sound finance—that we should all strive, in the long term, to live within our means. There is an intergenerational unfairness in one generation passing on their debts to another. I believe in fixing the roof when the sun is shining, but we are in the middle of the worst hurricane for a generation and the roof has been blown off.
It is absolutely right that the Government are being so generous in support of the economy, but how do we deal with the inevitable growth in national debt? The traditional answer to that question is to raise taxes or cut expenditure, or a mixture of both, but we have just had roughly a decade of so-called austerity that was necessary to reduce the huge annual budget deficit—getting the Government to live more within their means, and starting to patch up the roof. But I think even the strongest advocates of austerity would agree that there will be very limited public appetite for another wave of it, and big question marks about the impact on growth.
When it comes to raising taxes, there are also limits. According to the Office for Budget Responsibility’s recent Budget forecast, taxation is already heading to its highest level for 50 years. We know from decades of economic evidence that the risk of raising it further is that that slows economic growth, and that will make the national debt less affordable.
There is another solution: go for growth. The national debt is large, but interest rates are so low that it is actually surprisingly affordable. The debt interest to revenue ratio is below 4%, and at the time of the Budget it was predicted to carry on falling. If there was ever a time for a country to reconcile itself to high debt, it is after an historic economic crisis, with historically cheap borrowing costs. The national debt is a ratio of absolute debt to GDP. We might not be able to get the national debt down that much in absolute terms, but an alternative is to focus on growing GDP. That will steadily make the national debt more affordable. If the GDP growth is higher than the budget deficit, the national debt will go down.
After the economic shock we have had, we need a determined national focus on growth. We need to fire up the engines of the national economy. That means pursuing supply-side reforms, supporting free enterprise, taking advantage of some of the opportunities we have from leaving the EU, and pursuing trade and innovation. Despite the crisis, we still have dynamic growth sectors such as fintech and biotech—as we have in South Cambridgeshire, where we are in many ways world leading. We must promote them. We are combating the coronavirus crisis now, and soon we will have to deal with the consequences. This ambitious Budget is a good place to start. I commend it to the House.
Kim Johnson (Liverpool, Riverside) (Lab) [V]
We are living in unprecedented times. Since the Prime Minister announced the police-enforced lockdown on 23 March, the country has experienced the biggest challenge it has had to face in a long time. During the weeks since the lockdown, I have received a high volume of correspondence from non-essential businesses forced to close and from constituents experiencing financial hardship and uncertainty during this crisis.
The Riverside constituency covers Liverpool city centre, with a large number of leisure and hospitality businesses, hotels, micro-businesses, universities, private dentists’ practices, and freelancers and the self-employed engaged in a variety of enterprises. It is vital that the coronavirus economic schemes are effective so that we can protect people’s incomes, jobs and businesses, and prevent a deeper and longer-lasting recession.
The current guidance states:
“The government will provide additional Small Business Grant Scheme funding for local authorities to support small businesses that already pay little or no business rates because of small business rate relief… This will provide a one-off grant of £10,000 to eligible businesses to help meet their ongoing business costs.”
By tying eligibility for these grants to the business rate relief schemes, there are unintended consequences that will result in legitimate businesses, which are contributing to the economy through the tax system, not being supported through the scheme as was originally envisaged by the Chancellor.
In Liverpool, Riverside there are thousands of community businesses and charities providing essential frontline public health and wellbeing services to our most vulnerable residents that are not eligible for the grant and face closure. It would appear that the criteria being applied by some local authorities are resulting in a large number of small businesses not having their applications approved, and this is specifically the case in a number of circumstances.
Businesses that occupy separate designated office space under their tenancy licence agreement pay a contribution to the shared business rates in managed workspaces where one rateable value is applied to the whole building. This is often advised as the most appropriate method for business rates collection by the business rates officer. Social enterprises can have many structures, and one such is charitable status. It has been suggested that as these small businesses receive mandatory relief for charities, not small business rate relief, they will not be eligible for this grant.
CBILS has been operational since 23 March, but as of Thursday 16 April, only 6,020 loans, worth £1.1 billion, have been made as part of the scheme, with the survey data indicating that just 1% of firms have been able to access it. The Government will provide lenders with a guarantee of 80% on each loan to give lenders further confidence in continuing to provide finance to SMEs. However, the commercial banks are not acting in a consistent way, nor are they operating in the spirit of the guarantee. Banks are pushing their own products and seeking collateral security from the business owners rather than the business interruption product. Not all banks are offering the scheme, and other banks offer it only to their current customers. There is significant variation in the interest rates being charged to small businesses, and the terms and conditions and rates being offered, despite interest rates being so low, can only be described as extortionate.
The Government must act to increase the uptake of CIBLs, including offering a 100% guarantee, as other countries have. Providing 16,000 loans in four weeks in a country with nearly 6 million SMEs is not good enough. The Government must recognise that the scheme is not working adequately and change it urgently. The future of many of our small firms depends on their decisions.
The Government should also act urgently to protect the incomes of those who are falling outside existing schemes and on to universal credit. There are 9,000 self-employed people in Liverpool, Riverside, many of whom are creative freelancers working in our film, theatre and music industries who have seen their income dry up overnight. The self-employment income support scheme is intended to support self-employed individuals who have lost income due to the pandemic. The scheme allows self-employed people to claim a taxable grant worth 80% of trading profit, up to a maximum of £2,500 per month, for the next three months.
But there are anomalies. Newly established businesses that have submitted their first tax return for part of a year will have the self-employment income scheme 80% profit assessed for a whole year on this amount. While waiting for assessment and the release of the self-employed income support grant in June or July, self-employed people with no income are advised to apply for universal credit. This application results in immediate cancellation of any other benefits to which they are currently entitled, such as working tax credit, housing benefit and council tax benefit, leaving them with no income and in some cases destitute. Self-employed people with personal business savings of more than £16,000 are not entitled to universal credit or associated benefits. They are expected to use their savings to subsidise their income. This compares with the larger businesses—
Mr Deputy Speaker (Mr Nigel Evans)
Order. I am terribly sorry, but we have run out of time there. I call Miriam Cates.
Miriam Cates (Penistone and Stocksbridge) (Con) [V]
May I refer the House to my entry in the Register of Members’ Financial Interests?
The context of this debate is substantially different from that surrounding the Budget statement on 11 March. We are now facing significant economic challenges and we do not yet know the full financial impact of covid-19, but the reasons for introducing the measures in the Bill have not changed. We must make Britain the best place in the world to set up and run a business and we must level up our economy with more innovation outside London and the south-east to grow high-skilled, well-paid jobs in areas that have been left behind.
It has been wonderful to see the outpouring of gratitude across the nation to our NHS and care workers, who are on the frontline of the battle against covid-19. It is absolutely right that we recognise their bravery and dedication and the key part that they are playing in keeping us safe. But I also want to pay tribute to the millions of businesses in this country whose hard work and innovation have generated the tax revenue that funds the NHS as well as our schools, our roads and our railways.
The risks of setting up and running a business are considerable. Indeed, many fail. Many small business owners are now facing the toughest financial challenge of their lives. The coronavirus small business grant scheme, business rate holidays and loans, including the bounce-back loans announced today, have been a lifeline to these companies, but some still will not make it through this crisis and many lifetimes of hard work and investment, and jobs, will be lost.
When we emerge from this pandemic, we need our businesses to recover, to grow and to be profitable. That is the only way in which we will be able to continue to afford to invest in our NHS and public services, but we also need our businesses to innovate, to increase our productivity and to build on the UK’s reputation as a leader in science and technology, so I welcome the plans to increase spending on research and development to £22 million a year and the £200 million boost to our life sciences industry. Right now, we are seeing the immediate importance of research and development with the ongoing search for an effective coronavirus vaccine. The UK’s scientific community has already made important breakthroughs, including introducing a new swab test to overcome global reagent shortages, but it is important to remember that research and development does not only take place in our universities. Businesses up and down the UK are creating new technologies and making scientific advances that benefit all of us. The nature of R&D, as we can see from the vaccine trials, is that we cannot tell when a breakthrough will come. This presents a significant risk to businesses, which continue to pay their staff and fixed costs, whether or not the breakthrough has been made.
The increase in R&D tax credits in the Bill is an enormous boost to businesses in this position and will give them the confidence to continue to innovate and invest in new technologies. I know at first hand how vital this is from the small software company that I own with my husband. As we have worked to deliver technical advances, we have had some years when R&D credits have made the difference between staying in business and not.
Since 2010, British businesses have created over 3 million jobs, although, undoubtedly, employment levels have been negatively affected by coronavirus. But as we emerge from covid-19, we must make sure that we are creating productive jobs—skilled jobs—by capitalising on the knowledge and talent of our scientific and technical communities. Support for R&D will help our growing tech sector to continue to lead the world and to create the kind of well-paid jobs that present real opportunity to our young people.
We must also make sure that growth and innovation are spread equally across the country. As my right hon. Friend the Prime Minister has said, talent is spread evenly across this country, but opportunity is not. In my constituency of Penistone and Stocksbridge, there is a lack of skilled, well-paid jobs and too many young people are forced to leave the area to seek opportunities. This Government’s plan for infrastructure investment, a towns fund and investment in further education will help to rebalance our economy and make sure that skilled jobs can be created across the UK. In the past, manufacturing in the north of England was the powerhouse of the UK economy. Every manufacturing process, cottage industry and new factory was born of innovation and risk. In the north, we need a revival of this drive to start new, innovative businesses, and the measures in the Bill—particularly the support for research and development—will be crucial to our economic recovery.
Apsana Begum (Poplar and Limehouse) (Lab) [V]
I begin by saying that my thoughts are with the loved ones of those individuals who have sadly died in the UK, and with those who have contracted covid-19.
People in my constituency are worried about their security, their income, their job, their home and the wellbeing of their families, children and elderly relatives. The job of Government is to provide reassurance, especially at this most worrying of times, yet this Finance Bill fails to do so. With the economy necessarily being shut down in an unprecedented way, it is urgent that the Government act to protect jobs and incomes. It is now becoming clear that there are severe problems with the design and performance of many of the programmes that the Government have introduced to deal with the current crisis, and that these are reducing their take-up. This Finance Bill does not resolve those problems.
Due to time constraints, I will raise just a few specific examples today. As the Institute for Fiscal Studies has pointed out, the self-employed are more likely than employees to be in relative poverty and are more likely to work in sectors currently seeing large falls in demand. This Finance Bill offers such people little, if anything. I have been contacted by local nurseries regarding recent information stating that nurseries would not be able to claim furlough payments for all employees while also receiving local authority funding. They have argued that, as a result of the Government’s approach, they will probably have to make staff redundant. Basing eligibility on receipt of relief on business rates means that some businesses in need of support have been left behind. Many businesses in my constituency have contacted me with concerns that they are not eligible for this crucial lifeline, because they are not registered for business rates as they are renting a small space within a larger property, paying a proportion of business rates to the landlord.
On the wider economy, this Finance Bill does not properly address the fact that, according to the Office for Budget Responsibility, public health restrictions and social distancing mean lower incomes, less spending and weaker asset prices, which all reduce tax revenues, while job losses require more public spending. We already know that the covid-19 crisis is causing serious financial suffering for people and their families, and that while coronavirus can affect everyone, it does not affect everyone in the same way. It differs depending on class and status, and this Finance Bill does nothing to address that inherent systemic imbalance. This is of particular relevance to my constituency, Poplar and Limehouse, which already suffers from the highest rate of child poverty in the entire country. After a decade of austerity, too many people remain trapped in low-paid, insecure work, and they are invariably failed by the social security system.
After all our lobbying, the Government are now launching a review of the impact of covid-19 on BAME communities, which is to be welcomed, but for any review to be meaningful it must address the underlying economic system and the fact that years of austerity have had an utterly devastating impact on ethnic minority communities. I am hoping, therefore, that the Chancellor and his Department will accordingly carry out and publish a review of the Bill’s effect on equality.
This pandemic has exposed the fact that the Tories’ economy for the few is not fit for purpose, and it is fundamentally unfair and unequal. For example, Care England has today published a paper calling for greater financial support for the care sector, yet CareTech, which runs a large number of established residential care homes in the UK, has seen its shares rise by 12% in the last five days since announcing, in its words, “stronger” revenues and margins. Is it not obscene that as the coronavirus outbreak streaks across our care homes, with the death toll rising, profits are being pocketed by a rich few? The truth is that our social care system is a national scandal. Nearly £8 billion has been taken from councils’ social care budgets since 2010. At the same time, many big care providers have developed highly complex corporate structures involving offshore tax havens.
There have been emerging discussions about the need for new forms of progressive taxation as opposed to spending cuts, yet the Bill does not include an immediate windfall tax on the banks and finance sector, combined with a wealth tax on the richest in our society—policies proposed by my Labour colleagues that would ensure that there were enough resources to pay for our public services in a fair and just way.
Although this crisis is exposing the weakness in our economy and society, I have been inspired by the number of people who have organised to protect their communities. We need a Government who follow their lead and ensure that our economy is defined by solidarity and compassion, rather than by insecurity, fear and inequality. Unfortunately, this Finance Bill is further evidence that the Conservative party is unable or unwilling to be such a Government.
Andrew Griffith (Arundel and South Downs) (Con) [V]
I am pleased to be the first Member for Arundel and South Downs to speak in a virtual Parliament. This debate on the Finance Bill comes at a vital moment, and it is appropriate that we give the Government the resources to support our health and social care systems and protect the economy.
In respect of covid-19, we may have succeeded in flattening the infection peak, but today I support the Prime Minister and the Chancellor as they seek to flatten the economic trough and do the vital work of rebuilding our economic capacity. The first step was to stabilise the economy, and I congratulate the Government on the package of business support measures—some of the most generous and comprehensive anywhere in the world—to which they have added today with the very welcome bounce-back loan scheme. I know from my own career in business that is not easy to build an online delivery platform from scratch and still get money into bank accounts within a month. All involved deserve our recognition for what has been achieved.
I would like to single out the schemes aimed at small businesses and the self-employed, of which my constituency of Arundel and South Downs has one of the greatest concentrations. The retail, hospitality and leisure grant is a successful and well-executed initiative, which is pushing vital financial support to where it is needed. Perhaps because of this success, the current cliff edge of £51,000 is problematic, whereby a difference of a few pounds in rateable value can produce a large difference in outcomes. As Members from across the House well know, rateable values are an imperfect science, with almost 40% of appeals upheld. I raise the case of my constituents Gavin and Carole Austin at the 12th-century George and Dragon in Houghton—the only such premises in a five-mile radius not to find itself eligible—and that of landlord Paul Hills at the 15th-century Village House Inn in Findon. Those are just two of many. It was right to solve for simplicity and speed when the scheme was launched, but it would now be right to soften the sharp edge and introduce a taper, so that for every £1 by which the rateable value exceeds £51,000, the grant would reduce by £1 but would still be payable in part. Will the Minister consider that proposal?
This Bill will be the last from the pre-covid era. The Chancellor has the chance to be one of the great reformers, to rebuild our tax system to be fit for the 21st century, and in so doing, to unleash Britain’s potential. As those of us who have lived the reality in business know, the burden of tax is much more than the rate; it is about complexity, certainty and the approach to compliance. The World Bank ranks us eighth in the world for ease of doing business, but only 27th for ease of paying taxes. Our tax system is simply not simple enough. It is time to unify the income tax and national insurance regimes, to move much faster to a digital only tax system, and to simplify radically the tax code.
To focus on the future, we must release time and energy by not refighting the battles of the past. That means dealing with historical issues, such as properly compensating Equitable Life policy holders, many of whom were doctors and nurses, and giving an amnesty for all but the most egregious cases of abuse in respect of the loan charge. The only way to truly rebuild the economy is with an enterprise-led renaissance, as only business can create real jobs, opportunities and prosperity.
Ben Lake (Ceredigion) (PC) [V]
As others have already highlighted, the economic backdrop to this debate is unrecognisable to that envisioned only a few months ago, and it is likely that the coming months will bring further significant social and economic challenges. Before discussing the challenges facing the economy of Ceredigion, I wish to speak briefly to some of the amendments. Amendment 1, which is tabled in my name, relates to the Government’s proposal to increase research and development expenditure credit from 12% to 13%. Under the proposal, tax relief would rise by a mere 0.81%, to only 10.5%. If the Government wish to increase productivity in a meaningful way, they should consider going further and increasing that credit to 15%. I would also be interested to learn what plans the Government have to redistribute funding beyond the golden triangle of south-east England.
I support the campaign by the Women Against State Pension Inequality, and in particular the calls for the introduction of emergency measures to support women born in the 1950s who are not only waiting for receipt of their state pension but who, due to the destruction caused by covid-19, are now in even greater financial difficulty. I support the amendments that would provide employees who are participating in employee share schemes with legal protection against abuse by trustees, as occurred in the Roadchef case, and I put on record my appreciation of the work done by the hon. Member for Airdrie and Shotts (Neil Gray) on that issue. Although the amendments will not be pushed to a vote this evening, I hope the Government will consider these issues seriously and look to incorporate them in future measures.
The past few weeks have demonstrated the strength of society and its ability to respond to a crisis, but we have also seen that the impact of covid-19 will differ from person to person, between sectors of the economy, and between different countries and regions of the UK. I urge the Government to consider those differences as they formulate economic support measures.
The Institute for Fiscal Studies has identified some sectors as being particularly vulnerable to job losses in the light of the response to covid-19. According to a business register and employment survey by the Office for National Statistics, in 2018, 24% of employees in Ceredigion worked in one of those vulnerable sectors. That compares with 18% of employees in the rest of the UK. That might seem surprising to those who have not had the fortune of visiting Ceredigion, but according to a 2018 report by Universities Wales, the higher education sector generates up to 2,900 full-time equivalent jobs in the county, representing around 7.5% of total local employment. The sector has already proposed a package of measures that will ensure its survival, and I hope that the Government will consider that seriously.
Agriculture, and particularly the dairy sector, has experienced incredible volatility in recent weeks, and the restrictions necessary to contain the spread of the virus have effectively closed the hospitality sector overnight. Existing processing and supply chains have unsurprisingly struggled to absorb such a significant and sudden shift in demand. The beef and lamb sector is not immune to those challenges either. There is widespread concern that unless the Government intervene to support processors and to stabilise the incomes of the worst-hit farmers, the next few weeks could inflict serious long-term damage to such a key sector in Ceredigion and Wales by dealing a heavy blow to its processing capacity, suffering just as much as the tourism and hospitality sector, which, understandably, was asked to close in order to help to contain the covid-19 outbreak.
A survey conducted by Visit Wales, of over 400 tourism businesses, identified a number of concerns that need to be looked at closely. Businesses conveyed concerns about fixed costs, from bills and interest on loans already taken out, to the issue of refunding deposits and balances to customers. As with agriculture, the tourism and hospitality sector can be typified as seasonal. In that regard, the lockdown could not have come at a worse time.
To conclude, these businesses face the terrible prospect of a three-winter scenario, whereby they are closed for the summer months when they typically make their year’s earnings, before being plunged into yet another winter. I hope the Government can offer this sector, along with Welsh agriculture and higher education, some reassurances that bespoke support measures will be forthcoming to enable them to weather the storm.
Mr Mark Harper (Forest of Dean) (Con) [V]
The Financial Secretary, who opened the debate and is my constituency neighbour, made the point that the Budget seems like a very long time ago. It does to me too, having spoken in the Budget debate. The concerns we expressed then do not seem quite so present today, with the Government having to deal with the huge threat from coronavirus. I want to make several national points and then I want to raise with the Minister a couple of issues that are specifically relevant to my constituency.
My first point is that we have heard a lot of talk about how we exit lockdown, but I think it is much more relevant to talk about a recovery plan. We are going to be living with coronavirus until we either find a vaccine or until we have a successful treatment. It is possible—I hope it is not the case, but it is possible—that we never find a vaccine, so we need to think about how we enable the economy to operate with this virus. It is going to be with us for some time. I have one question for the Minister, relating to the fifth test, on how the Government wish to start easing restrictions. When it was first set out by the First Secretary, the Government said that they wanted to avoid a second peak in cases, which would overwhelm the NHS. We all, rightly, want to avoid that. However, in the slides published today, that caveat at the end about overwhelming the NHS had disappeared. It seems to me that that is a very important omission, because, as we relax restrictions, we will inevitably see more cases. The question for us is not whether we will see more cases, but whether we will see them at a level that is able to be dealt with by our fantastic NHS. I therefore hope the Minister can answer the question about exactly what that fifth test is.
The second point I wanted to raise is about openness and how we develop that plan. I am pleased that the Prime Minister, in his very welcome statement today on his return to Downing Street, confirmed that the Government would work as openly as possible as they set out their case. He said, for example, that they would look at bringing with them industry, constituents and Opposition parties as they develop their plan. I want the Minister, as we bring industry in, to think about the businesses that will have to change their business models to reflect the fact that social distance will be with us for some time, and to think about how we might help those businesses deal with the effects of coronavirus going forward.
My third and final national point, which was raised by a number of colleagues, is how we get economic growth to go sufficiently fast to deal with the debts we are going to have. We need to go back to the measures in the Finance Bill that were in the Budget relating to driving up research and development spend, and to driving up spending on education and skills. They will be critical.
The local points I wanted to raise have been raised several times in the debate already. They relate to the use of the rates system to qualify for grants. have a number of serviced offices and business parks, such as Vantage Point at Mitcheldean and the Newent business park, where individual tenants have rates rolled up into their rent. Because they are not ratepayers, they are not eligible for any of the grants that the Government are using to assist businesses in trouble. I urge the Minister to see whether there is a way that those small businesses can be helped with the valuable grants that have been raised.
My final point is again about the use of the rates system, with the £51,000 rate cut-off, which has already been mentioned in this debate. It means that some businesses in my constituency, particularly those in the leisure and tourism sector, find they are not eligible for any of the help that the Government have delivered, because there is a hard edge at that £51,000 cut-off. As others have said, if that could be tapered, it would be incredibly valuable and welcome. With those national and local points, I pay tribute to all those who have made this virtual sitting possible. It is fantastic to have been able to participate in this debate in the House from my Forest of Dean constituency.
Mr Deputy Speaker (Mr Nigel Evans)
Order. To finish at 10 past nine, I call Ian Byrne.
Ian Byrne (Liverpool, West Derby) (Lab) [V]
Thank you, Mr Deputy Speaker. At times of crisis, we come together. I have been inspired by the generosity and everyday solidarity of my own community in Liverpool, West Derby: mutual aid groups, initiatives to tackle social isolation, the distribution of food to the vulnerable, and community PPE production lines set up to supply frontline workers who have been left unprotected by the failings of the Government’s response. The coronavirus has at the same time kept us apart and brought us together.
But a crisis also shakes the foundations of the status quo. It poses questions about how our economy is run and who it is run for. When the Government released their list of key workers, it was a long-overdue recognition of the people who really keep our country moving: not the corporate executives or the hedge fund managers, but the nurses, the cleaners, the porters, the posties, the transport workers, the shop workers and so many more—the working class in all its diversity.
Just weeks earlier, many of those same workers were being labelled low-skilled by the Home Secretary. That goes right to the heart of the problem, because when the Government say low skilled, what they really mean is low paid or underpaid. Indeed, the Resolution Foundation highlighted that 61% of English care workers are paid below the real living wage. The way work is rewarded in this country is completely detached from the social value that it creates. We overvalue those at the top and we undervalue those at the bottom.
While I do not want to put a dampener on the collective appreciation when our nation comes together every Thursday to applaud our key workers, that applause will ring hollow if we do not also give those same workers the PPE, the testing and then the pay rise that they deserve. This crisis shows that the real wealth creators are those at the base of society, not those at the top.
That fundamental truth has to be central to the debate about where the burden of this crisis should fall. Working-class people were forced to pick up the bill for the last crisis through austerity. The choice was made, following the last crisis, to have the most sustained funding squeeze in NHS history. The choice was made, following the last crisis, to make cuts to social care, with more than £7 billion cut from council budgets. The choice was made following the last crisis to let emergency stockpiles of PPE dwindle and go out of date. Those damaging and short-sighted choices crippled our ability to respond to the situation we find ourselves in, as pandemic planning became just another casualty of austerity.
Once again, the Government have a choice to make. This time they must learn from their mistakes and not follow the bankrupted doctrine of austerity or the words of its architect, George Osborne, who continues to promote it despite witnessing the dire consequences of his actions during this crisis.
Never again can the consequences of a crisis be heaped on those least able to bear it. We know that extreme wealth in this country is accumulated by taking rather than making. Indeed, the TUC recently highlighted that some hedge funds are raking in billions as a result of this crisis, while careworkers, who are putting their lives on the line, can barely scrape by.
This time, instead of squeezing wages for those at the bottom, we should ensure that those at the top pay their fair share. Instead of cutting funding for our vital public services, we should restore them to properly funded, publicly owned institutions that we can all be proud of. Instead of bailing out corporate tax dodgers and big polluters, we should prioritise people and communities. If we want appreciation for our key workers to be more than just empty gestures, let us take this opportunity to restructure our economy so that it works in their interests. In other words, let us build a society that works for many, not the few.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
I would like to begin by thanking all the staff who have worked so hard to put arrangements in place so that parliamentary scrutiny can continue. I would also like to extend my thanks for the efforts made by key workers across the country, for which all of us in this House are grateful.
We have had a good debate today in what are difficult and unusual circumstances. My hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) made a passionate appeal for the Government to avoid the mistakes of the last decade, highlighting the pressures faced by local councils, as did my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), who underlined the real challenges we face around housing, with far too many families forced to live in overcrowded and cramped conditions.
My right hon. Friend the Member for Warley (John Spellar) was right to emphasise the importance of businesses and trade unions working closely together at this time and the tremendous work of the TUC, particularly in recent weeks. I hope the Minister will take heed of the point my right hon. Friend made about the role for Government in stimulating demand as we emerge from this crisis.
My hon. Friend the Member for Huddersfield (Mr Sheerman) is a tireless campaigner for children and young people, and he used his speech to press for greater opportunities for them, following this difficult time for so many families. My hon. Friends the Members for Nottingham South (Lilian Greenwood) and for Leeds East (Richard Burgon) called on the Government to look carefully at gaps in existing provision and the urgent need for a social security system that properly supports families through this crisis and beyond. My hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) also picked up that point, reminding us that far too many children—including those in working families—are already growing up in poverty.
We heard a great number of speeches from Members on both sides of the House highlighting the acute pressures faced by businesses. My hon. Friends the Members for Cardiff South and Penarth (Stephen Doughty), for Gower (Tonia Antoniazzi) and for Islwyn (Chris Evans) emphasised the real difficulties in accessing lending for business, but they were also clear about the additional support that the Labour Government in Wales are providing at this time of crisis.
My hon. Friends the Members for Birmingham, Ladywood (Shabana Mahmood) and for Liverpool, Riverside (Kim Johnson) stressed just how difficult it is for many firms—especially small businesses—to access the cash that they need to stay afloat. In Committee, I hope we will be able to discuss in more detail the concerns that my hon. Friend the Member for Birmingham, Ladywood rightly raised about the inadequacies of the proposed digital services tax.
My hon. Friend the Member for Poplar and Limehouse (Apsana Begum) drew our attention to the disproportionate impact of coronavirus on black and minority ethnic communities, which will only serve to exacerbate the existing social and economic injustice that those communities face. We heard from my hon. Friend the Member for Jarrow (Kate Osborne) about pre-existing regional inequality and the fact that the Government must do all they can to limit unemployment in areas such as the north-east, where the current level is already too high. Finally, the speech that we just heard from my hon. Friend the Member for Liverpool, West Derby (Ian Byrne) reminded us all of the debt that we owe to our incredible key workers.
Those contributions highlighted the scale of the challenge that our country faces today and the responsibility that the Government have to ensure that we as a country can overcome them. That is why the Opposition have sought to take a constructive approach at this time of national crisis, encouraging the best possible response from Government and pressing for the support announced to work effectively.
That brings us to the context of the Bill—whether it does enough to help those at the sharp end of the current crisis, to put our tax system on a fairer and more progressive footing and to shape our economy for the rather different world of the future. The changed circumstances and the new personnel on the Government Front Bench should not fool any of us about where this Budget comes from or which party is responsible for the underlying weaknesses in the shape and nature of the economy going into this crisis. The Conservative party has now been in power for 10 years. The inadequacies of our tax system and of our society, and the structural weaknesses in our economy, are its responsibility.
Labour’s economic priorities for the current crisis are straightforward, as the shadow Chancellor, my hon. Friend the Member for Oxford East (Anneliese Dodds), set out again today. We want to keep people in work, and the schemes that the Government have laid out are welcome but need improvement, especially as circumstances change in the months ahead. We want to get cash to struggling businesses, and we are concerned that, as we have heard today, too many firms are not getting the support that they need. We want to make our social security system sufficient to provide proper support to families, because we know that for too many it simply is not enough—and the current crisis is making things worse, not better.
The Budget focuses on maintaining the status quo and delivering limited reforms, rather than the ambitious reforms that we need. The Institute for Fiscal Studies has said that the tax measures announced in last month’s Budget look
“piecemeal…it is not clear they are part of any long term thought through strategy.”
The dire forecasts made by the Office for Budget Responsibility about the state of public finances owing to the covid-19 outbreak show how grave the challenge is likely to be, and they have already rendered the predictions included in the Budget out of date.
Our concern is that the Bill, even in a time of national crisis, is not enough. It is not enough to solve the immediate financial and economic problems that the covid-19 outbreak presents. It is not enough to solve the searing inequalities in our country, inflicted by 10 years of Conservative government. We need a more ambitious approach to making our tax system fairer and building a society and economy fit for the future—an approach that recognises that the consequences of covid-19 and the lockdown are being felt most by those who can ill afford it: those on low pay, those with insecure employment and those who face additional costs to access public services.
Too many of the people on whom our country’s response to the virus depends have seen their true worth to our society ignored for far too long. Too many are today among the poorest in our society and risk being the worst-affected by the coming recession. Others, such as those joining the labour market for the first time and lower earners, are likely to feel the impact for years to come.
We accept that much of the Bill was drawn up before the current pandemic, and we know that Ministers do not have a crystal ball with which to make policy, but they must know, as the country knows, that the Bill was an inadequate starting point even when it was drafted and that it fails to respond to the deep-seated problems of our country. Far more needs to be done to clamp down on tax avoidance, individual and corporate, which deprives our public services of the funding that they need, but there is little in the Bill to suggest that the Government have the appetite for pursuing that at the scale that is needed.
It is welcome that the Government maintain corporation tax at 19%, rather than cutting it to 17% as initially planned. Perhaps that suggests that Ministers have accepted the arguments made by many Opposition Members for many years that whittling down the rate, which is already among the lowest in the G20, is not the best approach. It has not given us a productivity miracle. It has not tempted companies to set up shop here on a scale adequate to balance the flow of companies moving away as a result of Brexit. What it has given us is overstretched public finances and underfunded public services. Instead, we should be asking that profitable companies, especially those for which the current situation has provided an unexpected windfall, contribute more to help to provide our public services with the funding that they need.
The digital services tax is a long-overdue step to make the tech giants pay their fair share. We welcome the intent behind it, but like so much of the Bill, it does not go nearly far enough. The tax and spend trade-offs that have been forced on us by the covid-19 pandemic cannot be put off for long, and when Ministers come to these decisions, they should learn from the mistakes of the past. The Labour Government’s immediate response to the 2008 financial crisis showed the good that Government can do, but since 2010, a decade of Conservative cuts has made the economic damage from that crisis fester.
Too many in our country have seen little improvement in living standards for a decade now. The Bill, and the further fiscal measures that the Government are likely to have to bring to the House in the months to come, should be about ensuring that the burden of current costs and the benefits of the recovery to come are fairly shared across our society. This Bill is not that. It is very far from being the basis on which our country can draw a social contract fit for the future. From these Benches, we will continue to call for a better settlement for today and a better plan for tomorrow.
The Economic Secretary to the Treasury (John Glen)
It is a privilege to close this debate on behalf of the Government. This is my first opportunity to congratulate the newly appointed shadow Treasury team and to welcome the hon. Member for Houghton and Sunderland South (Bridget Phillipson) to the Dispatch Box. I also welcome the hon. Member for Oxford East (Anneliese Dodds)—I spent a lot of time with her in Committee debating Brexit matters before Christmas—to her role and welcome the constructive tone that she took in opening this debate.
In last month’s Budget, my right hon. Friend the Chancellor initiated a coherent, co-ordinated and comprehensive economic response to the challenges of covid-19. As the shocking impact of the virus around the globe has become more apparent, the Chancellor has announced further unprecedented packages of support, doing so most recently this afternoon, with the new bounce-back loan scheme and refinements to make the CBIL scheme more accessible—points that I am sure my hon. Friend the Member for Wellingborough (Mr Bone) and the hon. Member for Hackney South and Shoreditch (Meg Hillier) will welcome, given what they said in their speeches. Such measures may not be to the taste of true free marketeers such as my hon. Friend the Member for Wycombe (Mr Baker), or even my right hon. Friend the Member for North Somerset (Dr Fox), but when they and my hon. Friends the Members for Yeovil (Mr Fysh) and for North East Derbyshire (Lee Rowley) welcome them, we know that such measures must be necessary.
The hon. Member for Bethnal Green and Bow (Rushanara Ali) was among those who argued that we should invest in public services to protect frontline services—and we are. The Government have allocated more than £14 billion from the covid response fund to go towards public services, including the NHS and local authorities.
I recognise that some sectors of our economy are experiencing enormous disruption. My hon. Friend the Member for Altrincham and Sale West (Sir Graham Brady) highlighted the challenges faced by the aviation sector, which is of course eligible for the coronavirus jobs retention scheme, under which the Government will pay up to 80% of staff wages up to £2,500 a month. We have offered support to households, too, by increasing the universal credit allowance by £1,000; providing meals or vouchers for eligible home-schooled children in place of free school meals; and making nearly £1 billion extra available for local housing allowance.
I acknowledge that the task is by no means complete. As my hon. Friend the Member for Broxbourne (Sir Charles Walker) eloquently argued, our wellbeing and our economy are not in competition. The Government will do whatever it takes to safeguard people’s health and livelihoods as the situation develops. We will continue to back NHS workers and those who support them on the frontline—for example, by exempting from vehicle excise duty medical courier vehicles that transport medical products and by reforming the tapered allowance so that doctors can spend more time treating patients without facing a higher tax burden.
As my hon. Friend the Member for North East Derbyshire reminded us with his reference to the 93-year wait for a bypass in his constituency, the Bill also delivers on commitments made to the British people at the general election in December. It is vital that these measures are not delayed. The Bill furthers the Government’s ambition to unleash the potential of our economy by increasing the credit rate for research and development expenditure credit and for the structures and buildings allowance—measures welcomed by my hon. Friends the Members for Meriden (Saqib Bhatti), for Stourbridge (Suzanne Webb) and for Penistone and Stocksbridge (Miriam Cates).
The digital services tax will improve the fairness and sustainability of our tax system by ensuring that digital businesses that access the UK market make a fair contribution to the Exchequer. It is anticipated to collect £2 billion in revenue. I welcome the support expressed from all parts of the House for the concept of a digital services tax, and thank the Chair of the Treasury Committee, my right hon. Friend the Member for Central Devon (Mel Stride), for his remarks on the subject. I acknowledge the work that he did on the matter while in government. I also note his reference to the need for better data on the loans scheme; the Government will address that and his letter will be responded to shortly.
The Bill reduces the tax burden on some of the most vulnerable and deserving members of our society, including the Windrush generation and victims of the troubles, for whom compensation will no longer be subject to income, inheritance or capital gains taxes. Kindertransport payments made by the German Government will no longer be subject to inheritance tax either.
This Bill helps in the Government’s efforts to move towards a greener and more sustainable economy, as mentioned by the right hon. Member for Kingston and Surbiton (Sir Edward Davey), and confirms that the CO2 emissions figures for vehicle excise duty will be based on the worldwide harmonised light vehicle test procedure for all new registered cars from 1 April 2020. In addition, zero-emission cars will no longer be subjected to the VED expensive car supplement. These measures will help to ensure that, as our economy develops and grows, it does not jeopardise our environment. I know that many of these measures will attract widespread support across the House. I thank Opposition Members for the constructive and collegiate approach that they have taken over the past few weeks. In that spirit, let me address some of the valuable points raised further in today’s debate.
The shadow Chancellor raised a number of important issues, including tax avoidance, which was also raised by the right hon. Member for Warley (John Spellar). This is a priority for the Government, and in last month’s Budget the Chancellor announced further measures, including legislation to strengthen HMRC’s existing anti-avoidance powers. The Government also plan to issue a call for evidence on the next steps to reduce or end the use of disguised remuneration schemes.
The shadow Chancellor also touched on the subject of entrepreneurs’ relief, a point echoed by my hon. Friend the Member for Weston-super-Mare (John Penrose). Most of the cost of this relief previously came from those making gains over £1 million. With such extreme gains now ineligible for this relief, we can ensure that the support is targeted where it was intended: at small businesses.
My hon. Friend the Member for Arundel and South Downs (Andrew Griffith) raised the prospect of a unified income tax and national insurance regime. The Government are indeed committed to a tax system that is simple and easy to use, which is why we created the Office of Tax Simplification in 2010 and put it on a permanent statutory basis in 2016. We have implemented more than half of the 400 recommendations that the OTS has made to date.
Tonight, this House once again has the opportunity to come together in the national interest. This Bill gives us the tools we need to mitigate the worst effects of the virus today, but it also lays the foundations that will allow our economy to return to strength in the months and years ahead. This is a Bill that will ensure that we truly have a 21st-century tax system: one that is not only competitive but fair and sustainable—a Bill that will help to deliver our commitment to zero carbon emissions by 2050, positioning the United Kingdom at the forefront of clean and sustainable future growth; a Bill that will help Britain to bounce back, levelling up investment and opportunity and putting in place the pro-enterprise policies that will ensure that this country remains one of the best places in the world to start and grow a business, a point made very eloquently in an informed speech by my hon. Friend the Member for South Cambridgeshire (Anthony Browne).
Through the action that the Government have taken, and with the support of the whole House, we will defeat this virus. We have heard speeches from the Shetlands to Central Devon, and from many constituencies in between. Everyone is committed to ensuring that the Government do everything they can to relieve the distress that our nation is now enduring. We will shepherd our country safely through this period of uncertainty and disruption. The United Kingdom will emerge from this crisis stronger, more resilient and more united than before. For all these reasons, I commend the Bill to the House.
Mr Deputy Speaker (Mr Nigel Evans)
I, too, would like to associate myself with the comments of the shadow Minister in thanking all those who have made today’s proceedings work so smoothly. Thank you very much.
Finance Bill (Ways and Means)
Tuesday 19th May 2020
(4 years, 7 months ago)
Commons ChamberRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Notices of Amendments as at 18 May 2020 - (19 May 2020)
The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That (notwithstanding anything to the contrary in the practice of the House relating to the matters that may be included in Finance Bills) provision taking effect in a future year may be made amending Chapters 8 and 10 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003.
This ways and means motion enables the Government to amend the current Finance Bill in order to implement reforms to the existing off-payroll working rules. We are presenting it separately because we wanted to extend the date at which it comes into force by one year to April 2021 in recognition of the effects of the coronavirus pandemic. The off-payroll working rules have been in place for 20 years. They are designed to ensure that people working like employees but through their own companies pay broadly the same income tax and national insurance contributions as people who are directly employed.
In April 2017, the Government reformed the way in which the rules operate in the public sector by transferring the responsibility for determining whether the rules apply from individual contractors to the public bodies that engage them. Unfortunately, in the private sector, non-compliance with these rules remains widespread, and it is forecast to cost the Exchequer over £1.3 billion a year by 2023-24 if not addressed. This is not a sustainable position. It costs the taxpayer a great deal of revenue that is needed for our public services, it perpetuates an unfairness between individuals working in the same way but paying different levels of tax, and it prolongs the disparity with the public sector, where the rules have been in place now for three years.
At Budget 2018, the Government announced that the reform would be extended to medium and large-sized organisations in the private and voluntary sectors, but it would not apply to engagements with the 1.5 million smallest businesses. It is important to be clear that this is not a new tax. The off-payroll working rules have been on the statute book since 2000. This reform is focused on improving on improving compliance with the rules that are already in place.
Let me turn to the amendment tabled by my right hon. Friend the Member for Haltemprice and Howden (Mr Davis) the hon. Member for Haltemprice and Howden. I understand that it will not be moved today, but it is important to be clear about the Government’s position on it. To help businesses and individuals deal with the economic impacts of the coronavirus, on 17 March the Government announced that the reform to the off-payroll working rules would be delayed by one year from 6 April 2020 until 6 April 2021. The amendment would delay the introduction of reform by a further two years to April 2023, but it is hard to see any genuine rationale for this further delay.
The current measure was first introduced at Budget 2018. Since then, the Government have carried out two consultations on the detail of the reform. Her Majesty’s Revenue and Customs has worked extensively to support businesses in preparing for the change. Draft legislation and guidance has been published. There was a further review earlier this year that resulted in several additional improvements. By delaying until 2021, the Government have already ensured that businesses and contractors will not need to make final preparations for this reform until next year. There is therefore no need for further delay. Moreover, such a delay would have very significant drawbacks. It would not address the intrinsic unfairness of taxing two people differently for the same work, it would extend the disparity between the private and public sectors, and it would come at a significant fiscal cost that other taxpayers up and down the country would have to make up.
I turn now to the substance of the measure. I want to address a number of further concerns that have been pressed by colleagues, including, in particular, my hon. Friends the Members for North East Bedfordshire (Richard Fuller), for Barrow and Furness (Simon Fell), for Workington (Mark Jenkinson) and for Watford (Dean Russell). The first of these is that organisations will no longer engage with personal service companies as a result of this reform, reducing the number of contracts available in the labour market. It is important to recognise that the Government are fully aware of the importance of the flexibility for individuals and businesses to agree working arrangements that suit their needs. We know that that has been one of the pillars of the success of the UK labour market in recent years.
In 2017, soon after the implementation of the public sector off-payroll working reform, the Government commissioned independent research to assess its effect on the labour market. It found that the Government and independent researchers had not seen any evidence of an overall change in the demand for the services and skills of contractors.
Some organisations have clearly decided to change the balance of their employees and their contractors. That can be for many reasons—for example, where that better suits the evolving business model of that organisation—but many organisations will still choose to engage contractors using personal service companies where that is appropriate to their business.
Nevertheless, the Government remain keen to ensure the long-term flexibility and success of the labour market. We will therefore use the additional time given by this one-year delay to commission further independent and robust research into the long-term effects of the 2017 reform on the public sector. We want that research to be available before the reform comes into effect in other sectors in April 2021, and I can tell the House that the Government will give careful consideration to the results of that further research and thereafter will continue to monitor the effect of the reform on the labour markets of those sectors, including by commissioning independent research six months after this private and voluntary sector reform has taken effect.
Secondly, colleagues have concerns that organisations might take a blanket approach to status determinations, categorising all engagements as employment, regardless of the facts. The Government have been very clear that determinations must be based on an individual’s contractual terms and actual working arrangements. Many businesses and public sector organisations have described processes that they have put in place to ensure that determinations are correct, based on the actual working practices of the individuals concerned. There is a vigorous contractor lobby, which has also shown itself willing and able to highlight cases where it feels that the rules are not being followed. The reforms themselves include a client-led status disagreement process, where contractors can lodge a complaint if they disagree with how they have been categorised.
Thirdly, HMRC is continuing to help businesses to get their employment status determinations right by ensuring that they have access to a wide programme of education and support. The independent research that we are announcing post-implementation next year will also evaluate from an external perspective whether decisions are being made properly.
Finally, HMRC has committed to a light-touch approach to penalties in the first year of the reform and has stated in terms that the reform will not result in new compliance checks being opened into previous tax years unless there is reason to suppose or suspect fraud or criminal behaviour, and the same is true for penalties for inaccuracies.
The Government very much value the important role that contractors play in the labour market and want businesses to be able to design their workforces in a way that makes sense for them. That should not mean, however, that contractors pay less tax than employees where their engagement meets the test of an employment relationship. The legislation is designed to remedy that unfairness and to support the tax base needed to fund our public services, and I commend it to the House.
Madam Deputy Speaker (Dame Rosie Winterton)
I now call Dan Carden, shadow Minister, who is asked to speak for no more than five minutes.
Dan Carden (Liverpool, Walton) (Lab) [V]
I am delighted to contribute to this debate as shadow Financial Secretary. May I start by acknowledging the significant interest and the strong feelings of people across the country on this issue? We are considering a technical change to our tax system, reforming compliance on IR35 rules for the private sector, but for many people watching us, there is genuine concern that this technical change—this attempt to strengthen the system against tax avoidance—may affect their incomes and their livelihoods. I and the Labour party approach this matter with the seriousness and the consideration that it merits.
The ambition of IR35 rules and the associated difficulties have been a long-running saga over three decades, and it is a near impossible task to do the issue justice in the five minutes I have to contribute today.
Provisions were introduced by the last Labour Government in 2000 for HMRC to investigate and identify the relationship between businesses and contractors and to ensure that, where individuals actually perform the role of employees, they were contracted as such, to pay the correct tax and benefit from the correct employment protections, two issues that remain at the heart of the difficulty around IR35.
The nature of today’s economy, with the weakening of workers’ rights and employment protections and with zero-hours contracts, demands a radical overhaul. We need a progressive tax system, and we need to rebalance the relationship between those at the top and those at the bottom. In the meantime, what we have are piecemeal attempts to stop some, perhaps the more blatant, tax avoidance arrangements utilised by some companies. The challenge for tax authorities and for us is to understand, and differentiate between, fair and correct contractual relationships for the genuinely self-employed who are providing a crucial service to business and those who are all too often forced into bogus self-employment by unscrupulous employers, a practice that has become all too common and is designed to cheat the tax system and to deprive working people of their rights and even their entitlement to a minimum wage and fair pay. HMRC estimates such bogus self-employment schemes cost around £3 billion a year in lost tax revenue, and the February 2020 Treasury review put the cost of non-compliance with IR35 at £1.3 billion a year by 2023-24.
Having taken effect in the public sector in April 2017, these measures were initially meant to be rolled out to the private sector last month, but that is being delayed by a year due to the current pandemic, and the Labour party broadly supports the decision to delay. We have raised concerns about the implementation of this reform and have called for a proper and thorough review before the roll-out to the private sector, and, as the Financial Secretary recognised, the additional time now available gives him an opportunity to get to grips with these concerns, but we do need reform.
The Labour party is committed to modernising the law around employment status, including new statutory definitions of employment status, and the Government’s own Taylor review was right to conclude that the nature of the tax system acts as an incentive for practices such as bogus claiming of self-employed status, both by businesses and individuals. It called on the Government to make the taxation of labour more consistent across employment forms while at the same time improving the rights and entitlements of self-employed people. I would also add—as we consider these changes in the midst of the coronavirus pandemic that has forced 2 million people on to universal credit and millions to rely on the Government’s furlough scheme, unsure of their future—that we need a social security system fit for the modern era that can protect all of our people in one of the wealthiest countries on the planet.
I would just like to finish with a few points that I hope the Financial Secretary can respond to when he winds up. Can he explain how reforms will only affect people working like employees through a company, and does he agree that there can be no space in our economy for zero rights employment? Will he respond to concerns most recently set out by the House of Lords Economic Affairs Finance Bill Sub-Committee that lessons have not been learned from the roll-out to the public sector, and will he look again at serious problems highlighted with the “check employment status for tax” online tool?
We need a joined-up approach in the consideration of tax regulations and employment law. We need better protections for the self-employed, and we need to tackle tax avoidance, and the Labour party will work constructively to achieve that end.
Madam Deputy Speaker (Dame Rosie Winterton)
I now call David Davis, who is asked to speak for no more than four minutes.
Mr David Davis (Haltemprice and Howden) (Con)
In the light of the impact that coronavirus is having across all sectors of the economy, the Government have rightly committed, in the motion, to postponing the planned reforms to IR35, but only until next April. The effects of the pandemic are going to be felt for considerably longer than one year. On this basis, in April next year self-employed contractors will be hit with unnecessary costs, confusion and uncertainty, just as many of them are getting back on their feet after the coronavirus has wreaked havoc across the economy. It is the self-employed and small businesses that make up the beating heart of our economy, and they will power the recovery of our economy out of this crisis.
The IR35 rules, as the Minister said, have long applied to the public sector. This is about applying them across the private sector. In that light, they were studied by the House of Lords Economic Affairs Committee in a report referred to by the shadow Financial Secretary to the Treasury. The report stated that the rules
“have never worked satisfactorily, throughout the whole of their 20-year history. We therefore conclude that this framework is flawed.”
The report found a system riddled with unfairness and unintended consequences and called for a wide-scale independent review—not just a few research reports, Financial Secretary—focused on how the reforms would affect the wider labour market and the costs that would be forced on businesses. The Lords Committee said that IR35 had the effect of reducing contractors to
“an undesirable ‘halfway house’: they do not enjoy the rights that come with employment, yet they are considerably employees for tax purposes. In short, they are ‘zero-rights employees’”.
That is, zero-rights employees effectively created by the state.
The Lords recommended that the Government adopt the Taylor review proposals, which we as a Government promised to do years ago, as they offer the best long-term alternative solution to the off-payroll rules and provide an opportunity to consider tax, rights and risk together, as they should be. Despite what the Financial Secretary said, however, the Treasury has neither the time nor the capacity for a wholesale review right now. Therefore, the only sensible course of action is to pause these reforms and take the time to properly review the impact they will have on the self-employed. So, I will vote for this motion today, if we have the opportunity, but only in the expectation that will be back here in nine months’ time to do all this again.
Madam Deputy Speaker (Dame Rosie Winterton)
I call Alison Thewliss, who is asked to speak for no more than five minutes.
Alison Thewliss (Glasgow Central) (SNP)
It is a strange day indeed when I end up agreeing with the House of Lords and the right hon. Member for Haltemprice and Howden (Mr Davis), but I very much support a review, as does the SNP, as we had this in our manifesto. Concerns about IR35 have been well raised by myself, my colleagues and colleagues of all parties. I mention in particular my predecessor in this role, my hon. Friend the Member for Aberdeen North (Kirsty Blackman), who in 2018 raised the impact on rural communities where teachers, doctors and nurses may be employed through intermediaries. My hon. Friends the Members for Aberdeen South (Stephen Flynn) and for Gordon (Richard Thomson) and the hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie) have also raised concerns about the impact of these reforms on people working in the oil and gas industry, which is also under significant pressure at this time.
In my constituency, many people working in IT are already finding that their contracts are not being renewed. This is having an impact on their industry because of the ongoing uncertainty with this policy. I should also like to mention the possibility of an equality impact assessment. Many of those people have come here to work from other countries because of their expertise, and if they are not able to work, that could have an impact on their immigration status and their ability to stay in this country, where they have made their home. I ask the Minister to consider that.
The House of Lords Economic Affairs Committee has set out very well the issues with IR35. Its report states that the Government should reassess the flawed IR35 framework and give serious consideration to the fairer alternatives to the off-payroll working rules. The report sets out a number of options that the Government may wish to pick up. In the Chancellor’s earlier statements on support for self-employed people, he hinted about the support the Government are offering to some of them—not all of them; there are still big gaps in the scheme—but there is an inconsistency in contributions between the self-employed and the employed, with a bit of uncertainty as to what exactly that means when we come out of coronavirus. What will people be expected to contribute? Any clarity that the Government can give on this would be extremely useful. The House of Lords also makes it clear in no uncertain terms that IR35 is not a good base to build on. Yes, it has been in place for 20 years, but for 20 years it has been plagued with these types of problems and by bolting more on to it and trying to reform it, the Government are building a house on the sand. We cannot rely on that house standing any longer.
The Taylor review that the Government carried out made it very clear that there are options open to the Government. The Financial Secretary spoke of reviews past and reviews yet to come, but there is a real lack of proper assessment and understanding of the impact this has already had in the public sector and there is a need to understand how this will work fully when it comes to the private sector. Further, the House of Lords Committee points out that shifting responsibility on to business for a scheme that is not fit for purpose is the Government and HMRC ducking a degree of responsibility.
I want to raise this with the Minister because we, and many in the industry, have concerns about the future of contracting because we do not know what the impact will be. As I have said, this ongoing uncertainty has led to people not having their contracts renewed. A deferral for a year gives the Government and HMRC some time, but they must use it wisely. Although some research has been carried out already, other people have looked at this and the industry understands what they need and what the norm is in their sectors, the outcome is still very unclear. The Government have said that they will use this year, but can the Financial Secretary say when that review will be completed and when it will actually be available for people to see and reflect on? Coming to this in nine months’ time will be too late for lots of people to make those changes; it needs to be much sooner than that. If the Government can say categorically that it will be six months, that is different—it provides a bit more time—but I am not quite convinced yet that the Government know what they want from this and what they are going to achieve.
Overwhelmingly, we are concerned about employment rights. I have seen from my casework, as we all have, people who are uncertain about what they are able to do, what their rights are, and what they are obliged to do by their contracts and by their employers. I think the Government need to reflect carefully on the situation that many have ended up in during the period of coronavirus, when some people have very little at all on which to survive.
Madam Deputy Speaker (Dame Rosie Winterton)
The time limit for speeches is four minutes, and I advise hon. Members who are speaking virtually to have a timing device visible.
Rushanara Ali (Bethnal Green and Bow) (Lab)
Self-employment is a vital part of our economy. People who are genuinely self-employed deserve to be properly supported while ensuring that everyone pays the right amount of tax. While we welcome the extension to 2021, it is crucial that we ensure that there is levelling up and protection of people’s rights, whether they are in the public or the private sector. That is why a joined-up approach is required in bringing together consideration of tax and employment law and protection for the self- employed.
I want to turn to my wider concerns about the Finance Bill. With every passing day, it is clear that we are entering a severe recession, which is going to lead to more poverty, inequality and greater unemployment if the Government are not bold in their response. The Office for Budgetary Responsibility has already said that the economy could shrink by 35%, with unemployment soaring to 2 million. Youth unemployment is likely to reach 1 million, with an additional 640,000 young people being made unemployed. We desperately need to support them so that they have hope for the future and we do not lose another generation. They need job guarantees, training, and mentoring and support from wider society.
We also need to make sure in relation to the Finance Bill—it could do so much more, given that it was conceived before the crisis—that Ministers look at the areas where the Government’s programmes following covid do not go far enough, leaving many out. The first is the job retention scheme, and while I welcome the extension to October, many employers are not clear about what their contribution to the furloughed salaries needs to be. That needs to be clarified, and I hope the Minister will do that. Research by the New Starter Justice campaign has found that 83% of its members received no universal credit for April. How do the Government expect them to survive for eight months with no income or welfare? Those in the hospitality sector also face huge challenges because they do not qualify for support. Between 350,000 and 500,000 remain unable to be furloughed, despite the extension of the job retention scheme.
When the Chief Secretary to the Treasury was asked about those issues at the Treasury Committee, he talked about “trade-offs” and “hard edges” to avoid the risk of fraud, but these are not people who are committing fraud. These are hard-working people—hundreds of thousands of them—who are getting no support from this Government. That is wrong, and it must be corrected. I hope the Minister will say something about that, because they desperately need our support.
The Institute for Fiscal Studies estimates that 2 million freelancers in sectors such as arts and entertainment and the creative industries who have some self-employment income are not covered by the scheme, while 675,000 people who get over half their income from self-employment will not be covered. The Government need to act to help them.
Finally, limited company directors are also left out. Local government need support from the Government. Only £3.2 billion of emergency funding has been provided, and yet there is a shortfall of £10 billion. They desperately need the Government to act now, so that they can cope with the crisis. My local authority has lost £35 million of income and will have to spend an extra £25 million to address the coronavirus crisis. The Government need to make sure that they are prepared for tough times. The Bill does not do that, and this particular change does not address the bigger crisis that is looming ahead of us.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
I think it is fair to say that covid-19 has shone a light on the different ways of working. Whether it be freelance work through personal service companies, which are often set up to deal with insurance and liability, or freelance work via short-term pay-as-you-earn contracts, many of these people are falling through the net. That does not even begin to embrace those who are in insecure, zero-hours work. Many in my constituency work four jobs over seven days just to make ends meet, while others earn enough to work a four-day week and can live quite comfortably.
Hackney South and Shoreditch is a microcosm of all the different ways of working, some of which the Chancellor has supported in his package, and some of which he has not. It is also a hub of innovation, particularly in the tech area in Shoreditch, in the creative industries. We are proud to be the home of many disruptor businesses that start off trying to change the way things work.
This motion brings to the fore a number of issues. Contractors providing a flexible, agile workforce allow many of the businesses in my constituency to buy in the skills they need when they need them. Those are typically high-cost skills that a business could not put on the payroll, especially at the start-up stage. Businesses have been in touch with me about this measure for that reason in particular. They would not be able to create a full-time job. They do not need this expertise full time, long term on the payroll. They need to be able to hire someone quickly, and if the company does not succeed, there is no direct impact on the careers of the people they have hired for that short contract because they go on to the next contract. It allows start-ups to get the help, support and technical skills they need as a fledgling business.
Since the Government announced the extension of IR35 to the private sector, many companies in my constituency have already taken the view that they need to move overseas, and many of the individual contractors are moving overseas. They often work in different countries anyway, so where they are physically based is less of an issue than it may seem.
Many of the companies that are employing those contractors are taking a very risk-averse approach, designating all contractors as needing to go under the IR35 umbrella. That is having a negative impact on those technically skilled individuals who would be available for work but will end up being employed for tax purposes only, with none of the perks. In pursuing the national insurance contributions of employers, the Government are in danger of throwing out the baby with the bathwater. No one wants to see tax avoidance on a huge scale, but this system has grown up and helped to generate a whole business sector that relies on this flexibility, and the employees caught up in this will have none of the benefits of employees but will be working alongside people who do.
The issue of national insurance contributions is really important in terms of the Government’s review. We need to know exactly what the timetable is for that review, who will do it and how they will calculate the tax take. Many businesses are presented with evidence, which I am happy to share with the Minister, about why the tax take will not actually increase for HMRC by going down this route. It is really important that we get those fundamental numbers right. Is the research commissioned yet? How will be people be able to contribute, and will it look at the overall tax rate? The delay of a year is welcome, but I completely agree with the right hon. Member for Haltemprice and Howden (Mr Davis) that we are going into an economic contraction, the likes of which this this country has never seen before, and a year is not long enough. We need to delay this further or we will lose these skills, and businesses will not replace these roles as employees, so we will have a double whammy in the economy.
Sir Edward Davey (Kingston and Surbiton) (LD) [V]
I am beginning to fear that this Government do not understand the self-employed. I fear that, yes, because of the IR35 proposals in front of us, but also because of the loan charge and the way that a large group of the self-employed have been kept out of the support programmes during the coronavirus crisis—I am talking about the people who are newly self-employed and the people whose self-employment operates through a limited company, all of whom have had no help. I am afraid that the evidence is mounting up. That is why there should be a review, not just of IR35, but of how self-employment is viewed—the way we tax it and the benefits that people get—so that we can get a proper balance, rather than the piecemeal approach that we have.
I am really struck by the Government’s approach, which is, as the right hon. Member for Haltemprice and Howden (Mr Davis) said, creating zero-rights employment —employees without employment rights. That is not acceptable and it is why there needs to be a review before this goes any further. I had expected a review because the former Chancellor of the Exchequer said so during the last general election campaign. On Paul Lewis’s “Money Box” programme on BBC Radio 4, he made it clear, and he tweeted afterwards that there would be a review of IR35, but there has not been a review. The Liberal Democrats argued for one in the election, as did others, but there has been no such review. That is a breach of a promise to people, which has made them very angry.
The Minister today is promising a review once the legislation is on the statute book. That is not a review—that is trying to make good once the stable door has closed. Any review must take place ahead of any legislation, if it is to be done in good faith. I am afraid that the way that the Government are treating the self-employed, breaking their promise at the election and now proposing to have a review after the legislation is in place is a breach of good faith to the 5 million self-employed people in our country. That is just not acceptable.
On the details of IR35 in front of us, the Treasury Minister talked about the fact that the measures were trialled in the public sector before the private sector. He seems to think that this can therefore be taken straight across, but that is not real life. The public sector, its HR and payroll look at risks such as tax liabilities in a very different way from the private sector, and I would have thought that he would know that. Therefore, I do not think we can draw the conclusions that he is trying to draw. I am afraid that the evidence, even ahead of this legislation as people were preparing it, expecting it to come in this April, shows that the private sector takes a very different approach. That is why lots of people have ended up going abroad and why the Treasury will lose money as a result of this proposal.
That is my final point. The Treasury Minister trots out the idea that there is a lot of tax avoidance and that this measure closes those loopholes. He should think again, because there are benefits that people are forgoing. I think that this will end up costing the taxpayer and the country, and it will mean that there is less money for our public services if the measure goes through. It is the wrong measure at the wrong time. The Government should withdraw it, review and proceed in a wholesale—not this piecemeal—way.
Rachel Hopkins (Luton South) (Lab) [V]
The covid-19 crisis has had a dramatic impact on the UK’s economy. A small state, low taxes and pure free market economics have failed to prepare the UK for the public health crisis and the ever-present climate emergency.
The public health crisis has forced the Government to postpone this failed style of governance, in favour of an interventionist, corporate welfare policy, aimed at protecting the needs of capital, with the hope that benefits will trickle down to workers through business-first schemes. The post-covid-19 economy must have fair taxation and strong workers’ rights at its centre. Self-employed workers will be pivotal in our economic rebuild, and people who are genuinely self-employed deserve fair support while also paying their taxes.
The Opposition are fundamentally committed to promoting and advancing workers’ rights, so we are deeply concerned that IR35 reduces the rights of the worker and the responsibilities of the employer. It is essential that, during the review of IR35, the Government recognise the overlap between employment law and tax status, and do not see them as exclusive entities. An initial recognition of their interrelation provides the basis for levelling up self-employment protection and ending forms of self-employment that are used as cover for tax avoidance.
I am aware that some workers are forced into self-employment by employers trying to cut costs and reduce their obligations. That was directly referenced by the Taylor review, which stated, based on evidence submitted to it, that
“the nature of the tax system acts as an incentive for practices such as bogus claiming of self-employed status, by both businesses or individuals.”
This highlights the importance of not assessing tax law in isolation. A joined-up approach that brings together tax and employment law can ensure that everyone pays their fair share of tax and that no one is exploited by holes in the system. It is vital that the Government recognise the relationship between poor employment practice, exploitative working arrangements and the tax system. Do the Government intend to introduce any additional measures to tackle the enablers of tax avoidance schemes, including those who exploit gaps relating to tax and employment law?
The precarious nature of certain forms of self-employment has made it difficult for many to access the coronavirus self-employment income support scheme. A large number of my constituents, including those working in the creative industries, cannot access SEISS as they receive less than 50% of their income from self-employment. Will the Minister consider introducing additional support that can be offered to those who receive less than half their income from self-employment, and who may also have been using short-term pay-as-you-earn contracts?
The covid-19 crisis has created a critical juncture in our country’s economy. I urge the Government to ingrain workers’ rights and fair taxation into the post-covid economy.
Jesse Norman
I thank all Members who have contributed to this brief but very lively debate. I thank the hon. Member for Liverpool, Walton (Dan Carden) and the Labour party for their support for this measure and their agreement not merely to the substance of the proposal but to the need for a delay. I think that is absolutely right. They should be congratulated on their bipartisan approach to this important public issue. The hon. Gentleman mentioned the Taylor review, which was picked up by several other Members. The Government whole- heartedly agree: the Taylor review made 53 recommendations, the vast majority of which we accepted, and several have already been put in place.
I covered the question of a delay in my speech. I encourage all Members who would like a further delay to reflect on the points that I made about the intrinsic unfairness of taxing two people differently for the same work, the disparity that it would continue between the private and public sectors, and the significant fiscal cost that would be involved in doing so.
The hon. Member for Glasgow Central (Alison Thewliss) spoke of a review. She should be perfectly clear that I have at no point discussed a further review. We had a review earlier this year, contrary to what the right hon. Member for Kingston and Surbiton (Sir Edward Davey) said. It was a perfectly good-faith discharge of a commitment made during the general election. It involved a wide range of parties discussing how the reforms could be effectively implemented, and several important changes were made as a result of it. Of course, it followed two processes of consultation, draft legislation and a full pre-legislative history.
We are not talking about a further review. We are talking about two pieces of research. The first, later in the year to come before April 2021, will look at the long-term effects on the public sector. It is entirely appropriate to look at the public sector reform, because that is the major case in which the reform has been put in place, and it has led to a significant improvement in the fiscal position relative to those involved and that is all to the good from the taxpayer standpoint. The second piece of research, which I mentioned earlier, will come at the end, after the reform has been introduced. It will be an early take on the effects on the private sector in the first six to 12 months of its introduction.
The hon. Member for Bethnal Green and Bow (Rushanara Ali) raised the issue of whether we could not go further. The Government have gone much, much further. We have essentially had three Budgets already this year, given the astonishing measures that have been taken by the Treasury and across Government to support businesses, people and families during the coronavirus crisis. This resolution and the Finance Bill are designed to bring into law the Budget that we had in March, and that is what they do.
Finally, I remind the House that the measure will not merely improve the fairness and equity of the system, but allow us to fund our public services better—the services on which all of us, across parties and across the country, deeply rely.
Madam Deputy Speaker (Dame Rosie Winterton)
I announced to the House earlier this afternoon the provisional determination that a remote Division would not take place on the Question now before the House. That is also Mr Speaker’s final determination.
Question put and agreed to.
Resolved,
That (notwithstanding anything to the contrary in the practice of the House relating to the matters that may be included in Finance Bills) provision taking effect in a future year may be made amending Chapters 8 and 10 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003.
Finance Bill (First sitting)
Thursday 4th June 2020
(4 years, 7 months ago)
Public Bill CommitteesRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 4 June 2020 - (4 Jun 2020)
The Committee divided: - Ayes: 5 / Noes: 10 - Question accordingly negatived.
The Chair
Before we begin, I have a few preliminary announcements. I do not mind how you refer to me, but if you want me to call you, make sure I know that you wish to speak.
This is the first meeting of a Public Bill Committee since March. Members will understand that we need to respect social distancing guidance. I shall intervene, if necessary, to remind everyone.
Members may remove their jackets if they wish. I remind Members that tea and coffee are not permitted in Committee sittings. Please will all Members ensure that their mobile phones are turned off or switched to silent running during our meetings? The selection list, which is on the desks, shows how the amendments selected for debate have been grouped together. Please note that decisions on amendments are taken not in the order in which they are debated, but in the order in which they appear on the amendment paper. The Hansard reporters would be very grateful if Members emailed their speaking notes to hansardnotes@parliament.uk.
I ask the Minister to move the programme motion in the terms agreed by the Programming Sub-Committee.
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 11.30am on Thursday 4 June) meet—
(a) at 2.00pm on Thursday 4 June;
(b) at 9.25am and 2.00pm on Tuesday 9 June;
(c) at 1.30 and 2.00pm on Thursday 11 June;
(d) at 9.25am and 2.00pm on Tuesday 16 June;
(e) at 11.30 and 2.00pm on Thursday 18 June;
(f) at 9.25am and 2.00pm on Tuesday 23 June;
(g) at 11.30 and 2.00pm on Thursday 25 June;
(2) the proceedings shall be taken in the following order: Clauses 1 to 15; Schedule 1; Clauses 16 to 22; Schedule 2; Clauses 23 and 24; Schedule 3; Clauses 25 to 29; Schedule 4; Clauses 30 and 31; Schedule 5; Clauses 32 and 33; Schedule 6; Clauses 34 to 55; Schedule 7; Clauses 56 to 65; Schedule 8; Clauses 66 to 69; Schedule 9; Clauses 70 to 86; Schedule 10; Clauses 87 to 92; Schedule 11; Clauses 93 to 97; Schedule 12; Clause 98; Schedule 13; Clause 99; Schedule 14; Clauses 100 to 105; new Clauses; new Schedules; remaining proceedings on the Bill;
(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00pm on Thursday 25 June.—(Jesse Norman.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Jesse Norman.)
Clause 1
Income tax charge for tax year 2020-21
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 5, in clause 2, page 1, line 10, at end insert—
“(2) The Government must lay before Parliament a review of the impact of the rates of income tax for 2020-21 within six months of Royal Assent, which must consider the following issues—
(a) the effect on taxation revenue of maintaining income tax rates for 2020-2021; and
(b) the effect of income tax rates for 2020-2021 on annual income for the following:
(i) Households below average income, and
(ii) High-net worth individuals as defined by HMRC.”
This amendment would require the Government to assess the impact of the income tax rates in the Bill on tax revenues and on households and individuals of different income levels.
Clauses 2 to 4 stand part.
The Financial Secretary to the Treasury (Jesse Norman)
I am delighted to see you in the Chair, Ms McDonagh. I welcome all colleagues and thank them very much for their commitment to this important Bill and this important process. Ms McDonagh, you and our colleagues will be aware that we are scheduled to have seven sets of sittings to give every aspect of the Bill thorough examination. It will be a pleasure to serve on this Bill Committee with colleagues under your chairmanship. It is my first Bill as Financial Secretary to the Treasury, and I hope it will not be my last.
Let me begin by speaking to clauses 1 to 4, which legislate for income tax—the main default and savings rates of income tax, and the starting rate for savings for 2020-21. I shall also speak to amendment 5 to clause 2, tabled by the Labour party.
Clause 1 legislates for the income tax charge for this year, 2020-21. Income tax, as the Committee knows, is one of the most important streams of revenue for the Government, raising more than £190 billion in 2018-19. The clause is put into legislation annually in the Finance Bill. It is essential, because it allows income tax to be collected, so that it can fund the vital public services on which we all rely.
Clauses 2 and 3 set the main default and savings rates of income tax for 2020-21. These clauses, too, are put into legislation annually in the Finance Bill. Clause 2 ensures that for England and Northern Ireland, the main rates of income tax continue to be 20% for the basic rate, 40% for the higher rate and 45% for the additional rate. Clause 3 sets the basic, higher and additional rates of default and savings rates of income tax at 20%, 40% and 45% respectively for the whole of the UK.
I want to consider Labour’s amendment 5 to clause 2, which is in the name of the hon. Member for Houghton and Sunderland South. It would require the Government to review the impact of 2020-21 income tax rates on tax revenues, and both on households with below average incomes, and on high net worth individuals, as defined by Her Majesty’s Revenue and Customs. As the Committee will be aware, the Government already publish comprehensive assessments of income tax rates. In our judgment, the proposed additional review is therefore not necessary.
On revenue impacts, the Office for Budget Responsibility publishes tax revenue forecasts at every fiscal event, and did so most recently at Budget 2020. The Government’s tax information and impact note published in October 2018 provides a clear explanation of the tax impact on the Exchequer and the economy of maintaining the personal allowance and higher rate threshold for 2020-21. On distributional impacts, the Government publish a distributional analysis of the cumulative impact of Government policy at each fiscal event, and did so most recently at Budget 2020. HMRC’s annual income tax liabilities statistics publication provides breakdowns of the number of income tax payers and income tax liabilities across multiple characteristics, including by income source and by tax band. All those publications are in the public domain on gov.uk. Amendment 5 would do little to provide meaningful additional analysis that goes beyond the Government’s existing comprehensive publications, and I ask the Committee to reject it if it is brought to a vote.
Clause 4 maintains the starting rate limit for savings income at its current level of £5,000 for the 2020-21 tax year. As members of the Committee will be aware, the starting rate for savings applies to the taxable savings income of individuals with low earned incomes. The Government made significant changes to the starting rate for savings in 2015, lowering the rate from 10% to 0%, and also extended the band to which the rate applies from £2,880 to £5,000. The changes made by clause 4 will maintain the starting rate limit for savings at its current level of £5,000 for the 2020-21 tax year. The limit is being maintained at that level to reflect the significant reforms made to support savers over the last few years. That support is provided by the Government across the UK, for those at all stages of life and at all income levels. As a result of the support, about 95% of savers pay no tax at all on their savings income.
The decision in 2015 to increase the starting rate for savings by more than 75% has done much to support savers on low incomes. Since then, savers have been further supported by the introduction of the personal savings allowance, which offers up to £1,000 of tax-free savings income for basic rate taxpayers. This will remove an estimated 18 million taxpayers from paying tax on their savings income in 2020-21. In April 2017, the annual ISA—individual savings account—allowance was increased by the largest ever amount, to £20,000.
As a result of the combination of the personal savings allowance and the starting rate for savings, some savers can receive up to £6,000 of savings income outside an ISA completely tax-free. Most savers will of course also benefit from the tax-free personal allowance, which is set at £12,500.
The Government also support our nation’s youngest savers. To encourage those with children and grandchildren to save, the junior ISA and child trust fund allowance increased by more than double, to £9,000, from April 2020. Child trust funds will start to mature from September of this year, and the increase will provide an opportunity to boost the amount that children will have when their accounts mature.
Finally, I should mention the support that the Government offer those on the lowest incomes who wish to save through the Help to Save scheme. Help to Save provides savers with a 50% bonus on their savings—a perfect example of what the Government’s commitment to levelling up opportunity across the whole country can offer. I encourage Committee members to do what they can to promote the scheme to their constituents.
The Government remain committed to supporting savers of all incomes at all stages of life. Recent reforms, coupled with a significant increase in the starting rate limit in 2015, mean that the taxation arrangements for savings income are very generous. Around 95% of people with savings income, as I have mentioned, will continue to pay no tax on that income next year. The Government therefore do not believe that a further increase in the starting rate for savings is appropriate at this time.
Clauses 1 to 3 ensure that the Government can collect income tax, and set the main default and savings rates for the tax year 2020-21. Clause 4 maintains the starting rate for savings income at its current level of £5,000 for this tax year. I commend the clauses to the Committee, and ask it to reject amendment 5.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
It is a pleasure to serve under your chairmanship, Ms McDonagh, and to welcome other Members to the Committee. I thank the Clerk and all the team in the Public Bill Office for the support that they have provided in recent weeks and will continue to provide as we debate the Bill. Circumstances have been very challenging for staff who have adapted to working remotely. I am grateful for all the discussions and advice that they have been able to offer us. I also extend, via the Minister, our thanks to all the officials in the Treasury who have been working very hard to respond to the crisis that we face. I want to put on the record our thanks for their work, which is often not recognised. Our country’s response to the crisis depends on the work that they undertake on behalf of us all.
I am sure we all accept the importance and necessity of scrutinising the Bill. However, the Opposition find it regrettable that it was not possible to find an alternative arrangement for the Committee stage of the Bill. We hope that the House can resolve the wider issues around protecting those who have shielding responsibilities and making sure that we can all be kept safe at this time. Our proceedings obviously place a great deal of pressure on the staff who are vital to the House’s functioning. Again, I reiterate my thanks to them. We will want to consider certain aspects of the Bill in much greater detail over the coming weeks. I can assure the Minister that we appreciate the pressure that officials are under in responding to the crisis, and that we intend to be responsible in our approach, and will remain focused on our key priorities in the Bill.
Our amendment 5 would require the Government to assess the impact of income taxes in the Bill on tax revenues, and on households and individuals of different income levels. The Government like to tell us that we live in unprecedented times, which is of course true. As such, we need greater scrutiny of policies that may need to be revised in what is clearly becoming an unprecedented economic downturn. The Resolution Foundation estimates that GDP will contract between 10% and 24% owing to the outbreak of covid-19: an economic shock of a kind that has not been seen since the 18th century. Very much is at stake. It is crucial that the Government assess the means by which they generate revenue, given the huge demands facing our public services and economy.
First, we need to know how much revenue we are generating from maintaining income tax rates, in order to determine whether it is enough to meet the demands on our economy and the pressures on public services, as well as the Chancellor’s income support packages. Secondly, we need to better understand its distributional income. Over the past 10 years we have seen large cuts to working age benefits against reductions in direct tax, including a large rise in the tax-free personal allowance. Unsurprisingly, the winners in all this have not been low-income households. According to the Institute for Fiscal Studies, the poor have been disproportionately hit by tax and benefit changes since the Conservatives came to power 10 years ago. The worst-off 10% of households have lost 11% of their income since 2010. When we factor in households with children, that rises to 20%. In contrast, the highest-earning 10% of the population have seen their incomes fall by only 2% in the same period.
In its 2020 Budget analysis, the Resolution Foundation makes it clear that nothing has been done to offset the considerable welfare cuts made by previous Chancellors since 2015. Households in the second net income decile, for example, will eventually be £2,900 a year worse off on average, thanks to the tax and benefit changes announced since 2015, and £900 of that is yet to come; it will result from welfare policies that are still being rolled out. These cuts mean that the incomes of the poorest families have fallen over the last two years, and there is a real risk that child poverty rates will reach record highs by 2024.
Alison Thewliss (Glasgow Central) (SNP)
It is a pleasure to see you in the Chair, Ms McDonagh, and to join all the members of the Finance Bill Committee.
I echo the thanks that other hon. Members have given to the Clerks and staff who have made this possible, but I share the concerns about having to meet physically, and about the fact that there is no option for hon. Members to participate remotely or to vote digitally.
Given that the Secretary of State for Business, Energy and Industrial Strategy was taken ill yesterday at the Dispatch Box, we should think more carefully about how we spend our time in this place and how close together we are. I know discussions were had about how far apart we should sit and how that would work, but the reality is that the highest risk factor is people being in a room together and talking for hours on end, which sounds very much like the Finance Bill to me.
I agree with many of the comments made by the hon. Member for Houghton and Sunderland South, and I congratulate her on her position and her lead on this Bill. It is clear that for many people there is a fundamental unfairness in the economy. There are issues that are longstanding and intractable, and the Government have not shown great interest in trying to deal with those inequalities or in addressing the situation, particularly for women, ethnic minorities and disabled people, who still, after so many years, remain the worst off in society. The Government need to take far more and firmer action to address that.
The Government need to take further action to address the climate emergency. We should be seeing a lot more on that in the Bill, and should take our responsibilities on this issue far more seriously. If there ever was a time to do that, it is now. We have the opportunity. We have shut down huge chunks of the economy, and we can think, in this small time that we have, about how we want to reopen the economy, and how we could make changes that could otherwise pass us by. The amendments that the SNP will table to this Bill are in that vein. We want to look at equality and the environment. We want to look at how we can instil fairness in the system, if indeed that can be done.
I will also mention an issue that my hon. Friend the Member for Aberdeen North (Kirsty Blackman) has spoken about on many occasions: the need for this Committee to take evidence. The Domestic Abuse Bill Committee is also meeting today and is taking evidence from a range of experts. The Finance Bill does not do that. It will take written evidence—a lot of that has arrived, and I thank all those who have sent it—but we do not get the opportunity to take oral evidence and interrogate the people who have the most knowledge on the implications of the Bill. If we took that evidence, we would make better, wiser decisions and more fully understand the implications of the Bill, and the Government could avoid making mistakes and having to come back and change things retrospectively in the next Finance Bill. It would be incredibly helpful if people such as the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales could come before the Committee and we could hear from them. I urge the Government to consider why that could be helpful to all of us in this Room, rather than just passing it over as not necessary.
The amendment tabled by the official Opposition is worthy, but I would caution them, slightly, with respect to its implications for Scotland. They have not considered fully how it would affect Scottish income tax rates. What we do in this Parliament has that impact. Scotland has a progressive taxation system, and we are proud of it. We have taken the measures we can within the restrictions we have. However, if that system is not considered within the amendment, that will miss out a huge chunk of the impact on the Scottish budget and mechanisms within it for funding the Scottish budget and all the things we want in Scotland. I would not, at this stage, be willing to support the amendment, because it does not encompass that aspect, and it should. Scotland should be kept in mind in many of the measures or suggested changes. I will conclude my remarks with that reasonable point.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Main rates of income tax for tax year 2020-21
Amendment proposed: 5, in clause 2, page 1, line 10, at end insert—
‘(2) The Government must lay before Parliament a review of the impact of the rates of income tax for 2020-21 within six months of Royal Assent, which must consider the following issues—
(a) the effect on taxation revenue of maintaining income tax rates for 2020-2021; and
(b) the effect of income tax rates for 2020-2021 on annual income for the following:
(i) Households below average income, and
(ii) High-net worth individuals as defined by HMRC.’ —(Bridget Phillipson.)
This amendment would require the Government to assess the impact of the income tax rates in the Bill on tax revenues and on households and individuals of different income levels.
Question put, That the amendment be made.
Wes Streeting (Ilford North) (Lab)
I beg to move amendment 6, in clause 5, page 2, line 18, at end insert—
“(3) The Government must lay before Parliament within six months of Royal Assent a review of current corporation tax rates which must contain an assessment of the following—
(a) the effect on taxation revenue of maintaining the level of corporation tax rates for 2020-2021; and
(b) the impact of the corporation tax rate structure on businesses of different sizes.”
This amendment would require the Government to assess the impact of the corporation tax rates in the Bill on businesses of different sizes and on tax revenues.
Wes Streeting
It is a pleasure to serve under your chairmanship, Ms McDonagh. These clauses, which maintain the corporation tax rate at 19%, represent the culmination of a five-year U-turn, painfully drawn out over three successive Conservative Governments and, by my count, at least four Conservative Chancellors.
Over the last decade, successive Conservative-led Governments have cut the headline rate of corporation tax from 28% to 19%, giving the UK the lowest headline rate in the G20. In the 2015 Budget, the Government announced a reduction in the corporation tax rate, from 20% to 19%, for the financial years beginning 1 April 2017, 1 April 2018 and 1 April 2019, with a further reduction, from 19% to 18%, for the financial year beginning 1 April 2020. In the 2016 Budget, the Government announced an additional 1% reduction to 17% for the financial year beginning 1 April 2020. By November of last year, the Prime Minister had backtracked on that reduction, claiming that doing so would provide another £6 billion for our NHS. Here we are, debating clauses 5 and 6 to give effect to the Prime Minister’s commitment.
Circumstances have obviously changed significantly since the Prime Minister made that commitment to freezing corporation tax to make sure that funding was available for the NHS. What impact does the Minister believe that maintaining the corporation tax rate at 19% will have on Treasury revenues, in the light of the immediate impact of covid-19? We know that many businesses are already struggling to pay their taxes and that the tax burden they face is one of many considerations, which may include the viability of jobs, of commercial activity or even of the businesses themselves. Will the Financial Secretary tell us whether the Government plan to produce corporation tax revenue forecasts that factor in this new reality and that subsequently re-evaluate the projected tax revenues for the period covered by the Bill?
The anxiety is that, without sufficient forecasts and projections in the light of the circumstances through which we are living, revenues generated by those decisions will not necessarily deliver the funding that the Prime Minster intended for the national health service. Given that he has drawn a clear link between that policy decision on corporation tax and funding for the NHS, we want to ensure that he stays good to his word and commits to funding the NHS to the extent that was promised. All of us living through this miserable period in our history and our national life are particularly grateful to the national health service for the support it provides to all our constituents in the best of times, let alone the worst. I am sure that the Financial Secretary will agree that it is absolutely necessary to maintain NHS funding at the level required to see us through the pandemic and into brighter times, and that he would like to give us a commitment to ensuring that the forecast evidence base is made available.
In any event, building a stronger evidence base for corporation taxation rates is long overdue. We do not believe that the 19% tax rate goes far enough to ensure that corporations in this country pay their fair share of tax, particularly as the responsibilities on us all will increase throughout this crisis. Although there are significant pressures on the Treasury as a result of the immediate response to covid-19, we know that the long-tail effect—the recession that we are in and will be living through —will have a significant impact on decisions taken in the Treasury.
We have just endured a decade of cuts to our public services and, as we heard from my hon. Friend the Member for Houghton and Sunderland South, we know that the broader shoulders have not borne the greatest burden. Poverty in our country, particularly child poverty, has increased, and those who have felt the pain in their pockets have noticed the significant reduction in the provision of the public services upon which we all rely. Therefore, as we think about how to balance the books and take the country forward beyond this crisis, it is important that we get back to the principle that those with the broadest shoulders should bear the greatest burden, and business, which has benefited enormously from Government support during the crisis, should pay its fair share.
The Association of Accounting Technicians notes that while a 19% rate may put us slightly ahead of the likes of Albania, Andorra, Bermuda and Kyrgyzstan, those nations are not our international competitors. Will the Financial Secretary tell us why the Government insist on maintaining a corporation tax rate that, as the Resolution Foundation highlights, sits well below the European average and that of our equivalent advanced economies? Does that show the Government’s lack of faith in the UK’s ability to attract business to this country while maintaining a robust and fair tax system?
We all value the contribution that business makes to our society. As this is a fairly early opportunity for me to speak to this issue since my appointment to the shadow Treasury team, let me say on behalf of me and my colleagues that we think business has a contribution to make to our country beyond that which it makes to the ability of Labour Governments to raise revenues for spending on public services—important though that is. During the lockdown we have seen how people are missing not just their friends and family, but many of the businesses that are currently shut down. Businesses provide not just tax receipts for Labour Governments to spend, or even jobs and opportunities, which are really important; they innovate, create and provide products and services that enhance everyone’s quality of life. I am proud that this country remains an attractive destination for businesses to locate themselves and have their global operations, and that many people feel able to take the plunge and start up their own businesses.
Businesses are the lifeblood of our communities and high streets, and we value them and their contribution. That is not in doubt. However, the Government could easily increase the rate of corporation tax and raise additional revenues from those corporations without making us uncompetitive. Ministers ought to bear that in mind not just as they make unenviable decisions throughout the current crisis but as they look ahead to future fiscal events.
There is also the issue of equity. The Institute for Public Policy Research noted in its excellent work through its commission on economic justice that cuts in the principal rate of corporation tax over the last decade have occurred alongside an increase in national insurance contribution rates. That has resulted in a system whereby the burden of taxation is placed on businesses with lower profits that happen to have more staff, while more profitable businesses that employ fewer staff pay less. The Government’s policy of maintaining the present rates is therefore fundamentally a commitment to inaction and does not address some of the disparities in how the business taxation burden falls. That is the point that our amendment fundamentally seeks to address, and I hope the Financial Secretary will address it.
The Opposition want to establish a stronger evidence base not just for the Treasury but for Parliament, looking at corporation tax rates and the impact of decisions taken in the Bill on the revenues generated. I hope that would prompt a more wide-ranging review of corporation tax and business taxation, looking at how the burden is felt by businesses of different sizes and types, and with different levels of profitability. I look forward to hearing the Minister’s reply.
Jesse Norman
I will speak to the amendment and the clause. I would also like to touch on some of the themes raised by the Opposition Front Bench team and by the Scottish National Party, because those important issues need a proper interrogation.
Clause 5 sets the corporation tax main rate for this financial year beginning on 1 April 2020. Clause 6 sets the corporation tax main rate and the annual power to charge corporation tax for the financial year beginning on 1 April 2021. The Government support a competitive corporate tax system that allows UK businesses to flourish, boosts the economy and supports further inward investment in the country. For that reason, the Government have made successive cuts to the headline rate of corporation tax, with the main rate falling from 28% in 2010 to its current rate of 19% in April 2017.
At Spring Budget 2016, the Government announced that they were going to cut the rate further to 17% in April 2020 and legislated to deliver that in the Finance Act 2016. It is important that cuts to the corporation tax rate, and the benefits that they can provide to business growth and investment, are balanced against wider objectives. The Government’s commitment to sustainability in public finances reflects that.
With that balance in mind, the Government announced at the Budget that the corporation tax main rate would remain at 19% in April 2020, rather than being reduced to 17%, and clauses 5 and 6 legislate for that change in rate for this tax year and the next. At the Budget, the Office for Budget Responsibility forecast that that would raise about £33 billion in additional tax receipts across the forecast period. That will enable the Government to further support the vital public services on which we all rely, including the NHS.
The Government remain committed to supporting investment in innovation through the business tax system. While the corporation tax main rate remains at 19%, the UK continues to offer the lowest headline rate of corporation tax in the G20. The Government also announced a series of generous capital release for business at the Budget, which are being legislated for in the Bill, including an increase in the R&D expenditure credit from 12% to 13% and an increase in the rate of relief for business investment in non-residential structures and buildings from 2% to 3%. The Government have also provided an unprecedented package of support for businesses in response to covid-19, as has been recognised.
Before I turn to amendment 6, I will pick up some of the helpful and interesting themes that the Opposition Front-Bench spokespeople have raised. The hon. Member for Houghton and Sunderland South thanked Treasury officials and the hon. Member for Glasgow Central thanked the Clerks. I echo those thanks. I am sure that they would also join me in thanking the officials at Her Majesty’s Revenue and Customs, who have done an astonishing job in the last few months, especially in response to covid-19.
The hon. Member for Houghton and Sunderland South said that her key priority will be a focus on accountability with an emphasis on responsibility. The hon. Member for Ilford North highlighted that the Labour party is pro-business in a more generous and inclusive sense than had perhaps been understood by regarding business as merely a source of revenue to support public services, which I welcome. I encourage the scrutiny, which I think increases the authority of the power that is being scrutinised, so it is a good thing in general. I welcome them both to what is an evidently responsible and highly competent shadow Front-Bench team.
I have a couple of further points. In relation to equity, hon. Members on both sides of the Committee know that many of those distribution analyses do not include the full welfare and benefit changes but focus on tax changes, which is one reason why it is hard to model them. It is important to be aware, however, that spending on public services was significantly increased in the spending round last summer. On the tax side, something like 29% of income tax is paid by the top 1% of earners.
On the question raised by the hon. Member for Glasgow Central about the status of women and equalities, which is an issue extremely near the hearts of Government Ministers—[Interruption.] I am delighted to hear the Exchequer Secretary behind me, fresh from her triumph in the urgent question, echo that. I am sure that hon. Members on both sides of the Committee know that 15.8 million women are in work at the moment, which is a record high that I am delighted about. The wages of the lowest earners have risen by 11% more than inflation over the four years from 2015 to 2019. The poorest 60% of households receive more in public spending than they pay in tax, and the lowest income decile will get more than £4 in benefits and public services for every £1 they pay in tax. It is important to see that those norms of equity and fairness that the Opposition rightly highlight are reflected in policy and shared by Government.
Bridget Phillipson
When Ministers are considering these issues in response to the pandemic, may I ask that they look at evidence as it emerges? While the Opposition welcome and have supported the creation of, for example, the furlough scheme, our concern is that we know women are more likely to be furloughed than men and women risk losing their jobs in bigger numbers during the crisis. I welcome the Minister’s comments about understanding the impact on the economy and within different groups, but I urge him to consider this issue as a Treasury priority.
Jesse Norman
The hon. Lady is absolutely right that as we work through this crisis and, as we all hope, come out the other side, there will need to be a more detailed understanding of the implications in data terms, how it has affected different groups and its distributional impacts. We have well-established procedures within existing frameworks, as she will know.
The question was touched on more generally by the hon. Member for Ilford North in relation to corporation tax, but we have a whole procedure of making updates to Parliament and a procedure for forecasting that is now independent, thanks to the decision taken in 2010 to create the Office for Budget Responsibility. That includes a fiscal sustainability report on the overall benefit of measures, which goes to his question about corporation tax revenues. Needless to say, the Government’s support for the NHS is not contingent on the revenues from corporation tax; it goes much deeper than that.
The hon. Member for Glasgow Central raised many of these issues. She touched on a question in relation to the Scottish tax system. Of course, it is for the Scottish Government to review the effects of their decisions on income tax and the benefits for which they are responsible. At the same time, they can review their own progress on equality and inequality.
Turning to the hon. Member for Ilford North, I noted with support his inclusive approach towards business. That is very important. He asked about the impact of maintaining the tax rate at 19%. I have indicated that that is estimated to raise several tens of billions over the course of the spending round. What the effect of covid-19 will be on that we do not know, but, as I say, we have processes for evaluating and forecasting on that basis.
Amendment 6 would require the Government to conduct a review of current corporation tax rates, including the effect on tax revenue and the impact of the corporation tax rate structure on businesses of different sizes within six months of the Bill receiving Royal Assent. As I have mentioned, the OBR-certified Exchequer impact for this measure was published in table 2.1 of the Budget Red Book.
We recognise that the economic disruption created by the pandemic will have an effect on the tax revenue forecast at Budget. That will be monitored and changes will be made through the OBR principle and process to the forecast and reflected at the next Budget. HMRC also publishes corporation tax statistics annually, alongside a report that includes a breakdown of the amount and proportion of total corporation tax receipts paid by businesses at different levels of profitability. Therefore, the Government already publish the information called for in the amendment and the separate review legislated for in amendment 6 is, in our judgment, not necessary. I ask the Committee to reject amendment 6 and move separately that clauses 5 and 6 stand part of the Bill.
Alison Thewliss
Corporate taxation is not within the power of the Scottish Parliament. We have to live with the decisions that Westminster makes on this, but I am glad the Government have realised the error their ways in originally aiming to cut corporation tax. Given the money that would have been lost to the economy, that is wise.
The Minister mentioned the impact on women in work. Findings from various women’s organisations suggest that coronavirus will have an impact on women’s employment, and that employment will not recover unless there is significant investment in childcare to redress that as we come out of this crisis. If we were to take evidence from groups such as the Women’s Budget Group, we would have a lot more detailed evidence on the impact of the proposed measures on women. I encourage him to look at that evidence and engage with the Women’s Budget Group to consider how better we can have evidence brought from groups who have expertise in this area. Such groups have pointed out that women are more likely to be furloughed and more likely to lose their jobs. As the furlough scheme is wound up, they will face unemployment sooner than they would have anticipated as employers look at the scheme and say, “I can’t afford to pay these wages. I’m just going to sack my staff.” None of that necessarily relates to the amendment on corporation tax, but I want to make sure those points are on the record.
Jesse Norman
May I respond briefly, Ms McDonagh? The hon. Lady talks about the Government recognising the error of their ways, but there is a misunderstanding encoded in that view. The Government’s goal had always been to set out a direction of travel because forward guidance has economic value in guiding private investment decisions, but of course all tax rates are constantly kept under review by the Treasury. As has been recognised and discussed in Committee, many considerations go into the decisions on what rate to charge, so I do not think it is fair to describe it as she has done.
Wes Streeting
We may well return to this issue in later stages of the Bill, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 5 ordered to stand part of the Bill.
Clause 6 ordered to stand part of the Bill.
Clause 7
Determining the appropriate percentage for a car: tax year 2020-21 onwards
Question proposed, That the clause stand part of the Bill.
The Exchequer Secretary to the Treasury (Kemi Badenoch)
It is a pleasure to serve under your chairmanship, Ms McDonagh. Clauses 7 to 9 make changes to set company car tax—CCT—appropriate percentages that favour zero and ultra-low emission cars until April 2023. As confirmed at Budget, these rates will be extended until April 2025. The clause also confirms that that the CO2 emissions figure for the purposes of the CCT will be based on the worldwide harmonised light vehicle test procedure—WLTP—for all new cars first registered on or after 6 April 2020.
CCT is a benefit in kind for employer-provided cars that are available for private use. Although part of the income system, the appropriate percentages that determine the rate of tax paid by individuals are based on CO2 emissions. There are currently around 900,000 company car drivers in the UK, and the benefit raises approximately £2.3 billion per annum. In July 2019, the Government announced that, for CCT, new cars first registered on or after 6 April 2020 will report CO2 emissions using the WLTP, which is an improved emissions testing regime that aims to reduce the 40% gap that exists between current emissions reporting and real world driving. The Government announced that to smooth the transition to the WLTP, for cars first registered on or after 6 April 2020, CCT rates will be reduced by 2 percentage points in 2020-21 before returning to planned rates over the following two years.
To support decarbonisation, the Government also announced that all zero-emission company cars would attract a reduced CCT rate of 0% in 2020-21 and 1% in 2021-22, before returning to the planned 2% rate in 2022-23. To give certainty to company car drivers, leasing companies and manufacturers, the recent Budget announced the extension of 2022-23 rates for an additional two years until April 2025.
The changes made by clauses 7 to 9 will confirm that all new cars provided to employees and available for private use that are first registered on or after 6 April 2020 will be taxed according to the CO2 emissions figure measured under the WLTP. It is also clarified that cars first registered before 6 April 2020 will continue to be taxed on the basis of the CO2 emissions figure measured under the new European driving cycle—NEDC—procedure.
The clauses also introduce reductions in the appropriate percentages for 2020-21 and 2021-22 for zero-emission cars and all cars registered on or after 6 April 2020. In addition, they make a number of minor technical amendments—for example, by clarifying that where the electric range figure is converted from kilometres to miles, the value should be rounded up to the nearest whole mile.
I urge that the clauses stand part of the Bill. The changes they introduce will aid decarbonisation by confirming the introduction of the WLTP and beneficial CCT rates for ultra-low and zero-emission cars. They will also provide welcome certainty to company car drivers, leasing companies and manufacturers on the future taxation of company cars until April 2025.
Wes Streeting
As this is our first exchange across a chamber, may I say how much I look forward to working with the Exchequer Secretary—and occasionally giving her the runaround—during our time together in these roles?
Let me begin with an overall observation, which is that this Parliament has declared a climate emergency. The country understands the extent to which irreversible, catastrophic climate breakdown is an existential threat to life on Earth and means serious disruption to our way of life. Actually, given the disruption that the pandemic is inflicting on all of us at the moment, lots of people are reflecting on the serious longer term disruption were we to allow such a catastrophic climate breakdown to take place. But here we are with this Finance Bill, dealing with one of the few areas in which the Bill tries to make any progress at all towards tackling the climate emergency by talking about car tax percentages. This is entirely reasonable and entirely straightforward, but it falls way short of meeting the challenge facing our country.
When Greta Thunberg addressed parliamentarians here in our own Parliament, she said:
“Avoiding climate breakdown will require cathedral thinking. We must lay the foundation while we may not know exactly how to build the ceiling.”
I am pretty sure that when Greta Thunberg talked about foundational measures, she did not have car tax at the forefront of her mind. Yet here we are with a Bill that, as we have already heard from the hon. Member for Glasgow Central, falls way short of meeting the challenge.
It is disappointing because the Treasury has a crucial role to play in promoting efforts to tackle destructive climate change. This ought to be a national mission for our country. As one of the largest financial centres in the world economy, the UK has a clear responsibility to provide international leadership through the greening of our financial system. But we also know that the tentacles of the Treasury reach into every Department and can compel all sorts of behavioural change, can incentivise and disincentivise all sorts of policy change, right across the breadth of Government. I would like to see Her Majesty’s Treasury showing far stronger leadership in that regard.
It is also the case that through taxation, either tax incentives or disincentives, created through punitive tax measures, we can effect behavioural change across the country. I therefore hope that the scope and ambit and the ambition of future Finance Bills live up to the challenge.
If Ministers are not persuaded by the exhortations of Greta Thunberg, perhaps they will tune in to the interview given by His Royal Highness the Prince of Wales just this morning. As someone who has been committed for decades to tackling climate change and to supporting biodiversity and the natural environment, he too makes a compelling case. I hope Ministers will take that on board.
Alison Thewliss
There is indeed not terribly much to oppose here, but this is about the ambition of the Government to make a change, to make something different out of this Bill and to do something different. I draw the attention of Government Members to what Norway has done to increase the use of electric vehicles, so that 42% of its cars are now electric vehicles. The Norwegians did that with incentives such as no annual road tax for electric vehicles, company car tax reduction to 40% on electric vehicles, changes to purchase and import taxes, and an exemption from 25% VAT on purchase. They had an ambitious programme, and they needed the infrastructure, but they took those actions and they saw a dramatic change in the number of electric vehicles as a result.
I encourage the Government to look at what can be done. If cars are to be around for some time to come, how can we make them better? In many parts of Scotland, for example, people need a car to get around In large parts of rural Scotland it would be impossible to do anything other than have a car, but if we can make those cars electric vehicles, providing the plug-in infrastructure for them and the tax incentives to reduce their cost, we could make that change achievable. I ask the Government to be more ambitious.
Kemi Badenoch
I thank both hon. Members for the points that they have made and the good questions they asked. I reiterate that tackling climate change and improving the environment are top priorities of the Government. The UK is a world leader on climate change. The reason why we are doing this is to address several things at once.
Let us remind ourselves what the WLTP is. It is designed to ensure that we are reflecting real world driving conditions more accurately by including a longer test time. The aim is to reduce the 40% gap between lab tests and real world driving. We have put many other levers in place to address the broader issue of climate change.
I accept the point about complexity—I recognise the need to ensure that this does not have an overall impact on the consumer. One of the reasons why we are phasing it in this way is to better protect the automotive sector. I thank both Members for the points they made.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clauses 8 and 9 ordered to stand part of the Bill.
Clause 10
Apprenticeship bursaries paid to persons leaving local authority care
Question proposed, That the clause stand part of the Bill.
Jesse Norman
Clause 10 exempts care leavers’ apprenticeship bursary payments from income tax. This Bill contains areas on which there will be disagreements across the Committee, and areas that the Opposition Front-Bench team has noted that it wants to prioritise in scrutinising the Government, but there are other clauses that are essentially technical in nature on which I doubt there is any serious disagreement about their importance or intent. This, I suggest, is one of those clauses.
Young people who are in care or have left care who choose to start an apprenticeship receive a £1,000 bursary to help them to make the transition to the workplace for their practical studies. The extra financial support is for those aged 16 to 24 and living in England. Payments such as the care leavers’ apprenticeship bursary would normally be subject to income tax, as such payments relate to employment. Changes made by clause 10 mean that bursary payments made to care leavers who start an apprenticeship are exempt from income tax.
The changes affirm the Government’s commitment to support care leavers and ensure that those in receipt of the bursary can benefit by the full amount. The clause ensures that care leavers starting an apprenticeship will benefit from 100% of the bursary value. It is the right thing to do and I commend the clause to the Committee.
Wes Streeting
The Financial Secretary is right that he will not get much by way of argument from us. The bursary is obviously a laudable policy designed to support people in our society who lived in care as children and who far too often face serious disadvantages in terms of educational outcomes, employment opportunities and life chances.
It is a source of deep regret to me, as the son of a parent who spent time in care—care leavers are a big part of my family—that we have not done more as a country to narrow the attainment and opportunity gap for care leavers. Of course it is right that individuals who are in or have left local authority care who subsequently join an apprenticeship scheme should not be subject to income tax and national insurance contributions. We will certainly not oppose a clause designed to give effect to that.
I have some questions for the Financial Secretary about how the Bill deals with that, as much out of curiosity as anything else. There is an existing exemption in section 776 of the Income Tax (Trading and Other Income) Act 2005 for income from scholarships, which includes bursaries held by an individual in full-time education. Section 776 could have been amended to include the bursary payment, instead of introducing a new section to the Income Tax (Earnings and Pensions) Act 2003. I would be grateful if he could clarify why the Government have chosen to enact the provision by amending legislation in that way, rather than using section 776 of the 2005 Act.
I understand that it is the Government’s view that the bursary is employment income rather than other income, but other bursaries are classed as other income, and care leavers could be entitled to bursaries outside an apprenticeship. I would be grateful if the Minister explained why the Government consider this bursary to be employment income. If it is employment income, legislation will be required to exempt the payment from national insurance contributions; if it is not, additional legislation might not be needed. Some understanding of that, for our interest and the interest of all those who follow proceedings such as these closely, would be welcome.
Alison Thewliss
Again, I am not looking to oppose the clause. The aim is laudable, but I want to highlight a couple of things about apprenticeships. Coronavirus could significantly affect the number of apprenticeships that will be available to young people this year and perhaps even into next year as well. What do the Government intend to do to make sure that those opportunities are not lost to a generation of young people who are leaving school as well as leaving care?
As you will appreciate, Ms McDonagh, if those young people do not have the opportunities that they should, the impact on them will be devastating—as it will be on society as a whole if their skills and talents do not go into the workplace. I implore Ministers to look carefully at that, to make sure that they do not miss those young people, and that those concerns are high on their agenda. Apprenticeships can be transformational for young people. They can give them new opportunities and a chance to do something that they would never have anticipated through their family background or their ambitions growing up. It is vital to protect them in the months ahead.
I would also highlight the fact that the minimum wage rate for apprenticeships remains staggeringly low. The Government should look carefully at apprentices more generally. The bursary in the clause is fine and laudable, but apprenticeships for all young people need to be properly remunerated. Some of those young people will have families themselves and will be unable to take up those opportunities if they cannot afford to put food on the table because the apprenticeship rate is so low.
Not all young people live with their families, as the bursary recognises; but all young people who want them should have access to apprenticeships. I urge the Government to reconsider minimum wage rates more generally. There should be a living wage for everyone, but apprenticeship rates in particular are incredibly low in this country and they need to be addressed urgently so that all young people who want to can take up those places.
The Government could also look at the work done in the care review in Scotland. We appreciate that not all the things that could have been done to help young people have been done. The care review took an in-depth look at that. I urge the Minister to look at that and at what more can be done to support young carers in society.
Jesse Norman
Those were two useful, helpful contributions from the Opposition. The broad answer to the technical question raised by the hon. Member for Ilford North is that this is a cleaner and more direct way of addressing the problem; but I should be delighted to write to him and set out the reasoning in more detail.
The hon. Gentleman raised the question of other exemptions. As he will be aware, we are absolutely amenable to considering these things on a case-by-case basis, and if there are others that he thinks deserve further consideration, he is again welcome to write to me and we will give that a review.
The hon. Member for Glasgow Central raised a point about apprenticeship opportunities more widely, and she is absolutely right. The Government have already been leaning into the issue of apprenticeships, as she will know, through the levy. There is much more work to be done in this area, and it is well understood, certainly from the Prime Minister down, that the response to the coronavirus may well cause the Government to want to look at the whole area in more detail.
I cannot pass from this topic without drawing the hon. Lady’s attention to a personal interest that I have, which is the New Model Institute for Technology and Engineering, in Hereford. That is the new university we are setting up precisely to integrate the academic and the vocational in a way that gives scope for very high value-added learning, using apprenticeships but also actual project work, in a way that is integrated into the engineering curriculum in many ways.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clause 11
Tax treatment of certain Scottish social security benefits
Question proposed, That the clause stand part of the Bill.
Jesse Norman
I had hoped that we might be able to debate clauses 11 and 12 together, because in some respects they sit better together, but let me pick up clause 11 in its own right and we can then take clause 12 separately. The clause confirms that three new specifically Scottish social security benefits are not subject to income tax. The income tax treatment of social security benefits is legislated for in part 10 of the Income Tax (Earnings and Pensions) Act 2003. That Act provides certainty on existing benefits and needs to be updated when new benefits are introduced.
The Scottish Government are introducing three new benefit payments: the job start payment, disability assistance for children and young people, and the Scottish child payment. The tax treatment of those benefits is governed by the fiscal framework agreement between the Scottish Government and the UK Government, which sets out that any new benefits introduced by the Scottish Government will not be deemed to be income for tax purposes unless they top up or replace benefits deemed to be taxable already. The UK Government currently choose to clarify the treatment agreed in the fiscal framework through Finance Bill legislation, which is why we have the clause before us today.
The changes made by the clause ensure that these three new benefits are not liable to income tax, in line with the fiscal framework agreement between the UK Government and the Scottish Government. The clause is straightforward, clarifying and confirming the tax treatment of several welfare payments and introducing a new power to ensure that a simpler process may be used to effect future changes as may be needed. I commend the clause to the Committee.
Bridget Phillipson
The Minister made reference to the discussions we will have on clause 12, but the Opposition do not object to the principle behind this clause, which appears straightforward and to achieve its aim.
Alison Thewliss
I am happy to support the clause and the actions of the Scottish Government in bringing in these new social security measures, which will be of great benefit to the people of Scotland. My only regret is that we have to come asking the UK Government to put these measures into force—we would rather take care of all these things ourselves.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Power to exempt social security benefits from income tax
Alison Thewliss
I beg to move amendment 8, in clause 12, page 7, line 2, leave out ‘may’ and insert ‘must’.
This amendment seeks to exempt all social security benefits from income tax.
The Chair
With this it will be convenient to discuss amendment 9, in clause 12, page 7, line 4, leave out from ‘benefits’ to end of line 5.
This amendment seeks to exempt all social security benefits from income tax.
Alison Thewliss
I am happy to move the amendment and speak to amendment 9, which The Scottish National party tabled just as a query. When we were looking at the Scottish social security system and the opportunity not to have income tax levied on social security benefits, it got us thinking about what the logic is of taxation on social security, because it is the Government giving with one hand and clawing back with another, resulting in an incredibly complex system where some benefits—indeed, some parts of benefits, some types of benefits and some subsets of benefits—end up liable for income tax whereas others are not. We end up with a cumbersome system that is difficult to navigate.
Our thought process in looking at the benefits was to ask why it should be that bereavement allowance, carer’s allowance, contributory and youth ESA, income-based ESA, some but not all incapacity benefit, industrial death benefit pensions, state pension, widowed mother’s allowance, widowed parent’s allowance and the widow’s pension are all taxable, whereas others such as personal independence payment, war widow’s pension and universal credit are not.
The young carer grant is not, but carer’s allowance is. There are a huge number of inconsistencies in the social security and income tax system, and our amendment seeks to ask: why should that be? Should we not look for a much simpler system, which would give people the money in their own hands without having to negotiate backwards and forwards with the Government? That would save the Government a job in clawing back that taxation and allow people to get on with their lives, rather than having to worry about what the taxman will take from their benefits. The SNP thought it was worthwhile exploring this issue with the Committee.
Bridget Phillipson
As with clause 11, the Opposition have no objection to what the Government seek to achieve in this clause. On the substance of the amendments put forward by the hon. Member for Glasgow Central, there are a few issues that I hope she will be able to clarify. She will be aware that the general principle is that a benefit is taxable if it is an earnings replacement benefit. As the Treasury’s tax benefit reference manual notes, the reason behind that is to avoid creating an incentive whereby an individual receiving social security benefits is better off than someone on a comparable income whose earnings are liable to tax. What consideration has she given to that potential outcome of her amendments?
My second observation is about the cost of the measure. I am grateful to the House of Commons Library, which has sought to estimate the cost. The cost of exempting all taxable social security benefits from income tax would be around £5.9 billion in 2020-21. Of that amount, 95%, or £5.6 billion, is attributable to the state pension. The Library’s analysis identifies that those in the top decile of income distribution would benefit the most, while those in the lowest would gain the least. I know that the hon. Lady cares very much about those issues, and I would be grateful if she addressed that point, because it strikes me that such an approach would usually be regressive, and I would like to understand a bit more about the assessment of the distributional impact of such a policy.
Alison Thewliss
I thank the hon. Lady for her comments, which she is quite right to make—the Library analysis is really important. I am moving the amendments to point out just how complex the system is that there is of course a cost to having and administrating such a system. People have difficulty navigating that system, because it makes it more difficult to claim what they are entitled to, particularly if they are moving from one benefit to another. Although I appreciate the points that she has made and understand why she made them, these are probing amendments to see what the point is and what the Government are doing to make an ongoing assessment of the logic of that complexity, for which there is a cost and a difficulty. Although I in no way deny the cost—I know the amendments have no prospect of being passed by the Committee—I would like the Government to consider carefully the impact of that complexity on individuals, and whether they can simplify the system, which is ludicrously complicated.
Jesse Norman
I thank colleagues for their contributions. As they have recognised, the amendments are very technical in nature. I will keep my remarks brief because, if we can, I would like to discuss clause 13 before we break, which will leave us a clear run at the afternoon. Clause 12 introduces a power that commits the Government to clarifying tax exempt status for future new social security benefits introduced by the UK Government or devolved Administrations using a statutory instrument. That power has a more general applicability and creates an additional flexibility that will be of value to Government in making changes to address needs more rapidly than at the moment.
The hon. Member for Glasgow Central tabled her amendments in an interrogatory—or probing—spirit, for which I thank her. My response has been very well articulated by the hon. Member for Houghton and Sunderland South. Scottish benefits are treated in line with the fiscal framework and, under that framework, which exists between the UK Government and the Scottish Government, only new benefits that top up or replace an existing taxable benefit will be liable to tax. That is an established principle of taxation exactly to avoid the perverse incentives that might otherwise be created.
In addition to the questions raised by the shadow Minister about cost and equity, it is worth mentioning that the effect of entertaining the amendments would be to undermine the fiscal framework agreement and that longstanding principle of taxation. I ask the hon. Member for Glasgow Central, in a rhetorical spirit, whether she really means to overturn the fiscal framework that was hammered out over a number of years between those two sides. If she does, is it her intention to throw out other settled agreements between the Scottish Government and the UK Government within that framework? I suggest that that is not her intent and, because the meaning and purpose of the clause is clear, I commend it to the Committee and invite her to withdraw the amendment.
Alison Thewliss
I am indeed content to withdraw the amendment, but the point stands that there is an inconsistency within the system, in which a war widow’s pension is not taxable but a widow’s pension is. There are huge inconsistencies about which I have questions. The Minister is being mischievous when he suggests that I would want to undermine the fiscal framework, but he knows fine well that I long for the day when the fiscal framework is not necessary because Scotland is an independent country that makes for ourselves the full range of decisions about what is best for our people. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 12 ordered to stand part of the Bill.
The Chair
We now have four minutes to go. Does the Committee wish to move on to clause 13?
Jeff Smith (Manchester, Withington) (Lab)
Let’s take a break.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Finance Bill (Second sitting)
Thursday 4th June 2020
(4 years, 7 months ago)
Public Bill CommitteesRead Full debate Finance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 4 June 2020 - (4 Jun 2020)
The Chair
Good afternoon, colleagues. Consideration of the Finance Bill recommences. I remind everyone that Hansard reporters would be grateful if hon. Members could email electronic copies of their speaking notes to hansardnotes@parliament.uk. If everyone could remember to do that, that would greatly assist those recording the proceedings. We now return to line-by-line consideration of the Bill.
Clause 13
Voluntary office-holders: payments in respect of expenses
Question proposed, That the clause stand part of the Bill.
The Financial Secretary to the Treasury (Jesse Norman)
What a delight it is to see you in the Chair, Mr Rosindell. As I touched on earlier, this is one of those clauses that I do not think elicits any spirit of contention on the different sides of the room.
Clause 13 creates a statutory income tax exemption for payments and reimbursements of reasonable private expenses incurred by voluntary office holders in carrying out the duties of their offices. Individuals undertaking voluntary work for an organisation such as a charity or local benevolent society are not generally classed as office holders or employees, so the payment or reimbursement of any reasonable expenses incurred by those individuals when doing the work of that organisation is not liable for tax. However, in some circumstances, an individual who does unpaid work for an organisation may also be an office holder. That is because they are appointed to a role that exists regardless of who occupies the position at any one time. They are referred to as a “voluntary office holder” in tax legislation. People in that position include, for example, magistrates and special constables.
An office holder, including a voluntary office holder, is chargeable to tax on any earnings from their position and subject to the tax rules for expenses and deductions on the same basis as employees. Her Majesty’s Revenue and Customs’ long-standing practice is that no tax arises on private expenses paid or reimbursed to voluntary office holders so long as they receive no reward for carrying out the duties of their office and any payments or expenses do no more than meet the expenses incurred. That treats voluntary office holders in the same way as volunteers in relation to expenses paid or reimbursed by their organisation, but the treatment is at the moment only concessionary.
This measure therefore places the current concessionary treatment on a statutory tax footing. That ensures that reasonable out-of-pocket private expenses paid or reimbursed to voluntary office holders in relation to their duties of office remain tax-exempt. The exemption recognises the role of voluntary office holders and the services that they provide. It ensures that the tax treatment of their private expenses continues to be comparable to that of volunteers, and it provides certainty by placing that treatment on a statutory footing.
Those who hold voluntary offices often—in fact, almost invariably—give valuable service in our communities. It is right that we legislate to provide certainty for people in such roles and bring the tax treatment of their expenses in line with that for others who volunteer their time. This is a simple and sensible technical change, and I therefore urge that the clause stand part of the Bill.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
It is a pleasure to serve under your chairmanship this afternoon, Mr Rosindell, and I welcome you to the Chair.
Opposition Members have no issue with the intention behind clause 13. It is right that the tax treatment of those carrying out valuable work on a voluntary basis is put on a statutory footing so that it is the same for all voluntary office holders, across the board.
Of course, most individuals who do unpaid voluntary work for an organisation are not office holders or employees, and I would like to take this opportunity, at this time, to express my gratitude for the amazing work that volunteers are doing right across our country in responding to the crisis we are experiencing. The work they are doing includes running food banks. Amazing volunteers in my constituency are providing that kind of support to vulnerable people and, frankly, to too many families. I yearn for the day when they will be able to be redeployed in other areas of activity because the support provided by the Government—the state—is adequate for all families to put food on the table. Many other volunteers at this time have been delivering meals or supporting people with prescriptions. There is a whole range of help and support being provided, which just demonstrates how important a role volunteers play in our society. That is of course no substitute for the necessary action we expect from Government, which has sadly been too lacking in recent years, and after a decade of big changes. That has meant that volunteers have filled the gap that should be filled by the state itself.
As for the scope of the clause, the Chartered Institute of Taxation has identified some technical issues, and I hope the Minister will be able to respond to some points about them. The first is about the lack of a definition of a volunteer office holder in this legislation and the fact that that may lead to some confusion as to whether charitable or other unpaid trustees would be regarded as office holders for the purpose of this exemption. The Minister was right to point to office holders such as special constables and magistrates—and perhaps those who are office holders in community amateur sports associations—but I would be grateful if he could clarify the scope of the clause.
The second concern that the Chartered Institute of Taxation has identified is whether this legislation will achieve its intended purpose, given that the clause covers expenses incurred in carrying out the duties of the office, but not explicitly those expenses that enable such duties to be carried out—for example, childcare costs. I would be grateful if the Minister could clarify the position and put on record that such costs would be tax-exempt for voluntary office holders under the legislation.
Jesse Norman
I thank the hon. Lady for her questions. These are two technical issues that she is right to cover. The position of Revenue and Customs, and of the Government, is that there is adequate clarity about the scope of the clause. It passes into law only a considerable body of accumulated practice in dealing with expenses of the kind that we have described. As I have mentioned, commissioners have discretionary powers—those collection management powers—to manage these taxes and duties, and are able to exercise those powers in particular circumstances. So if there is a concern that, somehow, the scope of the clause is inadequately defined, there remains extra statutory power for the commissioners to exercise those collection management powers in so far as they wish.
The hon. Lady is also absolutely right to raise the secondary issue of what counts as an allowable expense. The answer is that a definition of reasonableness exists in general in people’s minds and in law—of course, it reflects the facts of a case and is context-dependent. The core idea is that the payment or reimbursement should do no more than meet the actual expenditure that has been incurred by volunteers.
To give an example, someone may be volunteering for a charity, perhaps as a treasurer, which is an office holder, and doing most of their work from home. If the charity offers them a small weekly payment to cover the additional cost of using their home, that is a reasonable expense. To take a different example, if someone is volunteering as a magistrate at their local magistrates court for one day a week and seeks reimbursement for their childcare costs for the week, even if the court agrees to that, the full week will not be considered a reasonable reimbursement for private expenses, because it does not relate to the actual expenditure that has been incurred.
I can clarify, to that extent, the point the hon. Lady made. I think that tracks relatively clearly our normal intuitions about working, as well as working practice elsewhere in the voluntary sector. With that said, I would like to move that the clause stand part of the Bill.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14
Loan charge not to apply to loans or quasi-loans made before 9 December 2010
Question proposed, That the clause stand part of the Bill.
Jesse Norman
This is the first of seven clauses— clauses 14 to 20—that bear on the loan charge. I do not need to tell any Member of the House of Commons that the loan charge has elicited a degree of controversy in some quarters. It might be helpful if I remind the Committee of the nature of the loan charge and what it actually is.
The clause amends the date from which disguised remuneration loans are subject to the loan charge specifically from 6 April 1999 to 9 December 2010. That has the effect of removing loans entered into before 9 December 2010 from the scope of the loan charge.
Disguised remuneration, as it is described, is a form of abusive tax avoidance, where individuals seek to avoid paying income tax and national insurance contributions by receiving payment through a loan that is itself never repaid—a remuneration practice that costs the Exchequer hundreds of millions of pounds a year. In many cases, the loans are paid over and above a smaller payment that goes through the pay-as-you-earn system, and the payment is made, perhaps on a monthly basis, in the form of an accumulation of a loan. The loan never, in my experience, has interest charged to it. The expectation is that it will never be repaid. It is typically administered through an offshore vehicle, which highlights how contrived this approach is to the avoidance of tax.
The loan charge was designed to combat that form of tax avoidance. It was introduced as a new measure in 2017. In September 2019, the Chancellor commissioned Sir Amyas Morse to conduct an independent review into whether the loan charge was an appropriate policy response to the use of such disguised remuneration schemes. Sir Amyas had full control over the review’s management and recommendations. He received evidence from a very wide range of individuals affected. He spoke to interest groups, Members of Parliament, tax specialists, legal experts and many other stakeholders.
Sir Amyas’s report, which is 76 pages in length, is a thorough and exacting review document, which painstakingly worked through the issues and recommended notable changes to the policy, including substantial carve-outs regarding who was affected. The Government accepted all but one of Sir Amyas’s recommendations, and more than 30,000 people will benefit from the changes. This clause, along with others in the Bill, make changes to bring about those recommendations in so far as they require statutory change. Work is under way by the Government to implement the recommendations that do not require legislation.
Sir Amyas’s careful and considered report examined the question of the date from which the loan charge should apply. He concluded that the law regarding the tax treatment of disguised remuneration loan schemes was clear from 9 December 2010, when draft legislation was published setting out that income provided through schemes using third parties, such as loan schemes, would be subject to income tax and national insurance.
Clause 14 amends the date from which disguised remuneration loans can be subject to the loan charge and removes those loans entered into before 9 December 2010 from the scope of the loan charge. The clause, along with clauses 15 to 20, legislates for several recommendations from the independent review on the loan charge. It takes about 11,000 people out of the loan charge entirely, and it reduces the tax charge of around 21,000 individuals. I therefore commend the clause to the Committee.
Wes Streeting (Ilford North) (Lab)
It is a pleasure to serve under your chairmanship, Mr Rosindell, not least as a parliamentary neighbour.
As the Financial Secretary has outlined, this is the first of a number of clauses related to one of the most politically contentious issues—certainly across the House—in the Bill. By way of introduction, it would be helpful if I set out the Labour party’s position on the loan charge overall and on how we intend to approach the clauses and amendments this afternoon.
It will come as no surprise to any Member of this House that the Labour party takes a dim view of tax avoidance. We believe that tax is the price we pay for a civilised society, that it is important that all of us—individuals, organisations and businesses—pay our fair share of tax, and that when people contrive to avoid their tax, they rob and short-change all of us of the revenues needed for the state to do the essential things it needs to do, whether that is keeping our country and our borders safe or providing the public services on which all of us rely.
Turning to the loan charge specifically, we have not opposed the Government’s changes, as we recognise their general approach to clamping down on tax avoidance schemes in this way. What I want to do with this clause and those we will discuss later this afternoon is to give an airing to many of the detailed and contentious issues that have been raised by Members of all parties right across the House.
The all-party loan charge group has more than 200 members, drawn from parties right across the Chamber. When we come to the later stages of the Bill on Floor of the House, Members will no doubt want to put forward amendments and push the Government to go further in some respects. It is therefore important in our proceedings here in Committee that we delve as deeply as possible into these issues, so that all Members can understand the Government’s thinking and the way in which policy evolved and then consider whether it would be appropriate to bring forward further changes and what those changes might be.
Let me turn now to clause 14. As we have heard from the Financial Secretary, these changes are made in response to Sir Amyas Morse’s independent review into the design and implementation of the loan charge. It was commissioned by the Government, but it is fair to say on behalf of Members across the House not only that the Government appreciate the work Sir Amyas Morse did—it is a thorough piece of work—but that we thank him too. He has done a great service to Parliament and to the wider public debate.
The Financial Secretary mentioned that the Government have accepted all but one of the recommendations from the review and, at some point this afternoon, he should elaborate further on the particular recommendation that the Government have chosen not to accept and implement and explain why.
Here, of course, we are looking specifically at the amendment to the date from which disguised remuneration loans are taxed under the loan charge from 6 April 1999 to 9 December 2010. The 2019 loan charge justified looking back to 1999 by saying that the Government and HMRC had always said that the schemes did not work, but Sir Amyas found that this was not the case before the 2011 legislation. Approximately 40% of the pre-2011 tax years in scope of the loan charge did not even have an investigation into them opened up by HMRC. Even if HMRC had made its position clearer, taxpayers are entitled to rely on the law as interpreted by the courts, and, clearly, legal proceedings have had a bearing on the Government’s considerations.
We will return to HMRC across the afternoon, but this is probably an appropriate time to say two things in relation to it. First, I place on record my thanks and the thanks of the official Opposition to all the staff and leadership at HMRC for the difficult work that they are doing overall at the moment on all our behalves, in the extraordinary circumstances we are all living through. Secondly, let us not forget that HMRC also has a slightly technical and complicated piece of work going on in the background, by which I mean the implementation of Brexit. In normal times, the demands placed on the Revenue are significant, but these are extraordinary times with unique challenges. I want to make that really clear up front, not least because I am about to criticise HMRC.
I must say, having served on the Treasury Committee in the previous Parliament and in the 2015 Parliament, that my discussions with HMRC in relation to the loan charge did not fill me with a great deal of confidence about the way in which it approached this issue over a great many years.
On the controversy generated around the issue of retrospection, where charges are being applied retrospectively, and why that is a really difficult principle and challenge for Members to accept, we in this House, whichever party we represent, do not like the idea of retrospective legislation. We do not like the idea that decisions—certainly levies or charges—apply retrospectively.
HMRC would have given the Government a much easier ride if it had done its job more thoroughly in terms of looking closely at individuals’ tax affairs over many years. One of the things that shocked me most, both as a constituency MP looking at my loan charge casework and as a member of the Treasury Committee, was that those individuals were filing their tax returns over many years. HMRC has said for a great many years that it has considered disguised remuneration schemes such as those covered by the loan charge, and specifically those covered by the loan charge, to be unlawful and contrived schemes, yet, in so many cases, no enforcement action was taken. People were happily sending in their tax return at the end of the tax year, not hearing anything further and assuming that that was good news: “If HMRC has looked at it and considered the tax return, then it must be fine.” Clearly, that is not the case.
I really hope that Ministers have properly dragged officials over the coals—not literally, of course, but metaphorically. In terms of the political controversy, the pain of a lot of victims—in a lot of cases there are victims of the loan charge, as well as people who sought to ruthlessly exploit it, not least the promoters, and there are a lot of people in our constituency casework who I would consider to be victims of the loan charge—would not have taken place if the tax inspectors had done their job more thoroughly and picked up on this activity earlier.
Constituents at my advice surgeries on Friday afternoons, many of whom have been in serious financial distress, have told a story familiar to Members across the House: “My circumstances were unusual. I am not a tax expert, but I took professional tax advice and made arrangements thinking that they were within the law.” The point is that, had HMRC picked up on some of these issues earlier, some of those constituents would have corrected their tax affairs much earlier, they would not have been in this position, and this debate on clause 14—on when the loan charge should take effect—would have been rather more redundant. None the less, we are in the position this afternoon where the date has been settled on as a result of the work not just of the courts, but of Sir Amyas himself in the report. We therefore support these clauses.
I would like the Minister, when he replies on this clause, to touch on a few issues. First, I would like him to say something about the discrepancy between the action being taken on taxpayers and on enablers of tax avoidance. That has been another significant controversy. It is not just the case that people have been scouring the internet in search of ways to minimise their tax liabilities. A number of promoters have been engaged in the promotion of aggressive tax avoidance schemes and have put their clients in an invidious position. I am sure I speak for people across the House in saying that we need tougher action against those promoters, who do a real disservice to the wider profession of financial service advisers. I do not believe, despite the reassurances we have been given by Ministers during successive rounds of parliamentary debate on this issue, or by HMRC in hearings of the Treasury Committee, that the action matches the rhetoric.
I would like the Minister to say more about what action is being taken against the promoters of these schemes.
As the Minister will be aware, the all-party parliamentary group is dissatisfied with the date set out in the Bill. Its report on Sir Amyas’s report picked up on some of the expert views that Sir Amyas drew on in setting out his conclusions. As set out on page 28 of the APPG’s “Report on the Morse Review into the Loan Charge” of March 2020, a number of experts were consulted during the review and asked the simple question of whether they agreed or disagreed with the statement that
“schemes entered into on or after 9th December 2010 would clearly generate an income tax consequence.”
Of the 14 or so experts listed on page 30 of the APPG report, a number did not comment, but—as the Minister and his officials will see when they review this, if they have not already done so—a number of those tax advisers disagreed with the statement.
The APPG cites that point in support of its view that the retrospective application of the loan charge is still going back too far. Given we are likely to return to this issue at later stages of the Bill, it would be helpful for all Members of the House—those who are APPG members and those who are not, but who may at some point be asked to express their view in a Division of the House—if the Minister responded to the point about how the date was arrived at, and whether there was a clear and consistent view or whether some of the arguments about retrospection are either highly relevant or redundant.
As the Minister explained in his introductory remarks, clause 14 enacts a recommendation of Sir Amyas’s report that rights a wrong. The Opposition will certainly not oppose the Government doing the right thing after a thorough review of the evidence and the judgments of the courts.
Alison Thewliss (Glasgow Central) (SNP)
It is a pleasure to see you in the Chair, Mr Rosindell. I agree with much of what has been said by the hon. Member for Ilford North. The SNP believe, fundamentally, that people should pay the tax that they owe, but it is clear from the evidence put to the all-party parliamentary group and in various reports that HMRC’s implementation has not involved appropriate communication with affected individuals. We believe that a review is in order to ensure that nobody is made homeless or bankrupt as a result of the loan charge.
I would also ask what consideration the Government have given to people’s ability to pay due to coronavirus, which may change people’s circumstances and their ability to repay. What consideration has HMRC given to those circumstances and how they might affect somebody’s ability to pay? It certainly will be beneficial to HMRC to get the money at some point, but if there is a strict time limit, within which people just cannot pay because they do not have the money and need to put food on the table, that needs to be taken into consideration.
It is something of a scandal that tax professionals advised clients to use these loopholes. There needs to be a further review into the advice given by those professionals and some comeback on the promoters of the schemes, who have clearly encouraged people to take them up. Individuals may have gone into them with their eyes open or their eyes closed, but the promoters of the schemes almost certainly knew what they were doing, what they were advising and what their intention was. We should go after those people aggressively, to ensure that they are not only held accountable for what they have done in the past, but prevented and disincentivised from coming up with similar loophole schemes in future. The very nature of our complex tax system means that the people out there who can benefit from those loopholes will always seek to find them. If we can send a clear message that that is unacceptable and there are consequences for doing so, that is worth considering.
My hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) tabled early-day motion 296 welcoming the publication of Sir Amyas Morse’s loan charge review, the UK Government’s amendments to the relevant legislation through the Finance Bill such that loans made before 2010 will no longer be subject to the loan charge, and delaying the self-assessment deadline until 30 September 2020. The initial analysis suggests that more than 30,000 individuals will benefit from these and related measures, but we still believe that a pause in the policy is necessary before continuing to provide a report, assuring Members that HMRC is working constructively with those seeking a reasonable repayment plan—one that recoups the unpaid tax while avoiding the unacceptable risks of bankruptcy and homelessness. If HMRC is not in a position to deliver that, an independent arbitration mechanism should be used to achieve it.
Jesse Norman
I thank the hon. Members for Ilford North and for Glasgow Central for their speeches. The hon. Member for Ilford North started by setting out the principles of, as it were, a Labour approach to tax avoidance and evasion, and described how, in the Labour view of things, tax avoiders were in fact guilty of robbery, which I thought was a very big claim. Robbery is not a word I would ever use in this context, but there is a serious problem of avoidance and evasion, and—as I will come on to, and as the hon. Member for Glasgow Central mentioned—there is a serious problem with the promotion or enabling of tax avoidance and evasion schemes.
I thank the hon. Member for Ilford North for his comments in support of Revenue and Customs, with which I fully concur, as I am sure does everyone in this Committee and the more than 10 million people who now have their livelihoods or jobs supported by schemes that HMRC has put in place in a very short period. He also rightly praised Sir Amyas Morse, saying that the Labour party accepted the Morse review as a piece of work. He is absolutely right about that. Sir Amyas, on his retirement, elicited unimpeachable measures of approval and statements of support from across the House.
Where I think the hon. Gentleman is wrong is on the question of retrospection. He will be aware that the loan charge is a new charge and is therefore not retrospective legislation. The common understanding of retrospection is that it somehow changes the law as it was at the time when people operated, but the whole point is that, as Sir Amyas found, from at least 9 December 2009, the law was as indicated. One can dispute the period before that, and HMRC retains the ability in the case of certain years to pursue people for tax due before that period. But the review made clear—this is very important—that Sir Amyas Morse accepted the principle of the loan charge. The review made significant changes to the application of a principle that Sir Amyas accepted.
We are bound to return to these themes later on in our discussions, but it is worth touching on them now. The hon. Member for Ilford North raised the provision that the Government did not accept in the Morse review, which was the idea that arrears in tax should be written off after 10 years. The reasons that the Government did not accept that were twofold. The first was that it would have had the effect of treating people who had engaged in these disguised remuneration schemes and benefited from this approach more favourably than other people who might be in arrears in tax with the Revenue, which the Government felt was not appropriate.
The second reason was that the Revenue and Customs has highly effective time-to-pay arrangements, which have been further extended in the case of the loan charge, to allow people on lower incomes an additional seven years of time to pay as a minimum. Those arrangements are very flexibly and intelligently administered by the Revenue and Customs, and they are already being utilised by people in significant numbers before the coronavirus pandemic and undoubtedly as a result of it. There is no need for a statutory change, and such a change would have had the effect of treating scheme users more favourably than others.
The hon. Member for Ilford North raised the all-party parliamentary loan charge group and the Loan Charge Action Group, which has been very vigorous on social media and elsewhere. Colleagues’ input is always valuable, but we should take this one with a little pinch of salt, because it is the product of an enormous amount of concerted political lobbying of an extremely intense kind on Members who are members of that group. In that sense, it does not exercise what I would consider the kind of independent judgment that we would want an all-party parliamentary group to exercise.
The contrast is with the Morse review itself, which was an admirably independent-minded piece of work. It by no means took a Government line in any of its recommendations and showed itself all the more valuable for that. It was itself a comprehensive response to the concerns that had been raised. If people have concerns about, for example, the choice that Sir Amyas made to locate the point of cut-off for the application of the loan charge to 9 December 2009, they have merely to read the relevant chapter, which is an extremely thorough and careful reconstruction of the legal process and the enforcement process up to and after that date.
I am struck by the fact that many of the themes that came through in the Morse review were picked up by a rather important recent case which related to the loan charge—Zeeman and Murphy v. HMRC—in which the judge said:
“This is not a tax on fictitious income or benefits, but on genuine remuneration received for work done or services rendered, paid in the form of a loan. The recipients of the money have had the advantage of its use for some time…over many years.”
That is true. The judge went on to say that
“it was well within the generous margin of appreciation for Parliament to decide that it would tackle the matter in the way that it did, and impose a present tax liability in respect of money whose use, tax-free, had been enjoyed by the recipient over a number of years.”
I do not want to comment on that, because I do not think that proceedings in a law court should be commented on by Members of Parliament, but I draw it to the Committee’s attention.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Clause 15
Election for loan charge to be split over three tax years
Jesse Norman
I beg to move amendment 1, in clause 15, page 9, line 8, at end insert—
‘(11) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that sub-paragraph (7)(a) applies to a specified class of persons as if the reference to 1 October 2020 were to such later date as is specified.
(12) In sub-paragraph (11) “specified” means specified in the regulations.’.
This amendment will allow HMRC to extend the deadline for making an election to split the loan charge over three years for particular classes of person liable to the loan charge by virtue of Schedule 11 to the Finance (No.2) Act 2017.
Jesse Norman
The clause allows taxpayers to make an election to spread their outstanding disguised remuneration loan balance evenly across three tax years. The effect is to give to taxpayers greater flexibility on when the outstanding loan balance is subject to tax. In some circumstances, that will mean that the loan balance is subject to lower rates of tax than if taxed only in the 2018-19 tax year.
As I described, the Government accepted all but one of Sir Amyas Morse’s recommendations, which included that taxpayers should be able to choose not to stack their outstanding loan balances into a single year. In deciding to allow individuals to elect to spread the loan charge over three years, the Government balanced the aim of reducing the number of people affected by higher marginal rates of tax against the administrative burden on individuals, employers and HMRC.
The Government wanted to ensure that people have a choice about whether to make an election. Some taxpayers may prefer to settle their loan charge liability in one year, providing certainty for them going forward. For many individuals, however, the option to spread the loan charge balance over a three-year period will allow for the amounts to be repaid over a longer time than otherwise required, and potentially with a tax advantage, had they paid the loans in the years received
Part 1 of schedule 1 provides consequential amendments to schedules 11 and 12 to the Finance (No. 2) Act 2017 to give effect to clause 14 of the Bill. The changes amend further references to the date of 6 April 1999 to remove references to approved fixed-term loans, which related only to loans made before 9 December 2010 and so are no longer affected by the loan charge—they have essentially been taken out of scope. Those consequential amendments are necessary to give effect to the legislative changes introduced following the recommendations by the independent review into the loan charge.
Part 2 of schedule 1 makes the consequential amendments to the Income Tax (Earnings and Pensions) Act 2003 necessary to give effect to clause 15 of the Bill, which allows an individual to make an election to spread their loan charge balance over three consecutive years: specifically, the years 2018-19, 2019-20 and 2020-21. Furthermore, part 2 sets out consequential amendments to the Social Security (Contributions) Regulations 2001— S.I. 2001, No. 1004—to ensure that the liability to national insurance contributions can also be spread over three years. Part 2 also introduces amendments to ITEPA to ensure that where a person dies before 5 April 2019, the schedule 11 loan charge will not apply.
Government amendments 1 and 2 to clause 15, and Government amendment 3 to clause 17, seek to achieve the same aim of giving Her Majesty’s Revenue and Customs the flexibility to defer the dates set out in those clauses. Clause 15 deals with the date by which an election must be made by an individual subject to the loan charge where that person wishes to split their tax liability over three years. Clause 17 deals with the date by which an individual subject to the loan charge must submit a complete and accurate 2018-19 self-assessment tax return and pay the balance of their 2018-19 tax liabilities if they are to avoid paying interest.
Recognising the impact of the coronavirus pandemic on the potential ability of some loan charge taxpayers to finalise their affairs in time to meet those dates, as raised by the hon. Member for Glasgow Central, the Government think it prudent to enable HMRC to defer those dates for particular classes of loan charge taxpayers, should that prove necessary. Accordingly, the amendments will enable HMRC by laying regulations to defer the dates for a specific class of loan charge taxpayers. For many individuals, clause 15 will reduce the amount they need to pay. It will also reduce the administrative burden on individuals, employers and HM Revenue and Customs.
Wes Streeting
As the Financial Secretary has outlined, these relatively straightforward Government amendments allow for flexibility in making the election to spread the loan charge possible. I have some questions for the Minister about that, but I also want to raise several issues about his earlier remarks, which are relevant to this clause and the Government’s amendments, as well as some of the other issues that we will consider this afternoon.
First, in relation to the all-party parliamentary loan charge group, of course we are aware that the secretariat is the Loan Charge Action Group and that it contains lots of people who are subject to action by HMRC and have a direct personal interest in changing the law and affecting the course of Government policy. The Minister has done a real disservice to Members on both sides of the House, however, by suggesting that the all-party parliamentary group is not independent and does not exercise independent judgment.
It is common practice in this place for external organisations to provide the secretariat for all-party parliamentary groups, but if it were the case that any of those secretariats, whose work is funded to support the work of parliamentarians, were in any way directing the work of Parliament or of Members, that would be an issue for the Committee on Standards. No Member should be exercising their voice or their vote because of outside financial pressure or well-funded lobby groups. We are always expected to exercise our independent judgment.
The co-chairs of the all-party parliamentary group are the right hon. Member for Kingston and Surbiton (Sir Edward Davey), with whom the Minister previously served in Government, albeit he was a yellow Tory, rather than a blue one; my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury), who I would never suggest was anything other than independent, otherwise I would feel the physical force of her independence around the back of my ear; and the right hon. Member for Hemel Hempstead (Sir Mike Penning), who is widely respected on the Conservative Benches and was respected across the House as a Minister. The group also has widespread support from more than 200 MPs on both sides of the House, including the former leader of the Conservative party, the right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith). It is important to distinguish between that and the lobby group, which is perfectly entitled to its views, and is not always wrong, by the way.
That brings me to my second point. The Minister would have more of a leg to stand on in robustly criticising the all-party parliamentary group or the Loan Charge Action Group if they had not found the Government banged to rights. I did not labour the point during our previous exchange, but it is embarrassing for the Government and HMRC to have been landed with a report such as the report by Sir Amyas. We were told several times by Ministers at the Dispatch Box, and by HMRC in Select Committee hearings, that, “There is nothing to see here. There is no problem. HMRC is exercising its functions and discharging its responsibilities appropriately.” Yet, through Sir Amyas’s report, we have found that that was not the case.
We are now having to legislate for changes, and the Government are making changes that do not require changes to primary legislation, because the Government and HMRC were found not to have their affairs properly in order in relation to the application of the loan charge and the way the policy has panned out. The Government ought to be a bit more humble about some of those issues.
On the Government amendments, the Chartered Institute of Taxation thinks that the 30 September 2020 deadline for making an election to spread the loan charge should be amended. It considers that an extended deadline of 31 January 2021, which is the normal deadline for amending 2019 self-assessment tax returns, should apply. We are all aware of the impact of the current covid-19 pandemic, and the chartered institute recently pointed out that some taxpayers will require additional time in some cases because the records and documents that taxpayers need to access are not currently or readily available to them. With businesses in lockdown, it might not even be possible for them to access offices, particularly shared offices, even if they wish to do so. Will the Minister address that point, and might the Government consider a change along the lines requested by the chartered institute at a later stage? Also, why is it not possible to revoke an election to spread the loan charge or to be able to amend the election up until 30 September 2020 by submitting an amended return? Will the Minister address that point, too?
Jesse Norman
I thank the hon. Member for Ilford North for his remarks. To be clear, I am not suggesting for a second that the APPG’s members are in any sense dependent. Let me put that on the record. There is no impeachment or attempt of any such kind from me in relation to individual Members of Parliament. I was making a different point, which is that the APPG itself has come under an enormous body of concentrated and often extremely forceful pressure from people affected by the measure. There is therefore a contrast between their position and the position of Sir Amyas Morse, who is able to take a view that is independent in the sense that it is not aggressively constrained by one side or the other, but with the capacity to make a decision based on expert guidance and advice.
On whether the Government are always right, I would not suggest that for a second. We commissioned the review because the Government recognised that there was widespread public concern. Far from seeking to ignore that or brush it under the carpet, they retained a very high quality person and fully supported an independent process, thoroughly influenced and infused with both consultation and expert advice, to address the concerns. They were also suitably humble in accepting all but one of the recommendations, with the exception that I have indicated. It is absolutely not the case that it has been the view of the Government that any party to the dispute has a monopoly on correctness or rightness, and certainly the Government do not see themselves in those terms.
On the core thrust of the policy, Sir Amyas was clear. He accepted the principle of the policy and the validity of the loan charge as an approach to the concern about disguised remuneration, which takes enormous amounts of money out of the potential support of our public services. It is important to recognise that that was his position.
The hon. Member for Ilford North mentioned the Chartered Institute of Taxation and its call for an extended deadline. The deadline at the moment is the end of September and there is a period still to run before that. We understand the concern and of course we continue to reflect on the position, but that is the deadline and there is no overwhelming case at the moment for moving it. Therefore, it is important to give certainty to people who are in this position that that is the deadline for the submission of information and settlement of the loan charge. There can be no movement on that front, and it is important to be clear about what the status is at the moment. With that said, I commend the clause to the Committee.
Amendment 1 agreed to.
Amendment made: 2, in clause 15, page 10, line 14, at end insert—
‘(3F) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that sub-paragraph (3B)(a) applies to a specified class of persons as if the reference to 1 October 2020 were to such later date as is specified.
(3G) In sub-paragraph (3F) “specified” means specified in the regulations.’ —(Jesse Norman.)
This amendment will allow HMRC to extend the deadline for making an election to split the loan charge over three years for particular classes of person liable to the loan charge by virtue of Schedule 12 to the Finance (No.2) Act 2017.
Clause 15, as amended, ordered to stand part of the Bill.
Schedule 1 agreed to.
Clause 16
Loan charge reduced where underlying liability disclosed but unenforceable
Question proposed, That the clause stand part of the Bill.
Jesse Norman
The clause implements recommendations 3, 4 and 5 of Sir Amyas Morse’s independent review. It sets out that the loan charge will not apply to loans outstanding at 5 April 2019 and made in the tax year 2015-16 or earlier, whwwen the avoidance scheme was disclosed to HM Revenue and Customs, and HMRC had not taken action by 6 April 2019 to protect the year, for example, by opening an inquiry. The clause sets out how a reasonable disclosure is made, when a loan charge reduction applies and how that reduction is calculated. It also sets out what is meant by a qualifying tax year and a qualifying tax return.
Reasonable disclosure is defined as a disclosure made in either an income tax self-assessment return or a corporation tax self-assessment return, where a person is chargeable to tax on employment income, or an income tax self-assessment return where a person is chargeable to tax on trading income. The term “return” includes any accompanying accounts, statements or documents. Reasonable disclosure may be made in one or more returns of the same type relating to qualifying tax years either by an individual or, in the case of employment income, an employer. That builds on HMRC’s existing compliance approach.
A qualifying tax year is the tax year 2015-16 or earlier, or for corporation tax accounting periods commencing before 6 April 2016. Information must be included to identify the loan, the person the loan was made to, if not the taxpayer, the arrangements the loan was made under and other information to make it clear that the loan should be chargeable to income tax. In the case of employment income, this does not include the declaration that a loan was taxed as a benefit of a “cheap loan” where the benefit declared is the loan paid at a reduced interest rate, or indeed a zero interest rate.
The clause does not apply where there was no reasonable disclosure made for years 2015-16 and earlier, nor does it apply for 2016-17 onwards, regardless of whether a reasonable disclosure has been made or HMRC has taken steps to recover the tax. The clause thus ensures that the Government can implement three of Sir Amyas Morse’s recommendations from his independent review of the loan charge. I commend it to the Committee.
Wes Streeting
There is not much for me to add to what the Financial Secretary set out. Will he confirm that HMRC will be able to adopt a practical approach to interpreting what is a reasonable disclosure? For example, in some cases a taxpayer will not have had to file a self-assessment tax return for a tax year, but their employer or their business will have disclosed the loans and so on in a return of their own, in which case we consider that that would be an adequate disclosure by the taxpayer. Is that the Minister’s understanding? It was pointed out to us by the Chartered Institute of Taxation that
“amendments to paragraphs 1B…of Schedule 11 to F(No.2)A 2017 included in the Finance Bill legislation, as compared to the original draft legislation, appears to permit disclosures in tax returns other than the taxpayer’s to be taken into account.”
I would be grateful if the Minister confirmed whether that is indeed the case.
Jesse Norman
I thank the hon. Gentleman for his question. The principle is as laid out in the legislation and it should be recognised as wider than might originally have been contemplated, as concerns were raised during the consultation process on the draft legislation about the definition of reasonable disclosure, and the Government responded to those. The definition of reasonable disclosure in the legislation introduced in the Finance Bill has thus been widened to include disclosure in either an income tax self-assessment return or a corporation tax self-assessment return. The effect of that is to enable disclosure by either an individual or an employer to meet the definition of reasonable disclosure.
Disclosure can be made in more than one tax return of the same type and, as I have said, a tax return includes any accompanying accounts, statements or documents and has therefore been widely specified. How that is to apply in a specific context is, of course, a limitlessly varied matter, and limitless ingenuity will doubtless be deployed in showing that it can be applied to whatever the circumstances are, but that is the standard that the legislation lays down.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Clause 17
Relief from interest on tax payable by a person subject to the loan charge
Amendment made: 3, in clause 17, page 13, line 36, at end insert—
“(5) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that this section applies to a specified class of persons as if—
(a) the references in this section to the end of September 2020 were to such later time as is specified, and
(b) the reference in subsection (3)(b) to 1 October 2020 were to such later date as is specified.
(6) In subsection (5) “specified” means specified in the regulations.”—(Jesse Norman.)
This amendment will allow HMRC to extend, for particular classes of person subject to the loan charge, the period within which liability to income tax and capital gains tax for the tax year 2018-19 may be discharged without incurring interest on those liabilities.
Question proposed, That the clause, as amended, stand part of the Bill.
Jesse Norman
Clause 17 makes a technical amendment to remove the charge of late payment interest for customers and taxpayers who are liable to the loan charge for the period 1 February 2020 to 30 September 2020 on any self-assessment liability. The effect of that is that taxpayers will not be disadvantaged by the extension to the deadline given to them to submit their 2018-19 self-assessment return and to pay the tax due. Late payment interest will accrue from 1 February 2020, if this revised deadline of 30 September 2020 is not met.
The clause also provides that no late payment interest will be due on payments on account for 2019-20, where the payments are made by 31 January 2021 or are included in a payment arrangement by that date. Again, if the payment deadline of 31 January 2021 is not met or there is no payment arrangement in place by that date, the changes will not apply. Interest would then accrue from the statutory due dates for the relevant payments on account, which are 1 February 2020 and 1 August 2020.
While the clause will operate prospectively for the vast majority of affected payments, it will have limited but, I should emphasise, wholly positive retrospective application. There are cases where the Government are minded or have to act retrospectively, in part to do justice, and this is one of those. Any affected payments made before the date this Bill receives Royal Assent will be included, so that taxpayers who made their returns and payments before Royal Assent are no worse off than others who make their returns and payments later, but before the extended deadline.
Wes Streeting
As the Minister outlined, the measure is a technical one, so I do not have much to say about it, except to say as I did on clause 15 that I wonder whether he could outline, particularly for people who follow our proceedings closely, the reason for setting the deadline for filing the 2019 self-assessment return as 19 September 2021. The same issues that I raised previously may present themselves to taxpayers in the light of the lockdown measures that are currently in effect.
Jesse Norman
I must say that I am not quite sure I understand the question, but what has happened so far is that the loan charge deadline has been extended to 30 September this year. The clause allows relief from interest payable by those who are subject to the loan charge in that context; but if the hon. Gentleman would like to clarify his question I will try to answer it.
Wes Streeting
It is simply the case that some people who may need to access relevant documentation to provide to the tax authorities might struggle to do so in light of the lockdown measures that are in place. So, just as I raised in the previous discussion on clause 15, I am asking what flexibility can be made available. That is what I am getting at.
Jesse Norman
I understand. I think the hon. Gentleman said the date is 19 September 2021, and that is what threw me, because I do not think that that date applies to the issue that he has raised. As I have described, Revenue and Customs is, in the middle of the covid pandemic, exercising an extraordinarily careful sensitivity to personal circumstances. If there are personal circumstances that, because of the coronavirus, may have made it impossible to make a payment of the kind in question, I have no doubt that Revenue and Customs will take account of that in its consideration, before reaching a judgment.
Question put and agreed to.
Clause 17, as amended, accordingly ordered to stand part of the Bill.
Clause 18
Minor amendments relating to the loan charge
Question proposed, That the clause stand part of the Bill.
Jesse Norman
Again, this is a minor and technical measure that makes minor legislative adjustments to implement changes to the loan charge, including changing the date by which loan charge information must be provided to HMRC from 1 October 2019 to 1 October 2020.
When the loan charge was introduced in the Finance (No. 2) Act 2017 there was a legal requirement that those who had an outstanding disguised remuneration liability on 5 April 2019 would be required to submit information on their disguised remuneration loans before 1 October 2019 through an e-form. When the Government accepted Sir Amyas’s recommendation that there should be an option to spread the loan charge balance over three tax years, through an election, it was decided that the best way to do this was via an online form. The Government also used this opportunity to encourage those who had not already submitted information on their disguised remuneration loans to do so, by changing the statutory date from 1 October 2019 to 1 October 2020. I should say that clause 18 also corrects a minor drafting error in the original legislation.
Wes Streeting
It would take a wit beyond my imagination to find something interesting to say about this provision, so I shall resume my place.
Question put and agreed to.
Clause 18 accordingly ordered to stand part of the Bill.
Clause 19
Repaying sums paid to HMRC under agreements relating to certain loans etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 20 stand part.
New clause 7—Loan charge: report on effect of the scheme—
‘(1) The Chancellor of the Exchequer must commission a review, to be carried out by an independent panel, of the impact in parts of the United Kingdom and regions of England of the scheme established under sections 19 and 20 and lay the report of that review before the House of Commons within six months of the passing of this Act.
(2) A review under this section must consider the effects of the provisions on—
(a) business investment,
(b) employment,
(c) productivity, and
(d) company solvency.
(3) A review under this section must consider the fairness with which HMRC has implemented the policy, including whether HMRC has provided reasonable flexibility around repayment plans with the aim of avoiding business failures and individual bankruptcies.
In this section “parts of the United Kingdom” means—
(a) England,
(b) Scotland,
(c) Wales, and
(d) Northern Ireland;
and “regions of England” has the same meaning as that used by the Office for National Statistics.’
This new clause would require a review of the impact of the scheme to be established under Clauses 19 and 20.
Jesse Norman
It must be a tedious amendment indeed that has not excited the imagination or genius of the hon. Member for Ilford North, so I am grateful to him for clarifying that.
Clauses 19 to 20 implement recommendation 6 of Sir Amyas Morse’s independent review, ensuring that Her Majesty’s Revenue and Customs can refund the elements of settlements that were made since 2016, paid to settle unprotected years either before 9 December 2010 or between 9 December 2010 and the start of the 2016-17 tax year, where the taxpayer had made a reasonable disclosure of their scheme usage in their tax return.
Clause 19 requires HMRC to set up a scheme under which it may refund qualifying amounts of certain voluntary payments. Such refunds can be made only where the qualifying amount was paid under a settlement agreement made with HMRC on or after 16 March 2016 and before Budget day on the 11 March 2020. Additionally, the qualifying amount must have been paid in relation to a loan made before 9 December 2010 where HMRC did not have power to recover the amount due at the time the agreement was made, or it must have been paid in relation to a loan made after 9 December 2010 and before 6 April 2016 where a reasonable disclosure of the use of the loan scheme was made to HMRC at a time when HMRC had the power to recover the amount due, but did not take any action.
Clause 20 sets out the details that may be contained in the refund scheme. This may include who is eligible to apply for a refund, how an application should be made and the factors that will be taken into account by HMRC in calculating the refund due.
I now move to new clause 7, an SNP new clause, which would require the Chancellor of the Exchequer to commission an independent review of the impacts of the repayment scheme established under sections 19 and 20, and to lay the report of that review before the House of Commons within six months of the passing of this Act. Of course, it is very important that we should consider the impact of all tax policy on individuals and, in this case, of the repayment scheme on the approximately 2,000 taxpayers, including companies, the self-employed and employees, who may be entitled to claim a refund under the scheme.
Although that is the case, the Government do not think there is any cause to undertake an additional report. The Government have already accepted Sir Amyas Morse’s recommendation in his independent, thorough and expert report that the Government should report to Parliament on all aspects of our implementation of the loan charge changes before the end of 2020. This was recommendation 14 of the independent review into the loan charge. It was accepted by the Government at the time, and it already adequately fulfils the requirement put forward in new clause 7. For that reason, I commend clauses 19 and 20 to the Committee, but I ask that the Committee reject new clause 7 if it is put to a vote.
Alison Thewliss
I thank the Minister for his remarks. He recognises the importance of the schemes, but I think it is also important to recognise whether the effect of the policy is sound. We need to review and keep under review how this is actually working, and we need to understand the impact of the scheme.
This is why we have asked for a review to consider the effects of the provisions on business investment, employment, productivity and company solvency. We want to look at parts of the United Kingdom—Scotland, Wales, England and Northern Ireland—to see if there is any differential impact as well. It may be the case that some aspects impact on different sectors in different areas more so than others. I know that colleagues in the north-east of Scotland may want to highlight the impact on the oil and gas industry, whose employees have been in touch as part of their constituency business.
It is important to understand what the impact has been, and I think we are guilty, and the Government are certainly guilty—all Governments are guilty—of bringing things forward in the Finance Bill and making proposals, then not really following up and not really understanding the impact. That is often how we arrive at difficult situations such as the ones we are seeing today. I would certainly encourage the Government to consider this again. It is important that what they do is correct, and if it is not correct, it is important to understand that as it rolls out. On the refund scheme, I just want to ask how exactly it will work, when people can expect to obtain any refunds and, indeed, if there is any timescale in place for that.
Wes Streeting
I will come on to address new clause 7, proposed by the hon. Member for Glasgow Central, shortly because that opens up a broader range of issues worthy of review, such as the scrutiny of HMRC’s implementation of all this.
Clauses 19 and 20 legislate for the proposed disguised remuneration repayment scheme 2020—in broad terms—only. The clauses provide HMRC with considerable discretion as to how to operate the scheme. For example, while there is a right to a review of a repayment decision refusing repayment, that is only by way of representations to HMRC within two months of the decision. There is no independent review of the process. Given what I saw on the Treasury Committee of HMRC’s conduct on the loan charge, that is a serious oversight and mistake. People should have recourse to an independent process, and I am concerned that that is not the case as proposed.
Jesse Norman
I thank the hon. Gentleman for his thorough and wide-ranging remarks. He is right that it is a kind of principle of tax policy in a way, or the typical reaction of an individual, and one wishes that the general instinct shared by 98% or 99% of the tax-paying population that he articulated well —namely, that if it looks too good to be true, it almost certainly is too good to be true—was shared by the whole of the population. However, for different reasons, that is not the case. The hon. Gentleman is right to articulate the principle that if it looks too good to be true, it is, and I thank him for doing so. I also thank him and his colleagues for the nuanced interrogation they have given this policy, but not diverging from us on its core thrust.
I want to make it clear that I am not remotely downplaying, undervaluing or minimising the personal feelings of people, or the impact or hardship that they have experienced as a result of this situation. Clearly, there have been cases that have been felt across the House and raised by different MPs, and Revenue and Customs understands that as well. It has made it very clear that it will not force people to sell their main home; that it will not, except in the most unusual circumstances, put people into bankruptcy; and that it will exercise, by adhering to a series of principles, a judicious approach to people’s settlement processes. That includes a principle that no more than half of someone’s disposable income should go to settle a tax dispute, so that families have not only their non-disposable income but at least half of their disposable income to support themselves.
Those principles also include, as I have indicated, a set of basic time periods to make a settlement—of five years in the case of someone earning under £50,000 a year, and of seven years in the case of someone earning under £30,000 a year—and that is part of the practice of Revenue and Customs, and a well-embedded principle.
Furthermore, if people have concerns that they are being badly handled in this process—this also relates to the point that the hon. Gentleman made about an independent review—they can appeal to tax commissioners for, as it were, an investigation and review. Of course, they also have the ability to go to their MP, and Members are very effective in raising tax-related issues on behalf of their constituents.
Alison Thewliss
On the point about MPs intervening on constituents’ issues, I would challenge the question around disposable income. A constituent of mine had been asked to pay money back, and the definition that HMRC gave of his disposable income was incredibly tight compared with the definition of it that he had, which included his finding difficulty in giving his children money for school meals. That seemed to be treated as part of his disposable income. His children have to eat; that is not disposable income as such. I ask the Minister to be very careful about how that is described and how HMRC acts on those kinds of things, because it takes a very strict line on disposable income.
Jesse Norman
Of course, the approach taken needs to have foundational principles aligned to it, and those can be questioned in specific contexts and by the mechanisms that I have described.
The distributional impact of the way the loan charge disguised remuneration population breaks down has been put into the public domain and analysed by HM Revenue and Customs. For example, a relatively small number of people work in caring professions, contrary to the impression that colleagues may have been given. That is the context in which the final recommendation by Sir Amyas Morse, which is that these debts should be written off after 10 years, has been rejected by the Government. It is a recognition of Sir Amyas’s expertise and independence that 19 of his recommendations were accepted, and the Government have given a full account of the reason why they have rejected the 20th.
In line with Sir Amyas’s recommendations on voluntary restitution, HMRC will refund voluntary restitution already paid for years now out of scope of the loan charge, but will not refund settlements for the underlying tax liability where HMRC had protected its position. That is so that the treatment remains in line with the existing legal framework for HMRC to recover tax. Sir Amyas also recommended that for disguised remuneration loans taken out on or after 9 December 2010, HMRC should only refund voluntary restitution where the scheme user had reasonably disclosed their scheme use. We have discussed that already at some length.
Regarding some of the impact of the different pressures that may be on taxpayers, HMRC will not as a matter of course meet professional costs incurred by taxpayers in reaching their original settlement or claiming refunds, but it may meet professional costs where they have been incurred as a direct result of a mistake or an unreasonable delay in its own dealings with a taxpayer’s affairs. That was not the position when HMRC was applying legislation in place at the time.
Refunding fees to those who have used avoidance schemes would send the thoroughly troubling message that taxpayers who had not used those schemes might not do as well as those who had, which is not one that this House should be particularly encouraging. Of course, if a taxpayer feels they have grounds for making a complaint, the usual mechanisms are available for them to do so.
In his recommendation 14, Sir Amyas called for the Government to report to Parliament on all aspects of their implementation of the loan charge changes,
“before the end of 2020”.
We will do that. I am grateful to the hon. Lady for laying out her concerns in that regard in this debate, and I will ensure that the officials understand and reflect on them when they start to frame this report.
As per Sir Amyas’s recommendations, the report will draw on input from the HMRC customer experience committee. It is very important to realise that the committee includes not only the non-executive directors of Revenue and Customs, but highly experienced independent people in positions of authority and expertise who are specifically customer experience experts in the private sector. The effect of the committee is to support but also challenge the HMRC executive on customer experience-related issues, and to help the Department deliver on its strategic objectives. In other words, part of its point is to ensure that HMRC treats taxpayers with a proper degree of courtesy and service levels, but in no sense becomes oppressive to them.
Let me pick up another important point, which I meant to mention earlier but have not yet: the very strong approach that HMRC is taking on promoters and enablers of tax avoidance. Certainly since I have been Financial Secretary to the Treasury, we have significantly enhanced the already substantial work being done in that area. That includes work that builds collaboration across Government, including with bodies such as the Advertising Standards Authority or the Insolvency Service. It involves proactive communications to help taxpayers to steer clear of avoidance.
HMRC has launched a consultation on ways to combat the promotion and enabling of tax avoidance; colleagues from different parties are welcome to make contributions to that if they wish. The areas it is looking at include tackling promoters and their supply chains, looking at the economics of tax avoidance, disrupting business models and improving compliance and enforcement in other ways. I would like the Committee to understand that HMRC is in no sense minimising the importance of going after promoters and enablers where it can—subject to law, and with new powers if it should be so decided after the process of consultation.
Question put and agreed to.
Clause 19 accordingly ordered to stand part of the Bill.
Clause 20 ordered to stand part of the Bill.
The Chair
That comes later, at the end. We do not vote on that now.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Finance Bill (Third sitting)
Tuesday 9th June 2020
(4 years, 7 months ago)
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