22:13 - The House divided: - Ayes: 321 / Noes: 249 - Question accordingly agreed to.
The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read a Second time.
It is a great pleasure to present this year’s Finance Bill—a Bill that further demonstrates the Government’s commitment to creating a tax system that is fairer, simpler and more transparent, and one that will promote growth and reward work. Unlike the Opposition, those of us on the Government Benches recognise that we have to address the fiscal mess left us. That means that we have to resist the voices of those wanting to engage in a further splurge in borrowing. But we can take steps to make ourselves more competitive and help people with the cost of living, and that is what we will do in the Bill. I will happily take interventions this afternoon, but to give some structure to my speech it is perhaps worth while my laying out to the Chamber the order in which I intend to discuss the Bill. First, I will talk about the measures that will support growth and enterprise, then the measures that will tackle avoidance and evasion, and then the measures that will increase fairness. Finally, I will talk about the way in which the Bill will help to deliver a simpler tax system.
Kelvin Hopkins (Luton North) (Lab)
On the issue of avoidance and evasion, the press reported over the weekend that Britain and its dependencies have more tax havens than almost any other country. Will the Government tackle evasion and avoidance seriously, and save us an awful lot of money?
Mr Gauke
As I was trying to make clear a moment ago, I will turn to the subject of evasion and avoidance later on in my speech. The Government have a proud record of taking steps to reduce evasion and avoidance, with legislative measures, support for Her Majesty’s Revenue and Customs and what we are doing at an international level to encourage greater co-operation between jurisdictions to ensure that the net is closing in on those who wish to evade their responsibilities. We will continue to take positive steps on that front.
Mr John Redwood (Wokingham) (Con)
The Labour Government set capital gains tax at 18%, which is somewhere near the revenue-maximising rate. This Government put CGT up to 28% and, predictably, their own figures show that revenue is lower. When will they promote enterprise with a lower rate that will generate far more revenue, something we clearly need?
Mr Gauke
One has to look at the tax system as a whole, including capital gains tax, and I am not sure that I necessarily agree with my right hon. Friend’s interpretation of the period as a whole in relation to CGT revenues. In the year in question, there was certainly a reduction in deals done and transactions completed after the increase in the rate of CGT, but subsequent CGT revenues have picked up. We also have to bear in mind the relationship between CGT and income tax. I agree strongly with my right hon. Friend that it is important to have a competitive tax system that encourages enterprise and growth—indeed, I will turn to that now.
One of the most important questions facing the country is this: at a time when much of the world is still coming to terms with the consequences of the financial crash, when many of our export markets face significant difficulties, and when international competition is becoming greater, and, because of the recklessness of the previous Government, we cannot afford to borrow more, how do we put in place the conditions for growth? In the specific context of the Bill, how do we ensure that we have a tax system that helps us to achieve growth and encourages businesses to locate and invest in the United Kingdom? As the Chancellor has made clear, our objective is to have the most competitive tax system in the G20.
Sheila Gilmore (Edinburgh East) (Lab)
How can the Minister square the statement he has just made with the fact that all his predictions for borrowing are on the way up? Three years ago, we were assured that the Government’s policies would resolve this problem. If we are borrowing, would it not be better to borrow to invest, rather than to deal with failed economic policy?
Mr Gauke
Borrowing is down by a third from the position it was in when we came into office—that is the reality of the situation. We have to remember that if we had the policies advocated by the previous Government, borrowing in this Parliament would be £200 billion higher than it is going to be.
Chris Leslie (Nottingham East) (Lab/Co-op)
I do not know whether the Minister did not get the memo, but the Office for Budget Responsibility confirmed that, compared with the Government’s predictions for the 2010 spending review, borrowing is predicted to be £245 billion more. The Minister needs to get a grip on the fact that borrowing is getting higher. I dare him to say that the deficit is being reduced in this financial year as compared with the previous financial year, because that is just not happening.
Mr Gauke
The hon. Gentleman is right to say that borrowing levels are higher than predicted by the OBR three years ago, but that is not the same thing as saying that borrowing is higher now than it was. The fact is that at the last Budget the OBR forecast that the deficit was going to be lower this year than it was last year.
Mr Gauke
The reality is that, had we pursued the policies the Opposition advocated at the last general election, let alone now, the deficit would be much, much higher. In fact, the Opposition are not standing behind any of the deficit-reduction policies they advocated at the last general election. For example, I think they support what we are doing on the fuel duty—it was one of the few measures the previous Government had in order to reduce the deficit.
Chris Leslie
I thank the Minister for giving way so generously, but I just want him to answer my question. He is not claiming that the deficit is still being reduced, is he? It is not falling this year compared with the last financial year, is it?
Mr Gauke
That is not actually what the OBR numbers at the last Budget showed, but clearly we are faced with difficult economic conditions. It is striking, however, that whereas, when the previous Government faced difficult economic conditions, the deficit ballooned, we have taken tough action to ensure that we continue to reduce it. Would we like to be reducing it more? Of course we would. Why is that not happening? The difficult economic conditions clearly apply. But is the right approach to these difficult economic conditions to go on a borrowing splurge, as the Labour party consistently advocates? The answer is clearly no.
Mr William Bain (Glasgow North East) (Lab)
If the Finance Bill is such a success in stimulating additional growth, will the Exchequer Secretary explain the statistics on page 103 of the OBR’s fiscal outlook, which reveals that since its December forecasts, forecast income tax revenues are £6.5 billion lower for 2014-15, £6.9 billion lower for 2013-14 and £7.1 billion for 2015-16? Not much of a success, is it?
Mr Gauke
If the hon. Gentleman looks through the OBR’s analysis, he will see its explanation for growth being lower than it had anticipated, which has an impact on the fiscal numbers. It is more than explained by the disappointing performance of our export markets and the fact that we have not been able to export as much as the OBR had anticipated. The question is: how do we respond to that? Do we try to put in place a competitive tax system that makes businesses and industries want to locate and invest in the UK? We have heard nothing from Labour on that front, whereas this Government’s record is very strong.
Geoffrey Clifton-Brown (The Cotswolds) (Con)
In passing, may I say how hypocritical it is of Opposition Members to say what they have been saying about debt levels? Had they not left us with the debt level we inherited, we would not have this problem.
Despite what my hon. Friend might be hearing from the banks, my constituents tell me that they are lending only when they can get copper-bottomed, personal guarantees and that the lending they are getting is becoming ever more expensive. Will he look into the cost of export credit finance, which is a great hindrance to small and medium-sized businesses exporting?
Mr Gauke
My hon. Friend is absolutely right that we need to do what we can to ensure access to finance for those strong, viable small businesses that want to expand. That is why we have taken measures such as the funding for lending scheme and why we want to ensure that we have a business-friendly environment. I am grateful for his observations on export guarantees. He will be aware of some of the measures that the Government have taken over the past two or three years to try and support those exporting businesses. I note his comments and calls for us to go further.
Mark Field (Cities of London and Westminster) (Con)
I appreciate that the Minister has to deal with an incredibly difficult situation that is not made any easier by this constant battling over borrowing figures. We all know how serious the situation is, and for my part I will not be spending my time blaming the last Government, which is unhelpful. We must look to the future.
My hon. Friend the Member for The Cotswolds (Geoffrey Clifton-Brown) rightly pointed out the importance of export guarantees. If we are to get trade moving again, it is essential that we ensure a much more efficient export guarantee process, particularly with small and medium-sized enterprises. We must appreciate—I hope that the Minister does—that part and parcel of the guarantee is recognising that some of those guarantees will not come off and so will have to be paid for by the Government. If we are to break into developing markets, however, we need to do so with some aplomb.
Mr Gauke
I am grateful to my hon. Friend for his remarks. It is right to say that exporting is important. It is one area where, as an economy, we have not performed as well as we would have liked over many years, although we are making striking progress in some of the major developing economies. However, we face difficulties, in particular with the eurozone, which is our biggest export market.
Let me return to what we are doing as a Government to ensure that we meet our objective of having the most competitive tax system in the G20. We have already made considerable progress. As evidence, let us look at the KPMG annual survey of tax competitiveness, in which senior tax professionals were asked to name their three most competitive tax jurisdictions. In 2009, just 16% named the UK among their top three, but by 2012 the UK was named by 72% of respondents, ahead of every other jurisdiction. Since that survey was undertaken, the corporation tax rate has fallen from 24% to 23%, but we will not be complacent. Clause 4 will cut the main rate of corporation tax to 21% from April 2014. As we announced at the Budget, we will then reduce the corporation tax rate by an additional one percentage point from April 2015—a measure in clause 6 that will mean that the United Kingdom has the lowest business tax rate of any major economy in the world.
Geraint Davies (Swansea West) (Lab/Co-op)
Given that before and after the Budget the corporation tax rate in France was 33%, while in Germany it was 29% and in Britain it was 21%, why is it necessary to reduce it to 20% and in so doing to get rid of 5% of the corporation tax yield? How long will it take to get that 5% back? Will we produce 5% more inwardly investing businesses or will the size of the business community grow by 5% to make it up? We are already extremely competitive on that front, so how long will it take to make up that money, which the Minister has given away for no apparent reason?
Mr Gauke
I hope the reduction to 20% will have all-party support, but I am sorry if it does not. The advantage of 20% is that we will have a corporation tax rate that is consistent with the small profits rate. It is the lowest in the G20 and sends a clear signal to businesses around the world that the UK is open for business. That is something that we in this Government are proud of and that we believe is putting in place the conditions for growth. I hope that the Opposition will support this measure, although Labour in government did not make as much progress in reducing corporation tax rates as it might have done and we lost a competitive advantage. This Government are restoring that competitive advantage, which is something we are proud of.
It is not just corporation tax rates: clause 34 will introduce the new above-the-line credit for large company R and D investment from April 2013—a measure that will make the level of support more visible to those making investment decisions and thus more beneficial to foreign-parented multinationals looking to invest in R and D in the United Kingdom. This Government have also made a clear commitment to support the creative industries through the tax system. Building on the success of the film tax relief, which last year supported investment in more than 300 British films, clause 35 introduces new corporation tax reliefs for the animation, high-end television and video games sectors. The new reliefs will be among the most generous in the world, encouraging investment in these highly skilled and innovative parts of the creative economy. They are measures that will bring jobs to the United Kingdom and funds to the Exchequer.
This Government recognise the need for a broad industrial base, and measures in the Bill will support a wide variety of sectors. Clauses 77 to 90, for example, provide certainty over decommissioning relief on the UK continental shelf. Clause 7 supports small business by increasing the annual investment allowance for two years and clause 56 provides for an extension of the capital gains tax holiday. Those measures send the clear message to businesses, entrepreneurs and investors across the world that if they want to come to the UK, invest in the UK and employ people in the UK, they will be very welcome in the UK.
Mr Redwood
I strongly support the corporation tax move, which will be extremely helpful to Britain’s competitiveness, but when people are thinking about where to locate their businesses, they worry not only about profits tax but about personal tax. Does my hon. Friend agree that, given the current inherited income rates and capital gains tax rates, a lot of the high earners in those companies do not want to be anywhere near London because the taxation rates are still very heavy?
Mr Gauke
My right hon. Friend makes a valuable point. This underlines the fact that the Government were right to reduce the 50p rate of income tax, because it was out of line with the vast majority of our international competitors. We have to look at the tax system as a whole. I believe that we have made striking progress in delivering that, and in ensuring that we are open for business. It is also striking that, since we have embarked on our package of reforms, the flow of businesses leaving the country has already been stemmed. Indeed, we have seen many businesses either returning to the UK or coming here for the first time. They include WPP, Lancashire, AON, Rowan and Seadrill, and I believe that more will follow.
Mark Field
I give my hon. Friend credit for what he has done for the animation and video games industries in my constituency. As he will know, there has been a long-standing campaign for such provisions, and I am by no means the only Member of Parliament who has lobbied for them in recent years. Will he ensure that we will be able to act as nimbly as possible if our tax rates become uncompetitive, for whatever reason, for those internationally competitive businesses? Such action might need to be applied to a whole range of industries, well beyond the IT and animation industries. As he has rightly pointed out, it is very easy to lose such jobs nowadays, and we need to ensure that they come back to these shores at the earliest possible opportunity.
Mr Gauke
My hon. Friend makes an important point. The Government recognise that capital and investment can be very mobile, and that they are more mobile in some sectors than others. We have demonstrated a willingness to listen in this regard. Our principal policy in this area has been to adopt a lower rate, but we have recognised that in certain areas of considerable mobility, we need to respond to what is happening. We have done so through the measures in the Bill, and through the patent box in last year’s Finance Act, which was important in further ensuring that the UK is an attractive location for investment. I shall now give way to another Member of Parliament with a constituency interest in the video games industry.
Stewart Hosie
I welcome some of these targeted measures, particularly those relating to video games. I think that they are sensible. I also welcome the tenfold increase in the annual investment allowance, but does the Minister not think it odd that that increase will last for only two years? Given that certain capital investments will take some time, is it not ludicrous that in two years’ time, the general annual investment allowance will revert to £25,000 a year? Might not that create uncertainty? Would it not be better to maintain the general annual investment allowance rate at a higher level, to encourage medium-term investments not only for two years but for three, four and five years?
Mr Gauke
There is a balance to be struck, and we have rightly focused on bringing down the rate of corporation tax, not only for larger businesses but for smaller ones as well. Let us remember that the small profits rate was set to go to 22% when we came into office, and that it is now 20%. We have increased the annual investment allowance for that two-year period to try to stimulate investment at a time that is not necessarily the easiest for many businesses. That is part of what we have done to help small businesses during this difficult period. Taking steps to bring the rate down is important; it is a tradition, if you like. It has been our direction of travel in the UK over many years, and I think that we have now got the balance about right.
Geraint Davies
I have here a letter to the Chancellor from the Admiral group in Swansea—the biggest business in Wales. It expresses disappointment that Swansea was not included as a city with super-connected city status in the last Budget and asks that it continues to be considered in future. Will the Exchequer Secretary positively consider that request? Business is asking for the infrastructure tools to succeed, particularly so that large businesses can connect worldwide with suppliers and prospective clients. We obviously welcome the investment in the creative industry, which is also very important.
Mr Gauke
I shall certainly take that intervention as lobbying in support of the proposal. The hon. Gentleman is right to highlight our super-connected cities policy, which is further modernising our economy and further benefiting a number of cities. I appreciate the case he makes for Swansea, and I am sure that it will be properly considered.
Justin Tomlinson (North Swindon) (Con)
The tax breaks for the video games industry are a fantastic opportunity to create swathes of new jobs, but it is essential that the Minister continues to apply pressure to address the shortage of computer programming graduates or we shall miss out on a fantastic announcement.
Mr Gauke
I am grateful to my hon. Friend for putting that point on the record. He will be aware of the efforts made by the Government to strengthen our capacity in that respect, and I am sure his remarks will be noted carefully by my ministerial colleagues in the Department for Business, Innovation and Skills.
I turn to tax avoidance and evasion. Although we believe in a competitive tax landscape, we are not by any means a soft touch on tax. As a Government, we have made very clear our expectations of businesses. We expect businesses to pay tax in accordance with the law, but we also want to ensure that aggressive, artificial tax avoidance is dealt with, which brings me to the second key theme of the Bill.
The vast majority of individuals and businesses pay their fair share of tax, but the Bill takes determined action against those who choose not to do so, by introducing a further package of measures to tackle tax avoidance.
Ian Swales (Redcar) (LD)
When people engage in practices where assets are bought and sold for different prices—for example, film rights were headlined in a recent case—it is actually tax evasion, and prosecution should follow. Does the Minister agree with that analysis?
Mr Gauke
Where there is an element of dishonesty, it is clearly tax evasion, and Her Majesty’s Revenue and Customs has indeed been successful in bringing prosecutions in a number of high-profile cases. Under this Government we have seen the number of prosecutions by HMRC increase fivefold, which is a reflection of how seriously we consider tax evasion and of our determination to assist HMRC in addressing it as much as possible.
Kelvin Hopkins
A theme I have raised many times in the Chamber is the number of staff in HMRC. I am sure the Minister knows that every additional tax officer collects many times their own salary, and in the case of business taxation, it can sometimes be hundreds or even thousands of times their salary. Do we not simply need a substantial increase in the number of professional staff in HMRC to make sure we collect all the tax?
Mr Gauke
The hon. Gentleman and I have debated that point on a number of occasions. The important thing is to ensure that HMRC has the right expertise and skills, and the right people doing the job. In truth, there has been a significant reduction in HMRC staff over recent years, the vast majority of which occurred under the previous Government. We are increasing the numbers working in the enforcement and compliance area, but a lot of the answer is about ensuring that HMRC can work in the most effective way. I was struck by the increase in the number of tax professionals being trained by HMRC. We do want to invest in skills within HMRC. This is not simply a numbers game but, as it happens, the number of people working for HMRC in enforcement and compliance is going up, not down.
Geoffrey Clifton-Brown
While I strongly support the move in the Budget to reduce corporation tax, it is no good encouraging companies to come to this country if they then avoid paying corporation tax. Is it not important that big multinational companies pay corporation tax on the profits that they make in this country? Equally, is not my right hon. Friend the Prime Minister absolutely right to ensure that, through the G8, we have international agreements so that multinational companies cannot go around the world, especially to third world countries, and make profits without paying the relevant corporation tax?
Mr Gauke
My hon. Friend is absolutely right. We want an international tax system that ensures that economic activity is taxed where it occurs. That involves working internationally, and he is right to highlight the Prime Minister’s ambitions while we have the presidency of the G8, which will feed through to the G20 and the work that the OECD is already doing, which we support. It is right to have an international tax system that reflects the reality of how multinational businesses work.
Clauses 203 to 212 introduce the UK’s first general anti-abuse rule—GAAR—which will provide a significant new deterrent to abusive avoidance schemes and strengthen HMRC’s means of tackling them. On top of that, we are taking action to close a further 15 tax avoidance loopholes, which will increase tax revenues by almost £1 billion up to 2017-18, as well as protect future revenues. The Chancellor gave a clear warning in the 2012 Budget that the Government would take action on aggressive stamp duty avoidance. The Bill follows up on that warning by legislating against those who continue to avoid tax on property transactions. All these measures will stop people exploiting legislation to gain tax advantages that were never intended, and they will also encourage fairness.
Chris Leslie
While the Minister is on the subject of companies that might not pay their fair share of corporation tax, will he confirm that the banks received a substantial corporation tax cut in the past financial year and the one before that, yet he has done nothing to correct the situation?
Mr Gauke
No, I cannot confirm that, because it is not correct. The reality is that the reductions in corporation tax falling to banks have been more than offset by increases in the bank levy. We have sought on every occasion to offset the decreases in corporation tax through increases in the levy.
Chris Leslie
I had a feeling the Minister would say that the corporation tax reduction had been offset by the bank levy. However, although the Prime Minister promised that the levy would raise £2.5 billion, it raised only £1.8 billion in 2011-12—[Interruption.] Perhaps the hon. Gentleman is getting an answer to this point from the Economic Secretary. In the past financial year, the levy raised only £1.6 billion, so there is a massive shortfall compared with the amount that the Prime Minister said it would raise. How on earth does that offset the corporation tax cut for the banks?
Mr Gauke
We were clear that our objective was that the bank levy would collect £2.5 billion, on a permanent basis, which is more than the bank payroll tax ever collected. When the amount has fallen below our expectations, we have adjusted the levy, and the independent Office for Budget Responsibility anticipates that the bank levy will raise £2.5 billion this year. We have made adjustments largely because the banking sector has continued to be afflicted by economic difficulties throughout the world, as a consequence of the crash, so fragile global conditions have played a part. I am not going to be preached to by the Opposition on the taxation of banks. We have introduced a bank levy; the Opposition had 13 years in which to do something about that, but failed to do so.
Tim Loughton (East Worthing and Shoreham) (Con)
Perhaps the Minister will remind Opposition spokespeople that corporation tax is payable only on profits. Many banks that were forced into disastrous mergers by the previous Government are still turning in losses, which might account for the shortfall in the figures given by the hon. Member for Nottingham East (Chris Leslie).
Mr Gauke
I am grateful to my hon. Friend for making that helpful point.
Turning to the wider issue of fairness, in addition to the steps that we have taken on avoidance and evasion, the Bill builds on previous coalition policy by ensuring that individuals and businesses will make a fair contribution, while the Government continue to support those on the lowest incomes. We continue to reward work and help hard-working families with the cost of living, and the Bill therefore increases the income tax personal allowance to £9,440 from this month. That represents the biggest ever cash increase, and the Chancellor has announced that the threshold will rise again, to £10,000, from next year.
Justin Tomlinson
This announcement is extremely welcome, but most people simply do not know how much the changes will help them. Does the Minister agree that any changes, good or bad, should be displayed on payslips, in the same spirit that changes in council tax or business rates are displayed in the annual bill?
Mr Gauke
My hon. Friend makes an interesting point. He will be aware of the steps that the Government have taken to introduce personal tax statements that will make the tax system much more transparent. It will be clearer to people how much tax they are paying, and how that money is being spent. We believe that those are helpful steps, and those tax statements can demonstrate the way in which we have made great progress in increasing the personal allowance.
Andy Sawford (Corby) (Lab/Co-op)
The Minister may be reluctant to offer real transparency on the impact of the Government’s changes because of the findings of the Institute for Fiscal Studies that the average family will be £891 a year worse off as a result of the cumulative effect of the changes under his Budgets over the past three years.
Mr Gauke
I do not recognise those numbers. We have taken steps to try to get the country out of a significant fiscal hole. We have taken steps to reduce the amount of tax that millions of households will pay as a consequence of the increase in personal allowance. We have reduced income tax for 25 million people. That is something we are proud of, and something that we did not see when the Opposition were in power.
Sheila Gilmore
What the Minister fails to appreciate, in saying that he does not recognise those figures, is the fact that the increase in the tax threshold has been wiped out for many families, particularly those with children, by the changes in tax credits. At the same time, the cost of increasing the tax threshold is £9 billion, so it is not the best way of targeting help on the low paid.
Stewart Hosie
The Minister is keen to discuss the change in the basic rate allowance, but he is rather less keen to discuss the 40% threshold, which has gone from £37,000 to £34,000, then to £32,000. The Government have dragged an extra 670,000 people into the 40p tax rate, which used to be for the rich, and that is before this year’s changes. He is rather less keen to discuss that. I wonder why.
Mr Gauke
The vast majority of those people will pay less income tax in total as a consequence of the measures that we have introduced. As a result of the change in thresholds, most support has been focused on basic-rate taxpayers and people who have been taken out of income tax altogether. For the vast majority of people who now find themselves in the higher-rate band, the gains that they have made from the increase in the personal allowance more than outweigh the additional tax they will pay on the higher rate.
In that context, it is worth highlighting the steps that we have taken to ensure not only that we protect the poorest but that the wealthy pay their fair share of tax. Clause 16 will legislate to cap previously unlimited income tax reliefs at £50,000 or 25% of an individual’s income, whichever is greater. That will prevent those reliefs from being exploited unfairly, so that individuals, many with very high incomes, cannot use those reliefs to reduce their income tax bills to zero year after year. As announced in the Budget last year, clauses 91 and 172 will legislate for an annual tax on enveloped dwellings. That is a charge on residential properties valued at more than £2 million held by certain non-natural persons. To complement that measure, the Bill includes the extension of capital gains tax to certain non-natural persons disposing of UK residential property valued at over £2 million. For too long, the well-advised wealthy have found ways around paying stamp duty land tax. The Government have acted to address that.
Clauses 47 and 48 legislate for the further reduction of lifetime and annual allowances for pension contributions. That is not an easy measure to introduce, but it will leave the vast majority of those saving for retirement unaffected while curbing the rising cost of pensions tax relief. Other measures in the Bill will curb unwelcome rising costs. The Government understand the costs that have the biggest impacts on families and businesses every day, and as such, we have taken action in the Bill to help those individuals and businesses that have been impacted by persistently high pump prices. Under clause 177, fuel duty will be frozen at current levels, meaning that it will be 13p per litre cheaper than under the previous Government’s plans.
The Bill will cut the cost of the average pint of beer by 1p. Not only is that good news for the beer drinkers among us, but it represents excellent news for the brewing industry and for pubs. The reduced duty under the small breweries relief has helped to build a thriving brewing industry, which demonstrates that lower duty can lead to growth, investment and jobs. That 1p cut will be a further step to supporting a successful British industry.
It is the Government’s belief that the most effective tax policy is that which is devised in the most transparent fashion, and as such, the majority of measures in the Bill have been formulated following lengthy consultation with interest groups, business and the public. Thirty-six formal and eight informal consultations took place last summer. In December last year, over 400 pages of draft legislation for the Bill were published for technical consultation, alongside explanatory notes, tax information and impact notes. We received more than 400 comments on the technical consultation, which has helped to make sure that the measures in the Bill are as easy to understand as possible, and thus as easy to comply with as possible.
Geraint Davies
I am grateful for the Minister’s enormous generosity in giving way a third time. On the issue of transparency in pensions, does he accept that the people who are going to be hit hardest are the current young, who are the future old? They are also paying much higher student loans, they face debts, they will need much higher deposits for their mortgages, they will have to pay higher rents so they cannot save, and they face much greater uncertainty about job prospects. Downstream they will be hit again by the pension changes, which are not transparent to them, partly because they are not thinking about that now because they are young.
Mr Gauke
I will try not to digress too much. If I can be helpful to the hon. Gentleman, I do not think he is concerned about the proposals in the Bill, which will apply only to those who make the biggest contributions to their pension fund and receive tax relief for that. He makes a number of important points, but those are not necessarily relevant to the proposals on pension tax relief. If he is concerned about that, I look forward to hearing his concerns over the course of the many debates that we will have.
The Bill is substantial. Building on the invaluable work of Michael Jack and John Whiting at the Office of Tax Simplification, it delivers a number of important reforms to simplify the tax system, including the implementation of recommendations from their reviews of small business tax and tax-advantaged share schemes. This is a significant Bill. It is a clear statement of our ambition to secure a tax system that restores the competitiveness of our private sector, clamps down on avoidance and evasion, and helps to build a fairer society for those who want to work. It is a clear statement that we remain committed to reducing the deficit and building a prosperous economy in the United Kingdom once again. It is a Bill that will energise business and support hard-working people, and it is a Bill that I wholeheartedly commend to the House.
The Economic Secretary to the Treasury (Sajid Javid)
In debating the Finance Bill and the economy, one is reminded of the late noble Baroness Thatcher. As my hon. Friend the Member for Macclesfield (David Rutley) said, let us never forget that she rescued the country from a permanent sense of decline and restored economic strength and prosperity. She was our greatest peacetime Prime Minister. May she rest in peace.
We have had a lively and wide-ranging debate, with particularly thoughtful contributions from my hon. Friends the Members for Cities of London and Westminster (Mark Field), for Redcar (Ian Swales) and for Macclesfield. The best I can say about the contributions from the Opposition Benches is that we heard a lot of warm and fluffy talk about motherhood and apple pie but not a single idea on how to rescue our economy from the mess the Labour party created. This Government inherited a shocking legacy. The country will never forget the consequences of 13 years of Labour government: the largest deficit in the G20; the deepest recession since the second world war; and the world’s largest banking bail-out. We have taken action to cut the deficit, stimulate the economy and create a fairer and more efficient tax system. The Bill continues along that path.
Let me focus first on growth and competitiveness. The Bill builds on previous Bills by introducing a range of measures demonstrating the Government’s commitment to supporting growth and enterprise. Against the background of external challenges, such as the continuing crisis in the eurozone, it is vital that the UK tax system attracts investment to this country and does everything possible to ensure that UK businesses can compete in the global economy. The Government have already significantly reduced the tax burden on business. In 2013, corporation tax will be 23%, significantly lower than the 28% inherited from the previous Government.
Since we embarked on those reforms, we have seen a number of high-profile businesses returning to the UK or coming here for the first time, including WPP, Lancashire, Aon, Rowan and Seadrill. But we want to go further. The additional reductions set out in clauses 4 and 6 mean that the corporation tax rate will reach 21% in April 2014 and just 20% in April 2015, the lowest rate in the G20, and lower than any comparable EU member state.
But competitiveness is about more than just the rate of corporation tax. That is why the Bill also includes measures to give targeted support to the innovative sectors that will drive growth in the 21st century. Clause 34 delivers an above-the-line tax credit for large companies’ R and D expenditure, with an increased rate of support of 10%. That will provide a more visible and certain relief and greater cash flow support to the wide range of companies engaging in groundbreaking research in the UK.
Clause 35 legislates to bring in new tax reliefs for the UK’s world-leading creative industries, including animation and high-end TV. That will be among the most effective reliefs anywhere in the world.
The Bill also includes measures to support small and medium-sized businesses, which are the bedrock of our economy—points that were made very well by my hon. Friends the Members for Macclesfield and for Cities of London and Westminster (Mark Field). Clause 7 introduces a two-year increase to the annual investment allowance that has been in place since January. That will make it easier for firms to bring forward capital investment in plant and machinery, helping support businesses to grow and invest.
Clause 56 implements an extension of the successful capital gains tax holiday for the seed enterprise investment scheme, to support investment in new and early-stage firms to help give them the support they need to grow. Clause 63 enhances the tax advantages available under the enterprise management incentive, helping smaller, higher-risk companies to recruit and retain high-calibre employees. Low corporation taxes, support for innovation and help for small businesses—this Finance Bill sends the clearest possible signal that Britain is open for business.
We are also taking action to support the UK’s oil and gas industry. Clauses 77 to 90 support a new contractual approach to provide certainty over decommissioning relief on the UK continental shelf. The Government will sign contracts this year allowing the sector to unlock billions of pounds of additional investment, helping to create thousands of new jobs in Scotland and beyond.
Sir Malcolm Bruce (Gordon) (LD)
My hon. Friend is making an important point about the Government’s assistance to the oil and gas industry. Does he acknowledge that that has contributed this year to the biggest single investment in North sea oil and gas since they were discovered?
Sajid Javid
My right hon. Friend makes an excellent point. I am convinced that there will be further significant investment in that important industry because of the measures in the Bill.
I turn to fairness, which is at the heart of the Bill. The Bill helps families with the cost of living while making sure that the best off in our society pay their fair share. The increase in the personal allowance in clause 2, mentioned by my hon. Friend the Member for Redcar and others, will set the value at £9,440 for April this year, an increase of £1,335—the largest ever cash increase. It will save a typical basic-rate taxpayer £267 in cash terms and it is a tax cut for 24 million people. That is a major step towards the Government’s commitment to raise the personal allowance to £10,000 by the end of this Parliament. My right hon. Friend the Chancellor announced in the Budget that that goal will be reached next year, a whole year ahead of schedule.
Taken with previous increases in the personal allowance, the Government have taken 2.7 million people out of income tax altogether, providing real help for low and middle earners and rewarding work by enabling workers to keep a greater share of what they earn.
The Government also recognise the rising cost of fuel and the pressure that that puts on the finances of households and businesses. That is why we have decided to cancel the increase in fuel duty planned for September 2013. Clause 177 will freeze fuel duty at current levels, maintaining the longest freeze in fuel duty for 20 years. Under this Government, average pump prices are 13p per litre lower than if we had implemented the plans that we inherited from the previous Government.
When ordinary households are experiencing real pressure on their incomes, it is particularly important that tax reliefs are well targeted and cannot be used without limit by those on the highest incomes to reduce tax bills. Clause 16 legislates for a new cap on certain unlimited tax reliefs from this April to curtail excessive use of those reliefs. The cap will be set at £50,000 or 25% of the relevant person’s income, whichever is the greater, ensuring that the reliefs cannot be exploited unfairly. The cost of pensions tax relief is rising and has doubled in a decade since 2001. This Finance Bill therefore legislates to reduce pensions tax relief lifetime and annual allowances to £1.25 million and £40,000 respectively to limit the amount of relief available to the top 2% of pension savers.
Fairness is also about making sure that everyone plays by the same rules. The vast majority who pay their taxes will, rightly, not tolerate non-compliant individuals and businesses not paying the tax that they owe, and this Government agree. To that end, the Bill includes a major package of measures to crack down on tax avoidance by a small minority who refuse to pay their fair share. Clauses 203 to 212 and schedule 41 legislate for the UK’s first general anti-abuse rule, or GAAR. This is one of the most significant changes to UK tax law. It will have a strong deterrent effect on those concocting abusive tax avoidance schemes or considering using them, and where they persist it will give Her Majesty’s Revenue and Customs an effective new tool to tackle these schemes.
Simon Hughes (Bermondsey and Old Southwark) (LD)
Let me say to my hon. Friend and to those on the Treasury Bench that his announcement about a general anti-tax avoidance provision is hugely welcome, particularly in London, where people have seen companies get away with not paying taxes for many years—something that no previous Government have adequately dealt with. It is very welcome and we look forward to it becoming law as soon as possible.
Sajid Javid
I welcome my right hon. Friend’s support for the measure.
This Finance Bill includes measures to close 15 loopholes that have been used to avoid tax. Nine of these provisions have immediate effect from Budget day, and one—on tackling stamp duty avoidance—is backdated to the previous Budget, following the Chancellor's clear warning in 2012. This demonstrates the Government’s continuing commitment to fast, effective and targeted action to tackle avoidance. In addition, we are strengthening the successful disclosure of the tax avoidance schemes regime to increase the information that promoters of tax avoidance schemes have to provide about the users of their schemes. Together with the GAAR, these measures will increase tax revenues by almost £l billion by 2017-18, as well as protecting future revenues. In addition, the Government are investing almost £1 billion in HMRC’s compliance activities in order to raise additional revenues of £22 billion per annum by the end of 2014-15. This represents £9 billion more in compliance revenues—a 70% per cent increase since 2010-11.
This Finance Bill introduces a package of measures to ensure that owners of high-value properties cannot avoid paying their fair share of tax by placing their property in a corporate envelope. From April, residential properties held by certain non-natural persons that are worth more than £2 million will be subject to a new annual tax on enveloped dwellings. The Bill also introduces a new capital gains tax charge on these non-natural persons disposing of such high-value properties from April 2013.
Allow me, Mr Speaker, to draw my remarks to a close. [Hon. Members: “Hear, hear!”] I thought that that would bring a cheer. Finance Bill 2013 is a Bill for growth and fairness. It encourages investment, it supports innovation and entrepreneurs, it provides real help to families and working people, it tackles avoidance, and it asks those who are better off to pay more. I commend it to the House.
Question put, That the Bill be now read a Second time.