Finance (No. 2) Bill
Tuesday 13th April 2021
(3 years, 7 months ago)
Commons ChamberRead Full debate Finance Act 2021 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
20:26 - The House divided: - Ayes: 268 / Noes: 358 - Question accordingly negatived.
20:36 - The House divided: - Ayes: 358 / Noes: 262 - Question accordingly agreed to.
Mr Deputy Speaker (Mr Nigel Evans)
I inform the House that Mr Speaker has selected the reasoned amendment in the name of the Leader of the Opposition, and I will call James Murray to move the reasoned amendment when he comes to speak immediately after the Minister. I now call the Minister, Jesse Norman.
The Financial Secretary to the Treasury (Jesse Norman)
I beg to move, That the Bill be now read a Second time.
As you will be aware, Mr Deputy Speaker, the scrutiny of Finance Bills has lain at the centre of our parliamentary process for many centuries, ever since its origins in the 13th century, and it is a rare honour for me to bring this Bill forward today.
At the beginning of last month, my right hon. Friend the Chancellor of the Exchequer outlined a Budget with three key objectives: first, to protect jobs and livelihoods and provide additional support to get the British people and British businesses through the pandemic; secondly, to be clear about the need to fix the public finances once we are on the way to recovery and to start that work; thirdly, as we emerge from the pandemic, to lay the groundwork for a robust and resilient future economy. This Finance Bill enacts changes to taxation that support all those objectives.
I will come to the Bill itself shortly, but before I do so I want to pay tribute again to the work of the Treasury and Her Majesty’s Revenue and Customs over the past year and more. I can testify from personal experience that officials have worked around the clock throughout that period to get the covid schemes up and running, to make sure that they are as effective as possible, to tweak and extend them where they can and, by those means, to support millions of people and hundreds of thousands of businesses up and down the United Kingdom in the face of the worst peacetime economic crisis in recorded history. I will not say that this was their finest hour; they will have had many of those, as these are institutions that are arguably nigh on 500 years old. None the less, this has certainly been a time to which future historians will look back when they seek examples of exemplary public service.
It has been a privilege to work alongside officials at both Her Majesty’s Treasury and Her Majesty’s Revenue and Customs, and to see the great machinery of government working so well. I will, if I may, add one other word of scene-setting about the wider approach that we have taken to tax. It is a measure of the approach taken by the Treasury and HMRC and of our own strategic approach as a Government that, alongside these pandemic measures, we have also accelerated work to create a more effective and resilient tax system. Our goal, in simple terms, is to enhance the stability and effectiveness of the UK tax system, using last year’s announcement of a new 10-year tax administration strategy as the springboard.
We want a tax system that enhances productivity, especially across the long tail of our small and medium-sized businesses. Digitisation of the tax system provides a useful nudge to these firms to upgrade their use of information technology and the skills that it demands. We want a tax system that is more flexible, so that it is better able to adapt quickly to changing circumstances and to provide targeted support for businesses and individuals when needed. We want a tax system that is more resilient—both resilient itself and better equipped to strengthen the core resilience of the UK economy in the face of a future crisis. That transformation of our tax system is already under way, but, as the House will know, we have also taken steps to improve the process of tax policy development, most recently with the tax policies and consultations day we held on 23 March. By giving this wide array of consultations more profile, we hope to make the tax policy process still more collaborative and transparent and improve the quality of tax policy making.
Let me turn to the Bill. The House is well aware of the massive public health and economic shock that this country has experienced. The damage done by coronavirus to our economy and our society has been severe. More than 700,000 people have lost their jobs since March last year. The economy has shrunk by 10%, the largest fall in more than 300 years, and this country’s borrowing is the highest it has ever been outside wartime.
The Government’s response has been comprehensive and sustained, with the total package of support to the economy this year and next now estimated at £407 billion. That response is already showing its value. Thanks to that and to the rapid roll-out of vaccination, the Office for Budget Responsibility and other independent authorities now expect a swifter recovery than previously anticipated, with faster growth, lower unemployment, more investment and higher household incomes. Indeed, the OBR expects the UK economy to recover to its pre-crisis levels six months earlier than it did—in the second rather than the fourth quarter of 2022. In the words of the Resolution Foundation, if realised, this projected rate of unemployment,
“would be by far the lowest unemployment peak in any recent recession, despite this being the deepest downturn for 300 years.”
At the heart of our covid response is precisely that support for jobs, delivered through Her Majesty’s Revenue and Customs as the tax authority, with more than 11 million jobs furloughed between the beginning of the pandemic in March last year and February of this year. As the OBR outlined last month, without the additional measures at Budget, which included the extension of the coronavirus job retention scheme, unemployment would have peaked two quarters earlier and at a higher level. Indeed, it estimates that there would have been an additional 300,000 unemployed people in the fourth quarter of this year without these latest interventions.
The tax measures outlined in the Bill go further now to protect jobs and support the economy. We are extending the 5% reduced VAT rate until 30 September in order to protect 150,000 hard-hit hospitality and tourism businesses, which employ almost 2.5 million people. To help those businesses manage the transition back to the standard rate, VAT will then increase to an interim rate of 12.5% from October until the end of March.
For similar reasons, the Bill puts into legislation the temporary cut in stamp duty land tax with a residential SDLT nil rate band remaining at £500,000 in England and Northern Ireland until the end of June. This, again, will be followed by a phased transition back to the normal rate. From 1 July 2021, it will fall to £250,000 until the end of September, before returning to £125,000 on 1 October.
For any business that took advantage of the original VAT deferral new payments scheme, the Bill ensures that they will be able to pay that deferred VAT in up to 11 equal payments from March 2021, rather than by one larger payment due by 31 March 2021. For those businesses that have been pushed into losses, the trading loss carry-back rule is being extended from the existing one year to three years for losses of up to £2 million, which will deliver a significant cash-flow benefit for businesses.
As well as protecting jobs and livelihoods, the Bill takes important steps to strengthen the public finances. The damage done by coronavirus and the urgent need to respond to the crisis have created huge challenges for the Exchequer. The OBR’s fiscal forecasts show that this year the UK is expected to borrow a record amount: £355 billion. That is 17% of our national income—the highest level of borrowing since world war two. Borrowing is forecast to be £234 billion next year, which is 10.3% of GDP—an amount so large that it has only one rival in recent history, which is the level of borrowing this year.
It is our responsibility as a Government to balance the extraordinary support we are providing to the economy now with the need to start to fix the public finances, and the Bill strikes that balance.
First, the income tax personal allowance rises with the consumer prices index as planned to £12,570 from this month and will then be maintained at this level until April 2026. The House will recall that the UK has the highest basic personal tax allowance of any G20 country. A typical basic rate taxpayer now pays over £1,200 less in tax than in 2010. The higher rate threshold also rises to £50,270 from this month and will then be maintained at this level until April 2026. These changes are fair and progressive. It is important to note that the 20% highest income households will contribute 15 times that of the 20% lowest income households. An average basic rate taxpayer will be less than a pound a week worse off in 2022-23.
Secondly, the inheritance tax thresholds, the pensions lifetime allowance and the annual exempt amount in capital gains tax will also be maintained at their 2020-21 levels until April 2026. Maintaining the pensions lifetime allowance at current levels affects only those with the largest pensions—those worth more than £1 million.
Thirdly, the Government are providing businesses with over £100 billion of support to get through this pandemic, so our judgment has been that it is only fair to ask them to contribute to this overall recovery. The Bill therefore legislates for the rate of corporation tax paid on company profits to increase to 25% from 2023. Since corporation tax is charged only on company profits, businesses that may be struggling will, by definition, be unaffected.
The Government are also protecting small businesses with profits of £50,000 or less by creating a small profits rate, maintained at the current rate of 19%. The effect of this is that 70% of companies, or 1.4 million businesses, will not see an increase in their tax rate. There is also a taper above £50,000 so that only businesses with profits of a quarter of a million pounds or greater will be taxed at the full 25% rate—and that is itself still the lowest corporation tax rate in the G7. The increase is two years away, well after the point when the OBR expects the economy to have recovered, but it is important to legislate for this now in order to give businesses clarity about our future plans.
The next goal of this Budget has been to lay the foundations of our future economy as we emerge from the pandemic. If that economy is to support the creation of new jobs, to spur growth and to drive productivity forward, we need to encourage business investment now, so this Bill contains a highly innovative new super deduction measure, which is expected to lift the net present value of the UK’s plant and machinery allowances from 30th among the countries of the OECD to first.
In most cases, this measure will allow companies to reduce their taxable profits by 130% of the cost of investment they make, equivalent to a tax cut of up to 25p for every pound they invest. The super deduction is expected to be worth £25 billion during the two years it is in place, which would make it the biggest business tax cut in modern British history. The OBR has said that, at its peak in the financial year 2022-23, the super deduction is expected to bring forward an additional 10% of business investment, with a value of £20 billion.
Alongside a programme of national recovery, we also want to stimulate regional recovery. That is why this Bill also enables the Government to designate tax sites for freeports in Great Britain. Once approved, eligible businesses will be able to benefit from a number of tax reliefs, including an enhanced 10% rate of structures and buildings allowance, an enhanced capital allowance of 100% for companies investing in plant and machinery, and full relief from stamp duty land tax on the purchase of land or property—and to help them to invest and grow, the Bill maintains the annual investment allowance at the higher level of £1 million until the end of this year.
The House will also recall that these measures are supplemented by the Budget’s new Help to Grow: Digital scheme, which will assist smaller businesses in developing their digital skills by giving them free expert training and a 50% discount on new productivity-enhancing software. This is all part of a package that the Institute of Directors has called
“a big win for SMEs.”
Sammy Wilson (East Antrim) (DUP)
It is significant that no freeport sites have been allocated in Northern Ireland. Will the Minister clarify whether all the measures that will be included in freeport status will be exempt from the state aid rules, which will still apply in Northern Ireland because of our association with the EU single market rules?
Jesse Norman
I am grateful to the right hon. Gentleman for his question. He will know that it is absolutely the Government’s intention to have a freeport in Northern Ireland, and that they are in discussion with officials and members of the Northern Ireland Executive to discuss precisely how it will work. I am not in a position to comment on how it will work, but certainly the expectation is that this should be a functioning, highly successful and effective freeport. It should enjoy a very attractive set of benefits that will benefit the companies involved and be comparable to the ones we will see elsewhere, although it is important to note that freeports are themselves a mixed bag. We have had a variety of different bids of different kinds to the competition that has been run.
All the measures we have taken in relation to business growth and investment are part of a package, which the Institute of Directors has called
“a big win for SMEs.”
I was also pleased to see that the Resolution Foundation said that the Budget
“rightly sought to boost the recovery before turning to fixing the public finances”.
That is an important point.
I have discussed the work we are doing to create a more flexible and resilient tax system, but the Finance Bill also includes important measures to make it fairer and more sustainable. As part of the United Kingdom’s commitment to be a global leader on tax transparency, the Bill allows for the implementation of OECD reporting rules for digital platforms. The rules will help taxpayers in the sharing and gig economies to get their tax right. It will also help HMRC to detect and to tackle non-compliance.
To build on the successful introduction of Making Tax Digital for VAT, the Bill will enable the extension of MTD requirements for smaller VAT businesses from April next year. It also makes widely welcomed reforms to the penalty regime for VAT and income tax self-assessment, so that it is fairer and more consistent as a system, and harmonises interest for VAT and income tax.
The Bill tackles promoters of tax avoidance through strengthening existing anti-avoidance regimes and tightening rules. Importantly, it introduces an exemption from income tax for financial support payments for potential victims of modern slavery and human trafficking, made by the UK Government and devolved Administrations.
Finally, let me turn briefly to how the Bill helps us to deliver the important commitments the Government have made on the environment and on carbon reduction. The new plastic packaging tax, first announced at Budget 2018, will encourage the use of recycled plastic instead of new plastic in packaging. For plastic packaging that contains less than 30% recycled plastic content, the rate of the tax will be £200 per tonne. This will transform the economics of sustainable packaging.
The last 12 months have delivered a grave shock to this country and its economy, but the Government have met that shock with a determined and sustained response. That work is not done. With this Finance Bill, we are continuing to support the lives and livelihoods of families and businesses up and down the land, while simultaneously setting the terms for an investment-led recovery. The Bill puts in place the foundations for a fairer and more sustainable tax system. It further enshrines commitments on the environment and the work we are doing to tackle climate change, and it begins the work to rebuild the public finances. For those reasons and more, I commend it to the House.
James Murray (Ealing North) (Lab/Co-op)
I beg to move,
That this House declines to give a Second Reading to the Finance (No. 2) Bill because it derives from a Budget that failed to guarantee a pay rise for NHS workers after their unparalleled service over the last year; because it undermines the country’s economic recovery, targeting household finances by freezing income tax allowances before increasing the rate of corporation tax; because it does nothing to mitigate the effect on family finances of the sharp council tax rise in April; because it contains measures connected with a cut to social security later in the year; and because it fails to set out the ambitious plan for jobs and growth that is needed to help the country emerge strongly from the worst economic crisis of any major economy.
May I start by extending my deepest sympathies to Her Majesty the Queen and the royal family at this sad time? His Royal Highness the Duke of Edinburgh devoted his life to public service and, crucially, to his role as a supportive husband. My thoughts are particularly with the Queen as she mourns the loss of someone who has been at her side, or just behind her, for 73 years.
As this is my first time physically in the Chamber for well over a year, I would also like to put on record my thanks to Mr Speaker, the Deputy Speakers and the Speaker’s Office for doing so much to help all Members, particularly those of us like me with relevant medical circumstances, to take part virtually throughout the pandemic. Now, having recently had my second jab and having spoken to my doctor, I am glad to be here in person to speak today to this important Bill.
Like millions of others in this country, I feel so grateful to be benefiting from the brilliance of our NHS and GP staff, scientists, lab technicians, nurses and volunteers, but we know that the health crisis of covid-19 is very far from over and that the harm to jobs and the economy resulting from the outbreak is even further from being over. On the Chancellor’s watch, our country is enduring the worst economic crisis of any major economy, yet in his and the Government’s plan we lack the ambitious, confident modern approach we need to emerge from this crisis stronger.
The Budget in March and this Finance Bill should have been an opportunity to pull out all the stops to get the economy going. The Chancellor should have focused resolutely on supporting families, securing jobs and backing small businesses. The Government should have used this opportunity to make sure we invest in solutions to the problems that we have struggled with as a country for so long, from social care to the climate emergency and the housing crisis.
There are many missed opportunities in this Bill and the recent Budget to take on some of the big challenges to which our country is begging for a solution. Take high streets, for example. We are all acutely aware of the severe difficulties that high streets are facing because of covid and how well online delivery-based businesses have done during lockdown. We know that for years, high street businesses have struggled with business rates, while tech giants have paid very little tax by comparison, and we know that the outbreak has made that imbalance far worse. Now should have been the time to at the very least level the tax playing field for high street businesses and online firms, yet there was nothing on that in this Budget, no decisions were taken on the Government’s new tax day, and the Finance Bill is silent on this crucially important issue. That is just one example of how the Government have missed opportunities to support and shape our country for the better.
Instead, so much of what the Government have done will make the problems we face worse. This Government have the wrong priorities and the wrong values, and their Ministers are following failed approaches from the past that now lack much, if any, of the wider support they may once have claimed for them.
Kevin Hollinrake (Thirsk and Malton) (Con)
I agree with the hon. Gentleman that we need to level the playing field between high street businesses and online businesses. That is a very tricky thing to do, particularly when talking about business rates. What is his solution to that?
James Murray
I am very glad to have the hon. Gentleman’s support for our push for a solution. As he knows, the Government have been promising for some time to come forward with proposals on business rates, but we have nothing. We had the new tax day, when we were supposed to hear lots of announcements—nothing. We want to see something to help high streets, and we have not had anything. We need the Government to step up and offer a solution to the problem, which has bedevilled high streets for so long.
James Murray
I will make a bit of progress.
High streets are just one example of how the Government have missed those opportunities. Ministers have shown that they simply do not have it within themselves to offer solutions to the challenge we face.
First and most immediately, the Government are taking money from people’s pockets. Families in all their many forms are the target of tax rises from this Government. People will suffer and our economy will stall if families see money taken from them when they need it most. It is unfair and economically illiterate, yet it is exactly what this Government are doing. Half the country will pay more next year, thanks to the provisions in this Bill to freeze income tax personal allowances.
At the same time, the Bill does nothing to stop the sharp council tax rise that the Government are forcing councils to implement right now. It supports the Chancellor’s plan to cut £20 a week from social security this autumn for some of those who need that help most. It tells us everything we need to know about the Government’s priorities: they raise taxes and cut help for families immediately and without a second thought, years before an increase in corporation tax. At the same time, they are letting some of the world’s biggest companies stop paying tax altogether.
If that was not bad enough, the Government are also choosing in this year of all years to take money from the pockets of NHS workers. We now know how hollow those claps on the doorsteps of No. 10 and No. 11 must have echoed around Downing Street. The Government are cutting NHS workers’ pay. Ministers are breaking their promises, and the Conservatives are showing how little they have learned from the awful experience of the last year.
If we add that NHS workers’ pay cut to the personal allowance freeze, the council tax hike and the cut to universal credit, the scale of the impact of the Government’s decisions becomes clear. To give an example, a newly qualified nurse living with their partner and two children in rented accommodation will lose more than £1,100 a year. Rather than supporting families out of this crisis, the Government are prioritising tax breaks for tech giants.
That tax break is being handed to big businesses through the so-called super deduction—the £25 billion tax break for companies that the Chancellor and the Minister say represents
“the biggest two-year business tax cut in modern British history”,
and that forms our second key concern about this Bill. As the chief executive of the Resolution Foundation has made clear, investment incentives have been abused for tax avoidance purposes in the past, yet the Government have failed to say or do anything to address widespread concerns that the super deduction is open to fraud and abuse. Economists from the Institute for Fiscal Studies have said that the super deduction will
“create a risk of tax avoidance and even potentially fraud as companies essentially try to find ways to dress things up as plant and machinery investment”,
yet the Chancellor has done nothing to counter suggestions from industry consultants that the deduction could be used for luxury items, including jacuzzis.
The Government have also failed to address environmental concerns. With the deduction giving firms an incentive to buy new rather than existing assets, the Exchequer Secretary to the Treasury was recently unable to guarantee that the super deduction would be used to support green development. The Chancellor himself has seemed confused about the overall impact of the deduction, recently claiming that, as well as bringing investment forward,
“it will also increase the amount of investment”.—[Official Report, 9 March 2021; Vol. 690, c. 641.]
That claim comes despite the Office for Budget Responsibility revealing a week earlier that cumulative business investment over the next five years will be £8 billion lower following the Chancellor’s announcement of his new scheme than had been projected before.
Particularly with a tax cut of this size, it is crucial that we understand who it is helping and what it will achieve. The truth is, as we know, that companies can already benefit from the annual investment allowance, a 100% tax break on investment up to £1 million, which the Bill extends to the end of this year. The Treasury Committee concluded in its report “Tax after coronavirus” that the annual investment allowance
“appears well targeted to promote growth in small and medium-sized enterprises.”
With the existing allowance apparently well targeted at the growth of small and medium-sized businesses, and with such businesses standing to benefit only marginally from the new super deduction, we are left with an inescapable conclusion: the main beneficiaries of the Chancellor’s new scheme will be the big firms that need help least. No wonder TaxWatch has nicknamed this the “Amazon tax cut”—a giveaway from the Chancellor that could wipe out Amazon UK’s tax bill entirely.
Christian Matheson (City of Chester) (Lab)
I am grateful to my hon. Friend for talking about what has been identified as an Amazon tax cut. Has he noticed—and I get the impression from his contribution that he has—that most of the firms that will benefit from this are foreign-owned large tech firms that are not British, and most of the firms that will not benefit are the smaller British firms that will feel the wrong end of the Government’s policies? Does he not find it rather ironic that the Conservatives, who wrap themselves in the flag, are actually being entirely un-British and damaging British interests? They claim to be patriotic, but they are doing exactly the opposite.
James Murray
My hon. Friend makes a very important point and exposes again the hypocrisy in the Government’s approach. The fact is that, rather than helping families get through the tough times ahead, this Government are delivering a tax break for tech giants.
We know that Amazon workers have provided vital deliveries to millions of people across the country during lockdown. They need their rights at work to be protected and strengthened, and we all want that company to pay its fair share of tax. I see no one calling for a tax break for Amazon, yet that is exactly what this Government are providing. The Government would do well to learn from the new Biden Administration’s approach. The US Secretary of State has said that, rather than compete on lowering tax rates for corporations, the United States will focus on its
“ability to produce talented workers, cutting-edge research and state-of-the-art infrastructure”.
The new President has also been leading a drive to put in place a global minimum corporate tax rate. A spokesperson for the Treasury here has indicated that the UK might back those plans. Taken along with the Chancellor’s decision to raise corporation tax to 25%, this seems to be an admission by the Government that the last decade of Conservative corporate tax policy making has been totally wrong-headed. If that is the case, we welcome the Government’s admission, and it is vital that the UK plays a leading role in developing and implementing the proposals that President Biden is backing. We have not yet heard from Ministers on this matter in Parliament, however, so I urge the Exchequer Secretary to use her closing speech today as an opportunity to confirm to the House that she and the Chancellor back plans for a global minimum corporate tax rate and that they will do all they can to make this a reality.
While the initiative on international tax is being led by those overseas, closer to home the offer from this Chancellor of such a large tax break to companies will, of course, make people wonder what processes will be in place to prevent Ministers from intervening improperly on behalf of commercial interests in how decisions are made. The Chancellor is still refusing to properly account for his role in the Greensill scandal. To ensure public confidence in who will benefit from this £25 billion tax break, we strongly urge the Exchequer Secretary to today set out what new safeguards will be put in place to make sure that public money is not misused.
Jim Shannon (Strangford) (DUP)
Before the debate, I spoke to the shadow Minister about insurance companies. It has come to my attention that some insurance companies are unfairly using business interruption insurance premiums to punish businesses that had the foresight to take out said insurance before the pandemic. Insurance premiums are being increased dramatically. Does the shadow Minister agree that when it comes to supporting small and medium-sized businesses, we need to close the loopholes that insurance companies are notorious for using and ensure that the spirit is legislated for? Perhaps—just perhaps—this Bill might be the way to do that.
James Murray
The hon. Gentleman is right to draw attention to the fact that the Bill does everything for the big businesses that need the help most but does not do what is necessary to protect small and medium-sized businesses. I am sure that the Ministers present heard his points, and I hope that the Exchequer Secretary will respond to them in her closing speech.
Aside from all the concerns about the super deduction—from its potential for fraud, abuse and misuse to the fact that it offers to wipe out Amazon’s UK tax bill—the fact that the Government’s only national policy for growth and investment relies almost entirely on this tax break brings us to our third key concern about the Bill and the profound lack of ambition in the Government’s approach. There is simply no plan from the Government to make sure that we invest in what is needed for the future. The Bill follows a Budget of cuts. The OBR has confirmed that the Government will cut departmental resource spending plans by £15 billion a year from 2022-23 onward, and rather than bringing forward capital spending to invest in the green recovery that we need now, the Government have cut capital plans for this year by half a billion pounds.
Far from charting a course for the future, the Bill lacks any mention of a plan to tackle the big problems that we have faced in this country for a decade or more and that have in so many cases been brought into sharp focus by the covid outbreak. It is clear that over the past decade under this Government, our country’s social care system has been underfunded, with its workers chronically underpaid. Our country’s response to climate change has stubbornly lacked the urgency, ambition and scale that it needs. Our country’s answer to the housing crisis has been left to developers and speculators, leaving an entire generation let down and left behind. Investing in better social care, new green infrastructure and the council housing that we need would create jobs, improve lives and finally start to tackle the problems that our country needs to resolve.
The Conservatives have had more than 10 years to stand up to the challenges I have outlined, yet they have failed to do so. With the recent Budget and this Bill, they have proved themselves again unable or unwilling to do so. The Government’s whole approach is being exposed as one of failure rooted in the past and an inability to rise to the future. In fact, Conservative Ministers are continuing on the course that began in 2010—one that brought us a decade in which UK growth was below the average of all major economies and business investment fell to the lowest rate in the G7.
Our country’s economy will be £300 billion smaller in 2026 than was forecast at the start of the previous decade. At times during that decade, Ministers may have benefited from some international cover for their misguided and harmful choice of cuts rather than investing in growth in response to the financial crisis, but no more: a new international consensus has rapidly been gaining strength. As the International Monetary Fund’s head of fiscal policy said, our Government and others should use fiscal policy to beat covid and to stimulate our economies by reducing unemployment and restoring economic growth. That focus on growth, investment and jobs is at the heart of the approach set out by the shadow Chancellor, my hon. Friend the Member for Oxford East (Anneliese Dodds). Our framework will meet the challenges of our times—it is a responsible approach in which a balanced current budget over the economic cycle would never prevent us from protecting people and businesses during a crisis or making critical investments in our future.
As the Bill progresses through the House, we will look at the detail in respect of the points I have outlined so far, as well as on other measures in the Bill such as those relating to freeports. We want to see good jobs and economic growth in every part of the country, irrespective of whether an area has a freeport. We need long-term, locally led investment in every region and nation, and freeports will in no way compensate for Ministers’ inexplicable decision to scrap their industrial strategy and disband their industrial council just when we need a long-term plan to support our critical industries. Furthermore, with freeports elsewhere in the world having become magnets for organised crime, tax evasion and smuggling, we fear that at a time when HMRC is already overstretched Britain is not well placed to manage such risks.
In Committee, we will challenge the Government over their approach to tax avoidance and tax evasion more widely, following up our long-standing concerns that Treasury Ministers continue to drag their feet on tackling these problems. Although the Bill contains measures to tackle the promoters of tax avoidance and change the system of penalties, there is a clear sense that those measures are extremely limited in scope, rather than the comprehensive action that we need. Indeed, those changes are not even included in the Budget report costings, suggesting that their financial impact must be minimal.
We will use the next stage of consideration of the Bill to go through the detail of the measures it contains that seek to address the problem of plastic pollution and to increase the use of recycled content. The principle of a plastic packaging tax is one that we support, and because we want it to be as effective as possible we will ask Ministers to consider the detail of its operation in Committee. Overall, however, we cannot support this Finance Bill. The Bill, and the Budget that it follows, should have seized the opportunity to help people who are struggling now; to invest in good new jobs in every part of the country; and to be ambitious in finally getting to grips with social care, housing and other challenges that our country has faced for so long without solving. In fact, rather than supporting families out of this crisis and setting an ambitious plan for the future, the Government are prioritising tax breaks for tech giants.
If this Bill had been presented by Conservative Ministers 10 years ago, it would have been the wrong solution then; a decade later, their approach has not changed but the rest of the world has moved on. No longer will they find allies for their approach in international institutions, and the politics of the United States shows that the consensus around the world is shifting. The Government are out of step with economic reality. They are taking decisions that will push up taxes for people across our country while helping Amazon to reduce its tax bill. They are choosing to cut NHS workers’ pay while failing to fix our system of social care, and they are deciding to continue a decade of cuts to public services when we urgently need to invest in the future.
James Murray
I have only a few moments. The hon. Gentleman may speak later.
We will vote for our amendment and against the Bill, to make it clear to people in our country that we understand that people need to be spared the Bill’s tax rises; that Amazon does not need any favours; that NHS workers deserve our support, that we need good new jobs in every region in the nation; that the economy will grow only through responsible investment; and that we need to fix social care, the climate emergency and the housing crisis. Above all, people in our country need a Government who are on their side, and it is absolutely clear from the choices that the Bill and their Budget make, and the problems that they choose to ignore, that this Government fail that test.
Madam Deputy Speaker (Dame Rosie Winterton)
We now go to the Chair of the Treasury Committee, Mel Stride.
Mel Stride (Central Devon) (Con) [V]
I shall speak in support of Second Reading.
The opening remarks by my right hon. Friend the Financial Secretary to the Treasury were extremely well made. He pointed out the huge challenges that we face as a country due to the economic crisis and the worst drop in GDP for 300 years, but he also rightly spoke of the extraordinary work that the Treasury and HMRC have carried out over the past 12 months to ensure that, at pace, we have had bold initiatives that have supported the economy, not least the labour force. I know, having held his position for about the same time as he has held his position, just how high-quality those people are and how hard and imaginatively they will have worked over the previous months.
My right hon. Friend was right also to draw the attention of the House to the improved outlook across the various forecasts. I think he mentioned the OBR, but he could equally have mentioned the IMF, whose recent forecasts for the UK economy point to a lower peak in unemployment than was feared at the start of the crisis. All of that is due, not just to the work that has been done to roll out the vaccine, but to the support packages that the Government have provided. I am not saying that everything has been perfect, but overall I think the effort has been pretty impressive.
The Bill is one step in an important journey to restore the health of the public finances. My right hon. Friend did not tell the House, because it is not his role to frighten the horses, what the consequence would be if we did not signal clearly to the markets that we are serious about getting on top of both our debt and the deficit. That would be an increase in interest rates, and we know from the forecasters that, roughly, a 1% increase in interest rates would lead to a £25 billion additional black hole in the public finances. To put that in some perspective, it would be equivalent to all the money that has been raised through the increases in corporation tax and the income tax threshold freezes. It is therefore essential that this Bill goes through the House to demonstrate that the Government are serious about getting on top of the public finances.
I would like to focus on some of the measures in the Bill. I turn first to income tax. I think that was the right place to go—a broad-based, important, very high-yielding tax—in order to raise the kinds of amounts that are required. The fact that the Chancellor has chosen to freeze thresholds rather than increase rates allows him, of course, to maintain the triple lock commitment in the Conservative manifesto. Incidentally, I have always argued that, depending on how things pan out, the public might perhaps—under the circumstances—forgive the Government were they to decide to breach the manifesto in one or two areas, given the extraordinary times in which we live, but it is good that the Chancellor has managed to avoid doing so, at least on this occasion.
We need a progressive tax system. Of course, with income tax—the wealthiest 1% paying some 28% of income tax—that is exactly what we have; but we also need an income tax system that does not undermine the link between those who pay tax and public spending. Through freezing the personal allowance, as well as raising more money, there is some benefit in ensuring that those who benefit from public services do, at least to some degree—albeit that we want a very progressive system—also pay tax to support those services.
Corporation tax also provides a large amount of money to the Exchequer. The Bill provides for quite a large increase in corporation tax, from 19% to 25%. The critical point is that we remain internationally competitive. The shadow Minister mentioned on a number of occasions President Biden and his tax policy. Well, his policy is to increase corporation or federal taxes from 21% to 28%. If we add on state taxes, that still leaves us very competitive—even at 25%—and certainly among members of the G7.
I was pleased to see in the Bill the small business rate relief. It will be important to support particularly our small and medium-sized enterprises as we come through this crisis. There are many reasons, which I will not go into in huge detail now, why that particular sector of the economy may be especially vulnerable as we come through the crisis. In the event that large swathes of SMEs go out of business, we could well see increases in market concentration and a contingent decrease in competitiveness across the economy, so it is important that we are careful and that the Treasury is mindful of the fact that those small and medium-sized enterprises will need ongoing support.
I want to say just one thing about the Laffer effect. In the context of corporation tax, it is often argued that—because corporation tax fell from 28% to 19% between 2010 and the present day, and at the same time the yield from corporation tax rose by 50%— there is some kind of causation, rather than correlation. I would argue quite strongly against that. I think that the improved yield from corporation tax was as much to do with improvements in the economy across that period, the bank levy, the bank surcharge and various anti-avoidance measures such as the corporate interest restriction. We should not fool ourselves into believing that raising taxes on companies will necessarily yield less in the medium to longer term—albeit that in the longer term we of course want to see those taxes as low as possible.
Incidentally, if my right hon. Friend the Chief Secretary to the Treasury were looking for areas where there might be a Laffer effect, I would point him to three taxes: the higher rate of capital gains tax; the stamp duty land tax on high-value properties; and duty on cigarettes. There is scope for reducing rates and getting a higher yield in all three of those areas.
I very much welcome the super deduction. I guess that there was an inevitability to it; if we signal that corporation tax rates will go up in future, we tend to find that companies delay investment such that they can gain the offset from those investments against a higher corporation tax rate. It is therefore important that the super deduction came in—in a sense, to stop that forestalling. What happens after that two-year period of the super deduction will be critical.
I urge the Treasury to look carefully at the way in which companies are undertaking investment expenditure. We know there have historically been weaknesses, quite outside the crisis. Measures such the R&D tax credits will be important in that respect. I notice that clause 19 provides a cap on those for SMEs, which, if I understand the clause correctly, is about ensuring that there is no double counting or double relief between a principal company and a subcontractor. When the Bill goes into Committee, that provision should be given careful scrutiny. I welcome clause 15, on the extension of the annual investment allowance at the £1 million level, albeit that that is temporary.
Turning briefly to the diverted profits tax, I will pick up on one or two remarks made by the shadow Minister, who seemed to imply that the Government’s record on clamping down on avoidance and evasion was rather wanting. My recollection of my time as Financial Secretary to the Treasury is quite the opposite. I direct the hon. Gentleman to HMRC’s annual report on the tax gap—the amount of money not collected that could be collected—which I think in recent years has been at historic lows, and has certainly been among the best of the figures available across tax authorities around the world.
Remarks were made about tax breaks for tech giants. It is for the Government to decide whether their corporation tax policy is to go in lock step with President Biden’s idea of minimum corporation tax rates across the world. That could be one solution to profit shifting. We must not forget, however, that this country has been in the vanguard, unilaterally rolling out the digital services tax to make sure that companies including Amazon, Google and eBay pay the appropriate level of tax. It is for the Americans to join us in a multilateral endeavour to make sure that such taxes actually work. I am quietly optimistic that the new American Administration is at least leaning in the right direction. I would be interested to hear the Exchequer Secretary explain why the diverted profits tax increase just maintains the punitive margin between the level of that tax and the increased corporation tax in the years ahead, rather than the decision being made to widen the margin, given how successful the diverted profits tax has been in preventing profit shifting.
Free ports feature prominently in the Bill. The Chancellor is, of course, enthusiastic about these, and they have exciting potential, particularly in terms of the levelling-up agenda, but I point to two areas where caution is needed. One is the possibility of fraud in free port areas. Careful scrutiny is needed of the tax incentives, albeit it that SDLT structures and building allowances and enhanced allowances for plant and machinery seem to be tax breaks that are difficult to game, because they relate to fixed assets in a specific geographical location. The second issue is possible displacement of economic activity. We do not want activity that would have occurred anyway, perhaps nearby, occurring in a particular location simply because there are advantageous economic and tax arrangements in place. The scrutiny Committee will certainly be interested in the operation of free ports.
One element of the Bill that I was especially pleased to see that has not been mentioned so far and probably will not be mentioned again in this debate is the change that ensures that where an employee receives a covid test provided by an employer in their place of work, it does not count as a taxable benefit in kind. Were it to do so, millions of workers up and down the country would find that they were liable for tax in relation to those tests. I raise the matter because there is a small but important lesson in scrutiny here. Tony Verran, who is a member of the Treasury Committee secretariat, having joined us on secondment from HMRC, spotted this anomaly in HMRC guidance. Within about 24 hours, I was able to raise it with the Chancellor on the Floor of the House in Treasury Questions, and within 24 hours of that, to his great credit, he changed the guidance, and now we see the provision in the Bill. That is how Parliament should work, so I am grateful to Tony and others who were able to point me to that issue.
In conclusion, I very much welcome the Bill. There are areas that will need considerable scrutiny. When I had my time as Financial Secretary to the Treasury I think I took through three Finance Bills with more than 1,000 pages of legislation, and I know the extraordinary amount of work involved in that, and the extraordinary amount of detail that my right hon. Friend will be going through over the coming days and weeks. I wish him well. The Treasury Committee will, of course, closely scrutinise the Bill, and will no doubt have much to say about it.
Alison Thewliss (Glasgow Central) (SNP) [V]
It is a pleasure to follow the Chair of the Treasury Committee. As the SNP reasoned amendment sets out, the Bill falls short in a number of respects. My colleagues and I approach the Budget and the Finance Bill that follows with a sense of frustration, given the limited powers that the Scottish Parliament has over many matters in the Bill, and the imperviousness of the UK Tory Government to suggestions of improvements to their legislation. The most minor suggestions for how they might do things better are dismissed, whether they come from us as Members of the House, or from expert organisations.
That is a symptom of how this Parliament does its work, with no real incentive for compromise. There are aspects of the Bill in clauses 36 to 38 where Ministers are coming back to fix measures from the 2017 Finance Bill to make them work as intended. Expert organisations such as the Chartered Institute of Taxation, the Association of Taxation Technicians, the Institute of Chartered Accountants of Scotland, the Institute of Chartered Accountants in England and Wales, and the Low Incomes Tax Reform Group have all pointed out sensible tweaks to the Bill the Government could easily make. I urge Ministers to listen carefully to that expertise and to act.
I ask again for evidence sessions ahead of the Finance Bill. All other Government Bills—even, on occasion, private Members’ Bills—schedule evidence sessions, but not this major piece of legislation, which will impact everyone in these islands. The recent Financial Services Bill had useful evidence sessions where the Economic Secretary to the Treasury asked useful questions of our witnesses. I see no reason why the Government would not make time for that. Indeed, they might make better, more considered financial legislation if the evidence to support it was better examined.
Over the past year, the UK Government, like all Governments around the world, have taken a range of steps to support people and businesses. The Bill gives us an opportunity again to assess those measures, commend those that have worked, and examine which could usefully be extended and enhanced. It also allows us the chance to reflect on how we got here. The overriding context for the situation in which we find ourselves today has been a decade of austerity. The British Medical Association, in an article last October, referred to austerity as “covid’s little helper”, reflecting on how public health services in England have been cut back and undermined, resulting in a stalling of life expectancy in England. That came through the political choices—the budgetary and taxation choices—of this UK Tory Government. The tax breaks and the loopholes of this and previous Finance Bills, and the decisions of the Chancellor, have caused significant damage to public services across the UK, including in Scotland, where people did not vote for this austerity but have been forced to mitigate its impact.
We know that austerity is far from over; a second wave of Tory austerity is rushing towards us. The IFS has said that under current plans
“many public services are due a second, sharp dose of austerity”
and that for non-protected Departments the
“Chancellor’s spending plans are even tighter than they first appeared.”
Departments such as the Ministry of Justice, the Ministry of Housing, Community and Local Government, and the Department for Work and Pensions, will suffer cuts of 3% in 2022-23, which represents an 8% cut relative to pre-coronavirus plans in March 2020. When the Barnett formula is taken into account, that represents a cut of around £4 billion. It is a cut we cannot afford, on the back of so many that have come before. I am sure the Tories will argue that the Scottish Government should simply put up taxes, but they continually fail to recognise that we already pay in to the UK coffers, but we do not have control over what the Chancellor chooses to waste on dangerous vanity projects such as Trident, or on crony contracts to his Tory pals.
The measures in this Finance Bill regarding the coronavirus job support scheme and the self-employment income support scheme show the degree of complexity that we are now left with as a result of schemes being brought in necessarily in haste and extended for longer than the UK Government had anticipated. While the vaccine roll-out is progressing well, we are not yet out of this pandemic, and the scenes of young people out celebrating the end of lockdown last night should give us all a wee bit of pause for thought, along with the new variants that could evade vaccination in the future.
The UK Government have never been able to guarantee, regardless of their rhetoric, that life will be back to normal any time soon, so they should ensure that the support schemes reflect the course of the virus and extend them for as long as is necessary. They must now fill in the gaps in the support schemes and finally give some certainty to the millions of excluded people who have been left with not one penny piece from the UK Government for over a year.
I received some mail this morning with a book called “£xcluded Voices” from Stephen Liddell. It includes 151 stories of those excluded from support, and I hope very much that his book reaches the Chancellor’s desk. Stephen is a tour guide whom I had the pleasure to meet during a demonstration last year, and 95% of his income comes from overseas tourists. It is a sector of the economy that is highly unlikely to get going even when sectors start to reopen, and that will be two summer tourist seasons lost. He is among so many who have been left behind, completely without hope—and entirely without justification.
UKHospitality has highlighted that, with over 1 million employees in the hospitality sector still on furlough, it was critical the schemes were maintained, and it did welcome that, as do we. Yet moving to business contributions from July could prove difficult for some businesses that are not yet trading or that are off-season, and could yet result in further job losses. The stop-start, on-off furlough dither last autumn caused job losses from employers unable to bear the costs and the uncertainty, and the UK Government must not repeat that mistake.
It almost goes without saying that the SNP wants the £20 universal credit and tax credits uplift to be made permanent, but I have a wee query on the specifics in clause 31 about making the working tax credit uplift match the temporary £20 increase to UC by means of a one-off £500 payment. There are real concerns about the rough edges of this policy from experts such as the low incomes tax reform group. My understanding is that this £500 will be paid automatically, but there will be a charge to income tax where someone receives this in error—an error that would be HMRC’s error, not the recipient’s. There is a lack of certainty about what will happen if people get money they are not entitled to through HMRC’s own error, and what those receiving support are expected to do if they are unsure, especially as there is only a 90-day period in which to notify that error. I ask the Minister to give us some further detail on how exactly he envisages that this will work and what information people will receive.
We will certainly get into further detail next week, but I wish to run through some of the concerns that we and experts have with the measures put forward in this Finance Bill, in the doubtless vain hope that Ministers will start to get moving on improvements to it.
Beginning with the income tax personal allowance uplift and freeze, this would appear to be contrary to the Government’s stated policy on low-income taxpayers. National insurance thresholds will continue to move, and those under the personal allowance threshold, including those on universal credit, will not really see any benefits from this move. As always with the UK Government, there are problems in the detail. I would note that Ministers are also not taking the opportunity to amend the high income child benefit charge, which has proved so problematic for so many people.
We welcome the UK Government’s move on corporation tax, but would push them to work alongside President Biden on his call for global action on corporation tax. This is a golden opportunity for a concerted effort to move away from a race to the bottom.
On the super deduction, I must at least give the UK Government credit for a snazzy slogan, if for nothing else, but we have some queries about how it will work in practice, whether the benefits of the scheme will make a real difference to the wider economy and, as some have said already, whether this will give rise to tax dodges. The SNP has raised concerns for years about the UK’s low productivity, and the UK Government might want to act further to encourage businesses to invest more in staff, skills and technology. A real living wage, rather than their pretendy living wage, might be a better place to start.
We believe there should be a greater focus on pushing investment to meet net zero. The UK Government must ensure that this investment is one for future generations, and I ask how exactly Ministers intend to monitor the effectiveness of this super deduction. There should be safeguards against what Tax Justice has called egregious investments such as Jacuzzis. I note also that the purchase of flags might be on the list of things people could buy through their companies, which will no doubt please all the Tories on Zoom.
The Association of Taxation Technicians has some concerns about interaction with the introduction from 1 April 2023 of the small profits rate. I appreciate that the UK Government may believe they have good grounds for excluding leased or second-hand machinery, but the ICAEW has pointed out that industries that lease plant and machinery rather than acquire it outright make a significant contribution to the UK economy. The Construction Plant-hire Association estimates that the UK’s plant hire industry is worth £4 billion per annum, and the Construction Equipment Association estimates that 60% to 65% of all construction equipment sold in the UK goes into plant hire. This sounds to me to be quite significant, and I would ask Ministers to set out their reasoning in greater detail.
Moving on to clause 15, the annual investment allowance has jumped about over recent years with permanent and temporary limits, so it would be good to get more certainty on that. In the “Tax after coronavirus” report, the Treasury Committee, on which I sit, commented:
“The Annual Investment Allowance is valued by business and it appears well targeted to promote growth in small and medium-sized enterprises. As with all tax reliefs there is likely to be some deadweight cost; but we urge the Government to look favourably on further extension and possibly permanency at the existing level, which would provide welcome certainty to small and medium-sized enterprises.”
The ATT agrees that such extension or permanency would be welcome for many businesses in providing certainty, although for smaller businesses an opt-out provision might be a useful solution.
Part 2, on plastic packaging tax, takes up a substantial chunk of the Bill and is a particular area where I would like to see more evidence and scrutiny of the UK Government’s proposals from experts in the sector. There is certainly a lot in here for businesses to get their heads around. The Green Alliance sent a helpful briefing to Members, which I hope Ministers have also seen. It suggests: differentiated obligations; an escalator for the percentage of recycled material and the level of tax; a price-stabilising mechanism to de-risk investments in reprocessing and ensure that recycled content, as the more sustainable option, is always cheaper than virgin material; removing the exemption from packaging made of multiple materials, which can be difficult to recycle; and, finally, ensuring that a verification mechanism is in place. Those are all worthy of further consideration, and I am sure that as the Bill progresses we will hear from more organisations out there with their views. We have an opportunity to make legislation useful not only for the here and now, but for the future.
Clauses 92 and 93 are on VAT on tourism and hospitality, which is an area long overdue for reform. The UK has had one of the highest VAT rates on hospitality in Europe. It is welcome that the UK Government heeded the calls from industry and from the SNP for a cut in VAT for tourism and for hospitality. With people unlikely to be able to travel for their holidays this year, it is more important than ever to build the local tourism sector up and encourage people to take up the wonderful tourism opportunities on our doorstep. Scotland has done its part in giving 100% business rates relief for hospitality, and the UK Government must now do their part, too.
It is deeply disappointing that the UK Government will extend the 5% rate only until the end of September, as due to the lockdowns people have not been able to take full advantage of the reductions. Increasing the rate to 12.5% until March next year—then presumably it will revert to 20%—will mean that the tourism and hospitality sector will not see the benefit over the October holidays or the Christmas period, and then it will take a further hit next Easter. As I understand it, the reduction also applied to live music, funfairs, shows and events, so it makes even more sense to extend the reduction to a sector that has been unable to open its doors at all for the best part of a year. I urge the UK Government to consider that fully. There are also some practical difficulties for firms in moving the rates and dates, as that may cause confusion. A wider review of VAT more generally would seem sensible. I ask Ministers where that features in their plans.
On clause 113 and schedule 25, on penalties for failure to pay tax, there is no doubt that I support people paying the taxes they should in full and on time and that there should be a penalty for not doing so. That said, the ATT and the ICAEW have concerns that the proposed late payment penalty regime is overly complex and, as a result, will not be understood by taxpayers and not act as an effective deterrent. The ATT in particular feels that allowing HMRC up to 48 weeks in some circumstances to notify a person of the award of a penalty point, and up to two years to assess a penalty liability, is quite excessive. The periods should be further reduced and/or assurances should be given by Ministers that they will be used only in the most exceptional circumstances.
I turn to freeports. We on the Opposition side continue to have concerns about their effectiveness and the potential for tax dodging. The point by the Chair of the Select Committee about displacement was also well made. Their use around Europe and around the world has left many scratching their heads about what the UK Government aim to achieve. Scotland has set out a differentiated approach, engaging in good faith but adapting and improving the UK’s model to address the climate emergency in our green port approach. The Scottish Government stated:
“Operators and beneficiaries will be required to commit to adopting Fair Work First criteria and contribute to Scotland’s just transition to net zero”.
Trade Minister Ivan McKee recently raised concerns about the UK Government’s lack of willingness to engage on that while pushing forward with their own plans. If devolution means anything at all to the UK Tory Government, they must allow Scotland to pursue a model that fits the policies and ambitions of the democratically elected Scottish Parliament and Scottish Government. They must step back from using the United Kingdom Internal Market Act 2020 as a battering ram, driving through policies that Scotland did not vote for.
Where this Finance Bill really does not go far enough is on tax evasion and tax avoidance. Yes, there are some measures here, but there are also some massive gaps. Despite raising it in every Finance Bill, Scottish limited partnerships continue to exist as a means of shifting dirty money around the world. Just last month, the investigative journalist, David Leask, wrote about NovoLine Resources, a shell company with an address in Edinburgh, which was blacklisted by the World Bank following an investigation into the contracts that it won to supply equipment to Uzbekistan’s Health Ministry. If the World Bank can see that this company is up to no good, it baffles me why the UK Government will not act to shut it down. Ministers must get serious about the financial crime that their lack of attention is facilitating.
There are also gaps around trusts, and we are still waiting for the much-delayed Registration of Overseas Entities Bill. I really do have to question whose interests this serves: it is now three years since I implored the Government to stop fannying about on this matter during the consideration of the Sanctions and Anti-Money Laundering Act 2018, and very little has happened since.
This is another great big chunk of a Finance Bill, but there is so much still that is missing. It is a point of some frustration that the Scottish Parliament, with its ambitious agenda for fairness, sustainable growth and a green recovery, does not have access to the levers and the powers that it needs and that, in so many instances, the UK Government, who do, do not even want to make use of them. We will do our best in diligently trying to improve this Bill. We will engage with experts and we will move our amendments, which the UK Government will almost certainly choose to reject. I look forward to the day when these financial powers are vested much closer to the people of Scotland, in our own Parliament, where we can make much better use of them.
George Freeman (Mid Norfolk) (Con)
It is a great pleasure to speak in this debate and to follow the hon. Member for Glasgow Central (Alison Thewliss), principally because I can say how wonderful it is that the Scottish people have enjoyed the benefits of this great British vaccine success. It has been enjoyed by the entire United Kingdom, and funded by our deep commitment to UK life science, which comes from the United Kingdom Government. The great Scottish cluster benefits from that hugely. I was surprised not to hear the hon. Lady accept and regret the fact that, had the Scottish Nationalist party succeeded in persuading the people of Scotland to leave, they would not now be enjoying the vaccine security that they currently are. It is a wonderful thing. We are stronger together in health as we are in economics.
As my right hon. Friend the Financial Secretary put it so eloquently at the start of this debate, covid has been not just a health catastrophe, a global pandemic on a scale that none of us in this generation has seen before, but an economic catastrophe. It has been an economic shock to this country and to the global growth engine, which is not yet over. It is a sign of the generosity of the Treasury’s support that it will be only when the furlough programme, which has been rightly extended, ends in the autumn that the beginnings of the full reveal of the economic damage will strike us all. It is for that reason that the measures in the Finance Bill and in the wider relief that the Government have put in place are to be so welcomed and are so important.
I will, if I may, start by echoing the comments of others and by thanking the Chancellor and his teams—both his ministerial and official teams. It is not that common to praise Her Majesty’s Treasury in this Chamber, and particularly not for moving with speed, compassion and an instinctive desire to spend money on behalf of the health of the British people. This happened both in the economic crisis in the crash, when the Treasury moved at pace over one weekend to put in place a phenomenal package to prevent the meltdown of the City of London, and in this crisis. Indeed, it is barely possible to think that, a year ago, the Chancellor stood here and took the nation by surprise with the pace, compassion and speed with which he announced his package. The fact that more than 1 million jobs have been furloughed and protected and £800 billion has been spent in immediate relief is an absolute cornerstone of the fact that the economic recovery that we are now beginning to see is so strong.
Wes Streeting (Ilford North) (Lab)
The hon. Gentleman makes a comparison between the Treasury’s response to the covid crisis and the Treasury’s response to the last financial crisis. I wonder, therefore, whether we ought to be blaming the enormous deficit and debt now on Conservative profligacy or whether we will finally accept that, in 2007-08, as now, the Treasury did exactly the right thing to prevent the economic situation being even worse than it would otherwise have been.
George Freeman
The hon. Member makes an interesting point that I relish responding to. My praise was for the Treasury in moving at pace to solve and sort a crisis incubated by the last Labour Government in leaving this country deeply vulnerable as a result of a whole series of measures put in place during the Blair and Brown years, not least the smash-and-grab raid on our pensions and the foolish and reckless deregulation. The Treasury moved quickly to solve a crisis, but I am not claiming, at the same time, that the Government of the day were not responsible for incubating that crisis. They are different points.
Jesse Norman
May I remind my hon. Friend of a fact that he will know well? The leverage ratio of the British banking system was 20 times equity for 40 years until the year 2000, after which it went up from 20 times to 50 times in seven years under a Labour Government.
George Freeman
I thank the Financial Secretary for pointing that out. I am tempted to remind everyone that the former Chancellor of the Exchequer and then Prime Minister sold the gold at a record low and various other things, but I shall not be distracted—I simply record that—and focus on this Budget. I will not list all the measures in it, but I want to highlight one or two that the people of Mid Norfolk and I particularly welcome and then highlight three points that we need to think about as we seek to drive a powerful recovery.
I particularly welcome the measures in the Budget for the self-employed, who, in the first part of covid last year, were hit hard. Many of them were living at risk, hand to mouth and on each month’s proceeds, without the stability of a company behind them.
There is also the support for apprenticeships and traineeships. In Norfolk, when the furlough ends, we are expecting to see between 30,000 and 50,000 unemployed. The Government have rightly moved quickly to make sure that a very powerful skills and training pathway package is in place, so that people who have left old jobs that have not survived this accelerated crisis—it has accelerated much of the challenge on the high street—can quickly find jobs in the new economy that we are creating.
I want to highlight the £700 million package for the arts, culture and sport. In particular, we need to support the artists and creative people at the heart of those industries, not just the buildings. It is that genius—that creativity—which is so key to the British instinctive creative spirit, that we need to support. Rather too many of our great artists are working in all sorts of jobs and seeing their artistic careers disappear. We need to make sure that we keep them busy and get them back to work.
On levelling up, I highlight the Government’s phenomenal package of support, rightly making the crisis not just a moment to prop up the pre-covid economy but to drive growth out. The 45 town deals and the eight freeports are genuinely transformational for places such as Teesside that have been left behind by successive Labour Governments, who ought to have been representing them better. There is the move of the UK infrastructure bank to Leeds, the levelling-up fund, the community renewal fund, the Help to Grow for SMEs, the future fund and the substantial commitment to net zero and the green infrastructure that we need for a proper recovery. This was a Budget not just to repair the damage of covid, but to lay the foundations for a more sustainable and sustained economic recovery, creating jobs and opportunities for generations to come. I welcome it particularly for that reason.
That financial package is allied with the extraordinary success of the UK life sciences community, and perhaps at this point I could, as a former life sciences Minister, pay tribute to its extraordinary work. In particular, there are the scientists at Oxford and AstraZeneca, to whom we owe so much, and in Norfolk, there is the work of the Norwich Research Park and the Quadram Institute, which has done pioneering work in some of the genetic sequencing. At the same time, I welcome the work of the vaccine taskforce, led by the redoubtable Kate Bingham, with whom I know the Financial Secretary has a strong working relationship. I am tempted to channel my inner William Hague and remember the time when he commended Yorkshire for having more gold medals in the 2012 Olympics than France. In fact, he went further, saying that Mrs Brownlee had won more gold medals than France in those Olympics, and I do not think any couple has done more for the UK health economy than the Financial Secretary and the head of the vaccine taskforce.
I genuinely believe that this package is responsible, responsive and lays the foundations for a resilient set of public finances. The challenge now is to get the growth that we need from the private sector to build a really sustainable recovery, and I want to turn to that and make three key points. First, if we are really to escape debt—the debt legacy from the crash in 2007-08 and the debt legacy from covid—and to build a clean, green, smart economy, we need not just to get back to ticking over with 2% to 3% growth; to get to 4%, 5% or 6% growth, we will have to be able to host, or incubate, economies growing at 100% a year. That is the key to growth in this economy. We cannot escape debt by building over the whole of the south of England or building over any last rural area around Cambridge. To support growth, we have to make sure that we grow the economies that will grow our economy, building back better one local economy at a time and one sectoral economy at a time. To avoid the boom and bust of the City, housing and retail cycles that have left us in this state, the Treasury is absolutely right to commit to the deep infrastructure investment for tomorrow’s growth sectors. I am delighted that after my short period in the wilderness, the Prime Minister has asked me back to lead his taskforce on innovation, growth and regulatory reform to look at where, as we come out of covid and seek to lay the foundations for this recovery, free from the European Union’s regulatory frameworks but still able to trade with its market, we may be able to strike a blow for bold innovation and regulation for innovation.
I want to highlight some sectors that are growing spectacularly and that, if we were to invest strategically, would help to grow our national economy in the same way. The broader bioscience sector includes not just pharmaceuticals but the bioeconomy sector of food, medicine and energy, and, in particular, areas where those three support each other. In Norfolk I recently sat in a Lotus built at Hethel Engineering Centre that was powered by a Formula 1 low-carbon biofuel made by genetically modified bugs breaking down agricultural waste. That is what I mean by bioscience and the bioeconomy. In this century, it is biology and bioscience that will drive growth globally, just as physics did in the last century and chemistry in the one before. We are a phenomenal powerhouse in the biosciences, and if we invest in that, support it and commercialise it better, we will grow the industries of tomorrow.
Similarly, in nutraceuticals, where pharmaceuticals meet food and nutrition, there is a whole range of new crops that support growth and crops that are drought resistant and disease resistant, such as crops we export to Africa to help drive sustainable development. In biosecurity, and plant, animal and human health, we share much of the genomic sequence with most of the animals that we rely on in our agricultural system. There are huge opportunities for us to breed out susceptibility to disease and traits that will lead to huge suffering. There is a huge opportunity to harness genomics for the benefit of animal welfare, as well as progressive agriculture, in artificial intelligence, in immunotherapy, in space, in biofuels, in carbon capture and storage, and in biodiversity investment. These are huge sectors that this country is poised to grow into substantial industries, creating jobs and opportunities for tomorrow. If we get the regulatory regime for this right, which Brexit gives us an opportunity to do, and, as the Treasury is doing, we invest in the deep infrastructure and create the right commercial environment, I genuinely think that this is a moment when we could unleash a new cycle of growth, so that we look back at this, yes, as a crisis, but also as an opportunity, such that future generations will thank us for getting us off the boom and bust cycle of over-reliance on short-termism, the City, housing and retail booms, and laying the foundations for serious global growth based on technology transfer.
Secondly, from the perspective of rural Mid Norfolk—not 40 miles from Cambridge but at times feeling like 100 miles, or 100 years, from it—the small towns are fundamental. That is why I welcome so much the 45 town deals in the Budget. I hugely welcome all of them and the work that is being done. However, it is vital that as the Treasury launches these funds, we also think about how we can make it easier for the places and communities that have often been left behind because they do not have the resources of a metro Mayor or the big capacity to access multiple Government funds. Somewhere in the mix is a role for what I might call local regeneration corporations—small, fleet of foot, locally place-based public-private partnerships with powers to access money for multiple funds and deploy them over a five or 10-year plan to drive transformational local change and to pull in private finance alongside public. They would have the powers to do some compulsory purchase, to move in quickly and regenerate land left fallow after covid, to embrace some of the opportunities of land value capture and tax increment financing, and to raise infrastructure bonds and finance. Many investors around the world would love to contribute to and have a stake in this British recovery. Many places around our country will not be able to access on their own sufficient finance from the Treasury. We need to make it easy for them to drive local engines of growth that will go on in decades to come, in a similar way to the successes of the London Docklands Development Corporation, the Tyne and Wear Development Corporation and the County Durham development corporation in the ’80s and ’90s, which were so transformational.
Kevin Hollinrake
My hon. Friend makes a very good point about regional economies. On engines for growth, does he think that regional mutual banks might be part of the solution? They are very effective in places such as Germany and the US, focusing on regions, making sure that SMEs get lending into the productive parts of our economy. Would he look at that as part of his remit on regulatory reform?
George Freeman
With pleasure, and I can go further. My hon. Friend is typically astute and on the money—absolutely. It is true that in the pension funds of this country, we invest remarkably little in equities, remarkably little in small company finance and remarkably little in our own infrastructure. I am not for a minute suggesting that Norfolk County Council should put all of its money into the Cambridge to Norwich railway, although I think it would be quite a good investment, but it would be an awful lot better than finding it had quite a lot in the Iceland bank during the crash, where we lost a lot of money. There needs to be a reasonable balance. I think a lot of people in this country would quite enjoy having a stake in their own infrastructure.
People have season tickets. What about also having a share in the mutual railway company and a share in infrastructure that they are helping to fund and that they rely on? That is part of the revolution of place-based capitalism—one might even call it stakeholder capitalism, if one were on the Opposition Benches. We can call it what we want, but it is about giving people a stake in their own economic destiny.
The third area that I wanted to highlight is the importance of global markets. If we are really going to become an innovation nation, home to these incredibly exciting technologies that will drive tomorrow’s growth, we need to make sure we are better connected to those emerging markets around the world, which are growing at 10% or 20%. As the Foresight report highlighted, global population growth means that by 2050, we are going to have to double food production globally on the same land area, with half as much water and energy. That is a phenomenal global grand challenge, but it is one that this country is well positioned to respond to, with our historic strengths in agricultural science and technology and the biosciences I have talked about.
The real trick is how to link our leadership and innovation and commercialisation in the City to global markets. I suggest that our liberation through Brexit from the European trading structure, challenging though it is in many ways, does create an opportunity for us to embrace variable tariffs. Imagine if you will for a moment saying to countries in Africa, “Look, we are not going to charge you 40% on food tariffs, like the European Union—that is immoral. We will reduce it to 5% or 10%, but 0% is only for those who are growing and producing at the most responsible and progressive standards—the very highest standards of animal welfare and food quality. We will help you to do that by exporting the technologies that we have developed here using our aid budget.”
With those commitments to growth and local places, and to globalisation, this is an opportunity, given what the Treasury has done, to make this crisis a genuine moment to unlock a new cycle of growth for the benefit of this country and generations to come.
John McDonnell (Hayes and Harlington) (Lab) [V]
Budgets and their associated Finance Bills give practical meaning to the political aims of Governments. Manifestos and the rhetoric of party-leading Members and eventually the Queen’s Speech are the mechanisms used to describe the society that the governing party aims to construct, but it is its Budgets and its Finance Bills that are the tools by which the foundations of that society are laid. What we can discern from this Finance Bill is that, despite all the rhetoric from the Prime Minister, and all the personalised, personally signed social media promotions by the Chancellor, the society they want to build back to and to return us to is, in essence, the same pre-covid society of insecurity and inequality that left us so vulnerable to the pandemic.
I have heard the Prime Minister and the Chancellor claim that we have only been able to meet the demands of a pandemic because of the so-called strength of the pre-covid economy, so it is worth reminding ourselves what the pre-covid economy was like. Some 4.2 million of our children were living in poverty—30% of children in this country. Rough sleeping had more than doubled. Food banks were handing out 1.5 million food parcels a year. Nearly a million people were working on zero-hours contracts. Going into this pandemic, the NHS had suffered the longest funding squeeze in its history and there were 100,000 vacancies, including 40,000 nurse vacancies. Social care was even worse, with £8 billion taken out of social care budgets since 2010 and, according to Age UK, 1.5 million of our older people not getting the care they needed. The existential threat of climate change was effectively ignored, with the Government hopelessly off target to secure even the modest goal of net zero emissions by 2050.
We cannot stand by and let this Government return us to all that. If this Finance Bill is to have any relevance whatsoever, it must address those issues, but also the impacts and challenges presented by the pandemic, which has exacerbated many of those issues of the pre-covid economy.
Unemployment is forecast to hit 6.5% this year. Introducing the furlough scheme without conditions enabled fire-and-rehire employers to cut wages and conditions of employment. Low wages and inadequate sick pay have resulted in around 750,000 households being behind on their rent or their mortgage, and millions more are behind on basic household bills. With the eviction ban ending on 31 May and, realistically, no action on debt from the Government, we risk a surge in evictions leading to more homelessness.
Public services remain stretched, in many areas to near breaking point, getting through only by the commitment and dedication of often underpaid and still undervalued staff. Half of all care workers earn less than the living wage—the real living wage. As my hon. Friend the Member for Ealing North (James Murray) said from the Front Bench, the Government clapped for our key workers, yet now they are rewarding millions of them with a pay freeze or an insulting 1% rise. Inequality was rising before the pandemic, and the pandemic has only widened it.
The Government’s response, contained in this Finance Bill, has nothing to do with building back better. Some have suggested that, because the Government have been forced by the pandemic into large-scale spending and borrowing and corporation tax rises are now mooted, the Chancellor is implementing the policies advocated by Labour in its 2019 manifesto. Nothing could be further from the truth. It is not the rhetoric that is important; it is the substance. Without structural change in our economy that fundamentally shifts the balance of power and wealth in favour of working people, our society will simply replicate the inequality and injustices of the past.
This Finance Bill demonstrates that it is largely the same old Tories and the same old Tory policies taking us back—building back, but not better for the many. If we look at the evidence from the Budget and in this Bill, far from addressing the mounting poverty in our society, the Government are not only cutting universal credit but freezing the tax thresholds of the low paid and doing nothing for those who do not even earn enough to reach the threshold.
On low pay, the Government have already failed to meet George Osborne’s much-heralded target of a minimum wage of £9 an hour by 2020, and they are imposing a pay freeze on many of the very people who have helped to see us through the pandemic. To compound that disregard for people struggling to get by on poverty pay, there is also nothing in the Bill that discourages employers from using brutal fire-and-rehire tactics to force through permanent wage cuts.
The timings of the Bill’s tax proposals betray the reality of the Government’s attitude to inequality. The Bill pushes through a tax threshold freeze for low and middle earners but delays corporation tax increases, which there is already speculation could be dropped in a pre-election giveaway to business at some stage in the future. Plus, the Bill contains no action to fulfil the much-publicised proposals to equalise the rate of capital gains tax with income tax. The Government have talked about levelling up, but Tax Justice UK’s analysis demonstrates that 1,600 of the wealthiest Londoners made more in capital gains than the entire north of England. Instead, the Bill proposes super deductions tax reliefs—a huge giveaway of £25 billion to large corporations.
As we have debated in this Chamber, tax reliefs have a long history of corporate abuse and failure to meet their stated objectives. I remind Members of the cross-party debates we have had on the issues around the entrepreneurs allowance, the patent box and the tonnage tax, to name just a few of the allowances that have failed to deliver and been open to abuse. Unless legislative protections are put in place, there will be huge opportunities for tax abuse and waste, and a level of corporate looting that could make the billions at stake in the crony contracts and the Greensill scandal look like chicken feed in comparison.
Similarly, previous track records demonstrate that the Bill’s proposals for freeports will, unless strictly regulated, open up a vista of tax abuse, wage undercutting and the drainage of investment from surrounding regions. It cannot be right that the Government’s freeports will be in place before the Office for Budget Responsibility has done any assessment of their merits. As Tax Justice UK has pointed out, the Treasury does not even have confirmed costs for this policy, despite the Government already announcing the eight freeport sites.
Also, nothing exposes the vacuity of the Bill more than its real failure to address the existential threat of climate change with firm action. There is nothing in the Bill that dictates this priority and the scale of investment and action needed to address the crisis of climate catastrophe that we now face. If there is one thing that people have maybe begun to learn in recent months, it is that the promises of the Prime Minister and the policies of the Chancellor do not generally coincide either with reality or, as some have alleged, with the truth.
This Finance Bill evidences starkly the level of corporate capture of this Government. This is a Finance Bill for the corporations, not the people. Before the much-heralded corporation tax rises ever happen, corporations will be compensated with huge tax reliefs, including the massive £25 billion tax giveaway to corporations paid for by tax rises on working people. At the same time, £15 billion of cuts each year in departmental budgets will continue the austerity that has undermined our public services over the last decade. So, far from building back better, this Finance Bill lays the foundations for widening inequality and continuing a low-pay, insecure work economy, complemented by huge potential for tax abuse and with crony capitalism virtually embedded in our economy.
The test of the Government’s purpose in the Bill will be their attitude to the amendments that will be inevitably be tabled to protect the lowest paid from the stealth tax increases of threshold freezes; to ensure that tax reliefs are not used as methods of tax abuse; to make unearned wealth taxed at the same rate as income from work, as was proposed by the Government; and to prevent ministerial interference, tackle low pay and exploitation and ensure that responsibilities to tackle climate change are upheld. From their attitude to those amendments, we will see whether this Government are a Government for the people or, as I suspect, a Government for the corporations.
Bim Afolami (Hitchin and Harpenden) (Con)
I welcome the Bill. It is worth trying to get under the skin of Budgets, because it is so difficult. There are so many documents, there is a huge build-up, and large parts of it are incomprehensible to anybody other than the Financial Secretary. As Members of Parliament, we have to try to get under the skin of what, fundamentally, is going on here—what are the Government trying to do with the key measures?
In my view, the Chancellor is fundamentally trying to deal with one big thing that has not got enough attention in the House: our productivity problem. He is dealing with some of our deep-seated, deep-rooted economic productivity problems in two principal ways. The flashier one—and there has been some discussion of it today—is the super deduction, but I will not linger on that. In particular, I want to talk about the Help to Grow scheme, which is fundamental, transformative and can make a big difference to businesses across my constituency, Hertfordshire and, indeed, the whole United Kingdom.
On the super deduction, from listening to some of the criticism from Opposition Members, I do not think they really understand the nature of what is going on. One of the biggest economic problems that we have had for a very long time is a lack of private sector investment compared with our neighbours. That private sector investment has been further damaged by the covid pandemic for obvious reasons, as everybody appreciates. The super deduction is an inventive, creative, clever new way of turbocharging and increasing private sector investment and moving it forward so that we can help build back better during this very difficult phase that we are trying to come out of.
The hon. Member for Ealing North (James Murray) kept going on about tech companies. Well, I am afraid that he obviously has not read the detail. The super deduction is about plant and equipment. Plant and equipment tends to impact manufacturing businesses. I know that the Labour party is going through all sorts of internal difficulty and transformation at the moment, but it is a sad day when the Labour party cannot welcome measures that will benefit manufacturing businesses up and down this country.
Sammy Wilson
Furthermore, had the hon. Member for Ealing North read the detail of the Bill, he would know that the super deduction is on new capital equipment, not on second-hand capital equipment. So even the manufacturing of equipment, provided it is made here in the United Kingdom, will generate jobs and income for firms here in the United Kingdom, which will then, as the hon. Member for Hitchin and Harpenden (Bim Afolami) pointed out, increase productivity in the firms that invest in the machinery.
Bim Afolami
I welcome that intervention. Opposition Members have also been saying, “This is only going to benefit the big companies, and the poor small companies won’t benefit.” First, it does benefit all companies if they qualify. The smaller companies already have the annual investment allowance, which is continuing and has been welcomed by everybody, including by them. And—whisper it—big companies are important for our productivity too! Big companies employ lots of people, so it would be negligent of the Government to say, “We are not going to bring forward a measure that will help our economy because it might benefit big employers that employ thousands of our constituents.”
Kevin Hollinrake
May I add another point to my hon. Friend’s list of positives? Lots of the money spent because of the super deduction will be spent in the supply chain, thereby helping SMEs.
Bim Afolami
Indeed. I am having too much fun on the super deduction—I will talk about the Help to Grow scheme in a moment—so I shall finish on it. The super deduction is not something that the Chancellor just thought up as something that it might be a good idea to try; it is backed by fundamental economic analysis by people as eminent as Andy Haldane, the chief economist of the Bank of England, who I saw today has been appointed chief executive of the Royal Society of Arts. He is an incredibly able guy who has done a huge amount of work and thinking on this issue and is one of the many economists who have talked about investment being a key problem for our economy.
That brings me to the second key thing that the Budget will do for productivity: the Help to Grow scheme. So much of what we talk about in this place is the big numbers—the massive infrastructure projects, the huge budgets for the public services and all of that, which is all very important—but specific measures for small and medium-sized businesses often do not reach the Floor of the House. They are either hyper-localised in one’s constituency or they appear to be too big and too macro. The Help to Grow scheme could be really important, because it does two things that will directly help small and medium-sized businesses such as the family business that my wife runs, which employs five people, and hundreds of thousands of other companies like that.
First, the Help to Grow scheme helps to deal with our economic difficulty—pointed out by Andy Haldane, among others—which is that in most areas of the economy and of the country, we have an incredibly well-performing top 10% of highly innovative, successful companies, and we have our poorest-performing companies, and the gap between those two groups is greater than it is among all our competitors. That gap is around 80% larger in the United Kingdom compared with France and Germany. That is a significant economic difficulty for us. The question is: why is that the case?
The Bank of England’s analysis points out two key things among lots of different things. The first is technology adoption. In effect, the most successful, innovative companies adopt the newest technology and use it well, and the companies at the bottom end do not. The Government are trying to address that diffusing of knowledge throughout the economy and throughout different regions with the Help to Grow scheme. How? The Government are providing grants and assistance for productivity-enhancing software for companies in every single sector and the ability for them to get online help and advice on what technology to adopt. That could make a huge difference to hundreds of thousands of businesses all around the country and should be welcomed by everybody in this House.
The second aspect of our productivity difficulty is management and our utilisation of human capital—that is, the people who work in businesses up and down the country. How are we dealing with that? The Chancellor has an MBA from one of the best MBA schools—if not the best—in the world, Stamford, and went on to have a very successful career in finance. Not everybody will be able to do that or has the time and ability to do that, but everybody—right down to the small companies in each of our constituencies—can get huge benefit from access to high-quality management training provided by the very good local business schools up and down the country. The Help to Grow scheme gives the individual managers and owners of SMEs the ability to access that sort of knowledge, which is the sort of knowledge that most people running SMEs do not get.
If we combine that improved management capability—by the way, the Bank of England has identified that management capability is poorer in this country than it is in our competitors—with the adoption of technology, we have a ready-made mix of policies directly targeted to improve the most difficult aspects of our productivity problem. I do not know whether Help to Grow will deal with everything—I suspect it will not—but it will make a big difference, and it is a shame that so few Opposition Members have managed to understand and see the depth of seriousness of the Chancellor’s approach in that regard. That really needs to be brought out.
I shall finish—[Interruption.] Yes, I know I should finish. Hanging over us today is not just as an unusually cold April but the spectre of inflation potentially coming back in the next year, two, three or four years. There are many people warning about this from all over the world. If inflation does come back to whatever degree, interest rates may need to go up in future. If interest rates do go up, lest the House forgets, the need for fiscal responsibility will not have gone away. Small rises in interest rates do not just affect households trying to get mortgages or businesses trying to expand or to get debt; they also affect the Government hugely. Underpinning the Chancellor’s approach across everything I have said and lots of other things that have been talked about is a core understanding that fiscal responsibility matters. This Finance Bill helps to keep that in check, reminds the House of that, puts us on the right course and deals with our productivity problems, and I welcome its Second Reading.
Peter Dowd (Bootle) (Lab) [V]
I support the reasoned amendment in the names of my hon. and right hon. Friends. I hope to make a brief contribution, given the scope of the debate—I do not want to fall foul of your legendary patience and tolerance levels, Madam Deputy Speaker—but it goes to the heart of the concerns on the Opposition Benches that the Government are failing to address the many challenges faced by a whole variety of sectors across the country, especially in the light of covid.
I want to use one example in due course of the lacuna—not addressed substantively in the Bill—that may affect the finances of families and the broader health of the economy, which in turn impact on revenue raising. It is a proxy for the wider malaise that the Bill does not address.
I appreciate that the Bill is about raising revenue and not necessarily the spending of that revenue. In this regard, my call for spending on palliative care—the care that enables people to live life as fully as possible and enjoy precious time with loved ones before the end of life—is vital, but is not necessarily about revenue raising. However, I recognise that the Government have to some degree recognised how important the independent hospice sector is to our health and social care and the benefit it brings to the economy. The Government have recently used revenue from previous Finance Bills or borrowing to support the sector and enabled it to survive. Crucially, that eases the financial pressures on the families of those affected who need palliative care, but that is a proxy for the Government in this Bill not addressing the real needs of the economy.
The economy has been under stress and will continue to be so for a considerable period of time. We all have our experiences of families who are affected in one fashion or another, and palliative care and the support of people in that situation are part of that. It is time for the Government to recognise that they have to look after those in most need and use the benefit of the Finance Bill to raise revenue to support them.
The hon. Member for Hitchin and Harpenden (Bim Afolami) talked about productivity. Yes, we are one of the worst nations in the G7 for productivity. We are about 30% less productive than the Germans, about 20% less productive than the French, about 9% less productive than the Italians, and similarly 30% less productive than the Americans. There is nothing at all in this Bill in substance that deals with productivity issues. As much as the hon. Gentleman likes to say it, the Bill does not deal with that. It does not deal with job insecurity, low pay and low skills. It does not deal with inequality in education, social care and health. It talks about levelling up, but when, where and how? They are just phrases. There is absolutely no action and no route for the action that the Government wish to take over the years.
My example in relation to the health sector, and in particular the palliative care sector, is a proxy to say, “We should be investing our resources in supporting people in need, whether that is on job security or the hospice sector, because if we do not, it impacts on the economy in one fashion or another.”
I do not want to go on too much, so I will finish on this point. I would like to put on record my disappointment that the Government are continuing with the no amendment of the law provision. As the Hansard Society notes, if there is no amendment of the law resolution, then
“no amendment”—
to the Finance Bill—
“may be moved unless the relief proposed is covered by one of the Ways and Means resolutions…Nor may an amendment…exceed any figure prescribed in the relevant resolution.”
In doing this year after year since about 2017, outwith elections, the Government are breaking a 90-year-old protocol. They are freezing Parliament out. Regrettably, this is yet again more chipping away at the powers of the House by the Executive’s sequestration programme, supported by obtuse Members on the Benches opposite. That is all I have to say on that matter.
Peter Aldous (Waveney) (Con) [V]
It is a pleasure to follow the hon. Member for Bootle (Peter Dowd).
In considering the provisions in the Budget presented by my right hon. Friend the Chancellor of the Exchequer on 3 March and the ensuing Finance Bill, it must be borne in mind that they are being delivered against a backdrop of wholly unprecedented economic circumstances. The global economy has suffered a shock that has not been seen for almost 100 years. Set in that context, my right hon. Friend has generally struck the right balance in supporting people and businesses through the crisis, beginning the task of fixing the public finances and laying the foundation for an investment-led green recovery.
There are some very welcome initiatives: the extension of furlough to the end of September; two further grants for the self-employed, with an additional 600,000 people eligible; the restart grants; extending the VAT cut to 5% for a further six months, before tapering for another six; the extension of the business rates holiday for three months, before tapering for nine; the increase in corporation tax, but with a small profits rate retained at the existing level; the super deduction on capital investment; and the steps to promote pension fund investment in infrastructure.
From a Suffolk and Waveney perspective, the headlines in the Budget and the Bill are the Felixstowe freeport and the Lowestoft towns fund deal. These can be a catalyst for private sector investment. For the latter, where I sit on the place board, it is estimated that the £24.9 million of public funding will leverage in £350 million-worth of private sector investment. Previously, I was doubtful about freeports, concerned that they move business around, displacing projects rather than attracting additional investment. However, taking into account the unprecedented challenges of covid and the opportunities of Brexit, it is necessary to pursue policies that can help to attract footloose global investment, although, as we heard, the provisions of the policy will need to be looked at very closely.
A concern I do have is that the focus on freeports could lead to the abandoning of enterprise zones, introduced very successfully by my right hon. Friend the Member for Tunbridge Wells (Greg Clark) in 2012. The Lowestoft and Great Yarmouth enterprise zone has worked very well. Its provisions need some changes, so that it is properly aligned with the exciting opportunities emerging in the maritime and port sectors. It is important that that and other enterprise zones continue.
The Finance Bill paves the way for the levelling-up fund and the UK community renewal fund. There are elements in the small print that cause me concern. With the former, the Lowestoft and Waveney area, where there are significant areas of poverty, is in the priority 2 category, while with the latter there are no priority places in Suffolk, yet there are in the surrounding very similar counties of Norfolk, Essex and Cambridgeshire. This appears illogical and not properly thought through. I am writing to the Secretary of State for Housing, Communities and Local Government seeking clarification of the selection criteria.
Covid has hit hard the poorest in society. It was thus right that a year ago the Government moved quickly to introduce the £20 uplift to universal credit and to provide unprecedented levels of funding to local government for welfare support. I welcome the extension of the universal credit uplift to the end of September and the one-off payment of £500 to those receiving working tax credit. However, I am concerned that the impact of covid on the most disadvantaged will extend beyond the end of the summer and could well be heightened at the time that furloughing is scheduled to end.
The Government have put in place some very good initiatives, such as the kickstart scheme, the restart scheme and the lifetime skills guarantee, but there needs to be a strategic approach to providing people with a pathway out of poverty and there is a worry that some important stepping stones are missing. I urge my right hon. Friend the Chief Secretary to the Treasury to work closely with his Cabinet colleague and my constituency neighbour, the Secretary of State for Work and Pensions, my right hon. Friend the Member for Suffolk Coastal (Dr Coffey), to ensure that we have a welfare support system that is fit for the task ahead. This should incorporate proper long-term funding for local welfare assistance and synchronisation with the implementation of the national food strategy, and it should ensure that those on legacy benefits are not left behind.
In conclusion, the Bill provides the framework for meeting the biggest economic challenge in our lifetime, but there is a need to look more closely at some of the detail, whether the criteria for bidding to economic regeneration funds or the need for a strategic approach to welfare support. I hope that the Government will do that in the weeks ahead.
Stella Creasy (Walthamstow) (Lab/Co-op) [V]
This week the shops have opened, many of us have finally had a haircut and some have even had their eyebrows done. Vaccines are being given out and unemployment has started to fall, which we all welcome. We know how hard this year has been for our constituents and the challenge of how to help weighs heavily on the minds of many across the House. Some would say that that challenge is just about the impact of the pandemic and that this week shows that it is slowly being addressed—that it has been a horrific year with the loss of loved ones, and the shutdown of businesses made necessary to prevent transmission, but we are making it through. And let’s be honest, some people have done well in the last year. We have seen them: the ones who have been able to spend time with their families and to work from home okay—wi-fi willing. They are the ones the Chancellor is counting on to spend their savings and make his sums work—the people to whom short-term measures to keep pumping up our housing market and spending on DIY will appeal.
Thanks to the Chancellor’s efforts and legislation such as this, everything is neatly in place for a classic short-lived consumer-led boom. Cheap borrowing costs and the stamp duty holiday mean that the residential property market is red hot. Indeed, last November, this country paid back more than it had borrowed on its credit cards for the first time since July 2013. But to say that we are heading out of the woods and just to keep going is to fail to recognise why we are so vulnerable in the first place, why the UK economy collapsed so badly over the last year and why our communities were so at risk of harm from the virus that our death rate has been so high—the underinvestment and austerity that mean that our productivity rate is so sluggish, our poverty rate is rising and our people are not waving but drowning in their debt. We do a disservice to our communities if we underplay these issues or the scale of the task ahead.
We need a Finance Bill made not for the here and now, but for the long term. We cannot go back to normal when normal means 23% of our population living in destitution; when millions of people are sitting on debts and rely on insecure work in industries that will never be the same when furlough ends; when our health inequalities have worsened so dramatically over the last year.
In addressing those underlying problems in our economy, I can welcome much in the Bill. I recognise that it is right to look at corporation tax, given that those with the broadest shoulders should help the most with repairing our fractured economy. We should be tackling the devastating impact on our environment of plastics; with some amendments, the proposals could drive not only a reduction in use, but new industries. We should be trying to tackle tax avoidance, although I always tell Treasury Ministers that it would be simpler to ask my right hon. Friend the Member for Barking (Dame Margaret Hodge) what they should do next.
The truth is that the Bill takes a nut to a sledgehammer. We would do better if we were to start again, rather than continue on with the fantasy that, with a few tweaks here and there, everything can go back to normal—whatever normal is. My worry is that relying on the fantasy the Bill creates will leave millions of families abandoned who may have weathered the shock of the pandemic, but were always going to be sunk by continued austerity. While millions have benefited from working from home and being able to save, millions more are struggling to make ends meet, having lost their job or seen their income fall.
The Institute for Fiscal Studies found that last year the richest fifth of households swelled their bank balances by over £400 a month, while the poorest were about £170 worse off each month. This is not people spending to entertain themselves during lockdown. Citizens Advice shows that roughly 6 million people have fallen behind on at least one household bill during the pandemic. Most people visiting the citizens advice bureau for debt advice are not coming to ask about credit card debts or rent-to-own purchases; instead, they are in debt to the public sector because of tax credit overpayments, benefits overpayments, council tax arrears or utility bill arrears. The Trussell Trust tells us that over half of food bank users struggle to afford food and clothes because they are repaying universal credit debts. Anyone who questions why that extra £20 matters should look at that information and realise that it needs to become permanent.
In total, £10.3 billion of debt and arrears attributable to covid have built up in the UK, most often by those who were already struggling before the pandemic—people such as renters, young people, single parents and low earners; people who, now that evictions have restarted, have few options when it comes to keeping a roof over their head; and many who were excluded from Government help altogether. I see nothing in the Bill to change those facts. Indeed, instead of helping, the Bill is walloping them with a tax rise. It squeezes family finances by freezing the personal allowance, after many families will have struggled to pay their increased council tax bills as well. The Chancellor might think he is being clever by using the least visible taxes to raise funds, but I tell him this: the public will notice. They notice when nurses get a pay cut, when VAT goes up and when they have even less money left at the end of the month with which to pay their bills. They notice just how segregated this country has become, with the haves and the have-nots not just in income terms, but in the divides between town and city, north and south, because of our failure to invest in the people of this country.
“Freeports!” the Government cry in answer. The Bill suggests that this will somehow generate jobs and growth in communities that were struggling long before anyone had heard of covid-19, but no one can explain why, if regulation is bad for business in the Thames Gateway, it is not bad for businesses in my community in Walthamstow. This is not the levelling-up agenda we need. It does not recognise that we stand alone among OECD economies in the extent to which our productivity problems are regional rather than sectoral, or that a super-deduction scheme will do little to invest in the children of Hartlepool, Harwich or Hendon.
We need not just to build back better, but to build back for all. Andy Haldane has highlighted that around 10 million people in this country are on insecure contracts. Our economy was so hard hit by covid because it was over-reliant on services, which made up as much as 80% of our GDP, whereas just 14% was based in construction and just 6% in manufacturing. The Bill shows that the Government still have not learned the lessons about how we are able as a nation to handle future shocks and diversify; to invest alongside business and academia in new technologies; to learn from the vaccine programme and encourage co-operation and innovation alongside the state and not in spite of it; or, in the run-up to COP26, to provide the incentives to renewable energy manufacturing and production that could futureproof our economy for decades to come.
This Government have no answer to our research and development sector, which is crying out for support while they use this Bill to give a tax break that will go to the biggest corporations and venture capitalists. Our charity sector is on its knees, but it gets nothing from this legislation. Charities cannot claim the super deduction tax for their IT equipment, whatever the hon. Member for Hitchin and Harpenden (Bim Afolami) might suggest.
Other nations are investing in their people and infrastructure, yet our Business Secretary has chosen this moment to abandon the industrial strategy enacted just four years ago and replace it with something that is neither industrious nor strategic. Combined with the approach in the Bill, that will simply confirm what a lot of companies and investors have already suspected for some time—that it is unwise to expect any UK Government to stick to a programme of supply-side reform for more than a couple of years. Frankly, the UK has generally got away with muddling through economic crises in the past, but the scale of the challenges that we approach makes that inadequate at this point in time. And we have not even today even really begun to understand how the B-word—Brexit—interacts with these longer-term challenges, hitting as it does our high-productivity export sectors while covid hurt our employment-rich domestic service sector. But truthfully, nothing in the Bill will help those at the mercy of either factor—unless they happen to have shares in Amazon or Google, or possibly the Chancellor’s private phone number.
Austerity has weakened the very foundations of our economy, but it is a political choice that the Chancellor is making in this legislation to use straw dust, not concrete, to try to repair them. Parliamentary time is valuable, and tax and spending is crucial to get right in such a context, so I propose to the House that we reject the Bill today and instead demand better for all our constituents.
Julie Marson (Hertford and Stortford) (Con) [V]
The Financial Secretary set out very clearly that the post-pandemic context of the Bill is unlike anything that we have faced before. What I see in the Bill is an understanding that it is not Government’s role to create growth and prosperity. Government does not create wealth or growth—consumers and businesses do that. We, like a groundsman, have the crucial job of preparing the pitch for our players. We have the crucial job of ensuring that the players—consumers and businesses—have the right pitch that they can play on to create that growth and prosperity. There is no doubt that we are playing on a really tough wicket at the moment, so we have a really tough job on our hands as that groundsman; but I think the Bill rises to that challenge.
With that in mind, there are two questions that I ask about the Bill today. The first is whether it maintains and secures support for businesses and consumers in my constituency and throughout the UK. In Hertford and Stortford I have spoken to so many businesses—so many pubs and restaurants, and those in hospitality—that will greatly welcome the extension of the VAT cut, the business rate holiday, restart grants and the many other measures of support that the Chancellor is delivering through the Bill. We could combine those with extending the lost carry-back, providing new VAT deferral payment schemes and extending furlough—things that I do not have time to cover. The Government are clearly innovating and continuing to provide packages of flexible support that will maintain protection for those businesses and the jobs that are still subject to restrictions.
The second question is whether the right combination of policies is in place to enable long-term, sustainable economic growth. That is the area most important to the long-term health of our economy, and that is where the Bill contains measures that I particularly welcome, such as the super deduction, freeports, the UK Infrastructure Bank, Help to Grow, the Future Fund breakthrough and refinements of our tax system, which will ensure that investment levels keep pace in this country and grow to support innovation and promote growth in strategically important sectors of the future—I commend the remarks on that subject by my hon. Friend the Member for Mid Norfolk (George Freeman).
To keep it brief, I am very happy that with the Bill the Government have risen to the challenges that we face and I wholeheartedly support Second Reading. It gives us the pitch that we need, as the economy’s groundsman, to withstand the bouncers and the strength to knock the ball out of the park—well over the boundary—for the future. I commend the Bill and look forward to seeing its results on the ground, particularly in Hertford and Stortford.
Sammy Wilson (East Antrim) (DUP)
First, I think everyone recognises that the Chancellor had a very difficult job when bringing forward the Budget and the subsequent Finance Bill. There are many things pulling in different directions. On the one hand, as the Financial Secretary said at the very start, we have to make sure that we have dealt with the impact of the restrictions on the economy and the difficulties that was causing for businesses. Secondly, we have to look at the recovery: how to recover from GDP falling by 10% and unemployment going up by 700,000—indeed, there may be other factors to come—and then, of course, we must look at the long-term sustainability of the economy. At the same time, we did not want to be sending out the signal that we are careless about the debt we have incurred, otherwise the signals to the financial markets may cause us a bit of difficulty. So no one envies the Chancellor the job he had to do.
Before I say anything about the objectives the Chancellor has set out, I want to make some comments about specific Northern Ireland parts of the Finance Bill. As has been discussed time and again in this House, the Northern Ireland protocol has placed considerable burdens on the Northern Ireland economy already. One of the areas affected has been the steel industry, or industries that use steel in Northern Ireland. Because of the quota system and the taxes where steel is consumed out of quota, they faced 25% increases in the cost of steel. My party drew this to the Chancellor’s attention, when others were of course trying to pooh-pooh the impact of the protocol; they supported it, so they did not want to know its bad effects, although now they cannot ignore it.
As the Chairman of the Treasury Committee, the right hon. Member for Central Devon (Mel Stride), has said, when the issue was drawn to the Government’s attention, it was dealt with, and I welcome clause 97, which tackles it. It ensures that engineering firms in Northern Ireland, which do have considerable global markets, but would have found those global markets affected by the 25% tariff, are now exempted from that. I would just point out to Members that one of the major landmarks in London is the Shard, and the steel for the Shard was cut, packaged and sent in sections from Fermanagh in Northern Ireland and is now part of one of the iconic buildings here in GB. Many engineering firms of course export heavy machinery, and the steel tariff would have been extremely onerous on them.
I am disappointed, however, about other issues that we were told would be dealt with in the Finance Bill, such as the customs regime that has caused huge costs in Northern Ireland. Customs declarations for even the simplest thing now have to be made for goods coming from this part of the United Kingdom to Northern Ireland, which has added considerably to costs. I was speaking to a firm today, and on average—and it does not even matter what the size of the order is—the cost of customs declarations, supplementary declarations, frontier declarations and the guarantee management system arrangements adds £20 to an order. When the firm ordered a specialist screw that cost 35p, there was a £20 surcharge on it because of the arrangements under the protocol. I was hoping the Finance Bill would deal with some of those issues, but it has not, and I think the Government will have to come back to them.
Let me come to the issues the Chancellor had to deal with. I do not think anyone can deny that the Government took the right course of action. They had no option in my view. When they decided that they were going to close down the economy, they could not abandon workers, firms, businesses and so on, so huge amounts of money—over £400 billion—have been spent on support. As a Unionist, I keep on reminding people in Northern Ireland that the support that businesses have had, as well as furlough payments that workers are still getting, self-employed payments and so on, are owed to the fact that we are part of the fifth biggest nation in the world and, without the support of the Exchequer in the United Kingdom, we would not have been able to find a way through. Of course, the health service has also benefited from the vaccine programme. On that aspect, the Government have made the right choices and those clamouring for independence, even if they have no emotional ties to the United Kingdom, ought to remember the economic benefits of being part of the United Kingdom.
At the other end of the scale, looking to the future and having a sustainable economy, the Finance Bill deals with many of those issues. We have already had a discussion today on the tax allowances, which have been maligned by the Labour party, but they are designed to ensure that businesses across the United Kingdom have an incentive to use their profits to invest to increase productivity and competitiveness and to benefit from the opportunities that Brexit will bring us in doing deals across the world. Spending on apprenticeships and training will increase the skills of our workforce and prepare those who need to move into new industries with the skills they will need, again increasing productivity and competitiveness.
There has been some debate about the value of freeports, but they, too, will help to deal with the long-term sustainability of the economy. My main concerns are on the aspect that concerns most people in the immediate period: does the Finance Bill deal with the issues that must be addressed to get us back from where we are at present and help us to start growing the economy? I will look at the figures given in four areas. Let us take the income tax proposals and the freezing of allowances. I understand that the Government have not increased tax rates, but the freezing of allowances will increase the tax burden. If we are relying on consumer spending to aid our recovery—do not forget that 80% of our GDP is consumer spending—even though there may be some pent-up unspent money and demand, when we nevertheless consider that as a result of the proposals over the next five years we will take 25% more in income tax from people in the economy, and 10% more in the next year, we must ask: will that dampen the immediate increase in GDP and the immediate demand we require to get businesses going again?
Let us look at VAT. Yes, I welcome the rate for the hospitality industry being held until September, and then there will be a reduced rate until March 2022, but I speak to businesses in the hospitality industry who have already expended considerable amounts of money converting their premises to make them safe and, even though they have had support over the last year, many have still had to dip into their reserves because not all their costs were covered. One hotelier in my area told me that in the last year he has spent £3 million of his own money paying those bills that still come in and for which he was not given any support, and no support was available. Businesses will therefore find themselves in a perilous position and we do not know how quickly they will be able to operate fully. When will restaurants be able to have people sitting inside? When will pubs have people sitting inside? While still social distancing many will be operating with lessened capacity, and if they cannot do that, their profitability will be affected. Yet even before all the restrictions are lifted—they will be lifted at different rates in different parts of the country, and in Northern Ireland we do not even have a date for restaurants and pubs being allowed to open—we find that some of that support will be removed.
My third point is about business rates. Again, if we look at the impact of business rates over the next five years, the impact of the Budget means that in money terms, the business rates take across the economy will go up by 50%. In the next year it will go up by 20%. That is a considerable burden on businesses that are coming out of a difficult period, that have not built up cash reserves, and that still do not know exactly how the economy and the demand for their services will increase.
Corporation tax has been mentioned, and on one hand—I have some sympathy for this—those companies that invest will get the super allowances. However, because of the increase in corporation tax and so on, over the next five years covered by this Budget, corporation tax take will go up by 112%, or 20% over the next year. If we are looking at how to stimulate recovery, we must ask whether taking that amount of money from consumers, businesses, and the hospitality industry will reduce the impact of the Budget and make it more difficult for the economy to recover.
My final point is about air passenger duty. Air passenger duty is going up, and over the next year, the take from that duty will increase by 50%. According to Red Book figures, over the five years of this Budget it will go up by 300%. This industry is currently in the doldrums. It has no prospects, because we do not know when international travel will be allowed again. It has already had a considerable drain on it, and there has been no specific strategy for it as there was for the hospitality industry. In many areas of the United Kingdom, especially areas such as Northern Ireland where we rely almost totally on air connectivity, there has been an impact from the reduction in flights. I came here yesterday. There was one flight from Belfast City airport. That is putting airports under severe strain, yet when we consider the proposals in the Finance Bill, we find that rather than there being any help for this industry, which has been particularly badly hit, the proposals in the Bill represent a huge cash take from that industry in the next year and over the next five years.
For those reasons, although I commend what the Government have done regarding the particular problems caused by the economic decisions made to deal with covid, and I commend their long-term strategy in considering how to make the economy more sustainable in future, there is a big gap regarding what impact the Bill will have on the immediate recovery. We are going to have a difficult period. Once furlough finishes, we do not know what the impact on the economy will be, what the redundancies will be like, and what that does. The proposals in this Finance Bill, I am afraid, do not give me any optimism that the right decisions are being made. Some support did need to continue to be given. In their desire to reduce the debt and bring in more revenue, the Government may well have made the wrong decisions that will stymie our recovery and have impacts on many areas, especially those that are most vulnerable to downturns in the economy, including regions such as Northern Ireland.
John Redwood (Wokingham) (Con) [V]
I have declared my business interests in the Register of Members’ Financial Interests. I strongly support those MPs from Northern Ireland who are urging the Government to move on and make sure that we can restore the important trade between Great Britain and Northern Ireland. It has been damaged. The EU is being too intrusive. The Northern Ireland protocol clearly sets out that the United Kingdom is a whole and has its own internal market. It states that Northern Ireland should be fully part of that market, and that is not true today, so I urge the Government to take control over all trade that is internal—trade from GB to Northern Ireland and not going on to the Republic of Ireland, therefore not of concern to the European Union—and to ensure that it runs smoothly.
That is just one part of a much bigger picture that we need to fuel a strong recovery. Of course I agree with the Government that the current level of deficit is unacceptably high and we cannot go on with deficits on that scale indefinitely. I also agree with the Government that it must be a one-off, and the Government did need to be very generous, given all the damage being done to individual livelihoods and businesses by the health measures being taken to combat the pandemic. But all the time that restrictions and adverse measures are in place for health reasons, the Government should continue to be generous. People and business need support. We want people to be available to go to work and businesses to be available to produce goods and services as soon as they are legally allowed to do so.
It is a big cost, but it is manageable. We are seeing around the world that many Governments are having to do the same thing, interest rates have stayed very low and, so far, the debt has remained affordable. I encourage the Government to understand that the deficit will collapse very rapidly as soon as the controls are off and all those policies in place to promote a fast economic recovery take effect. We are going to have a much faster recovery than normal once the controls are off, because we had a much bigger fall thanks to the controls themselves, which, in an unprecedented way, stopped people working and stopped businesses trading.
The Government should take some encouragement from the United States’ example. The United States’ monetary stimulus and fiscal stimulus are huge. If we adjust for the size of the economies, the stimulus under the Federal Reserve Board’s actions and President Trump and now President Biden is about twice the scale of the UK stimulus in monetary terms and is considerably higher in fiscal terms. Perhaps the US is taking more risks with inflation than we would like. I am not suggesting that we need to match the American numbers, but I am saying to the Government that we are nowhere near the American numbers, so worry not. This is the time for stimulus—this is the time to make sure that the economy is properly supported and people can get back to work.
With that in mind, I urge the Government to look again at the idea that we need tax rises in the years ahead. If we threaten too many tax rises, it will damage confidence. We will put people off investing here and make people nervous about spending and make them want to save more. This is the time when we need people to spend, to recreate those jobs and get businesses going again. This is the time when we really need businesses to want to come to the United Kingdom or to stay and grow in the United Kingdom, because we need that massive investment. We are short of capacity in all sorts of areas. We have had too much deindustrialisation over the last few decades, and now is a great opportunity to promote it. The Government recognise that with their short-term measures to boost investment, but they may need to show that we are going to have a very benign climate on business tax after the initial impetus and stimulus is offered. If people think that we are going to gravitate to the average or to a higher tax regime, it will put them off.
I pray in aid our neighbour the Republic of Ireland, which has been extraordinarily successful by having an extremely low corporation tax rate. It is 12.5%—a knockout low rate—and what has happened? First, the Republic of Ireland collects far more as a proportion of its total tax revenues from business than us or other European Union countries, because so many great companies have gone there and book a lot of profit there, since the rate is obviously agreeable and favourable.
The Republic of Ireland also has a much higher GDP per head. It is more than twice the EU average, and it is considerably higher than the United Kingdom’s. That is entirely because the Republic of Ireland has this extremely attractive tax policy, which has been so successful in attracting a lot of inward investment, a lot of jobs based on that, and a lot of turnover and profit booking, particularly from great American corporations.
I do not know how that will work out now that President Biden is encouraging a minimum rate, which would mean almost doubling the Irish rate; we will have to see. However, in the meantime, if anyone doubts the power of lower rates to generate prosperity, greater GDP per head and, above all, greater tax revenue, they should look at the Irish example, which is very vivid.
I would like to see the Government speed up with their freeports and be very generous with both the number of freeports and the areas they cover. I also urge the Government to be as friendly as possible to business on taxation and on permits over what to do with the land and how to create all those extra jobs we wish to see. It is an interesting initiative, and the sooner it is rolled out the better. Surely, this is the time we need it—when we need to promote recovery.
I also say to the Government that we need our small business community to get back on its feet and to be able to trade again successfully. Small businesses have had a lot hurled at them, and some of them did not manage to benefit from all the schemes that the Government put forward, so they have been particularly hard hit by up to a year of lockdown or impediments to their trading and their normal work.
I do not think this is the time to be looking at new taxes on small businesses and the self-employed. I do not think the IR35 idea is a particularly good one. It would be good if there were more forthcoming to promote small businesses, which we are going to need. They will have flexibility and the ability to respond. If every self-employed person were able to take on an extra employee, it would transform the employment position, but that requires patient work on ensuring that it is affordable and that the administrative burden is not too great, obviously without undermining important protections for individuals as employees, which we rightly value.
We need flexibility and support from the Treasury and the rest of the Government to understand how important small businesses and the self-employed will be to trigger this revival and to build back in a different way—to build back better, as they are saying on both sides of the Atlantic and as this Government are saying. That implies doing different things, and it requires the innovation and the productivity-driving measures that can come from small companies and the self-employed, who need to be flexible.
There is a huge amount to be done, but the Government should be of good cheer. There can be a very rapid recovery. They have not done too much on the deficit or the monetary stimulus and have fallen quite a long way behind America in the size of the stimulus. They should be ready to do more, be generous if the controls have to go on longer than we would like, and work with the small business community and the big business community on what is a sensible tax regime. There are issues still to be solved on business rates and VAT. The whole purpose of the reviews should be to promote a strong recovery—better jobs, more better-paid jobs, more small business—and then the revenue will flow. Think of the jobs, the incomes and the prosperity, and the revenue follows. Thinking too much about the revenue first, in the mood of putting everybody’s taxes up, will be a great dampener on the recovery we need.
Kevin Hollinrake (Thirsk and Malton) (Con)
It is a pleasure to follow my right hon. Friend the Member for Wokingham (John Redwood). My comments relate to the small and medium-sized enterprises that he was talking about so passionately. The sage of Omaha, the great Warren Buffett, once said that what we learn from history is that we do not learn from history. I particularly want to look at what happened to the SMEs after the last recession—the global financial crisis. It was the five years following 2008 that were so destructive for SMEs, and I am very keen to ensure that we do not make the same mistakes again. I draw the House’s attention to my entry in the Register of Members’ Financial Interests.
I was interested in the comments of the shadow Minister, the hon. Member for Ealing North (James Murray). On tax avoidance, he must never have heard about the diverted profits tax or the digital services tax; they are very key measures. One thing about the DST that should be looked at—perhaps he will join the calls for this to be looked at as well—is that direct sales of Amazon are not covered by the digital services tax. That gives Amazon a competitive advantage over the other sellers on its platform, which cannot be right.
The Government are consulting on business rates reform and have three ideas: a land value tax; an online sales tax; or VAT. I strongly urge the Minister to consider VAT as a replacement for business rates, which I advocated in my ten-minute rule Bill.
The shadow Minister talked about social care a lot. He mentioned many problems, but did not come up with any solutions. One solution that I have advocated long and hard in this place is a German-style social care premium, which, hopefully, will feature in the Green or White Paper that is due to come forward shortly.
The Government have included many things in this Bill for SMEs. A typical SME is very grateful for the support that it has received from the Treasury, which has done a tremendous job in concert with its various agencies, introducing the job retention scheme, VAT discounts, and rates grants, particularly rates discount.
The Government have also introduced some very good loan schemes. I speak as co-chair of the all-party group on fair business banking. A very wise commentator said at the start of those loan schemes that the Government would not lend £1 billion using those loan schemes; some £75 billion later, we can see the success of those schemes. That, of course, has led to an unprecedented level of debt among SMEs in this country, which is what I am particularly worried about. On top of that are the new loan schemes coming from the recovery loans, which will be more difficult for SMEs to access. Unlike the other schemes, there is a forward-looking viability test, which will be challenging. Either way, it will mean that many SMEs are carrying lots of debt, which they will struggle to service over the next few months and years.
Furthermore, what will happen when the Government pull those schemes and let the banks go on their own in terms of lending? After the last crisis, banks were not very good at lending to the SME community from their own resources—bank lending to SMEs reduced by 25% between 2008 and 2013, just at a time when SMEs needed it. In Germany, where there is a high proliferation of regional mutual banks, which take a much more patient approach to SMEs, lending went up by 20% from those bodies. A policy that we should really push in this country is decentralising our business banking system, so that, rather than 80% of lending coming from large banks, we move towards a more regional, mutual, not-for profit system of banking, which would have a transformative effect in terms of lending to the productive economy.
The key thing in terms of making sure that SMEs are treated fairly is in the forbearance process. When businesses hit trouble, they need to be treated fairly and consistently. The Government did absolutely the right thing with bounce back loans. They set up a framework for how it would work, which lets SMEs take 12 months interest free, or payment free. They can take another six months of no payments whatsoever, and then another 18 months of interest only. They can also extend the loan to 10 years from the standard six years, which more than halves the payments on bounce back loans, which is great, without getting into any credit problem with their bank.
Similar measures do not apply to coronavirus business interruption loans or the larger scheme, CLBILS. That leaves businesses on their own. I urge the Government to work with the banking system to ensure that businesses of all shapes and sizes that have accessed these loans to help them through the crisis have these forbearance measures at their disposal without them having to go cap in hand to the bank. We know that banks are not very good in these situations when their money is at risk. Their shareholders need returns. We need support for SMEs.
Personal guarantees are also an issue, which will come as a surprise to many. I have put personal guarantees up for my business lending most of my life. If someone puts up a personal guarantee, most people think the bank will go to the business first, look at the business assets and realise those before it goes to personal assets. That is not the case—it does not have to do that. It can go straight to personal assets. The Lending Standards Board put in place a policy that banks should look at business assets first before going to personal assets, which has now been dropped from its regulations or guidance. I would very much like to see that brought back in, particularly at this time.
Thankfully, there is now dispute resolution in the form of the Financial Ombudsman Service and the Business Banking Resolution Service. All businesses with a turnover of up to £10 million will get access to free dispute resolution, which should mitigate some issues, but there are concerns nevertheless. I urge the Treasury to look at this point and make sure that businesses are treated fairly over the next few years in the fallout of this crisis.
Geraint Davies (Swansea West) (Lab/Co-op) [V]
I, too, pay tribute to Prince Philip; in tribute to him, I am wearing my father’s tie. Like Prince Philip, he served in the Royal Navy in the second world war. He lost his own father at the age of 12; Philip was, of course, estranged from his father at 13. Both fought the Nazis.
I mention this partly because the main conflict there was the battle of the Atlantic, which was the attempt by the Germans to starve Britain. In 1939, half our meat, 80% of our fruit and 70% of our cereals were imported. Last year, 80% of our food was imported. Thanks to the botched Brexit deal—there was no mention at all of this in the Budget—we now have the prospect of self-imposed food shortages. In January our exports to the EU, our largest market, were down more than 40%. Imports were down by 29%. They will go down more when we introduce non-tariff barriers. The reality is that in Britain today, a carrot pulled up in Spain on Monday could be on our shelves by Thursday. That will no longer be the case. We face the prospect of food shortages and food inflation.
The Office for Budget Responsibility found that the botched Brexit deal would cost the economy 4% within 15 years, and something like 1.4 million jobs and £1,300 each. The reason we are seeing tax increases, taking us to a share of taxes not seen since the 1960s, is not the pandemic, which is a one-off hit that will be recovered, but the ongoing problems of the botched Brexit. We need to remember that. We need to look towards better realignment and better trade with our closest marketplace.
The other thing to bear in mind is that last year something like 1 million people from the EU left this country to go back to Europe. Many will not come back, partly because of the hostile environment here, and that creates an issue about the size and quality of our labour market when it comes to productivity and production. The EU is already questioning the legality of our breaches of the Northern Ireland protocol and there is a question mark over divergence of standards and protections in the future that might lead to tariffs. If we manage this badly, we may be hit even harder.
For those on the Government Benches who say, “Oh, don’t worry—we’re opening up loads of other markets,” it is worth remembering that, the Japan deal, for example, is worth £1.5 billion to GDP, but if it had been done through the EU, it would have been worth £2.6 billion, because it can negotiate a better deal because it is bigger.
The truth is that while the Government are spending enormous amounts of money on covid, that is not really the explanation for the massive personal tax increases that Britain will suffer.
The other thing to mention about productivity, other than the loss of young workers to the EU, is that not only have we had the highest rate of death in the world from coronavirus, but there is clearly a move, once we have got people over 50 vaccinated, to be reckless again. The issue is the fall in productivity of younger people with long covid. We all know anecdotal examples, but we do not know the full impact of that. I have knowledge of music students, for instance, who have had a shake—a violinist—or who cannot blow the trumpet as well because they have lost lung capacity. These issues are significant for the overall productivity of our economy in the future.
On the workforce being fit and ready to work for our recovery, we should also think about the fact that in today’s Britain, 7.6 million people are living in hunger, 1.7 million of whom are children—it is an absolute disgrace. They are left in food insecurity, as the UN calls it and as the Environment, Food and Rural Affairs Committee recently reported. In essence, that means that they do not have sufficient nutritious food on a daily basis. That is deplorable.
Interestingly enough, in 1952, when the Queen came to the throne and Philip was 35, rationing was still in place for sugar, butter, meat, cooking fat, cheese and so on. In that year, Aneurin Bevan, the founder of the national health service, famously wrote “In Place Of Fear”, in which he warned that while we had to confront poverty and that it was difficult to define, the basic requirement was to ensure that there was no hunger. He warned that if millions were left in hunger, our civilisation would be at risk. It is certainly the case that we now face a depleted, physically weakened and hungry workforce. That surely is not the recipe for the productive economy that we need for the future. On top of that, our youngsters have lost a year in education—[Interruption.] I apologise for that, Madam Deputy Speaker.
The Government say that they have spent a lot on coronavirus and of course they have, but we have read in the newspapers and elsewhere that, in many cases, the money has not been well spent—personal protective equipment, track and trace and food parcels that have been done through Tory party dealers. We have also heard about David Cameron being involved with Greensill. There are question marks about how well this Government are treating taxpayers’ money.
When it comes to the Chancellor, of course we know that he was a founding partner of the hedge fund, Theleme, which presumably had a partner stake. We do not know about that because those tax returns and details are in the Cayman Islands, but we do know that that particular hedge fund appreciated in value from something like £7 billion to £39 billion shortly after we heard news that the Health Secretary had ordered 5 million doses of the Moderna vaccine, in which the hedge fund had invested. We do need to get to the bottom of these things and find out what happened. If it was the case, for example, that the Chancellor had, say, 15% of that hedge fund, his share of that increase—
Madam Deputy Speaker (Dame Rosie Winterton)
Order. I do think it is quite important that we address some of the issues in the Finance Bill, so I am sure that the hon. Gentleman will be doing that.
Geraint Davies
Thank you very much for that advice, Madam Deputy Speaker. I was just going to turn to the nurses’ pay increase. Had the nurses been granted a 5% increase in pay in this Budget, that would have cost £1.7 billion gross, but in fact, after looking at the recovery of taxes from both income tax and sales tax—consumer tax—we see that it would have cost just £330 million a year. On my calculation, that is about a 10th of the value of the appreciation in the hedge fund that I was mentioning—the 15%—that would have been privately earned by the Chancellor. Obviously, we need to have these figures disclosed. I am trying to put in context the fact that we can afford to pay the nurses a decent wage. There are tremendous amounts of money moving around at the moment and we do not really have a proper tie on it.
We should contrast that with what is happening in Wales, where we have a more effective system of track and trace, PPE is bought more effectively, food parcels are not bought privately but down to local authorities, and the sickness rate and death rate from coronavirus are much lower. We should contrast it with the way that money has been invested to help business. The Chancellor has put money into cutting stamp duty, and lots of that has been spent on second homes—but not in Wales—because that money is not well targeted where it is needed. Money has been given to large businesses with large properties, but again not in Wales, where the larger supermarket stores with big properties will not get the council tax relief because they are making extra-normal profits during coronavirus. The issue is investing money where it is most needed.
Turning back to the nurses, in Wales we have the highest proportion of single earner households in the country and the lowest average wage, which is 70% of gross value added in terms of the UK average. These people might include a nurse as the only earner in a poor household who has faced nearly 10 years of pay freezes and now another pay cut. It is no surprise that nurses are going to food banks. These things are not necessary; they are political choices. I am just drawing the contrast between those who have so much and those who have not enough.
Mention has been made of Amazon and the fact that it and others have basically decimated our physical retail side. There are questions about what should be done about that. In my view, local authorities should be empowered to provide digital marketplaces to support local businesses to sell to local people with overnight delivery so that people would have a choice between sending their money offshore to some huge American organisation that does not pay tax, is destroying local jobs and undermining workers and supporting local businesses through a collective approach with a modernised online service.
We have of course elections coming up, as you know, Madam Deputy Speaker, and people are making these financial choices and comparisons—including, in Wales, those aged 16 to 18. In this Budget, prescription charges in England are now going up to £9.35, whereas in Wales people do not pay for prescriptions. In Wales, we have ensured greater safety by giving advice that people do not travel more than four or five miles, whereas in England people could go wherever they liked. In Wales, a two-metre rule was put into legislation—
Madam Deputy Speaker (Dame Rosie Winterton)
Order. May I just interrupt the hon. Gentleman again and say that we really need to address the Finance Bill? I think the feeling is that perhaps he might be bringing his remarks to a close fairly shortly.
Geraint Davies
Yes, that is my feeling as well, Madam Deputy Speaker. I was simply making the case that owing to a more cautious approach in terms of coronavirus, we have got to a situation where productivity is better supported.
I will bring my remarks to a close as you suggest, only finally to say that we need to do more on the issue of climate change and the environment, because 64,000 people a year are dying from air pollution, while nothing has been done about diesel or accelerating towards electrification. We need to look at a different approach whereby we can generate growth and opportunity for the future.
Stephen Hammond (Wimbledon) (Con)
It is a pleasure to follow the hon. Member for Swansea West (Geraint Davies). Before I begin my short remarks on the Finance Bill, I would like to put on record—because I was not able to be here yesterday—my condolences and those of my constituents to Her Majesty the Queen on the death of the Duke of Edinburgh.
This Finance Bill follows a year of unprecedented economic disruption unknown in the modern era, as well as a year of unprecedented support from the Government to business and individuals, ensuring not only their jobs but their lives and livelihoods. That has been true for millions of citizens, including those in my constituency of Wimbledon. This Finance Bill therefore needs to enact measures that ensure not only that our economy is in a place from which to recover and bounce back, but in one from which we can also see sustainable future growth—growth that is clean and green.
We all know the OBR forecasts that were set out in March; I will not reiterate them now. What is clear to me from reading economic commentators since then is that people are now expecting the economy to grow more quickly and more strongly, and for that recovery to be more sustained. That must be in large part due to measures in the Finance Bill that build the necessary confidence and give people necessary security for the future, including the extension of the universal credit uplift; the one-off £500 to those on working tax credit; the job retention scheme; and the self-employment income support scheme. All those measures are combined with the restart grants of up to £6,000 for non-essential retail and £18,000 for hospitality businesses. Those provisions are now extended to my constituency; initially the £51,000 threshold was not in place. I have to say to the Treasury Bench that I am extremely grateful on behalf of the hospitality industry in Wimbledon.
My hon. Friend the Exchequer Secretary to the Treasury will not be surprised that I wish to make two very quick points about the people who have been left out. First, I make the plea yet again on behalf of the English language teaching sector. Those schools received no support and are hugely important to constituencies across the country. Secondly, I know that my hon. Friend will have read clause 117 and schedule 29 on the prevention of tax avoidance and promoters of tax avoidance schemes. The explanatory notes state:
“This clause and Schedule have also been introduced in order to see the responsibility for the obligations within POTAS, and for any failure to comply with them to be placed on the people and entities behind the schemes.”
I have to say to my hon. Friend that a number of us have stood up for what we believe to be hard-working small businesspeople who have been in those schemes and recommended those schemes, and we feel that if that clause had already been in place, many of those people may not be suffering from the problems of the loan charge now. Even at this late stage, if she has the chance to talk to colleagues about this issue, we would be very grateful.
It is clear that we need a Finance Bill that looks at investment and improving infrastructure, so that we see improvement in productivity. I listened carefully to the remarks of my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami), who set out the clear economic rationale for the super deduction. It is a vital measure to encourage business to invest now. Historically, the UK has underperformed; we have failed to invest at similar levels to our economic peers. It is investment that drives some of the factors that I mentioned a moment go when it comes to improving productivity. Therefore, supercharging investment through a super deduction means that we are likely not only to strengthen, but to lengthen the economic recovery. That seems an entirely sensible, welcome and rational economic measure.
It is also likely that we want to see measures that improve not only physical infrastructure and capital formation, but human formation. I particularly welcome the support for new apprentice hires in the Bill. I encourage the Government to think a bit more about this, as it is the way of the future. Could we not link the new apprentice scheme to, for instance, the length of the super deduction? The super deduction is in place for two years, while the new apprentice scheme is in place for six months; I encourage the Government to think about linking the two. I know that my hon. Friend the Minister will recognise that human capital formation and investment in skills are as important as physical formation.
Like many colleagues, I was fascinated to hear the contribution from my hon. Friend the Member for Mid Norfolk (George Freeman), who spoke at length about driving growth through innovation and the adoption of new technologies. Of course he is right. When one talks to a number of the people at whom the super deduction is aimed, one learns that it will be commonplace—it almost is now—that they will be investing in things such as AI, 3D printing and big data. Alongside that, we will need a workforce that has in-demand skills, so I particularly welcome the investment in digital skills and the lifetime skills allowance that the Bill will introduce.
Many Members have referred to the freeports policy, which clearly brings the opportunity to boost jobs in regions and to boost economies through the use of differing tariff regimes for different sectors. My hon. Friend the Minister will know the principal criticisms of freeports—that they merely redirect economic activity and investment.
May I talk about next year’s Finance Bill, Madam Deputy Speaker, just for a very brief moment?
Madam Deputy Speaker (Dame Eleanor Laing)
This is a debate on this year’s Finance Bill.
Stephen Hammond
I urge the Government to think about learning the lessons of economic history in respect of the power of putting wider economic development zones and the encouragement that they bring alongside freeports. We all recognise that such zones need seedcorn grants from the Government; that could give the Government the opportunity to consider local recovery bonds. We have already seen the prospect of the green infrastructure bond; why do we not see some local recovery bonds to sit alongside that work and boost economic development zones? That would seem to me to be a perfectly sensible development.
The Chancellor is absolutely right to focus on infrastructure spending and investment. Infrastructure is not an end in itself—it is the driver of growth and productivity—so the policies coming through and the measures in the Bill to allow the increase in transport spending and in departmental spending limits are welcome. I also welcome the establishment of the UK infrastructure bank. It is the private sector that will drive the investment that is necessary.
As I said a moment ago, the green gilt is welcome, but just as I urge the Government to think about local recovery bonds, I urge them to think about an infrastructure bond. As many will know, there is a consultation on the capital cap for pension funds; if that change is combined with an infrastructure bond, we could see a wealth of pension funds looking to invest in the UK’s economic recovery.
Finally, the jewel in our crown is undoubtedly financial services. A few moments ago my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) talked about the need for mutual banking and to encourage small banks. I urge the Government to think about a review of the regulation of financial services and banking to ensure that the regulation with regard to conduct and capital is competitive and appropriate. That will drive not only those sectors but the investment that will sustain the economic recovery that everyone in this House seeks.
Sarah Olney (Richmond Park) (LD)
This Bill is a catalogue of hard choices unconfronted, challenges ducked and emergency measures to deal with the pandemic used as a fig leaf for the failure to face up to long-term challenges.
We have heard a great deal in recent months about the Government’s approach to public procurement—how personal friends of Ministers get to jump the queue when contracts are being handed out. We have heard a great deal in the past few days about how friends of the former Prime Minister get preferential access to Treasury officials to make the case for financial support.
In keeping with that theme, the Chancellor presented a Budget for selected beneficiaries. Carefully handpicked groups are going to do well, but it was clearly not a Budget for the nation as a whole. We could have had, for example, a bold move on business rates. Real reform in this area to level the playing field between high street and digital retail has been long overdue. I was delighted to see retail and hospitality reopen across my constituency yesterday and I hope that predictions of a retail boom, funded by savings built up during the pandemic, will materialise to the benefit of our small businesses, but consumer behaviour is changing and that change has been accelerated by the pandemic. What is the long-term future for our town centres? How will our communities thrive without the retail businesses that traditionally provide the heart of our towns?
We need to lower the barriers to entry to retail and other town centre businesses, and invite new entrepreneurs to try new ideas. However, instead of business rates reform or devolution of power to local authorities, which could have allowed for real change across the whole country, a select few high streets, mostly in Tory-supporting constituencies, get a cash bung. What is the long-term plan for the retail sector and for small businesses in our high streets? These businesses support our communities, providing flexible and well-paid jobs. They support entrepreneurship at all levels and in particular provide opportunities for women.
Small businesses of all kinds will have breathed a sigh of relief at the Government’s announcement that they plan to continue furlough and business rates holidays until the end of September, but what will happen then? I worry that there will be a huge spike in unemployment when furlough ends and I see nothing in the Budget that will address that. The Liberal Democrats are calling for the Government to cut national insurance contributions for small businesses in order to boost employment in this sector.
We have also seen very little action for those groups that have been excluded from financial support during the pandemic. What frustrates me is that so many of the sectors that have been hardest hit are the very same that we should be investing in as key strategic industries that can provide future growth for the economy as we move out of the pandemic. In particular, the cultural sector, the travel sector and the live events and exhibitions sector have been left scrabbling for support, with many of their contractors and freelancers excluded from help. The continuing failure of the Government to help those individuals is completely baffling. When the cultural sector is reopened, it will struggle to find skilled staff as so many will have been forced out of the sector by financial necessity and will find it extremely difficult to come back.
I would like to take this opportunity to mention again that many people who were excluded from help were contractors moving between pay-as-you-earn contracts, which they were forced to take on because of the IR35 regulations that the Government are still insisting on introducing. Had they been able to continue as self-employed, they might have qualified for help.
The biggest opportunity missed, however, is the fight against climate change. We have heard many warm words on global warming from this Government. They appear to have grasped the magnitude and immediacy of the crisis we face, yet they have no plans for action. The 10-point plan for a green industrial revolution, released before Christmas, announced a wide range of aspirations, but no concrete policies or spending commitments. The Budget continues that trend. Liberal Democrats welcome the new direction to the Bank of England to take account of climate change, but that is a small drop in an ever-deepening ocean of what needs to happen if we are to take the necessary action.
The Government have shown with this Budget and Finance Bill that they are not serious about achieving net zero and creating a green recovery. They have gone as far as scrapping the industrial strategy, leaving businesses in the dark about how the UK will tackle climate change and achieve green growth in the years to come. The Budget promised to re-establish a new infrastructure bank, which merely replaces the green investment bank established by the Liberal Democrats in 2010 and sold off by the Tories in 2016. There was nothing on extending the green homes grant scheme, which could have tackled fuel poverty and cut energy bills for millions of homeowners while cutting emissions—and since then the Government have scrapped the scheme altogether. The Government even failed to cut VAT on home insulation products to encourage people to invest in their home themselves. There was nothing on increasing incentives on electric vehicles, including VAT cuts or new grants. There was nothing on investing in more public transport or new walking and cycling infrastructure. Liberal Democrats wanted a Budget to kickstart the green recovery, but the Conservatives have failed to deliver. We must see a bold green recovery plan that will invest £150 billion in the next three years to tackle climate change, create new green jobs and help us to grow our way out of this crisis.
What is the Chancellor’s plan for investing in sectors that will create jobs? It is freeports in selected sites, yet there is little evidence that they increase economic activity rather than displace it. Again, we see the benefits concentrated in preferred areas of the country, rather than a strategy for the country as a whole. The one advantage of freeports, of course, is that they can avoid the customs duties and paperwork currently creating such a barrier to trading, thanks to the Government’s terrible deal with the EU. I find it extraordinary that the Chancellor has made no mention of how he plans to offset the OBR’s projected 4% hit to the UK’s GDP as a result of leaving the EU. He is bringing forward planned economic activity or concentrating it in specific areas of the country, rather than investing in new sources of wealth and future jobs. This Budget ignores the real needs of our economy, both for the immediate challenges of the pandemic and for its long-term future.
Steve Double (St Austell and Newquay) (Con)
It is a pleasure to follow the hon. Member for Richmond Park (Sarah Olney). I welcome the Bill, which delivers on the Budget. The Budget struck the right balance, providing the immediate support that businesses need to enable us to begin the economic recovery from the past year, paving the way for sustainable growth in the mid-term and laying the ground for some of the tough decisions and challenges that we are going to face in the years to come to balance the books.
I particularly welcome the measures to support the hospitality sector. I speak as the chair of the all-party parliamentary group for hospitality and tourism, a sector that has been among the hardest hit as a result of the lockdowns. All the measures that were in the Budget, including extending the VAT cut and the business rate holiday, the additional round of grants, the extension of the furlough scheme and the additional self-employment income support scheme, have been hugely welcomed by the many businesses in my constituency that rely so much on tourism and hospitality. I also very much welcome the extension of the universal credit uplift, which will be vital for many families to support them through the rest of the spring and summer.
There is lots in the Budget and the Bill to welcome and support, but I just want to raise one element that I have grave concerns about. It relates to clause 98—I know that the Minister will be aware of this as I have already raised it with her—and it is the removal of the red diesel entitlement. Let me make it clear that, in principle, I absolutely support this measure. We need to move people and businesses away from an over-reliance on diesel and towards a cleaner and greener form of fuel, but I am concerned about the impact that the speed with which this measure is being introduced will have on one particular sector. I welcome the fact that agriculture and fishing will be exempt from this change and will continue to be able to use red diesel. That is vital for constituencies such as mine that have many businesses in those sectors, but there is another sector that is very important to my local economy: the mining and quarrying sector.
I should place on record that I am the chair of the all-party parliamentary group for mining and quarrying. For more than 150 years, mid-Cornwall has been mining the highest-quality china clay in the world and exporting it around the world. This industry is still a vital local employer and a significant part of our local economy. The removal of the red diesel entitlement from businesses in this sector is going to cost businesses in my constituency alone more than £10 million a year. That is £10 million that is going to be taken directly out of our local economy.
I absolutely understand the Government’s rationale behind the decision to move people away from diesel towards alternative fuels to help to reduce their environmental impact and to help us as a country to move towards our net zero target, but the fact is that much of the heavy gear used in the mining and quarrying sector just does not have an alternative to diesel. The technology does not yet exist to provide an alternative form of cleaner energy. The sector will therefore bear the brunt of the Government’s decision to introduce this change from next April in the short term.
Let me also make it clear that the sector is not resistant to moving to clean power, and it has already done so where alternatives are available, but in many cases the technology is not yet available to replace some of its heaviest machinery with cleaner alternatives. It seems unfair to penalise businesses that are willing to move to cleaner fuels and sources of power but are unable to replace their diesel-powered equipment at this time. In the coming years, alternatives are likely to be developed, but I am told that we are probably at least five, and perhaps 10 years away from there being a viable commercial option. Imposing the change next year will mean that businesses face additional costs that they simply cannot avoid, which seems counterproductive.
As is often the case when decisions such as this are made, there are unintended consequences. The sector provides much of the raw material for our economy, particularly in manufacturing and construction, yet it will be unable to absorb the additional cost, which will result either in job losses or in rising costs. The Government’s ambition is to invest heavily in infrastructure and housebuilding. It seems strange, just at the time when we want to invest significant sums in building, to introduce a change that is likely to result in increased costs.
All this is unlikely to have any beneficial impact on the environment. There will be no reduction in emissions. Diesel will still be burned by these heavy-duty bits of kit because there is no alternative. It is not as though there will be a shift away from diesel to something else, because alternatives do not yet exist. If the aim of the measure is to reduce emissions, in the short term it is unlikely to achieve it. In fact, it could actually increase the environmental impact, because if it results in UK businesses becoming uncompetitive or, worse still, going out of business, we will end up importing these materials from countries that are burning diesel and increasing the carbon footprint.
I ask the Treasury team to look again at the speed at which the change is to be introduced. Let me be clear: I believe it is the right decision; I just question the timing of implementation. We need to give the quarrying and mining sector the time needed for new technologies to emerge, so that the sector can find alternative fuels before this significant additional cost is imposed.
I wholeheartedly support the Bill. It contains the right measures that our country needs now. I simply ask the Government to look at the speed of the removal of the red diesel exemption, particularly for the mining and quarrying sector, to give it time to adjust and the economy time to recover before the additional cost is imposed.
Richard Burgon (Leeds East) (Lab) [V]
The coronavirus crisis has not just been a public health emergency; it has been a social emergency as well—a social emergency worsened by the Government’s catastrophic handling of the crisis, which, as the Office for Budget Responsibility says, led to one of the worst economic downturns of any major economy.
Of course, for some, the pandemic has not been half bad—in fact, it has been a very good crisis for some. Serco and the like have been able to use the crisis to get their hands on contracts that should have been in the public sector, and boosted their profits. We have seen how contracts worth billions have been handed over to those with political connections to top Tories, and the Greensill case involving the former Prime Minister is no one-off—
Madam Deputy Speaker (Dame Eleanor Laing)
Order. I appreciate that the hon. Gentleman is not here in the Chamber and so is not getting the atmosphere of the debate, but no matter what the rules are, this debate is about the Finance Bill. It is only about the Finance Bill and matters within the Finance Bill, which is pretty wide-ranging. The hon. Gentleman appears to be making a speech that he might wish to make tomorrow. Could he please stick to the Finance Bill today?
Richard Burgon
Thank you, Madam Deputy Speaker. The example I have just given is one of how our system works, and I would argue that that is entirely relevant to the Finance Bill, because while the super-rich have been able to profit from the crisis, the Government have washed their hands of others who needed support. Just this week, millions relying on legacy benefits such as employment and support allowance for disabled and sick people got a pathetic 37p increase in their benefits. What a snub, especially after already being refused the £20 additional payment that went to those on universal credit. With that 37p increase, the Government are deliberately punishing disabled people. It is yet another example of how they seek to make the vast majority pay for one of the world’s deepest economic collapses.
I will vote against the Bill because it fails to give NHS staff the proper pay rise they need, because it cuts the pay of millions of public sector workers and hands billions in giveaways to mega-corporations such as Amazon, many of which have done very well out of the crisis, because it leaves many of the lowest earners facing tax rises and because later this year it will cut social security payments for people who really should get much more help. I will vote against the Bill because it serves the few and not the many. This crisis has not only shone a spotlight on the deep inequalities in our society but widened them. We should be coming out of it with a more equal society, but, to help us do that, where is the tax on the companies that have made super-profits during the crisis? Where is the one-off tax on the super-wealthy as other countries are doing? I will vote against the Bill and table an amendment calling on the Government to take measures for a super-tax on the super-rich. We need to start to build a society that serves the many, not the few. That is what the Bill should be about, but it is no surprise that, with this Government, it is anything but.
Andrew Griffith (Arundel and South Downs) (Con) [V]
It is kind of you, Madam Deputy Speaker, to call me in this important debate. I will try to reward that by sticking to the topic we are discussing. This is an excellent Finance Bill for a much-needed recovery. The UK is already a great place to start, grow and run a business, but to increase the rate of economic growth in the UK we need to restate and foster the pro-enterprise philosophy and measures that have served us so well in the past.
To govern is to choose and the Chancellor was absolutely right to choose fiscal discipline. The Bill begins to fix the public finances with a fair and honest plan about how to do so. Nothing is more devastating to enterprise and investment than high and volatile costs of borrowing, which wipes out small businesses like a pyroclastic flow clearing forested slopes. Thousands of otherwise successful businesses were crushed in the recession of the early ’90s caused by the error of the UK's membership of the exchange rate mechanism.
A centrepiece of the Bill is the super deduction. I have spoken to lots of businesses in my constituency, and it is already mobilising significant investment. The Bill also contains two excellent initiatives under the Help to Grow banner. I believe that the Government are really on to something here and that we could see the Department for Business, Energy and Industrial Strategy start to deliver a string of practical interventions to give small businesses a hand up. When the opportunity allows, I encourage them to go further. Only 10% of small and medium-sized British businesses currently export, leaving 90% of enterprises as potential exporters. That is a vast untapped opportunity to grow the scale and productivity of UK plc. Global Britain brings huge scope to increase the number of firms involved in international trade, but for many firms, where time is the scarcest resource, it is a big and uncertain step to take. Alongside the other elements of Help to Grow in this Bill, I suggest we make available grants to support exporting. It would be a natural extension of the support that the Government provide today under the useful, but relatively modest tradeshow access programme.
Like most, I welcome the extension of the lower rate of stamp duty in this Bill. On a future occasion, I encourage the Government to bring forward an exemption to stamp duty for downsizers. In many parts of the country, the real housing crisis is one of under-occupancy. With an ageing population, too many homeowners rattle around in accommodation that would be more suitable for growing families. Stamp duty is a real brake on downsizing. The Treasury will understandably be cautious about leakage, but it should be perfectly possible to define a downsizing transaction based upon the ratio of values and the limited time interval between the two housing transactions.
This is not an academic issue. Right now my constituents are blighted by development proposals on unsustainable greenfield sites in Ashington, Adversane, Buck Barn, Kirdford and Mayfield, all based on the fallacy that, despite the UK already having more than 600,000 empty homes and the highest rate of housebuilding since 2007, the only answer is to pile up even more supply.
For a similar reason, although I fully understand the context in which the decision was made, I regret the freeze on the lifetime allowance on pensions. The UK used to have one of the best systems of providing for retirement in the western world. Freezing the lifetime allowance is another Jenga brick whipped away from that once strong pillar. NHS consultants, headteachers and airline pilots are hardly plutocrats, but they now face a tax on thrift. Money that would have gone into well-regulated, well-diversified pension funds and been allocated to grow UK businesses has instead fuelled a boom in buy-to-let property, putting home ownership for millions further out of reach.
In the year in which the UK hosts the UN climate summit, let me conclude by welcoming two measures in the Bill that help us move towards a low carbon future. The first is part 2, which introduces a plastic packaging tax from next April. We should tax things we wish to have less of, and on that basis this is an excellent piece of legislation that will provide a clear economic incentive to use recycled material in the manufacture of plastic packaging. It is estimated that as a result, the use of recycled plastic could increase by around 40%, equal to carbon savings of nearly 200,000 tonnes a year and saving a lot of plastic from ending up in landfill and incineration. We only have one planet, so as soon as this useful measure is on the statute book, I encourage my Treasury colleagues to look at increasing the rate and lowering the exemption threshold.
Similarly, I welcome the removal of red diesel from many sectors, although I am glad there is a continued exemption for agriculture, which makes a significant contribution to the landscape in my constituency of Arundel and South Downs. Red diesel accounts for about 15% of diesel used in the UK and is responsible for the release of 14 million tonnes of carbon dioxide a year. This change will help the adoption of cleaner and greener alternatives, such as hydrotreated vegetable oil, and is yet another meaningful step by this Government, who are absolutely leading the world on climate action.
Peter Grant (Glenrothes) (SNP) [V]
I am pleased to be able to contribute to this debate and to expand on the reasons so passionately set out by my hon. Friend the Member for Glasgow Central (Alison Thewliss) as to why the SNP will vote against the Bill this evening. The purpose of the Bill is to give legislative effect to the Chancellor’s Budget. That Budget was a regressive Budget. It was an austerity Budget that turned its back on millions of those worst affected by the covid pandemic. It is a Budget that severely damages the interests of my constituents, so it is a Budget, and this is a Finance Bill, that I cannot and will not support.
Austerity is not an economy necessity. It is a political choice. It has been the first-choice response of almost every British Government of every complexion during my adult life, so it is maybe not surprising that so many people seem to have forgotten that there is a different way, a fairer way, and in fact a much more effective way to respond to an economic crisis. All we have to do is to care as much about the millions in these four nations who do not have enough to live on as we care about the lucky handful whose only problem is that they cannot count how many billions they have.
There is no disagreement about the fact that we need to start to repair the economic damage caused by the pandemic and by the measures that had to be taken in response. There are lessons to be learned, but perhaps the most vital lesson of all is that the inequalities that have been deliberately created and deliberately maintained in our society by successive Governments have also made our society as a whole much more vulnerable to the ravages of the disease. We know that the economic costs of covid have fallen much more heavily on the people who could least afford them. To give just one example, the British Retail Consortium did a survey that confirmed what we would probably have expected: during the pandemic, highly-paid people such as Members of Parliament have got better off and now have more savings than we had before, while most of our constituents on low incomes have been using up their savings just to survive, and many of them effectively have no savings left at all.
Presumably, the way we respond to that is to use the powers in the Finance Bill to redress that balance. Well, no—that is not the priority of this Government. In clause 5, we see a multi-year freezing of the income tax basic rate limit and, much more damaging, a freezing of the personal allowance at £12,570. It is not easy to find a way to change an income-based tax system so that we collect more tax but target the impact on people on lower incomes, but that is exactly what the Government propose to do. If it is accepted that the Treasury needs to collect more money in real terms from income tax, we should at the very least make sure that the impact in real terms is equally spread. In fact, the SNP would argue that whenever the time comes to increase taxes, those of us who are lucky enough to be on high incomes should be asked to bear a wee bit more of the pain.
I know that the Government will point to other provisions, such as clause 31 and the one-off uplift in working tax credit. In principle, that is something the SNP supports, but as my hon. Friend the Member for Glasgow Central mentioned, the way that it is implemented could harm some of the very people it is supposed to help. The eligibility criteria are crude, to say the least. It will not be at all easy for recipients to work out for themselves whether they qualify. What assessment have the Government made of the number of payments that they expect to be made in error, and are they seriously then going to chase down the recipients of those erroneous payments as if they had committed some kind of fraud, when in fact they have done absolutely nothing wrong?
I was interested to hear the comments of the Chair of the Treasury Committee, the right hon. Member for Central Devon (Mel Stride), on freeports. “Freeport” is obviously a buzzword that the focus groups have told the Tories goes down well with the party faithful, so they have decided to invent, or rather reinvent, something that looks like a rehash of 1980s-style enterprise zones but call it a freeport because that sounds like a better term. Leaving aside the terminology, how do the Government know that the provisions in clauses 109 to 111 will create new investment and new jobs, rather than just move investment and jobs that would have happened anyway, as the Committee Chair asked? How will they make sure that those who buy and sell land in a designated freeport area are investing the tax breaks they enjoy in creating jobs on the site, rather than just siphoning the money off into the profit and loss account of an offshore investment trust somewhere?
Almost a third of the Bill’s clauses relate to the plastic packaging tax, and no doubt the Bill Committee will want to spend a proportionate amount of time scrutinising the details, but for now, I draw the Minister’s attention to the National Audit Office report on 12 February this year. The report found that, although the Chancellor in his Budget speech last year was able to tell us how many tonnes of carbon the tax would save,
“the exchequer departments did not set these as measures of success in the Tax Information and Impact Note”.
A previous Tory Government brought in tax information and impact notes in a blaze of publicity, announcing that they would support better parliamentary scrutiny of tax policy, but how can Parliament scrutinise the success of this new tax if the key measure of success announced by the Chancellor does not even appear on the success radar of the Department that has to implement it?
My hon. Friend the Member for Glasgow Central raised the more general point about the woefully inadequate scrutiny that the often massive decisions in Finance Bills receive. I know that the Government will point to the number of minutes, hours, days or weeks that people have spent talking about it in Parliament, but talking about it and reading prepared speeches is not the same as proper scrutiny. For example, in this Bill we can accept, reject or amend clause 32 on the tax statement of payments under the self-employment income support scheme, which is fair enough for those who qualify, but we cannot redress the glaring injustice of the excluded millions who do not qualify at all. We can accept clause 31 or amend it to make it a lot better, to support working people whose income has been affected by covid, but we cannot vote to remove the 30 September cliff-edge when the furlough scheme is removed, because that would be an inadmissible amendment. Although the Bill can be improved in Committee and made slightly more fit for purpose, we are powerless to force the Government to undo some of the deliberately disastrous flaws and omissions in existing support schemes.
It is right that this Budget and this Finance Bill should start the process of rebuilding the economy after covid, but as the right hon. Member for Hayes and Harlington (John McDonnell) mentioned, the Government seem hellbent on taking us back to exactly the same unfair, unequal and divided society that we had before. In fact, they will probably succeed in making it even worse than before. Of course, the Tories do not want to talk about the fact that their own analysis shows that the long-term economic damage of the covid pandemic will be less than the damage of the self-inflicted and totally avoidable disaster that is Brexit.
It is an indication of how out of touch the Government are with my constituents, and with the people of Scotland generally, that the Tories, the official Opposition in Scotland, have already surrendered in the Scottish Parliament elections. They are not even pretending that they want to try and form an alternative Government after 6 May. They are delivering glossy six-page leaflets that literally have no policies on them. They are not even pretending that they have anything positive to say or to offer in Scotland—which, after all, is kind of what Scotland has been saying to them since 1955.
The Bill will get its Second Reading tonight, it will get through the Committee and it will become law. Its regressive provisions will be imposed in Scotland against the will of three-quarters of our people, no doubt to great cheers from the socially distanced Government Benches. But let me say this to them: enjoy imposing this Finance Bill on Scotland’s people, because in just over three weeks’ time, those same people will take a decisive step towards making sure that their time for imposing their policies on our country comes to an end.
Madam Deputy Speaker (Dame Eleanor Laing)
I appreciate that this is a Finance Bill and technically it can go to any hour, so the House could be sitting until 11 o’clock or midnight, but I ought to say something to Members who are not in the Chamber but who I hope might be listening. It sometimes seems that Members who are at home and participating virtually do not pay attention to the rest of the debate. If they are listening, let me say to them that there is something a little bit distasteful about those who are sitting at home making very long speeches and keeping the entire operation of the House of Commons going till well into the evening. Everybody has the right to speak on the Finance Bill and it is very important that they do so, but it is generally recognised, and I particularly recognise it today, that that which can be said in 10 minutes can usually be said more effectively in five.
Jo Gideon (Stoke-on-Trent Central) (Con)
The Bill recognises both the short-term demands of the covid crisis and the long-term needs of global Britain’s economic future, and I am delighted to support it. I shall keep my comments brief.
As we emerge from lockdown in a cautious and gradual way, it is right that provisions are made to extend furlough, reduce VAT for tourism, maintain the increased universal credit payments, support grants for the self-employed and so on. It will be some time yet before the economy is back to pre-covid levels of activity, although it may not be as far away as we had feared just six months ago. Those who have managed to save money over lockdown are keen to put their cash back into our national economy.
Stoke-on-Trent city centre business improvement district has ensured that we will play our local part in the resumption of consumer spending. Operation Sparkle is making our city centre smarter, cleaner and more inviting, but there is only so much that even the most dedicated local groups and bodies can do to fight against litter, so I welcome part 2 of the Bill for its potential to gear the tax system ever more against plastic waste.
There is a real problem with litter, particularly along Stoke-on-Trent’s beautiful watercourses and green spaces, made much worse by the thoughtlessness of those who fear no consequence from dropping bottles and wrappers that will not immediately biodegrade. It makes responsible residents across my constituency rightly angry. The tax system should not be neutral on litter. We have all seen the dramatic impact of the plastic bag tax. I hope that the plastic packaging tax is another step towards a tax system that increasingly targets problem litter and incentivises the reuse, return and recycling of packaging.
The Office for Budget Responsibility predicts that the pre-covid level of GDP will be reached only one year from now. It further predicts that unemployment will be in its second quarter of decline by then, having peaked at 6.5% by the end of this year. That means that UK unemployment will still be 1.4 percentage points lower than when the Labour party left office in 2010. It is an extraordinary achievement. The balance of measures has been more or less right, just as the balance of measures is right in the Bill.
We were never going to escape a global pandemic unscathed. Now we must face the reality of once again looking for measures to bring the books back into balance in the medium and longer term. However, that should not mean reductions in productive investment. I particularly welcome the super deductions for new plant and machinery in clauses 9 to 14, together with the provision in clause 15 for an extension of the £1 million annual investment allowance. We are enabling the private sector to build back better.
It is often said that Chancellors are conjurors, pulling rabbits out of hats, but today’s Chancellor is more of a tightrope walker, trying to maintain a very delicate balance indeed. He is admirably succeeding. We are emerging from the international crisis with renewed national confidence in a long-term future of better days ahead.
Rushanara Ali (Bethnal Green and Bow) (Lab) [V]
This Finance Bill fails to meet the scale of the economic challenges and it fails to provide the growth that is needed to recover from the pandemic, not to mention the impact of Brexit. Unemployment is already at 5% and is set to rise to 6.5%. Some groups have been hit particularly hard, especially the young—youth unemployment is at 14.3%—and those from minority backgrounds face much higher levels of unemployment.
Business investment has been in decline for many years and the pandemic has not, of course, made matters any better. We have heard a great deal about the productivity rate being incredibly slow, which it has been for the past decade. Instead of focusing on the big challenges facing the country, such as tackling the jobs crisis and youth unemployment, and promoting growth, what we see is the Government reverting to their comfort zone with an irresponsible council tax hike that will create even greater pressures for families who have faced the most unprecedented of challenges over the last year, and huge adversity—ordinary families in constituencies such as mine, where the level of child poverty is among the highest in the country.
By freezing the threshold for the personal income tax allowance, the Bill introduces a stealth tax on households. Meanwhile, the so-called super deduction gives tax cuts to some of the biggest businesses in the country, including those who have done particularly well during the pandemic, when the support should be targeted to companies that need much greater help and where there is greater need for support.
It is as if the Government have learned nothing from this crisis, as they take funding away from families who desperately need help. That brings me to the issue of universal credit, which will return to its original level later in the year. Millions of families will suffer when that happens. That is why I believe that this Finance Bill does not support families. The stealth tax that has been introduced will hurt ordinary families, including our NHS heroes and other key workers who have sustained us through the pandemic.
The Bill does not go far enough to support the 700,000 young people who face unemployment. Only one in 49 are eligible for support through the kickstart scheme. The Government have not taken the opportunity in the Bill to provide additional support to get those young people back to work.
Despite the fact that local councils such as mine have had to spend a great deal more because of the pandemic, there is nothing in the Bill to support them. There is very little to support our public services when they are facing an unprecedented crisis. The Bill lacks the ambition that is desperately needed after the biggest economic hit for generations. It lacks the ambition to get the unemployed back to work, and bold action to increase investment, productivity, and innovation, create the green industrial revolution, and power our economic growth in the face of the double hit of the pandemic and the 4% long-term hit to GDP as a result of Brexit. It hits families hard when they need to be supported, and it lacks the ambition to match the scale of the economic, social and healthcare challenges exposed by the pandemic. I will therefore not vote for the Bill.
Ben Lake (Ceredigion) (PC)
Diolch, Madam Deputy Speaker, for calling me to speak in this debate. It is a pleasure to follow the hon. Member for Bethnal Green and Bow (Rushanara Ali). Last month’s Budget was a missed opportunity to protect jobs and incomes, support struggling employers, and set out a clear vision for a green, sustainable and fairer post-pandemic economy that works for all four nations of the United Kingdom. Instead, the Budget became an exercise in political showmanship, which further undermined devolution and put party politics above the collective good. Supposedly new spending pledges were proven to be nothing of the sort, most clearly at Wales’s expense, where only 5% of the spending announced was new and unconditional. That disappointment was compounded by the proposals unveiled for the so-called levelling-up fund, which I am afraid does a disservice to Wales and to devolution.
The Bill confirms some of the most damaging elements of that Budget-day display. It prematurely ends the VAT reduction to help hospitality businesses across the UK. It neglects fully to correct the exclusionary failures of the self-employment income support scheme, and it fails to guarantee the permanency of the £20 a week universal credit uplift. Those measures alone suggest that the Bill will hamper rather than encourage our short-term recovery.
Equally worrying is the Government’s clear determination to re-establish the pre-pandemic dysfunctional UK economic model through a “Westminster knows best” approach that is openly hostile to devolution. That is why, to ensure that Westminster works with rather than against the devolved nations on policy issues such as freeports, Plaid Cymru will table amendments requiring the consent of the devolved Parliaments before freeports can be established in their respective nations. That such amendments are necessary is sadly indicative of the Government’s centralising tendencies over the economy, despite their appalling record on delivering schemes such as tax reliefs, which worsen rather than address regional inequality in the UK.
For instance, through the UK Government’s two main innovation investment reliefs—the enterprise investment scheme and the seed enterprise investment scheme—between 2015 and 2018, start-ups in London received four times more per head of population than businesses elsewhere. In contrast, only 1.3% of UK-wide investment through the enterprise investment scheme was in Wales.
Noting the significant risk that the proposed capital allowance super deduction might turbocharge regional inequality in the UK, Plaid Cymru will also table an amendment requiring the Government to consider the impact and geographical reach of that super deduction. Given the pressing challenge of climate change, and the need to recapitalise our economy to further decarbonisation efforts, our amendment will require the Government to consider the impact of a super deduction on climate change mitigation efforts. I sincerely hope that the Government will be supportive of that amendment, particularly given the Bill’s overall lack of measures and support for the green transition—except, it is worth noting, a welcome change to the Bank of England’s mandate.
Although I welcome the proposed plastic packaging tax, even that illustrates Westminster’s inability adequately to act on the pressing issues facing society across the four nations of the UK. Only days ago it was reported that the much vaunted deposit return scheme has been further delayed until 2024. Having been unnecessarily tied to Westminster inaction on that issue, Wales will by then have waited six years for such a scheme to come to pass. That outcome is made even worse by the Government’s United Kingdom Internal Market Act 2020, which undermines Welsh efforts to counter plastic pollution, and pales in comparison to Scotland’s ability to deliver a bespoke system by next year.
In conclusion, this Bill fails to correct the flaws in the Government’s pandemic response, fails to live up to their rhetoric on levelling up and fails to match ambitious climate rhetoric with policy action to further the green transition. Instead, the Bill not only reflects the deeply misguided sense that the Treasury knows best when it comes to regional inequality, but misses an opportunity to provide a long-term plan for our post-pandemic recovery.
Jacob Young (Redcar) (Con)
Let me start by expressing my sadness at the death of His Royal Highness Prince Philip. I send my condolences and those of the people of Redcar and Cleveland to Her Majesty the Queen and the royal family at this difficult time.
I direct Members to my entry in the Register of Members’ Financial Interests as a board member of the South Tees Development Corporation.
In the short time I have, I want to focus my remarks on clause 109 on freeports and on why I was so pleased to see Teesside play such a prominent role in the Chancellor’s Budget. Freeports are not of course new to Britain, but our ability to use them properly was strengthened by Brexit and the Prime Minister’s EU withdrawal agreement. Outside the EU, freeports have a significant role to play in our recovery and in levelling up our left-behind areas such as Redcar and Cleveland, and clauses 110 and 111 will help achieve that.
Our Teesside freeport is the largest in the UK, with a plan to create 18,000 jobs over the next five years. In less than a month since that Budget announcement, we have seen the creation of more than 2,000 jobs in offshore wind, with General Electric building its new turbine blade manufacturing plant within our freeport. However, the journey to this point was not a happy one. One of Teesside’s darkest days was in October 2015 when SSI fell into liquidation, with the end of 170 years of steel making on Tees and the loss of 3,000 jobs overnight. For many of us in Teesside this felt like a fatal blow and a shock from which we could not recover. For me as a chemical industry worker at the time, I remember the sinking feeling that we would be next—the next domino to fall into industrial collapse—but Teessiders throughout time have shown their immense resilience, and we refused to allow our decline to be inevitable.
In 2017, the election of a Conservative, Ben Houchen, as the Tees Valley Mayor began the journey of devolution in Teesside and the transformation of our area. That year we formed a development corporation to cover the site—the first mayoral development corporation outside London. Although there were many bumps along the road, by February 2020 the deal was done to get full control for the rest of the site, taking full ownership of the former steelworks. In July last year, Teesworks was launched, the new name for the now 4,500 acre site, and in August demolition began, clearing the way for the new jobs to come. It is the largest development site in Europe alongside the deepest port on the east coast, publicly owned and led by a Mayor who is determined to deliver for his area.
We started this journey with the loss of 3,000 jobs on Teesside, but now that site sits at the heart of the UK’s largest freeport, with a plan to create 18,000 jobs over the next five years. The Teesside freeport, which covers Teesworks, Wilton, port of Hartlepool, port of Middlesbrough, Wilton Engineering and Teesside airport, will be our gateway to global trade and the engine room for the northern powerhouse. This is our plan to level up our region, transform Teesside and truly build back better. Recoveries of the past have seen some areas boom while other areas go bust, and over the last 12 months we have faced a crisis like no other in our history. Now we will build a recovery like no other, where nowhere is left behind.
Claire Hanna (Belfast South) (SDLP) [V]
That was a fair point well made about contributions earlier, Madam Deputy Speaker, and as I am mostly going to address climate change, I will try to be aware of the levels of hot air I am producing myself.
I rise to speak in favour of the reasoned amendment in the name of the hon. Member for Brighton, Pavilion (Caroline Lucas)—my name is also on the amendment—and to say that Social Democratic and Labour party Members will vote against this Bill. We spoke last month in the Budget debate to highlight the missed opportunities, including the opportunity to respond to the economic challenges and the challenges of inequality that have been exposed by the pandemic. However, while interim and half measures can perhaps be explained away with an economy in lockdown and in deep freeze, they cannot be justified for the live climate crisis we are facing at the moment. This Bill misses the opportunity to act on that ecological emergency because it lacks the ambition and the urgency required to meet the UK’s obligations under the Paris agreement. It does not deliver the transformational investment needed to create green jobs, particularly at a time when so many people have lost their work and when so many sectors will take time to recover. Opportunities also need to be there, not least here in Northern Ireland.
Additionally, the Bill provides very little for those who have been working on the frontline throughout the pandemic. It does not say much either to people whose economic precarity has really been exposed over the past 12 or 15 months, or to young people who have missed so many experiences and opportunities and who need to see an economy in which they can have some hope—an economy that focuses on opportunities and wellbeing rather than on an obsession with growth. They need something that offers them more than just personal debt and insecurity in the years ahead.
This year, the UK hosts COP26, which provides even greater impetus than ever to be a leader in climate action, with meaningful cross-governmental action right at the very heart of the Bill and right at the very heart of this global inflection point that we are experiencing at the moment.
We have been doing things differently necessarily for the past year and we should continue to do that and to follow a different ecological and economic course from the one that we would otherwise be on. The Government have repeatedly highlighted the importance of net zero, which is welcome, but the Bill does not reflect the urgency of what we are experiencing here and what we are seeing around the world. We cannot keep putting the meaningful actions into the “too difficult” piles. Recent moves by the Government, including approving a mine, granting new licences for oil and gas exploration, scrapping the green homes grant and cutting overseas aid to countries that are dealing with the impact of climate change and removing funding at a time when they need to transition to less carbon-intensive measures, is going in the wrong direction. These are not the signals of a Government who are serious about a green recovery or serious about the wellbeing of the planet or of future generations. There needs to be consistency in domestic policies and international objectives that we are not seeing here.
I am pleased also to co-sponsor the Climate and Ecology Bill, which would have provided some signals for the actions that this Government could have chosen to take in this Bill if they were serious about the environmental urgency and dynamism that we need to see, so we will be opposing the Bill on that basis.
Mr Richard Holden (North West Durham) (Con)
I draw attention to my entry in the Register of Members’ Financial Interests. I also want to highlight, as other Members have done, the tribute from my constituents following the death of His Royal Highness, Prince Philip, the Duke of Edinburgh. I know that the thoughts of so many have been with Her Majesty the Queen over the past few days.
I speak today in huge support of the Finance Bill. It is absolutely fundamental in the steps that we are taking for constituencies such as mine both in the short and the long term. I would like to associate myself with the comments of my hon. Friend the Member for Hertford and Stortford (Julie Marson). She made a really fundamental point, which is that we politicians in Westminster do not create the wealth; that is down to the businesses, entrepreneurs and workers in North West Durham and across the country, but we can help to set the pitch and enable them to succeed. The Government’s work recently, particularly in relation to continuing the business rate holiday and the VAT holiday, has been helpful and will really help some of my businesses rebound.
The broader point is that this Budget sets out some really good things for the long term, particularly around productivity, as highlighted by my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami). Technology adaptation, along with the Help to Grow scheme, needs to happen for those productivity gains in businesses. The super deduction gives a real opportunity, particularly for the manufacturing centre, which is so capital intensive, to invest for the long term, knowing that that cash will be repaid in spades and also that there will be a tax break. That will also help to counter some of the issues that we are bound to see around unemployment because of the covid pandemic.
More broadly, we are now seeing the levelling up start to take shape. The finance for lifelong learning is provided for in the Bill. That is hugely important for constituencies such as mine, where a far higher than average number of people do not have the level 3 skills that we know make the real difference to people’s earning capacity. Last year, we saw the great motor homes tax cut from the Chancellor in the Budget. That has had a real, direct impact on my constituents this year in our manufacturing centre.
On the levelling-up fund, it has been great to see that £4.6 billion was announced. The Treasury need to be aware that I will be putting in bids for both Consett and the three-town area of Crook, Willington and Tow Law. I have already had conversations with some of the other council candidates and the local council about that, so I am really hoping that we can get some of that cash into our areas to help to boost them and the towns that have felt left behind for too long.
I felt that a couple of comments from the Opposition on higher council tax being forced on to councils did beggar belief to a degree, especially when, in Durham, we are seeing our Labour-controlled council—Labour-run for 102 years—spending £50 million on a new county hall on a floodplain with a roof terrace, at the same time as raising council tax, which is currently the eighth highest in the country out of 340 councils.
I would particularly like to pick up on one other thing, as mentioned by my hon. Friend the Member for Redcar (Jacob Young): the really great news about the freeport. It just goes to show what great local MPs working with the superb Mayor of Teesside, Ben Houchen, can do. That is exactly what we need to see in County Durham as well—great, entrepreneurial, business-focused local government working with local MPs. I was somewhat alarmed by the comments from the hon. Member for Ealing North (James Murray) from the Opposition Front Bench. He suggested that these freeports would be places for smuggling and organised crime to thrive. He made it sound a bit like “Pirates of the Caribbean” is coming to Teesside, when the truth is actually quite different. We have already seen thousands of jobs being created locally and huge numbers of Government jobs both from the Treasury and the Department for International Trade moving to the north-east. That is incredibly welcome not just for Teesside and the constituents there, but the entire north-east region.
There is a lot to commend in this Budget, but the financial responsibility and the need for fiscal responsibility have not gone away. It really matters in the long term, as my right hon. Friend the Member for Central Devon (Mel Stride), the Chair of the Treasury Committee, said at the start. We have to ensure that we maintain that financial responsibility because any rise in interest rates will see serious issues for the economy and Government spending in the long term. I think this is a really balanced approach. It has some short-term measures in there to restart the economy and some of the long-term measures that my constituents voted for at the general election. And crucially, it is a proper Conservative Budget, because at the heart of it is long-term fiscal responsibility.
Bell Ribeiro-Addy (Streatham) (Lab) [V]
The Government’s mishandling of the pandemic and an inadequate social security system have caused widespread financial hardship, unemployment and debt, yet the Finance Bill falls short in tackling poverty, low pay, insecure work and the ever-deepening divisions in our society. Instead, it includes a whole host of damaging measures, such as cutting working tax credit to its lowest level in decades.
Action for Children estimates that 2.5 million families with children currently on universal credit and working tax credit will miss out on a combined total of £1.3 billion across this financial year when these cuts are implemented in October. Today, the Child Poverty Action Group’s new report looking into the Government’s two-child tax credit limit estimates that at least 350,000 families, including 1.25 million children, have now been affected by the policy since it started four years ago; a far cry from the Government’s so-called levelling-up agenda when those in the poorest parts of the country—children—will suffer even more.
But should we be surprised when the austerity policies pursued by this Conservative Government continue to have widespread and devastating impacts on the most disadvantaged? Years of austerity, welfare cuts, benefit changes and cuts to public services have disproportionately affected women, disabled people and black, Asian and minority ethnic people—a fact that has been repeatedly outlined by the TUC, the Runnymede Trust, the Joseph Rowntree Foundation and many more. That is why it was so utterly astounding and offensive that the report of the Government’s Commission on Race and Ethnic Disparities sought to downplay the existence of institutional racism, against all the evidence and facts showing that economic outcomes in our country are rife with racial disparities. Equally, the covid-19 pandemic is widely noted to have exacerbated these trends. It is disingenuous and misleading to seek to divide ethnic minority working-class communities and white working-class communities, which is what the report did. The same issues affect all our working-class communities. Opportunistically cherry-picking figures cannot alter what is clearly laid out in extensive research by a wide range of credible researchers and actual experts over a number of years.
When it comes to such legislation, as the Women’s Budget Group has rightly argued, meaningful equality impact assessments should consider cumulative impact, intersectional impact, the impact on individuals as well as households, impact over a lifetime, and the impact on unpaid care. Conversations about sexism, ableism, racism, poverty and the economy must go hand in hand. That is why I have consistently called on the Government to carry out and publish equality impact assessments, and I will be tabling an amendment to insist that they do so for this Bill.
Tax Justice UK and the Women’s Budget Group rightly argue that taxation and wealth is an equality issue. On average, women not only earn less than men, but they own less wealth than men, with women in the UK owning approximately 40% of the country’s total personal wealth. Coupled with the very obvious way in which the pandemic has hit women the hardest, it is clear that the Government should really be publishing equality impact assessments. Equality is our law, yet the Government refuse again and again to do that, and they have not done so for the 2021 Budget or for this Finance Bill, either measure by measure or cumulatively. While tax information and impact notes for each tax measure are available, they lack detail and quantitative estimates of impact, or simply state that no equality impacts are anticipated. That is not good enough for legislation that will so fundamentally impact on our society. I hope that the Minister will confirm why the Government have not published the information needed for Members to fully assess how the Bill impacts people right across the country.
Incentives such as the super deduction are biggest for larger firms, and the Financial Secretary to the Treasury has admitted that only 1% of firms will benefit this year, as the rest are within the annual investment allowance. How can the Government justify the fact that, under this Bill, the rich and big business are being treated to mouth-watering tax giveaways and reliefs despite unclear evidence about whether that will actually create the investment needed? For example, who benefits from Amazon paying no corporation tax in the UK as a result of the super deduction?
This Bill is a missed opportunity for a green recovery based on intersectional economics and progressive taxation to create decent, well-paid, unionised jobs and address our care crisis. It has the wrong priorities, it will create further inequality and it has unfairness and injustice rooted at its very core, so I will be voting against it today.
Duncan Baker (North Norfolk) (Con) [V]
An unprecedented time calls for an unprecedented Budget, and that is exactly what the Chancellor delivered, which is now set out in this Bill. The Budget had at its heart a focus on supporting people and businesses as we begin to emerge from the pandemic, and it laid out how, through fair taxation measures, not austerity, we can begin to rebuild and fix the public finances. Even the latest figures, published this morning, show an economy recovering, with exports, imports and GDP all improving. We already have a vaccination policy that, thanks to this Government, has been world-beating, and we now have an economy repairing itself faster than we all expected.
Not only can North Norfolk celebrate the fact that its economy, which is driven by leisure and tourism, will no doubt boom this summer, but my constituents have even more to celebrate, North Norfolk being in the top 100 places for the UK community renewal fund. Contrary to some beliefs, this is a Government reaching out to every corner of the UK, and I thank the Chancellor for putting North Norfolk on the map.
You might expect that a chartered accountant would want to talk about the taxation measures in this Bill, and I would hate to disappoint you, Madam Deputy Speaker. There are undoubtedly those who have prospered in lockdown from a sense of a captive market, and thus the taxation policy to increase corporation tax not now but in a couple of years’ time is sensible and proportionate. Equally, our rates will still be some of the lowest in the G7. Those making the lowest profits—under £50,000—will be largely unaffected and only those earning over £250,000 will pay the top rate. The vast majority of limited companies in the UK will see little tangible difference. However, I would like the Minister to explain why the super deduction is only applicable to limited companies. I acknowledge that it is a superb incentive for investment, as it is designed to be, but why not broaden the scope? Imagine farmers in my constituency parting with the best part of half a million pounds to buy farm machinery such as combine harvesters, as many of them may do, but because they operate as partnerships they are ineligible for the tax break.
As I repeatedly and relentlessly mention in this place, my fears for the overall UK high street still remain. Yes, our high streets will have the rates reprieve for nearly another year, but in the long term they will suffer as those who have converted to shopping online continue to operate under that trend. The Government must look at modernising the rates system and consider how we level up the disparity in competition between those bricks-and-mortar stores that now face online competition. I certainly look forward to perhaps seeing more of this in the autumn. But I take nothing away from the tax breaks. The confidence that the Government have injected into the economy is working and the green shoots of a post-crisis recovery are already germinating.
Mike Amesbury (Weaver Vale) (Lab)
Today I will vote against this Bill’s Second Reading, and I will focus on three reasons why.
Reason No. 1 is that I genuinely believe that our NHS and key workers deserve a decent pay rise, not just platitudes—the clapping of hands every Thursday some time ago, the selfies and the video clips. A vote for this Bill today is a vote to cut, in real terms, the salaries of those heroes, our key workers.
Reason No. 2 is that the regressive council tax bombshell of 5% imposed by the Chancellor on councils up and down this land is classed as spending power in his Budget—a Budget of smoke and mirrors—while ushering in a new era of austerity, with billions of pounds taken from the public sector providing vital services for the most vulnerable and the most needy, whether children or adults, in our society.
Reason No. 3 is that I and others are making a stand for the millions excluded from financial help and business support, whether freelancers in the Northwich part of my constituency or care workers from Frodsham who deserve a fair level of sick pay when they have to self-isolate in this covid pandemic.
My constituents may not have a direct line to the Chancellor, Ministers or leading civil servants, and they certainly do not have share options worth millions of pounds. However, 305 of my constituents in the Daresbury area of Weaver Vale have just lost their jobs—former employees of Greensill. That is the bulk of the UK employees; they are 305 of the 400 or so who have lost their jobs in the UK. Of course, there are thousands in associated industries, whether that is at Liberty Steel or further afield. They are victims of an unregulated shadow banking crisis and the new episode of Tory sleaze.
I want to see a Chancellor who pushes his team not to support his old boss, the former Prime Minister, but to give our key workers a decent pay rise and fully fund our councils, as promised, to help the many who have been excluded from business and personal support. That is how we build forward fairer for all. It is certainly not through supporting this Bill, which I and those on the Opposition Benches will oppose.
Ruth Cadbury (Brentford and Isleworth) (Lab)
I welcome and endorse all the points made by my hon. Friend the Member for Ealing North (James Murray) about the Opposition’s deep concerns about the Finance Bill; I will be voting against it.
I want to focus on measures relating to contractors. The all-party parliamentary loan charge group has just published a comprehensive report, “How Contracting Should Work”, which found that the unintended consequences of IR35 or off-payroll legislation has been a proliferation of umbrella companies, some of which have pushed people into disguised remuneration schemes. The report also exposed significant malpractice, including withholding of holiday pay, kickbacks for recommending or passing on contractors, and even the provision of fitted kitchens and holidays for recruitment agency directors. We concluded that we need legislative changes in and beyond the Bill, including aligning tax and employment law. There is a real opportunity in this Finance Bill to address some specific concerns.
Clause 21 deals with “Workers’ services provided through intermediaries”. It has been described in the explanatory notes as addressing
“an unintended widening of the conditions which determine when a company is an intermediary”.
But, actually, this is a change following lobbying efforts by umbrella companies. The legislation as originally drafted would have meant that recruitment agencies had to put workers on their own payroll, where they would also have enjoyed the protections offered by existing agency legislation. That would also have meant closing the door on tax avoidance schemes. Now that door has swung wide open again, which is a very odd thing for the Government to be doing when at the same time they claim they intend to clamp down on tax avoidance schemes.
The Government could simply strike out clause 21. Doing so would ensure that workers got the agency rights they should be getting. Agencies can run their own payroll; they do for their own staff anyway. They do not need umbrella companies and neither do their contractors. Alternatively, the Government could redraft clause 21 to seek to stop the exploitation. They must do one or the other.
As the Government and HMRC are well aware, schemes are still being sold—mis-sold—to people including mid and low-paid public sector workers, nurses, NHS doctors and other clinical specialists, teachers and social workers. Such schemes are also being sold to many in the private sector, including in IT, business services and so on. We in the APPG support more action through the Bill against promoters of such schemes, but we want to see some detail in this legislation. Schemes must be stopped now, rather than trying to go after promoters when the damage has been done—many are offshore anyway.
I urge the Government to accept that there still needs to be a fair resolution for those facing the loan charge. The vast majority of people facing the loan charge and those duped into schemes since 2017—often lower-paid people—are victims of mis-selling by promoters and operators who gave and still give assurances of compliance and legitimacy, and did not make any mention of the risk of being pursued by HMRC. The reality is that people are simply not able to pay the loan charge, and enforcing it will lead to bankruptcy, hardship and worse. It is time that the Government and HMRC sought a compromise—a way to resolve this without destroying lives and families, and without making people unable to work through their being declared bankrupt. I urge the Government to look again at the APPG’s proposal last year for a final settlement opportunity.
We in the all-party parliamentary loan charge group welcome action to tackle promoters of schemes, but we want to see the details from the Government. We have seen very little so far. At the same time, we need legislative action to stop these schemes in the first place and the misery that they cause, and we want a fair resolution for those facing the loan charge. The Finance Bill gives the Government an opportunity do this, to clean up the supply chain, and to stamp out tax avoidance schemes and other malpractice. Given the importance of these workers to the economy and our public services, this is an opportunity that the Government must take now.
Richard Thomson (Gordon) (SNP)
It is a pleasure to speak in support of my colleagues in our opposition to the Finance Bill on Second Reading. This might be the Finance Bill that we have, but it is certainly not the Finance Bill that we need right now. Despite warnings and despite the damage to employment that was caused by previous hard deadlines that the Chancellor set himself on furlough—which turned out not to be such hard deadlines after all—we once again face just such a set of cliff edges with these measures come September. We face a cliff edge with the ending of the support for the self-employed, the ending of furlough and the non-continuation of the equivalent of the £20 universal credit uplift—a policy that has done so much to get families on low incomes through the pandemic, making sure that food was on the table, bills could be paid and the wolf was kept from the door. We will also face a cliff edge in key elements of the Scottish economy thanks to the removal of the 5% VAT rate for hospitality. As things stand, all these cliff edges will be encountered irrespective of the condition of the economy come September or, indeed, the progress that we continue to make in suppressing the virus.
This Bill fails to get to grips with the big issues of ensuring a green recovery and fails when it comes to dealing with the much-vaunted levelling-up agenda. In the time I have left, I wish to highlight two points of particular interest to my constituents and to wider society across the north-east of Scotland: the recently announced sector deal for the North sea and the levelling-up agenda.
First, lest there be any doubt, the sector deal is absolutely welcome. It has been called for for a long time and I know that the Government and industry have been working together closely to deliver the package. Although it might be a sector deal, whatever else it might be it is emphatically not a fiscal deal. There are big numbers in respect of the amounts of investment money that might potentially come in, but the Government are not putting a huge amount of money on the table to achieve that. It may help—I hope it does—to drive the objectives of a just transition and to boost the skills and retain human capital in the north-east of Scotland, but we need to be prepared for the possibility that further incentivisation might be needed.
Secondly, on levelling up, people who listened to my good friends and colleagues from neighbouring constituencies who represent the Conservative and Unionist party would believe that the levelling-up fund was going to leave not a single pothole unfilled, not a bridge unrepaired and not a single social project unfunded in the north-east of Scotland. Instead, when the prospectus was unveiled, the city of Aberdeen was in level 2 and Aberdeenshire was languishing in the lowest level, level 3, despite the urgent need to address the hit that the oil and gas sector has taken and tackle the impact of Brexit on our exporters. It seems that the post-Brexit power grab on Scotland’s devolved Government has morphed into a cash grab on the north-east of Scotland.
In conclusion, this is the Bill that we have but it is not the Bill that we need. Along with my colleagues, I look forward to exposing more of its shortcomings as we see them, as the Bill progresses.
Jim Shannon (Strangford) (DUP)
My contribution will not be long, Madam Deputy Speaker; I just wish to make a few points.
As on several other occasions over the past year, I have looked to ascertain whether we are doing our best to offer support to help to sustain businesses and then encourage regrowth. I put on record my thanks to the Government for all that they have done, but I must also put something on the record on behalf of the aviation sector. I hope the Minister will forgive me for putting this on the record, but it is important that I do so.
Although I accept the difficult nature of presenting a Budget at this time and the immense pressure on the Chancellor, there were a number of gaps in the Budget, one of which was support for the aviation sector. The temporary extensions of the job retention scheme and the limited business rates relief for airports were welcome, but there was palpable disappointment in the sector that the Government failed to recognise in their Budget the impact of covid-19 on aviation.
The only aviation-specific clause in the Bill is one to increase the tax burden on international travel through air passenger duty—this at a time when the Government should be putting all their efforts behind the recovery of the UK’s lost aviation connectivity. As a member of the Democratic Unionist party, I have long opposed APD on internal travel—I believe it is a factor in the growing feeling of isolation that Northern Ireland is going through—but that is for another debate in which the Unionist voice must be heard and acknowledged much more than it is being currently.
The covid-19 pandemic is the worst crisis in the history of aviation. Last summer, passenger numbers travelling through UK airports were at their lowest level since 1975. Office for National Statistics data shows that aviation was the worst-hit sector of 2020 and will continue to be the worst-affected sector in 2021.
That tells me that we need to look at how we can encourage and build the sector. Not just the Airport Operators Association’s airport recovery plan but the Office for Budget Responsibility downgraded their estimations of the recovery of levels of air passenger duty until as far away as 2024 and 2025. The Government need to acknowledge that other European countries are giving substantial grant-based funding to airports. The UK Government’s lack of support, other than limited rates relief and access to loans, risks UK aviation falling behind our European competitors. That cannot be allowed to happen given our vision of global Britain.
Instead of supporting the sector, the Finance Bill includes rises in air passenger duty that will harm the recovery of an industry that has largely been shut down for over a year. Added to that, there is the blow of the removal of airside VAT-free shopping at the end of 2020. That is another hit for airports, which rely heavily—up to 40% of their income—on retail and require a firm financial footing to successfully recover throughout the rest of the decade. The Finance Bill, unfortunately, fails to reverse that damaging decision, or put compensation in place such as arrivals duty-free shopping.
I conclude with this comment. In an intervention at the beginning of the debate, I made a comment about insurance companies. Some companies are unfairly using business interruption insurance premiums to punish businesses that had the foresight to take out said insurance before the pandemic. I believe there is a chance with this Bill— insurance companies are notorious for finding a loophole—to address this issue. I ask the Minister to do that.
Mr Pat McFadden (Wolverhampton South East) (Lab)
I would like to begin by echoing the tributes made from all sides of the House in recent days to the Duke of Edinburgh, Prince Philip. It is a testament to the endurance of his public life that you would have to be almost 80 years old to have any real memory of a time when both he and Her Majesty the Queen were not at the pinnacle of the monarchy. On behalf of my constituents, I would like to send Her Majesty and the royal family our deepest condolences at this most difficult time.
Turning to the debate, it is a pleasure for me to respond on behalf of the Opposition. I thank all Members on all sides of the House, who made very wide-ranging contributions today, and some of them, Madam Deputy Speaker, related to the Bill before us. We have heard excellent contributions on a wide range of issues, including the move away from diesel, climate change, local recovery bonds, the taxation of covid tests, those excluded from Government help schemes, the arts and cultural sector, the aviation sector, the Help to Grow scheme, freeports and regional inequality—or, as the Government call it, levelling up.
On the latter, we heard of the urgent need for action because of years of neglect. Now, I hate to pose an awkward question, but I have been scratching my head and I have to ask: who has actually been in power for the past 11 years? Who presided over that neglect? Who was it who cut billions of pounds from local authority budgets over the past decade? Who was it that abolished the regional development agencies that were responsible for regional development in the first place? Who was it that downgraded Sure Start, and attacked the opportunities and life chances of some of the lowest-income children in the country? I really think that we should be told who it was who presided over the neglect that has spurred the Government to these policies today. I admit that it is a neat trick to pretend that you have only been in power for a year, but the truth is that it has been 11 years. What the Government are now trying to do is fix their own mistakes to repair damage that they caused in the first place.
Now, I admit it must be a relief to the Treasury Ministers to attend the debate today and to be able to shelter on the Front Bench for a few hours, to get some respite from calls from David Cameron. They can tell him that they were in the Chamber and they had their mobiles switched off as he worked his way through the whole Department. If I am right, the Minister responding is one of the few people in the Treasury who has not yet received a call from the former Prime Minister, but he might still be working his way through the list. Right now in the Treasury there are no doubt officials cowering behind doors, hoping that the former Prime Minister does not have their phone number. If he does get through, they can give him the new excuse we heard today: that the new Government loan schemes on which he has been lobbying have nothing to do with the Treasury. Ignore all the press releases, ignore all the tweets, ignore the Instagram videos, ignore the invitations to “Ask Rishi”. It turns out that the case for the defence is that it is all somebody else’s responsibility. But that will not wash—it will not wash at all.
At the heart of the Finance Bill are the tax changes set out in the Budget. As we established during the Budget debates a few weeks ago, those tax changes turn on its head decades-long conservative orthodoxy, not just because tax rates are going up but because the expectation is that alongside rising tax rates will come rising revenues. The projections are set out in the Red Book on corporation tax, thresholds for income tax and the other measures laid out in the Bill.
The Red Book estimates and the Bill lay to rest the argument set out by Conservative politicians from Margaret Thatcher to George Osborne that cutting rates rather than raising them leads to an overall rise in revenues. Indeed, the argument advanced at the core of this Finance Bill—that corporation tax rates should rise and businesses should be compensated by an increase in investment allowances—is the exact mirror image of the argument used by the previous Chancellor to justify the cuts he made to corporation tax. At that time, we were told that all those reliefs and allowances were too complex and that they could be cut to help fund a cut in corporate tax rates; now, the opposite argument is being advanced. Osbornomics are officially buried by Rishnomics in this Finance Bill.
That is all, of course, at the level of policy and ideology. What about the practical level—the practical effect? The freezing of personal allowances will bring an extra 1.3 million taxpayers into the system over the next few years. I thought it might be helpful to illustrate the effect of some of the proposals on a particular constituency, so I picked one at random: Hartlepool. The proposals mean that 34,000 basic rate taxpayers in Hartlepool will face a tax increase before corporations have had to pay a single extra penny toward the costs of the pandemic. In Hartlepool, there are 11,732 households on universal credit. The decision to withdraw the £20 a week uplift from them later this year will cost them collectively almost £12 million extra over the following 12 months. That is what these changes mean in one constituency. That is what they mean to families around the country.
The Bill also sets out plans for the new system of investment allowances, which are related to the recovery loan scheme recently launched—I underline this—by the Treasury. The Treasury cannot escape ownership of this one. What will the Treasury system be to accredit lenders under the new recovery loan scheme? Will it just be for regulated lenders? How will it test the capital adequacy of the institutions involved? How will it avoid a repeat of accrediting for the scheme a lender who is on the brink of collapse?
Of course, the overall judgment on the Budget and the Finance Bill must be by the test of how it gets us through what is happening now and the foundations it lays for the future, and the Bill deals with only one phase of that. On the extension of many of the emergency measures put in place since the beginning of the pandemic, we called for many of those measures in the first place, and they are obviously necessary while we are still in the teeth of the fight against the virus. By that, I mean of course the extension of the furlough scheme, the help for the self-employed and so on. Those interventions cost considerable sums of money, but the social and economic cost of not doing them would have been far, far greater. Governments can act in times of crisis to help the country through. Indeed, if a Government did not do so, we would have to wonder what they were for. But in addition to that immediate crisis help, there is a longer-term rebuilding job to be done. We are going to need strong, job-creating growth if we are to recover from the past year. The economy will not come back exactly as it was before the first lockdown. The pandemic has exposed deep inequalities in society. It has shown the stark reality of what many key workers are paid. It has laid bare the vulnerabilities of our society and the very different circumstances of those who could work from home and those who had no choice but to go to work day after day, no matter the risk to themselves and their families.
In terms of other changes, the pandemic has been described as the “great acceleration”—10 years’ change crammed into one. The way we shop, work, pay for things, educate children, deliver healthcare and much else has been changed, probably forever. Technology and change apply to everyday life as never before. How do we make the most of these trends? How do we ensure that people are equipped for the economy that comes out of this pandemic and that these changes do not simply exacerbate existing inequalities? Those are the urgent questions facing politics today.
Expectations have been changed about what Governments can do, not only here but in the United States, as we have seen in recent weeks, and across the world. This will change the shape of the political argument in the future—not a return to the same old argument about tax and spend, but an argument instead about who can best equip the country for the future, who can rebuild the best and who can deliver the transition to greener jobs, heal the inequalities that have been exposed by the pandemic and help children to recover from the education that has been lost.
The Finance Bill is silent on those challenges, as was the Budget. That is why it is a job only half done. It puts tax increases in place for the next few years that hit family finances before corporations, and it does so with no plan for the recovery that the country needs or one to rebuild the public realm—the public square—to make it more resilient in the future. That is why we have tabled the reasoned amendment on the Order Paper. The second half of that job—what the country has to do—is still to come, and that will be where the argument over the best economic future for the country and how we truly recover from the events of the past year is played out.
The Exchequer Secretary to the Treasury (Kemi Badenoch)
On behalf of my constituents, I join Members across the House in expressing my deepest sympathies to Her Majesty the Queen and the royal family on the death of His Royal Highness the Prince Philip, the Duke of Edinburgh. I would also like to briefly take the opportunity to pay tribute to my colleague, Dame Cheryl Gillan, who passed away over the recess. We worked closely together on the 1922 committee between 2017 and 2019. She was an unflappable lady and always good humoured. I cannot quite believe that she has left us, and it goes to show that we often do not know how much people mean to us until they are gone.
I turn to the matter of today’s debate, which it is a privilege to close on behalf of the Government. I thank all Members for their contributions. We have heard some excellent speeches, and in particular, I thank Members such as my right hon. Friend the Member for Wokingham (John Redwood) and my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) for the many deeply considered reflections they have shared based on the significant knowledge and experience they have gained outside the House. I will address as many points as I can, and I am sure we will consider in Committee those that I do not get to.
The Bill’s first purpose is to protect jobs and livelihoods threatened by covid-19 by providing tax support to businesses and individuals. It boosts some of the hardest hit industries through extending the VAT reduction for the hospitality and tourism sectors. It provides extra security for workers in the housing sector by maintaining the temporary cut in stamp duty until the end of June. My hon. Friend the Member for Wimbledon (Stephen Hammond) raised the issue of businesses that are ineligible for support, such as English language schools in his constituency. The Finance Bill supports struggling businesses by allowing them to carry back up to £2 million of losses and receive refunds for tax paid in additional previous years further to the one year provided at present.
In addition, the Bill contains a number of other measures that will provide a helping hand to businesses and individuals at this most difficult of times. I thank the hon. Member for Weaver Vale (Mike Amesbury), my hon. Friend the Member for North Norfolk (Duncan Baker), the hon. Members for Brentford and Isleworth (Ruth Cadbury), for Belfast South (Claire Hanna), for Bethnal Green and Bow (Rushanara Ali) and for Gordon (Richard Thomson), and all other Members who raised points on their constituents’ behalf on this issue.
The Bill has a second important purpose: to support the Government’s efforts to rebuild the nation’s finances, as eloquently expressed by my right hon. Friend the Member for Central Devon (Mel Stride), so that we have the fiscal flexibility to respond to new crises. As the Chancellor said at the Budget,
“our approach to fixing the public finances will be fair”,
asking those who can afford to contribute to play their part, while
“protecting those who cannot.”—[Official Report, 3 March 2021; Vol. 690, c. 256.]
That is why the Bill maintains the income tax personal allowance and the higher rate threshold at their current levels from next year, and why it maintains the pensions lifetime allowance, the threshold for capital gains tax and the threshold for inheritance tax at 2020-21 levels.
As my right hon. Friend the Financial Secretary to the Treasury said, businesses have received over £100 billion of support through this crisis; it is only right that we ask the firms with the broadest shoulders to support our recovery. Therefore the rate of corporation tax will increase to 25%, but only from 2023. I was very pleased to hear the faintest of praise for that measure from the hon. Member for Walthamstow (Stella Creasy). Those Members who have reservations about the impact on small businesses should know that small businesses with profits of £50,000 or less, which make up 70% of actively trading companies, will be protected from that rise. Let me also remind the House that a 25% corporation tax rate is still the lowest in the G7.
My right hon. Friend the Member for Central Devon asked why the diverted profits tax is maintained, not widened. This tax is charged at a higher rate than corporation tax to discourage the diversion of profits that should be taxed in the UK to another country. The six-point differential between the main rate and the DPT rate has proven an effective deterrent, and that is why the diverted profits tax is being increased from 25% to 31% from April 2023 to maintain the current differential.
My hon. Friend the Member for Mid Norfolk (George Freeman), the hon. Member for Richmond Park (Sarah Olney) and my hon. Friend the Member for Hertford and Stortford (Julie Marson) all raised the important issue of investment and productivity, and I thank my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami) for praising our Help to Grow scheme.
The measures in the Bill support the Government’s goal of an investment-led recovery from coronavirus. Our super deduction will allow companies to claim 130% capital allowances on qualifying plant and machinery investment from this month until 2023. That is the biggest two-year business tax cut in modern history, and it will support firms to make a transformative investment in the UK’s future growth and prosperity.
HMRC assessed the potential for fraud and tax avoidance—something which some Members raised. There are a number of safeguards in the legislation to prevent such abuse, such as the exclusions of connected party transactions and second-hand assets. The legislation introduces a new anti-avoidance provision that applies to counteract arrangements that are contrived, abnormal or lacking a genuine commercial purpose.
In addition, the Bill enables the Government to designate tax sites in freeports in Great Britain, as referenced by the hon. Members for Glenrothes (Peter Grant) and for Bootle (Peter Dowd) and my hon. Friends the Members for Redcar (Jacob Young) and for North West Durham (Mr Holden), where, once approved, eligible businesses will be able to benefit from a number of tax reliefs, including capital allowances and relief from stamp duty. I am particularly grateful to my hon. Friend the Member for North West Durham for his rebuttal to the hon. Member for Ealing North (James Murray), who sought to link, incredibly, freeports to organised crime. I reassure my hon. Friend the Member for Waveney (Peter Aldous) that we do expect freeports to enhance the incentives in place in areas like his that already have enterprise zones.
I acknowledge the issues raised by the right hon. Member for East Antrim (Sammy Wilson), including about steel imports into Northern Ireland under the Northern Ireland protocol, and I welcome his remarks on clause 97. He is right to point out what the effect of 25% tariffs would be on engineering firms in Northern Ireland. The Government have been working closely with the steel sector to address that issue, and clause 97 is an example which shows that we are very much committed to ensuring that the protocol works for the people of Northern Ireland.
Let me remind the House that the Finance Bill also has a number of purposes beyond this crisis. As the Financial Secretary outlined earlier, it continues the Government’s work of building a fairer and sustainable tax system. The hon. Member for Strangford (Jim Shannon) raised air passenger duty. The Bill seeks to set air passenger duty rates for April 2022, and so will not take immediate effect. It will only increase long-haul APD rates in nominal terms, while short-haul rates will remain frozen at current rates, which will benefit over 75% of passengers. Long-haul economy rates, for example, will increase by only £2.
The Bill improves tax transparency by paving the way for the UK to implement the OECD’s international reporting rules for digital platforms, stops tax cheats by strengthening our existing anti-avoidance regimes and tightening the rules designed to tackle promoters and enablers of tax avoidance schemes, and provides even more certainty to taxpayers by setting out a more consistent, fairer penalty regime across VAT and income tax self-assessment. In addition, it will help to deliver a low-carbon future, as highlighted by my hon. Friends the Members for Arundel and South Downs (Andrew Griffith) and for Stoke-on-Trent Central (Jo Gideon) and the hon. Member for Ceredigion (Ben Lake), with the introduction of a plastic packaging tax and by removing most sectors’ entitlement to use red diesel from April next year. I know that my hon. Friend the Member for St Austell and Newquay (Steve Double) raised concerns about the policy. I will ensure that officials continue to engage with the sector, and he should receive a letter from me shortly. We recognise that it will be a big change for some businesses. They have another year before changes take effect, and we are doubling the funding provided for energy innovation through the new £1 billion net zero innovation portfolio, which will support the development of alternatives that businesses can switch to.
As every Member of the House will be all too aware, the past year has been a time of deep economic challenge. The Bill plays a major part in allowing us to meet those challenges today while readying the country for a better tomorrow. For that reason, I cannot support the reasoned amendment, and I commend the Bill as it stands to the House.
Question put, That the amendment be made.
Proceedings | Time for conclusion of proceedings |
|---|---|
First day | |
Clauses 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86; any new Clauses or new Schedules relating to the impact of any provision on the financial resources of families or to the subject matter of those Clauses | 2 hours from commencement of proceedings on the Bill on the first day |
Clauses 6 to 14 and Schedule 1; any new Clauses or new Schedules relating to the subject matter of those Clauses and Schedule | 4 hours from commencement of proceedings on the Bill on the first day |
Clauses 109 to 111 and Schedules 21 and 22; and new Clauses or new Schedules relating to the impact of any provision on regional economic development | 6 hours from commencement of proceedings on the Bill on the first day |
Second day | |
Clause 30 and Schedule 6; Clause 36 and Schedule 7; Clause 41; Clause 115 and Schedule 27; Clauses 117 to 121 and Schedules 29 to 32; any new Clauses or new Schedules relating to tax avoidance or evasion. | 2 hours from commencement of proceedings on the Bill on the second day |
Clauses 87 to 89 and Schedules 16 and 17; Clauses 90 and 91; any new Clauses or new Schedules relating to the subject matter of those Clauses and Schedules | 4 hours from commencement of proceedings on the Bill on the second day |
Clauses 92 to 96 and Schedule 18; Clause 97 and Schedule 19; Clauses 128 to 130; any new Clauses or new Schedules relating to the subject matter of those Clauses and Schedules | 6 hours from commencement of proceedings on the Bill on the second day |
Finance (No. 2) Bill
Monday 19th April 2021
(3 years, 7 months ago)
Commons ChamberRead Full debate Finance Act 2021 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 19 April 2021 - large print - (19 Apr 2021)
19:23 - The Committee divided: - Ayes: 356 / Noes: 224 - Question accordingly agreed to.
19:35 - The Committee divided: - Ayes: 261 / Noes: 367 - Question accordingly negatived.
19:43 - The Committee divided: - Ayes: 269 / Noes: 358 - Question accordingly negatived.
21:22 - divided: - Ayes: 260 / Noes: 365 - Question accordingly negatived.
21:33 - The Committee divided: - Ayes: 260 / Noes: 365 - Question accordingly negatived.
23:08 - The Committee divided: - Ayes: 260 / Noes: 366 - Question accordingly negatived.
The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
With this, it will be convenient to discuss the following:
Clauses 2 to 4 stand part.
Amendment 2, in clause 5, page 2, line 16, leave out “2022-23”.
This amendment would mean that the freezing of tax thresholds at 2021-22 levels did not apply until 2023-24.
Amendment 3, page 2, line 18, leave out “2022-23”.
See the explanatory statement for Amendment 2.
Amendment 4, page 2, line 25, leave out “2022-23”.
See the explanatory statement for Amendment 2.
Clause 5 stand part.
Clauses 24 and 25 stand part.
Amendment 93, in clause 26, page 19, line 3, at end insert—
“, or for the presence of antibodies to SARS-CoV-2”.
This amendment would extend the income tax exemption for payments to employees in respect of the cost of obtaining antigen coronavirus tests to cover antibody coronavirus tests too.
Clause 26 stand part.
Clause 28 stand part.
Amendment 92, in clause 31, page 20, line 13, at end insert—
“, where the person who received the payment is not a qualifying person by virtue of Paragraph 5 of the direction given by the Treasury under section 76 of the Coronavirus Act 2020”.
This amendment would ensure that the one-off £500 payment to certain working households in receipt of tax credits could only be recovered where it is found that the individual was not entitled to the payment because they were knowingly concerned in underlying fraud either in relation to their tax credit award or the one-off payment.
Amendment 15, page 20, line 13, at end insert—
“(4) The Chancellor of the Exchequer must, no later than 5 April 2022, lay before the House of Commons an equalities impact assessment of the provisions of this section, which must cover the impact of the provisions on—
(a) households at different levels of income,
(b) people with protected characteristics (within the meaning of the Equality Act 2010),
(c) the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010,
(d) equality in different parts of the United Kingdom and different regions of England, and
(e) child poverty.”
Clauses 31 to 33 stand part.
Clause 40 stand part.
Clause 86 stand part.
New clause 7—Assessment of revenue effects of supplementary income tax rate—
“(none) The Chancellor of the Exchequer must, no later than 31 October 2021, lay before the House of Commons an assessment of the effects on tax revenues of introducing a supplementary rate of income tax, charged at a rate of 55%, above a threshold of £200,000.”
This new clause would require the Government to publish an assessment of the effect on tax revenues of introducing a 55% income tax rate on income over £200,000.
New clause 8—Equalities impact assessment and distributional analysis of tax thresholds—
“The Chancellor of the Exchequer must, no later than 5 April 2022, lay before the House of Commons an equalities impact assessment of existing income tax thresholds and a distributional analysis of—
(a) the effect of reducing the income tax threshold for the additional rate to £80,000, and
(b) the effect of introducing a supplementary rate of income tax, charged at a rate of 50%, above a threshold of £125,000.”
New clause 10—Review of changes to coronavirus support payments etc—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made to coronavirus support payments etc by sections 31, 32 and 33 of this Act and lay a 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,
(d) GDP growth, and
(e) poverty.
(3) A review under this section must consider the following scenarios—
(a) the coronavirus job retention scheme and the self-employment income support scheme are continued until 30th September 2021, and
(b) the coronavirus job retention scheme and self- employment income support scheme are continued until 31st December 2021.
(4) 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 report comparing the effect of (a) the coronavirus job retention scheme and the self-employment income support scheme being continued until 30 September 2021, and (b) the coronavirus job retention scheme and self-employment income support scheme being continued until 31 December 2021 on various economic indicators
New clause 11—Review of changes relating to cycles and cyclist’s safety equipment—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by section 25 and lay a 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,
(d) GDP growth,
(e) poverty, and
(f) carbon emissions.
(3) A review under this section must consider the following scenarios—
(a) the cost of a cycle is made an allowable expense on self-assessment tax return forms, and
(b) the cost of a cycle is not an allowable expense on self-assessment tax return forms.
(4) 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 report comparing the impact of the impact of (a) making the cost of a cycle an allowable expense on self-assessment tax return forms and (b) not doing so on various economic indicators.
New clause 12—Review of impact of section 40 on equalities—
“(1) The Chancellor of the Exchequer must conduct an equality impact assessment of section 40 and lay this before the House of Commons within six months of Royal Assent.
(2) This assessment must consider the expected impact of section 40 on individuals and groups with protected characteristics under the Equality Act 2010.”
This new clause would require the Chancellor of the Exchequer to review the impact of Clause 40 on equalities.
New clause 22—Review of impact of section 40—
“(1) The Chancellor of the Exchequer must review the impact of section 40 and lay a 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) the regional distribution of capital gains in the UK, and
(b) projected receipts.
(3) A review under this section must consider the following scenarios—
(a) capital gains tax rates are changed so as to be equal to those of income tax, and
(b) capital gains tax rates remain at the level in this Act.”
This new clause seeks a report on the impact of equalising capital gains tax and income tax on (a)the regional distribution of capital gains in the UK, and (b) projected receipts.
New clause 23—Equality impact analysis—
“(1) The Chancellor of the Exchequer must review the equality impact of sections 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86 of this Act and lay a 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—
(a) the impact of those sections on households at different levels of income,
(b) the impact of those sections on people with protected characteristics (within the meaning of the Equality Act 2010),
(c) the impact of those sections on the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010, and
(d) the impact of those sections on equality in different parts of the United Kingdom and different regions of England.
(3) A review under this section must give a separate analysis in relation to the following matters—
(a) income tax,
(b) employment income,
(c) coronavirus support payments,
(d) pension schemes,
(e) investments, and
(f) inheritance tax.
(4) 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 requires the Chancellor of the Exchequer to carry out and publish a review of the effects of clauses 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86 of the Bill on equality in relation to households with different levels of income, people with protected characteristics, the Treasury’s public sector equality duty and on a regional basis.
The Financial Secretary to the Treasury (Jesse Norman)
The Government have delivered an unparalleled package of support during the covid-19 pandemic, providing over £352 billion for public services, workers and businesses. This response has been fair and balanced, with the poorest households benefiting the most from the Government’s interventions. It is now necessary to take steps to ensure the sustainability of the public finances and continue to fund our excellent public services. Our approach to fixing the public finances will therefore also be fair and balanced. The fairest way to put the public finances on a more sustainable footing is to ask all taxpayers to play their part, as well as asking those people able to contribute more to do so. That is why, in these parts of the Bill, the Government are legislating for freezes to the personal allowance, higher rate thresholds, the inheritance tax thresholds, the pensions lifetime allowance and the annual exempt amount in capital gains tax. The Government are also making sensible changes to the tax treatment of coronavirus support payments and exemption-related adjustments to account for the impact of the pandemic.
Given the number of speakers and amendments, I will try to keep my remarks relatively brief. Before I turn to the changes announced at Budget, let me touch on clauses 1 to 4. These are legislated for every year and are essential for the Government to be able to collect the right amount of income tax for the tax year 2021-22.
I come now to the clauses that legislate to maintain thresholds. These clauses are an essential part of a fair and responsible fiscal approach to fixing the public finances. Clause 5 maintains the income tax personal allowance and the basic rate limit at their 2021-22 levels from April 2022 until April 2026. This is a universal, progressive and fair measure being taken to fund public services and rebuild the public finances, and it ensures that the highest-earning households will contribute more. Indeed, the top 20% of highest-income households will contribute 15 times that of the bottom 20% of lowest-income households.
I shall now respond to amendments 2 to 4 and new clause 7, which relates to clause 5. Amendments 2, 3 and 4 seek to delay the decision to maintain the income tax personal allowance and higher rate threshold until April 2023. The Office for Budget Responsibility forecast that UK GDP will reach its pre-virus peak by the second quarter of 2022. The Bank of England forecast that it will happen at the beginning of 2022. In the light of those estimates, it is reasonable and fair for the Government to uphold the start of this policy from April 2022. Nobody’s take-home pay will be less as a result of this decision. For most taxpayers, any real-terms loss will be very small in 2022-23. I therefore urge the right hon. Member for Hayes and Harlington (John McDonnell) not to press the amendments to a vote.
New clauses 12 and 23 would require the Government to publish equalities impact assessments for all the measures in this debate, and new clause 8 would require the Government to publish an equalities assessment of existing income tax thresholds. New clause 8 would also require the Government to publish distributional analysis on two changes that do not constitute Government policy—namely, reducing the additional rate threshold to £80,000 and introducing a supplementary 50% rate of income tax for income above £125,000.
The Treasury carefully considers the equality impacts of the individual measures announced at fiscal events on those who share protected characteristics, in line with both its legal obligations under the public sector equality duty and its strong commitment to issues of equality. The Treasury already publishes comprehensive assessments of income tax threshold changes. Alongside the Budget, the Government have published detailed distributional analysis of the decision to maintain income tax thresholds, both at a household and on an individual basis. The new clauses therefore do little to provide meaningful additional analysis further to the Government’s existing comprehensive publications, and I therefore urge Members not to press them to a vote.
Clause 28 makes changes to maintain the pensions lifetime allowance at £1,073,100 until April 2026. This will limit the pensions tax relief available to those with the largest pension pots and supports the Government’s objective of a system of pensions tax relief that is fair, affordable and sustainable. Clause 40 maintains the capital gains tax annual exempt amount at its 2020-21 level of £12,300 for individuals and personal representatives and £6,150 for most trustees of settlements for the tax years 2021-22 up to and including 2025-26. Maintaining the annual exempt amount at a 2020-21 level is a responsible decision, consistent with the decisions that the Government have taken to maintain the value of the other main allowances over the same period.
Clause 86 maintains inheritance tax thresholds at their 2020-21 levels until April 2026. This means that the nil rate band will remain at £325,000 and that the residence nil rate band will remain at £175,000. The tapering of the residence nil rate band will continue to start when the net value of an estate is more than £2 million. Maintaining these thresholds is forecast to contribute almost £1 billion over the next five years to help to rebuild the public finances, but this approach still ensures that more than 94% of estates will not be liable for inheritance tax in each of the next five years. Taken together, this Government’s approach to thresholds across the tax system is clear evidence of a fair and consistent fiscal strategy to repair the public finances while continuing to invest in public services.
Clauses 24 to 26 make minor adjustments to exemptions to account for the impact the coronavirus pandemic has had on businesses and workers. Let me also address one proposal relating to clauses 25 and 26. New clause 11 would commission a review of the changes relating to the employer-provided cycles exemption. I am happy to reassure the Committee that the terms of that exemption have not changed and only a minor time-limited easement is introduced by this Bill. It is not therefore necessary to review the changes. Clauses 31 to 33 relate to the Government’s package of support payments for individuals and businesses during the pandemic. Clause 31 makes changes to ensure that the one-off £500 payment to eligible working tax credit claimants announced at Budget 2021 is not subject to income tax. This will ensure that the recipients of the tax credit benefit in full and that the payment meets its objective of providing additional support to low-income working households.
Jim Shannon (Strangford) (DUP)
Has the Minister had any discussion with the Low Incomes Tax Reform Group, which has indicated to me some of its concerns about how Her Majesty’s Revenue and Customs required claims from individuals? It is a delicate matter, but there is problem there. Has he had an opportunity to discuss it with the LITRG?
Jesse Norman
The hon. Gentleman will be pleased to know that I maintain a strong dialogue, through officials, and from time to time in person, with the LITRG and I have no doubt that the input it has given has been carefully considered in this regard. If he would care to write to me with his specific concern, I would be happy to pick that up as well.
It is right that HMRC has powers to tackle fraud and abuse of the self-employment income support scheme and that the Government provide legal clarity that SEISS grants are liable for income tax in the year of receipt. Clauses 31 and 32 will allow payments made in support of individuals and businesses by the Government to meet their objectives as far as is possible. Opposition amendments 15 and 92 are already comprehensively addressed by existing policy, and I ask that Members do not press them to a vote. Clause 33 makes changes to ensure that the repayments of business rates relief are deductible for corporation tax and income tax purposes. This ensures that any repayments of support are dealt with appropriately.
Taken together, these measures will help the Government to continue to support individuals and businesses through the coronavirus pandemic, and they will also begin to put the public finances on a sustainable footing as we continue to move out of the pandemic. I therefore ask that clauses 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86 stand part of the Bill.
James Murray (Ealing North) (Lab/Co-op)
I rise to speak to the provisions standing in my name and those of the Leader of the Opposition and my right hon. and hon. Friends. On behalf of the Opposition, I will begin our detailed scrutiny of this Bill today by considering the impact it will have most immediately and most widely on people across the UK through its cuts to the money that families, in all their many forms, have in their pockets.
The opening clauses, 1 to 5, focus on income tax, with clause 5 freezing the personal allowance from 2022-23 through to 2025-26. That is no small change; the effect of the clause will be to make half of all people in the UK pay more tax from next year, and that is not the only measure the Government are taking that raids their pockets. We know that this Bill will make families pay more through the income tax changes next year, but it also does nothing to stop the sharp council tax rise that the Government are forcing councils to implement right now, it supports the Chancellor’s plan to cut £20 a week from social security this autumn for some of those who need help most, and of course it comes as the Government are choosing, in this year of all years, to take money from the pockets of NHS workers.
Sammy Wilson (East Antrim) (DUP)
Does the shadow Minister accept that the total take in income tax from individuals across the United Kingdom as a result of that one measure in one year will be £10 billion, and the total take over the next five years will increase by 25%? On the basis of the tax paid now, 25% more income tax will be paid collectively by individuals as a result of simply freezing thresholds.
James Murray
I thank the hon. Member for setting out some of the figures about the impacts of the Bill. I can add to that by saying that if we take the freezes to the personal allowances, along with the cuts to NHS workers’ pay, the council tax hike and the cut to universal credit, the real scale of the impact of the Government’s decisions becomes clear. A newly qualified nurse living with their partner and two children in rented accommodation will lose more than £1,100 a year. It is plain wrong to hit families across the country in that way, but that sense of injustice is made all the more acute by the fact that that increase of costs to families comes years before any rise in corporation tax. At the same time, through the Bill the Government are letting tech giants stop paying tax altogether.
Last week, we voted against the Bill on Second Reading. Our reasoned amendment made it clear that key to the decision was its effect on family finances, through what it does and what it does nothing to stop. Today, we have the chance to stop the measure in the Bill that will make every income tax payer in the country pay more next year. We will seek a vote on clause 5, and I urge Conservative Members to join us in knocking this attack on families out of the Bill. By doing so, we would allow the Government to come back in their next Finance Bill with a fairer approach—one that does not put a misguided tax break for big business ahead of the money that families have in their pockets.
The other clauses that are being debated concern a range of other matters. Clauses 24 to 26 relate to the impact of covid on those benefiting from enterprise management incentives, cycle-to-work schemes and employer-provided coronavirus tests. Meanwhile, clause 31 exempts those receiving tax credits from paying income tax on the one-off covid-19 support scheme payment. Clause 32 clarifies the tax treatment of payments made under the self-employed income support scheme. Clause 33 provides for a relief where businesses repay covid support payments that are no longer required. Finally, clause 28 freezes the standard lifetime allowances for pensions immediately until 2025-26, while clause 40 does the same for the capital gains tax annual exempt amount and clause 86 does the same for inheritance tax thresholds.
Through our new clause 23, we ask that all the measures being considered today are considered for their effects on the finances of different households across the UK. We want to see a fair, progressive tax system in this country, so we want the Government to be transparent about the effect that their changes will have on people’s lives. The question of how changes affect the people of this country should always be the Government’s overriding concern when introducing changes to the tax system.
That is why our new clause would require that the Government analyse, review and be transparent about how their changes will affect households at different levels of income. It would further require Ministers to set out how the changes would affect people on the basis of age, disability, race, sex and other protected characteristics, and how they would affect people living in different nations and regions of the UK. There is significant evidence that women, those from black, Asian and ethnic minority communities, young people and disabled people have been disproportionately affected throughout the pandemic. The Budget report itself says:
“The economic impact of restrictions has not been felt equally. Staff in the hardest hit, largely consumer-facing sectors, such as hospitality, are more likely to be young, female, from an ethnic minority, and lower paid.”
It is therefore indefensible that not one of many supporting documents to last month’s Budget statement, nor the Bill, was an equality impact assessment.
Our new clause gives the Government a chance to right that wrong, but while that analysis is vital in setting out how different people will be affected by the Government’s choices, we know already that the biggest and most immediate impact of the changes in the Bill—and of the Government’s wider policy choices, on which the Bill is silent—will be to take money from the pockets of people across the country this month, this autumn and next year.
Andrew Griffith (Arundel and South Downs) (Con)
We hear from the hon. Gentleman that his party seeks to strike out the single largest intervention that will help the recovery, in the form of the super-deduction, which businesses have already told me is mobilising incremental investment. I would be fascinated to hear his view of new clause 7, which was put forward by many of his recent colleagues, including many of those who were on the Front Bench, to increase the rate of income tax to 55%. What does he think of that?
James Murray
The hon. Gentleman spoke about the super-deduction, but as that will be picked up in the next debate, I will focus now on the changes that are the subject of this debate.
Although we know that the Government will be making changes that affect different communities differently, the crucial point is that we know already what impact the Government’s policies will have this month, this autumn and next year. This month, households will feel the hit as the Government force local authorities to raise council tax in the middle of a pandemic, having broken their promise to give councils whatever was needed to help support people through the covid crisis.
This autumn, some of those families who need help will see the Government cut £20 a week off their universal credit, hitting them just as other covid support schemes are due to be winding down. This hit will come just when the Office for Budget Responsibility has predicted that unemployment will peak at 6.5%—2.2 million people—and this cut takes out-of-work support to its lowest level since the 1990s.
Next year, more than 30 million people in this country, including those earning only just enough to pay tax at all, will be forced to pay more as the freeze to income tax and personal allowances kick in. It tells us all we need to know about this Chancellor’s priorities that families will feel the impact of the Government’s choices years before businesses face an increase in corporation tax and at the very same time that some of the biggest firms in this country are offered a tax break that the Chancellor himself has boasted represents the biggest tax cut in modern British history.
We on the Labour Benches believe that our country needs a fair progressive tax system. We want to see greater investment in jobs, growth and addressing the long-term challenges that we face. We want to see families protected, not forced by this Government to shoulder the burden while tech giants see their tax bills reduced to nil. It is not just the Opposition who oppose the Government’s approach. Major international economic bodies such as the International Monetary Fund and the OECD agree that these tax rises on families are wrong. The hit to household finance is not only unfair but economically illiterate. Taking money out of people’s pockets now means that they will not spend it in small businesses or in local high streets, damaging the prospect of a recovery.
We will be voting for the Government to be clear and transparent about the effects of the measures in this Bill on all the different families and households across this country. While Conservative Members may not want to support all of our points, I would not be surprised if some did not feel deeply uncomfortable at the prospect of making families pay more through this Bill. We therefore hope to offer them a chance to join us in rejecting clause 5, halting this Bill’s plans to make all income tax payers pay more from next year and forcing the Government to think again about the fairer tax system our country needs.
Andrew Jones (Harrogate and Knaresborough) (Con)
I am aware that time is short, so I will keep my remarks brief.
All of us will have been dealing with constituents facing real financial challenges over the past year. The past months have been unprecedented in their impact on family finances. People have lost jobs, been on furlough, and faced great uncertainty. It has been genuinely hard. Yet some sectors have done very well and seen growth, so the economic impact of the pandemic has fallen very unevenly. The economic consequences have also landed very quickly, but the response from the Treasury was equally quick. We are now facing the next stages of the crisis. Over the months ahead, we will be getting the economy moving again as quickly as possible, safely, so that we can get people back into work, and considering how the Government will pay for all the extra costs they have incurred.
As my right hon. Friend the Financial Secretary to the Treasury said, economists have predicted that the economy will have fully restarted by April next year. I think that that is right, based on my own business experience and on conversations with businesses in my constituency and beyond. It therefore makes sense to start the recovery of the public finances then, and that is what some of the measures in this Bill do. The question for me, though, is how to do this fairly and without choking off the recovery.
Let me focus on one measure: personal allowances. The increases that we have seen in personal allowances over the past decade have been a key ingredient in helping some of the least well-off in our society. The allowance has nearly doubled and is one of the most generous in the world. It has been part of the broader initiative, which has been a hallmark of the past 10 years, about making work pay. It is with some caution that we should consider changes, but I will be backing these changes and urge Members to reject the Opposition amendment on this measure. It is worth remembering that nobody’s take-home pay will be less than it is now, and that this is a measure that builds over time, as will the pace of the recovery. I note that the right hon. Member for Wolverhampton South East (Mr McFadden), who is not in his place, commented that it is a fairer way to raise revenue than some others, and I agree with his analysis.
The crisis support packages have been necessary and welcome, but they come with a huge cost. There is no compassion in letting debts build up for future generations to pay off. There is no stability for Governments in failing to tackle deficits.
Sammy Wilson
While I think we all accept that the current level of debt cannot continue, does the hon. Gentleman accept that, first, by taking £10 billion from consumers in the next year as a result of these tax allowance freezes and, secondly, because we do not know what will happen to unemployment once the furlough scheme finishes, there is a risk that the freezes this year will impact on the short-term recovery of the economy? Are they not therefore inappropriate, and ought not the Government to wait to see what happens?
Andrew Jones
The right hon. Gentleman makes a good point, as he always does. I have considered that point, and I know that the Government have also considered it, but this is about striking a balance between encouraging the recovery and choking it off. Part of that recovery is ensuring that we have sound public finances. We have had two supposed once-in-a-century events in just over 10 years, and the lesson we should draw is that financial responsibility allows Governments to respond to crises at scale. That is what we have just seen here, and that has helped the finances of families across our nation when they needed it most.
That is also why the economic recovery, with its focus on growth and investment and on households and Government, cannot be put off. The personal allowance measure in the Bill should proceed. We should not listen to the Labour party because, quite frankly, its Members have voted against all the personal allowance increases in Budget measures over the past 10 years. We need to get the focus that we have had on saving lives back on to recovering livelihoods.
Alison Thewliss (Glasgow Central) (SNP)
I will speak to new clause 10. This UK Government said they would be led by data, not dates, and the Chancellor has stood in the Chamber on several occasions and said he will do whatever it takes to ensure recovery, yet in this Finance Bill he has seen fit to put an arbitrary date on ending the furlough scheme. The Labour shadow Chancellor has been critical of the Government’s previous dithering on extending the job retention scheme, so I hope her colleagues will support the SNP’s new clause, which will protect jobs and workers across the UK.
New clause 10 would introduce a reporting requirement to compare the effect of continuing the coronavirus job retention scheme and the self-employment income support scheme until both 30 September 2021 and 31 December 2021. Reports would be required on the specific impacts of continuing to both dates on business investment, employment, productivity, GDP growth, and poverty. SNP Members believe that the furlough and self-employment support schemes should be continued for as long as our economy requires them. It is economic recklessness to confidently predict the end of a pandemic that has thrown us curveballs time and again. Any winding down of support schemes should be linked to the numbers of covid cases in the population, with proper care taken to make sure that no badly hit areas are left behind.
We have seen the potential of new variants such as the Kent and South African variants, with the Indian variant causing the country to be added to the red list and prompting the Prime Minister to cancel his travel plans just this week. On the variants and support for people who need tests, I welcome the change to exempt coronavirus tests from income tax, but SNP amendment 93 would seek to extend the income tax exemption for payments to employees in respect of the cost of obtaining antigen coronavirus tests to cover specific antibody coronavirus tests, too. There is a wider argument for broadening the provision to future proof the Bill for future pandemics and other such incidents, so I hope Ministers will give the proposal some consideration.
Businesses have found themselves in a position of having to make payments on VAT deferred last year in the first week of the crisis while we are still in lockdown in the second peak of the crisis, and now the biggest lifeline supporting our economy is being pulled away without any due consideration for the impact on jobs.
Mrs Flick Drummond (Meon Valley) (Con) [V]
Like all Conservative Governments, this is one who believe that people should be encouraged to create wealth and invest it wisely without undue interference from the state, bureaucracy or taxation for taxation’s sake. The fundamentals of our economy were strong nationally and in the Meon Valley as we headed into the coronavirus pandemic, and I am confident enough that we are well set to emerge from it and carry on with good growth. Although it is not the topic of this segment of the debate, I must welcome the announcement in the Budget of the Solent freeport, which will bring jobs and investment to the whole region, which includes my constituency.
I want to speak to clauses 5 and 28. The pandemic has created a major challenge for state finances, and I recognise that the Treasury must cover the cost of the measures it has taken to support jobs and society. The two long-running strands of policy covered in these clauses are the reform of personal income tax allowances and the lifetime allowance in pension fund accrual.
The commitment to a £12,500 personal allowance featured in the Conservative party’s 2015 election manifesto, and I am pleased that we are achieving it a year early. Since 2010, the personal allowance has grown more quickly than average earnings, and a huge number of workers have benefited. In announcing a freeze between now and 2026, we will see some of that eroded—around £8 billion of income flowing back into the Treasury by 2025-26—and I hope that Ministers will ensure that we direct the benefits of recovery at the groups on the lowest incomes, whom we have done so much to help in government already. Needless to say, I will not be supporting the Opposition amendment to clause 5.
Another area where I hope Ministers can keep an open mind is simplification of our pensions system in the future, but today I would like to concentrate on the lifetime allowance in clause 28. As many other Members will have seen in their postbag, this has been affecting doctors in the NHS, senior teachers and others in the public sector who have taken or considered early retirement to avoid breaching the cap. As well as creating a situation where the Treasury does not see some of its forecast tax take coming in, it means that in some cases, people have gone back to work as contractors or locums, sometimes filling gaps that have been created by this policy on pensions.
The intention behind the lifetime allowance when it was introduced in 2006 was to simplify a large number of regimes. However, freezing it at just over £1 million without the tie to the consumer prices index means that we are seeing some complex reworkings of remuneration schemes, and we will see more unintended consequences as growing numbers of people look to find ways to avoid the cap. The British Medical Association’s survey of GPs indicated that almost half of doctors would consider early retirement to protect their earnings after retirement. While the Budget forecast states that by 2025-26 there will be an additional £300 million of revenue, it does not account for other costs that the policy could contribute to.
Pension policy generally encourages people to forego current consumption, so that they can enjoy a higher standard of living later in life. However, the trade-off here is different, and we risk public services having to cope without staff or pay for them because they are contractors or locums if we carry on eroding the value of the lifetime allowance. I hope the Treasury will look creatively at how we can balance ensuring that people on higher incomes pay their rightful share of tax with the need to ensure that skilled and experienced workers continue to contribute to the wider public good throughout their working lives.
Stephen Timms (East Ham) (Lab) [V]
Clause 31 relates to the decision to cut the £20 a week uplift in universal credit and working tax credit in six months. I want to focus my brief remarks on that decision, highlighted by my hon. Friend the Member for Ealing North (James Murray), because it will be key in the impact analyses in new clause 23 and amendment 15. A Work and Pensions Committee report in February drew attention to the Joseph Rowntree Foundation’s finding that withdrawing the temporary increase
“will risk sweeping 700,000 more people, including 300,000 more children, into poverty”,
and that
“500,000 more people could end up in deep poverty (more than 50% below the poverty line).”
It goes on to explain that
“people who were already more likely to be in poverty were most affected by the economic storm caused by COVID-19: workers in low-wage sectors or part-time jobs, people living in areas with higher rates of deprivation, families with children, disabled people, or those from BAME backgrounds…around 60% of the families who lose out being in the bottom 30% of the income distribution.”
It goes on to say that
“60% of all single parent families in the UK will experience this overnight cut to their incomes”
when the £20 a week is removed.
Under the Government’s plans, the cut will happen just as unemployment is forecast to peak. The last time anything like this happened in such circumstances was 90 years ago under the national Government of Ramsay MacDonald. It will devastate the finances of a large number of struggling families. Ministers will find it extremely hard to justify, so I particularly welcome today’s reported call by more than 100 Conservative MPs to make the £20 a week uplift permanent.
The Resolution Foundation’s “Living Standards Outlook 2021” in January said that rising unemployment and removing the £20 uplift would push 800,000 adults and 400,000 children into relative poverty—the biggest annual poverty rise since the 1980s. A Northern Ireland woman told the Joseph Rowntree Foundation:
“The £20 uplift to Universal Credit has meant I have just about managed to keep my head just above water. I’m living day to day trying to pay my bills and keep my house warm for my child. Taking this away now or in six months means I will be drowning in debt.”
A London woman said:
“We’ve relied heavily on food banks…That £20 is often the difference between light and heat or no light and heat. If you don’t have gas, you can’t cook.”
A Leeds man said:
“I am aware of the extra—if it wasn’t for that I don’t know how I would survive. Living on Universal Credit is hard; it’s extremely hard. It is literally living day to day and working out where my next food is coming from.”
Twenty pounds a week should not be taken away from people like that just as unemployment peaks. Iain Porter of Joseph Rowntree told the Select Committee that the current benefit level without the £20 uplift is
“at the lowest level since around 1990 in real terms”,
and that as a proportion of average earnings, it is the lowest ever. Inflicting that just as unemployment is peaking is indefensible.
The principal policy manager at Citizens Advice told the Select Committee:
“At the very least, if the uplift is not made permanent, we think it needs to be in place for at least 12 months while we go through the tricky part of recovery from this crisis.”
I hope Ministers will reflect and, having done so, decide after all not to make this cut in September.
Huw Merriman (Bexhill and Battle) (Con) [V]
Thank you very much indeed for allowing me to contribute to this afternoon’s proceedings, Dame Rosie. I want to talk about clause 5, on the freezing of personal allowance for four years from 2021-22, the resulting amendments, which would push the freeze back by a year, and the general position across the proceedings this afternoon with regard to allowances and the freezing or otherwise of them.
In the six years that I have been a Member of Parliament, it has been a matter of great pride that we have reduced the personal tax allowance. It was half the level that it is now, since it was raised to £12,500. That is the highest basic personal tax allowance across all G20 countries and means that a typical taxpayer is saving £1,200 in tax. More importantly, it has really sent out the message that work pays. It is no coincidence that, as well as the increase in personal allowance and the introduction of the national living wage levels that we have, we have seen record levels of employment and record lows in unemployment. It is a great success story. The covid pandemic has put all that at risk, though,which is why I find myself in the bizarre position of supporting the personal allowances freeze and intending to vote against any amendment tabled by those on the left to delay that freeze for a year. Ultimately, if we do not do something about our finances, we will do the country a great disservice and end up costing individual taxpayers—or non-taxpayers —even more by mismanaging our national debt.
John McDonnell (Hayes and Harlington) (Lab)
With the greatest respect for the previous speaker, I think there is a view across the House and in all parties that we need to manage the economy effectively in the interests of everybody. That means addressing the debt to GDP ratio—of course it does—but the question always arises, “Who bears the burden? Who carries the heaviest burden?” I believe that the Bill shifts too much of the burden on to those who are the least able to bear it. That is where we disagree, and it is an honest disagreement.
I will speak to oppose clause 5 standing part and to support amendment 2, and consequential amendments 3 and 4, which stand in my name and those of a number of my colleagues. Some of this is about confidence in politics, which at the moment is receiving a bit of a drubbing.
In the last general election, the Conservative manifesto pledged:
“We promise not to raise the rates of income tax…This is a tax guarantee that will protect the incomes of hard-working families across the next Parliament.”
Clause 5 breaches that pledge; incomes are not protected. More of people’s incomes will be hit by income tax. It is especially harsh on the millions of public sector workers who have faced from this Government: first, a pay freeze; a 5% rise in council tax; and now a stealth rise in their income tax. These people are low earners who struggle to make ends meet as it is. Low earners are heavily indebted. Some have been furloughed, losing 20% of their income for a year. Now they are being hit by a stealth rise in income tax that was not pledged at the last election and that any fair reading of the Conservative manifesto would have thought was completely ruled out.
The Labour party also stood on a manifesto that said there would be no rise in income tax for 90% of earners, and has recently said that now is not the time for tax rises. I hope that Members across the whole House will stand by their commitments at the last general election and oppose clause 5. This would allow the threshold to rise with inflation, as legislated for way back under the last Labour Government in the Income Tax Act 2007.
Low pay is endemic in our society. In 2015, the then Chancellor, George Osborne, promised a £9 minimum wage by 2020. It is 2021 and the minimum wage is still below that level. Let us look at an example. We know that half of all care workers earn less than the real living wage and the majority of children are living in working households. What does that say about low wages? The last thing any Government should be doing is raising taxes on low-paid workers, especially when that Government have broken their promises on raising wages and have failed to reach the target they set for the minimum wage.
Some Members may recall the Rooker-Wise amendment; it was a long time ago—44 years ago. That amendment overturned a similar proposal from the Callaghan Government. With many low-paid workers not getting a pay rise and facing mounting household debts, we should not be taking more of their income in tax. With high street retail needing an urgent stimulus, there cannot be a worse policy than removing demand from the economy at this time. That demand is really created by the people—these are the people who will spend, not hoard.
If the House is not minded to leave out clause 5, perhaps the Government can compromise and accept amendments 2, 3 and 4 in my name and those of other hon. and right hon. Members. These amendments would ensure that the stealth tax on working people was delayed until 2023-24—the same year that the corporation tax rise kicks in. Low-paid workers should not be hit with an extra year of tax that the corporations are not hit with.
Another point that I hope the Government will consider incorporating into the Bill before Report stage is the case for equalising capital gains tax rates with income tax rates. Ahead of the Budget, I was heavily briefed that this was being considered by the Chancellor. It is manifestly unfair that income derived from wealth is taxed at a lower level than income derived from work. I hope that the Government will look at this issue ahead of Report stage. I urge the Government to consider accepting amendments 2, 3 and 4 at a bare minimum—better still, leave out clause 5 altogether. Do not force the lowest paid in our economy to shoulder what could be the heaviest burden.
Sarah Olney (Richmond Park) (LD) [V]
I wish to speak to clause 5 relating to the changes in personal income tax allowances and to clause 28 relating to the freezing of the lifetime allowance on pension pots.
There is no doubt that the last year has made unprecedented demands on the public purse, and it is right that the Government should be prepared to take difficult decisions on taxation as we move forward, as we all very much hope, out of the pandemic and into the changed world beyond. However, the Government made clear commitments in their 2019 manifesto that they would not raise income tax on working families and they have broken that commitment in this Bill. The freezing of the personal allowance and the higher tax bands means that more working people will pay tax and at higher rates than they would otherwise have expected.
Clearly the Government are banking on a consumer-led recovery and this tax burden on working families will reduce the amount of discretionary spend available to households, limiting their ability to spend on consumer goods. As housing costs increase to their highest ever levels, household budgets will continue to be squeezed, and piling additional tax charges on top will create an enormous burden for those who are already struggling to make ends meet. It is a particular insult to those in our NHS, who have sacrificed so much to keep us all safe this year and have been told to expect only a 1% pay increase for their trouble. Our nurses will have to give back more of that 1% in tax than previously despite all that they have already given. This is particularly galling when compared with the Government’s decision to delay a corporation tax increase. The Government have chosen to tax hard-pressed frontline workers first and large, profitable corporations later. Only those companies that have remained profitable throughout the pandemic would be paying corporation tax next year, which is why an immediate increase in corporation tax could have captured the windfalls or excess profits of those who found their revenues increased as a result of the unusual trading conditions of the last year. This would have been a far more equitable route to raising income than putting the burden on hard-working families.
On clause 28, I urge the Chancellor to carefully consider the impact on NHS pensions of freezing the lifetime pension allowance. I have heard a few stories from constituents about how this measure interacts with their final salary scheme. While a figure of a little over £1 million would rightly strike most as more than sufficient as a tax-free pension pot, senior doctors in the NHS are finding it extremely difficult to assess whether or not their overtime will result in their yearly calculation of their lifetime allowance being tipped over the threshold and result in a current tax bill. The British Medical Association estimates that the number of GPs taking early retirement has tripled over the past decade and puts this down partly to the uncertainty about their tax bills.
It is worth noting that when the lifetime allowance was first introduced in 2006, it was set at £1.5 million, rising to £1.8 million in the financial year 2010-11. Since the Conservatives came to power, it has reduced every year to the current level of only just above £1 million. Like the freezing of the personal allowance, this has the impact of catching more ordinary people in the taxation net, and again we see that the Chancellor wants to raise money off the back of hard-working NHS frontline workers while protecting profitable corporations.
This issue has been a problem for doctors for the last few years, so the Government have no excuse for not knowing that the freezing of the pension lifetime allowance would make the situation worse. Have the Government carried out an impact assessment of the measure on NHS retention of senior staff? I am extremely concerned, at this time when our senior NHS staff are exhausted and facing a huge backlog of elective surgery, that skilled staff should not feel compelled to take early retirement because of an unintended and avoidable tax consequence.
The Finance Bill seeks to tax hard-working families and penalise those who have been working so hard to keep us all safe this year, and the Liberal Democrats cannot support these measures.
Matt Rodda (Reading East) (Lab)
I want to offer my support to the shadow Minister, my hon. Friend the Member for Ealing North (James Murray), who put his case very fairly. I want to illustrate what that means in my constituency of Reading East and perhaps develop some of the points he made.
I particularly want to raise the growth in the use of food banks, which has been very significant across the country, and our area is typical in so many ways, as indeed it is in many instances. The growth in the use of food banks illustrates why the Budget was such a complete failure, because the Government failed to offer real help to many families. In particular they offered very little to those in the greatest need, as we heard from the shadow Minister, and very little to those who are self-employed and have recently set up a small business. Indeed, the3million campaign group rightly pointed out that, although a small number will benefit from some measures offering further support for recently set-up small businesses, most will not, and that has been widely recognised in my constituency.
Before going into the detail of local food banks, I want to thank all the volunteers at our local council in Reading and many others, both businesses and individuals, who have helped support food banks by generously giving their time and putting the community and others first at what is a very difficult time for so many people. I have tried to keep in touch with the pressures by going to help myself and to receive regular briefings from food banks and other charities, and I want to describe to colleagues what this is like.
The First Deputy Chairman
We are having some difficulty hearing Seema Malhotra, I am afraid. Do you want to try again, Seema?
The First Deputy Chairman
I think what we should probably do is go to our next speaker and come back to Seema. We will go now to Sir John Redwood.
John Redwood (Wokingham) (Con) [V]
Dame Rosie, I have declared my business interests in the register.
Of course, I am not going to vote against this Budget and I wish the Government well with it, but I would like them to pause a little, think through where we are and recognise that they may need to revisit some of these decisions in the months ahead. My worry is that they are being too tough in their tax measures and too tough on people’s incomes at a time when we need to build confidence and recovery, and they are doing so at a time when it is really impossible for their expert advisers and other economic forecasters to give them a clear steer of what the public finances will look like in two years’ time, let alone in three or four years’ time.
The Government seem to think that their experts can define a given amount of money that will be a shortfall in order to hit their longer-term Government targets, and therefore say that we need to make these tax changes for the next few years in order to fill the alleged black hole. It may be that they are trying to fill a hole that does not exist. It may be that we will have a much better recovery than the forecasters are thinking. It may be that the economy responds much better over the next two or three years or, indeed, over the next two or three months, as the relaxations kick in.
We can see the difficulty that the official forecasters have if we look at the numbers they gave us as recently as November 2020. Then, the OBR, forecasting the budget deficit—the amount of extra borrowing—for the year 2020-21, said that it would be £394 billion, an enormous amount. Bear in mind that it was having to forecast for only four months, as two thirds of the year had already gone. When we got the 11-month figures, up to February, recently, we discovered that they had come in at just £278 billion and so, subject to what happened in March, it may be that the OBR was the best part of £100 billion out on the deficit for the year in question when it tried to forecast, already knowing quite a lot of what had happened. It was, of course, massively too pessimistic. It is great news that we will have borrowed so much less than we feared, although clearly we are still borrowing far too much on an unsustainable basis, which is why we need to promote a strong recovery to get the deficit down.
I therefore say to the Government: let us show a little humility. The experts and advisers are not able to give us anything like accurate figures—I can sympathise with them, because extreme things have happened in response to the pandemic—so are we sure that we need to make these moves over the next three or four years?
There is also a case for showing a bit of humility and thinking ahead about whether we might need to show a bit more flexibility because the Government themselves have rightly said, now that we are out of the European Union and the economic world has been stood on its head, that they want to set out a new framework for guiding the economy. I encourage them to do that, and I hope it is a framework that promotes growth and considers real issues such as the increase in the number of jobs, the rise in real incomes and the productivity growth that can be achieved.
We need to get away from the Maastricht criteria, which have governed our policy for many years and still seem to be behind the architecture of this Bill. We seem to be driven by the need to get state debt falling as a percentage of our national output by the end of the period that we are talking about today for the tax changes. State debt is now a pretty useless figure to try to target in the way that the Maastricht criteria did. We now live in this age of monetary experimentation, where great banks such as the Bank of England, as well as the European Central Bank, have bought in very large quantities of state debt—indeed, they still are doing so. Surely, where that happens in a single sovereign country with its own central bank, owned on behalf of the taxpayers by the state, we should treat the debt that we have bought back in rather differently from the debt on which we owe money by way of interest to people outside—some our own citizens, some foreigners—who have been financing the Government. That makes state debt a very difficult number to use to guide the economy. Of course, the future system must have some control over the build-up of actual interest charges that we have to pay to third parties, but it should concentrate much more on promoting growth.
May we therefore have just a few words from the Government, accepting that these numbers are very difficult and that the current forecasts are likely to be very wrong? No one can say exactly how wrong they are going to be, because so many things will happen over the next two or three years and nobody has been through a bounce back of the kind of pace that is possible from such a big hole in our economy, created by necessary health measures to cure the pandemic.
We need a policy that is very supportive of more jobs, of higher incomes and of encouraging investment, enterprise, saving and, above all, self-employment and more small business activity. My worry is that the Government are being a bit mean with people and with small businesses in the name of controlling state debt at a time when we have no idea what the state debt will be in two or three years’ time, and when the state debt number is now very different because of the purchase of state debt by the state itself.
I would hope that the Government recognise that we may need to revisit all this, and I would want them to be on the side of people keeping more of the money they earn and, above all, of a much better deal for small business and the self-employed, where I think they are too tough.
The First Deputy Chairman
We are having one or two technical issues, so we will go straight to Richard Burgon.
Richard Burgon (Leeds East) (Lab) [V]
I wish to speak to my new clause 7, which would require the Government to publish an assessment of the effect on tax revenues of introducing a 55% income tax rate on income over £200,000.
The coronavirus crisis has not only shone a spotlight on the deep inequalities in our society and their deadly consequences, but deepened them. Deep inequalities scar our nation. As we come out of this pandemic, if we are to learn the lessons and build a more equal, less divided and more inclusive society, then we need to address decades of failing tax policy. Ensuring higher taxes on those on the very highest incomes has an important role to play in building that fairer society. Since Thatcher, the Tory mantra has been that low taxes on the rich benefit everyone, but years of keeping taxes low for the very rich did not in fact boost economic growth; instead, it allowed inequality to run completely out of control. That has been proven by new research by the London School of Economics and King’s College London showing that reducing taxes on the rich leads to higher income inequality that has an insignificant effect, in any positive fashion, on economic growth or unemployment.
In short, trickle-down economics has been a lie. Now is the time to acknowledge that and address it by creating a fairer tax system. My amendment calling for a new 55% income tax rate would target those on very high incomes of over £200,000 per year—the richest part of the top 1%, or about 300,000 people. The current highest income tax rate is just 45% for those earning above £150,000—not much more than for those earning £50,000. Yet 40 years ago the average top income tax rate for the wealthy OECD member countries was 62%. The top income tax was 60% even under Margaret Thatcher, so perhaps even the Thatcherites on the Government Benches will consider offering their support for the amendment. This increase would affect less than 1% of the population—about 200,000 people, according to HMRC.
There has been huge suffering in our society over the past year, yet the very wealthiest in our society—the billionaires and the super-rich—have exploited this crisis to further line their pockets. We cannot go on layering inequality on top of inequality. Now is the time to act. Publishing an assessment of the effect on tax revenues of introducing a 55% income tax rate on income over £200,000 would be an important stepping-stone towards building a fairer and better society. That is why I would like to press my new clause 7 to a vote.
Bell Ribeiro-Addy (Streatham) (Lab) [V]
I speak in support of amendment 15 and new clause 8 in my name, and amendments and new clauses in the names of my right hon. Friend the Member for Hayes and Harlington (John McDonnell) and my hon. Friend the Member for Leeds East (Richard Burgon).
My amendment 15 is tabled with the aim of highlighting the importance of the so-called £20 uplift for tax credit recipients from the covid-19 support scheme, and the damage that the Government’s decision to not continue this beyond September will cause. In March 2020, the Chancellor announced a temporary uplift of £20 per week to universal credit via the standard allowance of the working tax credit basic element for the 2020-21 financial year. A one-off payment is being made to tax credit recipients to cover a six-month period from April to September 2021 to continue this support.
As Members will know, payments from the covid-19 support scheme for working households receiving tax credits are being introduced under the Coronavirus Act 2020. Clause 31 introduces an exemption from income tax for payments made to tax credit recipients. My amendment 15 would require the Government to publish an equalities impact assessment of the provisions of clause 31, which must cover the impact of the provisions on households at different levels of income, people’s protected characteristics, equality in different parts of the United Kingdom and regions of England, and child poverty. That is because while the £20 per week top-up will temporarily be retained, helping some 6.5 million families for a further six months, this does not allay the fears that families will have going into next winter. Rather, it is clear to almost everyone—Action for Children, Child Poverty Action Group, Save the Children, the Joseph Rowntree Foundation, the trade union movement and so on—apart from the Government that the £20 increase and the associated tax relief, as per clause 31, should be made permanent and paid to all claimants, given that poverty levels were already too high pre-pandemic. Extending the £20 uplift is vital because struggling families cannot keep afloat without it, but that will be as true in six months as it is now.
Seema Malhotra [V]
In my limited remarks, I want to support the arguments made by my hon. Friend the Member for Ealing North (James Murray), and to speak in support of Labour’s new clause 23, to which I have added my name, seeking an equality impact assessment of the measures in the Bill that affect family incomes. This includes the impact of specified sections of the legislation on households at different levels of income, on people with protected characteristics, and across the regions and nations of the UK.
About 700,000 people have lost their jobs since February last year, and many more families have seen a drop in their household income. Over 39,000 are now on universal credit in Hounslow alone, and we have seen a huge rise in the use of food banks. There is no doubt about the importance of financial inclusion at this time. The Financial Inclusion Commission, on which I sit, has highlighted how there are now millions more people facing economic hardship as a result of the covid-19 pandemic. However, the UK entered the crisis with half its population financially vulnerable: 12 million categorised as financially struggling or generally on low incomes, and 13 million as financially squeezed. Covid has laid bare existing weaknesses, vulnerabilities and structural inequalities, and StepChange research shows that 10% of people say they will certainly or probably be unable to pay for essentials in the next 12 months.
We know child poverty, already extremely high, is rising, so it is inexplicable, when the Government themselves have said in the Budget report that the
“economic impact of restrictions has not been felt equally”,
that they have not themselves published an impact assessment. It should not be for the Opposition to table this vital amendment. It seems that instead of taking action to boost our community recoveries, the Conservatives are choosing to reward families up and down the country for their sacrifices with council tax hikes, the freeze to the personal allowance from next April a whole year before corporation tax rises kick in, a real-terms pay cut for key workers and cuts to universal credit later this year, a move now even opposed 100 Tory MPs.
Even when the Chancellor has done the right thing, such as extending furlough, as Labour called for, these moves need to be underpinned by a strong social security system that provides support when people need it. People need to be protected from financial exclusion and families need a clear route out of financial difficulty when they are struggling. The Chancellor could also look at how Sadiq Khan is working to promote financial inclusion through partnership with the financial sector, social enterprises and credit unions, and at his plans for a new team dedicated to economic fairness.
But instead of economic fairness, what we know is coming is the £20-a-week cut to universal credit for millions of families within six months, just when the OBR predicts that unemployment will peak. It is a cut that takes out-of-work support to its lowest levels since the 1990s. That is why Labour has also called for urgent social security measures, including converting universal credit advances to grants instead of loans, ending the five-week wait, suspending the benefits cap and uprating legacy benefits to match the increase in universal credit. About 2.2 million people on legacy benefits have been deprived of the uplift, and given that three quarters of those claimants are disabled and on employment and support allowance, this has created a two-tier social security system that has left many struggling to cope. Evidence from the Disability Benefits Consortium found that 67% of disabled claimants have had to go without some essential items at points during the pandemic.
Minority ethnic communities have been hardest hit by both the health and economic crisis. The Resolution Foundation found that, at the end of last year, unemployment among young black graduates had risen to 34%, up from 22% before the pandemic, and almost three times that of young white graduates during the same period. StepChange research also shows that those from an ethnic minority are twice as likely, compared with the GB average, to say that they have experienced hardship, borrowed to make ends meet or have run down savings.
In conclusion, the Chancellor is hitting families up and down the country, with a quadruple hammer blow of council tax rises, cuts to universal credit, real pay cuts for key workers and the freeze to the personal allowance. If the Chancellor wants to work for a fairer Britain and build a more inclusive and financially inclusive economy, he needs to know who his policies are helping and who they are not. That is why we need an impact assessment, as called for in new clause 23, and the Government should support it today.
Rebecca Long Bailey (Salford and Eccles) (Lab) [V]
I speak to oppose clause 5 stand part, and in support of amendments 2, 3 and 4 in the name of my right hon. Friend the Member for Hayes and Harlington (John McDonnell) and others, as well as amendments in the name of my hon. Friend the Member for Streatham (Bell Ribeiro-Addy) and amendments from the Labour Front Bench.
The Chancellor committed to doing whatever is necessary to support people and businesses through the coronavirus pandemic. I want to believe him, but the £20 a week covid uplift to universal credit will be cut just at the time when the OBR has predicted that unemployment will peak. There has been no uplift at all, as we have heard, in covid support for those on legacy benefits or affected by the benefit cap. At the same time, an equivalent cut in working tax credit for households that have not yet made the move to universal credit will be imposed.
Further councils, whose budgets have been decimated over recent years, will be forced to increase council tax by up to 5%, pressuring household budgets even further, so the Bill is already sorely deficient in honouring the Chancellor’s original promise. However, in clause 5—the proposal to freeze the personal tax allowance—the promise is sadly contradicted entirely. The reality of the clause is that, if there is wage inflation over the next five years, someone earning just under the threshold now, for example, who then receives an inflationary pay increase for 2022-23 will start to pay tax.
As the Resolution Foundation has found, the poorest fifth of households are twice as likely to have seen their debts rise rather than fall during the crisis, so taking some of those lowest earners beyond the personal allowance threshold as their wages might slightly increase with inflation could result in their financial devastation. I therefore supported calls to remove clause 5, or at the very least for the Government to compromise and delay the changes.
I will also briefly mention clause 32 on self-employment income support. I do not disagree with the sentiment of the clause but, as the Government know, the support still does not go far enough. More than 2 million remain excluded from any Government support at all and, as I have repeatedly told this House, some have sadly taken their own lives as a result. I once again urge the Government to provide an immediate emergency grant to those affected, install new monthly arrangements while restrictions remain in place in complete parity with the extension of the coronavirus job retention scheme and the self-employment income support scheme, and remove the hard edges to eligibility criteria. Finally, they should backdate payments for a full and final settlement to deliver parity and fairness for those excluded from meaningful support.
Jim Shannon
It is a pleasure to serve under your chairmanship, Ms McDonagh. I very much welcomed the Minister’s response when I asked him about the Low Incomes Tax Reform Group. I will send him all the information that I am concerned about, which I hope he will be able to answer.
Clause 31 ensures that the one-off £500 payment for certain working households receiving tax credit is not taxable, which is welcome. The problem arises when a person receives a payment that they were not entitled to under the rules. As the payment is made automatically by HMRC without requiring a claim from the individual, if HMRC mistakenly makes a payment to someone who is not entitled to one under the direction and it is not subsequently repaid, it appears that the tax credit claimant will automatically be subject to a tax charge under the Finance Act 2020. That triggers notification requirements for the individual, assessing powers for HMRC and potential penalties.
I would like to understand whether consideration has been, or will be, given to ensuring that HMRC will set the bar high in terms of what constitutes fraud, and whether it will be limited to those people who fall under section 35 of the Tax Credits Act 2002, in relation to their underlying tax credit award. Over the last period, you, Ms McDonagh, I and everyone in this House has seen young families on the brink of financial collapse—in particular, in my office, due to the inconsistencies of the working tax credit as between those who are self-employed and those whose annual pay packs are constant.
Briefly on clause 32, I highlight the fact that taxpayers who have made amendments to their self-assessment tax returns on or after 3 March 2021 may have to pay back some or all of the grants that they have claimed. There is a real concern, which I share, that unrepresented taxpayers may not be aware of their obligations to notify HMRC and, accordingly, may face penalties, inadvertently and perhaps without right. Minister, how will we ensure that HMRC will take steps to ensure that taxpayers become aware of any obligation to repay in time to avoid such penalties? In particular, it is unsatisfactory that taxpayers who have made amendments on or after 3 March 2021 but prior to the date of the claim appear to be obliged to pay back some or all of the grant immediately upon receipt. Some may be unaware that they have to do so, but they face harsh penalties, which were originally aimed at fraudulent claims or for failing to do this on a timely basis. So I am concerned that innocent participants in this process may find themselves in difficult times.
Jesse Norman
It has been a good debate and I thank all Members who have taken part. Let me pick up some of the key themes that were described, one of which is the impact on taxpayers of the measures the Government have taken to address and fix concerns about the public finances.
The hon. Member for Ealing North (James Murray) raised this issue. As he will be aware from wider conversation and scrutiny, the Bill places a burden of £40 a year on the average basic rate taxpayer and no increment in take home pay. We think that a balanced and fair approach is one that is widely based and progressive. As I indicated, the top 20% of tax-paying households pay 15 times that of the bottom 20%. He was asked by my hon. Friend the Member for Arundel and South Downs (Andrew Griffith) whether he supported new clause 7, which would raise tax to 55%, and his was an eloquent silence in response. I would be interested to hear in the next debate whether he does support new clause 7’s bid to raise the top rate of income tax to 55%, but I will come to that later.
The hon. Member for Glasgow Central (Alison Thewliss) raised the question of antibody tests. As she will be aware, antigen tests, which are subject to the relief in the Bill, are connected to employment, whereas antibody tests are not, which is why the relief does not extend to them. It is, however, fully open to the Scottish Government, who have capacity to raise tax revenue themselves, to fund antibody tests if they so choose. She has raised the issue and we can assess whether the Scottish Government wish to follow her lead in funding those tests.
The right hon. Member for Hayes and Harlington (John McDonnell) described the tax measures in the Bill as a stealth tax rise. It is an interesting version of a stealth tax rise that is announced in a Budget statement at the Dispatch Box in the House of Commons. He was right when he said earlier that there was an honest disagreement here, and that is what there is. The Government’s view is that there should be a progressive, broad-based approach to fixing the public finances that begins at an appropriate time once the recovery is under way, and that remains the case.
The hon. Member for Richmond Park (Sarah Olney) declaimed the delay in the corporate tax rise. I remind her, since everyone is widely quoting the Resolution Foundation, that it said that the Government
“rightly sought to boost the recovery before turning to fixing the public finances”—
and it was right. She was opposed to the measures relating to the freeze on pensions in the Bill and appealed to the experience of ordinary people. Since the amount in question is over £1 million and the average financial savings in this country are something under £7,000, and since the lifetime allowance is itself seven times the median pension pot, I think that she is not using a definition of ordinary people that will be shared by Members of this House.
My right hon. Friend the Member for Wokingham (John Redwood) talked about the uncertainty involved, and he is right. We are coming out of a pandemic. There is a degree of uncertainty in the economic situation. That is why the Government have delayed, in the way that the Resolution Foundation has applauded, raising tax on corporations in order to start to restore the public finances. That is why it is right that we have taken a fair and balanced approach to this topic.
The hon. Member for Leeds East (Richard Burgon) spoke in support of his 55% tax rate—not a view shared by the Labour Front Bench. I remind him that HMRC ran a study of the 50% tax rate a few years ago and discovered that it was inefficient, raised far less than had been expected and was distorting tax behaviour. That is not a good recipe.
The hon. Member for Streatham (Bell Ribeiro-Addy) was concerned about the progressivity of these measures, but, as she will see if she looks closely, both the UK tax system at the moment and the changes themselves are highly progressive.
The hon. Member for Strangford (Jim Shannon) raised the question about the risk of fraud in schemes. Of course, he is right to note that. He had some concerns about reclaims in the self-employment income support scheme. All I would say is that the scheme is well understood. It is very widely publicised. Guidance has been available on the internet and in many independent bodies for many months. If people have claimed income support through that scheme for which they are in fact not eligible, it is appropriate to reclaim the sum overpaid. That is the principle that we seek to apply elsewhere in the tax system because it, too, is a fair and equitable one.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clauses 2 to 4 ordered to stand part of the Bill.
Clause 5
Basic rate limit and personal allowance for future tax years
Question put, That the clause stand part of the Bill.
The Temporary Chair (Siobhain McDonagh)
With this it will be convenient to discuss the following:
Clause 6 stand part.
Clause 7 stand part.
Clause 8 stand part.
Amendment 11, in clause 9, page 3, line 35, leave out “130%” and insert “18%”.
This amendment would reduce the level of the capital allowance super-deductions to the current rate of 18%.
Amendment 79, page 4, line 2, at end insert—
“provided that any such company which has more than £1 million in qualifying expenditure must also—
(i) adhere to International Labour Organisation convention 98 on the right to organise and collective bargaining,
(ii) be certified or be in the process of being certified by the Living Wage Foundation as a living wage employer, and
(iii) not be liable to the digital services tax”.
This amendment would, in respect of companies with qualifying expenditure of over £1 million, add conditions relating to ILO convention 98, the living wage and the digital services tax.
Amendment 80, page 4, line 2, at end insert—
“provided that any such company which has more than £1 million in qualifying expenditure must also make a climate-related financial disclosure in line with the recommendations of the Task Force on Climate-related Financial Disclosures within the 2021/22 tax year”.
This amendment would, in respect of companies with qualifying expenditure of over £1 million, add a condition relating to climate-related financial disclosure to the conditions that must be met in order for expenditure to qualify for super-deductions.
Amendment 66, page 4, line 6, at end insert “, except general exclusion 6”.
This amendment would remove leased assets from the list of assets excluded from the super-deduction and special rate allowance introduced by Finance (No. 2 Bill).
Amendment 67, page 4, line 21, at end insert “, except general exclusion 6”.
See the explanatory statement for Amendment 66.
Amendment 53, page 5, line 15, at end insert—
“(11) The Chancellor of the Exchequer must, no later than 5 April 2022, lay before the House of Commons a report—
(a) analysing the fiscal and economic effects of Government relief under the capital allowances super-deduction scheme since the inception of the scheme, and the changes in those effects which it estimates will occur as a result of the provisions of this section, in respect of—
(i) each NUTS 1 statistical region of England and England as a whole,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland,
(b) assessing how the capital allowance super-deduction scheme is furthering efforts to mitigate climate change, and any differences in the benefit of this funding in respect of—
(i) each NUTS 1 statistical region of England and England as a whole,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland.”
This amendment would require the Chancellor of the Exchequer to analyse the impact of changes proposed in Clause 9 in terms of impact on the economy and geographical reach and to assess the impact of the capital allowances super-deduction scheme on efforts to mitigate climate change.
Amendment 78, page 5, line 15, at end insert—
“(11) Expenditure shall not be qualifying expenditure under this section if it is incurred by a member of a group which is required to publish a tax strategy in compliance with Schedule 19 of the Finance Act 2016, unless any tax strategy published in compliance with that Schedule after the coming into force of this Act includes any relevant country-by-country report.
(12) ‘Country-by-country report’ has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016.
(13) A country-by-country report is relevant if it—
(a) was filed or required to be filed by the group in compliance with those Regulations on or before the date of publication of the tax strategy, or would have been so required if the head of the group were resident in the United Kingdom for tax purposes, and
(b) has not already been included in a tax strategy published by the group.”
This amendment would require large multinationals accessing super-deductions to make their country-by-country reporting public.
Clause 9 stand part.
Clause 10 stand part.
Clause 11 stand part.
Clause 12 stand part.
Clause 13 stand part.
Clause 14 stand part.
Amendment 55, page 85, line 10, in schedule 1, leave out from “period if it is” to the end of line 30 and insert—
“a related 51% group company of that company in the accounting period as defined by section 279F of CTA 2010.”
This amendment would prevent the introduction of a new definition of “associated companies” for the purposes of the small profits rate and uses an existing provision instead.
Amendment 56, page 93, line 29, leave out paragraph 11.
See the explanatory statement for amendment 55.
Amendment 57, page 94, line 5, leave out sub-sub-paragraph (a).
See the explanatory statement for amendment 55.
Amendment 58, page 94, line 14, leave out sub-paragraph (3).
See the explanatory statement for amendment 55.
Amendment 59, page 94, line 22, leave out paragraphs 15 to 17.
See the explanatory statement for amendment 55.
Amendment 60, page 95, line 5, leave out paragraphs 20 and 21.
See the explanatory statement for amendment 55.
Amendment 61, page 96, line 44, leave out paragraph 30.
See the explanatory statement for amendment 55.
Amendment 62, page 97, line 22, leave out sub-sub-paragraph (e).
See the explanatory statement for amendment 55.
New clause 1—Eligibility for super-deduction—
“(1) Only employers that meet the criteria in subsection (2) shall benefit from the provisions relating to capital allowance super-deductions in sections 9 to 14.
(2) The criteria are that the employer—
(a) recognises a trade union for the purposes of collective bargaining with its workforce, and
(b) is certified by the Living Wage Foundation as a living wage employer.”
This new clause would ensure that only employers that pay their staff the living wage and recognise trade union(s) would be eligible to receive the capital allowance super-deductions.
New clause 2—Commencement of super-deduction provisions (report on the benefits)—
“(1) Sections 9 to 14 shall not come into force until—
(a) the Secretary of State has commissioned and published a report that sets out the expected benefits of the capital allowance super-deductions in this Act, and
(b) the report has been debated and approved by the House of Commons.
(2) The report in subsection (1) must consider what the economic and social benefits would be of making the capital allowance super-deductions contingent on employers meeting criteria relating to—
(a) reducing their carbon emissions,
(b) tackling the gender pay gap,
(c) paying the right amount of tax and not using avoidance schemes,
(d) paying the living wage to all directly employed staff, and
(e) recognising trade unions for the purposes of collective bargaining.”
This new clause would mean that sections 9 to 14 could not come into force until the Government had published a report examining the economic, social and environmental effect of the capital allowance super-deductions and that report had been agreed by the House of Commons.
New clause 6—Commencement of super-deduction provisions (report on existing capital allowances)—
“(1) Sections 9 to 14 shall not come into force until the conditions in subsection (2) are met.
(2) The conditions are—
(a) the Public Accounts Committee has reported on the effectiveness of the existing capital allowances listed in section 2(3) of the Capital Allowances Act 2001, and
(b) at least one week after the publication of the report in paragraph (a) both Houses of Parliament have agreed that sections 9 to 14 shall come into force.”
This new clause would set the following conditions before clauses 9 to 14 of the Bill come into force: that the Public Accounts Committee prepares a report on the effectiveness of existing capital allowances, and then that both Houses of Parliament approve the clauses coming into force.
New clause 9—Equalities impact assessment of capital allowance super-deductions—
“(none) The Chancellor of the Exchequer must, no later than 5 April 2022, lay before the House of Commons an equalities impact assessment of the provisions sections 9 to 14 of this Act, which must cover the impact of those provisions on—
(a) households at different levels of income,
(b) people with protected characteristics (within the meaning of the Equality Act 2010),
(c) the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010,
(d) equality in different parts of the United Kingdom and different regions of England, and
(e) child poverty.”
New clause 13—Review of impact of sections 6 to 14—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by sections 6 to 14 and schedule 1 and lay a 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,
(d) GDP growth, and
(e) poverty.
(3) A review under this section must consider the following scenarios—
(a) the United Kingdom reaches an agreement with OECD countries on a minimum international level of corporation tax, and
(b) the United Kingdom does not reach an agreement with OECD countries on a minimum international level of corporation tax.
(4) 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 report comparing scenarios in which (a) the United Kingdom reaches an agreement with OECD countries on a minimum international level of corporation tax, and (b) the United Kingdom does not reach an agreement with OECD countries on a minimum international level of corporation tax on various economic indicators.
New clause 17—Review of impact on corporation tax revenues of global minimum rate of corporation tax—
“The Chancellor of the Exchequer must within six months of Royal Assent lay before the House of Commons an assessment of the effect on corporation tax revenues in 2022 and 2023 of a global minimum corporation tax rate set at 21%.”
This new clause would require the Government to publish an assessment of the revenue effect of a global minimum corporation tax rate of 21%.
New clause 19—Review of impact of sections 6 to 14 (No. 2)—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by sections 6 to 14 and schedule 1 and lay a 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,
(d) GDP growth, and
(e) poverty.
(3) A review under this section must compare the estimated impact of corporation tax rate changes in this Act with the impact on investment from the changes to the corporation tax rate in each of the last 12 years.
(4) 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 seeks a review of the estimated impact of corporation tax rate changes in this Act with the impact on investment from the changes to the corporation tax rate in each of the last 12 years on various economic indicators.
New clause 20—Review of impact of section 7—
“(1) The Chancellor of the Exchequer must review the impact of section 7 and lay a 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) the link between corporate profit rates and ownership, and
(b) the cost of re-introducing a small profits rate.”
This new clause seeks a review of corporation tax provisions on (a) the link between corporate profit rates and ownership, and (b) the cost of re-introducing a small profits rate.
New clause 21—Review of impact of sections 6 to 14 (No. 3)—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by sections 6 to 14 and schedule 1 and lay a 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) progress towards the Government’s climate emissions targets, and
(b) capital investment in each of the next five years.
(3) A review under this section must include—
(a) the distribution of super-deduction claims by company size, and
(b) estimated tax fraud.
(4) In this section—
‘parts of the United Kingdom’ means—
(a) England,
(b) Scotland,
(c) Scotland,
(d) Wales, and
(e) Northern Ireland;
and ‘regions of England’ has the same meaning as that used by the Office for National Statistics.”
This new clause seeks a report on the impact of the super deduction on (a) progress towards the Government’s climate emissions targets, and (b) capital investment in each of the next five years. A review under this section must include (a) the distribution of super-deduction claims by company size, and (b) estimated tax fraud.
New clause 24—Review of super-deductions—
“(1) The Chancellor of the Exchequer must review the impact of sections 9 to 14 and schedule 1 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act, and then annually for five further years.
(2) A review under this section must estimate the expected impact of sections 9 to 14 and schedule 1 on—
(a) levels of artificial tax avoidance,
(b) levels of tax evasion, reducing the tax gap in each tax year from 2021–22 to 2025–26, and
(c) levels of gross fixed capital formation by businesses in each tax year from 2021–22 to 2025–26.
(3) The first review under this section must also consider levels of usage of the recovery loan scheme in 2021.”
This new clause would require the Government to review the impact of the provisions relating to super-deductions and publish regular reports setting out their findings.
Jesse Norman
Clauses 6 to 14 and schedule 1 establish the charge and set the rate of corporation tax at 19% for the financial year beginning in April 2022, and establish the charge and increase the rate of corporation tax to 25% for the financial year beginning in April 2023. They also introduce a small profits rate at 19% for companies with profits of £50,000 or less, with marginal relief for companies with profits between £50,000 and £250,000; and they increase the diverted profits tax rate by 6 percentage points, in line with the increase in the main rate of corporation tax. Finally, they introduce a capital allowance super-deduction for investments in plant and machinery.
At 19%, the current rate of corporation tax is the lowest headline rate in the G20 and significantly lower than in the rest of the G7. However, given that the Government have used the full weight of the public finances to support businesses during the pandemic, protecting thousands of businesses with more than £100 billion-worth of support, it is right that, as the economy rebounds and businesses return to profit, they share in the burden of restoring the public finances to a sustainable footing. That is why the Chancellor announced at Budget that the rate of corporation tax will increase to 25% from April 2023, after the economy is forecast to recover to its pre-pandemic level.
While many businesses are struggling now and the Government are continuing to provide support for them, others are sitting on large cash reserves. To unlock those funds and support an investment-led economic recovery, from April 2021 until the end of March 2023 companies will be able to claim a 130% capital allowance super deduction on qualifying plant and machinery investments. This super-deduction makes the UK’s capital allowance regime truly world-leading, lifting the net present value of our plant and machinery allowances from 30th in the OECD to first.
Given the number of amendments and the number of speakers, I will try to keep my remarks relatively brief. Clause 6 sets the main rate of corporation tax at 25% from April 2023. The OBR forecasts that this will raise over £45 billion in the next five years. It should be noted that 25% is still the lowest headline rate in the G7—lower than in the United States, Canada, Italy, Japan, Germany and France. The clause also sets the main rate of corporation tax at 19% for the financial year beginning on 1 April 2022. That means the higher rate will not come into force until well after the point when the OBR expects the economy to have recovered to its pre-pandemic level.
To protect businesses with small profits from a rate increase, clause 7 and schedule 1 introduce a small profits rate for non-ring fence profits for the financial year beginning 1 April 2023. As a consequence, only around 10% of actively trading companies will pay the full main rate.
Clause 8 makes changes to increase the rate of diverted profits tax to 31% from 1 April 2023, along with apportionment provisions for accounting periods straddling the commencement date. This will maintain the current differential between the main rate and ensure the diverted profits tax remains an effective deterrent against profits being diverted out of the UK.
Clauses 9 to 14 make changes to encourage firms to invest in productivity-enhancing plant and machinery assets that will help them grow, and to make those investments now. Clause 9 introduces new capital allowances available for expenditure incurred by companies between 1 April 2021 and 31 March 2023. These include a 130% super deduction for new main rate plant and machinery and a 50% special rate first-year allowance for new special rate plant and machinery
Business investment fell by a record £12 billion between the first and second quarters of last year. Making capital allowances rates for plant and machinery investments more generous has the effect of stimulating business investment and enhancing productivity. As firms invest, they create new, or substitute better, assets for use in production. That increases labour productivity, as workers produce more output per hours worked through the use of new equipment that enables faster, higher-quality outputs.
The measure will greatly benefit British companies of all sizes, including those investing more than the £1 million annual investment allowance threshold, which are responsible for around 80% of total plant and machinery capital expenditure. The changes made by clauses 9 to 14 will allow all companies to reduce their taxable profits by 130%, or 50% up front, all in the first year—a cash-flow benefit powerful enough to encourage businesses to invest now. We expect the measure to cost around £25 billion over the scorecard period.
Opposition Members have tabled a number of amendments to clauses 6 to 14. Amendments 55 to 62 propose the removal of the associated companies rules that apply to the small profits rate. The rules will affect a small proportion of companies, but they are an essential feature of the regime to prevent profitable businesses from fragmenting in order to take advantage of a lower rate or creating unfair outcomes, and they were a feature of the previous regime on which these rules are based. In the absence of the rules, a consultant, for example, could provide his or her services through five companies with profits of £40,000 each and benefit from the small profits rate. I cannot believe that Opposition Members, or indeed any Member, would support that form of avoidance: restructuring in order not to pay the tax.
Several of the new clauses call on the Government to publish a review of the impact of these clauses and potential alternative policy approaches. The Office for Budget Responsibility considers the impact of policy changes in its fiscal forecasts and sets them out in its “Economic and fiscal outlook”, which is published alongside the Budget. Therefore, I can reassure Opposition Members that new clauses 17 and 20, which request reviews into the revenue impacts of a potential global minimum tax rate and the impact of the small profits rate, are not necessary.
New clauses 13, 19 and 21 request reviews into the investment and various economic impacts of clauses 6 to 14 across the UK. The economic impacts of the clauses have been reflected in the OBR’s forecasts published in its “Economic and fiscal outlook”, as were the impacts of reductions in the rate of corporation tax. The fiscal impact of any future agreement on international tax reform will be reflected in subsequent “Economic and fiscal outlook” documents.
Opposition Members have also tabled several amendments relating specifically to clauses 9 to 14. Amendment 11 would reduce the level of the super deduction to the current writing down allowance of 18% for main rate assets. That would have the effect of removing all the benefit conveyed by this groundbreaking new policy for shorter-life assets, while the benefit of a 50% first-year allowance for longer-life assets would remain. That would distort investment behaviour in favour of longer-life assets and reduce the positive benefits of the policy.
Various other amendments seek to restrict the relief only to certain companies, or require companies that claim the super deduction to meet more burdensome conditions than would be required for other first-year allowances. The super deduction is an intentionally broad-based tax relief, designed to ensure that as many companies as possible are able to benefit from this very generous policy, in order that they can invest in their own future to drive the economic recovery.
Regarding a new requirement for country-by-country reporting, I am pleased to say that this Government have championed tax transparency both at home and abroad. That is demonstrated by the requirement introduced in 2016 for large businesses to publish their annual tax strategy, containing detail on the business’s approach to tax and how it works with HMRC. However, the Government continue to believe that only a multilateral approach to public country-by-country reporting with wide international support would be effective in achieving transparency objectives and avoiding disproportionate impacts on the UK’s competitiveness, or distortions regarding group structures. The Government firmly believe that that should remain voluntary and that no further legislation is needed unless and until public country-by-country reporting is agreed on a multilateral basis.
New clauses 2 and 6 would have the effect of delaying the super deduction, but to delay the policy now would be highly irresponsible and would risk holding up the economic recovery that the policy will help to stimulate. The likely real-world effect of delaying the implementation of the super deduction would be that businesses would delay investment until they had certainty on whether the super deduction would be available. At a time when investment is most needed, delaying the implementation of the super deduction would thus have negative impacts on employment, growth and wages. Various other amendments would delay the measure, narrow its scope or replicate existing analysis and safeguards, and I urge the Committee to reject them.
James Murray
I rise to speak to the amendments and the new clause in my name, that of the Leader of the Opposition and those of my other right hon. and hon. Friends.
In the preceding debate, we saw how this Finance Bill will hit families, in all their many forms across the country, by making half of all people in the UK pay more tax from next year. As I made clear, the sense of injustice is made all the more acute by the fact that that increase in costs for families comes before any rise in corporation tax and that at the same time, through this Bill, the Government are letting tech giants stop paying tax altogether.
Clauses 6 to 8 make it clear that the proposed changes to corporation tax will come after increases to the income tax personal allowances, while clauses 9 to 14 centre on the so-called super deduction, a £25 billion tax break targeted at big corporations that the Chancellor has said represents
“the biggest two-year business tax cut in modern British history”.
That tax break forms the centre of the Chancellor’s strategy set out at the Budget, and it comes with a huge cost attached to it. We need to be absolutely clear who will benefit from it.
One thing is clear: that tax break is not targeted at small and medium-sized businesses. The truth is that such businesses can already benefit from the annual investment allowance, a 100% tax break on investment up to £1 million, which clause 15 extends to the end of this year. The Financial Secretary was very clear in his written statement of 12 November 2020, which announced the extension, that it:
“Simplifies taxes for the 99% of businesses investing up to £1 million on plant and machinery assets each year.”
Indeed, the Treasury Committee concluded in its report published in February, “Tax after coronavirus”, that the annual investment allowance
“appears well targeted to promote growth in small and medium-sized enterprises.”
The existing allowance is said to be well targeted at the growth of small and medium-sized businesses and, by the Financial Secretary’s own admission, it already benefits 99% of businesses, which will benefit only marginally from the new super deduction. Who does that leave? It is very clear who will be the main beneficiaries of the Chancellor’s new scheme. It will be a tax break for the 1%.
Sammy Wilson
Does the shadow Minister not accept, first, that large businesses are an important component of our economy and we need to increase productivity in those businesses as well as in small businesses, and secondly, that many large industries, such as the aviation industry, have been badly hit by the pandemic and would benefit from the kind of tax allowances proposed in the Bill?
James Murray
I thank the right hon. Gentleman for his comments, but as I have set out, the annual investment allowance already appears to serve small and medium-sized enterprises well. The super deduction that we are debating now is designed to help companies such as Amazon, which do not need any help with their investment. It is important that we see this in the context of those companies that have done well throughout the outbreak and are already avoiding much of the tax they should be paying. It is no wonder that Tax Watch has nicknamed this the “Amazon Tax Cut”. This giveaway from the Chancellor could wipe out Amazon’s UK tax bill entirely.
Analysis of Amazon’s accounts from 2019 shows that the corporation’s UK operations made pre-tax profits of £102 million. In the same year, it spent £67 million on plant and machinery, £80 million on office equipment, and £15 million on computer equipment. The super deduction would have enabled Amazon to deduct £211 million from the calculation of its taxable profits— more than enough to wipe out its entire tax liability twice over. It is truly astonishing that, faced with all the challenges of this outbreak, the Government see their priority as giving Amazon a tax break.
Here and around the world, people agree with us that investment in jobs and growth is what is needed. A tax break for tech giants that already fail to pay what they should is not the answer. That is why our amendment 79 would explicitly prevent the biggest tech firms from taking advantage of the Chancellor’s tax break, as well as other big firms that do not support workers’ rights and the living wage.
The Government should be improving the lives of Amazon workers, who have helped so many people with deliveries throughout the pandemic, not giving a huge tax break to their bosses. Amendment 79 would prevent Amazon and other tech giants from accessing the super deduction by preventing firms from doing so if they are liable for the digital services tax. When the Government set out their plans for the digital services tax, they made it clear that it would apply to businesses that provide social media platforms, search engines, or online marketplaces to UK users. The detail of that tax means that businesses will be liable when the group’s worldwide revenues from these digital activities are more than £500 million, and when more than £25 million of these revenues are derived from UK users.
We are clear that those big corporations that should be caught by the digital services tax are among those that absolutely should not be benefiting from the Government proclaim as the biggest business tax cut in modern British history. We know that Amazon has brazenly made it clear that it will dodge the bill from the digital services tax by passing the cost on to its marketplace sellers. The fact that it is not even paying the tax that was designed for it to pay makes the prospect of a further massive tax cut from the Chancellor even more galling.
Furthermore, as well as excluding big corporations on the basis of their being liable for the digital services tax, we are seeking to use our amendment to stop those big businesses that do not support workers’ rights and the living wage from accessing the tax break. Both conditions would also catch Amazon and would also require other big businesses—those that are not liable for the digital services tax—to respect the right to organise and collective bargaining, and to be certified, or be in the process of being certified, by the Living Wage Foundation as a living wage employer.
When firms stand to benefit from what the Chancellor has called the biggest business tax cut in modern British history, the very least the Government should require of them is that they pay their workers the living wage and respect workers’ basic rights to organise. Alongside this, we propose in amendment 80 that the Government require big firms benefiting from the Chancellor’s tax break to make a climate-related financial disclosure, in line with the recommendations of the Task Force on Climate-related Financial Disclosures.
Beyond the specific issue of how the biggest corporations are set to benefit from this tax break the most, we have also tabled new clause 24 to reflect the widely-held concerns about the impact of the super deduction on levels of tax avoidance and evasion. As the chief executive of the Resolution Foundation has made clear, investment incentives have been abused for tax avoidance purposes in the past, yet the Government have failed to say or do anything to address widespread concerns that the super deduction is open to fraud and abuse.
As I mentioned on Second Reading, economists from the Institute for Fiscal Studies have said that the super deduction will
“create a risk of tax avoidance and even potentially fraud as companies essentially try to find ways to dress things up as plant and machinery investment”.
Minsters were unable to reassure us on this point when I raised it last week, so we are asking for the levels of tax avoidance and evasion arising from the super deduction to be reviewed and put transparently before this House.
It tells us everything about the Conservatives’ priorities that they are taking money from people’s pockets at the very same time as letting tech giants off paying tax altogether. This Government are proposing to wipe out some of the biggest corporations’ tax bills through a £25 billion boon, aimed at the biggest corporations, that the Chancellor has called
“the biggest two-year business tax cut in modern British history.”
In the face of a struggling economy, a tax break for tech giants that already do not pay enough tax should be the last thing on the Government’s mind. Instead, it is top of their list. They are wrong.
Richard Fuller (North East Bedfordshire) (Con)
Will the hon. Gentleman give way?
James Murray
No, let me make some progress.
The Government are wrong, and that is why we will be voting to stop the Chancellor’s tax break going to the biggest tech firms or other big corporations that do not support workers’ rights and the living wage. We need a fairer tax system and we need investment in jobs and growth. This Government’s Finance Bill fails on both fronts. I urge Conservative Members to show that they understand this, support our amendments today and take a stand against the Amazon tax cut.
Felicity Buchan (Kensington) (Con)
I speak in support of clauses 6 to 14 and against the amendments. This Finance Bill needs to be a delicate balancing act. It needs to give immediate support to businesses and individuals while setting a path to rebalance our books in the medium to long term. In my view, these provisions on corporate taxation and the super deduction get that balance exactly right. The Bill defers the increase in corporation tax for two years and applies to only one in 10 businesses at 25%, but at the same time it turbocharges the incentives to invest in business now.
This country has had a perennial problem with productivity. We need to incentivise and encourage business investment. That business investment will help productivity, growth and innovation, and that is exactly what we need. The OBR has said that it anticipates that business investment will go up by a massive 10% as a result of this measure and, as my right hon. Friend the Minister mentioned in his introductory remarks, we will go from No. 30 in the OECD rankings for attractiveness for business investment to No. 1. That is what we need over the course of the next two years as we turbocharge this economic recovery. We need the economic recovery to be strong.
Sammy Wilson
Does the hon. Lady accept that many of our large companies will lead the way in our export growth as we seek to capitalise on the new markets that will open to us as a result of Brexit, and that to capitalise on that we need new, competitive products and to be productive and competitive on the world stage, which is why we need to encourage investment in firms both large and small?
Felicity Buchan
The right hon. Gentleman makes a very good point. We need to encourage investment across the board in large, medium-sized and small firms. Productivity has lagged and we need to correct that, so I absolutely agree.
Let me move on to corporation tax. As I have said, we will increase corporation tax but that is delayed for two years. Corporation tax, by definition, is paid only by profitable companies. I am a low-tax Conservative, so I do not normally advocate increasing taxes, but given the exceptional amount of debt that we have rightly accrued and taken on, we need to be fiscally prudent and look to balance our books in the medium to long term. The reality is that we are very sensitive to interest rates and inflation, given the debt we have; so yes, I do think we need to do this, although it goes against the grain. However, as my right hon. Friend the Minister has said, even with the increase to 25% we still have the lowest headline corporation tax rate in the G7.
I also want to point out that the measure applies only to the most profitable businesses, those that make £250,000-plus. A small business that makes profits of up to £50,000 will have no change whatsoever in its corporation tax, and businesses in between will have a tapered rate. I believe that this is an unavoidable increase in corporation tax, but it still leaves us incredibly competitive on the international stage, and it applies to only one out of 10 businesses.
Sammy Wilson
Does the hon. Lady accept that, despite the impression being given tonight that we are going to tax firms less and take less money off them, the Red Book indicates that corporation tax take in the economy as a whole will escalate from £40 billion this year to £85 billion by the end of the Budget period? The result will be that we take more tax from firms. Hopefully, those firms will become more profitable and will therefore be paying more tax.
Felicity Buchan
I completely agree with the right hon. Gentleman that all the forecasts show a very substantial increase in the tax take by virtue of this move in corporation tax.
I believe that we have the right balance. We are increasing corporation tax, but only for 10% of our businesses and only in two years’ time. Importantly, we are also accelerating and incentivising investment in businesses, which will be critical to our economic recovery.
Richard Thomson (Gordon) (SNP)
I want to speak to the amendments and, in particular, the new clauses that have been tabled in my name and those of my colleagues.
First, I will start with the positives. We very much welcome the planned increase in corporation tax rates. For a number of years, there has been an orthodoxy that lower corporation tax rates are one way to economic growth. There was a period in the 1980s through to about the 2000s when it was possible to make the argument, as many did, that lower taxes could be a route to securing an increased level of foreign and direct investment, and that the resulting increase in economic activity could result in higher tax revenues than might otherwise have been the case. I would like to think that we are all just a bit wiser and more savvy now, given that, in the growth of that period, it is impossible to properly separate out the increase in corporation tax take and the general growth in activity that took place independently.
Given that we did not see conspicuously high levels of investment or wage growth over that period, except perhaps in boardrooms, and given the condition of our public finances and the importance of public goods as a driver of wellbeing and sustainable growth and prosperity, we consider that this increase, which will apply a new 25% rate on the top 10% of firms, is fully justified. We are relieved that firms will have until 2023 to plan for this move. We believe it was misguided for the Chancellor to try to increase it from 19% to 20% in September, ahead of any recovery starting, beyond the anticipated return-to-trend growth that we are seeing anyway.
The SNP firmly believes that it is important that our corporate citizens pay their share towards the maintenance and good functioning of the market and the public goods that allow them to flourish. However, domestic corporation tax is only part of that story. If re-elected—obviously, we have elections coming up in Scotland, which I am sure hon. Members are focused on avidly—the SNP Government will be looking to explore the possibility of levying a higher poundage on properties where the owner is registered in a tax haven. That is part and parcel of the package of measures that is needed to ensure that everyone who benefits from participation in the market is making a suitable contribution towards it.
Further, we believe that the UK must seize the opportunity that this moment presents to work closely with the Biden Administration in the USA. We must heed the call of that Administration’s Treasury Secretary, Janet Yellen, to set a global minimum tax take for companies to ensure the global economy can thrive, based on a more level playing field and the taxation of multinational corporations, and help spur innovation, growth and prosperity.
New clause 13 would oblige the Government to review the impact of the changes made by clauses 6 to 14 in all parts of the UK, particularly in respect of business investment, employment, productivity, GDP growth and poverty, and to compare the difference in actual and forecast outcomes between having a deal in place with other OECD countries on a minimum level of corporation tax and not.
Similarly, new clause 19 asks the Government to review these changes but in a way that looks both forwards and backwards. As I said earlier, orthodoxies may change in economics, and the Chancellor’s commitment to increasing the headline rate seems to mark the end of a protracted period of a race to the bottom on corporation tax rates. The Chancellor himself said on 3 March that cuts
“might not be the most effective way to drive capital investment up”.
On that basis, it is very important that the Government should compare the estimated impact of corporation tax changes in the Bill with the impact of the changes in corporation tax rates that we have seen in each of the past 12 years.
New clause 20 seeks a review of corporation tax provisions on the link between corporate profit rates and ownership, and the cost of reintroducing a small profits rate. We believe that the lower small profits rate introduces an unnecessary degree of complexity into the tax system. We were unable to find specific costings for the reintroduction of the small profits rate in the OBR policy costings. Instead, they appear to have been rolled into the costings for the overall rate increase. The Treasury should publish details of the revenue forgone through this measure for the purposes of proper scrutiny.
New clause 21 seeks a report on the impact of the super deduction on progress towards the Government’s climate emissions targets and capital investment in each of the next five years. It is important that we understand properly not just the impact that the super deduction is expected to have but the impact it actually has, because it is one of the most significant spending measures in the Budget and a very significant giveaway to big business.
The super deduction is poorly targeted, since it applies to physical assets rather than investments in software, for example, and seems to mostly benefit larger companies. Smaller investments are already tax-deductible under the annual investment allowance. OBR analysis suggests that some £5 billion of the super deduction will, in any event, be spent on previously planned investments. It is hard to avoid the conclusion that this measure will benefit larger companies in a way that does not necessarily drive growth in the way that the Chancellor would hope and certainly does not target the small and medium-sized enterprises that benefited from those deductions anyway and are the engine of growth in most parts of these islands.
When setting policy, it is always a good idea to know what we are doing and why and to have the most solid evidential base for doing so. The fact that we will not put these measures to a vote does not diminish the significance and importance of what we propose. I can assure the Minister that we will return to these matters and will look to the Government to act, even if these matters are not addressed in the final version of the Bill.
Andrew Jones
One of the biggest challenges that the UK economy has faced for many years is its productivity. The UK has some of the highest-calibre companies in the world, among the smartest and most productive on the planet, but outside the south-east, there are areas of the UK where productivity matches parts of southern Europe. For many years there has been a long tail of companies whose productivity is very poor. There are many causal factors in that, including skills—particularly digital—and infrastructure challenges, which I have focused a fair amount of my time on. One of the key issues is a lack of business investment, and one element of the Bill, which I shall focus upon in my few words, goes right to the heart of tackling that: the super deduction.
Until March 2023, companies can claim 130% capital allowances, which basically means that for every £1 a company invests, its taxes are cut by up to 25p. I have no doubt that this will prompt investment. Investment is a driver of economic growth. While the UK has performed well on growth over the last decade, it has lagged on investment, so if investment rates can be improved, the UK will do even better.
The Office for Budget Responsibility estimates that the UK will rise from 30th to first in the OECD world rankings for business investment. That is a very positive thing. Being a beacon for investment is a positive, not a negative; we should not listen to Opposition Members on this. However, such a rise in the world rankings will not be achieved unless there is real scale to this measure. For the two years that it is in place, it is estimated to amount to £25 billion. It would therefore be the largest business tax cut in modern British history, so there is indeed real scale to it.
When we talk about productivity in this place, there is a danger of speaking in jargon. What people could take away is the message that they will have to work harder, do 40 hours per week instead of 38, or work in a team of six rather than eight but still do the same work. What I know we mean, and what I am talking about, is working smarter, so that there is more economic output for the same input. Investment in new machinery and the latest technology is one way to increase productivity, and the super deduction will increase investment.
There are amendments ahead of us this evening about measuring the impact of those policies. Those amendments are not necessary as the Treasury always reviews the impact of its policies, but as the Treasury does its work it will be interesting to see the impact of the super deduction on different parts of the country. It will simply reflect the different economic mix that we have in different areas, and some will benefit more significantly than others. I think the policy will be very helpful in the levelling-up agenda.
Dame Margaret Hodge (Barking) (Lab) [V]
With the support of a wide range of Members from across the House, I tabled amendment 78. Although we will not put it to a vote tonight, we intend to return to the subject on Report. Sadly, I cannot look the Minister in the eye, but I strongly and sincerely urge him to give the matter proper and serious consideration. A knee-jerk rejection to a practical idea simply because it is proposed by Back Benchers from across Parliament would confirm yet again that the Government listens only to the few—the powerful corporations and influential tax advisers—and ignores the views of most taxpayers in Britain today.
Boosting investment to stimulate growth is a vital and shared objective, especially as we emerge from the shadows of the pandemic, but the super deduction is both hugely expensive and poorly targeted. With a cost of £25 billion over two years—nearly half the total annual defence budget—the Government must ensure proper value for hard-working taxpayers. Our amendment seeks to target taxpayers’ money more effectively. Every new tax relief, as the Minister well knows, provides a new opportunity for the unscrupulous to identify loopholes and then to shirk their responsibilities and avoid paying their fair share of taxes. Capital allowances have long been fertile ground for tax avoidance. Anybody looking online will find an army of people advertising expertise in classifying expenditure to help companies to exploit the eligibility criteria and so avoid tax.
With a super deduction, the opportunities for exploitation are obvious. The tax relief will last for only two years, so it is unlikely to fund the aviation industry or genuinely new capital investment, which takes time to plan and to implement. It will mainly be used to cut taxes for companies that were investing anyway, and those that will benefit most are those that have prospered the most during the pandemic. They are the companies with oven-ready capital investment plans, benefiting from the increased demand that they have enjoyed over the last torrid year—companies such as BT, whose share price rose by 7% on the day the super deduction was announced, or, as others have mentioned, the notorious tax avoider Amazon.
In 2019, Amazon’s UK turnover was £13.7 billion, but by claiming that its UK sales took place in Luxembourg it exported its profits and avoided corporation tax. It declared only a bit of profit in the UK, as the shadow Minister said, on its warehousing and logistics activities. Its corporation tax contribution was less than 0.1% of its turnover. Analysis by TaxWatch shows that even that miserly contribution would be wiped out with super deductions. It would write off its investment in IT equipment and machinery against its deliberately understated profits. 8.30 pm
Does the Minister really intend to fritter taxpayers’ money away on bungs for global companies that do not pay fairly into the system? Jeff Bezos, whose personal fortune rose to $200 billion during the pandemic, and his $1 trillion company are pocketing money from the British taxpayer and flagrantly refusing to pay back into the system. Does the Minister really think that taxpayers support this sort of daylight robbery? Our amendment would provide a straightforward way for the Government to ensure that this did not happen. It would require proper transparency, with multinational corporations showing where they undertake their economic activity and where they make their profits as a condition of eligibility for super deductions.
The House voted in favour of country-by-country reporting in 2016, as the Minister said, but that power has never been enacted. Our amendment urges the Government to use that power to ensure that this egregious behaviour by companies is visible for all to see, and to ensure that taxpayers’ money is not wasted on those who greedily grasp the nation’s money and assiduously avoid contributing to the public purse. Accepting our amendment would achieve two important objectives. First, it would stop taxpayers’ money being squandered. Secondly, with President Biden pioneering a new global settlement for corporation tax and the EU reaching agreement on country-by-country reporting, it would ensure that Britain played a leading role in developing a fair and responsible global system of taxation.
John McDonnell
Following on from my right hon. Friend the Member for Barking (Dame Margaret Hodge), I find it almost incredible that we are having this debate at all, given what we know about the track record of abuse of this type of tax deduction, as she so eloquently pointed out. The Minister is right to suggest that amendment 11, tabled in my name and those of other right hon. and hon. Friends, would have the effect of removing the provision of capital allowance super deductions.
There has been considerable evidence, and concern, from economic think-tanks and Committees of this House that tax reliefs have failed to deliver their stated objectives and, worse, that they have often had unintended consequences through the creation of perverse incentives. Members have raised example after example in recent years, including the entrepreneurs allowance, the patent box and the tonnage tax, all of which have not only failed in their objectives but lined the pockets of company directors and shareholders, exactly as my right hon. Friend said. Accountants, lawyers and others have been using them effectively for tax avoidance. The scope for perverse incentives and unintended consequences is even greater with these super deductions. If the Chancellor wants a sweetener to go alongside his corporation tax rises, surely at a time of rising unemployment it is more urgent to incentivise job retention through a temporary cut to employers’ national insurance contributions rather than introduce what has been described as this dog’s dinner of untargeted super deductions in clauses 9 to 14.
Unlike Ministers, in dealing with business, I do not believe in a something-for-nothing culture. If the Government are giving tax breaks to businesses, the Government, as guardians of the public purse and the public interest, should demand something in return. New clause 1, in my name and those of other hon. and right hon. Members, asks simply that, in return for companies being eligible for these super deductions, they should pay their workers the real living wage and should recognise trade unions for collective bargaining purposes—two simple things that reflect that they are responsible employers.
I regret very much the Minister’s reference to these as “burdensome” requirements. Paying a decent wage and recognising trade unions are not a burden, but actually things that enhance the role of an individual company. As has been said in debate after debate, even by Government Ministers, in many instances the greater involvement of the workers in a company increases productivity. These are just low barriers for companies to pass. It does not take long to recognise a trade union or to be accredited as paying the living wage. Companies that do not currently meet these extra criteria could easily do so during the passage of this Bill and its enactment.
I also back the Front-Bench amendments in the name of the Leader of the Opposition, and I pay tribute to my hon. Friend the Member for Ealing North (James Murray). He is right that companies such as Amazon that dodge their taxes and evade their responsibilities to their workers should not be given tax breaks on top. The Chancellor of the Exchequer made much of his compact with unions and business groups over the furlough scheme. This modest new clause 1 puts in legislation the approach I am putting forward. I believe that it is within the spirit of that relationship between Government, trade unions and employers, and I just urge the Government to think again about accepting it.
New clause 2, in my name and those of other hon. and right hon. Members, combines a request for an evidence base for super-deductions in respect of capital allowances and to explore what economic benefits could be derived from attaching social and environmental conditions to the receipt of super deductions. I heard one hon. Member in this debate say that the Treasury monitors these policies and does indeed review them; unfortunately, it does not.
Historically, tax reliefs have been introduced, and over the years an accumulation of tax reliefs have never been reviewed and never really been tested for their effectiveness in the way they should be. The Office for Budget Responsibility stated in its March “Economic and fiscal outlook” that the super deductions, as others have said, are expected to cost at least £25 billion in total between 2021-22 and 2023-24. This is a huge commitment, and it is surely in the public interest that we have an assessment of policies’ effectiveness and also ensure they deliver on social and environmental goals.
In new clause 6, I seek to create an evidence base on which this House can assess the merits and drawbacks of the super deduction policy. The Public Accounts Committee has previously looked into the operation of UK tax reliefs, and its findings painted a worrying picture. These reliefs already cost more than £100 billion a year in forgone tax, and HMRC does not even know how many reliefs exist or monitor their cost, let alone their effectiveness. Let me quote my right hon. Friend the Member for Barking, who is the former Chair of the Committee. She said:
“HM Treasury and HM Revenue and Customs…do not keep track of those tax reliefs intended to influence behaviour. They do not adequately report to Parliament or the public on whether reliefs are working as intended and what they cost and whether they represent good value for money.”
She went on:
“HMRC does not effectively monitor changes in the cost of tax reliefs so is slow in identifying instances where a relief is being exploited for a purpose”
beyond what Parliament intended. I think that is an accurate but damning indictment and one that should concern the whole House, but especially Treasury Ministers.
New clause 6 specifically recommends that the Public Accounts Committee is tasked with reviewing the effectiveness of existing capital allowances and that this House then votes on the clauses that provide for super deductions in the light of that evidence. I urge the Government to get a grip on the whole process of tax reliefs. We have seen how they can be abused. We have seen how ineffective they can be. We have also seen an industry develop, with accountants and lawyers who have profiteered from tax reliefs that the Government have introduced over decades. To add now to that abuse of taxpayers’ money in this way, I deeply regret. I urge the Government to think again. I give the Government this warning: in a few years’ time, if the Bill goes through as it is now, I bet we will be returning to this debate with example after example of how this system has been abused, to all our cost.
Miriam Cates (Penistone and Stocksbridge) (Con) [V]
I wish to speak to the numerous amendments and new clauses relating to corporation tax changes and the new super deduction.
As the previous speaker, the right hon. Member for Hayes and Harlington (John McDonnell), will no doubt keenly remember, raising corporation tax was one of the pillars of Labour’s 2019 manifesto. We frequently hear Labour Members expressing the view that big businesses should pay their fair share of tax. I completely agree, and that is why I fully support the Government’s proposals to increase corporation tax with a new maximum rate of 25% for those businesses with profits of over a quarter of million pounds from April 2023. Unlike a rise in income tax or national insurance, which affects taxpayers in a blanket way regardless of personal financial circumstances, corporation tax is only paid when profits are made—no profit, no tax due. And where profits are made, it is of course absolutely right that a proportion of those profits is returned to the taxpayer, because without the infrastructure, education, security and health services that the state provides, those businesses would clearly be much less profitable.
Members across the House like to champion small and local businesses, and rightly so. These businesses will, in the vast majority of cases, continue to pay the lower rate of corporation tax. In my constituency, we have 2,890 registered businesses, with 88% having fewer than 10 employees. These are not the kind of companies that generally make profits exceeding a quarter of a million pounds a year. The corporation tax rise will only affect the very largest and most profitable businesses. In fact, only 10% of businesses will pay the new higher rate. The Government are right to delay the increase until 2023, as it gives companies time to plan as we emerge from a period of uncertainty, but it is wrong to say that the impact of the pandemic means that the change should not take place at all. Yes, many businesses have struggled during the pandemic, but some businesses have prospered hugely, often due to circumstances for which they can take no credit. Online traders and the big supermarkets have seen their revenues increase substantially purely because other retailers have been legally forced to close. It is therefore right for the Exchequer to recoup some of those additional revenues through taxation. These measures must therefore pass without the proposed amendments, some of which could allow large businesses to restructure to avoid the high rates of tax.
We all want UK businesses to be profitable, but we also want those profits to result in higher wages, better training and reinvestment in our economy so that profits can be shared fairly across society and not just concentrated among shareholders or the most highly paid executives. In other words, we need businesses to be more productive. Low productivity has been a thorn in the flesh of the UK economy for some time. The proposed super deduction is therefore exactly the measure we need to encourage the reinvestment of profits through large-scale investment, turning crisis into opportunity and setting UK businesses on a new path to innovation, productivity and growth. The OBR has predicted that this will increase business investment by 9% and lift us from 30th in the OECD’s world rankings for business investment to first. This is the right moment for this incentive, when many businesses have been forced to pivot or have seized opportunities presented by the pandemic, and now is the time to invest. That is why I oppose the amendments to the super deduction clauses, which would ultimately delay and reduce its effectiveness.
Our economy is an ecosystem, with the private sector, the public sector, our communities, individual employees and employers existing interdependently in a multitude of symbiotic relationships. Each element of this ecosystem has obligations and responsibilities to the other parts. For businesses, these responsibilities include paying fair levels of tax and making investment decisions in the best interests of our whole society. It is the Government’s role to encourage businesses to act for the common good. The unamended measures in this Bill will be successful in doing just that.
Sarah Olney [V]
I wish to speak to clauses 6 and 7 relating to the rates of corporation tax and also to the super deduction.
Businesses everywhere, of all sizes and in many different sectors, have had an extremely challenging year. As we hopefully move into a time when business as usual can return, I know that Members in all parts of this House are united in wanting to support businesses to flourish once more. But this has also been a year of unprecedented demand on the public finances. Much of that money has been directed towards households in the shape of our furlough and SEISS schemes to ensure that incomes can be sustained and, in turn, to maintain revenue for those businesses providing essential services. Many businesses have seen increases in revenue this year as indirect competitors have been forced to close or prevented from making their goods and services available. Any business that provided a digital or delivery service found an unexpected increase in demand compared with those that provided an in-person service.
Why should the businesses that have profited from the pandemic not pay their share in restoring the public finances that have been expended on supporting us all through this difficult time? The Liberal Democrats have called for an excess profits, or windfall tax so that those businesses that have done well can contribute their share to the recovery. This could most easily be done by an immediate increase in corporation tax whereby only those companies that have remained profitable would pay it. Instead, the Government propose a sharp rise in corporation tax in 2023. This delayed increase will give larger companies time to rearrange their affairs, potentially limiting the amount of revenue that can be captured by the planned rise. It will create an artificial boost to the economy in the short term as profits are brought forward, to be reported against the lower tax rates of the next couple of years.
The Government’s changes to corporation tax rates come when the global nature of trade presents a major challenge to national autonomy on tax rates. The Liberal Democrats are in favour of higher corporation tax rates to ensure that businesses are paying their fair share. The challenge to implementing this has always been that we are in competition with other countries attracting investment by setting lower tax rates. I am interested to hear how the Government plan to react to the plans by the new Biden Administration in the United States to set a global floor for corporation tax rates. This is a fantastic opportunity to introduce a fairer and more progressive tax regime in all nations and reduce the options for corporations to reduce tax. I very much hope that the Government will sign up to the Biden plan and set an example to the rest of the world.
The Chancellor’s most eye-catching announcement in the Budget was the super deduction available to businesses over the next two years to get back 130% of the cost of new plant and machinery. I know that this will benefit many businesses, but I fear that the impact will be more limited than at first appears. First, it creates a cliff edge in investment, especially when coupled with the tax increase in the third year. Secondly, many manufacturing businesses invest for the long term and plan their capital expenditure in 10-year cycles, so a two-year incentive will not make a big change to investment plans. Thirdly, a great deal of equipment is leased rather than bought outright, so investment incentives like these will make no difference.
It would have been a better policy if the expenditure recovered could have included measures to get our economy to achieve net zero carbon emissions or have included expenditure on training and development to help us to build the high-skill economy that we need. These expenses could then have been claimed by a far wider number of businesses in many different sectors and made a genuine contribution to future prosperity and green growth.
The Government need to be clear about their business tax policy so that businesses have time to plan and an understanding of how tax policy interacts with an overall strategy to support enterprise and productivity. Many of our business owners feel a real loyalty to their communities and will maintain those connections regardless of the tax rates, but they need to know that this continues to be a country that welcomes entrepreneurs and supports small businesses. Much more can be done in our tax system to support small and medium-sized enterprises, and I regret that the Government have not taken the opportunity to do this. The Liberal Democrats would introduce a tax cut for SMEs and quadruple the annual employment allowance to allow small businesses to employ up to five people without paying any national insurance contributions. The Government have shown a lack of commitment to small and growing businesses in this Bill and no strategy for private sector growth.
The Liberal Democrats oppose the corporation tax clauses in the Bill because they mean that profitable corporations are not paying their fair share as we recover from this pandemic and the overall provisions do not provide the support we need for small businesses.
Bell Ribeiro-Addy [V]
I shall speak in favour of new clause 9 in my name, and the amendments and new clauses in the names of my right hon. Friend the Member for Hayes and Harlington (John McDonnell) and the Labour Front Bench.
The thread that weaves through these amendments and new clauses is utter outrage at plans for big corporations, including big firms that do not support trade union rights, that pay below the living wage or that avoid tax, to benefit from the Chancellor’s astonishing super deduction tax break giveaway. In particular, new clause 9 would require a meaningful equality impact assessment of capital allowance super deductions that must cover the impact of those provisions on households at different levels of income; people with protected characteristics; the Treasury’s compliance with the public sector equality duty; and equality in different parts of the UK and different regions of England.
For most of us, one of the key consequences of the pandemic has been to illuminate far-reaching health and socioeconomic inequalities in many countries. However much this Government try to conjure otherwise, it is just a statistical and factual truth that, as a result of years of cruel Conservative austerity followed by the callous Conservatives’ handling of the covid crisis, the pandemic’s impact has fallen disproportionately on the most vulnerable individuals and along gendered, ethnic, occupational and socioeconomic lines.
Inequalities in people’s protection from and ability to cope with this pandemic and its tremendous societal costs have stressed the importance and urgency of the societal changes needed to protect population health and wellbeing. According to the statement issued by independent experts of the special procedures of the United Nations Human Rights Council, condemning the Commission on Race and Ethnic Disparities’ report:
“The reality is that People of African descent continue to experience poor economic, social, and health outcomes at vastly disproportionate rates in the UK.”
Women—particularly the poorest women, black, Asian and minority ethnic women, disabled women, lone parents and young women—not only have been badly hit by the pandemic, but have suffered for years under this Government’s brutal austerity onslaught. Yet, coming in at an enormous £12 billion for 2021-22, the Chancellor’s announcement of a super deduction on purchases of capital goods by businesses was one of the largest spending items in the spring Budget. In fact, some argue that it is one of the largest single-year tax giveaways ever enacted by a Government. And who will it benefit? Although the Chancellor claimed in his speech that the Government’s response to covid had been “fair”, women, those on low incomes and those from BAME backgrounds stand to benefit the least from the untargeted tax breaks for large companies through the super deduction. We know that more businesses—and larger ones—are owned by men than by women. As such, it is important to recognise there are many potential equalities impacts to business taxation.
Incentives such as the super deduction are biggest for large firms and the Financial Secretary to the Treasury has admitted that only 1% of firms will benefit this year, as the rest are within the annual investment allowance. How can the Government justify the fact that under this Bill the rich and big business will be treated to mouth-watering tax giveaways and reliefs, despite unclear evidence about whether that will actually create the investment needed?
The Women’s Budget Group argues that this provision is likely to have “substantial deadweight costs”, bringing forward investment rather than generating new investment. The group also raised the point that it is unnecessarily limited to investment in “plant and machinery”, thereby excluding training and other human capital investments, and missing opportunities regarding the transition to a lower-carbon economy that recognises the economic benefits of spending on the social infrastructure that our public services provide. This goes to the crux of the problems with this Finance Bill, and with the Government’s lack of vision for a green recovery based on intersectional socialist economics and progressive taxation.
Ben Lake (Ceredigion) (PC)
It is a pleasure to speak in this debate, Sir Charles. I rise to speak in support of amendment 53, which I hope will encourage the Government to bring some rigour and meaning to their rhetoric of levelling up and the use of taxpayers’ money.
In a Budget that confirmed £17 billion of spending cuts, relative to March 2020 plans, the Chancellor’s decision to announce the super deduction, equivalent to forgoing approximately 20% of the UK’s corporation tax revenues, was certainly a bold one, particularly as the Financial Secretary noted in November 2020 that the existing annual investment allowance already covers 99% of all UK businesses. The House has heard this evening that the super deduction is a major tax break for the top 1% of UK businesses. We have also heard many concerns that it is a blunt tool in need of significant refinement if its perceived benefits are to be targeted to those in greatest need of support. I also point to concerns that the super deduction will disproportionately benefit London and the south-east of England and that it flies in the face of the Government’s commitment to level up the UK economy.
I draw the House’s attention to a finding from the Centre for Progressive Policy, which has calculated that, although the super deduction could amount to a tax break worth up to £513 for London residents, it would be worth only half as much in Wales, whose sum benefit is the second lowest of the UK nations and regions, with only Northern Ireland benefiting less on this measure.
I am afraid that I disagree with other hon. Members who have suggested that the super deduction might, on the contrary, actually benefit and address regional inequality. My fear is the opposite—that the super deduction will, at best, lock in existing regional inequalities and, at worst, exacerbate rather than address the UK’s geographical economic imbalance. That is why Plaid Cymru wishes to amend the Bill to require that the Chancellor considers the impact and geographical extent of the super deduction across all the UK’s nation and regions and would support calls made by other hon. Members this evening that measures should be introduced to establish a deeper evidence base for these changes. Similarly, given the urgent need for climate action and the retooling of the economy for a net zero future, this amendment also requires the UK Government to consider the super deduction’s impact on efforts to mitigate climate change.
I hope that the Government will incorporate guarantees such as these into the Bill to ensure that we truly do rebuild back better from the pandemic, rather than resuscitate the UK’s deeply flawed pre-pandemic economy. Failure to do so would make it clear that their rhetoric of support for all nations, for the levelling-up agenda and for climate action are no more than fine words and lofty intentions.
Richard Fuller
It is right, as our hard-working business leaders emerge from the most torrid 12 months, that the Government set a clear course for their understanding of how those businesses will be taxed in future. I would have hoped that it would have been heartening for the people who have been running businesses through these most difficult times to listen in to this debate to hear what Members of Parliament have to say on their behalf. However, personally speaking, I think that most people who run businesses will be rather saddened by what they have heard—largely, a perspective that it is wrong for people to run businesses that are profitable, that there is sin in becoming rich by creating a business that creates products that people want, rather than virtue, and a complete lack of understanding that businesses that make profits are a sign of success, rather than a sign of failure.
Personally, I am rather in favour of us increasing taxes. When this or any Government seek to increase tax on corporations, I wonder whether they realise that, essentially, they are putting a tax on success—that every pound that we take away from a business, from its profits, is a pound taken away from things that the business owner may do him or herself. They might be radical things, such as investing in and expanding the number of people who work for the businesses, investing in machinery that will make their business more competitive in terms of exports, or lowering their debt so that they are on a more substantial and more stable footing for the long term. Every time a state takes away money from enterprise it is putting at risk the resources those companies have to do those things, and the future success of this country. Therefore the Government were right to consider carefully how to balance a change in corporation taxes, and given what has happened subsequently to the Budget, the Chancellor deserves a bit of a pat on the back for understanding what would be going on in the global realm of corporation tax, as well as the crucial importance of providing some short-term incentive for businesses to invest as we emerge from the recession.
Antony Higginbotham (Burnley) (Con)
I agree with almost everything my hon. Friend the Member for North East Bedfordshire (Richard Fuller) said about corporation tax. It is a tax on success, and on this side of the House we are all naturally low-tax Conservatives—we believe fundamentally that businesses are most successful when they are left to innovate and grow, and can keep more of the money they earn. However, we also have to accept that that is not the only thing that drives businesses. Globally adaptable businesses that look around the world at where they are going to locate their next manufacturing plant or innovation look at myriad factors: the support available; the skills of the local population; and the infrastructure in place. All of those things cost money. As we have seen during the past 12 months, the Government have gone to great lengths to support businesses. In my constituency, 11,000 jobs have been supported by the furlough scheme. That is money that has helped businesses across Burnley and Padiham prepare and stay ready for when the economy reopens. We are also talking about £20 million in grants so that those same businesses can restart as soon as the economy opens up. All businesses understand that; they understand that responsibility comes with this and the taxation they pay enables them to take part in society in a meaningful way.
With all that in mind, I agree with the measures my right hon. Friend the Chancellor set out on corporation tax, as a low-tax Conservative. I do so because the Chancellor has struck exactly the right balance in making sure we secure the economic recovery first: we do not look at businesses now as they are just starting to reopen and get trading again and say, “Just because you are profitable, we are going to increase your tax rate immediately”; we look ahead and say, “When the economy has recovered and you are trading as you were pre-pandemic, that is when we will look for you to make a fair contribution to repay some of the support we have been able to put in place.”
In Burnley and Padiham, we are heavily reliant on small and medium-sized enterprises—those small innovators. As we recover from the pandemic, we often see the most SMEs and new businesses start up; people who used to work for one company and who may have been made redundant—something may have happened—then start their own businesses. That is why the small profits rate of corporation tax is so important, because it is the incentive those innovators and entrepreneurs need to start their business, to grow, to employ someone else.
We also have to recognise that one thing we have suffered from historically in the UK, for many, many years, is low productivity, and that has come from a huge lack of investment from businesses. If we are really going to level up across the country, we need to drive investment in growth and utilise the power the private sector has through whatever means are available to us. We know that since 2007-08 there has been a systemic lack of investment, driven by the uncertainty we have had, so that there is a pot of money that so many businesses are sitting on, waiting to be unlocked. That is where the super deduction will prove so important, because it encourages those businesses that have had a stockpile—that have lived with uncertainty for the best part of a decade and so have not been able to invest, as they have not had that confidence. As we emerge from the pandemic, the super deduction gives them the confidence to invest.
In Burnley, we are talking about aerospace manufacturers, automotive manufacturers and textile makers. The super deduction will help businesses transition to green technology, as we have spoken about. It will help aerospace businesses to move into HS2 and textile companies to move into weaving—we do still make textiles here in the UK.
All of these things will result in a high-skill, high-wage manufacturing economy here in the UK. So, yes, we need to keep the UK attractive to investment, job creation and new businesses, but we do that through a fair corporation tax system, lower rates for new businesses and using schemes such as the super deduction to drive investment into manufacturing jobs, which are going to be so vital for our future.
Rebecca Long Bailey [V]
I will limit my comments to the super deduction which, as we have already heard today, will be one of the largest single-year tax giveaways ever enacted in the UK. Arguably, some companies’ corporation tax bills will be wiped out entirely for a couple of years.
My right hon. Friend the Member for Hayes and Harlington (John McDonnell) has already said that the Public Accounts Committee found that tax reliefs cost more than £100 billion a year in forgone tax, but HMRC does not know how many reliefs exist; nor does it monitor the efficacy of such reliefs. That is staggering. Can we be confident that HMRC will know what effect the super deduction will have, and who will actually benefit from it? Many of my small and medium-sized enterprises in Salford would love a super deduction, but sadly it will not benefit them. The Financial Secretary to the Treasury told the House last year that the enhanced annual investment allowance of £1 million already covers the capital expenses of 99% of businesses in the UK, so it seems that this super-relief will overwhelmingly benefit only 1% of extremely large businesses.
I would have no problem if such businesses desperately required the relief in order to protect jobs or to invest in our local economies, but let us look at some of the potential beneficiaries. Amazon has benefited from the pandemic, seeing its sales jump by 50%. According to TaxWatch, the company’s latest accounts show that they spent £66.8 million on plant and machinery, £80.4 million on office equipment and £15.3 million on computer equipment in the same year, so the 130% super deduction could entirely account for the pre-tax profits of the company even before any deductions of staff pay awards.
Similarly, many energy and water companies find themselves also able to wipe out their tax bill. United Utilities spent £1.275 billion on property, plant and equipment in the past two years, compared with a current tax liability of just under £89 million. Electricity North West stated that covid has had a limited impact, and it had a tax bill of £45 million for 2019-20 while investing £449 million in property, plant and equipment. For both companies, it would only take a small proportion of the capital investment to be spent on plant and equipment to use the super deduction to eradicate their tax bill, too.
Do these buoyant companies really need a super deduction? The answer is no. In the absence of any clear conditions specifying the use of such savings or providing a wider social benefit, such as increasing salaries for workers, investing in decarbonisation or reducing costs for end consumers, I struggle to see the benefits being passed on to anyone other than shareholders.
I hope that the Government support amendment 11 and new clauses 1, 2 and 6 in the name of my right hon. Friend the Member for Hayes and Harlington and others, as well as the Labour Front-Bench amendments, because there are companies that do need support to help them recover from the pandemic. There is a real need to support long-term, patient investment by industry, but the untargeted nature of this relief, without conditions, is not the best use of public money. In fact, it borders on the obscene.
Rachel Hopkins (Luton South) (Lab) [V]
I shall speak in support of the amendments in the name of the Leader of the Opposition and those in the name of my right hon. Friend the Member for Hayes and Harlington (John McDonnell). The Budget and Finance Bill represent the Government taking steps towards further structuring our economy on insecure, precarious work and deregulation, which will widen income and wealth inequality.
The Government’s unambitious plan provides neither a foundation for rebuilding our economy nor a plan to tackle the climate emergency that my constituents have called for. They have announced a future cut to social security and a real-terms pay cut for public sector workers at the same time as introducing a super deduction tax cut for big businesses, allowing firms to write off 130% of the value of qualifying capital investment against their taxes.
When we look across the Atlantic to the US, we see a stark contrast. The Biden Administration have committed to fast-tracking a $1.9 trillion Government-led stimulus package, which is about 10% of the annual output of the US economy and which contained no promises of future deficit reduction. That is alongside a forward-looking plan to spend a further $2 trillion on infrastructure. Biden’s spending plan, in proportion to GDP, is three times the size of the UK’s.
Jesse Norman
I am grateful for the contributions that have been made to this debate. It saddened me, however, that Labour Members seemed to be reading off a single piece of paper in so many of their speeches. I encourage them not to follow the script slavishly but to actually think about what they say.
The hon. Member for Salford and Eccles (Rebecca Long Bailey) put the matter at its most plain when she argued that because 99% of businesses benefit from the annual investment allowance, it meant the super deduction benefited only the remaining 1%. Of course, that is completely wrong. The super deduction benefits all businesses that are in a position to take advantage of the eligible deduction it provides, and that is better than the annual investment allowance. The whole premise of the arguments advanced by the Opposition is wrong. The fact is that tax reliefs are an understood and established part of tax policy; they are not to be thought of merely as giveaways. A raft of international authorities have testified to the benefits of greater investment allowances, including full expensing, and our proposal goes some way beyond that. We need to see it in that context.
The UK already has a rather competitive intangibles regime, and the productivity challenge that we face as a country is focused on the tangible assets and therefore it is on those that this super deduction is aimed.
The hon. Member for Ealing North repeated the line about small businesses, but also asked whether the super deduction was somehow extremely vulnerable to exploitation by malfeasant tax actors. I can tell him that the deduction has been very carefully assessed and includes important exclusions, including as to related party transactions and second-hand assets. It also includes a new anti-avoidance provision, which is designed to give it additional protections.
It is true that this is a country that takes the question of tax avoidance and tax manipulation extremely seriously. The right hon. Member for Barking (Dame Margaret Hodge), who has been a great campaigner in this area, focused on that. Of course I cannot discuss individual taxpayers. No one knows what an individual company’s taxpaying arrangements are. She purported to know—that is her privilege—but I am not in a position to discuss that. None the less, I can tell her that it would be very bad policy indeed for any Government to base tax policy on a single employer or taxpayer. If she thinks that this country has been soft in any respect on tax, let me remind her that we have led the international charge on base erosion and profit shifting, on diverted profits taxes, and on the corporate interest tax restriction. We have put into law a digital services tax and are consulting on an online sales tax. That is not the action of a Government who take these things in any way other than very seriously.
I join my hon. Friend the Member for North East Bedfordshire (Richard Fuller) in emphasising, as he rightly did, that we need businesses to be as productive, effective and successful as possible, because they are the anchors of successful and effective employment and of the profit generation on which our tax base, and therefore the funding we need to support public services, rely. It does not follow from the fact that the Labour party is confused on corporate taxation that we should not have a policy that supports business in developing, investing and building our collective economic future.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clauses 7 and 8 ordered to stand part of the Bill.
Clause 9
Super-deductions and other temporary first-year allowances
Amendment proposed: 79, in clause 9, page 4, line 2, at end insert:
“provided that any such company which has more than £1 million in qualifying expenditure must also—
(i) adhere to International Labour Organisation convention 98 on the right to organise and collective bargaining,
(ii) be certified or be in the process of being certified by the Living Wage Foundation as a living wage employer, and
(iii) not be liable to the digital services tax”.—(James Murray.)
This amendment would, in respect of companies with qualifying expenditure of over £1 million, add conditions relating to ILO convention 98, the living wage and the digital services tax.
Question put, That the amendment be made.
Ben Lake
I beg to move amendment 54 in clause 109, page 63, line 14, at end insert—
“(1A) An area may be designated as a special area under subsection (1) only when a motion approving the creation of freeport tax sites has been agreed by—
(a) Senedd Cymru,
(b) the Scottish Parliament, and
(c) the Northern Ireland Assembly.”
This amendment would require the Treasury to have received consent from the devolved parliaments on proposed freeport measures before introducing the changes proposed by Clause 109.
The Chairman of Ways and Means (Dame Eleanor Laing)
With this it will be convenient to discuss the following:
Clause 109 stand part.
Clauses 110 and 111 stand part.
That schedule 21 be the Twenty-first schedule to the Bill.
Government amendments 43 to 52.
That schedule 22 be the Twenty-second schedule to the Bill.
New clause 4—Eligibility for capital allowances and stamp duty land tax relief for freeport tax sites—
“No company shall benefit financially from the provisions of sections 110 or 111 unless the company—
(a) recognises a trade union for the purposes of collective bargaining with its workforce,
(b) is certified by the Living Wage Foundation as a living wage employer,
(c) is taking steps to reduce its carbon emissions, and
(d) publishes details of its equality pay gap and has a published plan to reduce disparities.”
This new clause would ensure that the benefits of capital allowances and relief from stamp duty land tax for freeport sites apply only to companies that meet certain criteria relating to employment and environmental credentials.
New clause 5—Economic impact of freeport tax sites—
“(1) Sections 109 to 111 shall not come into force until—
(a) the Secretary of State has published a report, commissioned from the Office for Budget Responsibility, and
(b) the report has been debated and approved by both Houses of Parliament.
(2) The report in subsection (1) must forecast the impact of sections 109 to 111 on—
(a) Government and local council tax revenues,
(b) economic activity in areas directly adjacent to proposed freeports,
(c) UK productivity, and
(d) the provision of jobs paid at more than the median wage.”
The new clause would make the commencements of sections 109 to 111 dependent on the Secretary of State publishing a report that would allow Members of Parliament to assess the economic case for freeports, and on both Houses agreeing that report.
New clause 25—Review of freeports—
“(1) The Chancellor of the Exchequer must review the impact of sections 109 to 111 and schedules 21 and 22 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act and once a year thereafter.
(2) A review under this section must estimate the expected impact of sections 109 to 111 and schedules 21 and 22 on—
(a) job creation within the sites designated as freeports and across the UK as a whole,
(b) revenue from corporation tax and stamp duty land tax within the sites designated as freeports and across the UK as a whole,
(c) levels of artificial tax avoidance and tax evasion across the UK as a whole,
(d) levels of criminal activity,
(e) the necessary level of staffing for HMRC and the UK Border Force, and
(f) departmental spending by HMRC and other departments on enforcement.”
This new clause would require the Government to review the impact of the provisions of the Act introducing freeports and publish regular reports setting out the findings.
Ben Lake
It is a pleasure to have the privilege of opening the debate on this clause. I rise to speak in support of amendment 54 in my name, which would require the Treasury to have received consent from the devolved Parliaments before it could designate freeport tax sites as outlined in clause 109.
Although the amendment will not be pushed to a vote, the very need for an amendment requiring democratic safeguards and devolved consent is sadly indicative of the Government’s disregard for devolution and the interests, rights and ambitions of the devolved nations. It is jarring that today’s debate, and its pursuit of powers, paid for by taxpayers across the UK, is happening despite the Government’s failure to achieve consensus across all four nations of the UK.
That unilateralism by the Government is not only disappointing but, I would argue, economically self-defeating, as the overwhelming body of evidence, some of which has been gathered by Committees of this place, including the Welsh Affairs Committee, of which I am a member, suggests that freeports will lead to the redistribution of jobs and investment, rather than their creation across the UK, unless the policy is very closely and carefully co-ordinated.
Jim Shannon
The hon. Gentleman is absolutely right: one of the prerequisites of the opportunity for freeports is to ensure that every part and every region of the United Kingdom of Great Britain and Northern Ireland benefits. Although every hon. Member is right to claim it for themselves, it is important that we all benefit. Does he agree?
Ben Lake
I agree with the point that the hon. Member makes. If the freeport policy is to have real benefit and ring true to the rhetoric of levelling up every single nation and region of the United Kingdom, it is clear that no port—or no nation or region—should be disadvantaged by the location of any other. In effect, we cannot have a situation whereby the Government are asking for Welsh, Scottish or Northern Irish taxpayers, along with English taxpayers, to pay for freeports in certain parts of England that may actively disadvantage those in Wales, Scotland or Northern Ireland. If they did, it would appear that the Prime Minister and his Chancellor would be willing to trample over the devolution settlements in pursuit of this freeport master plan.
The Wales Act 2017 largely devolved the regulation and supervision of ports and harbours in Wales to the Welsh Government, while economic development is also of course a devolved competence. UK Government demands, such as capping the number of Welsh freeports to one—an outcome that would likely lead to an overall reduction in the number of Welsh ports—are direct infringements on the Welsh Government’s responsibility for the Welsh economy.
It is therefore especially dangerous that Wales cannot count, it would seem, on its Secretary of State to defend its interests at the Cabinet table. Instead, rather than side with Wales’s democratic institutions, the Secretary of State for Wales has threatened that a freeport will be implemented in Wales come what may, including if Wales’s Parliament were to reject such a measure.
I am conscious that there are others who wish to make perorations on this topic this evening, so I will draw my remarks to a close. I look forward to summing up at the end. Although I will not press the amendment to a vote this evening, I hope that the Minister will consider my remarks and ensure that freeports are established with the consent of all four nations and supported by an engaged public debate. Refusal to do so would be a tacit admission that this Government will not hesitate to trample over Wales’s economic interests and aspirations if they run contrary to the plans drawn up in London.
Jesse Norman
I rise to speak in support of clauses 109 to 111, schedules 21 and 22 and amendments 43 to 52.
The clauses will act in support of the Government’s freeports programme, which is designed to unlock investment in eight regions of England so far, with more to follow in the devolved Administrations. At Budget, following an open and transparent bidding process, the Chancellor announced the locations successful in securing freeport status: East Midlands airport, Felixstowe and Harwich, Humber, Liverpool city region, Plymouth and South Devon, Solent, Teesside, and Thames.
Freeports will be national hubs for international trade, innovation and commerce, regenerating communities across the UK by attracting new businesses and spreading jobs, investment and opportunity. They will bring together ports, local authorities, businesses and other key local stakeholders to achieve a common goal of shared prosperity and opportunity for their regions. In doing so, they will help in the Government’s ambition—indeed, all of our ambition—to level up areas that have been left behind.
The Government’s freeports model enables the UK to take advantage of the benefits of leaving the European Union. The Government have drawn on examples of successful freeport programmes all over the world to develop freeports that will attract significant new investment and encourage development across the UK. The model will enable businesses in freeports to draw on benefits relating to customs, planning, regeneration and innovation, as well as the offer of targeted tax reliefs supported by the clauses in the Bill.
The Government have engaged extensively with ports, local authorities and industry, including through a consultation on the wider programme running between 10 February and 13 July 2020. We have also listened to feedback from a wide range of stakeholders to inform the development of an effective model that will benefit port areas across the UK.
For the reasons already outlined in the earlier debates, I will confine my remarks to the key points at issue. Clauses 109 to 111 give the Government the power to designate tax sites and, once sites have been designated, to provide relief within those sites for the acquisition of commercial purpose property and new plant and machinery assets, as well as relief on the construction or renovation of buildings.
Sammy Wilson
So far, no freeport has been designated in Northern Ireland, but one of the great fears is that because Northern Ireland remains within the single market rules of the EU, any such measures to set up a freeport could be contested by the EU and the Irish Government because they might give Belfast an advantage over Dublin, for example. How will that issue be resolved, given the terms of the Northern Ireland protocol?
Jesse Norman
The right hon. Gentlemen raised a very similar question with me on Second Reading and, as he knows, the Government are engaging very closely with the Northern Ireland Executive. I am not in a position to second-guess what the EU may or may not do in that regard, but we have been very clear that we want to put a freeport in Northern Ireland and we want it to be a strong offer comparable to the freeports available elsewhere in the United Kingdom. That is what we will be seeking to achieve.
Sir Bernard Jenkin (Harwich and North Essex) (Con)
In passing, I thank the Government for designating Freeport East, which includes Harwich in my constituency, as one of the freeports. I am struggling to find how the tax concessions in this Bill avail us of the new freedoms outside the European Union. Will my right hon. Friend identify how the freedoms in this Bill are in contention with the EU state aid rules on tax subsidies? Of course, that would not apply in Northern Ireland, where the EU state aid rules still apply. The Government might as well be completely honest about this: if there are advantages for England of being outside the EU that we do not have because Northern Ireland is still effectively inside the EU, let us hear about them, because we want to know that we have those advantages in England.
Jesse Norman
I think my hon. Friend has erred in his logic. It is perfectly possible for us to benefit from the flexibility of setting taxes, as we are, while being able to have a strong agreed offer that satisfies whatever rules may apply in Northern Ireland with the Northern Ireland Executive. They will be of different characters, but there is no reason to think that neither is possible.
Clauses 109 to 111 give the Government the power to designate tax sites and, once sites have been designated, to provide relief within them for the acquisition of commercial purpose property and new plant and machinery assets, as well as relief on the construction or renovation of buildings. These powers will enable the Government to move quickly to enable businesses to begin accessing the benefits of freeports as soon as is feasible.
The Government are committed to tackling non-compliance in the tax system, and freeports are not an exception to that. Anti-avoidance and evasion provisions are included in the Bill, and will be taken across further legislation for the individual tax reliefs. In addition, the Government will take further powers to create a robust system of monitoring in freeports and enable HMRC to request relevant information from businesses. This will ensure that public money is being used effectively in pursuit of the regeneration and development of freeport locations.
Clause 109 will enable the Government to designate the location of tax sites connected to any freeport in Great Britain. The tax reliefs made available as part of the Government’s freeports programme will apply only in these sites, and the Government intend to bring forward legislation to apply these reliefs in Northern Ireland at a later date.
Bidders submitted initial proposals for their tax sites during the bidding process. The Government allowed up to 600 hectares of tax site space to be proposed, across a maximum of three separate sites per freeport. Tax site proposals were also judged against a set of criteria relating to existing deprivation and unemployment, to ensure tax measures will have maximum impact in regenerating those areas. The Government will now work with the successful locations to approve their tax site proposals. Once the successful bids have completed the full tax site assessment process, the Government will designate the agreed areas as tax sites. From that point forwards, businesses will be able to claim and benefit from the tax reliefs.
Sir Bernard Jenkin
I am most grateful to my right hon. Friend; he is being very generous, though whenever I am tackled on a point of logic by a professor of philosophy, I wonder what is going on. But my question is quite an innocent one in this case. In Harwich, there are some businesses very near the tax sites which have been affected by Brexit and would benefit greatly from being included in the tax site. To what extent are the boundaries still adjustable, and is there an issue of principle regarding included businesses that could expand much more effectively? I am thinking of the particular example of a petrochemicals processing business, which exports substantially and would benefit very greatly by being in the tax site. It would generate many more jobs and much more wealth for the United Kingdom.
Jesse Norman
Of course, the circumstances for each individual freeport site will be, and I am sure are, very different. I cannot comment on the site my hon. Friend describes, but in general the emphasis of the legislation is very much on new investment and new development, rather than on existing or dead-weight investment. It may well be the case that there are businesses that would propose to make substantial new investments and, depending on the freeport in question, it may be possible for them to qualify for some of the benefits associated with that, but, again, it is not possible for me to comment on individual cases.
Clause 110 and schedule 21 will allow businesses in freeport tax sites in Great Britain to benefit from two new capital allowances: enhanced capital allowances and an enhanced structures and buildings allowance.
On clause 111 and schedule 22, the clause makes changes to provide for a new relief from stamp duty land tax for acquisitions of land and buildings situated in freeport tax sites in England that are used for qualifying commercial purposes. Relief will be available for purchases made from the date a freeport tax site is formally designated until 30 September 2026.
Amendments 43 to 52 amend the provisions introduced by clause 111 and schedule 22 to provide certainty that property investors using sharia-compliant alternative finance are able to benefit from stamp duty land tax relief in the same way as investors using conventional finance. That will be done by taxing the alternative finance intermediary’s acquisition as though it were an acquisition by the investor. The amendments ensure that the tax payable by someone using alternative finance is the same as that which would be payable were the property purchased using a conventional financial product.
Opposition Members have tabled two new clauses relating to clauses 109 to 111. Among other things, they would place additional eligibility criteria in respect of employment rights, equalities and the environment on the claiming of capital allowances and stamp duty land tax relief in freeports. It is important to say that freeports will deliver tangible benefits that will help to level up areas. By imposing those additional criteria, the new clauses would potentially delay the implementation of these measures by making freeports more complicated for businesses to navigate, and therefore reducing their impact and effectiveness. In any case, the Government have a very strong commitment to reducing carbon emissions, which is why this country was the first major economy to implement a legally binding net zero greenhouse gas emissions target by 2050. The Government will continue to ensure that the role of tax is considered alongside other policy measures needed to meet environmental goals.
As I have already indicated, freeports will also have an important role in reducing regional disparities. The rigorous assessment of bids that has been undertaken has ensured that tax benefits are available only in areas that require regeneration and would benefit from being a tax site, helping the Government to level up those that have been left behind.
New clauses 5 and 25 as tabled would have the following effect. New clause 5 would make the commencements of clauses 109 to 111 dependent on the Secretary of State publishing a report that would allow Members to assess the economic case for freeports, and on both Houses agreeing that report. New clause 25 contains a similar request for a review of the impact of clauses 109 to 111 and schedules 21 and 22, and for a report of that review to be laid before the House within six months of the passing of this Bill and once a year thereafter. A robust and transparent bid assessment process, using the criteria set out in the bidding prospectus, ensured that the eight English freeports so far granted all demonstrated a good or better economic case, including a strong economic rationale for their proposed tax site locations.
In the interest of transparency and accountability, the Government have also published a decision-making note that clearly sets out how sustainable economic growth and regeneration were prioritised in this process of assessment. The Government will publish costings of the freeports programme at the next fiscal event, in line with conventional practice. Imposing an additional economic incentive on top of what has been outlined would only risk delaying the delivery of the programme and therefore the associated benefits of the increased investment and employment.
Amendment 54 would make the commencement of a freeport tax site in any UK nation subject to approval by the three devolved Administrations. The hon. Member for Ceredigion (Ben Lake) has already introduced that. Let me say to him that tax is first and foremost a reserved matter unless it is specifically devolved. The UK Government have the power to set tax sites that offer reserved tax reliefs across the UK, and Ministers for the devolved Administrations have the power to set devolved tax reliefs. Devolved Ministers will be accountable to their Parliaments for the use of tax instruments under their control in a freeport tax site within their nation under the proposed plans.
The Government are determined to establish freeports across the UK, not just in England. That is why we are committed to continuing discussions with the Administrations in Scotland and Wales, when their new Governments have been established, and with the Northern Ireland Executive. The Government intend to have a freeport in each nation, and are determined to deliver that as soon as practicable. They will be national hubs for trade, innovation and commerce, regenerating communities across the country. They can attract new businesses and spread jobs, investment and opportunity to towns and cities up and down the UK, which will boost international trade and economic growth.
Sir Bernard Jenkin
I am most grateful. Well, it is the Committee stage of a Bill. The hon. Member for Ceredigion (Ben Lake) raised an issue that I had not considered before, which is that the provision of a freeport in a devolved nation might actually reduce the revenue being collected by that devolved Government. Has my right hon. Friend given consideration to that? I cannot see how that would actually happen, but will he give an assurance that there is a means of addressing that if it were to occur?
Jesse Norman
As far as I am aware, this is a very remote contingency and I see no evidence to suggest that it might be the case in the context that has been described, but I can certainly tell my hon. Friend that, when the Government engage with the Welsh Government, we will be sensitive and open to discussion of the potential economic effects of a freeport in Wales, as one might expect.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
It is a pleasure to speak for the Opposition on the clauses relating to freeports. I will speak to new clause 25 in my name and the names of my hon. and right hon. Friends. Before I turn to the detail of our new clauses in this group, I would like to say a little about Labour’s position on freeports and regional economic policy more generally.
Labour wants to see good new jobs created in every region and nation of the United Kingdom. We want to see genuine levelling up that hands power and opportunity to areas that have been deprived of them for too long. We want an economic policy that addresses the fundamental challenges facing our country and our constituents: ever widening regional inequality, low productivity and low wages in too many places; a social care crisis that threatens the dignity of older people; and an environmental crisis that threatens us all.
I am afraid that the Government’s approach to levelling up has been far less ambitious. We have seen regions and areas pitted against each other to bid for pots of money, only to find that Conservative Ministers overruled officials and handed funding to already wealthy areas. We have seen nothing to make up for the 11 years of a Conservative Government who have sucked funding and opportunities out of areas that they now say need levelling up. We have seen a total lack of ambition from the Government on supporting a recovery from the coronavirus crisis to build a stronger and more resilient economy. That brings me to freeports and the clauses that we are considering today.
I think we were all a little underwhelmed when the rabbit pulled from the hat at the end of the Chancellor’s Budget speech last month was the reannouncement of his freeports policy. The Opposition simply do not believe that freeports are the silver bullet for our post-Brexit economy that the Chancellor clearly hopes they are. In fact, the evidence is that freeports are likely to have relatively little impact on overall job creation and are far more likely to move jobs from one place to another. We want every area to flourish, whether or not they have a freeport. We know that Ministers are aware of this problem because they asked potential freeports operators to address it in their bids. Our new clause 25 would require the Government to produce an annual review of the impact of the freeports policy on job creation in freeport sites and across the country as a whole.
Jesse Norman
I would be grateful if the hon. Lady could tell us whether the Labour party’s position is to support freeports or not to support freeports.
Abena Oppong-Asare
I thank the Minister. I will approach that later in my speech, so I thank him for already guessing what I was going to say.
We really need some honesty and transparency from the Government on this. The estimates of the job creation benefits of freeports made by their advocates so far have been flimsy to say the least. We also need a proper assessment of the risk of job displacement. If freeports simply move existing economic activity around, they risk doing harm to the economic fortunes of neighbouring areas, with no net benefit to the country as a whole. Indeed, a 2019 report by the UK Trade Policy Observatory found that the main effect of freeports was to divert businesses into a port from a surrounding area, rather than creating new jobs, so it is not just Labour saying this; it is the experts saying it too. That may be especially problematic in areas where freeports are situated near a local authority, or regional or even national borders.
Our new clause would require the Government to report on tax avoidance and evasion and criminal activity in freeports and to set out the level of additional staffing and resources required by HMRC and other Government bodies. There are long-standing concerns that freeports allow or encourage tax avoidance and evasion, and there is international evidence that freeports have been used for criminal activity. For example, the OECD has stated that there is
“clear evidence that free trade zones are being used by criminals to traffic fake goods”.
The Financial Action Task Force has said that the lack of scrutiny can facilitate trade-based money laundering through relaxed oversight and a lack of transparency. The TUC and others have warned of the dangers to workers’ rights from deregulation in freeports. We need to take these concerns seriously. As a minimum, the Government should commit to trade union representation in the governance of freeports at local and national levels.
I will now make a few points about the clauses we are considering. First, on the cost of the tax reliefs being introduced, the Government have provided some information on the expected operational costs of HMRC but, as recently as last month, they were unable to estimate the reduced revenue that the Exchequer will receive as a result of these reliefs. I hope the Minister can address that. Clause 110 includes the enhanced capital allowance for plant and machinery spending at 100%, but that is less generous than the 130% super deduction. Presumably, for the period that they overlap, companies will need to consider whether they can claim the super deduction rather than this allowance.
The Chartered Institute of Taxation has raised a number of concerns about the operation of the stamp duty relief in clause 111. One issue is how exactly freeport tax sites will be designated and whether particular buildings can be identified as either in or out the boundary of the tax site. Can the Minister provide some clarity on joint ventures where there is both commercial and residential development? The Chartered Institute of Taxation points out that the clause, as currently drafted, excludes a common commercial arrangement from that relief. Finally, there is the issue of withdrawal of relief for subsequent non-qualifying activity. A small amount of non-qualifying use can potentially lead to withdrawal of all the relief. Is the Minister concerned that the risk of loss of the full relief in such circumstances could discourage investment?
To conclude, the Opposition have real concerns about the Government’s freeports policy. If it is going to succeed and bring the sorts of benefit that those on the Government Benches claim, we need to see more detail on the operation of freeports and how the Government plan to mitigate the risks. We need regular monitoring of the effectiveness and the impact on the country as a whole over the years to come, which is exactly what new clause 25 would require the Government to do. If the Government are confident in their policy, they should be confident in allowing scrutiny of how it works in practice. I call on them to support our new clause.
Richard Thomson
I would like to add my support for the Opposition amendments and to seek a commitment from the Government, while the Minister is here, to allow the Scottish Government after the Scottish elections to move ahead with their greenports adaptation of the freeports concept. Freeports do not require Brexit in order to be brought about, and legitimate questions remain about how much additional economic activity they will actually generate, rather than simply displace from other areas of the economy.
Sir Bernard Jenkin
I am most grateful to the hon. Gentleman for allowing me to intervene. There was a freeport in Shannon in the Republic of Ireland before the Republic of Ireland joined the European Economic Community. The tax freedoms that it was granting at the Shannon freeport were significantly curtailed as a result of joining the EEC, because the EEC prevented it from providing those freedoms. That is why we are discussing the question as to whether or not we are using the new freedoms we have, but the fact is we have much more tax freedom outside the EU for freeports than we had when we were in the EU, and hopefully Scotland will benefit from that.
Richard Thomson
I thank the hon. Gentleman for that intervention, but I think my point still stands. No matter what the spirit of truth might be in his remarks about how constraints were placed on the Shannon free zone, there are freeports in the European Union. Freeports are not something that intrinsically require Brexit of itself in order to be able to be pursued. But certainly I hope there are benefits for Scotland from this. I think those benefits can be manifested best perhaps through the greenports approach, which I would like to expand upon.
As I say, the Scottish Government have developed their own version, the greenports, which seeks to embrace all the potential benefits that could come through freeports, while aligning that with ensuring the principles of fair work are enshrined, ensuring that workers within the greenports are paid a real living wage and that the reduction of carbon emissions is embedded at the heart of those developments. A re-elected Scottish National party Government will seek to implement those greenports, making public sector support contingent on businesses complying with that fair work first agenda, paying that real living wage and implementing the Scottish business pledge: our values-led partnership between Government and business based on boosting productivity competitiveness through fairness, equality and sustainable employment, and on delivering on concrete plans to reduce carbon emissions in line with supporting the Scottish Government’s ambition to reach net zero by 2045.
The Scottish Government proposals for these economic development zones already have widespread buy-in from stakeholders, who are desperate to start bidding to run the greenports. It was heartening to hear from the Minister his commitment to seeing freeports in all parts of the UK. Nevertheless, if the people of Scotland choose to re-elect a Scottish National party Government, the Government need to accept the mandate that comes from that and, if there has been an element of heel dragging, to hasten the process of coming to an agreement on the rules around these proposed greenports so that the bidding can begin immediately.
Having taken positive steps to end the race to the bottom on corporate taxation, as we heard in an earlier debate, I think it is important that the UK Government do not allow those who take advantage of freeport status to neglect or otherwise elude their obligations to the workforce, to the environment and to the building of long-term, sustainable value in the regions where they are located and the wider economy.
In the year that the world is coming to Scotland to plan our future at the COP summit, I think it is absolutely fitting that we should be able to develop greenports to demonstrate our ambitions on sustainable, inclusive economic growth as we transition to a net zero economy. A fair, sustainable greenport model can be an exemplar of those values, while adding value to Scottish goods, services and the country’s brand. The UK Government, once the Scottish elections are over, need to get on board with this and back the innovative approach of the Scottish Government model so that we can get the bidding process under way.
Ruth Edwards (Rushcliffe) (Con) [V]
The east midlands is one of the regions that was fortunate to benefit from a new freeport in this Budget. Spread across three sites in Leicestershire, Derbyshire and my own constituency of Rushcliffe, we hope to establish a green technology park on the site of one of the UK’s last coal-fired power stations, at Ratcliffe-on-Soar.
Hearing contributions from the Labour party in recent weeks, and from the shadow Minister just now, we would be forgiven for thinking that, with the arrival of a freeport, Rushcliffe will become some sort of wild west, with disputes over stolen art, organised crime activity and tax avoidance settled with a shoot-out in the drinking establishments of Ratcliffe-on-Soar. Quite a picture, but one that ignores the extensive steps the Government have taken to prevent illicit activity, such as background checks for businesses that want to locate in a freeport, including their beneficial owners, and a register of businesses operating in each freeport site, to which HMRC, the National Crime Agency and Border Force will all have access. Successful freeport bids also had to demonstrate their approach to inventory systems, physical security, personnel security, cyber-threats and international regulations.
John McDonnell [V]
New clause 4 stands in my name and those of several right hon. and hon. Members. As I said in the debate on the provisions for super deductions, if the Government are giving tax breaks to businesses, then the Government, as guardians of the public interest, should demand something in return. The provisions in new clause 4, listed as (a) to (d), are modest demands that many Members, especially those on the Opposition Benches, think should be required of all businesses anyway. It is important that public money supports public goods and good public outcomes, like a fair day’s pay for a fair day’s work, like tackling climate change, in which we all—individuals, Government and businesses—must play a role, and like eradicating the gender pay gap, a process this House began over 50 years ago with Barbara Castle’s groundbreaking Equal Pay Act 1970.
The Minister referred to those as “complications”. I do not believe that paying decent wages, tackling climate change or overcoming the gender pay gap are complications. I believe they are essential criteria for any policy for the future. If we are to tackle rising poverty—if the Government want to do that—there is an opportunity here to end in-work poverty by guaranteeing the real living wage in companies locating to freeports. We have 4.3 million children in poverty, and most are living in households where at least one parent is in work. Government policy must act to tackle low pay.
Low pay holds people back and is often linked to insecure work, which is why the Government should also act to end zero-hours contracts. Insecure and low-paid work means insecure housing and instability for children. The Government should put down a marker in this policy for the society we want to be. As things stand, from what we have heard in the debate so far, it is a society for a few to profit and the rest to struggle. This new clause is about hardwiring fairness and justice into our economic system, and about levelling up. It should not be in conflict with any stated aim of the Government, and I hope that they accept the new clause or at least consider the issues about how we tackle this range of policies and use the state to enable that to happen.
New clause 5 also stands in my name. In its analysis of the Chancellor’s Budget, the Office for Budget Responsibility said of freeports:
“Further details have been announced in the Budget but came too late to be incorporated into our forecast. We will return to this in our next”
economic and fiscal outlook. So this is policymaking as a leap in the dark. It is not evidence-based, but done on the basis of supposition and, largely, ideology, given what we have heard so far. What I seek to do in new clause 5 is create an evidence base for policy, on which this House can assess the merits and drawbacks of such a policy. There are reasons to be concerned. Many Members of this House will recall the debates about enterprise zones in the 1980s. Those zones did little to benefit local workers and simply transferred jobs and investment, rather than stimulating it. In an assessment of the enterprise zone policies of the 1980s, the Centre for Cities think tank found:
“The first two rounds…created 58,000 additional jobs (directly and indirectly), but over 40 per cent of those jobs were created by businesses that had relocated to enjoy the tax cuts”.
It also found that each job
“cost the public purse £26,000 (in 2010-11 prices), which was significantly more expensive than other policies”
for job creation that we were being pursued at that time. The same policy was brought back under the Government of David Cameron, championed by the then Chancellor George Osborne. Analysis of those zones by the Centre for Cities showed the jobs supposedly “created” in these zones were often just relocated from elsewhere. Unfortunately, the evidence showed that they were also overwhelmingly low-skilled and low-paid. Tax breaks in underinvested areas are not an industrial strategy. New clause 5 is a simple plea for evidence-based policy making, and one I hope the Government will accommodate in their future discussions.
I hope the Government will also accept new clause 25 in the name of the Opposition Front-Bench team, because it too demonstrates that evidence-based policy requires policies to be reviewed, and that the evidence base has to be assessed throughout implementation of any particular policy. The case for freeports has not been made and the risks are significant. There are risks of accelerating tax avoidance, and actually doing economic damage to areas neighbouring freeports is a real concern. To leap into a policy with such a lack of evidence and of account taking of past practice is worrying, to say the least.
This is the last time I will speak at this stage of the passage of the Bill, so I would like to place on record that, after listening to the debates on Second Reading and today, even I am shocked at the undeniable evidence of the scale of corporate capture of this Government, going well beyond anything we have seen under the last two Tory Prime Ministers. The central purpose of this Government, on the basis of these policies—both the super deduction and holding back the corporation tax increase, as well as the freeports—appears to be simply to line the pockets of corporations with taxpayers’ money and to render them free of any effective regulation that would make them accountable to a wider community. I therefore honestly and fervently fear for the future of this country in the hands of this Government.
Jane Hunt (Loughborough) (Con)
I rise to speak in favour of the Bill.
Freeports will play an important role in the Government’s levelling-up agenda, bringing much needed opportunities for economic growth and social mobility to areas that have historically seen low levels of investment and less opportunity. That is why, over the past year, I and my fellow east midlands MPs from both sides of the House have worked hard, alongside our local enterprise partnerships, businesses, local authorities and educational establishments for the east midlands, to become a freeport site. I was delighted by the announcement at the Budget that East Midlands airport will be one of eight ambitious new sites across the UK. This decision will ensure that the east midlands cements itself as a hothouse for innovation and becomes a dynamic environment for innovators, businesses and regulators to generate and test new ideas and technologies.
Crucially, the freeports will be vital to the development and expansion of local businesses that are the driving force of the east midlands economy, and of the green agenda for the nation. The east midlands, being part of the midlands engine, is also the heartland of the UK’s manufacturing sector, and the freeport will help to transform this manufacturing base through new technologies, creating a whole new industrial sector locally. The extended supply chain across the country will also fully benefit from this through products and services being fed into the business base at the freeport. The impact of this decision will not only be seen in the basic mechanics of what a freeport does to act as a customs hub for imports and exports; it will also create a highly skilled ecosystem, becoming a magnet for inward investment and business expansion, and acting as a springboard for opportunity throughout the region, creating an estimated 60,000 new skilled jobs. As such, new businesses will be attracted to Loughborough and its surrounding towns, seeking to reap the benefits of being situated close to a freeport. Indeed, interest has already been expressed by several organisations in taking advantage of the benefits a freeport would bring, either by moving to the area or expanding locally.
Loughborough is already home to a flourishing life sciences sector. We have the education powerhouses of Loughborough College with its new T-level centre and thriving apprenticeship scheme, as well as Loughborough University with its degree and above level skills that support business start-up and expansion, often through research and subsequent development of spin-off businesses. We have the physical infrastructure required for incoming businesses at Loughborough University’s science and enterprise park and Charnwood campus, and the educational expertise required to provide both a skilled local workforce ready to take up the new employment opportunities created by the freeport and the research base to drive innovation.
This is about jobs and livelihoods. It is not a reaction to covid. Freeports were in our manifesto, and I fully support the idea.
Sarah Olney [V]
I wish to speak to clauses 109 to 111 relating to the powers to designate sites as freeports and associated provisions.
This has been a turbulent year for the UK economy, with the expected disruption of Brexit and the unexpected and unprecedented impact of the coronavirus pandemic. Now that we can, hopefully, look forward to the end of the pandemic and its associated lockdowns, it is time for the Government to put forward their bold and radical plans for kickstarting the UK economy to enable growth and skilled employment in all corners of the country.
The Government have had plenty of time to think about how they plan to deliver the benefits of Brexit that we have all been promised. I expected the Chancellor to jump at the chance to realise those benefits through the Budget and this Bill—and he has delivered freeports. This is it: the big idea, the bold move, the economic leap forward that our freedom from EU shackles has finally granted us. Except, of course, we have always had the freedom to initiate freeports in this country. We last had them in 2012. The reason we have not had them since is that their economic impact has previously proved to be negligible.
Research into freeports in other countries has shown that they do little to boost exports as opposed to imports, and there is very little evidence that they create new economic activity as opposed to redirecting existing economic activity from elsewhere. This risks trappings thousands of workers in insecure work with reduced rights, in areas with reducing opportunities for alternative employment. Any increased economic performance arising from freeports is therefore unlikely to trickle down to higher living standards in local households and communities.
What is the plan for economic growth in areas of the UK that are not lucky enough to have been awarded a freeport? The Budget and this Bill are silent on that matter. Elsewhere, the Government have scrapped their industrial strategy, replacing it with a glossy brochure full of photographs but very little content. More seriously, there has been no real attempt to quantify the impact of leaving the EU on UK business and trade, and what that might mean for our economy as a whole.
We have already seen a big short-term impact on the level of trade across the channel. It will take a while for the full picture to emerge, clouded as it is at the moment by the pandemic and the unwinding of pre-Brexit stockpiles, but there is no doubt that the increased paperwork is an expensive burden on our small businesses—and that is before import controls are introduced and the impact of the scrapping of mutual recognition of professional qualifications has been fully realised.
The UK economy has a difficult road ahead, and nothing in the Budget or this Bill demonstrates that the Government have a plan to lead us to new sources of productivity or prosperity. The Liberal Democrats are not opposed in principle to freeports, but they are not a sufficient solution to the current challenges of our economy. They fall a long way short of what is required to compensate for our leaving the EU and to restart our economy in the wake of the pandemic. Thank you, Madam Chair.
Sir Bernard Jenkin
I am very pleased, Dame Eleanor—if I may address you correctly—to make common cause with the hon. Member for Richmond Park (Sarah Olney) at the outset. We can agree that freeports are necessary but not sufficient to deal with regional disparities and levelling up.
I am none the wiser from the contribution by the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) whether the Labour party is in favour of freeports or against them. I would just point out to her that I spent a certain amount of my period in opposition, which was a miserable 13 years, as shadow Secretary of State for the regions, and though the Labour party was elected in 1997 with a very sincere determination to reduce economic disparities between London and the other regions of England and the other parts of the United Kingdom, it failed, and those disparities got wider.
This is a very difficult thing to address, and the answer is that we should use every tool in the box. We should use every tool we possibly can. It is also perfectly clear that all the tools are not available if a country stays in the European Union. Some of the tools were taken away from the Republic of Ireland at its Shannon freeport when it joined the European Economic Community, and it got worse; the notion that tax advantages or tax incentives were artificial tax subsidies was extended.
Of course, we want to see other tax advantages extended to other parts of the United Kingdom, such as differential rates of corporation tax, which we have extended to Northern Ireland, but only with the permission of the European Union to treat Ireland as a separate entity—which has a double edge to it that we perhaps do not want to pursue. We should be able to do that on a sovereign basis and to bring Ireland into the sovereignty of the rest of the United Kingdom in the longer term.
I wish to emphasise that the freeport east was very much driven by the need for levelling up. I see my hon. Friend the Member for Thurrock (Jackie Doyle-Price) nodding in sympathy, because she shares this problem. The perception is, “Oh, you’re in the rich south-east. You don’t need any help. It all needs to be directed to other parts of the United Kingdom.” Well, I can tell the House that I have red wall voters in my own constituency. Places like Clacton, Jaywick and Harwich are hard bitten by economic decline. Average weekly earnings in Tendring district, which is Clacton and Harwich, are £556, compared with a GB average of £587, and incidentally below the rate in Liverpool, which is historically regarded as deprived. We have a project that could generate, we hope, 13,500 jobs. The hon. Member for Richmond Park and others are right: we have to make sure that the minimum is substitution and the maximum is additionality. That is the challenge of making sure this works.
I will concentrate on what is in the Bill. I very much welcome the tax provisions in clauses 109 to 111, but there are bits missing from the Government’s additional proposals. Not mentioned in the Bill are the enhanced structures and buildings allowances, or the lower national insurance contributions, or the business rate reliefs proposed in freeport sites, or the local retention of business rates, so I remain concerned that we are offering only what is allowed under EU state aid rules. I will be grateful if the Minister, when he replies to the debate, addresses those points and says how those other tax reliefs will be provided.
It is worth mentioning that the Shannon freeport zone was regarded as such a success that it was imitated and adopted by China, which now has a freeport zone programme that it regards as an important enhancement of its economic competitiveness. I ask those who are cynical about freeports to open their minds, to look at the successful freeports and free trade zones around the world, and to learn from them, as well as listening to what one might call the “economic statics”—the people who think everything is about substitution and nothing is about releasing additional creativity.
I take seriously the points raised by the hon. Member for Erith and Thamesmead about compliance with the necessary conventions, such as authorised economic operator certification, World Free Zones Organisation safe zones rules and the OECD code of conduct for clean free trade zones. Those are all important, but let us recognise that, unless we avail ourselves of all the freedoms available to freeports, they will not deliver the benefits we want. I am reminded that when he was a Back-Bench Member of Parliament, the current Chancellor produced a very interesting report, “The Free Ports Opportunity”, which was published by the Centre for Policy Studies, price £10, which was rather more radical than the Treasury’s current offering. Some of us are a little worried that we will not see that enthusiasm and radicalism. Let us go step by step, let us work incrementally —that is not a criticism, but this is something to build on for the future.
Let us also recognise that the real benefit of freeports is not the tax incentives, but the customs facilitation. We must have really modern electronic customs systems to make the customs advantages of being in what is called a customs inversion zone real. Otherwise, it becomes a bureaucratic nightmare and we will not get the advantages we should get from it. Also, if it is a bureaucratic nightmare, it is the less savoury elements who benefit, not the legitimate businesses.
That is the challenge. We have a great opportunity, for which I really thank the Government in respect of my constituency and others. Incidentally, I think the freeports around the United Kingdom—this is a United Kingdom policy—should be working together. I wonder whether the MPs who represent the freeports that have been designated should get together, stop this mutual suspicion—which is understandable, as we have been competing for designation—and start working together to press the Government for the positive changes that will benefit all our freeports in the future.
Rebecca Long Bailey [V]
I will limit my brief comments to freeports. Detailed Government assessments on the operation and impact of freeports are sadly not yet available. As we have heard tonight, the OBR has stated that the announcements made in the Budget came too late to be incorporated into its forecast. If the Government recognise this, they must understand that they have a duty to provide such evidence and legislative reassurance in response to legitimate and wide-ranging concerns on the operation and impact of freeports.
There are concerns that, rather than complementing a local economy by stimulating the growth of new business, existing businesses may simply opt to relocate to freeports. Certainly, the Government have not made it clear how they will mitigate against the significant geographic movement of jobs away from one area and into a freeport—how they will avoid a wild-west scenario of pitting regions against each other, nor the prospect of lost revenue for local authorities from business rates, for example, if businesses opt to relocate to such a zone.
The job creation numbers are equally sketchy. The Chancellor argued back in 2016 that if the UK’s approach performs as well as that in the USA, freeports would create more than 86,000 jobs, but as the Centre for Progressive Policy found, this figure was a cut-and-paste job, being simply the number of people employed in the US free zones adjusted for the relative size of the UK population. There was no data on the labour market impact on specific regional economies or industries, nor any mention of the need for bespoke local skill strategies to feed into this.
On workers’ rights, the TUC has repeatedly warned about the gradual erosion of workers’ protections in these zones. It stated:
“Free ports are a Trojan Horse to water down employment protections”—
in a “race to the bottom”.
Finally, as we have heard tonight, there are real concerns that freeports could create a bonanza for money launderers and tax evaders. Indeed, the EU reported in 2018 that freeports were
“conducive to secrecy. With their preferential treatment, they resemble offshore financial centres, offering both high security and discretion and allowing transactions to be made without attracting the attention of regulators or direct tax authorities.”
The Government must address these concerns before pressing ahead. To that end, new clauses 5 and 25 would allow the Government to create an evidence base for freeports, which the House can then examine, and new clause 4 would impose standards and protections. If the Government are serious about addressing these concerns and building in clear legal protections, they will support these new clauses tonight.
Jackie Doyle-Price (Thurrock) (Con)
I commend the Government on the ambitious agenda running through this Finance Bill. It needs to be ambitious because the last year has been a very painful one for us economically. We must do everything we can to foster renewed growth, renewed job creation and, indeed, renewed wealth creation.
I have listened to the speeches from Labour Members. They raise some important things, but if I seriously believed that this freeport policy was going to undermine workers’ rights and lead to massive non-compliance with health and safety and tax legislation, I would not support it. I am supporting it because I have real ambition for my local community and my area, and I am very proud and pleased that the Thames freeport has been chosen as one of the eight. I assure the House that this is going to be the transformation of Thurrock after a very long time.
My hon. Friend the Member for Harwich and North Essex (Sir Bernard Jenkin) referred to the fact that people often see levelling up in terms of north versus south and we have heard that a lot, but nothing could be further from the truth; in fact some of the most deprived areas in our nation are our coastal communities, so it is absolutely right that freeports should be one of the headline levelling-up policies.
Ben Bradley (Mansfield) (Con) [V]
I wish to speak in support of the new clauses and amendments listed earlier by the Minister and in support of the plans to deliver freeports, and the benefits they can bring, across the United Kingdom. This Finance Bill is vital for our recovery plans in the coming months and years. Freeports are intended to be national hubs for global trade and investment across the UK, and to promote regeneration and job creation as part of our levelling-up agenda. Post-Brexit Britain stands to benefit hugely from being able to compete more effectively in a global market and to offer UK-based businesses the chance to take full advantage of new trading opportunities, to expand and to innovate within the UK.
As a Nottinghamshire MP, I want to refer specifically to the freeport based around East Midlands airport, in conjunction with local plans for a development corporation at the Ratcliffe power station, which is shortly to be decommissioned and the site put to this new use. Taken together, these proposals present a huge opportunity for bringing investment and employment to our region and to my Mansfield constituency. The site at East Midlands airport has a unique mix of logistics and transport connections, with an inter-modal hub bringing together air freight with major road and rail arteries right in the centre of the UK.
This is a chance for the east midlands and this unique inland freeport model at the UK’s largest pure cargo airport to take full advantage of the Government’s agenda for growth through a green recovery—we hope that green energy can form a big part of the east midlands’ future—and through new technical skills. It can play a key part in our levelling-up agenda and, as my hon. Friend the Member for Rushcliffe (Ruth Edwards) explained, it can help us keep talented people working in our constituencies in the east midlands instead of feeling that they have to disappear to the major cities to find opportunities. The partnership between Nottingham Trent University and West Nottinghamshire College in my constituency can support this development with skills development while equally benefiting from it themselves.
As the Minister explained, clauses 109 to 111 give the Government the ability to designate sites and offer tax incentives and reliefs at those sites. The sites are fairly and openly assessed, and across the east midlands my colleagues and I are delighted that our area has been successful. We estimate that these plans could bring up to 60,000 jobs to the region over the coming years, and my constituents stand to benefit from that in a big way. We are most grateful to the local authorities, the local enterprise partnerships and the businesses involved in putting the bid together. I ask the Minister to ensure that as much support as possible is available for our region to be able to put together the best possible business case, with advice and support from the Government and from his Department during the next phase.
It is telling that, before the freeports have even been set up, Labour’s amendments are already seeking to restrict and limit the benefits for businesses that invest in these sites, thereby limiting the potential for growth and job creation for my constituents. The point of these sites is to encourage innovation and investment, but it is typical of Labour Members to put ideology before jobs and livelihoods in working-class communities. They would rather fight for more power for their trade union bosses than for more wealth creation for our region and jobs for my constituents. In fact, it sounded a lot like the shadow Minister, the hon. Member for Erith and Thamesmead (Abena Oppong-Asare), did not really want to see this investment happen at all, despite offering no other suggestions for how Labour would regenerate these communities. The right hon. Member for Hayes and Harlington (John McDonnell), despite all his experience in this place, still has not worked out that it is businesses that create jobs, and that helping business is not an end in itself but a means by which to create more of the jobs that are so vital for areas such as mine that have needed them for a long time, and for our economic recovery after covid. Maybe he will get it one day, but I doubt it.
I support the Minister and the Government’s approach to delivering the new freeports. I am grateful that they have chosen the east midlands as one of the sites, with its unique location right at the heart of the country and all the potential that that brings for our region, and I will be supporting the Bill in its entirety.
Virginia Crosbie (Ynys Môn) (Con)
This Finance Bill gives us the freedom to look at freeports around the world and to propose innovative and exciting new possibilities for the UK. Last year I set up the Anglesey freeport bidding consortium, which includes Stena, Anglesey County Council, Bangor University and the North Wales Economic Ambition Board. We have approached our bid by asking the question: what problems could a freeport on Anglesey solve? By looking at the problems, we are building a freeport model that will offer benefits not just locally but globally.
Our first problem is local. After almost two decades of disinvestment under the Welsh Labour Government, Ynys Môn’s gross value added is now among the lowest in the UK. With large employers such as Anglesey Aluminium and Rehau closing down, it is highly dependent on seasonal tourism. Our island haemorrhages young people every year because there are no quality jobs for them locally. What better place for the Government to use their freeport model to create jobs and opportunity? How better to show levelling up at its most effective?
Our second problem is national. Brexit has impacted the flow of trade across the central corridor from Holyhead to Dublin. A collaboration between a freeport in Northern Ireland and a freeport on Anglesey would create a virtual special economic zone corridor and significantly improve the customs and trade route between Great Britain and Northern Ireland.
Our third problem is global. How will we hit our 2050 net zero carbon target, as energy island Anglesey is already leading the way in green energy: we have on and offshore wind farms, tidal energy, solar farms and we are about to establish a hydrogen production plant in Holyhead. We also have the best nuclear site in the UK—Wylfa Newydd. The UK needs innovative solutions, large-scale infrastructure and significant investment to achieve its 2050 target. The exemptions, tax and tariffs incentives, customs facilities and regulatory easements available to freeports would make Anglesey a global, sustainable energy investment base of choice.
Our final problem is that of re-establishing the UK’s place on a global stage outside of the EU. The competition for global capital is fierce and UK freeports are in competition with those all over the world. Ambitious and forward-looking proposals such as ours will future-proof the UK’s position as a world player. By holistically applying the levers available, the freeport of Anglesey could become the jewel in the UK’s crown.
Ian Paisley (North Antrim) (DUP)
I thank the hon. Member for giving way. I did not want to cut her off in mid-flow; she is making a brilliant speech. I hope that, when the Government respond to the points being made tonight, they will take the opportunity—I agree absolutely with what she has just said about Anglesey—to affirm that Northern Ireland will be entitled to a freeport and that it will not be blocked because of the arrangements that we have with the protocol and the EU.
Virginia Crosbie
I thank the hon. Gentleman.
Unfortunately, despite all the good reasons I have for bringing a freeport to Anglesey, the Welsh bidding process has not yet started. The Welsh First Minister has cited concerns about economic displacement, but my biggest concern is the economic displacement that will occur when trade that could have come to Anglesey goes instead to one of the eight English freeports announced in the Chancellor’s Budget. Ports such as Liverpool are already six months ahead of us in this process.
I absolutely support the Finance Bill and the opportunities that it gives the UK now that we are free from the shackles of Europe. I look forward to seeing Anglesey become a freeport, attracting new investment and creating the good, quality jobs that the island so desperately needs and deserves.
Mr Ian Liddell-Grainger (Bridgwater and West Somerset) (Con) [V]
I am absolutely delighted to take part in this debate and also to follow my hon. Friend the Member for Ynys Môn (Virginia Crosbie). We share a nuclear power station. I look forward to the fantastic day that we build at Wylfa.
I must say that the Chancellor has done a remarkable job in supporting the economy during this pandemic. He has also kickstarted the economy without a shadow of a doubt. Economic regeneration and regional economic regeneration does have to come with various—dare I say it?—caveats. I advise extreme caution when shelling out any extra cash to Somerset County Council. I would not spend a penny on it. Somerset County Council is incompetent, profligate and, worst of all, unbelievably pompous. It has failed to get broadband working. It has signed contracts that it does not understand, which has cost the tax payers millions of pounds. It adds absolutely nothing to the development of the local economy, except, unfortunately, hot air. Oh yes, Somerset County Council loves to claim credit for everything, but that is either exaggeration or lies.
Somerset is run dishonestly and it does not deserve to be taken seriously. My constituency has the biggest infrastructure project in the whole of Europe. Hinkley Point C nuclear power station is taking shape. Who masterminded this local planning? Who carried the burden? It was Sedgemoor District Council. Sedgemoor is one of the four districts that Somerset wants to gobble up in its greedy ambition to become a unitary authority. Why? It is because the district councils do not squander public money. They save it and have shown that they do so year after year. What does Somerset County Council bring to the party? They bring nothing but trouble and, I am afraid, waste. It pleads poverty, and begs for more, but it does not deserve a bean.
Across the country, our secondary school head teachers are furious with the council for ordering extra cuts that will hurt the most vulnerable children in our society who desperately need all our help. The heads have no confidence in the overpaid oaf in charge of Somerset schools. I do not think that I have confidence in any of them in the council, and I am not sure that I ever had. The staff of Chief Executive Pat Flaherty call him “flat battery”, which is a little worrying. He actually could not start a Dinky toy, let alone regenerate the economy.
Most people say the council is a waste of space and money—this has been going right across Somerset for the past few months. The public is not being fairly consulted about the unitary dream, which is, I am afraid, a scandal that lies at the door of the Secretary of State of Housing, Communities and Local Government. This is at the heart of the problem. The county chose to bid for change, just as the pandemic started. It is crazy timing. Why the rush? It should have waited. People have suffered because of this, but the Government danced to its tune and postponed the county elections, which were meant to take place next month, depriving the voters of a democratic say. I worry about the state that we are in.
Jesse Norman
I thank colleagues, not least my hon. Friend the Member for Bridgwater and West Somerset (Mr Liddell-Grainger), for a very entertaining and rowdy end to the debate. Let me pick up some of the points that have been raised on this important subject.
The hon. Member for Erith and Thamesmead (Abena Oppong-Asare) asked about expected revenue for freeports. As she will be aware, it is not really appropriate to comment on that at the moment. These tax sites have not yet been agreed. The revenues, or at least the associated tax costs, are very much site-specific. I am therefore not in a position to comment on that, but of course once the sites have been agreed, the appropriate estimates will be brought forward.
The hon. Member for Salford and Eccles (Rebecca Long Bailey) argued—indeed, it was a recurrent theme—that freeports would have the effect of watering down employment protections. The Opposition have no evidence for that viewpoint at all. There is no deregulatory agenda whatever with freeports. Businesses and freeports will have to abide by UK worker and environmental regulations, national minimum wage standards, workers’ rights and the rest of it, just as any other company would anywhere else in the UK.
The hon. Member for Gordon (Richard Thomson) raised the topic of freeports in Scotland. He did not remind the Committee, but he will be aware, that the Scottish Government originally rejected the idea of a freeport, then rather changed their tune when they saw the local reaction. I encourage him and the Scottish Government, whatever their complexion after the election, to step forward and engage with the Government so that we can agree a freeport in Scotland.
My hon. Friend the Member for Harwich and North Essex (Sir Bernard Jenkin) talked about the different elements, and was worried that somehow the offer had been watered down. I reassure him that, although he did not notice that the structures and buildings allowance is legislated for in the Bill, the employer national insurance contributions relief will be legislated for in a forthcoming Bill and the business rates relief will follow in due course.
My hon. Friend the Member for Thurrock (Jackie Doyle-Price) rightly talked about the magnificent port at Tilbury. I have visited it myself, and a thoroughly splendid and impressive thing it is too. Finally, my hon. Friend the Member for Bridgwater and West Somerset put in what I think we can all agree was a typically low-key and restrained performance, for which we very much thank him. He put me ineffably in mind of a great moment in a work of literature and film with which I am sure the House will be familiar: “Animal House”. There is a marvellous moment where John Belushi’s future senator John Blutarsky says, “Was it over when the Germans bombed Pearl Harbor?” There is a pause, and someone says, “Leave him, he’s rolling.” That is what I felt we should do with our dear friend the Member for Bridgwater and West Somerset. With that, I will sit down.
Ben Lake
It is a pleasure to close the debate this evening. We have had a very beneficial debate on two main points about freeports and regional economic development. We had a very good discussion about the merits or otherwise of freeports for the areas in which they are located, and although I think we will continue to discuss whether any growth of investment generated by the sites will be new, partially new or a substitute for or displacement of economic activity elsewhere, it has been a good debate nevertheless.
My final point leads on from the question of whether any growth in investment would be new or a reflection of displacement of activity from elsewhere. That is particularly important when it comes to the question of levelling up and addressing regional inequalities and disparities. We still need to discuss that further. One potential solution in Wales’s case, for example, may be to look again at the cap of just one freeport in Wales. Perhaps we should have at least two. I am looking to other Members—perhaps that is one way to address the disagreements we have had tonight.
Either way, we have had a very good and beneficial debate and although I do not want to press my amendment to a vote, I hope that the Minister will consider how the Government can better work with the devolved Governments to address some of these concerns and the need to co-ordinate policies for our economic development. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 109 to 111 ordered to stand part of the Bill.
Schedule 21 agreed to.
Schedule 22
Relief from stamp duty land tax for freeport tax sites
Amendments made: 43, page 231, line 8, at end insert—
“(ca) Part 3A makes provision about cases involving alternative finance arrangements,”
This amendment is consequential on Amendment 52.
Amendment 44, page 231, line 26, after “sites),” insert
“other than in a case to which paragraph 10A of that Schedule (alternative finance arrangements) applies,”
This amendment is consequential on Amendment 45.
Amendment 45, page 231, line 39, at end insert—
“3A In section 81ZA (alternative finance arrangements: return where relief withdrawn)—
(a) in subsection (1), after “arrangements)” insert “or under Part 3 of Schedule 6C (relief for freeport tax sites) in a case to which paragraph 10A of that Schedule (alternative finance arrangements) applies”,
(b) in subsection (3) (as substituted by Schedule 17 to this Act), at the end insert—
“(c) where the relief was given under Part 2 of Schedule 6C, the last day in the control period on which the qualifying freeport land is used exclusively in a qualifying manner.”, and
(c) after subsection (6) insert—
“(6A) Terms used in paragraph (c) of subsection (3) which are defined for the purposes of Schedule 6C have the same meaning in that paragraph as they have in that Schedule (as modified by paragraph 10A of that Schedule).
(6B) Paragraph 10 of Schedule 6C (as modified by paragraph 10A of that Schedule) applies for the purposes of subsection (3)(c) as it applies for the purposes of paragraph 8 of that Schedule.”
“3B In section 85(3) (liability for tax), after “arrangements)” insert “or under Part 3 of Schedule 6C (relief for freeport tax sites) in a case to which paragraph 10A of that Schedule (alternative finance arrangements) applies”.”
This amendment makes provision about returns, and liability to SDLT, in cases in which relief under Schedule 6C to the Finance Act 2003 (freeport tax sites, inserted by Schedule 22 to the Bill) is withdrawn in cases involving certain alternative finance arrangements.
Amendment 46, page 231, line 40, leave out “86(2)” and insert “86”
This amendment is consequential on Amendment 49.
Amendment 47, page 231, line 40, after “tax)” insert “—
(a) in subsection (2),”
This amendment is consequential on Amendment 49.
Amendment 48, page 231, line 41, after “sites),” insert
“other than in a case to which paragraph 10A of that Schedule (alternative finance arrangements) applies,”
This amendment is consequential on Amendment 49.
Amendment 49, page 231, line 41, at end insert “, and
(b) in subsection (2A), after “arrangements)” insert “or under Part 3 of Schedule 6C (relief for freeport tax sites) in a case to which paragraph 10A of that Schedule (alternative finance arrangements) applies”.”
This amendment makes provision about the payment of SDLT in cases in which relief under Schedule 6C to the Finance Act 2003 (freeport tax sites, inserted by Schedule 22 to the Bill) is withdrawn in cases involving certain alternative finance arrangements.
Amendment 50, page 231, line 44, after “sites),” insert
“other than in a case to which paragraph 10A of that Schedule (alternative finance arrangements) applies,”
This amendment is consequential on Amendment 51.
Amendment 51, page 232, line 2, after “81(1A);” insert—
“(azab) in the case of an amount payable because relief is withdrawn under Part 3 of Schedule 6C (relief for freeport tax sites) in a case to which paragraph 10A of that Schedule (alternative finance arrangements) applies, the date which is the date of the disqualifying event for the purposes of section 81ZA (see subsection (3) of that section);”
This amendment makes provision about interest on unpaid SDLT in cases in which relief under Schedule 6C to the Finance Act 2003 (freeport tax sites, inserted by Schedule 22 to the Bill) is withdrawn in cases involving certain alternative finance arrangements.
Amendment 52, page 235, line 25, at end insert—
“Part 3A
Alternative finance arrangements
Cases involving alternative finance arrangements
10A (1) This paragraph applies where either of the following applies—
(a) section 71A (land sold to financial institution and leased to person), or
(b) section 73 (land sold to financial institution and re-sold to person).
(2) This paragraph applies for the purposes of determining—
(a) whether relief is available under Part 2 of this Schedule for the first transaction, and
(b) whether relief allowed for the first transaction is withdrawn under Part 3 of this Schedule.
(3) For those purposes this Schedule has effect as if—
(a) references to the purchaser were references to the relevant person, and
(b) the reference in paragraph 3(2)(d) to land held (as stock of the business) for resale without development or redevelopment were a reference to land held in that manner by the relevant person.
(4) The first transaction does not qualify for relief under Part 2 of this Schedule except where it does so by virtue of this paragraph.
(5) In this paragraph—
“the first transaction” has the same meaning as in section 71A or 73 (as appropriate);
“the relevant person” means the person, other than the financial institution, who entered into the arrangements mentioned in section 71A(1) or 73(1) (as appropriate).”—(Jesse Norman.)
This amendment makes provision about the operation of Schedule 6C to the Finance Act 2003 (relief from SDLT for freeport tax sites, inserted by Schedule 22 to the Bill) in cases involving certain alternative finance arrangements.
Schedule 22, as amended, agreed to.
New Clause 25
Review of freeports
“(1) The Chancellor of the Exchequer must review the impact of sections 109 to 111 and schedules 21 and 22 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act and once a year thereafter.
(2) A review under this section must estimate the expected impact of sections 109 to 111 and schedules 21 and 22 on—
(a) job creation within the sites designated as freeports and across the UK as a whole,
(b) revenue from corporation tax and stamp duty land tax within the sites designated as freeports and across the UK as a whole,
(c) levels of artificial tax avoidance and tax evasion across the UK as a whole,
(d) levels of criminal activity,
(e) the necessary level of staffing for HMRC and the UK Border Force, and
(f) departmental spending by HMRC and other departments on enforcement.”—(Abena Oppong-Asare.)
This new clause would require the Government to review the impact of the provisions of the Act introducing freeports and publish regular reports setting out the findings.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Finance (No. 2) Bill
Tuesday 20th April 2021
(3 years, 7 months ago)
Commons ChamberRead Full debate Finance Act 2021 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 20 April 2021 - large print - (20 Apr 2021)
16:19 - The House divided: - Ayes: 261 / Noes: 366 - Question accordingly negatived.
17:13 - The House divided: - Ayes: 214 / Noes: 364 - Question accordingly negatived.
The Second Deputy Chairman of Ways and Means (Mr Nigel Evans)
I should explain that, in these exceptional circumstances, although the Chair of the Committee would normally sit in the Clerk’s chair during Committee stage, in order to comply with social distancing requirements, I will remain in the Speaker’s Chair, and I will be carrying out the role not of Deputy Speaker but of Chairman of the Committee. We should be addressed as Chairs of the Committee, rather than as Deputy Speakers.
Clause 30
Construction industry scheme
Question proposed, That the clause stand part of the Bill.
The Second Deputy Chairman
With this it will be convenient to discuss the following:
Amendment 70, in schedule 6, page 121, line 1, leave out “ceases to be” and insert “is not”.
This amendment would allow that a de minimis amount of minor works can be disregarded.
Amendment 71, page 121, line 2, after “time” insert
“, but the body or person expects it to be met at any time,”.
See the explanatory statement for Amendment 70.
Amendment 72, page 121, line 3, leave out “continuing to be” and insert “being”.
See the explanatory statement for Amendment 70.
Amendment 84, page 121, line 4, leave out “any further”.
See the explanatory statement for Amendment 70.
Amendment 85, page 121, line 5, at end insert “exceeding £3,000,000”.
See the explanatory statement for Amendment 70.
Amendment 73, page 121, line 8, leave out paragraph 3.
This amendment would remove the provision making businesses who fall within the current definition, but who would not fall under the new definition of “deemed contractor”, to be drawn into the new regime for CIS from 6 April 2021.
Amendment 74, page 121, line 20, leave out paragraph 4.
This amendment would remove the provision requiring that, when a contractor is deducting the relevant percentage from a contract payment made to a sub-contractor, they should first deduct only the cost of material purchased by the sub-contractor from the figure to which the relevant percentage deduction is applied.
Amendment 75, page 123, line 17, leave out “2021-22” and insert “2022-23”.
This amendment would delay commencement until April 2022.
Amendment 76, page 123, line 20, leave out “2021” and insert “2022”.
See the explanatory statement for Amendment 75.
That schedule 6 be the Sixth schedule to the Bill.
Clause 36 stand part.
Government amendments 17 to 42.
That schedule 7 be the Seventh schedule to the Bill.
Clause 41 stand part.
Clause 115 stand part.
That schedule 27 be the Twenty-seventh schedule to the Bill.
Clauses 117 to 121 stand part.
Amendment 77, in schedule 29, page 319, line 23, at end insert—
“32 After section 280 of Finance Act 2014 insert—
‘280A Treatment of promoters of abusive tax avoidance schemes
(1) In any proceedings for the offence of cheating the public revenue, where—
(a) the person charged acted as a promoter in relation to relevant arrangements within the meaning of section 235, or the person charged gave in the course of business affirmative advice on the viability of relevant arrangements within the meaning of section 234, and
(b) the relevant arrangements were abusive tax arrangements within the meaning of sub-paragraph 3(2) of Schedule 16 of Finance (No. 2) Act 2017,
subsection (2) shall apply, subject to subsection (3).
(2) If, at any time that the person charged acted so as to fall within subsection (1)(a), that person was aware of the course of action or intended course of action having the consequence that the relevant arrangements were abusive tax arrangements within the meaning of sub-paragraph 3(2) of Schedule 16 of Finance (No. 2) Act 2017, the actions of that person in respect of the relevant arrangements shall be deemed to have been dishonest.
(3) Subsection (2) shall not apply if the person charged proves that they held in good faith the belief that the course of action or intended course of action was reasonable in the circumstances.’”
This amendment would cause promoters of tax avoidance schemes which are abusive (defined in existing legislation to mean schemes where it is not reasonable to regard the scheme as a reasonable course of action) to be treated as acting dishonestly for the purposes of criminal prosecution of tax offences, without dishonesty having to be separately proved by the prosecution.
That schedules 29 to 32 be the Twenty-ninth to Thirty-second schedules to the Bill.
New clause 14—Review of changes to construction industry scheme—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made to the construction industry scheme by section 30 and schedule 6 of this Act and lay a 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,
(d) GDP growth, and
(e) poverty.
(3) 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 report on the construction industry scheme provisions on various economic indicators.
New clause 15—Review of effect on tax revenues—
“(1) The Chancellor of the Exchequer must review the effects on tax revenues of section 115 and schedule 27, and sections 117 to 121 and schedules 29 to 32 of this Act, and lay a 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—
(a) the expected change in corporation and income tax paid attributable to the provisions; and
(b) an estimate of any change, attributable to the provisions, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.
(3) The reference to tax required to be paid in subsection 2(b) includes taxes payable by the owners and employees of Scottish limited partnerships.”
This new clause would require a report on the impact of certain provisions of the Bill on narrowing the tax gap by comparing: (a) the expected change in corporation and income tax paid attributable to the provisions and (b) an estimate of any change, attributable to the provisions, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid. In particular, this includes taxes payable by the owners and employees of Scottish limited partnerships.
New clause 29—Review of tax avoidance measures—
“(1) The Chancellor of the Exchequer must review the impact of sections 117 to 121 and Schedules 29 to 32 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act, and then annually for five further years.
(2) A review under this section must estimate the expected impact of sections 117 to 121 and Schedules 29 to 32 on—
(a) levels of tax avoidance,
(b) levels of tax evasion, and
(c) reducing the tax gap in each tax year from 2021-22 to 2025-26.”
This new clause would require the Government to review the impact of the provisions relating to tax avoidance and publish regular reports setting out their findings.
The Financial Secretary to the Treasury (Jesse Norman)
The Government remain committed to tackling tax avoidance, evasion and other forms of non-compliance. Since 2010, we have introduced over 150 new measures and invested over £2 billion in additional funding to ensure that the right tax is paid at the right time. These efforts have helped to secure and protect over £250 billion for the UK’s public services that would otherwise have gone unpaid, and they have helped to bring down the tax gap to 4.7% in 2018-19—its lowest recorded rate.
But there is still work to do. Clauses in this Bill build on our previous reforms in order to clamp down on deliberate non-compliance and make sure that everyone pays their fair share. They include measures to tighten the anti-avoidance rules aimed at those who promote and enable tax avoidance schemes. They also close a loophole in the existing anti-avoidance rule aimed at preventing non-UK resident individuals from claiming relief when they gift business assets to a company controlled overseas.
The clauses support HMRC’s strategy on promoting good tax compliance. As an example of that approach, the Government are amending the follower notices regime, which penalises taxpayers who have used avoidance schemes that have been shown to be ineffective, in order to make it fairer for those who comply, while ensuring that the regime remains just as effective at combating avoidance. The Bill also seeks to bring parts of the hidden economy out of the shadows by making some licence approvals conditional on tax registration and compliance. The clauses in the Bill are necessarily technical, which is in part down to the complex rules that are currently in place. Given the number of issues that we are covering and the number of speakers in the debate, I will keep my remarks fairly brief.
Clause 30 and schedule 6 introduce changes to tackle abuse of the construction industry scheme. The construction industry scheme is a revenue protection scheme designed to tackle evasion in the construction sector. The scheme protects approximately £7.1 billion in tax every year by requiring contractors to make deductions from the payments they make to subcontractors that they engage. Those payments count as advance payments towards those subcontractors’ tax and national insurance. The changes made by clause 30 will allow HMRC to correct employers’ CIS deductions when they are false or incorrect. Clause 30 will clarify the rules on deductions for the cost of materials and change the rules for determining which businesses will need to operate the CIS. It will also expand the scope of the current penalty for providing false information to HMRC.
Scottish National party amendment 74 would remove paragraph 4 of schedule 6 to the Bill, which would have the effect of removing the proposed changes to rules for deductions for materials. However, there is a clear case in public policy for these changes. Some contractors and subcontractors are interpreting the rules incorrectly at present in a way that undermines the purpose of allowing materials deductions within the scheme, which allows some contractors and subcontractors an advantage over others. The proposed rule changes will ensure a clear and consistent approach, providing a level playing field for those involved. I therefore urge the House to reject amendment 74.
Amendment 73 proposes to remove paragraph 3 of schedule 6, which relates to the transitional arrangements between the old and new rules for qualifying as a deemed contractor. This would mean that many businesses would have to change their business arrangements overnight and go through the process of re-registering for the construction industry scheme under the new rules. As this could be more disruptive and confusing than the proposed transitional arrangements, I urge the House to reject the amendment.
Amendments 75 and 76 would delay the commencement of this measure to April 2022 rather than April 2021. Such a delay would not be appropriate, as industry has already been consulted on the changes and any impacts are expected to be limited. Again, I urge the House to reject these amendments.
Clause 36 and schedule 7 amend the corporation tax rules governing so-called hybrid mismatches. These rules are intended to tackle aggressive tax planning by multinational companies that seek to take advantage of differences in how countries view entities and financial instruments. Hybrid mismatches can lead to double deductions for the same expense or deductions for an expense without any corresponding receipt being taxable. The Government have consulted in this area and are amending the rules in several areas so that they remain proportionate and do not lead to economic double taxation. That includes introducing a limited grouping matching rule and a change to the type of income that counteractions under the rules can be set off against.
Government amendments 17 to 42 to clause 36 have been tabled to ensure that the changes provided under that clause work and reflect the underlying policy intent. They address various technical issues that have been raised by external commentators following the publication of the Bill, and mostly change small and technical details.
Clause 41 will close a loophole in the capital gains tax gift holdover relief rules by preventing non-UK residents from being able to claim the relief while transferring a business asset to a company controlled overseas that they personally own. By making this change, the Government are ensuring that the relief is used fairly and only for its intended purpose.
Clause 117 and schedule 29 make changes to the promoters of tax avoidance schemes regime, known as POTAS. The changes allow Her Majesty’s Revenue and Customs to issue stop notices to prevent the promotion of schemes that it suspects do not work and to obtain information from suspected promoters at an earlier stage of the process than at present. They also prevent promoters from sidestepping the rules by rearranging their corporate structure to carry out activities through different entities. There are a number of other technical amendments to ensure the continued effectiveness of the regime. There are also further measures in the Bill to enhance the operation of the disclosure of tax avoidance schemes—DOTAS—rules.
Clause 119 changes the penalties issued to enablers of tax avoidance schemes that have been defeated in court, at tribunal or otherwise counteracted. The changes will allow HMRC to obtain relevant information from potential enablers at the earliest possible moment so as to be able to consider whether they are liable for an enabler penalty.
Clause 120 and schedule 31 make changes to ensure that the general anti-abuse rule can be used as intended in respect of partnerships that have entered into abusive tax avoidance arrangements.
Finally I turn to clause 121, which from April 2022 makes the renewal of certain licences to trade conditional on licence applicants in England and Wales completing checks with HMRC. The checks will confirm whether applicants are registered for tax, and new licence applicants will be directed to HMRC guidance about their tax obligations.
I turn to the most substantive of the amendments before us today: amendment 77, which relates to the POTAS provisions that I outlined. The amendment seeks to amend schedule 29 so that anyone subject to the promoters of tax avoidance schemes regime, and promoting or enabling abusive tax arrangements, should be deemed to have been acting dishonestly unless they can show that they acted in good faith and believed the arrangements to be reasonable. This would mean, in respect of the criminal offence of cheating the public revenue, that a person would automatically be treated as dishonest where it had been demonstrated that they had promoted abusive tax arrangements as defined in the general anti-abuse rule. As such, there would be no requirement for any prosecution to prove dishonest conduct.
I fully agree that promoters who break the law should face the consequences of their actions. That is why the Government are putting so much emphasis on anti-avoidance measures and measures against promoters of tax avoidance in the Bill and elsewhere. We should be under no illusions about this. It is not honest to market tax schemes or arrangements that are known not to work and that at their heart feature false statements.
James Murray (Ealing North) (Lab/Co-op)
I will speak to new clause 29, tabled in my name and the names of the Leader of the Opposition and other right hon. and hon. Friends. It is timely to consider what the Government are doing to tackle tax avoidance and tax evasion today, with this month marking five years since the publication of the Panama papers. Those papers revealed the true global scale of tax avoidance and tax evasion and the need for comprehensive and effective action to tackle them. Of course, the clauses we are considering are far more limited in scope.
The Minister set out that clause 30 relates to the abuse of the construction industry scheme rules, clause 36 makes amendments to the corporation tax rules for hybrids and other mismatches and clause 41 amends the anti-avoidance rule when claiming relief for gifts of business assets. More widely, clauses 115 and 117 to 121 relate to other measures, including penalties for the promoters of tax avoidance and giving HMRC new powers to obtain information. We will not oppose those measures today.
However, our concern about the Government’s approach is centred not so much on what those clauses cover but what the Bill, and the Government’s approach more widely, fail to do. Our concern is that, faced with the challenges of tax avoidance and tax evasion, and with the public clearly wanting to see definitive action from the Government, Ministers have presented a Bill of measures that are relatively minor and technical. Indeed, as the House of Commons Library analysis of the Bill concluded, it would seem that the Exchequer impact of these changes will be minimal as they are not included in the Budget report costings.
The truth is that three Conservative Prime Ministers and five Conservative Chancellors have failed to tackle tax evasion and aggressive tax avoidance. The Government have repeatedly promised to act, but their proposals in the Bill fall far short of the change we need. That is why our new clause would require the Government to review the impact of provisions in the Bill relating to the levels of tax avoidance and tax evasion and the size of the tax gap, and to publish regular reports setting out their findings. The Government must not be allowed to hide behind warm words on this matter. They need to be transparent about the impact, or lack thereof, that their proposals will have.
We also welcome the amendment in the name of my right hon. Friend the Member for Barking (Dame Margaret Hodge), which seeks to treat promoters of tax avoidance schemes which are abusive as acting dishonestly for the purposes of criminal prosecution of tax offences. This kind of change is crucial if we are to shift towards more criminal prosecutions for the promoters of tax avoidance schemes, and to shift the gear of the Government’s approach.
At the moment, where tax avoidance has occurred, the system lands liabilities on the tax payers, who are usually not tax experts and may have been falsely told that a tax avoidance scheme is lawful. In contrast, the promoters of tax avoidance schemes are allowed far too often to get away with it. We therefore welcome any efforts to strengthen penalties for the promoters of failed tax avoidance schemes. But we have seen nothing from the Government today to raise the stakes and to make greater use of the powers HMRC already has to bring criminal prosecutions against the promoters of fraudulent tax schemes.
We know that HMRC recognises its power to use criminal investigation approaches to tackle the promotion and enabling of tax avoidance schemes, but in a letter the Financial Secretary sent me in January this year, he admitted that, since the formation of HMRC’s fraud investigation service in 2016, only 20 individuals have been convicted for offences relating to arrangements that have been promoted as tax avoidance. An average of around four people a year does not feel like a concerted effort.
Catherine West (Hornsey and Wood Green) (Lab)
My hon. Friend is making a great speech. Does he agree that it seems disproportionate that more people, in an adjusted sense, tackle benefit fraud than tackle big business or dodgy individuals who are taking money from the public purse?
James Murray
I very much agree. My hon. Friend makes an important point about the Government’s priorities, and about the lack of priority they give to going after the promoters of tax avoidance schemes and those who evade paying tax, in comparison to other actions in Government. We are seeking to put pressure on them today to address that imbalance.
HMRC’s criminal investigation policy states:
“Criminal investigation will be reserved for cases where HMRC needs to send a strong deterrent message”.
However, we know that fraud through the promotion of tax avoidance continues at scale, involving at least an estimated £20 billion in 2018-19, so it is hard to imagine why Ministers would not support a stronger deterrent message being sent by the greater use of criminal prosecutions.
Part of the answer may be the understaffing of HMRC. In a response on 11 January this year to a parliamentary question, the Financial Secretary admitted that the number of full-time equivalent employees at HMRC had fallen since 2010 from 67,553 to 58,467. That is a reduction of more than one in seven. The question of capacity in HMRC and the impact that that may have on its ability to tackle tax abuse must not be ignored. The Tax Justice Network refers to the fact that a member of staff in the compliance business stream at HMRC brings in on average over £900,000 a year on a £30,000 salary. It has pointed out that the Chancellor’s additional investment in HMRC staffing is directed towards tackling fraud related to covid spending, while previous funding increases have supported HMRC’s Brexit capacity. Its view is that the Chancellor must invest further in HMRC’s core compliance capacity.
Furthermore, beyond the questions around tackling the promoters of tax avoidance, the Bill is also silent on other important areas that need to be pursued, such as efforts to set up a register of overseas entities. Legislation is needed to establish a register that would show exactly who owns the foreign companies buying up British property. This would serve as a key part of any clampdown on money laundering.
The then Prime Minister, David Cameron, first announced plans for this in 2015, yet more than five years later, the legislation is nowhere to be seen. I bet he has not been in touch with Ministers for action over that. I would welcome the Minister using his speech at the end of this debate as an opportunity to explain whether the promised deadline of introducing legislation to set up a register of overseas entities by 2021 will be missed. If he is silent on this matter, we will take that as a yes.
I would like to use the opportunity of a discussion on tax avoidance to ask the Treasury ministerial team again to confirm whether the Chancellor backs plans for a global minimum corporate tax rate, as proposed by the US President. When I asked the Minister’s colleague, the Exchequer Secretary, to address this point during the Bill’s Second Reading last Tuesday, she did not respond, which I am sure was an oversight. I would therefore welcome the Financial Secretary addressing this question directly in his closing speech, to avoid any misperception that he and his colleagues are deliberately avoiding the question.
Our criticism of the Government in relation to tax avoidance and evasion centres not so much on what the measures in the Bill would achieve but rather on the ways in which the Bill and the Government’s wider approach fall short. The Government lack a tough and comprehensive approach to prosecuting the promoters of tax avoidance, to going after international money launderers and to pursuing those who seek to evade tax. We know that the impact of the measures in the Bill will be relatively minor and technical. The public deserve to have the Government present clearly and transparently what effect the measures in the Bill will have, and our new clause simply requires that their impact on tax avoidance, tax evasion and the size of the tax gap should be reviewed and laid in public before this House.
Throughout the Minister’s statements and comments, there is a clear pattern that the Government favour minor technical amendments to legislation on this matter, rather than upping their game and truly calling time on the practices that the public clearly want to see ended. Today they have an opportunity, by supporting our new clause, to show that they understand the need to be clear with the public, to recognise the need to strengthen their approach on this matter, and to commit to coming back with the resources and legislation that are needed to truly make a difference.
Mr Andrew Mitchell (Sutton Coldfield) (Con)
I want to make a few points, principally on amendment 77. Perhaps I can start by saying that I do not agree with the Opposition spokesman, who has just addressed the House so eloquently, that the Government have been slow to tackle tax abuse and tax fraud. I should, at the outset, draw the House’s attention to my entry in the Register of Members’ Financial Interests. I think the Government have been very good at tackling tax fraud, starting in 2010 when this Conservative Government first came into office. The reforms that were introduced by George Osborne, the Chancellor of the Exchequer, deliberately targeted tax abuse and set up a number of measures to try to ensure that we clamp down on it, as it is common cause on both sides of the House for us to do.
Where I do agree with the Opposition spokesman is in his reference to the Panama and paradise papers. That excellent work by journalists from, I think, The Guardian and the BBC exposed the fact that money laundering, dirty money and abuse in that sector were far more rampant than we realised. That is one of the reasons why the right hon. Member for Barking (Dame Margaret Hodge) and I have made so much of an effort in this House, along with colleagues on both sides of the House, to try to clamp down on money laundering and dirty money and ensure that we have sunlight as the best disinfectant on all of this. That is why we introduced the open public registers of beneficial ownership for the British overseas territories, and why we strove so hard to persuade the Crown dependencies—successfully, now—to introduce those same open registers. That is the way in which we stop kleptocrats, bent politicians, warlords and corrupt businesspeople from stealing from the Exchequer but also, of course, from Africa and Africans. That was the great benefit of the paradise and Panama papers: they showed so clearly the extent of what was going on.
I thought that the Financial Secretary made some very good points about amendment 77. In general, I do think that the Revenue has enough power over the private citizen in the laws of the land as they stand at the moment. However, the point I would make to the Financial Secretary—he has been most receptive in listening to the right hon. Member for Barking and me about this—is that eternal vigilance is required. As we have seen, and as amendment 77 draws attention to, there is an inequality of arms in this matter. Advisers who set up these schemes often have an aura of authority, because they are lawyers, accountants and professional people, which those whom they advise may not be.
I want more to be done to ensure that, where these bad schemes of tax evasion are put together by professional advisers, they do not get off scot-free while the people they put into these devices, or talk into going into them, take the rap. It is not right that they should just lose the fees that they earn, which I think is currently the position: we should toughen the financial penalties. The Minister handles these matters very well, and I know that he wants this to be more than a senior common room debate. I know that he is conscious of the balance between the rights of the individual and making sure that people are not able to evade tax. I know that he does think seriously about that, so I would just urge him to always keep an open mind on this issue.
This is a familiar theme. In this year of Britain’s presidency of the G7, we should remember the work that was done by George Osborne for the last G8, at which he championed the open registers that were introduced in Britain in 2016. It is a proud achievement of this Conservative Government that, at the last G8, they moved the world towards focusing on these illicit flows of money, and this year with the G7, I hope that the Minister will consider it important as well. I completely accept that we are not going to divide the Committee on amendment 77. What the Minister said about the amendment was extremely constructive and I hope he will feel it right for the House to return to this matter on very regular occasions, in pursuit of what unites us all: that people should pay their fair levels of tax.
Dame Margaret Hodge (Barking) (Lab) [V]
It is a pleasure to follow the right hon. Member for Sutton Coldfield (Mr Mitchell), with whom I work very closely on this issue; it demonstrates the best of Parliament that we are able to do so across the House.
I rise to speak in support of amendment 77, which stands in my name and that of members of the all-party group on anti-corruption and responsible tax. Our proposals command support across the House, and I know the Minister will therefore address this issue thoroughly and seriously, not just in his response today but in the work that I know he is doing to bear down on those who enable and support tax avoidance and financial crime. I simply say this to the Minister: he may have reservations about the technicalities of our proposals, but he should at the very least accept the principle that underpins them and say so today.
Big corporations and high net-worth individuals who engage in tax avoidance schemes and financial crime do not dream up these schemes on their own; they are invented and developed by the huge army of tax professionals—accountants, lawyers, banks and advisers—who spend their working life trying to identify loopholes and wheezes. The schemes they devise do not just help but actively encourage people not to pay their rightful contribution through tax to the common purse for the common good.
At present, HMRC may slowly and belatedly catch up, and may deem such schemes unlawful. If it does so, the individuals have to pay up and sometimes face enormous tax demands, but the enablers of tax avoidance mostly get away scot-free; at worst they may lose the fees they earned from setting up the scheme for their clients. Our amendment would hold these enablers to proper account. If advisers and promoters involved in a scheme know that the scheme does not work, they are committing the criminal offence—mentioned by the Minister—of cheating the public revenue. They are breaking the law, so they should be pursued, charged and convicted with a criminal charge.
That does not happen now, and our amendment seeks to make it easier for the enforcement agencies to pursue criminal prosecutions. Not only would they hold the advisers to account, but I am completely convinced that the threat of a criminal prosecution would act as the most effective deterrent and bring to a halt many of the activities of these rogue advisers. It would be the most efficient way of tackling tax avoidance at source. It is a common-sense approach to the problem, and it would be welcomed by all taxpayers, who are so frustrated by paying their tax unquestioningly while seeing others avoid tax or break the law. It would restore confidence in the tax system. It is a good idea, and I hope that when the Minister responds he will say that he shares our view that we need to amend our legislation to make it easier to pursue and prosecute advisers who deliberately promote egregious schemes that are unlawful.
I know from my time chairing the Public Accounts Committee how embedded the culture of avoidance, evasion and financial crime has become in our financial services sector. We saw it plainly with the revelations from HSBC, with the Falciani leaks from its Swiss branch. It was there in the PricewaterhouseCoopers leaks keenly exposing that firm’s activities in Luxembourg. The Panama papers uncovered the shenanigans involving the law firm Mossack Fonseca, while the Paradise papers disclosed the nefarious activities of another law firm, Appleby. While it may no longer be seen as cool to be involved in tax avoidance, the latest leak of documents contained in the FinCEN papers spells out the complicity of major global banks in facilitating and enabling financial crime, from tax avoidance through to fraud and money laundering.
Normal working people, however, often suffer the most. The film tax relief that was exploited ruthlessly by the company Ingenious Media left many facing huge tax demands, though the chief executive, Patrick McKenna, is still lauded through public appointments in the creative sector. The loan charge scheme was promoted vigorously by enablers. They walked away scot-free, but left devastation in their wake. I understand from the all-party parliamentary loan charge group that seven suicides have been reported to the group—people driven to suicide because they were conned by enablers into participating in a scheme that later unravelled. That is truly shocking.
I welcome the consultation that the Government have launched on tackling the promoters of tax avoidance. The all-party parliamentary group will be preparing a response to that consultation. Most advisers, of course, work in an honest and straightforward way, and we do not want to pursue with criminal charges those who make an honest mistake, but there are still individuals, companies and organisations who deliberately and wilfully promote egregious schemes that they know do not work. Such enablers move quickly, they are well resourced and they are well capable of outmanoeuvring HMRC. As soon as one wheeze is uncovered, they move on to the next. Worst of all, they act with impunity, safe in the knowledge that they will escape any real punishment if they are ever caught.
Why do these rogue advisers not get prosecuted? The answer lies in what the Minister said: HMRC has to demonstrate dishonesty to proceed against them and it is virtually impossible to do so. The advisers can always claim that they honestly believed that the scheme would work. We therefore want a new test, which makes criminal prosecutions feasible and practical.
We suggest adopting the test that is in place for the work of the GAAR—the bar for prosecution for those ne’er-do-wells should be just as stringent. It would simply make it possible and practical to take action. HMRC would have to demonstrate not simply that the avoidance scheme was not reasonable; it would have to demonstrate that it was not reasonable for anybody to think that the avoidance was reasonable. Sorry for the complication, but that is a double reasonableness threshold. I assure the Minister that that double reasonableness test is in effect the same as the “beyond reasonable doubt” test that he mentioned in his opening remarks. Of course, it would be easy for enablers to avoid prosecution —they just need to stop promoting or recommending tax avoidance that is so aggressive that they know it will fail.
Our amendment tackles a gross injustice in the system. People are completely fed up with reading endless stories about scurrilous tax avoidance schemes promoted by those working in the financial services sector. The perceived difference in the way that hard-working taxpayers and rich individuals are treated breeds mistrust. We suggest a practical change in the law that would make it possible to pursue the enablers, not because we want to see the courts clogged up with prosecutions against bankers, accountants, lawyers and advisers, but because we think that that is the best way of making those advisers think twice before they promote unlawful schemes. It would deter most of them from trying to cheat the public revenue. I urge the Minister, please, to be bold on the issue, to state today that he will tighten up the law and to give us the assurance that, if he does not like our particular solution, he will come forward in a timely manner with his own proposal.
Peter Grant (Glenrothes) (SNP) [V]
I am pleased to speak in this debate and to speak to the amendments and new clauses to which I have added my name and which were detailed earlier.
All the SNP amendments relate to schedule 6, under clause 30. Amendments 70 to 72 and 84 and 85 seek to amend subparagraph (3A) of paragraph 2. Taken together, the paragraph would read:
“Where the condition in subsection (1)(l) or (2) is not met in relation to a body or person at any time, but the body or person expects it to be met at any time, the body or person may allow for the condition to be treated as being met until the body or person is not expected to make expenditure on construction operations exceeding £3 million.”
On the face of it, it does not look like a major change, but the amended wording is more in keeping with the spirit of the existing construction industry scheme. It allows, for example, for a de minimis amount of minor works to be disregarded in the operation of the scheme.
Amendment 73 seeks to remove paragraph 3 from schedule 6. I know that the Minister has spoken against this amendment and amendment 74, but we have seen no convincing argument that this change is necessary just now, and we believe that it would be much better for industry to be allowed to continue with the existing scheme for the current year rather than asking it to change the way of doing things. Let us face it, with its being a major part of our recovery from the covid recession, industry has far more important things to concentrate on.
A similar reasoning applies to amendment 74, which seeks to leave out paragraph 4 from schedule 6. That paragraph relates to the way in which the costs of materials purchased for a construction contract are taken into account for tax purposes. The construction industry has had to meet a number of challenges this year. We do not see how changing the way in which it has to account for tax on purchases by a subcontractor for another subcontractor, for example, during this current year will help. We do not see why it needs to be done just now.
New clause 14 requires the Chancellor to report back to Parliament on the impact that the changes proposed in clause 30 and in schedule 6 have had on key economic indicators. One would think that it would be automatic that, when a Government make changes to the tax system, they would go back a wee while later to see whether the changes have had the desired effect. This Government are perennially hopeless at doing that. We seldom if ever see a published assessment of what impact the new legislation or changes to the tax system had. That makes it much more difficult for MPs and the public to hold the Government to account. Even more importantly, it means that, when mistakes are made—that is when, not if—there is no reliable process to identify that and to put things right.
For this Committee sitting alone the Government have had to table no fewer than 22 amendments in order to correct mistakes or to remove inconsistencies and ambiguity from their own Bill which they themselves commended to the House only last week. We can only hope that they have spotted all the mistakes by now, but surely with such an important piece of legislation it makes sense to ask the Chancellor to report back to us to tell us whether it is working, or whether there have been unintended consequences that need to be addressed sooner rather than later.
New clause 15 again requires the Chancellor to report back to Parliament, but this time on the effectiveness of various anti-tax avoidance measures in clauses 117 to 121, and the follower notice penalties in clause 115. I note that the Opposition have tabled something similar, although a bit more restricted in scope.
We welcome the further measures included in this Bill, but they still do not go nearly far enough. Time and again, it has been pressure from SNP MPs that has forced the Government to take any action at all on the scandalous levels of tax avoidance that they continue to tolerate. We still do not have an overarching and workable general anti-avoidance rule. We have an inadequate system of company registration and regulation that makes it far too easy for companies to hide the truth about who really benefits from the profits that they make on the hard work of citizens of these islands and who is really in control of the company. For example, the SNP has highlighted over and over again the need for legislation to combat the abuses of so-called Scottish Limited Partnerships by money launderers and organised crime. As things stand, almost anybody in the world can set up one or several Scottish Limited Partnerships and then use them to get round even the inadequate regulatory and transparency requirements that apply to other companies.
Kevin Hollinrake (Thirsk and Malton) (Con)
It is a pleasure to speak in this part of the debate, and I draw the House’s attention to my entry in the Register of Members’ Financial Interests.
It was probably 15 years after we set up our business that our own accountants came to us—we were making reasonable profits by then—and suggested that we take advantage of a tax avoidance measure, and a pretty aggressive one in our view. This was not a particularly unusual accountants—it had a decent reputation locally— but so much money potentially runs through these schemes that some promoters inevitably see an opportunity for themselves.
I must tell the House that we told our adviser that we did not want to take part in such a scheme, and there were two reasons: we believed that people should pay their tax—that we should all pay a fair amount of tax—but also that any person who takes up such measures should be afraid that HMRC will one day come along and say, “Those measures were not appropriate.” By that time, a lot of the money that they think they have saved has gone out in costs to promoters and the rest of it, and they are left with a huge bill.
Had the person who promoted that scheme to us—our accountant—thought that he would potentially end up on jail, I do not think he would have come to us and told us about it. This was a reputable local person, and perhaps he did not even think that tax avoidance at that point was fraud. Nevertheless, it certainly can be fraud, and in many cases it is. If we are willing to hold people to account, ultimately through a criminal prosecution—as HMRC can, of course, as the Minister pointed out earlier—there would be a lot less of this kind of promotion and a lot fewer of these activities.
Before I talk in more detail about that, I want to tackle some of the shadow Minister’s points. It is a little churlish not to recognise the steps that the Government have taken since 2010. There have been 150 measures to tackle tax avoidance; that was at a cost of £2 billion to the taxpayer, but it brought in £250 billion in contributions to our public services. Of course, the Minister said that we need to go further, but it is wrong to simply say that the Government are not doing enough. Some of those measures, such as the digital services tax and the diverted profits tax, are very significant internationally.
Ruth Cadbury (Brentford and Isleworth) (Lab)
I acknowledge the point that the hon. Gentleman makes and the amount of money brought into the Revenue by the measures, but is he not also conscious that the sheer number of different measures has, for many taxpayers, added to the complexity? We have one of the most complex tax regimes in the world and that complexity often catches people unawares, and costs them lots of money and sometimes their businesses and their homes.
Kevin Hollinrake
I absolutely accept that our tax system is very complex, and I have proposed a number of measures on the Floor of this House to try to simplify it. For example, abolishing business rates and replacing them with an increase in VAT would simplify the tax system, instead of having an online sales tax. However, in terms of this debate I do not think it is the complexity of the issues that catches people out. We can see that 99% of tax avoidance schemes in the UK involve disguised remuneration—these are very contrived schemes. We should look at amendment 77 carefully. As to whether it is unfair on a person who is a promoter of what I would say is an extremely contrived tax avoidance measure, I am not totally sold that that should be a problem.
One of the biggest problems we have is faith in the system. This Government have done a huge amount to reduce the tax gap, which is at a record low of 4.7%, but if there is a £20 billion tax gap from fraud, the person in the street might reasonably say, “Why should I pay my tax?” This creates an incentive then for people to look at ways of avoiding tax. As to whether tax avoidance is fraud, the Government’s own call for evidence last month says clearly:
“The Government recognises that the design of arrangements that are sold as avoidance schemes may in fact enable fraud.”
So there is a good case for being able to take these further measures, as the Government are doing through stop notices, further civil penalties and stopping individuals hiding behind corporate structures.
The trouble is that, as we see in many areas, not least the banking sector, which I am pretty active in through my work in the all-party group on fair business banking, these kinds of organisations see a fine—a civil penalty—as a cost of doing business; the real deterrent for people is a criminal penalty. One of the best examples of this is to be found in a completely different sector, with the personal liability for a director in the construction industry. As soon as that personal liability came in and there was the potential for someone to go to jail if they did not make sure their sites were safe or they did not put measures in place, there was a huge decrease in the number of injuries and fatal incidents in the workplace in construction. That speaks to the point that if there are real criminal sanctions that we are willing to take forward and people think that that is going to happen, this promotion of avoidance schemes will start to drop significantly.
We probably have better resourced areas in terms of the prosecution of avoidance; I believe there are about three and a half times this number of people in the Department for Work and Pensions looking at benefit fraud, despite the fact that it is a much lower level of fraud—the level of benefit fraud is about 10% of that seen by HMRC. A beefing up of the resources in HMRC is therefore something we should consider. We have seen very famous schemes. I believe the Ingenious film scheme cost the taxpayer £1.6 billion, but not a single promoter has been held to account for it. We need more resources, but we should also look at legislation. This country does not have a great record on prosecuting serious fraud. There are a number of examples where the Serious Fraud Office has failed to make charges stick—I think, for example, of cases involving Tesco and Barclays. That is why the SFO wants to bring in more legislation, which the Government have agreed to do, to create a corporate offence of failing to prevent economic crime. This would be a personal sanction on the directors of a corporation that failed to do that. Of course, in banking we now have the senior managers regime that the Financial Conduct Authority put in place following some of the scandals there, when nobody was held to account for the disgraceful abuse of both consumers and businesses through the past couple of decades in the sector. The excellent Minister might say that amendment 77 is not the right vehicle for this, but some beefing up of the legislation to make it easier to prosecute fraud—criminal activity—is something that we should seriously consider.
Christine Jardine (Edinburgh West) (LD) [V]
It is a pleasure to take part in this debate and to follow the hon. Member for Thirsk and Malton (Kevin Hollinrake).
I welcome the action that the Government are finally taking against the promoters of tax-avoidance schemes. My Liberal Democrat colleagues and I will be supporting new clause 29, which would require the Government to review the impact of provisions relating to tax avoidance and publish regular reports that set out the findings. We will also support amendment 77, which would cause the promoters of abusive tax-avoidance schemes to be treated as acting dishonestly for the purposes of criminal prosecution for tax offences, without dishonesty having to be proved separately by the prosecution. We believe that the measures we are considering are what the Government should have been doing earlier. The promoters of abusive tax-avoidance schemes have deprived the public purse of millions of pounds and defrauded countless people who thought that their services and the advice offered were legitimate.
The action being taken now comes too late for so many victims of these schemes who had no intention to do anything unlawful or to evade taxes and have already been unfairly penalised. Liberal Democrats are committed to clamping down on tax avoidance, but the retrospective nature of the loan charge is causing uncertainty and financial hardship to ordinary working families, most of whom acted in good faith. Thousands of IT support professionals, social workers, teachers, cleaners and nurses—all of whom acted in good faith, based on professional financial advice that what they were doing was legal—now face immense pressure, which is impacting on their mental health and causing serious financial hardship, which will only be magnified by the economic consequences of covid-19.
Meanwhile, online tech giants and international corporations have been avoiding tax for years but have not been clamped down on in the same way, even internationally. With the load charge, the Government are going after nurses and teachers. Like many other right hon. and hon. Members in this place, I have a number of constituents who find themselves in exactly the position that I have described, facing retrospective taxation since HMRC changed its rules in 2017. One constituent whom I have been representing has attempted to correspond with HMRC on anomalies in the settlement agreement policies, but to no avail. Although he is categorised as fully compliant and not liable for the loan charge and pre-2010 loans, he is not being refunded any settlements that include pre-2010 amounts. The fully compliant are not benefiting from the pre-2010 amendments, while other categories are.
As I have said, we undoubtedly need to clamp down on tax avoidance—the deliberate evasion of taxes—but we should be clamping down on those who promoted it, not on those who took advice believing that it was lawful. The Chancellor must also go further than his recent decision merely to limit, in the Budget, the retrospective element of the charge to 2010; he must end the retrospective application of the rules altogether so that nobody who fell victim to such schemes before 2017 should be unfairly penalised. The Government must also further re-examine IR35.
I shall end my speech there, but it is important that we recognise that the steps that we must back today should have come before us much earlier.
Antony Higginbotham (Burnley) (Con)
It is a pleasure to follow the hon. Member for Edinburgh West (Christine Jardine), but I must pick up on one of her points. She indicated that the Government had done nothing to crack down on online companies, but the evidence shows that the Government took action to ensure that if we buy something from an online marketplace such as eBay, Wish or Alibaba, the seller charges VAT. That was a significant source of lost income for the Exchequer.
It is right for Opposition Members to raise the Panama papers, because they highlighted to the general public—to residents up and down the country—the actions of a small number of tax-avoidance advisers and very wealthy individuals who did not want to pay their fair share. I think it is right that we should look at that in the context of the action that the Government have taken.
Catherine West
How delightful it is to see you in the Chair, Ms McDonagh. I am very pleased to speak to amendment 77 and new clause 29, and to have listened to the excellent speech by my hon. Friend the Member for Ealing North (James Murray). I pay tribute to Members from across the parties who have stood up for those who have been so badly affected by the loan charge scandal, and I was particularly pleased to hear my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury) speaking so eloquently on Radio 4 on Sunday evening. We are getting these important messages across.
I also wanted to pay tribute to the important work that is being done by the all-party parliamentary group on anti-corruption and responsible tax, led by the right hon. Member for Sutton Coldfield (Mr Mitchell) and my right hon. Friend the Member for Barking (Dame Margaret Hodge), on simplifying things and making the basics better, for example by improving the Companies House regulations. I understand that some of that is coming forward shortly, but the general picture is that things are quite slow.
It was lovely to listen to the hon. Member for Burnley (Antony Higginbotham) speaking about the importance of taxation. Once upon a time, I am sure that would have been quite a tricky topic for certain Conservative Members to talk about, but there is a new wind blowing. It is great to hear President Biden talking about the global minimum corporate tax level and the importance of an online sales tax, and even to hear our own Government leading the charge across Europe on the importance of introducing a digital sales tax and simplifying things to bring in the important public funds that we all need to keep our society going.
The scale of tax offences is clear, with a recent TaxWatch report finding that between 2009 and 2019, the UK prosecuted 23 times as many people for benefits offences as for tax offences—that theme has been echoed in today’s speeches—despite the fact that the value of tax fraud is nine times higher than that of benefit fraud. We know that American research has shown that for every $1 the Internal Revenue Service invests, it gets back $10 of benefit for the public purse, and I wonder what the consultation the Treasury ran said about incentivising officers based in HMRC so that the more money brought back, the more colleagues come on board to help them in their important work.
We know that a lot of this work is about priorities, and we need to prioritise criminal prosecutions so that there is not a decrease in taxation, as there has been of 39% since 2015. We need to look at the balance of the DWP employing 3.5 times more staff in compliance than HMRC. We know that we have to improve that balance, because quite simply there is much more money to be found in illicit finance and among tax avoiders than from those eking out a living on universal credit or personal independence payments.
The Minister will I am sure make it clear in his remarks that the Bill is intended to tackle some of these issues and to amend that imbalance, and I look forward to hearing that. However, I make the case for quicker progress so that we can move forward as fast as possible, particularly given the fact that, as the hon. Member for Burnley mentioned, the furlough scheme and some of the other schemes are quite expensive, and therefore the need to find more in this way from tax evasion is ever more pressing.
I want briefly to mention the importance of the provisions on freeports and the corporation tax super deduction, which do not appear to come with sufficient tax avoidance and evasion safeguards. I hope that during the debate—perhaps not right at this instant, but over the course of today—we will get some reassurances on that matter. In March, the Financial Secretary was unable to say how many additional staff HMRC plans to recruit to deal with taxation, duty, excise and customs issues pertaining solely to freeports, but I hope that that information is forthcoming. Given the attention and focus the Government gave to these announcements, we would have expected them to get the basics right, but we still have some questions that are outstanding.
While the Government are bringing forward—perhaps deliberately, some of us would say—a weak set of measures in the Finance Bill, other tools that we need to tackle evasion and avoidance, such as the draft Register of Overseas Entities Bill, could well sit gathering dust, since they were initially announced quite some time ago. Will the Minister use today as an opportunity to outline his views on that particular Bill?
On the question of illicit money, do not forget that our own Intelligence and Security Committee called London a “laundromat” for illicit and dark finances, often coming from Russia. I would hope that the Minister will redouble his efforts to understand how to clamp down on the facilitation of those finances through the UK financial system. We would have expected such a description of our capital city to force action from the Government, but we are still waiting to see exactly who owns some of the foreign companies buying up British property. Can someone still walk in and purchase a £1 million property in cash, and does the Minister believe such a way of purchasing expensive properties in London is appropriate?
Kevin Hollinrake
I draw the Committee’s attention to my entry in the Register of Members’ Financial Interests. Is the hon. Member aware that there are very strict requirements for people involved in the property market to check the identity and the source of funds of those she has just described?
Catherine West
I thank the hon. Member, and it is always lovely to have an accountant in the room. If there are some improvements, we are very grateful for them.
Ruth Cadbury
If I may intervene, London is one of the few cities that has no residency or nationality rule for owning residential property, and many very high-cost cities for residents to live in, such as Vancouver and Auckland, have such rules. Could this Government consider such rules, because this issue has helped to trigger the explosion in housing prices, particularly in London, but also in our other large cities?
Catherine West
My hon. Friend makes a very important point. I am sure it has not escaped the Treasury’s attention that prices of the top 1% of properties in the country—mainly in London—have been skyrocketing, when everybody else’s house prices have been going up by a little. That differential is quite frightening. In this terrible time when our economy has shrunk by 11%, who can afford to buy properties worth several million pounds, and do we know enough about these individuals? We know that there are big gaps in the way that Companies House operates, in terms of simply understanding who owns what, and simplifying that is the sort of thing that would make the work of HMRC much more streamlined.
I would also like to put on record the wonderful work being done by civic society groups to spread information and education about the importance of understanding taxation, what it does and what it purchases. It is through these campaigns—often outside this House—that we can understand how to change things.
Aside from our international reputation often being questioned on the issue of Russian oligarchs, we know that the lack of action on questioning some people’s contacts with the Kremlin is costing us over £30 billion every year in lost revenue from taxes. That is a lot of money, and it would be better used to pay for the furlough, eliminate child poverty, vaccinate more children in the third world, or pay and equip our NHS staff for the heroic job that they do every single day.
The Government must act without delay and begin by supporting amendment 77 and new clause 29, which are a significant improvement on the weaker proposals put forward by the Government. That would send a signal that the UK will no longer be silent in the face of tax evasion and tax avoidance and is no longer a welcome home for the oligarchs and agents who see the UK as the destination of choice for their ill-gotten gains. I urge the Minister to do the right thing.
Ruth Cadbury
I speak in support of new clause 29 in the name of Her Majesty’s Opposition and cross-party amendment 77. I congratulate my hon. Friend the Member for Ealing North (James Murray), my right hon. Friend the Member for Barking (Dame Margaret Hodge) and the right hon. Member for Sutton Coldfield (Mr Mitchell) on their speeches.
Addressing tax avoidance and evasion is, of course, an important objective of the Treasury, and Finance Bills and other legislation are the vehicles to do that, but as with all tax changes, Government must assess and respond to the unintended consequences of any changes. This Government have a terrible track record on tackling tax evasion and aggressive tax avoidance. They have consistently stood in the way of Labour’s calls to clamp down on loopholes and have failed to collect over £30 billion in taxes every year. They have promised to legislate on these issues, but the proposals in the Bill fall far short of any substantive change. Instead, they have been responsible for an increasingly complex system of payment, fraught with difficulties and risks for the unsuspecting worker.
A growing number of working people need to work on a contractor basis, either for personal reasons or because it is the only way of getting work in their sector or with their professional skillset. Increasingly, the alternative to being a contractor is to be a PAYE freelancer—to pay tax in full but without any of the rights of being an employee and all the costs of being self-employed. This is zero-rights employment, and it is unfair.
We need an effective tax avoidance policy that criminalises those promoting tax avoidance, rather than going for the workers inadvertently caught up in them, as this Government and HMRC have been doing with the loan charge in particular. That is the wrong target. While ordinary people who are victims of mis-selling are facing ruin and bankruptcy, the Government have done too little, too late to go after those who promoted the schemes.
I acknowledge that the Bill contains measures to tackle the promoters of tax avoidance and changes the system of penalties, but those measures are extremely limited in scope. Indeed, those changes are not even included in the Budget report costings, which suggests that their financial impact must be minimal. IR35 was enacted 21 years ago to stop the practice of those who, in reality, were permanent, generally full-time workers being paid as contractors through personal services companies, as many were paying much less tax than if they had been employees. It was right to address that tax avoidance, but the Government must address the unintended consequences for workers and the labour market that have followed since then.
Jesse Norman
I am grateful to all those who have spoken in the debate. Let me start with my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who, as always, brought a robust common sense, as well as the skills of an accountant, to bear, especially when it comes to holding the Opposition to account for some of their comments.
Mr Mitchell
I should defend our hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake). He is not an accountant; he is an estate agent.
Jesse Norman
I have been held to account by my right hon. Friend and I am grateful to him for that, because that power—if I have any power—should always be held to account. Let me put the record straight: my hon. Friend the Member for Thirsk and Malton is an estate agent, and yet with that estate agency genius he combines the forensic skills of an accountant in holding to account, indirectly, members of the Government and, directly, the Opposition. I thank him for that.
My hon. Friend the Member for Thirsk and Malton pointed out that these disguised remuneration schemes are highly contrived. It is terribly important to remind ourselves of that. It is all very well to complain about the loan charge, but these are highly contrived schemes. My hon. Friend reminded us—as, indeed, did my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) —of the general rule that all taxpayers are responsible for their own tax, and that if, by implication, a scheme looks too good to be true, it almost certainly is too good to be true. Those are important messages and no Government should wish to weaken that important principle that people are responsible for their own tax.
Ruth Cadbury
I understand what the Minister has said. Of course, most of us are aware of our own tax bands. But how can the Minister expect basic rate taxpayers—a nurse, an IT contractor, somebody working in the film industry, even somebody on minimum wage—to do due diligence when nothing they read or have been sent ever mentions loans, and when they are given a convincing narrative that their tax is being paid for and they do not need to worry? Should not HMRC and the Treasury be addressing this issue, because it is a growing part of the employment market?
Jesse Norman
HMRC is addressing these issues. That is why this Bill has so many measures in it that are focused on the disclosure of tax avoidance schemes, toughening up that regime and improving the regime against the promoters of tax avoidance. But let me say to the hon. Lady that I thought her remark was dripping with condescension towards the ordinary taxpayers of this country. The fact of the matter is that people, from whatever walk of life, are perfectly competent—they do not need to be patronised by Labour Members of Parliament—at working out when something looks too good to be true. That is why so many—such a high percentage; well over 90% of people—do manage to work out what is too good to be true and behave on that basis. To suspect otherwise, when HMRC is absolutely working as hard as it can to make sure that the truth is out there and well understood, and is closing down opportunities for misleading advertising, in a recent initiative with the Advertising Standards Authority and a whole host of other things, is completely wrong.
I am grateful to my hon. Friend the Member for Burnley (Antony Higginbotham) for what I thought was a very robust and thoughtful contribution. He is absolutely right to highlight that HMRC has not been slow in this area. He was right to pick up the point about VAT on online platforms, but, of course, that is merely the tip of the iceberg. The hon. Member for Ealing North (James Murray) somehow suggested that we were failing to tackle this issue. The tax gap, as he pointed out, is 4.7%—a historic low. Let me remind the House and him of some of the actions that the Government have taken—leadership on base erosion and profit shifting over many years, the diverted profits tax, the corporate interest restriction, the tax charge on offshore receipts, hybrid mismatch rules, our new digital services tax.
Kevin Hollinrake
I very much welcome the digital services tax, which is there to try to make sure that everybody pays their fair share, as the Minister said in his opening remarks. Having said that, it does not apply to Amazon’s direct sales on that platform. It applies only to third-party merchants, so there is not that much of a level playing field between those two different cohorts. Will he look at that in future?
Jesse Norman
Brilliantly, my hon. Friend has intervened just before I was about to mention that we are consulting on an online sales tax, which is a parallel initiative. Indeed, the digital services tax includes the introduction of a new basis for tax—that is, UK user content. That itself is a flag to the energy and innovation that the Government are seeking to bring to this issue, and I thank him for his comments.
The hon. Member for Ealing North asked about the beneficial ownership registry on overseas companies that own or buy property in the UK. As he will know, the Government published a draft Bill. It has gone through prelegislative scrutiny. The process has, for reasons that the House will not need any reminding of or highlighting, been somewhat interrupted over the past year, but the Government plan to introduce the Bill in due course, so I reassure him on that point.
The hon. Gentleman raised the question about minimum corporate taxation. He should know that the Government have been, as I said, in the international vanguard in trying to drive change on base erosion and profit shifting, and processes of international tax agreement through the OECD. We were also in the vanguard of delivering the creation, originally, of the G20 commitments for a comprehensive global solution to this issue, based on two pillars, and we are leading the way, during our G7 presidency, on this issue, as the Chancellor has made clear. So we absolutely welcome the renewed commitment that the US Administration have made in this area, which we think is a very important change.
Finally, I turn to the important amendment 77, which was tabled by my right hon. Friend the Member for Sutton Coldfield and the right hon. Member for Barking (Dame Margaret Hodge). My right hon. Friend was right to highlight the importance of eternal vigilance—I absolutely share his view on that—and he was right, as the right hon. Lady was, to talk about the ever-shifting and evolving ways in which some of the malefactors in this area are ceasing to operate, and, of course, that is true. However, if I may say so, he erred in suggesting that the penalty on the enablers—that is to say, a sum equal to the gross fees to be collected in relation—was in any sense modest or small. It is one of the largest charges in the tax system, and because it is a gross fee, it is of course charged on the total amount of income. It is therefore income on which the promoter will have to recognise all their costs, and indeed any profit and any tax they may have paid, so it is actually a fairly formidable penalty.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
I beg to move amendment 81, in page 49, leave out lines 14 to 27.
This amendment would mean that the Stamp Duty Land Tax (Temporary Relief) Act 2020 no longer applies to additional dwellings.
The Temporary Chair (Siobhain McDonagh)
With this it will be convenient to discuss the following:
Clauses 87 to 89 stand part.
That schedules 16 and 17 be the Sixteenth and Seventeenth schedules to the Bill.
Clauses 90 and 91 stand part.
New clause 26—Equality impact analysis (No. 2)—
“(1) The Chancellor of the Exchequer must review the equality impact of sections 87 to 89 and schedule 16 and 17 of this Act and lay a 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 impact of those sections on—
(a) households at different levels of income,
(b) people with protected characteristics (within the meaning of the Equality Act 2010),
(c) the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010, and
(d) equality in England, Northern Ireland and in different regions of England.
(3) A review under this section must provide a separate analysis in relation to each of the following matters—
(a) the temporary period for reduced rates on residential property,
(b) increased rates for non-resident transactions, and
(c) relief from higher rate charge for certain housing co-operatives etc.
(4) In this section “regions of England” has the same meaning as that used by the Office for National Statistics.”
This new clause requires the Chancellor of the Exchequer to carry out and publish a review of the effects of sections 87 to 89 and schedules 16 and 17 of the Bill on equality in relation to households with different levels of income, people with protected characteristics, the Treasury’s public sector equality duty and on a geographical basis.
New clause 27—Fiscal and economic impact of 2% non- resident surcharge—
“(1) The Chancellor of the Exchequer must review the impact of section 88 and schedule 16 and lay a report of that review before the House of Commons within six months of the passing of this Act and once a year thereafter.
(2) A review under this section must estimate the expected impact of section 88 and schedule 16 on—
(a) Stamp Duty Land Tax revenue at the increased rates of 2%, and what the revenue impact would have been if the rate had been 3%,
(b) residential property prices, and
(c) affordability of residential property.”
This new clause would require the Government to report on the effect of the 2% stamp duty land tax non-resident surcharge on tax revenues and on the price and affordability of property.
Abena Oppong-Asare
It is a pleasure to speak for the Opposition on this group of amendments and new clauses relating to stamp duty. I rise to speak on those in my name and those of my right hon. and hon. Friends.
Amendment 81 will prevent the extension of stamp duty holiday from being used for second homes, buy-to-lets and investment properties. New clause 26 would require the Government to review the equalities impact of this group of clauses, including their impact on households with different income levels and on people with protected characteristics, their compliance with the public sector equality duty and their impact on the different regions and nations of the United Kingdom. New clause 27 would require the Government to review the impact of a non-residential surcharge of 2%, which it is set at in the Bill, and 3%, which, as I shall come on to, the Conservative party previously committed to.
Before I come on to the amendments in more detail, let me say a little about the stamp duty holiday extension. Clause 87 extends the £500,000 nil rate band until 30 June. From July until the end of September, the nil rate band will be £250,000, double its normal level; it will return to the usual level of £125,000 from 1 October. It is estimated that the total cost of this extension will be £1.5 billion by the end of 2021-22. That is on top of the £3.2 billion cost of the initial stamp duty land tax holiday announced in July 2020.
The extension will of course be welcome news for those people in the process of buying a new home who face a cliff edge at the end of March. We know that many people have struggled to complete purchases in time due to the coronavirus restrictions and the significant backlog of pending transactions. In previous debates, Members raised issues of cyber-attacks on council services in Hackney that impacted the planning department and delayed people’s securing mortgages.
However, we have concerns about the broader effects of the policy. Our new clause 26 is intended to encourage the Government to be honest about the impact of the stamp duty holiday on the housing market. The Resolution Foundation says that the lower stamp duty liabilities have contributed to house price rises over the last eight months. House prices in England grew 7% between July and December 2020, which is highly unusual behaviour during a recession. In many cases, the rise in house prices over the period will have cancelled out the benefit of the stamp duty holiday. As the Institute for Fiscal Studies, the Resolution Foundation and others have pointed out, the stamp duty holiday has also had the perverse effect of temporarily removing the advantage that first-time buyers had in the market compared with existing homeowners. This, coupled with rapidly rising house prices, has meant that many first-time buyers continue to be priced out of the market. The Bill does nothing to address the housing crisis that affects millions of families across the country—yet again, a wasted opportunity from this Government.
I turn now to clause 88 and our amendment 81. It is unbelievable that, at the same time as the Chancellor is pressing ahead with a £2 billion council tax rise, he has given another tax break to second-home owners and buy-to-let landlords. This half a billion pound tax break for second-home owners and landlords is the wrong priority in the middle of an economic crisis that is hitting family incomes. Instead, this money could have been used to build nearly 3,000 socially rented homes, which is half the total built in England last year. In Wales, the equivalent tax relief has not been extended to property acquired as investment or as a second home. Labour’s amendment 81 would ensure that the extended stamp duty holiday in England and Northern Ireland followed that approach. I turn to the non-residential surcharge introduced under clause 88. During the 2019 general election campaign, the Chancellor, who was then Chief Secretary to the Treasury, said:
“Evidence shows that by adding significant amounts of demand to limited housing supply, purchases by non-residents inflate house prices.”
He went on to announce a Conservative manifesto commitment to introduce a non-resident stamp duty surcharge of 3%, which would have been spent on programmes aimed at tackling rough sleeping. But clause 88 introduces a non-resident surcharge of 2%, rather than 3%. As yet, we have had no explanation from the Government as to why they have watered down that commitment. We estimate that this means the Government could miss out on £52 million a year in revenue that should have been spent on tackling homelessness and rough sleeping.
Our new clause 27 would require the Government to review the difference between the 2% charge and the 3% charge and to reveal the lost income as a result of that decision. When the Minister stands up, perhaps he will tell us why the Government have moved from 3% to 2%.
We welcome clauses 89 to 91, which provide relief from the annual tax on enveloped dwellings and the 15% stamp duty charge for the ownership and transfer of property by housing co-operatives that do not have transferable share capital. The Treasury has listened to the co-operative housing sector on the issue and that is welcome.
To conclude, we do not believe that the Government’s clauses in this group would do anything to solve the housing crisis we face in this country. Year after year, Government have failed to build the homes we need, especially social and affordable homes. The Government are on track to miss their target of building 300,000 homes by almost a decade. The number of new social rented homes has fallen by over 80% since 2010 and home ownership is down sharply among young people, with 800,000 fewer households under 45 owning their home than in 2010. Without urgent action the housing crisis in the UK will deepen. Instead the Government have decided to give a tax break to landlords and failed to meet their own commitment on the non-residential surcharge. Our amendments will remedy these wrongs.
Jesse Norman
Last spring, we were only just beginning to understand as a nation what the full impact of the coronavirus might mean for us. We were told to stay at home and, for many people, that meant postponing plans that they might have made to move, creating considerable uncertainty. It was evident that the housing market was affected by that and it was made much worse when, on 26 March, buying and selling a property was largely put on hold. While business was enabled to resume from 13 May, there was concern about what the pandemic would mean for the market and for the jobs that rely on the sector.
The Chancellor announced that he would support the housing market through the stamp duty land tax holiday, quadrupling the starting threshold for SDLT to £500,000. That was designed to give a boost—indeed, the boost to the housing market that it needed to thrive through the pandemic. It has thrived: transactions in the last quarter of 2020 were 16% higher than in the same period in 2019. In other words, the SDLT holiday has given hundreds of thousands of families the confidence to buy and to sell their homes at a particularly difficult time. In turn, it has supported the livelihoods of people—tens of thousands of them, or more than that—whose businesses and jobs rely on trade with, through and from the housing market.
Towards the end of last year, it became apparent that the housing industry was struggling to meet the additional demand to move home and that there were delays in processing transactions. That meant that some of those moving home would not be able to complete the transactions that they had entered into until after the holiday ended, through no fault of their own. The Bill therefore extends the stamp duty land tax holiday in order to allow those buyers still to receive the relief. In addition, the nil rate band will be £250,000, double its standard level, until the end of September, in order to allow the market to return smoothly to its normal rates.
The Bill also introduces a non-residential SDLT surcharge. The surcharge will apply to property purchases by non-UK residents who do not come to live and work here, helping to ease house price inflation and to keep housing free for UK residents to buy. Revenue raised from the surcharge will be used to help address the issue of rough sleeping.
The hon. Member for Erith and Thamesmead (Abena Oppong-Asare) raised the question about the non-resident surcharge. She may not be aware that, at Budget 2018, the Government announced that a consultation for a 1% non-UK resident surcharge would be published. Following the announcement of the surcharge, HMRC and the Treasury carried out a public consultation in spring 2019. That included questions on whether a 1% rate was set at the right level to balance the Government’s objectives on home ownership with those of the UK remaining an open and dynamic economy. Having listened to stakeholders, the Government believe that the 2% surcharge—twice the original amount contemplated—strikes the right balance in this area. That is the basis on which the surcharge has been set.
The Bill will also relieve the 15% rate of SDLT and the annual tax for enveloped dwellings for qualifying housing co-operatives. That change ensures that these measures are fairly targeted at companies that use so-called envelopes in order to avoid tax on their properties.
Amendment 81 would disapply the SDLT holiday to purchases of additional dwellings. As the Committee will know, the SDLT holiday was intended to give a boost to the entire property market, of which developers and landlords are important parts. Although those buying second homes or buy-to-let properties will benefit from that tax change, they will continue to pay an additional 3% on top of the standard SDLT rates.
The Government have maintained the relative advantage that buyers of main homes had before the tax change. For example, the purchaser of a second home worth £500,000 will still pay £15,000 in SDLT, compared with nothing for the purchase of a main residence. It was a Conservative Government who introduced the phasing out of finance cost relief, and the higher rates of SDLT for the purchase of additional property—all steps towards a more balanced tax treatment between homeowners and landlords.
On new clause 26, HMRC routinely publishes information about SDLT, collected by house price bands and by region. Of course, a full tax impact assessment, including equalities impacts, has been published for each measure.
Extending the SDLT holiday ensures that buyers who were affected by delays in the industry will still be able to receive the tax relief.
In the longer term, the Bill introduces a new surcharge that will help more people on to the housing ladder through the new non-UK residents’ surcharge. It also ensures that stamp duty and the annual tax on enveloped dwellings remain fair by making certain that only those who the Government intend to pay corporate rates of tax are captured.
Richard Thomson (Gordon) (SNP)
I am happy to speak in support of clauses 80 to 91 and also new clauses 26 and 27.
Some of the measures in this cluster of schedules and clauses do not apply to Scotland, where the land buildings transaction tax applies instead following the devolution of the stamp duty land tax. That said, I am sure that the extension of the temporary increase to the stamp duty land tax holiday with no rate band for residential property in England and Northern Ireland that will be given effect by clause 87 will be very much welcomed by those who stand to benefit from it. The increased rates for non-resident purchasers given effect by clause 88 and schedule 16 is something that is long overdue. I am also happy to support the relief from annual tax on enveloped dwellings for certain kinds of properties given effect by clauses 89 to 90 alongside schedule 17, as well as the provisions being made under clause 91 for repayment to co-operatives that are also eligible.
I encourage Ministers to look positively on the reforms of property taxation that have taken place in Scotland since stamp duty was devolved. LBTT replaced stamp duty on 1 April 2015. It is very much a progressive tax in that the rates increase more than proportionately in line with the price of the property to which it has been applied. That has a very valuable role in the housing market with regard to easing house price inflation and, at the same time, exempting nearly 80% of first-time buyers from paying any kind of property tax on their first purchase of a home. My party is committed to maintaining current rates and bands within that tax regime while undertaking a review of the effectiveness of the additional allowance supplement that has also been put in place. It is in that spirit of constant review that we find much to welcome in new clauses 26 and 27, which we consider will merit the support of the Committee.
Gareth Bacon (Orpington) (Con)
As the Committee is aware, this year’s Finance Bill is presented at an unprecedented time in British peacetime history. The pandemic has hit the economy very hard, and the Government have not stood idly by over the past year. Extensive levels of economic interventions have been introduced to protect jobs, businesses and our people in order to help them through this pandemic. The impact of this on the state of the public finances has been drastic, with the budget deficit rising to £355 million in 2020-21 and our national debt rising to £2 trillion.
That is of course not a sustainable position, but, as we know, the tide is turning. The Government’s excellent vaccine planning, procurement and roll-out means that we can now see the end in sight. The economy and society have begun to open up, but we are not there yet. The Budget introduced by my right hon. Friend the Chancellor of the Exchequer in March therefore had to achieve a very delicate balance in maintaining high levels of economic support during the continuing global health crisis while also laying the groundwork to repair the public finances and support our economic recovery.
The part of our economy that is the housing market comes in both property sales and construction. I will address my remarks primarily to the decision to extend the temporary stamp duty land tax holiday. As my right hon. Friend the Minister said, when the pandemic struck and the first lockdown began in March last year, the housing market experienced a sharp decline in sales, falling by 43% in the second quarter of the financial year compared with the same period of the previous year. Historically, a sharp drop in transactions, if left unchecked, has led to a fall in the level of house building. The Government’s action in introducing revised thresholds at the lower end of the market, abolishing stamp duty on the first £500,000 of the purchase price and setting the level at 5% for the next £425,000, has greatly alleviated the problem. In my constituency of Orpington, the average house price is currently £528,000, and the Government’s intervention has reduced the level of stamp duty on an average transaction by 91%, leading directly to a strong recovery in the local housing market.
That recovery is also reflected in the picture nationally. According to HMRC figures, in the third quarter of the most recent financial year, housing sales increased exponentially on the previous quarter, and in the fourth quarter transactions were at their highest level since 2007. In the short term, that is extremely welcome because the Government have achieved their objective of stabilising the housing market and maintaining confidence in the construction market. By introducing an extension of the initial stamp duty holiday, followed by a tapering of relief, the Government have taken steps both to remove the danger of a cliff edge that could have reversed all the good work done in the latter half of last year and to prevent an unsustainable long-term boom in house prices. I believe that is the right approach at this juncture.
In the longer term, though, I urge the Government to take a long, hard look at the structure of stamp duty. Stamp duty thresholds have not kept pace with the rise in house prices, meaning that stamp duty has become a significant barrier to purchasing. That is particularly true in places such as Orpington, and even more so in other areas of south-east England in particular, where housing shortages are most acute. In the light of the strong link between house construction and housing transactions, coupled with the Government’s desire to ramp up house building and level up the country, a review of the wider stamp duty regime would bear consideration. However, that is an argument for another day, once the battle with the pandemic is finally won.
For the moment, I believe that the extension of the stamp duty until the end of June is the right move, and its tapering from the end of June until October is both proportionate and unwelcome. I will support the Government on the issue this evening.
Geraint Davies (Swansea West) (Lab/Co-op) [V]
The stamp duty holiday tells us all we need to know about the Government’s priorities. Amid an awful pandemic that has seen the highest death rates in the world, when something like 4 million people have been infected and many of them will face long covid, and when something like 7.6 million people are in hunger, we need investment in the wider economy to get us moving again. In fact, with the stamp duty holiday the Government have spent much of £5 billion, over two years, on second homes. That £5 billion could have paid for 5% increases in nurses’ salaries over 15 years, given that a 5% increase would cost £330 million after allowing for the recovery of the tax on the money given in the first place.
In any case, it is not clear that the stamp duty holiday was at all necessary to stabilise the housing market, because immediately as the pandemic began to hit, the Bank of England reduced interests rates and in so doing reduced mortgage costs, supported prices and increased landlords’ margins at a time when tenants were still required to pay their rents. Given that the Bank of England had already taken action to support the market, the stamp duty holiday simply increased house prices by something like 7% between July and December 2020. That is not the right priority, and it is certainly not the right priority to invest money in second homes for people who are basically making money out of that investment from taxpayers and boosting the prices that first-time buyers face. That is why in Wales, where we have a Labour Government, second homes were not included in the stamp duty holiday, which was quite right. I therefore support amendment 81. Indeed, in Wales, we have made provision so that there are no rough sleepers during this pandemic, whereas in England, of course, there are.
The stamp duty holiday will mean that first-time buyers will find it more difficult to buy a house because deposits will need to be bigger. We are moving to a situation in which young people who want to buy a house will almost always have to depend on their parents to do so, so the distribution of the opportunity to buy a house in Britain is getting worse and worse.
In a nutshell, this Budget should have invested in all our opportunities to raise productivity, increase the number of jobs, focus on the future and keep people healthy. Instead, it has been seen as an opportunity to focus on widening inequality unnecessarily. I very much support the Labour party’s amendments.
The Temporary Chair (Sir Charles Walker)
We now go to Christine Jardine, who is joining us virtually.
Felicity Buchan (Kensington) (Con)
I speak in support of the Bill and against the amendment. The stamp duty holiday has been an unequivocal success in stimulating the market, and I welcome its extension. Many of my constituents will also welcome the surcharge for non-UK residents. In my constituency, many foreign investors buy flats and houses as financial investments, and often these lie empty; in effect, they are bank balances in the sky. This has real implications for my constituency. It leads to hollowed-out communities, and it makes it very difficult for shops, restaurants and businesses to be viable.
I welcome this Government’s focus on house building. Last year, we built 243,000 houses. That is the most in 33 years. For so many of my constituents, buying a house is almost an unobtainable dream. We need to build more houses, and we need to build more affordable housing. That is especially the case in London, where the Labour Mayor’s record of building housing has been lamentable. In 2016, he was given a budget of £4.62 billion to build 116,000 houses. How many had he done by December? Only 56,000—less than half. It is lamentable.
I also welcome the Government’s new measures on guaranteeing mortgages up to 95%. Again, this will help my young constituents and key workers to get on to the housing ladder. In my borough of Kensington and Chelsea, we have so many private renters. Some 44% of my constituents are private renters, because people cannot afford to get on to the housing ladder. Rent is a huge proportion of my constituents’ incomes. Rent is 26% of the median average income nationally. In my constituency, it is a whopping 75%, so I welcome all the support to get young people in my constituency on to the housing ladder.
I support the measures in the Bill, but like my hon. Friend the Member for Orpington (Gareth Bacon), I encourage Government to be more radical when it comes to stamp duty and to make a fundamental reform. Stamp duty is essentially a tax on social mobility. It prevents people from moving closer to new work opportunities. It prevents young and growing families from moving from one to two-bedroom flats to bigger family houses. It prevents older people from downsizing.
In my constituency, it has led to very perverse consequences. People cannot afford to move, so they start extending their houses. That has led to an onslaught of basement developments. One house in my street went down an extra three storeys below the lower ground floor. That has now been banned by my council, but this causes undue distress to my constituents and intolerable noise and disruption that goes on for prolonged periods. We have to make it easier for people to move.
Christine Jardine
Thank you, Chair. Apologies, I do not know what happened just then, but it is now a pleasure to take part in this debate.
I will be supporting amendment 81, as will the Liberal Democrats, which would ensure that the stamp duty land tax holiday no longer applies to the purchase of second homes. I will keep my remarks short, in the light of the earlier mishap. Suffice it to say that we believe that the SDLT holiday is not effective in helping first-time buyers on to the housing market. Giving a tax break to people who have already saved money for their property and can already afford a mortgage does not entirely solve the problem. Extending the SDLT holiday would serve only to avoid a cliff edge, depriving the Treasury of much-needed funds at a time when there are many extremely pressing calls on our public finances. Combined with the new lower deposit mortgage scheme launched in the Budget, its only effect is to increase demand for housing without increasing the supply of homes. For me, and for the Liberal Democrats, that is crucial. Members can see where I am going with this: we need to increase the supply of homes.
The Government need to take steps to increase the number of homes being built. They first must make and then keep to their targets, support local authorities that want to build new homes and enforce affordable homes targets. That must include building 100,000 new social homes a year. The Liberal Democrats have proposed a new rent to buy scheme, where people can build up shares in housing association homes through their rent. I ask the Government to examine the merits of that proposal. These steps would be more effective in getting people on to the housing ladder. Therefore, I ask that the amendment be supported and I ask the Government to consider the rent to buy scheme as a way of realistically helping people on to the housing ladder without increasing demand for housing that is not there.
Anthony Browne (South Cambridgeshire) (Con)
I very much welcome many of the measures in the Finance Bill, particularly the measures on stamp duty. Like many people who called for a stamp duty holiday, I welcomed it when the Government announced it and I am glad to see that it has been one of the most successful stimuli to economic activity that the country has seen. The moribund market is now racing ahead, albeit possibly slightly too fast. I recognise that homeowners need certainty—many of them are in the middle of transactions —so this is good. We are not out of the pandemic yet, so I welcome the Government’s move to extend the stamp duty holiday to the end of June. I also welcome the fact that they are removing the steep cliff edge and replacing it with a smaller cliff edge by tapering it out and extending it at a lower rate until the end of October. Those are both good measures that will keep the housing market going and give certainty to homeowners.
I do not support amendment 81, which proposes that these measures should not apply to second homes, although I understand the social justice argument behind it. The purpose of the stamp duty holiday is to stimulate economic activity, and whether a home is being bought to live in or as an investment property, that still involves economic activity in the housing market. Our focus here is on stimulating the market, and both those activities have equal effect.
Back in 2012, I co-founded an organisation called the HomeOwners Alliance, Britain’s first and only consumer group for homeowners. Our aim was to champion homeowners and aspiring homeowners and to help people to get into the housing market, recognising that home ownership is a valid aspiration for all young people, and indeed older people, and that the primary role of homes is to be lived in. They are not investments or casinos; they are to be lived in, and that should be the role of Government policy.
I wrote various papers on the reform of stamp duty. I will not go on about the details, but there were two particular reforms that I called for. One was an increase in the stamp duty on second homes, investment properties and buy-to-lets. The other was an increase in the stamp duty for non-residential buyers. The Government have already introduced the first of those, and I think they have raised almost as much money from that as they do from residential stamp duty. Now, in this Bill, they are introducing the stamp duty surcharge for non-residential buyers—the people who want to buy homes in this country but who have no intention of living in them. As a country, we have been very generous to such people—far more generous than most other countries—but, as my hon. Friend the Member for Kensington (Felicity Buchan) said, this has a real cost in terms of preventing other people from buying a home that they actually want to live in.
It is very welcome that the Government are introducing the 2% surcharge for non-residential buyers who do not want to live in the UK. It is right that it should start low—2% is quite low; that is often the fee that we pay to the estate agent—but the Government should monitor it. There will be an opportunity to increase that rate, while ensuring that doing so does not have really bad effects on the market but that it does have an effect on demand and helps to free up properties for people who want to buy a home to live in. The money from these measures is being used to house rough sleepers, which is very welcome, but in the longer term as we raise the rate and more money is brought in, I would use that revenue to reduce the burden of stamp duty for those buying homes that they want to live in. As my hon. Friend the Member for Kensington so eloquently said, stamp duty is a big burden for homeowners. Following those thoughts for the future, I will be fully supporting the Government’s policies.
Ben Everitt (Milton Keynes North) (Con)
It is a pleasure to speak on this part of the Finance Bill, and I want to start by saying thank you to the Treasury for listening to people’s suggestions relating to the stamp duty land tax holiday and for listening to the voice of the industry, which called for this extension. The original decision at the start of the pandemic to provide that stamp duty holiday was brilliant. It worked. It was the right measure at the right time, and it stimulated our economy and resulted in an almost 33% increase in the amount of home moves. It kept the whole show on the road. Now, as my hon. Friends have mentioned, the decision to extend it will remove the cliff edge that we could have faced when it went away, along with the tapering of other support packages.
These are sensitive times, and there are fiscal measures in place that are carefully balanced to stimulate growth, support people, jobs and businesses, and project confidence to the markets so that we can credibly borrow all this money to invest in our covid response, but this stamp duty holiday cannot go on for ever; it is after all, a revenue-negative intervention from the Treasury, despite the wider economic stimuli that it creates for the painters, movers, builders, white goods salesmen and so on.
So what do we do with a problem such as SDLT? I do not believe that it is simply a case, as some might say, of replacing one tax with another. We do too much shuffling and tinkering with our taxation system and our housing market. As a result, our taxation system is fiendishly complicated. However, this is our opportunity for radical reform, and this clause proves it. We need to look at the role of property values in locally raised revenue. We need to include our commitments on net zero and levelling up, as well as the target of building 300,000 houses a year.
Other interventions, such as the freeport scheme, can provide an excellent place to start. Let us put that idea on steroids. Let us have special economic zones to deliver levelling up and green homes, and sustainable investment in businesses, jobs and homes and the infrastructure that goes with them. With levers such as the super deduction combining with our global Britain approach, we can reach out to the world to get more foreign direct investment, more onshoring of manufacturing and more global brands relocating to those areas that we will level up.
The property tax element is fundamental here because it relates to the homes that people live in—the people who will do the jobs that will benefit from this investment and whom we will support through the levelling-up agenda. To put it simply, we cannot do levelling up without fixing the housing market, and the way we tax it, and what we disincentivise and incentivise as a result of that taxation, are a great place to start. I therefore fully support this clause.
Jesse Norman
I do not think I will ever give a more popular speech than the one I am going to give now, because I just want to thank everyone who has made comments. I thank the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) for her remarks, which I have already answered. I thank colleagues for the speeches they have made to explore the effects, purpose and potential limits, even, of the stamp duty land tax and the holiday. I ask Members to support the clauses, and I will sit down.
Abena Oppong-Asare
This has been a good debate, and I too thank Members on both sides of the House for their contributions. Members on both sides have spoken on behalf of their constituents about the impact of the stamp duty holiday, the challenges of buying a home and the need for more action to make affordable housing a reality.
As I said in my opening contribution, the Opposition simply do not believe that the Government should be handing a half a billion pound tax break to buy-to-let investors and second home buyers. Once again, this is the wrong priority from a Government who are letting families down. Labour’s amendment 81 would end that unfairness, and I want to press it to a vote.
Question put, That the amendment be made.
The Temporary Chair (Sir Charles Walker)
With this it will be convenient to discuss the following:
Amendment 64, in clause 93, page 54, line 15, leave out
“substitute for the period for the time being mentioned there such other”
and insert “increase the”.
This amendment would ensure that the Treasury can only increase, and not decrease, the period for which the temporary 12.5% reduced rate of VAT for the hospitality and tourism sectors applies.
Clauses 93 to 96 stand part.
That schedule 18 be the Eighteenth schedule to the Bill.
Clause 97 stand part.
That schedule 19 be the Nineteenth schedule to the Bill.
Clauses 128 to 130 stand part.
New clause 16—Review of changes to VAT—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made to VAT by sections 92 and 93 of this Act and lay a 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,
(d) GDP growth, and
(e) poverty.
(3) A review under this section must consider the following scenarios—
(a) the extension of temporary 5% reduced rate for hospitality and tourism sectors is continued until 30th September 2021, and
(b) the extension of temporary 5% reduced rate for hospitality and tourism sectors is continued until 31st December 2021.
(4) 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 seeks a review comparing (a) the extension of temporary 5% reduced rate for hospitality and tourism sectors being continued until 30 September 2021, and (b) the extension of temporary 5% reduced rate for hospitality and tourism sectors being continued until 31 December on various economic indicators.
New clause 30—Review into the effects of replacement of LIBOR—
“(1) The Chancellor of the Exchequer must undertake a review within six months of the passing of this Act of the effects of sections 128 and 129.
(2) This review must consider—
(a) the implications for tax revenue,
(b) effects on financial stability, and
(c) effects on businesses that use LIBOR as a benchmark, including businesses offering supply chain finance.”
This new clause would require a review into the effects of the provisions of the Bill about replacing LIBOR.
Jesse Norman
May I say how much I love your exuberance, Mr Walker? It is never better in evidence than it was just now. Perhaps we are all getting a bit demob happy after 10 hours of close consideration of the Bill.
The Finance Bill includes clauses that extend temporary VAT relief for the hospitality and tourism sectors; that extend digital record keeping for VAT purposes to all businesses; that give businesses longer to make deferred VAT payments; and that add S4C, the Welsh language television channel, to an existing VAT refund scheme for public bodies. A customs clause will enable businesses that export steel into Northern Ireland from the EU to pay the same tariffs and access the same UK quotas as other UK businesses, instead of facing the prohibitive duties and quotas set out in EU legislation last year. Finally, banking clauses make changes to existing tax rules to ensure that they continue to operate as intended following the transition away from LIBOR and other benchmark rates, and update the powers to make amendments to the bank surcharge, the bank loss restriction, the bank compensation restriction and bank levy rules by regulations made by statutory instrument.
Clauses 92 and 93 ensure that businesses will continue to be supported by the temporary VAT relief for the hospitality and tourism sectors. The relief was introduced as an urgent response to the economic challenges faced by businesses in sectors severely affected by covid-19 restrictions. Together, these clauses will ensure that the relief continues to support the cashflow and viability of around 150,000 businesses, as well as the continued employment of more than 2.4 million people.
Amendment 64 seeks to remove the flexibility in the legislation that would allow for changes in the duration of the relief. As with all reliefs in response to the pandemic, the Government continue to keep the situation under review. It is important that the clauses allow for flexibility in what is, after all, still a rapidly changing environment. I therefore urge Members not to support—indeed, to reject—this amendment.
New clause 16 would require a review of the impact on investment of extending the 5% rate of VAT to the end of September, versus the year end, across the United Kingdom. This is technically not possible, because some of the required data does not exist.
Clause 94 will provide the legislative basis for the changes I announced to the Making Tax Digital for VAT service in July 2020, extending the requirement to keep digital records and submit digital VAT returns to VAT-registered businesses with taxable turnover below the VAT threshold of £85,000 from April 2022. Around 600,000 businesses have deferred VAT payments worth an estimated £34 billion as a result of the coronavirus emergency.
Clause 95 and schedule 18 legislate for a new payment scheme that will allow businesses that defer VAT payments from 20 March through to the end of June 2020, which were previously due by 31 March 2021, longer to pay in up to 11 equal monthly interest-free instalments. The new payment scheme has been available since February and will remain available until late June 2021. As of 19 April, HMRC has collected around £13 billion of the £34 billion that was deferred. Approximately 120,000 payment plans have so far been created, with a further £11 billion committed to being paid in monthly instalments. This means that over £24 billion of the total deferred VAT has now been secured as paid or scheduled to be paid. This is proving to be an extremely important and effective intervention.
Clause 96 seeks to add the Welsh language television channel S4C, the recent changes to the operating structure of which mean that it can no longer recover most of the VAT it incurs, to an existing VAT refund scheme for public bodies. That will refund VAT relating to its non-business activities of free-to-air public service broadcasting. The change will come into effect from 1 April 2021.
Clause 97 and schedule 19 ensure that businesses that move steel into Northern Ireland do not have to pay prohibitive safeguard rates as long as there is capacity in the relevant quota. The EU introduced legislation last year that could have led to prohibitive duties being charged on all steel imports into Northern Ireland, making steel more expensive there than anywhere else in the rest of the UK, or indeed in the EU. This outcome would have been quite unacceptable and incompatible with the Northern Ireland protocol. The Government wrote to the UK steel sector in January to communicate a solution that allows Northern Ireland businesses to have access to UK tariffs, including UK quotas instead of EU quotas. This clause and schedule provide the legal basis for that solution.
Mr Pat McFadden (Wolverhampton South East) (Lab)
I rise to speak to new clause 30 in the name of the Leader of the Opposition and to make a few remarks on the other provisions in this group.
Clauses 92 and 93 relate to the temporary VAT cuts for the tourism and hospitality sectors. These are of course among the hardest-hit sectors of our economy over the past year, and it is absolutely right that this relief is extended. Only today we learned that, of the 800,000 jobs lost in the economy over the past year, 80% are those of people under 35 years old, many of whom previously worked in the tourism and hospitality sectors. Today’s unemployment figures show that it is young people more than any others who have borne the brunt of the job loss impact over the past year.
The vaccine programme of course gives us great hope and a platform for the cautious reopening of the economy, but only two in five hospitality businesses have outside space. Most of them are still not able to operate even under the conditions allowed at the time of this debate, so it is still a very tough time for the hospitality industry. After the experience of the past year, with the upsurges in cases in some countries, the emergence of new variants and vaccine resistance levels remaining uncertain, no one would yet say that we were out of the woods or that there was not still a need to support key sectors of the economy for some time yet. That is why it is right to continue the measures in clauses 92 and 93.
Clause 95 relates to payment schedules for VAT. Again, it is important to show some understanding of the difficulties that businesses have faced in the past year, and it is far better to have a measure that approves a realistic repayment schedule than bring support to an abrupt end and cause repayments at a defined deadline, which could have very damaging consequences for some of the businesses concerned.
Clause 97 and schedule 19 relate to steel moving between Great Britain and Northern Ireland. We of course support anything that will make life easier for the steel industry right now. It is the foundation for much of our manufacturing industry, and there is a great deal of uncertainty hanging over various steel plants in the UK right now. It is impossible not to reflect that, while the Government promised us free trade with the rest of the world, we need a clause and a schedule like these precisely because they have not even been able to guarantee free trade within the UK. We hope that this clause and schedule will make it easier to move steel goods between Great Britain and Northern Ireland, but the Minister will be aware that one of the broader uncertainties surrounding UK-made steel is how to avoid its being subject to 25% EU tariffs if quotas are breached in the near future. I wonder whether he will update the House on how discussions on that matter are going and how the Government intend to avoid that. This is particularly important given the wider issues facing the steel industry at the moment.
New clause 30, in the name of the Leader of the Opposition, relates to the transition from LIBOR to other reference rates, and specifically to reviewing the effects on taxation of replacing LIBOR. The new clause would require such a review to take into account the implications for tax revenues of the transition, and the effects on businesses, including those offering supply chain finance.
The new clause relates to clauses 128 and 129, which replace references to LIBOR in legislation with references to an “incremental borrowing rate”. The history of this, of course, relates to the long effort to move away from the use of LIBOR in financial markets. The need to do so arose out of the uncovering of attempts to rig LIBOR in the interests of various individuals in the financial services industry some years ago. Indeed, I believe that the Minister and I were colleagues on the Treasury Committee when all that was uncovered.
The uncovering of those practices exposed much that was bad about what was happening in parts of financial trading at the time, with activity being pursued in the interests of traders rather than customers, rates being rigged for the benefit of those traders and their institutions, and bank chief executives professing ignorance about what was going on inside their own companies. The ability to game the rate was exposed; the use of opinions on cost from submitters to the rate-setting process, rather than its always being based on actual trades, produced the possibility that tiny movements in LIBOR could benefit individual institutions or traders, often by very significant sums given the volumes of trades involved. Potentially, only a tiny movement in rates was needed to generate a very big profit.
However, making a decision to move away from LIBOR to alternative benchmarks based on actual transactions rather than the opinion of traders was, in a sense, the easy part. So far it has taken years; no wonder they are calling it the long goodbye. The difficulty is that LIBOR has been so widely used as a benchmark for contracts around the world. Indeed, the Bank of England estimates that LIBOR has served to underpin contracts worth some £300 trillion across the world and £30 trillion here in the UK. Even in these covid days, those are serious sums.
Moving away from LIBOR without dealing with that contract issue leads to the potential for contractual law disputes. If a deal was agreed based on one interest rate, how will it be affected by the move to another rate? That is not an abstract or unreal problem; it could affect mortgage rates, leases of buildings—all sorts of contracts. Indeed, the issue was highlighted only this morning in the Financial Times, in a story headlined “US lawmakers warned of litigation chaos over Libor”.
The Government have attempted to deal with this legacy contract issue through the Financial Services Bill, which is currently ending its proceedings in the other place. How successful that legislative effort will be remains to be seen. The very least we can say is that the reality of moving away from LIBOR has proved to be more complex than the decision in principle to do so. We may not have heard the end of this matter of transitioning away from LIBOR. That is why it makes sense to have a review of the implications, which is exactly what our new clause 30 calls for.
Clauses 128 and 129 deal with the tax implications of this change and replace legislative references to LIBOR with the term “incremental borrowing rate”. They also provide the Government with powers to make tax changes as a result of the discontinuation of LIBOR.
The Government estimate that the impact of all this on Exchequer revenues will be marginal. That could be right, but the sheer volume of contracts involved here suggests that the need for a review of the implications for tax revenue is real, and that is what our new clause 30 calls for. We believe that such a review should take specific account of the impact on businesses using supply chain finance. After all, that has been very much in the news recently, and it ought to be a field with which Ministers are by now familiar. Perhaps the Minister felt special when he got the call about supply chain finance, because it is not every day that someone gets a call from the former Prime Minister, but now we find that he was not the only one. In fact, there were three Ministers in the Department, one in the Department of Health and Social Care and the industry adviser in No. 10, all of whom got the call about supply chain finance. You could be forgiven for thinking that there are few people living west of the Caucasus who have not heard from the former Prime Minister about supply chain finance. After all that, it seems only right to consider the impact of this provision and on these companies. That is why we have included them in the new clause.
The inquiries on the broader issue will do their work. We may well hear more of this elsewhere, but, for the moment, as regards new clause 30, I look forward to the Minister’s response at the end of the debate.
Andrew Jones (Harrogate and Knaresborough) (Con)
It is always a pleasure to follow the right hon. Member for Wolverhampton South East (Mr McFadden), and it is a pleasure to speak in this debate. As I spoke twice yesterday and I am on the Bill Committee next week, I will keep my remarks a little short and focus on one measure that is important to my constituency.
I know that the Committee will appreciate that Harrogate and Knaresborough has a very significant hospitality and tourism sector. Using data from UKHospitality, we see that before the pandemic, there were 9,464 people employed by the sector. That puts us in the top 10% of constituencies across the country. The sector is not just a Harrogate and Knaresborough one; it is important to the whole of the York and North Yorkshire economy, accounting for over 75,000 jobs. If we look across the UK, we see that the sector accounts for 150,000 businesses and 2.4 million jobs. It is a huge number of people in a sector that has been one of the hardest hit.
As has been mentioned, among the tax measures in the Bill is the extension of the temporary VAT cut of 5% for the hospitality and tourism sectors. That reduction was first announced last July and was very well received by the industry, but this Bill extends that to the end of September and will then bring in a further reduction of a 12.5% rate for the six months to the end of March next year. This is very welcome, and the points that were made by both Front Benchers, my right hon. Friend the Financial Secretary to the Treasury and the right hon. Member for Wolverhampton South East, were absolutely correct.
This initiative understands the pressures that businesses will face. The hospitality sector may be starting again but it is effectively running on empty, having had months of either zero or very limited trading. If I may quote a local businessman, Mr Ian Fozard of Rooster’s brewery and taproom—[Hon. Members: “Hear, Hear!”] Mr Fozard is obviously well known here. He said that
“most businesses like ours need a sustained period of good trading to build back some reserves”.
Mr Fozard’s business is an excellent one and he makes a significant point. The industry needs a period of stability where it can rebuild. One challenge will be when businesses have been through the summer and they face the standard seasonal reduction but may not have built up the cash flow in reserve to see them through the leaner months. This initiative recognises that risk, so the continuity of support through the winter is welcome.
The sector is incredibly varied. We tend to focus on—indeed, the publicity tends to be about—pubs and restaurants, but there are also hotels and guest houses, and in Harrogate, we have the convention centre, which is a significant driver of visitors to the area. It has been a Nightingale Hospital for the last few months and while that is being deconstructed, the convention centre team have launched their restart plans, and I know that their good work is seeing the diary filled with bookings. However, my point is that this is a business-to-business sector, not just a business-to-consumer sector and, as this sector is diverse, so, correspondingly, is its supply chain. It has been very tough for the businesses in that supply chain. I know that, in my own constituency, some businesses in the supply sector will not be reopening, and businesses that have served the industry well for many years are at a crisis point.
I am sure that the safe reopening will release some pent-up demand. There are clear signs of that this week: we have all seen the news coverage and probably seen it in our constituencies, too. However, we should not expect the return of volume international markets any time soon and there will be some domestic customers whose confidence will need rebuilding before they engage with the sector again. For the conference industry, there will be the challenge of knowing just how much of that market will stay online having gone online over the past year. So this is a sector facing huge challenges. It is a sector that clearly interests our constituents and Members here, and it is important for employment, particularly of younger people.
Peter Grant [V]
I seek leave to speak to amendment 64 and new clause 16, which stand in my name and the names of my hon. Friends. We support the cut in VAT to 5% for the hospitality and tourism sectors; in fact, it was pressure from the Scottish National party that initially forced the Government to accept that measure. However, as with much of the Government’s support for businesses during the past 13 months, it is not enough.
Although there has been a welcome easing of restrictions in all four UK nations—in Scotland, we are particularly looking forward to next Monday, when the most significant easing of restrictions since December will come into effect—it is unlikely, indeed impossible, that the tourism and hospitality sectors will get back to anything like normal immediately. It is impossible that we will be back to normal by the end of September, and it is therefore completely irrational for the Government to arbitrarily decide that the 5% VAT rate should end on 30 September, but that is exactly what they have decided. The SNP did, in fact, table an amendment seeking to extend that date to 31 December, but that amendment was deemed to be outside the scope of this Bill. I accept that ruling, but I still urge the Government to get real, not only about the difficulties that the tourism and hospitality sectors are facing but about how long those difficulties are going to last.
In new clause 16, we are asking for the Chancellor to report back to Parliament on the impacts that the 5% VAT rate has had, and—very importantly—to compare that with what would have happened if it had been extended, as we have asked. We know what the 5% VAT rate is supposed to achieve, supporting businesses in those sectors, so the Government should have no qualms about assessing whether or not they have achieved that. Nor should they have any qualms about having their decision compared on an empirical basis with alternatives that have been put forward by other MPs.
The Minister claimed earlier that it is technically impossible to comply with that new clause because the data just does not exist. I find that frankly astonishing. If the political will is there, the data can surely be made available, and if Parliament decides that it is going to pass into law a requirement for that to happen, the job of the Government is to comply with the will of Parliament.
Amendment 64 asks for a minor, but important, change to the wording of clause 93, dealing with the temporary 12.5% VAT rate. Clearly, as I said earlier, we would have preferred that to remain at 5%, but the Government have rejected that proposal and gone for a 12.5% rate until 31 March 2022, presumably with the full 20% rate coming in after that date.
Clause 93, as currently worded, would allow the Treasury by regulation to bring that date forward, so that the tourism and hospitality sector would go back to paying the full 20% VAT rate sooner than the date that this House has agreed. That is not acceptable. Our amendment would allow the March 2022 deadline to be extended if we found—as we may well find—that the sector was taking longer than expected to recover. The only reason for bringing the date forward would be if, by some miracle, the tourism and hospitality sector recovered quicker than expected. I can see no circumstances in which those businesses will have recovered sufficiently for the increase to 20% to be brought forward earlier than March 2022.
In his summing up, may I invite the Minister to contradict me and to tell me that he thinks that that will be possible—that it will be appropriate to bring forward that date? If he cannot see any circumstances in which it will be right for him to use the power to bring that tax increase forward, he should not be asking us to give him the power in the first place.
One consequence of the quaint way that the British Parliament does its business is that, if we want to support businesses by reducing VAT on corporation tax liabilities, it goes in a Finance Bill, but if we want to reduce the liability of other taxes such as non-domestic rates, it does not. The non-domestic rate system is one of the very few parts of the business taxation system that is devolved to the Scottish Parliament. The Scottish Government have used that devolved power to ensure that businesses in retail, tourism, hospitality, aviation and newspapers, all of which have been severely hit by covid, will pay no business rates at all during 2021-22. The small business bonus scheme takes around 100,000 businesses out of non-domestic rates altogether and, if the current Scottish Government are re-elected, that will continue for the lifetime of the next Parliament.
In Scotland, we have the lowest business rate poundage in the United Kingdom, the most generous relief schemes and, of course, we have the most progressive income tax system in the whole of the United Kingdom. When we see the benefits that come to the vast majority of people in Scotland from the different approach that our Government have taken using the limited taxation powers at their disposal, I hope the Government will look positively on any request by the new Scottish Government, whoever that might be, to further extend those powers.
Sarah Olney (Richmond Park) (LD) [V]
I wish to speak to clauses 92 to 95 relating to VAT. This last year has been exceptionally tough on our hospitality industries and I welcome all measures to support our valuable tourism and hospitality businesses as they tentatively begin to open up after the pandemic. Like many others, I was delighted to be able to visit pubs, restaurants and cafés in my constituency last week. I had a particularly enjoyable Friday night drink at the Black Horse on Kingston Hill and a fantastic Sunday lunch at the Glasshouse in New Malden. I am very much looking forward to getting round to all the other excellent venues in my constituency over the next few weeks and months.
However, it is important to remember that tourism and hospitality will not recover overnight. While there is undoubtedly a great deal of pent-up demand for eating out and visiting the wonderful sights and attractions of our great nation, it will not be possible for all businesses to open immediately and in full. And we do not know whether the Government’s road map will be able to progress as planned. Despite the wonderful success of the vaccine roll-out, we are still at risk from new variants and there may still be a need in future to restrict people’s ability to socialise indoors. So, although we welcome the cut to the VAT rate on hospitality and tourism sales to 5% until September 2021, the Liberal Democrats argue that the cut should be extended for the whole of the financial year, instead of moving to 12.5% from September to March.
Household incomes also need time to recover, and encouragement to spend on luxuries and leisure such as meals out should be continued for much, much longer. Indeed, the Government could and should have gone a great deal further to support these businesses and to safeguard the jobs that they create. Many businesses are able to partially reopen this month. There are estimates that up to 60% will not be able to reopen because they do not have outside space. But they will all be faced eventually with large VAT bills, deferred over the last 12 months.
A much better way to support businesses would have been to provide relief on the deferred VAT owed. That would have relieved businesses of an immediate cash burden and freed up that cash flow to invest in stock, staff and making their premises covid-safe. Instead, the Government propose to start imposing penalties from June this year on those businesses that have not yet started repaying this VAT. That will fall on businesses that have had extremely limited opportunities to earn any revenue in the last 12 months. The measures to allow businesses to pay this in 11 instalments is welcome, but will not help those businesses that cannot yet reopen and will not have any cash coming in to pay any of those instalments.
Businesses will also be carrying a great deal of debt and it is very disappointing to see a lack of measures in the Budget to address that. In particular, many businesses will be indebted to their landlords and it is disappointing that the Government have done nothing at all to help businesses with those costs. The Liberal Democrats would have introduced a revenue compensation scheme to help businesses with fixed costs such as rent. The burden of repaying those will fall very heavily on businesses that cannot yet reopen fully.
I am probably unique in the House in having direct experience of implementing Making Tax Digital for VAT reporting in my former role as an accountant for a large organisation. While the overall objectives of the programme are sound, I can tell the Minister from personal experience that they are not always straightforward to implement. I am puzzled as to why the Government think it should be a priority for struggling small businesses to deal with the additional administrative burden of implementing Making Tax Digital, at a time when they are having to deal with the huge burden of reopening in a highly uncertain time, and at the risk of further fines if they do not comply. Surely this could have waited another 12 months. The imperative to close the tax gap surely pales into insignificance when compared with the imperative to support precarious businesses at this time. How can additional red tape and administrative burden be the right response to the current crisis?
In short, this is not a Government who understand the needs or priorities of small businesses; it is a Government who choose to impose punitive costs and paperwork rather than provide effective support.
Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)
Dame Rosie, my humblest apologies for being late in attending the Chamber. I was badly caught out by the fact that this debate is way ahead of where I thought it would be. [Hon. Members: “Hear, hear.”] There is a silver lining to every cloud.
My good friend and colleague, my hon. Friend the Member for Richmond Park (Sarah Olney), has said it all, but I would like to touch on the issue of the hospitality sector. I am sure the Minister is tired of hearing this again and again, but business in my part of the world is very fragile. The hospitality sector depends on making as much money as it can during the short tourist season because the weather can be so inclement—it is like living on the fat you can make in the good times to get through the winter.
I give credit to the Government for the help that has been given, but I am very concerned that some tourism businesses may still yet shut down permanently. I do not know how many times I have said this in the Chamber, but the fact is that, if we lose one business, two businesses or three businesses, we are impoverishing the tourism product that we can offer in a remote part of the British Isles and, if we do that, there is less for tourists to come, see and do, or to eat and drink, and then we do not get as many tourists coming, and it becomes a downward, vicious circle. The VAT reduction we have had so far is welcome, but could we look at extending it a little further, perhaps for as long as my hon. Friend the Member for Richmond Park said? That would be very welcome. I have said several times in this place that it would be helpful if the Scottish Government and the UK Government could look at an overall, longer-term strategy to try to get businesses back on their feet, seeing them through the difficult times and nursing them so that we get to—to quote Churchill—the “sunlit uplands” that surely will come our way.
There is one other issue: we need some form of training element in that package. I was talking to Murray Lamont, who owns and runs Mackays Hotel in Wick, and he said: “Talk about training, Jamie, because we need to keep improving the product and making it still better because the competition is out there.” My hon. Friend the Member for Richmond Park touched on the revenue compensation scheme, and I would be extremely grateful if that could be looked at.
I am tempted to chance my arm and talk about banks, given the name of this section of the debate. Members will have heard me say many times that we have one branch of the Bank of Scotland in the huge county of Sutherland. That is a massive problem, but rather than incur the yawns of those on the Treasury Bench—
Jamie Stone
I will resist the sedentary comments from the Scottish National party Member and conclude my remarks here.
Jesse Norman
Before I wind up the debate, I thank colleagues not only in this debate but in all our previous debates for the engaged and often constructive way in which they have approached the discussion. I also thank my friends on the Opposition Front Bench for their contributions. Let me pick up on some of the themes described.
The hon. Member for Glenrothes (Peter Grant) raised the question of the Scottish Government’s limited tax powers, but I would put it to him that what is so striking is how little the Scottish Government have used the tax powers that they have. We saw that earlier, when the hon. Member for Glasgow Central (Alison Thewliss) invited the Government to extend a relief to antibody tests, whereas of course it is perfectly within the powers of the Scottish Government to use the tax revenue they generate to fund the differential for antibody tests themselves.
David Linden
I suggest that the Government cannot have it both ways. In one respect, the Minister says that we have done nothing with our taxation powers, but his colleagues north of the border would say that we are the highest taxed part of the United Kingdom. Which is it?
Jesse Norman
The Scottish Government are fully entitled to tax the Scottish people as much as they see fit in the democratic exercise of their mandate. The point I am making is that they have the scope to do so, if they wish, so they should not always be looking to the UK Government on matters of tax if the powers to make the change exist within their own competence and power.
The hon. Member for Richmond Park (Sarah Olney) talked about Making Tax Digital for VAT, but she ignored the fact that many small businesses have already joined the Making Tax Digital for VAT programme. The reason they have done so is that they recognise that it gives them a tremendous ability to manage their tax affairs. It also allows them to enjoy the gains of improved IT productivity. We think that those gains are worth having and worth extending to other businesses. That is one of the powerful drivers behind the Making Tax Digital project.
The hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone)—always a delight to see in the Chamber, and I am very pleased that he took off his mask so that we could follow his remarks closely—talked about a revenue compensation scheme. Of course, if he reflects for a moment, he will see that the self-employment income support scheme is precisely a support scheme designed to assist people’s incomes. It has proved to be extremely effective in supporting millions of people on that basis.
I think the hon. Gentleman is right to focus on the sunlit uplands. All I can say is that if we come out of this on anything like the basis that we are projected to do by some of the independent authorities, given that this is the worst economic crisis in recorded history, there will be much to be thankful for. I will be delighted if we can get to those sunlit uplands.
Jamie Stone
I am so sorry that the Minister did not hear the first part of my speech—I could run through it again, if that would be helpful. I will chance my arm here. Last summer, the Chancellor of the Duchy of Lancaster met business representatives to talk about the sorts of issues in the hospitality trade that I was raising. I wonder whether I could crave, or look for, the favour of the Treasury Bench. Will someone in the Treasury be willing, when suitable, to meet those representatives if they came down to London, to talk about the issues, further to the discussions they have already had with the Chancellor of the Duchy of Lancaster?
Jesse Norman
I am very happy to volunteer the Chancellor of the Duchy of Lancaster, if the hon. Gentleman wishes to write to him further to that conversation. We are keenly aware of the problem. As Ministers, we spend our lives engaging with different groups. Of course we will look kindly on any suggestion that he might make, as we would on any suggestions made by any Member of this House, but I do not want him to think for a second that we need to do that in order to be keenly aware and abreast of the actual impacts that this present crisis is having on businesses and individuals.
I come to the points raised by the right hon. Member for Wolverhampton South East (Mr McFadden), which were very important. He rightly noted the impact of job losses on the under-35s. It is important to point that out, and we are keenly aware of that within the Government. He asked for an update on the Northern Ireland steel industry situation. As he will be aware, the Government are engaging closely with the EU on this issue. The Northern Ireland protocol is clear that it should be implemented in a way that has as little impact as possible on the everyday lives of people in both Ireland and Northern Ireland. As I say, there is close and constructive engagement on this topic. I am not in a position to give any more details of conversations that are still under way, but I can let him know that they are in those terms, and there has been reporting on this in the newspapers as well.
The right hon. Gentleman asked about the question of LIBOR. As he says, he and I were on the Treasury Committee when the full scale of this scandal became clear. He may recall the cross-examination I gave to Lord Grabiner on his inquiry into this issue, in which it was clear that there had been serious wrongdoing. There has been a slow and stately process of reform in this area, and businesses have been aware of the changes. Since July 2017, there has been a considerable amount of work done by the FCA. There has been a public consultation, extended because of the covid situation. There has been close engagement by a dedicated working group with industry. The Financial Services Bill reserves powers to the FCA if that is required in order to support an orderly wind-down. A tremendous amount of work has been done and is being done, and we are content with the situation as it stands.
Question put and agreed to.
Clause 92 accordingly ordered to stand part of the Bill.
Clauses 93 to 96 ordered to stand part of the Bill.
Schedule 18 agreed to.
Clause 97 ordered to stand part of the Bill.
Schedule 19 agreed to.
Clauses 128 to 130 ordered to stand part of the Bill.
The Deputy Speaker resumed the Chair.
Bill, as amended, reported.
Bill to be considered tomorrow.
Finance Bill
Monday 24th May 2021
(3 years, 6 months ago)
Commons ChamberRead Full debate Finance Act 2021 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 24 May 2021 - large print - (24 May 2021)
19:21 - The House divided: - Ayes: 261 / Noes: 364 - Question accordingly negatived.
19:33 - The House divided: - Ayes: 268 / Noes: 357 - Question accordingly negatived.
20:21 - The House divided: - Ayes: 268 / Noes: 357 - Question accordingly negatived.
22:01 - The House divided: - Ayes: 218 / Noes: 358 - Question accordingly negatived.
22:12 - The House divided: - Ayes: 261 / Noes: 365 - Question accordingly negatived.
22:30 - The House divided: - Ayes: 365 / Noes: 261 - Question accordingly agreed to.
James Murray (Ealing North) (Lab/Co-op)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Dame Eleanor Laing)
With this it will be convenient to discuss the following:
New clause 6—Review of impact on corporation tax revenues of global minimum rate of corporation tax—
‘The Chancellor of the Exchequer must within six months of Royal Assent lay before the House of Commons an assessment of the effect on corporation tax revenues in 2022 and 2023 of a global minimum corporation tax rate set at 21%.’
This new clause would require the Government to publish an assessment of the revenue effect of a global minimum corporation tax rate of 21%.
New clause 12—Review of impact of Act on investment—
‘(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by this Act and lay a 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 changes on—
(a) business investment,
(b) employment,
(c) productivity,
(d) GDP growth, and
(e) poverty.
(3) A review under this section must consider the following scenarios—
(a) the United Kingdom reaches an agreement with OECD countries on a minimum international level of corporation tax, and
(b) the United Kingdom does not reach an agreement with OECD countries on a minimum international level of corporation tax.
(4) 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 report on the effect of the changes in the Act on investment, comparing scenarios in which (a) the United Kingdom reaches an agreement with OECD countries on a minimum international level of corporation tax and (b) the United Kingdom does not reach an agreement with OECD countries on a minimum international level of corporation tax on various economic indicators.
New clause 22—Eligibility for tax reliefs—
‘(1) For the purposes of Clauses 9 to 14 and 109 to 111 no tax reliefs shall apply to companies registered or with subsidiary companies registered in countries or jurisdictions listed in the EU list of non-cooperative jurisdictions for tax purposes.
(2) The Secretary of State shall also have the power to list additional jurisdictions or countries as non-cooperative jurisdictions for the purposes of subsection (1) that he/she perceives to be non-cooperative jurisdictions for tax purposes.’
This new clause would stop companies registered, or with subsidiary companies registered, in tax havens from benefiting from the UK Government tax reliefs in this Bill.
Amendment 1, in clause 9, page 4, line 2, at end insert
“provided that any such company which has more than £1 million in qualifying expenditure must also make a climate-related financial disclosure in line with the recommendations of the Task Force on Climate-related Financial Disclosures within the 2021/22 tax year.”
This amendment would, in respect of companies with qualifying expenditure of over £1 million, add a condition relating to climate-related financial disclosure to the conditions that must be met in order for expenditure to qualify for super-deductions.
Amendment 29, page 4, line 2, at end insert
“provided that any such company must also not be liable to the digital services tax”.
Amendment 30, page 4, line 2, at end insert
“provided that any such company which has more than £1 million in qualifying expenditure must also—
(i) adhere to International Labour Organisation convention 98 on the right to organise and collective bargaining, and
(ii) be certified or be in the process of being certified by the Living Wage Foundation as a living wage employer.”
Government amendment 2.
Amendment 31, page 5, line 15, at end insert—
“(11) Expenditure shall not be qualifying expenditure under this section if it is incurred by a company which has at any time been involved in arrangements giving rise to a liability for diverted profits tax, or which would give rise to such a liability but for the effect of section 83 of Finance Act 2015.
(12) For the purposes of subsection (11), involvement in arrangements shall include being connected within the meaning of section 1122 Corporation Tax Act 2010 to any company involved in such arrangements.”
This amendment would bar multinationals with a history of corporate tax avoidance from accessing super-deductions.
James Murray
The vaccine has given us all hope, but we know that the health crisis from covid is far from over, and the impact on jobs, businesses and the economy resulting from the pandemic will be with us for a long time to come. People across our country and British businesses that have been struggling want to be able to get back on their feet. This Bill should have offered them the support they need to do so, but instead the Government chose to make half of all people in the UK pay more income tax, and its headline measure for businesses, quickly and with good reason, earned the nickname, “the Amazon tax cut”. This Amazon tax cut was proudly announced by the Chancellor as the new super deduction—a £25 billion tax cut that he has said represents the biggest two-year business tax cut in modern British history. What he was less keen to make clear is that this tax cut is not targeted at British businesses that have been struggling in the outbreak, but stands to benefit some of the biggest multinational tech firms that have done very well indeed over the past year or so.
As we have heard during previous debates on the Bill, small and medium-sized businesses can already benefit from the annual investment allowance. That allowance, extended by clause 15, offers a 100% tax break on investment up to £1 million, and we know that it will benefit almost all businesses already. The Financial Secretary to the Treasury has said exactly that. He stated very clearly in a written ministerial statement on 12 November last year that the annual investment allowance:
“Simplifies taxes for the 99% of businesses investing up to £1 million on plant and machinery assets each year.”
We pushed the Government on this matter in Committee of the Whole House, when the Financial Secretary claimed:
“The super deduction benefits all businesses that are in a position to take advantage of the eligible deduction it provides”.—[Official Report, 19 April 2021; Vol. 692, c. 764.]
He will know, however, that the 99% of businesses already benefiting from the annual investment allowance will benefit only marginally from the new super deduction.
The real winners of the super deduction were identified in Committee of the Whole House by my right hon. Friend the Member for Barking (Dame Margaret Hodge), who made the powerful argument that it will most benefit
“the companies with oven-ready capital investment plans, benefiting from the increased demand that they have enjoyed over the last torrid year—companies such as…the notorious tax avoider Amazon.”—[Official Report, 19 April 2021; Vol. 692, c. 751.]
As that phrase reminds us, Amazon already avoids paying much corporation tax in the UK at all by shifting profits to low-tax countries overseas—I will return to that point shortly—but it is depressing that, through his super deduction, the Chancellor is finishing the job Amazon started and wiping out the last little bit of tax it pays in this country.
As the House may remember, we asked the Government to look again at this matter in Committee of the whole House. Our amendment at that stage would have explicitly prevented the biggest tech firms from taking advantage of the Chancellor’s tax break, as well as other big firms that do not support workers’ rights and the living wage. At the time, the Financial Secretary to the Treasury objected to our amendment on the basis that it sought to
“restrict the relief only to certain companies”—[Official Report, 19 April 2021; Vol. 692, c. 742]
and that it imposed “burdensome conditions” on companies that want to benefit from it. That latter phrase told us plenty about the Government’s views on people’s rights at work. The conditions the Minister saw as “burdensome” are the rights to organise and to be paid a living wage. When even basic rights at work and a living wage are seen as burdensome, it is perhaps no wonder that this Government broke their promise to include an employment Bill in the Queen’s Speech earlier this month.
It is clear that we will need to push Ministers over workers’ rights on future days—from banning the shameful practice of fire and rehire to ending exploitation by rogue umbrella companies—as cross-party amendments tabled to this Bill by right hon. and right hon. Members seek to achieve. Today, we have made it very straightforward for the Government, through amendment 29, to focus specifically on preventing the very biggest tech firms—those companies liable to pay the digital services tax—from benefiting from the super deduction. This should be easy. Only a very small number of very large multinational firms that have done very well over the past year are liable for the digital services tax. The detail of that tax means that businesses are liable only when a group’s worldwide revenues from digital activities—such as providing social media platforms, search engines or online marketplaces—are more than £500 million, and when more than £25 million of these revenues are derived from UK users.
The vote on this amendment will come down to the very simple question of how Members of this House believe public money should be spent. As the Bill stands, the Government’s biggest business tax cut in modern British history will finish the job Amazon started, wiping out the last bit of tax it had to pay on the few parts of its business the profits of which it has been unable to shift overseas. A vote in favour of our amendment 29 would stop Amazon and a small number of similar firms benefiting from a giveaway of public money—public money that could be better spent for so many purposes, including to support British businesses that have been struggling throughout the past year. I urge Conservative Members to consider how they vote on amendment 29.
Before we come to that vote, I will turn to our new clause 23, through which we seek to push the Government finally to back President Biden’s plans for a global minimum corporation tax rate. I have explained how the Government’s super deduction will wipe out Amazon’s remaining tax bill in the UK, and how the amount it was due to pay in the first place was paltry compared with what it should be paying. Despite its business success in the UK, profit shifting to Luxembourg meant Amazon’s corporation tax contribution in the UK in 2019 was less than 0.1% of its turnover. People are fed up with large multinational companies avoiding their tax. It goes against the fairness that must be at the heart of our tax system, and in this year of all years, when so many British businesses are struggling to get back on their feet while Amazon’s business booms, it is clearer than ever that change is long overdue.
We have heard brazen claims from the Government about their work to combat international tax avoidance. In the debate in Committee of the whole House on this Bill, the Minister went so far as to claim that the Government have “led the international charge” in a number of ways, yet since the Biden Administration announced their proposals for a global minimum corporate tax rate, we have seen that, not for the first time, actions from the Government fail to match their words, with the UK now the only G7 country not to back the US plan. This is a once-in-a-generation opportunity to grasp the international agreement on the global taxation of large multinationals that has evaded our country and others for so long, yet rather than stepping up, our Government are stepping away.
The Financial Secretary to the Treasury (Jesse Norman)
The hon. Gentleman advances the extraordinary claim that the UK is the only country among the G7 not to have backed the Biden plan. Will he put in the Library the evidence for that claim?
James Murray
I am very happy to put in the Library references to comments from the other G7 countries indicating their support, but what I ask the Financial Secretary to do is put in writing the support from the UK Government for the plans proposed by President Biden, which he should be able to do today. He should act, because the British people want the Government to act. He need only look at polling carried out at the end of April by Yonder, formerly Populus, which showed overwhelming public support for action to tackle global corporate tax avoidance: three quarters of respondents thought that
“The UK should play a leading role.”
The polling also showed that less than a third of people
“trust Rishi Sunak and Boris Johnson to tackle global tax avoidance”.
The public are right to be sceptical, because the Government have shunned ample opportunities to come out in favour of President Biden’s plans; indeed, since we began debating the Bill, I have put them to the Financial Secretary and his colleagues three times. On Second Reading, I urged the Exchequer Secretary
“to confirm to the House that she and the Chancellor back plans for a global minimum corporate tax rate and that they will do all they can to make this a reality.”—[Official Report, 13 April 2021; Vol. 692, c. 197.]
She did not respond. In case his colleague’s lack of response was simply an oversight, I asked the Financial Secretary in Committee of the whole House
“to confirm whether the Chancellor backs plans for a global minimum corporate tax rate”—[Official Report, 20 April 2021; Vol. 692, c. 897.]
He refused to do so, saying only that the Government
“welcome the renewed commitment that the US Administration have made in this area”.—[Official Report, 20 April 2021; Vol. 692, c. 914.]
In a debate the following week, I put the question to him again, as simply and directly as possible:
“does the Chancellor back the plans proposed by the US President?”—[Official Report, 28 April 2021; Vol. 693, c. 415.]
The Financial Secretary replied:
“I do not think it is appropriate for Ministers to comment on tax policy in flight”.—[Official Report, 28 April 2021; Vol. 693, c. 418.]
It is very hard to conclude anything from that pattern of responses other than that the Government are not backing these proposals to succeed.
We know that much of the discussion around President Biden’s plans and the proposals formulated in recent years by the OECD and G20, with which his plans largely align, has centred on the so-called pillars 1 and 2 of any agreement. In broad terms, pillar 1 relates to where profits are taxed, while pillar 2 relates to a global minimum corporate tax rate. Both are important to developing a fairer tax system, both feature in President Biden’s proposals, and the Opposition want to see progress on each.
We have been trying to understand why the Government are so reluctant to get behind President Biden’s plans. There was a suggestion in the Financial Times last week that what the UK wants is more movement on where large multinationals pay taxes—pillar 1—before it will agree to support the President’s global minimum corporate tax rate, pillar 2. The paper quoted a UK Treasury official:
“The core UK proposition is that we’ve got to solve the digital tax issue…It’s not primarily about a minimum tax”.
To quote the chief executive of Tax Justice Network, that argument is “absolute nonsense”. Many commentators have joined him in taking a very sceptical view of what the UK claims its position to be; they point out that President Biden’s plans include steps to make progress on pillar 1, and that although any estimates are necessarily rough, pillar 1 would bring in only a few per cent. of the estimated £14 billion that a global minimum corporate tax rate at 21% under pillar 2 would raise.
A report by Bloomberg, however, implied that the real reason behind the Government’s position may be cynically to disguise their real agenda: a desire to keep alive the possibility of a race to the bottom in the future. That would be such a damaging and short-sighted approach. People are fed up with the race to the bottom. We thought that even the Chancellor had had a conversion when he admitted to the BBC’s “Today” programme around the time of the Budget that years of Conservative economic policy had failed, telling the BBC that
“there was an idea”
that corporation tax cuts
“could help spur investment, and what we’ve seen over the past few years is that we haven’t seen a step change in the level of capital investment that our businesses are doing as a result of those corporation tax decreases.”
After years of people being frustrated with tax avoidance by the biggest multinational companies, the new global deal finally within reach would be a game changer. It would raise billions of pounds a year for investment in our British public services and industry, it would stop British businesses being undercut by large multinational firms that shift their profits overseas, and it would change the behaviour of Governments around the world by calling time on the race to the bottom with tax rates. That is why a global minimum corporate tax rate is so important.
This is a once-in-a-generation opportunity. It would be a shameful failure for our Government, at the G7 meeting that we are hosting in Cornwall next month, to fail to lead on securing a global deal. It is crucial that we show support and help to build momentum behind the Biden Administration’s ambitious plans.
Madam Deputy Speaker (Dame Eleanor Laing)
The House has become familiar with having a time limit for every item of business, but I hope that we can manage to consider this stage of the Bill without a time limit. I appeal to Members who are taking part to have consideration for other Members, and not to speak for too long. How long is too long? More than five minutes is too long, but if somebody takes five and a half minutes because they are making some important points, that would be fine. If the occasional person take interventions and it comes to six and a half minutes, that would be fine. But if people take longer than is necessary, I will have to impose a time limit, which makes for a less good debate. Let us try to behave like parliamentarians and not take too long. That puts a tremendous amount of pressure on Stephen Hammond.
Stephen Hammond (Wimbledon) (Con)
Thank you, Madam Deputy Speaker. I am sure the House will benefit from your strictures towards my speech, and I welcome the opportunity to make a short contribution on the amendments. As the hon. Member for Ealing North (James Murray) rightly says, the OECD-Biden proposals are an attempt to ensure a multinational, legal framework to ensure that multinational countries pay tax in the countries from which they derive that revenue. Unlike him, I think any sensible look at history will show that this Government have led the way on this since 2010. There can be no suggestion that they have not led the way on ensuring that multinationals should not be able to shift profits to avoid taxation. They have tried to lead the arguments on securing, over many years, a multinational, multilateral agreement on where revenues and profits are derived and how those are taxed. Across the House, we ought to recognise that the Government have been trying to achieve that and that they support it. It has been true since 2010. One of the former Chancellors, George Osborne, led the way on the matter.
The OECD proposals, as the hon. Gentleman put it, are in two pillars, as we all recognise. Pillar one rightly seeks to address the matter of base erosion, as the UK Government have done historically and continue to do. Pillar two, however—I think he failed to recognise this point—would go well beyond what is normally considered to be within the ability of national states, in terms of using the flexibility of fiscal policy to ensure that investment and incentives are properly rewarded within their economies, and may well have some perverse effects on a number of multinational industries, such as the insurance industry. Given your strictures, Madam Deputy Speaker, I shall not give my long peroration on that matter.
However, the key point is that there is a difference between what the Government have been trying to achieve—a multilateral, multinational agreement on the need for a combined approach, which I have no doubt that the Prime Minister and the Chancellor will wish to speak about at the G7—and a legal, minimum international tax rate. It is right that Governments still retain the ability to set fiscal measures according to their economic circumstances. Therefore, I wholeheartedly support—as the Government do—the international agreed approach to ensure that we tax multinational companies on where they derive their revenues and profits.
The problem with new clause 23 is that it talks about a review of the impact of the global minimum tax, but in reality, it is superfluous, because many of the consequences of setting a tax rate of 21% can easily and readily be calculated. The OECD discussions on the precise nature of the agreement are still under review. Therefore, speculating about how that might assess and impact on different economies could hinder the global efforts to achieve that aim.
Finally, as I am sure the Financial Secretary will wish to assure the House, the Government have already agreed that as, when and if there is a global agreement on minimum taxation, they will—when they are a party to that—ensure that the Office for Budget Responsibility assesses the impact for the UK economy and globally. So while this new clause is an interesting amusement for the House tonight, it is superfluous and I wholeheartedly encourage the Government not to accept it.
The hon. Gentleman spoke a bit about the need for investment and for addressing the historical UK underperformance in that area. We all agree with that. As we seek economic recovery post-pandemic and, in the longer term, as we build a cleaner, greener and stronger economy, clearly, the problem of underinvestment has to be addressed on a long-term, sustainable basis. However, it is clear that what the Chancellor has done, with what is popularly known as a super deduction, is likely to bring forward investment in the economy at just the time it is needed. There is an element of saying that, of course, we want to concentrate that on any number of small businesses that may not benefit from investment relief and this may or may not be at the margin, but it may or may not be at the margin that it has the greatest impact. I think the super deduction, which the Opposition seek to criticise, will do exactly that. They want the OBR to assess the impact in other areas of the Finance Bill, but the OBR has already made an assessment of this particular measure in the Bill, which is that it will derive at least 10% extra investment in the UK economy. At this stage of our economic recovery, that seems to me to be fundamentally important, so I hope that the Government will push ahead with the super deduction, as they are doing in this Finance Bill, and even consider it on a longer-term basis as well, because it is hugely important that we address the under-investment in both physical and human capital. Therefore, Government amendment 2 to clause 9, which will allow leased buildings to qualify for that super deduction, seems to be eminently sensible.
Given your stricture, Madam Deputy Speaker, although I could share with the House another 15 minutes of brilliance, I shall now sit down.
Alison Thewliss (Glasgow Central) (SNP)
I will also bear in mind what you have said, Madam Deputy Speaker, and keep my comments fairly brief.
I wish to start with the words of the US Treasury Secretary, Janet Yellen. She said:
“Competitiveness is about more than how US-headquartered companies fare against other companies in global merger and acquisition bids…It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government.”
That is something that this Government ought to be getting behind, as it makes absolute sense. It is exciting to see that the Biden plan for a global minimum corporation tax rate is gathering pace. It is reported that the G7 is close to a deal, perhaps paving the way for an OECD deal later on in the year. The action is described in the Financial Times as
“the largest shake-up in corporate taxation for a century.”
As the shadow Minister set out, the Government have been ducking questions on this and ducking responsibility. It feels to me at the moment that an agreement will take place in spite of the UK Government’s hesitancy—less global leadership, more like pulling teeth. Why would the UK Government be in favour of the types of profit shifting that this international co-operation is trying to stamp out? Why would they let our businesses be undercut? Why would they forgo valuable tax revenues?
Our new clause 12 is asking the UK Government to prepare a report on an OECD agreement, which seems very much like the direction of travel, as it would cover 135 countries and the largest corporations in the world. It is important that the UK Government fully understand the impact of such an agreement on each and every part of these islands: on business investment, employment productivity, GDP growth and poverty. The impact of not reaching a deal has been included in new clause 12, too, as it is important that we can fully understand the impact should the UK pursue some kind of crazy isolationist stance against this global growing consensus.
The SNP has great sympathy with new clause 22 and amendment 31. Those using tax havens and with a history of corporate tax avoidance should not seek to obtain benefit from schemes intended to support businesses that already pay their fair share. I ask Treasury Ministers what safeguards they intend to put in place if they do not accept these sensible and logical amendments.
I am glad that, in Government amendment 2, there is some recognition of the issues facing those who have background plant and machinery in leased properties, allowing them to qualify for the super deduction. I remain hugely frustrated that there is yet to be any wider support and any wider recognition of the many businesses both involved in leasing and those that lease machinery themselves. I seek assurances from Ministers that they will continue to hold the door open on this issue and to look at it, because there are so many companies that would benefit from the super deduction if it were not for the fact that they have always leased machinery. They contribute hugely to the productivity of this country and there should be some recognition of that within the Government’s proposals.
Dame Margaret Hodge (Barking) (Lab) [V]
I wish to speak to amendment 31, which stands in my name and in the names of hon. and right hon. Members from across the House. I shall try to keep my comments brief, too. I will go back to first principles and try to convince Ministers that what we propose is simply fair, just and practical.
Eighty-five per cent. of the British public pay their tax without question through the pay-as-you-earn system. For many of those hard-working taxpayers really struggling to keep their families going, particularly after the pandemic, it is simply unconscionable to watch the big corporations that have made so much money during the pandemic—the Googles and the Amazons—continue to create financial structures that have no other purpose than to help them avoid paying corporation tax. Shifting their profits simply to avoid tax is not only unfair but utterly immoral.
John McDonnell (Hayes and Harlington) (Lab) [V]
I have to say that my right hon. Friend the Member for Barking (Dame Margaret Hodge) has eloquently put forward the case for these proposals, both those from the Opposition Front Bench, which I fully support, and her own, but I think she has been too kind to the Government. Like her, I have sat for over two decades listening to the sophistry from Conservative Ministers explaining the various complications of doing anything to tackle tax avoidance, and they have been dragged kicking and screaming to take what little action there has been. I have also sat here year on year while they argued that cuts in corporation tax were the way to increase investment. Now, at least, they have admitted that they were wrong on that.
However, instead of cutting corporations’ taxes by cutting corporation tax, they are now simply doing it through the super deductions. These are super tax deductions to super tax avoiders. We can name them: Amazon, Vodafone, Virgin, Starbucks and many others. I sat in the Chamber when the global crash happened over a decade ago, and we discovered the intricate corporate structures that the banks used to avoid their taxes—the shell companies based in tax havens from the Channel Islands to the Caribbean. Barclays bank had more than 100 subsidiary companies located in the Cayman Islands alone. As these corporations became increasingly financialised, they became increasingly unprincipled about paying their dues to society.
I have tabled a simple amendment saying that super deductions should not go to companies that are failing to fulfil their duty as taxpayers in our country and that are using tax havens. The reason is simple: these corporations benefit from the workers they employ, and the taxes are needed to pay for their education and training. It is ironic that we are also often using our tax system to subsidise the low pay that these corporations pay their employees. They also benefit from the infrastructure. That is why they should be paying their way within our country itself.
In this struggle over the last 20 years or so, it is worth paying tribute to those who have campaigned so hard: my right hon. Friend the Member for Barking and all those activists, academics and journalists. I pay tribute to groups in the UK such as: Tax Justice Network; UK Uncut, which took direct action; Tax Justice UK; and those journalists and researchers who helped to expose the Panama papers and the Paradise papers. One of those journalists was the Maltese investigative journalist Daphne Caruana Galizia. She was assassinated in 2017 for the work she did to expose tax avoidance and money laundering.
My new clause 22 is very straightforward: no company should be eligible for the tax reliefs in the Bill if they are located, or have subsidiary companies located, in tax haven jurisdictions. The most authoritative list of tax havens or secrecy jurisdictions is the European Union’s blacklist of non-co-operative jurisdictions for tax purposes. That should be the basis of our approach. We are outside the EU now, so we must go further. Subsection (2) gives the Secretary of State powers to list additional jurisdictions that do not co-operate in disclosing information to Her Majesty’s Revenue and Customs. In this way at least we can ensure that we are not, in effect, acting as subsidisers for tax avoiders or laundering tax reliefs into their coffers. It is a simple amendment.
I support the Labour Front Bench amendments and the other amendments that would have a similar effect, but I have had enough. I am sick to death of sitting here listening to excuses from Ministers about failing to act when so much needs to be paid through a fair taxation system. So many of our constituents are having to endure continuing austerity because of the lack of tax revenues. They are living in poverty, unfortunately, as a result of the failure to have a fair taxation system that redistributes wealth in our country.
Danny Kruger (Devizes) (Con)
I rise with great enthusiasm for the proposals set out by the Government, in particular on the super deduction. We heard from my hon. Friend the Member for Wimbledon (Stephen Hammond) about the benefits that super deduction will bring to tax receipts eventually and to growth in the immediate term for our national finances.
I want to talk quickly about a benefit that will be felt locally in Devizes. I spoke today to the boss of Wadworth brewers, the brewers behind the legendary 6X and Bishop’s Tipple, with which you will be familiar, Madam Deputy Speaker. They are not tax avoiders, as the right hon. Member for Hayes and Harlington (John McDonnell) just described them; they are local employers who drive growth and employment in my constituency. They will use the super deduction to invest in more buildings, more jobs, more brewing and more beer in Wiltshire, and I am absolutely delighted to welcome the proposal on their behalf.
There is a real problem that the super deduction proposal seeks to address, which is that, sadly, low corporation tax has not driven the sort of private sector investment we need. I therefore support the rise in corporation tax, which will be imposed on profits on the biggest firms. We live in a topsy-turvy world where we see Joe Biden proposing 15% corporation tax, the Labour party proposing 21%, and my Conservative Government proposing 25%. I recognise the value of that, however: we have to pay the bills of the pandemic somehow and I appreciate that this is the right way. We will still have the lowest corporation tax in the G7. That will make us, with the super deduction and the other measures that have been set out, the best country in the world in which to invest and to bring a business.
Let me finish by stating my support for the world-leading efforts the Government are making to ensure that big tech pays its fair share of tax. We have just heard from the right hon. Member for Barking (Dame Margaret Hodge) that she thinks we should back Biden. I think we should back Britain. We should back what this country and this Government are doing to lead the debate on fair taxation. The key challenge for us is to ensure that the tax that is gathered through whatever global agreement we can make is paid in the right places; it would be a bit of a shame if we achieve a global minimum tax that was all paid in California. I welcome what the Government are doing, and I look forward to the Minister’s response and to the announcements that I hope will be forthcoming ahead of the Cornwall summit. I absolutely back everything the Government are doing through this Bill.
Christine Jardine (Edinburgh West) (LD)
Again in this place, we are talking about the challenges that have been created by the coronavirus—the challenges to our businesses, to individuals and to those who have been excluded from Government support—and the taxation that will have to be used to try to rebuild. In the Finance Bill that the Government have laid before us, I believe that they have missed important opportunities to do that for the benefit of all our constituents. I would echo what the hon. Member for Ealing North (James Murray) said when laying out new clause 23 and when speaking about Biden’s proposals. We have to look at this crisis in a way that we have never approached any crisis before, and on a scale that we have never done with any crisis before. We have to look for measures that will be enacted on a scale that we have never seen before.
I would also like to express my support for the amendments tabled to address and, indeed, stop the malpractice that is rife. These include an amendment tabled following the inquiry by the all-party parliamentary loan charge group into how contracting should work, to stamp out the malpractice and mis-selling to public and private sector freelance and locum workers by unregulated umbrella companies. Those practices have created a climate where tax avoidance schemes are rife and are being mis-sold.
These amendments follow the powerful report by the loan charge APPG, as I have said. BBC Radio 4 has estimated the cost to the Treasury—£1 billion a year in lost tax revenue—and The Guardian has reported that the hidden cost of umbrella companies in the UK may actually be more than £4.5 billion a year. These are some of the opportunities that I believe the Government are missing.
There are also specific amendments before us tonight about measures that would require the Chancellor to review separately the effectiveness of furlough and the self-employment income support scheme, the impact of the Finance Bill on small businesses and the impact of the Bill on transitioning to zero-carbon domestic flights by 2030. All of these, I believe, are opportunities that the Government are failing to take.
The coronavirus has caused the worst economic crisis in three centuries and brought real hardship to our constituents up and down the country in all lines of work. The furlough scheme and SEISS have helped countless people so far, and millions continue to depend on them, but the Government need to think again and review their decision to end the schemes in September. They need to think about extending them into next year. We have all been glad to see cases dropping and restrictions being eased thanks to the vaccine and the NHS, but unfortunately this does not mean that the crisis is behind us.
Covid has left businesses saddled with debt and more vulnerable than ever, especially small businesses, and many are worried that they will not make it through the year. Their employees are rightly worried about their future. As experts warn us about the potential dangers of the new Indian variant, there are worries that the final step of the reopening road map might need to be delayed, or that we might not have seen the last of social distancing.
For all those reasons, it is essential to give workers, self-employed people and small businesses certainty about the future and keep job support in place at least until the end of the year. Even at this late stage, the Chancellor must correct the injustice against the 3 million excluded, who have spent more than a year with no help at all, by finally bringing them under the umbrella of Government support.
I would also like the Chancellor to review the impact of the Bill specifically on small businesses and whether it will offer them adequate help with their debt, rent arrears, solvency and ability to employ people. Small businesses are, as countless Prime Ministers have said, the backbone of our economy and the heart of our local communities. They create the jobs that we all rely on, with 16.8 million people working in small businesses and accounting for six out of 10 private sector jobs. Local shops, cafés, pubs, restaurants, hairdressers and florists all serve our communities and bring life to our town centres and high streets. If allowed not just to survive but to thrive, they can be the engines for growth and jobs in the months and years to come. At the moment, they are struggling under record amounts of debt and months of rent arrears; the collective debt burden is more than £100 billion. According to the Federation of Small Businesses, something like a quarter of a million of its members could close by the end of this year. On top of that, they have been badly hit by the terrible EU trade deal. That is why the Chancellor must adopt a revenue compensation scheme that could help those struggling with their finances and fixed expenses to stay afloat. At the very least, the Government should be undertaking a review to assess the state of UK small businesses and offer the necessary support off the back of that.
Opportunities are also being lost to transition to a zero-carbon economy by 2030. These are all opportunities with which this challenge of many lifetimes has presented us, and which we should seize in order to help individuals, businesses, families and communities up and down the country to recover. The opportunity was there with this Finance Bill, but I do not believe that the Government have grasped it in the way that they should. I ask them to reconsider and accept the amendments.
Anthony Browne (South Cambridgeshire) (Con)
I, too, will abide by your strictures, Madam Deputy Speaker, to keep my speech as short as possible.
When I was an economics correspondent a very, very long time ago, tax competition between countries was all the rage. There was a sort of mainstream consensus that it was a good thing because it helped give countries an incentive to be an attractive place to do business, but in the last couple of decades it has become clear how easy it is for international companies to run circles around national rules and reduce their tax bills by shifting profits to low-tax jurisdictions, and we end up with this outrageous, unconscionable position of some of the world’s largest companies paying some of the smallest corporation tax rates. That causes anger across the UK and on both sides of this House; we are all aligned in the objective of ensuring that big companies pay a fair share of tax.
This Government have been doing an awful lot, as the hon. Member for Ealing North (James Murray) recognised, to try to tackle this issue both within the UK and internationally, including through measures such as the diverted profits tax, the digital services tax and changes on tax to subsidiaries. When I was chief executive of the British Bankers Association, I was involved with a lot of the implementation of those rules.
We need to take measures internationally as well; this is an international problem, so ideally we need an international solution. The difficulty, though, is getting an agreement between a large number of different countries. Normally these sorts of discussions go through the OECD, which is so big that it is difficult to get agreement and progress is absolutely glacial. That is why, on things such as the digital services tax, the UK has opted to act unilaterally before an international agreement can be agreed. I very much welcome the fact that the initiative is now being led by the G7, because we are far more likely to get agreement from seven major countries, and then to expand that out to the G20 and then to the OECD.
As we have heard tonight, particularly from my hon. Friend the Member for Wimbledon (Stephen Hammond), these are complex negotiations. There are two interlinked pillars at the OECD: the scope of the tax and the level of the tax if there is a global minimum rate of corporation tax. As my hon. Friend the Member for Devizes (Danny Kruger) said, there is no point in agreeing a global level of corporation tax if all we are doing is taxing companies in California; the two parts of the negotiations are intertwined. I very much welcome the fact that Government are involved in these negotiations. I completely respect that they may wish to negotiate more in private than in public, as that is often the best way; I know that their intentions are absolutely right.
That brings me to new clause 23. It is the wrong review at the wrong time. The new clause asks the Government to review the corporation tax set at 21%, but, as the hon. Member for Ealing North said, it actually looks like Joe Biden and the US are now looking at 15%, so this proposal is already out of date and it has not even been voted on yet. It is also at the wrong time because what we do not want to do in the middle of an international negotiation is tie our hands, display all our cards and show what we are doing. It could create a dynamic in the negotiations that would actually set back the UK’s ambition to ensure that companies pay a fair rate of tax. I therefore fully support the Government in rejecting the new clause. I also fully support them on reaching a strong global agreement to ensure that the world’s biggest companies pay their fair share of tax.
I hope that that was less than five minutes.
Madam Deputy Speaker (Dame Eleanor Laing)
Definite brownie points for the hon. Gentleman.
Dan Carden (Liverpool, Walton) (Lab)
It is great to follow so many passionate and powerful speeches from my own side of the House in this debate. I am perplexed at the situation Ministers have got themselves into, seemingly exposed by the US President on their real agenda on taxation. In the last year, the pandemic has not just shone a light on the deep inequalities in our society; it has driven and deepened those inequalities like never before. Millions of people have been plunged into insecurity while a small number of the very richest have seen their fortunes surge, with 24 new billionaires in the last year, despite everything else that has been going on. Key workers have put their health and lives on the line for the benefit of others to ensure that their neighbours were fed, people were treated when they were sick and society kept moving, while some bosses at companies such as British Gas and British Airways used the pandemic cynically to drive down pay and terms and conditions through shameful fire and rehire tactics, and all the while the Government have stood by and done nothing. While millions were excluded from Government support and then ignored, if you knew Ministers or had donated to the Tory party, there were billions of pounds of public money in lucrative contracts, handed out without competition or transparency.
So if the Finance Bill was an opportunity to fix a rigged system that was failing communities up and down the country, the track record of this Government tells you that they are incapable of taking that opportunity. The decades-long race to the bottom on corporation tax may finally be coming to an end with the proposal to raise the headline rate in 2023, but alongside it measures in this Bill will do more harm than good when it comes to fair taxation and plugging the hole in the nation’s finances. As we have heard, the super deduction is a £25 billion giveaway to big business. TaxWatch calls it “The Amazon Tax-Cut” because it could entirely wipe out the UK corporate tax bill of Amazon UK Services Ltd. The Times reports that it will allow companies to write off investments in swimming pools, interior decoration and Jacuzzis against their tax bills.
Ministers just are not serious about making tech giants pay their fair share of tax. In fact, Ministers are now rowing back on key commitments they made to tax transparency. Since 2016, the UK has had the power to lift the lid on multinational company accounts through country-by-country reporting, but it is clear that the Government have reversed their original commitment to do so. Instead Ministers are now actively blocking the OECD from publishing the data at an international level, signalling what the Tax Justice Network called a dangerous “regression into tax havenry”.
The UK has been moving in the wrong direction, backing secrecy over transparency, tax havens over progressive taxation and multinational corporations over small and medium-sized UK businesses. That is an agenda that no doubt delighted President Trump, but the election of President Biden now means that the US has done an about turn, and it is time Ministers caught up.
The US is now leading on international tax reforms that the UK has been sabotaging for years—tax reforms that would stop multinationals hiding profits overseas and establish a global minimum tax rate of up to 21%. These are reforms that would raise billions from tech giants and stop Amazon, Apple, Google, Alphabet and Facebook from shifting their profits from the country they were made in to tax havens. While every other G7 country has responded positively to President Biden’s plan, the UK Government continue to block the best opportunity in a generation to curb corporate tax abuse.
The Government, no doubt emboldened by the Trump regime, have been on the wrong side of tax transparency and tax reform for a number of years, but the pandemic has exposed the grave cost of an economic system that prioritises the interests of corporate giants over people and local communities, because wealth does not trickle down—it never has. Rather, it is sucked up, away from those who do the work and who contribute to society, and towards those who set the rules, reap the rewards and, all too often, avoid paying their fair share. That should change now.
Miriam Cates (Penistone and Stocksbridge) (Con) [V]
It is a pleasure to speak on Report of the Finance Bill. Over the past 14 months, the Government’s main concern has been to protect the UK from the worst impacts of the global pandemic. We have seen a comprehensive public health response to slow the spread of coronavirus, and more recently to deliver mass vaccinations on an unprecedented scale, but the Government have also delivered a comprehensive financial response to secure jobs and livelihoods, and to protect the economy. This response has been hugely successful and the most recent Office for Budget Responsibility forecast suggests that the UK economy will recover six months earlier than previously thought. However, essential though this financial response has been, it has cost the taxpayer £407 billion, the majority of which has been debt. This year, we have borrowed a staggering 17% of GDP.
As we emerge from the pandemic, it is imperative that we begin to plan how that debt will be repaid and the deficit reduced. One of the tools at our disposal is to raise levels of taxation, and it is right that any increases should fall on the broadest shoulders. While many small and medium-sized enterprises in my constituency have struggled this year, some of the UK’s biggest businesses have made significant profits. It is only large, often international, companies with profits of over a quarter of a million pounds a year that will be required to pay the highest rate of corporation tax, as stipulated by clause 6.
It is not only the UK that is reconsidering business taxation. Current global efforts to update corporation tax frameworks in response to modern challenges are ongoing, and we have seen reports today of those international negotiations and the positive steps that are being taken to address the current practice by some multinational companies of shifting profits to low-tax jurisdictions. I absolutely support the efforts to end that practice, but I oppose new clause 23, which would compel the Government to publish, within six months of enactment, a review of the impact on corporation taxation revenues of a global minimum rate. Since those matters are still subject to international negotiation, any assessments mandated by the new clause would be purely speculative and a complete waste of resources.
Taxation is not a penalty and should not be an ideology. It is a tool—a mechanism that we can use to ensure that the state can afford to pay for the infrastructure and services that citizens expect. Taxation levels must balance the requirements of those services with the rights of individuals and businesses to have as much agency as possible over their own financial resources. There is no absolute right or wrong level of taxation. Tax rates should change with the times and challenges we face.
The Opposition have spent the past year calling for more taxpayers’ money to be spent on supporting businesses, welfare and health, and they have often rightly framed that demand in moral terms, highlighting the impact of the pandemic on those who have been hardest hit. But all resources are limited, even the state’s. Just as public spending has a moral dimension, so does public debt. It is morally wrong to leave difficult decisions for future generations, rack up eye-watering interest payments for our children and grandchildren, and risk the security of our economy. That is why we must have a plan for reducing our debts. Increasing corporation tax for the largest businesses is an important part of that.
I said that taxation policy is a tool—a mechanism for raising money—but it can also be a catalyst for growth and investment. With the introduction of the super deduction and freeports, which will be discussed when we debate the next group of amendments, I am confident that, unamended, this Finance Bill will kick-start our recovery and help businesses across the country to build back better.
Zarah Sultana (Coventry South) (Lab)
I remember when the pandemic first hit and the Chancellor said that we would all be in it together. Well, the reality has not turned out that way. It has been the story of the many and the few. For the many, it has meant food bank use rocketing—it is up 33% on a year ago. Universal credit claimants have doubled in my constituency and child poverty now affects more than one in three children in Coventry South—nearly 7,000 kids in my constituency alone—and nearly 4.5 million across the country.
While the majority have struggled with falling wages, unemployment and rents that they cannot afford, for a wealthy few it has been a bonanza. Last week The Sunday Times rich list revealed a record growth in UK billionaires, of whom there are now 171 in total. Their wealth stands at £600 billion—up nearly 25%. Amazon, which this year has raked in record revenues of £38 billion across Europe, paid nothing in corporation tax. This is not just a broken economic model—it is not just unfair and unequal—it is rigged. It is redistribution, but not in the way that we might traditionally understand: it is taking from the many and giving it to the few. That is what is happening when we see that food bank use is up 35% and billionaire wealth is up 25%. This Conservative Government not only refuse to tackle that but aid and abet it.
There is nothing in the Bill to tackle the tax loophole that means that income earned through wealth, owned overwhelmingly by the rich, is taxed at a lower rate than income earned through work. There is nothing in the Bill to fairly tax the obscene profit that companies such as Amazon have made during the pandemic, with the Government refusing to embrace a windfall tax. There is nothing in the Bill to provide the necessary investment in Her Majesty’s Revenue and Customs to tackle tax avoidance and evasion by the super-rich and big businesses. Instead, the Government are standing by as the tax gap stands in excess of £35 billion.
What is in the Bill is £15 billion more in annual cuts to Government Departments and a super deduction tax cut in capital spending that the rich are already reported to be using to purchase jacuzzis. To top it all off, there is the Tory Government’s refusal to embrace plans to tackle global tax avoidance. The plans put forward by the US could prevent the likes of Amazon, Google and Facebook from dodging tax and refusing to pay their fair share, and end the race to the bottom on corporate tax rates. Even at a moderate rate of 21%, such a measure could raise £13.5 billion for the UK Treasury, according to Tax Justice UK.
We should not really be surprised by the Government as they are on the side of big business and the super-rich. For a decade they have been cutting taxes while cutting the budgets of schools and hospitals throughout the country. They are also funded by a third of UK billionaires and, of course, they are led by the super-rich, too—not just an old Etonian Prime Minister who complains that his £150,000 salary is not enough, but a Chancellor who went from an elite private school to Oxford to investment banking, before becoming the wealthiest Member of Parliament in this House and using his power to cut the services of the working class.
Instead of this rigged and rotten system, we could make the super-rich pay their fair share to fund our public services and end poverty for all. That is the least the Government should be doing, so they should back the plan for a global minimum corporation tax. They should also back my proposed new clause, which would shine a light on the scandal of tax dodging. Instead of entrenching inequality, the Government could be building an economy for all.
Richard Thomson (Gordon) (SNP)
I rise to speak in favour of new clause 12, which was tabled in my name and those of my Scottish National party colleagues.
We have previously welcomed the planned future increase to the corporation tax rate and we also very much welcome, as have other speakers in the debate, the news reported today in the Financial Times that the G7 nations, or at least some of them, seem to be close to an agreement on minimum rates of corporate taxation. Like other speakers, I take this opportunity to praise and put on the record my admiration for the Biden Administration for having brought the situation about. It is imperative that the UK Government rise to the moment and seize the opportunity to embrace the emerging consensus on global taxation and ending the race to the bottom on corporate tax rates. For a global minimum tax rate for companies will reduce the opportunities for companies to minimise their tax liabilities by funnelling revenues through other jurisdictions. That will help to ensure that more tax gets paid in the jurisdictions where those revenues have been earned. In the process, that helps to uphold living standards and ensure that a fair contribution is paid to the common good by our corporate citizens for the public goods they consume.
New clause 12 follows our efforts at previous stages of the Bill’s progress in trying to oblige the Government to review the impact of the proposed corporation tax changes on all parts of the UK in respect of investment, employment, productivity, GDP growth and poverty, and to compare the difference between actual and forecast outcomes in the event of a deal with other OECD countries on a minimum level of corporation tax, such as I have mentioned, and in the event that such a deal cannot be reached. I also find much to support in new clause 22, as well as amendments 30 and 31.
Frankly, it should be taken as a given that any company qualifying for tax reliefs should be domiciled in the tax jurisdiction offering those reliefs. It should have an exemplary history when it comes to paying taxes that are due on its activities in that jurisdiction and an exemplary record of behaviour towards its employees, in terms of recognising the right to organise their labour and paying a living wage for that labour.
To conclude, in difficult times or in better times, there is nothing that sticks in the collective craw more than large corporate entities that seek to take almost as much from society as they give in return, and which pay much less than they are able and often end up paying proportionately far less than many of their smaller competitors. I am very happy to support these amendments.
Kate Osborne (Jarrow) (Lab)
In March, the Government had the opportunity to set out a plan to build a fairer, healthier, greener Britain. Instead, the Chancellor has chosen to continue down the path of further inequality and insecurity by writing off the tax liabilities of huge multinationals such as Amazon and Google. These big tech firms have made huge profits during the pandemic, and now the Government are enabling them to hide their money from the very people who have sustained them.
The Chancellor’s super deduction incentive is not the innovative idea that he might like to portray it as. The Government’s plan to rapidly increase corporation tax after many years of cutting it means that the super deduction is an incentive to prevent businesses from pushing investment to the end of the period. It will make no difference to investment in the long run. All it does is change when businesses will decide to invest, rather than encouraging them to invest more. The super deduction is not targeted at British businesses that have been struggling. It is targeted at multinationals such as Amazon and Google, which will be able to use it to write off their entire remaining UK tax bill.
The Treasury will lose tens of billions through this tax cut, which makes even more confusing its argument that it has not been possible to find the smaller sums required to give our NHS workers a well-deserved pay rise. It is essential that the income from wealth is taxed at the same level as income from work, and that multinationals such as Amazon are forced to redistribute their huge profits into our communities by paying their fair share of tax. Multinationals paying their tax does not just result in more spending on our public services; it also means that British firms that pay tax here will not be undercut by companies such as Amazon, which can shift profits overseas to take advantage of very low rates of corporation tax elsewhere.
The online shopping boom that sprung from the covid lockdowns has led to Amazon creating more than 1,300 jobs in Gateshead. While job creation in my constituency is welcome, shocking employment practices have been reported at Amazon fulfilment centres in the UK and across the globe. Do the Government really believe that all large corporations should be entitled to tax breaks, regardless of how well or how badly they treat their employees? I join Unite the union in demanding that workers at Amazon have the right to join a trade union without fear of reprisal.
Nothing angers the British public more than multinationals such as Amazon and Google and others paying ultra-low levels of tax. If the Government were serious about their levelling-up agenda, I am sure they would be happy to support new clause 22, which would prevent subsidiary companies registered in tax havens from benefiting from UK tax relief, and new clause 31, which would prevent multinational corporations with a history of corporate tax avoidance from benefiting from the super deductions in the Bill.
Claudia Webbe (Leicester East) (Ind) [V]
When we look at our world today—a world in which half of global wealth belongs to the richest 1%, a world in which large corporations possess more financial power than many post-colonial countries, and a world in which British Amazon warehouse workers earn in eight weeks what the company’s chief executive makes in one second—it is clear that we need to radically reassess how we tax large corporations.
It is therefore shameful, as my hon. Friend the Member for Ealing North (James Murray) made clear, that the British Government are the only G7 Government not to support US President Biden’s plans to halt the race to the bottom on corporation tax. However, I do not believe that even these plans for a global minimum rate of corporation tax for large multinationals go nearly far enough. We should be much, much bolder than the 15% or 20% threshold that is being discussed. After all, we are talking about corporations that have made super profits out of this pandemic and are paying low wages to our workers. The fact that our Government are not even willing to engage with this most basic of proposals reveals how unserious they are about reining in the rampantly unequal power of large corporations.
We know that tech giants currently pay a negligible amount of tax. A report by Fair Tax Mark found that for the Silicon six of Facebook, Apple, Amazon, Netflix, Google and Microsoft, the gap between the expected headline rates of tax and the actual tax paid between 2010 and 2019 was $123 billion. This is as unsustainable as it is unjust.
It is important to bear in mind that billionaires exist when and where workers are exploited, as has been cruelly demonstrated by the testimony of Amazon workers who have bravely and painfully disclosed the conditions under which they are forced to work. Rather than blocking international efforts to address this crisis, the Government must properly tax large corporations and invest to build a radically fairer country. That means not only rejoining the international plan led by President Biden but making the case that the minimum threshold be increased. It is important to remember that in the period post world war two, the top rate of corporation tax was actually as high as 52% for large companies—this, after all, was introduced by a Conservative Chancellor—but in the 1980s it was reduced to 30%. Since 2010, the Conservatives have cut corporation tax from 28% to 19%—by more than most among relatively rich countries. This shows that they would rather raise funds by squeezing the British people than reduce the corporate profits of wealthy shareholders.
The super deduction is wasteful and open to abuse. Are we going to see, as has been reported by The Times and others, tax breaks handed out for investing in swimming pools and jacuzzis as opposed to targeting support at British businesses that have been struggling during the pandemic, or even as opposed to targeting investment to end child poverty? Currently one in two children in my constituency are living in poverty—that is 42% of children who could be saved. Child poverty is a political choice, and this Bill is the proof of that. Are we going to see this measure as opposed to targeting investment to end the starvation wage that workers in Leicester’s garment industry receive while making clothes to fund the super-bonuses of retail brands such as Boohoo and others? Quite simply, the super deduction will allow multinationals such as Amazon to write off their tax liabilities.
As we recover from the coronavirus, we must learn the lessons from the 2008 financial crash. The 99%—the many—must never again be forced to bail out the super-rich. The Government must recognise that in our country of deep and unequal wealth, the ultra-rich and large corporations should be asked to contribute their fair share. Corporation tax is a tax on profits, not people. Cutting it means more profits in the pockets of wealthy shareholders and less in those of nurses and other essential frontline workers. To enable much-needed investment, an increased tax on company profits is necessary and long overdue, and it should be raised above the Government’s 25% limit, which is still the lowest of the G7 countries. Above all, it is vital that we enter the debate around taxing the super, ultra-rich and large corporations with much more ambition, as it is one of the most powerful weapons in the Government’s arsenal to combat the rampant inequality that defines our era.
Jim Shannon (Strangford) (DUP) [V]
I am grateful for the opportunity to highlight a number of issues during the Report stage of the Finance Bill. I am always pleased to see the Minister in his place and I hope that I can put forward some points to which he will be able to reply.
I want to refer to clause 6, in part 1. I have spoken on this issue on numerous occasions, and I am thankful for the clarification the Government have sought to provide. However, I am still left disappointed at the rationale as regards corporation tax. The hon. Member for Leicester East (Claudia Webbe) referred to this as well. The measure sets the charge for the main rate of corporation tax at 19% for the financial years beginning 1 April 2022 and 1 April 2023. These changes mean that from 1 April 2023 the main rate of corporation tax for non-ring-fenced profits will be increased to 25%, applying to profits over £250,000. A small profits rate will also be introduced for companies with profits of £50,000 or less, so they will continue to pay corporation tax at 19%. Companies with profits between £50,000 and £350,000 will pay tax at the main rate, reduced by a marginal relief providing a gradual increase in the effective corporation tax rate.
The impact assessment that the Government have produced highlights the issue that I want to speak about. It states that there is no impact on families, but goes on to say:
“However, if businesses struggle or are unable to pay increased Corporation Tax, this could impact on their family formation, stability or breakdown. To support, HMRC can provide a Time To Pay arrangement.”
The issue is clear, at least in my mind and, I suspect, in the mind of many others: businesses have already struggled. While rates and wages may have been paid, and we are grateful for those schemes, the fact is that many small businesses have still had to pay out rent for equipment that they were precluded from using to make a profit, so their income was massively affected and many people’s personal savings were totally wiped out. They then took out a coronavirus business interruption loan to help them to make it through. We are beginning to come to the other side—thank the Lord for that—where they are seeking to rebuild, but instead of a meaningful reduction, there is merely a stay of execution with corporation tax.
That will affect many businesses and, by extension, many homes and families. It seems that it could well mean the end of many of our small businesses; while that is sad on a personal level, it is devastating on an economic level. We must remember that small and medium-sized businesses are the backbone of our economy. The Financial Secretary and his Conservative Government have been committed to helping small businesses. All those small and medium-sized businesses are the backbone of the whole United Kingdom—they certainly are in my constituency of Strangford.
I repeat what I have said before in this Chamber: there is no point in carrying businesses thus far, only to allow them to flounder now before any repayment is made. The Government have admitted that there will be a reduced incentive to incorporate businesses that would usually seek to take this step. All this has an effect on the long-term income to our economy. I know that the Government want a stronger economy; we all do, and I believe that we need some help.
Northern Ireland is well placed to be a central hub for business. We have much to offer, yet people can go south of the border to lower corporation tax and greater incentives. Along with my colleagues in the Democratic Unionist party, I have often argued for a reduction in corporation tax to attract businesses to Northern Ireland. I believe that the corporation tax rate repels investors, so I urge the Financial Secretary to look at the issue again. I understand that historically he has wanted a UK-wide rate of corporation tax. However, I want a UK-wide customs market, and that is not the case—ask the local small grocer who cannot even get in dog treats to sell because of the Northern Ireland protocol. There are differences made by this insidious protocol that affect our corporations and small businesses alike. It is clear that if the Financial Secretary insists on one size fits all, it must be applied in every aspect of manufacture, delivery and retail.
The Northern Ireland Assembly is establishing a working group on the consequences of creating our own corporation tax band and its effect on our block grant; maybe the Financial Secretary could highlight where those discussions have taken us so far. I believe that there is an opportunity for him to step in and do the right thing for the UK with a view to the long term. That is what I am requesting, even at this very late stage.
The UK is stronger together. I believe that the United Kingdom of Great Britain and Northern Ireland will always be stronger together. That has become the mantra of our Government, and I agree with it, but it needs to be more than words: action must follow the words and show our strengths. I believe that a reasonable rate of corporation tax across the board is a step to strengthen the Union, not cause more division.
Jesse Norman
I am grateful to all Members who have taken part in this debate. Let me pick up on several issues that have been raised, starting with the super deduction. You will be aware, Madam Deputy Speaker, as I think some Opposition Members are not, that it has been described by the CBI as
“a real catalyst for firms”,
while the British Chambers of Commerce said:
“We particularly welcome the massive ‘super deduction’ investment incentive.”
They are absolutely right. It is a terrible shame that the Labour party has decided to try to tarnish the super deduction, a measure from which many capital-intensive businesses around this country will benefit, especially in the north, the north-west, the north-east and the midlands. As my hon. Friend the Member for Devizes (Danny Kruger) rightly picked up, it is a measure that benefits local businesses up and down the UK. He picked Wadworth, a well-known brewer, and rightly so, but there are many, many other businesses for which that is also true. He was absolutely right to highlight that.
Let me come on to questions of wider taxation, if I may. There seems to be an astonishing level of ignorance among Members on the Opposition Benches. They seemed to be unaware that the tax gap—the difference between the amount of tax actually collected and the amount of tax that could potentially be collected—is at its lowest rate in our recorded history, at 4.7%. It may be of some interest if I point out to them—they can reflect on this—that in 2005-06 under the Labour Government it was 7.5%, so it has fallen dramatically, I am pleased to say. Tax that was not being collected by the Labour Government at that time is now being collected by the Conservative Government of the present day, and a very good thing that is too. That is a record on which they should spend some time pondering. The fact of the matter is that this Government have always made it plain that they will be very tough—as tough as they can be—in order to collect the tax that is due and to make sure that corporations and individuals pay it wherever they are due to.
James Murray
I thank so many Members for their contributions to this debate, which has focused on the importance of fairness in the tax system, supporting British businesses and the need for the Government to step up and help to strike a global deal to stop tax avoidance.
We heard from my right hon. Friend the Member for Barking (Dame Margaret Hodge), who spoke with great experience about how the UK should be a prominent voice leading the charge to support President Biden’s proposals. She said that deliberately allowing tax-avoiding large multinationals to benefit from the super deductions is unbelievably foolish. My right hon. Friend the Member for Hayes and Harlington (John McDonnell) spoke about the unfairness of certain firms getting a super deduction. We also heard passionate contributions from my hon. Friends the Members for Liverpool, Walton (Dan Carden), for Coventry South (Zarah Sultana), for Jarrow (Kate Osborne) and for Leicester East (Claudia Webbe) about their and the public’s disbelief that the UK appears to be blocking the best opportunity in a generation to strike a deal on global tax avoidance, especially with the UK hosting the G7 summit in June.
We also heard from Conservative Members. The hon. Member for South Cambridgeshire (Anthony Browne) seemed rather eager to welcome the fall from 21% to 15% as a minimum, rather than wanting to help the US Treasury, which has publicly said that “15% is a floor” and that we
“should continue to be ambitious and push that rate higher.”
The hon. Member for Devizes (Danny Kruger) spoke about backing Biden and backing Britain. That is what our approach seeks to do. His Ministers are backing Bermuda.
Unfortunately, the Minister gave no reassurance in his speech that the Government are committed to taking a lead on this once-in-a-generation opportunity for a global deal on tax avoidance by a few large multinational firms that undermine British businesses and fail to pay their fair share. We were hoping that, today, the Government might finally indicate their support for President Biden’s plans, but instead we heard more of the same nonsensical justification for inaction. Through the vote on our new clause, we will push them to review and be transparent about the impact that a global minimum corporate tax rate no lower than 21% would have.
We were also hoping that the Minister might have indicated his support for our very simple amendment that would stop Amazon and a few other tech giants from benefiting from the tax break that the Chancellor announced at the Budget. He and his colleagues failed to address that point, so we will seek a vote on that amendment to see if any Conservative Back Benchers feel uneasy at their Ministers effectively finishing the job that Amazon started, wiping out the last bit of tax that Amazon would have to pay on the few parts of their business whose profits they have been unable to shift overseas.
This debate has exposed the failure of this Bill and this Government to be on the side of the British people and of British businesses trying to get back on their feet. Ministers have resisted stepping up to the challenge of stopping a few large multinational firms that are not paying their fair share of tax. We urge any Government Members who are uncomfortable with the position that their Government are taking to join us in voting for new clause 23 and amendment 29.
Question put¸ That the clause be read a Second time.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Dame Rosie Winterton)
With this it will be convenient to consider the following:
Amendment 24, page 63, line 9, leave out clause 109.
This and the other amendments relating to clauses 109 to 111 would prevent the creation of freeport tax sites in the UK.
Amendment 25, page 63, line 31, leave out clause 110.
This and the other amendments relating to clauses 109 to 111 would prevent the creation of freeport tax sites in the UK.
Amendment 26, page 64, line 1, leave out clause 111.
This and the other amendments relating to clauses 109 to 111 would prevent the creation of freeport tax sites in the UK.
Abena Oppong-Asare
I rise to speak to new clause 25, tabled in my name, and those of the Leader of the Opposition and my hon. Friends. The new clause sets out a number of tests that we believe the Government must apply to each and every freeport created in the UK. Before I come to the detail of those tests, I will make a couple of brief points about the Government’s intentions behind freeports. As I said in Committee, Labour wants every area to succeed, whether or not it has a freeport. We want good new jobs to be created right across the country, and our great British industries to be protected and supported. We want to see the UK at the forefront of new green manufacturing and technology, and we want a genuine re-distribution of power and opportunity to places that have been denied that for so long.
The Government clearly believe that freeports are a silver bullet for solving regional inequalities, and I simply remind them that they have been in power for 11 years now. Let me repeat that: 11 years. They must own the choices they have made, such as abolishing regional development agencies, cutting local authority funding, and pulling opportunities away from young people in some of the most deprived regions of the UK. Just recently, they scrapped the industrial strategy altogether. We need a proper plan that creates jobs and opportunities for everyone, regardless of where they live.
I will now turn to the new clause, and to the tests against which we believe our freeports should be judged if they are to succeed. First, freeports must create jobs, not simply move them from elsewhere. Too often, attempts at regional rebalancing have simply shuffled jobs around rather than creating them in the places that need them. We must end the scandal of people being forced to move to the other end of the country to find a decent job. Our test will be this: if someone lives near a freeport, will new opportunities be opened to them that did not exist before? Conversely, if an area does not have a freeport, can we be confident that it will not lose jobs as a result of this policy? Of course, any new jobs must be secure and well paid, with trade union rights—the kind of jobs we have not seen anywhere near enough of over the last decade.
Secondly, freeports must deliver improvements in training and skills for local residents. As we begin to recover from the pandemic, the need for re-training will become even more acute. We need a genuine skills guarantee for everyone, and freeports must play their part in that. Labour will be looking to see how companies operating in freeports work with their local communities to provide skills and training opportunities. Rather than a race to the bottom, freeports should be helping to boost skills and open opportunities.
Thirdly, freeports must produce tangible transport and infrastructure improvements beyond the port itself. Too many places still lack basic transport infrastructure, and too many people still find it difficult to get around. The investment that the Government are making in freeports must go towards boosting connectivity for everyone in those areas. We want every community to benefit from affordable and reliable public transport.
Madam Deputy Speaker (Dame Rosie Winterton)
We were having a little difficulty getting hold of the speaker at No. 2 on the list, so I will call Richard Thomson and then come back to David Simmonds.
Richard Thomson
I rise to support new clause 25. It is a pleasure to follow the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) and I would like to echo much of what she said.
We have had freeports before in the UK, as recently as 2012, and our EU partners still have them, with 72 free zones across the EU territory. Some contributors in these debates have taken an excessively, I think, dim view of freeports. I would like to take a more balanced view, but I still think we are absolutely right to proceed cautiously, and that is why I am happy to support new clause 25. Given the incentives on business rates that are on offer, the potential national insurance exemptions and the exemptions on customs duties, it is absolutely vital to make sure that the economic activity attracted to freeports is not simply being displaced from elsewhere, and that the activity is new, adding value and resulting in economic output that is greater than would otherwise have been the case.
Therefore, when we are measuring that impact, it is important to make sure that the Government do not get to mark their own exam paper by choosing their measures of success after the fact. That is why it is important to be able to report back on job creation, skills and productivity, the impact on tax revenues, the levels of financial criminal activity that have resulted around a development and the details of the resourcing needed to ensure compliance with the law, and also to understand the extent to which the mix of industries that will have grown up around a freeport development match those sought in the original bids.
The Scottish Government have sought to build on the freeport model with a green port version of it that embraces all the potential benefits of freeports, while ensuring that the principles of fair work are enshrined at their heart—the principles of fair work and fair pay through a real living wage—and putting environmental concerns to the fore, through placing carbon reduction at the heart of these developments. These proposals for green ports from the Scottish Government already have widespread buy-in from business, industry and investors in Scotland. The Scottish Government stand ready, armed with the fresh mandate they received from the Scottish people earlier this month, to press ahead as soon as the UK Government are willing to do so.
At the conclusion of the Committee stage, the Minister gave—I hope he will not mind me describing it in this way—a somewhat editorialised account of the development of freeports and green ports in Scotland. We could back and forth roundabout that, but I would much rather move forward, just as the Scottish Government would. I hope the Minister would like to do that, too, and will commit to working as quickly as possible with the Scottish Government to bring green ports to fruition in Scotland.
David Simmonds (Ruislip, Northwood and Pinner) (Con) [V]
My constituency is not one of those that has the prospect of playing host to a freeport, or indeed being very close to one, but it is a subject of interest to my constituents for a number of reasons. I want to set out briefly what those are and why it is so important that the Government are pressing ahead in this direction.
My constituents are part of outer London, a part of the country which for many years and many generations has had an enormous economic pull factor, including for people like me. I grew up in the south Wales valleys. Following the disappearance of a lot of the heavy industry that was there, and despite a huge amount of effort by the Westminster Government and significant investment by what was then the European Economic Community to develop things such as roads, it is a place that has taken a very long time to see a significant financial and economic regeneration. While I remain sceptical, as many in the House are, about the tax situation of freeports in general, it seems very clear that they are a fantastic opportunity to play a big part in the economic regeneration and levelling up of parts of our country that have really struggled.
As a Conservative politician, it seems to me clear that a policy that is about ensuring people have access to work, a policy that is part of a wider agenda of raising people’s earnings and addressing things from child poverty to health inequalities, which still blight some parts of our country, and a policy that is very much about setting the principles of what we want to see as our economy develops, rather than taking a laissez-faire approach—we want to see the wealth not simply created, but spread and shared—is absolutely the right way forward. Freeports can be a significant part of achieving that.
It is absolutely right, as we have heard from a number of Members, that we have a balanced approach to the use of freeports. I think the port of Tilbury was the last of the UK freeports, but they are in common use around the world, The feedback is clearly very mixed about their economic impact. However, it is very consistent that they act as a draw, as a focus for a local economy, that helps to contribute to creating jobs and opportunities. As a country, we need to do that in places that have simply not had the opportunity for that in the recent past.
My constituents, who have significant concerns, for example, about the pressure on land to be released for housing to provide homes for the people who are currently being drawn in large numbers into our capital—contributing to significant housing waiting lists and significantly rising house prices, sometimes meaning that the children of people who have grown up and live locally are simply not able to settle in that area—see a direct benefit, too, to the whole country having the opportunity of economic levelling up. I therefore see this as a direct benefit to my constituents. It is important to the medium to long-term future of our country, and it is absolutely an inherent and appropriate part of the regeneration and levelling up strategy that we have for the whole of the United Kingdom. I absolutely 100% support this direction of travel and I commend it to the House.
Dr Jamie Wallis (Bridgend) (Con)
It is a pleasure to contribute to today’s debate on freeports, to voice my continued support for this commitment and to speak against the adoption of new clause 25. For me, new clause 25 typifies the stark contrast that exists between the sides of this House when it comes to delivering for the British people, with the Conservative side supporting a Government focused on delivery and the other side persistent in pursuing yet more division and delay.
As colleagues have already said, freeports will be central to the levelling-up agenda, attracting new businesses and jobs, creating opportunity and investment across areas of Britain. This policy is key to regenerating communities across the UK and I hope that may include my own constituency of Bridgend. Following the closure of the Ford factory in Bridgend, the establishment of a freeport in the Port Talbot and Bridgend area could mean a great deal to my constituents and the whole of south Wales, with the creation of up to 15,000 jobs. It is for those reasons that my constituents would expect me to back the Government tonight.
I am sure Opposition Members do not want to delay the investment associated with the measures in clauses 109 to 111. By implementing them, we will help to unlock employment in areas previously left behind and allow them the opportunity to prosper. The additional reporting requirements for freeports outlined in new clause 25 would impose unnecessary onerous processes, with little to no benefit over and above what has already been put in place; they would just cause further delay.
In Wales, as we know from oral questions to the Secretary of State for Wales in this House last week, the Welsh Labour Government have dragged their feet time and again and have refused to collaborate on this issue with Ministers here. The result is that, although bids have been received and locations have been identified in England, we still do not know what support, if any, a freeport in Wales will get from the Welsh Government.
We were elected to deliver and to get on with the job of making a success of post-Brexit Britain. Clauses 109 to 111 achieve just that. I will therefore be supporting the Government this evening.
Madam Deputy Speaker (Dame Rosie Winterton)
Speaker no. 5 has withdrawn, so we go straight to Andrew Jones.
Andrew Jones (Harrogate and Knaresborough) (Con)
That was slightly unexpected, Madam Deputy Speaker. Thank you very much indeed.
The competition for having a freeport from colleagues around the House before the decisions showed how widely welcomed this policy was. We saw colleagues’ delight when their areas were successful. It is clear that freeports are part of a broader levelling-up agenda, which is at the heart of the Government’s policy and has significant public approval. When knocking on the doors of Hartlepool, I found support for initiatives to boost the economy of that area. I do not represent a freeport area in Harrogate and Knaresborough, but there is clear support, and it is therefore surprising that the Labour party is not more aligned behind it.
A well-designed freeport policy can boost trade. The key to that is the alignment of local bodies, whether the ports or the businesses, with local authorities to grow opportunity. Of course, all that is underpinned by tax reliefs and tax incentives. It is most important that we get tax reliefs on buildings and plant purchase right. If the policy does not deliver, we will have wasted public money and we will have seen the displacement of economic activity, rather than incremental economic activity. Even more significant, of course, would be the missed opportunity. The areas that are receiving freeports are those that have not had the chance that other parts of the country have had over the past decades. I know that my right hon. Friend the Minister knows that.
The Labour party has said measures are necessary before it can even consider supporting the policy, but there are already measures in place to monitor, collect and review data. The Treasury always monitors and reviews its policies. I have seen that from my own experience, but it is a truth that we all know. Therefore, new clause 25 addresses a concern that is, frankly, already solved; it is not necessary. On transparency, costings will be published at the next fiscal event—in other words, in the usual way. On data collection for freeports, we will be collecting data on reliefs, monitoring effectiveness and so on. The main question now is not about monitoring; it is about how those running the freeports can make them bigger, seize the opportunities and maximise the chances available.
As this health crisis morphs into an economic one, the focus is moving to recovering livelihoods as well as saving lives. All the levers that can drive growth must be pulled and freeports are clearly a part of that. It was very good to see the proposals in the Finance Bill. I will be supporting them strongly this evening.
John McDonnell [V]
I am glad you are sitting down, Madam Deputy Speaker, because I do not want to shock you. I want to see if we can try something different tonight. Let us try and undertake some rational policy making. Let us try and base policy on evidence, shall we?
I have tabled a number of amendments—Nos. 24, 25 and 26—as a humble seeker after truth, basically, because I do not think the Government have made the case for freeports. I also think that the risks of this policy are huge. It could accelerate tax avoidance in this country on a massive scale and cause economic damage to the neighbouring areas of freeports. We are shovelling huge tax giveaways to corporations and developers for, as far as I can see, literally no return to society.
In its analysis of the Chancellor’s Budget, the Office for Budget Responsibility said of freeports:
“Further details have been announced in the Budget but came too late to be incorporated into our forecast.”
The OBR have therefore not made a comment—we await it. Freeports were not assessed by the OBR. However, it is not just the OBR that does not know the answer about the effects of freeports; neither do the Government. My hon. Friend the Member for Oxford East (Anneliese Dodds) asked the Treasury on 16 March what estimates it had made of the total annual cost of tax reliefs granted to the freeports. The Chief Secretary to the Treasury replied on 22 March to say—rarely have I seen this from a ministerial response—that
“it is not appropriate to comment on estimates at this stage.”
This is in the middle of policy making! He continued:
“they will therefore be scored at a future fiscal event.”
Therefore, what we are being asked to do tonight is sign off a blank cheque that will be filled in at a later date.
This is just irrational. Shoddy policy making on this scale is becoming all too familiar with this Government, but this is a bit of a shocker. It is just not good enough, so it would be really useful if tonight the Minister took us through the answers to a few simple questions. What are the annual costs of the proposed tax reliefs when the freeports are set up? What is the estimate of increased economic growth that will come from them? What is the estimate of increased job creation stimulated by the freeports? What is the estimate of increased tax revenues to the Exchequer as a result of this policy? And, to reinforce that, where is the evidence? If there are answers to those questions, where have they come from? Have they been independently assessed?
We are asking questions about the future, but we should look back, because this is not a new policy. Those of us who have been in the House a while—and that does not take long—can recognise this as a rebranding of the enterprise zones policy that the Conservative party wheeled out in the 1980s under Michael Heseltine and also in the last decade, when George Osborne fronted it up. Let me remind the House what the Public Accounts Committee said in May 2014. Its report was pretty damning about George Osborne’s enterprise zones, describing them as “particularly underwhelming”. The Committee criticised the Government for over-optimistic claims about job creation. The job numbers did not materialise—it is as simple as that. The Centre for Cities think-tank found that the jobs that were created were “overwhelmingly low skilled” and therefore low paid.
Enterprise zones were not just a disaster; they raised people’s hopes and shattered them in many areas around the country, and in many ways led to some of the disillusionment with politics and Government overall. Tax breaks for corporations in underinvested areas just does not make an industrial strategy. My view is that the Government should be investing, but in a planned upgrading of the infrastructure of this country, not making areas fight for scraps in this form of pork barrel politics.
The Conservatives’ strategy of tax breaks for developers and big business as a way of stimulating growth failed in the 1980s and again in the 2010s, and it risks failing again in the 2020s. The Government are asking us all to take a leap in the dark, and having twice before witnessed that leap in the dark, I think the result will be the same—it will be failure. I know that a number of Members, including some Ministers, have said it will be different because of Brexit and claim that being outside the EU gives greater freedoms than were available to enterprise zones, but if that is the case, why can they not quantify them and put that evidence in front of the House, in some form of rational policy making? The UK Trade Policy Observatory, based at the University of Sussex, has pointed out that as UK import tariffs are already low, any further tariff reduction would
“have next to no benefits”.
I am pleased that Labour’s Front-Bench team is behind new clause 25, which my hon. Friend the Member for Erith and Thamesmead (Abena Oppong-Asare) moved eloquently, as it is welcome. If passed, it would at least have the effect of creating a robust framework for the House to assess the success or failure of freeports policy, but surely no Members of this House who consider themselves to be serious, rational policy makers can vote for something like this proposal, which is so lacking in any evidential base.
Jacob Young (Redcar) (Con)
It is a pleasure to follow the right hon. Member for Hayes and Harlington (John McDonnell), although he will forgive me for not taking any economic advice from him. He talks about economic assessment with no sense of self-awareness that he was the man responsible for the 2019 Labour party manifesto. I believe I am the first Member to speak who shall represent a freeport area, so, on behalf of the people of Teesside, may I say thank you to the Government for designating us a freeport zone?
I wish to speak against new clause 25, which would only delay the implementation of our new freeport policy. I direct Members to my recently updated entry in the Register of Members’ Financial Interests, as a member of the new—currently shadow—Teesside freeport board. If we consider the intentions behind new clause 25, we will see that they are ones that Teessiders know all too well. Labour never wanted our new freeports, despite them being in places such as Redcar and Cleveland, Middlesbrough and Hartlepool, places that Labour used to say it cared about. True to form, new clause 25 is the Labour party in desperation to see our freeport policy fail, so that it can simply say, “I told you so.”
The same attitudes were shown in Labour’s position on the EU referendum, and the people of Teesside have already shown them how they feel about that. Our new freeport in Teesside will create 18,000 jobs over the next five years, and since the freeport designation in the Chancellor’s Budget, we have already seen the announcement of more than 2,000 jobs coming to Teesside, with GE picking Teesside as the destination for its new wind turbine blade manufacturing, supporting the Government’s plan for a green industrial revolution. Adding more bureaucracy, form filling and complications through new clause 25 would only delay those new jobs and prevent us from getting on with the task at hand, which is the transformation of Teesside.
In Redcar and Cleveland we are proud of our area’s industrial heritage and the vital role the steelworks and foundries have played in the past, providing those raw materials to build the railways, ships and bridges that were once the envy of the world, and in many cases still are. The fires in our furnaces were the beating heart of the industrial revolution, and now with hydrogen, wind power and carbon capture all promised and planned within our freeport zone, it will be Teesside’s innovation and technology that leads our green industrial revolution.
When Labour lost Hartlepool, the front page of The Northern Echo held a column from a former Labour MP saying that Labour needs to listen. Well, now would be a good time to start, but instead, here we are again, with the public supporting our freeport policy and Labour voting against it. Labour Members may not want any election advice from me, but I have some for them anyway: stop dwelling on problems and start looking to the potential and to solutions. Stop standing in the way of our freeport policy and work with us to make it a success. Stop talking Teesside down and start helping us to turn it around, and vote against new clause 25 tonight.
Robin Millar (Aberconwy) (Con)
It is a privilege to follow my hon. Friend the Member for Redcar (Jacob Young). Like him, I shall take this opportunity to make a few brief remarks in support of freeports, although, as hon. Members would expect, they will be in support of a freeport in Wales, and north Wales in particular. In doing so, I shall speak against new clause 25.
Freeports and free economic zones are a common feature of international trade, with dozens utilised by our closest allies. Not only have they propelled many of the world’s previously impoverished nations to prosperity, but there are well-established international frameworks for their operation. Indeed, the OECD code of conduct for clean free trade zones is an example, to which this Government have already pledged compliance.
The measures set out in new clause 25 are simply unnecessary, and the additional costs, such as the paperwork proposed, will only reduce the attractiveness of Britain’s ports. Let us make no mistake: the ultimate bearer of extra costs will be not multinational business, but the workers of this country who will miss out on prosperity from export-driven work.
Wales occupies a vital position in UK trade. If we consider just the Republic of Ireland, we will see that in 2019, two thirds of goods carried from the Republic of Ireland came via Wales, and four fifths of goods carried to the Republic of Ireland went via Wales. I also note that Holyhead is on the international trade routes that link Dublin to Moscow, such is the strategic importance of the location and role of Wales—particularly of north Wales. It is essential, therefore, that we create an environment there that is attractive to investment and private finance. According to the British Venture Capital Association, Wales has one of the lowest average investments from venture capital in the UK, accounting for just 3.3% of all funding over the period 2016 to 2018.
A freeport offers a structured environment for investment. Whether linked with the advanced manufacturing cluster of north-east Wales—Wales’s hottest economic growth spot—or the green energy projects and innovation found on Ynys Môn, or the leading telecoms research at the University College of North Wales, the structured reliefs and incentives of a freeport offer businesses and investors a clear and attractive proposition and are a clear demonstration of the Government’s commitment to the area.
This Finance Bill makes clear the Government’s aim of growth, development and levelling up for Wales. It also presents an exciting opportunity for co-operation and collaboration with the Welsh Government. With their assistance on, for example, the additional reliefs possible for the planning laws within their control, there is an opportunity not only to deliver a freeport in Wales, but to create one of the most attractive freeport models for investment in the UK.
In conclusion, our United Kingdom is an island nation and a trading nation, and our prosperity has always come from across the seas. Freeports are an essential step towards stronger trade and exports in a global Britain, and this Finance Bill will deliver that. In Wales, we know that, although we are outward-looking, our strength comes from within. For centuries, we have exported our goods and resources around the globe. North Wales slate has roofed the world, and copper from the Great Orme in Aberconwy was used to forge bronze-age implements used in areas ranging from Brittany to the Baltic.
A freeport in Wales—in north Wales—is an opportunity to ensure our connection to a global economy, to bring investment and growth that will bring jobs, and to secure our tradition of global export for another generation. I shall be voting against new clause 25.
Jesse Norman
I thank all Members who have commented or spoken in this debate on freeports. As the House will know, freeports are a very important part of the Government’s policy to level up the British economy and to bring investment, trade and jobs to parts of the country that in many cases have not had the economic vibrancy that we as a nation would have wished. They symbolise and reinforce the opportunities provided by this country’s status as an outward-looking trading nation, open to the world.
Abena Oppong-Asare
I thank all Members who have spoken for their contributions. In particular, I thank my right hon. Friend the Member for Hayes and Harlington (John McDonnell), who raised a number of concerns—including on tax avoidance and the potential damage to nearby areas—about how freeports will operate.
The Government Members who spoke in the debate are obviously more optimistic about the potential impacts of freeports on the communities that they represent. In respect of the comment made by the hon. Member for Redcar (Jacob Young), let me say that no one is talking Teesside down. I am very clear that we want to make sure that everyone will succeed, whether or not they have a freeport in their area. Why is that a bad thing?
We believe that our new clause and the tests it contains set out a reasonable way to assess the impact of freeports on their local areas and the country as a whole. We on the Opposition Benches are ambitious for our country, but we need to see clear evidence that freeports are going to be effective in meeting the challenges that we face. I therefore call on Members to support our new clause, because it is the right thing to do.
Question put, That the clause be read a Second time.
Mr Deputy Speaker (Mr Nigel Evans)
With this it will be convenient to consider the following:
New clause 1—Equality impact analysis—
‘(1) The Chancellor of the Exchequer must review the equality impact of sections 87 to 89 and schedule 16 and 17 of this Act and lay a 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 impact of those sections on—
(a) households at different levels of income,
(b) people with protected characteristics (within the meaning of the Equality Act 2010),
(c) the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010, and
(d) equality in England, Northern Ireland and in different regions of England.
(3) A review under this section must provide a separate analysis in relation to each of the following matters—
(a) the temporary period for reduced rates on residential property,
(b) increased rates for non-resident transactions, and
(c) relief from higher rate charge for certain housing co-operatives etc.
(4) In this section “regions of England” has the same meaning as that used by the Office for National Statistics.’
This new clause requires the Chancellor of the Exchequer to carry out and publish a review of the effects of sections 87 to 89 and schedules 16 and 17 of the Bill on equality in relation to households with different levels of income, people with protected characteristics, the Treasury’s public sector equality duty and on a geographical basis.
New clause 24—Review of impact of 2% non-resident surcharge—
‘(1) The Chancellor of the Exchequer must review the impact of section 88 and schedule 16 of this Act on tax revenues, residential property prices, affordability of residential property, and the volume of property purchases by non-residents, and lay a report of that review before the House of Commons within six months of the passing of this Act and once a year thereafter.
(2) The review under this section must include an assessment of what those impacts would have been if the provisions in the Draft Registration of Overseas Entities Bill had been in force.’
This new clause would require the Government to report on the effect of the 2% stamp duty land tax non-resident surcharge on tax revenues, property prices and affordability, and the volume of property purchases by non-residents, and also to assess what the impacts would have been if the Draft Registration of Overseas Entities Bill were in force.
Government amendments 4 to 6.
Government new clauses 17 to 20.
New clause 3—Review into the effects of replacement of LIBOR—
‘(1) The Chancellor of the Exchequer must undertake a review within six months of the passing of this Act of the effects of sections 128 and 129.
(2) This review must consider—
(a) the implications for tax revenue,
(b) effects on financial stability, and
(c) effects on businesses that use LIBOR as a benchmark, including businesses offering supply chain finance.’
This new clause would require a review into the effects of the provisions of the Bill about replacing LIBOR.
New clause 4—Assessment of environmental impact of Act—
‘(1) The Chancellor of the Exchequer must review the effectiveness of the provisions of this Act in accordance with this section and lay a 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 assess the effects of the provisions on—
(a) the achievement of the Government’s targets to reduce carbon emissions, and
(b) the United Kingdom’s progress towards net-zero emissions.’
New clause 5—Equality impact analyses of provisions of this Act—
‘(1) The Chancellor of the Exchequer must review the equality impact of the provisions of this Act in accordance with this section and lay a 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 impact of those provisions on—
(a) households at different levels of income,
(b) people with protected characteristics (within the meaning of the Equality Act 2010),
(c) the Government’s compliance with the public sector equality duty under section 149 of the Equality Act 2010, and
(d) equality in different parts of the United Kingdom and different regions of England.
(3) A review under this section must include a separate analysis of each section of the Act, and must also consider the cumulative impact of the Act as a whole.’
New clause 7—Analysis of effectiveness of provisions of this Act on tax avoidance and evasion—
(1) The Chancellor of the Exchequer must review the effectiveness of the provisions of this Act in accordance with this section and lay a 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—
(a) assess the effects of the provisions in reducing levels of artificial tax avoidance,
(b) assess the effects of the provisions in combating tax evasion and money laundering, and
(c) estimate the role of the provisions of this Act in reducing the tax gap in each tax year from 2021 to 2024.’
New clause 8—Review of public health and poverty effects—
‘(1) The Chancellor of the Exchequer must review the public health and poverty effects of the provisions of this Act and lay a 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—
(a) the effects of the provisions of this Act on the levels of relative and absolute poverty in the UK,
(b) the effects of the provisions of this Act on socioeconomic inequalities and on population groups with protected characteristics as defined by the 2010 Equality Act,
(c) the effects of the provisions of this Act on life expectancy and healthy life expectancy in the UK, and
(d) the implications for the public finances of the public health effects of the provisions of this Act.’
New clause 9—Review of changes to coronavirus support payments etc—
‘(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made to coronavirus support payments etc by this Act and lay a 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,
(d) GDP growth, and
(e) poverty.
(3) A review under this section must consider the following scenarios—
(a) the coronavirus job retention scheme and the self-employment income support scheme are continued until 30th September 2021, and
(b) the coronavirus job retention scheme and self- employment income support scheme are continued until 31st December 2021.
(4) 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 report comparing the effect of (a) the coronavirus job retention scheme and the self-employment income support scheme being continued until 30 September 2021 and (b) the coronavirus job retention scheme and self-employment income support scheme being continued until 31 December 2021 on various economic indicators.
New clause 10—Review of changes to VAT—
‘(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made to VAT by this Act and lay a 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,
(d) GDP growth, and
(e) poverty.
(3) A review under this section must consider the following scenarios—
(a) the extension of temporary 5% reduced rate for hospitality and tourism sectors is continued until 30th September 2021, and
(b) the extension of temporary 5% reduced rate for hospitality and tourism sectors is continued until 31st December 2021.
(4) 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 comparing (a) the extension of temporary 5% reduced rate for hospitality and tourism sectors being continued until 30 September 2021 and (b) the extension of temporary 5% reduced rate for hospitality and tourism sectors being continued until 31 December on various economic indicators.
New clause 11—Review of effect on tax revenues—
‘(1) The Chancellor of the Exchequer must review the effects on tax revenues of the provisions of this Act, and lay a 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—
(a) consider the expected change in corporation and income tax paid attributable to the provisions, and
(b) make an estimate of any change attributable to the provisions in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.
(3) The reference to tax required to be paid in subsection 2(b) includes taxes payable by the owners and employees of Scottish limited partnerships.’
This new clause would require a report on the impact of the provisions of the Bill on narrowing the tax gap, assessing the impact of: (a) the expected change in corporation and income tax paid attributable to the provisions and (b) any change, attributable to the provisions, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid. In particular, this includes taxes payable by the owners and employees of Scottish limited partnerships.
New clause 13—Review of impact on GDP—
‘(1) The Chancellor of the Exchequer must review the impact in parts of the United Kingdom and regions of England of the changes made by this Act and lay a 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 compare estimated GDP in each of the next five years under the following scenarios—
(a) these provisions are enacted,
(b) these provisions are not enacted, and
(c) the UK fiscal stimulus package, as a percentage of GDP, mirrors that of the United States.
(3) 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 report on the impact on GDP of the provisions in the Bill, comparing them with the impact of copying the level of fiscal intervention in the US.
New clause 14—Report on Part 2—
‘(1) The Secretary of State shall, before 1 April 2023, publish a report on the impact of the provisions in Part 2 of this Act.
(2) The report in subsection (1) shall include consideration of the impact on—
(a) the rate of plastic recycling in the UK generally,
(b) the rate of PET plastic recycling in the UK,
(c) the rate of Polypropylene plastic recycling in the UK, and
(d) the rate of HDPE plastic recycling in the UK.
(3) The report in subsection (1) shall include consideration of the impact on—
(a) the volume of plastic used in the UK,
(b) the volume of PET plastic used in the UK,
(c) the volume of Polypropylene plastic used in the UK, and
(d) the volume of HDPE plastic used in the UK.
(4) The report in subsection (1) shall include consideration of the impact on—
(a) the volume of plastic stockpiling in the UK,
(b) the volume of PET plastic stockpiling in the UK,
(c) the volume of Polypropylene plastic stockpiling in the UK, and
(d) the volume of HDPE plastic stockpiling in the UK.
(5) The report in subsection (1) shall consider whether—
(a) £200/tonne provides an economic incentive to change the content of packaging for those types of plastic specified in subsection (2),
(b) the economic incentive in subsection (5)(a) remains in the event of lower than average oil prices, and
(c) a tax escalator might be more efficacious.’
This new clause would require a review of the efficacy of the proposed plastic packaging tax, with respect to whether the proposals will (a) increase use of certain plastics and (b) provide an incentive to recycle in the event of lower than average oil prices.
New clause 15—Review of impact on climate emissions—
‘(1) The Chancellor of the Exchequer must review the impact on climate emissions in parts of the United Kingdom and regions of England of the changes made by this Act and lay a 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 of the Act on progress towards the Government’s climate emissions targets.
(3) 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 report on the effects of the Bill on progress towards the UK Government’s climate emissions targets.
New clause 16—Review of impact of section 104—
‘(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by section 104 and lay a 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 the volume of gambling, including—
(a) the number of people who take part in gambling,
(b) the amount of money spent on gambling, and
(c) the gross gaming yield.
(3) 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 report on the effects of section 104 on the volume of gambling.
New clause 21—Impact of Act on human and ecological health and wellbeing—
‘The Chancellor of the Exchequer must review the impact of the provisions of this Act on human and ecological health and wellbeing, including the wellbeing of future generations, and lay a report of that review before both Houses of Parliament within six months of the passing of this Act.’
This new clause would require the Chancellor of the Exchequer to review the impact of the Finance Bill on human and ecological health and wellbeing, including the wellbeing of future generations.
New clause 26—Review of coronavirus job support schemes—
‘(1) The Chancellor of the Exchequer must lay before Parliament within three months of the passing of this Act a report on the impact of sections 31 to 33 of this Act.
(2) The report must consider the effects of the following two scenarios—
(a) the coronavirus job retention scheme and the self-employment income support scheme are continued until 30th September 2021, and
(b) the coronavirus job retention scheme and self- employment income support scheme are continued until 31st December 2021, and the following categories of workers are made eligible for the schemes—
(i) limited company directors,
(ii) self-employed workers earning more than 50% of their income from employment, and
(iii) self-employed workers with profits over £50,000.
(3) A review under this section must consider the effects of the provisions on—
(a) employment,
(b) GDP growth,
(c) personal debt, and
(d) poverty.’
New clause 27—Review of effect on small businesses—
‘(1) The Chancellor of the Exchequer must lay before Parliament within six months of the passing of this Act a review considering the effects of this Act on small businesses that have been subject to restrictions on trading as a result of the pandemic.
(2) The review must consider the following issues—
(a) debt,
(b) rent arrears,
(c) solvency, and
(d) the ability of small businesses to employ individuals.’
New clause 28—Review of effect on carbon emissions—
‘The Chancellor of the Exchequer must lay before Parliament within six months of the passing of this Act a review on the effect of the provisions of the Act on—
(a) a transition towards zero-carbon domestic flights by 2030,
(b) any reduction in the share of the UK’s carbon emissions coming from international flight travel, and
(c) the number of individuals booking more than three international flights a year.’
New clause 29—Review of effect on supply chain and other workers—
‘(1) The Chancellor of the Exchequer must lay before Parliament within six months of the passing of this Act a review considering the effects of the provisions of this Act on the following categories of—
(a) workers, employees and self-employed individuals in the supply chain sector,
(b) employees on zero-hours contracts and agency workers, and
(c) office workers in different income deciles that have worked remotely since March 2020.
(2) The review must include an assessment with regard to—
(a) employment income, and
(b) socioeconomic inequalities.’
New clause 31—Review of section 21—
‘(1) The Chancellor of the Exchequer must review the impact of section 21 of this Act and lay a 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—
(a) the impact of section 21 on levels of tax avoidance,
(b) the impact of section 21 on levels of tax avoidance if section 61O of ITEPA 2003 were amended to prohibit the operation of umbrella companies, and
(c) the impact of section 21 on levels of tax avoidance if section 61O of ITEPA 2003 were amended to mean that an umbrella company would not be an intermediary but would still be able to operate, provided that the following conditions were met—
(i) the worker had no material interest in the umbrella company;
(ii) the umbrella company received the monies from the agency and used the entire amount to process as earnings, including the total cost of employment, less a transparent intermediary margin;
(iii) at the end of the engagement, any outstanding holiday pay was paid;
(iv) all employment rights, including agency workers’ rights, were maintained; and
(v) no payment was given to any other party.’
Amendment 23, page 2, line 15, leave out clause 5.
This amendment would ensure that the thresholds for the personal allowance and for the higher rate of income tax rise in line with inflation as per the Income Tax Act 2007.
Amendment 27, in clause 15, page 9, line 16, at end insert—
“(3) The Chancellor of the Exchequer must, no later than 5 April 2022, lay before the House of Commons a report—
(a) analysing the fiscal and economic effects of Government relief under the annual investment allowance scheme and the changes in those effects which it estimates will occur as a result of the provisions of this section, in respect of—
(i) each NUTS 1 statistical region of England and England as a whole,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland, and
(b) assessing how the annual investment allowance scheme is furthering efforts to mitigate climate change, and any differences in the benefit of this funding in respect of—
(i) each NUTS 1 statistical region of England and England as a whole,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland.”
This amendment would require the Chancellor of the Exchequer to analyse the impact of changes proposed in Clause 15 in terms of impact on the economy and geographical reach and to assess the impact of the investment allowance scheme on efforts to mitigate climate change.
Amendment 28, in clause 19, page 13, line 12, at end insert—
“(3) The Chancellor of the Exchequer must, no later than 5 April 2022, lay before the House of Commons a report—
(a) analysing the fiscal and economic effects of Government relief in relation to R&D tax credits for SMEs and the changes in those effects which it estimates will occur as a result of the provisions of this section and schedules 3 and 4, in respect of—
(i) each NUTS 1 statistical region of England and England as a whole,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland, and
(b) assessing how R&D tax credits for SMEs are furthering efforts to mitigate climate change, and any differences in the benefit of this funding in respect of—
(i) each NUTS 1 statistical region of England and England as a whole,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland.”
This amendment would require the Chancellor of the Exchequer to analyse the impact of changes proposed in Clause 19 in terms of impact on the economy and geographical reach and to assess the impact of R&D tax credits on efforts to mitigate climate change.
Amendment 32, in clause 21, page 13, line 33, after “(1B)” insert “or (1C)”.
Amendment 33, page 14, line 9, at end insert—
“(1C) This subsection is satisfied where—
(a) the worker has no material interest in the intermediary,
(b) the worker—
(i) has received,
(ii) has rights which entitle, or which in any circumstances would entitle, the worker to receive, or
(iii) expects to receive,
a chain payment from the intermediary.
(c) If any of the conditions A, B or C in this subsection apply, then this exempts the person within the chain from being an intermediary.
(d) Condition A is that the services are supplied by or through a third person (“the agency”) where all income received and receivable for those services wholly constitutes employment income subject to Chapter 7 of Part 2 of ITEPA 2003.
(e) Condition B is that the worker is employed under a contract of employment within the meaning of section 230(2) of the Employment Rights Act 1996 and is ordinarily or habitually employed by the intermediary prior to being engaged by the Client, either directly or via an agency, and has been engaged by the Client on a secondment basis.
(f) Condition C is that all of the following apply—
(i) the worker is employed by the intermediary under a contract of employment within the meaning of section 230(2) of the Employment Rights Act 1996,
(ii) the worker, if engaged via an agency, has not given notice of an agreement with the intermediary that paragraphs (1) to (8) of regulation 32(9) of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 shall not apply,
(iii) all income received and receivable by the worker wholly constitutes employment income from the intermediary,
(iv) the total of the payment elements paid to the worker during the entire engagement are equal to or greater than the sums of chain payments made to the intermediary during the engagement,
(v) the intermediary is not in breach of Section 54 of the Pensions Act 2008, and
(vi) the intermediary is not in breach of Paragraph 3A of Schedule 1 of the Social Security Contributions and Benefits Act 1992.
(g) A “payment element” means any of the following—
(i) secondary Class 1 National Insurance Contributions, as defined by section 6 of the Contributions and Benefits Act,
(ii) apprenticeship Levy as defined by Part 6, section 98, of the Finance Act 2016,
(iii) pension contributions, which shall mean contributions paid into registered pension schemes by their employers that are subject to the exemption provided by Section 308 of ITEPA 2003,
(iv) intermediary margin, which shall mean a fixed fee deducted from the chain payment, the amount of which has been declared to the contractor prior to becoming an employee,
(v) holiday pay, which means any amounts paid to the worker under the Working Time Regulations 1998 either during or upon termination of the engagement,
(vi) net employment income, which shall mean employment income paid to the worker after deduction of Income Tax under PAYE, Class 1 primary National Insurance Contributions, and Student Loans deductions,
(vii) allowable expenses, which shall mean any reimbursement of expenses to the worker by the intermediary permitted as per Chapter 2 of Part 5 of ITEPA 2003.
(h) In (1C)(g) “secondment” shall mean the provision of any worker by means of a resource augmentation service or temporary transfer of an official or worker to another position or employment away from their primary job with the Intermediary.
(i) Where the fee-payer, defined in 61N(2), has been provided with information from the intermediary that gives them reasonable belief that any of the Conditions A to C are met, then section 61N(5) does not apply, and the client cannot become the fee-payer under 61NA subsections (3) and (4).
(j) The amendments made by this subsection (1C) have effect in relation to deemed direct payments treated as made on or after 6 April 2022.”
Amendment 34, page 14, line 9, at end insert—
“(1C) This subsection is satisfied where—
(a) the worker has no material interest in the intermediary,
(b) the worker—
(i) has received,
(ii) has rights which entitle, or which in any circumstances would entitle, the worker to receive, or
(iii) expects to receive,
a chain payment from the intermediary.
(c) If any of the conditions A, B or C in this subsection apply, then this exempts the person within the chain from being an intermediary.
(d) Condition A is that the services are supplied by or through a third person (“the agency”) where all income received and receivable for those services wholly constitutes employment income subject to Chapter 7 of Part 2 of ITEPA 2003.
(e) Condition B is that the worker is employed under a contract of employment within the meaning of section 230(2) of the Employment Rights Act 1996 and is ordinarily or habitually employed by the intermediary prior to being engaged by the Client, either directly or via an agency, and has been engaged by the Client on a secondment basis.
(f) In (1C)(e) “secondment” shall mean the provision of any worker by means of a resource augmentation service or temporary transfer of an official or worker to another position or employment away from their primary job with the Intermediary.
(g) Where the fee-payer, defined in 61N(2), has been provided with information from the intermediary that gives them reasonable belief that either of the Conditions A to B are met, then section 61N(5) does not apply, and the client cannot become the fee-payer under 61NA subsections (3) and (4).
(h) The amendments made by this subsection (1C) have effect in relation to deemed direct payments treated as made on or after 6 April 2022.”
Government new schedule 1.
Government amendment 3.
Government amendments 7 to 22.
Abena Oppong-Asare
I rise to speak to new clauses 2 and 24, tabled by the Leader of the Opposition, other hon. and right hon. Friends and myself.
New clause 2 draws attention to the announcement made by the Chancellor in 2019, when he was Chief Secretary to the Treasury, on implementing a non-resident stamp duty surcharge at 3%. As hon. Members will have noted, the Finance Bill introduces a non-resident surcharge at 2% rather than 3%. In Committee, I asked the Minister why the Government had watered down that commitment; I do not believe I have received an answer. We believe that this means that the Government will lose out on about £52 million a year in revenue, which they said they would have spent on tackling homelessness and rough sleeping. Perhaps the Minister could use his closing speech to clear up any confusion. Why have the Government moved from a 3% to 2% non-resident surcharge, and what assessment has been made of the impact on tax revenues and the housing market?
I turn to new clause 24. In Committee of the whole House, my hon. Friend the Member for Ealing North (James Murray) asked the Financial Secretary to the Treasury to explain whether the Government will meet their own deadline of introducing legislation to set up a register of overseas entities by 2021. The Minister’s response was that
“the Government plan to introduce the Bill in due course.”—[Official Report, 20 April 2021; Vol. 692, c. 914.]
Since that debate in Committee of the whole House, we have had the Queen’s Speech—the Government’s opportunity to lay out their legislative plans for the year ahead. I listened carefully to that speech and read the accompanying notes, but I heard no mention of the registration of overseas entities Bill.
It is now more than five years since David Cameron first announced proposals to introduce a beneficial ownership register for UK property owned by overseas companies and legal entities. Since then, we have had more announcements, consultations and draft Bills, but still no indication from the Government of when they intend to introduce this vital piece of legislation. The failure to include it in this year’s Queen’s Speech means that it is now beyond doubt that the Government will miss their 2021 deadline.
It is worth considering what that means more broadly. First, let us look at the scale of the problem. In 2014, the National Crime Agency received around 14,000 reports of transactions that were believed to involve illicit activity. By 2020, that had risen to over 62,000 reports. Of course, the true scale of the problem is extremely hard to quantify, given the lengths that individuals and organisations go to hide their illegal activities.
In 2019, Transparency International UK said:
“The London property market is highly vulnerable to corrupt wealth flowing into it.”
Its analysis found that since 2008, £100 billion of properties have been bought in London alone by overseas companies in secrecy jurisdictions and high-risk corruption countries—both indicators for illicit wealth. In 2017, it identified that 160 properties worth over £4 billion were purchased by high-corruption risk individuals. The tidal wave of dirty money is poisoning the housing market for ordinary people. There is growing evidence that the purchase of UK property to launder illicit finance from abroad has a direct impact on housing prices. As Transparency International UK—among others—has shown, attempts to clamp down on corruption around the world have led to a rise in property prices here as illicit finance flows into the UK market to avoid detection in its home country.
This is not just about luxury properties. There is a ripple effect, where activity at the top causes a rise in prices throughout the market. As demand outstrips supply in high-value areas, buyers look out to more affordable places. This leads to a cycle of rising housing prices—my hon. Friends know this story very well. Illicit finance also distorts the supply of housing as developers increasingly focus on luxury property targeted at international investors, who have no intention of living in the properties. So dirty money, from crime and corruption abroad, is pricing people out of their local communities in cities across the country.
This has a direct effect on the housing crisis. The Government know this, of course. They have committed to act and set up a register of beneficial ownership for UK property owned by overseas entities. This would let the disinfectant of sunlight into the murky world of high-end property bought by shell companies and overseas bodies. As the Government stated:
“It is intended to act as a deterrent to those who would seek to hide and launder the proceeds of bribery, corruption and organised crime in land in the UK.”
The fact the Government are aware of the problem but are still failing to act is inexplicable.
Our new clause 24 requires the Government to review how the Registration of Overseas Entities Bill could work alongside the non-resident surcharge to mitigate the housing crisis. But what we really need is for the Government to introduce this Bill as soon as possible and begin the process of implementing this important legislation. I will end by paying tribute to the Members from across the House who have campaigned on this issue relentlessly. I know they will share our disappointment that the Government are still not taking the action that we all agree is needed. I urge the Government to correct this wrong and get on with doing what they have committed to do.
Mr David Davis (Haltemprice and Howden) (Con)
I rise to speak to amendments 32 to 34 and new clause 31 tabled in my name and those of other right hon. and hon. Members. The Government’s historic IR35 policy has dated from long before this Minister was in his office. Far from rationalising the collection of tax from contractors, it has created and has now unwittingly extended a wild west of umbrella companies that operate without regulation and where malpractice is rife. This malpractice has seen contractors forced to operate through non-compliant umbrella companies that maximise their profits by using sleight-of-hand tactics. This includes: misrepresenting tax thresholds; skimming off pension contributions and other payments such as the apprenticeship levy; forcing contractors to opt out of their rights as agency workers; and withholding billions in holiday pay that is legally due.
The Government policy to date has triggered the increased proliferation of mini umbrella companies. BBC Radio 4’s “File on 4” found that 48,000 of these companies had been created in the past five years. The fact that policies in this area are flawed is proven beyond doubt by the fact that HMRC is having to de-register 22,000 of these umbrella companies. The frauds involved here cost the taxpayer hundreds of millions of pounds every year in lost tax, but as well as that, the boom of these non-compliant companies means that legitimate umbrella firms are being run out of business by them. The illegitimate umbrella companies making most of their profits through appropriating funds through tax scams, withholding holiday pay, skimming from the apprenticeship levy and the like are driving those honest firms out of business. There exist comparison websites for contractors to see which umbrella company they can do best with, and of course the ones that look best to them are the ones that make them money through illegitimate mechanisms.
Catherine West (Hornsey and Wood Green) (Lab)
Does the right hon. Gentleman agree that some well overdue changes to Companies House’s approach would be very welcome, and that the Government are taking an awful long time to get round to it?
Mr Davis
I have a lot of sympathy with what the hon. Lady says. There are many ways to attack the issue; I will mention one or two, including my proposals to build in some changes to that effect. There are many ways to make sure that these scams cannot happen, but we need to undertake some of them. To pick an example that I was not going to cite, we understand that something like 40,000 Filipino employees have been taken on as cheap frontmen for these companies as directors. Those sorts of things do not serve our economy or the contractors well.
John Spellar (Warley) (Lab)
Is there not also a responsibility on the Government as a client to insert in the contracts with their main contractors a clause stating that if such practices are found within their supply chain, they will not be considered for future contracts? The Government could do that quite rapidly, quite apart from HMRC catching up with what is going on.
Mr Davis
The right hon. Gentleman is right. The first phase of IR35 was about contractors for Government, so the whole wild west that I have described was actually created for public services.
To come back to my point about illegitimate contractors forcing the legitimate ones out of business, it is quite understandable that ordinary contractors will be attracted to a scheme that seems to offer them the best terms, yet they will be unaware that in doing so they risk unwittingly entering unintentional tax avoidance schemes. That is one of the problems that troubles me most.
These contractors, remember, are not fat cats, big bankers or city slickers. They are hard-working, decent people such as locum nurses and supply teachers—contractors whose work is vital. To take up the right hon. Gentleman’s point, the FT reported that NHS locum workers returning during the height of the pandemic were targeted by firms mis-selling these schemes. Ordinary and comparatively low-paid workers do not have the advantage of expensive tax advisers. They cannot be expected to navigate the minefield of extremely complex tax law if we allow these predators to play unfettered within it.
Sammy Wilson (East Antrim) (DUP)
Does not the situation get even worse once these tax avoidance schemes have been identified and shown to be illegal? It is very often the people who were conned into operating with umbrella companies who are penalised, while the umbrella companies walk away with no investigation and there is no means of holding them to account.
Mr Davis
That is entirely right. Indeed, one of the flaws that HMRC exhibits is that although it very often has real-time information on the issues, it acts only much later. That doubles or quadruples the problem for the ordinary person who is effectively a victim of these schemes, who suddenly finds years later that they have vast sums to meet—and, indeed, the shame of being held up as a tax avoider, if not evader.
The Government should take action to clean up this wild west, for example by providing guidance and templates for the preferred model of working. This is not so difficult. Why cannot we lay out a template for ordinary contractors and legitimate umbrella companies that says, “This is how you should do it, and this is what we expect”? Failing that, my amendments give the Government and Parliament three clear and simple options.
Ideally, the Government will take note and enact new clause 31. It would review—it does not require law to do this—the whole operation of umbrella companies and off-payroll working. For me, that is the de minimis position. My preferred option is that the Government should introduce regulation into this problematic sector to clear up some of the most egregious aspects, including mis-selling and malpractice. They should require—this deals with the Companies Act point to some extent, but it is the simplest way of doing it—umbrella companies to meet five strict requirements: they should pay all holiday pay due; maintain all employment rights; ban kickbacks to third parties; end the skimming off of excess profits through sleight-of-hand tactics; and, finally, ensure that the worker himself has no material interest in the umbrella company. That would not deal with the propriety issues of the Companies Act, but it would deal with the main, most socially damaging aspects of the wild west we have now.
Alison Thewliss [V]
I rise to speak to new clauses 9, 10, 11, 13, 14, 15 and 16, which are in my name and those of my colleagues. It is certainly a very large grouping of amendments, and I will not speak to all of them, you will be glad to hear, Mr Deputy Speaker, but I will highlight a couple of them.
First, I want to speak about the very large amendments and new schedules concerning Northern Ireland and VAT. It concerns me greatly that we are looking at this huge new swathe within the Finance Bill that has not been considered at any other point in the Bill’s passage and that we have been given very limited time to delve into it at very short notice. That speaks to some of the complexity that Brexit has imposed on Northern Ireland. There needed to be a great deal more scrutiny of the measures prior to now, and the Government should not be bringing forward huge swathes of new schedules at this very late stage of the Bill.
I am very keen on new clauses 4, 5, 8 and 21, because Finance Bill scrutiny is limited after we have passed the Bill. We do not really think very much about the environmental impact, the equalities impact, the public health impact or the impact on poverty, and we do not think very much about the significant impact on the environment of the measures in the Bill. We do not do enough within Finance Bills to understand the full impact of the measures we have, and I would support a full range of other mechanisms to do so, which I will come back to on Third Reading.
I want to touch on the worthy amendments that those on the Labour Front Bench have tabled. The hon. Member for Erith and Thamesmead (Abena Oppong-Asare) talked knowledgably about the issues around financial crime. Some of the evidence we heard in the Treasury Committee during our inquiry highlighted the fact that that is a hugely under-investigated and under-prosecuted crime. There is still very little progress by the Government in closing loopholes in Scottish limited partnerships or in other areas. As she pointed out, we had pre-legislative scrutiny of the draft Registration of Overseas Entities Bill in the Joint Committee with the Lords. Now the Bill has disappeared, but the problem has not. There are still huge numbers of people using the UK, within the property sector in particular, to launder dirty money. The Government are not acting on it. The longer it goes on without action, the more we have to ask who is benefiting if the Government are choosing not to act.
On our new clause 9, I was in a meeting earlier with representatives of Lloyds Banking Group where Philip Grant, one of its representatives, made an excellent point about the asymmetric economy that we are currently in. There are some who can restart their businesses and some who cannot yet get restarted. Some of those will not be restarted for quite some time yet to the point where they do not know if they will be able to break even. The economy has not restarted and opened up for everybody. Many sectors of the economy will not be back to normal for quite some time.
Our new clause 9 calls for a report on the extension of the self-employment income support scheme and the coronavirus job retention scheme until September and until the end of the year respectively. For those who are watching and are unfamiliar with Finance Bills, if they are wondering why we keep talking about reports and reviews, the rules of Finance Bills are such that we cannot just ask for the extension in a simple way. We are not allowed to do that—it is part of the restrictions that these Bills have—so we ask for reports. However, we do very much see merit in asking for action rather than just reports.
Some sectors have been able to modify and their staff are working as they were before the coronavirus pandemic, while some are working partly or entirely from home. Yet, as we all know, there are other sectors that are still waiting—culture, hospitality, conferences, events, weddings, tourism and travel. Employers who may already be carrying a significant burden of debt and arrears without having their cashflow back to normal still have to pay more of their employees’ wages, eventually tapering off to nothing at all coming from a Government contribution. Many businesses may decide that it is just too much of a cost and that they cannot continue to employ those people or cannot continue with their business. We know that the scheduled end of the schemes last year caused job losses. The Treasury must not make the same mistakes again, and at least carrying out such a report would help us to understand the consequences of the UK Government’s actions in this area.
We are not out of the woods yet with this pandemic, and it is vital that the UK Government take all the steps they can to strengthen support rather than pulling it. We in the SNP cannot forget, although the UK Government clearly have, about the millions of people excluded from support schemes altogether. It is unjustifiable that the year has come and gone with so many people left without a single penny piece in Government support, many in sectors that have not yet come back and may not for some time.
Further to this, we call again in our new clause 10 for a review of the extension of the 5% reduced rate for hospitality and tourism. This was a call that we made before the Chancellor announced it last year. The VAT rate for tourism has been too high for too long, and this year, when we are being strongly encouraged to holiday at home, it makes absolute sense to extend this provision, which many people have not had sufficient opportunity to benefit from. The provision would also cover events, including funfairs, which have had a very tough year, with many traditional fairs up and down the country being cancelled. Maintaining the VAT reduction could help to provide a much-needed stimulus to an events, tourism and hospitality sector that is crying out for such a boost. I am sure that if we had this power in the Scottish Parliament we would be using it, so I encourage the Minister to act or to devolve the power and let us get on with the job.
On our new clause 13 on stimulus, we agree with the principle of boosting it like Biden. One of the mistakes of the crash is that it was used to set us on a course of austerity. This has had a huge and devastating impact on all our constituents. We need to know from the UK Government what will be the impact of future austerity plans they might have compared with investment. While this Government have the levers in their hands, they should be clear about the impact that their action or inaction will have.
Our new clause 14 returns to some of the issues that we have with the technicalities of the plastic packaging tax. We are trying to be helpful to the UK Government in this regard. I genuinely hope, against previous experience, that they will at least listen to these concerns and make provisions that will maximise both the recyclate and the tax take. Not all plastics are equal, and the Government should recognise that in the provisions they put forward. Some lend themselves more to being recycled and can be brought to 100% reusable content, and some are very far away from that. We should not treat them all the same.
On our new clause 16, we have been concerned for some time about problem gambling, and my hon. Friend the Member for Inverclyde (Ronnie Cowan) has campaigned doggedly on the issue, along with the all-party parliamentary group for gambling related harm. It would therefore be useful to understand the impact of clause 104 on the volume of gambling and whether further fiscal measures are required to tackle the harm that is done to people.
I would like to touch on some of the amendments tabled by the right hon. Member for Haltemprice and Howden (Mr Davis) on the loan charge and related issues. The loan charge continues to be a running sore for many, and I ask the UK Government to consider the merits of the amendments and what more can be done to support people. Stopping the malpractice of umbrella companies would be another step forward in closing loopholes and protecting those who may be tempted to sign up to, or coerced into signing up to, such schemes in the future. Those promoting such schemes always seem to be a step ahead, and the Government should not let them get further steps ahead and become a dot on the horizon.
There are many amendments in the group that I would like to speak to, and many have significant merit and should be considered by the Government. The flaws in this process mean that many of them will not even be considered or voted on tonight, but I urge the Government to take up those that they can.
Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)
I rise to support the amendments standing in the names of my right hon. Friend the Member for Haltemprice and Howden (Mr Davis), myself and my colleagues.
Let me start by making it very clear, as my right hon. Friend—wherever he is—did so well earlier, that we have a problem here, and I am surprised that the Government do not really want to recognise it and are avoiding it. The unacceptable practices of umbrella companies have now become very clear. Contractors are being forced into schemes and are being forced by recruitment agencies to use umbrella companies, which they may not wish to do and may be concerned about. Opting out of the conduct of employment regulations is often mandatory, which removes the rights contractors had as agency workers. We are seeing kickbacks, problems over holiday pay and the skimming of the assignment rate. We are also seeing mini umbrella companies, which some contractors sign up to, believing them to be compliant, only to then discover that they are employed by a company with a different name and owned by a director in, say, the Philippines—my right hon. Friend mentioned “File on 4”, which has raised this issue.
The problem is that the worse the level of malpractice, the greater the rewards and kickbacks for the agencies, reducing the revenue for the Treasury. I have huge respect for my right hon. Friend the Financial Secretary, who is on the Treasury Bench and who will respond to all of this, and I am sure he and his colleagues in the Treasury are alert to this issue and understand that it is a major problem, but I cannot quite understand why we are not using this Finance Bill to start putting some of this right.
John Spellar
Has it not been a systemic problem with the Inland Revenue that these schemes have been cropping up for decades, and that it takes years to deal with them? They are spreading like wildfire, and they are spreading even faster now with social media—it used to be through the pubs and clubs. Ministers need to be on the Inland Revenue’s back saying, “Why are you not dealing with these problems?” There is a timing issue in this.
Sir Iain Duncan Smith
I agree with the right hon. Gentleman. The point I am trying to make to my right hon. Friend the Financial Secretary and others on the Treasury Bench is a fairly gentle one: this is something that we can rectify, and we have the capacity to rectify it. We should think of what will happen if it goes much further. We should think of the loan charge and the huge human problems that were caused by that and the attempt by the Treasury to use retrospective legislation to grab money back. Who got hammered in all that? Not the organisations that were doing these things, but the individuals who were led to believe they were in the right set-up. It is always going to be them who get hammered. I thought the purpose of Government was to protect the vulnerable and deal with those who are abusing them.
Dr Julian Lewis (New Forest East) (Con)
It really is enormously frustrating for those of us who, time and again, have made representations to Treasury Ministers on behalf of victims of the loan charge, only to be knocked back by ripostes relating to tax avoidance schemes, that now, when people who have suffered from the loan charge are urging colleagues on this side of the House and no doubt on the other side as well to take steps to ensure that people are not trapped in these schemes in the future, the Government do not want to give them that added layer of protection, so they seem to be wanting to hit them in both directions.
Sir Iain Duncan Smith
I am grateful to my right hon. Friend. I will not risk repeating what he has said, but it is the reality. I was one of those who gave evidence to the review of the loan charge set-up because it was quite clear that it was causing huge problems for many decent people in my constituency. I am sure it was the same for Members on all sides of the House; I do not for one moment pretend that it was a problem for my constituents alone.
I recommend to my right hon. Friend the Financial Secretary some of the amendments and new clauses that we have been speaking about. I will not go through all of them, but I do want to make this point. Amendment 33, which allows an umbrella not to be an intermediary and still operate, provides strict conditions. My right hon. Friend the Member for Haltemprice and Howden laid out those five conditions, which are critical. I recommend those to the Financial Secretary; I am not going to repeat them, because we would just go on doing that all night.
I want to deal with amendment 34 in a bit more detail. The important thing about amendment 34 is that, in reality, all inside-IR35 workers could easily be paid via a recruitment agency payroll—that is the key bit here—and umbrella companies are of benefit to recruiters, not to workers. Under the original drafting of the off-payroll rules, an umbrella company could classify as a payment intermediary, so payment would have to be made to the umbrella net of tax, reducing an incentive to exist. The behavioural effect will mean agencies will put workers on payroll if they are not outside IR35. The key thing is that this would give the sector a year to re-gear and provide its service as agencies in a payroll payment bureau-type manner, instead of the Government taking other decisive action, including banning certain practices and statutory regulation.
I am trying to be reasonable about this to the Government. I do think that this is really important. I am going to conclude on this. Overall, if we look at the purpose of the amendments and new clauses in this area, I think they set out what the problem is. The people who will get hurt by all of this in the end, when the Treasury finally decides to do something about it, will be the people who were the victims of this, not those who set these schemes up.
There are five points here that are critical: the whole purpose is to stop overnight aggressive tax avoidance schemes introduced and encouraged by some unscrupulous agencies; stop overnight the exploitation of contractors, forced into schemes that adopt malpractice to skim moneys from contractors; stop overnight the kickbacks being used that encourage malpractice; provide sunset clauses to ensure that the sector has until 6 April 2022 to prepare for the changes; and make agencies and clients liable for any malpractice, thereby removing the incentives to encourage it.
These are very simple, basic points. We are not asking for a revolution; we are asking for sense. I know exactly where this is going because in 29 years I have seen this time and again—do not move; later on, blame somebody else; and back comes the Treasury to say, “We’ll now get that money back”. I think the loan charge—I come back to this—is the biggest example of where, when things goes wrong, it is those who have suffered who end up paying the penalty, not those who skimmed off the top and are now living somewhere outside the reach of Her Majesty’s Treasury. I simply say to the Financial Secretary, with all due deference: please, please give consideration to this and at least have a proper review so that we may engage with this in due course and settle it.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
First, I draw Members’ attention to my entry in the Register of Members’ Financial Interests.
I rise to support my colleagues on the Front Bench and new clause 24 about the surcharge on overseas buyers: the extra stamp duty that is charged. Although we are seeing a 2% uplift, it is not what was originally promised, and even that, I would say, is still not enough to prevent people from speculating, particularly in my constituency and elsewhere in London, on the expensive London housing market and overheating that housing market.
I came across this level of investment in my early days in this place—I have now been here for 16 years—when I discovered that whole blocks of new developments were being bought up overnight. I could not work out who was doing it. I then managed to inveigle my way on to the distribution lists of some of the estate agents, which were advertising the properties in Hong Kong and Dubai, and they sold over a weekend.
These were not homes for local people. They were often bought up by finance companies overseas and sold on. The original reason for the extra stamp duty surcharge was to try to curtail that to some extent, but I do not think it is enough. Foreign investors are buying homes, which are becoming commodities; they are advertised with yield—it is simply about increasing the rent. As the shadow Minister, my hon. Friend the Member for Erith and Thamesmead (Abena Oppong-Asare), highlighted, at least £53 million and counting in revenue has been lost from the Exchequer at a time when we need it more than ever. The excuse is often that developers need the money because they cannot operate without that cash-flow model. I think they would adapt pretty quickly. In my constituency, there are blocks that local people have kept their eye on, wanting to try to buy, only to find they have already been sold en masse overseas. A stamp duty increase would help a little bit.
The stamp duty holiday has been helpful to many people, but all that contributes to fuelling demand for housing while the Government are not increasing supply. Those rising house prices put homeownership out of reach of so many of my constituents and people up and down the country. It is having a major dampening impact on people’s lives and livelihoods and on the economy in the long term. It does nothing for private renters and nothing for those in desperate need of affordable housing.
We are now able to go out and do our normal roving surgeries on doorsteps, and I will give some examples of people I have met in the last week alone. Faisal works in the NHS. He has three children in a two-bedroom council flat, and he has been bidding to move to a bigger property for 10 years, but such is the demand in my constituency that someone in housing need does not get to move. If they are homeless, they now get stuck in a hostel room for years, whereas only five or so years ago it was for about six months. Jane—not her real name—and her husband live with two large teenage boys in a two-bedroom flat. I have known her for some years, having seen her at surgeries. I happened to be on her doorstep the other day, and she made sure that I saw how big her boys have become. She has been coming to see me since they were toddlers, yet she still cannot get rehoused. This is no criticism of Hackney Council, which is doing a fantastic job of trying to build, and is building, affordable social housing, but it cannot keep pace with the demand. In the last week alone, two women I knocked on the doors of were sharing beds with their 12 and 13-year-old sons respectively.
One of the saddest cases is an NHS porter I met less than 10 days ago who shares a room in a private rented home with his 16-year-old daughter. He works. He could not qualify for affordable housing even if he wanted to, because he has no recourse to public funds, despite propping up our NHS in one of the most challenging years in its history. He is doing all the right things—working, trying to be a good father—but he cannot afford private rents. That is not surprising: it is at least £1,500 a month to rent a two-bedroom flat in my constituency; £750,000 to buy a two-bedroom flat; and rent for a three-bedroom house is not much shy of £3,500 a month.
We need to increase stamp duty immediately, while monitoring its effect, and we should increase it further for overseas purchasers. We should not have a housing market that has led to homes being owned by finance vehicles or absentee landlords who have no interest in it being a home but simply see it as an investment. Homes should be homes. Investment is all very well, but this is really damaging the future prospects of children in my constituency, some of whom will never have not only their own bedroom but maybe even their own bed between now and when they hopefully earn enough money to leave home, although frankly we are a long way off their earning enough money to buy a £750,000 flat. The Government really need to step up. They talk about levelling up, but that is certainly not happening for many people in my constituency.
Caroline Lucas (Brighton, Pavilion) (Green) [V]
I am grateful, Mr Deputy Speaker, for the opportunity to speak in this debate. There are many amendments in this group to commend, and they have been powerfully set out by colleagues who have spoken before me, most recently the hon. Member for Hackney South and Shoreditch (Meg Hillier), but I want focus on new clause 21, which would require the Chancellor of the Exchequer to review the impact of the Finance Bill on human and ecological health and wellbeing, including the wellbeing of future generations. I am very grateful to colleagues for their support.
New clause 21 reflects the urgency of shifting to an economic system fit for the 21st century—a modern economic system, designed to serve people and planet for the long term, rather than one that prioritises economic growth at all costs and short-term profit. We have seen where that has got us. In the words of a report by leading economists for the OECD,
“the dominant patterns of economic growth…have generated ‘significant harms’ over recent decades—including rising inequality and catastrophic environmental degradation.”
This new clause is about how we tell whether the provisions in the Finance Bill are genuinely building back better. It is about what the most important measures of economic success are for making such judgments. It makes the case that the health and wellbeing of people and nature should be our top priority. At the very least, the Treasury should be assessing all its policies against those benchmarks.
New clause 21 also highlights the need for the Treasury to fully consider the impacts of fiscal measures on future generations. It thereby complements the aims of the Wellbeing of Future Generations Bill, which the noble Lord Bird introduced last week as a private Member’s Bill in the other place. At the moment, the Treasury continues to put short-term economic and political gain ahead of the long-term health of our biosphere. That is an utter betrayal of future generations and is unforgivably wasteful from a public spending point of view.
If we are serious about levelling up, building back better or indeed about climate leadership, we have to switch to long-term preventive spending, and we need to do it fast. I want briefly to offer some further evidence of why we should be assessing each and every provision of the Finance Bill for their impact on human and ecological health and wellbeing. The case for new clause 21 is made splendidly by the Treasury’s own Dasgupta review of the economics of biodiversity, which calls for
“an urgent and transformative change in how we think, act and measure economic success to protect and enhance our prosperity and the natural world.”
Then there is Public Health England’s recent programme of work, called “Inclusive and sustainable economies: leaving no one behind”, which states:
“Never has the interdependence between health and the economy been closer, or the need for a fairer and more inclusive economic system been clearer.”
It explains how poor areas and populations are at risk of becoming still poorer, and how that will hold them back. Therefore, as we aim to build back better, we also need to build back fairer and more sustainably. Crucially,
“This means addressing the most fundamental of determinants—the economy which creates jobs and wealth—and protecting the environmental sustainability of future generations by doing this within the means of our planet.”
A new report, “Rebuilding prosperity” from the University College London Institute for Global Prosperity sets out proposals for a new way of thinking about what the economy does for people, and a new way of collaborative decision making to secure livelihoods and shared prosperity for people everywhere. Zara Mohammed, head of the Muslim Council of Britain, has recently written about the lessons from the pandemic and the importance of not going back to so-called normal. She says:
“We must build a society based on the principles of social justice; reduce inequalities of income and wealth; and build a wellbeing economy that puts achievement of health and wellbeing at the centre of its strategy.”
The OECD report that I mentioned echoes that approach and makes an unequivocal call for Governments to change the way the economy works in the wake of the covid-19 pandemic. It says that we need a paradigm shift in the way developed countries approach economic policy, so that instead of focusing on gross domestic product, we prioritise environmental sustainability, improving wellbeing, reducing inequality and strengthening economic resilience.
Finally, the UN climate science report from earlier this year, “Ten new insights in climate science 2020”, very clearly sets out the stakes:
“A COVID-19 recovery strategy based on growth first and sustainability second is likely to fail the Paris Agreement.”
We cannot judge whether this Finance Bill puts us on course for a fair and green recovery if our main measures of success are things such as GDP growth and labour productivity. There are plenty of alternatives that recognise the priority that should be given to human and ecological health and wellbeing as the goal of economic policy. The Dasgupta report, for example, proposes inclusive wealth instead of GDP. The New Zealand Treasury, famous for the world’s first wellbeing budget, uses a living standards framework, operationalised for budgetary and spending decisions across Government. Other countries in the Wellbeing Economy Governments alliance are embracing similar alternatives, and the Carnegie UK Trust proposes what its call GWE: gross domestic wellbeing.
Robust alternatives do exist. None of them is perfect, but none is anywhere near as flawed as using GDP growth as our main measure of economic success. The time for the Treasury to change is now. The UK, through the G7 and COP26, should be leading the world towards a wellbeing economy. One modest step should be adopting new clause 21, which recognises, as the Treasury’s Dasgupta review states:
“The solution starts with understanding and accepting a simple truth: our economies are embedded within Nature, not external to it.”
To conclude, we must, in Professor Dasgupta’s words:
“Change our measures of economic success to guide us on a more sustainable path”.
Andrew Jones
It is always a pleasure to follow the hon. Member for Brighton, Pavilion (Caroline Lucas), who brings a different perspective—or, as she might word it, a paradigm shift—to some of our debates, which is a positive thing. However, it is quite clear from all that the Government have said that improving our environment for future generations is at the heart of Government policy.
However, I am not going to comment on that. I am going to comment on the Finance Bill measures on which I have, I think, received more correspondence than on any other—namely, the stamp duty measures. In advance of the Budget, the correspondence was to ask for an extension to the stamp duty cut, and after the Budget it was to welcome it. If we pass the stamp duty measures—which obviously we are going to—we will have had a stamp duty cut in place for over a year, and we have definitely seen a boost in housing transactions. In March, there were over 173,000 transactions. I have taken that number from the non-adjusted monthly data published by HMRC, and it is the highest monthly total in its report, which details monthly levels right back to 2005. The £500,000 nil rate band until the end of June has therefore proved effective. My concern is that it has perhaps proved so effective that the market is in danger of overheating. We are seeing quite a bit of inflation, which obviously would need monitoring.
The introduction of a 2% non-resident surcharge will potentially have a positive impact on house price inflation. It would obviously not apply to those who come here to live and work, but would have a slight revenue-raising implication. The Opposition’s new clause 2 calls for the policy to be evaluated at different levels of surcharge. As I said earlier, all Treasury policies are evaluated regularly—I know that from my time there—and we also have the general commitment to transparency. I therefore do not believe that the new clause is necessary.
To focus on housing, it is simply too hard for people in many parts of our country to get on to the property ladder. I welcome the 95% mortgage guarantee scheme, which came into effect last month. However, we need to remember that it is not just one side of the argument that will move things forward, and we are obviously also seeing significant house building. It is the combination of boosting supply and facilitating demand that makes it easier for people to start on home ownership. Judging by my inbox, that remains what people want, although I recognise the point made by the hon. Member for Hackney South and Shoreditch (Meg Hillier) about the need for a greater supply of social housing as well. She made her points very powerfully.
I would like to make a couple of comments about the speeches from my right hon. Friends the Members for Haltemprice and Howden (Mr Davis) and for Chingford and Woodford Green (Sir Iain Duncan Smith) on umbrella companies and IR35. It has been right to address off-payroll employment, which is not good for either the employee, when that is what they truly are, or the employer. It is also worth remembering that we should separate disguised employment from when contractors are truly adding value. They provide flexibility in our workforce for many companies and they bring expertise when it is needed and experience from solving problems in other businesses. That flexibility has been an ingredient in our economic growth.
Nevertheless, the points that my right hon. Friends made about umbrella companies were important. There are problems to solve, particularly in respect of the difference between the originators of the schemes and those who sign up to them in good faith. Although I have no doubt that we have problems to solve, I am not sure that the issue of umbrella companies should be dealt with in a Finance Bill—it is perhaps more of an unemployment issue than a finance one—but I look forward to hearing more on that from the Government in due course and, as my right hon. Friends said, that “in due course” should be sooner rather than later.
There are, of course, lots of other matters in the Bill, as we should expect, but I wish to comment on the issue of housing. I support the measures to promote home ownership, which has been falling for the past few years yet is an aspiration for so many. I am pleased to see that efforts are being made to turn that trend around.
Debbie Abrahams (Oldham East and Saddleworth) (Lab) [V]
I wish to speak to new clause 8, which was tabled in my name and the names of my colleagues. The new clause seeks to compel the Chancellor to assess the impact of this legislation on poverty, inequalities and, subsequently, our health.
Under the new clause, the Chancellor would be required to
“review the public health and poverty effects of the provisions of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.”
The review would have to consider:
“(a) the effects of the provisions of this Act on the levels of relative and absolute poverty in the UK;
(b) the effects of the provisions of this Act on socioeconomic inequalities and on population groups with protected characteristics as defined by the 2010 Equality Act;
(c) the effects of the provisions of this Act on life expectancy and healthy life expectancy in the UK;
(d) the implications for the public finances of the public health effects of the provisions of this Act.”
You will recall, Mr Deputy Speaker, that in February last year Professor Sir Michael Marmot published his review of health equity in England 10 years on from his initial study. His review revealed that instead of narrowing, health inequalities—including how long we are going to live and how long we are going to live in good health—have got worse. Most significantly, his analysis showed that unlike the majority of other high-income countries, our life expectancy was flatlining. For the poorest 10% of the country it was actually declining, and women were particularly badly affected. He showed that place matters: health-wise, living in a deprived area in the north-east was worse than living in an equivalently deprived area in London.
Sir Michael also emphasised that it is predominantly the socioeconomic conditions to which people are exposed that determine their health status and how long they will live. By analysing the abundant evidence available, he attributed the shorter lives of people who live in poorer areas such as my Oldham constituency here in the north-west to the disproportionate Government cuts to their local public services, support and income since 2010.
Shortly after Sir Michael published the report, covid hit. As the recent National Audit Office report outlined, it was always a question of when, not if, there was going to be a pandemic. Like many of us, Sir Michael has tried to point out the Government’s hubris not only in their pandemic management but in understanding why we have such a high and unequal covid death toll—the highest death toll in Europe and the fifth highest in the world.
In his covid review last December, Sir Michael summarised the four key pre-pandemic factors that have driven the high and unequal covid death toll. First, there were pre-existing and widening inequalities in social and economic conditions, particularly in power, money and resources. These inequalities in life have led to inequalities in health. Secondly, our governance and political culture was divisive, not just before but during the pandemic. Thirdly, there has been Government austerity over the past 10 plus years, including cuts in social security and local authority budgets. Finally, we had pre-existing and declining poor health.
Sir Michael has made a number of recommendations to build back fairer, including the need to recognise that our economy and health are linked. The improvement of our health and wellbeing must be a priority for the Government and an outcome of our economic policy, as others have said. New clause 8 is a practical means to ensure that that happens.
Ben Lake (Ceredigion) (PC)
It is a pleasure to follow the hon. Member for Oldham East and Saddleworth (Debbie Abrahams), with whom I agree on the importance of the Government ascertaining how measures in this Bill may have a differential impact on different areas of the country, depending on different socioeconomic and health conditions.
I rise to speak to probing amendments 27 and 28, which stand in my name. They would encourage the Government to bring much-needed transparency and strategic thinking to the reliefs proposed by clauses 15 and 19. The amendments reflect Plaid Cymru’s constructive approach to this Bill and our priorities of building Wales’s economy and delivering on our net zero commitments.
Mr Deputy Speaker, you will be pleased to hear that I have no intention of detaining the House for very long this evening and so simply wish to reiterate some of the points I made in Committee. Before doing so, I wish to commend the amendments tabled by the right hon. Member for Haltemprice and Howden (Mr Davis) and the speech by the right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith) on IR35 and umbrella companies. I very much hope that the Government will take them into consideration with some urgency.
Amendments 27 and 28 would require the Government to analyse the impact of changes to the annual investment allowance and research and development tax credits on the UK economy, their geographical reach and their impact on efforts to mitigate climate change. The amendments reflect a concern not only that existing tax reliefs are being used wastefully, but that we need to better support the levelling-up agenda and the decarbonisation of our economy so that we can achieve our legally binding net zero targets. I say that in the full knowledge that many other hon. Members have made these points far more eloquently than I could this evening. I particularly wish to commend the amendments standing in the name of the hon. Member for Brighton, Pavilion (Caroline Lucas), which would go some way to ensuring that any measures in this Bill would have decarbonisation and our net zero commitments very much at the heart of their endeavours.
More generally, the UK Government have a lacklustre record on the use of reliefs. Both the National Audit Office and the Public Accounts Committee have raised serious concerns in that regard, with the latter concluding that the Government do not fully know their cost and have failed to conduct due diligence to establish value for money, with some 204 reliefs currently uncosted. When we consider that estimates for the 158 reliefs that have been costed suggest that they could cost the taxpayer as much as £159 billion a year, we as parliamentarians are not only justified but duty bound to establish precisely how those reliefs will contribute to levelling up and decarbonisation efforts. I commend the hon. Member for Hackney South and Shoreditch (Meg Hillier) and the work of her Committee, which greatly enhances the quality of our scrutiny in this place.
With those words, I hope that the Government will urgently take on board our amendments, and those tabled by the Members to whom I have referred, to improve the transparency and effectiveness of tax reliefs to furthering what I think are common goals of levelling up and tackling the net zero agenda.
Sarah Olney (Richmond Park) (LD) [V]
I wish to speak to new clause 29, which stands in my name. The pandemic has introduced new ways of working right across our economy and we may need some time before we understand the full impact of these changes and the extent to which they represent permanent changes to how we work. Many of us, MPs included, have been fortunate enough to be able to utilise technology to continue our usual work and receive our full salary for it. Estimates put about 25% of the workforce in this category. I am one of many who hope that some of the changes we have been forced to adopt will be embedded in our normal ways of working as we move out of lockdown. On a national basis, it is possible that the use of digital meeting software may reduce the need for travel, both commuting and longer distance. It will also help workplaces become more accessible for those who have experienced obstacles, such as those with disabilities or those with caring responsibilities. But embedding emergency responses into everyday practice represents threats as well as opportunities, especially to workers. This new clause would require the Government to review the effects of this Finance Bill on certain categories of workers and to report to Parliament.
The workers I am particularly concerned about are those employed on precarious contracts, particularly in the distribution sector. One of the impacts of the stay-at-home order has been an enormous increase in online shopping and home delivery, with a corresponding increase in delivery vans on our roads. The impact that that is having on local congestion is a debate for another day, but tonight I want to draw attention to the contracts under which many of the drivers are working.
Catherine West (Hornsey and Wood Green) (Lab)
I rise to speak briefly in support of Labour’s new clause 24. We are often told, are we not, that the boldest measures are the safest. Unfortunately, the Government seem to have done a bit of a U-turn, or failed to be bold, going from a promised 3% to 2% on their non-residence surcharge. That is a hugely missed opportunity. It could really have helped the London property market, holding to account the wealthy as opposed to so many of those who struggle to get on to the property ladder.
I also want to talk about the register of overseas entities. First, I echo the words of my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), who talked so movingly about those in housing need in her constituency. That is something that many of us in London see, day in, day out, in our surgeries. In my case, I think of particular companies that, after properties are built, purchase a number of different apartments, selling them, for example, to the far east. Even people who have saved and saved cannot afford to purchase an apartment in that block, as opposed to those who buy an apartment to hold as an investment, even keeping it empty at a time when we have such desperate housing need. The Treasury should consider clamping down on this practice.
On the wider point that this measure could address if it were not so shy, consideration should be made of the cost of assets and the fact that the huge inflation of assets does not help savers or the young. There are so many young people in desperately insecure employment who will never get on to the housing ladder unless we start to address this terrible situation. We also know that with low interest rates it is almost impossible to save the amount of deposit that is needed. The Help to Buy scheme, which in some parts of the country has worked quite well, has not worked particularly well in many of our neighbourhoods. It simply has not been able to touch the sides of what is needed.
The second point I want to make on the amendment on the register of overseas entities is, once again, how disappointing it has been that we have failed to hold to account those abroad who seek, for various reasons, to hide their financial interests in the UK. We look at this in the context of the Sunday Times rich list from last Sunday, where we see 24 new billionaires in the UK while 4.3 million children in the UK are living in poverty. That desperately needs to be addressed, yet it is five years since David Cameron first promised, when he appointed his anti-corruption tsar, to actually do something about corruption and overseas finance. Instead we have this go-slow, whether on having proper credentials for registering businesses at Companies House, on some of the measures in the Bill or on going from 3% to 2%. Who stands to benefit from that? It is not our constituents; it is people abroad who clearly have some kind ear of the Government. That desperately needs to be addressed.
Having read Catherine Belton’s book “Putin’s People”, I hope the Minister is able dispel my fear regarding its allegation that £1 million has gone to the Tory party from Mr Temerko, who is a very wealthy Ukrainian businessman. That money is tied to a corrupt regime where the courts will do the bidding of the Government in Russia. That money is tied up. We should not be beholden to these people; we should be standing up to them.
I also want, while I am talking about the register of overseas entities, to comment briefly on the terrible situation with Belarus in the last 24 hours. The Treasury needs to be much more campaigning. I know that working for the Treasury is all dry facts and figures, but look at how important its work has been in saving our economy and saving our workers. Well, let us now look at how revolutionary it could be in holding to account some of the corrupt regimes that have their money tied up in London’s economy. Will the Minister look at whether he can work with the Foreign, Commonwealth and Development Office to bring forward sanctions against state-owned enterprises—some of which continue to have UK subsidiaries, such as BNK UK, which is the UK arm of the Belarusian state oil company—and outline how the Government can plan to stop the Belarusian Government from using the London stock exchange to raise money and sustain Mr Lukashenko’s grip on power? Furthermore, how can the Treasury, working together with the Foreign Office, examine the evidence for further sanctions against individuals who support and help to sustain the regime, such as Mr Mikhail Gutseriyev, who was mentioned today in the urgent question? I hope that the Treasury will work together with the FCDO to right this wrong.
Finally, a statistic to finish these few words. Despite the sanctions imposed last year by the Foreign Secretary, with which I agree, there are fewer Belarusian entities sanctioned now than in 2012. Only seven entities are currently designated, compared with 32 under EU sanctions in 2012. In the space of 12 months, this dangerous regime has stolen an election, employed brutal repression against its own people and hijacked a civilian airliner. I feel as though our economy is facilitating that, and we simply cannot let that pass. I beg that with the mention of the overseas register, the Treasury will work hand in glove with the FCDO to bring these people to book, and to establish a genuine and committed economy that, at its heart, cares about human rights.
John McDonnell [V]
We are at a stage in the Bill’s progress that is almost like a wash-up. We are trying to make last-minute appeals to the Government for action on a number of key issues, and all the appeals to the Government so far by the right hon. Members for Haltemprice and Howden (Mr Davis) and for Chingford and Woodford Green (Sir Iain Duncan Smith), my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), the hon. Members for Brighton, Pavilion (Caroline Lucas) and for Richmond Park (Sarah Olney) and others are on worthy causes that should be addressed, as are the amendments from the Labour Front Benchers.
We must remember the context of the Government’s surcharge policy. It was to spike the approach that the Labour party was making about a levy on overseas ownership, on exactly the grounds laid out by my hon. Friend the Member for Hackney South and Shoreditch about the desperate need for housing and to prevent housing from being used continuously as an investment asset for profit, rather than to put roofs over the heads of our families. I wholeheartedly support and welcome all those appeals, but even if with my Catholic upbringing I believe in the powers of conversion, I somehow doubt we have been able to convert the Minister to a sufficient level for him to accept the amendments. I hope to be surprised, but I doubt it.
I tabled amendment 23 not in the hope of converting the Conservative Government, but to enable me to express justifiable anger about the Government’s approach. The Government are attempting to legislate for a real-terms pay cut that will affect millions of low-paid workers through the freeze in the tax threshold. Those include many of my constituents who have had to make ends meet on 80% of their wages for much of last year. Yesterday—this has already been referred to—it was galling to see the other side of the coin. The Sunday Times rich list showed that during the pandemic more billionaires have been created in the UK than at any time in the past 33 years. The levelling-up policy that appeared last year was the levelling up of millionaires into billionaires.
The Chancellor should have used the occasion of the Budget and this Bill to level up capital gains tax to income tax rates, for example. It cannot be right that we tax work more than we tax income from wealth. Ahead of the Budget it was rumoured that the Chancellor was considering equalising capital gains tax and income tax. That would have been a much fairer way of raising revenue than increasing taxes for people on low and average wages, which the Government’s proposals on tax thresholds will do.
Child poverty has been mentioned, and in my constituency 42% of children are growing up in poverty—a figure that has sadly increased each year since 2015. Child poverty is often a consequence of low pay. The majority of children living in poverty in my constituency live in working households. We should be doing everything we can not just to protect but to boost the incomes of the low paid, not drag them into taxation or increase the taxes on them. The Bill will cut the income of someone working full time on the minimum wage. We know that 2 million workers rely on universal credit to top up their low pay, yet in a few months, the Government are going to cut universal credit by £20 a week.
Poverty has been rising in this country, and whether it is the £20 cut to universal credit, the stealth tax in the Bill, or this year’s paltry increase in the minimum wage, the Government’s actions will increase poverty still further, and increase suffering as a result. My amendment would ensure that the tax thresholds for the personal allowance and the higher rate were kept in line with inflation, as per the Income Tax Act 2007. I tabled it because I wanted to draw attention not to Labour party policy but to Conservative party policy, because in the last general election the Conservative manifesto pledged:
“We promise not to raise the rates of income tax”.
The manifesto continued:
“This is a tax guarantee that will protect the incomes of hard-working families across the next Parliament.”
I just hope that Conservative Members will have the good grace at least to acknowledge that clause 5 of the Bill breaches that pledge, and that incomes are not protected. More of people’s incomes will be hit by income tax, and that is especially harsh on the millions of public sector workers who now face from this Government a pay freeze, a 5% rise in council tax and now this stealth tax rise on their income tax.
Jesse Norman
I am grateful to all of those who have spoken in this debate. As the right hon. Member for Hayes and Harlington (John McDonnell) has just said, this has been something of a wash-up debate. It is fair to say that it is a bit of an omnibus group of measures pulled together, with many different clauses and issues on which colleagues have wanted to speak. That has made it wide-ranging, but if I may, I am going to focus on some of the key themes from across the various discussions we have had.
Let me start with the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) and the question of the non-resident surcharge, which was also highlighted by the hon. Member for Hackney South and Shoreditch (Meg Hillier). They may or may not be aware that in 2019 the Government carried out a public consultation on whether there should be a 1% non-resident surcharge, and decided on the basis of that consultation that the surcharge should be levied at 2%. That is twice as high as was originally contemplated in the consultation. That also should be seen in the context of the additional tax that people pay on second and third properties, many of which will fall into the scope of this measure. That is an important factor to bear in mind.
The hon. Member for Brighton, Pavilion (Caroline Lucas) revisited some of her key themes as regards the climate and environmental policy. I think that there is a misunderstanding at some very deep level of what the Government are doing, which includes: the Environment Bill; the 10-point plan that the Prime Minister has laid out; the net zero work that the hon. Lady highlighted, which was commissioned within and by the Treasury from a very eminent independent economist; and our work through the new UK Infrastructure Bank, which focuses on green policies and levelling up and for which I was pleased to visit new potential office sites in Leeds only on Thursday. It all amounts to a tremendous emphasis, particularly in the net zero review, on the long-term future of creating a sustainable and productive green economy in this country. It is very important to focus on that.
The hon. Member for Oldham East and Saddleworth (Debbie Abrahams) talked about health inequalities. I remind her that the Government have made an enormous investment in the NHS, over and above the extraordinary interventions supporting the fabric of our society over the past 12 months. We will also have in place a new office for health promotion, designed to support better health and wellbeing across the country.
The hon. Member for Ceredigion (Ben Lake) called for greater transparency in relation to reliefs. I have a great deal of personal sympathy with his position; he is absolutely right about the importance of focusing on reliefs. To take a particular example that I know is of great interest to him, he will be aware that we have under way a review of R&D tax reliefs, an important part of policy.
The hon. Member for Hornsey and Wood Green (Catherine West) highlighted the situation in Belarus, which is not directly a matter for the Treasury or the Bill, but is obviously a topic of great importance and interest for all Members of this House, as today’s urgent question highlighted.
All those points are important to put on the record. I also want to pick up on the important speeches made by my right hon. Friends the Members for Haltemprice and Howden (Mr Davis) and for Chingford and Woodford Green (Sir Iain Duncan Smith).
My right hon. Friend the Member for Haltemprice and Howden focused on the prevalence of umbrella companies. It is important to say that there are legitimate reasons why an agency or an individual might wish to use an umbrella company. To contemplate a series of measures that might include a ban on umbrella companies would be a tremendous burden on the legitimate umbrella companies; my right hon. Friend mentioned that that was not his preferred option. It is important to point out that such companies can perform useful payroll functions for agencies, provide choice for individuals and have multiple engagements. Notably, the Low Incomes Tax Reform Group pointed out recently:
“For freelance contractors who cannot work for their clients on a sole trader or limited company basis…the option to be able to work through an umbrella can be very valuable.”
There is value to umbrella companies, but that is not to say that there is not also abuse. The Government are very focused on that: my right hon. Friend mentioned some of the measures that HMRC is taking to combat umbrella companies that are disobeying the rules or trading fraudulently, and we are committed to extending the remit of the Employment Agency Standards Inspectorate to support best practice in the area.
John Spellar
I think the Financial Secretary ought to face up to the reality, which is that many of the people under these companies are not what we would describe in any normal parlance as contractors: they are people working on Test and Trace in their thousands, for example, who should be employed directly either by Serco or by the agency that they work for. There are also great numbers of people in the health service under these companies; they should be employed either by an agency or by the health service. That is where the scandal is, and that is what he really ought to be dealing with—and very promptly.
Jesse Norman
It is a very dynamic marketplace, as the right hon. Gentleman will be aware. There are many different aspects to it with which the Government are seeking to engage. One thing that is quite important that I do not think he or others have noticed is that the changes to IR35 that the Government have made have in some quarters been widely welcomed. Let me give an example—it may not be the widest possible welcome, but it is quite noticeable—from the off-payroll advisory firm Qdos, which said:
“In recent months the tide has turned, with thousands of businesses now aware of the fact that IR35 reform is manageable”,
as it was manageable in the public sector some years before. It is important to recognise that that is also the case.
Meg Hillier
I have to challenge the Minister on IR35. He is speaking as though it is somehow all fine. It has decimated sections of the tech and IT industry in my constituency, where groups of people came together to deliver short contracts and were actually paying as much tax as the Exchequer was getting from them. I can provide figures if he would like to take this up further, but let us not pretend that it is all fine.
Jesse Norman
There is no suggestion on my part that it is all fine. One cannot make meaningful change to a market that is not performing as one would like and expect everything to be perfectly fine within weeks of the implementation of the measure. The point that I am making is that there are important players in the industry that recognise that—in the quote that I have given—“thousands of businesses” are
“now aware… that IR35 reform is manageable”,
and so it is.
As the hon. Lady will well know, under the previous arrangements there were people who were performing like employees—often working side by side with them—but not paying that tax, and it was important that they did so. If she doubts that, she might want to reflect on the question of what the tax revenue raised from those organisations is used for. The answer is that it is used to support the NHS, our public services and all the other things that the Government are trying to do to get this country through a difficult moment in our history.
Sir Iain Duncan Smith
The Minister accepts that there are now some significant abuses in the way that many—not all—umbrella companies operate. Do we need action by the Treasury to deal with this issue, or is he content that it will just resolve itself as things stand?
Jesse Norman
No, the Government have been clear that there needs to be an extension of the employment agency standards inspectorate in this area, and there may well be operational measures that HMRC needs to continue to undertake. My right hon. Friend will be aware that the Bill contains very considerable additional measures designed elsewhere in the tax system to curb the promotion of tax avoidance schemes, to improve the disclosure of those schemes and to combat organisations that would attempt to derive an unfair advantage of the kind that he has described, so we are absolutely not unaware of the importance of ensuring that people across the board pay appropriate levels of tax.
It is also worth saying that none of this really falls within the context of a Finance Bill, let alone the one that we have laid out in front of us. It is also worth saying that HMRC has used real time information in ways that were contemplated and discussed earlier in the debate in order to try to be more forward-leaning in this area. We recognise the concern and HMRC is highly active in it, but in many cases these umbrella companies do have a legitimate function, and it is important to recognise that.
I think that is it—thank you very much.
Abena Oppong-Asare
Once again, I thank all Members who have spoken. This has been a varied and wide-ranging debate, with Members focusing on different aspects of the Bill.
My hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier) spoke about the impact of overseas buyers buying properties in her community in bulk. My hon. Friend the Member for Hornsey and Wood Green (Catherine West) spoke about the impact that dirty money is having on her local area and how other countries, such as the USA, are using sanctions to target corrupt individuals. Both are excellent champions for their constituents, who are too often at the sharp end of the housing crisis.
Sir Geoffrey Clifton-Brown (The Cotswolds) (Con)
Will the hon. Lady give way?
Abena Oppong-Asare
I am afraid that we have to make haste.
My hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) spoke passionately about the impact of the Bill on poverty and public health. She is absolutely right to draw attention to the Government’s failure in this area. My right hon. Friend the Member for Hayes and Harlington (John McDonnell) spoke about the measures in the Bill that are hurting the lowest earners in our society. He has always been a champion for the lowest paid.
Other hon. Members, including the right hon. Member for Haltemprice and Howden (Mr Davis), spoke about the exploitation of workers through umbrella companies. As my hon. Friend the Member for Ealing North (James Murray) said earlier, we are extremely concerned about the Government’s approach to workers’ rights, including their broken promise to include an employment Bill in the Queen’s Speech. We also share Members’ concerns about people being forced into umbrella companies and losing rights as a result. I urge the Government to look carefully at this issue.
I thank the Minister for his answer to my question on the non-resident stamp duty surcharge. I am aware of the consultation in 2019 to seek views on the decision on 1%, which led to the 2% stamp duty surcharge. I also point out that the Chancellor made an announcement in that same year, when he was Chief Secretary to the Treasury, in relation to implementing a non-resident stamp duty surcharge at 3%, so this commitment has been watered down.
I am sure that we will return to this issue during future debates and I thank Members for the points they have raised today. I will end by returning to the issue of the register of overseas ownership. As I said earlier, the Government’s failure to introduce this legislation is extremely disappointing. We will push new clause 24 on this issue to a vote, but I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
New Clause 24
Review of impact of 2% non-resident surcharge
‘(1) The Chancellor of the Exchequer must review the impact of section 88 and schedule 16 of this Act on tax revenues, residential property prices, affordability of residential property, and the volume of property purchases by non-residents, and lay a report of that review before the House of Commons within six months of the passing of this Act and once a year thereafter.
(2) The review under this section must include an assessment of what those impacts would have been if the provisions in the Draft Registration of Overseas Entities Bill had been in force.’—(Abena Oppong-Asare.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
“VAT | Return under a special accounting scheme.”; |
Jesse Norman
I beg to move, That the Bill be now read the Third time.
I thank right hon. and hon. Members who have contributed to the robust but, I would say, good-natured debate throughout this Finance Bill’s passage over the past two months. It has been a speedy but thoroughly effective process. Before I get into the bulk of my speech, I know that the right hon. Member for East Antrim (Sammy Wilson) wants to put a question to me, so let me recognise him.
Sammy Wilson
I thank the Minister for giving way. I tried to catch his eye earlier on; I do not think that he is deliberately avoiding me, but I did not get the chance to talk to him. New schedule 1 refers to VAT on distance selling. It covers 55 pages and was introduced tonight without much chance of consideration. It will affect businesses with a threshold of sales of £8,818, which will require them to register and to do special accounting. What assessment has been made of the likely impact of that on small businesses in Northern Ireland that sell goods into the EU?
Jesse Norman
I rather regret it, having invited the intervention. No, of course, to engage with this, I would not have recognised the right hon. Gentleman if I had not wanted to take the intervention and I certainly was not avoiding him earlier in the debate. He is right to point out that these provisions have been put into the Bill for the first time. I am pleased to say that they have been given proper consideration in the detail that has been put up, which he alluded to. There is a new measure relating to the distance selling threshold, which will affect a small number of businesses in Northern Ireland. By and large, this put into law, in relation to Northern Ireland, a set of measures that has already been adopted elsewhere in the United Kingdom, in recognition of commitments that we made to the EU as part of the process of striking our new trade arrangements. That is that, but if he wishes to have further conversation on that, I would of course be delighted to do so.
This Finance Bill comes at a crucial juncture for our economy and our public finances as the UK recovers from what is—we must never forget this—the greatest economic and social crisis since world war two and the greatest economic recession in 300 years. It delivers on the measures announced in the Chancellor’s Budget to protect jobs and livelihoods and to provide additional support to help people and businesses through the pandemic; to begin the process of fixing the public finances; and to lay the foundations of a resilient future economy. This Bill delivers on all those commitments, and I commend it to the House.
James Murray
People and businesses across our country need the Government to support them as they begin to get back on their feet after all the damage to people’s lives and livelihoods that the covid outbreak has brought. Six weeks ago, when we began to consider this Bill, it was clear that its provisions and those in the Budget that preceded it failed to provide that support.
We opposed the Bill on Second Reading, because far from helping people to get back on their feet, it would force half of all people in the country, including those earning only just enough to pay tax at all, to pay more from next year by freezing income tax personal allowances. That hit to household finances came alongside an immediate sharp council tax rise, a cut in universal credit later this year and a shameful real-terms pay cut for NHS workers after their unparalleled service over the last year and more. The sense of unfairness was made even more acute as the Bill, at the same time as hitting household finances, gave an immediate tax cut to some of the biggest multinational tech firms, which have done so well over the last year.
Throughout the Committee stage of the Bill, we tried to right some of these wrongs. We voted to reject the Bill’s plans to make all income tax payers pay more from next year, and we voted to stop the tech giants from benefiting from the Chancellor’s tax cut. We did not succeed in making changes to the Bill, despite giving Government Members today, in as straightforward a way as possible, another chance to exclude tech giants from their tax cut.
Throughout the debates on this Bill, we have also seen the Government reject opportunities to support decent, well-paid jobs, to end tax avoidance by large multinational firms and to back British businesses that have been struggling throughout the outbreak. It was telling that the Minister described workers’ rights and the prospect of paying a living wage as “burdensome conditions” when we suggested that they should be basic conditions of large companies taking the Government’s tax break.
As I said earlier today, it is no wonder that the promised employment Bill was absent from the Queen’s Speech earlier this month. The decision to drop it proves that the Government have no plan to tackle low pay or improve protections for working people. My colleagues and I will push the Government to honour their promises on workers’ rights and to go further, from banning the practice of fire and rehire, which has been deployed so shamefully during covid, to ending exploitation by rogue umbrella companies, as cross-party amendments tabled by right hon. and hon. Members earlier today sought to do.
It is also deeply frustrating and disappointing that, before today, Ministers had failed on three occasions since we began discussing the Bill to take up opportunities to back President Biden’s plans for a global minimum corporate tax rate. Today, they refused again, and they voted against our new clause, which would have required them to be transparent about the impact that a global minimum corporate tax rate on large multinationals would have in the UK. Britain should be taking a leading role in striking this global deal. It would bring in billions of pounds of tax every year, which could be invested in British public services and industry. It would level the playing field for British businesses that are currently undercut by a few large multinationals that shift profits overseas. It would also show the world that Britain believes in playing fair when we host the G7 summit next month.
The Government should have used the Bill to help people get back on their feet as we begin to emerge from covid. They should have been supporting British businesses that have been struggling throughout the outbreak. They should have begun building a country that lets neither workers be treated badly, nor a few large multinationals avoid paying their tax. Our tax system must have fairness at its heart, yet this Government are making households right across the country pay more tax, while letting Amazon pay no tax at all and leaving British businesses to be undercut by large multinational firms that shift their profits to tax havens overseas. That is not what our country needs. Those are not the actions of a Government who can claim to be on the side of the British people, and this is not a Bill that we can support.
Alison Thewliss
I want to begin, as others have done, with a few thank yous. I thank the Minister for so politely rejecting all our amendments. I thank those on the Opposition Benches for the good spirit in which they conducted themselves during the Bill. I thank our research team in Westminster—Scott Taylor and Jonathan Kiehlmann—and Mhairi Love in my office. I thank my hon. Friends the Members for Glenrothes (Peter Grant) and for Gordon (Richard Thomson), and I thank the Clerks of the Committee, Chris Stanton and Joanna Dodd, for their patience. I want to pay particular thanks to George Crozier, the head of external relations for the Chartered Institute of Taxation, the Association of Taxation Technicians and the Low Incomes Tax Reform Group, for being a continual source of support and advice, and for his patience in explaining many of the tax measures to those of us who are not as well versed in the tax system as he is.
This Bill fell short in a number of ways. The Government are always keen to talk about the power of the Union, but it is the power of the Union not to extend support schemes, not to cover the excluded, not to keep the universal credit uplift going, not to extend the VAT reduction to hospitality and tourism, not to provide the support and stimulus that this country so dearly needs, rather than further austerity coming down the road, and not to tackle the scourge of dirty money in our country—the ongoing scandal of tax avoidance and evasion. Instead, we would like to see more of Scotland’s priorities delivered by a Parliament closer to home—priorities to build a sustainable green recovery, to provide a much needed stimulus and to give us the full range of levers over our economy so that we can make a real difference to the lives of the people we are proud to have working and living in Scotland, wherever in the world they have come from. All of these things require Scotland to have the full power of independence, which is why I hope it will not be too much longer before we have all those controls in the Parliament in Scotland.
Question put, That the Bill be now read the Third time.
Finance Bill
Tuesday 25th May 2021
(3 years, 6 months ago)
Lords ChamberRead Full debate Finance Act 2021 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 24 May 2021 - large print - (24 May 2021)
Finance Bill
Tuesday 8th June 2021
(3 years, 5 months ago)
Lords ChamberRead Full debate Finance Act 2021 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 24 May 2021 - large print - (24 May 2021)
The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)
My Lords, we are here to debate the annual Finance Bill, introduced in the other place following the Budget on 3 March. My right honourable friend the Chancellor of the Exchequer outlined a Budget with three key objectives: first, to protect jobs and livelihoods and provide additional support to get the British people and British businesses through the pandemic; secondly, to be clear about the need to fix the public finances once we are on the way to recovery and to start that work; thirdly, as we emerge from the pandemic, to lay the groundwork for a robust and resilient future economy. This Finance Bill enacts changes to taxation that support all those objectives.
The House will of course be aware of the severe public health and economic shock caused by the pandemic; at its peak, the economy shrank by 10%, the largest fall in more than 300 years. The Government have responded with an extraordinary package of support for the economy which, taking into account measures introduced in the 2020 Budget, is now estimated at £407 billion for this year and last year. This has been essential. Thanks to it and the rapid rollout of vaccinations, the Office for Budget Responsibility and other independent authorities now expect a swifter recovery than had previously been forecast. Indeed, the OBR expects the UK economy to recover to pre-crisis levels six months earlier than it did previously—in the second, rather than the fourth, quarter of 2022.
Our first objective is protecting jobs and livelihoods. There are positive signals that we are now on the right path, but it is crucial that we continue to support the economy over the coming months and deliver on the Budget’s first aim of protecting jobs and livelihoods. That is why the tax measures outlined in the Bill go further to support the economy. We are extending the 5% reduced VAT rate until 30 September to protect almost 150,000 hard-hit hospitality and tourism businesses which employ over 2.4 million people. To help those businesses manage the transition back to the standard rate, VAT will then increase to an interim rate of 12.5% from October until the end of March.
The Bill ensures that any business that took advantage of the original VAT deferral new payment scheme will be able to pay that deferred VAT in up to 11 equal payments from March 2021, rather than by one larger payment due by 31 March 2021. For those businesses that have been pushed into losses, the trading loss carry-back rule is being extended from the existing one year to three years for losses of up to £2 million. This will deliver a significant cash-flow benefit for eligible businesses.
The Bill also puts into legislation the temporary cut in stamp duty land tax, with a residential stamp duty nil rate band remaining at £500,000 in England and Northern Ireland until the end of June. This will be followed by a phased transition back to the normal rate. From 1 July 2021, it will fall to £250,000 until the end of September, before returning to £125,000 on 1 October. This extension helps buyers and supports jobs which rely on the property industry.
As well as protecting jobs and livelihoods, the Bill takes important steps to deliver on the second of the Budget’s key objectives: to strengthen public finances as we emerge from the pandemic. The coronavirus response, as we all know, created unprecedented challenges for the Exchequer. The first outturn estimates from the Office for National Statistics show borrowing for last year is estimated to have totalled £300 billion, or 14.3% of GDP. As we continue our response to this crisis, borrowing is forecast by the Office for Budget Responsibility to be £234 billion this year, which is 10.3% of GDP. This means we are forecast to borrow more this year than during the financial crisis, an amount so large it has only one rival in recent history—last year. The Government need to balance this enormous support provided to the economy in the short term with the need to start to fix the public finances in the longer term. The Bill takes forward a number of measures to do this responsibly.
First, the income tax personal allowance will rise with the consumer prices index, as planned, to £12,570 from this month. This level will then be maintained until April 2026. The higher rate threshold also rises to £50,270 from this month and will then be maintained at this level until April 2026. These changes are a fair and progressive way to meet the fiscal challenge presented by the pandemic. For example, it is worth noting that the 20% highest-income households will contribute 15 times that of the 20% lowest-income households.
Secondly, the inheritance tax thresholds, the pensions lifetime allowance and the annual exempt amount in capital gains tax will be maintained at their 2020-21 levels until April 2026. Maintaining the pensions lifetime allowance at current levels affects only those with the largest pensions—those worth more than £1 million.
Thirdly, the Bill legislates for the rate of corporation tax paid on company profits to increase to 25% from 2023. Businesses have been provided with over £100 billion of support to get through this pandemic, so it is only fair to ask them to contribute to the overall recovery. Of course, since corporation tax is charged only on company profits, businesses that may be struggling will, by definition, be unaffected. The increase will not take effect until two years’ time, well after the point when the OBR expects the economy to have recovered. This measure protects small businesses with profits of £50,000 or less by including a small profits rate, maintained at the current rate of 19%. The effect of this is that 70% of companies, or 1.4 million businesses, will not see an increase in their tax rate.
The third goal of the Budget was to lay the foundations of our future economy as we emerge from the pandemic. This requires that the Government encourage business investment now, to help spur growth and drive productivity in the coming years. That is why the Bill contains the innovative new super-deduction measure. In most cases, this measure will allow companies to reduce their taxable profits by 130% of the cost of investment they make, equivalent to a tax cut of up to 25p for every pound they invest. It is expected to lift the net present value of the UK’s plant and machinery allowances from 30th among the countries of the OECD to first. This will bring forward investment; the OBR has said that, at its peak in the financial year 2022-23, the super-deduction will incentivise an additional £20 billion of business investment.
The Bill also contains clauses that will enable the creation of free-port tax sites. In these sites, businesses will be able to benefit from a number of tax reliefs, including a stamp duty land tax relief, an enhanced structures and buildings allowance and an enhanced capital allowance for plant and machinery. This tax offer will be combined with simpler import procedures and duty benefits in customs sites to help businesses trade, along with planning changes to give a green light to much-needed development and spending to invest in infrastructure. This comprehensive package will allow free ports to play a significant role in boosting trade, attracting inward investment and driving productive activity.
I have talked about how this legislation delivers on the core objectives of the Chancellor’s Budget. However, as might be expected in the annual Finance Bill, it also takes forward a number of other measures to progress the Government’s long-term aims to ensure a flexible, resilient and fair tax system. As part of the United Kingdom’s commitment to be a global leader on tax transparency, the Bill allows for the implementation of OECD reporting rules for digital platforms. This will help taxpayers in the sharing and gig economies get their tax right and help HMRC detect and tackle non-compliance. It will enable the extension of Making Tax Digital requirements to smaller VAT businesses from April next year, building on the successful introduction of Making Tax Digital for VAT businesses.
It implements reforms to the penalty regime for VAT and income tax self-assessment to make it fairer and more consistent, and harmonises interest for VAT and income tax. It tackles promoters of tax avoidance through strengthening existing anti-avoidance regimes and tightening rules. Importantly, it introduces an exemption from income tax for financial support payments for potential victims of modern slavery and human trafficking made by the UK Government and devolved Administrations.
I turn to how the Bill helps us deliver the important commitments the Government have made on the environment and carbon reduction. The new plastic packaging tax will encourage the use of recycled plastic instead of new plastic in packaging. For plastic packaging that contains less than 30% recycled plastic content, the rate of the tax will be £200 per tonne. This will transform the economics of sustainable packaging. To help tackle climate change and improve the UK’s air quality, the Bill reforms the entitlement to use red diesel from April next year. This will help ensure that the tax system incentivises users of polluting fuels such as diesel to invest in cleaner vehicles and machinery, or just to use less fuel.
To conclude, the coronavirus pandemic has presented an immense challenge to this country and delivered a dramatic shock to our economy. The Government have met that shock with a determined and sustained response, but the work is not yet done. This Finance Bill continues to support the lives and livelihoods of families and businesses. As we emerge from the pandemic, it will set the ground for an investment-led recovery and for strong public finances in the coming years. The Bill delivers a number of measures for a fairer and more sustainable tax system in support of the work needed to tackle climate change. For these reasons, I commend it to the House.
The Deputy Speaker (Baroness Finlay of Llandaff) (CB)
My Lords, I remind all in the Chamber that we are expected to be masked when seated.
Lord Bridges of Headley (Con)
My Lords, I have the honour of chairing the Finance Bill Sub-Committee and I start by thanking all its members, a number of whom I see here today; I look forward to hearing their remarks. I especially thank our excellent clerk and superb special advisers for all their hard work, energy and commitment.
Last December we published a report which scrutinised a range of new powers sought by HMRC and called it New Powers for HMRC: Fair and Proportionate?, with a question mark—an all-important question mark. To answer that question, we identified a number of principles that we believe should apply to any new power given to HMRC. The power must have a clear policy objective and justification, and it must be simple, targeted, proportionate and have appropriate safeguards and sanctions. With those principles in mind, let me focus my remarks on the powers we examined included in this Finance Bill.
The first is the power to tackle promoters and enablers of tax avoidance, under Clauses 121 to 123. These clauses need to be seen against the backdrop of the loan charge, which has ensnared thousands of people—many on low incomes—who entered disguised remuneration schemes, often at the behest of their employers, only to find themselves clobbered years later with enormous tax bills that many now find difficult to pay. Now is not the time for me to go into the loan charge in detail, although our committee remains very focused on it.
Regarding these clauses, of course we support action to clamp down on the hard core of promoters of tax avoidance schemes. But the committee was unconvinced that these plans would be sufficient to tackle that hard core of promoters who continue to promote these schemes, and so the effectiveness of existing measures must be kept under review and all the weapons in HMRC’s arsenal should be brought to bear on them. For example, we reiterated our view, first expressed way back in 2018, that alerting taxpayers to these schemes via HMRC’s spotlights on GOV.UK is not enough. That is especially so given that promoters have been targeting medical professionals returning to the NHS during the pandemic. Given that, we recommended that HMRC focus its attention on employers, employment intermediaries and the umbrella companies using these schemes. Specifically, we said that a first step should be that no public sector bodies should contract with an employment intermediary that operates disguised remuneration schemes.
In light of all this, I have some questions for my noble friend the Minister. If he cannot answer when he winds up, perhaps he could answer in writing. First, could he tell us how many of these hardcore promoters still exist? Secondly, in 2019-20, HMRC doubled its resources in this area. What will be spent on this agenda in future—in this financial year? Thirdly, a new communications campaign targeted at contractors was launched in November 2020. How is that progressing and how is success being measured?
Finally, on umbrella companies, a recent “File on 4” BBC investigation revealed that around 48,000 mini umbrella companies have been formed in the last five years, fronted by 40,000 people in the Philippines to exploit the employment allowance scheme. Meanwhile, the implementation of IR35 and the impact of the pandemic has reportedly led to a surge in the use of such companies by contractors. One survey found that 71% of workers deemed inside IR35 were moved under an umbrella company ahead of the off-payroll working rules extension into the private sector in April. Given all that, can the Minister tell us whether there are any plans to regulate umbrella companies?
Let me move on to the second topic the committee focused on, which related to the civil information powers in Clause 126. These will allow HMRC to obtain information about taxpayers from financial institutions to charge the right amount of tax and enforce payment. There are two safeguards in HMRC’s current power: the need for tax tribunal approval before information can be required and a right of appeal for financial institutions where provision of information is unduly onerous. These have been discarded on the basis that the process takes too long which, according to the Government and HMRC, means delays in meeting information requests from other countries.
Our committee expressed concerns about the Government’s approach when it was first proposed back in 2018. In this recent inquiry, we concluded that the removal of safeguards was unjustified as cases involving international information requests were only a very small minority—less than 15% of the total—and the tribunal referral does not significantly add to the timescale. I will not ask my noble friend the Minister any questions on this, but simply note that the committee recommended that the safeguards be restored as their removal is wrong in principle and not supported by the evidence in practice.
The third topic our committee looked at was the
“New tax checks on licence renewal applications”
in Clause 125. This measure will make the renewal of licenses for running taxi and private hire services and for scrap metal traders conditional on being tax compliant. It therefore introduces a new concept of conditionality into our system. Our committee questioned how effective this proposal was likely to be, since those non-compliant for tax might also be non-compliant for licensing and tax checks might drive more to be non-compliant for licensing. The result could be mainly to impose additional burdens on the already compliant rather than to tackle non-compliance. The Government have failed to produce evidence to support applying conditionality in these instances. Furthermore, the condition is to apply to all applications for licenses, not just those applying for the first time as was proposed in the original consultation.
Taking a step back, these three measures are at best, in my mind, a mixed bag. One can draw from them some general lessons, which our report highlighted. Existing powers should be used properly before new ones are requested. Focus should be put on non-legislative action. The tax policy consultation framework should be observed. There should be clear evidence to support the need for a new power. Powers must be proportionate and targeted, with adequate safeguards. Those are all principles that should always be abided by.
That brings me to an issue that our committee has not yet focused on: Clause 129, which covers reporting rules for digital platforms. What I am about to say is my view and not that of the committee. I am sure we would all agree that our tax system, rooted in the analogue age, needs a reboot to meet the challenges of the digital era. Digital platforms must pay the taxes they owe in the countries where they operate. Likewise, sellers of goods and services on those platforms should also pay the taxes they owe. Clause 129 will give HMRC the power to require certain UK digital platforms to report information to HMRC about the income of sellers of services on those platforms. The platforms in questions are taxi and private hire services, food delivery services, freelance work—a very broad term—and the letting of short-term accommodation. We may all agree with the objective of ensuring that businesses pay the tax they owe on services they sell online, but I draw your Lordships’ attention to this, because Parliament is going to give the Treasury power to make these regulations, despite the fact there has been no consultation at all. It has yet to begin, despite the fact that, according to the Government, this power could affect up to 5 million businesses which provide their services via digital platforms. We are giving this power, despite the fact that the cost of the regulations is unknown. Although the impact for each seller is expected to be small, the Government states that it
“is expected to have a significant combined impact.”
Here is why:
“Data, including bank account information if the platform holds that information, will be collected and provided to HMRC, and exchanged with other tax authorities when appropriate. This information will be used to identify and risk assess the individual or company.”
The policy paper also states:
“This measure is likely to significantly increase customer costs for some of the businesses affected.”
Note this: it says that sellers of goods
“may be affected at a later stage, subject to consultation.”
Digitising our tax system is laudable. It is a necessity, but this is no way to proceed. It is the way mistakes are made, and the Government would do well, I suggest, to heed the words of the playwright Sheridan, who wrote over 200 years ago:
“First there comes the act imposing the tax; next comes an act to amend the act for imposing the tax; then comes an act to explain the act that amended the act, and next an act to remedy the defects of the act for explaining the act that amended the act.”
This is a horrible, familiar process that we are all too well aware of in this House. I would just gently say to my noble friend the Minister that he needs to justify why HMRC is being given this power without proper consultation. How can he justify taking a power, the cost and impact of which is unknown? Once again, HMRC’s remit appears to be growing, without consultation, without evidence, without real scrutiny. Is it fair? Is it proportionate? We do not know.
Lord Butler of Brockwell (CB)
It is a pleasure to follow the noble Lord, Lord Bridges, who chaired our sub-committee with great competence, and I shall have a word to say about that later. I start in the general area about which he was speaking. As we debate the Finance Bill today, I warmly welcome last week’s agreement by G7 Finance Ministers to work together, to ensure that all countries get their fair share of revenue from multinational corporations. I congratulate the Chancellor of the Exchequer on presiding over this achievement. However, while I do not want to rain on his parade, I cannot agree with him that this shows what the UK can do post Brexit, as he claimed.
To my mind, it shows two different things. The first, somewhat contrary to what the Chancellor claimed, is that international problems, such as the taxation of multinational corporations, can be addressed only by countries working together and by pooling part of their sovereignty. They cannot be solved by individual countries acting independently. The second lesson of the G7 Ministers’ agreement is that nothing happens until the United States decides that it should. This first step could not have been achieved without the United States giving a lead.
I turn now to the report of the Finance Bill Sub-Committee on the new powers of HMRC in the Finance Bill that we are debating today. I comment first on a quirk of our curious constitutional procedures. I joined this sub-committee at a late stage of its work. It seems to me that the report is a useful commentary on the powers in the Finance Bill, but our constitutional procedures prevent your Lordships’ House turning the committee’s conclusion into amendments to the Bill. There really is no reason of Commons financial privilege why the Lords should not be able to pass amendments relating to the fairness and proportionality of HMRC’s administration of the tax system. The only reason is that they happen to be contained in the Finance Bill. As a result, this sub-committee’s report turns into a mere commentary, which may influence the House of Commons if anyone there bothers to read it, but otherwise it is simply the basis of a conversation between the committee and the Government. That can be quite a useful conversation, since the main means by which your Lordships’ House can influence events is by persuading the Government. The committee has persuaded the Government on some of the issues in the report, but it is frustrating that, having debated this report, your Lordships’ House has no option other than to nod the Finance Bill through in the form in which it has reached us.
It was a privilege to serve on this sub-committee, which was superbly chaired by the noble Lord, Lord Bridges, and benefited from the participation of the chairman of the main Economic Affairs Committee, the noble Lord, Lord Forsyth. As the noble Lord, Lord Bridges, has said, the committee was very well served by the excellence of its clerks. We also had good co-operation from the Financial Secretary to the Treasury, Jesse Norman MP, senior members of HMRC, and representatives of professional associations affected by the Bill’s provisions.
On rereading the report, I feel that it perhaps comes across entirely as an indictment of HMRC. That may be inevitable, because the report concentrates on those powers in the Finance Bill that seem to the sub-committee excessive or not fully thought through. Speaking for myself—I speak with a Treasury background—I have considerable sympathy with HMRC, particularly in its task of dealing with schemes of tax avoidance and evasion, which are like a many-headed Hydra—as soon as HMRC hits one of the heads another pops up. Yet it is not difficult to feel that HMRC has been more zealous and effective in pursuing often innocent taxpayers, rather than those who have made a fortune from promoting avoidance schemes.
There have also been ongoing deficiencies in HMRC’s dealings with taxpayers, some of which HMRC acknowledges. The sub-committee received distressing evidence from victims of the loan charge to which the noble Lord, Lord Bridges, referred, not least about delays or failures in getting a response from HMRC when taxpayers have sought to achieve a settlement of their affairs.
A compelling account of the distress caused by HMRC’s handling of the loan charge was given in the BBC Radio 4 programme “File on 4”, to which the noble Lord, Lord Bridges, referred, and which I commend on its investigations into these issues. A recent edition of the programme dealt with a further scheme with some similarities to the loan charge, to which the noble Lord, Lord Bridges, also referred: the recruitment of staff through umbrella companies, which offer to save employers overheads in the form of national insurance contributions, holiday pay and employment regulations by offering recruitment in penny numbers, each too small to incur those overheads.
I know that IR35 has recently come into effect as a means of distinguishing between general and useful recruitment agencies and those set up for avoidance, but I echo the noble Lord, Lord Bridges, in asking the Minister whether there are signs that it is preventing the offering of services for avoidance purposes by umbrella companies with overseas directors who are difficult to pursue. It would be a tragedy if another version of the loan charge were to become established, which could cause distress for its victims for many years to come.
I end by commending HMRC and the Government on the detailed response the sub-committee received to the report we are debating. The Government’s response is that out of 24 main recommendations in the report, nine were accepted, six were partially accepted and nine were rejected—you might call it a score draw. A sceptic might say that it was the recommendations of general principle that tended to be accepted by the Government and the specific recommendations that were rejected. Nevertheless, there is evidence that the report served a useful purpose in challenging HMRC, and it was an honour to take part in preparing it.
Lord Forsyth of Drumlean (Con)
My Lords, I begin by expressing complete agreement with everything the noble Lord, Lord Butler, has just said, in particular what he said about the officials who supported the sub-committee and about the chairman, my noble friend Lord Bridges. When I asked him to take on the chairmanship of the sub-committee so that I did not have to chair both, I thought it was something of a hospital pass—but he did it absolutely brilliantly and with great distinction in what is a very complex area. We were very grateful to him for the leadership he gave in his indefatigable way. As the noble Lord, Lord Butler, said, we should be grateful that some of the recommendations have been accepted. I am probably the cynic: they were the ones of general principle, rather than the specifics.
I want to focus on this doorstep of a Bill. The papers I am holding are the Finance Bill and the papers that enable us to understand what is in it. I cannot help but ask my friend on the Front Bench: whatever happened to tax simplification? Whatever became of the Government’s declared policy of lower, flatter, fairer, simpler taxes? That policy was grounded in the belief that individuals, families and companies will make better investment decisions than Governments and that wealth creation is essential to the support of key public services such as health, education and social care. We wait with bated breath for the Government’s response to the Economic Affairs Committee on social care and on higher and further education.
We face the biggest financial crisis of our lifetimes—even our lifetimes in this House. It is an enormous challenge facing the Government, but the Covid measures continue to destroy our productive economy. Like a scorpion, the virus leaves behind its sting in the huge backlog of patients requiring serious procedures; the damage done to our young people’s education and career prospects; the impending crisis in housing caused by rent arrears; and the unemployment currently disguised by the furlough scheme continuing. Major industries have haemorrhaged cash on an enormous scale. Substantial debt provided by the Treasury has been taken on and, frankly, will never be repaid. Are we seriously going to take £20 a week from some of the poorest people in the land, just as electricity and food costs are rising? That decision alone is some £6 billion.
What is the Government’s strategy for facing this challenge? Tax and spend is not the answer. Nor can we continue selling IOUs to ourselves, which is given the name “quantitative easing”—a subject the main committee is about to report on. Inflation is already coming down the track, with the costs of raw materials soaring and pressure on wages rising because of labour shortages at a time when the Government are maintaining employment for many people through the taxpayer.
The Bank of England’s reassuring messages that there is nothing to see here and nothing to worry about, and that it will delay interest rates as soon as there is inflation—which will be a short-term effect—worry me. I remember, when I was a young man first engaging in politics, how quickly inflation got out of control, as people started pricing for anticipated rates of inflation. It ended in inflation of over 20%, interest rates of 15% and a lot of pain faced by the Conservative Party in government and the country as a whole. Inflation may be convenient for Governments with big debts but, as Jim Callaghan put it, inflation is the father and mother of unemployment.
The only way we can get through this crisis is by getting our economy growing again. That means recognising that the current long-term growth projections of just under 2% from the Government’s own statisticians are wholly inadequate and not acceptable. We need to change our strategy.
Increasing corporation tax—here I disagree with the noble Lord, Lord Butler—is the opposite of what is needed if we want to see more investment, growth and employment. Entering a cartel to set a minimum level of corporation tax may be good news for the United States, with revenues from its increasingly overmighty tech companies, but what happened to that vision of global Britain—the place to invest and create jobs and prosperity? The thinking embodied in the Chancellor’s welcome vision for free ports needs to be applied to the nation as a whole. If we believe in competition as the way to secure innovation and prosperity, why are we suddenly abandoning competition in taxation? “Take back control” was as much about setting our own taxes and laws as about regulation. It should be for the other place to decide tax matters and tax policy, not the President of the United States, and not by international treaty. It is the other place’s duty to vote means of supply, and it is wrong for the Executive to circumvent that in this way.
I fear that, as the President of the United States now appears to want to opine on the Northern Ireland protocol, it may be time for Boris Johnson to have his “Love Actually” moment and not just make the speech but unleash the talents of the British people. That means supporting the self-employed and encouraging outsourcing. While it is commendable that HMRC tackles tax dodgers and abusers, this should not be at the expense of struggling self-employed businesses by imposing additional costs. The self-employed are not the same as those on PAYE. There is no statutory sick pay for them and no holiday entitlement, and the next penny depends on identifying the next job. IR35 is having a severe impact and will discourage others to set up on their own. I talked to someone in exactly that position just over the weekend. These small and medium-sized businesses are the seed corn of our future growth, and the Government should honour their long-standing promise to bring forward a new status for self-employment following the Taylor report, as my noble friend Lord Bridges indicated in his excellent speech a few minutes ago. This was also a manifesto commitment; I cannot remember how many manifestos ago it was, but it was certainly a clear commitment from this Government.
It now seems every Finance Bill brings forward new powers for HMRC, even before the review of the use of existing powers is completed. This Bill is no exception, taking away the right of appeal to a tribunal for financial institutions to provide specific information about a taxpayer. The disgraceful and effectively retrospective treatment of loan charge victims, such as local authority and health service workers placed in schemes by their employers without full understanding of what they meant, has not been matched with the same zeal in pursuing those responsible for marketing those schemes, now languishing on their superyachts with their ill-gotten gains. I am disappointed that the Government have refused to apply measures retrospectively to these promoters, as recommended by the Finance Bill Sub-Committee, but I welcome the proposals for tougher action that are currently subject to consultation. It is beyond belief that these schemes are still being promoted, and some are targeting workers returning to the NHS. HMRC itself has been using firms that use these schemes.
To conclude, we need a clear vision from the Prime Minister and the Chancellor and a strategy to get our economy going again if we are to meet our duty to secure a safety net for those most vulnerable and disadvantaged in our country. Higher taxes, more bureaucracy and continuing uncertainty are anathema to achieving that, for, as the Book of Proverbs reminds us,
“Where there is no vision, the people perish.”
Lord Dodds of Duncairn (DUP)
My Lords, we understand the difficult job the Chancellor has had of bringing forward this year’s Budget in the unprecedented circumstances in which this nation finds itself. The immediate priority, looking at the economy, must be ensuring that we come out of this pandemic with as many safeguarded jobs and livelihoods as possible. The economic packages, especially the furlough scheme and the help for the self-employed, have been incredible interventions, which have helped stave off the worst ravages of economic depression that may otherwise have occurred. I congratulate the Government, as we all do, on the incredible investment in the vaccine rollout, which has produced stupendous results.
Once again, the benefits of being part of one of the biggest economies in the world has been illustrated for all our citizens through all parts of the United Kingdom. I have to say that I have been reassured somewhat in recent weeks by the feedback from people normally critical of the United Kingdom—even of being part of the United Kingdom—about the way in which this country has responded, with the vaccine rollout in particular but also throughout this pandemic with the economic interventions.
The Chancellor is having to balance the need for immediate actions to counter imminent economic shocks against long-term economic recovery and mounting levels of eye-watering debt. So far, I believe that, generally speaking, the Government’s approach has been the correct one. Some of the measures, which normally no one would ever contemplate, have been necessary to avoid far worse problems. That is not to say that there are not issues that need to be addressed and addressed quickly, and I want to refer to a number of general points before making a specific reference to a particular, discrete issue affecting electricity generation in Northern Ireland.
The hospitality and tourism industries, which the Minister referred to in terms of the VAT relief, have been decimated by the pandemic and the lockdowns. I welcome what the Government have announced in relation to VAT for these sectors—the extension of rate cuts until September and tapering measures until March next year—but it is vital that these sectors are allowed to get back to full working capacity as quickly as possible. They can survive only by full reopening and full working, and I hope that that will happen as quickly as possible—if not on 21 June then as quickly as possible thereafter, conscious of the need to take all necessary health precautions.
I also want to mention the issue of air passenger duty. We have some of the highest rates anywhere in the world. Peripheral parts of the United Kingdom are very dependent on air connectivity. Rail options do not exist for places such as Northern Ireland to reach other places in the United Kingdom. I ask the Government to keep under review measures that will alleviate the burden on businesses and families of air passenger duty on internal United Kingdom flights.
It would be impossible to participate in a debate like this and not make reference to the burdens that are being placed on the Northern Ireland economy and Northern Ireland businesses, and our communities more generally, by the Northern Ireland protocol. I am disappointed that there is little, apart from provisions in relation to the steel industry, that will alleviate those burdens, particularly in relation to customs requirements.
However, I do look forward to the Government introducing two new measures—in the near future, I hope—that will address the underlying problems of the protocol and do away with the incredible situation whereby, if the grace periods that are currently in force are not extended or a permanent solution not found, as many if not more checks will be done on foodstuffs and other materials coming from Great Britain to Northern Ireland as are done on those entering the entirety of the European Union from the rest of the world. That is an amazing, incredible and scandalous situation which must be remedied by the Government. I hope that those measures will be comprehensive and far-reaching.
I want to turn to the aspect of the Bill I mentioned and explore it in more detail. I believe it is something that perhaps is an unintended consequence of what is otherwise a reasonable provision: it is do with the prohibition on power plants putting rebated fuel—red diesel—through electricity generators after 1 April 2022. I fully understand, and electricity generators also appreciate, the policy objective of helping meet climate change and air quality targets by removing the tax advantage of red diesel, thus encouraging end-users to use more expensive white diesel, which is taxed at a rate that reflects the impact of the emissions that they produce.
However, the Bill will have a particular, unique and unintended detrimental consequence for electricity generators in Northern Ireland. Kilroot and Ballylumford power stations in Northern Ireland have a historical licence obligation to maintain stocks of red diesel as part of the Northern Ireland Fuel Security Code obligations. The licensing obligation for Northern Ireland electricity generators requires back-up fuel—red diesel—to be held for security of power supply purposes in the event of gas supply interruption. The Bill requires the disposal of all existing red diesel stocks before 1 April 2022. There is in fact major uncertainty about whether that timetable could be met. There will be significant additional costs of doing this to both Ballylumford and Kilroot, estimated at £14 million for one and £1.6 million for the other. That includes all the logistical problems as well as the replacement of the fuel itself.
There is, however, a major competitive commercial disadvantage for Northern Ireland power generators vis-à-vis others within the competitive integrated single market and vis-à-vis the Great Britain market. There is no equivalent requirement to hold reserves of what the Irish equivalent of red diesel is in the Irish Republic, and the requirement to hold back-up fuel is applicable only to Northern Ireland power generators and does not apply to gas-fired power generators in Great Britain. One of the perverse impacts of the requirement of the provision in the legislation, if it is not remedied, is that it will lead to additional and higher CO2 emissions in Northern Ireland that would otherwise be avoided: having to use up the fuel in generating electricity will cause much greater emissions. It will be costly for the consumer; the extra cost is estimated at £60 million based on commodity prices, as of 1 May 2021. Then there is the risk of security of supply for Northern Ireland in the period between getting rid of one fuel and replacing it.
I welcome discussions which have taken place between power generators, Ministers and officials in Her Majesty’s Treasury. It is vital that the Bill’s unintended consequences are addressed. I understand that progress has been made, but I would like the Minister, in responding to the debate, to put on the record how he understands the way forward. Will he confirm that HM Treasury is looking at fixing this problem, that guidance will be issued relating to the Bill or that there will be secondary legislation to address the issue? Could he confirm that there will not be a requirement placed on Northern Ireland power generators to rid themselves of existing stocks of reserved fuels by the prescribed date, with all the detrimental impacts that I have outlined? I hope the Minister will be in a position to respond positively, because this would be good news for the plants themselves, for consumers and for the environment.
Lord Leigh of Hurley (Con)
My Lords, I join the congratulations to my noble friend Lord Bridges—under the excellent mentoring of my noble friend Lord Forsyth—and his committee on the report, which is most welcome. Of course, I first refer your Lordships to my register of interests.
This is an important debate, as the Finance Bill and the powers of HMRC affect us all. I am therefore somewhat surprised to see how few Peers have put their name down for this debate. While I am delighted to see so many here physically—I think all but one are speaking in the Chamber—I am perplexed by why so few are speaking on this matter today. Of course, we do not have the power to amend the Bill, but this sort of Second Reading is exactly the place where we can interrogate government and, I hope, come up with some ideas which would be of assistance based on our expertise and experience. It also does not help those who argue for a smaller House if we cannot attract a strong number for such an important debate, and it means that people with knowledge and awareness of finance, tax and business should be recruited into the House. The Government do listen to these debates and to Peers’ comments on taxation, as I will elaborate later.
I start my comments on the Bill by congratulating my noble friend the Minister and his colleagues on the 132 clauses originally tabled, as physically displayed by my noble friend Lord Forsyth. They address so much that affects our daily life, from the rates of tax payable to capital incentives—which I believe will encourage greater investment in industrial plants and machinery—some nudging behaviour away from plastic packaging, and even encouraging cycling to work, with cycle equipment being written off. There really is much in here to be commended. I thought I would focus most of my remarks on what is not in the Bill, sometimes with good reason, and some matters which might be considered for future Budgets.
The first, which is not in the Bill, is an increase in the capital gains tax rate. Before the Budget there was a somewhat rogue report from the aforementioned Office of Tax Simplification. It is normally a sensible office producing sensible ideas, but on this occasion it proposed that it would be simpler to equalise income tax and capital gains tax—a somewhat unsophisticated thought, as it does not allow for the essential difference between income or salary and capital gain, which is a return on risk taken. Fortunately, after somewhat of a campaign—in which I confess I played a part—the Chancellor agreed that CGT rates should stay as they are. This Finance Bill does not change them, which is an eminently sensible and pragmatic decision.
My first question to my noble friend is, given all this wasted noise, effort and focus against raising CGT and that the Chancellor has clearly researched the subject and reached a conclusion, can we avoid all this palaver at every future Budget of this Government by announcing that the rate will stay fixed, as has been done for other taxes in the Conservative Party manifesto? This will provide much greater certainty to entrepreneurs, investors and businesspeople for the next few years. The cynic might argue that the Chancellor likes the uncertainty as it encourages people to realise assets when they would not otherwise do so, and thus send money to the Exchequer ahead of the anticipated date. However, we all know on this side of the House that the Chancellor is not that type of politician and is instead focused on making life easier and more predictable for taxpayers. By the way, the retention of the current rates proves my earlier point that the Government listen to people in this House and elsewhere and consider their arguments carefully.
In the debate on the Motion to Take Note of the Budget Statement in this Chamber, I asked my noble friend the following:
“I would be grateful if the Minister could tell us to what extent this Budget complies with pillar 1, and in particular pillar 2. What steps will HM Treasury be taking to ensure that we fully comply with pillar 2?”—[Official Report, 12/3/21; col. 1919.]
There were many speakers on that occasion, so I assumed that I did not get an answer because of other priorities. It turns out that the reason I did not get an answer was because the Government were busy hatching a plan with world leaders to do just that. This is another matter not in the Finance Bill, but I hope the Minister will allow me to comment on the historic announcement as it will fundamentally affect corporate taxation and is thus very germane to this Bill.
The Red Book estimates that only £40 billion will come from corporation tax this year but that the new rates proposed in the Bill will increase that by £2.3 billion in 2022-23, £11.9 billion the following year and £16 billion the year after that—those are just the increases—so a lot is riding on corporation tax yield increasing as the rates move up. Accordingly, it is very important that corporations pay their fair share. I have tracked the OECD proposals on base erosion and profit shifting for some time. Indeed, it was the subject of my maiden speech in 2013. I hope the Minister will allow this as an acceptable forum to raise this related issue, not least as no other forum other than today’s PNQ has been offered to Peers to discuss the OECD announcements —although, of course, he may want to answer some of my questions in writing at a later date. The UK really needs a deal on pillar 1, as much as we are seeing progress on pillar 2. At the moment, the details are somewhat vague. It is all very well for profits which are diverted into tax havens to be transferred into the HQ country, but the minimum rate of tax—be it 15% or 21%—does not of itself affect the amount of tax the FAANG or others will pay in the UK.
DST—digital services tax, which I will come on to again in a minute—was put in place to ensure that profits generated from UK customers were taxed here. Clearly, future tax should be based on user bases rather than sales made—not just customers, but user bases. As we know, sales to UK customers are currently often based in places such as Ireland, but the goods are delivered here. DST seeks to achieve proper taxation on this, but we need to know how pillar 1 will do so likewise, as the expectation is that DST will be dropped at some point. Perhaps the Minister can assure us on that point.
Meanwhile, the pillar 2 proposals are encouraging, but I urge some caution. The IPPR issued a report estimating that with a global minimum rate of 21%, our take could be £14.7 billion. That would be nice, but at a global rate of 15% now being suggested, our share would be much lower. Let us not forget that we already have controlled foreign corporation legislation in place—I think it may have been introduced by my noble and learned friend Lord Clarke, but it may have been before his time—and that this legislation seeks to equalise UK-headquartered corporations’ tax take. I am indebted to Glyn Fullelove, formerly president of the Chartered Institute of Taxation, for sharing with me his calculations, which suggest that a figure nearer to £2 billion or £3 billion could be the amount raised by the pillar 1 and 2 proposals. Perhaps HM Treasury could share its estimates with us at some point.
We introduced the digital services tax so that companies such as Amazon would pay their fair share. Unfortunately, it is not working as well as it should. First, Amazon, which clearly has monopoly-type power, has simply told its suppliers to pay. Secondly, it applies only to marketplace fees, not to direct sales. This is a very important difference. It is another area I was disappointed not to see mentioned in the Finance Bill, as we now have the situation where DST has made it harder for SME retailers to compete with Amazon.
The current DST legislation is defective in not taxing the user-created value arising from sales made by marketplace providers on their own account. Additionally, the application of DST to marketplace fees and commissions charged to third parties, without a corresponding charge arising on the value created when the provider uses the platform to make sales on its own account, is a distortion to competition. I and a number of others have proposed that the scope of DST be extended, so that when a marketplace provider uses the marketplace for its own sales—or uses a similar platform alongside the marketplace—an amount of digital services revenue, which can be taxed, arises.
As the Minister might be aware, I have discussed these ideas with the Financial Secretary, who is resistant to changing DST at this point. As a result, there is nothing in the Bill on this issue. I hope, however, that the Government will reconsider this matter, as we are quite a way from a final deal on a pillar 1 and 2 agreement and, in the interim, we are losing a very large amount of revenue.
Finally, on the enterprise initiative scheme, or EIS, Brexit gives us a chance to look again at restrictions placed on HM Treasury to avoid accusations of state aid. EU laws restrict the ability of the SEIS and EIS to provide entrepreneurs’ start-up capital quite dramatically. Will my noble friend the Minister agree to revisit this area?
Lord Bilimoria (CB) [V]
Before our UK Budget of 3 March, in February, I attended a virtual meeting with the senior civil servant in India in charge of the budget there, along with the director-general of the Confederation of Indian Industry, the sister organisation of the CBI, of which I am president. They both said categorically that India’s budget did not increase any taxes for two reasons. First, businesses had suffered so much already and, secondly, they did not want to stifle the recovery after the pandemic. After that, I implored our Indian-origin Chancellor, Rishi Sunak, to follow India’s lead and not increase any taxes in our Budget on 3 March. He listened and, on the whole, taxes were not increased. However, he announced that corporation tax would increase from 19% to 25% in 2023. Our businesses drew a huge gasp of breath at taxes going up by almost one-third in one go. With Ireland next door to us with a rate of 12.5%, this was a concern. Of course, in November 2019, we had heard Boris Johnson, the Prime Minister, announce at the CBI annual conference that a reduction in corporation tax in the UK, to 17% from 19%, would no longer go ahead. Inward investment is really important, so this is a worry: will it affect inward investment?
Fortunately, the Government seem to have resisted the suggestion by the Office of Tax Simplification to equate capital gains tax with income taxes. To do this would be suicide. It would deter investment, entrepreneurship and risk-taking. We need to encourage wealth creation. The UK is the second or third-largest recipient of inward investment in the world. We have a Minister responsible for inward investment at the DIT—our colleague, the noble Lord, Lord Grimstone. We need to be a magnet for inward investment, as we have been. We have left the EU but, of course, as I always say, we will never leave Europe. When we were in the EU, we were seen as a gateway for investment into the EU. Today we should be seen as a gateway to Europe for investment. So we must resist equating CGT with income tax. That will deter inward investment and domestic investment, there would be capital flight, and it would deter entrepreneurship and risk-taking, as I said earlier. It would be hugely damaging to listen to the OTS regarding CGT. Does the Minister agree?
The Chancellor listened and has not done this so far. Entrepreneurs’ relief has been cut by the Government, which was not a good step if it was meant to encourage entrepreneurship. On the other hand, the super deduction was a masterstroke by the Chancellor and the Treasury: to encourage investment by giving relief of 130% instead of 18%, to have 25% off your tax bill, and to encourage investment—wow! The Government are doing the right thing, but they have announced that this will be taken away in two years’ time, just at the time when corporation tax will go up. Should not the Government consider continuing with the super deduction? Will the Minister give us his opinion?
At the CBI, of which I am president, we welcome measures such as the super deduction, supporting business investment, the extended loss reliefs and supporting business cash flow. We hope that the current cap on carried-forward losses can be temporarily lifted to allow the many viable and vibrant businesses in the UK even greater flexibility in how they use their exceptional Covid-related losses, along with other policy measures already in place. This will help to support businesses of all sizes to recover and grow after the pandemic.
The CBI is also calling for a tax road map. We were disappointed, as was the Treasury Committee, that the Government have not yet consulted on producing this. We believe that the relative success of, for example, the corporation tax road map, demonstrates the value to businesses and people alike of laying out the direction of travel of the tax system and how the Government will use taxes to achieve their manifesto policy goals.
On green taxes, there is very little in the Budget about net zero and tax. We would like to see much more leadership on this from the Government, particularly leading up to COP 26. The CBI has produced a paper on greening the tax system that aims to start a discussion between the Government and business about how tax can best support net zero. This is a once-in-a-generation platform to boost climate-progressive industries, associated skills and innovation, to show that the UK can lead the world in the technologies of the future and accelerate our response to climate change. Devising suitable regulatory frameworks will be key, given the pressures on public finances, but fiscal measures, including environmental taxes and tax incentives, will also be an important lever in driving change. Does the Minister agree?
The £400 billion invested by the Government in supporting our economy and our businesses has been phenomenal. Whether in absolute terms or in per capita terms, it is one of the highest sums in the world. I was privileged to chair the B7 last month, which fed into the G7 this week. Dr Gita Gopinath, chief economist of the IMF, spoke to us, saying that in the global economy there will be a two-track recovery. Some economies, such as ours, have been fantastic with their vaccination programmes. Full credit goes to Nadhim Zahawi, our Vaccinations Minister, who has achieved a vaccination rate of 75%, with double doses at 50%. This is tremendous. Likewise, America is doing very well. With our huge £400 billion of support, we will be able to bounce back very quickly. Andy Haldane, chief economist of the Bank of England, has likened our economy to a coiled spring. On the other hand, sadly, many economies in the world have hardly vaccinated their citizens and have hardly been able to provide any support to them.
How will we pay for this £400 billion? How will we pay for the nearly 10% drop in our GDP, the worst performance in 300 years? I get asked this question a lot, and I believe that the way we pay for it is by generating growth and with the support the Government have given—for example, the furlough scheme, which has saved millions of jobs and businesses, and the 100% guaranteed loans. The British Business Bank, which had a loan book of £8 billion in February last year, today has a loan book of £80 billion. Hats off to it for giving these loans, which have saved so many businesses.
What about unemployment? In February last year, it was at 3.5%, one of its lowest levels; it is now at 4.8% because of all the measures that have been taken. We have to prevent unemployment, and youth unemployment in particular. Young people have suffered so much during this crisis. Some 50% of jobs lost, sadly, were among young people. If this coiled spring is to work, the supply side measures which encourage economic growth must be there. It means creating jobs. This will be the best way to pay for the £400 billion. It means not increasing taxes. We need to encourage inward investment as well as domestic investment. We need to create growth. This will create jobs which, in turn, will create the PAYE and the NI that make up the biggest proportion of taxes. The people who get those jobs will spend and that will generate VAT—which will be far more than the relatively small proportion generated by corporation tax. I give full credit to the Chancellor for leading the agreement by the G7 for the 15% minimum global tax rate. We have always said that, if there is to be a minimum tax rate, it must be agreed globally. Let us see what happens at the G20. However, we still need to encourage businesses to locate in the UK. We need to get the Amazons and the Googles to come here to create the thousands of jobs that will create the taxes.
At the CBI, we have a new director-general, Tony Danker. Six months into his role, we published Seize the Moment, our economic strategy for the United Kingdom during the next decade to 2030. It contains six pillars: a decarbonised and an innovative economy; science and technology; research, development and innovation; universities and businesses working together, and a globalised economy with the UK as a trading powerhouse. It encourages levelling up around the country in clusters such as between Cambridge University and AstraZeneca. We have also launched An Inclusive Economy to change the race ratio and promote ethnic minority diversity and inclusion across all businesses. McKinsey has shown that companies which embrace diversity and inclusion are more profitable; Deloitte has shown that they are more innovative.
Finally, we are promoting a healthier nation, including mental health and well-being, within an action plan that includes a long-term tax road map for the United Kingdom. To enable all this and for Andy Haldane’s coiled spring to happen, we need the supply side to be there. The United Kingdom needs a competitive tax system that will encourage investment and job creation—one which is globally competitive and super-effective.
Lord Sikka (Lab)
My Lords, I draw attention to my entry in the register of interests. I am an unpaid adviser to Tax Justice Network. Tax justice is the theme of my remarks today.
A key requirement for building a just and sustainable society is for people to have good purchasing power with which to buy goods and services and to stimulate the economy. This simple truth is neglected not just in this Finance Bill but in many previous Bills. The Bill depresses people’s purchasing power. The current tax-free personal allowance of £12,570 has been frozen until 2026, as have income tax thresholds. The net effect is that one in 10 adults will pay a higher rate of income tax, with the poorest ending up paying a higher proportion of their income in tax. This measure alone removes some £19 billion of spending power from households. It will condemn many to a great deal of insecurity and difficulty.
Regressive taxation has been normalised in each year’s Finance Bill. The TaxPayers’ Alliance estimates that the poorest 10% of UK households now pay 47.6% of their income in direct and indirect taxes. This compares with 33.5% by the richest 10% of households. Because of wage and benefit freezes, zero hours contracts and job insecurity, this gap is now much bigger than in 2010. The Government need to examine why their policies continue to hurt the poorest in our society. They increased VAT to 20%; this is a regressive tax which hits the poorest hardest. There is no proposal for reform in the Finance Bill.
Council tax is regressive. This year, it has increased in the range 3% to 5%. Virtually the same council tax is paid on a property worth £3 million as on one worth £350,000, without any regard for any ability to pay. The poorest tenth of our population pays 80% of their income in council tax, while the next 50% pay 4% to 5% and the richest 40% only pay 2% to 3%.
There is no reform of national insurance contributions —another regressive tax. Employees generally pay 12% of their monthly incomes between £797 and £4,189 in contributions. Above that, the rate is an additional 2%. Inevitably, the rich pay a lower proportion of their total income in national insurance, compared to the poor.
Unlike the noble Lords, Lord Leigh of Hurley and Lord Bilimoria, I cannot support the capital gains tax regime. Why on earth do the rich need a special tax regime? Capital gains are taxed at marginal rates of between 10% and 28%, whereas earned income is taxed at marginal rates of between 20% and 45%. Both increase somebody’s welfare and purchasing power. I can see no rationale whatever for taxing capital gains at a lower rate than earned income.
The Government’s policies on capital gains are also a bonanza for the tax avoidance industry. Armies of accountants and lawyers are busy converting income to capital gains so that their clients end up paying lower taxes. By taxing capital gains in the same way as earned income, the Government could raise around £14 billion a year. This could help the less well off by making the £20 a week universal credit permanent; the Government could also easily double it by this one simple reform.
There is tax relief of around £40 billion a year on contributions to pension schemes. Just 10% of high earners receive 50% of tax relief. There are 1.3 million individuals who pay into pension schemes but receive no tax relief and zero government support. This is because their income is less than the tax-free personal allowance. Again, the poor are being punished, for putting a little away for their retirement income.
I hope the Minister will explain why the Government insist on hurting the poorest with regressive tax policies. Just in case he is tempted to defend government policies by claiming that, in recent years, they have increased tax-free personal allowances, I remind the House that this has not changed the burden of tax on the poorest. Increasing the personal allowance has done nothing for 18.4 million individuals whose annual income is less than the personal allowance. We need a rethink if we want a just society.
The report, New Powers for HMRC: Fair and Proportionate? is very impressive, but I cannot help wondering whether the committee has not been hoodwinked by the Government and the tax avoidance industry. On page 3, the report states:
“On the proposals for tackling promoters of mass-marketed tax avoidance schemes, we welcome the Government’s intention to take further tough action against the known ‘hard core’ of promoters, but urge it to redouble its efforts in this respect, and to take further measures to combat the continued proliferation of new schemes.”
Where exactly is the evidence for tough action? There is an enormous difference between the law on the books and the law in practice. The Government have been soft on the tax avoidance industry. Big accounting firms have long raided the public purse through complex tax avoidance schemes. Occasionally HMRC goes to court, but the Government do not take any action against the firms.
Let me give some examples. The UK Supreme Court heard the case of HMRC v Pendragon plc and others. The case related to a VAT avoidance scheme marketed by KPMG, which would have enabled car retailing companies to recover VAT input tax paid while avoiding the payment of output tax. The court declared the scheme to be unlawful and the judge said:
“In my opinion the KPMG scheme was an abuse of law.”
That is a very strong conclusion. To this day, no action has been taken by any regulator or accountancy trade association against KPMG.
The court judgment in Development Securities plc and others v HMRC threw out a complex PwC scheme designed to shift apparent management control of some UK entities to Jersey to gain tax advantages by claiming that the entities were not liable to the UK taxes. The scheme was declared to be unlawful by the courts, but no action was taken against PwC.
An Ernst & Young scheme involved loans between companies in the same group, and the ultimate aim was to enable a company making the interest payment to claim tax relief on the expense while enabling the company receiving the interest to avoid tax. That scheme was sold to Greene King. After a prolonged legal battle, the scheme was declared to be unlawful. No action was taken against Ernst & Young.
Deloitte promoted a scheme to enable companies to generate deductible tax losses through complex financial transactions. The scheme was sold to Ladbrokes, but it gambled incorrectly and the court said that the scheme was unlawful. No action of any kind whatever was taken against Deloitte.
Big accounting firms have been peddling unlawful tax avoidance schemes and are not investigated, fined or disciplined but are given government contracts and seats on HMRC’s boards. The advisory panel on the general anti-abuse rule, GARR, is also dominated by the same people. Amazingly, none of the GARR panel’s rulings relate to any of its clients.
In sum, I question the claim that tough action against accounting firms for selling tax avoidance schemes has been taken. I invite the Minister to explain why big accounting firms peddling unlawful tax avoidance schemes have not so far been investigated, fined disciplined or prosecuted.
Lord Empey (UUP)
My Lords, my noble friend Lord Forsyth referred to simplification. A 417-page Bill and 349 pages of Explanatory Notes to explain it—I know that most noble Lords will have read both from cover to cover—illustrates that we are not moving in the direction of simplification.
We now have a situation in this country where, because of our devolved settlements, significant economic barriers are being exercised in the devolved areas—particularly in Scotland, where taxation powers are broader than in the other devolved Administrations. But there is one thing that we are not doing: we are not explaining to the people in those regions where the money that the devolved Administrations spend comes from.
I have said before in this House that the devolved Administrations are a bit like giant ATM machines; when the cash stops coming out of the machine, those in the devolved areas simply say, “Well, Westminster didn’t give us enough”. We do not explain the arithmetic to the people in the devolved regions. That would not be a difficult exercise; all it would require would be for the Treasury, perhaps on an annual basis, to produce a short leaflet, or put it online, to show people where the money actually comes from. Local authorities often send out leaflets telling people how their taxes are spent but that does not happen nationally. There is a total absence of accountability to this Parliament for the funds given to the devolved Administrations. Vast sums of money are given over but there is absolutely no feedback or requirement to account for it. That is a perverse principle.
We talk about the pandemic and the rollout of the vaccines bringing our nation together, which I support and which is an excellent selling point. But when the biggest single element that affects the devolved Administrations is the money that they receive from the Treasury through block grants and Barnett consequentials, why do we not tell citizens in the devolved areas what the arithmetic is? It would not be a huge undertaking and it could be done on an annual basis. I suggest to my noble friend the Minister that the Chancellor might look at this. It is a simple exercise, but it would put in context what is actually going on in this country.
I want to refer to a matter that the noble Lord, Lord Dodds, raised on Clause 102, which deals with restrictions on the use of rebated diesel and biofuels. I mentioned the Explanatory Notes, at least some of which I have looked at. The background note at paragraph 33 states:
“This measure introduces changes that will remove the entitlement to use red diesel and rebated biodiesel from most sectors from April 2022 as part of the government’s strategy to meet the UK’s target of net zero carbon emissions by 2050.”
That is a laudable aim but, as the noble Lord, Lord Dodds, mentioned, there is a perverse effect relating to our power suppliers in Northern Ireland. They are legally and contractually required to have distillate back-up in the event of a crash of the gas supply, because there is a single source of supply, called SNIP, which comes from Scotland to Larne, in County Antrim. If anything were to go wrong with that pipeline—which, thankfully, has not happened in all the years it has been operating—it is perfectly legitimate to require the people who generate our electricity to have that back-up. It is the only power supplier in these islands that has that legal requirement placed on it.
Distillate means red diesel, so the effect of the measure in the Bill would be that 12,000 tonnes of red diesel which does not need to be burned would have to be burned by April 2022 and replaced with another 12,000 tonnes of white diesel, simply because one has dye in it and the other has not. There is no technical difference between the two fuels—they are just the same, but one has red dye in it and one does not. The systems would have to be purged and because the number of tankers allowed to bring fuel in per day is limited to eight for environmental reasons, it would take between three and four months to purge and then replace. I am no climate expert, but we will produce an additional 23,000 tonnes of carbon that could be left sitting there because that fuel supply is only for an emergency and, fortunately, has not had to be used.
I appeal to the Minister to take this matter back to his colleagues. I have no doubt that the legal obligation for our power suppliers to have this back-up is one of those things that people had not realised—both the noble Lord, Lord Dodds, and I were Energy Ministers in Northern Ireland, and I do not know whether I enforced it or if it is his fault—but it was the right thing to do. It might even have been the Deputy Speaker’s fault, because he was there before I was.
So I think it is just one of those things that had not been picked up, but its effects would be negative and perverse. It would mean extra costs for the consumer and have significant implications for our power suppliers because we are in an all-island market now; there is no similar requirement for power suppliers in the Republic of Ireland to have such a back-up, so they will automatically be more competitive when they are bidding to generate electricity to go into the grid. I appeal to the Minister to be kind enough to take this matter back to his colleagues and explain the difficulties. I am sure they can be dealt with and overcome.
I support the general principle, although there is no question that red diesel is abused. I also make the point that paramilitaries have been smuggling such products for 20 years—reasonably successfully so far, from their point of view—so to penalise the electricity consumer through no fault of their own would be perverse in the extreme.
By the way, it would be interesting to know—the Minister may not know this or he may not have the information at his disposal today, but he can let me know—if in fact he received any representations from the relevant department in the Northern Ireland Executive and, if so, when.
On a broader, general point, very few people in any of our lifetimes have seen anything like the last 18 months. There is no doubt that the Chancellor has been very vigorous in his attempts to ensure that our industries do not collapse, but I have to say to him that one industry that is in severe trouble, as the Minister will know, is the aviation and aerospace sector. I am a member of the APPG on Aerospace, and we had a well-attended meeting with the Minister, Robert Courts, just before I came into the Chamber. The sector is in despair because of the chopping and changing.
Aerospace is one of the key providers of high-quality jobs in the UK—over 100,000 of them, highly skilled and highly paid. It also provides apprenticeships, which are vital for the future. The uncertainties and the on/off process that is unfolding before us make it very difficult. Orders for aircraft have, naturally, gone down dramatically. We need more investment in reducing fuels, developing alternative means of propulsion and so on, but at present that whole supply chain is in dire straits. It is propped up by the furlough scheme, but that will not last for ever.
I appeal to the Government to get their house in order with regard to the aviation sector, and that means deciding when people can move around. I know these issues are difficult, but I have to say that a lot of the very good work that has been done is at serious risk of leading to high job losses. It is an area where this country in particular already has great leadership potential. In aerospace we are number two in the world, and there are not too many sectors of our economy about which we can say that. I appeal to the Minister to ensure that we protect this sector, which is so vital to the UK’s economy.
The Deputy Speaker (Baroness Pitkeathley) (Lab)
The noble Lord, Lord Moylan, has withdrawn, so I call the noble Baroness, Lady Neville-Rolfe.
Baroness Neville-Rolfe (Con)
My Lords, it is always a pleasure to follow the perceptive remarks of the noble Lord, Lord Empey. I thank my noble friend Lord Agnew for his crisp summary of the financial situation and of the Finance Bill. I have also benefited from reading the explanation given at Second Reading by the Financial Secretary, Mr Jesse Norman, who has already been mentioned by the noble Lord, Lord Butler.
So we are well informed, but, unfortunately, the picture painted is a grim one. Pleased though we all are by our success on vaccination, I do not believe that the country has yet taken on board the full gravity of the financial situation that we face. The level of the national debt and the deficits that we continue to add to it are of a staggering dimension. It will be the work of many years to right the ship.
In case there are some who might want to claim that reducing the debt from its present size is unnecessary or can be put off to the Greek calends, I point out that the only reason why our financial response to Covid—with vast government grants and loans, furlough and all the rest of it—was feasible was because we had reduced debt as a proportion of GDP greatly since World War Two. The markets would not have accepted the levels of unfinanced expenditure that we have adopted in the last 15 months or so to deal with Covid if we had started with our present level of national debt. Everything that I say today is subject to the overriding necessity of improving the national finances. I am not sure that we, or indeed most other countries, are focusing enough on this issue.
That said, I thank the Treasury, where I served as a Minister, for the speed and creativity with which it provided support for the Covid crisis. I particularly commend the furlough scheme, although I think the rate was set too high, which will cause difficulties as it is phased out. However, the idea of using the PAYE system backwards is an excellent example of simplicity, a theme that I want to emphasise today. The aid to business, especially the simple suspension of VAT and the rates, has also shown bravery and flexibility. I hope that such imagination will now be applied to the long overdue review of rates.
The Treasury and HMRC have done well during Covid as they have been allowed to take risks and innovate. That reminds me of the wartime example of rationing. I know about this from my mother, who served on the Board of Trade in the rationing team in World War Two. In the dark days of 1941, with shipping disrupted, they were asked to extend rationing to textiles. Luckily, my mother’s boss was a clever academic from Cambridge. His idea was not to start again but to make the back pages of the food ration book into clothing coupons. Rationing came in overnight. This was an example of speed and simplicity similar to the furlough scheme.
I am extremely grateful to my noble friend Lord Bridges of Headley and his committee for a clear and compelling report on the Finance Bill, and for his new point about powers in relation to digital platforms, which might impose new burdens or costs on millions of businesses without proper scrutiny. I think that is in paragraph 125 in our fat book of Explanatory Notes.
I particularly agree with the concern that the committee expressed about the new tax checks linked to licence renewal applications for taxi drivers. This could even have the perverse effect of reducing compliance by taxi drivers nervous of the taxman. Like my noble friend, I also dislike the proposed removal of the important taxpayer safeguards in pursuing information requests. I believe the Government should think again on both points.
Ministers and civil servants do not understand how frightened people and businesses are of HMRC, how its powers to fine summarily are resented and how the complex web it spins confuses people. The lack of simple advice at the end of a phone is a real problem to the honest citizen and to the smaller enterprises that are the lifeblood of our economy. We are constantly told that stakeholders are involved in compiling the rules. Over the years, I have found this assurance less and less comforting, as most of the bodies being consulted are too similar in their thinking to that of the Treasury and HMRC.
Moreover, I was concerned to see the briefing from the Chartered Institute of Taxation, which suggested problems with the penalty provisions—see the notes on Clauses 112 and 113. These include a risk of disproportionately high penalties—so more reasons for people to be fearful. My noble friend Lord Forsyth of Drumlean is right to argue for a look at the Bill and, perhaps more importantly, the whole tax code in the spirit of simplification and, I suggest, with an eye to encouraging enterprise and SMEs.
There is a wider point that is relevant here. A book that I have been reading from our wonderful Lords Library, by Eric L Jones, suggests that the rate of economic growth back to the Middle Ages reflects, in part, the removal of institutional and environmental barriers. Examples would be the ending of tithes and the lifting of rationing. The very process of opening up fuels growth and productivity, which generates a greater tax base in turn. So I say no to licences, where they can be avoided, and to new cross-compliance, as proposed in this Bill. I add a no to the continuation of needless or new EU-based rules. On the same principles, I say yes to free ports, to the two-year super-deduction for plant and machinery investment proposed in the Bill and to the right kind of planning reform.
Probably the biggest example of new burdens on business in the Bill is the new tax on plastic packaging. I am as keen on reducing plastic packaging as anyone in this House, as my contributions in many debates have shown. However, I wonder whether all this is worth the candle, given the detail and scale of intervention involved. I doubt whether it is the best way to reduce use and encourage recycling. I recommend massive simplification. Plastics are oil-based and there may instead be a case for a simple duty like that on petrol or alcohol, albeit at a much lower level.
As my final contribution to this debate, I will mention skills, especially technical and vocational skills, which are essential for improved productivity and levelling up. We are at last making some progress in technical education, and youngsters can see that practical skills are vital and that university is not always a wise aspiration. However, from day one, the apprenticeship levy scheme has been complex and unimaginative. I know from direct experience that some businesses and organisations are not even spending their levy pot, because of these complexities.
I am glad to see the attention that the Chancellor gives to vocational skills, with well-publicised visits to talk to apprentices and online seminars. Could my noble friend, who I know is expert and sympathetic to this issue of skills, explain how the Government will improve outcomes in this vital area?
Baroness Bennett of Manor Castle (GP)
My Lords, I rise with the unusual luxury of 10 minutes’ speaking time, given because we have only a dozen Back-Bench speeches on this crucial taxation issue. I hope that some Peers in your Lordships’ House who specialise on issues of poverty and inequality—indeed, on any issues at all—will join these debates in future. Taxation, or the lack of it, shapes our societies. As the richly informative and powerful speech of the noble Lord, Lord Sikka, outlined, decades of decisions about taxation have helped to give us our deeply unequal, poverty-stricken society. We have been taxing the poor and allowing large companies and rich individuals to get away without paying.
The noble Lord, Lord Leigh, suggested that your Lordships’ House may need more experts in tax, finance and business, but this is a far broader issue that needs a far broader input. I quote the American historian Albert Bushnell Hart:
“Taxation is the price which civilized communities pay for the opportunity of remaining civilized.”
It is clear now, on the streets of London, that there are strong and rich debates about how the people who benefit from the investments of this and previous generations—in roads, public buildings, electricity supplies, and the services that we all pay for such as schools, hospitals and policing—make a fair contribution to the maintenance and restoration of our degraded physical and social infrastructure, and the impacts of austerity that we see in potholed roads, closed libraries and inadequate social care provision. These are not technical issues, but are at the very foundation of our society.
Noble Lords might worry about where they get sources of information. I thank Tax Justice UK for an excellent briefing and for drawing attention to the work of the Women’s Budget Group, which has identified how women, people on low incomes and BAME communities will benefit least from the tax breaks in the Bill and bear the chief brunt of the scheduled spending cuts.
It is interesting that, in the debates so far, the failures of regulation and of culture in our financial sector have come up again and again. Noble Lords who took part on the then Financial Services Bill might reflect on this. The noble Lord, Lord Bridges of Headley, talked about umbrella companies, which is an area where the UK is world-leading in entirely the wrong direction. The noble Lord, Lord Butler of Brockwell, talked about the “many-headed Hydra” of tax-dodging schemes, as did the noble Lord, Lord Sikka, in great detail. The fact is that we have too large a financial sector, which is milking not just the UK but the entire world and particularly the global south. The centre of global corruption is on our doorstep.
It has been suggested that we all live in social media bubbles these days, but in your Lordships’ House I feel like I am in the vigorous Atlantic surf of strong disagreement on economic issues. I particularly disagree with the noble Lord, Lord Forsyth, and the noble Baroness, Lady Neville-Rolfe, about their entire economic commentary. The ways and means mechanism and its implementation have existed for many years and show how the rules of the game have changed and that the old economic approaches failed disastrously and gave us the global financial crash. We are finally looking differently at how the economy works and what it is for. The noble Lord, Lord Forsyth, and many others said that we need to get the economy going again and focusing on growth. I remind your Lordships’ House, in the country that is the chair of COP 26, that we cannot have infinite growth on a finite planet. That is not politics; it is physics.
The noble Baroness, Lady Neville-Rolfe, recommended some reading to us. I have some alternative reading to suggest, a book I reviewed this week in the House magazine by Professor Tim Jackson. He is quite a mainstream economist and his book Post Growth is well worth a read. I also pick up on the points of the noble Lord, Lord Bilimoria, which focused on the importance, as he sees it, of giant multinational companies. I stress that 61% of employment in the UK is in small and medium enterprises. The Government talk of levelling up, but I would rather talk about spreading out prosperity. The foundation of prosperity for every community in this land needs to be built on strong local economies of small independent enterprises and co-operatives—a different and stable kind of economic model.
Having set the scene, I turn to some details in the Bill. I take the point made by several noble Lords about the thickness of the paperwork but, when you look at the measures, you see that it is actually a modest Bill. It talks about tidying up some Northern Ireland and VAT Brexit issues—another reminder that Brexit is by no means done. There are some modest measures that noble Lords have referred to about plastics, red diesel and cycling—very modest again for the chair of COP 26, when you think about the need to act on the climate emergency. We also have an increase in stamp duty land tax for overseas purchases of residential property in England and Northern Ireland which, should your Lordships take an imaginary scan of the boroughs around where we sit today, might be best described as shutting the stable door after the horse has bolted.
The headline measure is a super deduction for the largest companies, many of which have done very well out of the great tragedy and suffering of the global pandemic. This is estimated to be going to cost the Treasury £25 billion. That would be a lot of social care or a large injection that our education sector so desperately needs. The Office for Budget Responsibility said that £5 billion of the spending that would be covered by this will be spent on previously planned investments. The Times reported that tax advisers specialising in capital allowances have pointed out that jacuzzies are listed as one investment that could receive a 130% rebate.
Perhaps we also need to think about what is not in this Bill. It is interesting that, despite widespread debate in society now, both in the Bill and in the debate around it in the other place, no amendment was put down about a wealth tax. There was no real discussion of it in the other place despite that now being a major topic of discussion among even some quite mainstream economists and certainly among the public.
Of course, there is a lot of discussion about the levels of corporate taxation, led not by the UK but by Joe Biden’s America. When I asked the Minister on 14 April about the US President’s plans, he effectively gave me a “no comment” response when I asked what the UK stance would be. I am pleased to see that we have now signed up to the US initiative. The noble Lord in his answer to my supplementary question then said something very interesting. He said the Government had always been one that wanted to reduce taxation wherever possible. Perhaps he might like to consider the words of the Chancellor in deciding to end the race to the bottom in corporation tax by increasing the headline rate to 25% in 2023 after Her Majesty’s Treasury found that the cut in the headline rate since 2010 did not drive inward investment. To quote the Chancellor, it
“might not be the most effective way to drive capital investment up”.
I also refer to the comments from the noble Lord, Lord Bilimoria, about those statistics. He referred to inward investment. I would say that that inward investment very often has been the selling off of the family silver, whether that is our water companies, publicly held land or, indeed, the family beds when it comes to selling off our care homes to the hedge fund industry.
If we did have, let us say, a wealth tax, where might it go? Despite the Government’s talk of an end to austerity, a £15 billion cut in annual government departmental spending is planned. These budgets are already cut to the bone and, of course, are being hit by the huge and continuing impacts of the pandemic.
There is some very useful information about who is paying and who is not. I have referred noble Lords to a report from the CAGE institute at the University of Warwick. In 2015-16, a quarter of people who had more than £1 million in taxable income paid less than 30% tax, while one in 10 paid just 11%—the same as a person earning £15,000 a year. This is a key issue.
I come back to the inequality and the poverty in our society, issues so well covered by the noble Lord, Lord Sikka. We are talking about capital gains tax and inequality in the way income is taxed. These issues are all missing from this Bill. They will need to be confronted soon.
The Deputy Speaker (Baroness Pitkeathley) (Lab)
My Lords, the noble Baroness, Lady Wheatcroft, and the noble Viscount, Lord Trenchard, have withdrawn, so I call the noble Baroness, Lady Kramer.
Baroness Kramer (LD)
My Lords, I pick up the point made earlier by the noble Lord, Lord Leigh, that there has been a relatively small number of speakers in this debate but my goodness they have been powerful speeches, and across a very wide range of issues. I hope the Government will take notice of the quality of this debate and the range of points made.
I start with a couple of general comments. I want to pick up the point made just now by the noble Baroness, Lady Bennett, that this Finance Bill is a very modest Bill. I think that we all know that, but it leads into the issue raised by the noble Lord, Lord Forsyth, the noble Baroness, Lady Neville-Rolfe, and others that we are in a very precarious economic period. I suspect that perhaps the noble Lord, Lord Forsyth, or the noble Baroness, Lady Neville-Rolfe, in fact many people, including the noble Baroness, Lady Bennett, would not agree on the same solutions to the problem, but we can at least agree that there really is a problem and bottom out the extent of it and look for the Government to come forward with a strategy. Can I impress upon the Minister the importance of a government strategy that is realistic and faces up to the grim realities—to use the phrase from the noble Baroness, Lady Neville-Rolfe? We have to have that to be able to go forward effectively and successfully. I do not think that we should pretend that that role is picked up in this Bill. Please can the Minister make sure that it is picked up—and soon, quite frankly?
I want also to pick up the issue raised by the noble Lord, Lord Butler, on the G7 and the global tax and to echo something that the noble Lord, Lord Forsyth, said. I am glad to see that the G7 is coming together to tackle this issue. To me, it is a real illustration of the might of the United States and the flexing of its muscles. Almost every country will take some benefit from the changes in the way that a global corporate tax will be raised as a consequence but, in fact, it will be quite modest for most countries. The United States Treasury is the very big winner, and it is a reminder that when you delve into the world of economics and power politics you have to recognise size and power. I continue to be worried that for the UK this means being essentially a stone that is grated between big regional economies and power bases. If ever it needed to be illustrated, I think it has been the quick acceptance of the US proposals by the British Government because, frankly, they absolutely had no choice.
We have discussed a lot of the Bill in various Budget speeches so I am not going to labour those points, but I have some real pleas to put before the Minister. I am very concerned that the VAT relief rate should not rise to 12.5% in September. When we look at the hospitality industry and the pressures that it is facing, we now recognise that there may even be delays to full opening on 21 June. We know that new variants can come through. Keeping this at 5% to the end of the fiscal year surely would be sensible and would reassure the industry at this moment in time.
The noble Lord, Lord Forsyth, raised the issue of individuals facing rent arrears, which will now come tumbling in on them. So many of our small business, again probably especially in the hospitality industry, are facing in excess of £3 billion in unsettled rent levies. I think the Government are going to have to step in on this and I hope they will look at providing some support specifically on rent issues. Small businesses and self-employed people are very far from being out of the woods. Again, that argues for flexibility on the furlough scheme. The noble Lord, Lord Empey, talked about it in the context of aerospace but, really, so many industries are going to need some ongoing support, or they will end up in a dire crisis. Looking at continuing furlough into the future, for at least some period, may be essential.
According to the Federation of Small Businesses, about 40% of small businesses are finding their debt levels completely unmanageable. We do not have a mechanism at the moment to convert that into a capital base. We need to be able to enable them and support them in converting debt. I think the noble Lord, Lord Bilimoria, has talked in previous speeches about a sort of variation on 3i, but there has to be some mechanism or else many of our small businesses are never going to be in a position to begin to grow; they will be overwhelmed by a debt burden that continues to drain them for a series of years to come.
I make one final plea again on behalf of the 3 million excluded, mainly contractors and freelancers. The Government could, at this very last minute, step in to support that group, and I ask them once again to do so. The noble Lords, Lord Bridges and Lord Forsyth, talked about wrapping this in with following through on the recommendations of the Taylor report. The environment for those businesses—and they are our future—has to be shaped by recognising the risks they face, looking at the rights and the benefits that they do without, and helping to structure the tax environment that they sit in within that overall context. The Taylor report should not be left on the shelf any longer.
I agree with the noble Lord, Lord Sikka, that we have a problem with freezes on income tax thresholds. It really is a mechanism to raise income tax, which is slightly ironic when the Government have basically decided not to raise capital gains tax. Some of the poorest people will now be stepping in to fill that gap. It is also ironic given that the increases in corporation tax are delayed to 2023, so income tax rises will, in effect, hit first.
While I tend not to spend a lot of my time thinking about the best paid, can I get some assurance from the Minister on the freezing of the pensions lifetime allowance? Last time, this created a real crisis for us in the NHS, with consultants realising that one hour of additional work meant that they would get a tax bill that was larger than the associated income. In fact, they could not even ask not to be paid and do the work voluntarily because of the way the system works. A large number of our senior military just got up and left because they were caught in the same conundrum—people who did additional hours on the battlefield were whacked then by the tax system. Can the Minister give me assurances that the way this is designed now will not repeat that particular set of problems? Again, with the super-deduction, I have never understood why it is analogue and not digital. Surely we want people to be investing in the technologies of the future and not just in plant and machinery. That one is completely beyond me.
I was privileged to be a member of the Finance Bill Sub-Committee, chaired brilliantly by the noble Lord, Lord Bridges, and with the noble Lord, Lord Forsyth, also there. I am quite humble when I speak about this report, because it was driven by people of extraordinary capability—it was a very powerful sub-committee. I just want to make some quick remarks, and I will try not to be repetitive, on the three key sections that the report addressed.
I am very worried that powers are being extended before a proper evaluation of how HMRC uses its existing powers. The noble Lord, Lord Bridges, made most of the comments that are relevant in this area, but it struck me—and I am making a personal comment here—that when we heard the Treasury, whether it was officials or the Minister, talk about the review of powers, it seemed more about identifying where powers could be increased and not about looking at how existing powers could be used far more effectively. We seem to have complete miscommunication around that issue.
As I remember it, that recommendation was embedded in real concerns about the loan charge and IR35—others have mentioned this—particularly because of the focus on the little people who got caught up in all kinds of schemes that they were completely unaware of and suffered very significantly as a consequence. Like others, I am delighted if HMRC is now determined to use powers, and extended powers are fine, to deal with promoters. But I am very frustrated that the retro-effective philosophy which is being used against individuals caught up in the loan charge, going back as far as 2010, is not being applied to the promoters who have accumulated huge profits in giving advice which, frankly, was from day one exceedingly questionable.
I join others in being worried about HMRC’s increasing instinct to outsource its compliance responsibilities. We are not talking about IR35 today, but the extension of the use of private companies to make the call on whether contractors they hire are caught by IR35 or not struck me as an overreach. We know that those companies, anxious not to have a fight with the tax authorities, are using quasi blanket determinations. Although an individual company can challenge a determination, it knows that at that point it gets labelled as a troublemaker and probably blacklisted for any future business. These are real problems we have with outsourcing, and they carry on into the issue of licensing taxi drivers and scrap metal dealers. At the moment, it is just an information exchange, but we can all be concerned that it is potentially the thin end of the wedge.
I join the noble Baroness, Lady Neville-Rolfe, in being very afraid—I think the noble Lord, Lord Forsyth, said the same thing—that individuals will simply disappear from the system altogether. That could mean unsafe vehicles on the road because we have lost people from the licensing system, or real abuse of scrap metal arrangements, which can descend into the criminal underworld. I do not want to put a bad label on scrap metal merchants, who are decent, honourable people, but we can see where the pressures will come. I am desperately concerned about the issue raised by the noble Lord, Lord Bridges, on the use of digital platforms as essentially HMRC’s information-gathering mechanism, because it takes us even further into that area, which is one we absolutely must examine.
I shall make just one last remark—I realise the time is going fast and I should stop, but this is something we should draw to the attention of the House. The third area of concern that the report raises is the oversight and scrutiny of HMRC and the powers to circumvent the safeguards of the tax tribunal. The noble Lord, Lord Bridges, discussed that in some detail. The House may not recognise how necessary it is always to have such outside scrutiny.
Many of us received a copy of an email that the Loan Charge Action Group accessed through a freedom of information request. It dates to 31 January 2019, and is from Jim Harra, who is chief executive of HMRC, to a staff member. It follows a witness evidence session to a Treasury Select Committee, and refers to those to the House of Lords. It is about the loan charge. One must understand that the treatment of loan contractors depends entirely on a case brought before the tax tribunal called the Rangers case, which concerns Rangers Football Club. A decision came in 2017 which, I think, everybody who read it thought would be the weapon to use to go after companies that hire contractors and use disguised remuneration, but nobody was under the impression this could be used as the legal basis to go after individual contractors. The chief executive of HMRC wrote:
“In recent months I have repeatedly tried to obtain legal analysis to understand the strength of our claim”—
that is, the claim that there is a legal basis for going after individual contractors—“with very little success.”
I challenge anyone to show me where, in any of its evidence given to the Treasury Select Committee or the Finance Bill Sub-Committee, HMRC reflected that level of uncertainty. It demonstrates that the temptation to be parsimonious with the truth, to press on to achieve the target of maximum revenue-gathering, means that HMRC, like every other organisation, needs outside scrutiny. The importance of tax tribunals is paramount, and we must stop the constant whittling away of that power.
Lord Tunnicliffe (Lab)
It is nice to rise to a few cheers. I am almost the penultimate speaker and there must be a sense of relief.
Let me begin by thanking the sub-committee of the Economic Affairs Committee on its report on new powers for HMRC. I must say that there was little surprise when the committee identified a number of shortcomings in how the Government had gone about their work in recent years. The report raises concerns that will sound familiar to many: the questionable timing of announcements, somewhat odd prioritisation of workloads and the often relaxed attitude towards best practice and evidenced-based policy-making. Given both the economic and moral case for cracking down on tax avoidance and other forms of non-compliance, the findings of the report are of concern.
We have taken note of the Government’s response and acknowledge that some of the recommendations expressed in the report are being or have been enacted. However, it is clear that there is more for both HMRC and Ministers to do if we are to close the loopholes and promote better behaviour. As always, we are confident that officials are doing everything they can to meet the targets set for them from above. It is a case of ensuring that departments are properly resourced and appropriately directed. When the Financial Secretary introduced the Bill in the House of Commons, he paid tribute to the work of officials in the Treasury and HMRC throughout the Covid-19 pandemic. He was right to praise them for the dedication and creativity that they have shown by turning new concepts into reality and putting money into people’s pockets in record time.
As the Opposition, we have not shied away from challenging the shortcomings of the various coronavirus support schemes or the Government’s wider handling of different aspects of the pandemic. However, as with the report on the powers of HMRC, any shortcomings rest ultimately with the politicians in charge. With a certain amount of bullying from within and without, some of the issues of Covid-19 support were addressed, but sadly some problems have still not been acknowledged and the patchwork of support has left many people in similar situations facing very different financial circumstances.
As we progress along the Covid road map, the Government will need to think carefully about when and how support is withdrawn from businesses and workers. It is also vital that lessons are learned to start closing the gaping holes that have been exposed in this country’s social security safety net.
The Financial Secretary referred to what he identified as three objectives underlying the Budget in March, all of which focused on defeating Covid-19 and rebuilding after it. We disagree fundamentally with his claim that his Bill will enact changes in taxation that will support all those objectives. Neither the Budget nor this Bill is sufficient to address the long-standing challenges to the British economy and to put us on a path to sustainable growth that would benefit all communities across the UK. Such challenges contributed to the UK having the worst downturn of any major economy at the height of the pandemic.
Despite our recent return to growth, which we welcome, and the continuing hard work of the British people, I worry that the Government’s lack of ambition on economic reform will hold us back vis-à-vis our international friends and competitors. The Chancellor’s last-minute decision to sign up to President Biden’s corporate tax proposals through the G7 communiqué is a clear example of his lack of ambition. The UK initially resisted the proposal, the only G7 member to do so, and while we witnessed a U-turn over the weekend, experts in the field have already identified potential loopholes.
Returning to the Budget and the Finance Bill, it is a shame that, rather than supporting front-line workers, the Government have essentially snubbed their heroic efforts in the past year and a half. We are all familiar with the paltry pay rise for NHS nurses, but other public sector workers have received poor pay settlements too. Rather than embracing opportunities around corporate tax, such as levelling the playing field for online and so-called bricks and mortar businesses, this Finance Bill enables a corporate super-deduction while freezing the income tax allowance. The latter will hit low-paid households that have been lifted out of income tax only in recent years. Rather than present proposals for welfare reform to put more money into government to ensure adequate funding for pupils to catch up with the education they lost during the multiple lockdowns, the Budget instead laid out plans to cut certain welfare benefits and slash departmental budgets. In sum, rather than delivering on warm words and promises on job creation, addressing the climate crisis or levelling up, the Finance Bill is merely a continuation of the political decision-making that has left so many feeling that the Government are not on their side.
The past year and a half has been tough for us all. We have had to make sacrifices and do things differently but Covid-19 has also exposed the very best of many: NHS staff, other key workers and those who played an active role in their local communities. However, there is also a need to help the unemployed back into work, address the ever-growing debt burden faced by many businesses and provide meaningful investments to put our economy and public services on a surer footing. This Bill and the Government’s broader economic policy do not meet those tests.
In the House of Commons, the Labour Party proposed several sensible amendments to make the legislation fairer. Rather than engage, the Government opposed measures to ensure that large multinationals pay their fair share, to increase transparency around the actual economic impacts of free ports, and to review the effectiveness of plans to prevent overseas entities funnelling dirty money through UK property. Think tanks and commentators of all political persuasions have been unimpressed by the lack of urgency on important issues such as these.
All that said, any noble Lord who has had the pleasure of participating in debates on Treasury statutory instruments will know that I am no fan of constitutional crises. It is not for the House of Lords to oppose the Finance Bill, and we have no intention of breaking that convention today. However, I was seized by the debate that broke out earlier about what we cover and the extent to which the Finance Bill creates cover for issues that arguably should be properly debated in legislation.
It is very interesting to sit back and see what the House of Lords does best. I think that the House of Lords, in a sense, divides its attention between the political and better legislation. I have been involved, over the past 11 years, with every bit of finance legislation that has gone through this House, usually at the junior level with stars helping me. What has emerged from that is the improvement that legislation has enjoyed in this House. It has been a really powerful step forward. It happens because thoughtful people bring up poor areas of legislation and, combined with the fact that the Opposition takes a political interest in it, focus is brought to bear on those areas and small changes and nuances are achieved. I think that the noble Lord, Lord Bridges, was in a sense referring to that, that the noble Lord, Lord Butler, was particularly referring to it, and that the noble Lord, Lord Forsyth, indicated some sympathy with it. I hope he and his committee might consider the extent to which the Government are starting to smuggle legislation that really should come to this House through the political process by hiding it in money Bills.
I also thought there were some interesting concerns about HMRC and the level of scrutiny. I headed a pretty large organisation; one of the problems with large organisations is the attractiveness of using your power to do things to people who are less powerful. Of course, you do it because it is good for you, but we need processes that test whether it really is. One of the worst problems in any complex society is that large organisations emerge because they are efficient but, because they are large, they have unreasonable power. We need proper, better processes—there was reasonable consensus on this during the Financial Services Bill we have just done—in the FCA, for political scrutiny, and better processes in the PRA.
On a more political point, I also felt that the concept from the noble Baroness, Lady Kramer, of the need for a more strategic approach from the Government was important. There have been lots of initiatives from this Government; we have disagreed with some and have supported others, but at no time have they seemed strategic. Two particular areas interested me. First, there is the failure to pick out sectoral initiatives; there are areas—I think the noble Lord, Lord Leigh, brought this out—in aerospace, for instance, where if we lose where we are now, no amount of money will get us back to the same place. There should be a stronger strategy for looking at where the weaknesses are. Secondly, there is this whole problem of debt; if debt is to be repaid—will it be?—it could become a millstone on the companies that should be bounding ahead. We need the best minds thinking about whether there is some way of turning that into equity, and so on.
There is much more to ponder. I hope that processes can be found for that pondering to be done in this House, and that we can be part of the legislative process. If anything makes the Government think, it is the fear of a vote going against them. I do not know whether anyone records this, but we do not actually like winning votes; we like persuading the Government to do good things because they are frightened of us winning votes. That is what happens—but anyway, I have something else to say.
It seems the Economic Affairs Committee’s conclusion that Ministers must do better applies more broadly than to tax avoidance policy. This Bill is yet another missed opportunity to grapple with the challenges our economy faces. Sadly, as is so often the case under this Administration, working families will pay the price for the Government’s lack of ambition.
Lord Agnew of Oulton (Con)
My Lords, this has been an excellent debate, and I thank noble Lords for their contributions. I will round up by addressing some of the issues raised by your Lordships, starting with comments on the Economic Affairs Committee and HMRC’s powers.
I take this opportunity to thank noble Lords for their contributions on the new report from the Economic Affairs Committee, which focused on HMRC powers to combat tax avoidance and promote compliance. The Government have carefully examined the issues raised by the committee and given it a comprehensive response. I am pleased to say that nine of the committee’s recommendations were accepted and six were partially accepted.
Since the publication of the committee’s report, HMRC has published its evaluation of the implementation of powers, obligations and safeguards introduced since 2012. Working closely with representatives of taxpayers and agents, the evaluation has highlighted a number of new opportunities for HMRC to improve public trust in the tax system. It is crucial that HMRC has the powers necessary to identify the minority of people and businesses who seek to avoid or evade tax, while ensuring an appropriate balance of safeguards for taxpayers.
My noble friends Lord Bridges and Lady Neville-Rolfe raised the loss of safeguards, but this new measure does have important safeguards. For example, the notice may be issued only where the information is “reasonably required” to check a known person’s tax position or in connection with the recovery of a tax debt. An authorised officer must approve all notices and must pass a test every three years to retain their status. The financial institution can appeal against any penalties charged for failure to comply with the notice, and HMRC is required to make an annual report to Parliament on the use of the financial institution notice.
My noble friend Lord Bridges asked about umbrella companies and mini umbrella companies. The Government agree on the importance of regulating umbrella companies properly and have already committed to regulating them by extending the remit of the Employment Agency Standards Inspectorate to include these. An employment Bill will be brought forward as parliamentary time allows. The mini umbrella company model is fraudulent and presents an organised crime threat to the UK Exchequer. HMRC works closely with trade bodies and other government departments to raise awareness of the mini umbrella company fraud.
My noble friends Lady Neville-Rolfe and Lord Bridges asked about Clause 125 on licensing authorities. The check has been designed to be minimal in scope and will only test compliance with the most basic obligation to be appropriately registered for tax. It does not create new tax obligations but simply ensures that these existing rules are complied with, promoting fairness for everyone in the sector. For most users it will take minutes to do and is needed only when licences are renewed—typically every three years.
My noble friend Lord Forsyth asked about corporation tax rates. At 25%, the rate is still highly competitive relative to our international peers, with the lowest headline rate in the G7. Alongside this tax increase, the Chancellor announced in the Budget a super-deduction, as we referred to earlier, from April of this year until April 2023. My noble friend is particularly concerned about the loan charge. I am sure that there is nothing I can say today that will completely allay his concerns, but I want to try because I appreciate his passion on this subject.
Promoters of tax avoidance schemes are already subject to significant penalties if they fail to meet their obligations. Since its formation in 2016, HMRC’s fraud investigation service has regularly secured convictions relating to arrangements that have been promoted and marketed as tax avoidance. Most of these people were involved in promoting tax avoidance schemes. However, we know that more can be done, and we are committed to ensuring that they face significant financial consequences for promoting these schemes.
My noble friend Lord Forsyth asked about the impact of IR35 on the self-employed. It is important to note that the reform does not apply to those who are self-employed according to the existing employment status tests. A worker’s employment status for tax purposes is not a matter of choice but is determined by the terms and conditions under which they work. This is determined by a number of factors which are set out in case law, such as whether they can send a substitute to do the work on their behalf, and the control that the client has over the work that that person does.
In terms of reforms to employment status, as laid out in our manifesto, the Government will bring forward measures to establish an employment framework which is fit for purpose and keeps pace with the needs of modern workplaces. These include measures that will encourage flexible working, protect vulnerable workers, take a smarter approach to enforcement of employment law, and build on the strengths of our flexible labour market to support jobs. The Government recognise concerns about employment status and are considering options to improve clarity in the system, making it easier for individuals and businesses to understand which rights and obligations apply to them.
The noble Lords, Lord Dodds and Lord Empey, are concerned about the red diesel issue for power generation in Northern Ireland. In response to concerns raised by red diesel users in this context during last year’s consultation about their ability to run down fuel stocks, the Government have decided to give HMRC officers the ability to disapply the liability to seizure where the user can provide evidence to satisfy officers that they have not built up their stocks or taken red diesel into the fuel system after the rules change. The Government recognise that for some users, such as those who need red diesel for back-up power generation in case of emergencies but may use it only for a few hours a year, their last purchase of red diesel may be some time before the tax change.
The noble Lord, Lord Dodds, asked about air passenger duty. We are currently consulting on the Government’s initial policy position, but the effective rate of air passenger duty on domestic flights should be reduced to support the union and regional connectivity. The consultation closes in a few days, on 15 June.
My noble friend Lord Leigh asked about capital gains tax reform. The Government are committed to a fair and simple CGT system which strikes the right balance between raising revenue and supporting the UK’s economic recovery and long-term growth. Last year, the Chancellor commissioned the Office of Tax Simplification to examine areas where the present rules on CGT can distort behaviour or do not meet their policy intent. The OTS provides independent advice. It is the role of the Government to make tax policy decisions. The Government keep all taxes under review and will respond to the OTS in due course.
My noble friend also asked about the digital services tax and pillar 1. The UK digital services tax is an interim solution to the widely held concerns with international corporate tax, and the Government’s strong preference is to secure a comprehensive global solution on digital tax and remove the DST once this is in place. We are pleased at the progress that has been made in recent days towards securing that solution but recognise that there is still work to do in reaching wider agreement among the OECD key 20 countries ahead of July. The Government’s efforts will be focused on that objective.
It is premature to set out revenue estimates—the final design details and parameters of the rules will need to be worked though—but a key condition for the UK is that pillar 1 appropriately addresses our concern and ensures that the amount of tax that multinational groups pay in the UK is commensurate with their economic activities here. My noble friend also asked whether we are no longer committed to a competitive tax regime. We are absolutely committed to one, and as I mentioned, our headline corporate tax rate of 25% is competitive among our international peers.
The noble Lord, Lord Bilimoria, made important points. I passionately agree with his point about leading the recovery from this crisis through job creation. Employment gives people dignity and a sense of purpose. We are pleased with the results so far. The OBR now expects unemployment to peak at 6.5% in the fourth quarter of this year, as the CJRS is scheduled to end, falling gradually to 4.4% by the end of 2025. The estimated unemployment rate is 1% lower than its November forecast. This is equivalent to 340,000 fewer people in unemployment, partly thanks to the extension of the furlough scheme. The noble Lord will, be aware of other initiatives, such as our dramatic increase in the number of jobcentres.
The noble Lord, Lord Sikka, asks about tax avoidance, particularly of the large accountancy firms. Rigorous anti-avoidance activity by HMRC has seen a significant proportion of those promoting schemes, including the large accountancy firms, being driven out of this market. It is now only a hard core of unscrupulous promoters, largely based offshore, who continue to promote tax avoidance schemes. The Government recognise that more could be done to raise standards more widely across the market for tax advice and ran a call for evidence on this last summer. The summary of responses and next steps was published in November. As part of this, the Government are consulting on introducing a potential requirement for tax advisers to hold professional indemnity insurance.
The noble Lord, Lord Sikka, and the noble Lord, Lord Tunnicliffe, asked about the IT and PA threshold, the freeze depressing people’s purchasing power. This policy will not come into effect until April 2022, when the economy will be on a stronger footing. We are asking people to make only a relatively modest contribution, to help fund good public services and to rebuild public finances. This is a universal and progressive policy, with those more able to pay contributing more. An average basic taxpayer will be only about £40 per year worse off in 2022-23. These are responsible decisions that will help to ensure the post-crisis task of putting the public finances back on a sustainable path.
My noble friend Lady Neville-Rolfe asked about Clauses 112 and 113 on the penalty systems that are being introduced. The current penalties and interest levied on taxpayers when they miss a submission deadline or pay their tax late are inconsistent across different taxes. The changes in this Bill bring consistency. The new approach to late submissions means that an automatic financial penalty will no longer be applied. Instead, the taxpayer will accrue points, much like driving licence points, with a financial penalty being applied only after repeated non-compliance. This means that taxpayers will incur penalties proportionate to the amount of tax they owe and how long payment is outstanding.
The noble Baroness, Lady Bennett, is concerned that we cannot aim for continuous growth because of its damage to the environment. I would respectfully disagree with her and refer her to a book called More from Less by Andrew McAfee. A couple of simple statistics on the US Geological Survey, which has been running for over 100 years, has tracked 72 resources from A, aluminium, to Z, zinc, and only six are not yet past their peak. Energy use in the UK in 2017 was 2% below what it was in 2008, even though GDP had increased by 15%. An aluminium can built in 1959 weighed 85 grams, whereas one built in 2011 only weighs 13 grams. It is extraordinary the innovation that is occurring in our society.
The noble Baroness, Lady Kramer, asked about a pre-emptive rise in VAT rates. The Government appreciate that the expiry of any temporary cut will need to be carefully timed so that it does not impede progress as the economy recovers. That is why we are announcing this six-month extension followed by six months of the 12.5% rate, which will help businesses to manage the return to a standard rate. As the Chancellor made clear in his Budget speech, it is important for the Government to be honest about the need to keep the public finances on a sustainable footing. The Government will of course keep the situation under review. The reduced rate is expensive and is expected to cost over £7 billion in tax forgone. Applying a permanently reduced rate would further increase the cost to taxpayers.
The noble Lord, Lord Tunnicliffe, asked about the G7 agreement on tax reform. We are delighted that the G7 has come together to back these proposals. It represents a major reform to the international tax framework. The UK has been at the forefront of OECD discussions to address tax challenges of digitisation. The Chancellor has made it a priority of the UK’s G7 presidency to support progress towards an agreement. Our consistent position has been that it matters where tax is paid, as well as the rate at which it is paid. So we are delighted that we have G7 backing for both pillars of the OECD proposals on reallocating taxing rights as well as the global minimum taxation.
On the concerns of the noble Lord, Lord Tunnicliffe, about multinationals, the Government have taken significant steps, both domestically and internationally, to ensure that companies pay the right amount. The corporate interest restriction rules prevent multinationals from avoiding tax using funding arrangements. This has raised £1 billion a year since its introduction in 2017. The diverted profit tax has led to £5 billion in additional revenue by countering aggressive tax planning techniques used by multinationals to divert profits away from the UK. The tax charge on offshore receipts, in respect of intangible property, is forecast to raise £1.1 billion from companies that put valuable intangible assets in low-tax jurisdictions. The UK has also been at the forefront of the OECD discussions on this, and the Chancellor has made it a priority of the G7 presidency to support progress towards an agreement.
The noble Lord, Lord Tunnicliffe, asked about freeports and economic transparency. We have a firm commitment to ensure that the transparency extends to the freeports programme. That is why we published a decision-making note that clearly sets out how sustainable economic growth and regeneration were prioritised in the assessment process. This built on a robust bid assessment, where the eight successful English freeports demonstrated a strong economic rationale for their proposed tax sites. The Government have already taken action to address the concerns that any additional reporting requirements are seeking to resolve. We will be publishing costings of the freeports programme at the next fiscal event, in line with conventional practice.
Let me wind up by saying that I hope I have succeeded in addressing noble Lords’ questions. I will of course review the record of this debate and follow up in the usual way, and write where I have not been able to provide detailed answers.
Royal Assent
Thursday 10th June 2021
(3 years, 5 months ago)
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The Lord Speaker (Lord McFall of Alcluith)
My Lords, Oral Questions will now commence. Please can those asking supplementary questions keep them to no longer than 30 seconds and confined to two points? I ask that Ministers’ answers are also brief.